multiproduct short run hospital cost functions empirical evidence and policy implications from cross section data economists and policymakers have been interested in hospital costs and the structure of hospital technologies for several decades now early interest was focused on the possibility of scale economies which implied increased efficiency for larger hospitals 6 8 12 13 18 20 while more recent interest has been stimulated by the inflationary spiral of hospital costs 1 15 17 22 as hospital costs have risen important policy questions concerning the impact on costs of the hospitals diagnostic case mix the hospitals admitting physicians the hospitals size and the hospitals efficiency have emerged and researchers have attempted to deal with these issues within the context of increasingly complex econometric models 1 2 5 24 27 however in attempting to analyze these important policy issues researchers have been forced to make two major types of compromises on the one hand appropriate data are often not available for estimating a well specified cost function e g information on admitting physicians and diagnostic case mix are often missing so that problems of specification error often plague the econometric results conversely in using imaginative ways to deal with data problems e g weighting in patient and out patient care to form a single index of hospital services 1 27 or estimating separate cost functions for each department in the hospital 2 researchers sometimes place unrealistic and unnecessary constraints on their econometric models the purpose of this study is to analyze the impact of several of the primary hospital characteristics mentioned above on the short run costs of hospitals within a theoretically consistent framework in the following discussion we also develop the theoretical

costs and factor substitution in the provision of local fire services evidence on costs and factor substitution is presented for a sample of local fire departments in new york state the results suggest that fire service production does not fit either leontief cobb douglas or ces technology in addition exogenous socioeconomic variables are found to significantly affect public sector costs and the estimates of factor price elasticities the findings of relatively low factor demand and substitution elasticities suggest that local governments may have limited flexibility in adjusting their production of fire services to minimize the impact of rising factor prices copyright 1992 by mit press

congested public goods the case of fire protection abstract this paper uses a fire protection measure based on a community s fire insurance rating to estimate the strength of congestion effects for fire protection services the empirical results show that the congestion properties of fire protection are much like those of a pure public good in addition the paper introduces a new notion of returns to scale for public goods and estimates the relevant parameters for the fire protection case

why do cooperatives emerge in a world dominated by corporations the diffusion of cooperatives in the u s bio ethanol industry 1978 2013 given the strong economic disincentives that exist why do cooperatives continue to emerge and why is it that in some communities these cooperatives are collocated with their commercial counterparts yet in others territorial partitioning occurs in this paper we develop a community ecology approach that integrates economic and sociological accounts of cooperatives in an attempt to reconcile these contradictory observations using a detailed panel data set for the county level founding process of cooperatives in the u s ethanol industry from 1978 to 2013 consistent with rational economic arguments we find that the founding rate of cooperatives decreases in the presence of high local corporate ethanol production capacity however this negative competitive interdependence is attenuated in local communities where 1 corporations represent a potential threat to the autonomy of local farmers 2 there is a generally anti corporate climate and 3 there is a well established organizational infrastructure supporting a cooperative ideology consistent with sociological theories that emphasize the mobilizing force of ideology these local conditions spur and facilitate collective action among farmers to establish cooperatives in response to the local diffusion of corporations we show further that the diffusion of plants owned by big business oil and agribusiness in communities characterized by a general anticorporate climate especially promotes greater ideological contestation and the mobilization of resources to form cooperatives

economies of size and scope in rural low volume roads evidence on cost savings from reorganizing township low volume rural road systems into larger units is presented in this study of technical efficiencies in producing local government services data is from a sample of midwestern townships heterogeneity of surface types is accounted for by specifying a multiple output translog cost function examination of economies of size suggests that cost savings could be realized by reorganizing townships into larger units the presence of economies of scope suggests that jurisdictions should not specialize in maintenance responsibilities due to the joint use of inputs

a model of investment under uncertainty modern irrigation technology and emerging markets in water this article develops a stochastic dynamic model of irrigation technology adoption it predicts that farms will not invest in modern technologies unless the expected present value of investment exceeds the cost by a potentially large hurdle rate the article also demonstrates that contrary to common belief water markets can delay adoption the introduction of a market should induce farms with abundant scarce water supplies to adopt earlier later than they would otherwise this article was motivated by evidence that contrary to npv predictions farms wait until random events such as drought drive returns significantly above costs before investing in modern irrigation technologies copyright 2002 oxford university press

