Public inputs and dynamic producer behavior: endogenous growth in U.S. agriculture

This paper is an attempt to understand the impact of public R&D and public infrastructure on the performance of the U.S. agricultural sector during the last part of the twentieth century. A neoclassical Solow growth model is not sufficient for this understanding given the sustained growth performance of the sector. We base our analysis on a well-known endogenous growth model, the ‘AK model’ where non-convexities are introduced through non-rival inputs. Based on these models and within the dynamic models that rationalize private and public decision making, we have identified three testable hypotheses regarding the aggregate agricultural production technology. They are: (1) increasing returns to scale over all inputs; (2) positive effect of additional units of public inputs on the long-run demand for private capital; and (3) negative impact of public inputs on cost. They are tested using two estimation procedures on two data sets for U.S. agriculture. One, covering the period 1948–1994, developed by USDA, the other, covering the period 1926–1990, from Thirtle et al. Maximum likelihood estimates do not conform to the regularity and behavioral properties of the economic model rendering them unusable for testing these hypotheses. Bayesian estimates, although not totally satisfactory, do not reject the hypotheses after prior imposition of some of the regularity conditions. This supports the notion of an important role for public inputs on the rapid and sustained growth of the sector. We calculate that, on average, one additional dollar spent on public R&D stock reduces private cost by $6.5, implying a return on these public expenses of 190%.

Exact decomposition of the Fisher ideal total factor productivity index

Decompositions of total factor productivity (TFP) shed light on the driving factors behind productivity change. We develop the first exact decomposition of the Fisher ideal TFP index which contains no debatable mixed-period components or residuals. We systematically isolate five effects of (1) technical change, (2) technical efficiency, (3) scale efficiency, (4) allocative efficiency, and (5) price effect. The three efficiency components (2–4) represent the efficiency of achieving a given target point. Components (1) and (5) capture the changes of the target point. While the technical change component is well-established, changes in the relative input–output prices can have real effects on the scale and scope of the target. Such changes are captured by the new price effect component (5). The new decomposition is compared with existing decompositions both in theory and by means of an empirical application to a panel data of 459 Finnish farms in years 1992–2000.

The impact of patents and standards on macroeconomic growth: a panel approach covering four countries and 12 sectors

Based on the assumption that codified technological know-how contributes to economic growth, this paper presents the estimation of a Cobb–Douglas production function, pooling data from four European countries and 12 sectors. The empirical results confirm that both the stock of patents and the stock of technical standards contribute significantly to economic growth in the 1990s. Whereas the results of the country models are rather similar, we observe significant differences between the sector models, which indicate that standards are more important for growth in less R&D-intensive industries and patents in R&D-intensive industries.

Reallocation and productivity growth in Japan: revisiting the lost decade of the 1990s

Hayashi and Prescott (Rev Econ Dyn 5(1):206–235, 2002) argue that the ‘lost decade’ of the 1990s in Japan is explained by the slowdown in exogenous TFP growth rates. At the same time, other research suggests that Japanese banks’ support for inefficient firms prolonged recessions by reducing productivity through misallocation of resources. Using the data on large manufacturing firms between 1969 and 1996, the paper attempts to disentangle the factors behind the slowdown in productivity growth during the 1990s. The main results show that there was a significant drop in within-firm productivity, the component that is not affected by reallocation of input and output shares across firms over time, during the 1990s. Although we find that misallocation among large continuing firms represents a substantial drag to overall TFP growth for these firms throughout the sample period, the negative impact of misallocation was least visible during the 1990s. The significant reduction in within-firm productivity growth suggests that, as the Japanese economy has matured, a policy which fosters technological innovations via greater competition, R&D, and fast technological adoption may have become increasingly important in promoting economic growth.

The contributions of productivity, price changes and firm size to profitability

Sources of profit change for Telstra, Australia’s largest telecommunications firm, are examined. A new method allows for changes, in a firm’s profits to be broken down into separate effects due to productivity change, price changes, and growth in the firm’s size. This in turn allows us to calculate the distribution of the benefits of productivity improvements between consumers, labor, and shareholders. The results show that around half the benefits from Telstra’s productivity improvements from 1984 to 1994 were passed on to consumers in the form of real price reductions.

