Knowledge that Transforms

Toward explaining why movie exhibitors have sought legislation requiring distributors to trade-screen films before soliciting bids, a simulation of a Nash equilibrium in an auction suggests that without previews bidders may suffer losses i n expected utility. This supports the hypothesis that risk aversion a nd competition render exhibitors unable to reduce their bids enough t o compensate fully for the dearth of information. An error-components model is used to analyze a unique industry dataset. The results conf irm that a component of the bid is lower (raising mean return), while the variance of return is greater for blindly-licensed films. Copyright 1988 by MIT Press.

Studies of the earnings of union workers have consistently shown that they earn considerably more than nonunion workers.This paper considers whether part of this observed union/nonunion differential is due to unions organizing high paying primary sector jobs.We extend our earlier work on the dual labor market in which we used an unknown regime switching regression to identify two labor market sectors --a high wage primary sector and a low wage secondary sector.Here we estimate a model where worker's wages are determined by one of three wage equations: a union wage equation, a nonunion primary equation or a nonunion secondary equation.If individuals are in the union sector their sector is treated as known.If they are not then their sector is treated as unknown.Parameter estimates for this model suggest that union/nonunion differences are very large for average workers even when comparing union and nonunion primary workers.We continue to find distinct primary and secondary sectors with wage equations similar to those that would be expected from the dual market perspective.Since it appears that union workers may be receiving large wage premiums it seems likely that there is non-price rationing of union jobs.If there is, our finding in previous papers of non-price rationing of primary sector jobs may have been due only to the rationing of union jobs.We test for the existence of non-price rationing of nonunion primary sector employment in this three sector model and continue to find evidence that at least black workers find it difficult to secure primary sector employment.

-This paper develops estimates of the internal costs (measured in terms of foregone current output) associated with the introduction of new plant and equipment into manufacturing establishments, using the Census Bureau's Longitudinal Establishment Data file, a very large and rich source of production and investment data. Our estimates provide strong support for the internal-adjustment-costs hypothesis; they indicate that one-dollar increases in expansion and replacement investment cause, on the average, 35and 21-cent reductions, respectively, in current output. The internal cost of adjusting to equipment appears to be higher than the cost of adjusting to plant.

L. G. Godfrey, Michael McAleer, C. R. McKenzie, Variable Addition and Lagrange Multiplier Tests for Linear and Logarithmic Regression Models, The Review of Economics and Statistics, Vol. 70, No. 3 (Aug., 1988), pp. 492-503

A dynamic model of corporate balance sheet structures and net worth growth is fit to firm-level panel data from Uruguay. Basic findings are: (1) net income is very sensitive to financial costs and demand for output; (2) there is a direct proportionality between net income and net worth expansion; (3) firms absorb most short-run fluctuations in net worth via adjustments in assets, not debts; and (4) the interest elasticity of corporate demand for peso debt is very small. Inter alia, these results imply that rapid changes in the exchange rate have large effects on corporate sector leverage and liquidity. Copyright 1988 by MIT Press.

Feliciano Hernandez Iglesias, Michelle Riboud, Intergenerational Effects on Fertility Behavior and Earnings Mobility in Spain, The Review of Economics and Statistics, Vol. 70, No. 2 (May, 1988), pp. 253-258

Andrew F. Daughety, Forrest D. Nelson, An Econometric Analysis of Changes in the Cost and Production Structure of the Trucking Industry, 1953-1982, The Review of Economics and Statistics, Vol. 70, No. 1 (Feb., 1988), pp. 67-75