Showing papers by "National Bureau of Economic Research published in 1974"

Social Costs of Monopoly and Regulation

Abstract: When an industry is monopolized, price rises above and output falls below the competitive level. Those who continue to buy the product at the higher price suffer a loss, but this loss is exactly offset by the additional revenue that the monopolist obtains by charging the higher price. Other consumers, who are deflected by the higher price to substitute goods, suffer a loss, that is not offset by gains to the monopolist. This is the "deadweight loss" from monopoly, and in conventional analysis the only social cost of monopoly. The loss suffered by those who continue to buy the product at the higher cost is regarded merely as a transfer from consumers to owners of the monopoly seller and has not previously been factored into the social costs of monopoly. However, the existence of an opportunity to obtain monopoly profits will attract resources into efforts to obtain monopolies, and the opportunity costs of those resources are social costs of monopoly, too. Although the tendency of monopoly rents to be transformed into costs is no longer a novel insight, its implications both for the measurement of the aggregate social costs of monopoly and for a variety of other important issues relating to monopoly and public regulation (including tax policy) continue to be ignored. The present paper is an effort to rectify this neglect. Part I introduces the material. Part II presents a simple model of the social costs of monopoly, conceived as the sum of the deadweight loss and the additional loss resulting from the competition to become a monopolist. Part III uses the model to estimate the social costs of monopoly in the United States, and the social benefits of antitrust enforcement. Part IV explores the implications of the analysis for a variety of issues relating to monopoly and public regulation, such as public policy toward price discrimination and the choice between income and excise taxation.

Empirical Evidence on the Functional Form of the Earnings-Schooling Relationship

Abstract: This article presents empirical evidence on the correct functional form of the regression relationship between earnings as regressand and schooling and experience as regressors. Evidence from several bodies of data suggests that among simple transformations the natural logarithm of earnings is the correct dependent variable while the best simple specification of the regressors is one advanced by Jacob Mincer on theoretical grounds.

Estimation of a Stochastic Model of Reproduction: An Econometric Approach

Abstract: In the past few years, there has been substantial progress in the application of the economic theory of household decision making to human fertility behavior. Theoretical emphasis has been given to the effects of the costs of parental tine and money resources devoted to rearing children on the demand for the total number of children in a static framework under conditions of certainty. Empirical work has focused on explaining variation in the number of children ever born to women, who have completed their childbearing, as a function of measures of the household's total resources and the opportunity cost of time, especially the value of the wife's time. One important objection to static theories of fertility is their failure to deal with the implications of the simple fact that reproduction is a stochastic biological process in which the number and timing of births and the traits of children (e.g. sex, intelligence, health, etc.) are uncertain and not subject to direct control. In this paper, we report some initial results of a study in progress whose goal is to develop an integrated theoretical and econometric model of fertility behavior within a sequential stochastic framework. The principal contribution of the paper is to the development of an appropriate econometric methodology for dealing with some new econometric problems that arise in such models.

Theories of Economic Regulation

Abstract: A major challenge to social theory is to explain the pattern of government intervention in the market - what we may call "economic regulation." Properly defined, the term refers to taxes and subsidies of all sorts as well as to explicit legislative and administrative controls over rates, entry, and other facets of economic activity. Two main theories of economic regulation have been proposed. One is the "public interest" theory, bequeathed by a previous generation of economists to the present generation of lawyers. This theory holds that regulation is supplied in response to the demand of the public for the correction of inefficient or inequitable market practices. It has a number of deficiencies that we shall discuss. The second theory is the "capture" theory - a poor term but one that will do for now. Espoused by an odd mixture of welfare state liberals, Marxists, and free-market economists, this theory holds that regulation is supplied in response to the demands of interest groups struggling among themselves to maximize the incomes of their members. There are crucial differences among the capture theorists. I will argue that the economists' version of the "capture" theory is the most promising but shall also point out the significant weaknesses in both the theory and the empirical research that is alleged to support it.

Age, Experience, and Wage Growth

Abstract: During the past decade, much has been said about the role that on-the-job training plays in augmenting one's stock of human capital. Up to this point, little has been done to distinguish the effect of on-the-job training from that of aging on the increase in human wealth. The reason rests primarily on the fact that it is difficult to observe or even define in some appropriate way the amount of on-the-job training that an individual possesses. In this paper, a method is developed by which one may compare the effects of work experience to those of aging per se. The difference is then attributed to on-the-job training.

