Some evidence on the role of money illusion in labor supply behavior

The Keynesian idea that workers are subject to money illusion in their labor supply decisions is tested by estimating a labor supply function that includes the price level as an independent variable. The model is estimated with data drawn from various BLS publications and is aggregated by SMSA. The results indicate a significant negative supply response to price-level changes after controlling for the nominal wage rate, income, and the SMSA's unemployment rate. There is no significant difference between workers' supply response to the price level and the nominal wage rate, which suggests that workers are not subject to money illusion.     

Scale economies,entry, and welfare

This study shows how scale economies, initial size differences among firms, potential competition, and adjustment costs may influence the entry of firms into a dynamic oligopoly. It also examines the effects of these factors on the final size distribution of firms in an industry, and on the welfare levels of consumers and producers. We find that low to moderate scale economies are insufficient for Cournot-Nash competition to drive small firms from the market. Only when scale economies are quite high will the distribution of firm sizes become degenerate. Potential competition and the size of incumbent firms' capital stocks are additional barriers to entry. The welfare conclusion is that there may be a government role to preserve potential competition, but also to dissuade small firms from entering certain markets where there are economies of scale.     

Increases in energy prices,costs of production,and plant size

A translog cost function is estimated for U.S. manufacturing in order to investigate plant size differences in responses to increases in energy prices. Smaller plants were more intensive users of energy in the early 1970s but were also better able to substitute out of energy and into other inputs during the first round of energy price increases. As a result, by the mid-1970s larger plants had become more intensive energy users. Thus, later energy price increases probably had a greater adverse impact on the production costs of larger plants in manufacturing.     

The determinants of occupational mobility patterns among blue-collar jobs

Barriers to mobility are commonly believed to partition blue-collar jobs into skilled, semiskilled, and unskilled components. This paper develops a model based in large measure on the classical gravity model for purposes of ascertaining mobility pattern determinants and for testing for the presence and form of mobility barriers. The model is implemented on a 1965–1970 sample data of male mobility among 60 intermediate-detailed blue- collar occupations. The empirical results reveal that mobility patterns in the blue-collar component conform well with neoclassical theoretical expectations. Very little support is found for the view that the blue-collar labor market is highly structured or segmented in its operations through the mobility process.     

Bayesian and mixed estimators of time varying betas

Based on the random coefficient model, Vasicek's static Bayesian beta coefficient adjustment model is extended to a dynamic model. It is shown that the time-varying security beta model can be used to identify and resolve the existence of nonstationary (weak stationary) beta coefficient over time. The implication of a random beta coefficient on th standard Bayesian adjustment is also explored. The usefulness of employing time-varying security beta estimates in forecasting the future beta in terms of Box and Jenkins' ARIMA model is also empirically demonstrated.     

Sales expectations and inventory changes in retail trade

In this paper a single equation inventory investment model is estimated for the United States retail sector. Monthly data for the 1970s are utilized. In estimating the model it is alternatively assumed that expectations were formed according to a seasonal model, to perfect foresight, and to a narrowly rational expectations model. We find that a model in which expected sales and the expected rate of inflation are narrowly rational can explain most of the variation in retail inventory investment during the time period studied. The results of the estimation imply that retailers have a relatively short forecast horizon, that they can react quickly to either unexpected sales or to a deviation of actual from desired inventory stocks, and that an increase in the real of interest has a statistically negative impact on retail inventory investment.     

Oil prices and world inflation

In this paper we attempt to address the nature of the causal relationships between oil prices and U.S. inflation. We use a procedure developed by Granger to assess “causality” or, more precisely stated, “informativeness.” Our results confirm that higher oil prices have increased the U.S. WPI. Our results also support OPEC's contention that their price increases have in part been a result of worldwide inflation.     

Uncertainty,organizational form,and x-efficiency

When the firm is uncertain about the efficiency units of labor that it employs, some organizational forms—franchise, owner-operated, and multiplant firms— may be more profitable than others. As a result, particular organizational forms may dominate an industry with uncertain inputs. Conversely, various organizational forms may be selected by a company selecting producing units that will maximize the decision maker's expected utility of profits. This paper offers an alternative view of firm attributes associated with x-efficiency.     

The optimal policy rule under rational expectations and multiplier uncertainty

This paper shows the role of macro policy under multiplier uncertainty when expectations are rational and the supply structure is affected by price level variance. Policy less is a function of price level variance and possibly of the expected price level. If the letter argument is omitted from the less function, optimal policy simply minimizes the horizontal variance of the aggregate demand curve. If it is not omitted, the level of policy depends on the responsiveness of the supply structure to price level variance, and there may be multiple local policy optima.     

