Handbook of LABOR ECONOMICS 4A VOLUME INTRODUCTIONTOTHESERIES The aim of the Handbooks in Economics series is to produce Handbooks for various branches of economics, each of which is a definitive source, reference, and teaching supplement for use by professional researchers and advanced graduate students. Each Handbookprovidesself-containedsurveysofthecurrentstateofabranchofeconomics in the form of chapters prepared by leading specialists on various aspects of this branchofeconomics.Thesesurveyssummarizenotonlyreceivedresultsbutalsonewer developments,fromrecentjournalarticlesanddiscussionpapers.Someoriginalmaterial isalsoincluded,butthemaingoalistoprovidecomprehensiveandaccessiblesurveys. The Handbooks are intended to provide not only useful reference volumes for professional collections but also possible supplementary readings for advanced courses forgraduatestudentsineconomics. KENNETH J.ARROWandMICHAELD.INTRILIGATOR Handbook of LABOR ECONOMICS 4A VOLUME Editedby ORLEYASHENFELTER DAVIDCARD · · · · · Amsterdam Boston Heidelberg London NewYork Oxford · · · · · Paris SanDiego SanFrancisco Singapore Sydney Tokyo NorthHollandisanimprintofElsevier NorthHollandisanimprintofElsevier 525BStreet,Suite1800,SanDiego,CA92101-4495,USA Radarweg29,1000AEAmsterdam,TheNetherlands Firstedition2011 Copyright(cid:13)c 2011ElsevierB.V.Allrightsreserved Nopartofthispublicationmaybereproduced,storedinaretrievalsystemortransmittedinanyformorby anymeanselectronic,mechanical,photocopying,recordingorotherwisewithoutthepriorwritten permissionofthepublisher PermissionsmaybesoughtdirectlyfromElsevier’sScience&TechnologyRightsDepartmentinOxford, UK:phone(+44)(0)1865843830;fax(+44)(0)1865853333;email:[email protected]. AlternativelyyoucansubmityourrequestonlinebyvisitingtheElsevierwebsiteat http://elsevier.com/locate/permissions,andselectingObtainingpermissiontouseElseviermaterial Notice Noresponsibilityisassumedbythepublisherforanyinjuryand/ordamagetopersonsorpropertyasa matterofproductsliability,negligenceorotherwise,orfromanyuseoroperationofanymethods,products, instructionsorideascontainedinthematerialherein.Becauseofrapidadvancesinthemedicalsciences,in particular,independentverificationofdiagnosesanddrugdosagesshouldbemade LibraryofCongressCataloging-in-PublicationData AcatalogrecordforthisbookisavailablefromtheLibraryofCongress BritishLibraryCataloguinginPublicationData AcataloguerecordforthisbookisavailablefromtheBritishLibrary ISBN4A:978-0-44-453450-7 ISBN4B:978-0-44-453452-1 SetISBN:978-0-44-453468-2 ForinformationonallNorthHollandpublications visitourwebsiteatelsevierdirect.com PrintedandboundinGreatBritain 11 12 13 14 10 9 8 7 6 5 4 3 2 1 CONTENTS OF VOLUME 4A ContentsofVolume4B ix ContributorstoVolume4A xiii 1. DecompositionMethodsinEconomics 1 NicoleFortin,ThomasLemieux,SergioFirpo 1. Introduction 2 2. Identification:WhatCanWeEstimateUsingDecompositionMethods? 13 3. Oaxaca-Blinder—DecompositionsofMeanWagesDifferentials 36 4. GoingbeyondtheMean—DistributionalMethods 52 5. DetailedDecompositionsforGeneralDistributionalStatistics 74 6. Extensions 87 7. Conclusion 96 References 97 2. FieldExperimentsinLaborEconomics 103 JohnA.List,ImranRasul 1. Introduction 104 2. HumanCapital 140 3. LaborMarketDiscrimination 149 4. Firms 177 5. Households 208 6. ConcludingRemarks 213 References 213 3. LabLabor:WhatCanLaborEconomistsLearnfromtheLab? 