Knowledge that Transforms

A model of major league baseball is developed which distinguishes between league behavior and individual team behavior. The league is viewed as setting rules that restrict the team's willingness to pay and/or impose costs on the transfer of players between teams. Given these rules, teams then compete for player services. The model is estimated and tested. The evidence suggests that the restrictive effect of league rules on player salaries declined between 1986-1988 and 1989-1991, consistent with anecdotal evidence. Within the rules established by the league, however, teams appear to behave as competitive price-takers through the entire sample period.

Restricted government spending along with universal health insurance has led to longer queues for surgical procedures in Canada versus the United States. Yet it is unclear whether these treatment delays affect health outcomes. This paper tests this hypothesis by comparing the determinants of wait time for hip-fracture surgery and its impact on postsurgery length of stay and inpatient mortality in Canada and the United States. Hazards for surgery/no surgery and discharge alive versus dead are modeled using a competing-risks model. Day of the week of admission is used to help identify the surgery wait-time distribution. We control for unobserved (to the econometrician) health status which may affect wait times and outcomes by assuming a semiparametric distribution for unobserved heterogeneity. We find that predicted hazards for inpatient mortality are virtually identical in Canada and the United States. Yet wait times for surgery are longer in Canada, and surgery delay has a significant impact on postsurgery length of stay in both countries. However, the magnitude of this effect is small relative to other patient and hospital-specific factors. Focusing attention on treatment delays as a weakness in the Canadian health care system may be misleading policymakers from hospital-specific inefficiencies that may have more-important implications for health care costs and patient welfare.

In this paper, we study the initial-conditions problem, a complication associated with left-censored or interrupted spells in the econometric analysis of labor market transitions. In the presence of unobserved individual-specific heterogeneity, no consistent estimators have been previously constructed. This paper proposes such an estimator using indirect inference (II). The II procedure simulates the structural model and “matches” the simulated data with the actual data via the implementation of an informative auxiliary model. Consistency and asymptotic normality of the II estimator are proved. Monte Carlo experiments as well as a real data set are used to illustrate the small-sample performance of the II estimator. These results show that the II estimator is insensitive to the alternative auxiliary models chosen for the II estimation.

Market power exercised by firms has become central to macroeconomics. Recent theoretical work highlights the importance of the relation between market power and inflation. We examine this relation for individual firms in eleven U.S. industries. Our econometric framework exploits restrictions from dynamic theory and information from financial markets to generate quantitative evidence on the responsiveness of market power to inflation. We find that inflation usually has a positive effect on market power. This relation is heterogeneous across the eleven industries, and statistically significant positive relations are concentrated in industries with little market power.

Several national governments argue international telephone prices are high because of asymmetric competition and inefficiencies in the accounting arrangements that govern the telecommunications services trade. This paper develops a model of U.S. international telephone pricing that allows for the accounting rate system and contains market-structure variables for both the U.S. and foreign ends of bilateral markets. Model estimation is on 39 bilateral telephone markets from 1991 through 1994. Parameter estimates reveal that settlement rates, market concentration, competition at either end of the bilateral market, and ownership are significant determinants of prices. These findings support initiatives promoting accounting-rate reductions and increased competition.

In 1968, 23 states barred the self-service sale of gasoline. By 1992, close to 80% of all gasoline sales nationwide were marketed through self-service, and only New Jersey and Oregon continued to ban self-service sales. This paper examines the rise of self-service gasoline and its impact on price and the structure of the retail gasoline sector. Using predicted values for self-service sales for New Jersey and Oregon, the findings indicate that the bans in those two states have affected the retail market structure by slowing the penetration of convenience store tie-ins, and have resulted in retail margins that are approximately $0.03 to $0.05 per gallon higher. However, the bans have provided little protection to smaller outlets, which was a stated objective of their proponents.

Sickness absenteeism figures show a relatively large amount of variation across firms and organizations, indicating substantial within-firm correlations between absenteeism records of individual workers. To study the role of firm-specific circumstances and workforce composition, we specify three-state, multicycle duration models of work, sickness, and job separation, with workplace-specific fixed effects to account for unobserved differences between firms. In the most flexible specification, these fixed effects are separate, nonparametric, baseline hazards for each firm and each type of transition. Alternative estimation methods are discussed and applied to individual absenteeism histories of primary-school teachers.

This paper examines whether a competitive model of the firm appropriately describes the behavior of hospitals in a non-market environment. This test is based on the best database yet available in the hospital sector. We show that properties of the non-market hospitals' cost functions are compatible with short-term, but not long-term, cost-minimizing behavior. This is consistent with results of similar analyses in the U.S. hospital market and suggests that Québec hospitals, which operate in a non-market environment, might not behave fundamentally differently from their U.S. counterparts.

Using a unique micro data set, we find pervasive evidence of price asymmetry that is systematically related to inflation. An ordered probit model of pricing by manufacturing, building and merchandising firms shows that inflation: (i) increases the probability of a price increase in response to cost increases and (ii) decreases the probability of a price decrease in response to decreases in demand. Predicted inflation-induced asymmetries also show up for price responses to cost decreases and demand increases but not as overwhelmingly. Similar asymmetries are evident in firm's expectations of price changes, with a slight optimistic bias relative to actual changes.

We study cost pass-through in the U.S. automobile market using a framework that incorporates the effects of cost changes on input decisions. We find that accounting for firms' factor-market decisions significantly increases measured cost pass-through, although we reject the hypothesis of full cost pass-through and constant markups. In addition, our evidence suggests that cost shocks common to all manufacturers have a greater effect on prices than do model-specific cost shocks. Finally, we examine how pass-through varies with manufacturer nationality, finding that U.S. firm cost pass-through exceeds that of European and Asian firms.