decomposing productivity growth in the u s computer industry in this paper we examine the sources of the productivity growth in the u s computer industry from 1978 to 1999 we estimate a joint production model of output quantity and quality that distinguishes two types of technological changes process and product innovations based on the estimation results we decompose total factor productivity tfp growth rate into the contributions of process and product innova tions and scale economies we find that product innovation associated with better quality accounts for about 30 of the tfp growth in the computer industry furthermore the tfp acceleration in the computer industry in the late 1990s is mainly derived from a rapid increase in product innovation

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

aggregate consequences of limited contract enforceability we study a general equilibrium model in which entrepreneurs finance investment with optimal financial contracts because of enforceability problems contracts are constrained efficient we show that limited enforceability amplifies the impact of technological innovations on aggregate output this implies that economies with lower enforceability of contracts are characterized by greater macroeconomic volatility a key assumption for the amplification result is that defaulting entrepreneurs are not excluded from the market

endogenizing exogenous default barrier models the mm algorithm abstract in this paper we propose a maximization maximization mm algorithm for the assessment of hidden parameters in structural credit risk models step m1 updates the value volatility and expected return on the firm s assets by maximizing the log likelihood function for the time series of equity prices step m2 updates the default barrier by maximizing the equity holders participation in the firm s asset value the main contribution of the method lies in the m2 step which allows for endogenizing the default barrier in light of actual data on equity prices using a large international sample of companies we demonstrate that theoretical credit spreads based on the mm algorithm offer the lowest cds pricing errors when compared to other traditional default barrier specifications smooth pasting condition value maximum likelihood estimate kmv s default point and nominal debt

a barrier option framework for corporate security valuation abstract this paper proposes a framework for corporate security valuation based on path dependent barrier option models instead of the commonly used path independent approach we argue that path dependency is an intrinsic and fundamental characteristic of corporate securities because equity can be knocked out whenever a legally binding barrier is breached a direct implication of this framework is that equity will be priced as a down and out call option we provide empirical validation of the barrier model by showing that implied barriers are statistically and economically significant for a large cross section of industrial firms additional robustness tests confirm that barriers remain significant over a wide range of input variable estimates and finally we apply the barrier option framework to bankruptcy prediction and find that implied failure probabilities dominate z scores in most cases

the korean textile industry still competitive after all these years although a vital part of the economy the korean textile industry has been challenged by the recent reduction of international trade barriers particularly as this industry was fully integrated into general agreement on tariffs and trade gatt in 2005 the textile industries in japan and many other countries have also faced difficulties this study examines future prospects for the korean industry by investigating the presence of economies of scale and relationships among the inputs of domestic capital labour and intermediate goods as well as foreign intermediate goods the findings are consistent with constant returns to scale and a substitutes relationship among all input pairs except for domestic capital and foreign intermediate goods thus there appear to be no further cost reductions available through increased output and economies of scale however some reduction in industry output may not result in increased unit costs either a reduction in the price of foreign intermediate goods will not onl

money as a mechanism in a bewley economy we study what features an economic environment might possess such that it would be pareto ecient for the exchange of goods in that environment to be conducted on spot markets where those goods trade for money we prove a conjecture that is essentially due to bewley 1980 1983 the gist is that monetary spot trading is nearly ecient ex ante in an environment where very patient agents can accumulate large enough money stocks to be completely self insured we also study examples where a nonmonetary mechanism is preferred ex ante to any monetary mechanism at least when the comparison is restricted to stationary equilibria and where an inflationary monetary mechanism is preferred ex ante to a laissez faire or deflationary monetary mechanism in an environment with impatient agents j e l classification e31 e42

lack of recall and centralized monetary trade we introduce lack of recall of past transactions as an alternative assumption to anonymity in a model where trade is centralized in environments where there is an intertemporal lack of double coincidence of wants problem and lack ofcommitment lack of recall can give rise to monetary equilibria that dominate nonmonetary outcomes in terms of welfare

a requiem for the australian motor vehicle industry the last automobiles manufactured in australia rolled off the assembly line in the fall of 2017 this article looks at some of the factors that have impacted the industry since 1968 and led to its

life insurer performance under the bailout of distressed asset purchases abstractthe paper develops a structure break contingent claim model to examine how government bailout affects a life insurer s performance policyholder protection and insurer survival the distre

comment on markets versus governments by acemoglu golosov and tsyvinski one of the oldest and most fundamental debates in economics pertains to the role of markets andgovernment in the allocation of resources there are two dimensions to this debate the rst is inherentlynormative and revolves around the question what role should markets and governments play in the allocationof resources the second dimension is motivated by the varied combinations of markets and governmentsobserved in different economies this leads to a series of positive questions what factors can account for thesedifferent combinations of markets and governments what is the role of political institutions and socialpreferences or culture in shaping the particular combinations that we observe what are the properties of theallocations being implemented by these different arrangements what are the resulting welfare implications this paper seeks to contribute to the normative debate and explores the conditions that make markets moredesirable than governments since markets and governments are viewed as alternative allocation mechanisms the outcome of this comparison depends crucially on the economic environment here the presence ofidiosyncratic risk in labor productivity implies that the ability to enable risk sharing plays a key role in theranking of markets and governments this ability in turn depends on the particular way in which markets andthe government are modelled there are many possible strategies to evaluate the comparative performance of different allocationmechanisms one is to endow the economic environment with a primitive friction such as private informationor limited commitment and ask how close the market and the government can get to the best allocation thatcan be achieved given that friction this paper instead presumes that markets and the government arecharacterized by a different set of frictions in the market setting anonymity or lack of enforcement imply thatthe equilibrium allocation cannot in general sustain full risk sharing on the other hand the government sability to provide insurance is limited by two different frictions first individual abilities are privateinformation second the ruler is not benevolent and can appropriate rents this approach implies that thecomparison of markets and government boils down to a race between frictions the resulting analysisteaches us about the properties of optimal allocations under different sets of frictions but it is silent about theintrinsic comparative advantages of markets and governments since the issue of what government andmarkets can best accomplish is not addressed the question of what role they should play in resource allocationremains open

on endogenous formation of price expectations abstract we study a two period exchange economy with complete financial markets and endogenous borrowing constraints contrary to perfect foresight paradigm we assume that agents are heterogeneous in their ability to forecast future prices we introduce a new equilibrium concept called informationally constrained equilibrium where the formation of price expectations is endogenous and reflects the revelation of information from observing bounds on liabilities designed to ensure solvency at any contingency we prove that under standard assumptions an equilibrium always exists and we characterize the degree of information revealed by the endogenous debt limits

