Showing papers in "Journal of Political Economy in 1985"
TL;DR: In this paper, the authors argue that the structure of corporate ownership varies systematically in ways that are consistent with value maximization, and they find no significant relationship between ownership concentration and accounting profit rates for a set of firms.
Abstract: This paper argues that the structure of corporate ownership varies systematically in ways that are consistent with value maximization. Among the variables that are empirically significant in explaining the variation in ownership structure for 511 U.S. corporations are firm size, instability of profit rate, whether or not the firm is a regulated utility or financial institution, and whether or not the firm is in the mass media or sports industry. Doubt is cast on the Berle-Means thesis, as no significant relationship is found between ownership concentration and accounting profit rates for this set of firms.
6,551Â citations
TL;DR: A firm's actions in one market can change competitors' strategies in a second market by affecting its own marginal costs in that other market as mentioned in this paper, and whether the action provides costs or benefits in the second market depends on whether it increases or decreases marginal costs.
Abstract: A firm's actions in one market can change competitors' strategies in a second market by affecting its own marginal costs in that other market. Whether the action provides costs or benefits in the second market depends on (a) whether it increases or decreases marginal costs in the second market and (b) whether competitors' products are strategic substitutes or strategic complements. The latter distinction is determined by whether more "aggressive" play (e.g., lower price or higher quantity) by one firm in a market lowers or raises competing firms' marginal profitabilities in that market. Many recent results in oligopoly theory can be most easily understood in terms of strategic substitutes and complements.
2,588Â citations
TL;DR: In this paper, a theory of motivations to send remittances is described and tested with data from Botswana, where altruism is one of the motivations tested and found to be an insufficient explanation for remittance among migrants in Botswana.
Abstract: In this article a theory of motivations to send remittances is described and tested with data from Botswana. Altruism is one of the motivations tested and found to be an insufficient explanation for remittances among migrants in Botswana. A refinement of the model stipulates a modified altruism or "enlightened self-interest." In this model the relationship between the migrant and family is tempered by an implicit understanding of mutual benefit. The household strategy may be to encourage some members to migrate as a means of spreading risk and sharing gains. The household strategy is similar to an insurance policy where migration is to places where market potential is high. The risks incurred might be high. The example is given of migration during a drought in Botswana. Migrant remittances were greater in households with more cattle or households with more to lose. Drought alone was not statistically related to remittances. Increases in remittances were related to increased levels of education. It is suggested that repayment was the motive for parents investment in migrants education. Migrants gains are identified as the potential for an inheritance the security of channeling investments through a trusted family member and security in having a home to return to. It is pointed out that the altruism and family remittances from urban migration were strategies that bridged the simple dynamic of either urban development or rural development impacting on family welfare. It is suggested that household models of economy adopt some measure to express the relationship of household wealth to remittances from urban migrants.
1,988Â citations
TL;DR: In this article, the effects of the horizon index on the steady state interest rate and the dynamic effects of government deficit finance on the economic system were investigated and a simple analytical model was developed in which the horizon of agents is a parameter which can be chosen arbitrarily.
Abstract: Many issues in macroeconomics, such as the level of the steady state interest rate, or the dynamic effects of government deficit finance, depend crucially on the horizon of economic agents. This paper develops a simple analytical model in which such issues can be examined and in which the horizon of agents is a parameter which can be chosen arbitrarily.The first three sections of the paper characterize the dynamics and steady state of the economy in the absence of a government. The focus is on the effects of the horizon index on the economy. The paper clarifies in particular the separate roles of finite horizons and declining labor income through life in the determination of steady state interest rates.The next three sections study the effects and the role of fiscal policy.The focus is on the effects of deficit finance both in closed and open economies. The paper clarifies the respective roles of government spending, deficits and debt in the determination of interest rates.
1,800Â citations
TL;DR: The authors developed a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequesques on the beneficiaries' actions.
Abstract: Although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation, our understanding of bequest motives remains incomplete. We develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries' actions. The model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers. We present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries.
1,346Â citations
TL;DR: In this paper, the authors examined a queue where customers having different values of time are ranked by their bribe payments to the queue's server and derived the Nash equilibrium strategies of the customers.
Abstract: It is sometimes argued that bribery is inefficient because bureaucrats may cause delays for attracting more bribes. This hypothesis is examined in the context of a queue where customers having different values of time are ranked by their bribe payments to the queue's server. The Nash equilibrium strategies of the customers are derived. It is shown that the server is unlikely to slow down the allocation process when bribery is allowed. The model does not have stringent informational requirements, and the equilibrium outcome minimizes the average value of time costs of the queue. It also suggests a useful auctioning procedure.