fire department demand and supply in large cities the purpose of this study is to estimate demand and production functions for fire fighters provided in major cities several factors including the level of fire losses in the communityper capitaincome relative wages of fire fighters population density city size and poverty are used in the analysis this study differs from earlier ones in two ways first multiple measures of community fire losses instead of the usual one are used in the analysis second in contrast with earlier studies of fire protection which have typically relied on ordinary least squares regression analysis ols to study either demand or production this study employs two stage least squares regression analysis 2sls to simultaneously estimate demand and production relations evidence is found that demand for fire fighting is affected by both fire losses and relative size of per capitaincome to fire fighter wages losses in turn are affected by fire fighting hours by poverty and by density there is some evidence for econo

the impact of water price uncertainty on the adoption of precision irrigation systems we examine whether a firm is more or less likely to adopt precision technology when input prices are stochastic the results are important to determining whether programs and contracts that reduce input price uncertainty may deter the adoption of conservation practices an economic model of the technology adoption decision shows that the net effect of input price risk is ambiguous and depends on several factors including the shutdown effect the mean price effect the precision expansion effect and the risk aversion effect an empirical implementation of the model relies on data on water price and irrigation technology adoption observed in a california irrigation district over the period 1999 2002 the results show that a stable input price increases the adoption of precision technology but the impact depends on crop choice and land quality characteristics

optimal capacity in the anhydrous ammonia industry this study analyzed the status of manufacturing capacity in the u s anhydrous ammonia industry 1971 91 pindyck s 1988 real option model was extended to account for mean reverting tendencies in the marketing margin to determine optimal capacity for each year the key result of the study is that the 30 expansion in 1973 74 would not have been recommended by the real option model while traditional discounted cash flow approaches available in the 1970s could have easily rationalized the choices made by the industry the results underscore the potential gains in predictive power from using the real option model in analyzing large irreversible investments

estimating the influence of u s ethanol policy on plant investment decisions a real options analysis with two stochastic variables abstract u s ethanol policies have contributed to changes in the levels and the volatilities of revenues and costs facing ethanol firms the implications of these policies for optimal investment behavior are investigated through an extension of the real options framework that allows for the consideration of volatility in both revenue and cost components as well as the correlation between them the effects of policy affecting plant revenues dominate the effects of those policies affecting production costs in the absence of these policies much of the recent expansionary periods would have not existed and market conditions in the late 1990s would have led to some plant closures we also show that regardless of plant size u s ethanol policy has narrowed the distance between the optimal entry and exit curves implying a more narrow range of inactivity and indicative of a more volatile evolution for the industry than would have existed otherwise

an analysis of returns to scale in public production with an application to fire protection abstract this paper analyzes returns to scale in public production existing studies fail to differentiate among three dimensions of scale service quality the level of governmental activity and the number of people served a fourth dimension economies of scope is need for agencies that provide multiple services this paper provides a formal definition of returns to scale for each dimension this framework is applied to fire protection using a translog cost function with two services fire prevention and fire suppression the results indicate economies of scope increasing returns to quality scale and constant returns to population scale

a real options analysis of coffee planting in vietnam vietnam grew from an insignificant to the world s second largest coffee producer during the 1990s to understand this growth this article examines vietnamese coffee growers investment decisions using real options theory the study finds that producers with variable costs of 19 cents lb and total cost of 29 3 cents lb would enter coffee production at a coffee price of 47 cents lb and exit at a coffee price of 14 cents lb most vietnamese growers appear to be sufficiently efficient to continue producing coffee even at relatively depressed price levels

irrigation technology adoption and gains from water trading under asymmetric information we develop a water allocation and irrigation technology adoption model under the prior appropriation doctrine with asymmetric information among heterogeneous farmers and between farmers and water authorities we find that adverse selection reduces the adoption of modern irrigation technology we also show that even with asymmetric information incentives for water trade exist and lead to additional technology adoption with gains to all parties this suggests that under asymmetric information a thin secondary market improves the allocation of water resources and induces additional adoption of modern irrigation technologies