229 GaryCharness,PeterKuhn 1. WhyLaboratoryExperiments? 231 2. IssuesinDesigningLaboratoryExperiments 238 3. Testing‘‘Traditional’’Principal-AgentTheoryintheLab 246 4. TowardsBehavioralPrincipal-AgentTheory:Fairness,SocialPreferencesandEffort 276 5. MoreLabLabor:Bargaining,Search,Markets,andDiscrimination 294 6. Conclusions 312 References 315 v vi ContentsofVolume4A 4. TheStructuralEstimationofBehavioralModels:DiscreteChoiceDynamic ProgrammingMethodsandApplications 331 MichaelP.Keane,PetraE.Todd,KennethI.Wolpin 1. Introduction 332 2. TheLatentVariableFrameworkforDiscreteChoiceProblems 335 3. TheCommonEmpiricalStructureofStaticandDynamicDiscreteChoiceModels 336 4. Applications 371 5. ConcludingRemarks—HowCredibleareDCDPModels? 452 References 455 5. ProgramEvaluationandResearchDesigns 463 JohnDiNardo,DavidS.Lee 1. Introduction 464 2. ScopeandBackground 468 3. ResearchDesignsDominatedbyKnowledgeoftheAssignmentProcess 480 4. ResearchDesignsDominatedbySelf-Selection 516 5. ProgramEvaluation:LessonsandChallenges 529 References 532 6. IdentificationofModelsoftheLaborMarket 537 EricFrench,ChristopherTaber 1. Introduction 538 2. EconometricPreliminaries 539 3. TheRoyModel 545 4. TheGeneralizedRoyModel 560 5. TreatmentEffects 567 6. DurationModelsandSearchModels 591 7. Forwardlookingdynamicmodels 599 8. Conclusions 609 TechnicalAppendix 609 References 614 7. SearchinMacroeconomicModelsoftheLaborMarket 619 RichardRogerson,RobertShimer 1. CyclicalFluctuations 623 2. Trends 663 3. Conclusion 691 References 694 ContentsofVolume4A vii 8. ExtrinsicRewardsandIntrinsicMotives:StandardandBehavioralApproaches toAgencyandLaborMarkets 701 JamesB.Rebitzer,LowellJ.Taylor 1. Introduction 702 2. AgencyandExtrinsicRewards 705 3. Extrinsicrewardsanddual-purposeincentives 721 4. Behavioralapproachestoagencyandmotivation 727 5. Dual-Purposeincentives:canpaydestroyintrinsicmotivation? 747 6. Conclusions 764 References 766 SubjectIndextoVolume4A xv SubjectIndextoVolume4B xlix Thispageintentionallyleftblank CONTENTS OF VOLUME 4B ContentsofVolume4A xcvii ContributorstoVolume4B ci 9. Earnings,ConsumptionandLifeCycleChoices 773 CostasMeghir,LuigiPistaferri 1. Introduction 774 2. TheImpactofIncomeChangesonConsumption:SomeTheory 779 3. ModelingtheIncomeProcess 789 4. UsingChoicestoLearnAboutRisk 818 5. IncomeProcesses,LaborSupplyandMobility 839 6. Conclusions 846 References 848 10. RacialInequalityinthe21stCentury:TheDecliningSignificanceof Discrimination 855 RolandG.FryerJr. 1. Introduction 856 2. TheDecliningSignificanceofDiscrimination 858 3. BasicFactsAboutRacialDifferencesinAchievementBeforeKidsEnterSchool 865 4. InterventionstoFosterHumanCapitalBeforeChildrenEnterSchool 874 5. TheRacialAchievementGapinKindergartenthrough12thGrade 880 6. TheRacialAchievementGapinHighSchool 907 7. InterventionstoFosterHumanCapitalinSchool-AgedChildren 912 8. Conclusion 925 Appendix. DataDescription 926 References 965 11. ImperfectCompetitionintheLaborMarket 973 AlanManning 1. TheSourcesofImperfectCompetition 976 2. HowMuchImperfectCompetition?TheSizeofRents 980 3. ModelsofWageDetermination 990 4. EstimatesofRent-splitting 997 5. SoWhat? 1021 6. Applications 1022 ix