the illusion of fiscal illusion unsticking the flypaper effect recognizing that it is difficult to prove a negative this paper marshals evidence in support of the hypothesis that the widely documented flypaper effect of federal grants to state and local governments is purely a statistical artifact a review of previous studies and a monte carlo investigation suggest that the use of an inappropriate functional form may generate an illusory flypaper effect a local expenditure equation is then estimated in alternative specifications with ten years of state level data empirical results confirm the sensitivity of the flypaper effect to specification and tests of fit unambiguously favor one functional form that specification yields no statistical evidence of a flypaper effect

the costs of distribution in the uk life insurance market the cost of direct and independent distribution in the uk life insurance sector over the period 1990 1997 is examined this is a novel contribution to the literature that until now has focused almost solely on distribution in the non life sector unlike the non life sector the distribution of life insurance is complicated by the existence of investor protection policies which in the uk are believed to have increased the use of independent agents using a pooled data set of 44 companies between 1990 and 1997 this study finds little evidence for such a view cost benefits are found for firms focusing in one mode of distribution from a modelling of the distribution decision this finding maybe attributed to firms choosing distribution systems which match the transactional problems associated with their product mix and or mode of corporate governance

production technologies and technical efficiency evidence from portuguese manufacturing industry this paper aims to test whether a given type of process innovation namely flexible production technologies fpts contributes to increased firm efficiency using one year firm data from the portuguese manufacturing industry and applying a parametric stochastic frontier approach individual technical efficiencies are obtained and their determinants simultaneously estimated using a single step procedure recently proposed by battese and coelli 1995 the results support the hypothesis that technological flexibility measured through the use of fpts is important in explaining differences in efficiency furthermore given the specifications of the stochastic frontier function the null hypothesis that portuguese firms are fully technically efficient is rejected

computer use and productivity growth in us federal government agencies 1987 92 we examine the impact of information technology it on productivity in the public sector econometrically using data from the bls federal productivity measurement program and from computer intelligence infocorp and by interviewing some government officials we estimate a production function for government services that includes it capital as an input and find a strong positive relationship across federal agencies between productivity growth and computer intensity growth during the period 1987 92 controlling for growth in compensation and other outlays per employee and in the number of employees our estimates are consistent with the hypothesis that there are excess returns to it capital

sources procedures and microeconomic effects of innovation fabio arcangeli paul david frank engelman christopher freeman massimo moggi richard nelson luigi orsenigo nathan rosenberg michele salvati g n von tunzelman two anonymous referees and the participants at the meeting of the committee on distribution growth and technical progress of the italian national research council cnr rome november 16 1985 have helped with various redraftings a particularly grateful acknowledgment is for the insightful and patient help of moses abramovitz this work has been undertaken at the science policy research unit spru university of sussex as part of the research program of the designated research centre sponsored by the economic and social research council esrc earlier support to the research that led to this paper by the italian national research council cnr is also gratefully acknowledged the statistical research has been undertaken with the assistance of stephano brioschi ilaria fornari and giovannu prennushi

measuring technical efficiency in the greek agricultural sector this paper measures the degree of technical efficiency of greek farms at discrete points in time stochastic frontier production functions are estimated from four annual farm accountancy data network fadn surveys of the 1992 1995 period from the results a measure of technical efficiency is calculated for each farm for each year the four distributions of technical efficiency values are examined and compared all four samples show a wide range of farm specific technical efficiency but efficiency is improving over the period the paper also presents frontier estimates for small and large farms classified according to economic size in that case technical efficiency measures are calculated and their distributions are examined and compared the results show that large farms are more efficient than small farms however efficiency is improving in both size farms over the period in general the results of this study indicate that there is substantial scope for improving technical efficiency of greek farms

the flypaper effect and the revenue impact of grants in aid abstract using a median voter model which assumes grants as endogenous this paper finds strong evidence of the flypaper effect of unconditional grants to ontario municipalities unconditional grants are therefore not expected to reduce the tax burden of local residents

