test of the adjustment process and linear homogeneity in a stock adjustment model of money demand stock adjustment models of money demand have employed either the nominal or real adjustment process but they have not been tested statistically due to their nonnestedness this paper formulates a general stock adjustment model which includes both nominal and real adjustment processes as its nested subsets each process is then tested against the general specification the paper also examines the homogeneity of money demand with respect to price level and income in the general model

bureaucratic behavior in the local public sector a revealed preference approach public sector bureaucratic utility is typically assumed to be a function ofbudget size or government employment although intuitively appealing thereare no definitive direct tests of the assumption to fill this gap thispaper exploits data that isolate resource allocation decisions made by localpublic sector bureaucrats we use revealed preference theory to find thatthe bureaucracy behaves as if bureaucratic utility is an increasingfunction of employment across government functions and public spending providing direct evidence justifying the popular assumption in theoreticalmodels of government behavior

the median voter according to garp this paper adapts the generalized axiom of revealed preference garp empirical method to the public goods problem to test whether observed municipal public spending can be explained as if the city governments maximize the utility of the median income voter it applies the test procedure for medium size municipal governments in five midwest states the data are consistent with garp and reveal that the local governments in the sample behave as if they maximize median voter utility once we control for the state specific effects government management structure and population density the median voter hypothesis is the proposition that local governments behave as if they maximize the utility of the median income voter in the jurisdiction although an important tool in public economic analysis there has been no conclusive direct test of the maximization hypothesis to date revealed preference theory shows that any finite set of price and quantity observations satisfying the generalized axiom of revealed preference garp can be rationalized by the constrained maximization of an increasing continuous concave utility function afriat 1967 1973 varian 1982 this paper adapts the revealed preference method to the public goods problem in order to test municipal spending data for consistency under garp thereby providing the first direct test of whether or not the local governments behave as if they maximize median voter utility the median voter hypothesis represents a simple tool that is the most widely used characterization of local government behavior given its prominence in the literature it is not surprising that the hypothesis itself has become the subject of scrutiny the framework assumes direct or representative democracy without strategic behavior in which competition among politicians ensures that the public sector bureaucracy responds efficiently to voters desires public sector decision making reduces to an as if constrained maximization problem a simplified picture of the outcome of collective action still much of the empirical testing literature is motivated by concerns over whether the model is too simplistic nonetheless it can be argued that given its depiction as an as if outcome the median voter hypothesis should be judged not by its descriptive accuracy of the public sector decision process but instead by how well it explains observed local fiscal choices on this basis the existing empirical evidence although mixed reveals a surprising amount of indirect support for the framework one approach taken in the literature is to evaluate the median voter hypothesis by testing the predictive power of regression equations with median income and tax price terms for explaining state or local fiscal behavior in this line of the

an empirical test of the effects of government deficits on money demand there is a great deal of interest in how govenment deficits affect macroeconomic variables accordingly there is a large body of theoretical and empirical work on the topic this paper examines the relationship between deficits and interest rates among the difficulties in exploring this relationship is that when conducting monetary policy the federal reserve often targets interest rates such a policy can cloud any relationship between deficits and interest rates a way to avoid this problem among others is to estimate money demand functions that contain a measure of the market value of government debt no evidence is found to support a positive relationship between government debt and money demand this finding implies budget deficits do not affect interest rates through money demand

productivity performance of u s trunk and local servce airlines in the era of deregulation the transition to deregulation of the u s air transport industry began in 1976 in this paper we measure total factor productivity growth of the airlines for the first five years of the transition 1976 1980 and compare the performance with that of the preceding years we find that productivity growth accelerated from 2 8 per year to 5 1 per year an analysis of covariance model with individual airlines as observations leads to the conclusion that for the trunk airlines nearly all of the acceleration can be explained by increases in output and load factor and decreases in the growth of capacity for the local service airlines however less than half of the acceleration may be so explained

local government internal structure external constraints and the median voter this paper examines how internal structure and external constraints affect local government ability to meet voters demands it applies the revealed preference method to us counties to identify those that fail to satisfy the pure democracy outcome of the median voter hypothesis mvh probit analysis identifies the factors associated with counties that satisfy the mvh internal government structure does not matter but restricting home rule increases the likelihood of satisfying the mvh equilibrium the latter result consistent with the leviathan model the systematic differences found for urban and rural county governments reinforce this conclusion

estimation of technical inefficiency in panel data models with firm and time specific effects abstract this paper uses a panel data model and develops methods to estimate production function parameters and technical inefficiency the model distinguishes technical inefficiency from firm and time specific effects determinants of technical inefficiency is introduced by allowing its mean to be a function of exogenous variables both random and fixed effects treatment of firm and time specific effects are considered in estimation

