Knowledge that Transforms

Steven B. Caudill, Richard W. Ault, and Richard P. Saba (1989) introduce an approach to estimating a hedonic price equation that accounts for censoring d ue to rent control in a rental housing market. This paper extends and clarifies their assertion on the consistency of the ordinary least squares estimates and their estimates. The authors indicate how the nature of the rent control law affects the consistency propertie s of the two estimation methods. Copyright 1993 by MIT Press.

The authors test the hypothesis of a negative long-term trend and/or a structural break in total factor productivi ty after the first oil price shock for West German manufacturing industries within an econometric model based on a flexible cost function with capital as a quasi-fixed factor. After adjusting total factor productivity growth for scale economies and varying capacity utilization, this hypothesis is not supported by their empirical findings for the grea t majority of industries studied, whereas the hypothesis that the (log-)level of total factor productivity follows a random walk with drift is not rejected by various statistical tests. Copyright 1993 by MIT Press.

Both the annual and lifetime marginal costs of redistribution in England, Sweden, and the United States are calculated. The annual marginal cost of redistribution is $2.90 in the United States, $3.53 in England, and $6.77 in Sweden. The lifetime marginal cost of redistribution is $4.46 in the United States and $7.96 in England. The lifetime marginal cost of redistribution in Sweden indicates that additional redistribution reduces the incomes of both the poor and nonpoor. This study also shows that when there is greater income equality, the marginal tax rate at which the incomes of the poor and nonpoor begin to be reduced will be at lower and lower levels. Copyright 1993 by MIT Press.

This paper concerns the problem of properly specifying the dynamic structure of models of industry costs and factor demands. The paper compares three common frameworks: long-run costs with all factors assumed in equilibrium (Full Static Equilibrium), short-run costs with variable factors in short-run equilibrium (Partial Static Equilibrium) followed by computation of long-run costs, and short-run costs including internal capital adjustment costs (Partial Dynamic Equilibrium). The approach of the paper is to estimate a capital-labor-fuel-electricity model for six OECD countries (G7 less Italy) for the 1960-1989 period. Using the three different 'dynamic' specifications, we obtain substantially different results in terms of factor demand, cross-price effects and technical change. The implication is that proper dynamic specification is critical. The Partial Dynamic Equilibrium model appears to behave most consistently across the cross-section. Copyright 1993 by MIT Press.

The conditions of entry have been the focus of a large and growing number of theoretical and empirical studies. Several recent papers have developed new techniques for the study of entry into manufacturing industries. This paper finds those same techniques useful for the study of entry into early American financial markets. Market characteristics commonly found to influence the rate of industrial entry, as well as the course of the business cycle, are found to be important in the timing of entry into nineteenth-century financial markets. Copyright 1993 by MIT Press.

This paper compares the volatility of spot prices with that of futures prices using two estimators of volatility--natural and temporal. Using intraday data of the Major Market Index and its futures prices, the author shows that the well-known U-shaped volatility patterns during the day are not necessarily due to trading mechanisms. The author also shows that, when a temporal estimator is substituted for a natural estimator, th e U-shaped patterns disappear in both the spot and futures markets. Th e author provides some reasons why a temporal estimator may add more information. Copyright 1993 by MIT Press.

Recent developments in social welfare analysis provide insights into the selection of price policies. In the presen t paper a CES social welfare function and a weighted average of utilitarian and leximin rules are used to identify optimal producer prices in an economy where government is the price setter and agents are risk averse. The analysis distinguishes between the interests of commercial producers, peasant producers, consumers, and taxpayers. A n application to Zimbabwe indicates that a maize producer price in the low-medium to medium portion of the historical range would be social ly optimal if egalitarian preferences are moderate. This outcome is somewhat insensitive to group weighting schemes and to interpersonal utility correspondences. Copyright 1993 by MIT Press.

This study analyzes the effect of voluntary mobility on subsequent wages to discover if there are wage penalties associated with repeated mobility. To reduce the endogeneity between wages and voluntary mobility, the sample is restricted to young males on their first job following a permanent layoff. Using respondents from the National Longitudinal Survey of Youth, ordinary least squares wage equations from the layoff sample are compared to those from a sample of workers who remained employed. The evidence shows that voluntary mobility differentially affects the wage equations of the restricted and the unrestricted samples. Copyright 1993 by MIT Press.

Casual analysis of six high-inflation episodes indicates a strong positive relationship between movements in the relative price ratio, measured by (WPI/CPI), and the inflation rate. The authors estimate a vector autoregression model in which relative price movements are driven by several fundamental disturbances (fiscal, monetary, output, and exchange rate), identified using only long-run restrictions based on a general-equilibrium optimizing model. Analysis of the endogenous response of relative price changes to these disturbances suggests that output and monetary shocks are the most important driving forces, although fiscal and exchange rate shocks are also influential in explaining relative price movements in some countries. Copyright 1993 by MIT Press.

This paper tests for the existence of expectational effects in very disaggregate price equations. Price equations are estimated using monthly data for each of 40 products. The dynamic specification of the equations is also tested, including whether the equations should be specified in level