Knowledge that Transforms

where W is the annual rate of change of money wages in manufacturing, P is the annual rate of change of consumer prices, U is the average annual civilian unemployment rate, and R is the average annual profit rate of manufacturing corporations.' On the assumption that P -(W), specifically, P = W r, where r is the trend rate of increase of output per man-hour in the private non-farm economy the steady-state solution for W is a a-blr + b3R + b2 t. (1.2) 1-b, 1-b,

SUBSTANTIAL interest in recent years has centered on the relationship between personal earnings and a myriad of education related variables.' In this paper we present estimates of the impact on earnings of schooling, an index of ability, and a set of other relevant variables for a cohort of recent entrants to the labor market who have had some graduate education in the arts and sciences. Aside from a purely intellectual curiosity, there are several other reasons for investigating the annual earnings for a group of this sort. First, estimates of an earnings function are necessary for calculation of rates of return to various quantities of educational investment. To date, very little work of an economic nature has been done in the growing field of graduate education.2 It is hoped that the estimates presented in this paper may be viewed as an exploratory attempt to come to grips with problems in this important and neglected area. Secondly, we have explicitly attempted the specification of an earnings relationship which allows the differential impact of schooling related variables to depend on the values of other relevant explanatory variables.3 The existence of such interactive effects is interesting in itself and has important implications both for the rate of return analyses already available in the literature and for any further work on graduate education which may be attempted. Finally, there is substantial interest in the specification of an earnings relationship which explicitly attempts to deal with the slippery concept of ability to earn income. We would like to know: (a) What sort of ability index is relevant in the context of highly educated persons, (b) the quantitative importance of an ability index, and (c) how parameter estimates of schooling related variables are changed by the inclusion of an ability variable. We do not hope to provide definitive statements on these issues, but our results should be of some interest to those working on related problems in the economics of education. The plan of the paper is as follows: Section I outlines the nature of the data, variables, and methods used in estimation. Sections II and III present the results of the additive and interactive models. Section IV contains a few concluding remarks.

T HE CES (constant elasticity of substitution) production function derived by Arrow, Chenery, Minhas, and Solow [2] has become widely known and widely used. Possibly the weakest point of the SMAC (Arrow, Chenery, Minhas and Solow) formulation is the assumption of. . . the existence of a relationship between V/L (value added per unit of labor) and W (the wage rates), independent of the stock of capital [2, p. 231]. If this assumption does not hold, the value of the elasticity of substitution derived from the estimated CES function may be biased. The CES function is also subject to the limitation that the value of the elasticity of substitution is constant, although not necessarily unity. However, when the capital/ labor ratio varies, due to changes in the factor price ratio, it is possible that the elasticity of substitution will vary as the capital/labor ratio varies. The purposes of this paper are (1) to derive a more general form of the CES production function that does not depend on the SMAC assumption of independence and with a property of variable elasticity of substitution, (2) to examine the elasticity of substitution of the new function, and (3) to present some evidence of the desirability of using the new function.

Trygve Haavelmo [1], in a question to Professor Leontief (2, p. 1062) has suggested the following interesting hypothesis about a developing country's savings function: I(t) = a[Y(t) + H(t)], where stands for gross investment, Y for GNP and H for capital inflows. That is to say, in Haavelmo's words, investment . . . is a function of . . . income including what they get from abroad. I think, Haavelmo adds, see the implications. It means, for example, that domestic savings could be negative if H is very large. The core of Haavelmo's suggestion is, believe, that domestic savings is not a function of national income alone but is also related, inversely, with the inflow of foreign capital. To impart more generality shall alter the Haavelmo equation slightly without distorting its central message. Let us postulate l(t) = aY(t) + bH(t). From this we have domestic savings, denoted by S(t), as given by S(t) = aY(t) + b'H(t), where b' = b 1.

