Showing papers in "The Review of Economics and Statistics in 1980"

The Uses of Tobit Analysis

Abstract: In this paper authors point out that the coefficients obtained from using Tobit-here called "beta" coefficients - provide more information than is commonly realized. In particular, authors show that Tobit can be used to determine both changes in the probability of being above the limit and changes in the value of the dependent variable if it is already above the limit$ and authors show that this decomposition can be quantified in rather useful and insightful ways.

Farm and off-farm work decisions: the role of human capital.

Abstract: W ITH modern economic growth, we observe people reallocating resources in response to changes in economic conditions. How accurately they perceive and efficiently they respond to these changes is attributed to allocative ability (Schultz, 1975). This ability is not restricted to managers of firms. People who supply labor services for hire or who are selfemployed also reallocate their time in response to changes in the value of the work they do. With long-term U.S. economic growth, one major adjustment has been a reallocation of labor between farm and nonfarm labor markets. After 1948, long-term economic forces created prospects of higher incomes in the nonfarm sector. A large proportion of both white and black families quit farming and took nonfarm jobs, causing a massive net exodus of people from farms.' Other farm families have continued to work their farms but have also taken off-farm jobs. Nationally, the percentage of farm operators reporting off-farm work rose from 39% in 1950 to 54% in 1969. Operators working 100 days or more per year off their farms increased from 23% to 40% during the same period (U.S. Department of Commerce, 1973, p. 178). The objective of this paper is to present some econometric evidence of the effect of investments in education and information (agricultural extension) on the off-farm labor supply of farmers.2 The data are county averages per farm for Iowa, North Carolina, and Oklahoma. Important findings are that raising the education level of farmers and increasing the agricultural extension input increase the off-farm labor supply of farmers. This implies that part of the return to education in agriculture arises from its effect on the reallocation of farmers' labor services between farm and nonfarm labor markets. In section I, a labor supply model is developed for household members who face options of having a wage job and a self-employed job. The labor supply decisions are treated as part of a set of joint decisions made by multiple-person farm households on inputs for household consumption and for farm production.3 Section II presents a discussion of the data, the empirical model, and the results from fitting the off-farm labor supply functions. Section III contains further implications, and section IV contains the conclusions.

The Determinants of Executive Salaries: An Econometric Survey

Abstract: FOR over three decades, debate has raged over the economic assumption that the large corporation, through the decisions of its managers, attempts to maximize its profits. Empirical analysis of the behavior of the corporation has led to conflicting claims. The inquiry into the determinants of executive compensation has been no exception. Statistical investigation of executive compensation has been dominated by a search for one decisive explanation. Is the size, measured by either sales or assets, or profitability, measured by net corporate income or by the rate of return on assets, the key variable in establishing the level of the executive's reward? Proponents on both sides of this issue-the managerialists who support the corporate growth hypothesis and the neoclassical economists who favor the profit maximization assumption-seem to argue that the contest can be resolved by the presentation of unambiguous evidence that will award victory to one side and vanquish the other. This spirit of antagonism has distorted the essential element of the executive compensation question. The behavior of the corporation and the market forces that shape this behavior can be explained or illustrated only by the use of a series of intercorrelated variables. Not one of the available measures of corporate success, be it net income, sales or assets, is an exact measure of economic profits or firm size, nor is it independent of the other variables. This study focuses on the resolution of the serious econometric problems encountered in the process of estimating the determinants of executive compensation. Later we will show how the successful elimination of problems of simultaneous equations bias, multicollinearity and heteroscedasticity leads to the conclusion that the managerialist and neoclassical models of the firm are complementary, rather than substitute, explanations for the pattern of executive compensation.

Vertical integration and technological innovation. [Correlation between v. i. and research expenditures]

Abstract: The authors find that a significant relationship exists between vertical integration and expenditures for basic and applied research for the US petroleum industry, 1954-1975 They advance several hypotheses consistent with this finding, and conclude that organizational structure influences expenditures on research in the modern business enterprise

