Knowledge that Transforms

CONOMISTS have begun to question the efficiency and equity of the formal educational system as an institution for accumulating capital and determining the distribution of labor income.1 This paper will focus on a particular form of labor market imperfection which is related to the trend towards ever increasing amounts of schooling for more people. The imperfection consists of employment discrimination based on formal education, henceforth called screening. Screening is defined formally in the following way.2

IN Ramsey (1972) the author discussed the conditions under which limiting approximations to own price demand curves can be obtained. The objective to be pursued in this paper is to test with budget data some of the specific hypotheses generated in the previous paper. The results to be presented are to be regarded only as initial efforts. Their main function is to indicate whether the hypothesized models can meet some fairly weak tests and to indicate the nature of some of the practical problems to be faced in testing such hypotheses.

of the two major specifications of the Phillips curve supports the view of the expectations approach to the theory of inflation. In both specifications of the Phillips curve, evidence of a distributed lag between the variables was uncovered. Of particular interest are the findings that (1) unemployment lags wage changes and the lag is distributed, (2) wages lag prices, and (3) the level of profits are only weakly related to the rate of change in money wages.

V IRTUALLY every textbook on international trade contains a discussion and/or derivation of the optimum tariff for a country with monopoly power in world trade. Invariably these are treatments of aggregate tariff policy. Little or no work has been done to explain the infra-structure of tariffs within a given country or to explain in what respects tariffs might be expected to be similar across countries. Some papers have explored the impact of tariffs and tariff changes on domestic welfare, labor's share of income and trade prospects for developing countries. Contributions to this literature include Anderson (1972), Balassa (1965, 1967a, 1967b, 1971); Ball (1967); Basevi (1966, 1968); Cohen and Sisler (1971); Kreinen (1961, 1967); Mitchell (1970); Travis (1968) and many others. Yet, none of these studies has offered a well specified analytical framework that would permit a systematic investigation of testable hypotheses concerning the relative protection of industries: within and across countries. Instead, many of these papers have relied upon intuitive but ad hoc explanations of the data they presented. The purpose of this paper is two-fold. First, we will begin a systematic inquiry into the determinants of tariff policy at the industry level by developing a simple model based upon profit maximizing behavior in section II. Secondly, we will use the derivations of section II, along with data from previous studies by Balassa (1965, 1971) to demonstrate that a number of the ad hoc explanations of tariff data by previous authors are consistent with our simple .model. In addition, we will develop and test new hypotheses based on the analytical developments of section II. For example, we will be able to explain the pyramiding of tariffs in developed and less developed countries, the pattern of the rank correlations between effective protective rates for countries at similar and different levels of economic development, the greater variation in tariffs on primary products than on manufactured goods in developing countries, the greater variation and average value of tariffs on manufactured goods in developing countries and, finally, the relationship between the skill intensity of production and tariff protection in manufacturing in both developed and developing countries. Perhaps, most important of all our results is the fact that, by demonstrating that ad hoc explanations of previous studies are consistent with our explicit formulation of tariff determination at the industry level, we facilitate the development of future advances in this area.

Several years ago, one of us presented a model of the market for physicians' services (Feldstein, 1970). In a subsequent comment, Brown and Lapan ( 1972) raised several questions about the model and the conclusions. Unfortunately, this comment and the reply by Feldstein ( 1972) left a number of issues unsettled. Some of the disagreement was based on misunderstanding and on drawing infer ences from different theoretical models. After the publication of the comment and reply, we continued to pursue the basis of our disagreements. The cur rent note is an attempt to clarify the issues that were raised but not resolved in the previous ex change.

Raymond E. Lombra, Raymond G. Torto, Measuring the Impact of Monetary and Fiscal Actions: A New Look at the Specification Problem, The Review of Economics and Statistics, Vol. 56, No. 1 (Feb., 1974), pp. 104-107

THIS paper was undertaken for two purposes: (1) to uncover additional quantitative information about the structure of price behavior and (2) to see the extent to which such information could be enlarged as a result of studying price data arrayed by stage-ofprocess. Wholesale price indexes of the Bureau of Labor Statistics (BLS) have long been arranged this way, among others, and components of the Consumer Price Index can be developed that relate to these wholesale indexes. The study of price indexes by stage-of-process can be viewed as an approximation to the type of study that could be conducted in an inputoutput framework, if time-series data were available for I-0 industries. The research consisted of testing theories of price behavior whose determinants could be measured for sectors relevant to the explanation of price behavior by stage-of-process (these are shown in figure 1). This led to the selection of a set of price equations for consumer and producers' goods and their intermediate inputs. Additional equations were estimated for service prices and wages so that a nearly complete price sub-model could be developed. This model was then used to explore the structure of price determination. The stage-of-process approach differs from other studies of price behavior, most of which have sought to explain the deflator for private GNP and its components or the wholesale price index (WPI) for the manufacturing sector and its major subdivisions durable and nondurable goods. Such studies have not used the most relevant price series. The series that should be used are those reflecting the prices at which firms in a sector sell their output to customers outside of the sector. These prices are reflected more closely at high levels of aggregation by using stage-of-processing indexes rather than any other components of the WPI. In a recent review of empirical research on price behavior, Nordhaus (1972) concludes that most specifications and interpretations of price models have proceeded without the benefit of formal theory. While the testing of hypotheses is the focus of the present research, the effort encounters the common difficulties in so doing the lack of precise specification of any but the most simplistic models, poor or missing data, and estimation problems. To preview a conclusion, price behavior is difficult to explain and no one theory can be shown to be superior to all others. At least for the present, it appears that forecasting and policy formulation based on the structure of price determination must combine theory with professional judgments about which reasonable persons may disagree. Given these circumstances, the results of exploring price data by stage-of-process yields some interesting and potentially useful results.