Knowledge that Transforms

An employed worker's search strategies include (1) employed-not searching, (2) employed-searching, and (3) unemployed-searching. The last requires that the worker quit to search. Under plausible assumptions on search costs, the optimal algorithm involves a dual reservation wage strategy (Burdett, 1978). The probability of on-the-job search increases as the current wage decreases relative to the distribution of alternative wages. If the wage is sufficiently low, the searcher quits to search, substituting time for financial outlays. Estimates based on the National Longitudinal Survey of Youth indicate that these calculations characterize the search strategies of young workers. Copyright 1991 by MIT Press.

The original concept of vertical integration can be applied only to the analysis of the relationship between final demand and gross output, but is unsuitable for most of supply-oriented studies, where what matters are the interindustry relations. For example, vertical integration of an industrial district with the rest of the economy cannot be measured with the traditional technique and should be accounted for by a different measure that considers the direct and indirect demand derived from the whole gross output of the district. In such a way it is possible to measure the expansionary potential that any industry has on any other one, constructing an index of vertical integration. These concepts are then applied to the input-output table of a developing country like China and they provide some understanding of the routes development strategies have to follow. Copyright 1991 by MIT Press.

Michael J. Greenwood, John M. McDowell, Differential Economic Opportunity, Transferability of Skills, and Immigration to the United States and Canada, The Review of Economics and Statistics, Vol. 73, No. 4 (Nov., 1991), pp. 612-623

Historically, the effect of interstate banking on the risk and profitability of commercial banks has been a controversial issue. Using capital market data and an event study methodology, the author tests the effects of interstate banking. The findings of this paper reject the hypothesis that interstate banking has no effect on banks' risk and profitability. The evidence supports the argument that interstate banking benefits commercial banks in terms of increased profitability, but the increase in profitability is also associated with significant increases in the banks' exposure to market risk. Copyright 1991 by MIT Press.

The authors obtain expressions for the restricted least squares estimator and its covariance matrix in the classical regression model when the matrix of regressors is not necessarily of full rank. The standard expressions for the restricted least squares estimator are not usable in the short rank case because they rely on the unrestricted estimator. But, in the presence of restrictions, the restricted least squares estimator may be computable even if the unrestricted estimator is not. The authors' derivation produces some additional, useful algebraic results for least squares computation. Copyright 1991 by MIT Press.

We analyze the degree of policy convergence of EMS member countries relative to that of some non-EMS countries. Interestingly, we find convergence for the nominal and real exchange rates and money supplies of the EMS members but not for the non-EMS countries. We also provide some evidence to support the "German leadership hypothesis" in the context of intra-EMS monetary policy convergence.

Almost all labor-supply models are estimated under the assumption that workers are free to choose their hours. However, theory, casual empiricism, and survey data suggest that many workers are not free to vary the hours within a job. Consequently, labor-supply estimates based on actual hours of work may be biased. Using Canadian data on desired hours of work, the authors find that using actual hours causes labor-supply estimates to be biased upwards. Copyright 1991 by MIT Press.

Numerous studies have estimated hedonic price functions for durable goods. In this paper we apply the methodology to breakfast cereals, a nondurable good. We employ maximum likelihood to estimate the hedonic price functions using data from three large supermarkets. The price function depends on characteristics that provide tastes, nutrition and convenience to consumers, and the estimates yield insights into pricing policies, consumer preferences and consumer use of information.

Ky-hyang Yuhn, Economic Growth, Technical Change Biases, and the Elasticity of Substitution: A Test of the De La Grandville Hypothesis, The Review of Economics and Statistics, Vol. 73, No. 2 (May, 1991), pp. 340-346

Jean-Claude Bosch, E. Woodrow Eckard, Jr., The Profitability of Price Fixing: Evidence From Stock Market Reaction to Federal Indictments, The Review of Economics and Statistics, Vol. 73, No. 2 (May, 1991), pp. 309-317