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This represents two chapters of a proposed book co-authored by Bob Evenson and myself. The subject is relationships between agricultural productivity, research and information. The first chapter of this part is concerned with the "theory" of the value of information. Among other things, the Bayesian learning model is used as a vehicle for describing optimal learning from experience. The second chapter presents results for a number of empirical studies concerned with relationships between education and allocative efficiency. Section I is reprinted from my J.P.E. paper "Education in Production". Section II is the "Scale Economy" paper of mine which has existed in various unpublished versions for two years now. The final section summarizes recent discussions by Wallace Huffman (Chicago), Nabil Khaloi (SMU) and Charles Fane (Harvard).

A topic of continued public concern is the national level and distribution among areas and individuals of the availability of hospital services. This paper presents data for the country as a whole on hospital utilization during the post World War II period for short-term non-federal hospitals. The bed rate (the number of beds per thousand population) increased nearly 25 percent. The admission rate (admissions per thousand population)increased nearly 50 percent. The average bed occupancy rate increased during most of the period but has recently been on the decline. These changes are important because hospitals do perform useful services, but at a considerable cost - a cost which has been growing rapidly. The purpose of this study is to present a model for analyzing the utilization of short-term general hospitals. The objective is to develop structural equations and hypotheses as to why the measures of hospital utilization vary across communities, and to estimate these equations and test these hypotheses.

In this paper, we have developed an operational method for estimating error components regression models when the variance- covariance matrix of the disturbance terms is unkown. Monte Carlo Studies were conducted to compare the relative efficiency of the pooled estimator obtained by this procedure to (a) an ordinary least sources estimator based on data aggregated over time, (b) the covariance estimator, and (d) a generalized least squares estimator based on a known variance-covariance matrix. For T small and large p, this estimator definitely performs better than the other estimators which are also based on an estimated value of the variance-covariance matrix of the disturbances. For p small and large T it compares equally well with other estimators.

The purpose of this paper is to consider human capital models of earning behavior over an individual lifetime. A general class of life cycle models relating to individual earnings behavior is developed by considering alternative formulation of the basic Ben- Porath type model. An explicit solution to a specific formulation within this general class is considered in some detail. An empirical development of this explicit earnings function is estimated using data on a cohort of individuals surveyed at some point in their lifetime. The empirical estimates are discussed in detail. The estimated earnings function is then used to predict and individual’s discounted present value of lifetime earnings.

The household production model provides a useful theoretical framework in which one may analyze family labor supply issues. In this model, the family is viewed as if it were a small firm producing its ultimate wants within the household. In order to satisfy these wants, the family (firm) combines purchased market goods and services with the time of various family members. This approach differs from the traditional treatment of the labor-leisure choice decision since the price of any activity now has two components – the goods price and the time price of each family member. The relative empirical importance of the two components depends, of course, on their respective shares in the cost of producing an activity.

This paper represents a very early progress report on a new study of business cycle indicators for the United States. Our host organization, CIRET, is concerned with research on surveys of economic tendencies that cover broad areas of business, investment, and consumer behavior. These inquiries yield mainly qualitative data on plans and expectations of economic decision-making units. Such data are aggregated and also in a sense quantified in form of diffusion indexes (the Ifo Business Test and its components may serve as examples), but they are basically limited to showing only the direction and not the size of changes in the economic variables covered. A major purpose of compiling and analyzing these diffusion measures is to improve prediction of cyclical movements in business activity. This objective is the same as that pursued in the National Bureau studies of quantitative business cycle indicators -- the latest of which is the project to be discussed in this paper. Appraisals of the predictive records and potentials of these two time series data sets (the cyclical indicators and the expectational diffusion indexes) are therefore definitely an appropriate subject for consideration in this conference.

In this paper we are concerned with the characteristics of colleges which serve to increase subsequent monetary incomes of those who attend. Usually, lifetime earnings are explained by variables such as innate ability, experience in the labor force and years of education, although other socio-economic, demographic and occupational data can be inserted to increase the explanatory power of the model. This paper attempts to add a new dimension to the earnings function analysis by hypothesizing the features of colleges which might yield financial payoffs later in life, and then testing to see which of these traits actually do add most to the explanatory power of the traditional earnings function.

In studying the impact of direct investment on the amount, direction, and composition of international trade we have found that the multinational firm fits uncomfortably into the usual theory of trade and capital movements. We attempt here to introduce the fact of the existence of multinational firms into the explanation of trade flows and particularly into the long-running debate over the relations among factor abundance, factor prices and trade.

Recent development of explicit theoretical and empirical earnings functions from life cycle human capital investment models increases the potential to explain existing earnings distributions and to predict changes in it. The purpose of this paper is to suggest how these earnings functions can be used more directly to derive predicted earnings and human wealth distributions for populations and sub-populations with an empirical illustration. This is accomplished by an application if statistical distribution theory as a link between the earnings function and the earnings distribution.

This paper gives an alternative derivation of a Monte Carlo method that has been used to study robust estimators. Extensions of the technique to the regression case are also considered and some computational points are briefly mentioned.

This paper gives the formulas for and derivation of ridge regression methods when there are weights associated with each observation. A Bayesian motivation is used and various choices of k are discussed. A suggestion is made as to how to combine ridge regression with robust regression methods.

There is an inherent tension between the idea that individuals have certain inalienable (natural) rights and the economist's postulate that the rate if utilization of anything whose production requires scarce resources must be limited by considerations of opportunity cost. Remarks about rights to life, liberty, health, justice and the like are readily inserted into political pronouncements, legislative preambles and court decisions, but they (should) cause economists to raise questions about costs and quantities. Unfortunately, neither in ordinary language nor in the jargon of moral philosophy can such ultimate desiderata as liberty and justice be related to costs or quantities. Hence in the first section we sketch a model of social choice in which the necessary relationships can be defined. In section II, we give instances where, despite protestations to the contrary, the Law Enforcement System (LES) has made de facto reductions of citizen rights (liberties) in order to increase the efficiency if law enforcement. The final section considers some of the normative implications suggested by the positive arguments of section II.

The economics of information have been established by now as an integral part of economic analysis. However, surprisingly little has been written on the implications of search (and in particular, job search) for the estimation of the wage function and its ramifications in such cases as the estimation of the determinants of labor force participation, age-earning profiles, rates of return and rates of depreciation of human capital, degree of discrimination, etc. Given a wage offer distribution, the parameters of the observed wage distribution depend on the intensity of search. The lower a person’s wage demands the greater the chance of his finding an acceptable job, but the lower the wage he expects to receive and the wider the dispersion of acceptable wages around their mean. On the other hand, the job seeker may opt for a more ambitious search strategy, raising his minimum wage demand and consequently increasing the risk of remaining unemployed, but also increasing the expected wage and decreasing the dispersion of available offers. Models of wage offer distribution have traditionally been based on empirical observation of observed wage distribution. This approach may involve certain biases when applied to secondary labor groups – married women, teenagers and the aged. This paper attempts to point out some of these biases and suggests a method for their correction.

The effects of particular attributes of colleges on the subsequent earnings of individuals who attend are much discussed but rarely studied systematically. Here we seek to compare the earnings patterns of people attending different types of colleges. The classification of colleges used in this study is the scheme developed by the Carnegie Commission on Higher Education based on the sense of commitments to research, types of programs offered and selectivity of admission of students. We find that at the college level, differences in type of institution attended have highly significant effects on differences in lifetime earning patterns of students.

The prediction accuracy of six estimators of econometric models are compared. Two of rthe estimators are ordinary least squares (OLS) and full-information maximum likelihood. (FML). The other four estimators are robust estimators in the sense that they give less weight to large residuals. One of the four estimators is approximately equivalent to the least-absolute-residual (LAR) estimator, one is a combination of OLS for small residuals and LAR for large residuals, one is an estimator proposed by John W. Tukey, and one is a combination of FIML and LAR. All of the estimators account for the first-order serial correlation of the error terms. The main conclusion is that robust estimators appear quite promising for the estimation of econometric models. Of the robust estimators considered in the paper, the one based on minimizing the sum of the absolute values of the residuals performed the best. The FIML estimator and the combination of the FIML and LAR estimators also appear promising.

Recent work on robust estimation has led to many procedures, which are easy to formulate and straightforward to program but difficult to study analytically. In such circumstances experimental sampling is quite attractive, but the variety and complexity of both estimators and sampling situations make effective Monte Carlo techniques essential. This discussion examines problems, techniques, and results and draws on examples in studies of robust location and robust regression.

Inequality in income or earnings is the most indisputable fact about the distribution of income. Inequality in income distribution occurs in most political and economic models and has from ancient times to the modern era. Society and government have expressed a desire to establish a minimum floor for members of society -- though the level of the floor and the means of achieving it are matters of debate. Besides a direct interest in the questions of the sources of inequality, how to achieve income redistribution, and the efficacy of various policy tools, economists are also concerned with establishing how various labor markets operate, how rational individuals are, and how important are individual effort , chance, and predestination. Economists have constructed various theories that purport to explain income distribution. Some aspects of these theories have been tested against empirical observations. This study will extend the range of such tests. In addition, we will generate some new facts that a complete theory should be able to explain.

The debate over the legitimacy or propriety of the death penalty may be almost as old as the death penalty itself and, in the view of the increasing trend towards its complete abolition, perhaps as outdated. Not surprisingly, and as is generally recognized by contemporary writers on this topic, the philosophical and moral arguments for or against the death penalty have remained remarkably unchanged since the beginning of the debate. One outstanding issue has become, however, the subject of increased investigation, especially in recent years, due to its objective nature and the dominant role it has played in shaping the analytical and practical case against the death penalty. That issue is the deterrent effect of capital punishment, a reexamination of which, in both theory and practice, is the object of the paper.

The median operative workload of seven general surgeons comprising the general surgical staff of a prepaid group practice of 158,000 enrollees was 9.9 hernia equivalents (HE) a week. The value was over three times that of a previously studied population of 19 general surgeons in fee-for-service community practice, and approximated a consensus standard of a full surgical workload. The median complexity of operations was 1.00 HE, similar to the community practice, and evidence suggested the most complex operation were handled by6 the surgeons with the most training. 23.6% of operations were performed on an ambulatory basis. The results suggest that the prepaid group practice under study possesses administrative mechanisms to efficiently utilize both general surgeons and the resources devoted to general surgery.

This paper discussed the prospects for female earnings relative to male earnings. The determinants of the general level of earnings (female and male) are not considered. I concentrate on hourly earnings as being the best measure of the price of labor from both the demand and supply points of view. One can easily extend the discussion to annual earnings by taking account of annual hours. (In 1970 on average employed women worked about 3/4 as many hours per year as employed men.) The estimates of hourly earnings to be presented are calculated from the 1/1000 samples of the 1960 and the 1970 Census of Population. The Census samples provide much useful data on employed persons including such characteristics as sex, schooling, age, race, marital status, and class of worker. I have excluded agricultural and unpaid family members because of well-known difficulties in estimating their earnings and hours of work. All other persons who were at work during the Census week and who had their earnings in the year preceding the Census are included.

Over the past century fertility behavior in the United Stated has undergone profound changes Measured by cohort fertility the average number of children per married woman had declined from about 5.5 children at the time of the Civil War to 2.4 children at the time of the Great Depression. It is seldom emphasized however that an even greater relative change took place in the dispersion of fertility among these women: the percentage of women with, say, seven or more children declined from 36% to under 6%. While students of population have offered reasonably convincing explanations for the decline in fertility over time, they have not succeeded in explaining the fluctuations in the trend and have made surprisingly little effort to explain the large and systematic decline in the dispersion of fertility over time. In this paper we attempt to study contraception behavior and its effects on fertility. One of the effects on which we focus considerable attention is the dispersion or variance in fertility. Our analysis is applied to cross-sectional data but it also provides an explanation for the decline in the variance in fertility over time.

This paper has two purposes. The first is to develop a methodological framework that can be used to introduce and discuss alternative explanations of the correlation between health and schooling. The second is to test these explanations empirically in order to select the most relevant ones and obtain quantitative estimates of different effects. The empirical work is limited to one rather unique body of data and uses two measures of health that are far from ideal. The methodological framework can, however, serve as a point of departure for future research when longitudinal samples with more refined measures of current and past health and background characteristics become available.

It is the main purpose of this paper to examine in detail the pattern of fertility fluctuations in the United States since the Second World War and to define, with some precision, the questions these patterns raise for students of fertility behavior.

The problem of simultaneously identifying and controlling a time-varying, perfectly-observed linear system is posed. The parameters are assumed to obey a Markov structure and are estimated with a Kalman filter. The problem can be solved conceptually by dynamic programming, but even with a quadratic loss function the analytical computations cannot be carried out for more than one step because of the dual nature of the optimal control law. All approximations to the solution that have been proposed in the literature, and two approximations that are presented here for the first time are analyzed. They are classified into dual and non-dual methods. Analytical comparison is untractable; hence Monte Carlo simulations are used. A set of experiments is presented in which five non-dual methods are compared. The numerical results indicate a possible ordering among these approximations.

The fine structure of earnings is defined by a theoretically meaningful decomposition of the covariance matrix of earnings (or log earnings) time series. A three-element variance components model is proposed for analyzing earnings of young workers. These components are interpreted as the effects of differential on-the-job training (OJT) and differential economic ability. Several properties of these components and relationships between them are deduced from the OJT model. Background noise generated by a nonstationary first-order autoregressive process, with heteroscedastic innovations and time-varying AR parameters is also assumed present in observed earnings. ML estimates are obtained for all parameters of the model for a sample of Swedish males. The results are consistent with the view that the OJT mechanism is an empirically significant phenomenon in determining individual earnings profiles.

This paper has two goals: first to describe a theoretical model which derives relationships among migration decisions explicitly from utility maximization under uncertainty; and second, to examine why nations vary in their internal migration. To explain variation in internal migration, we hypothesize that the degree of monetization and industrialization of an economy is inversely related to the family cohesiveness; hence, a given percentage increase in relative income will have higher migratory effect in a relatively more monetized economy. The availability of higher initial information and better transportation systems in these economies strongly complement this effect. These hypothesis are confirmed by the estimates based on the U.S. and Italian data.

The amount of time married women spend in workforce has increased dramatically in the last thirty years. This increase in labor force participation has been accompanied by changes in allocation of time to various activities in the household as well. Since the proportion of women in the labor force has been rising, the average amount of time input to household tasks by all women has been declining over the last 50 years. It is valuable to analyze this in the household production context: women choose not simply between work and leisure but between work in the home, work in the market and leisure. This paper will use time budget data to try to determine how women's education levels affect time allocation to various activities.

The purpose of this paper is to indicate regularities in the area of occupational choice using income-leisure analysis. A simple one-period model is used to examine the effect of changes in nonhuman and human wealth on the choice of an occupation. It is argued that under certainty: An increase in nonwage income will increase the propensity to choose pleasant low-paying work activities. An increase in human capital will also induce a choice of pleasant work activities if the income effect is dominant. Under conditions of uncertainty an increase in nonwage income will tend to encourage the choice of risky high-paying work activities if their monetary returns are uncertain. If the nonmonetary returns of an occupation are uncertain the propensity to choose it will tend to decrease with wealth. Finally, an increase in human capital is likely to discourage the choice of occupations with risky monetary returns.

This paper analyzes the effects of differential turnover patterns and the existence of firm specific training, jointly financed by employer and employee, on male-female wage and employment differentials. Chapter 1 introduces the topic of sex differences in occupational distribution and compensation and presents some of the more common economic theories which are relevant to the subject. Chapter 2 presents a model of a firm that invests in the training of its workers, where employee turnover represents depreciation on human capital. Differences in the turnover rates of men and women is shown to be an important determinant of the incentive to the employer to hire and train women as well as men. The empirical implications of the model for the relative wage and occupational distribution of women are contrasted with those derived from a model of general human capital investment. Chapter 3 outlines the problems involved in empirical formulation of the model, the choice of the unit of observation for empirical, testing, and data limitations, and presents the results of empirical testing of the model on aggregate occupational data for males and females from the 1967 Survey of Economic Opportunity. In Chapter 4, the model is applied to occupational data from the 1967 Survey of Economic Opportunity for black and white men as an additional test of its applicability and empirical power. Chapter 5 summarizes the empirical findings and conclusions of the paper.

This dissertation analyzes the timing and spacing of child-births within an economic framework. I have attempted to explain when women in the United States begin child bearing - i.e., the "timing" (of the first birth) - and the length of the interval they spend in child bearing - i.e., the "spacing" of births. Chapter I introduces the topic and reviews some of the relevant literature. In Chapter II, an economic model is developed which predicts that women with a rising price of time over the lifetime will start having their children sooner after finishing school. Those with a high price of time throughout their lifetimes will have their children closer together. The model also predicts that families whose income receipts rise sharply, at least in the early years after the husband enters the labor force, will postpone their first birth and that families with a high lifetime income will have their children farther apart. The data and variables used to test the model's hypotheses are described in Chapter III. Chapters IV and V describe, respectively, the empirical tests of the timing and the spacing hypotheses. The results of an investigation of some relationships between the timing of the various demographic events and labor force participation are reported in Chapter VI. Chapter VII summarizes the theoretical analysis and the empirical results, which generally support the timing and spacing hypotheses.

The effects of price expectations on consumption and saving has received relatively little attention, especially at the micro level. This paper's effort is addressed to this void. More specifically, the paper's primary purpose is to investigate whether it is possible to discern empirically a relationship between individually held price expectations and decisions of households to hold particular types of assets. To this end, I have analyzed aggregate time - series data from the National Income Accounts and the Flow-of-Funds and two bodies of micro household data, each involving several thousand households and each containing fairly detailed information on price expectations.

The following paper discusses the analysis of some types of economic time series using an altered time scale, or operational time. It is argued that for some series, observations that are ordinarily thought of as equidistant in time are actually irregularly spaced in a more natural time scale. Section A discusses point or impulse sampling of related series and the estimation of distributed lag relationships between them. Section B discusses time-aggregated sampling. In Section C, operational-time methods are used to calculate the distributed lag relationship between starts and completions for single-family dwellings in the United States. The results are statistically compared with those of ordinary distributed lag methods.

A variety of theories have been offered to explain why prices generally respond so little to declines in demand, and do so now less than formerly. Most of these center around a dependence of prices on costs, or the anticipated trend of costs, and a greater disregard for short-run changes in demand. The more appealing hypothesis is the simple one that price setters tend to adjust slowly to changes in market conditions; they transmit but do not originate inflation. To find that prices in the less competitive markets respond more slowly to changes in market conditions - first lagging, then catching up - would support the theory that firms try to avoid frequent changes in prices but vary in their ability to do so. Are lags in price adjustment related to market structure? Previous empirical studies of the relationship are inconclusive on this point. Earlier literature, largely theoretical, has suggested that concentrated industries tend to raise prices more rapidly, thereby exerting a permanent upward push on the price level. Empirical studies have usually reported the opposite or no consistent relation, however. On the lag-and-catching-up theory, the concentrated industries should exhibit greater increases in the period of waning inflation after 1969. This study examines the data for such a pattern and finds striking evidence of it.

In the past few years, there has been substantial progress in the application of the economic theory of household decision making to human fertility behavior. Theoretical emphasis has been given to the effects of the costs of parental tine and money resources devoted to rearing children on the demand for the total number of children in a static framework under conditions of certainty. Empirical work has focused on explaining variation in the number of children ever born to women, who have completed their childbearing, as a function of measures of the household's total resources and the opportunity cost of time, especially the value of the wife's time. One important objection to static theories of fertility is their failure to deal with the implications of the simple fact that reproduction is a stochastic biological process in which the number and timing of births and the traits of children (e.g. sex, intelligence, health, etc.) are uncertain and not subject to direct control. In this paper, we report some initial results of a study in progress whose goal is to develop an integrated theoretical and econometric model of fertility behavior within a sequential stochastic framework. The principal contribution of the paper is to the development of an appropriate econometric methodology for dealing with some new econometric problems that arise in such models.

The present study examines the recession behavior of wholesale prices since World War II and compares it with the 1920s as the most recent period of earlier recessions with comparable severity. The focus is on changes in recession behavior, possible bias in the data, and differences in behavior between various groups of wholesale prices. (Differences between wholesale and consumer prices, though of importance, are not examined here.) The purpose is to extend the evidence on the degree and uniformity of the change in price behavior and to test various interpretations of those changes.

This working paper is a draft of a chapter in a larger manuscript which is concerned with the time series variations in fertility in the United States since 1920. This chapter asks how economic models of fertility aid our understanding of our demographic history. Thus little attention is given here to the suitability of economic models for the explanation of cross-sectional fertility differentials.

This paper derives relationships between frequency-domain and standard time-domain distributed-lag and autoregessive moving-average models. These relations are well known in the literature but are presented here in a pedogogic form in order to facilitate interpretation of spectral and cross-spectral analyses. In addition, the paper employs the conventions and discusses the estimation procedures used in TROLL. Some aspects of these estimation procedures are new and have not been discussed in the literature.

A recursive algorithm for estimating linear models with both constant and time-varying parameters is derived by maximization of a likelihood function. Recursive formulas are also derived for derivatives of the likelihood function; the derivatives are needed for numerical evaluation of some parameters. Smoothing formulas are also derived. The estimation algorithm is compared with others for similar classes of models.

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.

There is widespread concern that the criminal justice system, particularly in large urban areas, is breaking down under the strain of an increasing demand for its services and inadequate resources. At the center of the system, located between the police and the prisons, are the criminal courts. Statistics on rising crime rates, recidivism, arbitrary sentencing practices, court delay, and prison riots are taken as further evidence that the courts are failing. What has been notably scarcer is systematic empirical research on the criminal court system - research that can contribute to our understanding of the actual workings of the system and enable us to develop policies for improvement. The purpose of this study is to begin to remedy this deficiency by applying the quantitative techniques of economics to an analysis of some important issues in criminal court procedure.

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.

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.

In recent years, graphics have become an essential part of modern data analysis. This paper describes a system called CLOUDS which is designed to make available on inexpensive storage tube terminals a wide range of graphic tools related to data analysis, economics, and management science. The system can be accessed nationwide by nonprofit organizations via the National Bureau of Economic Research computer network.

We introduce the concept of a triad census of a digraph arid show how it can be used to enumerate various types of subgraph configurations. We give the basic probabilities needed for computing means and variances for a triad census under the U-MAN distribution for digraphs. These concepts are combined to provide a way of testing propositions about social structure using sociometric data. An application to 408 sociograms is given.

The purpose of this paper is to review the past evidence and to offer some new data to assess whether the incubator hypothesis can be empirically supported. In particular the two general aspects of the hypothesis will be tested. First, we will examine the proposition that highly centralized locations are attracting a disproportionate number of new firms and/or the employment associated with new firms. Second, we will test the hypothesis that new firms which are formed in high density areas move outward from such sites in their early years of existence in order to expand their productive activities. We refer to these as the "simple and "dynamic" hypotheses in the rest of the paper. Our analysis is based on the experience of all manufacturers in several U.S. cities. We recognize that it is quite possible that the hypothesis could hold for certain industries even if it is unsupported for all firms together. Our intent, however, is to test the validity of the hypothesis as a general theory of intraurban location behavior. The paper consists of three sections. The first two present evidence on the "simple" and "dynamic" hypotheses. The final section summarizes our findings and offers some conclusions.

This paper discusses the robustness and the computational stability of the singular value decomposition algorithm used at the NBER Computer Research Center. The effect of perturbations on input data is explored. Suggestions are made for using the algorithm to get information about the rank of a real square or rectangular matrix. The algorithm can also be used to compute the best approximate solution of linear system of equations in the least squares sense, to solve linear systems of equations with equality constraints, and to determine dependencies or near dependencies among the rows or columns of a matrix. A copy of the subroutine that is used and some examples on which it has been tested are included in the appendixes.

