Knowledge that Transforms

Two p roportional hazard models are used to investigate the differingeffects of marke t structure variables on the conditional probabilityof a firm initially adoptin g the new technology of optical scanners as the innovation spreads through the f ood store industry. During the early stage, leading firms with large average sto re size which are not members of chains and which operate in less concentrated m arkets with higher incomes and wage rates, tend to adopt scanners sooner. Later on, differences in seller concentration, market share, and size become less impo rtant as other firms follow prior adoptions. Copyright 1987 by MIT Press.

In this paper we consider the basic self-selection model for the effects of education, training, unions, and other activities on wages. We show that past models have ignored 'heterogeneity of rewards' to the activity--i.e., differences across individuals in the rate of return to the activity--as a source of selection bias. We model such heterogeneity, show how its presence can be tested, and draw out its implications for the wage and welfare gains to the activity. An empirical application provides strong support for such heterogeneity.

Three cost models of water delivery systems are replicated as alternative specifications of a general form. A dual cost function methodology is followed, usin g firm-specific data and ownership proxies, to trace the effects that numerous technical constraints and variable specifications have on t he relative efficiency of firms by ownership type. Results show that apparent overall efficiency differences reduce to insignificance as s pecification improves. This partly explains why past studies of overa ll efficiency of ownership forms have yielded mixed, and in some inst ances, unreliable results. The partial efficiency results point to fu ture public-private research methods. Copyright 1987 by MIT Press.

A new measure of labor market tightness on workers' behavior--the employment rent--is modeled as a determinant of workplace conflict. An empirical estimate of the employment rent--workers' expected cost of job loss--is calculated. It is argued that the cost of job loss affects strike incidence. This relationship is tested by estimating an econometric model of strike incidence for the United States from 1955 to 1983. The cost of job loss is shown to explain a large percentage of the variation in strike incidence. The cost of job loss is a far superior explanatory variable than the unemployment rate, which is commonly used in strike models. Copyright 1987 by MIT Press.

Probability distributions for the duration of welfare spells are estimated. The principle guiding the work is that a recipient will not exit from welfare if the expected utility on welfare exceeds the expected utility of welfare. The analysis indicates that while the majority of welfare spells are of short duration, a nontrivial minority of spells are quite long. Those recipients with long spells are found to differ in predictable ways from those experiencing brief spells. This suggests that strategies to move women off welfare are unnecessary in many cases, and should be targeted on those most likely to be long-term recipients. Copyright 1987 by MIT Press.

The commodity pattern of comparative advantage across countries is a central concept in international trade theory. Since the concept is based upon autarkic prices which are not observable in post-trade equilibria, its use in empirical research is most difficult. The literature reports numerous alternative indices that purport to comparative advantage. This paper examines the extent to which various measures are consistent using a large sample of trade flows. The results have important implication for judging empirical studies based upon particular choices of a measure for comparative advantage.

Measurement error may be an important source of bias in studies using self-reported health indicators to explain work behavior. As a test of measurement error, the tetrachoric correlation coefficient is used to examine the relationship between two alternative measures of arthritis, a standard self-reported measure and a simulated clinical measure. While the two measures are highly correlated, measurement error is found. Regression analysis demonstrates that it varies systematically across different socioeconomic groups. In particular, individuals who are not working tend to report their health incorrectly, perhaps owing to social pressure to justify not having a job. Coauthors are Richard V. Burkhauser, Jean M. Mitchell, and Theodore P. Pincus. Copyright 1987 by MIT Press.

The results of a number of theoretical papers lead to the hypothesis that financial variables affect capital sp ending because of asymmetric information in capital markets. The auth ors review the relevant theory and test this hypothesis with a large sample of firm data. The results show that financial variables such a s cash flow and interest expense add significant explanatory power to investment equations based on Dale Jorgenson's neoclassical model, w ith a CAPM specification for the firm's cost of capital, and a sales- accelerator model. The analysis, therefore, links recent theoretical work on capital markets to long-standing empirical debates in the inv estment literature. Copyright 1987 by MIT Press.

Rati Ram, Wagner's Hypothesis in Time-Series and Cross-Section Perspectives: Evidence from "Real" Data for 115 Countries, The Review of Economics and Statistics, Vol. 69, No. 2 (May, 1987), pp. 194-204

This article introduces the concept of forecast efficiency, in which the forecast contains all information available at the time of the forecast. Empirical tests investigate weak efficiency, where the information set is all past forecasts and where all forecast revisions and errors should be uncorrelated with past forecast revisions. Tests of macroeconomic, energy-consumption, and oil-price forecasts find a significant autocorrelation of forecast revisions, with fifty of fifty-one tests showing positive correlation of forecast revisions, as opposed to zero correlation consistent with forecast efficiency. Copyright 1987 by MIT Press.