Estimation of technical inefficiency effects using panel data and doubly heteroscedastic stochastic production frontiers

In previous studies, measures of technical inefficiency effects derived from stochastic production frontiers have been estimated from residuals which are sensitive to specification errors. This study corrects for this inaccuracy by extending the doubly heteroscedastic stochastic cost frontier suggested by Hadri (1999) to the model for technical inefficiency effects. This model is a stochastic frontier production function for panel data as proposed by Battese and Coelli (1995). The study uses, for illustration of the techniques, data on 101 mainly cereal farms in England. We find that the correction for heteroscedasticity is supported by the data. Both point estimates and confidence intervals for technical efficiencies are provided. The confidence intervals are constructed by extending the “Battese-Coelli” method reported by Horrace and Schmidt (1996) by allowing the technical inefficiency to be time varying and the disturbance terms to be heteroscedastic. The confidence intervals reveal the precision of technical efficiency estimates and show the deficiencies of making inferences based exclusively on point estimates. First version received: March 2000/Final version received: Oct. 2001 RID="*" ID="*"  The authors are grateful to the Economic and Social Research Council for access to their Data Archive which has provided the data for this research. We are indebted to Badi Baltagi and two anonymous referees for their helpful comments and suggestions. The usual caveat applies.     

Testing for hysteresis: Unemployment persistence and wage adjustment

This paper proposes a new testing strategy for unemployment hysteresis as the joint restriction of a unit-root in the unemployment rate and no feedback effect of unemployment in the Phillips wage equation. The associated test statistics are derived when this joint restriction is imposed and when a sequential two steps testing strategy is adopted. An empirical application leads to reject the null hypothesis of wage hysteresis for most of our OECD countries. Evidence against hysteresis is reinforced when accounting for wage adjustments in the bivariate approach. First version received: July 1999/Final version received: May 2002 RID="*" ID="*"  We thank R. Boyer, F. Collard, F. Karamé, F. Langot, F. Mihoubi, W. Pohlmeier and two anonymous referees for fruitful comments. This paper has also benefited from discussions at the T2M conference (Montréal, may 1999) and ESEM99 (Santiago, august 1999). The traditional disclaimer applies.     

Testing of unit roots and other fractionally integrated hypotheses in the presence of structural breaks

Tests of unit roots and other nonstationary hypotheses that were proposed by Robinson (1994) are applied in this article to the Nelson and Plosser's (1982) series. The tests can be expressed in a way allowing for structural breaks under both the null and the alternative hypotheses. When applying the tests to the same dataset as in Perron (1989), we observe that our results might be consistent with those in Perron (1989) when testing the nulls of trend-stationarity or a unit-root. However, we also observe that fractionally integrated hypotheses may be plausible alternatives in the context of structural breaks at a known period of time. Final version received: August 2000/Final version accepted: August 2001 RID="*" ID="*"  The author gratefully acknowledges the financial support from the European TMR grant No. ERBFMRX-CT-98-0213. Comments of two anonymous referees are also acknowledged.     

A generalized additive Tobit model

This paper proposes a semi-parametric approach to estimation in Tobit models. A generalized additive Tobit model of residential local long distance (intra-LATA) telephone demand is estimated on a cross-section of residential telephone consumers across twenty-eight states. While past studies of telecommunications demand have used fully parametric models, the model presented here is non-parametric in two dimensions: first no distributional assumption is made for the error distribution, and second, the demand equation is non-parametric with respect to price. We find that the elasticity of demand is substantially lower (in absolute value) that found in previous studies for a 40% cut in tariffs. First version received: July 2000/Final version received: March 2001 RID="*" ID="*"  I thank the referee and Associate Editor for suggestions which improved the paper. The views expressed here are of the author and not Analysis Group | Economics.     

A common trends model of UK core inflation

In this paper the long-run trend in RPI inflation (core inflation) for the UK over the 1961–1997 period is estimated within the framework of a multivariate common trends model which extends the bivariate VAR approach of Quah and Vahey (1995). In this context core inflation is directly linked to money and wage growth and interpreted as the long-run forecast of inflation from a small-scale, cointegrated macroeconomic system. First version received: September 1999/Final version received: October 2001 RID="*" ID="*"  We thank two anonymous referees for many helpful comments and suggestions. Work on this paper was partially conducted when C. Morana was at Heriot-Watt University.     

Pooling surveys in the estimation of income and price elasticities: An application to Tunisian households

This paper presents a methodological extension of Deaton's (1990) model for estimating price elasticities, by pooling Tunisian data from several surveys to improve the inter-cluster variability of unit values which is one of the key elements used in the derivation of these elasticities. Since the surveys cover a relatively long period, possible structural changes in consumption behaviour occurring over time are accounted for by postulating that certain response coefficients of the basic model vary from one survey to the other. The own price and cross price elasticities calculated using appropriate estimates of the extended model are satisfactory both from the economic point of view of their sign and the statistical point of view of their significance and superior to those obtained using a single survey. First version received: April 2000/Final version received: June 2001 RID="*" ID="*"  The authors would like to thank Angus Deaton and anonymous referees for useful comments and suggestions.     