1,234Â citations
TL;DR: In this article, an empirical equilibrium model of self-selection in the labor market that recognizes the existence of measured and unmeasured heterogeneous skills is presented, where the authors derive a model of the sectoral allocation of workers of different demographic types and present a new econometric procedure for combining micro and macro data to estimate supply and demand functions for unmeasure sectorspecific productive attributes.
Abstract: This paper presents an empirical equilibrium model of self-selection in the labor market that recognizes the existence of measured and unmeasured heterogeneous skills. We derive a model of the sectoral allocation of workers of different demographic types and present a new econometric procedure for combining micro and macro data to estimate supply and demand functions for unmeasured sectorspecific productive attributes. Our model extends previous empirical work on wage equations by introducing determinants of aggregate market demand and supply into an explicit, economically interpretable estimating equation. These extensions are required to produce a model that fits the distribution of wages for the U.S. labor market.
638Â citations
TL;DR: For example, this article argued that an increase in employment can only occur through the accompaniment of a decline in real wages, based on the premise of competition and a given short-run capital stock.
Abstract: One topic on which Keynes did not disagree with classical economists was the cyclical behavior of real wages. Keynes (1936) as well as various classical writers predicted that real wages should move countercyclically. Quoting the General Theory (p. 17): "in general an increase in employment can only occur through the accompaniment of a decline in real wages. Thus, I am not disputing this vital fact which the classical economists have (rightly) asserted as indefeasible." This prediction is based on the premise of competition and a given short-run capital stock. Increases in employment then correspond to more intensive use of capital and, through diminishing product, lower real wages. For this reason, evidence by Dunlop (1938) and Tarshis (1939) that real wages move procyclically was viewed as paradoxical. Both Dunlop and Tarshis based their findings on an observed positive correlation between real and money wages, which, given the procyclical movement of money wages, implies a positive correlation between
553Â citations
TL;DR: In this article, the authors consider the effect of defective products on the wealth of shareholders of firms producing defective products and find that the shareholders bear large losses. They are substantially greater than the costs directly emanating from the recall-for example, costs of destroying or repairing defective products.
Abstract: What happens to the wealth of shareholders of firms producing defective products? Our answer-for producers of drugs and autos that were recalled from the market-is that the shareholders bear large losses. They are substantially greater than the costs directly emanating from the recall-for example, costs of destroying or repairing defective products. In fact, they are plausibly larger than all the costs attributable specifically to the recalled product; the losses spill over to the firm's "goodwill." They also spill over to competitors. This negative externality may even be larger in the aggregate than the losses to the producer of the recalled product.
524Â citations
TL;DR: In this paper, the authors investigate the dynamic relationships among the number of successful patent applications of firms, a measure of the firm's investment in inventive activity (its R & D expenditures), and an indicator of its inventive output (the stock market value of the firms).
Abstract: Empirical work on the causes and effects of inventive activity has had difficulty in finding measures that can indicate when and where changes in either inventive inputs or inventive output have occurred. The recent computerization of the U.S. Patent Office's data base may prove helpful in this context, but there is the problem that a priori we do not know the relationships between patent applications and economically meaningful measures of these inputs and outputs. To help solve this problem, this paper investigates the dynamic relationships among the number of successful patent applications of firms, a measure of the firm's investment in inventive activity (its R & D expenditures), and an indicator of its inventive output (the stock market value of the firm). (This abstract was borrowed from another version of this item.)
493Â citations
TL;DR: It is shown that the unauthorized copying of intellectual properties need not be harmful and actually may be beneficial and that photocopying has not harmed journal publishers.
Abstract: Creators and owners of intellectual properties are alarmed by the growth of technologies that ease the tasks of copying these properties. This paper, however, shows that the unauthorized copying of intellectual properties need not be harmful and actually may be beneficial. The empirical impact of photocopying on publishers of journals is examined in an attempt to discover if publishers can indirectly appropriate revenues from users who are not original purchasers. The evidence indicates that publishers can indirectly appropriate revenues from users who do not directly purchase journals and that photocopying has not harmed journal publishers. 18 references, 1 table.
TL;DR: In this paper, a model of patenting behavior is presented in which an innovating firm possesses private information about profits available to competitors, and patent coverage may not exclude profitable imitation.
