R ISK transfer and price discovery are two of the major contributions of futures markets to the organization of economic activity (Working (1962), Evans (1978, p. 80), and Silber (1981)). Risk transfer refers to hedgers using futures contracts to shift price risk to others. Price discovery refers to the use of futures prices for pricing cash market transactions (Working (1948), Wiese (1978, p. 87), and Lake (1978, p. 161)). The significance of both contributions depends upon a close relationship between the prices of futures contracts and cash commodities. This paper examines the characteristics of price movements in cash (or spot) markets and futures markets for storable commodities. Section II presents an analytical model of simultaneous price dynamics which suggests that, over short intervals of time, the correlation of price changes is a function of the elasticity of arbitrage between the physical commodity and its counterpart futures contract. Greater elasticity fosters more highly correlated price changes, and thereby facilitates the risk transfer function. The elasticity of supply of arbitrage services is constrained by, among other things, storage and transaction costs. Thus, futures contracts will not, in general, provide perfect risk transfer facilities over short time horizons. The essence of the price discovery function of futures markets hinges on whether new information is reflected first in changed futures prices or in changed cash prices (Hoffman (1932, pp. 258259)). The model in section II provides a framework for analyzing whether one market is dominant in terms of information flows and price discovery. In section III we develop a model based on section II which is appropriate for estimating the lead-lag relationship between cash prices and futures prices. Section IV presents empirical estimates of the parameters of the model for seven different storable commodities: wheat, corn, oats, frozen orange juice concentrates, copper, gold, and silver. The cost of arbitrage between cash and futures differs across these commodities. For this reason we are not surprised to find inter-commodity differences in the correlation of short-run price changes and in the substitutability of futures contracts for cash market positions. With respect to the price discovery function of futures markets, we find that while futures markets dominate cash markets, cash prices do not merely echo futures prices; there are reverse information flows from cash markets to futures markets as well.

Interregional differences in average wages and earnings have been observed particularly in the North and South of the United States ever since the mid-1800s. That observation has motivated several empirical attempts to determine the source of those differentials, measured both in nominal and real terms, and to explain why they have been maintained over time. The general conclusion reached by the overwhelming majority of these studies is that the labor market has not eliminated these wage differentials even in the face of substantial interregional migration. This result has at least two alternative interpretations. First, it would appear to contradict the theory of compensating differences as applied to the labor market (Thaler and Rosen, 1975), which stresses that under the assumptions of perfect information, free geographic and intersectoral labor mobility, and homogeneous consumer tastes, the nominal wage rates of workers who have similar human capital characteristics, live and work in similar environments and experience similar living costs, are driven to equality. Second, this result may only reflect an aggregation error. In other words, there may be several types of labor that are each paid different equilibrium wage rates and comprise different percentages of the workforce in each region. Even if the real wage paid to each class of workers is interregionally invariant, a situation that instead would support the theory of compensating differences, failure to distinguish accurately between labor types could produce the illusion of a wage differential. This paper considers the two alternative interpretations given above as to why interregional wage differentials might exist. Hedonic real wage equations are estimated for four regions of the United States using observations on individual household heads drawn from the 1976 Panel Study in Income Dynamics (PSID). This sample is of interest because the 1976 PSID data contain unusually detailed measures of education, work experience and occupation, as well as information on workplace and job characteristics. Thus, a more complete specification of the wage equation is permitted and the possibility of aggregation error is reduced, particularly in comparison with other interregional wage differential studies. Several of these studies, for example, have been based on aggregate data from the Census of Manufactures (Fuchs and Perlman, 1960; Gallaway, 1963; Scully, 1969; and Coelho and Ghali, 1971) which provide no direct measurements on the human capital of workers. The remainder of the discussion is organized into three sections. Section II specifies the wage equation and describes the PSID data. Section III, then, reports empirical results which are consistent with the findings, based on aggregate data, of Bellante (1979) and Coelho and Ghali (1971) in that they support the theory of compensating differences. More specifically, for full-time workers, the rewards to attributes relevant in determining real wages apparently are interregionally invariant. However, because this result conflicts with most previous research on interregional wage differentials based on aggregate data and virtually all such research based on microdata (Welch, 1966; Hanoch, 1967; Hanushek, 1973, 1981; Hirsch, 1978; and Sahling and Smith, 1983), a number of empirical comparisons are made between the present study and the approaches taken by other investigators. Conclusions and implications are drawn out in section IV.