wage differentials of transportation industries deregulation versus regulation this article investigates the wage differentials of similar occupations in three for hire transportation carrier industries railroad truck and motor bus under regulation and deregulation the estimation results indicate that the union wage gaps among all occupations have widened under deregulation specifically the union wages of railroad occupations have increased relative to those of truck drivers and the union wages of truck drivers have increased relative to those of motor bus drivers further wage gaps for all occupations for this period are greater among nonunion than among union workers jel l92 i introduction economic regulation of u s transportation carrier industries has been classified into three distinct eras the monopoly regulatory era the competition regulatory era and the regulatory reform era beginning in the late 1800s the 1930s and the 1970s talley 1983 these eras addressed carrier abuses destructive intramodal and intermodal competition and the negative impacts of regulation respectively the 1887 interstate commerce act sought to prevent monopolistic abuses and limit discriminatory practices of railroads the motor carrier act of 1935 of the competition regulatory era placed motor carriers freight and passenger under federal regulation by the 1970s advocates for federal regulatory reform argued that economic regulation protected inefficient carriers promoted high rates and fares and in general fostered an inefficient allocation of resources subsequently a number of deregulation or regulatory reform acts were passed including the railroad revitalization and regulatory reform act of 1976 the staggers rail act of 1980 the motor carrier act of 1980 and the bus regulatory reform act of 1982 though shippers and passengers have generally benefited from transportation deregulation paying lower real rates and fares the impact on carrier labor earnings has been negative for example the real weekly wages of union railroad engineers have declined 11 7 talley and schwarz miller 1998 the real hourly wages of union and nonunion for hire truck carrier drivers have declined 23 and 10 hirsch and macpherson 1998 and the real hourly wages of both union and nonunion for hire motor bus carrier drivers have declined 17 schwarz miller and talley 1994 the impact of deregulation however on the relative labor earnings of transportation carrier industries is unknown specifically have wage differentials changed from those of the regulation period if so have these differentials widened narrowed under deregulation thereby increasing decreasing the gap in the labor earnings of one industry relative to those of another do the changes in wage differentials differ for union and nonunion labor the purpose of this article is to investigate occupational wage differentials among transportation industries under regulation and deregulation as intermodal competition intensifies such information is expected to play a more important role in industry wage negotiations wage differentials of similar occupations in three for hire carrier industries under regulation and deregulation are estimated the three industries are the railroad truck and motor bus industries and the occupations include railroad engineers conductors and brakemen switchmen truck drivers and motor bus drivers the estimation results indicate that the union wages of railroad occupations have increased relative to those of truck drivers and the union wages of truck drivers have increased relative to those of motor bus drivers during the postderegulation period further wage gaps for all occupations for this period are greater among nonunion than among union workers the remainder of this article is structured as follows section ii discusses railroad truck and motor bus for hire carrier industries and in particular their labor under regulation and deregulation

the surface of implied firm s asset volatility abstract this paper analyzes the surface of cds implied firm s asset volatility at the aggregate market level using a sample of european investment grade firms during the 2007 2014 period the term structure of asset implied volatilities is backed out from the term structure of cds spreads while the moneyness dimension is proxied by the ratio of the default barrier to asset value we find both a downward sloping term structure and a negative skew principal component analysis on the entire volatility surface shows that the first four components interpreted as a level a term structure a skew and a moneyness related curvature mode capture 86 of the daily variation in asset implied volatility we also find that the term structure slope is related to market and funding illiquidity investors risk aversion informational frictions demand supply factors and momentum

intertemporal distortions in the second best we consider a very general class of public nance problems that encompasses ramsey models of optimal taxation as well as economies with limited commitment private information and political economy frictions we identify a su cient condition to rule out permanent intertemporal distortions at the optimum if there exists an admissible allocation that converges to the rst best steady state then all intertemporal distortions are temporary in the second best we analyze a series of applications to illustrate the signi cance of this result

confidence intervals for elasticity estimators in translog models this paper examines the distribution fu nctions of elasticity estimators in translog demand models the authors consider the normaland ratio of normals distributions and present confidence intervals for the elasticity estimators the results suggest that only elasticity estimato rs based on the means of the actual cost shares are likely to follow either the normal or ratio of normals distribution function examination of three published empirical studies demonstrates that inferences regarding the values of elasticities cannot be made from point estimates alone and suggests a trade off between the level of aggregation and the width of confidence intervals for the elasticit y estimators copyright 1986 by mit press

the priority structure of corporate liabilities most discussions of corporate capital structure effectively assume that all debt is the same yet debt differs by maturity covenant restrictions conversion rights call provisions and priority here we examine priority structure across a sample of 4995 compustat industrial firms from 1981 to 1991 we analyze the variation in the use of capital leases secured debt ordinary debt subordinated debt and preferred stock both as a fraction of the firm s market value and as a fraction of total fixed claims our evidence provides consistent support for contracting cost hypotheses mixed support for tax hypotheses and little support for the signaling hypothesis

a cost function analysis of import demand and growth in south africa abstract this study investigates the substitutability relationships among capital labor and imported inputs for south africa utilizing the estimates obtained from an aggregate cost function our results are consistent with the hypothesis that capital is a substitute for both domestic labor and imports but that labor and imports are complementary inputs this latter result suggests that relaxing south african trade restrictions may have a positive impact in both the long and the short run on the demand for domestic labor other results suggest that the reduction of market impediments may also positively impact the production of investment goods and economic growth

optimal bankruptcy code a fresh start for some abstract what is the optimal consumer bankruptcy law i answer this question using an incomplete markets life cycle model with a planner who can choose state contingent bankruptcy costs i develop two main theoretical characterizations first whenever debt discharge is allowed it should occur without cost second bankruptcy should always be allowed for highly indebted households quantitatively the optimal policy can generate a welfare gain as large as 11 6 however attractive informal default asymmetric information and moral hazard can reduce the welfare gain to as little as 0 7

the term structure of credit spreads with jump risk abstract default risk analysis is important for valuing corporate bonds swaps and credit derivatives and plays a critical role in managing the credit risk of bank loan portfolios this paper offers a theory to explain the observed empirical regularities on default probabilities recovery rates and credit spreads it incorporates jump risk into the default process with the jump risk a firm can default instantaneously because of a sudden drop in its value as a result a credit model with the jump risk is able to match the size of credit spreads on corporate bonds and can generate various shapes of yield spread curves and marginal default rate curves including upward sloping downward sloping flat and hump shaped even if the firm is currently in a good financial standing the model also links recovery rates to the firm value at default so that the variation in recovery rates is endogenously generated and the correlation between recovery rates and credit ratings before default reported in altman j finance 44 1989 909 can be justified

