Knowledge that Transforms

The econometric method in the C. Flinn and J. Heckman (1982) study for estimating a Markovian model of search unem ployment and job tenure is further augmented by introducing a possibi lity that jobs may differ by separation rates or nonwage attributes. A set of reservation wages is obtained as a solution to the value fun ctions. Differences in reservation wages estimate the compensating no nwage utility differentials among jobs. The unemployment spell distri bution is characterized as one of competing risk based on which type of job is finally accepted. The model is implemented using data from the Employment Opportunities Pilot Project. Copyright 1988 by MIT Press.

Child support noncompliance affects both the family and the taxpayer. This papers models the decision to pay based on expected utility maximization. The amount unpaid is determined jointly with the expected enforcement probability. A two-stage estimation technique requiring ordinary least squares and probit is used. The author improves upon previous problems with measurement error and sex-restricted data in deterrence and child support studies, the treatment of endogenous deterrence variables as exogenous, and the use of aggregate data. He finds a joint relationship between the amount unpaid and the enforcement probability. Policies are suggested for increasing compliance and payments to the family. Copyright 1988 by MIT Press.

Casper G. de Vries, Theory and Relevance of Currency Substitution with Case Studies for Canada and the Netherlands Antilles, The Review of Economics and Statistics, Vol. 70, No. 3 (Aug., 1988), pp. 512-515

A simultaneous discrete and continuous random utility model for housing demand is presented. Household utility depends on three characteristics of hou sing: a discrete number of bedrooms and continuous measures of hous-i ng quality and distance to the central business district. Empirical r esults for a sample of renter households from San Francisco are compa red for a univariate structure in which each choice variable has its own utility or disutility function, a simultaneous structure assuming a discrete-continuous analog of the independence of irrelevant alter natives, and one for which this assumption is relaxed. The results in dicate that the third structure is most appropriate. Copyright 1988 by MIT Press.

The contribution of recent research to the explanation of a variety of behavioral findings is examined, with particular attention to tax clientele effects, cross-section studies dependent on capital asset pricing model assumptions, and dividend signaling models. Further relaxation of standard capital market assumptions appears necessary to reconcile behavior with investor and firm rationality: for example, investors in capital-constrained firms may regard capital gains resulting from earnings retention as more risky than current dividends or stockholders may see dividend payment as imposing constraints on management that reduce agency costs. Copyright 1988 by MIT Press.