In this paper we construct and empirically test a theory of the agricultural firm which explains the long-term growth in farm size in the United States. Typically the U.S. farm unit is a family enterprise. Consequently the ratio of the opportunity cost of farm labor to the price of machinery services determines the size of the farm operation by influencing the machine-labor ratio. Applying the model to U.S. data, we explain virtually all of the growth in the machine-labor ratio and in farm size over the 1930-70 period by changes in relative factor prices without reference to "technological change" or "economies of scale."
[Two competing monetary policy prescriptions are analyzed within the context of overlapping generations models. The real-bills prescription is for unfettered private intermediation or central bank operations designed to produce the effects of such intermediation. The quantity-theory prescription, in contrast, is for restrictions on private intermediation designed to separate "money" from credit. Although our models are consistent with quantity-theory predictions about money supply and price-level behavior under these two policy prescriptions, the models imply that the quantity-theory prescription is not Pareto optimal and the real-bills prescription is.]
A heated debate has arisen over the policy ineffectiveness proposition associate with the work of Lucas, Sargent, and Wallace. It postulates that anticipated aggregate demand policy will have no effect on business-cycle fluctuations, so that one deterministic, feedback policy rule is as good as any other from the point of view of stabilizing the economy. This paper develops a methodology for empirically analyzing rational-expectations models displaying this neutrality result and then applies it to the important question of whether anticipated monetary policy matters to the business cycle.
Using a generalization of a rational, partial information framework presented fully in Cukierman and Wachtel (1979), it is shown that there is a positive relationship between the variance of relative price change and the variance of inflationary expectations across markets in the economy. This implication is then tested empirically using data on the variance of relative price change and on the variance of directly measured expectations. The empirical evidence supports the view that there is a positive relationship between the two variances and that more than one-third of this relationship is explainable in terms of the model presented.
[This paper reexamines some recent tests of whether holders of shares with higher dividend yields receive higher risk-adjusted rates of return to compensate for the heavier taxes on dividend payments than on long-term capital gains. Our particular concern is with tests using short-run measures of dividend yield--that is, measures that seek to deduce the differential tax burden on dividends over long-term capital gains from differences in rates of return on shares that do not pay a cash dividend during the return interval. We show that such measures are inappropriate for that purpose. Any yield-related effects associated with such measures must arise from sources other than the long-term tax differential. For the short-run measures considered here, the yield-related effects found in some tests are traced to biases, one of a fairly subtle kind, introduced by dividend announcement effects.]
This article uses a radically different methodology to address the question of the impact of minimum wage laws on employment and earnings. The methodology uses the adult wage structure which exists prior to a change in the federal minimum wage to identify the members of the subminimum wage population. This allows the parameterization of the disemployment effects of the minimum wage amendment on the subminimum population and the spillover employment effects on the above-minimum population. The members of the subminimum population are found to experience considerably reduced employment probabilities and annual hours worked (conditional on employment). Some evidence of above-minimum spillover effects is also found. The paper evaluates the impact of the minimum on the earnings distribution and concludes that the burden of the minimum wage falls most severely on females. This effect on adult females is surprisingly neutral with respect to race. The greatest beneficiaries of the minimum among the adult population are union members. Once again, this effect is relatively neutral with respect to race.
This paper presents a parametric example of a one-asset exchange economy in which the asset price is endogenously determined. It is demonstrated that the volatility of the asset's price uniformly violates the theoretical upper bound implied by the present value relation. In addition, the variance bounds may be violated by a significant margin at the same time the asset's price is almost a random walk. The example has a dual interpretation as a consumption function, and under this interpretation it is demonstrated that the permanent-income hypothesis does not necessarily restrict the time-series properties of consumption.
In this paper I examine the ability of the monocentric models to predict the mean length of commute in urban areas. I compare actual mean commute with that which is predicted by monocentric models and find that actual commuting distance is about eight times greater than that predicted by the model. Next I calculate the volume of commuting which would result if people chose their houses and jobs at random, making no effort to economize on commuting. This overpredicts actual commuting by about 25 percent.
[We defend Adam Smith's theory of the firm from the standpoint of positive economics. We argue that his evaluation of the joint-stock firm was not moralistic but instead based on available empirical evidence. The record showed that joint-stock companies had a poor survivorship record, even when granted legal monopoly status. His analysis contained an explanation of the role of agency costs within the firm. Finally, he did not discuss the East India Company as an ordinary joint-stock firm but rather as an aberrant form created by government.]
The inability to observe the money supply and price level has been an essential ingredient of informational based equilibrium models of cycles. Here we assume these data are available but show that heterogeneous information about the productivity of capital can lead to a monetary theory of fluctuations. In equilibrium, each agent's investment depends on the difference between his own productivity and the perceived real rate. In the presence of money demand shocks, the nominal rate is noisy signal of the real rate. This leads to greater fluctuations in output than if all agents had the same information.