Progress in Human Capital Analysis of the Distribution of Earnings

Abstract: The traditional studies of income distribution, a field with which economists are becoming increasingly concerned, must be described as basically sociological. The ascendancy of the human capital approach can be viewed as a reaction of economists to this non-economic, though certainly not irrelevant, tradition. In stressing the role played by individual and family optimizing decisions in human capital investments, important aspects of income determination are brought back within the mainstream of economic theory and within the power of its analytical and econometric tools. Human capital is not the only element of choice in the analysis of income distribution . Nevertheless, it appears that the subject of human capital investments lends itself to a more systematic and comprehensive analysis of wage differentials, than each of the other factors. The following is a description of research in the distribution of labor incomes in which human capital theory serves as an organizing principle. It is, in part, a sequel to my 1970 survey and, in part, a report of ongoing research of my own and of others.

Health, Hours and Wages

Abstract: This paper has two purposes. The first is to obtain structural health parameters in wage and labor supply function based on a completely specified model of the determination of these two variables. The second is to examine how the estimated effects of health on labor market behavior are altered when health is made an endogenous variable. We hypothesize that an increase in health should raise market productivity, measured by the wage rate, and should also increase the amount of time available for work in the market. Health, itself should respond in a positive fashion to increases in variables associated with efficiency of production within the household, such as schooling, and to increases in utilization of market goods which enter into the production of good health. We examine three variables related to the level of medical utilization: physicians per capita in the county of residence; health insurance coverage; and utilization of preventive medical services.

The Statistical Analysis of Local Structure in Social Networks

Abstract: We introduce the concept of a triad census of a digraph arid show how it can be used to enumerate various types of subgraph configurations. We give the basic probabilities needed for computing means and variances for a triad census under the U-MAN distribution for digraphs. These concepts are combined to provide a way of testing propositions about social structure using sociometric data. An application to 408 sociograms is given.

Unemployment Effects of Minimum Wages

Abstract: Empirical investigation of employment effects of minimum wage legislation is a subject of continuing interest, judging by a growing number of studies. The older studies were concerned mainly with changes in employment in low-wage industries. In the more recent work, attention has shifted to effects on unemployment in low-wage demographic groups, such as teenagers. Despite the statistical difference there is no apparent recognition of a conceptual as well as substantive distinction between minimum wage effects on employment and those on unemployment. The purpose of this paper is to explore the analytical distinction between employment and unemployment effects in the hope of providing some understanding of the observations. Though related empirical work is far from being definitive the findings appear to be informative.

Legality and Reality: Some Evidence on Criminal Procedure

Abstract: There is widespread concern that the criminal justice system, particularly in large urban areas, is breaking down under the strain of an increasing demand for its services and inadequate resources. At the center of the system, located between the police and the prisons, are the criminal courts. Statistics on rising crime rates, recidivism, arbitrary sentencing practices, court delay, and prison riots are taken as further evidence that the courts are failing. What has been notably scarcer is systematic empirical research on the criminal court system - research that can contribute to our understanding of the actual workings of the system and enable us to develop policies for improvement. The purpose of this study is to begin to remedy this deficiency by applying the quantitative techniques of economics to an analysis of some important issues in criminal court procedure.

The Private Enforcement of Law

Abstract: An important question in the economic study of enforcement is the appropriate, and the actual, division of responsibilities between public and private enforcers. This question has been brought into sharp focus recently by an article in which Gary Becker and George Stigler advocate the privatization of law enforcement. In the present article, we explore the idea that the area in which private enforcement is in fact clearly preferable to public enforcement on efficiency grounds is more restricted than Becker and Stigler believe; perhaps the existing division of enforcement between the public and private sectors approximates the optimal division. Part I develops an economic model of competitive, profit-maximizing private enforcement. The model predicts the level of enforcement and the number of offenses that would occur in a world of exclusively private enforcement. Part II refines the model to account for the presence of monopoly in the private enforcement industry, different assignments of property rights in legal claims, the effect of taxing private enforcers, nonmonetary penalties, and legal errors - elements ignored in the initial development of the model in Part I. Part III contrasts our model with other economic approaches to the enforcement question. Part IV presents a number of positive implications of the model, relating to the choice between public and private enforcement of criminal versus civil laws, the assignment of exclusive rights to the victims of offenses, the budgets of public agencies, the discretionary nonenforcement of the law, and the legal treatment of blackmail and bribery. The positive implications of the model appear to be consistent with observations of the real world, although the findings in Part IV must be regarded as highly tentative. An appendix discusses the economics of rewards - an important method of compensating private enforcers.

