Knowledge that Transforms

Using the marginal value of characteristics, we show how to construct bounds on the exact hedonic price index. When prices are above marginal costs then our bounds still apply, but the value of characteristics cannot be measured so easily from a hedonic regression. Since the price--cost markups are an omitted variable, they will bias the coefficients obtained. For a special class of utility functions, we argue that a linear regression will still provide a measure of the marginal value of characteristics, but a log-linear regression will overstate these values.

D. S. Prasada Rao, E. Anthony Selvanathan, Dirk Pilat, Generalized Theil-Tornqvist Indices with Applications to International Comparisons of Prices and Real Output, The Review of Economics and Statistics, Vol. 77, No. 2 (May, 1995), pp. 352-360

This paper studies the responsiveness of firm investment to shocks in the input factor and output prices (the market conditions) by using stock market information on excess returns. The 'q' theory of investment is modified to allow for heterogeneous capital, ex post inflexible technology, and irreversible investment. A structural model linking the excess returns to a firm's equity to the firm's investment history and the evolution of the market conditions is estimated using a panel of U.S. manufacturing firms. The estimates of the cost of adjusting tile capital stock are economically sensible. They imply a high degree of sensitivity of investment to fundamental variables that affect the profitability of capital such as the market conditions and the purchase price of capital.

The gains and losses to factors of production from trade are discussed primarily within the context of the Stolper-Samuelson theorem which focuses on factor rewards. But policy makers are more concerned about employment effects of trade. This paper focuses on the short-run effects of trade on the incidence of layoffs in U.S. manufacturing industries. A probit model with endogenous switching is employed to estimate the effects of trade shocks and explore the role of comparative advantage on layoffs. The evidence suggests that trade shocks play a minor role in the incidence of layoff spells. However, net importing industries tend to adjust their labor force through layoffs to a greater extent than net exporting industries.

This article provides general formulas for the computation of opportunity costs (or forgone earnings) of unchosen alternatives in sample selection models with polychotomous choices. With observed choice probabilities and outcomes of alternatives chosen by some individuals, the opportunity costs for individuals who do not choose those alternatives can be evaluated. For the probability indexed sample selection models with legit choice probabilities, which include the polychotomous choice model of Lee (1983), the formulas are simple and reveal restrictions implicitly imposed on those models. These formulas can be useful for empirical studies.

In 1991, the U.S. Council of Economic Advisers undertook an initiative to increase the quality of economic statistics. One specific objective was to reduce the size of revisions in GNP estimates. The authors present evidence that one straightforward and inexpensive way of forwarding this objective is for the Department of Commerce to utilize better publicly available information released by other governmental agencies. An important caveat, however, applies: the relationship appears to be nonlinear. Specifically, the inefficient use of information is concentrated in those quarters where the change in the preliminary GNP estimate is large in absolute value.

Recently developed methods in the analysis and measurement of latent factor models for time series are utilised to study international business cycles and their relationship to international stockmarket price behaviour. An advantage of these methods is that the duality properties between time domain and frequency domain approaches for investigating the properties of time series can be exploited to identify and model business cycles. The empirical results show that the six countries studied, which include the United States, Australia, Canada, United Kingdom, Germany and Japan, exhibit coherent national business cycles, although these cycles are not all alike. It is also found that international coherence in economic activity has increased in the flexible exchange rate period, although it is not as strong as it is for the national business cycles. The coherence between stockmarket prices and business cycles is not strong, both nationally and internationally, but international stockmarkets appear to show greater mutual coherence than do the corresponding economies.

Market disruption or the threat thereof constitutes grounds for restraining countries under the U.S. Multifibre Arrangement (MFA). Since 1980, however, countries accounting for very small shares of U.S. imports have been restrained. This study estimates the determinants of U.S. voluntary export restraints under MFA I and MFA II-III using a bivariate probit model with sample selection. Results show a shift from targeting large developing country exporters to targeting those that are small but have rapidly growing sales. This raises the cost of the MFA to the United States. It also suggests that expansion of exports by developing countries will be met by restrictions on market access.

Empirical implications for the variability of firm value in various models of industry evolution are discussed. Under certain conditions, learning models imply that industries with higher sunk costs should exhibit greater difference in firm value between entering and exiting firms whereas external shocks models imply that industries with higher sunk costs should exhibit greater variability of firm value over time relative to a numeraire industry. The theoretical results from external shocks models are consistent with agricultural data from California and Florida.