The purpose of this paper is to outline a set of conditions under which human wealth is an index of well-being in a life cycle as prefatory to empirical estimates earnings and human wealth distributions for the1960 Census population.

This paper contains the basic statistical material upon which Effective Rates of Protection (ERPs), Domestic Resource Costs (DRCs), and crop acreage responses were calculated by the authors for their volume on Egypt in the NBER project Foreign Trade Regimes and Economic Development. This material, which includes some comparisons of Egyptian costs of production with those of other countries for a number of commodities, is too extensive for that volume, in which interest is focused on the end results of the calculations. The underlying data, however, are not easily accessible: some of them took us along time to gather, and readers might want to work on the data themselves for further research in this field. We also felt that readers should be in a position to evaluate our calculations.

An essential feature of schooling is not only that it occurs in a different site than most on-the-job training but also that it is more intensive. That is, a smaller proportion of gross potential earnings is sacrificed in on-the-job training than in schooling. In estimating human capital earnings functions it has generally been assumed that during schooling 100% of gross potential earnings are invested in all years, while in on-the-job training this percentage is smaller and is a declining function of age. This assumption has been quite useful since it allows the identification of an estimate of the rate of return on schooling from a regression of earnings on years of schooling. This paper argues that the percentage of gross earnings invested may fall below 100% well before schooling is ended, that this percentage is likely to be correlated with years of schooling, and thus this procedure yields only a biased estimate of the rate of return to schooling.

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.

During the past decade, much has been said about the role that on-the-job training plays in augmenting one's stock of human capital. Up to this point, little has been done to distinguish the effect of on-the-job training from that of aging on the increase in human wealth. The reason rests primarily on the fact that it is difficult to observe or even define in some appropriate way the amount of on-the-job training that an individual possesses. In this paper, a method is developed by which one may compare the effects of work experience to those of aging per se. The difference is then attributed to on-the-job training.

Usually transportation/communication (t/c) considerations appear as only two in a long list of factors which determine headquarters location patterns. The research reported here singles out t/c considerations as the logical basis for headquarters location decisions. We ask: to what degree do transportation/communication consideration explain the patterns of headquarters location? The case of manufacturing firms with five or more establishments and no manufacturing activity at the headquarters location was examined. The t/c considerations were studied in terms of the advantages of close proximity between the headquarters of a firm and the manufacturing establishments of that firm and the advantages of close proximity between the headquarters of one firm and the headquarters of other firms. The findings of this research show that the logic of headquarters location patterns is heavily dependent on t/c considerations.

The traditional studies of income distribution, a field with which economists are becoming increasingly concerned, must be described as basically sociological. The ascendancy of the human capital approach can be viewed as a reaction of economists to this non-economic, though certainly not irrelevant, tradition. In stressing the role played by individual and family optimizing decisions in human capital investments, important aspects of income determination are brought back within the mainstream of economic theory and within the power of its analytical and econometric tools. Human capital is not the only element of choice in the analysis of income distribution . Nevertheless, it appears that the subject of human capital investments lends itself to a more systematic and comprehensive analysis of wage differentials, than each of the other factors. The following is a description of research in the distribution of labor incomes in which human capital theory serves as an organizing principle. It is, in part, a sequel to my 1970 survey and, in part, a report of ongoing research of my own and of others.

In their striving toward development, a number of less developed countries have espoused bilateral trade as yet another policy instrument allowing them to increase their acquisition of foreign resources. This has been particularly true of the trade of India, Pakistan, and Egypt, on which some useful empirical studies have been conducted. The target we are interested in is not trade efficiency as an end in itself, but growth. For a number of countries, the ability to grow depends very much on the ability to import. Hence, it is in terms of this target that we propose to evaluate the efficiency of bilateral trade as a policy instrument and to examine a number of related issues, such as the terms of trade, trade diversion, and its effect on resource allocation. A brief description of bilateral trade agreements starts our discussion followed by a three-country model as a theoretical formulation of the problem. Finally, several implications will be derived in relation to the issues mentioned above.

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.

Four estimators of econometric models are compared for predictive accuracy. Two estimators assume that the parameters of the equations are subject to variation over time. The first of these, the adaptive regression technique (ADR), assumes that the intercept varies overtime, while the other, a varying-parameter regression technique (VPR), assumes that all parameters may be subject to variation. The other two estimators are ordinary least squares (OLS) and a robust estimator that gives less weight to large residuals. The vehicle for these experiments is the econometric model developed by Ray Fair. The main conclusion is that varying parameter techniques appear promising for the estimation of econometric models. They are clearly superior in the present context for short term forecasts. Of the two varying parameter techniques considered, ADR is superior over longer prediction intervals.

The agrarian unrest in the United States at the end of the nineteenth century is examined. This unrest is often viewed as stemming from the inability of farmers to adapt to changing conditions in world agriculture. This hypothesis is tested in the context of a distributed lag supply function. Varying parameter estimation methods are used to trace the history of the parameters in the supply function and to decompose observed prices into permanent and transitory components over time. The patterns of variation are tested for conformity with a model of rational price-expectation formation. The conclusion is that farmers behaved as economic theory would predict, but that neither theory nor practice gave them relief from the troubles which plagued them.

We give some Monte Carlo results on the performance of two robust alternatives to least squares regression estimation - least absolute residuals and the one-step "sine" estimator. We show how to scale the residuals for the sine estimator to achieve constant efficiency at the Gaussian across various choices of X-matrix and give some results for the contaminated Gaussian distribution.

It is well known that as a result of spiralling crime rates, public expenditures for police protection have been rising at a rapid rate. It is less well known, however, that private expenditures for guards, protective services and equipment have kept pace with the increasing public expenditures. Despite the fact that in 1970 the private sector allocated at least $3.3 billion of its resources to protection, and this sum is two-thirds the size of the corresponding public outlay, no one has explicitly analyzed the determinants of the private sector's demand for protection. This article, which summarizes a larger study, attempts to fill this gap by considering firm demand for protection. The main purpose of this article is to answer three questions. One, how is firm demand for protection related to business losses from crime and the probability of crime? Two, are public and private expenditures substitutes or complements? Three, does a firm choose self-protection as a substitute for market insurance or will it spend more on protection if it has insurance? Part I describes a theoretical framework for analyzing a firm's protection decisions. In Part II I discuss the data set that is used to test the model and the methods of proxying some of the unobserved theoretical variables. Part III presents the results of the empirical analysis. In Part IV the data are used to test what factors, holding protection expenditures constant, predict whether or not a firm will be victimized.

This paper considers the effect of aggregation on the variance of parameter estimates for a linear regression model with random coefficients and an additive error term. Aggregate and microvariances are compared and measures of relative efficiency are introduced. Necessary conditions for efficient aggregation procedures are obtained from the Theil aggregation weights and from measures of synchronization related to the work of Grunfeld and Griliches.

A factorization of the basis for any block-angular 12 model is presented, and its inverse is shown to be readily maintainable as piecemeal product-forms plus possible additional columns. Straightforward rules for piecemeal transformation of full rows and columns are given.

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.

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.

The role of data analysis in communication, persuasion, and decision-making is discussed. Some problems with current data-analysis practice are presented, including communication, complex models, large data bases, one-pass processing, rigid assumptions, resistance, validity, prior information, access to new methods, and the responsiveness of data analysis researchers to real world needs. Recent progress in these areas is then outlined, with emphasis on graphics, Bayesian regression, robust estimation, and jackknife, and interactive computing systems. Some remaining challenges for data analysts and others who are trying to integrate data into decision-making processes are discussed.

The Rational Distributed Lag Structural Form of an econometric model is introduced, and its relationship to several traditional forms of representation is discussed. The traditional forms are viewed as special cases of the Rational Structural Form. Thus, the latter provides a unified framework for any treatment of the linear, time invariant modeling problem. In particular, a solution of the estimation problem for the Rational Structural Form leads to the solution of the estimation problem for all traditional forms.

This paper presents a means for detecting the presence of multicollinearity and for assessing the damage that such collinearity may cause estimated coefficients in the standard linear regression model. The means of analysis is the singular value decomposition, a numerical analytic device that directly exposes both the conditioning of the data matrix X and the linear dependencies that may exist among its columns. The same information is employed in the second part of the paper to determine the extent to which each regression coefficient is being adversely affected by each linear relation among the columns of X that lead to its ill conditioning.

It is by now widely recognized that investment decisions play a major role in the determination of individual age-earnings profiles. The purpose of this paper is to present a simple life-cycle model of investment in human capital in which leisure choices are explicitly incorporated. In so doing, we integrate two previously disparate branches of life-cycle theory: models of labor supply with exogenous wages, and models of human capital formation with exogenous leisure. Of course, to accomplish this, we must posit utility maximization as the individual's goal rather than income maximization.

Several econometric models for the analysis of relationships with limited dependent variables have been proposed, including the probit, Tobit, two-limit probit, ordered discrete, and friction models. Widespread application of these methods has been hampered by the lack of suitable computer programs. This paper provides a concise survey of the various models; suggests a general functional model under which they may be formulated and analyzed; reviews the analytic problems and the similarities and dissimilarities of the models; and outlines the appropriate and necessary methods of analysis including, but not limited to, estimation. It is thus intended to serve as a guide for users of the various models, for the preparation of suitable computer programs, for the users of those programs; and, more specifically, for the users of the program package utilizing the functional model as implemented on the NBER TROLL system.

The paper explains how the Almon polynominal lag specification can be made stochastic in two different ways - one suggested by Shiller and another following the lines of Lindley and Smith. It is shown that both the estimators can be considered as modified ridge estimators. The paper then compares these modified ridge estimators with the ridge estimator suggested by Hoerl and Kennard. It is shown that for the estimation of distributed lag models the ridge estimator suggested by Hoerl and Kennard is not useful but that the modified ridge estimators corresponding to the stochastic versions of the Almon lag are promising. The paper has two empirical illustrations.

A variety of qualitative dependent variable models are surveyed with attention focused on the computational aspects of their analysis. The models covered include single equation dichotomous models; single equation polychotomous models with unordered, ordered, and sequential variables; and simultaneous equation models. Care is taken to illucidate the nature of the suggested "full information" and "limited information" approaches to the simultaneous equation models and the formulation of recursive and causal chain models.

The central thesis of this paper is that the management of portfolios incorporating a variety of investment assets does require the use of time and other scarce resources in searching for, collecting, interpreting, and applying relevant information. Accordingly, the returns on these assets would depend, in part, on managerial efforts and abilities and other related inputs. The plan of the paper is as follows. A life cycle model of consumption and productive saving without borrowing is developed in Section I. Borrowing is introduced into the model and its relationship to productive saving is explored in Section II. In Section III we attempt to elucidate the model's implications concerning capital accumulation paths and life cycle variations in resource allocations to productive activities. Implications regarding the determinants of the propensity to save are derived in Section IV and then briefly examined in light of some earlier theoretical and empirical findings.

Though the statistical techniques vary, the matching problem is essentially the same in each case and can be stated formally as follows: Given "observations on X,Y from one sample and on X,Z from another sample, when will it be true that by matching observations according to X, an artificial Y,Z sample will result whose distribution is the true joint Y,Z distribution?"(Sims,1972, p. 355). Though the imputed Y,Z distribution will, in general, be different from the true Y,Z distribution, the closeness of the two yields a natural criterion of the goodness of match. By making certain simplifying assumptions, we can make this criterion operational. The goodness of match depends on how much of the relation between Y and Z is transmitted through X - that is, on how X "mediates" between Y and Z. Since the functional form the lower and upper bounds on the true correlation between Y and Z takes depends on the number of X variables, we shall treat the problem in three stages: (a) The case of one mediating variable.(b) The case of two mediating variables. (c) The case of n mediating variables.

The purpose of this paper is to present estimates of production functions for hospitals in which a measure of the level of physician input is utilized. Since no data on the total number of hours worked by non-salaried physicians is available for a large sample of U.S. hospitals, alternative measures of physician input had to be constructed. As these measures are somewhat imperfect, the results I obtain should be considered tentative and preliminary.

This paper reports on an empirical investigation of the distribution of inflation rates across households. The study uses a large cross-sectional survey of households to obtain information on the composition of the market bundles of goods and services purchased by each of several thousand households in the U.S. It also uses published data for the U.S. on monthly changes in the separate indices of prices of some fifty expenditure items which comprise consumers' market bundles. With information on price changes for these fifty items and the composition of households' consumption bundles, a price index is computed for each of some 11,000 households separately for several recent periods of time. The distributions of these price indices are studied and the relationships between household characteristics and these price indices are investigated.

As simulation arid Monte Carlo continue to play an increasing role in statistical research, careful attention must be given to problems which arise in implementing and documenting collect ions of random number generators. This paper examines the value of theoretical as well as empirical evidence in establishing the quality of generators, the selection of generators to comprise a good basic set, the techniques and efficiency of implementation, and the extent of documentation. Illustrative examples are drawn from various current sources.

What are the statistical and computational problems associated with robust nonlinear regression? This paper presents a number of possible approaches to these problems and develops a particular algorithm based on the work of Powell and Dennis.

The Rational Distributed Lag Structural Form (RSF) representation of an econometric model is introduced and its relationship to several standard forms of representation is discussed. The FIML estimation problem for the RSF is then considered and formulated as a nonlinear, unconstrained optimization problem. A solution to the relation optimization problem is then obtained by an application of the Davidon-Fletcher-Powell variable metric method using simple first difference approximations for the necessary gradients. This approach requires a minimum of effort on the part of the model builder since there is no longer any need to analytically determine, and then program, the gradient expressions. The feasibility of the method is demonstrated with several examples.

This paper presents a method for computing the value of N for which the usual non-central F-test will have a certain power. Extensive tables are computed and displayed.

A consumer expenditure function which integrates pure consumption and household investment in durable goods is formulated and estimated. Because of reduced reliance on the official classification of commodities as durable or nondurable, a considerable increase in ability to explain consumer expenditures results as compared to multiequation models. Further empirical investigation provides strong evidence that: (1) private sector income is significantly better than disposable personal income for explaining consumer expenditures, (2) the M1 definition of money is similarly superior to both M2 and M3 definitions, and (3) the weight of current income in permanent income is about 10% per annum. Data appendix included.

The objective of this paper is to draw some inferences concerning the relative magnitudes of inequality in annual earnings, the traditional measure, and in human wealth, the measure suggested by recent literature. A second objective is to assess the relative importance of schooling, measured ability and to a limited extent family background in earnings and human wealth inequality as well as the overall contribution of these variables combined. A unique feature of this study is the estimation of earnings and human wealth and their distribution for a group of men for which several age-earnings data points are available over almost an entire lifetime (ages eighteen to fifty-four).

If the expenditure of resources in childhood affects the outcomes in adulthood, the adult distribution of education and incomes will depend at least partially on investments made in childhood. There is considerable variation in the amount of parental inputs children of various socio-economic statuses receive. In the empirical work that follows, we will show a relationship between very specific inputs of time by parents and later achievements of children.

We define a class of models that are generalizations of regression models and moving average-autoregressive time series models. Then we investigate the asymptotic and computational properties of the maximum likelihood estimator, with numerical examples. The main conclusion is that care must be exercised when using simple approximations to the covariance matrix of the estimates.

The estimator holding the central place in the theory of the multivariate "errors-in-the-variables" (EV) model results from performing orthogonal recession on variables rescaled according to the covariance matrix of the errors [7]. Our first principal finding, via Monte Carlo on the univariate model, essentially relegates this estimator to use only in large samples on very well-behaved data, i.e., with no trace of outlier contamination. A modification, requiring a robust preliminary slope, is proposed that essentially sets out the generalization to EV of the w-estimator in regression. It is demonstrated that the modification is robust to outlier contamination even in small samples, given a sufficiently good preliminary estimator. A candidate for a preliminary slope estimator based on the data is proposed arid its performance under simulation examined. Least-absolute residuals estimation in EV is cited as an alternative candidate.

In this paper we study two methods for finding confidence limits for the simple median. One method is the new parametric procedure based on the sign test, and the other is derived in the paper. The two methods are compared asymptotically and also for small samples

The identifiability of reduced form econometric models with variable coefficients is investigated using the control theoretic concepts of uniform complete observability and uniform complete controllability. First, a variant of the state space representation of the traditional reduced form is introduced which transcribes the underlying non-stationary estimation problem into one particularly suited to a Kalman filtering solution. Using such a formulation, observability and controllability can be called upon to obtain a necessary and sufficient condition for identification of the specific parameterization. The results so obtained are completely analogous to those already established in the econometric literature, namely, that the parameters of the reduced form are always identified subject to the absence of multicollinearity(referred to as "persistent excitation" in the control literature). How-ever, now the multicollinearity condition is seen to depend on the structure of the parameter variations as well as the statistical nature of the explanatory variables. The verification of identifiability thus reduces to a check for uniform complete observability which can always be affected in econometric applications. Some consistency results are also presented which derive from the above approach.

The Boxstep method is used to maximize Lagrangean functions in the context of a branch-and-bound algorithm for the general discrete optimization problem. Results are presented for three applications: facility location, multi-item production scheduling, and single machine scheduling. The performance of the Boxstep method is contrasted with that of the subgradient optimization method.

The relationship between direct investment and trade has always been recognized as one of the most difficult aspects of the study of multinational companies and their impact on their own countries and their affiliates' host countries. We cannot solve the fundamental dilemma of the inability to run controlled experiments to determine what would happened in a given instance without direct governmental investment, but we have assembled a better set of data than was available to previous studies. From these we hope to narrow the range of plausible assumptions and, from there on, the range of plausible conclusions. This paper describes some experiments with our data set on a single industry: pharmaceuticals.

A major conceptual error in the standard BLS and Lebergott unemployment estimates for 1933-1943 is reported. Emergency workers (employees of federal contracyclical programs such as WPA) were counted as unemployed on a normal-jobs-to-be-created instead of job-seekers unemployment definition. For 1934-1941, the corrected unemployment levels are reduced by two to three-and-a half million people and the rates by 4 to 7 percentage points. The corrected data show strong movement toward the natural unemployment rate after 1933 and are very well explained by an anticipations-search model using annual full-time earnings.

In some applications of the distributed lag model, theory requires that all lag coefficients have a positive sign. A distributed lag estimator which provides estimated coefficients with positive sign is developed here which is analogous to an earlier distributed lag estimator derived from "smoothness priors" which did not assure that all estimated coefficients be positive. The earlier estimator with unconstrained signs was a posterior mode of the coefficients based on a spherically normal "smoothness prior" in the d+l order differences of the coefficients. The newer estimator with constrained sign is a posterior mode of the logs of the coefficients based on spherically normal "smoothness prior" on the d+l order differences of the logs of the coefficients. The meaning of both categories of prior is discussed in this paper and they are compared to prior parameterizations of the lag curve. Both varieties of "smoothness prior", in contrast to the parameterizations, allow the coefficients to assume any "smooth" shape subject to the sign constraint. The sign-constrained estimator has the additional advantage that it easily forms asymptotes. Moreover, the sign con-strained estimator is easily implemented. The estimate can be obtained by an iterative procedure involving regressions with dummy observations similar to those used to find the unconstrained sign estimator. An illustrative example of the application of both estimators is given at the end of the paper.

The consistency and the asymptotic normality of the maximum likelihood estimator in the general nonlinear simultaneous equation model are proved. It is shown that the proof depends on the assumption of normality unlike in the linear simultaneous equation model. It is proved that the maximum likelihood estimator is asymptotically more efficient than the nonlinear three-stage least squares estimator if the specification is correct, However, the latter has the advantage of being consistent even when the normality assumption is removed. Hausrnan' s instrumental-variable-interpretation of the maximum likelihood estimator is extended to the general nonlinear simultaneous equation model.

Classical spectral techniques can provide sharp insights into the cyclical patterns in a time series of economic data. Various problems in the application of classical spectral techniques, such as the choices of smoothing routine and bandwidth and the appearance of end-effects, inhibit the usefulness of spectral analysis. Alternatively, an autoregressive spectral technique does not share these problems, but does present the difficulty of the choice of the order of the autoregression. This paper applies classical and autoregressive spectral techniques to quarterly consumer durables expenditure data, discusses three approaches to the choice of the order of the autoregression, and compares the results of the different spectral techniques. Autoregressive spectral analysis provides a superior representation for this time series.

We investigate the relationship between current schooling and current wage rates. Casual observation seems to reflect a discontinuity in wage rate growth which occurs when an individual completes school and joins the labor force as a permanent member. This suggests that the time spent in work while attending school is in some sense secondary. Here, the marginal value of the individual's time is considerably lower than the average value of his time. The problem is essentially one of "anti-complementarities" between the production of human capital through formal schooling and working in the primary occupation. More generally, the productivity of an individual's time in one endeavor is not independent of how the rest of his time is spent. If this is the case, students will be willing to accept lower paying jobs which do not greatly diminish the productivity of school time in lieu of jobs offering higher wages at the cost of a greater reduction in school time productivity. The wages of students, other things constant, are about 12% lower than those of non-students. The magnitude of this wage differential is surprisingly large and warrants investigation on empirical grounds alone. This paper explores the empirical relationship and examines various explanations for it. Finally, implications of the analyses are discussed.

The recent literature on rational expectations in macroeconomic theory is surveyed here with the objective of distilling from the various papers useful suggestions for econometric methodology. The paper is not concerned with the empirical questions with which these models have been associated, but rather with the value and usefulness of the concept of rational expectations. The paper begins with a brief discussion of the theory of martingales as it has been applied to microeconomic theory. Then, the general linear rational expectations model (of which most models discussed in the literature are, in terms of their structure, special cases) is developed arid its properties, advantages and drawbacks discussed. The paper concludes with a discussion of the possibilities for estimation arid application of such linear models.

This paper presents a new method for obtaining exact optimal solutions for a class of discrete-variable non-linear resource-allocation problems. The new method is called the decision-state method because, unlike the conventional dynamic programming method which works only in the state space, the new method works in the state space and the decision space. It generates and retains only a fraction of the points in the state space at which the state functions are discontinuous; and thus overcomes to some extent the curse of dimensionality. It carries the cumulative decision-strongs associated with these points, and thus avoids the backtracking entailed by the conventional dynamic programming method for recovering the optimal decisions. A concise and complete statement of the method is given in Algorithm 2 and it is proved that the algorithm finds all exact optimal solutions. In addition the method is adapted for solving some problems with special structures such as block-angular or split-block-angular constraints and the resultant substantial advantages are demonstrated. The performance of Algorithm 2 on many resource-allocations problems is reported, along with investigations on many tactical decisions which have substantial impact on the performance. The performance of the computer implementation of Algorithm 2 is compared with that of the MMDP algorithm and it showed that for the class of problems at which the two are aimed, the decision-state Algorithm 2 performed better than MMDP algorithm both in terms of storage requirement and solution time. In fact, it achieved an order of magnitude saving in storage requirement.

Much recent research in the economics of information has analyzed the implications of alternative market structures in the presence of qualitative characteristics which cannot be accurately and objectively measured or described. This approach avoids the more basic question of the influence of qualitative information on the emergence of market structures. This paper argues that market structures arise which minimize total average production and information costs and that qualitative characteristics produce structures utilizing reputation.

A preliminary investigation of two specification error problems in truncated dependent variable models is reported. It is shown that heteroscedasticity in a tobit model results in biased estimates when the model is misspecified. This differs from the OLS model where estimates are still consistent though inefficient. The second problem examined is aggregation. An appropriate nonlinear least squares regression model is derived for situations when the micro-level model fits a tobit framework but only aggregate data are available.

In this paper, a few theoretical issues will be raised regarding the relationship between the distribution of human capital and that of human wealth. Special attention will be paid to the empirical implications of the analysis.

This paper analyzes the demand for nursing home care for the aged. The cross-sectional analysis indicates a high price elasticity of demand (-2.2), and that the demand is greater the less capable are the aged of providing own care, the better the job opportunities of adult women, and the wealthier the SMSA. Utilization increased 67percentfrom 1963 to 1973,but 64 percentage points is attributable to changes in these demand shift variables. This casts doubt on the view that the growth in utilization was largely stimulated by changing public policies during the period.

