Economic Inquiry

Articles from Vol. 35, No. 3, July

Adam Smith's Rational Choice Linguistics
I. LANGUAGE AND OTHER HUMAN ACTIONS Linguistics may be the last of the social sciences to avoid the rational choice approach. Many philosophers, Adam Smith especially, argue that being human is the same as using language. Reason and speech are primitives...
A Federal Funds Rate Equation
I. INTRODUCTION This paper estimates a monetary policy reaction function that explains the behavior of the federal funds rate during the period 1979 to 1992. This funds-rate equation consists of two pans: a long-run part and a short-run part. The long-run...
Are Automobile Safety Regulations Worth the Price: Evidence from Used Car Markets
I. INTRODUCTION From 1972 to 1991 changes in safety regulations increased the cost of building new automobiles by $900. Over this same period emission control regulations increased the costs of new automobiles by $1400. This paper develops and estimates...
Batter Up! Moral Hazard and the Effects of the Designated Hitter Rule on Hit Batsmen
I. INTRODUCTION Despite its relatively recent appearance in the literature, the theory of moral hazard has proved to be rich in empirical implications. It has been applied fruitfully in a wide variety of settings, including medical insurance, property...
Entrepreneurial Origins: A Longitudinal Inquiry
Joseph Schumpeter recognized what makes capitalist markets tick. The magic of markets lies not in the mechanics of supply and demand, but in the "animal spirits" of the entrepreneurs who keep designing new products, expanding technological horizons,...
Fiscal Structures and Economic Growth: International Evidence
I. INTRODUCTION A large and growing body of literature searches for the determinants of economic growth employing cross-country regression analysis (e.g., Kormendi and Meguire [1985], Grier and Tullock [1989], Barro [1990; 1991; 1992], Romer [1989;...
Moral Hazard, Asset Specificity, Implicit Bonding, and Compensation: The Case of Franchising
I. INTRODUCTION There is a large and growing interest in the structuring of compensation to deal with the moral hazard problem. Much of this literature treats various forms of income sharing, such as piece rates and sharecropping, as a means for a principal...
Nonlinear Business Cycle Dynamics: Cross-Country Evidence on the Persistence of Aggregate Shocks
I. INTRODUCTION Economists have long been interested in the dynamics of business cycles, particularly regarding the symmetry of expansions and contractions. More recently, the specification of stochastic trends in economic growth has generated concerns...
Pensions and Wage Premia
I. INTRODUCTION Despite the widespread acceptance of the theory of compensating differences, empirical efforts to estimate the magnitude of these differences have met with only mixed success.(1) With the exception of fatal risks, economists have not...
Resource Allocation in Public Policy: The Effects of the 65-MPH Speed Limit
I. BACKGROUND Previous work (Lave [1985]) shows that highway fatality rates are strongly related to the variation in speed between cars. Variance kills. What matters most in setting a speed limit is choosing one that people will obey, hence reducing...
Teaching Tools: A Pollution Rights Trading Game
I. OVERVIEW The U.S. Environmental Protection Agency (EPA) in recent years has moved toward market-based incentives as an alternative to command-and-control measures to achieve pollution reduction. A limited pollution rights market has existed since...
Teaching Tools: Simulating Money Supply Creation in Class
I. INTRODUCTION Every instructor in introductory economics goes through some explanation of how the money supply is determined. Almost all of these explanations use multiple balance sheets of different banks, following through the cycle of loan extension...
The Optimal Monetary Response to Technology Shocks
I. INTRODUCTION During the past decade, many economists adopted the view that shocks to the aggregate production function, or technology shocks, represent the dominant source of fluctuations in the United States economy. As noted by Shapiro [1987],...
Wages and Employment in Public-Sector Unions
I. INTRODUCTION Standard economic theory states that a union which raises wages above the competitive level will reduce employment. Empirical evidence, reviewed by Lewis [1986], indeed shows that unions raise wages and that unionized establishments...