Knowledge that Transforms

This paper extends the standard static model of labor supply and taxation to the case where people are able to legally avoid taxes through the use of itemized deductions. Tax deductible expenditures are treated as a Hicksian composite good with a price (for those who decide to itemize) proportional to one minus the marginal tax rate. Estimation of the commonly used linear labor supply model (extended to incorporate the additional composite good) on a cross-section of prime aged married men suggests that tax deductible consumption is an uncompensated substitute for leisure (and complement with labor). The impact of taxes through the relative price of deductible expenditures appears to be much stronger than through the net wage. Copyright 1992 by MIT Press.

Berger, Allen N., and Timothy H. Hannon, The Price-Concentration Relationship in Banking, this REVIEW 71 (May 1989), 291-299. Demsetz, Harold, Industry Structure, Rivalry, and Public Policy, Journal of Law and Economics 16 (Apr. 1973), 1-9. Jackson, William E. III, Market Structure and Price Adjustments: Evidence from the Banking Industry, unpublished Ph.D. dissertation, University of Chicago, June 1989. Peltzman, Samuel, The Gains and Losses from Industrial Concentration, Journal of Law and Economics 20 (Oct. 1977), 229-263. Salinger, Michael, The Concentration-Margins Relationship Reconsidered, in Brookings Papers on Economic Activity: Microeconomics, Martin N. Bailey and Clifford Winston, (eds.), Brookings (Washington, D.C.: Brookings Institution, 1990). 5 No formal statistical tests of the differences in the estimated coefficients of CONC across subsamples were conducted. This analysis was concerned more with the sign and significance level of each subsample estimated CONC coefficient.

This paper derives elasticity estimates for the electricity demand of a cross section of residential customers in Medellin, Colombia, where prices follow a rising block scheme. It contrasts methods following Jerry Hausman (1979, 1985) with those based on Harvey Rosen (1976). To resolve the difference between the results produced by the two methods, it uses a generalized selectivity bias corrections method due to Frank Vella (1990). Copyright 1992 by MIT Press.

The growth of employee benefits in academe has closely paralleled their economy-wide growth. This study estimates a complete system describing the demand for benefits and wages using panel data on 1477 institutions of higher learning. the demand for benefits is very responsive to changes in real income and the tax price of benefits. These conclusions are robust with respect to varying definitions of the tax price, treating it as endogenous, and accounting for unmeasured individual effects on demand. Simulations suggest that the Tax Reform Act of 1986 sharply reduced the demand for benefits. Extrapolating the impact to the entire economy, the annual flow of compensation shifted away from benefits by at least $15 billion. Copyright 1992 by MIT Press.

Justin Yifu Lin, Hybrid Rice Innovation in China: A Study of Market-Demand Induced Technological Innovation in a Centrally-Planned Economy, The Review of Economics and Statistics, Vol. 74, No. 1 (Feb., 1992), pp. 14-20

This study derives and estimates a dynamic model of factor demand that includes both fixed and quadratic variable costs of adjustment. Using quarterly data on the employment of mechanics at seven airlines, it finds that both types of adjustment costs characterize the dynamic constraints facing employers. Using monthly data covering production-worker employment in seven manufacturing plants, it shows that only fixed costs are important. The apparent diversity of the underlying costs of adjustment means it is difficult to draw useful inferences from macroeconometric estimates. It suggests the importance of examining broader arrays of microeconomic time series describing labor demand.

This paper looks at the empirical consequences of inappropriately using a representative firm to mimic the aggregate investment decisions of a group of heterogeneous firms faced with costs of adjusting capital inputs. Improper aggregation generates a bias with two important consequences: (1) an apparent insensitivity of the aggregate capital stock to the user cost of capital and (2) predicted responses of the capital stock to shocks that are considerably slower than observed. Both of these consequences are features of available investment equations. Copyright 1992 by MIT Press.

The effects of expenditure on R&D and purchase of technology on costs in Indian manufacturing is investigated using firm-level data. Expenditures for R&D, royalties, and technical fees are treated as potentially inducing both Hicks-neutral efficiency shifts and substitution between capital and labor in an indirect cos t function framework. The effects of technology expenditure are found to vary by industry, by type of expenditure, and by domestic or foreign origin of seller. Technology expenditures associated with higher levels of Hicks-neutral efficiency are generally also associated wit h higher capital-labor ratios. Copyright 1992 by MIT Press.

A nonparametric analysis of agricultural production behavior was conducted for each of the contiguous forty-eight states for the period 1956-82 under the joint hypothesis of profit maximization, convex technology, and nonregressive technical change. Tests were conducted in each state for profit maximization and for constant returns to scale. Although considerable variability was observed among states, measurement errors of magnitudes common in secondary data yielded test results fully consistent with the profit-maximization hypothesis in all states with complete output and input data. Copyright 1992 by MIT Press.

The conventional model of the housing market does not take into account the search process for a suitable housing unit. Based on a dynamic search theory, this paper develops and estimates a truncated regression model of the rental housing market with stochastic and unobserved truncation points. The author's model provides a joint estimation of the hedonic rice and the reservation rent equations. The results turn out to be superior to the ordinary least squares estimates of either the traditional housing demand function or the hedonic price equation. Copyright 1992 by MIT Press.