Knowledge that Transforms

Many empirical studies of production specify a deterministic model of the firm, derive the implied behavioral equat ions (input demand or share system), and then "embed this system in a stochastic framework" by tacking on linear error terms. In contras t, this paper proposes general error models (GEMs) in which the error specification is an integral part of the optimization model. These m odels are the statistical embodiment of Stigler's view that apparent observed inefficiencies reflect the investigator's ignorance of the t rue optimization problems. Additive GEMs are proposed and interpreted Specification tests indicate that a translog additive GEM is superi or to the standard translog specification. Copyright 1987 by University of Chicago Press.

Labor is likely to be an important claimant to firms' rents, particularly in a regulated environment. This study analyzes wage responses to trucking deregulation to test labor rent-sharing hypotheses. The results indicate substantial declines in union wages as a consequence of reduced regulatory rents. Union premia over nonunion wages fell from 50 percent to less than 30 percent, implying aggregate annual losses of $950 million to $1.6 billion. Rent spillovers to nonunion drivers and truck drivers outside the regulated trucking industry appear insignificant. The results suggest that union workers captured more than two-thirds of total industry rents and provide strong support for union rent-sharing hypotheses. Copyright 1987 by University of Chicago Press.

This paper uses a variant of the standard search model to examine market equilibrium and the consequences of an increase in the number of firms. If marginal search costs increase with the number of searches, then the demand curve facing any firm will be kinked, with the elasticity of demand with respect to price decreases being less than with respect to price increases; prices may not change in response to changes in marginal costs. As the number of firms increases, the maximum price that is consistent with equilibrium increases to the monopoly price, but the minimum price decreases. On the other hand, if marginal search costs decrease with the number of searches, equilibrium, if it exists, is characterized by a price distribution.

In this paper we report a generalization of the results of Foley and Guesnerie on the second welfare theorem to economies with arbitrary nonconvex production sets. The nature of marginal cost prices in such economies is clarified through the use of the Clarke tangent cones.

A computer simulation model in the tradition of evolutionary models of technical change is developed in this paper. It focuses on R&D competition in new product introductions and is based on data for the U. S. pharmaceutical industry during the 1970s. The sensitivity of innovation levels to the rate of generic competition, regulatory review time, and patent life is examined in the computer simulation experiments. These factors are found to have significant long-run effects on industry structure and innovation levels.

We consider two kinds of “outside opportunity” that a seller of an indivisible good might have: selling to a different buyer and consuming the good herself. In both models the seller is uncertain about the buyer's valuation, and becomes more pessimistic over time. When the seller becomes sufficiently pessimistic, she prefers the outside opportunity, so she will not bargain indefinitely with the current buyer. Despite the resulting finite-horizon nature of negotiations, the link between the buyer's willingness to accept an offer and the seller's eagerness to go “outside” generates multiple equilibria.

This study identifies part of the social loss attendant upon displacement as the remaining value of the assets specific to the severed employment relationship. A bargaining model is used to link wage-tenure profiles to the amount of information firms and workers possess about the duration of that relationship. If information is good, the profile will flatten as displacement approaches. Using PSID data for workers separated between 1977 and 1981, wage-tenure profiles are found not to change. This suggests that either workers, or both firms and workers, are surprised by the displacement. The present value of that part of the social loss attributable to the worker's share of firm-specific capital is around $7,000 (1980 dollars).

This paper undertakes three sets of tasks: (i) it analyzes positive and normative aspects of price scissors (the domestic terms of trade between agriculture and industry) within nonsocialist as well as socialist LDCs. The critical role of the economy's institutional features (e.g., external trade environment, wage and income determination, and wage-productivity effects) is emphasized. Certain aspects of the Soviet Industrialization Debate and subsequent collectivization are interpreted, (ii) It develops simple rules to delineate who gains and who loses (within agriculture) from changes in terms of trade, (iii) It presents powerful (and informationally parsimonious) rules for Pareto-improving price reforms for cash crops and agricultural inputs.

This paper considers the interaction of two parties with different objectives concerning inflation and unemployment and rational and forward-looking wage-setters. If discretionary policies are followed, an economic cycle related to the political cycle results in equilibrium. This cycle is significantly different from the traditional "political business cycle." Reputational mechanisms due to the repeated interaction of the two parties and the public or commitments to a common policy rule can improve upon the discretionary outcome by reducing or eliminating the magnitude of the economic fluctuations.

Abstract. This study experimentally tests some implications of psychological diagnostic inference theories and begins to extend these theories into a performance evaluation context. Subjects, who were required to assume the role of a manufacturing division manager, were asked to estimate the likelihoods of four potential causes of an assembly department's labor efficiency variance. The subjects were asked to reevaluate their causal likelihoods following: 1) evidence concerning the magnitude of the labor variance and the deviations of the four potential causes from their normal levels (similarity evidence) and 2) evidence concerning the covariation of a potential cause, and labor efficiency variances over the past five years (covariation evidence). The results generally confirmed a set of hypotheses predicting the effects of cause/event similarity and covariation upon individuals' causal inferences. Implications of these results for accounting information systems design are discussed in a concluding section. Résumé. Cette étude teste, au moyen d'une expérience, quelques‐unes des conclusions des théories d'inférence diagnostique psychologique et amorce l'application de ces théories dans un contexte d'évaluation de la performance. Les sujets, qui devaient assumer le rôle de directeur d'une division de fabrication, ont été invités à estimer les probabilités de quatre causes possibles de l'écart de rendement sur main‐d'œuvre d'un atelier d'assemblage. Les sujets furent invités à réévaluer leurs probabilités causales selon: 1) des informations relatives à l'ampleur de l'écart sur main‐d'œuvre et à la dispersion des quatre causes potentielles par rapport à leur niveau normal (preuve de similitude) et 2) des informations relatives à la co‐variation d'une cause potentielle, et aux écarts de rendement sur maind'œuvre des cinq dernières années (preuve de co‐variation). De façon générale, les résultats confirment l'ensemble des hypothèses prévoyant les effets de similitude et de co‐variation cause/événement sur les inférences causales des individus. Les conséquences de ces résultats sur la conception des systèmes d'information comptable sont examinées dans la conclusion.