Knowledge that Transforms

The focus of this paper i s on the escape clause petitions filed under the Trade Act of 1974 (Section 201). First, the capital marketevent study method is used to analyze the effects of protection decisions. Then, cross-section regressions are performed to examine the influence of key variables on the observed market reaction. The authors conc lude that while protection is beneficial to beleaguered industries, the extent o f such benefits is quite narrowly circumscribed and is conditional on internal v ariables for each firm. Protection is thus not the panacea that its advocates cl aim.

A production function model of industrial plants is developed which incorporates management as a variable. Management is measured by a performance ranking procedure on three commonly used manufacturing criteria. The model also adjusts the capital and labor inputs for quality differences. A nonparametric linear programming test is performed confirming that the data set satisfies consistency, monotonicity, and quasi-concavity conditions of production theory. It is then estimated in three functional forms (translog, CES, and CobbDouglas) for a sample of plants of a multinational, consumer goods manufacturer. Management is shown to be an important input to the production process in these plants regardless of the particular functional form estimated.

The Federal Trade Commission's Line of Business data imply that the effect of an industry's seller concentration on profitability has been misinterpreted because it has not been conditioned on capital intensity. Conclusions that market share rather than seller concentration is the primary structural determinant of profitability, and that mutual dependence recognized among oligopolistic sellers is less important than superiority effects of large-share firms, appear unwarranted. Significant firm effects exist, and explanatory power for a conventional model of structure and performance is found to be small relative to that of the general linear model within which the conventional model is nested.

The typical assumption that intergovernmental grants-in-aid alter a recipient's budget constraint according to the legal provisions of grant programs was first challenged by McGuire (1975, 1978) in a model where local officials are able to convert some fraction of conditional aid into pure fungible resources. This paper develops a model of local government expenditure decisions based on McGuire's original work and applies it to data for large U.S. city governments. The results lend strong support to the fungibility hypothesis. Additionally, and importantly, the results provide very little evidence in support of the so-called flypaper effect of unconditional grants. This is due to a more appropriate specification of the unconditional aid variable.

We use a translog production function approach to examine the effects of medical staff physicians on hospital production, and how their effects differ in teaching and nonteaching hospitals. In teaching hospitals, we also focus on the special role of medical residents. We find that physicians have a strong positive influence on the productivity of other inputs, and that they are substitutes for other resources. Controlling for patient casemix causes significant changes in estimated marginal products; those of labor inputs increase and that of capital declines. The implications of our findings for policy are explored.

This paper examines the distribution fu nctions of elasticity estimators in translog demand models. The authors consider the normaland ratio-of-normals distributions and present confidence intervals for the elasticity estimators. The results suggest that only elasticity estimato rs based on the means of the actual cost shares are likely to follow either the normal or ratio-of-normals distribution function. Examination of three published empirical studies demonstrates that inferences regarding the values of elasticities cannot be made from point estimates alone and suggests a trade- off between the level of aggregation and the width of confidence intervals for the elasticit y estimators.

This paper tests hypotheses about the entry-deterring effects of advertising. The model isolates three separate effects of advertising on entry: the effect on the irrecoverable costs of entry, the effect on the uncertainty underlying the entry environment, and the effect on the measured rates of profit. We find that advertising impedes entry since necessary advertising expenditures give rise to a sunk cost which raises the risk of entry. However, we also find a countervailing force due to advertising, in that the entrant perceives a greater likelihood of success in markets where advertising is important. Our analysis shows that the overall impact of advertising on entry is positive.

A bstract-A lack-of-fit test of model specification used by experimental statisticians but mostly unknown to econometricians is presented.The test is applicable in situations in which there are replicated observations on the dependent variable.In this paper the test is modified to allow for heteroskedasticity usually encountered when dealing with cross-sectional observations, and illustrated by an application to an earnings function estimated from a sample survey of Norwegian women.

Ahstrat t-This paper evaluates electricity two-part tariffs with both efficiency and equity criteria. The efficiency of tariffs is analyzed by studying the relation between price and marginal cost for both customer connection and variable output. The equity of tariffs is addressed by an analysis of cross subsidization. To address these issues, this paper presents a multiproduct cost function that can provide information on output and connection marginal costs for each customer class. Using a 1980 cross section of electric utilities, it is shown that prices are not set in a first-best efficient manner, and least favor the commercial class.