Contracting out refuse collection

In this paper we seek an explanation for the reservations of local authorities towards contracting out. Although empirical evidence suggests that contracting out results in a significant cost decrease, a majority of Dutch municipalities provides for waste collection services themselves. Based on theoretical insights we model the choice between private, public, in-house, and out-house refuse collection. The models are estimated using a database comprising nearly all Dutch municipalities. We find evidence that the number of inhabitants, the transfer by central government, and interest group arguments are important explanations. Interestingly, ideology seems to play a minor role.  Compared to earlier studies we estimate more general models. Although the same qualitative results are found for parametric and semiparametric models, we find strong statistical evidence that a parametric specification is far too inflexible. Differences between the parametric and the semiparametric marginal effects are substantial. Thus, more attention is needed for the implications of model specification. First version received: November 2000/Final version received: May 2002 We thank two anonymous referees for their comments on an earlier version.     

Assessing the impact of taxes on female labor supply using a finite mixture approach

This paper expands the standard analysis of female labor supply to permit preference heterogeneity by using a finite mixture model. Using the extended model, we obtain theory consistent results whereas a traditional model produces a negative substitution effect. We use our model to illustrate the labor supply effects of a tax reform, corresponding to 1983–1992 changes in the Swedish income-tax schedule. The results shows an expected reduction in tax revenues of about 17%. Finally, we use Monte Carlo simulations and show that our proposed mixture model is robust towards different misspecifications. First version received: March 1998/final version accepted: October 1999     

An analysis of housing expenditure using semiparametric cross-section models

In this paper we model expenditure on housing for owners and renters by means of endogenous switching regression models using cross-section data. We explain the share of housing in total expenditure from family characteristics and total expenditure, where the latter is allowed to be endogenous. We apply various existing parametric and semiparametric techniques for cross-section data. Exogeneity of total expenditure is rejected for the parametric models but not for most semiparametric models. The results are compared on the basis of budget elasticities and graphs of the estimated relationship between the budget share spent on housing and the logarithm of total expenditure. First version received: November 1997 / Final version received: January 2000     

Semiparametric estimation and testing in a model of environmental regulation with adverse selection

We consider a principal–agent model of environmental regulation with adverse selection, where firms are regulated through contracts. We show how the model allows to recover information on structural cost parameters. We use a semiparametric method to estimate consistently such parameters without specifying the distribution of the agents private information. We also show how to check for the specification of the econometric model, as well as auxiliary parametric assumptions, by means of specification tests based on nonparametric estimation. Results are used to discuss a selection of economic issues related to environmental regulation.First version received: August 2002/Final version received: November 2003Previous versions of this work were presented at Seminaire INRA-IDEI, Toulouse, the conference on Applications of semiparametric methods for micro-data, Tilburg, and seminars at UC Berkeley, University of Wisconsin–Madison, CREST, and INRA-LEA. We are indebted to participants, and especially Michael Visser, for their comments. We thank two referees for helpful comments. Financial support from the Conseil Régional Midi-Pyrénées and from INRA is gratefully acknowledged.     

Stable cointegrating regressions: Fully-modified estimates for inflation and employment cost indices

This paper investigates the stability of relationships between inflation and changes in employer cost for labor using tests based on the null hypothesis of no cointegration (Gregory and Hansen (1996a)) as well as tests based on the null hypothesis of cointegration (Hansen (1992)). In addition to specifications which include wages or unit labor cost, employment cost indices for compensation and wages are used to eliminate composition bias over the business cycle. Empirical results support stability and fully-modified estimates are obtained using the semiparametric approach of Phillips (1995). In contrast to studies which have found only one-way causality, this paper presents empirical evidence of feedback between inflation and employer cost for labor, consistent with an expectations-adjusted Phillips's Curve. First version received: July 1997/final version received: September 1998     

QUALITY AND ECONOMIES OF SCALE IN HIGHER EDUCATION: A SEMIPARAMETRIC SMOOTH COEFFICIENT ESTIMATION

This paper proposes a semiparametric smooth coefficient cost model to study the university cost structure where coefficients are an unknown function of the university's overall quality. A local least square method with a kernel weight function is used to estimate the cost function, and a simple statistic for testing a parametric model of the additive quality versus the semiparametric smooth coefficient model is applied. Empirical results from 56 universities in Taiwan show that, taking quality into account, higher education is subject to diseconomies of scale. In all categories—comprehensive and science/technology and public and private universities—the current university scale in Taiwan is too big to be cost efficient. (JEL I21, H52, 9120)     

