Knowledge that Transforms

you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at.

J. D. Sargan, Alok Bhargava, Maximum Likelihood Estimation of Regression Models with First Order Moving Average Errors when the Root Lies on the Unit Circle, Econometrica, Vol. 51, No. 3 (May, 1983), pp. 799-820

Price elasticities are estimated for telephone calls and minutes of conversation using data from a experiment in central Illinois conducted by General Telephone and Electronics. The experiment charges separately for calls and for minutes. Using a model that is consistent with the theory of telephone demand, the authors estimate the effects of both prices. The nonlinear generalized least squares estimates of the elasticities are fairly small-about 0.1 or less in absolute value at experimental price levels-but they are estimated with high precision. The report briefly considers the application of these results to predict the effects of introducing measured service telephone rates in other cities. RESIDENTIAL TELEPHONE SUBSCRIBERS in the United States typically pay a flat monthly rate for with no extra charge for calls within the area. The alternative of explicitly charging for calls, commonly referred to as usage-sensitive pricing or local measured service, is of increasing interest to U.S. telephone companies and regulatory commissions (Cosgrove and Linhart [5]; Garfinkel and Linhart [8]; Baude, ed. [2]).3 Charging for calls that are now free clearly holds promise of increasing economic efficiency (Alleman [1]; Mitch

We compare six concepts of efficiency for economies with incomplete information, depending on the stage at which individuals' welfare is evaluated and on whether incentive constraints are recognized. An example is shown in which an incentive-efficient decision rule may be unanimously rejected by the individuals in the economy. We define durable decision rules, which can resist such unanimous rejection, and show that efficient durable decision rules exist.

[In order to develop a theory of coalition formation and maintenance, we first establish a valuation criterion for each individual player in a given coalition structure. Various stability concepts based on it are then developed and studied.]

[In this paper, I attempt to peek into the "black box" of the firm and explore some very simple models of expectation formation and planning using data on a group of French and German manufacturing firms who report over time on both expectations and their subsequent realizations. Important differences are obtained between the results for French firms and for German firms. For both groups, however, firms' expectations or plans are found to be much more concentrated in the no change category than are the realizations they forecast. Consistent biases in the other categories are found for the German, but not the French firms; for the former the conditional distributions of realizations, given prior expectations or plans, are stable over time, while they are unstable for the latter. Of the simple models dealing with the formation of price and demand expectations, the error-learning model (a form of adaptive expectations) gives the best and most parsimonious explanation of the data. Estimation of a joint error-learning model for price anticipations and production plans suggests that the two processes are nearly independent of one another for both groups. A conditional probability model relating production plans to expectations of future demand, inventory level, or order backlog appraisals and recent changes in demand, explains the data about as well as a mechanical error-learning model, but offers scope for improvement and more economic content. Deviations between prior expectations of demand and realizations in the current period are found to affect the deviations between price expectations and production plans from their respective realizations, except for French firms' price expectations. These and related variables and relationships are further explored in a recursive conditional log-linear probability model which is discussed in a sequel to the paper.]

The Wald approach to testing direct explicit restrictions on a parameter vector is generalized to the case of nonlinear implicit constraints. When applied to subsystems of simultaneous equations models, the generalization enables the symmetric joint testing of nonlinear overidentifying structural restrictions under very wide conditions. By varying the choices of certain matrices used to construct the generalized Wald statistic, one produces a whole class of tests which have equal asymptotic power yet whose associated structural coefficient estimators have different asymptotic efficiencies for any given reduced-form estimator from which they are derived.

THE DRAMATIC INCREASE in energy prices in the 1970s has stimulated interest in the effect of energy prices on the demands for various factors of production. In analyzing the choice of energy-using characteristics of capital, it is important to recognize that a firm's energy-capital ratio is much more flexible prior to undertaking a capital investment than it is after the capital is put in place. In this paper we examine factor intensity choices in a stochastic putty-clay model. Ex ante, when the firm is making investment decisions, the price of energy is unknown. The energy/capital ratio is flexible ex ante and the firm chooses the optimal energy intensity based on the probability distribution of energy prices. Ex post, the energy/capital ratio is fixed and the price of energy is known. The firm cannot adjust the energy/capital ratio but can choose not to use its capital if the realized price of energy is too high.2 Recently, Kon [3] has studied factor demands in a stochastic putty-clay model in which the price of output is random and the prices of factors of production are known with certainty. In this paper, we focus on the effects of energy prices and thus treat factor prices as random and the output price as known with certainty. This difference in the source of randomness appears to make little difference in the comparison of optimal factor intensity under certainty and under uncertainty; indeed Proposition 1 in this paper corresponds to Kon's Proposition 1. In this paper we then go on to examine the effects on optimal factor intensity of changes in the mean and variance of the price of energy.3 The option to shut down during unfavorable price regimes plays an important role in our analysis. In Section 1 we develop a stochastic putty-clay model and compare a risk-neutral firm's behavior under certainty and uncertainty. The effects on energy-intensity of changes in the mean and variance of energy prices are analyzed in Section 2.