Using the result that under the null hypothesis of no misspecification an asymptotically efficient estimator must have zero asymptotic covariance with its difference from a consistent but asymptotically inefficient estimator, specification tests are devised for a number of model specifications in econometrics. Local power is calculated for small departures from the null hypothesis. An instrumental variable test as well as tests for a time series cross section model and the simultaneous equation model are presented. An empirical model provides evidence that unobserved individual factors are present which are not orthogonal to the included right-hand-side variable in a common econometric specification of an individual wage equation.

/pdf/specification-tests-in-econometrics-9sg4xr62ii.pdf

Specification Tests in Econometrics

This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts. This paper takes Robert Solow seriously. In his classic 1956 article Solow proposed that we begin the study of economic growth by assuming a standard neoclassical production function with decreasing returns to capital. Taking the rates of saving and population growth as exogenous, he showed that these two vari- ables determine the steady-state level of income per capita. Be- cause saving and population growth rates vary across countries, different countries reach different steady states. Solow's model gives simple testable predictions about how these variables influ- ence the steady-state level of income. The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country. This paper argues that the predictions of the Solow model are, to a first approximation, consistent with the evidence. Examining recently available data for a large set of countries, we find that saving and population growth affect income in the directions that Solow predicted. Moreover, more than half of the cross-country variation in income per capita can be explained by these two variables alone. Yet all is not right for the Solow model. Although the model correctly predicts the directions of the effects of saving and

/pdf/a-contribution-to-the-empirics-of-economic-growth-27cl5gkqam.pdf

A Contribution to the Empirics of Economic Growth

An intertemporal model for the capital market is deduced from the portfolio selection behavior by an arbitrary number of investors who aot so as to maximize the expected utility of lifetime consumption and who can trade continuously in time. Explicit demand functions for assets are derived, and it is shown that, unlike the one-period model, current demands are affected by the possibility of uncertain changes in future investment opportunities. After aggregating demands and requiring market clearing, the equilibrium relationships among expected returns are derived, and contrary to the classical capital asset pricing model, expected returns on risky assets may differ from the riskless rate even when they have no systematic or market risk. ONE OF THE MORE important developments in modern capital market theory is the Sharpe-Lintner-Mossin mean-variance equilibrium model of exchange, commonly called the capital asset pricing model.2 Although the model has been the basis for more than one hundred academic papers and has had significant impact on the non-academic financial community,' it is still subject to theoretical and empirical criticism. Because the model assumes that investors choose their portfolios according to the Markowitz [21] mean-variance criterion, it is subject to all the theoretical objections to this criterion, of which there are many.4 It has also been criticized for the additional assumptions required,5 especially homogeneous expectations and the single-period nature of the model. The proponents of the model who agree with the theoretical objections, but who argue that the capital market operates "as if" these assumptions were satisfied, are themselves not beyond criticism. While the model predicts that the expected excess return from holding an asset is proportional to the covariance of its return with the market

http://jpkc.fudan.edu.cn/picture/article/296/c7/92/0e8c302443d092d8b77a256079cf/3a6483db-591a-42b5-b904-e2430eb26c6a.pdf

An intertemporal capital asset pricing model

Norms have never been absent from the study of international politics, but the sweeping “ideational turn” in the 1980s and 1990s brought them back as a central theoretical concern in the field. Much theorizing about norms has focused on how they create social structure, standards of appropriateness, and stability in international politics. Recent empirical research on norms, in contrast, has examined their role in creating political change, but change processes have been less well-theorized. We induce from this research a variety of theoretical arguments and testable hypotheses about the role of norms in political change. We argue that norms evolve in a three-stage “life cycle” of emergence, “norm cascades,” and internalization, and that each stage is governed by different motives, mechanisms, and behavioral logics. We also highlight the rational and strategic nature of many social construction processes and argue that theoretical progress will only be made by placing attention on the connections between norms and rationality rather than by opposing the two.