Sex Differences in Worker Quitting

Abstract: T HE stereotypical view of female employees is that they have relatively weak job attachment and that, in particular, they are especially prone to voluntary job separations. Although this notion is borne out by overall sex differences in aggregative quit rates, this evidence is at best only suggestive since it does not distinguish sex-specific differences in quit behavior from other factors, such as differences in job characteristics and wage rates.' The principal study to date of sex differences in worker quitting is that of Barnes and Jones (1974), who analyzed differences in aggregative quit rates by sex. Although their findings were consistent with the view that females are more prone to quitting, the analysis was restricted to observations for only 19 two-digit industries for each sex so that there was not sufficient information in the sample to analyze many important patterns of interest.2 Quit rate studies that do not focus specifically on female quit behavior typically have included a variable reflecting the percentage of workers of a particular sex in the industry. While industries with larger percentages of female employees generally have been associated with higher levels of quitting,3 these findings for samples of 47-52 two-digit industries are somewhat different from those found in other samples. Indeed, analysis of 95 3-digit industries by Viscusi (1979) reveals no significant sex effect on aggregative quit behavior. In this paper, I will utilize data for a large sample of individuals in an attempt to resolve the ambiguities in these earlier findings. The most familiar economic motivation underlying potential male-female quit differences is that women often leave the labor market to bear and raise children. Moreover, since wives typically earn lower wage rates than do their spouses, they may serve as secondary earners, entering the labor force during periods of temporary economic needs and exiting thereafter. In addition, family migration decisions, such as those analyzed by Mincer (1978), may lead to quits by wives whose husbands have been transferred to new locales. There also may be important differences in the lifetime employment choice pattern related to the role of quitting as part of an adaptive choice process.4 To the extent that women have less precise notions of their prospects for advancement and their working conditions, such as the presence of co-worker discrimination, they will be more likely to use the initial period of employment as a period of experimentation and then quit if their experiences are sufficiently unfavorable. An offsetting influence is the fact that males have a greater expected future period of work so that learninginduced quit behavior may offer greater potential gains even though the informational content of the on-the-job experiences may be less.5 Finally, in situations in which workers are unable to "voice" their complaints effectively and have them settled through grievance procedures, they will adopt an alternative economic response of exiting from the undesirable job context.6 CoReceived for publication October 23, 1978. Revision accepted for publication July 25, 1979. * Northwestern University and Council on Wage and Price Stability. Helpful comments were provided by Gregory M. Duncan, an anonymous referee, and members of the Northwestern Labor Seminar. John Link performed his usual excellent job as programmer for this research. I The importance of quit behavior to analyses of sex differences in employment and the inconclusive nature of existing studies is discussed by Reynolds (1978), especially on page 167, and by Pigors and Myers (1973). 2 Their principal regressions included only two age variables and an industry wage variable. Inclusion of a worker education variable knocked out the wage effect for males. See footnote 16 on page 447 of Barnes and Jones (1974). 3 See, for example, Burton (1969), Burton and Parker (1969), Parsons (1972), Pencavel (1970), and Stoikov and Raimon (1968) for aggregative results of this type. The signs for the worker sex variable are sometimes mixed or statistically insignificant.

What is the Price Elasticity of Housing Demand

Abstract: DISAGREEMENT about the responsiveness of housing demand to variations in relative prices persists, despite extensive empirical analyses. Two factors underlie this disagreement: the multidimensional character of housing makes direct observation of prices (as distinct from expenditures) impossible; and, the significant search, transactions, and moving costs associated with changing dwellings imply that, at any instant, a given household's consumption may deviate significantly from its utility maximizing level in a static equilibrium. While a number of ingenious attempts have been made to circumvent these problems, each is quite indirect and relies upon strong, and untestable, assumptions (cf. Mayo (1978)). This paper provides direct estimates of price elasticities, based upon an explicit model of housing consumption dynamics and utilizing the experimental manipulations of housing prices incorporated in the Housing Allowance Demand Experiments.1 While the data are limited to two years of longitudinal data and pertain only to low income renters, they nevertheless permit the direct estimation of this key parameter of housing demand. This analysis focuses on the price responsiveness of households, but clearly other changes in household circumstances (such as in income or family size) affect desired housing consumption. In fact, given the limited longitudinal data, information about other demand adjustments provides valuable insights into consumption dynamics. Price changes can be viewed as but one of a variety of exogenous influences on housing demand. A complete structural model of housing demand would consider the joint influence of household preferences, relocation costs, and prices on search and moving behavior and, conditional on this, their subsequent influence on housing consumption. However, both household preferences and relocation costs are generally unobserved, and estimation of such a complete model is simply beyond our current capabilities. We concentrate upon the more modest goal of modelling the reduced form relationship between housing consumption and housing stock disequilibrium (defined below). Consumption dynamics are represented by variants of a linearized stock adjustment process . This formulation is based on the simple observation that adjustments will generally be a monotonic function of the magnitude of disequilibrium in housing consumption. As indicated by past work (Hanushek and Quigley, 1979), this is both a convenient and powerful characterization of short run dynamics. Two basic formulations of consumption dynamics are considered. Let Htd represent the "desired," or static equilibrium, quantity of housing demanded by a given household, and let Ht be the actual (observed) housing consumption at time t. In the simplest form, households are assumed, on average, to close the gap between desired and equilibrium housing consumption at a constant rate a, so that