Disease and Labor Productivity

Abstract: Excerpt from introduction: Our object in this paper is both to advance the understanding of the quantitative impact of parasitic diseases on output and to improve on the theoretical framework within which such estimates are made for any disease and in any region. While the study examines the productivity effects of five parasitic diseases-schistosomiasis, Ascaris (ascariasis), Trichuris (trichuriasis), Strongyloides (strongyloidiasis), and hookworm infection we have focused on schistosomiasis, which has been called the "unconquered plague." Schistosomiasis is estimated to afflict more than 100 million persons throughout wide areas of predominantly less developed countries of the tropical world; 1 and, ironically, it threatens to become still more widespread as a result of developmental efforts such as water conservation and irrigation projects, which extend habitats for the intermediate snail host of the disease. Although schistosomiasis is the subject of a large and expanding research effort aimed at finding efficient control methods, this disease, like the other four parasitic infections discussed here, is seldom directly implicated as a cause of death, and its human costs are not well understood.

Measuring the Effect of an Anti-Discrimination Program

Abstract: Since 1941, six Executive Orders have been issued forbidding Federal government contractors from discriminating against minority workers. In principle, all prospective contractors are required to demonstrate compliance with the law before a contract is let. The potential penalties are severe: failure to comply with the law may result in revocation of current contracts and suspension of the right to bid on future contracts. Despite these provisions, doubts have been raised about the effectiveness of the Orders. Defenders of the Orders cite cases in which contract award dates have been postponed until firms have taken steps toward compliance with the law. In this paper, we investigate these competing claims using data from 40,445 establishments sampled in 1966 and 1970. In the first section of this paper, we distinguish what can be measured from what cannot. We develop a framework to measure and interpret program effects. In the second section we discuss the design of our sample and present results of an analysis of the randomness of this sample. In the third and concluding section, we present the estimates and discuss their plausibility.

Changes in the Recession Behavior of Wholesale Prices: The 1920s and Post World War II

Abstract: The present study examines the recession behavior of wholesale prices since World War II and compares it with the 1920s as the most recent period of earlier recessions with comparable severity The focus is on changes in recession behavior, possible bias in the data, and differences in behavior between various groups of wholesale prices (Differences between wholesale and consumer prices, though of importance, are not examined here) The purpose is to extend the evidence on the degree and uniformity of the change in price behavior and to test various interpretations of those changes

Macroeconomic modeling for control

Abstract: This paper describes briefly the modeling of the United Kingdom economy in the least complex structural form allowable for the application of modern control techniques The method employed is a blend of the "black box" approach where no knowledge of the inner mechanism is assumed and the classical approach of econometrics where economic theory is used to determine structure The technique is illustrated in detail by means of a numerical example consisting of a four-equation sector of a larger model in which a full treatment of error is given This serves to reveal to engineers the difficulties of econometrics, demonstrating the many pit-falls and acute problems that prevent a straightforward application of the methods of control theory

Comparison of Robust and Varying Parameter Estimates of a Macroeconometric Model

Abstract: Four estimators of econometric models are compared for predictive accuracy. Two estimators assume that the parameters of the equations are subject to variation over time. The first of these, the adaptive regression technique (ADR), assumes that the intercept varies overtime, while the other, a varying-parameter regression technique (VPR), assumes that all parameters may be subject to variation. The other two estimators are ordinary least squares (OLS) and a robust estimator that gives less weight to large residuals. The vehicle for these experiments is the econometric model developed by Ray Fair. The main conclusion is that varying parameter techniques appear promising for the estimation of econometric models. They are clearly superior in the present context for short term forecasts. Of the two varying parameter techniques considered, ADR is superior over longer prediction intervals.

The Variances of Regression Coefficient Estimates Using Aggregate Data

Abstract: This paper considers the effect of aggregation on the variance of parameter estimates for a linear regression model with random coefficients and an additive error term. Aggregate and microvariances are compared and measures of relative efficiency are introduced. Necessary conditions for efficient aggregation procedures are obtained from the Theil aggregation weights and from measures of synchronization related to the work of Grunfeld and Griliches.

