Knowledge that Transforms

Both the Averch-Johnson (A-J) model and the Chamberlin model fail to consider the value of excess capacity to consumers. Service industries, whether they are regulated or not, will usually have excess capacity in the Chamberlinian sense because this capacity conserves time for consumers. This paper examines a model of the taxi industry where allowance is made for capacity to affect the value or quality of the service through its effect on waiting time. The central issue is to determine equilibrium output, capacity, and the utilization of capacity when the market is organized as a franchised monopoly, through a medallion system, and when there is free entry, and to exhibit the relationship among these variables and prices, cost of capacity and output, and policies of the regulator. It is found that many of the characteristics of taxi markets that would appear to confirm the monopolistic-competition thesis arise because of the nature of regulation of these markets.

The problem of specifying asset market equilibrium conditions in a macroeconomic model is studied. Two specifications are proposed: "beginning-of-period" and "end-of-period" formulations in period models. In each case the limit of the model as the time period is shortened is rigorously calculated. It is shown that the two formulations are internally consistent, but consistent with each other only under assumptions of perfect foresight. A brief review of the liquidity preference versus loanable funds literature shows that theorists have used these models without explicitly noting the differences and inconsistencies.

This article presents evidence for the view that physical capital is more complementary to educated labor than to less educated labor. For this reason previous estimates of elasticities of substitution between educated and less educated labor are too high. Using a two-level CES production function, we run international cross-sectional regressions at the level both of the economy and of individual sectors. The whole-economy model allows for the effects of wages on educational choices as well as vice versa. It predicts that, as total capitalper head rises, the share of physical capital in national income falls and that of human capital rises. The production function also shows that intercountry differences in output per head are due more to differences in physical capital than in human capital.

The citations of doctorates in economics (who received the degree between 1950 and 1955) from six major universities are analyzed for articles published in the period 1950-68 in the two fields of value theory (microeconomics) and monetary and fiscal theory (macroeconomics). The citations are examined for commonality in the use of authorities and for parochialism with regard to the faculty of their Ph.D.-granting institution. The citation practices of the "authorities" cited by the doctorates are also examined, compared with those of the doctorates, and used to define scientific associates and adversaries.

Do school inputs matter? Regression analysis of Michigan Assessment Survey Program data (1971) shows inputs are productive, but only under our new criteria. Many previous economic studies have concluded that school inputs do not matter because mean school output is often uncorrelated with input variations. But if every student's performance matters to a school, then productive inputs affect the entire distribution of student performances. If that distribution can be characterized by its mean and variance, then inputs are productive if either moment is affected. One cannot, however, tell how much these distributional effects depend on technology and how much on tastes of school authorities

In standard macroeconomic models incorporating the natural rate hypothesis and rational expectations, monetary policy has no effect on real variables. But the rational expectations assumption that economic agents have learned from their mistaken predictions of the past ignores the transition period during which new information is combined with old information in the formation of new beliefs. The purpose of this paper is to examine the possible effects of monetary policy during this transi-tion period. Using a simple momentary Phillips curve model and a particular characterization of monetary policy, it is shown that real variables (in this case unemployment) can be controlled. Further, an optimal monetary policy is computed by simple variational methods. This policy is a randomized rule which matches the marginal gain from future reductions in unemployment to the marginal loss of increased uncertainty about the price level. Unlike the rational expectations equilibrium, this rule will dominate purely deterministic rules, even if the latter are possible. I.

This paper suggests a methodology by which the monetary value of an article can be calculated. Three types of benefits are discussed and quantified: direct salary increments, promotion-related salary increments, and career-related option effects. Using data from a national cross-section of university economists, the authors compute lifetime returns for selected article categories by academic rank. Their results suggest that the returns to publication of the first article are considerable, ranging from 12,340 for an assistant professor,to 10,256 for an associate professor, to $6,958 for a full professor, based on a 5 percent discount rate. The returns to additional publication diminish rapidly at first but at a lesser rate as the number of publications continues to increase. Elderly faculty who are well published can expect to earn a relatively small sum from the publication of an incremental article. This may help to explain the decline in output as faculty age observed by some scholars.

The demand for index bonds by households is studied in an inter-temporal optimization model in which households can choose a portfolio consisting of equity, nominal bonds, and index bonds. The rate of inflation is uncertain. In a setting where all income is from capital gains, it is shown that index bonds command a premium over nominal bonds only if equity is not a hedge against inflation; it is also shown that, if there are homogeneous expectations and no outside bonds, all lending and borrowing will be through index bonds with no nominal bonds existing. These conclusions are modified when individuals have income from human capital. The very stringent conditions under which a single index bond provides the household with the same utility as a full set of futures markets are examined in a model with many consumption goods.