Knowledge that Transforms

This paper reports on a study of the timing of the economic impact of government defense procurement. By assuming that the letting of new orders signals the beginning and shipments signal the end of the impact of defense procurement, this research investigates the effects of changes in product mix and capacity utilization on the duration of such impacts. The effects of changes in product mix and capacity utilization on inventory accumulation are also investigated. RECENT DISCUSSIONS on econometric model building have pointed out that the development of a realistic model of the government sector is a prerequisite to the effective use of econometric models in evaluating the impact of government operations on the economy [7]. There are two aspects to this problem: (i) An econometric model should include appropriate instrumental variables-variables that can be controlled by policy makers [11], and (ii) the model should properly capture the impact of the government actions [2, 3,5,13]. This paper presents an explanatory study related to the second aspect of the above problem. Since defense procurement accounts for nearly ten per cent of GNP, a question which naturally arises is: Can defense procurement be manipulated by the government to help stabilize economic activity or to offset cyclical fluctuations? It is to be expected that the timing of defense procurement is determined primarily by noneconomic considerations. In peace time, however, a certain degree of flexibility is presumed to exist in the scheduling of defense procurement. For this reason, defense procurement is a useful instrumental variable for an econometric model of the government sector. In considering defense procurement as an instrumental variable, the following question is raised: What stage in the defense procurement process is most important from the viewpoint of measuring its impact on economic activity? In their studies of inventory investment, Lovell and Suits [10, 12] emphasized that the Department of Defense orders have an immediate impact upon inventories in advance of its expenditures. In a substantial number of other econometric models, however, the impact of defense procurement was measured at the expenditure stage [4,6,8,9].

A formulation is made incorporating the concept of 'size-of-risk' aversion into the process of selecting a utility function. This concept extends and complements normative observation of risk aversion, namely, that as wealth increases, many decisionmakers would feel that they ought to pay less insurance against a given risk. However, as the size of potential loss increases, decisionmakers are more averse to risk and would be willing to pay a larger premium. They display what is known as (positive) size-of-risk aversion. In selecting a utility function, both concepts should be considered.

[This paper discusses the existence of a competitive equilibrium when the assumption of perfect divisibility is not fulfilled for all the goods involved in the economy; we limit ourselves to the case of a pure exchange economy with a finite number of traders. Section 2 is devoted to the proof of an existence theorem when assuming that only two goods are exchanged in the economy; in Section 3 we build a counterexample to show the restrictive nature of the assumptions one has to make in order to generalize the above theorem.]

In an economy with an arbitrary number of consumers and an arbitrary number of commodities, some public and some private, I propose a generalization of Lindahl's equilibrium solution, and prove an existence theorem for it. A particular generalization of the of an exchange equilibrium to an economy with public goods is proposed, and it is shown that a Lindahl equilibrium allocation is also a core allocation.

SINCE KOYCK'S pioneering work, distributed lag models have come to play an important role in econometrics and much work has been done to develop methods for analyzing them-see e.g. Koyck [15], Klein [12], Solow [20], Fuller and Martin [5], Malinvaud [18], Hannan [9], Liviatan [17], Amemiya and Fuller [1], Zellner and Park [25], Thornber [21], Waud [23], Dhrymes [3], and Griliches [7]. In the present paper we present maximum likelihood and Bayesian estimation procedures for estimating the parameters of a typical distributed lag model under four alternative sets of assumptions regarding disturbance terms' properties. Then these procedures and assumptions are employed in analyses of a sample of United States quarterly consumption data to illustrate their application and to show the sensitivity of inferences to the assumptions made about disturbance terms' properties. We also compute posterior probabilities associated with four alternative models. The plan of the paper is as follows. In Section 2, the model to be analyzed is described and alternative assumptions about disturbance terms are introduced. Section 3 contains a discussion of maximum likelihood techniques and application of them in the analysis of U.S. quarterly consumption data. Then in Sections 4 and

J. Frank Sharp, James C. Snyder, James H. Greene, A Decomposition Algorithm for Solving the Multifacility Production-Transportation Problem with Nonlinear Production Costs, Econometrica, Vol. 38, No. 3 (May, 1970), pp. 490-506