Knowledge that Transforms

Joe A. Stone, Price Elasticities of Demand for Imports and Exports: Industry Estimates for the U.S., The E.E.C. and Japan, The Review of Economics and Statistics, Vol. 61, No. 2 (May, 1979), pp. 306-312

Statistical analysis is used to evaluate trends in the relative prices of natural resource commodity aggregates and to predict the adequacy of natural resource supplies. The model incorporates the Brown-Durbin custom test and Quandt's log-liklihood ratio. The results indicate that a relative price series is not stable enough to predict a consistent pattern of change and it would be unwise to base materials and extraction policies on this framework. This conclusion is reached, in part, because of the significant changes in the US economy and institutions in recent years. 22 references.

W HILST centralists may clamour for direct emission controls and marketeers may favour tax refinements to the price structure of traded goods, their common concern to beat pollution would require of them a practical control policy, namely, a list of emission levels for pollutants or the specific rates of taxes that they would propose. Diligent, but isolated, studies of particularly offensive industries may deflect enquiry away from those unobtrusive production activities with such offenders in their chains of dependent suppliers, so failing to reveal their true pollution status. Partial equilibrium studies will certainly lack the broad comparability which equitable interference by the state demands. The overriding superiority of the input-output approach lies in its systematic description of the environmental and economic repercussions, both direct and indirect, of pollution emission standards and taxes. Using a convenient arithmetic example, Professor Leontief (1970) has shown that the inclusion of pollution generation and its control within an extended input-output model is analytically simple. Pollutants are produced as bi-products of industrial activity, and the aggregate generation of each pollutant is controlled by a specified tolerance limit, without regard for spatial impact. Abatement activities are defined to absorb surplus pollution, at the cost of intermediate (manufactured) inputs and value-added. This present paper arises from the author's work' with the United Kingdom Input-Output model, and seeks to extend Leontief's example, and place his pricing recommendations within a broader context. Although Leontief assumes a economy to facilitate direct solution by matrix inversion, the U.K. model is not essentially square, and its solution requires a choice among alternative techniques of industrial production and pollution abatement and, in broader terms, between economic consumption and pollution. These dilemmas are synthesized by enjoining Gross National Product as the objective criterion to a linear programme. So that Leontief's simple arithmetic might be retained, the same square economy is assumed for numerical purposes, but special investigation is made into the opportunity costs of environment protection, the financial consistency of national accounts, and self-financing pollution taxes.

ARE per-capita expenditures on foreign aid by different donor countries interrelated? In particular, do small countries tend to be free riders, exploiting the larger countries by spending relatively little themselves while deriving benefits from larger countries' expenditures? The participants in the 1960s debate over the allocation of defense expenditures among Western nations tended to assume that the answer to both questions was yes. Lumping foreign aid with defense, they argued that the smaller countries were assuming an insufficient share of the common burden of promoting world security. 1 In a provocative article, Olson and Zeckhauser (1966) proposed a theory of alliances to explain this phenomenon. The study developed the notion of a reaction function for each country, which determines its expenditures for any given level of the expenditure of other members of the alliance. Equilibrium for the alliance occurs when each country is in equilibrium given the spending of the other members. Since small countries benefit from the expenditures of large countries whatever they themselves do, they have little incentive to spend very much themselves. In the case of defense spending, this argument was supported by cross-section evidence of a positive correlation between defense spending as a percentage of GNP and GNP itself. However, in the case of foreign aid the evidence was less clear: for 1960 the authors found a positive relationship; for 1962 the relationship was not statistically significant. The Olson-Zeckhauser (O-Z) paper gives rise to a number of questions. The preferences of each country are expressed in terms of a social utility function, but no attempt is made to relate this function to the preferences of individuals within the country or to the domestic political process. Conceptually, one may distinguish three different reasons why foreign aid expenditures as a proportion of GNP might be related to the level of GNP. First, there is the influence of per-capita income. If foreign aid expenditures (or rather the returns from such expenditures) are a luxury good, aid as a percentage of per-capita income will vary positively with per-capita income. Second, there is the influence of population. It is reasonable to assume that what is generated by foreign spending is a public good consumed by residents of the donor country. Other things being equal, the price of that public good for the residents of different donor countries will be a decreasing function of their country's population. In other words, since a large country will have a greater number of taxpayers, the cost per taxpayer of a given total amount of aid spending will be lower than in a small country. Finally, there is the effect which O-Z had in mind; namely, the influence of spending by other members of the country's reference group or alliance. It would seem worthwhile to separate these three influences. Since the O-Z paper was primarily concerned with defense alliances, the implications for foreign aid spending were not studied in detail. However, there is evidence that multilateral aid, that is, funds from several countries channeled through a joint organism, is determined by a mechanism quite different from allocations of bilateral aid, which is transferred directly from donor to recipient.2 It would be desirable, therefore, to disaggregate total aid into these two components. This paper attempts to bridge the gap between individual and group preferences by means of the median-voter hypothesis, at the same time extending this approach to cases where group Received for publication February 24, 1978. Revision accepted for publication August 24, 1978. * Universite de Montreal. The author is greatly indebted to Claude Montmarquette for advice and encouragement offered in the preparation of this study. The suggestions of anonymous referees were also very helpful. Benoit Audet prepared the data and carried out the estimations. The research was supported by the Canada Council. I See, for example, Ypersele de Strihou (1967). However, Mason (1963) notes that in 1961 the United States was spending a smaller percentage of its GNP on aid than the other members of the OECD's development assistance committee. 2 Price (1967) examines the determinants of member shares for a number of international organizations. However, his capacity-to-pay model overlooks the relationship between member shares and the preferences of residents of member countries.

