A General Method of Deriving the Inefficiencies of Banks from a Profit Function

This article develops a new method of estimating inefficiencies in joint production and shows that unlike the approaches utilized in the previous studies of inefficiency, this method maintains a consistent relationship between the error term of a profit function and the error terms of its price derivatives. A useful by-product of the method is a proof of a Hotelling-like lemma that relates stochastic input demand and output supply functions to stochastic profit functions. While the previous studies fit a single frontier to data on all firms, this paper estimates a frontier unique to every observed firm to allow each one to have a different potential of achieving maximal levels of profit. The new method is applied in the analysis of annual data, 1984–1989, for U.S. commercial banks. Both the analytical and numerical results of the paper show that the residual that the previous studies attribute to inefficiency includes the effects of excluded variables and of inaccuracies in the specified functional forms. Once accurate estimates of these effects are subtracted from the residual, the distortions in the measured inefficiencies should be considerably reduced. Consequently, this article considers how such estimates might be obtained.     

Ambiguity in election games

We construct a model in which the ambiguity of candidates allows them to increase the number of voters to whom they appeal. We focus our analysis on two points that are central to obtain ambiguity in equilibrium: restrictions on the beliefs that candidates can induce in voters, and intensity of voters' preferences. The first is necessary for a pure strategy equilibrium to exist, while the second is necessary for ambiguity in equilibrium when there exists a Condorcet winner in the set of pure alternatives (e.g. the spatial model of electoral competition), and when candidates' only objective is to win the election. In this last case, an ambiguous candidate may offer voters with different preferences the hope that their most preferred alternative will be implemented. We also show that if there are sufficiently many candidates or parties, ambiguity will not be possible in equilibrium, but a larger set of possible policies increases the chance that at least one candidate will choose to be ambiguous in equilibrium. We would like to thank Alberto Alesina, Antonio Cabrales, Steve Coate, Olivier Compte, Tim Feddersen, Itzhak Gilboa, Joe Harrington, Michel Le Breton, Alessandro Lizzeri, George Mailath, Steve Matthews, Steve Morris, Ignacio Ortuno, Tom Palfrey, Larry Samuelson, Murat Sertel, Fernando Vega, Eyal Winter and an anonymous referee for helpful comments. The first author acknowledges financial support from DGICYT-PB 95-0983. This work was done while the first author was visiting the Center in Political Economy at Washington University, and visiting the Center for Basic Research in the Social Sciences at Harvard University. Their hospitality is gratefully acknowledged. The support of the second author's research by the National Science Foundation is also gratefully acknowledged.     

Optimal disinflationary paths

This paper characterizes optimal monetary policy in the context of a general equilibrium model with optimizing agents and staggered price setting. Starting from a steady state with positive inflation, a rapid disinflation is desirable when announcements of future monetary policy are fully credible. Disinflationary policy yields substantial losses in output and employment when the monetary authority lacks credibility; nevertheless, the benefits of disinflation still exceed the costs. Disinflation often fails to be welfare-improving, however, when lost seignorage revenues must be replaced using other distortionary taxes.     

Instrumental values

This paper studies identification of partial differences of nonseparable structural functions. A model is defined which admits structural functions exhibiting a degree of monotonicity with respect to a latent variate. The model identifies partial differences when there are instrumental values of covariates over which the latent variate exhibits a local quantile invariance, and a local order condition holds. The result is useful when covariates exhibit discrete variation, as arises often in practice, and when restricting latent variates and covariates to be statistically independent is unpalatable. The results are illustrated with data from the returns-to-schooling study of Angrist and Krueger [1991. Does compulsory schooling attendance affect schooling and earnings? Quarterly Journal of Economics 106, 979–1014].     

The Development of Corporate Charitable Contributions in the UK: A Stakeholder Analysis

This paper investigates the determinants of corporate charitable donations within a comparative study of corporate behaviour in two time periods, 1989–90 and 1998–99. The analysis is based on a longitudinal data set that includes over 400 UK listed companies. The determinants of corporate charitable donations are explored within a stakeholder model and the relationship between corporate charitable donations and a set of firm and industry variables is estimated using OLS. Particular emphasis is placed on industry effects and the impact of social and environmental stakeholders. The results highlight a significant change in behaviour between 1989–90 and 1998–99 that may reflect a strategic response by corporate decision‐makers to external concerns over corporate social responsibility. In the early period corporate charitable donations were substantially determined by profits. However, this relationship has weakened during the 1990s as firms have become increasingly responsive to stakeholder influences. The results for the later period emphasize the increasing importance of corporate visibility, and the development of social and environmental influences on corporate charitable contributions.     

