Search

A general equilibrium model is presented wherein wage labor requires monitoring in order to extract effort. Landlords may also elect to adopt sharetenancy contracts in which workers have an incentive to supply unsupervised effort. Two "distortions" exist: monitoring costs in one sector and a share "tax" in the other. Efficiency statements require second-best comparisons adopting more specific functional forms. This mixed wage-sharetenancy economy is technically efficient and provides greater Benthamite social welfare than a wage-only economy, when private incentives lead to mixing. The incidence of sharetenancy is hypothesized to increase with monitoring costs, density of tenants per landlord, and labor intensity of production.

Three feasible interpretations of cross-sectional hedonic price regression equations are derived from consumer choice, profit maximization by competitive firms, and market clearing, each conceptual experiment deploying a Lancastrian “new approach” to micro theory. Lancaster's theory is compared with those consumer theories of Houthakker heritage, and some limitations of each are indicated. The assertion that Adelman and Griliches' quality-adjusted hedonic price index is a constant satisfaction index is shown to necessitate interpersonal comparisons of utility, and the possibility of identifying demand and supply functions for commodities by exclusion restrictions on characteristics is rejected.

Remittances by migrants along with migration itself are elements in a migrant familys intertemporal contractual arrangement. The reasons why the migrant and his family voluntarily enter into a mutually beneficial contractual arrangement with each other rather than with a 3rd party--are discussed and the conditions under which the contractual arrangement is self-enforcing are identified. Both parties can usually benefit from a number of Pareto-efficient mutual contractual arrangements. This gives rise to an indeterminacy problem solved through a bargaining process between the parties who consequently converge to a contractual arrangement implying a specific flow of migrant-to-family remittances. The chosen contractual arrangement reflects the relative bargaining powers of the parties and variables impinging upon these powers thus bear upon remittances. In the light of these arguments tests are conducted on observed remittance behavior across individual migrants in Botswana. (authors)

Why is it that, in capitalist economies, aggregate variables undergo repeated fluctuations about trend, all of essentially the same character? Prior to Keynes’ General Theory, the resolution of this question was regarded as one of the main outstanding challenges to economic research, and attempts to meet this challenge were called business cycle theory. Moreover, among the interwar business cycle theorists, there was wide agreement as to what it would mean to solve this problem. To cite Hayek, as a leading example: [T]he incorporation of cyclical phenomena into the system of economic equilibrium theory, with which they are in apparent contradiction, remains the crucial problem of Trade Cycle Theory;2 By ‘equilibrium theory’ we here primarily understand the modern theory of the general interdependence of all economic quantities, which has been most perfectly expressed by the Lausanne School of theoretical economics.3

This paper is a theoretical study of the determination of prices, interest rates and currency exchange rates, set in an infinitely-lived two-country world which is subject both to stochastic endowment shocks and to monetary instability. Formulas are obtained for pricing all equity claims, nominally-denominated bonds, and currencies, and these formulas are related to earlier, closely related results in the theories of money, finance international trade.

In this paper we analyze an aggregative general equilibrium model in which the use of money is motived by a cash-in-advance constraint, applied to purchases of a subset of consumption goods. The system is subject to both real and monetary shocks, which are economy-wide and observed by all. We develop methods for verifying the exitence of, characterizing, and explicity calculating equilibria.

This paper considers the derivation of the commonly estimated macro supply-of-migrants equation from a discrete choice-of-location theory, in which tastes are stochastic. This approach highlights a number of economic and econometric problems inherent in popular forms of this equation. A logit specification of the supply function of U.S. immigrants is presented, using aggregated data on applications for labor certificates rather than observed movements. A modest simulation then follows, reporting the sensitivity of migration flows, hours worked by immigrants, and tax revenues, under alternative rates of Bhagwati's proposed tax on U.S. immigrant's incomes.

This paper describes a complete and internally consistent set of principles for the conduct of a welfare-maximizing fiscal and monetary policy. Issues of time-consistency that arise in applying these principles to actual economics are also discussed.

Publisher Summary This chapter focuses on equilibrium search and unemployment. It presents a study on wage and employment determination in a single market and discusses the impact of the rest of the economy on this market by certain given parameters. This impact takes three forms. First, product demand functions shift in an exogenously determined, stochastic manner. Second, the outside economy offers alternative employment to workers. Third, new workers arrive from the rest of the economy, augmenting the local work force. The chapter also presents an equilibrium model that provides a complete description of the time paths of all variables involved, both at an aggregate and the individual market level.