Abstract: A model of patenting behavior is presented in which an innovating firm possesses private information about profits available to competitors, and patent coverage may not exclude profitable imitation. A wide variety of predictions are obtained. Among them: a firm will patent only some fraction of its produced innovations, and this fraction is positively correlated with endogenous research and development expenditures. Numerous extensions of the model are developed, for example, the inclusion of an explicit patent race and the emergence of trade secrecy.
TL;DR: In this paper, the authors demonstrate that the expected utility hypothesis is a reasonable description of behavior for consumers who face a low-probability, high-loss natural hazard event, given that they have adequate information.
Abstract: The purposes of this paper are twofold. The first is to demonstrate that the expected utility hypothesis is a reasonable description of behavior for consumers who face a low-probability, high-loss natural hazard event, given that they have adequate information. The second is to demonstrate that in California information on earthquake hazards was generated by a 1974 state law that created a market for safe housing that previously did not exist.
TL;DR: In both models, a case can be made for restricting copying even in the short run if copying induces a large reduction in demand for originals relative to its effect on total consumption, and the long-run case for restriction hinges additionally on the elasticity of supply and the value consumers place on product variety.
Abstract: Recent technological advances that enable consumers to copy creative works without compensating their owners have led to proposals for restrictions on copying. To analyze such restrictions, this paper considers two models of copying. The first model emphasizes the household production aspect of copying with costs differing across consumers, while the second relies on the fixed cost of copying technologies. In both models, a case can be made for restricting copying even in the short run if copying induces a large reduction in demand for originals relative to its effect on total consumption. The long-run case for restriction hinges additionally on the elasticity of supply and the value consumers place on product variety.
TL;DR: The value of womens time had a key impact on the Swedish fertility transition as indicated by a significant relationship between child mortality and total fertility and specific fertility rates among women aged 20-39 years.
Abstract: This time-series analysis examines during 1860-1910 the impact of changes in local prices of agricultural commodities on wages among men and women in Sweden and the impact of changes in wages on fertility decline child mortality urbanization and improved social conditions. Linear ordinary least squares models are set up to determine whether demand-induced increases in womens wages relative to mens are significant factors in explaining Swedish total fertility rates. Data are obtained from 25 counties and the city of Stockholm among pooled observations for six time periods during 1860-64 and 1910-14. This period is marked by a total fertility decline of 28% a marital fertility decline of 26% and a child mortality decline of 52%. Explanatory variables are the relative prices of main agricultural outputs employment outside of agriculture the proportion of urban population and the child mortality rate. Findings indicate a significant relationship between child mortality and total fertility and specific fertility rates among women aged 20-39 years. A doubling of the male real wage rate was significantly associated with earlier marriage higher birth rates among women aged 15-29 years and lower birth rates among women aged 35-49 years. The ratio of male wages to female wages was associated with a decline in birth rates at all ages with the exception of teenagers. 66% of fertility increase was due to declines in child mortality but this increase was counterbalanced by fertility decline among older women. Child mortality and urbanization depressed marital fertility. Male wages increased the proportion married. A 10% increase in the male/female wage rate was associated with a 25% reduction in the total fertility rate. Another 25% increase in the male/female wage rate was associated with a 50% reduction in child mortality. It is concluded that the value of womens time had a key impact on the Swedish fertility transition.
TL;DR: In this article, an alternative testing strategy based on another but less widely known implication of the Hotelling model is proposed, which is called the hotelling valuation principle, by regressing the market values of the reserves of a sample of U.S. domestic oil and gas-producing companies on their estimated Hotelling values.
Abstract: Time-series tests of the Hotelling r-percent rule for natural resource prices have not been strongly supportive, but the tests and the data are subject to serious difficulties. We propose here an alternative testing strategy based on another but less widely known implication of the Hotelling model. We test this implication, which we call the Hotelling Valuation Principle, by regressing the market values of the reserves of a sample of U.S. domestic oiland gas-producing companies on their estimated Hotelling values. We find that the estimated Hotelling values account for a significant portion of the observed variations in market values and that the Hotelling measures are better indicators of the market values of petroleum properties than two widely cited publicly available alternative appraisals.
TL;DR: In this paper, the authors provided estimates of the cost of protection to the Canadian economy for the mid 1970s on the order of 8-10 percent of GNP using an applied general equilibrium model incorporating scale economies, imperfect competition and capital mobility.
Abstract: This paper provides estimates of the cost of protection to the Canadian economy for the mid 1970s on the order of 8-10 percent of GNP. Both unilateral and multilateral tariff reduction calculations are done. The estimates are based on an applied general equilibrium model incorporating scale economies, imperfect competition and capital mobility. Sensitivity results are also reported. (This abstract was borrowed from another version of this item.)
