Knowledge that Transforms

Standard approaches to designing a futures hedge often suffer from two major problems. First, they focus only on minimizing risk, so no account is taken of the impact on expected return. Second , in estima ting the hedge ratio, no allowance is made for time variation in the distribution of cash and futures price changes. This paper describes a technique for estimating the optimal futures hedge that corrects these problems and illustrates its use in hedging Treasury bonds with T-bond futures. Copyright 1988 by MIT Press.

This paper presents a theoretical and empirical analysis of the effects of child care costs on family labor supply and the demand for market child care. The model is a framework for cross-section estimation of the effects of child care costs on labor supply and child care use. It applies to households having young children requiring continuous care and in which both the mother and 1 other potential child care provider are present. The 3 potential sources of child care are the mother the potential informal provider and the market. Using data from the 1980 baseline household survey of the Employment Opportunity Pilot Projects this empirical analysis uses a subsample of 6170 households in which there is a married woman under age 45 with her spouse present at the time of the survey at least 1 child under age 14 and nonmissing data on key variables. Results show that 1) higher market child care costs discourage women from working even when an informal source of care is available indicating that such informal care is an imperfect substitute for market care; 2) a higher wage rate for the mother encourages her to work thus a higher wage rate increases the probability of using market child care; 3) the number of children requiring care has a negative impact on the probability of the women working with the largest impact caused by younger children; 4) nonwage income has a negative impact on the probability of the woman working; and 5) black women are more likely to work than whites and are statistically more likely than whites to use market child care if they do work. This family labor supply model predicts that the cost of market child care will affect household decisions on labor supply and child care use. Estimates of a qualitative choice model provide strong confirmation that child care costs affect such decisions. The responsiveness of the labor supply of mothers to child care costs demonstrated in this study indicate that such subsidies do have their intended effect of encouraging labor supply. The fact that a large proportion of current child care subsidies benefit primarily middle and upper income families via the income tax credit suggests that the labor supply effets of such subsidies may in practice be stronger for less needy families than for low income families. Employer-subsidized child care may become an increasingly popular tool for attracting mothers into the labor force.

This study examines how errors in measuring marginal attribute pric es vary with the form of the hedonic price function. In simulations, consumers with known utility functions bid for houses with given attributes. Various forms of the hedonic function are estimated using equilibrium housing prices. Errors in estimating marginal attribute prices are calculated by comparing each consumer's equilibrium marginal bid vector with the gradient of the hedonic function. When all attributes are observed, linear and quadratic Box-Cox forms produce lowest mean percentage errors; however, when some attributes are unobserved or are replaced by proxies, linear and linear Box-Cox functions perform best. Copyright 1988 by MIT Press.

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One of the enduring and truly perplexing issues in American legal theory is the question of how and to what degree the values associated with are embodied in the United States Constitution. Recent controversies, both in law and in economics, on the efficiency of the public sector in regulation and in the provision of public goods, on the virtues or perils of privatization, and on public choice and the legal process proceed too often without reference to the American system's constitutional heritage. The assumptions often manifest in neoconservative analysis, particularly the view that economic liberty