financial intermediary capital we propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households that is have a collateralization advantage intermediaries require capital as they have to finance the additional amount that they can lend out of their own net worth the net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity such as investment and financing the accumulation of net worth of intermediaries is slow relative to that of the corporate sector the model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch namely their severity their protractedness and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns the model captures the tentative and halting nature of recoveries from crises

private capital flows capital controls and default risk abstract what has been the effect of the shift in emerging market capital flows toward private sector borrowers are emerging market capital flows more efficient if not can controls on capital flows improve welfare this paper shows that the answers depend on the form of default risk when private loans are enforceable but there is the risk that the government will default on behalf of all residents private lending is inefficient and capital controls are potentially pareto improving however when private agents may individually default capital flow subsidies are potentially pareto improving

the impact of deregulation on the production structure of the motor carrier industry empirical analysis of the motor carrier industry pre and post regulatory reform reveals that deregulation resulted in significant changes in firm production structure and lower real average costs translog cost functions for firms operating in 1977 and 1983 were estimated and compared for other specialized commodity carriers fitted average costs were computed from these functions the results indicate significant differences in the cost functions and real costs that cannot be attributed to technological changes but rather suggest efficiency gains the results also suggest that it is inappropriate to predict outcomes of deregulation using empirical analyses of firms in the regulated environment

union work rules and efficiency in the building trades this paper estimates the effect of union work rules in the building trades on employment and costs by comparing factor demand elasticities for union and nonunion contractors and subcontractors over micro data from two different types of construction the results show that the elasticities of substitution between labor and nonlabor inputs and own price elasticities for nonlabor inputs are about the same for union and nonunion contractors in contrast the elasticities of substitution among different skill categories of labor and the own price elasticities for each category are much lower under unionism

how does equity capital cost affect bank performance during a financial crisis this article theoretically examines how equity capital cost affects return performance and safety of a bank and how this effect varies across a financial crisis comparing to a normal time when the bank manager s performance reveals the like of higher equity return and the dislike of higher equity risk we derive two main results first an increase in the bank s equity capital cost from an increase of the interest rate of the federal funds results in a reduced loan risk taking at an increased optimal bank interest margin implying better bank performance second by ignoring the dislike we find that the better performance is reinforced during a financial crisis but is reduced during a normal time financial crises and the dislike preference as such contribute a relatively low return and the stability of banking activities

production cost structure of us hospital pharmacies time series cross sectional bed size evidence there are current concerns about potential factor substitutions and their implications for factor employments and cost containment in us hospital pharmacies a translog production cost model is estimated for these pharmacies using 1981 9 times series data consisting of seven cross sectional bed size classes per year zellner s joint gls estimation of three factor cost share equations and the parent translog cost function reveals that pairwise factor substitutions are severely limited production is non homothetic occurring in the range of scale diseconomies biased and pure technical change effects dominate the scale augmenting component implications of findings are rationalized in the context of the emerging biopharmaceutical technologies

margins of multinational labor substitution multinational labor demand responds to wage differentials at the extensive margin when a multinational enterprise mne expands into foreign locations and at the intensive margin when an mne operates existing affiliates across locations we derive conditions for parametric and nonparamtric identification of an mne model to infer elasticities of labor substitution at both margins controlling for location selectivity prior studies rarely found foreign wages or operations to affect employment our strategy detects salient adjustments for german mnes with a one percent increase in german wages german mnes add 2 000 manufacturing jobs in eastern europe at the extensive margins and 4 000 jobs overall a converse one percent drop in eastern european wages is associated with an overall withdrawal of 730 mne jobs from germany

reducing government debt in the presence of inequality abstract what are the welfare effects of government debt in particular what are the welfare consequences of government debt reductions we answer these questions with the help of an incomplete markets economy with production households are subject to uninsurable income shocks we make several contributions first by targeting the skewed wealth and earnings distribution of the us economy in our calibration we identify inequality as the major driver of the welfare effects of public debt gdp changes second we show that in order to fully gauge the welfare consequences and the political feasibility of government debt changes it is crucial to consider the transitional dynamics between stationary equilibria our results therefore have important implications for the design of debt reduction policies since the skewed wealth distribution generates a large fraction of borrowing constrained households a public debt reduction should be non linear such that the tax burden is postponed into the future

estimation of correlations in portfolio credit risk models based on noisy security prices portfolio credit risk models are very often constructed with correlation matrices serving as proxies for interrelations in the creditworthiness of each company in addition to the size of the matrix estimation of correlation is also complicated by the fact that defaults are rare and credit sensitive securities such as stocks bonds and credit default swaps cds are noisy therefore we present in this paper an estimation approach based on credit sensitive instruments that accounts for noise and is highly parallelizable the latter being a very important feature for large portfolios in finance a simulation study shows that the method is reliable and has better statistical properties when benchmarked against other correlation estimators in an empirical study based on the cds premiums and stock prices of 225 firms listed on the cdx north american indices we analyze the correlations computed using numerous approaches overall we find that ignoring noise severely underestimates correlations whereas equity correlation is poorly related to the best correlation estimates inferred from the cds market

bank capital regulation in a barrier option framework abstract the barrier options theory of corporate security valuation is applied to the contingent claims of a regulated bank the regulator insurer of a bank owns a down and in call option on the bank assets which can be balanced against the expected coverage cost raising the regulatory barrier critical asset level triggering bank closure leads to a transfer of wealth from stockholders to the insurer and reduces stockholder incentives to increase asset risk empirical tests on a sample of 152 one bank holding companies show that regulatory barriers are priced in the stock market and are inversely related to tier 1 leverage ratios

comparing fourier and translog specifications of multiproduct technology evidence from an incomplete panel of french farmers selecting a functional form for a cost or profit function in applied production analysis is a crucial step in assessing the characteristics of a technology the present study highlights differences in the description of a technology which are induced by fitting a fourier or a translog cost functions on average both forms provide similar information on the technology however estimation results and statistical tests tend to favour the fourier specification this is mainly because many trigonometric terms appear to be significant in our application accordingly our results show that the fourier cost function is able to represent a broader range of technological structures than the translog the paper presents an application to the case of an incomplete panel of french farmers in the process three technical issues are addressed the missing data problem the choice of the order of approximation and the conditions ensuring asymptotic normality of fourier parameters estimates