Home Production--A Forgotten Industry

Abstract: RECENT years have witnessed an awakened interest in the economic activity taking place outside the market, and in particular the activity taking place at home. This interest spurred by the new consumption theory of Becker and Lancaster and by the estimates of the Measure of Economic Welfare of Nordhaus and Tobin (1973) has taken two distinct forms: an increased number of studies on the economics of household behavior and a renewed effort to place a money value on the household home activity. However, while the major thrust of the first type of studies is in the field of microeconomics, the estimates of home production refer, in general, to the economy as a whole. These estimates, crude as they are, indicate that home production is far from being a negligible part of the economic activity. Even in an advanced economy such as the United States the value added generated by the home sector seems to account for over one third of the output produced at the market (Hawrylyshyn, 1976). In less advanced economies this fraction is presumably even higher. It seems, therefore, of interest to repeat the question in a microeconomic context and examine the role of home production at the household level, rather than in the aggregate. In contrast to past studies which have focused on the labor inputs going into home production (Sirageldin, 1969; Walker and Gauger, 1973), the emphasis in this paper is on the measurement of productivity and total home output. The questions I try to answer are: What are the factors determining the wife's productivity at home? What is the value of home production and how does it compare with the family's money income? How does the value of home production differ among families with different socioeconomic backgrounds? How is it affected by the wife's labor force participation and by the existence of young children? How does it change over the family's life cycle? It is found that the value of home production associated with the work at home of U.S. wives in 1973 exceeded 60% of the family's money income before taxes, and 70% of the family's money income after taxes. It was lower for families with no preschool children and almost equal to the family's money income after taxes when the family had young children. Home productivity increases with education but at a lower rate than market productivity. Home production is only slightly affected by the wife's employment in the market when the family does not have young children. However, when the family has young children, the loss of home output when the wife joins the labor force equals almost her increased money earnings. Finally, home production tends to peak at a younger age (35-39) than money income and drops significantly thereafter. The paper opens with a discussion of the estimation of household productivity-the model, the data and the estimates. The role home output plays in comparison with other material resources is discussed in section III. The paper closes with some concluding remarks.

Alternative techniques for developing real estate price indexes

Abstract: T HE rapid rate of increase in the prices of houses in recent years has resulted in renewed interest in trends in residential real estate. A widely quoted study by the Harvard-MIT Joint Center for Urban Studies (Solomon, et al., 1977) showed that in 1976 only 27% of families could afford to buy the median priced new home, a significant change from 1970 when 46% of families were able to make such a purchase. Such rapid changes could result in significant income redistribution effects, and policy proposals have been numerous. To assess these trends and proposals, it is necessary to have accurate methods of developing residential real estate price indexes. Most real estate indexes have been based on the average or median selling price in each year for new or used houses. Yet there may exist substantial differences in the houses on the market at different times, so such indexes contain quality changes as well as pure price changes. Because housing is a highly heterogeneous commodity, the measurement of quality-adjusted price changes has proven difficult. Such measurement is desirable not simply because of the recent significant price changes in the real estate market, but also because economists have found property values to be one of the best sources of information on goods for which markets do not exist. Although in the past cross-sectional studies have generally been used for this purpose, questions remain concerning the timing of the impacts. Comparisons of real estate price indexes can provide insights into the dynamics of such effects. Among the techniques suggested for developing quality-adjusted price indexes, approaches using hedonic regressions and repeat-sale regressions appear to be the most promising. In this paper, alternative local price indexes are developed using modifications of the hedonic and repeat-sale techniques. For the case considered, the two independent techniques provide statistically identical indexes of the real price of housing. The estimated rate of increase in house prices using the hedonic and repeat-sale techniques is substantially lower than the non-quality adjusted rate implied by the change in average selling price.

Capital-energy substitution in US manufacturing

Abstract: The ease with which energy may be substituted for by other types of inputs is of great importance in predicting economic disruptions arising from energy shortages as well as the energy implications of public policy. Studies of energy substitution in the economies of developed countries have produced differing results. A major reason for the divergent results, according to the authors, could be that two quite-different types of capital inputs - physical capital and working capital - have been used. These two types of capital input behave in quite-different ways, at least as regards their relationship with energy inputs to explore this, the authors incorporated the prices of physical capital, working capital, labor, and energy in a constant-returns-to-scale cost function. The authors conclude that reproducible capital and energy are, for the most part, complements - while working capital and energy are largely substitutes in production. Results lead the authors to explain the differences among previous studies by reference to the way in which the capital input was handled. On the level of aggregate US manufacturing a value-added approach to capital cost would be expected to show capital-energy substitutability, while a service-price approach to capital cost would show complementarity. 21 references, 2more » tables (SAC)« less

