Showing papers in "Research Papers in Economics in 1978"

Rational Decision-Making in Business Organizations

Abstract: Lecture to the memory of Alfred Nobel, December 8, 1978(This abstract was borrowed from another version of this item.)

A Proposal for International Monetary Reform

Abstract: a system of pegged parities that relied on the debts in reserve currencies, mostly dollars, to meet growing needs for official reserves. Trif fin and his followers saw the remedy as the internationalization of reserves and reserve assets; their ultimate solution was a world central bank. Others diagnosed the problem less in terms of liquidity than in the inadequa cies of balance of payments adjustment mech anisms in the modern world. The inadequa cies were especially evident under the fixed parity gold-exchange standard when, as in the 1960s, the reserve currency center was struc turally in chronic deficit. These analysts sought better and more symmetrical "rules of the game" for adjustments by surplus and deficit countries, usually including more flexi bility in the setting of exchange parities, crawling pegs, and the like. Many economists, of whom Milton Friedman was an eloquent and persuasive spokesman, had all along advocated floating exchange rates, deter mined in private markets without official interventions. By the early 1970s the third view was the dominant one in the economics profession, though not among central bankers and private financiers. And all of a sudden, thanks to Nixon and Connally, we got our wish. Or at least we got as much of it as anyone could reasonably have hoped, since it could never have been expected that governments would eschew all intervention in exchange markets. Now after five to seven years?depending how one counts?of unclean floating there are many second thoughts. Some economists share the nostalgia of men of affairs for the gold standard or its equivalent, for a fixed anchor for the world's money, for stability of official parities. Some economists, those who emphasize the rationality of expectations and the flexibility of prices in all markets, doubt that it makes much difference whether exchange rates are fixed or flexible, provided only that government policies are predictable. Clearly, flexible rates have not been the pana-, cea which their more extravagant advocates had hoped; international monetary problems have not disappeared from headlines or from the agenda of anxieties of central banks and governments. I believe that the basic problem today is not the exchange rate regime, whether fixed or floating. Debate on the regime evades and obscures the essential problem. That is the excessive international?or better, inter currency?mobility of private financial capi tal. The biggest thing that happened in the world monetary system since the 1950s was "This paper is Prof. Tobin's presidential address at the 1978 conference of the Eastern Economic Association, Wash. D C.

Production Economics: A Dual Approach to Theory and Applications

Abstract: Contributions to Economic Analysis: Production Economics: A Dual Approach to Theory and Applications, Volume 2 focuses on the theory of production from the standpoint of the "dual", the relationships between economic observables which are dual to physical technology. The selection first ponders on duality, intermediate inputs and value-added, Hicks' aggregation theorem and the existence of a real value-added function, and homotheticity and real value-added in Canadian manufacturing. Discussions focus on real value-added and the production structure, estimation of the production structure, double deflation and real value-added, measurement of total productivity, and duality between direct and conditional indirect utility functions. The book then examines the estimation techniques for the elasticity of substitution and other production parameters and measurement of the elasticity of factor substitution and bias of technical change. The publication takes a look at the identification of technical change in the electricity generating industry, factor substitution in electricity generation, and the effectiveness of rate-of-return regulation. Topics include statistical tests of regulatory effectiveness, profit function for a regulated firm, tests of the structure of technology, identification problems in the measurement of technical change, and measurement of disembodied technical change. The selection is a valuable source of information for economists and researchers interested in production economics.

Conference Structures and Fair Allocation Rules

Abstract: To describe how the outcome of a cooperative game might depend on which groups of players hold cooperative planning conferences, we study allocation rules, which are functions mapping conference structures to payoff allocations. An allocation rule is fair if every conference always gives equal benefits to all its members. Any characteristic function game without sidepayments has a unique fair allocation rule. The fair allocation rule also satisfies a balanced contributions formula, and is closely related to Harsanyi's generalized Shapley value for games without sidepayments. If the game is superadditive, then the fair allocation rule also satisfies a stability condition.

Unionism and the Dispersion of Wages

Abstract: This study examines the effect of trade unionism on the dispersion of wages among male wage and salary workers in the private sector in the United States. It finds that the application of union wage policies designed to standardize rates within and across establishments significantly reduces wage dispersion among workers covered by union contracts and that unions further reduce wage dispersion by narrowing the white-collar/blue-collar differential within establishments. These effects dominate the more widely studied impact of unionism on the dispersion of average wages across industries, so that on net unionism appears to reduce rather than increase wage dispersion or inequality in the United States.