nonlinearities in the response of real gdp to oil price shocks abstract this paper re examines whether real gdp growth responds asymmetrically to real oil price increases and decreases using a sample that includes the recent oil price declines i follow kilian and vigfusson 2011a and conduct a test of symmetry i find no evidence against the null of symmetry using the 3 year net oil price increase specification moreover i find that the results are not stable for different nonlinear transformations of the real price of oil finally evidence of asymmetry vanishes after computing specification robust critical values

global biofuels key to the puzzle of grain market behavior these jumps in the prices of these three major grains have also revealed the these jumps in the prices of these three major grains have also revealed the chaotic state of economic analysis of agricultural commodity markets economists chaotic state of economic analysis of agricultural commodity markets economists and scientists have engaged in a blame game apportioning percentages of responand scientists have engaged in a blame game apportioning percentages of responsibility for price spikes to bewildering lists of factors which include a surge in meat sibility for price spikes to bewildering lists of factors which include a surge in meat consumption caused by unprecedented increases of income of the vast populations consumption caused by unprecedented increases of income of the vast populations of china and india idiosyncratic regional droughts and fi res speculative bubbles a of china and india idiosyncratic regional droughts and fi res speculative bubbles a new fi nancialization of grain markets the slowdown of global agricultural research new fi nancialization of grain markets the slowdown of global agricultural research spending jumps in costs of energy and fertilizers shifts in interest rates the decline spending jumps in costs of energy and fertilizers shifts in interest rates the decline of the dollar the surge in biofuels demands bans on genetically modifi ed plants of the dollar the surge in biofuels demands bans on genetically modifi ed plants and climate change several observers have claimed to identify a perfect storm in and climate change several observers have claimed to identify a perfect storm in the grain markets in 2007 2008 a confl uence of some of the factors listed above the grain markets in 2007 2008 a confl uence of some of the factors listed above the continuing confused state of the economics of grain price volatility may the continuing confused state of the economics of grain price volatility may seem odd after all grain markets have many of the features of textbook competiseem odd after all grain markets have many of the features of textbook competitive models the products are relatively uniform their primary producers and tive models the products are relatively uniform their primary producers and ultimate consumers are atomistic price takers prices and outputs in the united ultimate consumers are atomistic price takers prices and outputs in the united states and other developed countries are unusually well measured by the standards states and other developed countries are unusually well measured by the standards of most goods and services in the world economy with data freely available from of most goods and services in the world economy with data freely available from

the effects of oil price shocks on job reallocation we investigate the effect of oil price innovations on u s manufacturing job flows using a simultaneous equation model that nests symmetric and asymmetric responses we find no evidence of asymmetry in the response of job flows to positive and negative oil price innovations we then inquire whether firms when facing positive shocks shed jobs faster than they create jobs we show that positive innovations lead to a decline in net employment and an increase in job reallocation possibly due to search and matching issues yet the latter effect becomes statistically insignificant when we control for data mining we demonstrate that the cumulative one year effect of oil price shocks on job creation and destruction was smaller during the great moderation but it was larger for gross job reallocation these variations were caused by a change in the transmission channel and not by smaller oil price shocks

the effect of global oil price shocks on china s precious metals market a comparative analysis of gold and platinum abstract this paper investigated the impacts of global crude oil price shocks on china s precious metals market using the meliorated autoregressive conditional jump intensity arji model chan and maheu 2002 and the extended autoregressive moving average generalized autoregressive conditional heteroscedasticity arma garch gronwald 2012 based on the comparative analysis of gold and platinum markets the results showed that discrete jumps existed in the crude oil market considering the volatility clustering of oil returns the effect of oil price expected shocks on precious metals market was negative 0 7025 1 3341 due to the profitability of capital while that of unexpected shocks was positive 0 0211 0 0645 which can be explained by the adaptive expectation theory in terms of discrete jumps the impact of current jumps on precious metals market was significantly negative 1 4810 2 6775 according to the risk transmission theory and the responses tended to be characterized by overreactions in addition some evidence also suggested permanent volatility effects in china s precious metals market