substitution between production labor and other inputs in unionized and nonunionized manufacturing comment age points of the productivity decline after correcting faulty calculations in deriving a new price deflator errors in measuring the left hand side account for another 7 5 percentage points together they account for 56 5 of the observed decline this is a more modest accomplishment than the 92 claim of my earlier paper but still a substantial one in light of earlier research efforts such as stokes 1981 which could not explain any of the observed decline

dynamic optimal taxation with private information we study dynamic optimal taxation in a class of economies with private information optimal allocations in these environments are complicated and history dependent yet we show that they can be implemented as competitive equilibria in market economies supplemented with simple tax systems the market structure in these economies is similar to that in bewley 1986 agents supply labour and trade risk free claims to future consumption subject to a budget constraint and a debt limit optimal taxes are conditioned only on two observable characteristics an agent s accumulated stock of claims or wealth and her current labour income we show that optimal taxes are generally non linear and non separable in these variables and relate the structure of marginal wealth and income taxation to the properties of agent preferences this paper studies optimal taxation in a class of dynamic economies with private information we consider an environment in which agents preferences are defined over consumption and labour and each agent receives a privately observed sequence of i i d preference shocks incentivecompatibility constraints stemming from private information imply that socially optimal or constrained efficient allocations in this environment are complicated and history dependent yet we show that they can be implemented as competitive equilibria in market economies supplemented with simple tax systems the market structure in these economies is identical to that in bewley 1986 huggett 1993 or aiyagari 1994 agents can trade current consumption for claims to future consumption subject to a budget constraint and a borrowing limit these claims have a non contingent pre tax return crucially taxes are conditioned upon only two observable characteristics of an agent current wealth given by the agent s accumulated stock of claims and current labour income they do not depend on any other aspect of an agent s past history most models of dynamic optimal taxation follow the ramsey approach in which the set of fiscal instruments available to the government is exogenously specified 1 linear labour and capital income taxes are typically included in this set while lump sum taxes are ruled out the exclusion of the latter is justified by appealing to incentive or administrative constraints but these are not explicitly modelled these exogenous restrictions on fiscal instruments represent frictions that the government seeks to ameliorate through its optimal choice of tax rates the approach we adopt in this paper builds on the optimal taxation literature initiated by mirrlees 1971 mirrlees assumes that agents receive privately observed shocks to their

educational policy in a credit constrained economy with skill heterogeneity an overlapping generations model where agents choose whether to become educated when young is presented education enhances productivity but needs to be financed by borrowing because of the possibility of default lenders may ration credit we characterize the steady state equilibrium with and without credit constraints and show that credit constraints are associated with lower education and a lower real interest rate we then study the role of public policy in remedying the inefficiency which occurs with credit market imperfections and examine whether public education can improve on the constrained equilibrium

product market competition and credit risk abstract this study theoretically and empirically investigates effects of product market competition on credit risk we first develop a real options based structural model in a homogeneous oligopoly and show that credit spreads are positively related to the number of firms in an industry the disparity of firm size in an industry is relevant to both product market competition and credit risk and we therefore extend the model to an asymmetric duopoly case in particular we demonstrate that credit spreads of relatively small large firms within an industry are positively negatively related to herfindahl hirschman index and the relative firm size in an industry is an important determinant of credit risk the models implications are empirically scrutinized by a reduced form hazard model and generally supported by performing out of sample analyses the results demonstrate that firm size together with the interaction terms between intra industry firm size dummies and competition intensity can effectively predict default

assessing bank equity risk under legacy loan program we study the effects of purchasing distressed loan on bank equity risk under the legacy loan program llp in which the government is in partnership with private investors the bank may refuse llp when its knock out value is too low when the bank decides to participate in the llp the participation of a private investor generates a decrease in bank interest margin and an increase in equity risk but the knock out value with the llp assistance generates an increase in bank interest margin and a decrease in equity risk our results suggest that the success of llp depends critically on the willingness of a weak bank to participate in it however the participation of a private investor in llp does not decrease the weak bank s equity risk but poses instability to the banking system

unionized construction workers are more productive this paper presents evidence on the effect of unionism on productivity in construction the linkages are distinct from those studied previously in industrial settings apprenticeship training and hiring halls probably raise union productivity while jurisdictional disputes and restrictive work rules lower it using brown and medoff s methodology union productivity measured by value added per employee is 44 to 52 percent higher than nonunion the estimate declines to 17 to 22 percent when estimates of interarea construction price differences are used to deflate value added occupational mix differences and possibly apprenticeship training account for 15 to 27 percent of this difference

money is memory abstract this paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible following myerson 8 the standard definition of feasibility is adapted to take account of the lack of commitment the environments feature either memory or money memory is defined as knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past money is defined as an object that does not enter utility or production functions and is available in fixed supply the main proposition is that any allocation that is feasible in an environment with money is also feasible in the same environment with memory depending on the environment the converse may or may not be true hence from a technological point of view money is equivalent to a primitive form of memory journal of economic literature classification numbers e40 c73 d82

government bailouts and default risks of a duopoly strong bank versus weak bank a duopolistic loan market includes a strong bank without the problem of early closure that opts out of government bailouts and a weak bank with this problem that participates in the bailout programmes of distressed loan purchases and direct equity injections a direct implication of our framework is that the strong bank s equity will be priced as a standard call option while the weak bank s equity will be priced as a down and out call option we find that an increase in either bailout i e distressed loan purchases and direct equity injections directly decreases the weak bank s default risk but indirectly increases the strong bank s default risk accordingly either bailout contributes to banking stability since the indirect positive effect insufficiently offsets the direct negative effect giving an overall negative response of default risks to an increase in either bailout higher competition by shifting to quasi competition from collusion increases banking stability under either bailout our analysi

debt constrained asset markets we develop a theory of general equilibrium with endogenous debt limits in the form of individual rationality constraints similar to those in the dynamic consistency literature if an agent defaults on a contract he can be excluded from future contingent claims markets trading and can have his assets seized he cannot be excluded from spot markets trading however and he has some private endowments that cannot be seized all information is publicly held and common knowledge and there is a complete set of contingent claims markets since there is complete information an agent cannot enter into a contract in which he would have an incentive to default in some state in general there is only partial insurance variations in consumption may be imperfectly correlated across agents interest rates may be lower than they would be without constraints and equilibria may be pareto ranked

