Knowledge that Transforms

Introduction R ECENT years have witnessed an awakened interest in the economic activity taking place outside the market, and in particular the activity taking place at home.This interest spurred by the new consumption theory of Becker and Lancaster and by the estimates of the Measure of Economic Welfare of Nordhaus and Tobin (1973) has taken two distinct forms: an increased number of studies on the economics of household behavior and a renewed effort to place a money value on the household home activity.However, while the major thrust of the first type of studies is in the field of microeconomics, the estimates of home production refer, in general, to the economy as a whole.These estimates, crude as they are, indicate that home production is far from being a negligible part of the economic activity.Even in an advanced economy such as the United States the value added generated by the home sector seems to account for over one third of the output produced at the market (Hawrylyshyn, 1976).In less advanced economies this fraction is presumably even higher.It seems, therefore, of interest to repeat the question in a microeconomic context and examine the role of home production at the household level, rather than in the aggregate.In contrast to past studies which have focused on the labor inputs going into home production (Sirageldin, 1969; Walker and Gauger, 1973), the emphasis in this paper is on the measurement of productivity and total home output.The questions I try to answer are: What are the factors

FOR over three decades, debate has raged over the economic assumption that the large corporation, through the decisions of its managers, attempts to maximize its profits. Empirical analysis of the behavior of the corporation has led to conflicting claims. The inquiry into the determinants of executive compensation has been no exception. Statistical investigation of executive compensation has been dominated by a search for one decisive explanation. Is the size, measured by either sales or assets, or profitability, measured by net corporate income or by the rate of return on assets, the key variable in establishing the level of the executive's reward? Proponents on both sides of this issue-the managerialists who support the corporate growth hypothesis and the neoclassical economists who favor the profit maximization assumption-seem to argue that the contest can be resolved by the presentation of unambiguous evidence that will award victory to one side and vanquish the other. This spirit of antagonism has distorted the essential element of the executive compensation question. The behavior of the corporation and the market forces that shape this behavior can be explained or illustrated only by the use of a series of intercorrelated variables. Not one of the available measures of corporate success, be it net income, sales or assets, is an exact measure of economic profits or firm size, nor is it independent of the other variables. This study focuses on the resolution of the serious econometric problems encountered in the process of estimating the determinants of executive compensation. Later we will show how the successful elimination of problems of simultaneous equations bias, multicollinearity and heteroscedasticity leads to the conclusion that the managerialist and neoclassical models of the firm are complementary, rather than substitute, explanations for the pattern of executive compensation.