TL;DR: In this article, a macroeconomic theory of the financial firm is developed that is empirically testable, and a sample of New York and New Jersey banks indicates that regularity conditions in production are satisfied.
Abstract: A macroeconomic theory of the financial firm is developed that is empirically testable. Financial firms are deposit-taking intermediaries issuing their own liabilities, exemplified by banks. User costs are derived for monetary goods such as demand and time deposits. From the variable profit function, demands for and supplies of monetary and nonmonetary goods are derived. A sample of New York and New Jersey banks indicates that regularity conditions in production are satisfied. The financial technology is relatively inflexible for monetary goods, but less so for nonmonetary goods.
TL;DR: This paper examined the effect of cohort size on earnings growth and found that the negative cohort size effect on earnings appears to worsen with experience, and the evidence suggests that earnings in larger cohorts do not approach "normal" levels after at brief' period in the labor force.
Abstract: This study reexamines the effect of cohort size on earnings growth. Finis Welch finds that individuals in larger cohorts experience depressed earnings conditions on entry into the labor market but that their earnings grow at faster rates than in smaller cohorts. Thus, a large portion of the cohort size effect on earnings dissipates after a few years. However, using data almost identical to those of' Welch, but estimating less restrictive models, it is found here that cohort size not only depresses earnings at entry but also seems to slow down early career earnings growth. The evidence suggests that earnings inI larger cohorts do not approach "normal" levels after at brief' period in the labor force. Rather, the negative cohort size effect on earnings appears to worsen with experience.
TL;DR: In this paper, an analysis of the interdependence between regulation and private contractual failure reveals that the feasible range of regulation is restricted by the same forces that block private agreement, and that only the federal government's regulations are effective because they surmount information problems.
Abstract: An analysis of the interdependence between regulation and private contractual failure reveals that the feasible range of regulation is restricted by the same forces that block private agreement. The focus of the study is oil field unitization regulation in Oklahoma, Texas, and Wyoming (federal lands) from 1948 through 1975. Despite large potential gains from unitization, private negotiations fail because of lease heterogeneities and information problems regarding lease value estimates. In response, the federal and state governments have adopted strikingly different policies to encourage unitization with different results. Only the federal government's regulations are effective because they surmount information problems. Texas has the least successful regulation. The paper argues that the policy differences are due to the political influence of small firms that benefit from nonunitized production. 25 references, 2 tables.
TL;DR: In this paper, a model of job screening is developed in which firms make wage offers to workers based on an imperfect evaluation of their abilities, and the model predicts that wage structure and perhaps wage dispersion will differ by firm size and that individuals who acquire more schooling will also choose to work in a larger firm.
Abstract: A model of job screening is developed in which firms make wage offers to workers based on an imperfect evaluation of their abilities. If large firms have higher costs of acquiring information about workers, they screen workers with less accuracy and choose a wage compensation scheme different from the one small firms choose. This generates the often observed positive correlation between firm size and wages. The model also predicts that wage structure, and perhaps wage dispersion, will differ by firm size and that individuals who acquire more schooling will also choose to work in a larger firm. These hypotheses are tested and supported using data from the National Longitudinal Survey.
TL;DR: In this article, the authors examined the short run impact of current and future changes in fiscal policy on current investment in a simple representative-agent, perfect foresight model and showed that anticipated investment tax credits may depress current investment, as may an immediate income tax cut financed by f uture cuts in government expenditure.
Abstract: This paper examines the short-run impact of current and future changes in fiscal policy on current investment in a simple representative-agent, perfect foresight model. We show that anticipated investment tax credits may depress current investment, as may an immediate income tax cut financed by f uture cuts in government expenditure. These impacts do result when we parameterize the model with current empirical estimates of the relevant parameters.
TL;DR: In this paper, the authors study the current account dynamics resulting from the savings and investment dynamics in a small open economy which is subject to exogenous changes in its terms of trade and in world interest rates.
Abstract: This is a study of the current account dynamics resulting from the savings and investment dynamics in a small open economy which is subject to exogenous changes in its terms of trade and in world interest rates.Anticipated and unanticipated, as well as temporary and permanent, terms of trade changes have very different effects. There is, however, a general tendency towards cycles in both savings and investment, which gives rise to cycles in the current account.It is shown that the classic Harberger-Laursen-Metzler effect on saving of a terms of trade deterioration can have any sign for plausible parameter values, both for temporary and permanent disturbances.
