Knowledge that Transforms

This paper proposes a methodology for obtaining estimates of firm-specific technical change econometrically and contrasts those estimates with a multilateral total factor productivity index. Based on a panel data set of airlines, two measures are contrasted in a variety of ways. To the extent that output characteristics differ as in the case of airlines, the two measures differ significantly. Both measures are regressed on a variety of factors potentially influencing technical efficiency, confirming that improvements in fuel efficiency and load factor have played major roles, with hubbing and competition playing smaller roles, in explaining efficiency improvements. Copyright 1995 by MIT Press.

Hostile takeovers may reduce the prevalence of long-term employment contracts if they facilitate the opportunistic expropriation of extramarginal wage payments. Our tests of two versions of the expropriation hypothesis improve on existing research by using firm- and establishment-level data from an employer salary survey, and by performing both ex ante and ex post tests. First, we study the relationship between proxies for extramarginal wage payments and subsequent hostile takeover activity, and find little evidence of an expropriation motive. Then. since we observe wage and employment structures both before and after takeovers. we investigate whether proxies for extramarginal wages drop after hostile takeovers. The ex post experiments provide evidence consistent with one version of the expropriation hypothesis. In particular, such takeovers appear to reduce extramarginal wage payments to more-tenured workers, mostly through flattening wage-seniority profiles in firms with relatively senior work forces.

This paper develops a model of trade in differentiated intermediate goods and shows how the structure of the importing country's production will influence gross bilateral import volumes. A regression equation directly implied by the model is estimated using disaggregated bilateral trade data for the OECD countries in 1985. The data reject the model. A more general model suggested by the theory establishes strong links between a country's factor endowments and its gross trade volume. This model is dominated statistically by a fixed effects model and does not substantially alter the conclusions of earlier empirical studies about openness to trade in manufactured goods. Copyright 1995 by MIT Press.

Hilary Ingham, Steve Thompson, Deregulation, Firm Capabilities and Diversifying Entry Decisions: The Case of Financial Services, The Review of Economics and Statistics, Vol. 77, No. 1 (Feb., 1995), pp. 177-183

This paper empirically examines the 'long purse' hypothesis, formalized by Patrick Bolton and David Scharfstein (1990), that incumbents may drive out entrants through aggressive pricing. The author analyzes the pricing of 733 disk drives between 1980 and 1988. Drives that are adjacent to those manufactured by thinly capitalized undiversified rivals are priced lower than other drives during the later years in the sample, when little equity financing was available to these firms. The results are robust to controls for alternative hypotheses and to other specifications of the hedonic regression. Copyright 1995 by MIT Press.

Using event history data, this paper analyzes the distribution of reemployment spell durations conditional on the completed length of the preceding (contiguous) spell of unemployment. The model is used to infer how unemployment insurance, through unemployment duration, may affect the likelihood of reentering unemployment. Special attention is paid to the endogeneity between unemployment and reemployment duration and the sample information contained in the fact that some individuals obtain reemployment by recall as opposed to acceptance of a new job. Copyright 1995 by MIT Press.

This paper considers a new approach to the analysis of stable relationships between nonstationary seasonal time series. The basis of this approach is an error correction model in which both long-run effects and adjustment parameters are allowed to vary per season. First, we discuss theoretical arguments for such a periodic error correction model. We define periodic cointegration and compare this to the concept of seasonal cointegration. Next, we analyze statistical inference in the periodic error correction model A sequential procedure is proposed, consisting of a test for periodic cointegration, an estimator of the cointegration parameters and adjustment coefficients, and a class of tests for the hypothesis that some of the parameters are constant over the seasons. The finite sample behavior of the proposed test statistics is analyzed in a limited Monte Carlo exercise. We conclude the paper with an application to a model of aggregate Swedish consumption.

This study investigates the effect of competition on the productive efficiency of the U.S. telephone industry, taking into account the fact that the industry was subject to rate-of-return regulation. It is shown that competition induces the incumbents to use capital inputs closer to the unconstrained optima, thereby reducing the allocative inefficiency caused by the Averch-Johnson effect. This effect is in addition to the usual technical efficiency improvement induced by competition. Empirical results, based on annual data for the U.S. telephone industry for the 1951-90 period, suggested that competition improved the allocative efficiency of the incumbent firms which had been under a rate-of-return regulation until 1989. Copyright 1995 by MIT Press.

Vito Antonio Muscatelli, Andrew A. Stevenson, Catia Montagna, Modeling Aggregate Manufactured Exports for Some Asian Newly Industrialized Economies, The Review of Economics and Statistics, Vol. 77, No. 1 (Feb., 1995), pp. 147-155

This paper documents the interstate variation in capital gains taxation and examines the relation between the marginal tax rate on capital gains and aggregated state-level realizations between 1979 and 1990. Using state-level aggregated data, rather than data on individual taxpayers, alleviates the problem that the marginal tax rate is endogenous to the amount of capital gains realized. The estimated elasticity of realizations with respect to the tax rate is -0.65, smaller than that found by most researchers using panel data. This finding is robust to a variety of alternative specifications. Copyright 1995 by MIT Press.