Showing papers by "London School of Economics and Political Science published in 1979"

The Implementation of Social Choice Rules: Some General Results on Incentive Compatibility

Abstract: We shall assume that the objectives of a society are embodied in a certain social choice rule. A social choice rule (SCR) selects a set of feasible social states for each possible configuration of individual preferences and other characteristics. One interprets the choice set as the set of welfare optima. For example, given an Arrow social welfare function which embodies individual preferences in a social ordering, then a natural social choice rule is derived by maximizing this social ordering over the feasible set. Alternatively, the Pareto rule is the social choice rule which selects all Pareto efficient states, given individual preferences and the feasible set. These are two particular social choice rules which have received much attention, but our discussion will cover social choice rules in general. If the relevant characteristics of individual agents, such as preferences, happen to be publicly known, then the social choice rule can be implemented trivially because the choice set itself is known. The problem of incentive compatibility arises precisely because these characteristics are not known by the planner a priori. The planner may attempt to learn characteristics directly by asking agents to reveal them. In general, however, if the agents realize how the information they reveal is to be used, they will have an incentive to misrepresent. Then the task of the planner in implementing the social choice rule is more difficult. Obviously, he must use a planning mechanism of some kind, whose outcomes are possible social states. We shall assume that, when he devises the mechanism, the planner knows what social states are feasible, so that he can ensure that the final outcome is feasible. (See, however, Hurwicz, Maskin and Postlewaite (1978), which considers the more general problem where feasibility itself depends on unknown characteristics.) The planner, however, relies on signals from the individual agents to help him implement the social choice rule. It is assumed that each individual agent sends his own signal. The planner's mechanism is then a rule which specifies a social state for each list of signals sent by the individual agents. It is assumed that each agent knows the precise form of the mechanism the planner is using. Then each agent realizes that he is involved in a game, because the outcome of the mechanism depends on the signals which he and all the other

The rate of obsolescence of knowledge, research gestation lags, and the private rate of return to research resources

Abstract: This paper points out the conceptual distinction between the rates of decay in the physical productivity of traditional capital goods and that of the appropriate revenues accruing to knowledge-producing activities, and notes that it is the latter parameter which is required in any study which constructs a stock of privately marketable knowledge The rate of obsolescence of knowledge is estimated from a simple patent renewal and the estimates are found to be comparable to evidence provided by firms on the lifespan of the output of their R&D activities These estimates, together with mean R&D gestation lags, are then used to correct previous estimates of the private excess rate of return to investment in research We find that after the correction, the private excess rate of return to investment in research, at least in the early 1960's, was close to zero, which may explain why firms reduced the fraction of their resources allocated to research over the subsequent decade

Concepts in the analysis of qualitative data

Abstract: The question arises: do problems of concept-formation in such research differ from those in quantitative social research? It has often been maintained that this is so. While in quantitative social research concepts tend to be pre-formed and fixed (it is argued), in qualitative research they tend to be fluid and emergent. Herbert Blumer’s classic paper, ‘What is wrong with social theory?’ (1954), in which he distinguished between definitive and sensitising concepts provides a clear statement of this view.

Maximum likelihood estimation of regression models with autoregressive-moving average disturbances

Abstract: SUMMARY The regression model with autoregressive-moving average disturbances may be cast in a form suitable for the application of Kalman filtering techniques. This enables the generalized least squares estimator to be calculated without evaluating and inverting the covariance matrix of the disturbances. The problem of forecasting future values of the dependent variable is also effectively solved when the Kalman filter technique is applied. Furthermore, the properties of the residuals produced by the filter suggest that they may be useful for diagnostic checking of the model. The Kalman filter algorithm also forins the basis of a method for the exact maximum likelihood estimation of the model. This may well have computational, as well as theoretical, advantages over other methods. In a general formulation of the linear regression model, the disturbances may be assumed to be generated by an autoregressive-moving average process. Most work, however, has been restricted to the estimation of models with purely autoregressive disturbances. Models with autoregressive-moving average, or even pure moving average, errors have been much less popular, the main reason for this being computational difficulties. At first sight, it is necessary to evaluate the covariance matrix of the disturbances, and then to invert it. Since the matrix is n x n, where n is the sample size, this can be time consuming, although, as Akaike (1973) and Galbraith & Galbraith (1974) have shown, the special form of the covariance matrix means that it can be inverted relatively efficiently. Maximum likelihood estimation of the regression model with autoregressive-moving average errors has been considered by Pierce (1971). The method of estimation he adopts is basically an extension of the familiar 'conditional sum of squares' approach employed by Box & Jenkins (1970) in their treatment of autoregressive-moving average time series models. This method avoids any large-scale matrix inversions, but it does lead to an estimation problem which is nonlinear in the vector of regression coefficients as well as in the parameters of the autoregressive-moving average process. Furthermore, the estimators obtained in this way are only approximations to the full maximum likelihood estimators. A number of authors, for example Newbold (1974) and Osborn (1976), have recently stressed the desirability of computing estimators of autoregressive-moving average parameters using the exact likelihood function, and this view is reiterated in the context of regression models

