The Depreciation of Human Capital Over Time: The Case of Economic Knowledge Revisited

In this note, the authors point out what is learned in principles lasts longer with students of high ability and if the first course is followed by additional courses in economics or mathematics. This lends support to the practice of advising majors not to delay the intermediate theory course after completing principles.     

Gordon Tullock and Richard McKenzie. The New World of Economics.

The authors extend the literature on the efficacy of high school economics instruction in two directions. First, they assess how much economic knowledge that California students acquired in their compulsory high school course is retained on their entering college. Second, using as a control group some college students from the state of Washington, where there is no mandate for high school economics instruction, the authors evaluate the impact of California's high school economics mandate on students’ economic literacy when they enter college. The testing instrument is the Test of Economic Literacy (TEL).     

Constrained output maximization and US agriculture

This paper presents a framework for estimating an indirect production function and then applies it to aggregate US agriculture. Issues addressed include tests of standard hypotheses about the underlying technology (homotheticity, neutral technical change, etc.) as well as examination of consistency in aggregation and the effects of changes in the level of aggregate expenditure on farm output. Since there already exist several studies empirically describing agricultural production technologies with indirect objective functions, one might fairly ask whether this paper really breaks any new ground? We feel that it does. One reason is that existing studies (e.g. Binswanger, 1974; Lopez, 1980; Ball and Chambers, 1982; Ray, 1982; and Weaver, 1983) all rely on either profit or cost functions. To date there appears to be only one study using an indirect production (Appelbaum, 1979), and it is not in agriculture. This seems unfortunate because there are many instances in agriculture for which an indirect production function (or revenue function approach) seems more appropriate. The reason why relates directly to one's belief about the objective function and constraints farmers face. Ultimately, it seems plausible in a certainty framework that producers maximize profits. And since cost minimization and output maximization are just constrained versions of profit maximization, both cost and indirect production functions are more appropriately viewed as restricted profit functions. What differs is the constraint. Assuming cost minimization implies that farmers are constrained by a fixed output which they must produce; in most instances, this is implausible. More likely, the level of output is itself a choice variable. Output maximization, on the other hand, suggests that the main constraint is the amount of money that producers can muster to hire resources. In other words, farmers may face binding constraints in obtaining the profit maximizing level on expenditure on input utilization. One might think that expenditure may not be a binding constraint because there exists a relatively active US credit market. However, the US credit market is far from being perfectly competitive in a stylized sense, and thus, the possibility of a farmer being able to finance a given level of expenditure may be limited.

Readers familiar with the dual approach to production problems may already be asking why these ideas rule out cost functions since it is well known that the cost function is the distance function of the indirect production function (Blackorby et al., 1978)? In principle, therefore, one could always estimate a cost function and then invert it to obtain the indirect production function. There are two problems with this approach: the first is that if output maximization is truly the objective, output is not predetermined and cannot be treated as exogenous in cost function estimation. Second, estimation of direct and indirect functions using the same data set does not always yield comparable results. Estimation of a transcendental logarithmic (translog) indirect production function and a translog cost function, separately, does not generally yield identical estimates of the Allen elasticities of substitutions. Solving the first problem in simple, but the second suggests that estimation should proceed on the basis of the objective function the researcher deems most appropriate. Therefore, if output maximization is more plausible than cost minimization an indirect production function should be used.

The plan of the paper is as follows. We first outline the theoretical developments necessary to our approach (included are conditions necessary for consistent aggregation over firms). We then present estimates of an indirect production function and use these estimates to investigate the plausibility of various restrictions on the technology, consistency in aggregation, substitution possibilities in agricultural production, and the effect of expenditure on agricultural input utilization. The paper closes with a discussion of the results and suggestions for future research.     

Economics of scale and scope in multiproduct firms: evidence from US railroads

Recently, there has been a surge of interest in analysing scale economies in US railroad firms. The analysis of scale economies in existing studies is, however, limited in view of recent advances in the theory of the multiproduct firm. In this paper, the previous work is extended to address the issue of scale and scope economies in multiproduct firms. The findings show that US railroads experience mild overall economies of scale, but rather marked product-specific economies of scale with respect to both freight and passenger services. However, there appear to be diseconomies of scope associated with the joint production of the two services. Based on these results, this study indicates that US railroad firms would have no tendency to behave as a natural monopoly in the absence of regulation.     

Tourism's contribution to the demand for London's lively arts

How much of the attendance at London's lively arts comes from tourism? This question steers the inquiry, which involves model that distinguishes resident demand from tourist demand. Data for the empirical work are time series on individual arts companies, and accordingly the estimation method allows for autocorrelation and heteroscedasticity. Estimation indicates that, consonant with time-allocation logic, tourist demand depends importantly upon income whereas resident demand does not. It is shown that tourists, whose arts participation rate averages only 8%, account for 65% of attendance and that the elasticity measuring the attendance response to tourism equals 0.645.

It must be concluded that if it were not for overseas visitors to London, it is doubtful whether West End theatres could remain open throughout the summer.

Society of West End Theatre (1982, pp. 6–7)     

Market structure and corporate charitable donations: some Canadian evidence for 1976 and 1981

The business of business, not charity.

Say eleemosynary its more confusing.

Whatever, as long as we don't given 'em any cash.

Harv Antione, ‘The Buzz Words of Entrepreneurship’

in Apocryphal Northern Tales

This paper investigates the general determinants of corporate charitable donations in Canada and, in particular, the impact of imperfectly-competitive market structure. We utilize a profit-maximizing model and assume that charitable donations occur only if, by performing an advertising/public relations function, they increase revenue; or if, by acting as a fringe benefit, they result in a reduction in wage costs. In this context, because only firms in imperfect markets generate the rents from which donations can be made, we anticipate a positive relationship between donations and a measure of imperfect competition (concentration). The data is a cross-section sample of 38, 3- and 4-digit SIC manufacturing industries pooled for 1976 and 1981. The major findings are that: the results are generally compatible with the predictions of the model; concentration is a significant determinant of donations although non-linear; the cost of giving (the tax rate) is appropriately positive; and there are significant negative relationships for measures of foreign ownership and wage rates.     

Testing economic theories of voter behaviour using micro-data

Three hypotheses often encountered in economic analyses of voter behaviour are tested using an extensive data set derived from six consecutive national election studies in the Netherlands in the period 1971–1986. These hypotheses are: (i) the party choice and turnout decisions are taken sequentially and independently by voters; (ii) social gorups play a central role in the decisionmaking processes in the political sphere; (iii) the effect of individual-level variables on party choice is stable over time. The results provide support for the first hypothesis and partial support for the second, where the specific categorization of individuals to be chosen is a matter that needs further investigation. The third hypothesis is rejected by the data: the relationship between the variables chosen and party choice proved to be unstable.     

Amalgamations of universities:are there economics of scale or scope?

This paper estimates a multiple-output cost function for Australian universities. The estimates are used to evaluate the cost savings arising from the amalgamation of two or more institutions. These cost savings in turn are decomposed into those due to economics of scale and those due to economics of scope, using a new measure of economics of scope associated with the amalgamation of two institutions.