Prices of deep discount bonds and the Revenue Act of 1978: An evaluation of market response

This article explores the market response of deep discount corporate bonds to the reduction in the capital gains tax rate incorporated into the Revenue Act of 1978. Such tax change should have increased the desirability of assets acquired for capital gains potential, such as deep discount bonds. Examining a time series of prices and returns for a sample of deep discount corporate bonds and a control group of comparable duration and credit risk corporate bonds selling at or near par did indeed provide evidence of a market price reaction. Moreover, the price changes for the deep discount bonds occurred well in advance of the implementation of the tax change.     

Labor market differentials and the expected gain from search

Several recent empirical studies have used the residuals from estimated earnings equations as explanatory variables in models of on-the-job search and quit behavior. It has often been argued that the coefficients on these “market differential” variables are biased downward because estimated residuals overstate the “true” quasi-rent or disincentive to search for alternative employment. This argument—that observed wages include implicit payments for workplace and person-specific characteristics not fully specified in earnings models— ignores an opposing bias associated with the value of being able to reject unattractive wage offers. As a consequence, there is no unambiguous a priori relationship between estimated wage residuals and the theoretical expected gain from search. Some evidence bearing on the relative magnitudes of the two biases is discussed.     

Polymorphism in competitive strategies: Trading stamps

This paper uses the example of trading stamps to examine a model of competitive nonprice marketing strategies. A concept borrowed from ethology, polymorphic equilibrium, is developed and used to explain salient features of trading stamp use by retail firms. The results contribute to an understanding of why virtually identical firms may optimally choose quite different competitive strategies. The paper also demonstrates the possibility of cyclical movements in the proportion of firms that adopt nonprice strategies such as the use of trading stamps.     

Multibank holding company activity and local market structure: Some implications for intra- and interstate banking

This paper presents new evidence on the effects of multibank holding companies on the structure of local commercial bank markets for deposits. A distinguishing feature of this study is the use of pooled cross-section and time-series data. It is concluded that multibank holding company activity has had a procompetitive effect on the local banking markets in the sample. This finding, which is quite robust under alternative model specifications, has important implications for state and federal policy toward this organizational form and toward intra- and interstate banking.     

Bank structure and mortgage rates: Implications for interstate banking

Competition in financial markets has been the subject of many studies in the area of market structure and performance. This paper analyzes the differences in mortgage rates between unit banking and branch banking states to consider the likely outcome of interstate banking on competition. A model of interest rate determination is developed which suggests that, at least in the mortgage market, interstate banking will, ceteris paribus, decrease competition if it lowers the number of competing firms and increases deposit concentration levels. Support is provided for the argument that only those states under statewide branching laws may receive more competitive environments from the spread of interstate banking.     

Automatic adjustment clauses and allocative efficiency in public utilities

This paper presents a formal analysis of the efficiency effects of automatic adjustment clauses (AACs) is regulated industries. Using a two-input model of ex ante/ex post input choice and a general putty-clay technology, we analyze the relative extent of allocative distortions due to each of three alternative regulatory policies—periodic rate review with and without an AAC, and an AAC without any rate review—for the case of a regulated firm that chooses an ex post technology to maximize the present value of future profits.Our results indicate that the economic rationale for using AACs in industries already subject to intermittent rate review is not unambiguous, even in the face of severe cost inflation, and is particularly sensitive to the magnitude of the price elasticity of demand for output and the rate and direction of input price changes. We are forced to conclude that the use of AACs in regulated industries such as electric power, while originally justified on the basis of financial viability, may well carry significant economic costs in the form of allocative inefficiency that may outweigh the benefits.     

Price adjustment strategy under conditions of high inflation: An empirical examination

Price adjustment strategy is a central problem to businesses operating under conditions of high inflation. Three different approaches to the problem are presented and some of their implications tested empirically by means of a unique data set. The empirical observations do not support any of the three traditional approaches.     

An econometric assessment of the Canadian wage and price control program: 1975:4–1977:4

This paper presents an econometric assessment of the Canadian Wage and Price Control Program. The assessment is specifically designed to determine whether controls have been effective in reducing the long-run inflation rate in Canada. The method of evaluation of the control program is to compare the behavior of inflation under controls to the behavior which would have occurred in the absence of controls. In addition, the paper analyzes inflation in the post-control period to test for the “catch-up” phenomenon. The results suggest that the control program exercised a permanent effect on the inflation rate.