the impact of unionization on motor carrier costs i introduction the increasingly competitive markets fostered by the motor carrier act of 1980 have forced motor carriers to focus on cost saving strategies intended to reduce operating miles fuel consumption and capital and labor expenses there are two reasons unions firms may be at a competitive disadvantage in these efforts first although the union nonunion wage differential has decreased following regulatory reform rose 1987 and hirsch 1988 find that union firms still pay higher wages second managers of unionized firms may have less flexibility in the use of inputs since union work rules restrict the activities and substitutability of drivers terminal workers and terminal facilities indeed harrington 1987 reports that post 1980 trucking expenses are still 40 higher for unionized motor carriers than for nonunion firms unionization may affect carrier cost both by increasing the price of labor and by potentially affecting cost function parameters if union rules make labor less productive the entire cost function will shift upwards for a given set of factor input prices further freeman and medoff 1982 argue that work rules may be expected to result in reduced elasticities of substitution between labor and other inputs in the unionized setting indeed they find that substitution between production labor and other labor in manufacturing is generally lower in unionized settings the impact of unionization on production has been investigated in industries such as construction coal mining hospitals and the cement industry by allen 1984 1986a 1986b byrnes et al 1988 and clark 1980a 1980b the results have been inconclusive with unionized firms being more productive than nonunion firms in some instances and less productive in others studies such as allen 1986c and addison and hirsch 1989 have utilized production function methodologies that use restrictive functional forms which impose homogeneity and identical elasticities of substitution between pairs of inputs allen 1986c examines the relative efficiency of union and nonunion firms with a translog cost function allowing for union effects using intercept and slope parameters that vary by union status in his study of different types of construction projects he finds significant differences between the cost functions for union and nonunion firms but no evidence of the inelasticity of factor substitutions as hypothesized by medoff and freeman in fact his estimates of factor demand elasticities show no discernible pattern for union versus nonunion firms leading him to conclude that work rules do not have the anticipated impact on elasticity the purpose of this study is to test whether unionization impacts motor carrier costs and if so to determine the direction of the impact of particular interest is whether the work rules imposed by the teamster s union have had a significant impact on factor substitutability in unionized firms as argued by freeman and medoff 1982 friedlaender and spady 1981 daughety et al 1985 mcmullen and stanley 1988 grimm et al 1989 and ying s 1990 studies of motor carrier industry costs have used translog cost functions which implicitly assume that union and nonunion cost functions arise from the same production technology this is equivalent to accepting the hypothesis that unionization does not affect the production structure of motor carrier firms if unionization does affect a firm s production process the results from these studies could be biased accordingly this study uses a translog cost function to test for differences in the cost structure of union and nonunion carriers not only is the translog cost function standard in the motor carrier literature permitting comparison of these results with those of previous work it also allows the flexibility necessary to examine the differential impact of unions on cost function parameters and elasticities of substitution between factors

how do banks adjust to changing input prices a dynamic analysis of u s commercial banks before and after the crisis abstract the 2000 2013 period was characterized by substantial regulatory monetary and technological change especially after the onset of the global financial crisis this study assesses the total impact of these policy shifts and technological changes on u s commercial banks short run and long run substitution elasticities an endogenous break test divides the sample into a pre crisis period and a post crisis period during the former period banks inputs tend to be inelastic substitutes after the onset of the crisis particularly the long run substitutability of most input factors decreases to even lower levels due to changes in both cost technology and economic conditions at the same time banks response to input price changes becomes more sluggish hence especially after the onset of the crisis banks have little flexibility regarding input factor usage and are thus sensitive to input price changes from a cost perspective

the effect of unions on productivity u s surface mining of coal the purpose of this paper is to compare the abilities of two competing analytical techniques mathematical programming and statistical regression to shed light on the union nonunion productivity differential in u s surface coal mining the programming approach has the virtues of being nonparametric and thus extremely flexible and of being able to provide a decomposition of productivity differentials into three components differences in technical efficiency differences in scale efficiency and differences in congestion identification of these three components provides an aid to management in its search for the sources of and remedies for productivity gaps the econometric approach on the other hand is neither flexible nor does it provide such a decomposition its chief virtue lies in the fact that being stochastic it allows for the presence of noise and measurement error that plagues most if not all empirical data thus the two approaches have complementary virtues the two techniques are used to investigate productivity in two samples of u s surface coal mines the programming approach finds a large and significant positive union nonunion productivity differential this differential is due primarily to greater congestion occurring in the smaller nonunion mines in one sample and to scale inefficiency in the smaller nonunion mines in the other sample the econometric analysis finds nearly the same union nonunion productivity differential but sheds no light on the composition of and thus the cure for the differential

maximum likelihood estimation of first passage structural credit risk models correcting for the survivorship bias abstract the survivorship bias in credit risk modeling is the bias that results in parameter estimates when the survival of a company is ignored we study the statistical properties of the maximum likelihood estimator mle accounting for survivorship bias for models based on the first passage of the geometric brownian motion we find that if we neglect the survivorship bias then the drift has a positive bias that may not disappear asymptotically we show that correcting the survivorship bias by conditioning on survival in the likelihood function underestimates the drift therefore we propose a bias correction method for non iid samples that is first order unbiased and second order efficient the economic impact of neglecting or miscorrecting for the survivorship bias is studied empirically based on a sample of more than 13 000 companies over the period 1980 through 2016 inclusive our results point to the important risk of misclassifying a company as solvent or insolvent due to biases in the estimates

why democracies produce efficient results by applying the standard tools of microeconomic analysis i argue that democratic markets work as well as economic markets in particular i show that previous work has greatly exaggerated the existence of principal agent and informational problems in electoral markets and has drawn incorrect conclusions

challenges in the portuguese textile and clothing industry a fight for survival abstractthe portuguese textile and clothing industry thrived after 1960 when portugal joined the european free trade association and it has been an important industry in portugal in terms of valu

cost relationships and globalization in the australian clothing industry abstractaustralia developed a substantial clothing industry with protectionist international trade policies including prohibitively high tariffs quotas and subsidies the industry became an important source of jobs with over 6 5 per cent of total manufacturing employment at the close of the 1960s as australia has moved towards freer trade employment in clothing production has fallen substantially the question of whether the clothing industry can remain viable in its new environment became an important issue here we examine two crucial economic considerations relating to that question economies of scale and relations substitute complementary between the various inputs both domestic and outsourced foreign the findings strongly indicate the presence of economies of scale and that the industry has reduced its unit costs over the period of study the results also suggest that most of the inputs are substitutes for one another although only the estimated cross price elasticities between capital a

on the future of macroeconomics a new monetarist perspective this article argues that a pressing goal for macroeconomics is to incorporate financial considerations but we need models with solid microfoundations in particular the use of assets in facilitating exchange as well as different credit or other financial arrangements should be outcomes of not inputs to theories as a preview i suggest that mainstream macro does a good job explaining many phenomena and a financial crisis does not disprove such theory but understanding crises requires better incorporating factors related to money credit banking and liquidity the approach called new monetarist economics can help a lot in this regard