A LTHOUGH public policy analysts are revaluating income maintenance and income support programs, economists have devoted little attention to empirical research on one such program. Workers' Compensation (WC), a program in search of quantitative researchers, is about the same size as the Unemployment Insurance (UI) and Social Security Disability Insurance (SSDI) programs, and WC may have stronger supply effects than the UI program.' The state and federal no-fault insurance programs which constitute America's WC insurance system cost over $25 billion in 1980, and they covered, approximately, 90% of all wage and salary workers.2 During the period 1972 to 1978, the cost of WC as a percentage of covered payroll doubled and was probably equal to 2% of covered payroll.3 The WC program has enjoyed the support of both labor and industry. Employers favor this form of no-fault insurance because it guarantees a limit on the liabilities that they will incur due to the work-related injuries and diseases of their employees, and employees value the guaranteed medical expenses and payments that they receive under the program.4 Labor can view Workers' Compensation as a vast improvement over either the common law, which seemed to be designed to provide employees with strong safety incentives rather than to replace their lost income, or the employer liability laws that prevailed in most states until the early part of this century. Perhaps another reason for the position that the Workers' Compensation program has held in American social insurance has been that it is specialized in nature, and has constituted a relatively small share of the employers' overall cost. However, in recent years as the claim frequency under Workers' Compensation has risen dramatically and as policymakers and practitioners alike have consistently underestimated the cost consequences of liberalized Workers' Compensation benefits, analysts are beginning to reevaluate this very important form of social insurance. In this paper we analyze the two classes of Workers' Compensation injuries which account for most of the Workers' Compensation costs in the United States: temporary total and permanent partial injuries. In the next section we briefly describe some of the rudiments of the program after which we sketch an economic model of injury rates and suggest how they interact with wages and hours of work as levels of benefit change. In the fourth section of the paper we present empirical results which indicate that recent changes in the Workers' Compensation laws have had subReceived for publication April 1, 1982. Revision accepted for publication December 1, 1982. * Brigham Young University and Rutgers University, respectively. We wish to thank Steve Zrebiec for competent research assistance, and Monroe Berkowitz, Tom Brown, John F. Burton, Jr., Jennifer Field, and Fred Siskind for comments on an earlier draft. The views expressed herein are our own, and do not necessarily reflect those of Brigham Young University. ' Danziger, Haveman, and Plotnick (1981) guesstimate the reduction of work hours by transfer recipients as a percentage of total work hours of all workers as 1.2%, 0.7%, and 0.3% for SSDI, WC, and UI, respectively. 2 Dan Price's estimate (1981) that the WC program cost $20 billion in 1979 is a conservative one. He correctly attributes the full premium paid to private insurers, $14.3 billion, and to state funds to that year's cost, but he attributes only the benefits paid in 1979 by federal programs and firms that were selfinsured plus a 5%-to-10% markup for administrative cost to 1979 costs. This is equivalent to assuming that the federal programs and the firms which self-insure incur all of their WC losses during a calendar year. Actually, 1979 losses may be paid over many years, and injury or illness claims may arise many years after the end of calendar year 1979. These incurred losses and future claims should be fully reflected in current costs, but are so only to the extent that the actuarial price (premium) paid to private carriers and state funds is fully reflected in premiums collected. In addition, Price did not include the federal black lung benefits program funded by general revenues. 3Elson and Burton (1981) have examined the increasing trend in Workers' Compensation insurance. They present evidence which indicates that costs have doubled, for homogeneous classes of employers, in most states over the 1972 to 1978 period. 4There has been erosion of the certainty aspect of benefit payments due to litigation of claims. Vroman (1978) pointed out that certain permanent partial disability claims would be litigated with probability one. The high incidence of controversion has played a prominent role in calls for reform of the WC system and certainly was a factor in the state of Florida's decision to institute a wage loss system on August 1, 1979.

