1. The theoretical foundations of the aggregate production function give one grounds for doubting whether the concept is at all useful. Nevertheless, the temptation to discuss movements in indices of input and output in terms of such a function is difficult to resist. And there is no doubt that it is useful to rationalize the data along these lines. In his analysis of the aggregate production function in the United States, Solow derived many useful results.1 These findings, however, depended on the assumption of constant returns to scale in the aggregate production function. This assumption simplified the analysis considerably. Solow found the capital coefficient a, in the Cobb-Douglas, from the proportion of income going to capital; then, by subtracting from output per unit of capital (X/K) the product of (1 a) and capital per

M ETHODS used to fit cost functions either to time series or cross-section data have been extensively criticized.' In a recent article Johnston2 has reexamined some of these criticisms and has to some extent succeeded in reestablishing the validity of the two major findings, i.e., (i) constant marginal cost, (2) decreasing long-run average cost. There are, however, criticisms made by Friedman (and Stigler) which Johnston is less successful in countering. The first which we shall consider here is a version of the classical regression fallacy. Friedman expresses this as follows: a firm produces a product the demand for which has a known two year cycle, so that it plans to produce ioo units in year one, 200 in year two, ioo in year three, etc. Suppose also that the best way to do this is by an arrangement that involves identical outlays for hired factors in each year (no 'variable' costs). If outlays are regarded as total costs, average cost per unit will obviously be twice as large when is ioo as when it is 200. If, instead of years one and two, we substitute firms one and two, a cross section study would show sharply declining average costs. When firms are classified by actual output, essentially this kind of bias arises. The firms with the largest outputs are unlikely to be producing at an unusually low level; on the average they are clearly likely to be producing at an unusually high level, and conversely for those that have the lowest output (page 236). And Stigler says: that three firms on average (over say a decade) produce ioo units each per year at an average cost of $io. In any one year because of weather, catastrophe, illness or death of a salesman, regional differences in business, etc. ('chance fluctuations') the firms will have sales (outputs) above or below the decade average of i0o. Suppose firm A sells only 8o units in a given year, firm B, Ioo units and firm C, I20 units. Suppose further that for each firm costs include (I) $500 of fixed costs plus (2) $5 of variable costs per unit of output. Tabulating the results:

A basic notion derived from the observation of a high and increasing degree of manager control in large American corporations (see Berle and Means (1932)) is that managers may have objectives different from the assumed profit maximization motive of owners of firms.' The issue remains unresolved-theoretical work has been of an ad hoc nature (e.g., Monsen and Downs (1965)) and the empirical evidence is mixed (e.g., Kamerschen (1968); Monsen, Chiu, and Cooley (1968); and Larner (1970)). This study conducts an empirical analysis of the relative performance of owner controlled and manager controlled banks. The study is unique in three respects. First, it focuses upon cost and growth as well as profit performance. Second, and more important, it is not confined to the largest 200 or 500 firms as has been the case with most previous studies.2 The sample in this study includes the lead bank of most of the 1,735 bank holding companies in the United States in 1975.3 Third, we test for nonlinearity to determine empirically at what percentage (if any) of ownership performance differences become apparent.

