Showing papers in "Econometrica in 1964"

Risk Aversion in the Small and in the Large

Abstract: This paper concerns utility functions for money. A measure of risk aversion in the small, the risk premium or insurance premium for an arbitrary risk, and a natural concept of decreasing risk aversion are discussed and related to one another. Risks are also considered as a proportion of total assets.

Markets with a continuum of traders

Abstract: It is suggested that the most natural mathematical model for a market with "perfect competition" is one in which there is a continuum of traders (like the continuum of points on a line). It is shown that the core of such a market coincides with the set of its "equilibrium allocations", i.e., allocations which constitute a competitive equilibrium when combined with an appropriate price structure.

Spectral analysis of seasonal adjustment procedures

Abstract: This paper discusses one of the uses to which two powerful techniques of modem time series analysis may be put in economics: namely, the study of the precise effects of seasonal adjustment procedures on the characteristics of the series to which they are applied. Since most economic data appearing at intervals of less than a year are to a greater or lesser extent "manufactured" from more basic time series, the problem of assessing the effects of the "manufacturing" processes upon the essential characteristics of the raw material to which they are applied is not unimportant. Perhaps the most common type of adjustment applied to raw economic time series is that designed to eliminate so-called seasonal fluctuations. The precise nature of seasonality is not easy to define, but an attempt is made in Section 2.1 below. The techniques employed to study the effects of seasonal adjustment procedures are those of spectral and cross-spectral analysis. In somewhat oversimplified terms the basic idea behind these types of analysis is that a stochastic time series may be decomposed into an infinite number of sine and cosine waves with infinitesimal random amplitudes. Spectral analysis deals with a single time series in terms of its frequency "content"; cross-spectral analysis deals with the relation between two time series in terms of their respective frequency "contents." The two techniques are discussed in both theoretical and practical terms. Spectral analyses have been made for about seventy-five time series of United States employment, unemployment, labor force, and various categories thereof. Cross-spectral analyses have been made of the relations between these series and the corresponding series as seasonally adjusted by the procedures used by the Bureau of Labor Statistics. Two major conclusions regarding the effects of the BLS seasonal adjustment procedures emerge from these analyses. First, these procedures remove far more from the series to which they are applied than can properly be considered as seasonal. Second, if the relation between two seasonally adjusted series in time is compared with the corresponding relation between the original series in time, it is found that there is a distortion due to the process of seasonal adjustment itself. Both defects impair the usefulness of the seasonally adjusted series as indicators of economic conditions, but, of the two, temporal distortion is the more serious defect. Examples of some of these

Demand and supply functions for money in the United States: some structural estimates

Abstract: Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics and Social Science, 1962.

Technology and scale in electricity generation

Abstract: The question of returns to scale in public utilities is a much debated issue. In this study, the productive process of electricity generation is examined and a modified substitution model is employed, permitting differentiation between returns to scale to labor and to other factors. The method employed here allows us to isolate the impact of technological progress on (steam) electricity generation. We find that increasing returns to scale prevail throughout, and that the main impact of technology was registered during the 1950's. This study covers the period 1937-59.

A Zeuthen-Hicks Theory of Bargaining

Abstract: Harsanyi [1], after translating Zeuthen's bargaining theory [5, Ch. 4] into modern utility terms, has shown that it implies the same outcome as Nash's theory [4], namely a settlement that maximizes the product of the utility increments of the two parties. In the same paper, Harsanyi also reviewed Hicks's comparable theory [2, pp. 140-45] and found it, understandably, distinctly inferior to Zeuthen's. The context that both Zeuthen and Hicks had in mind was labor-management bargaining, where agreements and conflicts have time dimensions. Specifically in such situations, it will be suggested, it is possible to combine the central conceptions of both Zeuthen and Hicks in a composite theory that is superior to either of the separate ones. To prepare the way for the composite theory's presentation, its components will be briefly summarized.

On the economics of road congestion

Abstract: This paper presents a model in which (1) the market demand for urban automobile travel is a function of a time-price as well as a money-price and (2) the market supply is represented by a flow function that is derived from assumed relationships between traffic density and average speed. Two qualitatively different types of traffic congestion are identified. Marginal cost pricing in terms of both time and money taxes is proposed as an efficient and feasible means of controlling both types of traffic congestion. Using the results of existing empirical studies, tax schedules for three types of urban roads are computed. THERE APPEARS to be unanimous agreement that traffic congestion is prevalent in contemporary urban areas and that certain social costs are incurred as a consequence. The more important questions: how to measure these social costs and how to reduce or eliminate them, remain under debate. Arguing from the premise that the essential physical nature of traffic congestion must be clarified before measurement and remedial action are possible, this paper attempts to (1) define traffic congestion in a precise fashion, (2) develop a model consistent with both traditional price theory and this formal notion of congestion, and (3) bring available empirical evidence to bear on the implications of the model. The analysis rests on the proposition that both time costs and dollar operating costs of automobile trips are relevant to the individual decision process. Formally, it is assumed that individuals face time-price parameters as well as dollar-price parameters and that market demand functions for automobile trips can be expressed in terms of these parameters.

