Time Aggregation and the Relationship between Inflation and Money Growth

Using panel data for 99 countries, we confirm that the measured elasticity of prices with respect to money is higher, and closer to unity, the higher is money growth and the longer the time horizon over which the data are averaged. We propose two explanations. In one, the true model of inflation involves a lagged response to money growth. In the other, there is negative correlation between shocks to inflation and money growth. Our empirical results can be explained if high–money‐growth countries have (i) shorter lags or (ii) less negative correlation, when compared to countries with low money growth.     

A COMPARISON BETWEEN TWO MULTIATTRIBUTE DECISION METHODOLOGIES USED IN CAPITAL INVESTMENT DECISION ANALYSIS

Two multicriteria decision methodologies applied to evaluating capital investments are the Analytic Hierarchy Process (AHP) and the Non-Traditional Capital Investment Criteria (NCIC) model. In this paper we demonstrate that a mathematical relationship exists between these two models. In-particular, a data set obtained by one method can be mapped into an equivalent data set obtained using the other method. It is suggested that this offers an opportunity of empirically assessing decision makers judgmental capabilities under varying data collection methods. An example problem illustrates the manner in which such comparisons can be made.     

Managing in the New World of Manufacturing

It is widely accepted that over two-thirds of the average annual increase in per capita wealth of the United States is attributable to technological change as it becomes embodied in new products, new capital equipment and new production methods. Technological change is the result of research and development (R&;D) carried out by the scientific and engineering communities. Surprisingly, since the first issue of The Engineering Economist appeared in 1966, only one article has addressed R&;D as a public policy issue. Our profession distinguishes itself from that of conventional economists in that we are both economists and technologists. Apropos “going to the next level,” it is time to take a broader view of our professional role. Technology policy is defined as the government's decisions of how and whether to intervene in private R&;D and its provision of funds for public R&;D. This article addresses one instrument of technology policy: the research and experimentation (R&;E) tax credit. Using a traditional engineering economics framework, we evaluate the potential effectiveness of the tax credit in stimulating R&;D. Our general conclusion is that the R&;E tax credit is a weak incentive for stimulating R&;D.     

Global Security Policies against Terrorism and the Free Riding Problem: An Experimental Approach

The World Trade Center attack has shed light on the urgent need to implement preventing measures against terrorism and to enhance cooperation in the global security system for all countries. However, international coordination cannot be taken for granted. It is often ineffective and likely to fail for several reasons. Perhaps the more prominent reason to explain failure in coordination is that collective actions against terrorism may suffer from the well‐known free riding problem. In this paper we experimentally investigate cooperation dilemma in counterterrorism policies by measuring to what extent international deterrence policy may suffer from free riding. In our game, contributions to the group account do not aim to increase the production of the public good but instead seek to decrease the probability that a stochastic event destroys the good. A country could choose to free ride by investing nothing in the international deterrence policy and instead invest all its resources in its own national protection or even choose to ignore totally terrorism by investing on alternative projects. We also look at the effects of institutions that allow sanctioning and rewarding of other countries to facilitate coordination on deterrence policy. We find that, in absence of institutional incentives and after controlling for risk aversion, most of countries defect by investing very weakly in collective actions against terrorism while largely investing to protect themselves. In contrast, the introduction of punishment/reward incentive systems improves significantly the contribution level to the collective security account.     

SELF-EMPLOYMENT WITH CHINESE CHARACTERISTICS: THE FORGOTTEN ENGINE OF RURAL CHINA'S GROWTH

This article sketches a picture of the self-employment sector in rural China and examines the nature of its emergence. Using a randomly selected, nationally representative household-level data set that contains detailed information on household self-employment activities, this article provides evidence that although the self-employed enterprises are small, they have grown fast, operate as relatively complex businesses, and perform well in a financially healthy way. These results, taken together with the pattern of the emergence of self-employed enterprises across China's regions, reveal that the expansion of self-employment is not symptomatic of a failing economy; instead it is a component of the dynamic development process that characterizes rural China during its reform period. ( JEL J23, D21, O12)     

Investment–Cash Flow Sensitivities: Constrained versus Unconstrained Firms

From the existing literature, it is not clear what effect financing constraints have on the sensitivities of firms' investment to their cash flow. I propose an explanation that reconciles the conflicting empirical evidence. I present two models: the unconstrained model, in which firms can raise external funds, and the constrained model, in which firms cannot do so. Using low dividends to identify financing constraints in my generated panel of data produces results consistent with those of Fazzari, Hubbard, and Petersen; using the constrained model produces results consistent with those of Kaplan and Zingales.