Inflation-unemployment tradeoff and regional labor market data

We estimate a linear and a piecewise linear Phillips curve model with regional labor market data for West German and Neue L?nder. Employing regional observations allows us to country difference the data. This eliminates, under the assumption of homogeneous L?nder, supply shocks and changes in the formation of expectations as possible identification failures. With seemingly unrelated regressions we find a flat Phillips curve in the Neue L?nder. For the West German L?nder a piecewise linear model with a higher inflation-unemployment tradeoff for the regime of low unemployment rates fits the data very well. The results hold true if we control for endogeneity of the unemployment rate. With a kinked but upward sloping aggregate supply curve there seems to be room for stabilization policies, at least in the range of aggregate demand shifts that our data covers. First version received: December 2000/Final version accepted: Jan. 2002 RID="*" ID="*"  An earlier version of this paper was written while the second author was at Universidad Carlos III in Madrid. He thanks Juan Dolado and is grateful for financial support by the TMR Program on New Approaches for the Study of Economic Fluctuations. He would also like to thank Bertrand Koebel for his critique on that earlier version. Both authors are grateful to an editor and three anonymous referees for very helpful comments. Moreover, we wish to thank participants of the seminar on Quantitative Wirtschaftsforschung by Jürgen Wolters and Peter Kuhbier, Freie Universit?t Berlin. Finally we profited from discussions with participants at the conferences of the European Economic Association in Lausanne and the Verein für Socialpolitik in Magdeburg where the paper was presented. Of course, all errors are to our sole responsibility.     

Cointegration and common trends on the West German labour market

In this paper we analyze the West German labour market by means of a cointegrated structural VAR model. We find sensible stable long-run relationships that are interpreted as a labour demand, a wage setting and a goods market equilibrium. In order to study the dynamic behaviour of the model we identify two common trends that push unemployment. We find that goods market shocks have only transitory impacts on unemployment. In the long run, it is almost equally determined by technology and labour supply factors. However, transitory shocks have major importance in the shorter run since adjustment processes are rather sluggish. First version received: Sept. 1998/Final version accepted: Feb. 2000     

Dynamic employment adjustments over business cycles

This paper uses U.S. monthly industrial production employment data between 1964 and 2000 to examine the dynamic labor adjustments of production workers and nonproduction workers in both the short and long-run. The results from the short-run analysis show that the dynamic adjustment of production workers is consistent with business cycles. However, the adjustment of nonproduction workers is relatively fixed, lags behind the shocks over business cycle changes, and exhibits the quasi-fixed factor property. In the long-run, we found that nonproduction workers and production workers are cointegrated indicating that the two series are in long-run equilibrium.First version received: March 2002/Final version received: November 2003We would like to thank James McClure, participants in the Economics Department seminar series at Ball State University, and an anonymous referee for their comments and suggestions.     

Efficient estimation of partially linear varying coefficient models

In this paper, we consider the problem of estimating a semiparametric partially linear varying coefficient model. We derive the semiparametric efficiency bound for the asymptotic variance of the finite-dimensional parameter estimator. We also propose an efficient estimator for estimating the finite-dimensional parameter of the model. Simulation results show substantial efficiency gain of our proposed estimator over a conventional estimator as considered in Ahmad et al. (2005).     

Aggregate labor market fluctuations under news shocks

The standard RBC model fails to replicate the relationship between aggregate hours worked and average productivity. We propose a DSGE model that incorporates habit formation preferences, capital adjustment costs, and news shocks to solve the puzzle implied in the standard RBC model with only technological shocks. The aggregate labor supply curve is shifted due to the wealth effect caused by the variation of consumption under a news shock. Moreover, capital adjustment costs help amplify the variation of consumption, and thus the movement of the aggregate labor supply curve under the news shock. Also, the aggregate demand curve will be shifted, as it operates in the standard RBC model after the realization of the news shock. As a result of the joint movement of the aggregate labor supply curve and aggregate labor demand curve under the news shock, the model achieves a relationship quite close to the empirically observed relationship.     

A Semiparametric Analysis of the Life Cycle-Permanent Income Hypothesis

This paper considers a semiparametric regression model to test the various implications of the Life Cycle-Permanent Income (LCP) hypothesis proposed by Hall (1978). The semiparametric regression model does not require any parametric assumption on the functional form of the unknown utility function in our analysis. In contrast, the linear regression models frequently used in the literature are justified under specific parametric forms of the utility function and may lead to a misleading conclusion on the LCP hypothesis if the parameterization is incorrect. Using both linear and semiparametric regression models, tests of the martingale property of consumption along with several specification tests are performed on the U. S quarterly data from 1947 to 1990. The results from the semiparametric model do not differ significantly from those from the linear model and suggest some evidences against the implications of the LCP hypothesis. [C14]     