valuing risky fixed rate debt an extension this paper develops a corporate bond valuation model that takes into account both early default and interest rate risk it corrects a defect of recent contributions where pricing equations do not assure that the payment to bondholders upon bankruptcy is no greater than firm value the bankruptcy triggering mechanism is directly related to the payoff received by bondholders when early bankruptcy is forced upon the firm more specifically the default barrier is defined simply as a fixed quantity discounted at the riskless rate up to the maturity date of the risky corporate bond as soon as this threshold is crossed bondholders receive an exogenously specified fraction ofthe remaining assets deviations from the absolute priority rule also are captured because it accounts for gaussian interest rate uncertainty default risk and deviations from the absolute priority rule this model is capable of producing quite diverse shapes for the term structure of yield spreads

optimal security design how should new securities be designed traditional theories have little to say on this the literature on capital structure and general equilibrium theories with incomplete markets take the securities firms issue as exogenous this paper explicitly incorporates the transaction costs of issuing securities and develops a model where the instruments that are traded are chosen optimally and the economy s market structure is endogenous among other things it is shown that the firm s income stream should be split so that in every state all payoffs are allocated to the security held by the group that values them most this abstract was borrowed from another version of this item

the linkage between life insurer spread behaviour and credit swap transaction policyholder protection analysis the paper develops a contingent claim model to evaluate the equity of a life insurer when the insurer could act as a protection buyer or a protection seller in a credit swap transaction market the

the impact of conglomeration on the option value of equity abstract using contingent claims analysis i quantify the effect of risk reducing corporate diversification on the value of equity as a call option on firm assets the impact of conglomeration on firm risk is heavily conditioned on firm size in contrast to small firms the risk of large firms does not decline with increasing conglomeration accounting for this effect the expected equity discount is much lower than commonly assumed and can even turn into a premium if the path dependency of equity is incorporated my results stand in direct contrast to those of mansi and reeb 2002 and caution against using asset substitution as a qualitative argument for explaining economy wide value phenomena

cost relationships and challenges in the spanish apparel industry in the twenty first century the spanish textile and apparel industries have faced substantial challenges resulting in declining sales and employment this study concentrates on the apparel industry since its economic challenges and opportunities differ from those of the textile industry the analysis employs a transcendental logarithmic cost function to investigate the presence of scale economies and the interrelationships among inputs of domestic capital labour and intermediate goods as well as outsourced intermediate products for the spanish apparel industry and discusses the implications for its future competitiveness and the demand for domestic inputs the results are consistent with diseconomies of scale or in the case of one model possibly constant returns to scale indicating that some contraction of the industry due to international competition will not raise unit costs all of the inputs except for capital and intermediate goods were found to be substitutes an important finding is that the

international coordination of fiscal policy in limiting economies we examine the limiting behavior of cooperative and noncooperative fiscal policies as countries market power goes to zero we show that these policies converge if countries raise revenues through lump sum taxation however if there are unremovable domestic distortions such as distorting taxes there can be gains to coordination even when a single country s policy cannot affect world prices these results differ from the received wisdom in the optimal tariff literature the key distinction is that contrary to the tariff literature the spending decisions of governments are explicitly modeled

jointly optimal regulation of bank capital and liquidity in an economy with financial frictions banks endogenously choose excessive leverage and maturity mismatch in equilibrium as they fail to internalize the risk of socially wasteful fire sales macroprudential regulators can achieve efficiency with simple linear constraints which require less information than pigouvian taxes the liquidity coverage and net stable funding ratios of basel iii can implement efficiency additional microprudential regulation of leverage is required when bank failures are socially costly micro and macroprudential rules are imperfect substitutes optimally macroprudential policy reacts to systematic risk and credit conditions over the cycle while microprudential policy reacts to systematic and idiosyncratic risk

competitive equilibria with limited enforcement we show how to decentralize constrained efficient allocations that arise from enforcement constraints between sovereign nations in a pure exchange economy these allocations can be decentralized with private agents acting competitively and taking as given government default decisions on foreign debt in an economy with capital these allocations can be decentralized if the government can tax capital income as well as default on foreign debt the tax on capital income is needed to make private agents internalize a subtle externality the decisions of the government can arise as an equilibrium of a dynamic game between governments

pareto optima and competitive equilibria with adverse selection and moral hazard this paper explores the extent to which standard general equilibrium analysis of pareto optima and of competitive equilibria can be applied to environments with moral hazard and adverse selection problems allowing for lotteries contracts with random components we first establish that an adverse selection insurance economy a moral hazard insurance economy a signaling economy and a private information labor market economy are all special cases of a simple general structure we then show that techniques for characterizing pareto optimal contracts as solutions to concave programming problems are useful and nice and appear to be broadly applicable allowing for lotteries we show how to characterize the optimal allocations for the adverse selection insurance and labor market economies we then show that standard existence and optimality theorems for competitive equilibria apply in the linear space containing lotteries if agents with characteristics which are distinct and privately observed at the time of initial trading enter the economy wide resource constraints in a homogeneous way other kinds of diversity are not critical for economies with moral hazard which satisfy the homogeneity condition competitive contract markets single out a subset of the optima and thus can be consistent with apparent unemployment and with a random allocation of labor supplied though all households are averse to risk the adverse selection insurance and signaling economies however do not satisfy the homogeneity condition and are difficult to decentralize efficiently with a price system

branching restrictions and banking costs abstract previous research of banking costs has been limited by the choice of the functional form irregularities in the estimated cost functions and a failure to rigorously examine the difference between banks in branching states and banks in unit banking states this paper addresses these shortcomings banks are modelled as three input three output cost minimizing firms a three equation system is estimated using 1985 functional cost analysis data the findings indicate that banks in unit banking states experience diseconomies of scale banks in branching states experience diseconomies of scale at the bank level but economies of scale at the branch level we also find evidence of economies of scope for branch state banks but not for unit state banks

