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 short and intuitive proof of Marshall's Rule

Summary. When the price of an input factor to a production process increases, then the optimal output level declines and the input is substituted by other factors. Marshall's rule is a formula that determines the own-price elasticity for one factor as a weighted sum of the elasticities of output market demand and factor substitution. This note offers a proof for Marshall's rule that is significantly shorter and somewhat more intuitive than existing derivations. Received: February 19, 2001; revised version: April 3, 2002 RID="*" ID="*" I thank Charalambos Aliprantis, John Moore, Patrick Schmitz, and the anonymous referee for helpful suggestions. Support by the German Academic Exchange Service is gratefully acknowledged.     

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.”     

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.     

A forward-looking analysis of residential telephone access demand in Korea

This paper analyzes the price elasticity for residential access demand in Korea using survey data of 1998. We apply an asymmetric GEV model to this data and derive a formula for forward-looking price elasticities of the penetration rate. We categorize the respondents into two groups, single-line households and multi-line households, and estimate the price elasticities for each group. Estimation outcome shows that single-line households are less sensitive to price changes than multi-line households with respect to installation charge and rental charge. In view of the relatively low price elasticities of single-line households, an increase in rental charge is not expected to result in large-scale drop-offs of primary lines.     

Indeterminacy in a small open economy with endogenous labor supply

Summary. We establish conditions under which indeterminacy can occur in a small open economy business cycle model with endogenous labor supply. Indeterminacy requires small externalities in technologies with social constant returns to scale, independently of the intertemporal elasticities in both consumption and labor. Received: December 12, 2001; revised version: May 17, 2002 RID="*" ID="*"The paper has benefited from discussions with Jess Benhabib and Mark Weder, as well as from the comments of an anonymous referee. Correspondence to: Q. Meng     

The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects

We argue that the proper specification of a panel gravity model should include main (exporter, importer, and time) as well as time invariant exporter-by-importer (bilateral) interaction effects. In a panel of 11 APEC countries, the latter are highly significant and account for the largest part of variation. First version received: February 2001/Final version received: June 2002 RID="*" ID="*"  We are grateful to two anonymous referees and Robert Kunst for their helpful comments.     

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.     

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.     

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.     

The effects of price on household demand for food and calories in poor countries: are our databases giving reliable estimates?

Food price policy relies heavily on estimated price elasticities of food demand to help balance the nutritional and economic objectives in poor countries. Economists use either unit values (ratios of household expenditure to quantity purchased) or community prices (enumerated from vendors in local markets) as proxies for market prices when estimating price elasticities with household survey data. Biases are believed to result from using unit values, due to measurement error and quality effects, but evidence on this issue is lacking and even less is known about community prices. This article provides an empirical evidence from Vietnam, which suggests that economists should exercise caution when estimating price elasticities from household surveys. A 14-food demand system is estimated alternatively with unit values or community prices, and the elasticity of calories with respect to rice prices is calculated. This elasticity is more than twice as large (?0.54 versus ?0.22) when community prices are used rather than unit values. Hence, conclusions about the nutritional effects of rice price increases appear sensitive to data choices made by economists. More generally, this discrepancy suggests that the household survey databases commonly used by economists may not provide reliable estimates.     

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.     

Conditional and unconditional food demand elasticities in a dynamic multistage demand system

This paper estimates conditional and unconditional demand elasticities in a three stage analysis of consumer demand for food and non-food items in Greece. A dynamic version of the AIDS model is specified and estimated, and full system misspecification tests applied. Correction formulas for price and expenditure elasticities are used to calculate unconditional elasticities from conditional demand sub-systems. All food items rank as price inelastic. Deviations between the calculated conditional and unconditional price and expenditure elasticities are found to be significant, demonstrating the importance of correcting conditional elasticities before they can be used for policy purposes or welfare analyses.     

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.     

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.     

