This paper constructs and calibrates a parsimonious model of occupational choice that allows for entrepreneurial entry, exit, and investment decisions in the presence of borrowing constraints. The model fits very well a number of empirical observations, including the observed wealth distribution for entrepreneurs and workers. At the aggregate level, more restrictive borrowing constraints generate less wealth concentration and reduce average firm size, aggregate capital, and the fraction of entrepreneurs. Voluntary bequests allow some high‐ability workers to establish or enlarge an entrepreneurial activity. With accidental bequests only, there would be fewer very large firms and less aggregate capital and wealth concentration.
We develop a framework for valuing improvements in health and apply it to past and prospective reductions in mortality in the United States. We calculate social values of (i) increased longevity over the twentieth century, (ii) progress against various diseases after 1970, and (iii) potential future progress against major diseases. Cumulative gains in life expectancy after 1900 were worth over $1.2 million to the representative American in 2000, whereas post‐1970 gains added about $3.2 trillion per year to national wealth, equal to about half of GDP. Potential gains from future health improvements are also large; for example, a 1 percent reduction in cancer mortality would be worth $500 billion.
Ten of the 15 seats on the U.N. Security Council are held by rotating members serving two‐year terms. We find that a country’s U.S. aid increases by 59 percent and its U.N. aid by 8 percent when it rotates onto the council. This effect increases during years in which key diplomatic events take place (when members’ votes should be especially valuable), and the timing of the effect closely tracks a country’s election to, and exit from, the council. Finally, the U.N. results appear to be driven by UNICEF, an organization over which the United States has historically exerted great control.
We estimate auto accident externalities (more specifically insurance externalities) using panel data on state‐average insurance premiums and loss costs. Externalities appear to be substantial in traffic‐dense states: in California, for example, we find that the increase in traffic density from a typical additional driver increases total statewide insurance costs of other drivers by $1,725–$3,239 per year, depending on the model. High–traffic density states have large economically and statistically significant externalities in all specifications we check. In contrast, the accident externality per driver in low‐traffic states appears quite small. On balance, accident externalities are so large that a correcting Pigouvian tax could raise $66 billion annually in California alone, more than all existing California state taxes during our study period, and over $220 billion per year nationally.
We consider organizations that optimally choose the level of adaptation to a changing environment when coordination among specialized tasks is a concern. Adaptive organizations provide employees with flexibility to tailor their tasks to local information. Coordination is maintained by limiting specialization and improving communication. Alternatively, by letting employees stick to some preagreed action plan, organizations can ensure coordination without communication, regardless of the extent of specialization. Among other things, our theory shows how extensive specialization results in organizations that ignore local knowledge, and it explains why improvements in communication technology may reduce specialization by pushing organizations to become more adaptive.