The purpose of this study is to present a simple but explicit model of on-the-job training which may enable us to separate and identify various types of vintage effects. An attempt is made to apply the model to the data on the earnings of American scientists in the period 1960-1970.

Lemke's dual-simplex method of linear programming is usually considered inferior to the primal simplex method for any general linear programming problems. One reason given is the difficulty of finding a starting dual-feasible basis. In this paper, a new starting technique is presented, which finds a dual-feasible basis in a single dual-simplex pivot for LP's with no equality constraints, and in (l+m3 ) pivots for LP'S with m3 equality constraints irrespective of the number of inequality constraints. The technique is illustrated on a small example problem. The performance, in terms of the number of pivots to optimality, of the dual-simplex with the new starting technique on 100 medium sized problems is reported and compared with that of the primal simplex. Finally, how the dual-simplex with the new starting technique can be efficiently implemented is briefly discussed.

This paper deals with the links between the development of new drugs, and particularly of innovative new drugs, and the international activities of U.S. drug companies. While U.S. drug companies have developed new production processes - the most notable being the fermentation process for making penicillin - we concentrate in this paper on new products. Since production costs comprise less than 40 percent of the selling price of drugs and since the person choosing the drug rarely pays for it, growth in company sales and profits comes more from introducing new products than from cutting costs and prices of old products. The main novelty of our study is our examination of "innovative" as contrasted with "imitative" new drugs. Previous studies have generally focused on the total number of new drugs produced each year, but since our interest is in the causes and consequences of innovation, we have concentrated on the products we have rated as innovative. Section I explains our criteria for this distinction and presents our enumeration of the innovative new drugs for each of the 22 companies in our sample. In Section II we discuss trends in the rate of drug innovation and the factors influencing those trends. Section III describes our sample of drug companies and characterizes them with respect to their size, research investment, and innovativeness. Section IV examines the relation of innovativeness to the foreign activities of individual firms. In Section V we analyze, for a sample of 7 new drugs introduced by two companies, the rate at which use of the drugs was diffused among various countries arid the impact of the presence of manufacturing plants on the rate of diffusion.

Section I introduces the material. In section II a model is developed which explores the impact of input-quality uncertainty on factor demand from which is derived a rationale for the use of devices which segment the population into classes differing in their "skill" distribution parameters. The model, however, ignores the motivation of individuals to acquire the characteristics upon which firms screen, in particular, the greater incentive for the more productive to purchase the screen. This aspect has been explored by Spence (1973) and Stiglitz (1973) and will not be explicitly considered here. In section III the social value of schooling's informational context is derived within the preceeding framework. Section IV describes some empirical attempts to isolate the productivity and identification effects. The last section summarizes the paper.

Transferring Fortran subroutines from one manufacturer's machine to another or from one operating system to another puts certain constrains on the construction of the Fortran statements that are used in the subroutines. The reliable performance of this mathematical software should be unaffected by the host environment in which the software is used or by the compiler from which the code is generated. In short, the algorithm is to he independent of the computing environment in which it is run. The subroutines of ROSEPACK (Robust Statistics Estimation Package) are Fortran IV source code designed to be semi-portable where semi-portable is defined to mean transportable with minimum change.*

It can be claimed that education is simply a normal consumption good and that like all other normal goods, an increase in wealth will produce an increase in the amount of schooling purchased. Increased incomes are associated with higher schooling attainment as the simple result of an income effect. If this is so, schooling increases an individual's wealth only by the consumption value of the good, since it is a non-saleable asset. This paper will attempt to determine empirically the amount by which an increase in wealth is caused by schooling as distinguished from the amount by which the demand for schooling increases as the result of an increase in wealth.

A population of seven general surgeons in a prepaid group practice previously shown to have a mean operative work load of 9.2 HE per week were found to have a mean standardized seven day working week of 56.2 hours exclusive of evening activities. The surgeons also devoted a mean of 6.7 evening hours to professional activities for a total working week of 62.9 hours. Comparisons of the time utilization of this population of general surgeons with a population of previously studied community surgeons revealed that the prepaid group surgeons were able to maintain a surgical output more than double that of the community surgeons without having to devote twice as much time to professional activities. Economies in the utilization of surgical manpower in the prepaid group appear to stem from geographic and specialty restrictions on the scope of work of the surgeons, from a reduction of waiting time in the office, and from the utilization of paraprofessional personnel for operative assisting.

A family of integer programs is considered whose right-hand-sides lie on a given line segment L. This family is called a parametric integer program (PIP). Solving a (PIP) means finding an optimal solution for every program in the family. It is shown how a simple generalization of the conventional branch-and-bound approach to integer programming makes it possible to solve such a (PIP). The usual bounding test is extended from a comparison of two point values to a comparison of two functions defined on the line segment L. The method is illustrated on a small example and computational results for some larger problems are reported.

One of the most striking features of the postwar U.S. economy has been the rapid decrease in the labor force participation of the elderly at a time when the health of this group has been improving. In spite of this, previous research, based on retrospective interviews with the retired population, usually concludes that poor health accounts for the overwhelming majority of retirements. The current results suggest that nothing could be further from the truth. Using data from the Panel Study of Income Dynamics, we follow a cohort of white married males through their sixties to estimate a model of retirement behavior. Using several definitions of retirement suggested in the literature, the results suggest that the two key policy parameters of the social security system – the income guarantee and the implicit tax on earnings – exert an enormous influence on retirement decisions. For example, our results suggest that a decrease in the implicit tax rate on earnings from one-half to one-third would reduce the annual probability of retirement by almost sixty percent! Applying the coefficient estimates to time series data on the labor force participation of the elderly implies that the social security sys-tem has been the major factor in the explosion in earlier retirement.

There is a clear need for a firm statistical base describing the levels and rates of change of wages for various types of manpower in hospitals and other health settings, and for analytical studies designed to explain the causes and consequences of wage variation in the health industry. This paper is intended to fill the first need, and provide data for the second. With the rich detail provided in the public use samples of the 1960 and 1970 Censuses of Population, it is possible to calculate hourly earnings rates for all allied health personnel classified by occupation, sex, schooling, geographical location, and many other characteristics. Furthermore, it is possible to compare these earnings with those of workers with similar characteristics in other non-farm industries.

The stem-and-leaf display is a natural semi-graphic technique to include in statistical computing systems. This paper discusses the choices involved in implementing both automated and flexible versions of the display, develops an algorithm for the automated version, examines various implementation considerations, and presents a set of semi-portable FORTRAN subroutines for producing stem-and-leaf displays.

We believe that at a deeper level the independent judiciary is not only consistent with, but essential to, the interest-group theory of government. Part I of this paper explains our theory of the independent judiciary. Part II discusses several implications of the theory, relating to administrative regulation, the form of interest-group legislation, the tenure of judges, and constitutional adjudication. The appendix to this paper presents an empirical analysis of judicial independence using data on Acts of Congress that have been held unconstitutional by the Supreme Court.

This paper describes the results of a Monte Carlo study of certain aspects of robust regression confidence region estimation for linear models with one, five, and seven parameters. One-step sine estimators (c = l.42) were used with design matrices consisting of short-tailed, Gaussian, and long-tailed columns. The samples were generated from a variety of contaminated Gaussian distributions. A number of proposals for covariance matrices were tried, including forms derived from asymptotic considerations and from weighted-least squares with data dependent weights. Comparisons with: the Monte Carlo "truth" were made using generalized eigenvalues. In order to measure efficiency and compute approximate t-values, linear combinations of parameters corresponding to the largest eigenvalues of the "truth" were examined. For design matrices with columns of modest kurtosis, the covariance estimators all give reasonable results and, after adjusting for asymptotic bias, some useful approximate t-values can be obtained. This implies that the standard weighted least-squares output using data-dependent weights need only be modified slightly to give useful robust confidence intervals. When design matrix kurtosis is high and severe contamination is present in the data, these simple approximations are not adequate.

In this paper, we discuss statistical problems that arise in studying sequences of quantal responses (e.g., labor force participation) in panel data on heterogeneous populations (i.e., populations in which there is unobserved variation in response probabilities). Assuming that response probabilities are governed by a beta distribution, we derive a generalization of the cross-section logit model to enable it to deal with sequences of discrete events in panel data. This model is applied to panel data on labor force participation of married women. One of our findings is that the distribution of participation probabilities is U-shaped, indicating that most women have participation probabilities near zero or one.

This paper uses the concept of the triad census first introduced by Holland and Leinhardt, and describes several distributions on directed graphs. Methods are presented for calculating the mean and the covariance matrix of the triad census for the uniform distribution that conditions on the number of choices made by each individual in the social network. Several complex distributions on digraphs are approximated, and an application of these methods to a sociogram is given.

The validity of using local market data to measure the benefits associated with policies adopted in an urban area is investigated .It is shown that the rest of the world is affected by taxing decisions undertaken in a single urban area, so that local data cannot perfectly measure the welfare effects of a policy change. Specifically, the fact that the willingness to pay for a tax increase is positive in the rest of the world suggests that cost-benefit analyses which do not account for the rest of the world may be biased.

The purpose of this paper is to analyze the production process of optometrists in private practice. This study will then provide further evidence on the entrepreneurial performance of primary health professionals in private practice. If optometrists also appear to be using inefficient production techniques further questions can be raised about organizing the delivery of health services around fee for service, for profit private practices.

Section 1 presents a preliminary attempt at clarifying the ways in which taxes affect human capital accumulation. Section 2 outlines a simple general equilibrium model with two capital goods - physical and human – and the saving corresponding to each, to begin to deal with these issues. Once human capital is viewed as an alternative source of wealth and hence human capital investment as a source of current saving (re-sources withdrawn from current consumption to help increase future output),the old issue of the differential tax treatment of alternative types of capital arises. Sensible tax policy with respect to the taxation of either physical or human capital must take into account the tax treatment of the alternative asset. Section 3 outlines some points of departure for such an analysis.

This paper uses detailed data on the salary histories of individuals to show how an individual's observed earnings growth can be decomposed into growth occurring on the job and growth occurring between jobs. it is shown that the relative contributions of these two components to overall earnings growth differ across race and education groups. Further, as predicted by the specific training hypothesis, the more mobile individuals are found to have smaller on-the-job earnings gains in absolute terms than the less mobile.

This study of the U.S. semiconductor industry seeks to examine its international pattern of exports, licensing, and foreign investments. This industry was selected for study because previous work had shown the United States tended to have a favorable trade balance in industries characterized by high technology processes or products. The study is divided into three parts. The first part, consisting of Chapters 2 and 3, discusses the characteristics of the U.S. semiconductor industry and semiconductor technology. The next part, Chapters 4, 5 and 6 examines the different transfer channels and the factors which determine a firm's selection between exports, licensing, and foreign production to supply foreign markets. The final section, Chapter 7, seeks to determine the characteristics of the American firms most responsible for the transfer of technology offshore and the impact of foreign direct investment on trade patterns.

This note considers the effect of a class of linear inter-equation constraints in the specification of the lag structure in econometric models. In particular, attention is focused on the linear summing, or "adding up�, constraints which arise between equations in factor shares analysis. The consequences of such constraints on the specification of lag structures for models with dynamic adjustments and autoregressive or moving-average disturbances are presented in the form of linear restrictions which result in singular coefficient matrices . Thus, the structural (lag) specification of one equation depends on the structure of all other equations in the model.

This paper contains an exploration of some of the special or general benefits that might explain the widespread pursuit of national health insurance follows. The primary purpose of this inquiry has been to attempt to explain the popularity of national health insurance around the world.

The major findings of this study are as follows: (1) Simple cross section estimates grossly underestimate cohort profiles during the period 1960-70. Furthermore the growth in earnings is not uniform across experience groups and more recent vintages tend to have steeper profiles in most fields. Consequently the rate of return or present value comparisons based on cross sections are likely to be misleading even if the standard adjustment for growth is made. (2) For purposes of estimating mean profiles and mean effects of variables estimates based on pooled independent cross sections are quite close to those based on the more expensive longitudinal data. (3) There are important persistent unmeasured individual effects on both the level and growth of earnings. Consequently, individuals with the same observed characteristics will still have a wide variance in their permanent income.

The purpose of this paper is to analyze the market for optometric services in the United States. This paper is divided into seven sections. In the first section an overview of the practice of optometry is presented. This is succeeded by an examination of the distribution of eye health professionals in the United States. In sections 3-5 a market model for optometric services is specified and discussed. Next, estimates of the model are presented. Finally, the implications of this research are considered.

This paper brings together and integrates social interactions and the special relation between quantity and quality. We are able to show that the observed quality income elasticity would be relatively high and the quantity elasticity relatively low and sometimes negative, even if the true "unobserved� income elasticities for quantity and quality were equal and of average value. Moreover, the observed quality elasticity would fall, and the observed quantity elasticity would rise, as parental income rose.

Various quasi-Newton methods periodically add a symmetric "correction" matrix of rank at most 2 to a matrix approximating some quantity A of interest (such as the Hessian of an objective function). In this paper we examine several ways to express a symmetric rank 2 matrix [delta] as the sum of rank 1 matrices. We show that it is easy to compute rank 1 matrices [delta1] and [delta2] such that [delta] = [delta1] + [delta2] and [the norm of delta1]+ [the norm of delta2] is minimized, where ||.|| is any inner product norm. Such a representation recommends itself for use in those computer programs that maintain A explicitly, since it should reduce cancellation errors and/or improve efficiency over other representations. In the common case where [delta] is indefinite, a choice of the form [delta1] = [delta2 to the power of T] = [xy to the power of T] appears best. This case occurs for rank 2 quasi- Newton updates [delta] exactly when [delta] may be obtained by symmetrizing some rank 1 update; such popular updates as the DFP, BFGS, PSB, and Davidon's new optimally conditioned update fall into this category.

We show that if a certain nondegeneracy assumption holds, it is possible to guarantee the existence of a solution to a system of nonlinear equations f(x) = 0 whose Jacobian matrix J(x) exists but maybe singular. The main idea is to modify small singular values of J(x) in such away that the modified Jacobian matrix J^(x) has a continuous pseudoinverse J^+(x)and that a solution x* of f(x) = 0 may be found by determining an asymptote of the solution to the initial value problem x(0) = x[sub0}, x’(t) = -J^+(x)f(x). We briefly discuss practical (algorithmic) implications of this result. Although the nondegeneracy assumption may fail for many systems of interest (indeed, if the assumption holds and J(x*) is non-singular, then x is unique), algorithms using(x) may enjoy a larger region of convergence than those that require(an approximation to) J[to the -1 power[(x).

This paper has examined the factors that affect the pattern of introduction of semiconductor innovations into the United Kingdom, studying both differences among products and differences among firms. The pattern of product innovations is based on the concept of a lifecycle process. A model is developed for estimating product life cycles in a way that gives information suitable for assessing induced changes in the host country industry. The analysis that follows is broken into two parts. Firstly, factors determining the rate of diffusion of the innovations in the host country are examined; secondly, factors determining the positions of individual firms within the life cycle are considered.

The identification of time-varying coefficient regression models is investigated using an analysis of the classical information matrix. The variable coefficients are characterized by autoregressive stochastic processes, allowing the entire model to be case in state space form. Thus the unknown stochastic specification parameters and priors can be interpreted in terms of the coefficient matrices and initial state vector. Concentration of the likelihood function on these quantities allows the identification of each to be considered separately. Suitable restriction of the form of the state space model, coupled with the concept of controllability, lead to sufficient conditions for the identification of the coefficient transition parameters. Partial identification of the variance-covariance matrix for the random disturbances on the coefficients is established in a like manner. Introducing the additional concept of observability then provides for necessary and sufficient conditions for identification of the unknown priors. The results so obtained are completely analogous to those already established in the econometric literature, namely, that the coefficients of the reduced form are always identified subject to the absence of multicollinearity. Some consistency results are also presented which derive from the above approach.

An algorithm is presented which provides a complete solution to the optimal estimation problem for time-varying parameters when no proper prior distribution is specified. The key ideas involve a combination of the information-form Kalman filter with the two-filter interpretation of the optimal smoother. The algorithm produces efficient estimates of the parameter trajectories over the entire sample, arid is equally applicable when a proper prior distribution has been specified.

In this survey of recent research in health economics, I concentrate on studies that have appeared since 1971 or are in progress. The survey reflects in part my own research interests and biases and is not meant to be comprehensive. Four topics are covered: (1) demand for adults' health and medical care; (2) effects of health on labor supply and wage rates; (3) demand for children's health and medical care and (4) selected topics pertaining to the supply side of the medical care market.

Transferring Fortran subroutines from one manufacturer' s machine to another, or from one operating system to another, puts certain constraints on the construction of the Fortran statements that are used in the subroutines. The reliable performance of mathematical software should be unaffected by the host environment in which the software is used or by the compiler from which the cod eis generated. In short, the reliable performance of the algorithm is to be independent of the computing environment in which it is run. The subroutines of ROSEPACK (Robust Statistics Estimation Package) are Fortran IV source code designed to be semi-portable where semi-portable is defined to mean transportable with minimum change. *This paper described the guidelines by which ROSEPACK subroutines were written.

One of the main purposes of our studies of U.S.-based multinational firms has been to examine the relationship between direct investment by U.S. firms and the export trade of the United States, a subject of bitter controversy for at least the last fifteen years. Changes over time in trade flows and trade balances are influenced by trends in productivity in the United States and elsewhere and by shifts in monetary and fiscal policy, all of which ate reflected in price and income changes, the effects of which on trade probably swamp any that might stem from changes in the level of direct investment, One way to disentangle some of these influences might be to disaggregate by country, industry, and even better, by firm. However, we have not yet developed enough disaggregated time series data for this purpose and have therefore chosen to work with cross-sections by country and industry and, in some eases, by firm.

I consider the health, family structure, and labor supply inter-relationships at both a theoretical and empirical level. The paper is organized in the following way. SectionI introduces the material. In Section II, a theoretical model of family time allocation among market, home, and health activities is developed. The concept of a family health maintenance function is formalized to generate qualitative predictions of the effect of wages, health status, health care efficiency, and property income on the labor supply of husband and wife. In Section III, data from the older male portion of the National Longitudinal Surveys are used to estimate labor supply functions for married and single men with special attention to differences in poor health responses. A simultaneous model of male labor supply and other family income (chiefly transfer income and the earnings of the wife) is then estimated to determine whether variations in the work hours of males, largely due to health differences, induce any substantial changes in income producing activities by other family members. Finally, in Section IV the detailed time budget data on both males and females from the Productive Americans Survey are used to estimate more precisely the effect of health on total family time allocations. These data provide estimates of the impact of poor health on home production time as well as market time for both husband and wife.

In previous literature, George Stigler asserts a law of diminishing returns to group size in politics: Beyond some point it becomes counterproductive to dilute the per capita transfer. Since the total transfer is endogenous, there is a corollary that dirninishing returns apply to the transfer as well, due both to the opposition provoked by the transfer and to the demand this opposition exerts on resources to quiet it. Stigler does not himself formalize this model, and my first task will be to do just this. My simplified formal version of his model produces a result to which Stigler gave only passing recognition, namely that the costs of using the political process limit not only the size of the dominant group but also their gains. This is at one level, a detail, which is the way Stigler treated it, but a detail with some important implications -- for entry into regulation, and for the price-output structure that emerges from regulation. The main task of the paper is to derive these implications from a generalization of Stigler's model.

The model that we develop is used to analyze properties of the demand functions for quantity and quality. It is then applied to study the demand for pediatric care -- physicians' services rendered to children.2The theoretical model of quantity -- quality substitution provides a frame-work for demand analysis whenever the market for a good is distinguished by a quality component. The analysis is developed within the household production framework of consumer behavior and assumes that parents both demand and produce quality children, where children's health is one aspect of their quality. Thus, the demand curves for pediatric care are derived from the interaction between the demand and production functions of children's health. In the analysis, we emphasize the effects of income, the price of pediatric services, and the time costs of obtaining these services on the quantity (measured in terms of visits) and quality of services demanded.

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.

It is the price behavior in primary manufacturing industries and its implication for general inflation that is the subject of this paper. The industries comprising primary manufacturing are quite diverse. They differ with respect to labor and capital intensity, domestic and international market structure and the markets that they supply -- consumer goods manufacturing, producer goods manufacturing and construction. To shed light on the price behavior of the group as a whole it is necessary to disaggregate the total somewhat. In this study they are broken down into eight separate industries. The exact definition of each, both in terms of 4-digit SIC industry and I-0 cell is available on request. In general, the eight separate industries consist of the primary manufacturers producing (1) textiles, (2) wood, (3) paper,(4) chemicals, (5) fertilizers,(6) stone, clay and glass, (7) iron and steel, and (8) nonferrous metals.

From the theoretical point of view, the justification for aggregating leisure and work at home into one entity, "non-market time" (or "home time") can rest on two assumptions: (a.) the two elements react similarly to changes in the socio-economic environment and, hence, nothing is gained by studying them separately, and (b.) the two elements satisfy the conditions of a composite input, i.e., their relative price is constant, and there is no interest in investigating the composition of this aggregate since it has no bearing on production and the price of the output. This study sets out to show that none of these assumptions holds. Recent time budget findings have established that work at home is affected differently by changes in socioeconomic variables than is leisure, and this paper shows that the aggregation is also suspect from the analytical point of view.

This paper is concerned with the growth of individual earnings over time. Four aspects of time are distinguished: experience, age, vintage and calendar year. The first section of the paper provides a brief outline of a theory of planned growth in earnings. The second and main section of the paper is devoted to an empirical attempt to estimate the role of experience, vintage and age on the growth in earnings and to separate these effects from exogenous changes in market conditions. We present a detailed specification of the earnings function which accounts for the inherent multi-collinearity between variables such as time, vintage and experience. One of our main objectives is to point out the implications of this identification problem for the analysis of earnings data. Though we cannot completely eliminate this difficulty, longitudinal data, which follows the same individuals over a period of time, allows us to identify more aspects of time than one could obtain from a single cross section. We provide a descriptive analysis of the exogenous changes in market conditions occurring during the period. No attempt is made to relate them to causal changes, such as past and expected future enrollment and government research grants. We find two basic tendencies: (1) Over the decade as a whole, scientists in academic institutions enjoyed better market conditions and thus a higher growth rate than those employed in private industry. (2) Toward the end of the decade, there is a marked reduction in the market's contribution to the growth rate. In some fields, such as physics, we note an actual reduction in the real earnings of new entrants. We conclude with a brief discussion of the changes in relative earnings over the decade by field and type of employer.

It is well established that the social and economic environment of medical care distinguishes its provision from that of other goods and services. While scholars have studied the influences of this idiosyncratic environment, there is relatively little empirical knowledge about how it affects decision-making in specific medical contexts. Through general conceptual discussion and consideration of a case study of leukemia chemo-therapy, this paper examines the medical decision-making process in one specific context: the response of physicians to the availability of an innovative treatment for a catastrophic illness. The manner in which the medical profession deals with serious illness is relevant to concerns as diverse as the promotion of economic efficiency and the preservation of human dignity.

The purpose of this paper is to analyze the effects of changes in exogenous parameters such as the interest rate, the length of the working period and initial endowments on the shape of the observed earnings profile. Though this problem can be treated in general, we shall restrict ourselves to the following "inverse optimal" problem: find a form of the trade-off function between current and future earnings which leads to a logarithmic earnings function. In the paper we demonstrate that logarithmic earning functions can be derived from optimal behavior. Specifically, the simple case which we analyze leads to piece wise linear log earnings functions. Such a derivation has the advantage that the effects on earnings of exogenous factors can be consistently analyzed. The model is sufficiently simple to allow a clear exposition of the basic elements which govern earnings in a static world. The same elements appear in the more complicated derivations currently available in the literature but it is more difficult to trace their impact. The multiplicative model provides additional information on the robustness of the results previously derived from the Ben-Porath specification. This is particularly important since the "production function" for human capital is not directly observable and alternative specification can only be compared in terms of their implications with respect to observed earnings.