TL;DR: In this paper, the authors test the efficiency of the gambling market for National Football League games and show that speculative inefficiencies exist in this market. But their analysis is limited to a single game.
Abstract: In this paper we test the efficiency of the gambling market for National Football League games. Two efficiency tests are conducted. The first test is derived from the finance literature on market efficiency, while the second test is based on a market's being efficient when the rate of return on any gambling strategy based on publicly available information approximates the bookmaker's commission. While the first test is found to be too weak to establish conclusions about the efficiency of the NFL gambling market, the second test results, showing the existence of profitable betting opportunities, indicate that speculative inefficiencies exist in this market.
TL;DR: In this article, the authors argue that these assumptions are unwarranted and reSul1t iIn in(eterminate solutions and incorrect analyses, and propose to give lantlowners and/or entrepreneurial (leveloelers an active role in the models.
Abstract: Several recent papers in the literature have reformulltlated the nature of equilibrium in IFiebout mo(lels by alSSlIuim`ing an exogenous number of communities, inflexible commullity l)OU(alaries, anti in pirticular inactive lantlowners and developers. Ihis paper argues that these assumptions are unwarranted and reSul1t iIn in(eterminate solutions and incorrect analyses. Determinate lOn1g-rUn1 solutions require equilibrium in intercommui land markets, which in turn require giving lantlowners and/or entrepreneurial (leveloelers an active role in the models. The role of politics in these models and its juxtaposition with entrepreneurial activities are also analyzed.
TL;DR: In this paper, a lower bound on the numbers equivalent of firms in the context of the conjectural variations model is derived and estimated, and results point to at least a moderately high level of competition and, in particular, allow for the rejection of the perfect cartel model.
Abstract: Data on the effects of excise taxes are used to investigate the level of competition in the cigarette industry. A lower bound on the numbers equivalent of firms in the context of the conjectural variations model is derived and estimated. Results point to at least a moderately high level of competition and, in particular, allow for the rejection of the perfect cartel model. This paper relies on comparative statics results and hence circumvents recent criticisms of a study of monopoly behavior in the cigarette industry.
TL;DR: This article analyzed data from a natural experiment with rationing by waiting and found that in most cases the estimates of the value of time spent waiting are quite similar to individuals' after-tax wages.
Abstract: The authors analyze data from a natural experiment with rationing by waiting. In the situation, motorists were confronted with a choice between waiting in line for low-priced gasoline or purchasing at a higher price without waiting. They view this as a revealed preference experiment and use their choices to estimate the value of time spent waiting as a function of individual characteristics. In most cases the estimates of the value of time are quite similar to individuals' after-tax wages. 13 references, 7 tables.
TL;DR: Can predatory pricing be reproduced in a laboratory environment? as discussed by the authors investigates whether it is possible to reproduce the behavior of predation in a lab environment, and finds that the effect is to increase prices and reduce efficiency.
Abstract: Can predatory pricing be reproduced in a laboratory environment? We report research motivated by this objective. We began with conditions that, based on the literature, appeared to combine the features this literature has suggested are favorable to the emergence of predation. Next we operationalized what was meant by predatory pricing in our design in order to compare prices with predictions from alternative theories. Of 10 experiments, none evidenced predatory behavior; most supported the dominant firm theory. The second series of experiments addresses remedies for predation and finds that the effect is to increase prices and reduce efficiency.
TL;DR: In this article, the authors investigated the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market and found that these deviations are due to risk premia, and that the same premia should be observed in nominal bonds denominated in different currencies.
Abstract: This paper investigates the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market If these deviations are due to risk premia then the same premia should be observed in nominal bonds denominated in different currencies This condition imposes testable restrictions on the parameters of a multivariate regression model The empirical results are consistent with a world in which time-varying risk premia cause the observed deviations from unbiased expectations
TL;DR: In this article, the theoretical conditions for efficient extraction from a known stock resource by a competitive mining firm are reviewed using proprietary data from a mining firm, and the results reject the hypothesis that the data are consistent with the theoretical model and the maintained hypotheses.
Abstract: The theoretical conditions for efficient extraction from a known stock resource by a competitive mining firm are reviewed. These conditions are tested using proprietary data from a mining firm. Output price data and coefficient estimates from a translog cost system are used to compute the in situ value of the resource and the stock effect. Changes in the in situ value over time are then statistically compared with the expected price path. The results reject the hypothesis that the data are consistent with the theoretical model and the maintained hypotheses. Variations of the basic model that incorporate a time-varying discount rate, an alternative expected price series, and a constraint on the rate of output are also tested and rejected. 46 references, 10 tables.