Knowledge that Transforms

This study estimates rates of deterioration and depreciation for a sample of used privately owned single- and twin-engine aircraft over the period 1971–1991. The adoption of a strict liability standard in the 1970s lead to a 775% increase in liability expenses for the manufacturers of private planes between 1977 and 1985, resulting in sharp increases in the prices of new and used planes throughout the late 1970s and 1980s. This period of rapid price inflation coincides with a decrease in the depreciation rates for used single- and twin-engine aircraft after 1975. In addition, our results indicate that the rate of deterioration is positively related to the required cost of engine maintenance. These findings call into question the commonly invoked assumption that depreciation rates may be treated as exogenously determined constants, and lend support to the hypothesis that deterioration and depreciation rates respond systematically to key economic variables.

Alexander's (1994) finding that the National Recovery Administration's Codes of Fair Competition led to a change in the critical concentration level during the 1930s is questioned. No regime switch is detected when a common industry sample is employed. Also, when industries with and without codes are analyzed, codes appear to have no effect on price–cost margins during the period. This absence of effect is postulated to be a result of the unenforceability of trade practice provisions contained in many codes. The empirical results of this paper suggest that the existence of codes was not sufficient to enable industries to overcome cartel formation costs. Only easily enforceable trade practice provisions appear to have affected the structure–performance relation in the period following repeal of the National Industrial Recovery Act.

The Memoranda of Discussion provide detailed records of Federal Open Market Committee (FOMC) meeting deliberations. Procedures are developed for coding the textual data in the Memoranda and assessing the reliability of those codings. The codings are then used in the estimation of parameters of individual FOMC members' reaction functions. Data from the 1970 to 1976 period are employed in the estimation. In the future, similar methods could be used to analyze newly released transcripts of FOMC meetings held after 1976.

In this paper we estimate oil and nonoil import demand functions for the United States under the assumption that import prices are uncertain. Both import demand functions are formally derived from an expected utility maximization problem, treating imports as inputs to the technology. The model allows us to test for risk aversion and to assess the impact of uncertainty on the volume of imports, gross output, and the distribution of income. We find that uncertainty leads to a reduction in welfare, imports, and gross output. Moreover, it hurts labor relatively much more than capital. The impact of uncertainty, however, is found to be quite small.

This paper finds that domestic market concentration in Korea, a small country, systematically affects pass-through of individual industries. The estimates suggest that exchange rates are only partially passed on to import prices in Korea. The evidence implies that imperfect competition is relevant for the exchange rate pass-through, even in a small economy. This finding has important implications for issues such as inflationary effects of depreciation and the effect of trade liberalization.

This paper uses three different approaches to investigate whether the declining provision of public capital is a major cause of declining labor productivity. The juxtaposition of approaches removes the variability in estimates due to dissimilar variable definitions and econometric methodologies. Estimates are based on U.S. time-series data and are evaluated by the implied elasticities of substitution, the prediction of labor productivity trends, and the impact of public capital on productivity. As the three approaches yield very different estimates, it will be hard to ever settle the debate about the effect of public capital on private productivity.

This paper investigates the empirical effect of volatility on irreversible investments. We use a sample of chemical products in the United States and the European Union to test the impact of volatility on new investments in capacity. We distinguish among three sources of volatility: exchange rates, input prices, and product demand. We find that the effects of volatility on the amount of capacity investment differ depending on the source of volatility. Input prices and product demand volatility do not appear to have a material and statistically significant effect in either the United States or the European Union. In contrast, exchange rate volatility has a significant negative impact on investment by chemical manufacturers in the European Union.

Theoretical models of endogenous growth identify capital accumulation and returns as a potential stimulus to economic growth. Existing empirical studies, however, are based on a limited notion of these returns, which follows from the simple production function framework used for estimation. The purpose of this study is to examine growth issues using dynamic cost function estimation. This methodology enables us to broaden the concept of returns to include returns arising from short-run quasi-fixity of private capital, long-run (internal) scale economies, and external “knowledge” factors—overall investment in research (R&D), technology (high-tech capital), and education (human capital). Based on detailed industry-level data, we find evidence of increasing returns to scale arising from cost savings on variable inputs, although diminishing returns to capital are prevalent. Our results also show that knowledge factors augment growth. More importantly, they appear to explain a substantial proportion of measured scale economies.

This paper tests for the presence of adverse selection in thoroughbred yearling auction markets. Thoroughbred auctions consist of two seller types: sellers who breed horses to race and sell (racers) and sellers who take all their yearlings to auction (breeders). If racers use private information, keeping those yearlings with a higher probability of on-track success, they are likely to receive a lower price for similar yearlings as compared to breeders. Using data from Keeneland's 1994 September yearling sale, we find support for this hypothesis. We improve on previous studies by analyzing the distinction between seller types on a continuous scale.

The paper tests whether technological change has been neutral in Canadian manufacturing industries, using a system of translog cost share equations for 1962 through 1986. The model features two classes of labor treated as distinct inputs. Tests rejected homotheticity in all industries. Hicks neutrality was also rejected in 16 of 18 industries. The most common pattern of nonneutral technical change was a bias away from blue-collar workers. Formal tests for skill-neutral innovation rejected the hypothesis in ten industries in favor of skill-using technical change. The results suggest that in studies of Canadian manufacturing, aggregation across labor inputs is inappropriate.