This chapter focuses on the nature of the macroeconomic growth process that has characterized the United States experience, and manifested itself in the changing pace sources of the rise real output per capita in U.S. economy during the past two hundred years. Our main interest is indeed, the twentieth century, but we believe that its major characteristics and the nature of the underlying forces at work are clearly seen in comparisons between the century just past and the one that came before.

A key observation that emerges from the long-term quantitative economic record is that the proximate sources of increases in real gross domestic product per capita in the century between 1889 and 1989 were quite different from those which obtained during the first one hundred years of American national experience. Baldly put, the national economy moved from margin has become more and more dependent upon the acquisition and exploitation of technological and organizational knowledge.

SIEPR Discussion paper No. 488
Relational Financing as an Institution and its Viability under Competition
Masahiko Aoki, Serdar Dinc
May 1997

This paper presents a new, generic definition of relational financing that may cover a wide range of financial practices in different economies, ranging from the Japanese main bank relationship, to bank lending to smaller firms, and venture capital in the U.S. It then discusses various incentives of the financier to commit to relational financing and reviews the recent literature on issues about how those incentives are affected by increasing competition. One useful insight is that increasing competition is not necessarily harmful to relational financing. It then applies theoretical insights to problems of institutional transition in two Asian economies. It argues that the Japanese financial system will retain some aspects of relational financing even after the impending financial deregulation, although there will be a significant reduction in the bank's role in corporate governance. Finally, it assesses that the ongoing experiment of main bank relationship in China may be one of viable financial options for successful transition of the planned economy to a market economy, but cautions that more competition in the banking sector is necessary for relational banking to emerge as an institution.

SIEPR Discussion paper No. 99-22
Bequests as Signals: An Explanation for the Equal Division Puzzle
B. Douglas Bernheim and Sergei Sererinov
August 1999

In the United States, more than two-thirds of decedents with multichild families divide their estates exactly equally among their children. In contrast, intra vivos gifts are usually unequal. These findings challenge the validity of existing theories regarding the determination of intergenerational transfers. In this paper, we develop a theory that accounts for this puzzle, based on the notion that the division of bequests provides a signal about a parent’s altruistic preferences. The theory can also explain the norm of unigeniture, which prevails in other societies. (JEL D10, H31)

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SIEPR Discussion paper No. 491
What Accounts for the Variation in Retirement Wealth among U.S. Households?
B. Douglas Bernheim, Jonathan Skinner, Steven Weinberg
September 1997

Household survey data consistently depict large variations in saving and wealth, even among households with similar socio-economic characteristics. Within the context of the life cycle hypothesis, families with identical lifetime resources might choose to accumulate different levels of wealth for a variety of reasons, including variation in time preference rates, risk tolerance, exposure to uncertainty, relative tastes for work and leisure at advanced ages, income replacement rates, and so forth. These factors can be divided into a small number of classes, each with a distinctive implication concerning the relation between accumulated wealth and the shape of the consumption profile. By examining this relation empirically, one can test for the presence or absence of these particular explanations for differences in wealth. Using the Panel Study of Income Dynamics and the Consumer Expenditure Survey, we find very little support for life cycle models that rely on the above factors to explain wealth variation. The data are, however, consistent with "rule of thumb" or "mental accounting" theories of wealth accumulation.

SIEPR Discussion paper No. 490
Education and Saving: The Long-Term Effects of High School Financial Curriculum Mandates
B. Douglas Bernheim, Daniel M. Garrett, Dean M. Maki
June 1997

Over the last forty years, the majority of states have adopted consumer education policies, and a sizable minority have specifically mandated that high school students receive instruction on topics related to household financial decision-making (budgeting, credit management, saving and investment, and so forth). In this paper, we attempt to determine whether the curricula arising from these mandates have had any discernable effect on adult decisions regarding saving. Using a unique household survey, we exploit the variation in requirements both across states and over time to identify the effects of interest. The evidence indicates that mandates have significantly raised both exposure to financial curricula and subsequent asset accumulation once exposed students reached adulthood. These effects appear to have been gradual rather than immediate--a probable reflection of implementation lags.