/pdf/international-norm-dynamics-and-political-change-37ig9r9dlq.pdf

International Norm Dynamics and Political Change

Is public expenditure productive

s of Efficiency Studies in the Hospital Servicett help to bring the results of these studies to hospital administrators. The development of management studies in the hospital service can be extremely valuable. Creative operational research can help doctors and health-care officials to choose among different methods of treatment, between in-patient and out-patient care for particular conditions, and to solve other problems of choice in the planning and operation of the Health Service. Analytic and normative studies can both be useful. But there is a danger that much operational research currently being undertaken will be of limited value because the wrong questions are being asked. Instead of merely producing quantitative descriptions of Health Service activities, the analytical research should be finding the underlying relationships that characterise Health Service operations. Instead of searching for elusive 'necessary' or ' adequate ' standards of care, normative studies should be seeking the optimal allocation of resources among competing claims.? Only by providing such information and advice can operational research be useful as a basis for administrative decisions. Unification and Co-ordination The administrative division of the NHS into three functional branches-hospital, local authority, and executive council (general practitioner) services-has * Occasional papers of this type include the Hospital Building Bulletins Hospital Building Notes, Hospital Equipment Notes and Hospital Technical Memoranda all published by HMSO. ** Oxford Regional Hospital Board, Nursing Care in a Modern Hospital, 1962; Oxford Regional Hospital Board, Hospital Out-Patient Services, 1962; Nuffield Provincial Hospitals Trust, Towards a Clearer View: The Organisation of Diagnostic X-Ray Departments, 1962; Gordon Forsyth and Robert Logan, The Demand for Medical Care: A study of the case-load in the Barrow and Furness Group of Hospitals, I960; A. D. Airth and D. J. Newell, The Demand for Hospital Beds: Results of an Inquiry on Tees-side, 1962. For a general survey of recent health services operational research see: J. O. F. Davies, et al., Towards a Measure of Medical Care: Operational Research in the Health Services-A symposiumn, 1962. t Recent reports have included The Filing of Management Papers, I961 and Organisation and Management of Domestic Work in Hospitals, 1960. ft The abstracts are published as a periodical by HMSO. ? For a discussion of this point see: M. S. Feldstein, ' Operational Research and Efficiency in the Health Service', The Lancet, 1963, and 'Economic Analysis, Operational Research, and the National Health Service ', Oxford Economic Papers, I963.

Developments in Health Service Administration and Financial Control

This paper discusses the nature of the uncertainty faced by central banks and considers three approaches to dealing with uncertainty(1) formal optimization models and robust rules based on such models; (2) informal rules like the Taylor rule and inflation targeting; and (3) a case by case approach based on an informal Bayesian logic. The latter case requires considering the asymmetric nature of the risks that the central bank often faces.

/pdf/monetary-policy-in-an-uncertain-environment-2m3mycd1v3.pdf

Monetary Policy in an Uncertain Environment

T HE social security program will pay benefits of more than $100 billion in 1978.1 Public transfers on this scale are large enough to have profound effects on the behavior of the U.S. economy. The most important effect, although not the only one, is likely to be the impact of social security on private saving and aggregate capital accumulation. The present paper contributes to the analysis of this issue by providing new evidence on the extent to which the accumulation of wealth by individual households responds to differences in social security benefits.

Social security and household wealth accumulation: new

This working paper presents Chapter 7 of a book to be published for the National Bureau of Economic Research by the University of Chicago Press. The point of the book is to compare taxes on income from capital in four countries, accounting for corporate, personal, and property taxes, and including national, regional, and local level taxes. We describe statutory tax rates and other tax rules in each country and calculate overall effective marginal tax rates for different combinations of asset, industry, source of finance, and ownership categories. This chapter compares effective tax rates in the four countries for different assets, industries, sources of finance, and ownership categories. Differences in overall effective tax rates among countries are attributed to differences in rates of inflation, actual depreciation, tax parameters, or differences in the amount of capital in each combination. For each country, we plot the effect of inflation on overall tax rates, and we plot the distribution of different effective tax rates at a given rate of inflation. We further investigate the sensitivity of results to assumptions about inflation and interest rates. Mervyn A. King Don Fullerton Department of Economics Woodrow Wilson School University of Birmingham Princeton University P.O. Box 363 Princeton, NJ 08544 Birmingham, Bl5 2TT ENGLAND (609) 452—4811 021—472—1301, ext 3427

Comparisons of effective tax rates

This paper begins by examining the ways in which pension liabilities are and are not like corporate bonds. Some conceptual issues involved in valuing future pension obligations are then discussed. The second section considers the advantage to firms of fully funding their pension obligations and the reasons why many firms nevertheless choose to have unfunded obligations. The third section then summarizes the results of research on the effect of unfunded pension liabilities on the equity value of firms. The first three sections thus consider the role of pensions at the level of the individual firm. The two sections that follow focus on the current and future role of pensions in the national economy. More specifically, section 4 examines the effect of private pensions on the nation's saving rate, paying special attention to the implication of unfunded pension obligations. The fifth section then discusses the impact of inflation on the private pension system and the likely future for indexed and unindexed private pensions.

/pdf/private-pensions-as-corporate-debt-3adc2hhriq.pdf

Martin Feldstein

Papers

Developments in Health Service Administration and Financial Control

Monetary Policy in an Uncertain Environment

Social security and household wealth accumulation: new

Comparisons of effective tax rates

Private Pensions as Corporate Debt