search bargaining money and prices the goal of this paper is to extend existing search theoretic models of fiat money which until now have assumed that the price level is exogenous by explicitly incorporating bilateral bargaining this allows us to determine the price level endogenously and leads to additional insights concerning the role of money for example we find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planner s problem although the difference can become small as the discount rate or search friction vanishes we also find that there exist nonstationary inflationary equilibria

inside and outside money as alternative media of exchange we study a random matching model of money in which a subset of people called bankers have known histories and the rest called nonbankers have unknown histories earlier we showed that if there are no outside assets then an optimal arrangement has bankers issuing objects banknotes that are used in trades involving nonbankers here the same model is used to compare such exclusive use of inside money to the exclusive use of outside money we show that the set of implementable outcomes using outside money is a strict subset of the set using inside money

the fungibility of us assistance to developing countries and the impact on recipient expanditures a case study of pakistan abstract development assistance continues to be an important source of funds to developing nations donor countries prefer to provide categorical or project aid since it is believed that the typing of aid to a specific project will help to ensure that the funds are used in accordance with the designated objectives development literature indicates however that the ability to tie aid may be illusory specifically recipient nations can cut the ties associated with categorical aid and effectively transform it into purely income augmenting funds i e purely fungible resources the funds legally designated for specific developmental purposes may finance projects whose purposes are not in line with the developmental objective the fungibility of development assistance has received little empirical attention this paper is an effort to fill that gap we formulate an econometric model that explains the response of pakistan s spending for defense public nondefense and private consumption to us assistance within the fungibility framework our results suggest that us assistance to pakistan whether military or nonmilitary is fully transformed into fungible resources with impact on public spending less significant than expected

capital grants and regional public investment in spain fungibility of aid or crowding in effect the aim of capital grants to subcentral governments is to increase their investment however recipients may try to allocate additional resources to cut saving or deficit generating a crowding out effect on self financed investment using data from the spanish autonomous communities during the period 1984 to 1999 the effect of capital transfers on regional public investment saving and deficit are estimated econometric results demonstrate that capital grants have no relevance when explaining the dynamics of saving however in deficit regressions they are shown to be both significant and negative both results lead us to a partial long run crowding out effect of grants on self financed investment

farm productivity and efficiency in rural bangladesh the role of education revisited this article reassesses the debate over the role of education in farm production in bangladesh using a large dataset on rice producing households from 141 villages average and stochastic production frontier functions are estimated to ascertain the effect of education on productivity and efficiency a full set of proxies for farm education stock variables are incorporated to investigate the internal as well as external returns to education the external effect is investigated in the context of rural neighbourhoods our analysis reveals that in addition to raising rice productivity and boosting potential output household education significantly reduces production inefficiencies however we are unable to find any evidence of the externality benefit of schooling neighbour s education does not matter in farm production we discuss the implication of these findings for rural education programmes in bangladesh

the inevitable limits of eu r d funding abstract the experience of the past 40 years in national policies for and european cooperation in science and technology points to clear conclusions about eu policies first the prevailing notions of technology gaps between europe and japan and the usa notions which have been a driving force in the eu policy for research and technology have been exaggerated however real gaps exist amongst the eu member countries themselves secondly it is unrealistic to expect eu funded r d programmes by themselves to make a substantial difference to the rate and direction of technical change in europe however eu policies for competition and other forms of regulation trade and investment can have a major influence on corporate decisions about technical change it is important for eu innovation policy to promote favourable framework conditions within which business firms are encouraged to improve their technological and related organisational practices

fiscal illusion budget maximizers and dynamic equilibrium this paper extends previous work in grant induced fiscal illusion in two ways while previous models have focused on the existence of rational comparative static equilibria in the presence of illusion this work focuses on the dynamic process by which steady state equilibria can be achieved furthermore endogeneity in grants is incorporated which necessitates the use of a budget maximizing hypothesis however it is shown that a broader interpretation of the budget maximizing assumption is necessary in order for this characterization to make sense in a grantor recipient framework

