Knowledge that Transforms

William A. Niskanen, Steve H. Hanke, Land Prices Substantially Underestimate the Value of Environmental Quality: A Rejoinder, The Review of Economics and Statistics, Vol. 62, No. 1 (Feb., 1980), p. 156

This paper investigates the magnitude of the elasticity of demand for labor in time series data using more general and complete models of demand than have been previously employed. It argues that previous analyses have imposed two invalid constraints in calculations, which bias downward estimated elasticities. The first invalid constraint is the assumption that real capital prices have an equal opposite effect to real wages in the demand equation. We show on measurement error grounds that this constraint should not be imposed in econometric work even when longrun homogeneity of prices correctly characterizes the market. The constraint is rejected in the data. The second invalid constraint is that all explanatory variables have the same lag distribution. We argue that this constraint is invalid when decisions are made under uncertainty and find that it is also rejected by the data. The principal positive empirical finding is that with the constraints relaxed, the elasticity, of demand with respect to real wages is much larger than the estimates in the literature, indicating much greater price responsiveness on the demand side of the labor market than has previously been thought.

T HERE is increasing evidence that advertising plays an especially prominent role in structural change.' Mueller and Hamm (1974) found that between 1947 and 1970 concentration was increasing the most in industries characterized by a high degree of product differentiation. In reworking the Mueller-Hamm study because he felt that their model suffered from regression bias, Wright (1978) substantiated the Mueller-Hamm conclusions. Ornstein and Lustgarten (1978) found changes in industry advertising-to-sales ratios to be a significant positive variable in a model that explains changing industry concentration, although they are quite cautious in interpreting their findings. Here we add to previous work by reporting the major results from an analysis of changes in industry concentration based on a sample of 167 four-digit Standard Industrial Classification (SIC) industries for which comparable data were available for the period 1947 to 1972.2 Starting with a slightly modified Mueller-Hamm model we extend the analysis by replacing the dummy variable classification scheme for the degree of product differentiation developed by Parker (1967) with a continuous measure of advertising intensity.3 We then differentiate between television and other types of media advertising.

A probabilistic discovery model modified after Kaufman's earlier model is simplified to reduce computational demands and to reduce the sensitivity of the resulting estimates. The model is applied to the North Sea to estimate remaining oil reserves and forecast future discoveries. The simplification jeopardizes some informational detail, but the errors and approximations inherent in historical data sometimes overvalue the available information. A broader categorization scheme helps to control errors in this case. The model uses a stochastic production function based on a timing relationship between exploratory efforts and reservoir discovery and on a dynamic relationship of productivity and resource depletion. 21 references, 4 tables. (DCK)