where do jobs go when oil prices drop abstract in this paper we estimate a factor augmented vector autoregressive favar model to investigate the effect of oil price shocks on total private job flows as well as on industry level job creation and destruction following an unexpected oil price drop in the first year we find that in oil and gas extraction and support activities for mining exhibit a reduction in job creation and an increase in job destruction instead industries in construction manufacturing and services exhibit an increase in the net employment change an unexpected decline in the real oil price slows down the pace of gross job reallocation we demonstrate that the increase decrease in private job destruction creation observed during the first year is primarily driven by the response of closing expanding firms in services and manufacturing

the spillover effects of biofuel policy on participation in the conservation reserve program abstract this paper studies the spillover effects of rising biofuel production on participation in the conservation reserve program landowner participation decisions are modeled using a real options framework we develop a land use decision model that captures biofuel driven structural changes in market demand and derive threshold conditions that trigger participation in the program we then quantify the impacts of biofuel production on participation at both the national and state levels using monte carlo simulations the model is also used to analyze how changes in the persistence of the biofuel production boom and in the volatility of farming returns affect conservation participation decisions policy implications of the results are discussed

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

the economic threshold with a stochastic pest population a real options approach using real options this paper formulates an optimal stopping model for applying pest control measures when the density of a pest population varies randomly a delay between successive pesticide applications is introduced to analyze the farmer s expected marginal cost of reentry this model is applied to the control of a foliar pest of apples via a pesticide and solved numerically a sensitivity analysis shows that the pest density that should trigger pesticide use can vary significantly with the pest density volatility incorporating pest randomness into simple decision rules may thus help better manage the chemicals applied to soils and crops

oil price shocks and u s economic activity abstract our understanding of the sources of oil price fluctuations and their effects on the u s economy has undergone important transformations in the last decades first several studies have demonstrated the importance of identifying the causes of oil price fluctuations whether they are driven by demand or supply shocks instead of assuming that oil price changes are exogenous to the evolution of the world s economic activity second new methodologies have allowed researchers to re evaluate the functional form of the relationship between oil prices and u s gdp its components and job flows third significant advances have been made in understanding the relationship between oil price uncertainty news economic policy uncertainty and aggregate economic activity finally investigations into the time varying nature of oil price macroeconomy relationship have provided important insights into the reasons why unexpected increases in oil prices appear to shock less now than in the 1970s this paper reviews the studies that have contributed to these different aspects of the literature

production of public safety are socioeconomic characteristics of local communities important factors this paper uses the translog cost function and cross section data from florida to investigate the importance of socioeconomic characteristics sec of local communities in the production of public safety the approach used is noteworthy in four respects 1 the underlying production function is specified as an agem production function 2 sec are treated as non purchased fixed inputs 3 two variables are used to proxy sec in estimation and 4 the paper test for the existence of endogenous quality differences in safety it is shown that exclusion of sec from the production cost function of safety leads to misspecification and hence they provide a misleading guide to policy

when the carrot goes bad the effect of solar rebate uncertainty abstract although meant to encourage investment in solar photovoltaic pv systems some incentive policies may themselves become a barrier in instances where policy related uncertainty is present as potential solar adopters delay their investment until uncertainty is resolved this study utilizes a quasi experimental setting to quantify the effect of solar policy uncertainty focusing on the california solar initiative s residential rebate program i exploit the temporary exhaustion of funds within one of the utility territories as an exogenous source of increased uncertainty and estimate that it leads to a 67 drop in rebate applications in an average zip code week there is considerable heterogeneity in this effect depending on household income and pv system size among households that are least likely to invest in pv without a rebate incentive program participation drops by up to 69 this suggests potentially significant loss in program effectiveness due to lower pv adoption and underscores the importance of accounting for uncertainty in policy evaluations