The poverty line: A pilot survey in Europe

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A Test of Relative and Absolute Price Efficiency in Regulated Utilities

Abstract: A model for testing all types of relative price inefficiency expands the Averch-Johnson effect and makes it possible to test for absolute price efficiency, which exists if the value of the marginal product for each factor is equated to factor price and implies both cost minimization and production of the optimal quantity of output. Duality theory is used to derive the empirical model using 1973 data for electric utilities. The results indicate that relative and absolute price efficiency were generally not achieved by electric utilities in that year. 36 references, 1 table.

A derived demand function for freight transportation

Abstract: An attempt has been made to improve upon existing specifications and estimations of freight demand by treating transportation as an input in the production process and estimating the derived input demand equations for rail and trucking associated with a general translog cost function. This estimation method also recognizes that rates and shipment characteristics are jointly dependent and takes this inter dependence into account in estimating the demand functions. Two tentative conclusions emerge from the findings of this paper. First, at least with respect to less-than-truckload (LTL), rail and truck transportation are largely independent. Therefore, relatively little modal misallocation of resources between rail and LTL trucking should result from ICC policies that attempt to maintain the value of service pricing structure. Second, the estimated own price elasticities of demand for rail services were sufficiently high to indicate that the railroads might not benefit from blanket rate increases but could benefit instead from selective rate cutting. It is noted that the unique methodology employed and the empirical findings described in this paper need to be verified using different data and different time periods.

Analysis of the short-run consumer demand for gasoline using household survey data

Abstract: A short-run analysis of consumer demand for gasoline for nonbusiness automobile use estimates demand on the basis of a Consumer Expenditure Survey (CES) made by the Bureau of Labor Statistics during 1972-1973. The use of pooled time-series/cross-section data permits the examination of effects of location, family characteristics, and household automobile stock as well as prices and household income. The results show that gasoline price increases will constrain demand, with price elasticity of -0.43 for both one-car and multi-car households. 8 references, 2 tables. (DCK)

Profitability, concentration and the interindustry variation in wages

Abstract: THIS paper explores empirically the hypothesis that product market imperfections affect the earnings of labor in U.S. manufacturing industries. To the extent that labor shares in the excess return due to product market power, any policies designed to reduce this power may restrain or reduce wages in the affected industry. Thus workers may oppose antitrust action aimed at their own industry. Workers may oppose increased import competition that restrains market power not only because of potential unemployment but also because this increased competition indirectly reduces future wages. In addition, measures of the social loss due to product market power are understated if some portion of costs are actually return to market power. The transfer from consumers to producers, including labor as a factor of production, is also understated. Past results attempting to isolate empirically the relation between product market power, usually represented by product market concentration, and labor earnings have been mixed. This paper argues and demonstrates that economic profitability is a superior measure to concentration in summarizing the relative extent of product market power across industries. After developing a model of the division of the total excess return available to an industry between labor and capital, the paper presents empirical results that support the hypothesis that excess return or economic profitability is superior to product market concentration in explaining the interindustry variation in wages. The results indicate that labor receives 7% to 14% of the total excess return. For empirical analysis other determinants of interindustry wage variation must be controlled. The first section of the paper briefly discusses certain relevant labor force characteristics. The second section examines the relationship between wages and product market power. The third section discusses the data and presents empirical results. If possible, variables are measured as four-year averages over 1967-1970, to avoid single-year disturbances in the data and to approach long-run equilibrium observations. The final section presents concluding comments.

Prices of Tradable and Nontradable Goods in the Demand for Total Imports

Abstract: The following sections are included:INTRODUCTIONSPECIFICATION OF THE IMPORT EQUATIONRESULTSCONCLUSIONSREFERENCESAPPENDIX (This abstract was borrowed from another version of this item.)