Testing for infinite order stochastic dominance with applications to finance, risk and income inequality

In this paper we develop a test of infinite order degree stochastic dominance based on the use of the empirical Laplace transform function. Two applications are considered. One uses the income data of Anderson (Econometrica 64:1183–1193, 1996) and derives results consistent with his. In the other application we examine the dominance between the U.S. and U.K. stock markets. Using data on the S&P 500 and the FTALL-Share we show that the U.S. displays infinite order degree stochastic dominance of the U.K.

A response to the critiques of DEA by Dmitruk and Koshevoy, and Bol

We here critique the articles by Dmitruk & Koshevoy (1991, J Econ Theory 55:121–144) and by Bol (1986, J Econ Theory 38:380–385) by showing how to solve the examples they erected to show the non-existence of functions for evaluating performance efficiencies in DEA. We also show that functions satisfying these criteria—and other important criteria as well—were already available prior to the publications of D&K and by Bol and have since been greatly extended to increase the power and scope of DEA.

Productivity and efficiency of state-owned enterprises in China

The purpose of this paper is to evaluate the variations in SOE efficiency and productivity from the perspectives of macroeconomic fluctuations and systematic reform in China during 1986–2003. We use Data Envelopment Analysis to measure SOE efficiency. Subsequently, we use the Malmquist Index of Productivity change to measure productivity growth. The empirical results show that SOE efficiency and productivity exhibited obvious improvements during periods of strong systematic reform and a prosperous economy. The systematic reform after 1998 had a clear-cut impact on SOE performance.

Externalities, efficiency, regulation, and productivity growth in the U.S. electric utility industry

This paper examines the decomposition of total factor productivity growth for firms subject to regulation, given the production of a bad output. The production of good and bad outputs provides benefits and costs to society. Corporate socially responsible firms recognize the cost to society of producing the bad output. The paper separates the production technology and regulation effects from both the scale and technical change components. The paper also examines the measurement and decomposition of productivity growth when not accounting for production of the bad output. Using a 1992–2000 panel of 34 U.S. investor-owned electric utilities, results indicate that improvements in the scale, efficiency change, and technical change components contributed to positive growth. Not accounting for production of the bad output led to, on average, an overestimation of both the rate of productivity growth, and the contributions of scale economies and technical change to changes in productivity growth.

The productivity performance of Irish dairy farms 1984–2000: a multiple output distance function approach

This study measures productivity growth on Irish dairy farms over the period 1984–2000. A total factor productivity index is constructed for the dairy system and is decomposed into technical change, efficiency change, and changes in scale efficiency. This is achieved by estimating a stochastic output distance function model of the production technology in use on Irish dairy farms. Overall, productivity on Irish dairy farms grew by 1.2% per annum over the sample period.

A closer look at Black–Scholes option thetas

This paper investigates Black–Scholes call and put option thetas, and derives upper and lower bounds for thetas as a function of underlying asset value. It is well known that the maximum time premium of an option occurs when the underlying asset value equals the exercise price. However, we show that the maximum option theta does not occur at that point, but instead occurs when the asset value is somewhat above the exercise price. We also show that option theta is not monotonic in any of the parameters in the Black–Scholes option-pricing model, including time to maturity. We further explain why the implications of these findings are important for trading and hedging strategies that are affected by the decay in an option’s time premium.

Opening the black box: Finding the source of cost inefficiency

Parametric and nonparametric procedures are used to identify the apparent source of cost inefficiency in banking. Inefficiencies of 20–25% from earlier studies are reduced to 1–5% when, in addition to commonly specified cost function influences, variables reflecting banks’ external business environment and industry indicators of “productivity” are added. These productivity indicators explain most of the reduction in bank operating cost over 1992–2001 and was 5 times the reduction in the dispersion of inefficiency. Inefficiency appears stable over time because it is small relative to industry-wide cost changes occurring concurrently and because technology dispersion is imperfect.

Output and productivity growth in the education sector: comparisons for the US and UK

This paper considers the measurement of performance in public service provision in an international context by examining outcome-based measures for the education sector. It first sets out the measurement issues in general terms. The paper then applies these methods to comparing the UK experience with that in the US over the period 1979–2002. The results show higher labour productivity growth in the UK education sector than in the US over this time period, so that the UK eliminated the productivity gap with the US by the end of the Century.