Counterfactuals and Two Kinds of Expected Utility

Abstract: We begin with a rough theory of rational decision-making In the first place, rational decision-making involves conditional propositions: when a person weighs a major decision, it is rational for him to ask, for each act he considers, what would happen if he performed that act It is rational, then, for him to consider propositions of the form ‘If I were to do a, then c would happen’ Such a proposition we shall call a counterfactual, and we shall form counterfactuals with a connective ‘☐→' on this pattern: ‘If I were to do a, then c would happen’ is to be written ‘I do a ‘☐→' c happens’

Taxation, Saving, and the Rate of Interest

Abstract: After exploring both the crucial role of the interest elasticity of the saving rate in the analysis of a wide variety of issues in economic - particularly tax - policy and reasons why previous studies of the effect of interest rates on consumption and saving have biased the estimated elasticity toward zero, this study presents new estimates of consumption functions based on aggregate U.S. time series data. The results are striking: a variety of functional forms, estimation methods and definitions of the real after-tax rate of return invariably lead to the conclusion of a substantial interest elasticity of saving.

Generalized Farrell Measures of Efficiency: An Application to Milk Processing in Swedish Dairy Plants

Abstract: This paper is concerned with the measurement of productive efficiency. Farrell's measures of efficiency are generalized to nonhomogeneous production functions. Several new measures of efficiency have been introduced and applied to the Swedish milk processing industry. The empirical analysis is based on a complete set of cross section- time series data for a period of la years of 28 individual plants producing a homogeneous product, pasteurized milk. Industrial structure and structural change are examined by both studying the shape of the efficiency distributions for the individual units and their changes through time. The aggregate performance of the sector is studied by the development of the different measures of structural efficiency.

The Innovation Decision in Soviet Industry

Abstract: In the nineteenth century, skeptics wondered whether socialism could succeed at all. After the Bolshevik Revolution launched a first great experiment in building socialism, it was conceded that a socialist economy could indeed allocate the nation's resources with reasonable effectiveness and could promote a high rate of growth. But in the 1970s, technological change emerged as the chief topic of interest in economic circles, and socialism's potential for generating technological change commanded attention. In a capitalist system, where changes occur with breathtaking speed, no sooner does a product need repair than a new one superseding it has been invented. The Soviet economy, in contrast, did not stress innovation, by and large; instead, in encouraged the production of established products by means of established processes. When this book was written, the question being asked about the Soviet system was "What are the implications of this for the socialist future?" This book is a detailed study of the role of innovation in Soviet industry. While focusing on this specific factor, it also considers the other crucial features that feed into the decision to innovate: planning, purchasing and marketing, money and finance, labor relations, wages and salaries, costs and profits. The author explains how these elements function within the socialist economic structure, then examines their individual effects on the overall process of innovation. With its broad overview, this book provides a solid understanding of how the Soviet economy worked in general as well as an in-depth analysis of the role of innovation in Soviet industrial enterprises.

Maximum likelihood estimation of the GLS model with unknown parameters in the disturbance covariance matrix

Abstract: This paper considers the regression model y = Xβ+e with all the classical assumptions (including normality) but one, viz. it is assumed that the covariance matrix of the disturbances depends upon a finite number of unknown parameters θ1 … θm. The paper gives a method to derive simultaneously the maximum likelihood estimates of β and θ. Also the information matrix is presented. It is proved that β is unbiased if its mean exists. Conditions are given under which the maximum likelihood estimates are consistent, asymptotically normal, and asymptotically efficient. Finally, applications are given to the autocorrelated errors model and to Zellner-type regressions.

Crowding Out Or Crowding In? The Economic Consequences of Financing Government Deficits

Abstract: The prevailing view of the economic consequences of financing government deficits, as reflected in the recent economics literature and in recent public policy debates, reflects serious misunderstandings. Debt-financed deficits need not "crowd out" any private investment, and may even "crowd in" some. Using a model including three assets - money, government bonds, and real capital - the analysis in this paper shows that the direction of the portfolio effect of bond issuing on private investment depends on the relative substitutabilities among these three assets in the public's aggregate portfolio. Since the all-important substitutabilities that make the difference between "crowding out" and "crowding in" are determined in part by the government's choice of debt instrument for financing the deficit, this analysis points to the potential importance of a policy tool that public policy discussion has largely neglected for over a decade - debt management policy. When monetary policy is non-accommodative, within limits debt management policy can take its place in augmenting the potency of fiscal policy, or in improving the trade-off between short-run stimulation and investment for long-run growth.