the overspending and flypaper effects of fiscal illusion theory and empirical evidence abstract this paper broadens the notion of fiscal illusion to include imperfect information where voters are unsure about how much they must pay for additional services or where they are unsure about the services received in return for higher taxes it shows how each type of voter imperfect information has different effects on public spending and modifies the overspending and flypaper effects predicted by the certainty model an empirical study of municipal expenditures provides support for the broader notion of fiscal illusion as imperfect information

the demand for money and non gdp transactions abstract this paper argues that transactions in non gdp items have an important influence on the level of money demand the paper provides empirical estimates of models of both m 1 and m 2 money demand that include variables proxying for the volume of transactions in real estate and financial assets these variables have the theoretically predicted positive sign and are statistically significant their inclusion also improves out of sample forecasts

non parametric tests of consumer behaviour the neoclassical model of consumer behaviour postulates that a consumer s choice behaviour can be described as deriving from utility maximization subject to a budget constraint one is then naturally led to ask what this model implies about observed behaviour this question has been addressed from two quite distinct approaches the first approach originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions involving the derivatives of the demand functions the second approach originating in the work of samuelson 1938 1947 1948 derives algebraic conditions on the demand functions implied by maximizing behaviour

two sided uncertainty in the monopoly agenda setter model we extend the romer rosenthal model of representative democracy to a signaling environment in which i only the representatives knows the status quo outcome resulting if her take it or leave it policy proposal is rejected by the voters while ii only the voters know their true preferences over policies a separating sequential equilibrium is shown to exist and to uniquely satisfy a common equilibrium refinement furthermore this equilibrium has the property that relative to the environment where the status quo is known to the voter there is a downward bias in the setter s proposal and an associated upward bias in the probability of the proposal s acceptance by the voter

an alternative approach to the american demand for money with a decade of evidence behind it the profession seems to have agreed on the fact that a structural break shifted the american demand for money shortly after 1973 it is difficult to pinpoint the source of the trouble precisely let alone to explain the event with an econometric model in their survey judd and scadding 1982 tentatively concluded that financial innovation is the source of the problem while this conclusion has not been universally accepted the instability of the money demand function is largely taken as a given stylized fact the primary goal of this article is to provide an alternative solution to the case of the missing money using the methods of hendry 1979 it should be stressed at the outset that as this paper deals with a problem in the applied literature it is unabashedly empirical in nature the paper attempts to explain an empirical difficulty without presenting a new theoretical model of money demand rather in the context of the standard transactions demand theory for narrow money a number of questions are analyzed with an atypical econometric model was there actually a shift or a series of shifts in the demand for money if not why have other investigators concluded that there was in fact a shift most importantly what function seems to be the most reasonable approximation to the data generation process during the period in question

conceptual developments in the economics of transportation an interpretive survey the objective in this paper is to survey the literature in transportation economics exploring two basic themes first the conceptual developments in the analysis of supply and demand which recognizes noteworthy aggregation biases in the empirical work on aggregate data and indicate that a correct analysis of the issues should take place at a highly disaggregated level second the use of these conceptual developments to evaluate efficiency aspects of transportation pricing investment and the impact of government regulation on resource allocation and distribution in the transportation sector it is important to acknowledge that the survey is based on research throughout the world but our institutional perspective and to some extent the topics that are covered is based largely on the u s experience author

the behavior of money demand in the 1980s existing money demand functions did not predict the strength in m1 in the 1980s this strength derived from the combination of a change in the character of m 1 due to elnancial deregulation and the sharp fall in market rates that began in 1982 the public s m2 demand function however remains unaffected by the forces that altered the m1 demand function the character of the public s m 1 demand function changed with the legalization nationwide in january 1981 of the checkable deposits known as nows because nows pay explicit interest they are used by the public as an instrument for saving as well as for effecting transactions mehra 1986 the addition of nows to m1 therefore caused m1 to become more highly substitutible with the savings instruments included in the non ml component of m2 that is savings deposits small time deposits money market deposit accounts mmdas and money market mutual funds of noninstitutional investors mmmfs furthermore financial institutions move the rate paid on nows only sluggishly in response to changes in market rates in contrast the rates paid on small time deposits mmdas and mmmfs move promptly in response to changes in market rates consequently when market rates fell beginning in late summer 1982 the differential between the rates paid on the non ml components of m2 and on nows fell sharply the public then substituted out of the non ml components of m2 and into the nows in m1 these substitutions increased m1 de