Analysis of a time series of household expenditure surveys for India

Abstract: ECONOMETRIC studies of household expenditure occupy an important place in government policy formulation with estimates of expenditure and price elasticity proving useful in several planning models Although the empirical literature is large, relatively few studies have considered the simultaneous impact of total expenditure, price and family size on household demand using time series of budget data and within a framework that is consistent with economic theory Weisskoff (1971) and, more recently, Sener (1977) have tested and rejected the hypothesis of negligible price effects and established the need to incorporate price and size variables in any meaningful study of expenditure patterns in developing countries The limited literature on estimation of demand systems from budget data includes Tsujimura and Sato (1964) on Japan, Bhattacharya (1967) and Joseph (1968) on India and, recently, Muellbauer (1977) and Pollak and Wales (1978) on British data The present exercise differs from the above in investigating the impact on budget share, rather than quantities, and in using a variant of a recent model (AIDS)' that is consistent with economic theory without requiring additive separability of the utility function The model is introduced by Deaton and Muellbauer (1978) The principal objectives of our exercise include (a) extension of the AIDS model by including family size and applying it to Indian budget data to estimate expenditure, price and size elasticities, (b) testing the hypotheses of (i) no price effects, (ii) no economies of household size, (iii) no money illusion, and (c) comparison of the Indian expenditure pattern with those of other developing economies The AIDS in its micro version and its adaptation for use on the published data is discussed in section II, and the data are described in section III Section IV presents the results and we end with the concluding note of section V

The Cyclical Pattern of Temporary Layoffs in United States Manufacturing

Abstract: ONE important question arises out of current attempts to provide a microeconomic foundation for aggregate wage rigidity and unemployment. How mobile are unemployed workers? Recent theoretical models of unemployment can be divided into two basic categories: the "new microeconomic" search theories attribute unemployment to the job search and job changing behavior of workers who become permanently separated from their jobs. The newer microeconomic contract theories attribute unemployment to the periodic employment reductions (via temporary layoffs) that are necessary to accommodate demand fluctuations when workers remain indefinitely attached to specific firms. The relative importance of these two approaches in explaining cyclical unemployment hinges on the share of unemployment over the business cycles that is associated with real labor turnover. Unfortunately no data are currently collected on the fraction of unemployment with or without job change. This paper derives estimates of temporary layoff unemployment for U.S. manufacturing from Bureau of Labor Statistics (BLS) establishment turnover data. After a brief discussion of current unemployment data, a time dependent distributed lag model of manufacturing rehires is developed. The model allows estimation of both the percentage of each month's layoffs that end in rehire and the average duration of unemployment before rehire. Together with the layoff rate, these two statistics determine an estimate of manufacturing unemployment without job change.

The Role of Advertising in Changing Concentration of Manufacturing Industries

Abstract: T HERE is increasing evidence that advertising plays an especially prominent role in structural change.' Mueller and Hamm (1974) found that between 1947 and 1970 concentration was increasing the most in industries characterized by a high degree of product differentiation. In reworking the Mueller-Hamm study because he felt that their model suffered from regression bias, Wright (1978) substantiated the Mueller-Hamm conclusions. Ornstein and Lustgarten (1978) found changes in industry advertising-to-sales ratios to be a significant positive variable in a model that explains changing industry concentration, although they are quite cautious in interpreting their findings. Here we add to previous work by reporting the major results from an analysis of changes in industry concentration based on a sample of 167 four-digit Standard Industrial Classification (SIC) industries for which comparable data were available for the period 1947 to 1972.2 Starting with a slightly modified Mueller-Hamm model we extend the analysis by replacing the dummy variable classification scheme for the degree of product differentiation developed by Parker (1967) with a continuous measure of advertising intensity.3 We then differentiate between television and other types of media advertising.

On the Real Effects of Inflation and Relative-Price Variability: Some Empirical Evidence

Abstract: W ITH the acceleration of the inflationary process the study of the real effects of inflation, whether anticipated or unanticipated, has attracted a great deal of attention. Less effort, however, has been directed to the analysis of the effects of uneven inflation, and to the study of the impact of relative-price variability on real economic variables. The purpose of this paper is to present empirical evidence concerning the effects of relative-price variability on the rate of unemployment and on the level of output for the postwar United States. Moreover, in the course of the analysis new evidence is presented on the different effects of expected and unexpected inflation on output and unemployment, evidence which bears on the Natural-Rate Hypothesis.I Most of the previous literature on relativeprice variability under inflationary conditions has focused on isolating the main explanatory variables for such variability.2 Yet little is known, empirically, about the effects of such variability on the real sector of the economy. It is interesting to note, however, that prominent economists have advanced a specific hypothesis about such effects. For example, Friedman (1977), in his Nobel Lecture, hypothesized that increased volatility of inflation reduces the efficiency of market prices as coordinators of economic activity, and that therefore

Owner vs. Manager Control Effects on Bank Performance

Abstract: A basic notion derived from the observation of a high and increasing degree of manager control in large American corporations (see Berle and Means (1932)) is that managers may have objectives different from the assumed profit maximization motive of owners of firms.' The issue remains unresolved-theoretical work has been of an ad hoc nature (e.g., Monsen and Downs (1965)) and the empirical evidence is mixed (e.g., Kamerschen (1968); Monsen, Chiu, and Cooley (1968); and Larner (1970)). This study conducts an empirical analysis of the relative performance of owner controlled and manager controlled banks. The study is unique in three respects. First, it focuses upon cost and growth as well as profit performance. Second, and more important, it is not confined to the largest 200 or 500 firms as has been the case with most previous studies.2 The sample in this study includes the lead bank of most of the 1,735 bank holding companies in the United States in 1975.3 Third, we test for nonlinearity to determine empirically at what percentage (if any) of ownership performance differences become apparent.

