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Showing papers in "International Economic Review in 1978"


Journal Article•DOI•
TL;DR: This paper used a variant of a traditional simultaneous equations model with a binary qualitative variable (union membership) and limited dependent variables, and found that the propensity to join a union depends on the net wage gains that might result from trade union membership.
Abstract: A large number of studies have been made on the impact of labor unions on wage rates of workers. These studies generally have found positive and significant effects of unionism on wage rates. More recently, a few authors have studied the simultaneous effects between unionism and wages. Ashenfelter and Johnson [1972] used aggregated U.S. Manufacturing Industries Data and found that unionism had no significant impact on wage rates, but that the wage rate had a significant effect on the extent of unionism. Since the data they used were quite limited, they could only conclude that the magnitude of the effects of unionism on wage rates was uncertain. Schmidt and Strauss [1976] reached similar conclusions using macroeconomic data. Their mixed logit approach, however, is not based on choice behavior and does not fit into a traditional econometric framework. This study extends recent investigations of the joint determination of the extent of unionism and the effects of unions on wage rates, using macroeconomic data from the Survey of Economic Opportunity Sample of 1967. Economic considerations suggest that the propensity to join a union depends on the net wage gains that might result from trade union membership. The explicit inclusion of this interdependence between the wage gain equation and the union membership equation in the model represents our point of departure from the previous work of Ashenfelter and Johnson and Schmidt and Strauss. The model is a variant of a traditional simultaneous equations model with a binary qualitative variable (union membership) and limited dependent variables. In Section 2, the conceptual framework of the model is discussed. Properties of the data are presented in Section 3. Section 4 briefly discusses estimation methods, and empirical estimates are presented in Section 5. Finally, in Section 6, conclusions are drawn.

1,293 citations


Journal Article•DOI•
TL;DR: In this paper, the authors propose an alternative specification which may be more appropriate than Amemiya's for many problems and discuss a relatively simple limited-information estimation procedure for simultaneous-equation models with limited dependent variables.
Abstract: Single equation models with limited dependent variables have received considerable attention in the econometrics literature, but little is known about the specification and estimation of simultaneous-equation models in which some or all endogenous variables are limited. The one relevant published paper by Amemiya [1974] considers a model in which all endogenous variables are truncated at zero, reveals certain necessary restrictions on the model, and suggests a method of estimation. But his model is not applicable to all situations and the merits of his estimation procedure are confined to consistency and tractability. Here we propose an alternative specification which may be more appropriate than Amemiya's for many problems and discuss a relatively simple limited-information estimation procedure.

447 citations





Journal Article•DOI•
TL;DR: In this article, the authors consider a random coefficients model in which the regression coefficients are assumed to be the dependent variables of another regression equation and show how a special case of the general model arises when time series and cross-section data are pooled.
Abstract: In this note I will consider a random coefficients model in which the regression coefficients are assumed to be the dependent variables of another regression equation. Such a model is likely to arise in econometric applications when one wants to pool time series and cross-section data. See, for example, Wachter [1970]. First, I will prove the equivalence of certain two estimators in the general model, and then show how a special case of the general model arises when time series and cross-section data are pooled. The model in its most general form can be defined by

119 citations


Journal Article•DOI•
TL;DR: In this article, the authors focus on the consumption-loan model of Samnuelson and show that a large increase in population growth is beneficial to economic welfare, even under the relatively benign conditions of inexhaustible resources and constant returns in production.
Abstract: In the standard neoclassical model of Solow [12], rapid population growth is harmful to economic welfare even under the relatively benign conditions of inexhaustible resources and constant returns in production. The argument is simple: an increase in the population growth rate calls for greater investment to maintain the level of capital per head and this diverts resources from consumption and capital deepening. The smaller the population growth rate the better. A quite different conclusion, however, follows from the familiar consumptionloan model of Samnuelson [10]. Here, in a world of overlapping generations, older people are more comfortably supported in old age by having many children. The larger the growth rate the better for per capita lifetime welfare. Recently, in a model that merges both neoclassical and consumption-loan assumptions, Samuelson [11] comes upon an intermediate position in which an increase in population growth influences welfare more positively than it would under the Solow mechanism alone.2 In fact, under plausible assumptions, the optimal growth rate may well exceed currently observed rates.3 Demographic policies are often justified by pointing to their economic implications. Samuelson's findings are therefore important and the issue deserves closer scrutiny. Let us ignore the Solow effect for the moment, and look more closely at the consumption-loan argument. Samuelson's analysis is embedded in a simple two-age model where the younger, working population supports the older, retired age group through "consumption" loans (transfers of consumption that will be repaid in turn by the next generation). If a sustained increase in population growth takes place, the proportion of younger, productive people expands and the old, as a result, receive higher consumption transfers - a bonus, in effect, from population growth. As long as the higher growth rate persists, this arrangement repeats itself every generation: everyone