Bayesian estimation of social welfare and tax progressivity measures

This paper examines Bayesian methods of examining posterior distributions of inequality, concentration, tax progressivity and social welfare measures. Use is made of an explicit income distribution assumption and two alternative assumptions regarding the distribution of pre-tax mean incomes within each income group. The methods are applied to a simulated distribution of individual incomes and tax payments. It is possible to identify a minimum acceptable number of income classes to be used. The results suggest support for the use of group means in practical applications, particularly where large sample sizes are available. First version received: August 2000/Final version received: July 2001 RID="*" ID="*"  This research was supported by a Melbourne University Faculty of Economics and Commerce Research Grant. We should like to thank Bill Griffiths and two referees for comments on an earlier draft.     

Effects of health information on Nordic meat and fish demand

Increasing public concerns about health risks associated with dietary intakes of cholesterol are expected to have significant impacts on the demand for foods with high fat content. This paper investigates how information about cholesterol, as measured by two newly constructed indices based on published medical research, has affected the demand for meats (beef, chicken and pork) and fish in the Nordic countries (Denmark, Finland, Norway and Sweden). To compare the effects of information across countries and over time, the demand equations for all the countries are estimated within one system, and a complete set of price and expenditure elasticities is estimated. Our findings suggest that health information has affected consumption in a healthy way in all countries studied except for Denmark. We find positive effects on the demand for chicken in Finland, Norway and Sweden and for fish in Finland and Sweden. A negative effect on the demand for beef in Sweden also is found. First version received: May 2001/Final version received: December 2001 RID="*" ID="*"  The authors would like to thank Wen S. Chern and Bj?rn Sl?en for their assistance in the construction of the health information indices. The suggestions of two anonymous referees have also been of great assistance. The EU (contract FAIRS-CT97-3373) and the Research Council of Norway (grant no. 134018/110) provided financial support for this research.”     

Sectoral trends and cycles in Germany

We examine the comovements between the output indexes of three German sectors (manufacturing, mining, and agriculture) and the three corresponding sectoral stock market indexes. It is found that data with and without seasonal adjustment give mixed results on the long-run interaction between the sectoral indexes. Compared with data that are non-seasonally adjusted, the adjusted data offer weaker evidence on the cointegration relationship between a) the sectoral output indexes, b) sectoral stock indexes, and c) individual pairs of real and financial indexes. On short-run comovement, seasonally adjusted data offer stronger evidence on the presence of common synchronized and non-synchronized cyclical components. First version received: March 2000/Final version received: September 2001 RID="*" ID="*"  We would like to thank Michael Dooley, Juergen von Hagen, Kenneth Kletzer, Peter Kugler, Jacky So and two anonymous referees, as well as the participants of the Fifth Global Finance Conference in Mexico City, the seminars at the University of California at Santa Cruz, University of Munich, and University of Basel for their helpful comments and suggestions. This research was supported by CGES at UC Berkeley and UC Santa Cruz faculty research funds.     

The effects of shocks on the Austrian unemployment rate – a structural VAR approach

Assuming full hysteresis in the Austrian labour market, a simple macroeconomic framework is used to model the effect of four structural shocks, i.e. shocks to productivity, demand, wages and labour supply. By using SVAR analysis, we derive impulse-response functions that show the effects of these shocks on unemployment. What constitutes a distinctive feature of our study is the deliberate use of overidentifying restrictions, allowing for a likelihood ratio test. The objection to SVAR methodology, that it relies on arbitrary assumptions, can thus be overcome, as invalid sets of identifying restrictions are rejected. First version received: September 2000/Final version received: March 2002 RID="*" ID="*"  I thank Juan F. Jimeno, Martin Wagner, Helmut Hofer and Bernhard B?hm for their assistance; Robert Kunst and Martin Spitzer for their discussion of an earlier version of this paper; Thomas Sparla, Michael Roos and two anonymous referees for their helpful comments.     