A comparison of alternative estimators for simultaneous equations

Abstract: A natural generalization of least squares is proposed to estimate parameters in simultaneous linear equations. Full-information maximum likelihood is shown to be identical with this generalization. The extent to which other estimators deviate from the generalization is discussed. A paradox of Strotz is resolved, and application of canonical correlation theory to structural equations is indicated. 1. SUMMARY THIS PAPER compares various estimators of the parameters of linear simultaneous

Spurious correlation due to deflating variables

Abstract: : This Memorandum shows that when a homogeneous linear regression of a normally distributed variable Y on two nromally distributed variables X and Z is deflated by Z, then when X and Y are uncorrelated the deflated dependent variable Y/Z and independent variable X/Z are either uncorrelated or perfectly correlated. Thus, existing approximations to the covariance of these deflated variables are poor. A new approximation to this covariance is given which has the same defect for normally distributed variables, but which could otherwise be better than existing ones. (Author)

On the existence of an optimal plan in a continuous-time allocation process

Abstract: Every now and then, one encounters an allocation problem in which the "choice variable" is a point in an infinite-dimensional space. In such problems, the existence of an optimal choice among all permissible choices is not always assured. The present discussion is devoted to an investigation of this issue for a specific (but fairly common) class of allocation problems. Conditions for the existence of an optimal choice are derived and discussed.

On the Economic Welfare Function

Abstract: This welfare index defines the preference ordering of the society among all possible social states. In this case, a social state is expressed as a point in an m x n-dimensional vector x -(x, . .., x'), and the welfare index can be considered as a utility index defined in an m x n-dimensional space. We can therefore define the marginal rate of substitution for society between the mth individual's nth commodity and the ith individual's jth commodity. Set W= C (constant) and consider this relation as the function that determines the value of x' depending on the values of other x7.s. Differentiate this relation with respect to X4. Then, we get

A model of economic growth in rostovian stages

Abstract: This paper gives a non-linear growth model, which explains the development of an economy through stages somewhat similar to the Rostovian stages. Non-linearity is introduced by including the inaugmentable factor of land or natural resources in the production function along with labor and capital, and by recognising that net saving is not a linear homogeneous function of income alone, but might be affected by the distribution of income and the interest rate and tends to be negative when per capita income is very low. Furthermore, population growth is assumed to follow a NeoMalthusian pattern. The effects of non-neutral as well as neutral technical progress are discussed in this paper.

A stock-adjustment investment model'

Abstract: Firms' investment in plant and equipment is explained by a stock-adjustment model in which the coefficient of adjustment is allowed to vary. It is assumed that firms partially close the gap between desired and actual capital stock, but that the speed of adjustment depends on the firm's ability to procure funds at reasonable cost. A panel of individual firm responses to the McGraw-Hill plant and equipment survey is the principal data source, supplemented by financial statement information for the firms and two indices representing costs of debt and equity financing. The predictions generated by the regressions are aggregated for comparison with the observed aggregates. 1. A STOCK-ADJUSTMENT INVESTMENT MODEL THE PURPOSE of this paper is to develop and test a model to explain firms' investment in plant and equipment. The model incorporates features which recent research on the investment decision suggests are significant. The basic framework is a stock-adjustment model, in which each year the firm moves partially toward its desired position, with the coefficient of adjustment (reaction coefficient) allowed to vary by firm and year. The model has the form

Experimental methods of analyzing demand for branded consumer goods with applications to problems in marketing strategy

Abstract: Prediction of consumer response to a proposed brand strategy is a major problem in marketing. An increasingly used and highly promising approach to this problem, and one pursued in this book, is to test proposed strategies in a controlled or simulated environment. This is done by placing representative consumers in an experimental environment which is sufficiently realistic to evoke responses similar to those in the marketplace. By manipulating aspects of this environment to reflect different strategies, one can predict with some confidence what will occur if those strategies are used in the market. The author presents an excellent case study in which a simulated market environment provides useful data concerning demand schedules for branded consumer goods and changes in the market share that might result from different brand policies. The book reports on a series of simulated shopping trips for toilet soap and toothpaste. Subjects were shown colored photographs indicating the brands available for each of the two products and asked to indicate the one brand for each they preferred. Prices of the preferred brand and competing brands were varied, with the price of the preferred brand always highest. The number of individuals switching and remaining loyal at different prices and the brands to which they switched were noted. The design of experiments (described in a technical appendix), the data generated and their analysis are more complex and interesting than this brief description might suggest. Chapter 5, \"Experimental Results Relating to Brand Loyalty and Brand-Switching Behavior,\" and Chapter 6, \"Models Using Experimental Data to Appraise Marketing Strategy,\" are the best and most important chap209