Showing papers in "Research Papers in Economics in 1974"

Family Investments in Human Capital: Earnings of Women

Abstract: It has long been recognized that consumption behavior represents mainly joint household or family decisions rather than separate decisions of family members. Accordingly, the observational units in consumption surveys are "consumer units," that is, households in which income is largely pooled and consumption largely shared. More recent is the recognition that an individual's use of time, and particularly the allocation of time between market and nonmarket activities, is also best understood within the context of the family as a matter of interdependence with needs, activities, and characteristics of other family members. More generally, the family is viewed as an economic unit which shares consumption and allocates production at home and in the market as well as the investments in physical and human capital of its members. In this view, the behavior of the family unit implies a division of labor within it. Broadly speaking, this division of labor or "differentiation of roles" emerges because the attempts to promote family life are necessarily constrained by complementarity and substitution relations in the household production process and by comparative

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

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

Uncertainty and the Evaluation of Public Investment Decisions

Abstract: The implications of uncertainty for public investment decisions remain controversial. The essence of the controversy is as follows. It is widely accepted that individuals are not indifferent to uncertainty and will not, in general, value assets with uncertain returns at their expected values. Depending upon an individual’s initial asset holdings and utility function, he will value an asset at more or less than its expected value. Therefore, in private capital markets, investors do not choose investments to maximize the present value of expected returns, but to maximize the present value of returns properly adjusted for risk. The issue is whether it is appropriate to discount public investments in the same way as private investments.

Random orderings and stochastic theories of responses

Abstract: In interpreting human behavior there is a need to substitute ‘stochastic consistency of choices’ for ‘absolute consistency of choices’. The latter is usually assumed in economic theory, but is not well supported by experience. It is, in fact, not assumed in empirical econometrics and psychology.

A Theory of Marriage: Part II

Abstract: I present in this paper the skeleton of a theory of marriage. The two basic assumptions are that each person tries to do as well as possible and that the "marriage market" is in equilibrium. With the aid of several additional simplifying assumptions, I derive a number of significant implications about behavior in this market. For example, the gain to a man and woman from marrying compared to remaining single is shown to depend positively on their incomes, human capital, and relative difference in wage rates. The theory also implies that men differing in physical capital, education or intelligence (aside from their effects on wage rates), height, race, or many other traits will tend to marry women with like values of these traits, whereas the correlation between mates for wage rates or for traits of men and women that are close substitutes in household production will tend to be negative. The theory does not take the division of output between mates as given, but rather derives it from the nature of the ma...

A Theory of Social Interactions

Abstract: This essay incorporates a general treatment of social interactions into the modern theory of consumer demand. Section 1 introduces the topic and explores some of the existing perspectives on social interactions and their importance in the basic structure of wants. In Section 2, various characteristics of different persons are assumed to affect the utility functions of some persons, and the behavioral implications are systematically explored. Section 3 develops further implications and applications in the context of analyzing intra-family relations, charitable behavior, merit goods and multi-persons interactions, and envy and hatred. The variety and significance of these applications is persuasive testimony not only to the importance of social interactions, but also to the feasibility of incorporating them into a rigorous analysis.

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

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.

Crime and Punishment: An Economic Approach

Abstract: Since the turn of the twentieth century, legislation in Western countries has expanded rapidly to reverse the brief dominance of laissez faire during the nineteenth century. The state no longer merely protects against violations of person and property through murder, rape, or burglary but also restricts ‘discrimination’ against certain minorities, collusive business arrangements, ‘jaywalking’, travel, the materials used in construction, and thousands of other activities. The activities restricted not only are numerous but also range widely, affecting persons in very different pursuits and of diverse social backgrounds, education levels, ages, races, etc. Moreover, the likelihood that an offender will be discovered and convicted and the nature and extent of punishments differ greatly from person to person and activity to activity. Yet, in spite of such diversity, some common properties are shared by practically all legislation, and these properties form the subject matter of this essay.

Investment Under Private Ownership: Optimality, Equilibrium and Stability

Abstract: The theory of equilibrium and efficiency of resource allocation, initially developed for a world of certainty, has been reinterpreted for a world of uncertainty, thanks to a suggestion made by Arrow [1] and pursued further by Debreu [7].2

Economic Theory and the Construction Industry

Abstract: Preface to the First Edition Preface to the Second Edition Preface to the Third Edition Abbreviations and Acronyms PART I: INTRODUCTION The Nature of Construction Economics Some Basic Concepts in Economics The Construction Industry and the Economy PART II: THE DEMANDS ON THE CONSTRUCTION INDUSTRY Introduction Demand for Housing Demand for Industrial and Commercial Building Demand for Social Type Construction Demand for Refurbishment, Repair and Maintenance How Demand is Put to the Industry PART III: THE SUPPLY OF CONSTRUCTION Introduction Objectives of the Firm Costs of the Construction Firm Market Supply Curves Equilibrium in Various Market Situations Demand Curves Facing the Individual Firm Price Determination for a Single Project Conclusions on Costs, Revenue and the Equilibrium of the Contracting Firm PART IV: BROADER ISSUES Introduction Choice of Inputs and Capacity: The Project, the Firm and the Industry Markets and Strategy Appendix A: Indifference Curve Analysis Applied to the Demand for Housing Appendix B: Degree of Potential Surprise Analysis of Tendering References Index

