Knowledge that Transforms

[This paper constructs a life-cycle model of the consumer's allocation process in which the capital market is imperfect and the consumption bundle at each instant includes both durable and nondurable goods. The nondurables are instantaneously consumed at the moment of purchase, while the durable good is accumulated and yields a flow of services over its lifetime. The durable investment is assumed to be irreversible. The consumer's optimal allocation program is shown to vary between the periods of borrowing and lending with each phase defining a different relationship between consumption and the "truncated" permanent income.]

This paper is a revised version of a paper originally en.titled "Asymptotic Properties of Nonlinear Weighted Least Squares Estimators with Independem not Identically Distributed Regressors." In Section 2, the strong consistency of a class of weighted least squares (WLS) estimators is proven under general conditions, as well as the strong consistency of weighted least squares with estimated weights (EWLS). Conditions which ensure asymptotic normality of the estimators are provided in Section 3, and a general statistic for testing hypotheses is given. In Section 4, consequences of misspecification are discussed and a test for misspecification is given. Section 5 contains a summary and concluding remarks. As should be expected, the condi- tions obtained are natural extensions of those found in the fixed regressor case. Also, the unconditional covariance matrix of the parameter estimates has a more general form than the usual conditional covariance matrix

The predictive content of the quantity-quality model of fertility and the empirical information required for verification under a minimal set of restrictions on the utility function is described. It is demonstrated that commodity-independent compensated price effects must be known to infer the existence of the unobservable interdependent shadow prices of the model with a relatively weak structure improsed on preference orderings. A method of using multiple birth events to substitute for these exogenous prices is proposed and applied to household data from India.

Previous equilibrium "business cycle" models are extended by the incorporation of an economy-wide capital market.One aspect of this extension is that the relative price that appears in commodity supply and demand functions becomes an anticipated real rate of return on earning assets, rather than a ratio of actual to expected prices.From the standpoint of expectation formation, the key aspect of the extended model is that observation of the economy-wide nominal interest rate conveys current global information to individuals.With respect to the effect of money supply shocks on output, the model yields results that are similar to those generated in simpler models.A new result concerns the behavior of the anticipated real rate of return on earning assets.Because this variable is the pertinent relative price for commodity supply and demand decisions, it turns out to be unambiguous that positive money surprises raise the anticipated real rate of return.In fact, this response provides the essential channel in this equilibrium model by which a money shock can raise the supply of commodities and thereby increase output.However, it is possible through a sort of "liquidity" effect that positive money surprises can depress the economy-wide nominal interest rate.

Given a preference basis for the model, a household's general equivalence scale is seen to be a cost of living index relative to the reference household type defined at constant prices. A maximum likelihood estimation procedure which can be applied both to cross-section data and pooled time-series/cross-sections is derived. The lack of identification of the model is established theoretically and checked empirically on British family expenditure survey data. With prior information, e.g. a nutrition based food scale, identification can be reached but ultimately the model is rendered implausible because of its zero substitution implication and the empirical results bear this out.

This paper presents necessary and sufficient conditions for the expected value of consumer surplus to correctly represent a consumer's preferences. A theorem characterizing utility functions which represent preferences over conditional probabilities is used to derive this. An application to price stabilization policy is presented.

Data sets which contain jointly endogenous discrete and continuous variables often occur in practice. This paper presents a model of the economic and stochastic processes generating such data as well as methods of estimation. A maximum likelihood estimator is examined and found to exhibit the usual optimality but it is computationally burdensome. A simpler estimator, the QREG, which is a simple weighted average of separate probit (or logit) and regression estimates is suggested as an attractive alternative. The QREG is also found to be optimal but only when a certain covariance restriction is found to hold. Thus a test of the restriction based on the joint distribution of separate probit and regression estimates is proposed.