free and slave labor in the antebellum south perfect substitutes or different inputs the substitutability between free and slave labor is examined and the permissibility of aggregating the two in to a single labor variab le is investigated using a translog production function slaves on large cotton farms worked in gangs free labor was not observed to do so despite this previous research has aggregated free and slave labor and employed functional forms imposing strong restrictions on substitution estimation of the translog function shows that simple additive aggregation is not acceptable on large farms slaves and free labor were complements while on small nongang farms they were substitutes copyright 1988 by mit press

differentials at firm level productive capacity realization in bangladesh food manufacturing an empirical analysis this article empirically estimates the firm specific productive capacity realization pcr indices using the stochastic frontier production function and analyses a number of variables explaining realization rates across firms and over time following battese and coelli 1995 the stochastic frontier production function is used to estimate capacity output and thereby pcr using the firm level panel data from bangladesh food manufacturing the results show that capacity realization rates widely vary across firms and over time the average rate of realization is about 65 implying that most of the firms are producing away from their full production capacity this article also identifies several firm specific and policy related variables explaining capacity realization the results show that firm size sze and outward orientation opn have positive while capital intensity cnsty market structure mstre and effective rate of assistance era have negative impact on realization rates strikingly both poli

nonfundamental uncertainty and exchange rates this paper shows that there can be equilibria in which exchange rates display randomness unrelated to fundamentals this is demonstrated in the context of a two currency one good model with three agent types and cash in advance constraints a crucial feature is that the type i agents for i 1 2 must satisfy a cash in advance constraint by holding currency i while type 3 agents can satisfy it by holding either currency it is shown that real allocations vary across the multiple equilibria if markets for hedging exchange risk do not exist and that the randomness is innocuous if complete markets exist

a minimalist model of federal grants and flypaper effects abstract this paper shows that flypaper effects can be observed for unconditional federal grants even in the absence of agenda setters voting intransitivities informational asymmetries etc in a simple representation of a regime of federal general revenue grants median citizen voters are decisive over the levels of grants taxation and spending by assumption federal grants received equal federal taxes paid in each recipient locallity the size of the federal grant varies endogenously with demand conditions and the efficiency of tax technologies the apparent flypaper effects positive or negative vary with the source of the change in grants

identification of key sectors in the bangladesh economy a linkage analysis approach this paper purports to identify key sectors in the bangladesh economy employing the concepts of forward and backward linkages an attempt is made to rank sectors according to their employment and output potentials the paper draws a distinction between gross and net linkages defined respectively on the inverses of the leontief technology matrix and the domestic matrix using data for bangladesh it is shown that the transition from gross to net linkages implies significant divergence in sectoral rankings this appears to be true for ranking of sectors in terms of output and employment suggesting a potential conflict between employment and output generation potentials particularly in the industrial sectors when net linkages are considered agricultural sectors appear to rank high on both counts

fiscal illusion intergovernmental grants and local spending islam m n 1998 fiscal illusion intergovernmental grants and local spending reg studies 32 63 71 this paper provides some evidence of fiscal illusion of a reduced tax price of public service engendered by provincial grants to local governments a model of fiscal response to grants based on expected vote maximization approach is tested on time series data as well as pooled time series and cross section data for 39 upper tier municipalities in ontario over the period 1977 91 a generalized two stage least square procedure is used to estimate the model adjusting for autocorrelation heteroscedasticity in errors and simultaneity between grants and expenditures the results show that the fiscally induced price effects of grants varies quite widely from one municipality to another and these variations can be attributed to differences in municipal characteristics and their institutional relations with the province additionally the results show evidence of considerable tax exporting and importing

the specification of partial static equilibrium models in conducting an investigation into the specification of partial static equilibrium factor demand models this paper isolates 1 the endogeneity of output and quasi fixed factor levels 2 the choice of omitted share equation and 3 the presence of serial correlation when using time series data as the specification issues that most affect the existing empirical literature the impact of specification changes are studied via a series of experiments conducted on an illustrative data set and are found to have significant effects on parameter estimates and model diagnostics departures between observed and full equilibrium levels of quasi fixed factors and price elasticities as a consequence caveats must be attached to several previous studies and care must be taken by future researchers in addressing using such models copyright 1987 by mit press

the development and use of machine tools in historical perspective abstract improvements and diffusion of machine tools have had a major impact on productivity in manufacturing industry since the industrial revolution the impact has been both direct and indirect the direct impact consists of rising labor productivity through the use of faster more accurate more mechanized machines and of the higher capital productivity through higher operating rates greater reliability and higher utilization rates the indirect impact arises as the use of new or improved machine tools has necessitated or facilitated organizational changes affecting both labor capital raw materials and energy the magnitude of these impacts has varied over the years with the areas of application as new production methods have made possible entirely new products or lowered the cost of existing products sufficiently to create new markets the first part of the paper contains a review of the historical development of machine tool technology since the industrial revolution paying particular attention to the role of interaction between producers and users of machine tools the second part focuses on the way in which recent development differs from that in earlier periods in particular it is found that the major changes in machine tool technology from the so called american system of manufactures in the early 19th century to the development of detroit automation in the 1950s have tended to improve mass production methods by contrast the development of numerical control beginning in 1948 has opened up the possibility of extending industrial production methods and automation to areas previously characterized more by handicraft methods even though this technology is not yet fully utilized it is clear that the economics of industrial production has been revolutionized by the cost reduction of small scale production relative to large scale and the degree of flexibility offered by the technology the third section of the paper deals with the present development trends particularly discussing the increasing importance of flexibility and the shifting emphasis from development of individual pieces of machinery to integration and control of entire manufacturing processes i a through the use of industrial robots the reasons for the need for greater flexibility in manufacturing are also identified

market deregulation trade liberalization and productive efficiency in bangladesh agriculture an empirical analysis the impact of trade liberalization and of market deregulation in general on the performance of agriculture remains contentious and empirical issue in the literature following the random coefficient frontier modelling framework this paper attempts to contribute to this debate by computing the farm specific productive efficiency indices in bangladesh agriculture before and after reform it also examines the impact of some farm specific and policy variables on productive efficiency the empirical results show that there are wide variations in productive efficiency across farms and regions and the average efficiency of all regions increased modestly by 8 percentage points from the pre reform to post reform period the efficiency differentials are largely explained by farm size infrastructure households off farm income and the reduction of government anti agricultural bias in relation to trade and domestic policies the implication of these results suggests the need for further policy reform to augment p

resource fungibility the flypaper effect and the expenditure impact of grants in aid the typical assumption that intergovernmental grants in aid alter a recipient s budget constraint according to the legal provisions of grant programs was first challenged by mcguire 1975 1978 in a model where local officials are able to convert some fraction of conditional aid into pure fungible resources this paper develops a model of local government expenditure decisions based on mcguire s original work and applies it to data for large u s city governments the results lend strong support to the fungibility hypothesis additionally and importantly the results provide very little evidence in support of the so called flypaper effect of unconditional grants this is due to a more appropriate specification of the unconditional aid variable

political markets property tax referenda and local school spending for better or worse fiscal decisions made through property tax referenda allow local political markets to work demand supply and voting process components of such markets are estimated for those oregon k 12 school districts that held referenda between 1981 and 1986 various attributes of the median voter were related to school spending but supply decisions by school boards and administrators were also important large districts used state aid to substitute for local property tax revenues on nearly a one for one basis while relying on reversion budgets inadequate property tax bases and implicit threats of school closures to extract greater than desired spending levels from the median voter

legal constraints and the choice of educational grant structures recent empirical work suggests that legalconstraints are significant in choosingstate educational grant structures unfortunately the literature has not takensuch constraints into account thus callinginto question particular grant structurerecommendations this paper studies theconditions under which a legislature underorder to reform its educational grantstructure prefers foundation grants overdistrict power equalization grants atheoretical model is presented in which thechoice is shown to depend on the legalbasis of the court s decision and theempirical validity of this conclusion isdemonstrated using connecticut data and aseparate model of school districtexpenditure choice

divergency between average and frontier production technologies an empirical investigation for bangladesh applied economic analysis and policy formation often relies on esttimated porduction technologies primal representations of production technologies can be specified as the average production function or as the stochastic frontier this paper uses nested and non nested specification tests and assessment of economic variables including elasticities and marginal products to evaluate systematic differences between the average production function and three different specifications of the stochastic frontier bangladesh serves as an illustrative example the importance emerges of first beginning any analysis of production technologies with nested hypothesis testing of inefficiency and non nested hypothesis testing for systematic but unknown differrences between the average and stochastic frontier functions followed by nested testing of the final form of the production technology

money and prices a model of search and bargaining abstract this paper makes commodities divisible and incorporates bargaining into the search theoretic model of money to determine the purchasing power of money or price it is shown that two monetary equilibria always coexist where fiat money is universally accepted the two equilibria differ in price output welfare and the velocity of money sunspot monetary equilibria exist in which money is universally accepted in all states of the economy multiplicity has novel implications on the effectiveness of currency substitution and exchange market intervention journal of economic literature classification numbers c78 e40

the use of input output analysis to determine the appropriateness of technology and industries evidence from bangladesh since the proportion of available capital to labor is low in ldcs compared to the developed countries the most appropriate techniques for ldcs from an economic point of view are likely to be the laborintensive ones if we suppose that there is a single most efficient technique for each industry and if it technologically requires labor and capital in fixed proportions the most appropriate industries for ldcs are likely to be the labor intensive ones this is because of the close correspondence between industries and their technological requirements on an international scale this appropriateness is given some support by the heckscher ohlin theorem of international specialization in production as is well known this theorem indicates subject to various assusmptions that countries should specialize in the production of goods that make use of their relatively abundant factors of production the aim of this paper is to identify appropriate industries for bangladesh in view of the relative availability of labor and capital and taking into account the amount of labor and capital needed both directly and indirectly to produce output for each industry unfortunately as specified below a number of previous studies of appropriate techniques and industries have ignored the indirect requirements for labor and capital needed to produce the various intermediate products used in these industries interindustry analysis based on the assumption that the adopted techniques require inputs to be combined in fixed

frontier production functions and technical efficiency a survey of empirical applications in agricultural economics abstract the modelling and estimation of frontier production functions has been an important area of econometric research during the last two decades forsund lovell and schmidt 1980 and schmidt 1986 present reviews of the concepts and models involved and cite some of the empirical applications which had appeared to their respective times of publication this paper seeks to update the econometric modelling of frontier production functions associated with the estimation of technical efficiency of individual firms a survey of empirical applications in agricultural economics is an important part of the paper

efficiency and technical progress in traditional and modern agriculture evidence from rice production in china abstract productive efficiency for chinese hybrid and conventional rice production is estimated using a dual stochastic frontier efficiency decomposition model results reveal significant differences in technical and allocative efficiency between conventional and hybrid rice production and indicate significant regional efficiency differences in hybrid rice production but not in conventional rice production

production technology elasticity of substitution and technical efficiency of the handloom textile industry of bangladesh a number of translog and cobb douglas frontier production models were estimated for the bangladesh handloom textile industry to investigate its production technology and technical efficiency in production it was found that the technical efficiency of the industry in producing cloth was only 41 it was concluded that the industry might improve its technical efficiency by increasing its male female labour ratio and yarn capital ratio and decreasing its hired family labour ratio and labour capital ratio the production technology of the industry was found to be characterized by a linearly homogeneous cobb douglas function the elasticity of substitution between labour and capital for the industry was found to be unity

efficiency estimation in a profit maximising model using flexible production function abstract this paper uses a flexible translog production function to estimate efficiency of 227 farms from west bengal india we consider estimation of technical and allocative inefficiencies using a profit maximising framework which accommodates both endogenous and exogenous inputs the maximum likelihood method of estimation developed in this paper is based on the production function and the first order conditions of profit maximisation farm specific technical and allocative inefficiencies are also estimated empirical results show that the mean level of technical efficiency is 75 46 while the best farm is 85 87 efficient technically so far as allocative efficiency is concerned the majority of the farms are found to be under users of the endogenous inputs viz fertiliser manure human and bullock labour

consistency in performance rankings the peru water sector regulators can utilize a number of alternative methodologies for comparing firm efficiency but these approaches need to be robust to be accepted by stakeholders this study evaluates the consistency of water utility performance rankings for peruvian water utilities the results indicate that data envelopment analysis dea and stochastic frontier analysis sfa yield similar rankings in this case in addition the techniques have comparable success for identifying the best and worst performing utilities however these rankings based on sophisticated statistical techniques are not highly correlated with those developed by the peruvian water regulator sunass this result does not invalidate the performance rankings obtained by the regulator since those rankings are based on more dimensions of utility performance however they illustrate the importance of developing sound techniques for identifying weak utilities improvements in sector performance require that benchmarking be given greater attention t

estimating technical efficiency of australian dairy farms using alternative frontier methodologies technical efficiency is estimated and examined for a cross section of australian dairy farms using various frontier methodologies bayesian and classical stochastic frontiers and data envelopment analysis the results indicate technical inefficiency is present in the sample data also identified are statistical differences between the point estimates of technical efficiency generated by the various methodologies however the rank of farm level technical efficiency is statistically invariant to the estimation technique employed finally when confidence credible intervals of technical efficiency are compared significant overlap is found for many of the farms intervals for all frontier methods employed the results indicate that the choice of estimation methodology may matter but the explanatory power of all frontier methods is significantly weaker when interval estimate of technical efficiency is examined

are there lasting impacts of aid to poor areas abstract the paper re visits the site of a large world bank financed rural development program in china 10 years after it began and four years after disbursements ended the program emphasized community participation in multi sectoral interventions including farming animal husbandry infrastructure and social services data were collected on 2000 households in project and non project areas spanning 10 years a double difference estimator of the program s impact on top of pre existing governmental programs reveals sizeable short term income gains that were mostly saved only small and statistically insignificant gains to mean consumption emerged in the longer term though in rough accord with the average gain to permanent income the use of community based beneficiary selection greatly reduced the overall impact given that the educated poor were under covered the main results are robust to corrections for various sources of selection bias including village targeting and interference due to spillover effects generated by the response of local governments to the external aid

strategic choice of flexible production technologies and welfare implications this paper examines the market conditions under which firms would choose a more flexible production technology with respect to product design the authors use a two stage game in which firms choose between flexible and less flexible production technologies in the first stage and subsequently choose output they find that consumers would benefit from the introductions of flexible production technologies in their model the authors also find that the production technology game is a prisoner s dilemma when firms invest in flexible manufacturing systems they derive the conditions under which the resulting equilibria are efficient copyright 1990 by blackwell publishing ltd

fiscal illusion and the australian local government grants process how sticky is the flypaper effect it has been argued that evidence supporting the widely documented flypaper effect is a statistical artefact more specifically that previous studies are compromised by the use of inappropriate functional forms and the endogeneity of intergovernmental grant programs whilst the first issue may be resolved with careful econometric testing the second requires the incorporation of institutional constraints into governmental expenditure equations combining australian local government expenditure equations and intergovernmental grant parameters the flypaper controversy is analysed empirical results confirm the sensitivity of the flypaper effect to specification and tests of fit unambiguously favour one functional form that specification yields no evidence of a flypaper effect in the australian institutional milieu

the fungibility of u s military and non military assistance and the impacts on expenditures of major aid recipients abstract this paper examines the impact of u s military and non military assistance on the allocation of public and private sector spending for eight major recipients over the 1972 1987 period the model assumes that an aid recipient s effective post assistance budget constraint is a priori unknown and must be estimated two versions of the model are tested in version a the data is converted into real u s dollars using official exchange rates in version b the data is converted using purchasing power parity exchange rates provided by summers and heston 1991 major findings are the same for both versions u s aid is highly fungible with a significant portion channeled to the private sector where it finances current consumption relatively more than investment