In this paper, another aspect of optimizing behavior is considered. Specifically, it asks whether variations in levels of attained schooling across groups can be explained by a model that assumes that capital markets are perfect and that individuals maximize wealth. The logic of the analysis proceeds as follows: First, a model is constructed that allows estimation of costs and returns to education for each individual, based on the assumption that all individuals face the same borrowing rates. Given costs and returns, one can obtain an optimal wealth-maximizing level of education for each individual. Differences between actually acquired and wealth-maximizing levels of education can then be calculated, and one can determine whether or not the residuals are systematically related to background variables. If, for example, low-income individuals have a consistently larger estimated wealth-maximizing level of education than actual level, one could conclude either that returns to schooling differed between groups or that capital market differences exist. The model allows these two explanations to be distinguished. Since differential returns are caused by wage differences across groups, the wealth-maximizing level can take these labor market variations into account. Any residual variation will be due to factors other than differential wage rates, presumably capital cost differences .

This working paper provides some preliminary results on the computational feasibility of nonlinear full information maximum likelihood (NECML) estimation. Severa1 of the test cases presented were also subjected to nonlinear three stage least square (NLBSLS) estimation in order to illustrate the relative performance of the two estimation techniques. In addition, certain other aspects central to practical implementation are highlighted. These include the effect of various computers on the efficiency of the code, as well as the relative merits of numerical and analytical generation of gradient information. Broadly speaking, NLFIML appears competitive in cost and superior in statistical properties to NL3SLS.

We take advantage of our longitudinal data to explore individual variation in the parameters of individual earnings functions. (1) For this purpose we fit an earnings function to each of the individual histories in the sample.(2) We then try to ascertain the extent to which the estimated variation in individual parameters helps in explaining the cross-sectional variation in earnings.(3) we further inquire into the relation between the individual parameters and a vector of personal characteristics, as well as(4) into indirect (via variables and parameters) and direct effects of these characteristics on earnings.

The purpose of the present note is to explore the structure of optimal income taxation/redistribution in an economy where the welfare of individuals depends in part on relative after-tax consumption, i.e., we specify individual welfare as a function of absolute and relative after-tax consumption, with diminishing marginal utility to each. With such a specification, of course, an additional incentive for income redistribution from wealthy to poor citizens is created and the logical impossibility of increasing tax rates to the point where disincentive effects actually reduce tax revenues is potentially removed. The analysis highlights the importance of the marginal valuation placed on upward social mobility in various ranges of the income distribution and its interaction with the elasticity of the marginal utility of consumption; of course, "labor supply" elasticities, the form of the social welfare function, and the skill distribution continue to play an important role.

A common theme which runs through much of the investment literature is that private incentives may lead to sub-optimal levels of investment activity. The idea has been extended casually to consideration of human capital investment as well. It is sometimes contended that decisions, made by parents, have adverse effects on their offspring, which could be prevented if inter-generational contracts could be struck. If so, a case can be made for government intervention or subsidization programs to alleviate these intergenerational externalities. Specifically, the sub-optimal investment in offspring human capital may take such obvious forms as poor clothing, too little health care, or too few resources devoted to the child's education. Less obvious externalities may result when parents underinvest in themselves because they fail to consider spillover benefits to their children. Parental schooling, for example, may affect the child's ability (or desire) to learn. Dietary patterns established by parents for themselves may influence the child's eating habits and affect his health. More directly, healthy parents are less likely to transmit diseases to their offspring. This paper will examine the effects of these intergenerational externalities in greater detail.

The use of precedents to create rules of legal obligation has, to our knowledge, received little theoretical or empirical analysis. This paper presents and tests empirically an economic approach to legal precedent that is derived mainly from the analysis of capital formation and investment. We treat the body of legal precedents created by judicial decisions in prior periods as a capital stock that yields a flow of information services which depreciates over time as new conditions arise that were not foreseen by the framers of the existing precedents. New (and replacement) capital is created by investment in the production of precedents.

Within the past few years, renewed interest in understanding marital behavior has resulted in a number of studies which focus on an equation estimating the probability of divorce or remarriage. This paper reports on one such effort. It offers a brief rationale for and an estimation of probability functions for divorce rates at specific lengths of marriage duration for a very unrepresentative sample of American women -- a group of geniuses. The data are from the "Terman sample" of some 671 women selected in 1921 (together with a comparable group of men) by psychologist Lewis N. Terman. The sample was chosen from children enrolled in California schools in urban areas. It included children, preselected by their teachers, whose measured IQ was 135 or above. The sample thus represented students in the highest one percent of the school population in general intelligence. In another report I have compared the marital behavior of these Terman subjects to the relevant California population, controlling for the very high level of schooling and the somewhat constricted distribution of age at first marriage among the Terman subjects (Michael 1976). The Terman subjects generally exhibited the same qualitative relationships between marital patterns and such variables as age at marriage and schooling as the California population. However, one should keep in mind the very special nature of this sample when comparing results with other studies.

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 in-come? 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 changeover the family's life cycle?

In this paper, we will investigate the effect of six factors on occupational earnings inequality across all occupations in our sample and across occupations in five major Census subgroups. Those six factors are: differences in tasks, different levels of efficiency, institutional factors, time worked, the demand for labor and discrimination. Age and schooling will receive primary attention in our work and it will be shown that they are important determinants of earnings inequality among professional and clerical occupations but not among skilled, semi-skilled or unskilled occupations. Ability is also hypothesized as an important factor, but no measure of ability is provided in our sample. Differences in time worked and labor demand conditions, as measured by industrial and urban-rural mix, will also be analyzed, and their effect on earnings inequality is strong in most of the occupational subsamples. Differences in the race and sex composition of occupations do not appear to be significant factors in occupational earnings inequality, and the explanation offered is that discrimination takes the form of occupational segregation rather than differences in pay for similar work. In the conclusion a sketch of a "structural" theory of income distribution is proposed to account for our results.

This paper proposes an econometric methodology to deal with life cycle earnings and mobility among discrete earnings classes. First, we use panel data on male log earnings to estimate an earnings function with permanent and serially correlated transitory components due to both measured and unmeasured variables. Assuming that the error components are normally distributed, we develop statements for the probability that an individual's earnings will fall into a particular but arbitrary time sequence of poverty states. Using these statements, we illustrate the implications of our earnings model for poverty dynamics and compare our approach to Markov chain models of income mobility.

In the last few years, there has developed a large literature, sometimes referred to as the new "public finance," providing a quantitative analysis of a number of traditional problems within the field. This paper is concerned with surveying, or interpreting, what can be learned from this literature; and our belief is that it has taught us a great deal. We concern ourselves here not so much with the derivation of precise formulae, e.g. for optimal tax rates, but with the more general lessons which have emerged.

The purpose of this paper is to provide a progress report on the issue of the implications of optimal tax theory and recent econometric evidence for tax policy. Toward this end, Section 2 provides a brief and often heuristic summary of the major results of optimal tax theory. Section 3 reports the results of some recent econometric studies of saving and labor supply. Finally, Section 4 outlines the implications of the combined theory and econometric evidence for tax policy.

This paper focuses on the causes of divorce. Section I developsa theoretical analysis of marital dissolution incorporating uncertaintyabout the outcomes of marital decisions into a framework of utilitymaximization and the marriage market. Section II explores the implica-tions of the theoretical analysis with cross-sectional data,primarilythe 1967 Survey of Economic Opportunity and the Terman sample. Therelevance of both the theoretical and empirical analyses in explainingthe recent acceleration in the U.S. divorce rate is discussed.

This paper suggests and examines a straightforward diagnostic test procedure that 1) provides numerical indexes whose magnitudes signify the presence of one or more near dependencies among columns of a data matrix X, and 2) provides a means for determining, within the linear regression model, the extent to which each such near dependency is degrading the least- squares estimation of each regression coefficient. In most instances this latter information also enables the investigator to determine specifically which columns of the data matrix are involved in each near dependency. The diagnostic test is based on an interrelation between two analytic devices, the singular-value decomposition (closely related to eigensystems) and a matching regression-variance decomposition. Both these devices are developed in full. The test is successfully given empirical content through a set of experiments that examine its behavior when applied to several different series of data matrices having one or more known near dependencies that are weak to begin with and are made to became systematically more nearly perfectly collinear. The general diagnostic properties of the test that result from these experiments and the steps required to carry out the test are summarized, and then exemplified by application to real economic data.

This paper, which seeks to identify factors contributing to the rate and character of technical transfer and to assess host-country research and development effort in response to foreign competition, is one of three examining the impact of technically-advanced companies, particularly American, on British industries. Beginning first with an analysis of imitation cycles in pharmaceuticals and making use of a model of these, the study proceeds to examine the transnational operations of American and other foreign companies, showing the connection between company size, sales and new product introductions.

This paper is concerned with the estimation of the parameters in a dynamic simultaneous equation model with stationary disturbances under the assumption that the variables are subject to random measurement errors. The conditions under which the parameters are identified are stated. An asymptotically efficient frequency-domain class of instrumental variables estimators is suggested. The procedure consists of two basic steps. The first step transforms the model in such a way that the observed exogenous variables are asymptotically orthogonal to the residual terms. The second step involves an iterative procedure like that of Robinson [13].

Some additional evidence on the comparative effect of income, regulation, and other variables on the demand for lawyers is called for. One objective of this paper is to investigate the speed of adjustment of law schools to shifts in the demand for lawyers. Section I presents a theoretical model of the demand for and supply of lawyers. The empirical counterparts of the variables are introduced in Section II. Section III presents the results of the estimation and Section IV compares the actual number of lawyers with the number that would have existed if lawyers earned a normal return on their investment in legal education. Section V presents other evidence of an excess demand for lawyers and offers several explanations for the speed of adjustment of enrollments in law schools to shifts in the demand for lawyers. The paper ends with a summary of the major findings of the paper.

A new algorithm for the group minimization problem (GP) is proposed. The algorithm can be broadly described as follows. A suitable relaxation of(GP) is defined, in which any feasible point satisfies the group equation but may have negative components. The feasible points of the relaxation are then generated in order of ascending costs by a variant of a well-known algorithm of Glover, and checked for non-negativity. The first non-negative point is an optimal solution of (GP). Advantages and disadvantages of the algorithm are discussed; in particular, the implementation of the algorithm (which can be easily extended so as to solve integer linear programming problems) does not require group arithmetics.

Individuals plan consumption and production for different points in the future, using interest rates of various maturities as a guide. How-ever, individuals do not always pre-contract all planned future borrowing and lending, and the intermediaries they work through often do not match the maturity structure of their assets and liabilities. As a result of this individual failure to hedge and institutional "misintermediation", aggregate production and consumption plans for each period in the future need not coincide. The resulting discrepancy will eventually appear as a recession or boom, involving an unanticipated change in interest rates. Fiscal stimulus aggravates the welfare loss associated with a recession, whether the spending is consumption-displacing or wholly wasteful.

Our paper uses the wealth of information available in the NLS to expand on previous work in several ways. First, we investigate whether there is a meaningful distinction among types of job separations. Traditional analysis has categorized job separations as either employee-initiated (quits) or employer-initiated (layoffs). We question whether this dichotomy is correct. The National Longitudinal Survey data is especially useful for studying the relationship between wages and the probability of quitting. Most theoretical work on the determinants of job separation concludes that the probability of changing jobs is related to a reservation wage. The NLS data set allows us to test this relationship since it includes information on the individual's "hypothetical wage"-- that is, the wage required to induce the individual to accept another job. Given this information, we are able to compare the effects of different measures of the individual's price of time (e.g. the current wage and the reservation wage) on the probability of quitting. In addition, we analyze the role of human capital variables, job related characteristics and family background in the determination of job mobility. The analysis of the determinants of job separations in the cross-section naturally leads to an investigation of the relationship between previous separations and future separations. In particular, we consider whether such a relationship exists, and whether the nature of previous separations is a good predictor of the nature of future separations. Finally, we analyze the effects of job mobility on earnings and on job satisfaction. We distinguish between the immediate gains to mobility and the future gains to mobility, and also consider whether the nature of the separation is an important determinant of the consequences of job mobility.

This paper investigates some alternative definitions of labor for productivity and demand analysis. The paper is organized as follows: Section II considers the organization of work activities in a simple fixed coefficient technology in the presence of comparative advantage among various classes of workers. Assuming that the number of independent productive activities exceeds the number of comparative advantage classes, an application of the envelope theorem shows the derivation from first principles of a neoclassical production function with input dimension (the number of workers of each type) smaller than the engineering technology(the number of activities). This is the basic result illustrating that occupational classifications depend on both the technology and the distribution of skills (factor supplies) in the working population, a fact that may be relevant to international and other cross-sectional differences in productivity and the demand for labor. The situation is reversed in section III, which treats the case where the number of worker classifications exceeds the number of production activities. In this case the micro-technology cannot be reduced below the basic set of work activities one starts with, and within these categories labor can be aggregated according to efficiency units. However, the nature of factor endowments in economies of this sort is rather different than in the neoclassical model, and leads to an output transformation function that has all the neoclassical properties. This result is reminiscent of an example of Houthakker (also, see Sato) who also obtained smooth neoclassical behavioral functions from underlying distributional phenomena. Section IV examines the characteristics-factor approach to labor aggregation and relates it to the results in section III, noting an inherent difficulty arising from selectivity of various ability groups of workers among work activities due to comparative advantage. In effect, the existence of rent destroys the possibility of simple linear aggregation. Finally, section V indicates some problems with applying the theory of marriage directly to labor demand. These issues become most interesting when there are incomplete markets that limit the gains from fully exploiting comparative advantage, due to transactions costs. The results are limited, but some examples show that any predictions concerning positive or negative assortive matching of workers depends not only on the correlation of talents among members of the work force, but also on the nature of technology and the distribution of demands for various outputs.

In essence, this paper will try to decompose the concentration-profits relationship into separate concentration-price arid concentration-cost relationships. By doing this, I hope to shed light on some of the allocative and distributive issues that, I suspect, give the subject its intrinsic interest, but which have not so far been confronted empirically: Does high concentration save or waste resources? Does it lead to higher prices? Who gains and loses from a social policy hostile to high concentration? Since the unique aspect of the paper is its focus on a concentration-cost relationship, most of the analytical effort is spent here. I review the theory underlying such a relationship, and develop and implement a model designed to estimate its importance. Subsequently, I try to estimate how much of the usual profit-concentration relationship is due to cost effects and how much to price effects. The main conclusion is that, while price effects are not absent, the cost effects so dominate them as to cast doubt on the efficacy of any general legal rule hostile to industrial concentration.

This paper was originally prepared as part of the first stage of the research project, Alternative Trade Strategies and Employment. The project as a whole is focused upon identifying the relationships between alternative trade strategies -- export promotion and import substitution -- and growth in the demand for labor. The project has altogether three stages: (1) the preparatory stage, in which the theory underlying the relationship between trade strategy and employment was developed and a methodology for undertaking empirical research was formulated; (2) the second stage, in which project participants undertook the empirical research for individual countries and also for particular topics of special interest for the project as a whole, based upon the papers prepared in the first stage; and (3) a summing up, in which the results of the individual studies are analyzed in order to ascertain what insights into the trade-employment relation seem generally applicable. At the present time, the second stage of the project is nearing completion. This paper constituted one part of the first stage of the project: it spells out much of the basic methodology that underlies the individual country studies.

In this paper we shall be concerned with the following problem. Let A be an m x n matrix with m being greater than or equal to n, and suppose that A is near (in a sense to be made precise later) a matrix B whose rank is less than n. Can one find a set of linearly independent columns of A that span a good approximation to the column space of B? The solution of this problem is important in a number of applications. In this paper we shall be chiefly interested in the case where the columns of A represent factors or carriers in a linear model which is to be fit to a vector of observations b. In some such applications, where the elements of A can be specified exactly (e.g. the analysis of variance), the presence of rank degeneracy in A can be dealt with by explicit mathematical formulas and causes no essential difficulties. In other applications, however, the presence of degeneracy is not at all obvious, and the failure to detect it can result in meaningless results or even the catastrophic failure of the numerical algorithms being used to solve the problem. The organization of this paper is the following. In the next section we shall give a precise definition of approximate degeneracy in terms of the singular value decomposition of A. In Section 3 we shall show that under certain conditions there is associated with A a subspace that is insensitive to how it is approximated by various choices of the columns of A, and in Section 4 we shall apply this result to the solution of the least squares problem. Sections 5, 6, and 7 will be concerned with algorithms for selecting a basis for the stable subspace from among the columns of A.

In this study we examine the characteristics of industrial demand for energy, which accounts for more than one-fourth of annual energy consumption in the United States. Our research has been focused on four topics: 1. interfuel substitution in two-digit industries; 2. substitution among energy, capital and labor; 3. technical change in energy use; and 4. dynamic structure of energy demand. The results indicate that technical change has occurred through factor augmentation at unequal rates. Statistically significant labor-using and material-saving biases are found. There also appears to have been a small energy-saving bias, but it is not statistically significant.

In this paper we intend to survey and suggest the theoretical framework of the important aspects of causality detection with the purpose of conveying to the reader the essential features and the different forms in which inferences may be drawn from given data. Section II presents the basic theorem characterizing the causality events and suggests two feedback detection methods which, like the one suggested by Pierce and Haugh (1977), are based on correlation analysis. In Section III we survey other well-known causality detection methods and try to relate and to compare them with the methods suggested in Section II. Section IV briefly reviews the theoretical controversy of the relationship between money and income and presents some empirical evidence based on the methods discussed in this paper. Conclusions are in Section V.

This paper will employ a method (devised in Lazear [1976] ) to estimate the unobserved component of wages. The size of this component will be calculated for non-whites and whites separately and then compared. Since, as it turns out, the component is larger for whites than non-whites, observed wage differentials understate true differentials. Furthermore, comparison of the period between1966-1969 with the 1972-1974 period reveals that this unobserved differential increased substantially over time. The results of this study suggest that although the pecuniary non-white -- white differential has narrowed substantially between 1966 and 1974 for young men, the on-the-job training differential has increased by almost the exact same amount. This implies that in real wealth terms there has not been any narrowing of the differential at all. This will become more apparent in later years as those non-whites who were hired into skilled jobs today fail to be promoted or obtain higher paying jobs elsewhere at the same rate as their white counterparts.

We introduce a modification of Broyden's method for finding a zero of n nonlinear equations in n unknowns when analytic derivatives are not available. The method retains the local Q-superlinear convergence of Broyden's method and has the additional property that if any or all of the equations are linear, it locates a zero of these equations in n+1 or fewer iterations. Limited computational experience suggests that our modification often improves upon Eroyden's method.

The Austrian theory of the "marginal use" is restated and extended. It is found that the Austrian concept of marginal utility (as derived from the marginal use) is not dependent on cardinal utility, and indeed is consistent with "intrinsically ordinal" utility. In this system, diminishing (ordinal) marginal utility is an implication of rational choice, rather than an assumption. Examples of the rank-ordering on commodity space, derived from the underlying rank ordering on want-set space in conjunction with the technological relationship between goods and wants, are given in the cases of independent, rival, and complementary goods. In each case the derived commodity preferences are quasi-concave, which suggests that the Hicksian assumption of quasi-concavity is superfluous. In each case, the Auspitz and Lieben-Edgeworth-Pareto criterion for net complementarity or rivalness emerges. It is shown that while a negative cross substitution elasticity is not a necessary condition for net complementarity, it is a sufficient condition under not very restrictive conditions.

Minimum wage legislation is frequently advocated in the belief that itcreates a more nearly equal distribution of income. A one-sector model of general equilibrium is used to analyze a universally applicable minimum wage, and a two-sector model is used to analyze a minimum wage that is only applied to certain industries. In both cases we find that a minimum wage may well lower equality (as computed by the Gini index) if we consider reasonable values for the parameters of these two models. In the absence of unemployment compensation, equality can increase only if the elasticity of substitution in production is quite low. In the one-sector case, however, equality necessarily rises if unemployment compensation is present and sufficiently generous.

In this paper, I present a simple characterization of the sample selection bias problem that is also applicable to the conceptually distinct econometric problems that arise from truncated samples and from models with limited dependent variables. The problem of sample selection bias is fit within the conventional specification error framework of Griliches and Theil. A simple estimator is discussed that enables analysts to utilize ordinary regression methods to estimate models free of selection bias. The techniques discussed here are applied to re-estimate and test a model of female labor supply developed by the author. (1974). This paper is in three parts. In the first section, selection bias is presented within the specification error framework. In this section, general distributional assumptions are maintained. In section two, specific results are presented for the case of normal regression disturbances. Simple estimators are proposed and discussed. In the third section, empirical results are presented.

This paper attempts to provide the user of linear multiple regression with a battery of diagnostic tools to determine which, if any, data points have high leverage or influence on the estimation process and how these possibly discrepant data points differ from the patterns set by the majority of the data. The point of view taken is that when diagnostics indicate the presence of anomolous data, the choice is open as to whether these data are in fact unusual and helpful, or possibly harmful and thus in need of modifications or deletion. The methodology developed depends on differences, derivatives, and decompositions of basic regression statistics. There is also a discussion of how these techniques can be used with robust and ridge estimators. An example is given showing the use of diagnostic methods in the estimation of a cross-country savings rate model.

The educational screening hypothesis states that beyond a certain point schooling functions as a signaling device to identify pre-existing talents. We test for the presence of screening by comparing the schooling and earnings of self-employed workers and of those employed by others in a sample set of occupations. We expect those employed by others to pursue additional schooling to signal prospective employers. We expect self-employed managers to acquire no additional schooling for signaling purposes. We expect other self-employed workers to obtain additional schooling to signal potential customers. Our empirical results, based on 1970 Census data, strongly support the case for screening. However, the relative magnitude of the screening portion of schooling is relatively modest, lying between approximately 5 and 10 percent.

In 1965 Broyden introduced a family of algorithms called(rank-one) quasi—New-ton methods for iteratively solving systems of nonlinear equations. We show that when any member of this family is applied to an n x n nonsingular system of linear equations and direct-prediction steps are taken every second iteration, then the solution is found in at most 2n steps. Specializing to the particular family member known as Broyden’s (good) method, we use this result to show that Broyden's method enjoys local 2n-step Q-quadratic convergence on nonlinear problems.

It is almost invariably taken for granted in theoretical descriptions of the international price mechanism and in the construction of trade models that a country's export price for a particular product is identical to its domestic price. Any impact of foreign or domestic events on prices is expected to fall identically on the export and the domestic price for a good. In contrast to these conventional assumptions, the few empirical studies of international prices have shown that there are fairly substantial and long-lasting divergences between export and domestic price changes for the same or closely related products. If there can be divergences between export and domestic prices, a type of relative price mechanism may be at work: the depreciating country should find export prices rising relative to domestic prices of the same goods. Since a producer can shift more easily from domestic to export sales of a product than from production of home goods to production of export goods we should expect the changes within commodities between domestic sales and exports to occur more rapidly. Since the evidence is strong that there are divergences between export and domestic prices, we wish to trace through the effects of foreign price changes and exchange rate changes on export and domestic prices and see whether a mechanism of the hypothesized type exists. In this paper we concentrate our attention on price movements, but offer some evidence that the response of exports to these price divergences is in the expected direction.

This paper considers the formulation and estimation of simultaneous equation models with both discrete and continuous endogenous variables. The statistical model proposed here is sufficiently rich to encompass the classical simultaneous equation model for continuous endogenous variables and more recent models for purely discrete endogenous variables as special cases of a more general model.

This paper develops behavioral relationships explaining investors' demands for long-term bonds, using three alternative hypotheses about investors' expectations of future bond prices (yields). The results, based on U.S. 'data for six major categories of bond market investors, consistently support an autoregressive expectations model. The results also have implications for further aspects of investors' portfolio behavior, including expectations formation, response to inflation, and speed of adjustment.

