Knowledge that Transforms

Edna Loehman, Vo Hu De, Application of Stochastic Choice Modeling to Policy Analysis of Public Goods: A Case Study of Air Quality Improvements, The Review of Economics and Statistics, Vol. 64, No. 3 (Aug., 1982), pp. 474-480

SMALL businesses are prevalent in some sectors of the economy and relatively scarce in others. If we use two frequently employed definitions of small business-firms with annual sales at or below $500,000 or $5 million'-we can see the relative patterns in table 1: Agriculture, construction, wholesale and retail trade, and services are areas in which small businesses are relatively important; mining and manufacturing are areas in which they are less important. Why does small business flourish in some sectors and not in others? This question has been tackled in a qualitative fashion by a number of authors.2 But, to this author's knowledge, there have been no quantitative efforts to establish the determinants of small business prevalence. The closest approximations in the economics literature are, in effect, the inverse: the efforts to explain concentration in individual industries (e.g., efforts to explain the sizes of the four-firm or eight-firm concentration ratios across industries).3 Some of these concentration data have also been analyzed in the context of discussions about small business.4 But the concentration data provide only indirect evidence for the small business question. This paper will provide some direct cross-section evidence on the determinants of the relative importance of small business. Our sample will be limited to the manufacturing sector, largely for reasons of data availability, but the results should have general economy-wide applicability. Section II will discuss the major hypotheses to be tested. Section III will describe the data. Section IV will describe the results of the tests. And section V will provide some brief conclusions.

A SSUMPTIONS regarding the depreciation ,AX rate for housing play an important role in the urban economics literature.1 The notion that houses filter down from higher to lower quality is prevalent in both academic and policy discussions of the nature of urban problems. Yet there has been no attempt to specify which depreciation rates are appropriate to these discussions, and little empirical investigation of depreciation in housing. This paper presents estimates of depreciation rates for housing which are appropriate to consideration of the filtering hypothesis. Estimates of these depreciation rates must be pursued differently from estimates of the depreciation rates for the aggregate capital stock of housing. A brief review of previous studies, which points out some of the difficulties which confound observation of depreciation rates, is presented in section I. Section II discusses specification, and section III describes the data and estimation technique used. Results are presented in section IV. Section V is a brief conclusion.

Bernard M. S. van Praag, Jan S. Spit, Huib van de Stadt, A Comparison Between the Food Ratio Poverty Line and the Leyden Poverty Line, The Review of Economics and Statistics, Vol. 64, No. 4 (Nov., 1982), pp. 691-694

Ronald R. Braeutigam, Andrew F. Daughety, Mark A. Turnquist, The Estimation of a Hybrid Cost Function for a Railroad Firm, The Review of Economics and Statistics, Vol. 64, No. 3 (Aug., 1982), pp. 394-404

JN the thirty years since Joe Bain's seminal I study (1951), many economists have attempted to determine whether or not there exists a critical level of market concentration at which a discontinuity occurs in the relation between industry concentration and profitability. In this paper we develop and test a more general model, based on organizational costs, which posits the existence of two critical levels of market concentration: one at which an existing cooperative equilibrium will break down as concentration declines, and one at which a cooperative equilibrium will become attainable as concentration increases. We show that the standard model of the critical level of concentration can be regarded as a special case of our more general model, and also that the more general model attains a statistically superior fit. In section II we briefly review some of the previous literature in this area. We develop our model in section III and specify and estimate it in sections IV and V. In sections VI and VII we summarize and interpret our results and present some policy implications of our findings.

The hypothesis of this paper is that crude oil, like any other unfinished commodity, is valued for the products derived from it; the purpose is to offer an empirical explanation for changes in the crude price charged by the members of OPEC. The model results show that the market-clearing prices reported to prevail for petroleum products on the principal petroleum spot market at Rotterdam are the primary determinants of changes in official crude prices. A systematic relationship between offical and spot prices is argued to have prevailed since 1974. An appendix clarifies five types of data required for the model. 13 references, 4 tables.

T HIS study develops an empirical model for the joint determination of the demand and supply for bilateral trade, in which both bilateral quantities and bilateral prices are endogenous. In theory each bilateral demand (supply) equation would contain income (output) variables together with all relevant bilateral prices. Given differences in the commodity composition of trade and given price discrimination, export prices of any country will differ over destination countries. In addition, transport costs and tariffs will drive a wedge between bilateral export and import prices. Thus, a bilateral demand and supply system for aggregate trade among n countries would require consideration of 2n2 price variables, an overwhelming task for empirical research. As a compromise between pure theory and practice, we use a two-tier construction in which total import demand and export supply are determined by aggregate real income (output) and relative aggregate prices, and then bilateral trade flows are determined by theory-based allocations featuring relative bilateral prices. This approach is more general than either specifying only bilateral demand behavior (assuming infinitely elastic supply at given prices) or including the supply side through stringent assumptions such as constant market shares.' For empirical application the model is extended to include proxies for nonprice competition and structural factors, a flowadjustment specification of dynamics, and a trend/cycle decomposition of income (output). The model is estimated from a panel of bilateral trade flows covering the United States, Japan, France, Germany, and United Kingdom for the years 1958-1974. The theoretical model is developed in section II, the empirical specification is presented in section III, and the empirical results are discussed in section IV.