Choice of functional form and the demand for air quality

Abstract: The quadratic Box-Cox approach is examined to determine its usefulness in demand research. In the absence of information about hedonic price and household demand structures, the flexible form is invaluable in both stages of the Rosen demand estimation procedure. The quadratic Box-Cox form permits a statistical investigation of a wide variety of specific hypotheses concerning specifications. Commonly-used functional forms in both the hedonic and demand stages are shown in the samples to be founded upon unacceptably restrictive hypotheses. The impact of changes in functional form upon demand-elasticity estimates and benefit estimates justify concern over the functional form-selection process. 8 references, 4 tables.

Pensions and Wages: A Test for Equalizing Differences

Abstract: T HE Employee Retirement Income Security Act of 1974 (ERISA) has provoked considerable debate about the desirability of various retirement plan provisions and the appropriate role of government in regulating the private pension plan contract. Among the issues debated is the question of who presently pays for private retirement benefits, and who should. An answer to at least the first of these questions is provided by the theory of "equalizing differences." In competitive markets, a firm that provides pension benefits should pay lower wages than one that does not, thereby offering the same equilibrium value of total compensation to all workers of equal productivity. By the same token, firms that offer pension benefits on relatively desirable terms are expected to offer lower wage rates than firms offering pension benefits on very restricted terms. These simple notions imply that (1) workers pay for their own pensions by accepting lower wages, and (2) government regulation of the content of private pension plans may not significantly alter labor costs or the expected lifetime income of workers. From this perspective, contributions to private pension plans serve the exclusive purpose of enabling individuals to reallocate their resources over time according to their diverse tastes, and do not affect total labor compensation. The primary purpose of this paper is to examine the empirical validity of the equalizing differences hypothesis. By examining the relationship between wages and pension plans, we also hope to improve our ability to account for wage differentials. Contributions to private retirement plans have grown rapidly in recent years-from 1.7% to nearly 4.0% of private sector wages between 1950 and 1979, and coverage has increased from 22% to more than 45% of all private wage and salary workers.' Most previous studies of wage determination have ignored fringe benefits, let alone pension plans.2 But if the growth of pension plans continues and the equalizing differences hypothesis is correct, continuing neglect of pension provisions implies an increasing inability to account for wage differentials across firms, industries, occupations, race, sex, and age, or by the same token, an increasing tendency to attribute such differences to the wrong factors. The paper begins by reviewing the properties of competitive equilibriuni in labor markets in which compensation consists of current and deferred wages.3 Building on this foundation, we demonstrate how the annual cost of a pension plan depends on its various provisions, including vesting, early retirement, normal retirement, and benefit formula. With data on the earnings and pension provisions of individual workers in 133 large firms, we find some support for the equalizing differences hypothesis. We also observe that the extent of equalization diminishes with age, suggesting a redistribution of compensation from younger to older workers.

A Time Series--Cross Section Analysis of International Variation in Crime and Punishment