102 citations


Journal Article•DOI•

82 citations




Journal Article•DOI•
TL;DR: In this paper, the authors study the problem of determining a non-cooperative equilibrium solution to a differential game between workers and capitalists in an economy where workers have some influence over how large a share of the total product is to be consumed by them.
Abstract: In most industrialized capitalist societies the workers, or wage earners, have some influence over how large a share of the total product is to be consumed by them. The means by which the workers can have such control can for instance be (i) control over the wage share of total income (before taxes), for instance through trade union power; (ii) influence over the ratio between wage and nonwage taxes; and (iii) control over how much of their income they consume. In the present article an economy where workers have such control is studied. Furthermore, the capitalists in this economy can control how much of the product not consumed by workers is to be invested, and how much is to be used on the capitalists' consumption. This means that even if the workers save part of their income (cf. case (iii) above), they have no guarantee that this saving will be used for investment, and not just on capitalists consuming more than their income. Using the assumptions above, the distribution of output between consumption and investment, as well as the distribution of consumption between workers and capitalists, is determined as a non-cooperative equilibrium solution to this differential game. This game solution is compared with the Pareto optimal solution of the game. A similar differential game has been treated by Lancaster [1973]. Also in this game a capitalist society is divided into two social groups or classes, namely workers and capitalists, and the three ways workers could influence their consumption mentioned above are also mentioned by Lancaster. One difference between the present study and Lancaster's article is that the welfare functions in the present article are considerably more general than in Lancaster's game, where both welfare functions are given simply by the total consumption for the relevant group over a fixed (and finite) time period. Furthermore, Lancaster does not compare the equilibrium solution of his game with all Pareto optimal solutions, but only with the "social optimum" defined as the total consumption in the economy over the fixed time period. Lancaster has two main conclusions in his article. One is that the non-cooperative equilibrium solution is inefficient in the sense that it differs from what he calls the social optimum. The second conclusion is that the capitalist game has a lower capital accumulation than this social optimum. We shall see that Lancaster's first conclusion holds under quite general assump-







Journal Article•DOI•
TL;DR: In this paper, a new test of Ho Work's RHT for the over-identified case is proposed, which is based on the Monte Carlo evidence gathered by Wu [10] in a subsequent work.
Abstract: equation are independent of the disturbance in that equation2 Wu suggests four alternative tests: Two of these are finite sample (F) tests; the other two are asymptotic (X2) tests The test proposed by Revankar and Hartley - henceforth, the RHT- differs from Wu's and is a finite sample (F) test Wu's tests take into account (asymptotically) all the "overidentifying restrictions" on the structural equation when the latter is overidentified This is implicit in their use of the 2SLS and the LS estimators of structural parameters Nevertheless, their formulation allows insufficient insight into the test problem Indeed, as Farebrother [2] rightly points out, their very basis is unclear On the other hand, the basis of the RHTis quite explicit, formulated as it is in the context of a mixed-stochastic regressor equation (which is equivalent to the structural equation) - [8, (equation (210))] But then also, it is evident from this formulation that the RHTdoes not take into account the overidentifying restrictions, if any More to the point here, very little is known as to the relative performances of these tests No analytical results bearinig on the issue are as yet available even in the asymptotic case, and even in the context of simplest of structural equations The only results available are based on the Monte Carlo evidence gathered by Wu [10] in a subsequent work, and pertain to his tests The objective of this paper is two-fold: First, we shall introduce yet another test of Ho Work underlying this test was undertaken in an effort to remedy the above-mentioned deficiency of the RHTin the overidentified case In the context of the mixed stochastic regressor equation - the basis of the RHT- this deficiency reveals precisely where the RHT departs from a classical test The new test - henceforth, the NT- capitalizes on this, and is a classical test; details are in Section 2 Like some of its predecessors, the NT is also a finite sample

Journal Article•DOI•
TL;DR: In this article, the authors proposed a duality theory of cost of living subindices, which leads naturally to a theory of "standard of living" indices and sub-indices.
Abstract: In the tradition of early works by Frisch [9] and Wold [20], there has recently been a renewal of interest in the study of cost of living indices which can be derived from an underlying preference ordering (e.g., Pollak [14], Samuelson and Swamy [16], and Diewert [6]). As normative connotations are usually ascribed to cost of living indices, the existence of a preference ordering which can rationalize a particular index can be a matter of some importance.2 In addition to overall cost of living indices, various statistical agencies regularly compute subindices of the cost of living, e. g., the "cost of food" and the "cost of travel". Pollak [15] has recently provided a theoretical rationale for cost of living subindices. His approach exploits strict separability of the (direct) utility function. As Pollak points out, one problem with his constructed subindices is that they cannot be aggregated in any meaningful way into an overall cost of living index. The main thrust of this paper is to suggest an alternative theory of cost of living subindices which resolves this aggregation problem. Our approach, which exploits duality theory, leads naturally to a theory of "standard of living" indices and subindices which is dual to the theory of cost of living indices and subindices.