New insights on earnings trends across skill groups and industries in West Germany

This paper provides an empirical analysis of the structure of earnings in West Germany across skill groups and industries. Our analysis is based on data from the German Socioeconomic Panel for the period 1984 to 1994. We estimate quantile regressions, both for the entire sample period and for each year separately, in order to obtain a finer picture of the earnings structure compared to conventional least squares methods. For robust standard error estimation, this study uses a block bootstrap procedure taking account of heteroskedasticity and autocorrelation in the error term. We also suggest a simple procedure to obtain a consistent estimate of inter-industry earnings variability. Our main findings are: first, pooled estimation comprising a uniform time trend is not rejected by the data, and second, the effects of human capital variables and industry dummies on earnings differ considerably across quantiles. First version: May 1998/Final version: April 2002 RID="*" ID="*"  We are grateful to an anonymous referee as well as to Thiess Büttner, Christian Dustmann, Wolfgang Franz, John Haisken-DeNew, Costas Meghir, Werner Smolny, Peter Winker, Volker Zimmermann, and seminar participants in Heidelberg, Kassel, Konstanz, and Paris for helpful comments. However, all errors are our sole responsibility. RID="*" ID="*"  We are grateful to an anonymous referee as well as to Thiess Büttner, Christian Dustmann, Wolfgang Franz, John Haisken-DeNew, Costas Meghir, Werner Smolny, Peter Winker, Volker Zimmermann, and seminar participants in Heidelberg, Kassel, Konstanz, and Paris for helpful comments. However, all errors are our sole responsibility.     

Short- and long-term unemployment: How do temporary layoffs affect this distinction?

In this paper, we provide new evidence on how to model unemployment durations in the presence of temporary layoffs. Two different types of econometric models are used: the multiple phase duration model and the competing risks model. Special attention is paid to the possibility of time-varying or non-proportional effects of the explanatory variables on the hazard function. The results show that instead of using the multiple phase duration model as an alternative to the competing risks model, it may be more fruitful to use it to extend the specification of the competing risks model. First version received: August 2000/Final version accepted: July 2001 RID="*" ID="*"  Financial support from the Danish National Research Foundation is gratefully acknowledged. We thank Gerard van den Berg, Per-Anders Edin, Niels Haldrup, Winfred Pohlmeier and anonymous referees for useful comments. We also thank Jens Chr. Thellesen for research assistance.     

On the choice of functional form in stochastic frontier modeling

This paper examines the effect of functional form specification on the estimation of technical efficiency using a panel data set of 125 olive-growing farms in Greece for the period 1987–93. The generalized quadratic Box-Cox transformation is used to test the relative performance of alternative, widely used, functional forms and to examine the effect of prior choice on final efficiency estimates. Other than the functional specifications nested within the Box-Cox transformation, the comparative analysis includes the minflex Laurent translog and generalized Leontief that possess desirable approximation properties. The results indicate that technical efficiency measures are very sensitive to the choice of functional specification. Perhaps most importantly, the choice of functional form affects the identification of the factors affecting individual performance – the sources of technical inefficiency. The analysis also shows that while specification searches do narrow down the set of feasible alternatives, the identification of the most appropriate functional specification might not always be (statistically) feasible. First version received: November 1999/Final version received: July 2001 RID="*" ID="*"  The authors wish to thank Almas Heshmati, Robert Romain, and an anonymous referee for insightful comments and suggestions. Special thanks go to the associate editor who handled the paper, and whose careful reading and suggestions have improved the paper substantially. The second author wishes to acknowledge the financial support from “President SSHRC” from the University of Saskatchewan. The usual caveats with respect to opinions expressed in the paper apply. Senior authorship is shared. This is University of Nebraska-Lincoln Agricultural Research Division Article No. 13270.     

Ten-year forecasts of real stock price changes

This paper provides the strongest evidence to-date on the predictability of real stock prices over long horizons. Ex ante forecasts account for over two-thirds of the variation of the growth rate of real stock prices over ten year spans from 1940 through 2001. The paper forecasts negative growth rates of real stock prices over the next ten years. This bearish long-run outlook is buttressed by the long-run relationship between the growth rates of real stock prices, inflation, dividends, and productivity. First version received: June 2000/Final version received: June 2001 RID="*" ID="*"  Special thanks to an anonymous referee for helpful comments.     

Robust estimation of models of Engel curves

Both standard and robust methods are used here to estimate models of Engel curves for three household commodities, namely, food, transport, and tobacco and alcohol in Canada. The income elasticities of demand computed from the various methods differ significantly for the transport and tobacco-alcohol consumption where there are obvious outliers and zero expenditures problem. Robust estimators point to lower income elasticities and have better performance than the standard LS and Tobit estimator. These results are analyzed in the light of the information on finite-sample performance obtained in a previous Monte Carlo study. First version received: July 2000/Final version received: July 2001 RID="*" ID="*"  I wish to thank Victoria Zinde-Walsh, John Galbraith, Clint Coakley, two anonymous referees and an associate editor for helpful comments. I would also like to thank Anastassia Khouri for kindly providing the 1992 Family Expenditure Survey of Canada data.     