money demand the effects of inflation and alternative adjustment mechanisms the paper first reconciles a variety of specification tests for partial adjustment money demand models and points out a fundamental identification problem which makes it impossible to distinguish between the real and nominal partial adjustment models if inflation has an independent effect on the long run demand for money the paper also finds that empirical estimates of simple partial adjustment models have some undesirable properties and then considers the shortand long run effects of inflation in a more general distributed lag model

price expectations and the demand for money resolution of a paradox in his restatement of the quantity theory of money milton friedman 1956 argued that physical goods should be regarded as a substitute for money and that higher expected rates of inflation should induce a portfolio shift from money to physical assets as friedman has derived his equation the demand for real balances is a function of the expected rate of inflation in addition to nominal rates of interest wealth and real income p 58 equation 11 this also has been the approach of many applied studies for example valentine 1977 p 747 concludes the fact that the anticipated rate of inflation has an effect on the demand for money which is additional to its effect through its influence on the nominal interest rate provides support for friedman s view of the demand for money emphasis mine there is of course likely to be some degree of substitution between physical goods and wider definitions of money which is the definition friedman envisages it is difficult to believe however that the demand for narrowly defined money mi which is used primarily for transactions balances should be terribly sensitive to moderate expected rates of inflation certainly from theoretical considerations in transactions demand models of the tobin baumol variety there is no role for the expected rate of inflation other than via interest rates herein lies the paradox whilst theory and common sense seem to dictate that expected or actual inflation play little role in the demand for narrow money a number of studies for different countries have reported the opposite these include shapiro 1973 and goldfeld 1973 for the united states smith and winder 1971 for canada and adams and porter 1976 juttner and tuckwell 1974 and valentine 1977 for australia this paper reconciles theory and evidence by showing that with more appropriate specification of previous studies the expected or actual rate of inflation is redundant and not significant those models use either a partial adjustment mechanism or an expectations formation mechanism in real terms it is shown below that this equation is rejected relative to one in which the expectations and adjustments are in terms of nominal variables this nominal specification was pointed out by goldfeld 1973 and hafer and hein 1980 who selected the nominal version on the basis of within sample errors following a description of the real adjustment models in the next section section iii shows this selection of the nominal version more rigorously on the basis of a likelihood ratio test more importantly it is shown that this test of superiority of specification is identical to the test that the rate of inflation exerts no independent influence on the demand for money these tests are carried out in section iv since empirical studies of this question use both the actual and expected rates of inflation the results of those authors using the expected rate of inflation are examined in section v in all cases the strategy has been to replicate those models as closely as possible to see if their conclusions are upheld under more appropriate specifications and in all cases these conclusions are not upheld the aim of the paper is not to suggest new or appropriate expectations formations or to exhaust all possible ones but to test those on which previous conclusions are based the aim is twofold to point out the duality of the appropriate real vs nominal test procedure with the test of significance of the rate of inflation and to show that the conclusions of previous studies regarding the independent effect of the rate of inflation on transactions balances are due to an incorrect specification and interpretation

asymmetric information and agenda control the bases of monopoly power in public spending abstract a pervasive empirical finding widely known as the flypaper effect is that lump sum intergovernmental grants generate considerably greater public spending by the recipient jurisdiction than would be predicted by equivalent shifts in personal income in that jurisdiction moreover such observations are inconsistent with standard median voter models of the political process we posit a model in which it is in the interest of suppliers of a collectively provided good not to generate full information to voters about outside aid the empirical results are consistent with flypaper and suggest that voters are very poorly informed about outside grants

government form and performance fiscal illusion and administrative ability in u s counties key differences in local government organizational form lie in separation of powers versus unified powers and elected versus professional chief executive officers ceos this paper studies how these features lead to differences in fiscal illusion and production cost evidence from u s counties indicates that there is less fiscal illusion under separation of powers which by itself reduces spending separation of powers however leads to greater overall spending when compared with unified governments the inelastic public demand therefore implies that separation of powers leads to services being provided at greater cost than under governments with unified powers similar conclusions hold for professional relative to elected ceos

a revealed preference analysis of friedman and schwartz money in their seminal series of books friedman and schwartz concluded that the appropriate assets to aggregate into money are currency demand deposits and time deposits issued by commercial banks for this paper i used revealed preference analysis to test the validity of this conclusion i find that these financial assets pass tests for the existence of a monetary aggregate consistent with the economic theory of aggregation over goods for a short period after world war ii the data are consistent with a more broadly defined monetary aggregate a reputable index number like the divisia index must be employed to form these assets into an aggregate consistent with the economic theory of aggregation copyright 1995 by ohio state university press