This paper derives an estimation procedure which, when the same distributed lag appears twice in an equation to be estimated by least-squares regression, identifies all of the relevant coefficients and lag weights and also constrains the two sets of individual lag weights to be identical. The procedure for solving this identification-constraint problem involves prior imposition of a restriction on the lag weight sum -- i.e., it is necessary to impose the sum restriction before estimating the equation. A further useful feature of the derived procedure is that it facilitates conveniently imposing the sum restriction on all of the weights in a distributed lag even if the leading weight is independent of a polynomial restriction imposed on the others.

The basic purpose of our research is to contribute to an understanding of the joint determination of children's cognitive development and their health. Although there is a large literature concerning the first of these issues, there has been little work on the latter. We also explore interrelationships between various aspects of children's physical health and their intellectual development and, in particular, attempt to answer the important question of whether poor health retards the cognitive development of children.

The purpose of this paper is to describe the behavior of that subset of prices and price indexes that is relevant to the theory of balance of payments adjustment. The theoretical writings on the balance of payments may be viewed at this juncture as falling into two main groups -- the "standard" theories and the more recent monetary theories. Each of these is examined to determine the assumptions and predictions made about particular kinds of prices, and the empirical evidence regarding these prices is then set out. Although some assessment of the theories -- solely from the price aspect -- is offered, the emphasis is on the price structure and price behavior that ought to be captured in a satisfactory theory of the mechanisms of international adjustment. For pragmatic reasons, attention is placed mainly on the theory relating to exchange rate changes rather than on the explanation of adjustment with fixed exchange rates.

The present paper is intended to make a modest contribution to an under-standing of one small but important link in this complicated chain of interacting factors. It is a link that has often been ignored because strong simplifying assumptions have until very recently usually been made about it. We refer to the relation of exchange rate changes, export prices, and domestic prices. During the last few years a number of attempts have been made to examine the extent to which exchange rate changes were "passed through"; that is, the extent to which a given depreciation in the U.S. dollar, for example, resulted in a corresponding decline in the price of U.S. exports in foreign currencies. However, the possibility that a change in the exchange rate might also alter the relationship between the export price and the domestic price of a given product, expressed in the same currency, has been almost completely ignored. The assumption made, implicitly by most past writers in the theory of international trade and more recently explicitly by advocates of the monetary approach to the balance of payments, has been that the "law of one price" applies to shipments destined for home markets and for foreign markets.

This paper surveys recent evidence on the impact of government programs on the measured labor market status of black Americans. In this paper, we argue that previous studies neglect the impact of recent government policy on the supply side of the labor market, and that the supply side effects of recent policy play an important role in explaining the recent measured increase in the ratio of the wages and incomes of blacks to the wages and incomes of whites.

The purpose of this paper is to analyze systematically the production of effort and its allocation among different market and non-market sectors. I believe that this analysis can explain much of the variation in earnings that is not explained by human capital. The first section introduces the material. The next section develops the basic theoretical analysis of the production and allocation of effort by a free person. Section III applies this analysis to the value placed on time a1 located to the non-market sector, the effect of hours worked on fatigue and earnings, life cycle variations-in earnings and hours worked, investment in health, and the effect of marriage on the earnings and health of men and women. Section IV considers worker effort from the view point of firms, and shows how various characteristics of firms determine the wage rates offered and the effort supplied by their workers. Section V analyzes the production and allocation of effort by slaves, and derives "expropriation rates'' and other implications about the treatment of slaves .

The purpose of this paper is to develop and test a dynamic labor supply model which incorporates the essential features of these previous models. The issues of permanent and transitory effects and of cross section versus time series can be addressed much more directly given the recent availability of panel data featuring repeated observation over extended periods of time of the same individuals. The labor supply model presented emphasizes the effect of permanent individual wage differences on permanent annual hours of work and the effect of serially correlated transitory individual wage variation on short run hours of work. Permanent and transitory deviations from the aggregate labor supply functions are also allowed. A by-product is an analysis of the relative roles of permanent and transitory components of both wages and hours in the distribution of earnings. The first section introduces the topic and describes related works. The second section provides a description of the essential features of the model. Section III provides a detailed outline of the empirical model and method of obtaining maximum likelihood estimates of parameters. Section IV provides a discussion of the results including the components of variation in wages, hours, and earnings. Comparisons are made by schooling group, by experience group, by union status, and by wife's work status. Finally the results are summarized in Section V.

This paper discusses how private pension programs differ from public social security in their likely impact on aggregate saving. Although private pensions are likely to reduce direct saving by employees, this should be offset by the combination of companies' partial funding and the shareholders response to unfunded liabilities. In contrast to several earlier empirical studies that implied that social security does depress national saving, the current time series evidence suggests that the growth of private pensions has not had an adverse effect on saving and may have increased saving by a small amount.

The purpose of the present paper is to focus on the potential inducement to retire earlier in the presence of social security and on the implied effects on lifetime savings. This problem is analyzed within the framework of a model of intertemporal utility maximization. The organization of this work is as follows. Section 1 introduces the topic. Section 2 presents the model of individual optimization and of the market equilibrium. Sections 3 through 5 present the comparative statistics analysis. Section 3 evaluates the effects on the equilibrium retirement age, section 4 modifies the benefits formula to depend on retirement age and section 5 examines the wealth-income ratio effect. Section 6 introduces the intergenerational transfer problem. Section 7 presents the general model underlying the previous sections.

In these notes I hope to touch on a variety of issues relating to public debt and social insurance and to suggest ways in which they might be approached. It is to be viewed as a research proposal, or an outline of open problems rather than as a statement of results. The notes are divided into two sections. In the first, problems of intertemporal reallocation of resources through the public debt and social security are treated in the context of complete certainty about future events. Both positive and normative aspects of the problem are investigated, but principle emphasis is given to the latter. In the second section, the set of issues related to uncertainty and the role of intergenerational social insurance in its mitigation are explored.

A description of a system of subroutines to compute solutions to the iteratively reweighted least squares problem is presented. The weights are determined from the data and linear fit and are computed as functions of the scaled residuals. Iteratively reweighted least squares is a part of robust statistics where "robustness" means relative insensitivity to moderate departures from assumptions. The software for iteratively reweighted least squares is cast as semi-portable Fortran code whose performance is unaffected (in the sense that performance will not be degraded) by the computer or operating-system environment in which it is used. An [ell sub1] start and an [ell sub2] start are provided. Eight weight functions, a numerical rank determination, convergence criterion, and a stem-and-leaf display are included.

This is the first of a sequence of papers on international flows of merchandise trade among fifteen Pacific Basin countries and between them and eleven regions in the Rest of the World. The basic purpose of this report is to present and document annual data on bilateral flows of exports in current prices among the 26 countries and regions in matrix form for the years 1948 through 1975. A second report will provide export price deflators and trade matrices in constant prices for 1955-1975, and a third will analyze the changing pattern of Pacific Basin trade over the same period. The present report is organized as follows. In Section 2 we justify the concept of a Pacific Basin regional economy and describe the postwar trends in its share of world trade and in its internal trading relationships. Section 3 contains a detailed description of the construction of the annual trade matrices. The matrices themselves are presented in Appendix D. Appendix A lists the countries in each regional grouping, and Appendices B and C document adjustments to the basic International Monetary Fund Directions of Trade (DOT) data for the trade of socialist countries and that of Malaysia and Singapore.

This is the second of a sequence of papers on international flows of merchandise trade among fifteen Pacific Basin countries and between them and eleven regions in the Rest of the World. In the first paper in this sequence (Hickman, Kuroda and Lau (1977)) we presented annual data on bilateral flows of exports in current prices among the twenty-six countries and regions for the years 1948 through 1975. The basic purpose of this second report is to present and document data on annual export price indexes of the twenty-six countries and regions and annual bilateral flows of exports in constant U.S. dollar prices among the twenty-six countries and regions in matrix form from 1955 through 1975. A third report will analyze the changing pattern of Pacific Basin trade over the same period. The present report is organized as follows: In Section 2 we present the data sources for the export price indexes. Using these export price indexes, the current price trade matrices derived in the first report(Hickman, Kuroda and Lau (1977)) are deflated to obtain the constant price trade matrices. In Section 3 we examine whether the concept of a Pacific Basin regional economy may still be justified when viewed in a constant price context and describe the postwar trends in its share of world trade and in its internal trading relationships on a constant price basis. In Section 4 we present terms of trade indexes for each country and region from 1955 through 1975 and discuss some of their implications.

This is the third of a sequence of papers on international flows of trade among fifteen Pacific Basin (PB) countries and between them and eleven regions in the Rest of the World (ROW). In Part I of the sequence (Hickman, Kuroda and Lau, 1977a) we presented and documented annual data on bilateral flows of total exports valued f.o.b. in current dollars among the twenty-six countries and regions for the years 1948 through1975. The primary data source is the Direction of Trade computer tape of the International Monetary Fund, but these data were supplemented from other sources, especially as regards the international trade of the socialist countries. The second report (1977b) extended the data base to include unit value export price indexes and the corresponding constant dollar trade flow matrices for the period 1955-1975. In this third report we analyze the changing pattern of PB trade over the same period, using as tools export growth decomposition indexes, trend analysis, and regression analysis of the price elasticity of import market shares. The present paper is organized as follows. In Section 2 we describe the trends in the export performance of the PB countries and ROW regions, as measured by the cumulative percentage change in each country's share of world exports between 1955 and 1975 and for selected sub periods. In Section 3 and Appendices B and C these export share changes are decomposed into three sources: changes in the degree of penetration of the various import markets, changes in the size of the import markets themselves, and an interaction effect. The decomposition indexes are shown in Section 4 to be dominated by the market penetration or competitiveness effect, so that a country gains or loses in world trade according to whether or not it can increase its shares of the markets in which it sells rather than as a passive result of changes in the size of the markets themselves. This leads to a descriptive analysis in Section 5 of the secular growth rates of the market shares of each country or region in the import markets of the twenty-five remaining countries and regions. Finally, we conclude the paper in Section 6 with art exploratory regression analysis of the responsiveness of the market shares to changes in the relative prices of the various exporting countries competing in each import market, leading to the general conclusion that relative prices do matter and presenting estimates of share or substitution elasticities in the various import markets.

Our paper begins with the relatively simple problem of optimal taxation as viewed by the capital-exporting ("home") country when it can assume that its actions do not alter the tax rate in the host country. Section I also shows that when foreign investment accounts for a significant fraction of production in the host country, the capital-exporting country should tax foreign source investment income more heavily than is implied by the "full taxation after deduction" rule. The important question of tax rate interdependence is developed in Section II. In the third section we replace the assumption that all foreign investment is financed by a transfer of equity capital from the home country with the more realistic description that subsidiary firms borrow in the host country. Although this raises the profitability to the home country of investment by its foreign subsidiaries, we show that this need not alter the conclusions of the previous sections. We regard the present paper as only a first step in a proper analysis of the complex issue of optimal taxation of foreign source investment income. . The static analysis of the present paper should be extended to consider investment paths in growing economics. Finally, the purely nationalistic optimality criterion could be generalized to give some weight to the real income of the rest of the world.

In what follows we provide a conceptually correct procedure for determining whether a risky project passes the "potential Pareto improvement" welfare criterion which forms the normative basis of cost-benefit analysis. In this approach the role of secondary markets in providing opportunities for redistributing risk is made transparent and the modifications necessary when such markets do not exist are suggested.

A brief discussion of recent methods using the Hat Matrix for identifying leverage points, and clustering techniques for finding groups of data points is presented. The problem of identifying leverage groups is addressed, and a heuristic algorithm for identifying both leverage points and leverage groups is proposed. Semi-portable FORTRAN code implementing the algorithm, a sample terminal session, and a discussion of the terminal session are included.

NL2SOL is a modular program for solving the nonlinear least-squares problem that incorporates a number of novel features. It maintains a secant approximation S to the second-order part of the least-squares Hessian and adaptively decides when to use this approximation. We have found it very helpful to "size" S before updating it, something which looks much akin to Oren-Luenberger scaling. Rather than resorting to line searches or Levenberg-Marquardt modifications, we use the double-dogleg scheme of Dennis and Mei together with a special module for assessing the quality of the step thus computed. We discuss these and other ideas behind NLZSOL and briefly describe its evolution and current implementation.

The Agricultural Time Series-Cross Section (ATICS) dataset described in this Working Paper is based on the annual crop and livestock statistics collected by the United States Department of Agriculture. These statistics, scattered through a wide assortment of published and unpublished USDA bulletins and circulars, are extensive in their coverage of the agricultural sector, are highly disaggregated, and span a time period over one hundred years in length. Yet these rich sources have never been unified into a single compilation of data which is accessible, uniform, and machine readable. The ATICS dataset is an attempt to fill this gap.

This article continues the work on the analysis of the individual's decision to migrate, but differs from the previous studies by focusing on the relationship between job mobility and migration. First, the proportion of geographic mobility that occurs in conjunction with a job change is calculated. Second, it is shown that the true effects of human capital variables, job characteristics, and family variables on the decision to migrate are best measured when one takes account of the relationship between migration and job mobility. Third, the effect of migration on the wage gains of individuals is studied and again the need for distinguishing among moves that were associated with quits, layoffs, and transfers is clearly shown. Finally, by using three data sets that encompass different age groups (the National Longitudinal Surveys [NLS] of Young and Mature Men and the Coleman-Rossi Retrospective Life History Study), the importance of the relationship between migration and job mobility is demonstrated at different points in the life cycle.

This paper joins a few very recent attempts to analyze migration in the awareness of the family context. In contrast to most of them, my focus is exclusively on the family context. The paper defines family ties relevant to migration decisions and explains their effects on the probability of migration, on consequent changes in employment and earnings of family members, as well as on family integrity itself. Hopefully, the paper provides material for a missing chapter on family economics as well as an addition to the economics of labor supply arid of human capital formation.

In this paper it is proposed that high rural fertility in Latin America is a deliberate and rational adjustment to the conditions of agricultural production that prevail in many areas of the continent. The main finding is that share tenancy, the predominant form of organization of production in the sparsely populated central regions of the Northeast, and a common institution in much of Latin America, contains a set of powerful fertility inducements which are lost when households face a wage-labor situation in agriculture or in cities. Thus, the rapid decline of rural fertility in the past decade in Latin America may be due, in part, to the general demise of share tenancy and its replacement by sub-family farms (minifundios) dependent on wage labor. These broad implications are discussed in the final section of the paper.

At a minimum, this paper should serve as a warning against too easy an acceptance of the view that the costs of sustained inflation are small relative to the costs of unemployment. If a temporary reduction in unemployment causes a permanent increase in inflation, the present value of the resulting future welfare costs may well exceed the temporary short-run gain. Previous analyses have underestimated the cost of a permanent increase in the inflation rate because they have ignored the growth of the economy and therefore the growth of the future instantaneous welfare costs. In the important case in which the growth of aggregate income exceeds the social discount rate, no reduction in unemployment can justify any permanent increase in the rate of inflation. Quite the contrary, if the inflation rate is above its optimal level, the economy should then be deflated to reduce the inflation rate regardless of the temporary consequences for unemployment.

This paper seeks to explain the recent rise in U.S. divorce rates using an economic framework. Annual time series data from1920 to 1974 are used in the empirical analysis. The estimated equation tracks the actual series quite well. It attributes the recent increase in divorce to improved contraceptive technology, reduced average duration of marriage (resulting from the age distribution of the population) and income growth. Projections suggest a flattening of the divorce rate series in the near future.

Given that application of the principle with full loss offset to all assets is impracticable, we may wish to consider provision of only a partial inflation-exclusion to assets for which it is feasible. The problem is examined in this paper by means of a simple model of anticipated inflation, in which individuals may invest either in assets for which full or partial inflation-exclusion is provided, or in cash, for which no loss offset is allowed. Among other issues, we shall examine the short and long run effects of taxation and of the provision of an inflation deduction on the rate of inflation and on the level of savings. We do not discuss the long-run optimum tax and deduction rates, because it turns out that for a given tax revenue, these instruments are perfect substitutes, i.e. their relative size does not affect the equilibrium configuration.

Our purpose in the present study is to analyze a new and rich body of data on the elderly to study the supply side of the effect of social security on the early retirement decision. Toward this end, section 2 presents a brief description of some previous studies of retirement behavior. While each in its own way has been suggestive, each also (including one by one of the current authors) has its own set of problems. Section 3 details the analytical framework of the present study. We propose several types of data from which one could obtain complementary information on the labor supply behavior of the elderly, and three approaches to analyzing a given body of data. We then propose a new way of estimating retirement behavior. Section 4 discusses the data used in this study: the Social Security Administration's Retirement History Survey. Section 5 reports our empirical results, estimates of probability of early retirement and early semiretirement equations. Section 6 concludes with a brief discussion of some of the implications of the study and suggestions for future research.

This paper summarizes some recent work in which we have modeled long-term interest rate determination in an explicit demand-supply context, using multi-equation structural models and directly contrasts such models with unrestricted reduced-form models. Wholly apart from questions of disaggregation and institutional detail, the explicitly structural nature of demand-supply models necessitates additional theoretical constructs beyond those required by unrestricted reduced-form models. Some of these conceptual inputs are already available from established portfolio theory, and others represent objects of current or prospective research. Experience to date with structural models of long-term interest rate determination suggests, however, that the exploitation of the richer theoretical framework yields not only insights about portfolio behavior but, very likely, improved interest rate models as well.

The social security program will pay benefits of more than $100 billion in 1978. Public transfers on this scale are large enough to have profound effects on the behavior of the U.S. economy. The most important effect, although not the only one, is likely to be the impact of social security on private saving and aggregate capital accumulation. The present paper contributes to the analysis of this issue by providing new evidence on the extent to which the accumulation of wealth by individual households responds to differences in social security benefits.

The current paper presents a method of deciding the question of whether any given stage in the budget process is an example of the "political" or the "bureaucratic" model. We then use it to study local government spending on education. The basis for our method is the important difference between the effect of intergovernmental aid that is implied by the political budget model and by the bureaucratic budget model. According to the bureaucratic model, the effect of inter-governmental aid on each category of educational input (e.g., teachers' salaries, books, etc.) depends only on the change in total educational spending induced by the aid and not on the type of aid that causes the change in spending. In contrast, the political budget model implies that the overall expenditure increase is the result of separate decisions on each of the expenditure categories and that the changes in these expenditure categories will depend on the form of the intergovernmental aid. Our method of exploiting this difference is presented in detail below.

Although many economists, most notably Strotz, have discussed dynamic inconsistency and precommitment, none have dealt directly with the essence of the problem: self-control. This paper attempts to fill that gap by modeling man as an organization. The Strotz model is recast to include the control features missing in his formulation. The organizational analogy permits us to draw on the theory of agency. We thus relate the individual's control problems with those that exist in agency relationships.

This paper provides a formal setting for the analysis of the capital adequacy of an institution with deposits insured by a third party. An insured depositor has a claim against the institution and a contingent claim against the insurer. This paper analyzes the effect of the riskiness of the asset mix and the relative amount of deposits and capital on the potential liability of the insurer. It shows that an increase in asset risk, holding value constant, increases the value of equity and raises the potential liability of the insurer.

This study attempts to explain the general pattern of aircraft hijacking in the U.S. between 1361 and 1976, the reasons for the dramatic reduction in hijackings after 1972, and the costs and benefits of regulation instituted in 1973 that required mandatory preboarding searches of all passengers and carry-on luggage. The main findings of the paper can be summarized as follows: (1) Increases in the probability of apprehension, the conditional probability of incarceration and the sentence are associated with significant reductions in aircraft hijackings in the 1961 to 1976 time period. These findings are based on two methods of estimating the rate of hijackings , a quarterly time series and the time or flight intervals between successive hijackings, and alternative estimates of the deterrence variables. (2) Regression estimates from the sample period ending in 1972 were used to forecast the number of additional hijackings that would have taken place between 1973 and 1976 if (a) mandatory screening had not been instituted and (b) the probability of apprehension (once the hijacking is attempted) had remained constant and equal to its 1972 value. Under these assumptions, there would have been between 41 and 67 additional hijackings compared to the 11 that actually occurred in the 1973 to 1976 period. (3) Although the mandatory screening program is highly effective in terms of the number of hijackings prevented, its costs appear enormous. The estimated net increase in security costs due to the screening program (which does not include the time and inconvenience costs to persons searched) is $194.24 million over the 1973 to 1976 period. This, in turn, translates into a $3.24 to $9.25 million expenditure to deter a single hijacking. Put differently, if the dollar equivalent of the loss to an individual hijacked passenger were in the range of $76,718 to $219,221, then the costs of screening would just offset the expected hijacking losses.

During the past 15 years employment and current dollar gross product continued to shift to the Service sector at about the same rate as in the early post-World War II period, while the Service sector's share of gross product in constant dollars remained relatively constant. Productivity (as measured in the National Income Accounts) continued to grow less rapidly than in Industry or Agriculture. The rate of growth of output per worker for the total economy was almost one percent per annum less than in 1948-65, but the shift to the Service sector contributed less than .1 percent per annum to the decrease in productivity growth. Real CDP grew almost as rapidly as in 1948-65, while employment growth accelerated due to a sharp increase in the population of working age. The expansion of service employment contributed substantially to the growth of female employment throughout the post-World War II period, but the increase in female labor force participation was not a significant factor in either the acceleration of employment or the slowdown of productivity growth in 1961-76. The growth of the Service sector also contributed to the growth of government employment. Apart from changes in industry mix, the expansion of government employment has been quite modest. Population projections to the end of this century indicate the likelihood of a marked decrease in the rate of growth of employment (and output per capita) 1990-2000 because of slow growth of working age population and the end of the transition to high female labor force participation.

The distribution of wealth is one of the most important and least studied features of our economic life. A lack of good data on household wealth is the primary reason for the inadequate attention to this subject. Moreover, the evidence that is available from household surveys and estate records excludes the most important asset of the vast majority of households: the value of future social security benefits. The purpose of the current paper is to present evidence on the distribution of social security wealth and to use these estimates to analyze the impact of alternative methods of adjusting future benefits for changes in the price level.

The focus of this paper is on functional health status of children in the population. More specifically, we examine a single aspect of functional health status -- intellectual development of children. In a multivariate context, we examine the relationships between the health indexes and cognitive development of children from six to 11 years of age in Cycle II of the U.S. Health Examination Survey (HES). We present the first set of such estimates for a representative sample of non-institutionalized white children in the United States. We compare them with existing findings for underdeveloped countries, Great Britain, and low income families in the United States.

The object of this paper is to examine the importance of capital market assumptions. A special continuous-time model is developed in sections II-IV which is applicable to the perfect capital market case. It can also be used when there is no capital market at all (section IV). For 'reasonable' parameter values the optimal replacement rate (ratio of benefits to gross wage) appears to be less than 20% when capital markets are perfect but over 70% when they are non existent (i.e. no saving or dis-saving).

A two-period lifetime overlapping generations growth model is used to evaluate the possibility that social insurance can effectively offset economic risks associated with uncertainty about the rate of population growth. Crude measures of the seriousness of this type of risk in the current United States situation are presented. Sufficient conditions on the structure of the economy for such intergenerational risk pooling to be mutually beneficial to all members of society are derived. Although it is logically possible to satisfy them1 we argue that they are unlikely to be realized empirically in an economy similar to that of the United States. Because of this failure, some more complex types of policy options are also discussed.

This paper begins to evaluate some of the complicated set of economic adjustments which are going to occur as the uneven population age structure of the U.S. matures. It argues that in the 2012-2035 "crunch" years for the social security system not only will workers be scarce relative to retirees, but they will also be scarce relative to capital. This fact will tend to raise the wage-rentals ratio and partially alleviate the problems of a retirement plan supported by taxes on labor income. On the other hand, during this period the large number of elderly persons will be attempting to dis-save by selling their assets to the relatively few younger, accumulating families. Such an imbalance will be equilibrated only by depressed asset prices. The conclusion, thus, is that the problems of the social security system may be partially alleviated by factor price adjustments, while private funded pension plans will have a problem of their own, namely lower than anticipated liquidation values.