optimal lending contracts and firm dynamics we develop a general model of lending in the presence of endogenous borrowing constraints borrowing constraints arise because borrowers face limited liability and debt repayment cannot be perfectly enforced in the model the dynamics of debt are closely linked with the dynamics of borrowing constraints in fact borrowing constraints must satisfy a dynamic consistency requirement the value of outstanding debt restricts current access to short term capital but is itself determined by future access to credit this dynamic consistency is not guaranteed in models of exogenous borrowing constraints where the ability to raise short term capital is limited by some prespecified function of debt we characterize the optimal default free contract which minimizes borrowing constraints at all histories and derive implications for firm growth survival leverage and debt maturity the model is qualitatively consistent with stylized facts on the growth and survival of firms comparative statics with respect to technology and default constraints are derived borrowing constraints are an important determinant of firm growth and survival 1 such constraints may arise in connection to the financing of investment opportunities faced by firms or temporary liquidity needs such as those required to survive a recession this paper develops a theory of endogenous borrowing constraints and studies its implications for firm dynamics in our model debt is constrained by the firm s limited liability and option to default a lending contract specifies an initial loan size future financing and a repayment schedule the choice of these variables in turn determines future growth the firm s future borrowing capacity and its ability and willingness to repay hence borrowing constraints and firm dynamics are jointly determined we study this dynamic design problem our model builds on thomas and worral s 1994 model of foreign direct investment at time zero a risk neutral borrower firm or entrepreneur has a project which requires a fixed initial set up cost every period the project yields revenues that increase with the amount of 1 there is considerable evidence suggesting that financing constraints are important determinants of firm dynamics gertler and gilchrist 1994 argue that liquidity constraints may explain why small manufacturing firms respond more to a tightening of monetary policy than do larger manufacturing firms perez quiros and timmermann 2000 show that in recessions smaller firms are more sensitive to the worsening of credit market conditions as measured by higher interest rates and default premia evans and jovanovic 1989 show that the liquidity constraints are essential in the decision to become an entrepreneur fazzari hubbard and petersen 1988 among others view financial constraints as an explanation for the dynamic behaviour of aggregate investment and cabral and mata 1996 are able to fit reasonably well the size distribution of portuguese manufacturing firms by estimating a simple model of financing constraints for surveys see hubbard 1998 and stein 2003

union effects on productivity profits and growth has the long run arrived this article interprets literature examining union effects on economic performance production function studies indicate small overall union impacts on productivity positive effects where they exist appear to result from management response to decreased profit expectations and from a natural selection process lower profitability among unionized firms is well established more interesting is the possibility that unions appropriate quasi rents deriving from long lived tangible and intangible capital the connection between unions investment behavior and productivity growth emerges as a particularly fruitful line of empirical inquiry although it does not encourage a sanguine view of unionism s long run impact

the maturity structure of corporate debt we provide an empirical examination of the determinants of corporate debt maturity our evidence offers strong support for the contracting cost hypothesis firms that have few growth options are large or are regulated have more long term debt in their capital structure we find little evidence that firms use the maturity structure of their debt to signal information to the market the evidence is consistent however with the hypothesis that firms with larger information asymmetries issue more short term debt we find no evidence that taxes affect debt maturity

collateral motivated financial innovation collateral frictions have a profound effect on our economic landscape ranging from the design of financial securities laws and institutions to various rules and regulations we analyze a model with disagreement where securities and collateral requirements are endogenous it shows that the security that isolates the variable with disagreement is optimal in the sense that alternative securities cannot generate any trading in an economy with n states investors may introduce more than n securities and markets are still incomplete the model has several novel predictions on the behavior of basis the spread between the prices of an asset and its replicating portfolio

compensation unionization and deregulation in the motor carrier industry abstract previous research on the deregulation of the motor carrier industry has concluded that firms have become more efficient under deregulation and that costs have fallen largely at the expense of labor most studies that examine the effects on labor use current population survey data and find that wage premiums to union labor have fallen as a result of deregulation this study uses firm data and finds that deregulation had a very small effect on the average compensation paid by surviving union firms for nonunion firms the impact of deregulation is much larger these results suggest that the compensation premium for the labor of surviving union firms has increased but this increase applies only to surviving union labor in the paper we also point to and note a major exodus of union firms with the result that union labor levels have fallen and fallen dramatically

private equity and regulatory capital regulatory capital requirements for european banks have been put forward in the basel ii capital framework and subsequently in the capital requirements directive crd of the eu we provide a detailed discussion of the capital requirements for private equity investments under different approaches for the internal model approach we present a structural model that we calibrate to a proprietary dataset we modify the standard merton structural model to make it applicable in practice and to capture stylized facts of private equity investments we also implement the early default feature with a fast simulation algorithm our results support capital requirements lower than in basel ii but not as low as in crd thereby giving adverse incentives to banks for using advanced risk models a sensitivity analysis shows that this finding is robust to parameter uncertainty and stress scenarios

constitutional rules and fiscal policy outcomes we investigate the effect of electoral rules and forms of government on fiscal policy outcomes in a large sample of democracies we rely on different estimation methods to address prospective problems of statistical inference due to non random selection of these constitutional rules the findings are consistent with our theoretical priors presidential regimes induce smaller governments than parliamentary democracies while majoritarian elections lead to smaller governments and smaller welfare programs than proportional elections

the effect of liquidity constraints on consumption a cross sectional analysis this paper examines the effect of liquidity constraints on consumption expenditures using a single year cross section data set a reduced form equation for consumption is estimated on high saving households by the tobit procedure to account for the selectivity bias since high saving households are not likely to be liquidity constrained the estimated equation is an appropriate description of how desired consumption that would be forthcoming without liquidity constraints is related to the variables available in the cross section data when the reduced form equation is used to predict desired consumption the gap between desired consumption and measured consumption is most evident for young households

efficient competitive equilibria with adverse selection do walrasian markets function orderly in the presence of adverse selection in particular is their outcome efficient when exclusive contracts are enforceable this paper addresses these questions in the context of a rothschild stiglitz insurance economy we identify an externality associated with the presence of adverse selection as a special form of consumption externality consequently we show that competitive equilibria always exist but are not typically incentive efficient however as markets for pollution rights can internalize environmental externalities markets for consumption rights can be designed to internalize the consumption externality due to adverse selection with such markets competitive equilibria exist and incentive constrained versions of the first and second welfare theorems hold

a model of capital and crises we develop a model in which the capital of the intermediary sector plays a critical role in determining asset prices the model is cast within a dynamic general equilibrium economy and the role for intermediation is derived endogenously based on optimal contracting considerations low intermediary capital reduces the risk bearing capacity of the marginal investor we show how this force helps to explain patterns during financial crises the model replicates the observed rise during crises in sharpe ratios conditional volatility correlation in price movements of assets held by the intermediary sector and fall in riskless interest rates

the motor vehicle industry in an emerging nation the case of brazil abstractas in other emerging nations in brazil the motor vehicle industry is considered to be strategically important for economic development because of its backward and forward linkages and possibilities for export led growth this study analyses prospects for the industry by estimating an industry level cost function that includes output of both vehicles and component parts with capital labour and intermediate goods as inputs the cost elasticity of output an indicator of scale properties and the elasticity relationships among inputs are explored one unexpected outcome of the work that appears to be robust is that during early years of the study period the industry had constant returns or even diseconomies of scale however during later years when output was greater there were economies of scale this finding is likely the result of some combination of the entry of new firms the development of new models or technological change the study concludes that if firm output can be increased econo

