Knowledge that Transforms

Let Y=(Y 1 ,Y 2 , .Yn) -0 be an income distribution pattern ton-"income receiving units" which may be n-persons, n-farnilies, n-states of the same country or n-countries.Abstractly, a fiscal program is a course of action, undertaken by social conseasus, under which portions of the incomes of certain receiving units are transferred to other receiving units to render the income distribution more equitable.The most familiar example of such a fiscal program is the collection of taxes from individuals (or individual families) with the revenue being paid out as.welfare payments by the government.As another example, the Federal government may collect taxes from the states only to give some of the revenue back to the states under a "revenue sharing" program.An international consortium or the World Bank may work out a formula under which contributions will be solicited from the wealthy countries or "donors" to provide foreign aid or make concessionary loans to the poor countries.This paper is concerned with the principles governing the design of such equity oriented fiscal programs.The first general principle concerns the "rationality" of the fiscal program.Suppose the income level of "i" is higher that that of "j".On the one hand, a principle of "minimally progressive" suggests that, in case "i" and "j" are taxpayers, "i" should pay no less taxes than "j" and, in case "i" and "j" are recipients of welfare payments "i" should receive no more than "j".On the other hand, a principle of "incentive perservation" suggests that the disposable income of "i" should be no less than that of "j"--i.e. the fiscal program clearly should not reverse their relative income ranks in order to preserve the incentive for the individuals .,. ..

[A study is made of a competitive trading process in which a specific price-maker calls prices periodically under the obligation of supporting these prices by trading for his own account to satisfy excess demand. Specifically, the paper considers price formation in an organized securities exchange using the specialist system to facilitate trading. Following procedures developed in an earlier study, characteristics of the price-maker's optimal behavior are derived. These characteristics are used to obtain properties of stationary distributions of market prices and to compare the operation of the specialist system with an alternative market clearing system.]

Econometric analysis of time series data is frequently preceded by regression on time to remove a trent component in the date. The resulting residuals are then treated as a stationary series to which procedures requiring stationarity, such as spectral analysis, can be applied. The objective is often to investigate the dynamics of transitory movements in the systems, for example, in econometric models of the business cycle. When the data does consist of a deterministic function of time plus a stationary error then regression residuals will clearly be unbiased estimates of the stationary component. However, if the data is generated by (possibly repeated) summation of a satisfactory and inevitable process then the series cannot be expressed as a deterministic function of time plus a stationary deviation, even though a least squares trend line and the associated residuals can always be calculated for any given finite sample. In a recent paper, Chan, Hayya, and Ord (1977) hereafter CHO) were able to show that a residuals from linear regression of a realization of a random walk (the summation of a purely random series) on time have autocovariances which for given lag are a function of time and thereafter that the residuals are not stationary. Further, CHO established that the expected sample autocovariance function (the expected autocovariances for given lag averaged over the time interval of the sample) is a function of sample size as well as lag and therefore an artifact of the detrending procedure. This function is characterized by CHO in their figure 1 as being effectively linear in lag (although the exact function is a fifth degree polynomial) with the rate of decay from unity at the origin depending inversely on sample size.

Abstract An important purpose in pooling time-series and cross-section data is to control for individual-specific unobservable effects which may be correlated with other explanatory variables, e.g. latent ability in measuring returns to schooling in earnings equations or managerial ability in measuring returns to scale in firm cost functions. Using instrumental variables and the time-invariant characteristics of the latent variable, we derive: 1. (1) a test for the presence of this effect and for the over-identifying restriction we use; 2. (2) necessary and sufficient conditions for identification of all the parameters in the model; and 3. (3) the asymptotically efficient instrumental variables estimator and conditions under which it differs from the within-groups estimator. We calculate efficient estimates of a wage equation from the Michigan income dynamics data which indicate substantial differences from within-groups and Balestra-Nerlove estimates — particularly a significantly higher estimate of the returns to schooling.

Most rational expectations market equilibrium models are not models of price formation, and naive mechanisms leading to such equilibria can be severely manipulable. In this paper, a bidding model is developed which has the market-like features that bidders act as price takers and that prices convey information. Higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices. Bidders can benefit from trading only if they have a transactions motive or if they have access to inside information. Apart from exceptional cases, prices are not fully revealing. A two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing, resolving a well-known paradox.

[A conceptual framework is suggested for integrating fixed effects and random effects models into one framework. In that framework, the pertinent distribution is a convolution of two distributions; one is a degenerate distribution. A method is suggested and analyzed for separating between the two distributions when the second distribution is normal.]

[This paper analyzes a model of a futures market in which both pure speculators and producers participate. Traders form rational expectations about the return on holding futures (the spot price) and the amount they will produce, on the basis of diverse private information and the futures price. Constant absolute risk aversion utility functions and normal distributions are assumed in the model. A set of necessary and sufficient conditions is established for the informational efficiency of the futures market, which is taken to mean that the futures price is a sufficient statistic for information about the spot price. In this model the futures price is not in general a sufficient statistic unless there is information available about only one side of the spot market, in which case the sufficient statistic equilibrium is shown to be the only rational expectations equilibrium in which price is a linear function of the information.]

[Let the time series Y_t satisfy extlesstex-math extgreater$Y_\t\= extbackslashalpha + extbackslashrho Y_\t-1\+e_\t\$ extless/tex-math extgreater, where Y_1 is fixed and the e_t are normal independent (0, σ ^2) random variables. The likelihood ratio test of the hypothesis that (α, ρ) = (0, 1) is investigated and a limit representation for the test statistic is presented. Percentage points for the limiting distribution and for finite sample distributions are estimated. The distribution of the least squares estimator of α is also discussed. A similar investigation is conducted for the model containing a time trend.]

[This paper analyzes nonlinear growth models in which agents' expectations have a role in determining present behavior. Assuming agents have perfect foresight, we develop sufficiency conditions for the local stability of a given steady state. We then briefly discuss several examples in which stability prevails.]