Explorations into the Production of State Government Services: Education, Welfare and Hospitals
description- – This paper explores the production characteristics of three important U.S. state government services--public higher education, public welfare, and state psychiatric hospitals--during the last half of the twentieth century. We estimate translog cost functions for the three services and find that their production attributes are similar in a number of respects. First, production exhibits substantial economies of scale; unexploited scale economies are so severe that the average state operates on the negative portion of its marginal cost curve. Second, the analysis of technical change indicates that public education, welfare, and hospitals are affected by severe technical regression in all states, in both the long run and short run. Third, production of all three services is overcapitalized in most states; the provision of these services is not long-run efficient. Finally, we show that the Baumol-Oates cost disease of lagging productivity growth is rampant in all three services; only the short-run productivity growth in education matches the performance of the private sector, as technical regression is more than offset by the productivity-enhancing scale effect of increased enrollments.
- – WP679
- – 2007-11-18
- – application/pdf
Identifying the Returns to Lying When the Truth is Unobserved
description- – Consider an observed binary regressor D and an unobserved binary variable B, both of which affect some other variable Y. This paper considers nonparametric identification and estimation of the effect of D on Y, conditioning on B=0. For example, suppose Y is a person's wage, the unobserved B indicates if the person has been to college, and the observed D indicates whether the individual claims to have been to college. This paper then identifies and estimates the difference in average wages between those who falsely claim college experience versus those who tell the truth about not having college. We estimate this average returns to lying to be about 7% to 20%. Nonparametric identification without observing B is obtained either by observing a variable V that is roughly analogous to an instrument for ordinary measurement error, or by imposing restrictions on model error moments.
- – WP678
- – 2007-11-01
- – application/pdf
The Unilateral Incentives for Technology Transfers: Predation by Proxy
description- – In 1984 GM and Toyota began the joint production of automobiles to much controversy over its anti-competitive effects. The argument for the joint production was the considerable efficiency gains GM would obtain. Since then, the anti-trust controversy has died, but a question remains: why would the most efficient manufacturer (Toyota) transfer to its largest rival the knowledge to transform itself into a very efficient rival? We examine when such transfers could be unilaterally profitable, finding that it can serve as a credible way to make the market more competitive, forcing high cost firms to exit (or preventing future entry). This is not without a cost to Toyota since such a transfer also makes the remaining rivals more efficient. Despite this, we find a sufficient (but not necessary) condition for it to be profitable to predate"by proxy": the market satisfies an entry equilibrium condition. Further, we find that it is then optimal to predate on every firm that is vulnerable and so a market with many firms can become a duopoly. Profitable predation implies higher prices, to the detriment of consumers. Yet the improved production efficiency outweighs this loss, resulting enhanced social welfare. In contrast, profitable non-predatory joint production (or technology transfers) may reduce welfare. Paradoxically, the potential for predation could encourage entry ex ante.
- – WP677
- – 2007-09-29
- – application/pdf
Estimating average marginal effects in nonseparable structural systems
subject- – WP680
- – 2007-12-03
- – application/pdf
Contributing or Free-Riding? A Theory of Endogenous Lobby Formation
description- – We consider a two-stage public goods provision game: In the first stage, players simultaneously decide if they will join a contribution group or not. In the second stage, players in the contribution group simultaneously offer contribution schemes in order to influence the government's choice on the level of provision of public goods. Using perfectly coalition-proof Nash equilibrium (Bernheim, Peleg and Whinston, 1987 JET), we show that the set of equilibrium outcomes is equivalent to an"intuitive"hybrid solution concept, the free-riding-proof core, which is always nonempty but does not necessarily achieve global efficiency. It is not necessarily true that an equilibrium lobby group is formed by the players with highest willingness-to-pay, nor is it a consecutive group with respect to their willingnesses-to-pay. We also show that the equilibrium level of public goods provision shrinks to zero as the economy is replicated.