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

constructing confidence intervals using the bootstrap an application to a multi product cost function a multi product cost function system is estimated for 387 banks in states that allow branch banking the bootstrap resampling method is used to construct confidence intervals for marginal costs output cost elasticities economies of scale and scope and allen elasticities of substitution confidence intervals for these measures are usually constructed using a first order variance approximation under a normality assumption but such confidence intervals are inexact if the measures are not normally distributed or the variance approximations are imprecise we find that the bootstrap standard error estimates can differ significantly from the usual estimates furthermore we use the bootstrap to expand the analysis of cost function regularity properties copyright 1990 by mit press

substitution between production labor and other inputs in unionized and non unionized manufacturing the ease of substitution between labor and other factors of production is an important determinant of the elasticity of demand for labor and thus of the economic effects of unionism all else the same the greater the elasticity of substitution the greater is the elasticity of derived demand and the greater the displacement of labor for a given union induced wage increase in sectors where this elasticity is large unions are likely to be relatively weak and able to win only slight wage gains freeman and medoff 1981 and forthcoming or if they win large gains will have to pay a high price in terms of lost jobs in the sectors where the elasticity is small unions may be able to extract a substantial wage premium at little cost in terms of employment moreover as a simple general equilibrium model indicates the elasticity of substitution between labor and other factors in the unionized sector is a key parameter in determining the impact of the iiunion wage effect on the earnings of nonunion workers and on the efficiency of the economy johnson and mieskowski 1970 despite the importance of the elasticity of labor demand for an analysis of unionism little attention has been given to the absolute and relative magnitude of this elasticity under collective bargaining while there is some discussion of technological change and the substitution of capital and nonproduction workers for organized production workers in the institutional literature e g slichter 1941 slichter healy and livernash 1960 bok and dunlop 1970 modern econometric work provides no estimates of the relevant parameters as a result johnson and mieskowski 1970 rees 1963 lewis 1964 and others have been forced to evaluate union effects with guesstimates of the elasticities of concern in union settings this paper attempts to fill some of the gap in our knowledge by providing estimates for u s manufacturing of the constant output elasticity of demand for unionized and nonunionized production workers and of the elasticity of substitution between these workers and other inputs the analysis concentrates on what we call the relative inelasticity hypothesis which states that the demand for production workers will be more inelastic in the presence of a union for two reasons the likelihood that unions have organized and survived in sectors with low elasticities and the effects of various contract provisions on the ability of management to substitute other factors for production labor the study is divided into four sections section i develops the rationale for the relative inelasticity hypothesis and describes the nature of the empirical analysis conducted to test its validity the second section uses a 1972 state by 2 digit standard industrial classification sic industry data file for manufacturing to estimate the elasticity of substitution between production labor and both nonproduction labor and capital in the union and nonunion sectors of u s manufacturing industries section iii provides estimates based on a 1968 72 sample of manufacturing establishments of the elasticity of substitution between production and nonproduction labor the only two inputs for which information is available the final section briefly summarizes the findings and discusses their implications for understanding the impact of trade unionism on the u s economy to preview the ensuing discussion our main conclusion is substitution between production labor and other inputs is generally lower in union received for publication march 6 1978 revision accepted for publication august 17 1981 both authors are with harvard university and the national bureau of economic research supported by u s department of labor grant no j 9 m 6 0094 national science foundation grant no apt77 16279 and the national bureau of economic research under its program of research on labor economics we are especially grateful to jane mather for her invaluable assistance on this project and to greg bialecki charles brown gary chamberlain kathy coons jon fay martin van denburgh and lori wilson for their significant contributions the study has not been reviewed by the board of directors of the national bureau

dept and input misallocation of agricultural supply and marketing cooperatives kim and maksimovic provide an empirical model to examine the effect of dept on a firm their model is adopted to examine agricultural supply and marketing cooperatives using a short run variable cost function we find firm efficiency decreases as dept increases a us 1 increase in indebtedness increases total short run variable costs by us 0 0167 or roughly 1 67 dept tends to shift input usage away from labour inputs a test developed by conrad and unger is applied to determine whether the agricultural supply and marketing cooperatives are at a long run equilibrium capacity it is found that most of the cooperatives were overinvested in capacity however dept does not explain this overinvestment finally the effect of dept on total productivity over the study period is examined it is found that dept has had a small positive impact on total factor productivity growth scale economics and non optimal capacity had large impacts on total factor productivity although dept is associated with short run misal

the inefficiency of regulating a competitive industry productivity gains in trucking following reform this study confirms the higher productivity levels predicted by advocates of regulatory reform in trucking and shows that these gains have been substantial cost simulations suggest that following a year of higher expenditures efforts to remain competitive have yielded considerable cost savings that increase over time from 1 percent in 1981 to 23 percent in 1984 the indirect effects of reform through the independent variables initially decrease costs but later lead to higher costs the cumulative effect has been a less than 1 percent increase in costs in 1980 becoming by 1984 a significant 16 percent productivity gain copyright 1990 by mit press

an empirical analysis of participation in us government farm programmes factors affecting the participation of individual kansas farms in government programmes are considered a sample drawn from over 1600 kansas farms for nine years is used in the context of a simultaneous equation tobit regression to investigate the effects of various factors on the probability and expected level of participation in farm programmes the results suggest that differences in farm sizes incomes types and farming practices influence participation in government programmes small sole proprietor livestock operations with low debt levels receive the lowest levels of support conversely large corporate crop farms receive the highest levels of government support

the pricing of deposit insurance considering bankruptcy costs and closure policies the paper aims to study the pricing issue of deposit insurance with explicit consideration of bankruptcy costs and closure policies full coverage from deposit insurance is imposed by many regulators to stabilize the banking system in the current financial crisis despite of the potential moral hazard problems we argue that bankruptcy cost is an important factor in pricing deposit insurance especially when the insured institution is insolvent applying the isomorphic relationship between deposit insurance and put option we first derive a closed form solution for the pricing model with bankruptcy costs and closure policies then we modify the barrier option approach to price the deposit insurance in which the bankruptcy cost is set as a function of asset return volatility and more realistic closure policies considering possible forbearance can be accounted for the properties of the models are supported by numerical simulations and are consistent with the risk based pricing scheme