A modified logit model for time series with an application to the pricing behaviour of manufacturing firms in Australia

The modified logit model (Amemiya and Nold, 1975) is generalised to the case where the error term is autocorrelated. The asymptotic distribution (as n →∞ and T →∞) of a feasible GLS estimator of β is derived. Tests of linear restrictions on β and the significance of ρ are presented. The results of the applied work suggest that the factors which explain the pricing behaviour of manufacturing firms, as reported in the tendency survey conducted by the Australian Chamber of Commerce and Industry and the Westpac Banking Corporation, include historical inflation rates of up to 7 quarters and capacity utilisation. First version received: March 2001/Final version received: July 2002 RID="*" ID="*"  The first draft of this paper was written while the author was on study leave at the Department of Econometrics, University of Sydney, Australia.     

Real exchange rate determination: Empirical observations from East-Asian countries

In this paper the models for the real exchange rate determination are re-examined between Japan and five East-Asian countries. Two important findings are reported. First, the real interest rate-bias model is valid for Korea-, Malaysia-, Indonesia-, and Philippines-Japan, and the productivity-bias model is valid for Indonesia-, and Philippines-Japan: that is, the coefficients of relative variables are stable and statistically significant. Second, there is no evidence that the political risk premium model is valid. First version received: September 2000/Final version received: April 2001 RID="*" ID="*"  This paper was presented at the Tohoku University Economics Conference April 1999. I acknowledge Yoshihiko Tsukuda, Hiroya Akiba, Tadashi Kuriyama, Jiro Akita and Hiroyuki Ozaki for their helpful comments. Also, I am very grateful to two referees of this journal for many valuable comments. The research was supported by the Nomura foundation for Social Science in 2000.     

Closed-loop equilibrium in a multi-stage innovation race

Summary. We examine a multistage model of an R&D race where players have multiple projects. We also develop perturbation methods for general dynamic games that can be expressed as analytic operators in a Banach space. We apply these perturbation methods to solve races with a small prize. We compute second-order asymptotically valid solutions for equilibrium and socially optimal decisions to determine qualitative properties of equilibrium. We find that innovators invest relatively too much on risky projects. Strategic reactions are ambiguous in general; in particular, a player may increase expenditures as his opponent moves ahead of him. Received: January 3, 2002; revised version: June 14, 2002 RID="*" ID="*" This is the final version of Judd (1985). The author gratefully acknowledges the comments of anonymous referees, Paul Milgrom, seminar participants at Northwestern University, the University of Chicago, the 1984 Summer Meetings of the Econometric Society, University of California at Berkeley, Stanford University, and Yale University, and the financial support of the National Science Foundation (SES-8409786, SES-8606581)     

Pareto efficient insurance contracts when the insurer's cost function is discontinuous

Summary. We consider the problem of efficient insurance contracts when the cost structure includes a fixed cost per claim. We prove existence of efficient insurance contracts and that the indemnity function in such contracts is non-decreasing in the damage. We further show that either there is no insurance, or the indemnity is positive for all losses, or efficient insurance contracts have a unique jump. We study variants of the model and provide a generalization to the case of non expected utilities. Our results are then applied to Townsend's model of deterministic auditing. Received: November 8, 2000; revised version: March 12, 2002 RID="*" ID="*" We are grateful to F. Salanié for pointing out an error in the previous version of the paper and for suggesting Proposition 6 to us. Correspondence to: R.-A. Dana     

The impact of imports on price-cost margins: An empirical illustration

This article decomposes the impact of imports on domestic price-cost margins into separate price and cost effects. Using data from 24 food-processing industries, the empirical results show that although the direct impact of imports on prices is always negative, a positive net impact on price-cost margins occurs in industries characterized by low own-price elasticity of demand and diseconomies of scale. Further results show that the disciplining effect of imports is more preponderant the lower the degree of domestic competition. First version received: September 2000/Final version received: March 2002 RID="*" ID="*"  Professor and Associate Professor, respectively, in their respective departments. They can be reached at rigoberto.lopez@uconn.edu or elena.lopez@uah.es. The authors are grateful to two anonymous referees for their fruitful and helpful comments. Financial support provided by the USDA CSREES special grant No. 00-34178-9036 and by the Cátedras del Banco Santander Central Hispano-Universidad de Alcalá. This is Scientific Contribution No. 1794 of the Storrs Agricultural Experiment Station. RID="*" ID="*"  Professor and Associate Professor, respectively, in their respective departments. They can be reached at rigoberto.lopez@uconn.edu or elena.lopez@uah.es. The authors are grateful to two anonymous referees for their fruitful and helpful comments. Financial support provided by the USDA CSREES special grant No. 00-34178-9036 and by the Cátedras del Banco Santander Central Hispano-Universidad de Alcalá. This is Scientific Contribution No. 1794 of the Storrs Agricultural Experiment Station.