Ryuzo Sato, Ronald F. Hoffman, Production Functions with Variable Elasticity of Factor Substitution: Some Analysis and Testing, The Review of Economics and Statistics, Vol. 50, No. 4 (Nov., 1968), pp. 453-460

The whole of the advantages and disadvantages of the different employments of labor and stock must, in the same neighborhood, be either perfectly equal or continually tending to equality. If in the same neighborhood, there was any employment evidently either more or less advantageous than the rest, so many people would crowd into it in the one case, and so many would desert it in the other, that its advantages would soon return to the level of other employments. This at least would be the case in a society where things were left to follow their natural course, where there was perfect liberty and where every man was perfectly free. . [17, p. 99]

ANUMBER of economists have endeavored to explain one or more types of local government expenditures. Hawley [6], Brazer [3], Hirsch [7], and Hansen [5] have been prominent among these. Each has employed a one-equation multiple-regression model to express per capita local expenditures as a function of selected independent variables using crosssection data. This paper also contains a multiple-regression analysis of per capita crosssection data. However, two equations derived from explicit optimizing behavior are used. The theory of collective choice through the medium of a social-welfare function was introduced by Bergson [2], and extended by Samuelson [8], Arrow [1], and Graaff [4]. Theil [9], has developed an elaborate empirically oriented analysis in which quadratic social-welfare functions play a major role. Beyond this, social-welfare functions have seldom served as a basis for empirical work. This paper attempts another move in the empirical direction. Some of the concepts of social-welfare analysis are applied to the expenditure and tax decisions of local governments. The collective consumer is the populace of a local area. Collective decisions are made by elected representatives following the rules of a democratic society. It is postulated here that the resultant public expenditure and tax decisions can be explained as if they were the result of maximizing a social welfare function subject to a social budget constraint, both defined in expenditure space. Particular forms for social, or in the current context community, welfare functions and budget constraints are assumed and the consequences of community welfare maximization examined in the next section of this paper. The third section contains descriptions of data, procedures and results for empirical analyses of United States counties on a cross-section basis using the concepts of the preceding section. The behavior implications of estimates for metropolitan and nonmetropolitan counties are examined in the following two sections. A final section contains some concluding remarks.

p HE role of relative prices as determinant of factor demand has received wide attention in recent work. Major contributions 1 have been made by Dale W. Jorgenson who, either alone or with associates, has presented, along with various empirical results and certain policy conclusions, what is called a theory of investment behavior based on the neo-classical theory of optimal accumulation of 2 We shall endeavor in this paper to direct number of tests to critical points of departure in the Jorgenson model. This task has been greatly facilitated by Jorgenson, who has made available to us his own basic quarterly data for total United States manufacturing, thus permitting our re-examination to go forward without confusing the analysis with questions of data comparability.3 The essential burden of Jorgenson's argument is that substitution parameters have been improperly neglected or ignored in most work on the investment function. He accepts the widely held view of the demand for capital stock as function of the output produced but argues that it is also function of the relative price of output and capital. Investment itself then consists of the replacement of depreciating capital stock and distributed lag adjustment of capital to its (usually changing) equilibrium value. Jorgenson also argues that, in quarterly data at least, particular generalization of the techniques by Chenery and Koyck for estimating distributed lag relations is essential. Jorgenson seeks to capture the price or substitution effect in investment with various measures of, or proxies for the implicit rental or 'shadow price' of unit of capital services. ' In his original formulation 5 this depends upon the price of capital goods, q, the rate of depreciation, 8, the rate of interest, r, the relative rate of change of capital goods prices, q/q (capital gains), the rate of direct business taxation, u, and the proportions, v, w, and x, of depreciation, cost of capital, and capital losses (gains) chargeable against taxable income; his rental price for capital services is

Journal Article Empirical Evidence on the Acceleration Principle: A Comment Get access A. G. Hines A. G. Hines University College, London Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 35, Issue 3, July 1968, Pages 347–349, https://doi.org/10.2307/2296667 Published: 01 July 1968