Knowledge that Transforms

The authors extend the Q theory of investment to allow for adjustment costs for labor, under the additional assumption that the firm is a monopolistic competitor in the output market. The issue of nonconstant returns to scale is also discussed. The authors show that the standard Q model is a special case of a more general model involving testable parameter restrictions. Estimates for the U.S. manufacturing sector suggest that the departure from the assumption of perfect competition and lack of adjustment costs for labor receive empirical support in the data. Copyright 1991 by MIT Press.

This paper discusses a method of deriving the univariate ARIMA process followed by a time series of rational forecasts y(superscript "e") of a series y, given the ARIMA process followed by y. The method suggests examination of the empirical ARIMA process followed by y(superscript "e") as a test of the hypothesis that y(superscript "e") is a rational forecast of y in a strong sense. The method is applied to a measure of expected inflation: the survey data conducted by Money Market Service, Inc., of money market participants. Copyright 1991 by MIT Press.

firm size-wage differentials, earnings functions, compulsory wage differentials, work characteristics

A simulation study is designed to evaluate the sensitivity of inference in a Vector Autoregression in which the variables of interest (GNP, the money stock, the price level, and a short-term interest rate) are treated as trend stationary processes. Using the normal asymptotic theory, the authors find that an artificially generated random walk Granger-causes the genuine variables in the model as often as 60% of the time for a 5% level test. They also observe substantial bias when other persistent stochastic processes are included in the autoregressions. The number of rejections are two to five times greater than if the variables are not linearly detrended prior to analysis. Copyright 1991 by MIT Press.

Economics is the basis for a substantial portion of the formal policy analyses conducted in government though the effect of analysis is seldom investigated. The 5-Year Offshore Leasing Plan of the Department of the Interior is the specific basis for a schedule of auctions in each of twenty-six planning areas. The schedule is investigated for its relationship to data presented in the plan using a Poisson regression. The conclusion is that the data are statistically related to the number of sales, but that estimated coefficients are of such small size that only major changes in the data would alter the outcome. Copyright 1991 by MIT Press.

Economics is the basis for a substantial portion of the formal policy analyses conducted in government though the effect of analysis is seldom investigated. The 5-Year Offshore Leasing Plan of the Department of the Interior is the specific basis for a schedule of auctions in each of twenty-six planning areas. The schedule is investigated for its relationship to data presented in the plan using a Poisson regression. The conclusion is that the data are statistically related to the number of sales, but that estimated coefficients are of such small size that only major changes in the data would alter the outcome. Copyright 1991 by MIT Press.

Previous empirical studies of bureaucratic power have employed testing procedures that are sensitive only to complete bureaucratic power in which the bureaucrat is able to force an all or nothing choice on his legislative sponsor. This paper suggests a test for incomplete bureaucratic power in which micro-based, survey estimates of the cost elasticity of demand and marginal propensity to spend out of lump-sum aid are compared with estimates of these same parameters taken from governmental expenditure studies. Empirical tests with 205 non-SMSA school districts in Michigan yield results that are consistent with incomplete bureaucratic power. Copyright 1991 by MIT Press.

If labor is able to capture a portion of the economic rents in profitable industries, industry profitability and the relation between market structure and profitability may both be mismeasured. This paper estimates a simultaneous equation system in which both the price-cost margin and compensation per worker (including fringe benefits) are endogenous variables. The authors' sample consists of eighty-five well-defined producer goods industries. They find that labor compensation does include some capture of economic rents. Further, when they correct for this rent capture, the relation between market concentration and the price-cost margin is strengthened significantly. Copyright 1991 by MIT Press.

This paper tests the exclusion of lagged growth rates of money and output from regression equations, with serially correlated disturbances, for the expected real interest rate. The authors empirical approach is an extension of the empirical strategies of Eugene F. Fama (1975) and Frederic S. Mishkin (1981)--which invoke the orthogonality of the inflation forecast error to predetermined regressors under the maintained hypothesis of rational expectations. They discuss the implications of their tests for simple real-business-cycle models. Copyright 1991 by MIT Press.