Natural Economy Versus Political Economy

Abstract: In political economy, competitive striving is limited by a system of law and property; in natural economy, no such limitations exist. In the one case competition characteristically takes the form of vying for exchange partners; in the other, of taking. The actual world of human affairs is only an imperfect political economy, since natural-economy forms of competition are evident in such activities as externalities, crime and redistributive politics. Nevertheless, conflict tends to be limited and positive co-operation can emerge even under natural-economy conditions. Biologists have distinguished three forms of co-operation: (1) helping others where merely incidental to self-help, (2) helping kin and (3) reciprocal exchanges. These interact in various ways. The viability of a helping pattern depends importantly upon the intensity of competition and upon the reaction of the aided organism to the help provided. The techniques for achieving co-operation in the absence of contractual enforcement in the biological realm have analogs in the human sphere, including: dealing with relatives, merger of interests via the division of labor, repeated business association and commitment to a reward-punishment mode of behavior.

A theory of international trade under uncertainty

Abstract: Book delves with the puzzle that assets play important role in the theory of international finance but hardly any any role in the theory of international trade. Where this dichotomy comes from? Main feature is that trade in assets may interact in an important ways with trade in goods and services. The book develops a theory that clarified these interactions. It should also help in the understanding of the effects of capital-market policies on trade in goods and assets.

Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production

Abstract: Contributions to Economic Analysis: Production Economics: A Dual Approach to Theory and Applications, Volume 2 focuses on the theory of production from the standpoint of the "dual", the relationships between economic observables which are dual to physical technology. The selection first ponders on duality, intermediate inputs and value-added, Hicks' aggregation theorem and the existence of a real value-added function, and homotheticity and real value-added in Canadian manufacturing. Discussions focus on real value-added and the production structure, estimation of the production structure, double deflation and real value-added, measurement of total productivity, and duality between direct and conditional indirect utility functions. The book then examines the estimation techniques for the elasticity of substitution and other production parameters and measurement of the elasticity of factor substitution and bias of technical change. The publication takes a look at the identification of technical change in the electricity generating industry, factor substitution in electricity generation, and the effectiveness of rate-of-return regulation. Topics include statistical tests of regulatory effectiveness, profit function for a regulated firm, tests of the structure of technology, identification problems in the measurement of technical change, and measurement of disembodied technical change. The selection is a valuable source of information for economists and researchers interested in production economics.

The Equity Principle in Economic Behavior

Abstract: It is the aim of this paper to throw some light on the way in which a simple equity principle of reward allocation influences observed economic behavior. Experimental results strongly suggest the relevance of the principle for the resolution of economic distribution conflicts.

Variable Information Structures and Rational Expectations or Rational Expectations and the Role of Monetary Policy: A Generalization

Abstract: Abstract This paper investigates the effects of introducing the following two alterations into a multimarket, partial information, rational expectations model; (1) individuals in any market may sample currently more prices than just the current price on their own market; (2) they choose the amount of their current information so as to minimize the sum of the costs of getting information and of being off their full information demand and supply curves. Under those circumstances any change in the variance of aggregate excess demand shocks (whether caused by real or monetary elements) affects the equilibrium level of information in the economy, in addition to its other direct effects previously recognized in the literature. Among the issues dealt with are the implications of these alterations for the following: (1) the Lucas hypothesis on the slope of the Phillips curve; (2) the optimal monetary variance and the optimal money feedback rule; (3) the effect of the level of information and of aggregate variance on the distribution of relative prices and related issues.

Methodology of Economics and Other Social Sciences

Abstract: Methodology of Economics and Other Social Sciences covers the problems in the methodological aspects of economics and other social science disciplines. This book is organized into seven parts encompassing 26 chapters. The first parts review the nature and significance of methodology of economics, along with the models and theories in the field. The succeeding parts deal with the verification problems, operational concepts, and interpretation of reality in economics. Other parts explore the methodological aspects of other social sciences. The last parts discuss some aspects and applications of economic methodologies. This book will be of value to economists, social scientists, and researchers.