Variable Labor Supply,Terms of Trade Shocks,and Domestic Prices: A Note

This paper develops a two-good, small-country, general-equilibrium trade model with endogenous labor supply, where trade is restricted by a tariff or an import quota. Within this framework, it is shown that, contrary to Anam (1989), under an import quota domestic and world prices may vary in the same direction. This is due to the possibly positive employment effects of terms of trade shocks. In such a case, compared to fixed labor supply, variable labor supply is likely to make the domestic prices less sensitive to foreign price volatility. Received June 13, 2001; revised version received November 14, 2001     

An econometric application of the theory of the farm-household

Employing a Cobb-Douglas specification for the production function and a modified linear expenditure system, the paper presents an econometric model of household production, consumption and labor supply behaviour for a semi-commercial farm with a competitive labor market. The model, estimated from primary, cross-sectional, Malaysian data, is used to analyse the impact of migration, output price intervention and technological change on the agricultural sector. In doing so, the wage-rate is treated as an endogenous variable to be determined by the interaction of aggregate labor demand and supply curves obtained from the estimated micro functions.     

A three state model of worker flows in general equilibrium

We develop a simple model featuring search frictions and a nondegenerate labor supply decision along the extensive margin. The model is a standard version of the neoclassical growth model with indivisible labor and idiosyncratic productivity shocks and frictions characterized by employment loss and employment opportunity arrival shocks. We argue that it is able to account for the key features of observed labor market flows for reasonable parameter values. Persistent idiosyncratic productivity shocks play a key role in allowing the model to match the persistence of the employment and out of the labor force states found in individual labor market histories.     

Increased Input Supplies,Government Size,Welfare and Trade in the Presence of Increasing Returns

This paper examines the impact of exogenous changes in the supply of primary factors of production on the relative size of government and welfare in the context of a model where increasing returns are present in the production of an intermediate good. It is shown that an increase in the supply of labor (capital) increases the relative size of government if the share of labor is large (small) in the public sector as compared to the private sector. An increase in the supply of capital increases welfare but the impact of an increase in the supply of labor cannot be unambiguously determined. In the context of a North-South model, the paper also considers the pattern of trade. It is shown that North will export capital-intensive intermediate goods to the South. Received September 13, 2001; revised version received June 1, 2002 Published online: February 17, 2003 I am indebted to Professor Bob Catley and two anonymous referees for invaluable comments and suggestions. However, responsibility of any remaining errors or omissions is mine alone.     

Estimation of hedonic price functions via additive nonparametric regression

We model a hedonic price function for housing as an additive nonparametric regression. Estimation is done via a backfitting procedure in combination with a local polynomial estimator. It avoids the pitfalls of an unrestricted nonparametric estimator, such as slow convergence rates and the curse of dimensionality. Bandwidths are chosen using a novel plug in method that minimizes the asymptotic mean average squared error (AMASE) of the regression. We compare our results to alternative parametric models and find evidence of the superiority of our nonparametric model. From an empirical perspective our study is interesting in that the effects on housing prices of a series of environmental characteristics are modeled in the regression. We find these characteristics to be important in the determination of housing prices.First version received: October 2002/Final version received: October 2003We thank B. Baltagi and two anonymous referees for their comments. The authors retain responsibility for any remaining errors.     

Model selection for nonlinear time series

We investigate the finite-sample performance of model selection criteria for local linear regression by simulation. Similarly to linear regression, the penalization term depends on the number of parameters of the model. In the context of nonparametric regression, we use a suitable quantity to account for the Equivalent Number of Parameters as previously suggested in the literature. We consider the following criteria: Rice T, FPE, AIC, Corrected AIC and GCV. To make results comparable with other data-driven selection criteria we consider also Leave-Out CV. We show that the properties of the penalization schemes are very different for some linear and nonlinear models. Finally, we set up a goodness-of-fit test for linearity based on bootstrap methods. The test has correct size and very high power against the alternatives investigated. Application of the methods proposed to macroeconomic and financial time series shows that there is evidence of nonlinearity.First version received: September 2002/Final version received : October 2003I would like to thank Cees Diks, Cars Hommes and an anonymous referee for useful comments that significantly improved the paper.     

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     

Can consumption habit spillovers be a source of equilibrium indeterminacy?

This paper investigates whether the external consumption habit can be a source of indeterminacy in a one-sector growth model when the labor supply is elastic. When there is a proper habit effect with a positive intertemporal elasticity of substitution, we find that the model exhibits indeterminacy if the coefficient of the habit formation is sufficiently large that allows for a substantial impact of current consumption on the habit. Indeterminacy arises even though the elasticity of the Frisch labor supply is positive and the elasticity of the labor demand in negative. In a calibrated version, we find that indeterminacy is empirically plausible when the habit effect is negative that features the “catching up with the Joneses” effect. Under given “catching up with the Joneses” effects, the external consumption habit can be a source of indeterminacy even if more than a half of the external consumption habit comes from past average consumption.