4. Vernacular Knowledge

Furthermore, much of the knowledge that we do acquire in this training is episodic, based on an isolated circumstance that may not be representative of the phenomenon in question. Such studies include the primary example of efficiency wages, Henry Ford’s doubling of pay in 1914 (Raff and Summers, 1987); the primary example of the effect of effort incentives, Lazear’s (2000) analysis of an auto glass company; the primary example of information on consumer choice, Los Angeles’ required posting of restaurant hygiene “report cards” (Jin and Leslie 2003); the primary example of predatory pricing, Standard Oil around 1900 (McGee 1958); and the primary example of the health effects of improved air quality, Chay and Greenstone’s (2003) analysis of the 1981–1982 recession.

While diminishing returns applies universally, of course, it is used most fundamentally, in this book as in others, to explain the output choices of competitive firms.

Of course, we included a scale analysis showing that the expected labor market benefits of higher grades were worth the study time required to achieve them. But this did not make people any more receptive.

There are! See, for example, Mashaw and Harfst (1990) and Cornell and Kalt (1995), respectively.