Abstract: T HE purpose of this paper is to ascertain the extent to which deterrence, environment, and "culture" can be considered responsible for the observed variance in the propensity for criminal behavior across countries. It is based on time-series observations on robberies from 1955 to 1971 for three countries: England, Japan and the United States as represented by California.1 The differential impacts on the per-capita robbery rate of the certainty and severity of punishment and of economic and demographic characteristics are estimated. Culture is defined to be the set of unmeasured crime determinants that permanently differ across countries and its effect is captured by country-specific dummy variables. The character of this unobservable is inferred from the interrelationship of country-specific effects on crime to those on punishments. The choice of the three countries is based upon the availability of fairly comparable data. We examine robbery because it is defined similarly across countries and because it combines features of both property crimes and personal crimes of violence.2 Indeed, it seems that much of the variation in crime between the United States and England is due to differences in the level of crimes with personal confrontation.3 In discussing the results, I interpret the findings as a consequence of individual maximizing behavior. There has, however, been much debate over the deterrence interpretation, a debate which cannot be resolved by any single empirical effort.4 Given the extent of the controversy, a short digression on the nature of the debate should be valuable at least in placing the present study in the appropriate context. A single equation approach, as pursued in this paper, can provide unambiguous evidence on the deterrence issue only if the level of deterrence is unaffected by variations in the level of crime. Two arguments for this feedback from crime to enforcement have been suggested in the literature, one technical and the other behavioral. The former, the congestion argument, is due to the likelihood that increased crime with fixed law enforcement resources leads to declining rates of capture, conviction, and punishment. This phenomenon is mitigated by the second mechanism which is based upon the societal response to increased crime of expanding law enforcement activity. The extent to which the technical feedback is relevant depends upon the degree to which society anticipates variations in crime and the rapidity with which adjustments in law enforcement inputs can optimally be made, i.e., on costs of adjustment. A priori, it is impossible to tell which one of these will dominate in any set of observations and, thus, impossible to ascertain the direction of the bias in deterrence estimates. Indeed, each of the several law enforcement stages (arrest, conviction, sentencing) may, through these two avenues, be differentially responsive to the crime level. Two strategies can be followed given this problem, each of which may potentially contribute to our ultimate understanding. Which one is chosen depends essentially on the availability of data. One method involves estimating the supply of crime equation within the setting of a multiple equation framework using a suitable estimation technique. Much of the debate over deterrence has been concerned, therefore, with the identification issue, and it has been argued that results which employ simultaneous equation estimaReceived for publication August 15, 1978. Revision accepted for publication November 26, 1979. * Yale University. This paper was prepared under Grant Number 75N1-99-027 from the National Institute of Law Enforcement and Criminal Justice, Law Enforcement Assistance Administration, U.S. Department of Justice. Points of view or opinions stated in this document are my own and do not necessarily represent the official position or policies of the U.S. Department of Justice. I am indebted to John Treat for performing the translations of the Japanese criminal statistics. I The data for the United States as a whole are not as complete as for California alone. 2 Robbery is basically defined as a theft with violence or the threat of violence. 3 See Wolpin (1978) for a comparison of U.S. and English property crime rates. 4 See the collection of papers in Blumstein, Cohen, and Nagin (1978) for a critical view of the deterrence framework and a lengthy discussion of alternative interpretations. [ 417 1

A Test of the Capacity Pressure Hypothesis Within a Simultaneous Equations Model of Export Performance

Abstract: Until recently economet-ric analysis of export behavior has proceeded on the basis of single equation models, and it generally has emphasized price and income demand elasticities.' The single equation approach also has been standard in investigating the effects of pressure of domestic demand on export performance, a topic that has figured prominently at both the theoretical and empirical levels in studies of British exports.2 Most empirical studies of the relationship between the pressure of domestic demand and exports (hereafter referred to as the "capacity pressure" effect) have used time series regressions of export volume on some combination of export price, world market prices, domestic economic activity, world economic activity, and a measure of the pressure on domestic capacity. These studies have supported the capacity pressure hypothesis, finding that export sales are inversely related to the pressure on domestic capacity. The diversion of export sales to the domestic market as domestic activity intensifies is often attributed to a lower profitability of exports, and from the accompanying discussion it may be viewed as an export supply phenomenon. These studies, however, employing single equation methods, do not permit structural estimation of the impact of capacity pressure on supply. For this reason a simultaneous equations approach is especially appropriate for studying the role of capacity pressure on exports. The model presented in this paper consists of simultaneous supply, demand, and market clearing relations.3 The demand function relates export volume (quantity) to export unit value (considered endogenous), a unit value of world trade, the value of world trade, and to seasonal dummy variables. The supply function relates export volume to export unit value, domestic price, domestic economic capacity, to measures of domestic capacity pressure, and to seasonal dummy variables. Quarterly data are used to test the model both for the United States and for the United Kingdom. Twostage least squares, utilizing estimation methods described by Fair (1970), are employed. The results indicate that changes in the level of capacity pressure, although not the level itself, have had a negative impact on American exports. No support for the capacity pressure effect was detected in the British case. From the point of view of technique, the findings suggest that autocorrelated disturbances should be allowed for in the estimation procedure.