- – WP681
- – 2008-02-07
- – application/pdf
Computation of Dynamic User Equilibria in a Model of Peak Period Traffic Congestion with Heterogenous Commuters
subject- – WP198
- – 1990-04-01
- – application/pdf
Capital Market Imperfections Before And After Financial Liberization: An Euler Equation Approach To Panel Data For Ecuadorian Firms
description- – Using a large panel of Ecuadorian firms, this paper analyzes the role of capital market imperfections for investment decisions, and investigates whether the financial reforms introduced in the 80?have succeeded in relaxing financial constraints. The model allows both for an increase cost of borrowing, as the degree of leverage increases, and for a ceiling on a latter. The econometric results suggest both types of capital market imperfections are important for small and young firms, but not for large ones. Moreover, the estimated equations do not provide evidence that financial reform in Ecuador has helped to relax these financial restraints.
- – WP221
- – 1992-09-01
- – application/pdf
Review Article Methodology: Alchemy or Science?
description- – This article reviews David Hendry's Econometrics: Alchemy or Science?
- – WP299
- – 1995-05-01
- – application/pdf
The Roles of Part-time Work and Self-employment in the Retirement Transition: A Preliminary View from the HRS
subject- – WP292
- – 1995-05-01
- – application/pdf
Formal Measures of the Informal Sector Wage Gap in Mexico, El Salvador, and Peru
description- – Using comparable micro-level data from three countries, we ask what type of person works in the informal sector and whether informal workers earn lower wages than observationally equivalent workers in the formal sector. The characteristics of informal workers are similar across countries. Surprisingly, when we control for these personal characteristics, we find a significant wage premium associated with formal employment in El Salvador and Peru but a premium associated with work in the informal sector in Mexico. A model of endogenous selection offers little help in explaining the differences in wage patterns. The research casts doubt on the received wisdom that the informal sector, always and everywhere, is a poorly-paid but easily-entered refuge for those who have no other employment opportunities.
- – WP294
- – 1995-03-28
- – application/pdf
Erratum: The Likelihood Ratio Test Under Nonstandard Conditions: Testing the Markov Switching Model of GNP
subject- – WP296
- – 1995-03-01
- – application/pdf
A Filtering Model with Steady-State Housing
description- – This paper presents a filtering model of the housing market which is similar to Sweeney's (1974b), except that the maintenance technology is such that housing can be maintained at a constant quality level as well as downgraded, and population at each income level grows continuously over time. In equilibrium, at each moment of time, some housing is allowed to deteriorate in quality, and other housing is maintained in a steady-state interval of qualities.
- – WP301
- – 1995-02-01
- – application/pdf
Stochastic Equicontinuity for Unbounded Dependent Heterogenous Arrays
description- – This paper establishes stochastic equicontinuity for classes of mixingales. Attention is restricted to Lipschitz-continuous parametric functions. Unlike some other empirical process theory for dependent data, our results do not require bounded functions, stationary processes, or restrictive dependence conditions. Applications are given to martingale difference arrays, strong mixing arrays, and near epoch dependent arrays.
- – WP295
- – 1994-11-01
- – application/pdf
An Alternative Strategy for Estimation of a Nonlinear Model of the Term Structure of Interest Rates
description- – This paper develops and tests a nonlinear general equilibrium model of the term structure of interest rates based on the framework of Cox, Ingersoll and Ross (CIR, 1985). The contributions of this paper to the literature are both theoretical and empirical. The theoretical advantages of the general equilibrium model developed in this paper over the CIR model are (a) the risk premium is endogenously derived as a nonlinear function of the instantaneous interest rate. (b) The nonlinear model shows that the term premium need not be strictly increasing in maturity as in CIR's model; it can be either increasing or humped, a result that is consistent with recent findings by Fama (1984) and McCulloch (1987). (c) Yields of different maturities are not perfectly correlated, but exhibit positive correlations. A partial differential equation for valuing the discount bond price is presented, and a closed-form expression is derived. The term structure of interest rates derived from this nonlinear model may be increasing, decreasing, humped or inverted, depending on parameter values.In an empirical application of the model, we develop a strategy for estimation which permits analysis of the model's temporal stability. Our model, like that of CIR, expresses the underlying stochastic process as a highly nonlinear function of two fundamental, time-invariant parameters. Many researchers have found that general equilibrium models such as CIR's provide quite poor explanations of the evolution of the term structure of interest rates. As an alternative strategy to that of fitting the fundamental parameters, we employ nonlinear system estimation of the unrestricted reduced-form parameters with a moving-window strategy in order to capture the term structure volatility caused by factors other than the instantaneous interest rate. We purposefully do not impose any law of motion on the estimated volatilities. This methodology is shown to have strong predictive power for the observed term structure of interest rates, both in-sample and out-of-sample.