A classic example of external benefits is the rescue of the person or property of strangers in high transaction cost settings. To illustrate, A sees a flowerpot about to fall on B's (a stranger's) head; if he shouts, B will be saved. A thus has in his power to confer a considerable benefit on B. The standard economic reaction to a situation in which there are substantial potential external benefits and high transaction costs is to propose legal intervention. In the example given, this would mean either giving A a right to a reward or punishing A if he fails to save B. Either method, we show, is costly and may result in misallocative effects. These objections to using the law to internalize the external benefits of rescue would be much less imposing were it not for altruism, a factor ignored in most discussion of externalities. Altruism may be an inexpensive substitute for costly legal methods of internalizing external benefits, though this depends on the degree of altruism, the costs of rescue, and the benefits to the rescuee. Although the general legal rule is not to reward the rescuer (nor to impose liability), the law recognizes the fragility of altruism and entitles the rescuer to a reward in certain instances. These include rewards to professional rescuers on land (normally a physician) and to rescuers at sea. In both instances the costs of rescue are likely to be sufficiently high to discourage rescue unless the rescuer anticipates compensation.

This paper develops a dynamic programming model of the optimal refunding strategy and the corresponding value of a callable bond. The model differs from previous work on this subject primarily in that it explicitly admits the possibility of differences between the issuer's expectations of future interest rates and an investor's corresponding expectations. This generalization facilitates the application of the model to determine what a specific bond (issued, for example, by a particular corporation) is worth to any given investor. Additional analytical features of the model, which differ from corresponding aspects of some previous models, include the use of a stochastic discounting rate and the use of continuous distributions to characterize the relevant interest rate expectations. For the bond issuer, his own expectations (together with the bond's coupon and call features) suffice to indicate the critical refunding yield as well as the expected value of the bond in each time period until the bond matures. For an investor, however, the analytical solution of the model and the illustrative numerical examples presented in the paper show that the issuer's expectations and the investor's own both matter if the two differ.

In this paper we analyze the choice of diet for young children in low income families in the United States and its relation to the children's growth. Our most important finding is that the education and income levels in low income households are generally sufficient for the provision of adequate diets for children in the household. This conclusion is based on empirical results which show that low income parents have pushed the growth of their children through choice of diet nearly as much as possible, and which also show that mother's education and family income are insignificant determinants of the nutrient intakes of children in low income households.

This paper attempts to measure the effect of occupational licensing, restrictions on reciprocity, location specific investment in reputation and earnings on the interstate mobility of professionals. While 34 professional occupations are analyzed, special attention is focused on the legal profession. The comparatively low interstate mobility rate of lawyers may be due to state licensing and restrictions on reciprocity or to the investments made by lawyers to develop local reputations or to the investments made by lawyers in state specific law. Tests are conducted to distinguish among these three hypotheses.

This paper extends the analysis of aggregate factor supply to a model which accounts simultaneously for the consumption/saving and labor/leisure choices. A translog utility maximization model is used to derive the set of consumption and leisure demand equations; these in turn are estimated on U.S. aggregate time series data. The empirical results are striking: we estimate (quite precisely) substantial own and cross price elasticities for current and future consumption and labor supply. The implied interest elasticity of saving is approximately 0.4.The results suggest that previous studies of labor supply and/or consumption which have ignored cross-price effects are mis-specified. We also strongly reject the hypothesis that implicit social security had no effect on factor supply.

The term structure of interest rates is carefully analyzed over the period 1947-77 in order to construct a monthly series on cumulative unanticipated changes in long-term interest rates. This series is a sort of synthetic interest rate, changes in which over several months or years represent entirely unanticipated changes in interest rates. The behavior of this series is examined over recognized business fluctuations, and it is found to be actually more reliably pro-cyclic than the raw long-term interest rate, in spite of Kessel's finding that the market tends to correctly predict the direction of change of interest rates over phases. That the series is pro-cyclic supports the hypothesis we have put forward in another paper, that business fluctuations may be caused by "misintermediation", by which we mean the traditional mis-matching of asset and liability maturities on the part of financial intermediaries.

This short note emphasizes and illustrates two basic points: (1) The private costs of unemployment, i.e., the costs borne by the unemployed themselves, vary substantially and are often extremely low. This low private cost is an important cause of the permanently high unemployment rate in the United States. (2) The social costs of unemployment, i.e., the costs of unemployment to the nation as a whole regardless of how they are distributed, must be judged by considering the specific policy by which a worker would be reemployed. It is wrong to regard unemployment as either without cost (because the unemployed enjoy the opportunity for job search and leisure) or as having a cost equal to lost output. Examples are given to show that output may overstate or understate true social cost, depending on the options available for reemployment.

This paper studies the wage determination process for a group of managerial employees in a major U.S. airline. As would be expected, those with greater-than-average schooling, pre-company labor market experience, and company service receive greater-than-average earnings. The analysis also addresses the question of whether or not the managers within a grade level who are paid more receive higher performance ratings by their supervisors. The answer is "no" in the case of those with more pre-company labor market experience (i.e., those who are older) and with more company service. This suggests that the salaries received by managers within a grade reflect their age and tenure with the company more than their present performance.

The purpose of this paper is to examine these concerns and evaluate the use of job satisfaction (and other subjective variables) in labor market analysis. The main theme is that, while there are good reasons to treat subjective variables gingerly, the answers to questions about how people feel toward their job are not meaningless but rather convey useful information about economic life that should not be ignored. The paper begins with a brief description of the satisfaction questions on major worker surveys, and then considers the use of satisfaction as an independent and as a dependent variable. Satisfaction is shown to be a major determinant of labor market mobility, in part it is argued because it reflects aspects of the work place not captured by standard objective variable8. Satisfaction is also found to depend anomolously on some economic variables (such as unionism) in ways that provide insight into how those factors affect people.

Fluctuations in the equilibrium rate of unemployment can only be understood within a theory of the natural or equilibrium rate. It is not enough to say that unemployment is the difference between supply and demand in the labor market, though of course it always will be. In equilibrium, no participants in the market can have an unexploited opportunity to make themselves better off. At the equilibrium unemployment rate, employers cannot obtain labor at lower cost by offering work at below the market wage to the unemployed. Unemployed workers cannot raise their effective real incomes by taking lower wages in exchange for immediate employment. The task of the theory is to explain why any unemployment remains at all when these conditions are satisfied. Part of this problem has been studied in detail in the "search theory" of unemployment -- once a worker becomes unemployed, it is reasonably well understood why the worker does not become employed again immediately. The theory of why people become unemployed in the first place is less well developed and is the main concern of this paper. Most of the unemployed are looking for new work because their previous jobs ran out. Consequently, the main ingredient of a theory of the flow of workers into unemployment is a theory of the duration of employment. Such a theory is developed here, along reasonably standard lines.

This paper uses economic analysis to illuminate a variety of legal rules relating to rescue, a term we use broadly to describe any attempt to save a person or property from some peril. We first develop a model of a competitive market in rescues, as a benchmark for judging whether the legal rules of rescue can be viewed as attempts to simulate the operation of a competitive market in rescues. The model explicitly incorporates the possibility of rescues motivated by altruism. We then apply the model to a variety of legal settings in which rescue questions arise. We show that the well-developed body of rules governing rescue at sea (including the principles governing salvage awards and the rule of general average) are consistent with the economic model of professional (nonaltruistic) rescue and appropriate in the maritime setting. The rules of the common law governing rescues on land the physician who treats a passerby in distress) are also examined, and found to be in the main consistent with our economic model when altruism is taken into account, as are the differences between the maritime and common law rules. We then examine the choice between compensation and liability as methods of inducing rescue, and show that the common law's decision not to impose liability for failure to rescue (the "Good Samaritan" rule) may be consistent with efficiency because of the "tax" effects of such liability. We concluded that the array of legal rules and doctrines examined provide support for the hypothesis that the common law (including traditional maritime law) has been heavily influenced by a concern with achieving efficient allocation of resources.

The Stone-Geary utility function defined over an index of goods, the leisure of the husband, and the leisure of the wife is used to derive the earnings functions of the husband and the wife. The parameters of the utility function are estimated from the parameters of the earnings functions in a way that accounts for a number of theoretical and statistical problems. The effect of family composition on utility is estimated by specifying and estimating adult equivalents in consumption and leisure of various categories of children. On the statistical side the following difficulties are all considered: nonlinear constraints across equations, endogenous marginal income tax rates, variations in tastes in the population, heteroscedasticity, and truncation of the left-hand variable. The data come from the 1967 Survey of Economic Opportunity. The results are generally good and support the view that the effects of family composition on utility can be estimated from behavioral relationships. Alternative results that ignore the complicated statistical problems are presented; they imply that the statistical problems are empirically important and should not be ignored.

The aim of this study is to contribute to the measurement and analysis of errors in economists' predictions of changes in aggregate income, output, and the price level. Small sample studies of forecasts can be instructive, but their limitations must be recognized. Compilation of consistent forecast records extending over longer periods of tine is necessary to establish a reasonably reliable base for assessments of forecasting behavior and. performance. Thus the historical record of post-World War II forecasts assembled in the 1960's by the NBER is here extended and updated.

This paper is another contribution to the vast literature which addresses this issue: comparison of household income per capita among households of different structures requires judgment about the relationship between real income and family size. Our work uses a revealed preference approach in which household size/structure variables are included in empirical demand studies and the estimated coefficients on these variables are used to infer equivalence; it differs from many of the other studies not in basic concept but in its empirical strategy. While most studies build family composition effects into a relatively formal structural model of demand and impose considerable restriction in order to obtain an estimable system, we use a reduced-form approach which requires much less of the data.

For expectations of price inflation to affect interest rates, they must affect the behavior of borrowers and lenders or both. This paper analyzes the emergence of the inflation premium in long-term interest rates as the explicit result of borrowers' and lenders' behavior in the bond market in response to price expectations. The object of this analysis is not only to estimate the magnitude of the inflation premium due to this portfolio behavior but also to evaluate the respective contributions to it of borrowers' and lenders' responses. The empirical results presented in this paper indicate that both borrowers' and lenders' portfolio behavior play an important role in the relationship between interest rates and inflation expectations. Estimation results for U.S. data provide evidence that, all other things equal, nonfinancial business corporations increase their supply (net issuance)of bonds in response to an increase in expected inflation; these results mirror the bond investors' responses found by the author in a previous paper. Partial equilibrium experiments based on the combined model of bond supply and bond demand indicate that, all other things equal, the port-folio responses to expected price inflation by borrowers and lenders together increase the bond yield by 2/3%, and modestly decrease the net quantity of bonds issued and purchased, in response to a 1% increase in expected inflation. This result follows as the consequence of a slightly greater response by lenders than by borrowers.

Although the return to capital is a focus of research in both macroeconomics and public finance, each specialty has approached this subject with an almost total disregard for the other's contribution. Macroeconomic studies of the effect of inflation on the rate of interest have implicitly ignored the existence of taxes and the problems of tax depreciation. Similarly, empirical studies of the incidence of corporate tax changes have not recognized that the effect of the tax depends on the rate of inflation and have ignored the information on the rate of return that investors receive in financial markets. Our primary purpose in this paper is to begin to build a bridge between these two approaches to a common empirical problem.

The paper analyzes the effects of job mobility on earnings both at young and at older ages. The model takes into account the discontinuity of earnings across jobs, the decline of human capital investment within the job and over the life cycle, and the effects of mobility on the slope of the earnings profile. Careful attention to the functional form of the earnings equation indicates why the coefficient of the current segment is usually larger than the coefficient of the previous segments. Findings from the NLS data include: (1.) Mobile individuals at all ages invest significantly less in on-the-job training. (2.) Although job mobility is associated with significant wage gains (across jobs), there is a substantial wage differential between the mobile and the non-mobile at older ages. (3.) The explanatory power of the earnings equation is significantly increased by accounting for the effects of job mobility; job mobility is an important determinant of the wage structure.

The present study shows that in 1973 individuals paid nearly $500 million of extra tax on corporate stock capital gains because of the distorting effect of inflation. A detailed analysis shows that the distortion was greatest for middle income sellers of corporate stock. In 1973, individuals paid capital gains tax on more than $4.5 billion of nominal capital gains on corporate stock. If the costs of these shares are adjusted for the increases in the consumer price level since they were purchased, the $4.5 billion nominal gain becomes a real capital loss of nearly $1 billion. As a result of this incorrect measurement of capital gains, individuals with similar real capital gains were subject to very different total tax liabilities. These findings are based on a new body of official tax return data on individual sales of corporate stock.

Among the different kinds of economic behavior which may account for the familiar Fisherian relationship between nominal interest rates and expected price inflation, portfolio behavior is the most plausibly flexible in the short run. Since substitution into real assets is not a practical portfolio alternative for many investors, however, it is not obvious a priori how important lenders' portfolio behavior can be in bringing about the adjustment of interest rates which Fisher's theory associates with expected inflation. Given the importance of this adjustment for questions of both monetary theory and monetary policy, the underlying economic behavior merits explicit investigation. The empirical results presented in this paper provide evidence that lenders' portfolio behavior does play an important role in the expected-price-inflation/nominal-interest rate relationship. First, results indicate that five of the six major categories of investors in the U.S. long-term bond market reduce their demands for bonds in response to an increase in expected inflation. Secondly, the results of multi-equation partial-equilibrium experiments indicate that ,with all other things unchanged, this response by investors will raise the equilibrium nominal bond yield by about 2/3% in response to a 1% increase in expected inflation.

This paper presents a multi-equation multivariate analysis of differences in the supply of surgeons and the demand for operations across geographical areas of the United States in 1963 and 1970. The results provide considerable support for the hypothesis that surgeons shift the demand for operations. Other things equal, a 10 percent increase in the surgeon/population ratio results in about a 3 percent increase in per capita utilization. Moreover, differences in supply seem to have a perverse effect on fees, raising them when the surgeon/population ratio increases. Surgeon supply is in part determined by factors unrelated to demand, especially by the attractiveness of the area as a place to live.

Traditionally, banks and financial intermediaries borrow short and lend long. This causes a risk of negative net worth (and failure, under simplifying assumptions), because the present discounted value of the assets is more volatile than that of the liabilities. This paper utilizes a new option pricing model for speculative assets whose log price relative is a symmetric stable Paretian random variable. This model is used to empirically evaluate the probability of failure and fair value of deposit insurance as a function of capital-asset ratio for a bank with demand liabilities and longer term, default-risk-free, perfectly marketable assets. The maturities used for the assets range from three months to 30 years (in order to incorporate thrift institutions). Implications for reserve requirement policy and for liability management are discussed.

One major finding of this paper is that prices in most basic materials producing industries are responsive to demand while prices in most finished goods producing industries are not. If the reverse were true, stabilization policies would. have more effect in the short run on prices and less effect on output than is currently the case. A second finding relates to the 1971-4 period of wage and price controls and the period immediately following their termination. During controls, prices in most manufacturing sectors did rise somewhat slower than their historical relationship to costs would suggest. But after controls ended prices rose relative to costs by considerably more than the amount of their shortfall during controls. This suggests that some fundamental change in price-cost relationships may have taken place in 1974.

Substantial shifts in wealth ownership from individuals to pension funds are currently taking place in the United States and also are in prospect for the foreseeable future. Moreover, pension funds typically exhibit portfolio preferences that are markedly different from those of individuals. In a world of heterogeneous investors, redistributions among wealth holders with different portfolio preferences will in general alter the structure of asset yields. Partial-equilibrium simulation experiments based on a model of the U. S. long-term bond market indicate that redistributions of saving flows from individuals to pension funds, in plausible magnitudes, can have major effects on the term structure of interest rates.

The purpose of this paper is to understand the determinants of utilization of pediatric care -- care rendered to children by all physicians. Multivariate techniques are employed to examine four measures of pediatric care utilization in a national sample of children between the ages of 1 and 5. These measures are the probability of contacting a physician within the past year, the probability of obtaining a preventive physical examination within the past year, the number of office visits to physicians in private practice by children with positive visits, and the average quality of these visits.

Extending the traditional treatment of the corporate tax to an economy with a progressive personal tax fundamentally changes the analysis. While the corporate tax system (CTS) does increase the total tax rate on corporate source income for some investors, the exclusion of retained earnings implies that the CTS lowers the tax rate for high-income investors. Analyzing such an economy requires replacing the traditional "equal-yield" equilibrium condition with a more general portfolio balance model. In this model, introducing a CTS can actually increase the corporate share of the capital stock even though the relative tax rate on corporate income rises.

This paper examines the effect of trade unionism on the exit behavior of workers in the context of Hirschman's exit-voice dichotomy. Unionism is expected to reduce quits and permanent separations and raise job tenure by providing a "voice" alternative to exit when workers are dissatisfied with conditions. Empirical evidence supports this contention, showing significantly lower exit for unionists in several large data tapes. It is argued that the grievance system plays a major role in the reduction in exit and that the reduction lowers cost and raises productivity.

A model of corporate financial policy (debt-equity ratios and dividend payout rates) is included in the Harberger general equilibrium model of incidence of the corporate income tax. Illustrative calculations of the distortions of financial policy and increases in risk premiums induced by the corporate tax are provided. Because risk premiums on corporate securities would be reduced, eliminating the corporate tax or integrating it into the personal tax would increase the income of non-corporate investors relatively more than that of investors in corporate securities, and is therefore less regressive than is commonly thought.

The composite index of leading indicators is found to be a valuable tool for predicting not only the direction but also the size of near- term changes in aggregate economic activity. This conclusion is based on assessments of the leading index as a predictor of (1) business cycle turning points as dated by the National Bureau of Economic Research and (2) quantitative changes in real GNP and the composite index of coincident indicators. Specific smoothing rules are identified which reduce the frequency of false signals but still provide adequate early warning of cyclical turning points. Simple regression models based on first differences in the logarithms produce a comparatively good record of forecasts one and two quarters ahead. The best results are obtained by using predictive chains whereby, e.g., quarterly changes in the lagging index (inverted) for Q[sub t] are used to forecast changes in the leading index in quarter Q which in turn are used to forecast changes in real GNP (or the coincident index) in Q[sub t+2].

The main thrust of this report is the development of a price record that would provide a basis for the identification of the areas of activity in the oil industry in which significant price changes have occurred, with expectation that this type of information could serve as a useful ingredient in the policy-making process. The study presents estimates of the selling price of a barrel of oil at three stages of operations of the industry -- the wellhead, the refinery and the end-use levels. Prices of individual classes of petroleum products at refineries and at the end-use level were also estimated. The price data are provided for benchmark years 1958, 1963,1967 and 1972, as well as for 1973, 1974, 1975 and 1976 when crude oil prices rose considerably. The estimating procedure is briefly described in the study. The examination of the transmission of prices from market to market within the oil industry shows that the steep rise in 1973-74 prices paid by end-users of petroleum products was due not only to the large increases in crude oil prices but also to the sizable in-creases in gross operating margins-labor costs, transportation, profits, etc. -- at the refinery and distribution levels. In the post-embargo years of 1975 and 1976, prices continued to advance but at a slower pace. The refiners' gross margins in 1975, however, declined somewhat; they rose significantly above the 1974 level in1976. The marketers' margins made further gains in 1975, but exhibited a decrease in 1976. Another finding is that during 1973-74 there was a considerable narrowing in the price differentials among the various re-fined products; in particular the price of residual fuel oil, which averaged 20 percent of the price of gasoline in the decade of the 1960's,rose to 52 percent of the price of gasoline by 1974. The narrowing process continued in 1975-1976.The study includes a short discussion of the effects of rising oil prices in 1973-1976 on the profitability of the petroleum industry and the general price level.

Using annual U. S. time series data from 1950-1974, formal tests of causation are performed among three socioeconomic phenomena: women's labor force participation rates, fertility rates, and divorce rates. Box-Jenkins and other techniques are employed with Granger-Sims type definition of causation based on leads and lags. Women's labor force participation appears to be causally prior to both fertility and divorce; the direction of effect on fertility is negative and on divorce, positive. Additional tests with alternative definitions of variables and a longer (1924-1974) time span also exhibit causal influence from fertility to divorce (with no feedback). When per capita income is also tested for causal influence, it, too, appears causally prior to fertility and divorce.

The first part of this paper provides a historical perspective on bank risks. Five-year moving average measures of total risk, market risk, and nonmarket risk are computed for an index of New York banks from 1929-1975 and for an index of outside New York banks from 1950-1976.We use a carefully constructed series of bank balance sheet data to compute correlations among various components of New York banks' port-folios and observe trends over time. The time series relationship between book values and market values is investigated, and classical measures of capital adequacy are calculated using surrogates for market values rather than book values. Finally, data are presented on the movement of interest rates and the term structure over time. Serial correlations and cross-correlations are computed. The second part of the paper uses the technique proposed in Sharpe ("Bank Capital Adequacy, Deposit Insurance and Security Values," June 1978) to gain information about capital adequacy. He has shown that for a bank with deposit liabilities that do not extend beyond the review period a "value preserving spread" in asset risk is likely to increase the value of capital. Moreover, the less adequate the capital, the larger this effect should be. We outline the method used to develop an econometric model to test for this effect. The model is then applied to time series data from 1938 to 1975.

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.

A structural model of the demand for college attendance is derived from the theory of comparative advantage and recent statistical models of self-selection and unobserved components. Estimates from NBER-Thorndike data strongly support the theory. First, expected lifetime earnings gains influence the decision to attend college. Second, those who did not attend college would have earned less than measurably similar people who did attend, while those who attended college would have earned less as high school graduates than measurably similar people who stopped after high school. Positive selection in both groups implies no "ability bias in these data.

This study provides the first econometric analysis of the effect of taxation on the realization of capital gains. The analysis thus extends and complements the earlier study by Feldstein and Yitzhaki [1978] of the effect of taxation on the selling of corporate stock. The present analysis, using a large, new body of data obtained from individual tax returns, supports the earlier finding that corporate stock sales are quite sensitive to tax rates and then shows that the effect on the realization of capital gains is even stronger.

In this paper, a theory of the natural or equilibrium rate of unemployment is built around a theory of the duration of employment. Evidence is presented that most unemployed workers became unemployed because their previous jobs came to an end; only a minority are on temporary layoff or have just entered the labor force. Thus, high-unemployment labor markets are generally ones where jobs are brief and there is a large flow of newly jobless workers. The model of the duration of employment posits that employment arrangements are the efficient outcome of the balancing of workers' and employers' interests about the length of jobs. Full equilibrium in the labor market also requires that the rate at which unemployed workers find new jobs be efficient. The factors influencing the resulting natural unemployment rate are discussed. Under plausible assumptions, the natural rate is independent of the supply or demand for labor. Only the costs of recruiting, the costs of turnover to employers, the efficiency of matching jobs and workers, and the cost of unemployment to workers are likely to influence the natural rate of unemployment strongly. Since these are probably stable over time, the paper concludes that fluctuations in the natural unemployment rate are unlikely to contribute much to fluctuations in the observed unemployment rate.

Problems of defining and measuring unemployemnt in the contemporary American economy are examined here using data from the official employment survey. The paper finds that only a minority of the unemployed conform to the conventional picture of a worker who has lost one job and is looking f or another job. Other important categories are those who have jobs but are not at work because the jobs have not yet started or because of layoff, workers who are in normal spells between temporary jobs, people who are looking into the possibility of work as an alternative to household duties, school, or retirement, and people who have come back into the labor force. None of these categories is dominant. One of the most significant findings is the large number of the unemployed (close to a million in 1977) who are looking for temporary work. Another important finding is that only a minority of the unemployed are looking for work as their major activity during the week of the survey. The majority of those classified officially as unemployed are identified by the household as keeping house, going to school, or retired.