Does the Theory of Demand Need the Maximum Principle

Abstract: Publisher Summary This chapter discusses whether the theory of demand needs the maximum principle. It is suggested that as many economists are interested in market phenomena, it is appropriate to consider a theory of demand whose implications are consistent with this interest. It presents a theory of demand in terms of aggregates. It is possible to derive many important economic theorems without making any assumptions concerning utility functions or preference orderings. The chapter discusses the role of constraints in the theory of demand . The notion of household constraints is broadened through the introduction of the concept of household production pioneered by Becker, Lancaster, and Muth .

The Timing and Spacing of Births and Women's Labor Force Participation: An Economic Analysis

Abstract: This dissertation analyzes the timing and spacing of child-births within an economic framework I have attempted to explain when women in the United States begin child bearing - ie, the "timing" (of the first birth) - and the length of the interval they spend in child bearing - ie, the "spacing" of births Chapter I introduces the topic and reviews some of the relevant literature In Chapter II, an economic model is developed which predicts that women with a rising price of time over the lifetime will start having their children sooner after finishing school Those with a high price of time throughout their lifetimes will have their children closer together The model also predicts that families whose income receipts rise sharply, at least in the early years after the husband enters the labor force, will postpone their first birth and that families with a high lifetime income will have their children farther apart The data and variables used to test the model's hypotheses are described in Chapter III Chapters IV and V describe, respectively, the empirical tests of the timing and the spacing hypotheses The results of an investigation of some relationships between the timing of the various demographic events and labor force participation are reported in Chapter VI Chapter VII summarizes the theoretical analysis and the empirical results, which generally support the timing and spacing hypotheses

Inflation and Market Structure, 1967-1973

Abstract: A variety of theories have been offered to explain why prices generally respond so little to declines in demand, and do so now less than formerly. Most of these center around a dependence of prices on costs, or the anticipated trend of costs, and a greater disregard for short-run changes in demand. The more appealing hypothesis is the simple one that price setters tend to adjust slowly to changes in market conditions; they transmit but do not originate inflation. To find that prices in the less competitive markets respond more slowly to changes in market conditions - first lagging, then catching up - would support the theory that firms try to avoid frequent changes in prices but vary in their ability to do so. Are lags in price adjustment related to market structure? Previous empirical studies of the relationship are inconclusive on this point. Earlier literature, largely theoretical, has suggested that concentrated industries tend to raise prices more rapidly, thereby exerting a permanent upward push on the price level. Empirical studies have usually reported the opposite or no consistent relation, however. On the lag-and-catching-up theory, the concentrated industries should exhibit greater increases in the period of waning inflation after 1969. This study examines the data for such a pattern and finds striking evidence of it.

Varying-Parameter Supply Functions and the Sources of Economic Distress in American Agriculture, 1866-1914

Abstract: The agrarian unrest in the United States at the end of the nineteenth century is examined. This unrest is often viewed as stemming from the inability of farmers to adapt to changing conditions in world agriculture. This hypothesis is tested in the context of a distributed lag supply function. Varying parameter estimation methods are used to trace the history of the parameters in the supply function and to decompose observed prices into permanent and transitory components over time. The patterns of variation are tested for conformity with a model of rational price-expectation formation. The conclusion is that farmers behaved as economic theory would predict, but that neither theory nor practice gave them relief from the troubles which plagued them.

Graphics for data analysis

Abstract: In recent years, graphics has become an essential part of modern data analysis It is particularly useful for interactive data analysis This paper describes a system called CLOUDS which is designed to make available on inexpensive storage tube terminals a wide range of graphic tools related to data analysis, economics, and management science The system can be accessed nationwide by non profit organizations via the National Bureau of Economic Research computer network

Price Expectations and Household's Demand for Financial Assets

Abstract: The effects of price expectations on consumption and saving has received relatively little attention, especially at the micro level. This paper's effort is addressed to this void. More specifically, the paper's primary purpose is to investigate whether it is possible to discern empirically a relationship between individually held price expectations and decisions of households to hold particular types of assets. To this end, I have analyzed aggregate time - series data from the National Income Accounts and the Flow-of-Funds and two bodies of micro household data, each involving several thousand households and each containing fairly detailed information on price expectations.

Economic Theories of Fertility: What Do They Explain?

Abstract: This working paper is a draft of a chapter in a larger manuscript which is concerned with the time series variations in fertility in the United States since 1920. This chapter asks how economic models of fertility aid our understanding of our demographic history. Thus little attention is given here to the suitability of economic models for the explanation of cross-sectional fertility differentials.