- – WP275
- – 1994-10-01
- – application/pdf
Alleviating Traffic Congestion: Alternatives to Road Pricing
description- – Economists' favorite remedy for traffic congestion is road pricing. Not only is road pricing based on sound economic principles, but also given current technology it could be implemented at reasonable cost and in a flexible and sophisticated manner. But there are serious obstacles to the widespread adoption of road pricing. There are problems of phase-in: the fixed costs of introducing any system of road pricing, as well as the problems of coordinating road pricing across jurisdictions, including standardization and the treatment of out-of-towners. Political acceptability is an even more serious obstacle. How can congestion pricing be"sold"to economically unsophisticated voters who are justifiably suspicious of any new government taxes and charges? This paper will not argue against road pricing, though it will point out some of the difficulties associated with the policy that economists have tended to ignore or to gloss over. Rather, it will examine some of the alternatives to road pricing. More specifically, it will focus on two related questions, one positive, one normative, on the assumption that congestion pricing is not introduced, at least on city streets. The positive question: What are the likely effects of policies other than road pricing on alleviating road congestion? The normative question: What mix of policies (road pricing excluded) would be most effective in alleviating traffic congestion? Throughout the focus will be on urban traffic congestion. Alternatives to road pricing can be grouped into five categories: 1. Expansion and upgrading of existing road capacity; 2. Expansion and upgrading of mass transit; 3. Regulation; 4. Information; 5. Non-road transport pricing. While the emphasis of the paper will be on qualitative analysis, there will be some attempts at quantification via back-of-the-envelope calculations.
- – WP282
- – 1994-09-01
- – application/pdf
Intergenerational Transfers and the Demonstration Effect
description- – How can parents secure old-age support in the form of care, attention or financial transfers from their children? We explore the enforcement of implicit intergenerational agreements from a fresh angle by studying the possibility that the child's conduct is conditioned by the parents' example. Parents can take advantage of this learning potential by making transfers to their own parents when children are present to observe such transfers. Parents who desire old-age support have an incentive to behave appropriately. The idea that the parents' behavior is aimed at inculcating desirable behavior in their children generates testable hypotheses about transfers that we investigate using household survey microdata. The demonstration-effect approach also has implications for such diverse phenomena as population aging and the labor market participation of women.
- – WP329
- – 1994-06-01
- – application/pdf
Gift Giving and the Evolution of Cooperation
description- – Gift giving is a practice common to many societies. In an evolutionary model the social custom of giving gifts at the beginning of a relationship can lead to trust and cooperation. The evolutionary approach makes predictions about the character of the goods that can be used as gifts. For example, gift goods may have little use value even at low levels of consumption. Although the gifts themselves are useless, the institution is not.
- – WP338
- – 1996-01-01
- – application/pdf
Approximate Asymptotic P-Values for Structural Change Tests
description- – Numerical approximations to the asymptotic distributions of recently proposed tests for structural change are presented. This enables easy yet accurate calculation of asymptotic p-values.
- – WP297
- – 1996-01-01
- – application/pdf
An Empirical Investigation of Risk Premia in the Foreign Currency Futures Basis
description- – Significant time-varying risk premia exist in the foreign currency futures basis, and these risk premia are meaningfully correlated with common macroeconomic risk factors from equity and bond markets. The stock index dividend yield and the bond default and term spreads in the U.S. markets help forecast the risk premium component of the foreign currency futures basis. The specific source of risk matters, but the relationships are robust across currencies. The currency futures basis is positively associated with the dividend yield and negatively associated with the spread variables. These correlations cannot be attributed to the expected spot price change component of the currency futures basis, thus establishing the presence of a time-varying risk premium component in the currency futures basis.
- – WP281
- – 1996-01-01
- – application/pdf
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