Knowledge that Transforms

Price controls differ across industries systematically as predicted by the theory regulators maximize political support. This approach views the price controllers as choosing, subject to technology and budget constraints, the appropriate enforcement to balance the support from holding down prices against the opposition from dead-weight loss. Differences in enforcement depend on weights in the official price index, elasticities of supply and demand, and structural characteristics of industries. Data from the 1971-74 regime of price controls are used to test the theory. The empirical evidence clearly shows the predicted differences in price controls for a cross section of industries.

This paper presents a game-theoretic analysis of the competition for procurement contracts under different auction procedures. One procedure is a "discriminatory" auction in which contractors simultaneously submit sealed bids, and the lowest bidder wins. The other procedure is a "competitive" auction in which the bid price is lowered sequentially until only one interested bidder remains. The focus is on the effect of changes in procurement procedures and the number of bidders on expected procurement costs. If bidders in this model are risk averse, then the expected procurement cost is lower in a discrimatory auction than in a competitive auction.

This paper presents a dynamic economic model of fertility behavior estimated with age-year-specific U.S. time-series data. The estimated model indicates that couples, on average, time their births to avoid periods when female wage rates are expected to be high, and that most of the observed effect of income and female wages on fertility rates is due to the indirect influence of these variables on couples' wage and income expectations. This paper also presents a decomposition of current fertility rates into timing and completed fertility components, allowing a comparison of current low fertility rates with couples' lifetime fertility plans. The estimates indicate that aggregate planned completed fertility is approximately equal to the fertility rate.

Household consumption propensities are related to income above subsistence levels. Aggregation over households makes the total propensity depend on income level, concentration, and asymmetry; distributional effects interact with income per capita. Estimates using both nominal and real incomes and distributional data from 101 surveys in over 30 countries show no significant effect of inequality on consumption. Reasonable estimates are obtained for subsistence income ($300 real) and the asymptotic consumption propensity (0.70-0.75) using only income level. Either distributional effects are weak or the available data are inappropriate; a correct specification would require data on income per head within households.

[The rate of nonparticipation in market work among prime-aged males in the United States has risen persistently during the postwar period. The rate among males aged 45-54, for example, has risen from 4.2 percent to 8.4 percent from 1948 to 1976, with similar trends among other age groups. The principal hypothesis explored is that labor force withdrawal has been induced by the rapid expansion of welfare alternatives to work, principally the Social Security disability program. Cross-sectional evidence strongly confirms this hypothesis. Time-series projections of the cross-sectional model, moreover, track actual postwar trends in male labor force participation reasonably well.]

It is well known that the law of comparative advantage breaks down when applied to individual commodities or pairs of commodities in a many-commodity world. This paper shows that the law is nonetheless valid if restated in terms of averages across all commodities. Specifically, a theorem and several corollaries are derived which establish correlations between vectors of trade and vectors containing relative-autarky-price measures of comparative advantage. These results are proven in a general many-commodity model that allows for tariffs, transport costs, and other impediments to trade.

This paper develops a new method for estimating economic losses from forecasting error. The method is an alternative to the traditional distributed lag approach to estimating expectations. An application to Kansas agriculture over the period 1874-1933 reveals significant variation in farmers' price forecasting performance across counties and over time. These differences can be explained in terms of market improvements, technological and geographical factors, and county characteristics suggestive of human capital differences. The magnitudes, timing, and cross-sectional pattern of the losses from forecasting error confirm the importance of forecasting skill and allocative ability in American agriculture during the period examined.

A recently constructed numerical general equilibrium model of domestic and foreign trade activity for the United States, the (nine-member) EEC, and Japan is used to analyze the effects of removing distortions in domestic factor taxes, taking into account international trade flows. As is conventional in the general equilibrium tax literature, corporate and property taxes are treated as ad volorem taxes on capital use by industry and social security taxes as ad valorem taxes on labor use by industry. National accounts sources are used both to obtain model equivalent tax rates by trading area and to construct a benchmark data set with which to estimate the model. Results suggest that under some assumptions current factor tax structures can produce significant terms-of-trade gains, and in the U.S. case results show welfare losses occurring from the removal of existing distortions. This result contrasts with conventional closed economy analysis of distorting factor trades and is explained by national terms-of-trade losses which more than outweigh the gains from removal of domestic distortions. The policy significance of this and other findings is discussed.

The paper has two purposes: (1) to extend the theory of job search to include the case in which job prospects are characterized by layoff risk as well as the wage and (2) to synthesize the search and implicit-contract approaches by using the former to model the supply side and the latter to model the demand side of a labor market. The result is a simple and consistent theory of labor market equilibrium under conditions of imperfect information and uncertain derived demand. The theory purports to explain both search and layoff unemployment as market equilibrium phenomena.