Perspective on productivity research

Abstract: Radical changes, up and down, have taken place in the estimates of growth in total factor productivity in the U.S. made by different economists, or by the same economists at different times. If such estimates provide “some sort of measure of our ignorance,” as Abramovitz once put it, we seemed to be a lot less ignorant in 1927 (when Cobb and Douglas published their famous paper), or in 1967 (when Jorgenson and Griliches published theirs), than we were in the years between (when Schmookler, Abramovitz, Kendrick, and Denison completed their studies), or than we are today (when we have, or will soon have, revised estimates by Denison and by Kendrick, and new estimates by Christensen and Jorgenson). Viewed in this perspective, many questions may be raised about the significance of the current estimates that something like a third or more of the rate of increase in U.S. national output is “due” to increase in productivity, as well as about the concepts, data, and methods that underlie the estimates. A list of particular subjects worth considering for research is given and each is briefly discussed.

The Goodness of Match

Abstract: Though the statistical techniques vary, the matching problem is essentially the same in each case and can be stated formally as follows: Given "observations on X,Y from one sample and on X,Z from another sample, when will it be true that by matching observations according to X, an artificial Y,Z sample will result whose distribution is the true joint Y,Z distribution?"(Sims,1972, p. 355). Though the imputed Y,Z distribution will, in general, be different from the true Y,Z distribution, the closeness of the two yields a natural criterion of the goodness of match. By making certain simplifying assumptions, we can make this criterion operational. The goodness of match depends on how much of the relation between Y and Z is transmitted through X - that is, on how X "mediates" between Y and Z. Since the functional form the lower and upper bounds on the true correlation between Y and Z takes depends on the number of X variables, we shall treat the problem in three stages: (a) The case of one mediating variable.(b) The case of two mediating variables. (c) The case of n mediating variables.

Detecting and Assessing the Problems Caused by Multi-Collinearity: A Useof the Singular-Value Decomposition

Abstract: This paper presents a means for detecting the presence of multicollinearity and for assessing the damage that such collinearity may cause estimated coefficients in the standard linear regression model. The means of analysis is the singular value decomposition, a numerical analytic device that directly exposes both the conditioning of the data matrix X and the linear dependencies that may exist among its columns. The same information is employed in the second part of the paper to determine the extent to which each regression coefficient is being adversely affected by each linear relation among the columns of X that lead to its ill conditioning.

A Monte Carlo Study of Two Robust Alternatives of Least Square Regression Estimation

Abstract: We give some Monte Carlo results on the performance of two robust alternatives to least squares regression estimation - least absolute residuals and the one-step "sine" estimator. We show how to scale the residuals for the sine estimator to achieve constant efficiency at the Gaussian across various choices of X-matrix and give some results for the contaminated Gaussian distribution.

Interpreting Spectral Analyses in Terms of Time-Domain Models

Abstract: This paper derives relationships between frequency-domain and standard time-domain distributed-lag and autoregessive moving-average models. These relations are well known in the literature but are presented here in a pedogogic form in order to facilitate interpretation of spectral and cross-spectral analyses. In addition, the paper employs the conventions and discusses the estimation procedures used in TROLL. Some aspects of these estimation procedures are new and have not been discussed in the literature.

Male-Female Differences in Wages and Employment: A Specific Human Capital Model

Abstract: This paper analyzes the effects of differential turnover patterns and the existence of firm specific training, jointly financed by employer and employee, on male-female wage and employment differentials. Chapter 1 introduces the topic of sex differences in occupational distribution and compensation and presents some of the more common economic theories which are relevant to the subject. Chapter 2 presents a model of a firm that invests in the training of its workers, where employee turnover represents depreciation on human capital. Differences in the turnover rates of men and women is shown to be an important determinant of the incentive to the employer to hire and train women as well as men. The empirical implications of the model for the relative wage and occupational distribution of women are contrasted with those derived from a model of general human capital investment. Chapter 3 outlines the problems involved in empirical formulation of the model, the choice of the unit of observation for empirical, testing, and data limitations, and presents the results of empirical testing of the model on aggregate occupational data for males and females from the 1967 Survey of Economic Opportunity. In Chapter 4, the model is applied to occupational data from the 1967 Survey of Economic Opportunity for black and white men as an additional test of its applicability and empirical power. Chapter 5 summarizes the empirical findings and conclusions of the paper.