Knowledge that Transforms

Theoretical and econometric models are developed to examine joint wage-labor participation and hours decisions of a husband and wife in farm households. The econometric model is multiple equation and recursive. The specification of the off-farm labor supply equation of the husband (wife) depends on whether his (her) wife (husband) does or does not work off the farm, and this structure is endogenous. The model is fitted to data for Iowa farm households. The main conclusion is that the off-farm labor supply equation of a married individual differs significantly depending on whether his or her spouse also works for a wage.

Litigants in civil lawsuits involving monetary damages often find an out-of-court settlement preferable to a trial. Most theoretical models of settlement choice employ an expected-utility-maximizing framework that emphasizes the importance of risk preferences, litigation costs, and the distribution of trial awards. An empirical model of settlement choice is used to examine whether the variables prominent in the theoretical literature are statistically useful in explaining the occurrence and monetary value of settlements. Estimates from a sample of civil filings provide new empirical evidence of how the legal system affects the behavior of litigants during the settlement process.

Using data on stock price and dividends, and on long-term and short-term interest rates, the authors test an important implication of present value models--that current value is a linear function of the conditional expectations of the next-period value and the current determining variable . This implication, combined with rational expectations, is strongly rejected. Combined with adaptive expectations, it is accepted. The latter model can also explain the observed negative relation between the rate of return and stock price. Thus the rational expectations assumption should be used with caution; the adaptive expectations assumption may be useful in econometric practice. Copyright 1989 by MIT Press.(This abstract was borrowed from another version of this item.)

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Richard J. Murnane, Randall J. Olsen, The Effect of Salaries and Opportunity Costs on Duration in Teaching: Evidence from Michigan, The Review of Economics and Statistics, Vol. 71, No. 2 (May, 1989), pp. 347-352

This paper uses VAR models to investigate the impact of real exchange rate volatility on U.S. bilateral imports from the United Kingdom, France, Germany, Japan and Canada. The VAR systems include U.S. and foreign macro variables, and are estimated separately for each country. The major results suggest that the effect of volatility on imports is weak, although permanent shocks to volatility do have a negative impact on this measure of trade, and those effects are relatively more important over the flexible rate period.

This paper aims to assess the impact of the abolition of U.K. exchange control on the degre of integration of U.K. and overseas stock markets. Using cointegration techniques, we find that although there is no significant increase in the correlation of short-run stock market returns for the United Kingdom and certain overseas markets post 1979, there does appear to be a marked increase in the degree to which these markets move together in the long run after this date--there appears to be no long-run gain from diversification. Since cointegration of two variables implies that at least one of them can be used to help forecast the other, our findings also imply the inefficiency of a number of stock markets.

A simple technique based on matrix algebra is proposed to compute the Gini Index of Inequality; to obtain its decomposition by factor components when detailed data on income sources are available; to derive a breakdown of the inequality into, within, and between classes inequality when the income units are grouped by income range; and to compute the contribution of the within and between groups inequality, as well as that of some interaction term, when the data are classified by population subgroups.

Akira Goto, Kazuyuki Suzuki, R & D Capital, Rate of Return on R & D Investment and Spillover of R & D in Japanese Manufacturing Industries, The Review of Economics and Statistics, Vol. 71, No. 4 (Nov., 1989), pp. 555-564