Journal Article•DOI•
TL;DR: This article proposed a measure of economic performance that takes into account the degree of difficulty of controlling the economy in different periods of a four-year period of an administration's rule, which is based on the solutions of optimal control problems.
Abstract: It is a common practice in political discussions in the United States to hold a presidential administration accountable for the state of the economy that existed during its four-year period in office. Administrations are generally blamed for high unemployment rates, low real growth, and high inflation rates during their years in office and praised for the opposite. Although at first glance this seems a natural way of evaluating the economic performances of administrations, there are at least two serious problems with it. The first is that this kind of evaluation does not take into account possible differences in the degree of difficulty of controlling the economy in different periods. The economy may be more difficult to control for one administration than for another either because of more unfavorable values of noncontrolled exogenous variables for one than for another or because of a more unfavorable initial state of the economy for one than for another (or both). The second problem with evaluating the economic performance of an administration on the basis of the state of the economy that existed during its four-year period in office is that it ignores the effects of an administration's policies on the state of the economy beyond the four-year period. If, for example, an administration strongly stimulates the economy in the year of the presidential election, in, say, the belief that this might improve the chances of its party staying in power, most of the inflationary effects of this policy may not be felt until the next four-year period. Any evaluation of performance that was concerned only with the administration's four-year period in office would not, of course, pick up these effects. The purpose of this paper is to propose a measure of economic performance that takes into account both of these problems. The measure is based on the solutions of optimal control problems. It requires that a welfare -or loss function be postulated and that the economy be represented by an econometric model.

Journal Article•DOI•
TL;DR: In this article, the Shapley-Shubik model is extended to a market with a continuous number of traders, where the initial allocation of money is a credit from a bank which must be returned after trade ends.
Abstract: L. Shapley in collaboration with M. Shubik has presented several variants of a pure exchange economy where money (fiat or commodity) serves as the medium of exchange. More specifically, each commodity is exchanged in a market where buyers bid money and sellers offer quantities of the commodity. Each buyer receives the proportion of the aggregate amount of the commodity equal to the proportion of his bid to the aggregate bids, and vice versa for sellers. This mechanism of exchange has several advantages over the Walrasian market mechanism. In a "thin" market, the mechaniism does not presume price taking behavior amonig traders. On the other hand, the optimizing behavior of a trader in a market with many small traders is essentially that of a price taker. Hence, the difference between oligopolistic and competitive behavior is determined endogenously. Another advantage of this model is that it distinguishes between feasible and optimal actions of economic agents. In the Walrasian analysis, there is no room for non-optimal behavior. Finally, the role of money and credit is naturally incorporated in the model. For more details, see the papers by Shapley and Shubik in the references. The purpose of this paper is to analyze the efficiency properties of equilibria resulting from the Shapley-Sliubik mechanism in a perfectly competitive economy with fiat money, i.e., money without any intrinsic value. The purely competitive feature of the economy is captured by representing economic agents by an atomless measure space. Even then, Nash equilibria of such an economy are not always efficient. The main results of this paper consist of a characterization of those Nash equilibria which are Pareto efficient and their relations to the Walras equilibria in Aumann's market with a continuum of traders. Since most of the variants of Shapley's model [2] are meaningless with fiat money (as opposed to commodity money), a different variant is discussed in this paper. The description of an economy in this paper is that of Aumainn's with the addition of an initial allocation of money over agents. In this respect, we have a straightforward extension of the Shapley-Shubik model to a market with a continuum of traders. We interpret the initial allocation of money as a credit from a bank which must be returned after trade ends. In this sense, the model is different from those in [2] where traders accept money for constimption. The usual interpretation of Nash equilibrium (which is relevant here) is that each player realizes his expecta-


Journal Article•DOI•
TL;DR: In this article, the authors considered the optimal capital policy of a firm maximizing its present value over an infinite horizon under perfect certainty, when the investment plan is bounded both above and below.
Abstract: The neoclassical theory of optimal capital accumulation commonly employs the assumption that the level of investment by the firm is bounded neither above nor below.2 Arrow [2] has considered irreversible investment in which case the investment plan is bounded below by zero and he provided a characterization of the optimal capital policy on both those intervals of time where the bound was effective and on those intervals where the bound was not effective. In this paper we consider the optimal capital policy of a firm maximizing its present value over an infinite horizon under perfect certainty, when the investment plan is bounded both above and below. The upper bound is such that the amount invested by the firm at any moment of time is limited by current profits. It turns out that this bound has some interesting implications in terms of a comparison with the traditional case of unbounded investment plans. The interest in investment plans which are bounded above stems from the observation that a number of capital market imperfections lead precisely to such bounds.3 In particular we show that situations in which either the firm faces a non-price capital rationing constraint or the absence of a capital market in which firms may borrow there exists an upper bound on investment plans equivalent to the one mentioned above. Capital market imperfections such as these are not uncommon. Credit rationing, for example, was found to be an empirically significant phenomenon by Jaffee and Modigliani [4] and has often beeni noted as one of the more common forms of capital market imperfections facing firms. It is perhaps not insignificant then that in the applied business finance literature the investment problem is often treated as allocating a fixed amount of investment funds among various projects. In order to provide a characterization of the optimal capital policy of the firm with bounded investment plans, we use as reference a firm identical in all other respects, but whose investment plans are not constrained as in the case of a perfect capital market. Now it is not immediately obvious in a dynamic model how one should go about comparing two investment plans. The question we wish to address is whether the bound on investment plans imposed by the capital market