The Employment Sector of a Regional Policy Simulation Model

Abstract: D ESPITE the rapid development of techniques of regional economic analysis during the past fifteen years, most regional models have continued to focus upon selected aspects of the regional economy rather than upon its totality Economic base models and regional input-output models have concentrated upon the relationships between the output and employment in the export sectors and the local sectors;' comparative cost models have concentrated upon the response of the export sectors to changes in relative regional production costs;2 and regional econometric models have concentrated upon the determinants of employment in the export sectors and the relationships between regional economic activity and that of the nation3 This disparate collection of partial-equilibrium models generally does not make it possible to determine the full general-equilibrium effects of a given economic change on the total regional economy For example, although economic base/input-output models permit the estimation of the indirect and induced employment and output effects arising from a change in final demand or the level of activity in the export sector, they treat the level of activity in the export sector as exogenous and do not permit factor substitution Similarly, although comparative cost models explicitly recognize that the location of export industries is largely determined by relative production costs, they do not consider the interrelationships among the industries within the export and local sectors or the role that factor substitution can play in regional employment levels Finally, although regional econometric models generally use a neoclassical labor demand function, and hence explicitly consider factor substitution, they do not fully differentiate between the factor-substitution and production cost effects of a change in regional input prices Furthermore, they do not account for the full set of linkages among the industries in the export and local sectors The growing need for comprehensive regional models for planning and policy analysis suggests that there would be substantial value in having models that synthesize the relevant aspects of existing regional economic theory into a single integrated construct Such an integrated model would be useful for both forecasting and policy evaluation and should include the following fea- tures: First, it should recognize that factor substitution is possible and that an increase in the regional price of any given factor will tend to cause substitution in favor of other factors (the factorsubstitution effect); Second, it should recognize that an increase in any input price in a region relative to that in other regions will tend to increase production costs in the region in question The result will be a reduction in the comparative locational advantage for the affected region and a tendency toward a relative shift in employment in national-market industries away from that region to lower-cost regions (the location effect); Third, it should be able to quantify the relative magnitudes of the factor-substitution effect and the location effect arising from any given change in regional input prices; Fourth, it should recognize that a complex set of interrelationships exists not only between the export sector and the local sector, but also among the various industries within each sector Received for publication May 17, 1978 Revision accepted for publication December 7, 1978 * University of Massachusetts at Amherst, Massachusetts Institute of Technology, and Regional Science Research Institute, respectively Work on this model has been supported by the Commonwealth of Massachusetts The authors are grateful to Edward M McNertney for contributions to the development and estimation of many of the equations and to Roy E Williams for a mathematical and statistical review of the model and for programming the model ' See, for example, Isard (1960), Tiebout (1962), Bourque et al (1967), Miernyk (1970), and Polenske (1974) 2 See, for example, Weber (1928), Hoover (1937), Isard (1956) and Borts and Stein (1964) 3See, for example, Friedlaender et al (1975), Adams et al (1976), and Glickman (1977)

Power Relationships in the International Monetary Fund: The Consequences of Quota Changes

Abstract: THERE is a widespread agreement that the International Monetary Fund (IMF) has played a central role in fostering a dynamic and open international economy in the postwar period. As the world economy evolved, the consensus has also emerged, however, that substantial changes were required in the Fund's rules so as to make them better reflect the changing power relationships among its members. In an attempt to make these changes, the "Proposed Second Amendment to the Articles of Agreement of the International Monetary Fund" (IMF, 1976) was offered to the IMF's members for ratification along with a change in the distribution of the members' quotas. The new rules became effective as of April 1, 1978, when the amendment was ratified by the required 60% of members with 80% of the total vote. It is the purpose of this paper to demonstrate, using some simple game theoretical tools, that in many cases the framers of these amendments and quota changes have achieved a result that may be exactly the opposite of their intentions. More specifically, we will show that 1) Under the proposed changes 38 countries in the IMF have their percentage of the total vote decreased and yet their voting power within the organization increased when power is measured by the Banzhaf power index. 2) With the new vote weight distribution and voting rules, four major countries-Belgium, Holland, West Germany and Japan have their percentage of the total vote increased and yet have their percentage of the total power decreased. Paradoxical results of this variety were discussed theoretically by Fischer and Schotter (1978) and labeled the "Paradox of Redistribution.' 1 3) Under the previous distribution of votes and voting rules, smaller countries had voting powers that were out of proportion to their voting weights, and the newly introduced changes would generally aggravate this disproportion. 4) The power of the United States within the Fund increases substantially on issues where most countries vote through their Executive Directors (as groups), as opposed to issues where they vote through their Governors (individually). 5) Under both the previous and current voting system, significant diminishing returns to voting weights exist and the tendency is more pronounced under the new system. In most voting situations power is a concave function of voting weight with large linear segments. 6) Although these results are in many instances not quantitatively substantial, qualitatively they indicate a noticeable discrepancy between what one would think the consequences of the voting changes would be and what they actually are. In this paper we will proceed as follows: Section I will present some background material about the voting procedures at the IMF. Section II will discuss the index that we are using to measure power. Section III will present the results of our calculations and discuss their significance. Finally, section IV will offer some conclusions and consider the relevance of our findings.