Knowledge that Transforms

Applied economics consists of the application of the general principles of economics to a particular situation in order to provide an explanation of the behavior of economic agents in that situation. However, the degree of specificity of any explanation depends upon the particular uses to which the explanation is to be put. Thus, in applied economics one may wish to explain the behavior of the agents who operate a particular enterprise. Or, one may wish to provide a. broader frame of reference to explain the behavior of agents who operate a. type or class of enterprises. By utilizing the analysis of the general economic theory of the firm one may introduce the additional constraints under which, for example, a public utility operates, and thereby derive a. theory of public utilities. Or, in the same way, one may wish to construct a, theory of transport firms, or a theory of retail firms, or a theory of manufacturing firms.

Executives in a wide variety of formal organizations frequently face decisions involving changes in capacity of service capabilities. Usually these changes mean increases in manpower and/or capital expenditures for new facilities, but due to seasonality, or a decline in business, a decision may also involve the determination of whether to reduce the available capacity. These decisions generally are made by comparing the cost (or savings, which is a negative cost) of changing the service capability with the corresponding costs or risks of not being able to properly meet service requirements. In this paper, the problem described is one in which services are provided, and the cost, or risk, of not being able to meet service requirements is expressed by means of a queuing equation.

The control of profit-making corporations long has been the subject of investigation and discussion, and in recent years same of this interest has shifted to the control of corporations by financial institution. Very little attention has been paid to the control of mutually-owned fiduciaries. This article reports a preliminary investigation of the control of associations in the savings and loan industry.

The continuing discussion on the cost of capital and related Issues has tended to focus on the capital market conditions, necessary to guarantee the validity of particular conclusions Works by F Modlgllani and M. H. Miller [4, 5, 6] and J Lintner [2], for example, are developed in this manner. The following discussion is developed from the standpoint of a firm borrowing funds in an uncertain world. An example expressed in terms of an individual borrower begins the analysis. The aim is to suggest a different approach to the capitalization and costing of contractual obligations (debt) than those current in both the theoretical and applied literature. A model is developed which expresses the cost of debt to the borrower as a function of both the expected rate and the promised rate of the debt contract. Using this analytic structure, the relationship between the two rates and the Implications of using either one as the cost of debt to the firm are explored. An hypothesis as to the behavior of the borrower (management and shareholders) provides a third expression for the cost of debt which is suggested to be superior to either alternative.

James Van Horne, A Linear-Programming Approach to Evaluating Restrictions Under a Bond Indenture or Loan Agreement, The Journal of Financial and Quantitative Analysis, Vol. 1, No. 2 (Jun., 1966), pp. 68-83

During the past few years several money demand functions have been estimated for the United States. Although these functions may differ on the precise specification of the independent variables, most agree on their crude identity. Thus almost all functions include an income or wealth constraint and an interest rate price. Such functions have been applied exhaustively to data for various periods in United States history, both for the long run and for the short run. With few notable exceptions, the results differ more in degree than in substance. The quantity of money demanded is estimated to be a positive function of the constraint and a negative function of price. The studies have, however, overlooked an important body of possible collaborative evidence–that for other industrial countries. It may be reasonable to assume that the same basic forces underlie the demand for money in all industrial countries, it is of interest to contrast money demand functions for these countries with those obtained for the United States. This paper estimates demand functions for leading industrial countries and evaluates the results. No new theory is developed; rather, existing models are fitted to additional data to test their applicability to other countries.

Economists have long been creating models by which to describe optimum behavior for firms to maximize profits. The rigor and inclusiveness of such models have increased steadily in recent years. In the field of commercial banking, however, this has not generally been the case. Concerning the topic of asset management, the typical analyst discusses the decisions to be faced by the bank manager, the reasons for the problems involved, and considerations to include in the solution of such problems. Often, specific rules-of-thumb for the handling of individual asset accounts are advocated.

Jacob B. Michaelsen, The Determinates of Corporate Dividend Policies, The Journal of Financial and Quantitative Analysis, Vol. 1, No. 1, Proceedings of the First Annual Meeting of the Western Finance Association (Mar., 1966), pp. 29-29b

William A. Schink, John S. Y. Chiu, A Simulation Study of Effects of Multicollinearity and Autocorrelation on Estimates of Parameters, The Journal of Financial and Quantitative Analysis, Vol. 1, No. 2 (Jun., 1966), pp. 36-67

The boom stock market is a well known phenomenon of our time. The investor (and public) interest in the market, however, does not seem to be shared by the monetary policy makers. Certainly, if we use the 1920's as the benchmark, the Federal Reserveexhibits considerably less anxiety over the present boom market than it did then.