Knowledge that Transforms

We present a stochastic model of the employment process in which both the worker's search for jobs and the employer's search for workers are simple Markov processes. An employer's hiring decision is determined by the type of worker applying. Dynamic programming methods are used to find the optimal hiring policy by analyzing the interaction between the two processes. The steady-state distribution of worker unemployment by type is derived. UNDERSTANDING THE CAUSES and effects of racial discrimination in labor markets has been the goal of a considerable volume of economic research.2 Becker [2] provided the seminal study of the theory of racial discrimination. More recently Krueger [10], Welch [14], Thurow [13], McCall [11], and Arrow [1] have examined the processes of racial discrimination. The pure theory of racial discrimination has until now not moved beyond static equilibrium models which presume a full employment economy. The explanation of discrimination in employment (as opposed to discrimination in wages) has thus been limited to rather crude hypotheses. This paper presents a model of the employment process designed to help describe the dynamic relationship between racial unemployment rates. The model is formulated in terms of a particular view of the employment process, often termed the queuing approach.3 The model itself is developed in Section 2. Some of its more interesting features are discussed in Section 3. A formal proof of our proposition and some generalizations of the basic results are reserved for Section 4.

[The existence of an equilibrium is proven for a two-period model in which there are spot transactions and futures transactions in the first period and spot markets in the second period. Prices at that date are viewed with subjective uncertainty by all traders. This introduces the possibility of speculation. Conditions for the existence of a competitive equilibrium include restriction on the nature of price expectations.]

[This paper is concerned with general equilibrium under a weakened version of Walras' Law. Conditions for uniqueness of equilibrium are derived which include the more standard conditions as a special case and which are at the same time free of some of the weaknesses of received theory.]

Aaron and McGuire recently put forward a new method for imputing benefits of government expenditures on public goods for various income classes. They fail to present conclusive empirical results, however, lacking a parameter whose value is heretofore unmeasured. This note uses three independent empirical estimates of this crucial parameter to compute estimates of the net incidence of the fiscal system. For the U.S., 1961, it is found that benefits from public goods are regressively distributed. It is further suggested that the desire to equalize incomes requires provisions of less, not more, public goods.

Peter Schmidt, On the Difference Between Conditional and Unconditional Asymptotic Distributions of Estimates in Distributed Lag Models with Integer-Valued Parameters, Econometrica, Vol. 41, No. 1 (Jan., 1973), pp. 165-169

This paper analyzes the problem of inducing the members of an organization to behave as if they formed a team. Considered is a conglomerate-type organization consisting of a set of semi-autonomous subunits that are coordinated by the organization's head. The head's incentive problem is to choose a set of employee compensation rules that will induce his subunit managers to communicate accurate information and take optimal decisions. The main result exhibits a particular set of compensation rules, an optimal incentive structure, that leads to team behavior. Particular attention is directed to the informational aspects of the problem. An extended example of a resource allocation model is discussed and the optimal incentive structure is interpreted in terms of prices charged by the head for resources allocated to the subunits.

THE USE OF the geometric distributed lag in economics is widespread. The Liviatan [6] method for estimating its parameters is simple and provides consistent estimates. Moreover, it can be used to provide initial estimates for more sophisticated techniques [2]. Not much is known about the statistical properties of these estimators, especially their small sample properties. We do know that their asymptotic efficiencies are inferior to most alternatives [1], and recently Nagar and Gupta [7] have provided approximations to the small sample biases. The purpose of this note is to derive a simple way of displaying the Liviatan estimators which makes their nature clear and which allows the small sample distribution of one of them to be easily deduced. The main result is that the estimator of the parameter which defines the geometric distributed lag is a ratio of two ordinary least squares estimators. With this and the assumption that the error terms form a sequence of independent, identically distributed normal variables, it is possible, using the work of Geary [4], to derive the small sample distribution of this estimator. This result forms the main part of this note, which concludes with a brief discussion of the problem of setting confidence limits along the lines suggested by Fieller [3].

This paper deals with similarities and differences in the equations defining the full information maximum likelihood and three stage least squares estimators. It shows that the twp sets of equations are similar, the difference being that the two estimators purge the jointly dependent variables differently. Hence, even if three stage least squares is iterated, it will not give an estimator which is the same as the maximum likelihood one. On the other hand, it is quite apparently asymptotically equivalent to full information maximum likelihood. A number of other results are also obtained.