Using an integrated choice and latent variable model to understand the impact of “professional” respondents in a stated preference survey

Internet panels are increasingly used for stated preference research. Because members of such panels receive compensation for each completed survey, one concern is that over time this creates professional respondents who answer surveys solely for the monetary compensation. We identify professional respondents using data on panel tenure, survey response frequency, completion rate and total number of completed surveys. We find evidence of two types of professional respondents: “hyperactives” who answer surveys frequently and “experienced” who have long panel tenure and a large number of completed surveys. Using an integrated choice and latent variable model on stated preference survey data, we find that “hyperactive” respondents are less likely to choose the 'status quo’ and have a more stochastic choice process as seen from the econometrician's point of view, whereas “experienced” respondents have a relatively more deterministic choice process. Our results show that “hyperactive” respondents significantly impact estimated values.     

Do prices count? A micro-econometric study of illicit drug consumption based on self-reported data

Using a unique data set of almost 2,500 interviews with people attending a needle exchange service in Oslo, this paper sets out to estimate the impact of economic factors on heroin and amphetamine injectors drug consumption, including cross-price effects. To examine the robustness of the conclusions, four model versions are considered: with focus on (i) switching regression mechanisms treating dealing/non-dealing as an endogenous decision, (ii) spline function versions examining possible kinks in the price response, (iii) a dynamic model version focusing on addiction, and (iv) pseudo panel data model versions focusing on unobserved heterogeneity. Negative and significant price elasticities and positive and significant income elasticities come out as robust results. Their magnitude vary, however, depending on the type of model, on the main drug for injecting, and on whether the consumer also is a dealer.First version received: November 2002/Final version received: June 2003This paper builds in part on Bretteville-Jensen and Sutton (1996): Under the influence of the market: An applied study of illicitly selling and consuming of heroin, Discussion paper no. 147, Centre for Health Economics, University of York, in which the authors thank Andrew Jones and Jes Søgaard for helpful advice during early stages of the work. We also express our thanks to Jan Erik Askildsen, Kjell Erik Lommerud, Aina Uhde, and a referee for valuable comments on this extended version.     

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.     

Nash and Walras equilibrium via Brouwer

Summary. The existence of Nash and Walras equilibrium is proved via Brouwer's Fixed Point Theorem, without recourse to Kakutani's Fixed Point Theorem for correspondences. The domain of the Walras fixed point map is confined to the price simplex, even when there is production and weakly quasi-convex preferences. The key idea is to replace optimization with “satisficing improvement,” i.e., to replace the Maximum Principle with the “Satisficing Principle.” Received: July 9, 2001; revised version: February 25, 2002 RID="*" ID="*" I wish to thank Ken Arrow, Don Brown, and Andreu Mas-Colell for helpful comments. I first thought about using Brouwer's theorem without Kakutani's extension when I heard Herb Scarf's lectures on mathematical economics as an undergraduate in 1974, and then again when I read Tim Kehoe's 1980 Ph.D dissertation under Herb Scarf, but I did not resolve my confusion until I had to discuss Kehoe's presentation at the celebration for Herb Scarf's 65th birthday in September, 1995. RID="*" ID="*"Correspondence to: C. D. Aliprantis     

Distributional assumptions and a test of the dual labor market hypothesis

Recent application of the switching regression model to allocate workers into the primary and secondary labor markets is considered to be the best solution to the classification problem of the empirical testing of the dual labor market theory. In such models, normality of the error terms is assumed. This paper adopts the switching regression model to test the dual labor market theory by assuming different distributions of the error terms. The test results strongly support the dual labor market theory regardless of the assumption one makes about the error terms. However, the results indicate that different distribution can lead to different percentage distributions of workers in the two segments. In particular, the normal distribution generates more workers in the primary segment than the non-normal distributions. Therefore, care must be taken not to generalize the type of industries or occupations that fall under the primary and secondary segments. First version received: October 2000/Final version received: March 2002 RID="*" ID="*"  I would like to thank Kevin Lang, Robert Marshall, and two anonymous referees for their helpful comments. I am grateful for comments received from the session participants of the Western Economic Association International Conference, San Francisco, CA, June 28–July 2, 1996, and the Midwest Economic Association Conference, Kansas City, 1997. I thank George Bonney, the Chief Statistician of Fox Chase Cancer Center, Philadelphia for his comments. Any remaining errors are my responsibility. I gratefully acknowledge financial support from Penn State Research and Development Grant, 1995.