The Delves micro-scale technique for blood lead analysis is an accurate method for screening capillary blood specimens, obtained by fingerstick, for lead intoxication. Results are affected by the age of cup, loop, and hollow-cathode tube and by the spatial relationship between optical tube and cup. Because the glass in many commercially available capillary tubes (used in specimen collection) contains lead and cannot be decontaminated, a lead-free glass tube must be used. A solution of citric acid in ethanol (20 g/liter) effectively cleanses the puncture site. A double-blind study of 207 specimens gave a mean value of 276.6 ± 105.8 µg/liter (1 SD) for the micro-scale method vs. 273.2 ± 99.0 for a macro-scale method. The mean coefficent of variation for the micro-scale method was 5.75% ± 1.9 (SD). We conclude that values of 480 µg/liter or below are not "toxic" (i.e., are significantly less than 600 µg/liter, the value at which therapy is begun). The method is shown to be satisfactory as a screening procedure and for confirming lead analyses done by other methods.

Surprisingly few estimates exist of disaggregated world demand functions for LDC exports, despite the obvious policy importance of the inherent price elasticities. Time-series, simultaneous equation estimates are herein presented of world demand for 23 categories of manufactured exports from India. Tests for homotheticity, separability, whether price elasticity of demand differs during world recession, and for effects of foreign learning about India's exports are reported. Estimated price elasticities range from below unity to infinity, revealing important variations masked by aggregate studies. These results raise considerable doubts about policy design from a uniform small country assumption.

In this article a theory of motivations to send remittances is described and tested with data from Botswana. Altruism is one of the motivations tested and found to be an insufficient explanation for remittances among migrants in Botswana. A refinement of the model stipulates a modified altruism or "enlightened self-interest." In this model the relationship between the migrant and family is tempered by an implicit understanding of mutual benefit. The household strategy may be to encourage some members to migrate as a means of spreading risk and sharing gains. The household strategy is similar to an insurance policy where migration is to places where market potential is high. The risks incurred might be high. The example is given of migration during a drought in Botswana. Migrant remittances were greater in households with more cattle or households with more to lose. Drought alone was not statistically related to remittances. Increases in remittances were related to increased levels of education. It is suggested that repayment was the motive for parents investment in migrants education. Migrants gains are identified as the potential for an inheritance the security of channeling investments through a trusted family member and security in having a home to return to. It is pointed out that the altruism and family remittances from urban migration were strategies that bridged the simple dynamic of either urban development or rural development impacting on family welfare. It is suggested that household models of economy adopt some measure to express the relationship of household wealth to remittances from urban migrants.

This paper develops a theoretical example of a business cycle, that is, a model economy in which real output undergoes serially correlated movements about trend which are not explainable by movements in the availability of factors of production. The mechanism generating these movements involves unsystematic monetary-fiscal shocks, the effects of which are distributed through time due to information lags and an accelerator effect. Associated with these output movements are procyclical movements in prices, procyclical movements in the share of output devoted to investment, and, in a somewhat limited sense, procyclical movements in nominal rates of interest.

Thls paper considers the prospects for constructing a neoclassical theory of growth and international trade that is consistent with some of the main features of economic development. Three models are considered and compared to evidence: a model emphasizing physical capital accumulation and technological change, a model emphasizing human capital accumulation through schooling, and a model emphasizing specialized human capital accumulation through learning-by-doing.

THIS PAPER IS A THEORETICAL examination of the stochastic behavior of equilibrium asset prices in a one-good, pure exchange economy with identical consumers. The single good in this economy is (costlessly) produced in a number of different productive units; an asset is a claim to all or part of the output of one of these units. Productivity in each unit fluctuates stochastically through time, so that equilibrium asset prices will fluctuate as well. Our objective will be to understand the relationship between these exogenously determined productivity changes and market determined movements in asset prices. Most of our attention will be focused on the derivation and application of a functional equation in the vector of equilibrium asset prices, which is solved for price as a function of the physical state of the economy. This equation is a generalization of the Martingale property of stochastic price sequences, which serves in practice as the defining characteristic of market "efficiency," as that term is used by Fama [7] and others. The model thus serves as a simple context for examining the conditions under which a price series' failure to possess the Martingale property can be viewed as evidence of non-competitive or "irrational" behavior. The analysis is conducted under the assumption that, in Fama's terms, prices "fully reflect all available information," an hypothesis which Muth [13] had earlier termed "rationality of expectations." As Muth made clear, this hypothesis (like utility maximization) is not "behavioral": it does not describe the way agents think about their environment, how they learn, process information, and so forth. It is rather a property likely to be (approximately) possessed by the outcome of this unspecified process of learning and adapting. One would feel more comfortable, then, with rational expectations equilibria if these equilibria were accompanied by some form of "stability theory" which illuminated the forces which move an economy toward equilibrium. The present paper also offers a convenient context for discussing this issue. The conclusions of this paper with respect to the Martingale property precisely replicate those reached earlier by LeRoy (in [10] and [11]), and not surprisingly, since the economic reasoning in [10] and the present paper is the same. The

