Knowledge that Transforms

For many years there has been interest in replacing the existing complex transfer system in the United States with a nationwide negative income tax (NIT) program.' The feasibility and desirability of an NIT, however, depend on its effects on aggregate labor supply (and its cost). Interest in predicting these aggregate effects has motivated considerable empirical research on labor supply. The first studies used existing data, usually cross-sectional, to estimate the parameters of labor supply functions.2 Unfortunately, the range of estimates in these studies is disturbingly large and of limited usefulness to policymakers.3 Consequently, a new approach to labor supply research has been followed social experimentation.4 Several experiments have been funded by the federal government to test the effects of alternative NIT programs on labor supply. The first experiment, the New Jersey Experiment, was conducted in New Jersey and Pennsylvania from 1968 to 1972.5 Other experiments have taken place in Gary, Indiana from 1970 to 1974, and in rural areas of Iowa and North Carolina from 1969 to 1973. The largest and most comprehensive of these experiments began in 1971 in Seattle, Washington and Denver, Colorado and is still taking place. In principle, a controlled experiment affords the opportunity to overcome most of the problems inherent in nonexperimental research, because in an experiment, the budget constraints of individuals are exogenously shifted in a measurable way. In practice, however, the experiments have been beset with their own unique set of econometric problems. These problems include the nonrandom assignment of experimental treatment, small samples, truncation of response, limited duration, participation in other welfare programs both before and during the experiment by sample members, and the selection of nonrepresentative samples.6 In this paper, a methodology is presented that attempts to deal with these problems. Experimental data from the Seattle and *Economists, SRI International. The research reported in this paper was performed under contracts with the states of Washington and Colorado, prime contractors for the Department of Health, Education, and Welfare, under contract numbers SRS-70-53 and SRS-71-18, respectively. The opinions expressed in the paper are our own and should not be construed as representing the opinions or policies of the states of Washington or Colorado, or any agency of the U.S. government. An earlier version of this paper was presented at the Summer 1976 meetings of the Econometric Society and in seminars at the National Bureau of Economic Research and Mathematica Policy Research. Jodie Allen, Yoram Barzel, David Betson, Michael Boskin, Glen Cain, Joseph Corbett, Irwin Garfinkel, David Greenberg, Terry Johnson, Richard Kaluzny, Richard Kasten, Robert Lerman, Stanley Masters, Myles Maxfield, Robert Moffit, Larry Orr, Harold Watts, and Robert Willis provided valuable comments on various drafts of this paper. We are, of course, solely responsible for the views presented and for any remaining errors. Helen Cohn, Diane Hollenbeck, Paul McElherne, Gary Stieger, and Steven Spickard provided expert programming assistance. I Milton Friedman is usually credited with developing the concept of a negative income tax. Robert Lampman and James Tobin (1965) among others also made early contributions to the concept. 2An excellent collection of such studies is presented in Glen Cain and Harold Watts. 3See Keeley for a survey of these studies and a discussion of some of the econometric difficulties that lead to such a wide range of estimates. 4Heather Ross (1966) is credited with first conceiving the idea of an NIT experiment. Guy Orcutt and Alice Orcutt (1968) first published a paper outlining an experimental design. 5The New Jersey Experiment is described in David Kershaw and Jerilyn Fair. Watts and Albert Rees (1977a, b) and Joseph Pechman and P. Michael Timpane present the results from this experiment. 6See Henry Aaron, Keeley, and Keeley and Robins for a critical discussion of many of these problems.

Much recent thought has been devoted to the macroeconomic importance of the existence of wage contracts. Still, some puzzling features of the most conspicuous form of wage bargaining, that done formally by employers and labor unions, deserve further theoretical attention. Among these important features are: 1. Collective bargaining agreements are rarely contingent on outside events even though the parties have very imperfect knowledge of prospective economic conditions during the period of the contract. The only important exception is the indexing of wages to the cost of living. 2. Employers are permitted wide discretion in determining the level of employment when demand shifts unexpectedly. As employment varies, total compensation varies according to a formula established in the agreement. 3. Agreements are not permanent but are renegotiated on a regular cycle. 4. In the process of renegotiation, the current state of demand has little impact on the new wage schedule. On the other hand, current wages in other industries have an important influence. This feature especially has been denied or ignored by economic theorists even though it is a prominent part of the thinking of labor economists on wage determination.

Two approaches are used to explore the implications for environmental policy of a possible endogenous bias of technical progress for environmental degradation. Using a frontier approach of innovation-possibility and the alternative approach that is critical of innovation-possibility, the author finds that both models indicate a bias for pollution when there is no charge for environmental amenities. The result is that pollution increases faster than production. He concludes that if pollution is to be stabilized in a growing economy, the price must be positive and flexible so that it can rise in response to labor productivity and wage increases. 17 references.

Historically, there have been clear lines of demarcation between economics and anthropology. Mary Douglas, p. 781, asserts that centripetal forces attract resources towards the center of a discipline and discourage turbulence at the boundaries of a subject out of fear of losing autonomy. If she is correct, then the present division of the social sciences may not be more than a historical accident, another instance of institutional self-perpetuation. This paper is a declaration of turbulence. Building on the present trend to stretch disciplinary boundaries, it proposes a unification between economics and anthropology. As a first step, it is suggested that our disciplines could jointly work towards a general study of marriage.

A model showing technology transfer to developing countries links questions of appropriations with the socio-economic reasons for technological change. The rate at which foreign capital is used is found to be directly related to after-tax profits. If the developing country raises taxes on foreign capital, the effect is to increase the proportion of domestic capital needed and to widen the technological gap between the two countries. The analysis also shows a higher gain from new techniques with increased demand volume and suggests large developing countries with similar capital to invest are more likely to generate intermediate technologies. 8 references.

A framework of optimal pricing decisions combined with simple load management is designed for a public utility self-rationing strategy that will optimize prices under risk and improve on other schemes in the literature. This approach has the advantages of not resorting to restrictive assumptions, allows the firm to accomplish solvency without relying on additional schemes, avoids the difficulty of excess demand, and requires minimum information about consumer preferences. The authors recommend further research that includes multiple periods, analyzes more flexible and more sophisticated techniques, and that can be extended to cover peak-load pricing. 15 references. (DCK)

Backward integration is defined in order to improve the analysis of monopsony, and it is found that complete backward integration eliminates the efficiency losses from monopsonistic behavior. Expanded input employment by the integrated monopsonist results in a greater final output at lower prices for consumers. The author concludes that vertical integration by imperfectly competitive firms can be successfully modeled and analyzed if the concept of vertical integration, full and partial, is well defined and meaningful. The welfare implications of integration on all participants in the industry can be considered and the incentives to integrate can be specified and examined. 10 references.