Knowledge that Transforms

The ratio of a firm's market value to its replace ment cost, q, is often used to measure firms' profitability. The use of q is increasin g in large part because of the growing realization that errors in evaluating firms' capital assets may cause errors in estimates of the accounting rate of return, r. The same objection, however, applies t o q. This paper reports the results of Monte Carlo experiments designed to determine whether q is superior to r. Errors in both q and r are large and potentially serious, but do not render either measure useless. Copyright 1988 by MIT Press.

Using level data from the U.S. steel industry, this paper tests and finds support for the hypothesis that firms in a contracting industr y first disinvest from, and then close, their high-cost plants. An investment decision model is estimated using a panel data set composed of the major replacement investments made in forty-three steel plants during the years 1960-81. The results indicate that the firms disinvested from those plants are least likely to remain profitable in an environment of strong competition from imports, minimills, and stagnating domestic demand. Copyright 1988 by MIT Press.

The authors examine how the strategic aspect of Japanese research and development expenditures and industrial policies affected U.S.-Japanese bilateral trade during the late 1970s, and investigate which component of R&D--expenditures on process innovation, product quality improvements, new products and new technology, or technology transfer--proved to be most effective. They find that while Japanese R&D expenditures have generally promoted Japan's trade advantage, certain components of R&D have proved more effective than other. The depreciation subsidy and special status with the Ministry of International Trade and Industry is positively related to the Japanese trade performance, while legal cartelization status has not had any apparent effect. Copyright 1988 by MIT Press.

Economists devote considerable effort to the analysis of various forms of nonprice rationing. These analyses generally disregard forces that act to foil rationing schemes. Even with a commodity that seems to be easy to control, however, in a system with extensive rationing experience, nonprice rationing schemes can be circumvented. This thesis is examined for the case of housing distribution in the U.S.S.R. utilizing the data from a survey of recent Soviet emigres. It is shown that administrative rationing of Soviet urban housing is partially replaced by market forces acting usually through the second economy. Copyright 1988 by MIT Press.

Using a simultaneous equations model of wages and union membership, the elasticity of the wage with respect to market concentration is estimated to be approximately 0.2. The estimate uses a large data set and extensive controls to measure concentration's direct effect on the wage, an indirect effect through unionization, and a feedback effect. The indirect effect represents the majority of concentration's effect. Copyright 1988 by MIT Press.

"Revised April 1986."

Micro data gathered by the Soviet Interview Project provide one of the first opp ortunities for Western researchers to investigate the determinants of Soviet earnings. The data show that Soviet labor markets operate in many respects like U.S. labor markets, yet institutional differences remain. The most striking institutional impact is that Soviet workers are rewarded and penalized for political behavior external to the firm. As in the U.S., education and experience are rewarded; men earn more than women. However the Soviet pattern of returns to education is different, returns to experience are lower and occupational segregation of women is less important. Copyright 1988 by MIT Press.

This paper highlights the impact of voluntary export restrictions (VERs) on the nonrestricted supplier by investigating the effect of the U.S.-Japan auto VER on the behavior of European producers. Using three independent approaches (supply functions, hedonic regressions, and casual evidence), it shows that European producers raised prices by nearly one third. U.S. welfare loss to Europe ($3.4 billion in 1984) actually exceeded its loss to Japan ($2.4 billion), and the small social loss within the United States. Total annual cost of a job saved in the industry was $181, 000. Copyright 1988 by MIT Press.