Knowledge that Transforms

This paper formalizes and empirically tests the hypothesis that the deficient maintenance of public infrastructure is caused by fiscal distress. We utilize a production-decision framework in which public officials combine maintenance and new capital to produce a desired level of capital services. The behavior implied in the fiscal distress hypothesis is treated as perverse deviations from the optimal production path. The empirical findings from cross-sectional expenditures data give support to the fiscal distress hypothesis.

In the authors' analysis of nonwork spells for Workers Compensation Insurance, they use the family of generalized gamma distributions for the structural model of failure time and both nonparametric and parametric controls for heterogeneity. These specifications allow for nested likelihood tests of not only the correct form for parametric heterogeneity, but for the structural distributions as well. The authors find in their data that while heterogeneity is important, both parametric and nonparametric types of control do about equally well. The "best" (in terms of statistical fit) structural distribution is the generalized gamma function; the exponential distribution fits especially poorly. Copyright 1991 by MIT Press.

Richard Hartman (1976) and Duncan M. Holthausen (1976) showed that firms' input choices may be affected by demand uncertainty. Specifically, uncertain demand conditions may lead to firms operating with a lower capital-ratio. This result has potentially important implications for the analysis of factor demand and factor productivity. The author constructs measures of demand uncertainty and examines the above relationship for a sample of 125 U.S. manufacturing industries. Results show that there exists a significant negative relationship between demand uncertainty and the capital-labor ratio. Copyright 1991 by MIT Press.

William J. Hausman, John L. Neufeld, Property Rights Versus Public Spirit: Ownership and Efficiency of U.S. Electric Utilities Prior to Rate-of-Return Regulation, The Review of Economics and Statistics, Vol. 73, No. 3 (Aug., 1991), pp. 414-423

Differences in student learning associated with different instructors in three types of principles of economics courses are estimated using a fixed- and random-effects specification for an educational production function. Results show a wide variance in these instructor effects and that this variance increases directly with the amount of latitude instructors are given in the classroom. Copyright 1991 by MIT Press.

This paper presents a Monte Carlo comparison of the small-sample performance of subsample ordinary least squares, the Heckman-Lee two-stage estimator, and the robust estimator of Lee. Each estimator is considered under bivariate normal, t, and chi-square error structures. The estimates indicate that the Heckman-Lee and Lee estimators do not provide an unequivocal mean square error improvement upon subsample ordinary least squares in small samples. While effectively controlling for selectivity bias, the two-stage estimators suffer a substantial loss of small-sample precision relative to subsample ordinary least squares. Copyright 1991 by MIT Press.

The rate of transition from unemployment to re-employment for a sample of displaced workers is estimated using a semiparametric specification which allows the effects of unemployment insurance benefits to vary over time. Three results which would be missed by more restrictive specifications demonstrate the value of this approach: (1) The effects of UI benefits decline and eventually disappear as the date of expiration approaches, (2) Expiration of UI benefits are an inadequate explanation of the spikes commonly observed in nonparametric sample hazard rates for re-employment, (3) UI benefits do not significantly affect the rate at which a displaced worker becomes re-employed in his or her previous industry, but reduce the rate for transitions to other industries. Copyright 1991 by MIT Press.

When land markets are incomplete, parcels can be scaled to make control compatible with use and to internalize externalities. The authors show that an arbitrage-proof equilibrium implies an increasing and strictly concave relationship between the value and size of land parcels. Undeveloped land sales in southern California strongly confirm the theoretical relationship. The authors find that zoning primarily restricts the conversion of land from agriculture to residential and industrial uses relative to the competitive equilibrium. The scale of land units is an effective private instrument for providing compatible land use even in the presence of strong zoning. Copyright 1991 by MIT Press.

This paper proposes criteria for classifying time-series forecasts of inflation as weakly, sufficiently, strongly, and strictly rational. Forecasts taken from the ASA-NBER surveys, some well-known one-step-ahead forecasting techniques, and a novel variable length autoregressive moving average model are tested against these criteria. None of the forecasts series meets the criteria for strict rationality nor, even, the less demanding criteria for strong rationality. While agents forecast as best they can, their forecasts are not likely to meet stringent rationality criteria suggested by econometricians. Copyright 1991 by MIT Press.

This paper reports an estimate of the frictional unemployment rate in U.S. manufacturing that is derived from a parametric, statistical method for estimating stochastic frontiers. The steady-state, perfect-foresight solution to an estimated employment growth frontier provides a locus of technically efficient (frictional) rates of unemployment. The mean frictional unemployment rate during the sample period is estimated to be 3.7 percent of the manufacturing labor force. This estimate conforms closely to an estimate of 3.5 percent that is derived from manufacturing-sector data presented by David M. Lilien (1980) for roughly the same time period. Copyright 1991 by MIT Press.