A N important and growing interest among scholars is the examination of the relationship of the size distribution of income to city size. Such information is critical to the development of urban growth policies and to our understanding of living costs, poverty, and public expenditures in urban areas. Previous studies of this relationship have been motivated by one of the following distinct, although not mutually exclusive, hypotheses: (1) the occupational and wagestructure of the local labor market will change with increasing city size to cause income inequality either to decrease as a result of rising average incomes (Duncan and Reiss, 1956; Murray, 1969; and Richardson, 1973) or increase via a widening distribution of labor skills (Mathur, 1970; Farbman, 1975);' (2) the functioning of capital markets will improve as city size increases so that investment in human capital rises and the average rate of return is depressed to reduce inequality (Frech and Burns, 1971; and Burns 1976); and (3) the principal beneficiaries of increasing city size and urban growth will be those individuals who possess advantages in the marketplaces, such as landlords and individuals owning enterprises with scale economies or holding important non-duplicative executive and bureaucratic positions, so that the benefits from increasing city size will be unequally distributed and cause the level of income inequality to rise (Haworth, Long, and Rasmussen, 1978). To our knowledge none of these hypotheses have been examined for cities that are partially or totally removed from the influence of SMSA economic regions. However, each argument possesses implications for smaller cities which, when examined, produce results relating to the validity and overall understanding of the hypothesis being presented. For example, the monopoly hypothesis may be relevant to SMSAs but we do not know the city size at which monopoly advantages in the marketplaces become significant in worsening income inequality. The relatively smaller demand for rental properties, more competitive business environment, and lesser importance of executives and bureaucrats will substantially reduce the effect of monopoly advantages in smaller cities. It is therefore quite possible that growth in smaller cities may not exert an independent inequality increasing effect on the distribution of income. Arguments can also be made for modificationis in the human capital hypothesis. While an individual's investment in human capital may substantially define his earnings' potential, imperfections in factor markets and discriminatory employment barriers will influence the earnings that are realized. Furthermore, disequilibrium effects in both capital and factor markets resulting from urban growth (in addition to possible changes in attitudes affecting employment barriers) are likely to vary among cities. Consequently, these additioial considerations can influence the equalizing role which capital markets are presumed to play with increasing city size. Moreover, businesses and labor will be attracted or repelled by existing agglomeration economies that are related to city size. Therefore, changes in the occupational and wage structure are not independent of city size. Increases in population in smaller cities may yield gains from specialization and diversification that permit lower income groups to increase their Received for publication May 21, 1979. Revision accepted for publication December 10, 1979. * Northern Illinois University. The author wishes to thank Barry Field and two anonymous referees of this REVIEW for their helpful comments on earlier drafts of this paper. 1 Citing the labor-supply-oriented model by Newhouse (1971) and the labor-demand-oriented model by Thurow (1975), which' both assign industrial mix a major role in inequality, Danziger (1976) finds that 7 out of the 11 major Census occupational groups are significant in explaining inter-city variations in inequality but was unable to relate city size to inequality. Long et al. (1977), on the other hand, found population size and change in population variables to be positive and significantly related to inequality but failed to relate their finding to any particular hvyothesis.

T HE rapid rate of increase in the prices of houses in recent years has resulted in renewed interest in trends in residential real estate. A widely quoted study by the Harvard-MIT Joint Center for Urban Studies (Solomon, et al., 1977) showed that in 1976 only 27% of families could afford to buy the median priced new home, a significant change from 1970 when 46% of families were able to make such a purchase. Such rapid changes could result in significant income redistribution effects, and policy proposals have been numerous. To assess these trends and proposals, it is necessary to have accurate methods of developing residential real estate price indexes. Most real estate indexes have been based on the average or median selling price in each year for new or used houses. Yet there may exist substantial differences in the houses on the market at different times, so such indexes contain quality changes as well as pure price changes. Because housing is a highly heterogeneous commodity, the measurement of quality-adjusted price changes has proven difficult. Such measurement is desirable not simply because of the recent significant price changes in the real estate market, but also because economists have found property values to be one of the best sources of information on goods for which markets do not exist. Although in the past cross-sectional studies have generally been used for this purpose, questions remain concerning the timing of the impacts. Comparisons of real estate price indexes can provide insights into the dynamics of such effects. Among the techniques suggested for developing quality-adjusted price indexes, approaches using hedonic regressions and repeat-sale regressions appear to be the most promising. In this paper, alternative local price indexes are developed using modifications of the hedonic and repeat-sale techniques. For the case considered, the two independent techniques provide statistically identical indexes of the real price of housing. The estimated rate of increase in house prices using the hedonic and repeat-sale techniques is substantially lower than the non-quality adjusted rate implied by the change in average selling price.

The authors find that a significant relationship exists between vertical integration and expenditures for basic and applied research for the US petroleum industry, 1954-1975. They advance several hypotheses consistent with this finding, and conclude that organizational structure influences expenditures on research in the modern business enterprise.

In this paper authors point out that the coefficients obtained from using Tobit-here called beta coefficients - provide more information than is commonly realized. In particular, authors show that Tobit can be used to determine both changes in the probability of being above the limit and changes in the value of the dependent variable if it is already above the limit$ and authors show that this decomposition can be quantified in rather useful and insightful ways.

Morgan Åberg, Håkan Persson; A Note on Soviet Pricing, Profits and Technological Choice, The Review of Economic Studies, Volume 47, Issue 3, 1 April 1980, Pages

Heejoon Kang, Gardner Brown; Characterizing a Production or a Cost Function by Elasticities of Substitution, The Review of Economic Studies, Volume 47, Iss