Knowledge that Transforms

FISHER and TEMIN (1973) have argued recently that many empirical studies1 re-lating to the Schumpeterian hypothesis are in-appropriate for testing that hypothesis. They

David Stern, Effects of Alternative State Aid Formulas on the Distribution of Public School Expenditures in Massachusetts, The Review of Economics and Statistics, Vol. 55, No. 1 (Feb., 1973), pp. 91-97

"Inl statistical inference proper, the model is never questioned.... The methods of mathe-matical statistics do not provide us with a means of specifying the model. " 1

T HIS study investigates within a comrnon analytical framework the determinants of firm expenditures o;n capital investment, research and development and dividends. Its two basic objectives relative to past work are: first, to probe more deeply into the forces determining these outlays by taking into account the interdependencies among them,' and second, to provide a framework for evaluating alternative assumptions regarding firm motivation. A firm maximizing stockholder objectives will exhibit different behavior in its expenditure decisions from one pursuing managerial goals. Consequently, two main variants of a model of firm expenditures, based on these rival concepts of motivation, are developed and tested.

This paper is part of a Ph.D. dissertation submitted by the author to the Graduate College, University of Iowa, and was partially supported by the National Science Foundation Grant GS-1491. The author acknowledges the guidance and encouragement received from Professor S. Y. Wu.

N thi's paper we describe an econometric model of the American tobacco industry for the period 1949 through 1966. The model contains 19 equations and is divided into three major blocks - (1) leaf production, (2) leaf price, and (3) cigarettes. The objective is to explain the behavior of the tobacco industry over an 18-year period. Ultimately, we hope to use the model to perform policy simulation experiments to evaluate the effects of alternative governmental and managerial policies on the behavior of the industry. We begin with a brief description of the industry. Next we discuss the theoretical specification of the model and the statistically estimated equations. We conclude with some example simulation results which provide additional evidence of the validity of the model for explaining the behavior of the tobacco industry over the period 1949 through 1966

T HE model presented in this paper is a system of recursive linear regression equations, the parameters of which are esti-mated from monthly series of data covering the

This paper attempts to shed new light on the extent to which college education brings financial returns. It recognizes the existence of a number of variables that are likely to affect the financial returns that education produces for a given person -particularly the student's ability and motivation, and the quality of his schooling. It attempts to isolate returns to education from returns to these other related variables.

The article shows that innovations are induced, since they become more profitable with the expansion of output. The amount of resources devoted to innovating activity, however, is in general not the optimal one because of the pressure of two opposing forces. On the one hand, competition between potential innovators tends to make this amount too large, on the other, the inability of innovators to capture all the benefits tends to make the amount too small. When all benefits are captured by the innovator either there is no economic growth due to innovations or else innovators are the sole beneficiaries from that growth. When benefits are diffused the innovation will always lead to economic growth, but only by sheer coincidence will it lead to maximum growth, which may be missed because the innovation is introduced either too early or too late. The rate of growth is always positive if the innovation is introduced too late. It may fall to zero with too-early introduction or even become negative if innovational activity is subsidized.

International Development