Knowledge that Transforms

A measure of market share mobility is derived from an hypothesized model of underlying market share behavior. Explicit linkage of the two exposes some properties of the index and its implied behavioral assumptions and informs empirical work. Results for the U.K. newspaper industry offer some evidence of stable, overall mobility relationships, but the absence of long-run equilibrium relationships at the market share level suggests these may be misleading. Further work at the latter level seems likelier to advance understanding of both market share behavior and mobility, while care is required when supplementing concentration data with mobility statistics in antitrust cases.

We use a vector autoregression (VAR) to decompose unanticipated bond returns into news about fundamentals (expected real interest and inflation rates) and expected risk premiums. This decomposition is applied to U.K. short- and long-maturity nominal bonds, and to U.K. index-linked bonds. We also examine the sources of relative conventional and real bond returns. The results suggest that for both bond types, real-rate news plays an insignificant role, and that even for “real” bonds inflation news is important. Both bonds are strongly influenced by news about future risk premiums, but these appear to reflect a common factor that has little influence on their relative returns. News about inflation dominates unanticipated relative returns, which appear to provide a reliable source of information about inflation expectations.

Recent research has indicated that flexible forms do not always generate empirically credible elasticity estimates. In this paper we present a methodology from which we derive a new family of flexible functional forms (denoted by CES-GBC) that are richer in structure than the cost functions in current use. We use the CES-GBC form to estimate the demand for electricity under time-of-use pricing. The estimation results are encouraging. The elasticity estimates are very reasonable and the fit of the estimated equations is far superior than the more commonly used generalized Leontief, generalized square root quadratic, or any other member of the generalized Box-Cox family of cost functions.

The effect of government spending on labor supply behavior is critical to predicting the balanced-budget effect of income taxes and to estimating the marginal social cost of public funds. Yet, its very existence, not to mention direction and magnitude, has not been empirically investigated. This research estimates a labor supply function that incorporates income taxation and government spending using microeconomic data for men and women. The empirical results suggest that public sector spending may have a significant effect on labor supply, thereby leading to estimates of the marginal social cost of public funds that differ from those typically calculated. © 1997 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

We treat each age-specific income-earning member of the family as an income “source,” and use the source-specific Gini decomposition approach as well as the Lorenz comparison approach to study the impact of the changing population age structure on family income inequality. Empirical analysis using Taiwanese data shows that the pattern of Gini coefficients is significantly affected by the above-mentioned age composition factor. The general implication is that for many developing countries which have recently gone through rapid demographic transition, family income inequality indexed may implicitly embody information as to the age-specific composition of family members, which is irrelevant to the general notion of inequality.

This study examines the determinants of inventory investment under joint production. We simultaneously estimate a set of optimal sales relations, variable input demands, and a set of Euler equations for capital and inventories of raw materials, work in process, and final products in the petroleum refining industry. The Euler conditions provide a model for the convenience yield discussed in the returns-to-storage literature. The cost savings from holding inventories and expected changes in marginal production costs are important components of the convenience yield. We also find significant cost and stock interactions that may affect short-run price and inventory dynamics in petroleum product markets. © 1997 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

This paper proposes a methodology to investigate the process of technical change with a focus on the dynamic effects of R&D investments on productivity, and on the induced innovation hypothesis for both inputs and outputs. The approach builds on a nonparametric representation of the underlying technology. An application to U.S. agriculture is presented. By distinguishing between private and public R&D investments, the analysis provides useful insights into the source and the dynamic nature of technical progress.

The apparent effects of beer taxes, workers' compensation rules, and other factors on reported rates of lost work-days due to injury are estimated. The data used are for injury rates for two-digit SIC industries at the state-level pooled over 1975–85. The results indicate that higher beer tax rates are associated with lower rates of injury lost work-days. More generous workers' compensation payments generally are associated with higher reported injury lost work-days.

The purpose of this paper is to examine production decisions under output price uncertainty. Using a nonparametric estimation technique to estimate the first four moments of the unknown price distribution and applying duality, we provide a simple empirical framework for the analysis of supply and demand decisions under price uncertainty. The model is used to examine the importance of higher moments in the firm's production decisions and to investigate underlying attitudes toward risk.