Raymond C. Battalio, John H. Kagel, Robin C. Winkler, Richard A. Winett, Residential Electricity Demand: An Experimental Study, The Review of Economics and Statistics, Vol. 61, No. 2 (May, 1979), pp. 180-189

W E shall motivate our investigation of exact index numbers by presenting an example of application of index number theory. We consider a profit-maximizing, price-taking firm endowed with a continuously differentiable non-decreasing and concave production function F(q). Suppose we have observations on the normalized prices p (nominal prices divided by the price of output) and the quantities of the inputs q at two distinct points in time, but not the outputs. An index number formula for the unobserved output is a function of the normalized prices and the quantities of the inputs at the two points, say I(P1,P2,q1,q2), which gives a measure of the ratio of the outputs at the two points, that is,

Fama, Eugene F., and James D. MacBeth, Return and Equilibrium: Empirical Tests, Journal of Political Economy 81 (May 1973), 607-636. Jensen, Michael C., Foundations and Current State of Market Theory, in Michael C. Jensen (ed.), Studies in the Theory of Markets (New York: Praeger Publishers, 1972). Johnston, John, Econometric Methods (New York: McGraw-Hill Book Company, 1972), 345-346. Levy, Robert A., On the Short-Term Stationarity of Beta Coefficients, Financial Analysts Journal 27 (Nov. 1971), 55-62. Lintner, John, Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Budgets, this REVIEW 47 (Feb. 1965), 768-775. Marshall, William J., Jess B. Yawitz, and Edward Greenberg, On the Comparative Statics of Asset Price Adjustments, working paper, Washington University Graduate School of Business, 1977. Miller, Merton H., and Myron Scholes, Rates of Return in Relation to Risk: Re-examination of Some Recent Findings, in Michael C. Jensen (ed.), Studies in the Theory of Markets (New York: Praeger Publishers, 1972). Mossin, Jan, in a Asset Market, Econometrica 34 (Oct. 1966), 768-775. Rao, Potluri, and Roger Leroy Miller, Applied Econometrics (Belmont, CA: Wadsworth Publishing Company, Inc., 1968), 204. The authors attribute the proof to A. S. Merrill, Frequency Distribution of an Index Where Both the Components Follow the Normal Law,; Biometrika 20 (1928), 53-63. Rubinstein, Mark E., A Mean-Variance Synthesis of Corporate Financial Theory, Journal of Finance 28 (Mar. 1973), 167-181. Sharpe, William F., Capital Asset Prices: Theory of Market Equilibrium Under Conditions of Risk, Journal of Finance 19 (Sept. 1964), 425-442.

A LTHOUGH there has been considerable recent interest the effects of U.S. research and development on our foreign trade, little, if any, effort has been made to study the reverse flow of causal forces-namely, the effects of American foreign trade on our research and development activities. In 1973, the National Science Foundation convened a conference of leading economists that considered the question: What effects do international trade, foreign direct investment, and foreign licensing have on U.S. technological innovation? It was concluded that in spite of the importance of this question, there seems to be a complete void our knowledge.1I In this paper, our purpose is to present some new findings bearing on this topic, as well as on the ways which American firms transfer their technology abroad. Although our findings are subject to a variety of limitations, they seem to represent some of the first systematic evidence related to these topics.