Censored Regression Models with Unobserved Stochastic Censoring Thresholds

Abstract: The "Tobit" model is a useful tool for estimation of regression models with a truncated or limited dependent variable, but it requires a threshold which is either a known constant or an observable and independent variable. The model presented here extends the Tobit model to the censored case where the threshold is an unobserved and not necessarily independent random variable. Maximum likelihood procedures can be employed for joint estimation of both the primary regression equation and the parameters of the distribution of that random threshold. The appropriate likelihood function is derived, the conditions necessary for identification are revealed, and the particular estimation difficulties are discussed. The model is illustrated by an application to the determination of a housewife's value of time.

Equilibrium Wage Distributions

Abstract: This paper analyzes equilibrium in labor markets with costly search. Even in steady state equilibrium, identical labor may receive different wages; this may be the case even when the only source of imperfect information is the inequality of wages which the market is perpetuating. When there are information imperfections arising from (symmetric)differences in non-pecuniary characteristics of jobs and preferences of individuals, there will not in general exist a full employment, zero profit single wage equilibrium.There are, in general, a multiplicity of equilbria. Equilibrium may be characterized by unemployment; in spite of the presence of an excess supply of labor, no firm is willing to hire workers at a lowerwage. It knows that if it does so, the quit rate will be higher, and hence turnover costs(training costs) will be higher, so much so that profits will actually be lower. The model thus provides a rationale for real wage rigidity. The model also provides a theory of equilibrium frictional unemployment.Though the constrained optimality (taking explicitly into account the costs associated with obtaining information and search) may entail unemployment and wage dispersion, the levels of unemployment and wage dispersion in the market equilibrium will not, in general, be (constrained) optimal.

On the Economics of Industrial Safety

Abstract: Articles on this subject often begin by citing the National Safety Council statistics that over two million workers are injured each year, 14,000 are killed, and 190,000 are permanently disabled by industrial accidents.' The passage of the Williams-Steiger Bill in 19702 which established the Occupational Safety and Health Administration (OSHA) clearly reflects our legislators' beliefs that this accident toll is intolerably high. Further, one can infer from the Report of the National Commission on State Workmen's Compensation Laws (NCSWCL)3 that the current compensation to victims of industrial accidents is grossly inadequate. Legislative actions at both federal and state levels have mainly been intended to achieve two objectives: (1) to reduce the frequency and severity of work-related injuries and diseases, and (2) to provide more equitable compensation to victims of these mishaps. The former has significance for economic efficiency, indicating that the present industrial accident toll exceeds some socially optimal accident toll. The latter is concerned with what constitutes "just and fair" compensation.4 An economist has something to say about the former issue, and I shall try to do so in this paper even though I agree with Professor Stigler who wrote, "[l]acking real expertise and lacking also evangelical ardor, the economist has had little influence upon the evolution of economic policy."5

On the Welfare Significance of National Product in Dynamic Economy

Abstract: I. Introduction, 156. — II. A formulation of the problem, 156. — III. What is net national product? 159. — IV. Proof of the main proposition, 160. — V. Unanticipated technological change: an application, 161.(This abstract was borrowed from another version of this item.)

Anticipatory and Objective Models of Durable Goods Demand

Abstract: The propensity of U.S. households to acquire tangible assets like automobiles and household appliances at varying rates over time still remains as one of the less well-understood and predictable aspects of economic behavior. In part, the explanation may be that consumption research has tended to focus on real consumption (use) flows and not on consumer expenditure and investment decisions. A second reason for the present unsatisfactory state of knowledge, and for our inability to predict near-term consumer behavior with reasonable accuracy, may lie in the failure of most model builders to explore seriously the use of data on consumer anticipations as an adjunct to the more traditional information on asset stocks and income flows that models generally tend to emphasize. This paper examines that possibility. First, we develop a nonanticipatory (objective) model of consumer durable goods demand, then we contrast the performance of this objective model with one based largely on the use of survey measures of consumer anticipations, and in the last section we examine the characteristics of an optimal model which combines both types of information. A commonly used framework for analysis of consumer behavior, the stock adjustment model, views households as attempting to adjust actual to desired stocks of assets. Within this framework, survey measures of consumer purchase expecta

Measuring the Effect of an Antidiscrimination 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. (This abstract was borrowed from another version of this item.)

Interstate Migration and the Tiebout Hypothesis: An Analysis According to Race, Sex, and Age

Abstract: This article empirically examines the impact on interstate net migration of differential state and local property tax and transfer policies in the United States by race, age and sex for the period 1965-70 The results offer considerable support to the Tiebout hypothesis that the consumer-voter moves to that area which best satisfies his preferences for public goods