switching to perennial energy crops under uncertainty and costly reversibility we study a farmer s decision to convert traditional cropland into land for growing dedicated energy crops taking into account sunk conversion costs and uncertainties in crop returns the optimal decision rules differ significantly from the expected net present value rule which ignores uncertainties and from real options models that allow only one way conversion into energy crops these models also predict drastically different patterns of land conversions into and out of energy crops over time using corn soybean rotation and switchgrass as examples we show that the model predictions are sensitive to assumptions about stochastic processes of the returns government policies might have unintended consequences subsidizing conversion costs into switchgrass may not much affect proportions of land in switchgrass in the long run

adoption of residential solar power under uncertainty implications for renewable energy incentives abstract many incentives at the state and federal level exist for household adoption of renewable energy like solar photovoltaic pv panels despite generous financial incentives the adoption rate is low we use the option value framework which takes into account the benefit of delaying investment in response to uncertainty to examine the decision by households to invest in solar pv using a simulation model we determine optimal adoption times critical values of discounted benefits and adoption rates over time for solar pv investments using data from massachusetts we find that the option value multiplier is 1 6 which implies that the discounted value of benefits from solar pv needs to exceed installation cost by 60 for investment to occur without any policies median adoption time is eight years longer under the option value decision rule compared to the net present value decision rule where households equate discounted benefits to installation cost rebates and other financial incentives decrease adoption time but their effect is attenuated if households apply the option value decision rule to solar pv investments results suggest that policies that reduce the uncertainty in returns from solar pv investments would be most effective at incentivizing adoption

investment decisions in hog finishing an application of the real options approach in this paper option pricing theory is applied to an investment problem in hog production a stochastic simulation model capable of pricing american type options is developed this is achieved by recursive calculation of the exercise frontier the model is used to determine the investment trigger and the disinvestment trigger for a pig fattening barn under german market conditions it turns out that the investment trigger taking into account the value of waiting in an uncertain environment can be considerably higher compared to classical investment criteria such as the net present value this offers an explanation as to why farmers are indeed reluctant to invest in hog production another finding is the sensitivity of the option prices with respect to the stochastic process that is assumed for revenues and variable costs of the production activity

oil price uncertainty and u s employment growth abstract this paper studies the effects of oil price changes on u s aggregate and sectoral employment growth in the presence of time varying oil price uncertainty we estimate a bivariate garch in mean var model using u s monthly data of oil prices and employment growth for the period 1974 m2 2018 m11 based on the results we show that an increase in oil prices reduces total employment growth and that in most private sectors but the public sector is largely unaffected the effects on employment growth in various hub sectors are also different furthermore employment growths at both aggregate and disaggregate levels respond asymmetrically to positive and negative oil price shocks which could possibly be attributed to oil price uncertainty this asymmetric impact is more evident when the model is estimated on the entire sample than on the 1970s sample implying that the role of oil price uncertainty in accounting for variations in employment growth can differ over time these findings underline the empirical relevance of oil price uncertainty for the u s labor market dynamics

investment under uncertainty does competition matter abstract empirical applications of real options models in competitive environments implicitly exploit the optimality of myopic planning in a seminal paper leahy j v 1993 investment in competitive equilibrium the optimality of myopic behavior quarterly journal of economics 108 1105 1133 shows that the optimal investment strategy of a myopic planner who ignores market entries and exits of competitors as well as the resulting price effects constitutes a market equilibrium under rather general conditions as a result the calculation of optimal investment strategies is simplified considerably because competition does not have to be taken into account in this paper however we demonstrate by using simulation experiments that myopic planning may lead to non optimal investment strategies this is due to the fact that it is difficult or even impossible to specify the correct or equivalent price process for the myopic investor using real world data we quantify the degree of suboptimality and propose measures to reduce the error

corn ethanol plant investment a real options case study the objective of this article is to describe an investment decision using net present value and real options a case study describes the data and the corn ethanol industry so students can study a cooperative s decision of whether or not to invest in a new corn ethanol plant in 2015 nebraska an extensive set of information accompanies this case including spreadsheets with data computer software code lesson plans for teaching real options and net present value and an extensive teaching note

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model