Knowledge that Transforms

In this paper four alternative quarterly econometric models of investment behavior are fitted to a common set of data for individual manufacturing industries in the United States. Goodness of fit and absence of autocorrelation of errors are used as a basis for comparison of the performance of the alternative models. The econometric models are compared with each other and with alternative explanations of data on investment based on surveys of anticipated investment and on mechanical forecasting schemes. The four econometric models included in our study are those of Anderson [2], Eisner [15], Jorgenson and Stephenson [38], and Meyer and Glauber [46]. On the basis of our comparison, the ranking of the alternative models is as follows: (1) Jorgenson-Stephenson, (2) Eisner, (3) Meyer-Glauber, (4) Anderson. Anticipatory data give a better fit to data on investment expenditures than that provided by any of the econometric models. Mechanical forecasting schemes provide a fit that is superior to the Anderson and Meyer-Glauber models. These schemes are slightly inferior to the Eisner model and clearly inferior to the Jorgenson-Stephenson model. The alternative econometric models included in our comparison differ in specification of the time structure of the investment process and in the role ascribed to specific determinants of investment behavior. Both aspects of an econometric model affect its performance so that it is difficult to discriminate among alternative determinants of investment behavior on the basis of our results.

We study a standard n-commodity model in which equilibrium positions are characterized by specified inequalities between society's marginal rates of transformation in production and a single consumer's marginal rates of substitution in consumption; these inequalities are exemplified by, but not limited to, excise and subsidies. We explore circumstances under which certain increases in these taxes and subsidies can be said to decrease welfare. In order to do so, we look for conditions under which the equilibrium consumption vector is well defined by a specification of the and subsidies, and find that the conditions required are stringent. Among our conclusions is the proposition that the validity of consumers' surplus measures for analyzing such problems may depend on assumptions that are more strict than their users have realized.

[The results of A. K. Sen and P. K. Pattanaik on sufficient conditions for the transitivity of simple majorities are extended to the case where it is not assumed that the individual's indifference relations are transitive.]