Knowledge that Transforms

The jointness of labor and housing decisions is explicitly modelled in a consumer demand framework. Behavior of seven demographic groups differentiated by marital status, employment status and the presence of children is estimated from a micro data set. Results indicate that (1) decisions regarding work hours and housing consumption are interdependent choices and (2) responses to market signals differ significantly by demographic group. Results are likely to be superior to single equation studies or studies based on aggregate data.

This paper develops an empirical strategy for testing competing hypotheses of expectation regimes when direct measures of expectations are unavailable. The procedure takes as given an assumed structural relationship between expected values of exogenous variables and a given decision variable. By imposing different expectation regimes on this model, we obtain an artificial nesting of the hypothesized regimes which allows us to test whether any specification dominates. This methodology is extended to multiple equation applications with any number of hypothesized expectation regimes. The tests are illustrated using a model of the response of county-level farm acreage allocation to expected commodity prices.

This paper proposes a simple decomposition of the widely used DRC measure of international competitiveness into three distinct elements: (1) changes in international prices, (2) changes in production techniques and (3) total factor productivity change. The decomposition provides a clear analytical link between two largely separate methodologies for assessing economic performance, cost-benefit indicators based on the world price rule and total factor productivity analysis. The methodology is applied to evaluate changes in measured comparative advantage of industries in Thailand for the period 1963-76. The results broadly indicate that changes in price competitiveness and in total factor productivity are the major sources of changes in DRC ratios for Thai industries.

An interest group model of the determinants of policies which directly re distribute income to low income persons is developed and tested. The model assum es that altruistic taxpayers, nonaltruistic taxpayers, and needy beneficiaries f orm separate interest groups from which politicians seek support. Benefit levels depend on variables such as taxpayer income and the price of benefits but, unlike median voter models, the model also implies a role for interest group strengt h and competition between political parties. The author uses latent variable met hods and data on the Aid to Families with Dependent Children program to demonstr ate empirical support forthe model. Copyright 1986 by MIT Press.