Given the current corporate tax structure in the U.S., inflation may have an important impact on the production decisions of firms, notably the choice of capital durability. This paper presents a model of competitive behavior in which firms may choose the durability of their capital goods. We find that in the presence of inflation, the taxation of corporate profits may influence both the choice of asset life and the market value of equity. In particular, the failure to index depreciation allowances depresses share values and biases the choice of asset life toward greater durability. Integrating this analysis with the traditional one-sector monetary growth model, we study the general equilibrium impact of inflation on such long run characteristics of the economy as output per capita and the real rate of return received by investors.

In this paper we explore the issue of wealth maximization and the implied behavior of the firm, paying particular attention to the results discussed above and how they are affected by the existence of capital income taxes. Our results indicate that a tax structure similar to that in existence in the United States influences the cost of capital in a very different way than has been assumed previously and that the relative advantages of debt over equity as a method of finance, and capital gains over dividends as a vehicle for personal realization of corporate profits, may have been greatly overstated. These findings may help to explain certain aspects of corporate financial behavior that have seemed puzzling.

In recent years many contributions have appeared which examine the effects of corporate and personal taxation on firm financial policy. However, there has yet to appear an adequate explanation of why corporations continue to distribute dividends despite their disadvantageous tax treatment. We study this problem anew, in the context of an overlapping generations growth model with corporations financed by equity. Among our findings are: (1) capital owned by corporations may well be undervalued, even in the long run; (2) as a result of such undervaluation, firms may find it in the best interest of their stockholders to distribute dividends; and (3) an increase in the tax on distributions, while depressing the return to personal saving, may lead to an increase in the capital intensity of the economy. We also consider the criterion firms will use in evaluating new investment projects.

The objective of this paper is to define the relationship between a number of family characteristics and the health of white children aged 6 to 11 years residing in those families. The partial effects of family income on health are1l and seldom statistically significant. Indeed, some health problems -- high blood pressure, allergies, and tension -- are more likely to occur among children from high income families. The general finding of small partial income effects is supported by analysis of gross health differences between children from lower and higher income families. In those cases where significant gross health difference. do exist between children from these two income classes, decomposition of these gross differences shows them to be attributable in large part to factors other than income itself. The finding that differences in health related solely to income are smaller than commonly believed implies that policies to improve the well-being of children via income transfers, such as those advocated by the recent Carnegie Council on Children, would have, at best, very small effects on health. Indeed, the most important conclusion of our study is that the present tendency to base government child health programs on simplistic notions that income is the primary source of differences in children's health will not lead towards fruitful or successful public policy regarding children's health.

This study presents time-series evidence indicating that capital gains taxation reduces the realization of capital gains. The "lock-in" effect is detectable once we divide individuals into categories on the basis of how much recent capital gains tax in- creases have affected them. Since the tax law changes, those individeals who are affected have realized significantly ldss capital gains relative to those not affected. This analysis, in `ddition to evidence fpom cross-sectional research reported in Feldstein and Yitzhaki (1978) and Feldstein, Slemrod and Qitzhaki (1978),indicates that estimates of the tax revenue change resulting from a reduction in capital gains taxation based on the assumption of unchanged realized gains may be misleading.

The purpose of the present study is to measure the amount of price increase that the proposals for accommodation required in 1973—74. Presumably such an estimate of the amount could be made in time to act on it. Whether accommodation is a desirable policy is not addressed here. Consistently followed, it would result in a higher long-run rate of inflation, because there are not likely to be nearly enough episodes of deflationary accommodation to offset the inflationary ones. Notwithstanding the appeal in the short run to accept inflationary fait accompli in order to avoid prolonged economic slack, one may have strong reservations about the long-run consequences on expectations of following such a policy.

Firms respond to fluctuations in demand by changing their inventories and their levels of production. The relative magnitudes of the inventory and production responses have important implications for the overall cyclical behavior of the economy. Government policies that affect the costs of holding inventories and the costs of the temporary layoffs that accompany reductions in the level of output can therefore have significant effects on the magnitude of aggregate fluctuations. The current paper presents new econometric evidence on the nature of inventory adjustments and then examines how changes in inventory behavior affect the overall business cycle. The analysis in this paper was motivated by our discovery that the parameter estimates of the traditional productional adjustment model are not consistent with the observed magnitudes of inventory change and the production. We have shown here that this production adjustment model is a special case of a more general two-speed adjustment process in which both production and inventory targets adjust slowly. Our estimates of the two-speed model clearly reject the production adjustment model in favor of the target adjustment model in which the inventory target adjusts slowly to changes in sales but production adjusts rapidly to changes in the desired inventory. Our analysis of the spectral properties of a simple macroeconomic model show that the production adjustment model and the target adjustment model can imply quite different cyclical behavior of the economy as a whole. Depending on the autocorrelation of the disturbance, government policies that reduce the speed with which production responds to changes in desired inventories and that place greater reliance on inventory adjustment may stabilize national income. Further analysis of these questions with more realistic models would clearly be desirable.

This study examines the impact of social security on the retirement of married men aged 60-70 years. The empirical results are based on a rich file of data from the Social Security Administration (1973 CPS-IRS-SSA Exact Match File). The data permit precise calculation of social security wealth (the actuarial present value of benefits that a person would receive by retiring) denoted SSW. This variable measures social security's effect on retirement. The estimated effects are significant and considerable. When SSW in-creases from $35,000 to $55,000 the probability of retirement rises by .15 for 62-64 year olds relative to a .41 retirement rate. For 65-70 year olds this increase is .22 relative to .78. For 60-61 year olds who are entitled to SSW but not old enough to receive benefits the estimated effect was small and insignificant. This supports the conclusion that the observed effect on men eligible for benefits is a causal relationship. The traditional method of comparing market and reservation wages for analyzing the decision to work provides the basic econometric model. SSW is added to construct a retirement model. A two-step probit analysis is developed to identify structural parameters in the retirement model.

An analysis of predictions of six interest rates over 3-months-ahead and 6-months-aheadhorizons, surveyed regularly over eight years, casts doubt on the hypothesis that market participants' expectations are 'rational' in Muth's sense. Tests show that the survey respondents did not make unbiased predictions, that (especially for the 6-months-ahead predictions) they did not efficiently exploit the information contained in past interest rate movements, that their respective 3-months-ahead and 6-months-ahead predictions failed to be consistent in the sense required for 'rationality', and that (for long-term but not short-term interest rates) their predictions failed to exploit efficiently the information contained in common macroeconomic and macro-policy variables other than the money stock.

The growth in single-person households is a pervasive behavioral phenomenon in the United States in the post-war period. In this paper we investigate determinants of the propensity to live alone, using 1970 data across states for single men and women ages 25 to 34 and for elderly widows. Income level appears to be a major determinant of the propensity to live alone. The estimated cross-state equations track about three-quarters of the increase in the propensity to live alone between 1950—1976 and suggest that income growth has been the principal identified influence. Other variables found to affect (positively) the propensity to live alone include mobility, schooling level, and for young people a measure of social climate; non-whites appear to have a somewhat lower propensity to live alone.

This paper examines the question whether adjudication can be viewed as a private good, i.e., one whose optimal level will be generated in a free market. Part I focuses on private courts, noting their limitations as institutions for dispute resolution and rule creation but also stressing the important role that the private court, in its various manifestations, has played both historically and today. Part II discusses a recent literature which has argued that the rules generated in the public court system, in areas of the law where the parties to litigation are private individuals or firms and the rules of law are judge-made, are the efficient products of purely private inputs. Our analysis suggests that this literature has overstated the tendency of a common law system to produce efficient rules, although areas can be identified where such a tendency can indeed be predicted on economic grounds. Viewed as a contribution to the emergent literature on the positive economic theory of law, our finding that the public courts do not automatically generate efficient rules is disappointing, since it leaves unexplained the mechanisms by which such rules emerge as they seem to have done in a number of the areas of Anglo-American judge-made law. However, our other major finding, that the practices and law governing private adjudication appear to be strongly influenced by economic considerations and explicable in economic terms, is evidence that economic theory has a major role to play in explaining fundamental features of the legal system.

The well-known option pricing formula of Black and Scholes depends upon the assumption that price fluctuations are log-normal. However, this formula greatly underestimates the value of options with a low probability of being exercised if, as appears to be more nearly the case in most markets, price fluctuations are in fact symmetrics table or log-symmetric stable. This paper derives a general formula for the value of a put or call option in a general equilibrium, expected utility maximization context. This general formula is found to yield the Black-Scholes formula for a wide variety of underlying processes generating log-normal price uncertainty. It is then used to derive the value of a short-lived option for certain processes that generate log-symmetric stable price uncertainty. Our analysis is restricted to short-lived options for reasons of mathematical tractability. Nevertheless, the formula is useful for evaluating many types of risk.

This study is concerned with establishing the determinants of banks' exposure to risk and with predicting risk in banking. Using the COMPUSTAT data base, prediction rules have been developed for two aspects of risk: systematic risk (risk that is related to covariance with the market portfolio) and residual risk (the aggregate of specific

risk and extra-market covariance). For each type of risk, several models have bean estimated: one model employs only measures of the asset and liability characteristics of the bank; a second employs these characteristics and other data taken from annual reports; a third model adds the history of the behavior of the price at the bank's common stock. The central conclusion of the study is that systematic and residual risk in banks can be predicted from predetermined data. Prediction rules estimated in this way can serve a useful function in monitoring bank risk. Further, the predictive significance of each variable serves as a measure of the appropriateness of that variable as an indicator of risk, and hence as a target for regulation.

A bank or other financial institution is potentially subject to at least four types of risk: (1) Credit risk -- defaults or delays in repayments. (2) Fraud -- embezzlement or insider abuse. (3) Liquidity risk -- or high cost of obtaining needed cash. (4) Interest rate risk -- differential changes in the value of assets and liabilities as interest rates shift. This paper reports a study of the interest-rate elasticity of the net worth of a commercial bank. Most of the study is devoted to the development of the necessary methodology to measure the interest-rate elasticity (IRE) of a bank's asset/liability mix. The report is organized into four major sections. The first summarizes the history of interest-rate elasticity models and points out the problems in applying them to bank assets and liabilities. An analytical framework is then developed to calculate the IRE of a portfolio of assets and liabilities. The next three sections apply the framework to a simulated bank. For simplicity, the bank is assumed to have only two classes of assets (commercial loans and cash) and three classes of liabilities(demand deposits, large denomination CD's, and capital). The second section develops models of the cash flows associated with each of the assets and liabilities. The third section quantifies the parameters necessary to calculate the net worth and IRE measures, and the fourth section details the design of a simulation and some simulation results for the 1973-75 period. The report concludes with a discussion of the regulatory implications of the study.

This paper estimates statistical cost. and revenue curves for a cross-section of banks in the years 1962-75. The primary data cover reported accounting or book rates of return. Approximations are also made to estimate economic or total returns. These approximations take into account changes in capital values during the year as a result of movements in interest rates measured by market yields of government securities of the proper duration. Book rates of return and costs adjust towards each other so that marginal rates received or paid for different activities tend to equalize. On the other hand, the rates of adjustment are slow. While movements in the cost of demand and time deposits correlate well with changes in market rates, not all of the advantages of interest rate ceilings are given up to depositors. Movements in interest rates cause sharp fluctuations in total returns. These movements are sharp enough so that in several years economic losses occurred rather than reported book profits. Furthermore, over this period the net economic returns of classes of assets were poorly correlated with their risks (their variance of returns).

This paper describes both the theory and a computer program designed to calculate the present value of an asset's uncertain future cash flows. In this model expected flows may vary in each of "t" future periods. Flows are adjusted to a certainty equivalent by a correction factor derived from a covariance matrix of the flows and market returns. The flows are discounted by a full specification of the term structure of the risk-free interest rate. The specific model illustrated in the paper is that of expected cash flows from a mortgage portfolio. The computer program calculates the expected cash flow, the uncertainty correction, and the term structure of interest rates. Algorithms to solve for each of these factors are included. Alternatively, options are included to input the factors from exogenous forecasts or projections. In addition to calculating the present values under each specification for the factors, the program compares the present values derived from each particular specification.

This paper concerns the question of how the rules for calculating the investment tax credit and the associated rules for calculating depreciation allowances for tax purposes should be structured to assure the "appropriate" relationship between the subsidy granted to long-lived assets and that to short-lived assets. The increasing rate of tax subsidy under the investment credit favors long-lived assets by comparison with a flat-rate credit, while the neglect of the credit in calculating depreciation allowances favors short-lived assets (for which the depreciation allowance is a more important element in the cash flow). In reviewing the literature on this issue, Emil Sunley focused on the question of whether the investment credit should vary with the durability of the asset purchased. He concluded that neutrality requires a subsidy rate increasing with the useful life of the asset in a way qualitatively similar to that prescribed in present U.S. law. This paper develops Sunley's discussion through the use of simple formal models of the yield from investment.

A life cycle model of fertility based on the quantity-quality model of fertility successfully explains changes in completed fertility in a period in which completed fertility first fell and then rose. This model furthermore accurately predicts the timing and level of the subsequent peak in completed fertility. Regressions based on Easterlin's relative economic status theory of fertility are less successful in predicting fertility over a fifteen year period than regressions based on the quantity-quality model. Upon investigation, much of the increase in completed fertility associated with the baby boom appears to be primarily attributable to sporadic wage growth.

Numerous studies have found that married men earn consider-ably more than single men of the same education, experience, etc. There are several possible explanations of this phenomenon. Recent theoretical developments in the economics of marriage predict that males with higher wage rates have a greater gain from marriage and are therefore more likely to marry. Alternatively, one of the benefits of marriage is specialization in the labor force; married men spend more hours in the labor force than single males and thus have a greater incentive to invest in human capital. The empirical work in this paper suggests that a large fraction of the unexplained wage differential between married males and unmarried males may be attributable to the former explanation.

In this study the social security earnings test is shown to have a significant effect empirically on the labor supply of retirement aged men. A rich data file from the Social Security Administration containing accurate benefit information provides a cross- section sample of 65-70 year old married men who worked some amount for empirical investigation. The data pertain to 1972. The results indicate that eliminating the earnings test would increase labor supply by 151 annual hours and payroll tax revenue by $31 per individual in the sample. The way in which the earnings test is relaxed is important also. Raising the exempt amount increased labor supply while lowering the tax rate did not. This follows from analyzing labor supply decisions over a nonlinear earnings-tested budget constraint. An econometric technique was developed for consistently estimating labor supply over nonlinear budget constraints. This technique conveniently summarized the budget constraint in an expected value calculation.

This study presents new estimates of collective bargaining coverage and union membership for detailed U.S. industries. It compares the new coverage and membership figures with each other and with figures derived by researchers for the early 1960's and analyzes the divergences. This analysis leads to three primary conclusions:1) Estimated coverage percentages are on average higher than estimated membership percentages; 2) This relationship is primarily the result of the absence of union security clauses (under which covered employees must at some point become union members); 3) Even among production workers within detailed industries, private sector unionism has been dwindling during the past two decades.

This paper analyzes the dynamics of youth unemployment. Three broad conclusions emerge. First, the problem of youth joblessness extends beyond the unemployed. We find that over one-half of youth unemployment spells end in labor force withdrawal. Much of youth non-employment is not picked up in the official unemployment statistics, because many young people give up the search for work and leave the labor force. Second, a large part of youth unemployment is accounted for by a relatively small, hard core group of young people who experience long spells of unemployment. While most unemployment spells are short, this is due to the high rates of labor force withdrawal, rather than to job finding. Among male teenagers out of school, for example, we find that over half of unemployment was due to those with more than six months of unemployment in the year. Third, a shortage of attractive jobs is the principle source of long term non-employment. While instability and frequent turnover are major factors in determining the overall pattern of teenage unemployment, we find that the lack of desirable employment opportunities is the crux of the problem for those most seriously affected by youth unemployment.

Three ways of averting "excess saving" have been emphasized in both theory and practice. The thrust of the Keynesian prescription was to increase the government deficit to provide demand for the resources that would not otherwise be used for either consumption or investment. In this way, aggregate demand would be maintained by substituting public consumption for private consumption. A second alternative prescription was to reduce the private saving rate. Early Keynesians like Seymour Harris saw the new Social Security program as an effective way to reduce aggregate saving. The third type of policy, developed by JamesTobin, relies on increasing the rate of inflation and making money less attractive relative to real capital. In Tobin's analysis, the resulting increase in capital intensity offsets the higher saving rate and therefore maintains aggregate demand. This paper will examine ways of increasing capital intensity without raising the rate of inflation. The analysis will also show why, contrary to Tobin's conclusion, a higher rate of inflation may not succeed in increasing investors' willingness to hold real capital.

This paper discusses a crucial cause of the failure of share prices to rise during a decade of substantial inflation. Indeed, the share value per dollar of pretax earnings actually fell from 10.82 in 1967 to 6.65 in 1976. The analysis here indicates that this inverse relation between higher inflation and lower share prices during the past decade was not due to chance or to other unrelated economic events. On the contrary, an important adverse effect of increased inflation on share prices results from basic features of the current U.S. tax laws, particularly historic cost depreciation and the taxation of nominal capital gains.

This paper challenges conventional views of unemployment. Its results suggest that failure to examine closely labor force transitions has led to a misleading picture of unemployment and the way the labor market functions in general. There are four main conclusions. First, labor force transitions are the principal determinant of fluctuations in employment and unemployment. We find that the vast majority of those newly employed come not from unemployment but from outside the labor force. Likewise, most spells of employment end with labor force withdrawal rather than unemployment. Second, traditional estimates of the duration of unemployment and the ease of job finding are seriously flawed by failure to take account of the 45 percent of all unemployment spells which end in labor force withdrawal. Third, re-entrant unemployment is to a large extent the result of job-ending followed by a brief spell outside the labor force. Many re-entrants would almost certainly be better classified as job losers and leavers completing long spells of unemployment rather than as entrants starting a new spell of unemployment. Fourth, it appears that many of those counted as out of the labor force are functionally indistinguishable from the unemployed.

This study provides direct evidence concerning the relationship between experience and performance among managerial and professional employees doing similar work in two major U. S. corporations. The facts presented indicate that while, within grade levels, there is a strong positive association between experience and relative earnings, there is either no association or a negative association between experience and relative rated performance. If we are correct that the performance ratings given to managerial and professional employees in any grade level adequately reflect those employees' relative productivity in the year of assessment, the results imply that the human capital on-the-job training model cannot explain a substantial part of the ob-served return to labor market experience.

This paper provides new empirical evidence on the effects of the Nixon wage—price controls on the price level. The major new wrinkle is that the controls are treated as a quantitative (rather than just a qualitative) phenomenon through the use of a specially-constructed series indicating the fraction of the economy that was controlled. According to the estimates, by February 1974controls had lowered the non-food non-energy price level by 3—4 percent. After that point, and especially after controls ended in April 1974, a period of rapid 'catch up' inflation eroded the gains that had been achieved, leaving the price level from zero to 2 percent below what it would have been in the absence of controls. The dismantling of controls can thus account for most of the burst of 'double digit' inflation in non-food and non-energy prices during 1974.

There are two possible reasons for unionized workers to have lower quit rates than otherwise comparable nonunion workers: unions could organize employees with innately lower propensities to quit or they could reduce propensities by offering disgruntled workers alternatives to quitting in the form of grievance arbitration and related industrial jurisprudence systems. This paper uses a fixed effect logit model based on the conditional likelihood function to disentangle these two effects. The paper finds that the observed union-quit tradeoff is due largely to the impact of unionism on worker behavior rather than to the propensity of stable workers to be organized, supporting the notion that unions have important nonwage effects along the lines suggested by the "exit-voice" model of union activity.

Disequilibrium macroeconomic theory [e.g. Clower, and Barroand Grossman] is extended to deal with capital accumulation in the long run. A growth model a la Kaldor is chosen for a frame-work. The real wage is supposed to be adjusted slowly, therefore there may be excess demand or supply in the labor market. The transaction takes place at the minimum of supply and demand. Since income shares of workers and capitalists depend on which regime the labor market is in, different equations are associated to different regimes. Local stability of the steady state by the disequilibrium dynamics is demonstrated.

This study used three types of evidence to analyze the nature and cause of black economic progress in post-World War II years: aggregate evidence on the timing and incidence among skill groups of changes in the relative earnings or occupational position of blacks; cross-sectional evidence on the family background determinants of the socioeconomic achievement of blacks; and information from company personnel offices regarding personnel policies toward black (and other) workers affected by civil rights legislation.

Both economic theory and casual empirical observation of the U.S. economy suggest that spending propensities from temporary tax changes are smaller than those from permanent ones, but neither provides much guidance about the magnitude of this difference. This paper offers new empirical estimates of this difference and finds it to he quite substantial. The analysis is based on an amendment of the standard distributed lag version of the permanent in-conic hypothesis that distinguishes temporary taxes from other income on the grounds that the former are "more transitory." This amendment, which is broadly consistent with rational expectations, leads to a nonlinear consumption function. Though the standard error is unavoidably large, the point estimate suggests that a temporary tax change is treated as a 50-50 blend of a normal income tax change and a pure windfall. Over a 1-year planning horizon, a temporary tax change is estimated to have only a little more than half the impact of a permanent tax change of equal magnitude, and a rebate is estimated to have only about 38 percent of the impact.

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.

This paper demonstrates that labor turnover is a significant factor in understanding wage growth since it affects both wage growth across jobs and wage growth within the job. Our analysis shows that young men who quit experience significant wage gains compared to stayers and compared to their own wage growth prior to the job change. Among older men, a quit increases wage growth only if the individual said he changed jobs because he found a better job. Yet in both age groups, individuals who expect to remain on the current job experience steeper wage growth per time period on that job. Thus labor turnover has offsetting effects on wage growth, leading to wage gains across jobs but flatter growth in shorter jobs. Our empirical analysis shows however that total life-cycle wage growth is positively related to current tenure. While early mobility may pay, individuals who are still changing jobs later in life experience lower overall wage growth.

When parties can bargain with each other in an externality situation, it is frequently argued that liability rules are preferable to property rules. The case for liability rules is thought to be strongest when the parties behave strategically, when the collective authority responsible for maximizing social welfare has perfect information, and when lump-sum transfers are not available. It is shown here that liability rules are not generally preferable to property rules in these circumstances because of their limited ability to redistribute income between the parties.

This paper contains an analysis of the role of international reserves under a regime of pegged exchange rates and under a regime of managed floating. It presents evidence on the stability of the demand for reserves during the periods 1963-72 and 1973-75. It is shown that the demand for reserves by developed countries differs from that of less-developed countries and that the system underwent a structural change by the end of 1972. In view of the drastic change in the international monetary system, the extent of the structural change has not been as large as might have been expected, thus leading to the observation that economic behavior seems to be more stable than legal arrangements. From the policy perspective it follows that the problems concerning the role of the International Monetary Fund in this context are as relevant at the present as they were in the past. The paper concludes with a sketch of a stochastic framework for the analysis of the optimal degree of managed floating. And its purpose is to suggest an additional set of variables which might be incorporated into the specification of the demand for international reserves. It is shown that the optimal degree of exchange rate flexibility depends on the stochastic nature of the shocks that the economy faces. The stochastic characteristics of the shocks include a distinction between real and monetary shocks, domestic and foreign shocks and depend on the covariances among the various shocks.

This paper develops a stochastic framework for the analysis of transactions and precautionary demand for money. The analysis is based on the principles of inventory managements and the key feature of the model is its stochastic characteristics which lead to the need for precautionary reserves. The formal solution for optimal money holdings is derived and is shown to depend on the rate of interest, the mean rate of net disbursements, the cost of portfolio adjustment and the variance of the stochastic process governing net disbursements. One solution is obtained by minimizing the present value of financial management. This solution is compared with an alternative that is derived from the more conventional methodology of minimizing the steady-state cost function. The comparison shows that the two approaches may yield solutions that differ significantly from each other. The paper concludes with an application of the model to an empirical examination of countries' holdings of international reserves. The empirical results are shown to be consistent with the predictions of the model.