SIEPR Discussion paper No. 98-1
Taxation and Saving
B. Douglas Bernheim
March 1999

In this survey, I summarize and evaluate the extant literature concerning taxation and personal saving. I describe the theoretical models that economists have used to depict savings decisions and I explore the positive and normative implications of these models. The central positive question is whether and to what extent specific public policies raise or lower the rate of saving. The central normative question is whether and to what extent it is desirable to tax the economic returns to saving. I also examine empirical evidence on the saving effects of various tax policies. This evidence includes econometric studies of the generic relation between saving and the after-rate tax of return, as well as the analyses of responses to the economic incentives that are imbedded in tax-deferred retirement accounts. Finally, I also discuss several indirect channels through which tax policy may affect household saving by altering the behavior of third parties, such as employers.

SIEPR Discussion paper No. 99-014
The Vickrey Lecture: From Edgeworth to Vickrey To Mirrlees
Michael J. Boskin
October 1999

William Vickrey's Agenda for Progressive Taxation is perhaps his best-known work. It stands roughly half way between Edgeworth and Mirrlees, both historically and intellectually. Edgeworth argued that the optimal tax (and transfer) system equalized incomes by taxing above-average incomes at 100 percent and transferring the proceeds to those below average. Mirrlees argued optimality in the presence of disincentive effects, which Edgeworth ignored, placing severe limits on high tax rates. Vickrey proposed 21 tax reforms to make a practical system of personal progressive taxation workable. The two most famous were cumulative lifetime averaging and decreasing power succession taxes. This paper reviews the proposals in light of subsequent intellectual and historical developments. Many of the issues Vickrey explored are relevant today whether the tax system is flat or progressive and whether the base is income or consumption.

SIEPR Discussion paper No. 99-15
Economic Measurement: Progress and Challenges
Michael J. Boskin
January 2000

The development of the concepts and measurements of national income are among the most important achievements of modern economics. However, substantial improvements can and should be made in the traditional domain of the national accounts. The Commerce Department’s Bureau of Economic Analysis has made numerous improvements in recent years, including changing the focus from gross national product (GNP) to gross domestic product (GDP), chain weighting, using technically improved (Fisher Ideal) price and output indexes, adopting the system of national accounts (SNA) and initiating work on a variety of satellite accounts. In the postwar period, BEA has responded to the large structural changes in the economy, and the need for greater detail and frequency of estimates. Additional work should be done to improve measurement in a number of areas: the growth of hard-to-measure services, new products, quality improvements, technology and innovation, time use, international trade and capital flows, the impact of new firms, financial innovations, changes in the organization of production and distribution, capital accounts and demography, to name a few of the most important.

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SIEPR Discussion paper No. 99-7
Local and Global Competition in Information Technology
Timothy Bresnahan and John Richards
June 1999

We examine the implications of changing competitive dynamics in global information and communications technology (ICT) markets for government demand-steering policies whose goal is local rents. Both computing and telephony are undergoing changes in global industry structure and changes in the nature of competition. The convergence of computing and telephony and the rapid technological change (and accompanying technological uncertainty) driving this convergence reinforce trends toward vertical competition. The emergence of global ICT markets lowers entry barriers, likely encouraging government- supported local entrants into global ICT markets. There are, however, strongly offsetting disadvantages. The underlying economics of ICT markets under vertical competition will work to reinforce the dominant position of U.S.-based incumbents in many segments. The prospects for exports, command of rent-related standards, and large rents from exports are not very bright. We expect to see far more demand-steering attempts than successes.

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SIEPR Discussion paper No. 98-5
Information Technology, Workplace Organization and the Demand for Skilled Labor: Firm-level Evidence
Timothy F. Bresnahan, Erik Brynjolfsson and Lorin M. Hitt February 1999

Recently, the relative demand for skilled labor has increased dramatically. We investigate one of the causes, skilled-biased technical change. Advances in information technology (IT) are among the most powerful forces bearing on the economy. Employers who use IT often make complementary innovations in their organizations and in the services they offer. Our hypothesis is that these co-inventions by IT users change the mix of skills that employers demand. Specifically, we test the hypothesis that is a cluster of complementary changes involving IT, workplace organization and services that is the key skill-biased technical change. We examine new firm-level data liking several indicators of IT use, workplace organization, and the demand for skilled labor. In both a short-run factor demand framework and a production function framework, we find evidence for complementarity. IT use is complementary to a new workplace organization which includes broader job responsibilities for line workers, more decentralized decision-making and more self-managing teams. In turn, both IT and that new organization are complements with worker skill, measured in a variety of ways. Further, the managers in our survey believe that IT increases skill requirements and autonomy among workers in their firms. Taken together, the results highlight the roles of both IT and Itenabled organizational change as important components of the skill-biased technical change.