A simultaneous model of production, labor demand, capital formation, international trade, and price determination, with intersectoral linkages, is specified for India's organized manufacturing sector, disaggregated into 37 industries. This model, estimated from annual time series data spanning 1959–60 through 1979–80 and comprising 408 equations and identities, fits well in a dynamic, ex post simulation. In counterfactual simulations, it is found that trade liberalization alone, in the sense of relative price restructuring to track world prices, might actually have been slightly harmful to organized manufacturing production. However, such trade liberalization combined with capital formation allocated across sectors such as to reflect private profitability, removing any constraints imposed by industrial licensing and investment planning, is demonstrated to offer very substantial gains.

This paper proposes a new theory of the size distributions of business firms. It postulates an underlying distribution of persons by managerial "talent" and then studies the division of persons into managers and employees and the allocation of productive factors across managers. The implications of the theory for secular changes in average firm size are developed and tested on U.S. time series.

In theory, finite element procedures can be applied to arbitrary conductor configurations in order to determine their frequency dependent resistances and inductances to an arbitrarily high degree of accuracy. In practice, limitations are imposed by the shapes of the finite elements used and by the accuracy of the formulae invoked to estimate their inductances. This paper reviews the concepts underlying extant finite element procedures, proposes a more efficient set of element shapes than are used in extant procedures and develops the inductance formulae necessary to implement these shapes. This results in a considerably more capable algorithm.

Srinivasan and Bhagwati (1978) show total and direct DRC are identical in a two-good, two-factor model with an additional, small project. This result is shown here not to extend to the case of more goods than factors, the usual empirical context of DRCs. For first-best solutions the direct DRC is appropriate, the total DRC is biassed against production and the so-called ideal variant biassed toward production. The total DRC is often advocated when areas of control are limited. If production or trade constraints compel obtaining materials from domestic producers, a particular, total DRC decomposition does provide valid guidelines, but its measure requires prior knowledge of the solution. The direct DRC, measured in second-best shadow prices, does convey limited information, even when areas of control are restricted, but in general a total formulation diminishes this information content.

T ills paper contains a re-examination from a dynamic point of view of some familiar problems in the theory of supply. In particular, it is concerned with the response of firms in a competitive industry to once-and-for-all shifts in the industry demand curve, to changes in the rate of shift in this demand curve, and to changes in the prices of factors of production. In most respects, our discussion of these issues will proceed along the lines of the traditional Marshall-Viner theory of supply. The novelty of our treatment will lie in its attempt to introduce the relative "fixity" of capital explicitly into the formulation of the firm's maximum problem and to use this formulation to obtain a precise definition of the industry's "shortrun" and "long-run" equilibrium posi

This paper offers a series of models designed to aid in the evaluation and control of an individual research and development project. The project under consideration is assumed to involve costs incurred over a period [0, T] and a return earned at T (or discounted to T) when the project is completed. In two of the models discussed below, the completion time T is regarded as known; in two others, T is taken to be a random variable with a known distribution. In two models, the costs per unit of time of operating the project are assumed to be fixed; in the other two, costs are variable, with increased expenditure resulting in a decreased completion time. Each of the four possible combinations of assumptions is treated in a separate section. The last section contains a summary and discussion of results.

THIS paper presents a cross-sectional analysis of the distribution across population classes of "types of work" performed in the United States. The novelty of the study resides in its measurement of types of work. The approach adopted is to focus on a matrix of coefficients describing the nature of the task involved in each occupation of a very fine occupational classification, the elements of which matrix are here referred to as "job characteristics." For example, the vector of job characteristics employed includes indicators of physical working conditions, repetitiveness, position on the hierarchy of relationships to people, and skill demands, inherent in a job. Sections II and III describe data sources and the process of compiling a data file, respectively. Section VI compares sample mean job characteristics by race and by sex, these being the mean values of the left-hand variables employed in section VII. The latter reports estimates of functions in the general class Zja= F(ga) + Ea (1) where Zja 1 if the occupation performed by person a has job characteristic j, 0 otherwise, ga a vector of attributes, or personal characteristics, of person a, Ea -a disturbance term. The vector ga includes race, sex, age, schooling and union membership. The particular specification chosen within the general class (1) is given in section IV, and V is a cautionary note on interpreting the results of sections VI and VII.

Subsets of the dependent variable of a linear model often conform to known constraints; for example, this situation arises with Engel curves and with models which estimate transition probabilities, market shares, or other classes of proportions. These models imply a variety of restrictions on the parameters, explanatory variables and residuals which must be treated explicitly in estimating and testing hypotheses about the parameters. This paper discusses these restrictions and develops an estimating procedure which yields consistent estimates which are asymptotically efficient, unbiased and normal.