Interest rate and bank stock returns asymmetry: Evidence from U.S. banks

We use the multivariate extension of Exponential Generalized Autoregressive Conditionally Heteroscedastic (EGARCH) of Nelson, Econometrica, 59: 347–370, 1991 to test for spillover effects and examine the extent of asymmetries between short- and long-term interest rates and portfolios of money center, large, and medium-size banks in the U.S. Our results indicate the existence of price and volatility spillovers from short- and long-term interest rates to the three bank portfolios. We also provide evidence of response asymmetries for the portfolios of money center and large banks, suggesting that money center and large banks are more sensitive to negative than positive short- and long-term interest rate changes.

Stochastic productivity measurement

Stochastic productivity indicators are defined, and superlative measures of these indicators are derived. It is shown that, in the presence of complete markets or a common-expectations equilibrium, differences in the market values of firms are superlative indicators of cross-sectional productivity differences. Exactness results are used to decompose nonstochastic productivity indicators into a measure of true productivity change and a measure of ‘luck’. The decomposition is illustrated empirically.

The Obama effect

Many observers argued that Barack Obama’s candidacy in the U.S. presidential election of 2008 benefited from the financial crisis and recessionary economic conditions which voters blamed on the Republican administration. However, an empirical examination of stock price and public opinion data indicates that improvements in Obama’s electoral prospects led stock price declines and that gains by Obama were more likely to be followed by falling stock prices than by rising prices. This evidence suggests that the poor performance of the stock market in the days leading up to Obama’s victory was partly caused by, rather than causing, Obama’s success.

Trade,wages, and the specific factors model: empirical evidence from manufacturing industries in Ghana

This study analyzes the impact of trade on wages in the context of the specific factors model by focusing on the link between trade and the average real wage. A recent paper by Jones and Ruffin (Rev Int Econ, 16:234–249, 2008) shows how one can use the specific factors model to predict how labor should fare from an improvement in the terms of trade. For this purpose, I use annual firm-level data on the manufacturing sector in Ghana during the period 1991–1997. I find that a ceteris paribus increase in the price of exportables in the wood industry would help labor but labor would be hurt by price increases in the food-baker, furniture, textile-garment, and metal-machinery industries.

Internal and external restructuring over the cycle: a firm-based analysis of gross flows and productivity growth in Portugal

This paper discusses the role played by internal restructuring vis-à-vis external restructuring in industry productivity growth, arguing that the contribution of these two components is expected to be sensitive to the economic cycle. The study describes gross flows (job and output) over a period of one decade, and analyses the productivity differential among continuing, entering and exiting firms in the Portuguese manufacturing sector. The results of the decomposition of industry productivity growth suggest that the share of external restructuring is stronger in recession, while internal restructuring seems to be predominant in expansion. The strong and positive contribution of the net entry effect, in 1991–1994, was not followed by any between and cross effects of equivalent magnitude in the 1994–1997 sub-period. The within effect is, as expected, stronger when output growth is at its peak, but in no case large enough to turn productivity growth procyclical.

Efficiency vectors, efficiency and performance measures: new methods for ranking efficient organizational units

We present and discuss measures for analyzing productivity in deterministic frontier models. A new efficiency measure is introduced allowing for discrimination among efficient organizational units. In addition, a new performance measure for analyzing productivity of organizational units is presented. This measure fulfills various properties of efficiency measures but relaxes the indicator property. Both new approaches are based on the development of efficiency vectors which is a new vector measure for measuring efficiency. The vector components are efficiency measures related to subsets of a production possibility set. The new approaches are applied in the context of data envelopment analysis.

Market reactions to announcements to expense options

The joint hypotheses of informationally efficient markets, transparent financial statements, and adequate accounting disclosure suggest that announcements of changes in the accounting treatment of employee stock options from footnote disclosure to expense recognition should not trigger stock price reactions because free-cash-flows will not change. Event study results from a sample of 241 firms that announce such changes reveal statistically significant negative price changes followed by positive price changes about equal in magnitude. We propose the learning, sophisticated investor, neglected firm, and firm size hypotheses to explain the observed announcement-period stock price reaction.