Knowledge that Transforms

This paper explores a number of methodological issues related to the econometric analysis of stated preference data in the context of estimating the value of automobile travel time. Estimates of parameters and the willingness to pay (WTP) to save time are obtained using conventional ordered probit and rank-ordered logit models and an innovation called mixed logit. We find that the average WTP is low and does not exhibit much variation among motorists. Although our findings using data on respondents' rankings of alternatives are robust, we find that caution should be used in estimating stated preferences based on respondents' ratings.

It is generally believed that the increased incidence of homelessness in the United States has arisen from broad societal factors, such as changes in the institutionalization of the mentally ill, increases in drug addiction and alcohol usage, and so forth. This paper presents a comprehensive test of the alternate hypothesis that variations in homelessness arise from changed circumstances in the housing market and in the income distribution. We assemble essentially all the systematic information available on homelessness in U.S. urban areas: census counts, shelter bed counts, records of transfer payments, and administrative agency estimates. We estimate similar statistical models using four different samples of data on the incidence of homelessness, defined according to very different criteria. Our results suggest that simple economic principles governing the availability and pricing of housing and the growth in demand for the lowest-quality housing explain a large portion of the variation in homelessness among U.S. metropolitan housing markets. Furthermore, rather modest improvements in the affordability of rental housing or its availability can substantially reduce the incidence of homelessness in the United States. 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

There has been little analysis of the impact of inward foreign direct investment (FDI) on U.S. wage inequality, even though the presence of foreign-owned affiliates in the United States has arguably grown more rapidly in significance for the U.S. economy than trade flows. Using U.S. manufacturing data from 1977 to 1994, we find that inward FDI has not contributed to U.S. within-industry skill upgrading. In fact, the 1980s wave of Japanese greenfield investments was significantly correlated with lower, not higher, relative demand for skilled labor. This casts doubt upon one possible channel of skill-biased technological change that was previously unexplored.

A new information-based approach for estimating systems of many equations with nonnegativity constraints is presented. This approach, called generalized maximum entropy (GME), is more practical and efficient than traditional maximum-likelihood methods. The GME method is used to estimate an almost ideal demand system for five types of meat using cross-sectional data from Mexico, where most households did not buy at least one type of meat during the survey week. The system of demands is shown to vary across demographic groups.

This paper examines the efficiency of electric power generation plants in the United States. A 1996 data set from the Utility Data Institute and county-level wage data from the Bureau of Labor statistics provide the information needed to construct measures of cost, output, and input prices for 78 steam plants using natural gas as the primary fuel. This paper uses a Bayesian stochastic frontier model that imposes concavity and monotonicity restrictions implied by microeconomic theory to measure efficiency, price elasticities, and returns to scale of these plants. Results indicate that plants on average could reduce costs by up to 13% by eliminating production inefficiency. Results also indicate that most plants operate at increasing returns to scale, suggesting further cost savings could be achieved through increasing output.

General equilibrium models that predict a reduction in asset prices when baby boomers retire typically assume that people consume all of their wealth before they die. However, many people hold substantial wealth when they die. I develop a rational expectations, general equilibrium model with a bequest motive. In this model, a baby boom increases stock prices, and stock prices are rationally anticipated to fall when the baby boomers retire, even though consumers continue to hold assets throughout retirement. The continued high demand for assets by retired baby boomers does not attenuate the fall in the price of capital.

Although it is clear that the volatility of asset returns is serially correlated, there is no general agreement as to the most appropriate parametric model for characterizing this temporal dependence. In this paper, we propose a simple way of modeling financial market volatility using high-frequency data. The method avoids using a tight parametric model by instead simply fitting a long autoregression to log-squared, squared, or absolute high-frequency returns. This can either be estimated by the usual time domain method, or alternatively the autoregressive coefficients can be backed out from the smoothed periodogram estimate of the spectrum of log-squared, squared, or absolute returns. We show how this approach can be used to construct volatility forecasts, which compare favorably with some leading alternatives in an out-of-sample forecasting exercise.

Enterprise restructuring is expected to improve efficiency in transition economies. With data from former East Germany, we compare the efficiency of family farms and partnerships with large-scale successor organizations of the collective and state farms (LSOs). Using parametric and nonparametric techniques, we show that LSOs display lower technical efficiency than do family farms and partnerships but that this difference is small and declining during transition, mainly as a result of structural changes in agriculture. Family farms are not as scale efficient as partnerships and LSOs, and partnerships are superior to all other organizational forms.

A longstanding issue in empirical economics is the behavior of average labor productivity over the business cycle. This paper provides new insights into the cyclicality of aggregate labor productivity by examining the cyclical behavior of productivity at the plant level as well as the role of reallocation across plants over the cycle. We find that plant-level productivity is even more procyclical than aggregate productivity, because short-run reallocation yields a countercyclical contribution to labor productivity. At the plant level, we find that cyclicality of productivity varies systematically with long-run employment growth. Over the course of the cycle, plants that are long-run downsizers exhibit significantly greater procyclicality of productivity than do long-run upsizers. When we control for the direction of a cyclical shock, we find that the fall in productivity from an adverse cyclical shock for long-run downsizers is significantly larger in magnitude than is the fall in productivity from an equivalent adverse cyclical shock for long-run upsizers. We argue that these findings raise questions about one of the most popular explanations of procyclical productivity: changing factor utilization over the cycle.

Using a large data set, the authors find that smokers select riskier jobs, but receive lower total wage compensation for risk than do nonsmokers. This finding is inconsistent with conventional models of compensating differentials. The authors develop a model in which worker risk preferences and job safety performance lead to smokers facing a flatter market offer curve than nonsmokers. The empirical results support the theoretical model. Smokers are injured more often controlling for their job's objective risk and are paid less for these risks of injury. Smokers and nonsmokers, in effect, are segmented labor market groups with different preferences and different market offer curves. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology