production function regressions returns to scale and externalities a number of recent papers have used simple linear regressions in an attempt to identify market structure the extent of returns to scale and possible external effects in u s manufacturing industries the results obtained from these regressions have important implications for several branches of modern macroeconomics as a result the macro literature frequently cites specific numerical evidence from caballero and lyons 1992 and hall 1990 which suggests that there are quantitatively significant increasing returns to scale or external effects in u s manufacturing in contrast it is the argument of this paper that this evidence is not convincing the most robust evidence suggests that the typical u s manufacturing industry displays constant returns with no external effects on the other hand there is significant heterogeneity across industries

alternative models of input allocation in multicrop systems irrigation water in the central plains united states abstract this paper compares three models of input allocation in multicrop systems in addition to the variable input and satisficing models analyzed in previous research an allocatable fixed input model of short run input use is derived the empirical application studies irrigation water use in the central plains region of the united states based on results from model specification tests and prediction accuracy measures the allocatable fixed input model dominates both other models in explaining multicrop water allocation in addition the paper presents an alternative approach to the study of deficient data on multicrop production by transferring econometric results from analysis of non deficient crop level data input allocations in deficient data sets can be predicted

skill biased technological change and rising wage inequality some problems and puzzles the recent rise in wage inequality is usually attributed to skill biased technical change sbtc associated with new computer technologies we review the evidence for this hypothesis focusing on the implications of sbtc for overall wage inequality and for changes in wage differentials between groups a key problem for the sbtc hypothesis is that wage inequality stabilized in the 1990s despite continuing advances in computer technology sbtc also fails to explain the evolution of other dimensions of wage inequality including the gender and racial wage gaps and the age gradient in the return to education

taylor rules and macroeconomic instability or how the central bank can preempt sunspot expectations this paper derives new results on the effects of employing taylor rules in economies that are subject to real market imperfections such as production externalities policies which respond to output movements can block sunspot equilibria that arise from the increasing returns the paper also finds that rules which should be chosen avoided in perfect market environments often yield ensure multiple unique rational expectations solutions in alternative settings therefore exact knowledge on the degree of market imperfection may be integral for robust policy advice

indeterminacy and sunspots with constant returns recently there has been a renewed interest in the possibility of indeterminacy and sunspots or alternatively put in the existence of a continuum of equilibria that arises in dynamic economies with some market imperfections much of the research in this area has been concerned with the empirical plausibility of indeterminacy in markets with external effects or with monopolistic competition and which exhibit some degree of increasing returns while the early results on indeterminacy relied on relatively large increasing returns and high markups more recently benhabib and farmer 1996a showed that indeterminacy can also occur in two sector models with small sector specific external effects and very mild increasing returns

the economic impacts of climate change evidence from agricultural output and random fluctuations in weather fisher et al 2012 hereafter fhrs have uncovered coding and data errors in our paper deschenes and greenstone 2007 hereafter dg we acknowledge and are embarrassed by these mistakes we are grateful to fhrs for uncovering them we hope that this reply will also contribute to advancing the literature on the vital question of the impact of climate change on the us agricultural sector fhrs main critiques of dg are as follows i there are errors in the weather data and climate change projections used by dg ii the climate change projections are based on the hadley 2 model and scenarios rather than the more recent hadley 3 model and scenarios iii standard errors are biased due to spatial correlation iv the inclusion of state by year fixed effects does not leave enough weather variation to obtain meaningful estimates of the relationship between agriculture profits and weather v storage and inventory adjustment in response to yield shocks invalidate the use of annual profit data and vi fhrs argue that a better specified hedonic model produces robust estimates unlike the results reported in dg four of these critiques have little basis and we respond to them here in the introduction specifically with respect to ii the more recent daily climate predictions were not available when we wrote dg nevertheless the most important issue is providing the reliable estimates of climate change and in this note we report estimates based on the climate model we used in dg and a more recent one that we gained access to in the meantime iii in the primary table on agricultural profits dg reports two sets of standard errors with the first clustered at the county level and the second based on a variance covariance matrix that accounts for spatial correlation using the method proposed in conley 1999 thus the claim of fhrs 2012 seems overblown nevertheless to ease comparisons of papers in this literature this note will adopt the fhrs convention of reporting estimated standard errors clustered at the county and state levels we find that inference is largely unaffected by the choice between these different assumptions about the variance covariance matrix

market imperfections and the instability of open economies in the presence of small market imperfections the transitional dynamics of an open economy can become indeterminate in that there exist an infinite number of equilibrium paths converging to a unique steady state in contrast to closed economy models in the open economy such indeterminacy can arise independently of the curvature of the utility function in consumption the results suggest that with market imperfections open economies can be subject to fluctuations caused by randomness unrelated to the economy s fundamentals

opec s oil exporting strategy and macroeconomic in stability aguiar conraria and wen 2008 argued that dependence on foreign oil raises the like lihood of equilibrium indeterminacy economic instability for oil importing countries we argue that this relation is more subtle the endogenous choices of prices and quantities by a cartel of oil exporters such as the opec can aect the directions of the changes in the likelihood of equilibrium indeterminacy we show that uctuations driven by self ful lling expectations under oil shocks are easier to occur if the cartel sets the price of oil but the re sult is reversed if the cartel sets the quantity of production these results oer a potentially interesting explanation for the decline in economic volatility i e the great moderation in oil importing countries since the mid 1980s when the opec cartel changed its market strategies from setting prices to setting quantities despite the fact that oil prices are far more volatile today than they were 30 years ago

stability of equilibria with externalities it is shown that in a class of models with multiple externalities one positive and one negative all stationary equilibria may be locally stable to perturbations in the sense that there exist perfect foresight trajectories leading back to the equilibrium thus scale diseconomies arising for example out of a common resource pool generally overturn the liviatan samuelson result that equilibria are either saddlepoints or sources

preferences endogenous discount rate and indeterminacy in a small open economy model abstract this paper characterizes indeterminacy conditions for a small open economy business cycle model the preferences are the utility function commonly used in closed economy models in the literature coupled with an endogenously determined discount rate it shows that indeterminacy can occur under arbitrarily small external effects independently of the intertemporal elasticities in consumption and labor supply

are the effects of minimum wage increases always small a reanalysis of sabia burkhauser and hansen in a 2012 article sabia burkhauser and hansen reported very large negative effects of the 2004 to 2006 increase in the new york state minimum wage on the employment of young less educated workers hoffman reexamines their estimates using data from the full current population survey cps rather than the smaller cps morg files they used and finds no evidence of a negative employment impact the full cps which is the source of u s official labor market statistics is certainly the more appropriate and reliable data source furthermore when hoffman repeats the analysis using three states and the district of columbia which also had a substantial increase in the state minimum wage in the same time period he finds evidence of a small positive employment effect together the two findings are consistent with other more recent research that reports very weak or zero employment effects of the minimum wage

an integrated analysis of the effects of local water institutions on irrigated agriculture outcomes in the arid western united states abstractirrigation water rights and their governance structures constitute the foundation of local water institutions and profoundly influence water resource allocations irrigated agricultural productivity and other consumptive water uses in the arid climate zones this article explores the regional structures of irrigation water rights and water governance and empirically analyses the priority effects of water rights on irrigated agriculture at the micro level in idaho an arid and semiarid state in the western united states we integrate a unique data set of water rights and water supplies with agricultural features and environmental characteristics into our empirical analysis results indicate that seniority in water resources allocation has significant positive effects on both the average crop revenue and crop water use efficiency local water rights structures differ significantly in seniority and water sources from region to region in response to the heterogeneity in local water rights structures

an analysis of irrigated agricultural outcomes under the prior appropriation doctrine hypotheses and applications this article measures irrigated agricultural outcomes under the prior appropriation doctrine by developing a model of farmers land allocations in response to water supply change the modelling approach considers the institutional factors of water rights and permits the inclusive determination of water and land allocations we utilize farm level data of irrigated agriculture in water district 1 in idaho to examine the predictions from our theoretical model the water rights priority date is consolidated at the farm level and used to differentiate farmers responses we test a set of hypotheses that relate to water supply and crop revenue our results suggest that the water rights priority has a profound impact on agricultural outcomes indicating strong institutional effects and weak influence of market based approaches farmers respond to both long term and seasonal water supply change and variation and they respond to seasonal water supply forecasts in varied ways depending on their water rights portf

estimation of multicrop production functions this paper considers whether separability or nonjointness is the better approach for attaining tractability for multicrop production function estimation characteristics of agricultural production associated with allocated inputs physical constraints and output determination imply sufficient nonjointness for estimation whereas separability is less plausible the paper also addresses estimation of production functions with allocated inputs where allocations are not observed and demonstrates a proposed approach by way of example

joint estimation of technology adoption and land allocation with implications for the design of conservation policy one challenge to estimating the parameters of a technology adoption model is that technology is selected jointly with land allocation the article estimates a nested logit model of technology and crop choices that accounts for unobserved correlation among decisions estimation is conducted with a data set of adoptions in contrast to the more common approach of using cross section observations of existing technologies estimation results support the choice of a nesting structure as opposed to a more standard multinomial logit model adoption of precision irrigation technology is shown to be more sensitive to financial incentives affecting input price and technology cost than suggested by previous studies

corrigendum to congestible public goods and local indeterminacy a two sector endogenous growth model journal of economic dynamics control 31 7 2007 2486 2518

balanced budget consumption taxes and aggregate stability in a small open economy in a small open economy facing a perfect world capital market this paper shows that if the government follows a balanced budget fiscal policy based on endogenous consumption tax rates then the steady state is saddle path stable and hence beliefs driven aggregate instability can be ruled out this result is in contrast to those obtained in some closed economy models and it suggests that unrestricted world capital mobility can help stabilize the economy under the balanced budget fiscal policy based on consumption taxation

congestible public goods and local indeterminacy a two sector endogenous growth model abstract this paper shows that the congestible public goods can generate local indeterminacy in a two sector constant return human capital enhanced growth model while the productive public good exerts positive sector specific externalities the congestion effect generates negative aggregate externalities the sector specific externalities alone arising from productive public goods cannot establish local indeterminacy without the combination of negative externality in a model with social constant return technology congestible public good generates local indeterminacy if the degree of productive public good externality and the degree of congestion effect are large enough the condition for indeterminacy is independent of the factor intensity rankings the conditions are quantitatively assessed and the required parameter values for the degrees of public good externality and congestion are consistent with the estimated values in existing literature

balanced budget income taxes and aggregate stability in a small open economy abstract in a closed economy a balanced budget fiscal policy rule with endogenous income tax rates can generate aggregate instability due to self fulfilling expectations e g schmitt grohe and uribe 1997 this paper shows both analytically and numerically that beliefs driven aggregate instability associated with such a balanced budget rule is less of a problem in a small open economy integrated in the world asset and goods markets this is because cross border capital flows and endogenous international price adjustments produce income effects that reduce the likelihood of sunspot equilibria from a policy perspective our results relieve possible concerns that balanced budget rules and reliance on income taxes to achieve budget objective could have destabilizing effects on the economy

minimum wages and poverty will a 9 50 federal minimum wage really help the working poor using data drawn from the march current population survey we find that state and federal minimum wage increases between 2003 and 2007 had no effect on state poverty rates when we then simulate the effects of a proposed federal minimum wage increase from 7 25 to 9 50 per hour we find that such an increase will be even more poorly targeted to the working poor than was the last federal increase from 5 15 to 7 25 per hour assuming no negative employment effects only 11 3 of workers who will gain live in poor households compared to 15 8 from the last increase when we allow for negative employment effects we find that the working poor face a disproportionate share of the job losses our results suggest that raising the federal minimum wage continues to be an inadequate way to help the working poor

are the effects of minimum wage increases always small new evidence from a case study of new york state the authors estimate the effect of the 2004 6 new york state nys minimum wage increase from 5 15 to 6 75 per hour on the employment rates of 16 to 29 year olds who do not have a high school diploma using data drawn from the 2004 and 2006 current population survey they employ difference in difference estimates to show that the nys minimum wage increase is associated with a 20 2 to 21 8 reduction in the employment of less skilled less educated workers with the largest effects on those aged 16 to 24 their estimates imply a median employment elasticity with respect to the minimum wage of around 0 7 large relative to previous researchers estimates the authors findings are robust to their choice of geographically proximate comparison states the use of a more highly skilled within state comparison group and a synthetic control design approach moreover their results provide plausible evidence that state minimum wage increases can have substantial adverse labor demand effects for low skilled i

trade structure and belief driven fluctuations in a global economy abstract this paper constructs a dynamic two country model with country specific production externalities and inspects the presence of equilibrium indeterminacy under alternative trade structures it is shown that the presence of belief driven economic fluctuations caused by equilibrium indeterminacy is closely related to the specified trade structure if investment goods are not internationally traded and international lending and borrowing are allowed then indeterminacy arises in a wider set of parameter space than in the corresponding closed economy by contrast either if both consumption and investment goods are traded in the absence of international lending and borrowing or if only investment goods are traded with financial transactions then the indeterminacy conditions are the same as those for the closed economy counterpart

the economic effects of a citywide minimum wage this paper presents the first study of the economic effects of a citywide minimum wage san francisco s adoption of an indexed minimum wage set at 8 50 in 2004 and 9 14 by 2007 compared to earli

firm dynamics and markup variations implications for sunspot equilibria and endogenous economic fluctuations this paper analyzes how the interaction between firms entry and exit decisions and variations in competition gives rise to self fulfilling expectation driven fluctuations in aggregate economic activity and in measured total factor productivity tfp the analysis is based on a dynamic general equilibrium model in which net business formation is endogenously procyclical and leads to endogenous countercyclical variations in markups this interaction leads to indeterminacy in which economic fluctuations occur as a result of self fulfilling shifts in the beliefs of rational forward looking agents when calibrated with empirically plausible parameter values and driven solely by self fulfilling shocks to expectations the model can quantitatively account for the main empirical regularities characterizing postwar u s business cycles and for 65 of the fluctuations in measured tfp

indeterminacy in a small open economy ramsey growth model abstract this paper presents a small open economy version of the j benhabib and r e a farmer 1996 j monet econ 37 421 443 two sector optimal growth model with production externalities it is shown that indeterminacy is considerably easier to obtain under a regime of perfect world capital markets than in the closed economy variant furthermore the result is not dependent on a high labor supply elasticity since that input is fixed the paper also examines a variant which takes into account external borrowing constraints and it is shown that the qualitative results on indeterminacy remain basically unaffected by this extension journal of economic literature classification numbers e32 f12

alternative government financing and aggregate fluctuations driven by self fulfilling expectations abstract using woodford s finance constrained model woodford m 1986 stationary sunspot equilibria in a finance constrained economy journal of economic theory 40 128 137 with external effects in production as in barinci and cheron 2001 sunspots and business cycle in a finance constrained economy journal of economic theory 97 30 49 this paper investigates the effects of alternative government financing methods on the range of values of increasing returns leading to an indeterminate steady state it will be shown that indeterminacy may easily arise at a wide range of values of increasing returns if constant government expenditure is financed through labor income taxes and with difficulty if constant government expenditure is financed by taxes on capital in addition we explore how the consequences of endogenous income taxes are changed if tax rates on labor and capital income are kept constant and government expenditure is endogenously adjusted to satisfy the budget constraint

appropriative water rights and the efficient allocation of resources this paper investigates the allocative efficiency of the appropriative system of water rights within the context of a simplified model of a water using industry at a long run competitive equilibrium for the industry and with a prohibition on the transfer of water rights among firms it is shown that 1 senior appropriators claim and use more water than junior appropriators 2 senior appropriators bear less risk than junior appropriators 3 the allocation of water and diversion capacitie 6among firms is inefficient being dominated by an equal sharing among firms the equal sharing allocation which is pareto optimal when diversion capacities are supplied by a competitive leasing industry can be achieved under the appropriative system if there are competitive markets in water rights and in leases for the use of diversion capacities an application of the coase theorem