Knowledge that Transforms

We consider a Bayesian implementation of a new approach to estimating Demand Systems. This approach, suggested by Varian (1990), is based on a generalization of Afriat's (1967) e-ciency index. The model we propose leads to a very tractable posterior and predictive analysis, yet allows for interesting economic interpretations. We conduct a sensitivity analysis with respect to the prior in an application to annual aggregate U.S. consumption data, and conclude that the sample is quite informative. Average e-ciency and expected budget shares are examined in some detail.

Empirical evaluation of the effect of school quality, or type and amount of resources per student, on adult earnings requires a conceptual framework. A model of the returns to schooling in a simple human capital growth context is extended to illustrate how factors such as consumption benefits of students, parental concern over equity between siblings, and use of schools to facilitate parental labor supply can alter the apparent return to school quality. The need for microlevel time diary and other data on human capital formation in both classrooms and families is highlighted.

This paper develops a model of disarmament by incorporating rationing theory into the economic theory of alliance. In order to provide an econometric measure of welfare gain from a disarmament treaty, the author employs the cost functions predicated on rationed and unrationed demand systems. By combining the economic theory of foreign aid with that of alliance, the author examines the impact of disarmament on the developed economies' foreign aid to developing countries as a peace dividend. The model is applied to the case of the U.S. economy under mutual disarmament between NATO and the Warsaw pact.

Serena Ng, Huntley Schaller, The Risky Spread, Investment, and Monetary Policy Transmission: Evidence on the Role of Asymmetric Information, The Review of Economics and Statistics, Vol. 78, No. 3 (Aug., 1996), pp. 375-383

The literature which examines the impact of school spending on students' subsequent earnings is bifurcated into state-level studies, which typically find strong effects, and school-level studies,which find little effect. Since most of the school-level studies examine young workers, one explanation for the discrepancy is that school inputs benefit workers only as they gain job experience. The paper tests the hypothesis by using both school-level (NLSY) and state-level data sources (Census and the Biennial Survey of Education). Both data-sets suggest that there is typically no significant age dependence. Thus other explanations of the discrepancy are likely to explain the differing results. JEL Codes: I21, I24 1 1. Introduction Education is arguably one of the best long term public investments available to a society. It is widely accepted that the private returns to an additional year of education are quite high, and that the social returns are also high. Such beliefs form the basis ...

John Mutti, Bernard Yeung, Section 337 and the Protection of Intellectual Property in the United States: The Complainants and the Impact, The Review of Economics and Statistics, Vol. 78, No. 3 (Aug., 1996), pp. 510-520

This paper estimates the costs of a government mandate to use natural gas vehicles, focusing on the less desirable attributes that these vehicles 9 possess. A model of producer and consumer behavior in a market for a differentiated product is constructed; a hedonic price function is estimated; and consumer surplus losses from the substitution of natural gas cars for gasoline cars are calculated. These losses are found to be significant: the average per car consumer surplus loss ranges from $1100 to $3200, with 20% to nearly 50% of the loss due to changes in vehicle characteristics. The costs of such a policy appear to be greater than the environmental benefits but may not be too far out of line with the costs of alternative approaches for reducing vehicular pollution.

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Richard H. Clarida, Consumption, Import Prices, and the Demand for Imported Consumer Durables: A Structural Econometric Investigation, The Review of Economics and Statistics, Vol. 78, No. 3 (Aug., 1996), pp. 369-374