Knowledge that Transforms

Theoretical consideration of technical efficiency has existed since Tjalling C. Koopmans (1951), which defined technical efficiency for production possibilities for which it is impossible to increase any output without simultaneously increasing any input. The nonparametric approach to efficiency estimation is based not on this definition but rather on Michael J. Farrell's (1957) index. Even after Farrell efficiency is achieved, there may exist additional slack in individual inputs, implying that Farrell efficiency doesn't measure inefficiency. To solve this problem, this paper suggests incorporating programming results into a second-stage multivariate regression analysis. For illustrative purposes, this technique is applied to analyze New York State school districts. Copyright 1996 by MIT Press.

Individual food consumption data are used to examine three issues. First, is food consumption linked intertemporally at the individual level? Second, does the association between current and past consumption reflect habit or heterogeneity? Third, what do the estimates imply about the intertemporal elasticity of substitution? The authors find that habit matters, that controlling for heterogeneity reduces estimated habit effects, and that the product of the estimated intertemporal elasticity of substitution and the risk aversion parameter is less than one. These results all lead to rejection of time separable specifications of intertemporal consumption behavior. Copyright 1996 by MIT Press.

In this paper we use the variance across siblings in school characteristics to estimate the effects of school inputs on wages. The analysis uses sibling pairs from the National Longitudinal Surveys of Labor Market Experience of Young Men and Young Women. We find that teacher's salary, expenditures per pupil, and a composite index of school quality indicators have a substantial positive effect on the wages of high school graduates.

Recent evidence from aggregate models of automobile demand indicates that, when not corrected for quality differences, market price elasticity of demand is substantially biased downwards. This note presents new information on market price and income elasticities derived from a disaggregate demand model that controls for cost, household income, vehicle attributes and perceived quality, consumer search, and manufacturer. Based on an extensive household survey of new vehicle purchasers in 1989, market price and income elasticities are estimated to be -0.87 and 1.70, respectively. Moreover, excluding vehicle quality from a well-specified model is found to have little effect upon the estimated market elasticities. Copyright 1996 by MIT Press.

Narayana R. Kocherlakota, Kei-Mu Yi, A Simple Time Series Test of Endogenous vs. Exogenous Growth Models: An Application to the United States, The Review of Economics and Statistics, Vol. 78, No. 1 (Feb., 1996), pp. 126-134

Thomas J. Hoerger, Gabriel A. Picone, Frank A. Sloan, Public Subsidies, Private Provision of Care and Living Arrangements of the Elderly, The Review of Economics and Statistics, Vol. 78, No. 3 (Aug., 1996), pp. 428-440

The determinants of the decision by Japanese firms to set up manufacturing plants in Southeast Asia, Europe and North America are analyzed using micro-data on the behavior of firms in the electronics industry. While firm-specific intangible assets based on R&D and marketing efforts are positively related to the decision to invest in Europe and North America, investment in Southeast Asia is mainly related to human resources and driven by interfirm ties within horizontal and vertical business groups. The empirical results suggest that membership of horizontal 'keiretsu' relaxes liquidity constraints, while the manufacturing networks of horizontal and vertical 'keiretsu' in Southeast Asia facilitate the establishment of manufacturing plants by member firms. Copyright 1996 by MIT Press.

This paper investigates whether the forty-eight contiguous U.S. states converge and, if so, whether convergence is absolute. Economies are shown to converge if, and only if, technology is stationary around a common trend. If convergence does occur, it is unlikely to be absolute unless the economy fixed effects in technology, capital's share, and the rental rate vanish. Examining data on the level of technology, capital's share, and the rental rate provides strong evidence that the continuous U.S. states converge rapidly to levels that are far apart. The rapidity of convergence suggests that factors and technology are highly mobile across the contiguous U.S. states. Copyright 1996 by MIT Press.

This paper seeks to develop a structural model that lets data on asset returns and trading volume speak to whether volatility autocorrelation comes from the fundamental that the trading process is pricing or, is caused by the trading process itself. Returns and volume data argue, in the context of our model, that persistent volatility is caused by traders experimenting with different beliefs based upon past profit experience and their estimates of future profit experience. A major theme of our paper is to introduce adaptive agents in the spirit of Sargent (1993) but have them adapt their strategies on a time scale that is slower than the time scale on which the trading process takes place. This will lead to positive autocorrelation in volatility and volume on the time scale of the trading process which generates returns and volume data. Positive autocorrelation of volatility and volume is caused by persistence of strategy patterns that are associated with high volatility and high volume. Thee following features seen in the data: (i) The autocorrelation function of a measure of volatility such as squared returns or absolute value of returns is positive with a slowly decaying tail. (ii) The autocorrelation function of a measure of trading activity such as volume or turnover is positive with a slowly decaying tail. (iii) The cross correlation function of a measure of volatility such as squared returns is about zero for squared returns with past and future volumes and is positive for squared returns with current volumes. (iv) Abrupt changes in prices and returns occur which are hard to attach to 'news.' The last feature is obtained by a version of the model where the Law of Large Numbers fails in the large economy limit.

In this paper, we use micro panel data to examine the effects of oil price changes on employment and real wages, at the aggregate and industry levels.We also measure differences in the employment and wage responses for workers differentiated on the basis of skill level.We find that oil price increases result in a substantial decline in real wages for all workers, but raise the relative wage of skilled workers.The use of panel data econometric techniques to control for unobserved heterogeneity is essential to uncover this result, which is completely hidden in OLS estimates.We find that changes in oil prices induce changes in employment shares and relative wages across industries.However, we find little evidence that oil price changes cause labor to consistently flow into those sectors with relative wage increases.