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Aggregation Bias in Elasticities of Substitution and the Minimum Wage Paradox

While the employment effects of minimum wages are usually reported to be small (suggesting low substitutability between skill types), direct estimates suggest a much larger degree of substitutability. This article argues that this paradox is largely due to a bias induced by the aggregation of skill types into broad categories. An assignment model is applied where skilled workers have a comparative advantage in complex jobs. The implied pattern of substitutability reveals the sources of the bias. Estimation results for the United States show elasticities of complementarity to be underestimated by up to a factor 2.5. The methods laid out likewise can be applied to other markets where different quality types are close substitutes, such as the housing market.     

Why Do Large Firms' Prices Anticipate Earnings Earlier than Small Firms' Prices?*

This paper presents evidence that the positive association between firm size and price leads of earnings is not solely a function of private search incentives for firm‐specific information. Specifically, we find that small‐firm prices also lag large‐firm prices with respect to industry‐wide information. Our empirical analysis extends Collins, Kothari, and Rayburn 1987 and Freeman 1987, who document that security‐price leads of earnings are positively associated with market capitalization. In particular, we examine the association between firm size and the timing of security returns for two components of annual earnings changes: the average change for a firm's industry and the firm's idiosyncratic change. We find that large firms' prices have a longer lead than small firms' prices with respect to both components. Large firms' early lead on industry‐wide earnings suggests that returns of large firms predict returns of same‐industry small firms. To test this implication, we construct a portfolio of long (short) positions in small firms when the prior month's returns of large firms in their industry are above (below) average for large firms in other industries. This zero investment portfolio earns 4.5 percent over 12 months.     

Did Open Access Integrate Natural Gas Markets? An Arbitrage Cost Approach

Several studies, using analyses that measure the correlation between prices in various markets, have argued that deregulation of natural gas pipeline contracts has reduced the transaction costs between natural gas markets. Correlations approaches, however, have potentially serious problems. Given these problems, this article estimates transactions costs directly. Deregulation is found to have lowered transactions costs to and from the Louisiana, Oklahoma, and Texas regions, but increased transactions costs from the Rocky Mountain area. Deregulation of pipeline contracts, by lowering the cost of using the market and therefore increasing demand for pipeline capacity, may therefore have differential impacts upon transactions costs between markets. This study implies that the transactions cost approach may be able to overcome several difficulties inherent in the correlations approach.     

Performance Indicators and Efficiency Measurement in Public Libraries

A sample of one hundred and sixty-eight New South Wales local government libraries is used to analyse the efficiency measures derived from the non-parametric technique of data envelopment analysis. Depending upon the assumptions employed, 9.5 per cent of local governments were judged to be overall technically efficient in the provision of library services, 47.6 per cent as pure technically efficient, and 10.1 per cent as scale efficient. The study also analyses the posited linkages between comparative performance indicators, productive performance and non-discretionary environmental factors under these different model formulations. The results indicate that the presence of exogenous factors and scale effects account for a major portion of the differences in observed efficiency between different groups of local governments.     

Using Credible Advice to Overcome Framing Effects

A framing effect occurs when different, but logically equivalent,words or phrases (e.g., 10% employment or 90% unemployment)cause individuals to alter their decisions. Demonstrations offraming effects challenge a fundamental tenet of rational choicetheory and suggest that public opinion is so malleable thatit cannot serve as a useful guide to policymakers. In this articleI argue that most previous work overstates the ubiquity of framingeffects because it forces experimental participants to makedecisions in isolation from social contact and context. I presenttwo experiments where I show that some widely known framingeffects greatly diminish and sometimes disappear when participantsare given access to credible advice about how to decide. I discussthe implications of my findings for rational choice theory,and public opinion and public policy.     

Too Far Away, Too High and Too Stable: The EEC and Trade with Australia During the 1960s

The EEC of the 1960s had little reason to prioritize trade with Australia: trade flows were too small and political ties between Australia and continental Europe too weak. That trade with Australia did become an issue of concern is thus largely due to Britain's 1961 EEC application. The shape of the deal that looked like emerging in 1961–3 was, however, highly ungenerous – a fact which reflected both the nature of Australian exports and a strong European belief that Australia was less 'deserving' than other Commonwealth countries. Australian relief at de Gaulle's veto may, however, have been premature, since early British membership of the Community might well have been in Australia's medium-term commercial interest.     

Relationship between the mode of land redistribution,tenure security and agricultural credit use in KwaZulu-Natal

Data collected from interviews with new landowners in KwaZulu-Natal in 1999 show that households on four government-assisted projects had less tenure security than households that acquired land via private transactions. Households in government-assisted projects also used less agricultural credit and had less liquidity and less wealth. The probability of households using agricultural credit increased with more secure tenure, more household wealth (number of durable goods), higher liquidity and higher levels of household education. It is recommended that more emphasis be placed on redistributing land through the private market and encouraging the creation of management committees or joint enterprises to utilise the land settled by large groups of beneficiaries. This would be a first step towards making tenure more secure, most notably in the government land reform projects. More secure tenure would improve the creditworthiness of emerging farmers, thereby creating incentives for investing in improvements and complementary inputs to raise agricultural performance.