C LEARLY, one of the most significant institutional developments affecting the organization of American industry in recent years has been the trend toward diversification. Many important industries have been restructured as single product firms have been replaced (often by acquisition) by large conglomerates producing scores of diverse products. The rapid emergence of the conglomerate form of business organization has raised fundamental questions regarding the implications of this trend for the market system-a system in which interfirm competition is the basic regulating device.1 There has been a great deal of controversy within the economics and legal professions about the long-run implications of conglomerate firms for economic performance.2 This is due, in large part, to the fact that there is no theoretical framework and no general empirical evidence that is relevant to the intermarket relationships of multi-product firms. The shortcomings of theory arise from the fact that traditional microeconomic theory focuses only on the interrelationships of firms operating in the same market, while the lack of empirical evidence stems from the fact that appropriate micro level data for testing generally are not available. Although the lack of theoretical framework and data generally has precluded systematic analysis of the competitive effects of diversification,3 a number of intuitively appealing and workable hypotheses have been developed in connection with the conglomerate form of business organization. This study tests one of the major hypothesized consequences of conglomerate dominance-the development of mutual forbearance. The hypothesis holds that conglomerate firms that meet in many markets will develop a and let live philosophy since action initiated in any market may induce retaliation in other markets where they are more vulnerable.4 As a consequence, the prevalence of conglomerate firms will mean a reduction in rivalry even in markets with a relatively competitive structure based on traditional measures of market structure. This study uses a multiple regression model to analyze the relationship between market rivalry and intermarket contacts of dominant firms. The study develops a simple model that illustrates the implications of the mutual forbearance hypothesis and discusses the hypothesis in the context of commercial banking. It then sets out the estimating equation and develops a variable that is designed to capture the degree of intermarket contact among dominant firms. Additional variables are developed and used along with the intermarket contact variable in a regression analysis that covers a sample of 187 major banking markets. The study focuses upon the commercial banking industry because it is characterized by firms with relatively homogeneous product mixes that operate in a variety of relatively well defined geographic markets. Furthermore, and of particular importance, the necessary micro level data are available. Finally, the issue is highly relevant in banking today.5 However, by focusing upon the banking industry the results may be subject to question in two respects. First, it may be argued that the diversification subject to investigation in this study is Received for publication December 22, 1976. Revision accepted for publication June 7, 1977. * University of Florida and Board of Governors, Federal Reserve System, respectively. Support from the Center for Public Policy Research at the University of Florida and from the Board of Governors of the Federal Reserve System is gratefully acknowledged. The opinions are those of the authors and do not necessarily reflect the views of their respective institutions. I See Grabowski and Mueller (1970) and Grether (1970). 2 See, for example, Edwards (1955), Stocking (1955), Edwards (1964), Turner (1965), Federal Trade Commission (1969), St. John's Law Review (1970), Steiner (1975). 3 For a test of one consequence of conglomerate firms, see Rhoades (1973) and Rhoades (1974). 4 This hypothesis was first stated by Edwards (1955). In another context, Solomon (1970) suggested it may be important in the banking industry. 5 See, U.S. v. Marine Bancorporation, Inc., et al. (1974) and U.S. v. Connecticut National Bank et al. (1974).

James A. Dunlevy, Henry A. Gemery, The Role of Migrant Stock and Lagged Migration in the Settlement Patterns of Nineteenth Century Immigrants, The Review of Economics and Statistics, Vol. 59, No. 2 (May, 1977), pp. 137-144

The time series of consumption is explained as a consequence of expenditure. The quantity theory hypothesis relates the level of consumption in money terms to the nominal quantity of money. This is, of course, a variant of the normal quantity theory where the level of money income is determined by the amount of money. By subtracting investment from the dependent variable, one makes the quantity theory formulation directly comparable to its Keynesian rival. Money exerts its influence on consumption directly or via elements of expenditure such as investment. With a different definition of autonomous expenditure, we get rather different results for United Kingdom data. Specifically, the monetary hypothesis is more successful for our early period up to the First World War, while the inter-war years are a strongly Keynesian period. After the Second World War, neither model has very high explanatory power, while for the overall period, there is a slightly better fit with expenditure. Exogeneity of Money

Bierwag and Grove [ 1 ] have recently presented an interesting model of the term structure of interest rates which is analytically more appealing than the Meiselman model [5]. In particular, they are able to dispense with the assumption of identical singlevalued expectations and show that individual wealth holders seeking to maximize utility will determine an equilibrium forward rate which is a weighted average of the individual predicted rates. The original Meiselman model is incorporated into this model as a special case. Tests of these new models give good results for the United States using the Durand data [3] but for Britain, using the Grant data [4], the results are generally very poor. This note shows that an alternative set of annual British data, covering yields on government securities for 1933 to 1963, gives results which compare favorably with those for the United States and it is not necessary to conclude, as do Bierwag and Grove, that the expectations mechanism is different in the United Kingdom. The improved results also illustrate the point, elaborated in [2], that the method of yield estimation is the critical factor in tests employing forward interest rates derived from an estimated yield structure. The theoretical model of the term structure developed by Bierwag and Grove shows how a given investment fund is allocated among short and long term bonds given the investor's utility function and the first two moments of his probability distribution of expected interest rates.' The market equilibrium forward rate is then shown to be a weighted average of individual predicted rates. In order to make the model operational, empirical specifications for the formation of interest rate expectations are required. These specifications are of two types: a traditional adaptive expectations function and a Meiselman type adaptive function.2 The relevant equations are specified for each type before the empirical results of the British test are reported.3