Sickness Presenteeism, Sickness Absenteeism, and Health Following Restructuring in a Public Service Organization

abstract    This study examined the relationship between sickness presenteeism, sickness absenteeism, organizational outcomes and employee health. In particular, we wanted to investigate to what degree employees were substituting sickness presence for sickness absence. Three hypotheses were tested to formalize this 'substitution proposition'. We surveyed a Canadian public service organization which was involved in a large scale downsizing initiative. For this study, 237 Personnel Corporation (pseudonym used) employees responded to the survey, representing a 66 per cent response rate. Survey results indicated that, while the workforce was of average health, sickness absenteeism was less than half that of the national average. The difference could be accounted for by sickness presenteeism – the average number of days employees attended work while ill or injured was greater than the number of days of sickness absence. The pattern of results supported the notion that employees were substituting presenteeism for absenteeism. The frequency and type of self-reported health problems were highly similar for presenteeism and absenteeism. Work factors (e.g. job security, supervisor support and job satisfaction) tested were significantly correlated with presenteeism. Presenteeism appears to be a stronger predictor of health than absenteeism, suggesting that efforts to improve workplace health may have a more immediate impact on presenteeism than on absenteeism.     

Health and development∗

The linkage between development and health is clearly spelt out in the definition of primary health care by the World Health Organisation. There is a widespread and growing disillusionment with the traditional Western approach to health care which fails to meet the real demands of the Third World situation.

This paper looks briefly at conditions in the developing world and the strategy proposed by the W H O to attempt to meet the objective of health for all by the year 2000 and refers to the South African situation.     

Book Reviews

Richard Robison, Indonesia: The Rise of Capital, Allen and Unwin, Sydney, 1986 pp. xxv + 425. Indexed. $19.95.

W.L. Korthals Altes, Changing Economy in Indonesia: Volume 7: Balance of Payments, 1822–1939, Amsterdam: The Royal Tropical Institute. pp. 167.

Trade Statistics, Java, 1823–73: Trade Statistics, Indonesia 1874–1937. Mededeelingen van het Centraal Kantoor voor de Statistiek nos 160 and 161

Om Prakash, The Dutch East India Company and the Economy of Bengal, 1630–1720, Princeton: Princeton University Press, 1985 pp. xii + 291, map, tables. graphs, glossary, index. Cloth $38.50.

Sediono M.P. Tjondronegoro, Social Organization and Planned Development in Rural Java, Singapore, Oxford University Press for the Institute of Southeast Asian Studies, 1984, pp. xv + 326.

A. Fujimoto and F. Matsuda (eds), An Economic Study of Rice Farming in West Java, Tokyo: NODAI Research Institute, Tokyo, University of Agriculture, 1986.

A. Fujimoto and T. Matsuda (eds), A Comparative Study of the Structure of Rice Productivity and Rural Society in Southeast Asta Two Village Studies in Indonesta and Thailand, Tokyo: University of Agriculture, 1985. Reviewed by C.L J. van der Meer (1986) Bulletin of Indanesian Economic Studies, 22(2) pp. 124–27

David Jenkins, Suharto and His Generals: Indonesian Military Politics, 1975–1983, Ithaca: Cornell Modern Indonesia Project, Monograph Series No. 64, 1984, pp. xiii + 280. US$12.50. David Bourchier, Dynamics of Dissent in Indonesia Sawito and the Phantom Coup, Ithaca: Cornell Modern Indonesia Project, Interim Reports Series, 1984, pp. 128. US$9.00.

Linda G. Martin (ed), The ASEAN Success Story: Social, Economic, and Political Dimensions, East-West Center, distributed by the University of Hawaii Press, Honolulu, 1987, pp. xviii + 253. $15.00.

Mubyarto and Edy Suandy Hamid (eds), Kredit Pedesaan di Indonesia, Badan Penerbit Fakultas Ekonomi, U.G.M., 1986 pp, 160.

Ron Hatley, et al., Other Javas Away from the Kraton, Melbourne: Monash University, 1984, pp. 60.

K.S. Nathan and M. Pathmanathan (eds), Trilateralism in Asia: Problems and Prospects in US-Japan-ASEAN Relations, Antara Book Company, Kuala Lumpur, 1986, pp. xviii + 205. $18.00 (cloth): $12.00 (paper).     

Income distribution,economic structure and employment in South Africa

This paper discusses the impact of a redistribution of current income from the White to the Black population on the distribution of sectoral output, and total employment by means of a semi‐closed input‐output model.

The results show that a redistribution of current income towards Black households — which no doubt will have positive social and political repercussions — has a non‐negative effect on GDP and a definite positive effect on the performance of sectors with a high private consumption expenditure component, as well as on total employment.