Human Capital and Earnings: British Evidence and a Critique (1979)

Abstract: What is the private rate of return to schooling and to on-the-job training? And how far does human capital explain the inequality of earnings? We try to answer these questions for Britain for a random sample of about 7000 employed males. Basically, we use the framework of Mincer (1974), but at some important points we find this unsatisfactory, and offer our own critique.1 In Mincer’s regression approach log earnings are regressed on schooling, work experience and experience squared. (The effects of experience are held to reflect the influence of costly investment in on-the-job training.) But this method only yields valid estimates of the direct effects of schooling on earnings if there is no relationship between schooling and the amount of post-school investment and its profitability. A necessary (though not sufficient) condition for this to be true is that the profiles of log-earnings, as experience varies, are vertically parallel for all schooling groups. Casual inspection is not sufficient to verify whether this is so. So the obvious approach is to specify a model in which the pattern of post-school investment and its profitability are allowed to depend on schooling. Such a model also allows one to estimate the rate of return to on-the-job training.

The structure of production, technological change, and the rate of growth of total factor productivity in the Bell system

Abstract: he objectives of this preliminary study are threefold. The first is to analyze empirically the production structure of the Bell System at the aggregate level. Particular attention is focused on the pattern of substitution among the factor inputs and the degree to which the aggregate production function is characterized by economies of scale. In this connection, we explore the role of research and development in the Bell System as an input in the production process, and its interaction with the traditional inputs. Second, we examine the impact of external technological chance on the production structure of the Bell System. The issues here include not only the rate of such technical change, but also the extent to which it alters the optimal level and mix of inputs, that is, the factor bias of external technical change. The third objective is to explore the inter relationship between scale economies internal to the Bell System and external technical change in determining the rate of growth of total factor productivity (TFP) . Specifically, we propose and illustrate a methodology for composing the observed growth of TFP into a part related to scale economies and a part included by technical change. We address these issues by first estimate in a an aggregate translog cost function for the Bell System, using annual data for the period 1947-1976. The implied estimate of the scale economies is then used to explore the sources of the growth of TFP.

The Determinants of Teacher Supply

Abstract: In the economic literature, occupational choice has been interpreted as a decision which will be determined by the expected lifetime earnings associated with each of the available alternatives. Despite its apparent simplicity, it has been notoriously difficult to incorporate this idea into the analysis of occupational choice, the main reason being the inadequacy of empirical data on earnings. Given this difficulty, some models of occupational choice have from the outset formulated the problem as a one-period decision. All the work carried out in the US to investigate the factors determining the choice of a military career belongs to this class of models (cf. Fisher (1969), Altman (1969) and Altman and Barro (1971)). Other researchers have taken into account the effect of lifetime earnings in their theoretical analysis, but have focused their empirical work more on evaluating rates of return than on estimating supply elasticities (e.g. Weiss (1972)). Probably the most complete attempt to deal with this problem has been that of Freeman (1971). The bulk of his empirical analysis considers either starting or average salaries as the relevant variables of the occupational supply functions, and in this sense it is not substantially different from the studies on military manpower reported above. In his analysis of career decisions of doctorate manpower, however, he explicitly takes into account lifetime earnings as the explanatory variable of occupational choices. For each of the specialities considered, Freeman estimates discounted lifetime earnings on the basis of geometric mean incomes for graduates in several previous classes. However, he is faced with serious problems to arrive at a similar measure for alternative occupations. Although still consistent with theoretical expectations, his results are not as neat and convincing as those obtained with only starting or average salaries, and in subsequent work (Freeman (1975a) and (1975b)) he has abandoned this line of analysis, to come back to the simpler specifications. In our view, the analysis of occupational choice developed in this paper goes some way towards the solution of these persistent difficulties. The effect of lifetime earnings on occupational decisions is explicitly considered in a theoretical model from which we derive empirically testable hypotheses. The basic idea is to reduce the earnings profile to two dimensions: its level and the rate at which earnings progress over time. In this manner we achieve two results. First, by measuring the profile with two variables rather than one (as is in fact done when only average, or starting salaries, or even present values, are used), we are able to disentangle two different supply responses: the response to starting earnings, and the response to future earnings prospects. This procedure gives considerable insight into the behaviour of groups of individuals with different characteristics (e.g. men and women). Secondly, our model suggests an empirically convenient way of taking into account lifetime earnings which relies only on starting and average salaries. Given the inadequate data with which most occupational studies have to work, this procedure may prove a useful methodological advance in this area. The rest of the paper is as follows. In Section 2 we develop a simple model of occupational choice, which will help in organizing the discussion of the factors that determine the supply of teachers. Then, in Section 3, the model is applied to data on entry and wastage of teachers. Finally, Section 4 summarizes the main results obtained.