THE study of merger activity has been of long-standing interest to economists as well as the financial community. References to merger activity in American industry generally acknowledge three major merger movements. The first one occurred during the turn of the century, the second one during the 1920s. Stigler (1950) describes the second merger wave as being for oligopoly in contrast with the earlier for monopoly movement. Increased market power through consolidation and corporate concentration and operating economies of scale were identified as motives for mergers during these two waves. Horizontal mergers (i.e., mergers between direct competitors) were relatively more important during the first merger wave with vertical mergers (i.e., mergers between firms with prior buyer-seller relationships) being significant in the second wave.' Currently the United States is in the midst of its third major merger wave which began after the end of World War II. This has become known as the conglomerate merger wave because of the emphasis on mergers between unrelated firms or firms seeking product extension objectives (i.e., mergers between firms functionally related in terms of distribution and/or production facilities but whose products are not directly competing).2 The direction of the current merger wave can be partially explained by the fact that the Celler-Kefauver amendment to the Clayton Act in 1950 discourages horizontal and vertical mergers. While many authors have engaged in the study of mergers in the United States, the empirical examination of changes in aggregate merger activity has been limited both as to type and time period covered. Nelson (1959) first examined changes in quarterly merger activity during the 1895-1920 period and found a high positive correlation between changes in merger activity and changes in stock prices, and a positive but lower correlation between mergers and industrial activity. Further study by Nelson, however, showed that for the 1919-1954 period the relationship between mergers and stock prices was considerably weaker. In a follow up study, which extended aggregate merger data through 1962, Nelson (1966) concluded that merger activity exhibited a positive and highly consistent response to changes in business activity (as measured by the reference or business cycle). In addition to the efforts by Nelson, Weston (1961) examined annual changes in merger activity during the interwar period (between World War I and World War II). Using a multiple regression model, Weston found merger activity to be significantly related to stock prices but not significantly related to industrial production activity. Previous studies provide only limited insights into the structural (especially lead-lag) relationships between aggregate merger activity and macroeconomic/market factors. The literature is particularly void of empirical studies which investigate such relationships during the current merger period.3 It is this subject which we address in this paper. We employ a data-based multiple time series approach to develop an explanatory model for describing changes in the incidence of Received for publication July 14, 1981. Revision accepted for publication December 17, 1982. * University of Colorado, University of Iowa, and University of Denver, respectively. Computer facility support from the University of Iowa along with multiple time series programs provided by the University of Wisconsin-Madison are gratefully acknowledged. We also wish to thank the referees for their helpful comments. ' These two merger waves or movements were extensively studied, either separately or together, by Eis (1969), Markham (1955), Nelson (1959), Stigler (1950), Thorp (1941), and Weston (1961), as well as others. 2 The current merger movement, either separately or in conjunction with the earlier movements or waves, was analyzed by Lintner (1971), Lynch (1971), Markham (1973), Nelson'(1966), Reid (1968), and Steiner (1975). 3 International investigation of aggregate merger activity during the 1960s and 1970s is reported in Mueller (1980). Visual examination of the movement of mergers, GNP, and stock prices in Belgium suggested generally positive relationships. Aggregate merger activity was compared individually against economic activity (GDP), gross fixed investment, and share prices in West Germany. During the 1960s mergers tended to move in step with changes in economic activity and investment while lagging share prices. However, in the 1970s merger activity tended to lead the other aggregate measures. The best overall relationship was between merger activity and share prices.

Daniel H. Hill, Deborah A. Ott, Lester D. Taylor, James M. Walker, Incentive Payments in Time-of-Day Electricity Pricing Experiments: The Arizona Experience, The Review of Economics and Statistics, Vol. 65, No. 1 (Feb., 1983), pp. 59-65