SOME ANALYTICS OF WHY CONDITIONAL IRRs CAN CONTAIN GROWTH RATE RELATED MEASUREMENT ERROR

This paper investigates the consequences of incorrectly modelling the investment outflow/benefit inflow relationship on estimates of the internal rate of return (IRR) prepared by using cash recovery rates (CRRs). The main result of this paper is that CRR-based estimates of the IRR will contain such bias if and only if either the duration of the assumed shape of the investment outflow/benefit inflow relationship is less than the duration of the true investment outflow/benefit inflow relationship for all rates of interest or the duration of the assumed shape of the investment outflowlbenefit inflow relationship is greater than the duration of the true investment outflowlbenefit inflow relationship for all rates of interest. This result is then applied to the case where both the true and the assumed shape of the investment outflow/benefit inflow relationships have benefit inflows that change exponentially over time. It is shown that if the exponential rate of change is mis-specified the resulting CRR-based estimate of the IRR will contain systematic bias monotonically related to the rate of growth.     

Futures and forward price differential and the effect of marking‐to‐market: Australian evidence

The objective of this paper is to examine the effects of marking‐to‐market of futures contracts on the price differential between futures and forward contracts based on the predictions of the Cox, Ingersoll and Ross (1981) (CIR) model. Cox et al ., (1981) derive a series of propositions with respect to the relationship between futures and forward prices and a set of testable implications. These are tested empirically in this paper using Australian data from November 1991 to June 1997. The results provide evidence of the presence of significant futures and forward price differences, where the futures price is consistently below the forward price. Only partial support is found for the Cox et al ., (1981) propositions, implying that the effect of marking‐to‐market is not able to fully account for the price differential. Therefore, it is not possible to rule out the influence of other institutional factors on the futures‐forward price difference.     

The political economy of direct legislation: direct democracy and local decision–making

Local and regional governments account for an important share of total government spending and, given the decentralization trend in OECD nations, this is likely to increase. How should this spending be governed? This article argues that direct democracy is best suited to organize decision–making at the state and local level. To support this, we present the main theoretical arguments on why and how referenda and initiatives affect fiscal policy outcomes. The basic argument concerns voter control. Under representative democracy, citizens only have direct control at election time. With referenda and initiatives, citizens can selectively control their representatives on specific policies whenever they deviate sufficiently from citizens' preferences. As a result, fiscal policy outcomes are likely to more closely reflect voter preferences. We empirically test this on Swiss data since Switzerland provides a 'natural laboratory' for local governance. The governance structures of Swiss cantons and localities with respect to fiscal issues range from classic parliamentary democracy to pure direct democracy, and an important part of spending and taxation is controlled at these levels. Specifically, we estimate an econometric model of fiscal behaviour using data from 1986 to 1997 for the 26 Swiss cantons, and 1990 data on 134 local communities. It is shown that mandatory referenda on fiscal issues at both levels have a dampening effect on expenditure and revenue, and at the local level also on public debt. Combining this with existing empirical evidence leads to a relatively uncontested result, namely that elements of direct democracy are associated with sounder public finances, better economic performance and higher satisfaction of citizens.     

Human resource management,union voice and the use of discipline: an analysis of WIRS3

Three outcomes of personnel practice (rates of discipline, quitting and absence) are analysed. There was no firm association with measures of practices associated with Human Resource Management. By contrast, unionisation was strongly associated with the low use of discipline and low quit rates: union ‘voice’ remains influential in the 1990s.     

Employment,schooling and productivity growth

Summary This paper presents an empirical analysis of labour demand and labour productivity growth in The Netherlands. Assuming an aggregate production function with as factors capital and 3 types of labour, distinguished by educational attainment, cost minimization leads to a set of 3 labour demand relations to be estimated on time series data. Using the estimates and the implied elasticities, aggregate labour productivity growth is decomposed into factor substitution, autonomous factors, labour time shortening, economies of scale, utilization rates and the increased educational level of the working population. The contributions of substitution, utilization rates and education appear to be substantial, notably in the seventies.

List of symbols

Variables a _i Efficiency index of skill leveli - C production - h _i working-time index for skill leveli - g _i steady-state growth rate of skill leveli - K capital stock - L _i employment volume of skill leveli - L _i ^* desired level of labour skill leveli - p output price - p ^* desired output price - s _i ^* long-run static labour shares in the production value - p _k rental price of capital - P index of total factor productivity - P _l index of labour productivity - u _i utilization rate of skill leveli - u _k utilization rate of capital - w _i wage rate for skill leveli - y production volume - y _yij Hicks partial elasticities of complementarity - _i steady-state cost share of skill leveli - _k Bk steady-state cost share of capital - _f lf highest level price index in cost function nesting - _g 4 intermediate level price index in cost function nesting - _h 4 lowest level price index in cost function nesting - _i steady-state relative wage share of skill leveli - _ij Allen partial elasticities of substitution Parameters d _i l adjustment speed of skill leveli - d _p price adjustment speed - M mark-up on marginal costs - scale elasticity of production - _i distribution parameter in cost function,i = 3, g - _i distribution parameter in cost function,i = k, h - _i distribution parameter in cost function,i =1, 2 - _i autonomous labour productivity growth for skill leveli - _i cost share of skill level in base year - _f production cost index in base year - _i hours elasticity in labour efficiency index - group elasticity of substitution betweenL ₃ and (K, (L ₁,L ₂)) - _g Og group elasticity of substitution betweenK and (L ₁,L ₂) - _h 6h group elasticity of substitution betweenL ₁ andL ₂ We would like to thank B. Downey, G.M.M. Gelauff, A. Nieuwenhuis, J.M.M. Ritzen, J.C. Siebrand and an unknown referee for helpful comments on earlier drafts.     

Urban development patterns in Indonesia

The author examines recent urban development in Indonesia. "Analysis of urban developments in Indonesia has been hampered in the past by weak data. Recently, the National Urban Development Strategy (NUDS) project has generated a set of improved data. This paper aims at elaborating and supplementing the NUDS study. After a discussion of definitional problems, an analysis is carried out of urban growth rates at the provincial level. Private investment is shown to be a principal determinant of urban growth rates. Other significant determinants are rural immigration and the present level of urbanisation. Private investment is shown to be strongly biased towards provinces with large urban areas. In addition, polarisation is studied at the level of individual cities. It is found that a period of rapidly increasing polarisation has come to an end during the last decade."     

Couple's literacy level and acceptance of family planning methods: Lorenz curve analysis

The authors study the acceptance of family planning methods according to the level of couple's literacy in 14 states in India during 1986-87, using the Lorenz curve. The Gini Concentration Ratio and Index of Dissimilarity were calculated by level of couple's literacy for vasectomy, tubectomy, IUD, and all method combined. Firstly, analysis found literates to have accepted vasectomy and IUD more than tubectomy. Secondly, among the 3 methods, a high Gini Concentration Ratio was found for vasectomy when the wife was literate. Moreover, when the wife was literate, the Gini Concentration Ratio of IUD acceptance was higher than the acceptance of IUD by the wife whose husband was literate. Thirdly, the same trend was observed when the husband was illiterate. It is therefore clear that the level of a woman's literacy is a key factor in securing the acceptance of male or female methods of family planning. Planners should therefore concentrate on literacy programs for females independently of their age. Increasing the level of female literacy may ultimately help improve the understanding of family planning methods, while these women may also motivate their husbands to undergo vasectomy which will ultimately foster the success of the family planning program.