a note on joint estimation of scale economies and productivity growth parameters abstract in applied research it is common to estimate complete production models obtain measures of scale economies and total factor productivity growth and then regress such measures on exogenous variables such procedures result in inconsistent estimates of technological as well as regression parameters estimation of total factor productivity and scale economies in the first step does not take into account that these measures depend on exogenous variables in the second step therefore their dependence on exogenous variables is not properly taken into account in the first step the study proposes to estimate jointly the cost function the share equations as well as total factor productivity and scale economies measures using full system estimation to account for all the restrictions implied by their endogeneity the approach is illustrated using data from british french and german railways

technological change and the tragedy of the commons the lofoten fishery over 130 years we analyze the effect of technological change on labor and total factor productivity in the lofoten fishery using detailed data for 130 years our findings support the important role of natural resources in productivity and improvements in welfare in natural resource based industries the total factor productivity has risen faster than labor productivity in the fishery indicating that the considerable technological progress in this industry has to some extent been neutralized by the decline in the fish stock open access to the fish resource most probably led to this situation

a nonparametric analysis of agricultural technology u s agricultural technology and technical change are analyzed nonparametrically under cost minimization and profit maximization based on annual data for 1948 83 various separability hypotheses concerning the aggregate production function for u s agriculture are investigated the proposed nonparametric approach also provides some insights into the nature of technical change

on government structure and spending the effects of management form and separation of powers summary this paper contributes to the on going debate over how government form affects spending it broadens the previous focus on elected versus professional management to address the separation of legislative and executive powers the empirical results reveal spending differences between governments with separation of powers and those with unified powers only for southern counties of the us in addition for all regions and time periods professional or elected executive management does not significantly affect either municipal or county spending

the measurement of firm specific indexes of technical change this paper proposes a methodology for obtaining estimates of firm specific technical change econometrically and contrasts those estimates with a multilateral total factor productivity index based on a panel data set of airlines two measures are contrasted in a variety of ways to the extent that output characteristics differ as in the case of airlines the two measures differ significantly both measures are regressed on a variety of factors potentially influencing technical efficiency confirming that improvements in fuel efficiency and load factor have played major roles with hubbing and competition playing smaller roles in explaining efficiency improvements copyright 1995 by mit press

accounting for changes in tastes health concerns are thought by many to have shifted consumption away from red meats though econometric evidence is mixed testing for structural change is difficult especially when one time series is used for both estimating demand equations and testing their stability specification errors may suggest a shift where none has occurred using nonparametric demand analysis we find that meat consumption patterns in the united states and australia can be explained using only relative prices and expenditures only imposing particular functional forms can reverse the conclusion suggesting that specification errors in econometric demand studies can account for findings of taste changes

the demand for m3 in the euro area in this paper an empirically stable money demand model for m3 in the euro area is constructed starting with a multivariate system three cointegrating relationships with economic content are found i the spread between the long term and the short term nominal interest rates ii the long term real interest rate and iii a long run demand for broad money m3 there is evidence that the determinants of m3 money demand are weakly exogenous with respect to the long run parameters hence following a general to specific modelling approach a parsimonious conditional error correction model for m3 money demand is derived which can be interpreted economically for the conditional model long run and short run parameter stability is extensively tested and not rejected copyright 2001 john wiley sons ltd

nonparametric tests of utility maximization and weak separability for consumption leisure and money some of the most fundamental assumptions of economics are utility maximization and weak separability of the arguments in the represen tative consumer s utility function this paper contains results from nonparametric tests of these assumptions about consumer behavior the authors find that quarterly per capita data on consumption goods le isure and monetary assets are consistent with utility maximization further consumption goods and leisure meet necessary and sufficient conditions for weak separability additionally one grouping of relat ively liquid monetary assets meets the necessary conditions for weak separability they also test and find no evidence of homothetic prefe rences copyright 1987 by mit press

bureaucratic choice and nonoptimal provision of public goods theory and evidence local governments allocation decisions are modeled in the context of a slack maximizing bureaucrat who produces public goods according to a production function that includes both provision and the constituents socio economic characteristics to gain a better understanding of the determinants of slack comparative statics and an empirical study of illinois municipalities are conducted the indirect output distance function provides efficiency scores upon which we regress several variables representing socio economic characteristics costs and competition measures we find that slack or inefficient behavior is associated with richer communities lower education levels and a lack of competition for residents among municipalities

real convergence in europe how robust are econometric inferences the paper examines the convergence properties of productivity in fifteen european countries over the period 1960 1997 european productivity is estimated using modified translog production systems with a completely general intertemporal structure to capture the notion that trade may have an influence on aggregate convergence imports are included in the production function stationarity tests are used to test for convergence around a common long run trend including unit root tests the kpss and bayesian tests as well as testing based on fractional differencing parameter estimation for long memory models it is found that convergence inferences are sensitive to the type of test employed