Computer Codes for Problems of Integer Programming

Abstract: Publisher Summary This chapter presents computer codes for the problems of integer programming. The term “integer programming” covers a wide spectrum of models, which can be characterized by mixed integer programming (MIP) at one end and combinatorial programming at the other end. The interest of those working in commercial organizations is currently focused at the MIP end of the spectrum—indeed on problems, which are basically large linear programming (LP) systems with relatively few integer variables. The chapter presents a “consumer research” report on the different products and also the methods for solving pure integer problems—frequently with special combinatorial structures. Thus, in a consumer report, one has to bear in mind, which consumers are intended for each code. The code should be capable of obtaining a guaranteed optimum solution. A large and complex problem may not be capable of yielding an optimum integer solution within feasible cost and time limits on any code so that the user has in fact to be content with a significant solution obtained by heuristic methods.

The psychological complex : mental measurement and social administration

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Irving Fisher on his Head: The Consequences of Constant Threshold-Target Monitoring of Money Holdings

Abstract: I. Introduction, 169. — II. Relation between payments flows and money demand with threshold-target monitoring, 173. — III. Comments on the model, 178. — IV. Agreement with empirical evidence, 180. — V. Summary and conclusion, 182. — Appendix, 182.

The management of surplus capacity: or how does theory stand up to protectionism 1970s style?

Abstract: Contemporary trends toward protectionism seem not merely to represent a passing phase in the world political economy but reflect widespread resistance to deep-seated structural change. In three major sectors of the world economy characterized by surplus capacity—textiles, steel, and shipbuilding—state policies increasingly challenge liberal, market-oriented economic arrangements. The emergence of restrictive arrangements in these areas is still primarily organized nationally: multinational enterprises do not dominate economic activity. Conflict among firms over market shares is reflected, therefore, in conflict among governments. Such conflict may be temporarily resolved through market-sharing agreements, but these are inherently unstable. Increasing state involvement is likely in the long run to exacerbate the problems of capitalism and to increase conflict over international economic issues. These adverse developments will call further into question theories of international political economy that assume compatibility between a liberal, market-oriented international economic system and a state-oriented international political system.

Rapid geomorphological assessments for engineering

Abstract: Summary Geomorphological mapping is being used increasingly in engineering projects (especially at the reconnaissance and site-investigation stages) as a rapid, highly cost-effective means of assessing both potential hazards and resources. This is normally achieved through a field mapping programme which is dependent on the availability of aerial photographs, and which involves the correct interpretation of landforms as to their origins, material composition, and associated present-day geomorphological processes. The results of such a survey need to be presented in a form which is of direct use to an engineering geologist and/or engineer. This is best achieved, in most cases, by the production of problem or site-orientated maps derived from the primary geomorphological survey. The case studies, drawn from several investigations in arid land environments, were made by a small team of (3-5) geomorphologists and geologists, working for short but concentrated periods of time in the field. A search for fine aggregates in Bahrain was closely associated with the identification and mapping of contributing drainage networks and source areas for alluvial fan deposits. Thelocation of trial pits and boreholes at a site in Dubai was rationalised in terms of a reconnaissance map of both landforms and their constituent materials; while at Suez, extrapolation between existing trial pit and borehole sites was made possible from the geomorphological mapping of landform boundaries. Hazards to engineering from flooding (at Suez) and dune migration (in Dubai) were identified, assessed, and mapped on the basis of a knowledge of their place in the overall geomorphological system.