The current (Summer 1985) world oil price, and changes since 1973, cannot possibly be explained by scarcity, or by changes in scarcity. The level and dispersion of marginal costs, and the pattern of investment behavior since 1973, prove that supply is being restricted to maintain the price, which can be maintained so long as the low-cost oil is dammed up. If the dam breaks, so will the Statement of the Problem M X ANY public and private investment decisions, affecting a significant fraction of world income, depend on the expected price of crude oil. Since the price explosion of 1973, and especially since the second explosion of 1979, there has been a wide consensus: Oil has become, and will continue to be, in increasingly short supply for the rest of the century. Further price increases are necessary and inevitable. We need cite only a fraction of even the post1978 predictions of rising oil prices, which were and are used as a basis for private and public investment, and taxation. (U.S. CIA, 1979, p. iii; Fesharaki, 1980; U.S. Senate, 1982; OGJ, 1982, pp. 118, 210; OGJ, 1984a, p. 32; Canada, 1980, 1981a, 1981b.) The price decline since 1980-81 has not weakened the consensus, but has lowered the rate of expected increase. Prices are expected to be weak or stable for a few years, then begin the inexorable increase. (EMF 6, 1982; US. GAO, 1983; World Bank, 1983, p. 28; and 1985, pp. 37-38; New York Times, 1984; DOE, 1985; Erickson, 1985; Saunders, 1984.) The oil-company acquisitions of 1983-84 were obviously based on the consensus view. An expert panel convened by the CIA in April 1985, like one convened by the California Energy Commission, expected that prices would rise, at an increasing rate, starting around 1990. (Wall Street Journal, 1985; California, 1985.) The International Energy Workshop of the International Institute of Applied Systems Analysts compiled a consensus forecast in December 1981, July 1983, and July 1985. The first consensus was that the price would nearly equal $60 in 1990; the most recent has it approaching that number only by 2010. A twenty-year postponement is no small change, of course. But in each case, the consensus was that the current price of oil was approximately equal to, or mildly above, the scarcitydetermined price. In the long run, it would have to rise above the current level. (Manne and Nordhaus, 1985; it should not be assumed that they themselves share the consensus, or that they do not.) The Economic Theory of the Consensus In general, absent monopoly restriction of output, a rising price registers increasing scarcity as consumption puts increasing strain upon productive resources. Some formal oil price models are explicitly competitive. (Mead, 1979, 1985; Cremer and Salehi-Isfahani, 1980; MacAvoy, 1982; Roumasset et al., 1983). More often, competition is an implicit major premise. Prices are said to reflect not monopoly but forces or deeper forces. Or it is said that if the cartel of producing nations (not the unimportant organization OPEC) disappeared, oil prices would not be strikingly different from what they are. Or that discoveries had been shrinking, and demand increasing up to 1973, hence prices had to rise, so at most the cartel pushed them up a bit faster. Other models are non-committal, but implicitly competitive, in that they have price driven by total consumption pressing against reserves. Figure 2 does not, of course, disprove this proposition but it does suggest that if scarcity pushed up prices, scarcity must have been very sudden and strong. There have also been attempts to model the oil market as a monopoly, in the generic sense: a few Received for publication June 24, 1985. Revision accepted for publication November 19, 1985. * Massachusetts Institute of Technology. The research for this paper has been supported by the National Science Foundation, grant SES-8412971, and by the Center for Energy Policy Research of the M.I.T. Energy Laboratory. I am obliged to Michael C. Lynch for valuable assistance. For many helpful comments and criticisms, I am indebted to Paul G. Bradley, Harry G. Broadman, Richard L. Gordon, William W. Hogan, Gordon M. Kaufman, Stephen Martin, James W. McKie, Joe Roeber, James L. Smith, G. Campbell Watkins, and to two anonymous referees. But any opinions, findings, conclusions or recommendations expressed herein are those of the author, and do not necessarily reflect the views of the NSF or any other person or group. Copyright ? 1986 [ 387 ] This content downloaded from 157.55.39.17 on Wed, 31 Aug 2016 04:37:42 UTC All use subject to http://about.jstor.org/terms 388 THE REVIEW OF ECONOMICS AND STATISTICS sellers restraining output and raising prices. (For an excellent survey, see Gately (1984).) But these models are also based on rising scarcity. They aim to show the difference between the competitive response and the monopoly response. Perhaps, given the increasing scarcity inherent in an exhaustible natural resource... there is a very limited scope for the monopolist ... indeed, under the natural 'first approximation' of constant elasticity demand schedules, with zero extraction costs, monopoly prices and competitive equilibrium prices will in fact be identical (Stiglitz,

Failure time models correcting for heterogeneity are used to explain the length of participation in a risky career. Using data from the National Football League, first we employ a class of techniques which ignore unobserved heterogeneity; hence these methods impose severe restrictions on the estimate hazard. We then examine a second class of techniques which correct for unobservables and thereby allow greater flexibility in the estimated hazard. Within this second class, we find that the estimated hazard using the Burr-12 density is much more accurate than densities in the first class, which include the exponential and Weibull. We expect that this density could be employed to successfully explain career duration in other high-risk, high-stress careers as well.

We examine the relation between inflation and nominal interest rates under the various monetary regimes in effect in the United States since the turn of the century. Our data include a newly constructed time series of short-term municipal bond yields observed annually since 1902. The results generally support the hypothesis that after-tax nominal yields adjust point-for-point with rationally forecasted inflation for the postwar years, but strongly reject that hypothesis for the preceding years. We suggest, and offer supporting evidence, that the difference between the two subperiods may be attributable to differences in the optimal forecasting technique for each era when forecasting is a costly endeavor.

This paper investigates the positive wage-firm size relationship using a sample of workers performing the same jobs in different-sized firms. Controlling for skill differences, wages are still found to be higher in larger firms. Using an estimate of the marginal rate of substitution of income for leisure as a measure of job disutility, the difference in wages between large and small firms is found to be greater than the difference in disutility, ruling out compensating differentials as the sole cause of the wage-size relationship. Hence the argument that labor extracts some of the higher profits of larger firms is plausible.

Kamran M. Dadkhah, Fatemeh Zahedi, Simultaneous Estimation of Production Functions and Capital Stocks for Developing Countries, The Review of Economics and Statistics, Vol. 68, No. 3 (Aug., 1986), pp. 443-451