Professor Rees's reactions to our econometric study of the U.S. labor market, recently published in this Journal (1970), raise a bewildering variety of issues. Many of these issues have to do with "important implications for policy" which "lurk close . . . to the surface," as Rees sees it, of our study. These implications, whatever they may be, remain submerged after one has read Rees's remarks. We shall not attempt to guess at their nature or respond to them. There are, however, two substantive issues raised by Rees which deserve further discussion. Rees asserts that "in this [that is, our] model unemployment arises from the recalcitrance of suppliers and not from deficiencies in demand." This highly misleading statement is corrected in section 1 of this note. Rees also raises the important empirical question of whether our theory does succeed in accounting for labor-market behavior during the period 1929-39. Further study on our part indicates that Rees's skepticism on this point is well founded: our hypothesis accounts for much, but not all, of the observed labor-market rigidity during this period. These results are reported in Section 2.

Pursell and Tower (1987) raise four issues with respect to certain results on DRC theory reported in Lucas (1984). In replying, each of these points will be addressed sequentially.

Publisher Summary This chapter discusses the role of population migration in promoting economic development through increased efficiency of resource allocation, with marginal comments on some aspects of distributional implications. The study is limited to observations on internal, rather than international migration and focuses primarily upon economies, in which factors of production are predominantly owned by the private sector. The economic theory of fertility suggests that the demand for children depends—among other things—on income, cost of child-rearing, and tastes. Rural-to-urban migration generally influences each of these. It was noted that the individualistic economy with seasonal rural labor generates lower income and greater leisure in rural, as compared to urban locations. If, then, children are superior goods in terms of money income, continued migration should tend to enhance population growth, ceteris paribus. Counterbalancing this is the fact that child-rearing is likely to be much less costly in rural locations, where the relative price of food is typically lower and children enter the work force at a younger age. Also, operating in the latter direction is the taste factor from migration creating a sex imbalance in the two sectors.

Publisher Summary This chapter focuses on equilibrium search and unemployment. It presents a study on wage and employment determination in a single market and discusses the impact of the rest of the economy on this market by certain given parameters. This impact takes three forms. First, product demand functions shift in an exogenously determined, stochastic manner. Second, the outside economy offers alternative employment to workers. Third, new workers arrive from the rest of the economy, augmenting the local work force. The chapter also presents an equilibrium model that provides a complete description of the time paths of all variables involved, both at an aggregate and the individual market level.

This paper presents an empirical test of the proposition that control of a monetary aggregate will generate a rise in its velocity.The test is carried out utilizing the Canadian experience of controlling Ml growth from 1975:3 to 1982:3. Section One of the paper presents evidence of the instability of the Canadian demand from Ml money since 1975:3. Section Two develops a specific form of the proposition which emphasizes the role of asset substitution between classes of chartered bank deposits. A relative asset demand equation is derived from a wealth maximization model subject to a technological transactions constraint and this equation is estimated from 1961 through 1982.The results lend support to the proposition that central bank control of Ml generated a rise in Ml velocity.

The authors analyze an aggregative general equilibrium model, in which the use of money is motivated by a cash-in-advance constraint, applied to purchases of a subset of consumption goods. The system is subject to both real and monetary shocks, which are economy-wide and observed by all. They develop methods for verifying the existence of, characterizing, and explicitly calculating equilibria. Copyright 1987 by The Econometric Society.

This paper is concerned with the structure and time-consistency of optimal fiscal and monetary policy in an economy without capital. In a dynamic context, optimal taxation means distributing tax distortions over time in a welfare-maximizing way. For a barter economy, our main finding is that with debt commitments of sufficiently rich maturity structure, an optimal policy, if one exists, is time-consistent. In a monetary economy, the idea of optimal taxation must be broadened to include an ‘inflation tax’, and we find that time-consistency does not carry over. An optimal ‘inflation tax’ requires commitment by ‘rules’ in a sense that has no counterpart in the dynamic theory of ordinary excise taxes. The reason time-consistency fails in a monetary economy is that nominal assets should, from a welfare-maximizing point of view, always be taxed away via an immediate inflation in a kind of ‘capital levy’. This emerges as a new possibility when money is introduced into an economy without capital.

A method is described for constructing all Pareto-optimal allocations for a dynamic economy with many heterogeneous consumers, under certainty, in which both the technology and consumer preferences are recursive but preferences need not be additively separable over time. Optimal (perfect foresight competitive equilibrium) allocations are obtained through the study of a dynamic program. For an economy with one consumption good, sufficient conditions are given for the existence of a unique interior stationary distribution of consumption and wealth. For a two-person exchange economy, sufficient conditions are given for the global asymptotic stability of the unique interior stationary point.