Journal Article Generalized Errors in Variables Regression Get access M. C. Casson M. C. Casson University of Reading Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 41, Issue 3, July 1974, Pages 347–352, https://doi.org/10.2307/2296754 Published: 01 July 1974
The purpose of a recent paper by Herbert Grubel and Peter Lloyd [5] was to examine the nature and magnitude of the bias introduced by the neglect of factor substitution between produced and primary inputs when calculating effective rates of protection (ERP). They concluded that the bias from neglecting substitution possibilities between produced and primary inputs is usually small. The purpose of this paper is to make three comments on their conclusions. Firstly, there is an error, or possibly a misprint, which can be misleading. Secondly, because Grubel and Lloyd restrict their calculations to a narrower range of parameter values than is empirically reasonable their results understate the magnitude of the bias which one might reasonably expect to encounter in empirically grounded calculations. Thirdly, Grubel and Lloyd conclude that the bias from neglecting substitution possibilities is usually small 3 without discussing criteria for determining when a bias becomes significant. It is shown here that the magnitude of the bias encountered when using empirically relevant data is very significant because the ranking of production processes by their calculated ERP can vary greatly with biased estimates. These comments have significant implications for the notion that the elasticity of substitution is not an important parameter in calculating the ERP.
Most studies of the demand for cars are designed to explain new purchases and assume that purchases are divided into net investment and replacement. Replacement is invariably identified with stock depletion, defined either as scrapping (determined by the length of life of a car) or as depreciation (determined by the decline in the price of a used car with age). Implicit in these theories is the assumption that the elasticity of substitution between the new and used car markets is rather high. This assumption is necessary to ensure that the price mechanism will induce consumers to buy new cars to make good the stock depleted by the scrapping or depreciation of used cars. Most empirical evidence indicates that this assumption is not justified and that new and used cars are poor substitutes, e.g. [1], [8] and [6]. Since the low degree of substitution between the two markets insulates new car purchases from the factors that influence the stock of used cars, stock depletion cannot explain replacement purchases of new cars. In this note an alternative approach will be suggested and its use illustrated by the case of new car sales in the US. The advantages of this approach are: (1) replacement is directly observable; (2) the assumption of perfect substitution between new and used car services is not necessary; and (3) it may help account for a series of implausible estimates of the depreciation rate that have been obtained from more orthodox models. It is generally accepted in the US automobile industry that new and used cars are bought by distinct groups. For instance, White in a recent study of the industry [6] says: New cars are not bought by a random selection of car owners but, instead, tend to be bought by a small group who buy new cars comparatively frequently and sell their used cars to the general public to hold. As an approximation, therefore, we can split buyers into two groups, those who buy their car new and those who buy it used, treating these groups as distinct. The demand of the new car buying group is primarily for replacement, since between 80 and 90 per cent of them trade-in or sell an old car when buying a new one; the average time from purchase to resale is between two and three years. This leads us to a definition of replacement as the process by which a consumer disposes of a car bought i years ago and purchases a new one. The existence of a well-developed second-hand market confirms that the replacement interval, i, is considerably shorter than the lifetime of a car, so that replacement does not equal scrapping. This replacement interval will vary between household and we shall observe a distribution of intervals, say c(i), which will determine the lag distribution generating replacement, U, from past purchases, Q; i.e.
Journal Article Local Controllability of a Decentralized Economic System Get access Masanao Aoki Masanao Aoki University of California, Los Angeles and University of Cambridge Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 41, Issue 1, January 1974, Pages 51–63, https://doi.org/10.2307/2296398 Published: 01 January 1974
Journal Article Imperfection in the Capital Market and the Institutional Arrangement of Inheritance Get access Tsuneo Ishikawa Tsuneo Ishikawa Harvard University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 41, Issue 3, July 1974, Pages 383–404, https://doi.org/10.2307/2296757 Published: 01 July 1974
Journal Article Multi-sector Economic Models with Continuous Adaptive Expectations Get access Edwin Burmeister, Edwin Burmeister University of Pennsylvania Search for other works by this author on: Oxford Academic Google Scholar Daniel A. Graham Daniel A. Graham Duke University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 41, Issue 3, July 1974, Pages 323–336, https://doi.org/10.2307/2296752 Published: 01 July 1974
Journal Article On Collective Rationality and a Generalized Impossibility Theorem Get access Peter C. Fishburn Peter C. Fishburn The Pennsylvania State University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 41, Issue 4, October 1974, Pages 445–457, https://doi.org/10.2307/2296696 Published: 01 October 1974
John Eatwell, John Llewellyn, Roger Tarling; Money Wage Inflation in Industrial Countries12, The Review of Economic Studies, Volume 41, Issue 4, 1 October 1974,
Journal Article The Firm in Uncertain Markets and Its Price, Wage and Employment Adjustments Get access Katsuhito Iwai Katsuhito Iwai Cowles Foundation, Yale University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 41, Issue 2, April 1974, Pages 257–276, https://doi.org/10.2307/2296715 Published: 01 April 1974