Probably no event in monetary history has been more studied than the German hyperinflation of the early 1920's. Economists have been attracted to study this episode since it provides an environment that is close to a controlled experiment which is so rare in the study of social sciences. This paper provides further evidence on the role of expectations in effecting the demand for money during the German hyperinflation. One of the difficulties in studying empirically the role of expectations is the lack of an observable variable measuring expectations. This paper examines three measures of expectations that are derived from observed data from the market for foreign exchange. The first measure is based on the hypothesis that the forward exchange rate measures the expected future spot exchange rate and thereby provides an observable measure of the market's expectations concerning the depreciation of the currency. The other two measures distinguish between the forward exchange rate and the expected exchange rate and are based on the supplementary hypothesis that rational behavior requires expectations to be unbiased. Accordingly, the measures of expectations are constructed by using the forward exchange rate along with the information on the systematic relationship between forward and spot exchange rates. The various measures are then used in estimating the demand for money. The emphasis on measures of expectations that are based on data from the foreign exchange markets reflects the belief that in an inflationary economy with flexible exchange rates one of the relevant substitutes for holding domestic money is foreign exchange.

Current views about flexible exchange rate systems are based, to a large extent, on the lessons from the period of the 1920's during which many exchange rates were flexible. This paper re-examines the evidence from the perspective of the recently revived monetary approach (or more generally, asset-market approach) to the exchange rate. The analysis starts by developing a simple monetary model of exchange rate determination. The key characteristic of the model lies in the notion that, being a relative price of two monies, the equilibrium exchange rate is attained when the existing stocks of the two monies are willingly held. The equilibrium exchange rate is shown to depend on both real and monetary factors which operate through their influence on the relative demands and supplies of monies. The analysis then proceeds to examine the relationship between spot and forward rates for the Franc/Pound, Dollar/Pound and Franc/Dollar exchange rates and the results are shown to be consistent with the efficient market hypothesis. The monetary model is then estimated using monthly data and using the forward premium on foreign exchange as a measure of expectations. In addition to the single-equation ordinary-least-squares estimates, the various exchange rates are also estimated as a system using the mixed-estimation procedure which combines the sample information with prior information which derives from the homogeneity postulate and from known properties of the demand for money. The various results are shown to be consistent with the predictions of the monetary model.

This is a study of the effects of unionism in the public sector occupation of firefighting. A large and detailed set of data permits the examination of submarkets of this occupation. A before/after methodology is introduced to obtain more precise estimates of union wage differentials. The study's findings are: (1) that there is a greater union effect on fringes than on salaries which indicates a significant alteration in the composition of the compensation package;(2) that the estimates from the before/after methodology confirm the cross-section results which show modest union wage differentials; and ,most significantly, (3) that the union effect varies along different dimensions -- most notably the length of the contractual arrangement between municipality and union.

This paper analyzes the impact of unionism on the fringes paid blue-collar workers using data on individual establishments. The main substantive finding is that trade unionism raises the fringe share of compensation, particularly pension and life, accident and health insurance. The magnitude of the effect is sufficiently large as to suggest that estimates which neglect fringes understate the union effect on compensation. The paper uses the data on the compensation of blue-collar and white-collar workers within an establishment to control for within-establishment pay policies and estimate the potential effect of blue-collar unionism on the fringes of white-collar workers.

It has been alleged that multinational firms fail to adapt their methods of production to take advantage of the abundance and low price of labor in less developed countries and therefore contribute to the unemployment problems of these countries. This paper asks two questions: do multi-national firms adapt to labor cost differences by using more labor-intensive methods of production in LDC's than in developed countries and do multinational firms' affiliates in LDC's use more capital-intensive methods than locally-owned firms? We concluded that both U.S.-based and Swedish-based firms do adapt to differences in labor cost, using the most capital-intensive methods of production at home and the least capital-intensive methods in low-wage countries. Among host countries, the higher the labor cost, the higher the capital intensity of production for manufacturing as a whole, within individual industries, and within individual companies. When we attempted to separate the capital-intensity differences into choice of technology and method of operation within a technology we found that firms appeared to choose capital-intensive technologies in LDC's but then responded to low wage levels there by substituting labor for capital within the technology. Similarly, U.S. affiliates appeared to use technologies similar to those of locally-owned firms but to operate in a more capital-intensive manner mainly because they faced higher labor costs.

The results presented below demonstrate that the structural modeling approach to interest rate determination not only stands apart from the sectoral disaggregation question conceptually but also performs fairly well without sectoral disaggregation empirically. This paper presents estimation and dynamic simulation results for an aggregated equivalent to the disaggregated model of the determination of bond yields developed in Friedman (1977; 1979). Instead of six bond demand and two bond supply equations, here there are but one demand and one supply equation. The empirical results show that, while disaggregation is of value in structural interest rate modeling (that is, the disaggregated model outperforms the aggregated one), even the aggregated structural model performs very well in comparison with familiar unrestricted reduced-form term structure equations.

The object of this paper is to test several familiar hypotheses about the relationship between the forward rates implied by the term structure and interest rate expectations, using the one ongoing systematic survey that samples market participants' expectations. The substitution of survey data for overidentified constructions removes the principal source of ambiguity that has plagued much of the earlier empirical literature of the term structure. Nevertheless, because of limitations in the available data, it is possible to perform these tests only for the very short end of the maturity spectrum. Section I briefly describes the nature of the interest rate expectations survey and the calculation of the forward rate series from observed term structure data. Sections II-V present the results of testing the hypotheses that the implied term premium is zero on average (II), that it varies systematically with interest rate levels (III), that it varies with outside asset supplies (IV), and that it varies with economic activity (V). Section VI summarizes the findings of these tests and discusses their implications

Traditional theory implies that the relative price of consumer goods and of such real assets as land and gold should not be permanently affected by the rate of inflation. A change in the general rate of inflation should, in equilibrium, cause an equal change in the rate of inflation for each asset price The experience of the past decade has been very different from the predictions of this theory: the prices of land, gold, and other such stores of value have increased by substantially more than the general price level. The present paper presents a simple theoretical model that explains the positive relation between the rate of inflation and the relative price of such real assets. More specifically, in an economy with an income tax, an increase in the expected rate of inflation causes an immediate increase in the relative price of such 'store of value' real assets. The behavior of real asset prices discussed in this paper is thus a further example of the non-neutral response of capital markets to inflation in an economy with income taxes.

This paper is an attempt to explain diffusion in the production of an innovation. Diffusion in production is defined as the increase in number of producers, or net entry, in the market for a new product. It is to be distinguished from the more familiar problem in the literature on technical change, namely, the diffusion among producers in the use of new products and, hence, of changes in production processes for "old" products (or services). The empirical results confirm that a simple model -- simple in terms of number of variables -- is sufficient to explain most of diffusion in the production of an innovation. The principal variable that explains diffusion of entry is the demonstration effect. The principal variable that retards entry is the accumulated experience and goodwill of existing firms. A limiting force is the population of potential entrants. None of these variables appears to lend itself readily to influence by public policy. The first stage in diffusion -- the interval from first commercial introduction of the product to entry by competitors -- varies greatly in duration. Institutional variables, including public policy, may have a greater impact on the length of this first stage, which is not covered by this study, than on the diffusion process in the periods examined in this paper.

Recent years have seen considerable interest in the integration of the corporate and personal income taxes. Full integration, under which corporate-source income would be taxed only to shareholders, has significant economic advantages, but it suffers from severe practical difficulties. Some but not all of its advantages could be realized through dividend relief. Alternative means of providing dividend relief include a deduction for dividends paid, application of a lower corporate rate to distributed income than to retained earnings, and allowing shareholders a dividend-received credit for corporate taxes imputed to have been paid on their behalf. The proper treatment of tax preferences and international flows of corporate-source income raise important issues of tax administration and public policy. It is necessary, for example, to decide whether tax preferences are to be passed through to shareholders or nullified when preference income is distributed. Beyond that, "stacking rules" are required for the presumptive allocation of dividends between preference and taxable income. Further research on both economic effects and administrative feasibility is necessary for an adequate appraisal of integration.

In recent years, the study of labor supply has occupied the attention of a large number of economists. With the growth in interest in the topic and with the inevitable diversity of economic models and statistical methods proposed by new entrants in the field, the literature has developed its own folklore. The principal legend is that the empirical estimates of the same parameters obtained from the set of available studies display such diversity that they are of little use to policymakers. This paper disputes the folklore. We claim that there is more agreement than disagreement once a few reasonable criteria based on recent theoretical work are used to eliminate certain studies from consideration, and once we are careful about posing the question we seek the estimates to address.

This paper rejects the proposition that there is only a single interesting question to ask about the decade of the 1930s. It is concerned not only with the role of money in the 1929-33 contraction but also with the relative role of monetary and nonmonetary factors in the recession of 1937-38 and subsequent recovery and, in addition, with the division of nominal income change between prices and real output. New empirical evidence bearing on each of these issues is provided The results suggest that both extreme monetarist and nonmonetarist interpretations of the decade of the l930s are unsatisfactory and leave interesting features of the data unexplained. Arguing against acceptance of an extreme monetarist interpretation are (1) the inability of changes in the money supply alone to explain the severity of the initial collapse in income between 1929 and the fall of 1931, (2) the steady weakening of the correlation between changes in nominal income and money as the 1930s progressed, (3) the failure of monetary factors to explain the nature and timing of the 1938-41 recovery, and (4) the apparent absence of any tendency for the mechanism of price flexibility to provide strong self-correcting forces as required by an approach that stresses monetary rules and opposes policy activism. Arguing against acceptance of an extreme nonmonetarist interpretation are (1) the close association between the collapse in income and the lagged effect of monetary changes after the fall of 1931, (2) the milder contraction and earlier recoveries associated with the more expansive monetary policies pursued in Europe, (3) the close association between money and income in the 1937-38 recession, and (4) the failure of the price change data to adhere to the expectational Phillips curve approach imbedded in many postwar econometric models constructed by nonmonetarists.

This paper uses the American Association of University Professors surveys for the period 1965 to 1976 to examine the effect of faculty unionism on faculty pay. It compares estimated effects of unionism on compensation from cross-section regressions of faculty pay on union organization and from a longitudinal model designed to correct cross-section estimates for "unobserved characteristics" of schools that are correlated with unionism. The major findings are that: 1. unionism raises faculty pay but that the extent of the effect varies greatly by estimating model and time period covered; 2.the years a school has been organized has a stronger effect on pay than the standard 0-1 union dummy variable; 3. unionism raises the fringe benefit share of compensation; 4. the estimated coefficient on faculty unionism in cross-section regressions overstates the union impact because unionized schools tend to have been higher paying even before organization.

This study departs from earlier analyses of the effects of taxes on capital income in several respects. Probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving. It is shown below that the common two-period formulation of saving decisions yields quite misleading results. A more realistic model of life cycle savings demonstrates that, for a wide variety of plausible parameter values, savings are very interest elastic. This implies that shifting away from capital income taxation would significantly increase capital formation, making possible long-run increases in consumption.

The organization of the paper is simple. We start by examining the real effects of anticipated inflation in an economy that has fully adapted to inflation. In particular, in this economy: (i) public institutions are fully attuned to inflation (or inflation proof), (ii) the same is true of private institutions, (iii) current and future inflation is fully reflected in inherited contracts, and (iv) future inflation is fully reflected in contracts for the future. After we have discussed the effects of anticipated inflation in this environment, we examine the real effects of inflation that arise as the assumptions (i) to (iv) are dropped one after the other. The effects cumulate in the sense that those present in the economy that has fully adapted to inflation are also present in economies with non-inflation proof institutions, and so on.

The persistence of inflation during periods of high unemployment poses the central problem for macroeconomic policy in coming years. The extent of success in reducing both inflation and unemployment will depend strongly on the short-run responsiveness of wage inflation to unemployment and excess capacity. This paper studies changes in the cyclical responsiveness of inflation from 1890-1976, and concludes that a given shortfall in production relative to potential now "buys" a smaller reduction in the rate of inflation than in the past. From 1890-1929, a one percent decline in industrial production reduced inflation about .45%; for 1950-1976, the same output decline is estimated to slow inflation only about .l%. The analysis makes use of two methods to study the changing cyclical behavior of inflation. Following an innovative study by Cagan, calculations are made for wage and price inflation before and after eighteen business cycle peaks. While inflation slows in almost every recession, the declines in inflation in recent years are less pronounced than earlier, even when controlling for business cycle severity. In a second section of the study, econometric evidence is provided that also strongly supports the hypothesis of increasing rigidity of wage and price Inflation over the business cycle. In the last section of the paper, some possible reasons are cited for the declining responsiveness of inflation to unemployment. Ironically, successful macroeconomic policy might be in part responsible. To the extent that activist macroeconomic policy breaks the link between current unemployment and expectations of future unemployment, it is argued, unemployment today will not induce wage cuts in contracts for future periods. Also, the tremendous increase in duration and coverage of collective bargaining agreements is suggested as an important force behind the shifting behavior of wages and prices during the period of study.

This paper analyses the relation between the percent of workers organized in a product market and the wages received by union workers and by nonunion workers. It argues that the greater is the union coverage of a sector, the lower will be the elasticity of demand for the product of organized firms (since there will be fewer nonunion competitors) and as a result the lower will be the elasticity of demand for union labor and the larger the union wage gains. Estimates of the link between coverage and wages using information on individuals and on establishments shows the expected positive relation for union workers across manufacturing industries. By contrast, nonunion wages in manufacturing appear to be unrelated or only modestly related to the percentage organized. Estimates of the link between the percentage of construction workers unionized in a state and the wages of union and nonunion construction workers reveal relationships similar to those for manufacturing. Overall, the results strongly suggest that the percent organized is an important determinant of union wages and of the union-nonunion wage differential.

Much recent thought has been devoted to the macroeconomic importance of the existence of wage contracts. Still, some puzzling features of the most conspicuous form of wage bargaining, that done formally by employers and labor unions, deserve further theoretical attention. Among these important features are: 1. Collective bargaining agreements are rarely contingent on outside events even though the parties have very imperfect knowledge of prospective economic conditions during the period of the contract. The only important exception is the indexing of wages to the cost of living. 2. Employers are permitted wide discretion in determining the level of employment when demand shifts unexpectedly. As employment varies, total compensation varies according to a formula established in the agreement. 3. Agreements are not permanent but are renegotiated on a regular cycle. 4. In the process of renegotiation, the current state of demand has little impact on the new wage schedule. On the other hand, current wages in other industries have an important influence. This feature especially has been denied or ignored by economic theorists even though it is a prominent part of the thinking of labor economists on wage determination.

This paper examines the argument that restricting domestic firms' production abroad by for example, imposing a tax on foreign source income, can increase domestic welfare and alter the income distribution to favor labor. These arguments follow directly from a characterization of the international producer as a facilitator of capital flows. The available evidence suggests, however, that U.S. multinational firms have a much broader role than transferring abundant U.S. capital abroad. In this paper the firm Is viewed as able to compete abroad for a variety of reasons, including an ability to make use of technological and other cost advantages over local producers. Then, the effect of its operations abroad on the domestic capital stock is no longer so obvious. It is argued that at most a part of the marginal capital employed abroad is obtained at the expense of the capital stock of the domestic economy. The paper then presents a simple model which indicates that domestic labor can either gain or lose relative to capital, and home country welfare can either increase or decline, as a result of restricting the foreign operations of domestic firms. The results depend on the ultimate source of the capital placed abroad, the relative factor intensity of production by the multinational firm, and whether the multinational firm produces the home country's importable or exportable good. Since none of the cases considered seems totally implausible, the case for reducing international production cannot be made on the traditional grounds without further empirical evidence.

In this paper we explore income and race differences in nine measures of the health of children aged 6 through 11. We show that when health measures from mid-childhood are the subject of analysis, both income and race differences are much less pronounced than they are in infant mortality and birth weight data. We do find differences in the health status of black and white children and of children from high and low income families, but these differences by no means overwhelmingly favor the white or high-income children. With respect to differences by race, whether or not they are adjusted for differences in associated socioeconomic factors, black children in many cases are in better health than their white counterparts, In the case of income differences in health, the high income children do appear to be in better health according to most measures, but their advantage is greatly diminished when one controls for related socioeconomic factors like parents' educational attainment. Even so, for measures relating to the "new morbidity," such as the presence of allergies or excessive tension, children from higher income families are in worse health.

This paper investigates the magnitude of the elasticity of demand for labor in time series data using more general and complete models of demand than have been previously employed. It argues that previous analyses have imposed two invalid constraints in calculations, which bias downward estimated elasticities. The first invalid constraint is the assumption that real capital prices have an equal opposite effect to real wages in the demand equation. We show on measurement error grounds that this constraint should not be imposed in econometric work even when long run homogeneity of prices correctly characterizes the market. The constraint is rejected in the data. The second invalid constraint is that all explanatory variables have the same lag distribution. We argue that this constraint is invalid when decisions are made under uncertainty and find that it is also rejected by the data. The principal positive empirical finding is that with the constraints relaxed, the elasticity, of demand with respect to real wages is much larger than the estimates in the literature, indicating much greater price responsiveness on the demand side of the labor market than has previously been thought.

How internationally mobile is the world's supply of capital? Does capital flow among industrial countries to equalize the yield to investors? Alternatively, does the saving that originates in a country remain 'to be invested there? Or does the truth lie somewhere between these two extremes? The answers to these questions are not only important for understanding the international capital market but are also critical for analyzing a wide range of issues including the nation's optimal rate of saving and the incidence of tax changes.

The continuing depreciation of the dollar stands out as one of the big policy issues. It has started to impinge on U.S. monetary policy; it influences the chances for international commercial diplomacy, and it is enhancing the move toward European monetary integration. Above all it leaves most observers with a puzzle as to the causes of the ongoing depreciation. This paper will, of course, not resolve the puzzle. ft rather attempts to layout the basic analytical framework that has been developed for the analysis of exchange-rate questions and to relate it to the question of monetary policy. Part I concentrates on the development of the relevant theoretical framework. The main points to be made here are: (i) exchange rates are primarily deter-mined in asset markets with expectations playing a dominant role; (ii) the sharpest formulation of exchange-rate theory is the "monetary approach, "Chicago's quantity theory of the open economy; (iii) purchasing power parity is a precarious reed on which to hang short-term exchange-rate theory; (iv) the current account has just made it back as a determinant of exchange rates

This detailed examination of the effect of inflation on the taxation of capital used by nonfinancial corporations considers not only the tax paid by the corporations them- selves but also the tax paid by the individuals and institutions that provide capital to the corporate sector. Although corporations deduct nominal interest payments that exceed real interest, the additional taxes that lenders pay slightly exceed the tax saving by corporate borrowers. Our calculations indicate that inflation raised the 1977 tax burden on corporate sector capital income by more than $32 billion, a 50 percent increase in the total tax burden.

There are a couple of well-known unsatisfactory properties in the notion of effective demand defined by Benassy and one by Dreze. This is why recent authors in disequilibrium analysis study the stochastic rationing mechanism. Douglas Gale proved the existence of the equilibrium with stochastic rationing mechanism. However, Gale 's rationing mechanism requires an economic agent to know all the individual effective demands from the other agents. This creates the informational problem. Green examined a rationing scheme which depends only on the individual effective demand and the aggregate signals. However, he did not consider conditions on rationing mechanisms to show the existence of temporary equilibrium. The purpose of this paper is to show a couple of sufficient conditions for the existence of temporary equilibrium preserving all properties Green considered on rationing mechanisms. We also discuss the possibility of balancing demand and supply in realization instead of in the mean.

This paper reviews the studies by Robert Barro, Michael Darby, and Alicia Munnell, as well as my own earlier time-series study and presents new estimates using the revised national income-account data. The basic estimates of each of the four studies point to an economically substantial effect that is very unlikely to have been observed by chance alone. Although including variables like the Government surplus (Barro) or a measure of real money balance (Darby) can lower the estimated coefficient of the social security wealth variable, this paper explains their inappropriateness in the aggregate consumption function. Use of new data on national income and its components from the Department of Commerce improves my earlier estimates and shows that the unemployment variable does not belong in the consumption function once the level of income and its rate of change are included.

The fixed coefficient 'manpower requirements" model has the advantage of providing information on the effect of changes in the industrial composition of an economy on demand for labor in highly disaggregated occupations, although at the cost of neglecting factor substitution. This study examines the ability of the fixed coefficient model to explain changes in employment in 3-digitoccupations in the United States from 1960 to 1970 and develops an "augmented requirements" model that uses changes in wages as well as fixed coefficient shifts in demand to analyze changes in employment. The study finds that (1) by themselves, the requirements shifts account for much of the change in employment among detailed occupations in the period studied; (2) demand for detailed skills is far from zero elastic; and (3) the fixed coefficient model seems to work, not because demand and supply are economically unresponsive, but because the variation in the wage structure and corresponding incentive to alter input coefficients is moderate relative to the variation in the shift in demand due to changes in industrial mix.

The age-earnings profile of male workers is significantly influenced by the age composition of the workforce. When the number of young workers increased sharply in the 1970s, the profile "twisted" against them, apparently because younger and older male workers are imperfect substitutes in production. The effect is especially marked among college graduates. By contrast, the age-earnings profile of female workers appears to be little influenced by the age composition of the female workforce, possibly because the intermittent work experience of women makes younger and older women closer substitutes in production. The dependence of the age-earnings profile on demographically induced movements along a relative demand schedule suggests that standard human capital models of the profile, which posit that earnings rise with age and experience solely as a result of individual investment behavior, are incomplete.

This article examines international aspects of the provision of relief from the double taxation of dividends that now occurs under the "classical" American system of taxing corporate income to both corporations and shareholders. It reviews recent American debate over integration and dividend relief, the systems of dividend relief now being used in Europe, and commonly accepted standards for judging international tax policy. These standards are employed in the appraisal of existing arrangements in Europe, possible alternative systems for international taxation in a world of dividend relief, and, using the European-American situation as an example, relations between countries with dividend relief and those with classical systems.

This paper examines the flow of production and use of economic information and analyzes the effects of measurement errors, particularly as transmitted through expectations and forecasts. Economic data are subject to a variety of errors, and the uncertainty about economic measures tends to increase further with the amount and complexity of the processing per-formed on the underlying data as well as with the distance between the user and the processor. With some exceptions, economic time series lag significantly behind their reference periods and many undergo large revisions. The effective information lag includes not only the time required for incremental data to be produced and transmitted but also the time required for the signals to be extracted by the user. This lag is substantial for many important series. In general, there is no presumption that the measurement errors are random: Systematic errors are frequent and their sources and forms vary so much that they may be difficult to detect. In times of strong shocks and surprising developments (such as occurred earlier in this decade),measurement of short-term changes in the economy is particularly difficult and current signals are apt to be often misinterpreted. This can result in broadly diffused decision errors which in time are discovered, leading to sharp corrective reactions. Aggregative predictions from well known and influential sources show certain common patterns of error, which suggests that forecasters react similarly to the observed events and unanticipated shocks. Fore-casts of GNP and related variables are adversely affected by errors in both the preliminary data and the base level estimates. There is some support here for the hypothesis that information lags play a significant role ingenerating business cycles, but it is important to note that the errors involved in predicting the future are typically much larger than the errors involved in estimating the present or recent past.

Economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices. Such models are potentially very important in evaluating the impact of government programs upon consumer welfare. But very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations. This paper shows how the conventional methods of applied welfare economics can be modified to handle such cases. It focuses on the computation of the excess burden of taxation, and the evaluation of quality change. The results are applied to stochastic utility models, including the popular cases of probit and logit analysis. Throughout, the emphasis is on providing rigorous guidelines for carrying out applied work.