A Quantitative Analysis of the Demand for Higher Education.

Abstract: This article analyses the plans of a sample of 7425 secondary school children in Greece regarding their demand for further education. A set of family, personal, geographical and school characteristics are related by means of multivariate analysis to the pupil's decision to continue or not his/her studies and to the particular institution of higher education he/she aspired entry. The maximum likelihood estimates of the “yes-no” pupil decision indicate the dominance of school grade as a key variable affecting plans for further study. An educational production function revealed in turn that it is mainly parents' education that relates to scholastic achievement. The article also contains empirical estimates of the relative strength of several family and school factors affecting self-selection which may make the results useful to policy makers who attempt to influence the social demand for post-secondary education.

Towards a Theory of Mathematical Research Programmes (II)

Abstract: The main aim of the methodology of scientific research programmes (henceforth MSRP) is to set out clear, general desiderata for distinguishing between progressive and degenerating science which are in accord (more or less) with the informed, intuitive assessments scientists make in particular cases.1 In this paper I want to consider whether a modified form of that methodology can perform the same function with respect to mathematics. Mathematicians generally have an intuitive feeling for what constitutes

Large Economies with Trading Uncertainty

Abstract: The last ten years have seen a long series of papers published about models of nonWalrasian equilibrium, most of them concerned with "Keynesian economics" or " underemployment equilibrium" or some such idea. In recent years two approaches have been especially prominent and something like a definitive version of each is now available. (For an excellent, short account of both, see Grandmont (1977, pp. 556-565).) The first of these approaches was started by Clower and developed by Barro-GrossmanBenassy. It has culminated in the concept of what Grandmont (1977, p. 562) calls a Benassy equilibrium. The other approach was begun by Dreze (for non-Keynesian purposes) and adapted to the study of underemployment equilibrium by GrandmontLaroque. The corresponding equilibrium concept is called a Dreze equilibrium by Grandmont (1977, p. 558). The theory of underemployment equilibrium is now quite highly developed so the introduction of yet another model requires some justification. In the old debate between Keynes and the Classical economists, the traditional view was that persistent unemployment was caused by wage rigidities, a proposition denied by Keynes. Since the Keynesian theory is an equilibrium theory, attention focused on the possibility of underemployment equilibrium. If prices adjust in response to excess demand then in order for an economy to be in equilibrium, excess demand must be zero. Then how can there be underemployment in equilibrium? Clearly a different definition of excess demand (different from the Walrasian one, that is) must be used in the definition of equilibrium. In other words, prices are assumed to respond to the stimulus of effective excess demand, not Walrasian excess demand. Then the possibility of underemployment equilibrium amounts to the existence of a state of the economy in which effective excess demand is zero but Walrasian excess demand is not. The issue here is quite a general one: if the economy is regarded as a homeostatic mechanism, do demand and supply signals alone provide enough information to guide the economy to a full employment equilibrium? In the more recent Keynesian literature, underemployment equilibrium is represented as a kind of informational breakdown. The name of Leijonhufvud (1968) in particular is associated with this interpretation. Now, in a Walrasian equilibrium the plans of the agents are consistent so everyone can trade as much as he wants at the prevailing prices. By definition, in a non-Walrasian equilibrium at least one agent cannot trade as much as he wants at the prevailing prices. One way to represent " informational breakdown " is to say that although some agents are dissatisfied with their final net trades, this dissatisfaction is not signalled to the market. More precisely, the market observes zero aggregate effective excess demand in spite of the fact that some agents are dissatisfied with their final net trades. Clearly, the definition of effective excess demand or, more generally, of the signals agents transmit to the market, is crucial. The Dreze and Benassy equilibria, developed perhaps with different objectives in view, are not entirely suited to the study of this sort of problem, mainly because of the way in which effective excess demand is defined.