the refoundation of the symmetric equilibrium in schumpeterian growth models abstract we provide a refoundation of the symmetric growth equilibrium characterizing the research sector of vertical r d driven growth models we argue that the usual assumptions made in this class of models leave the agents indifferent as to where targeting research hence the problem of the allocation of r d investment across sectors is indeterminate by introducing an contamination of confidence in the expected distribution of r d investment we prove that the symmetric structure of r d investment is the unique rational expectations equilibrium compatible with ambiguity averse agents adopting a maxmin strategy

ambiguity aversion and comparative ignorance decisions under uncertainty depend not only on the degree of uncertainty but also on its source as illustrated by ellsberg s observation of ambiguity aversion in this article we propose the comparative ignorance hypothesis according to which ambiguity aversion is produced by a comparison with less ambiguous events or with more knowledgeable individuals this hypothesis is supported in a series of studies showing that ambiguity aversion present in a comparative context in which a person evaluates both clear and vague prospects seems to disappear in a noncomparative context in which a person evaluates only one of these prospects in isolation

what can we learn from the grand policy experiment lessons from so2 allowance trading stable url http links jstor org sici sici 0895 3309 28199822 2912 3a3 3c69 3awcwlft 3e2 0 co 3b2 tthe journal of economic perspectives is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgtue jun 26 16 25 17 2007

parametric efficiency tests economies of scale and input demand in u s electric power generation duality theory has been applied increasingly in recent years to study the structure of production a major advantage of using duality theory is that systems of input demand equations can be derived by simple differentiation facilitating the use of flexible functional forms also use of duality theory makes it possible to choose a representation of the technology which has desirable properties for estimation such as exogeneity of the regressors however the use of a dual representation of production structure is appropriate only if the corresponding maintained hypothesis concerning economic behavior e g cost minimization or profit maximization is valid the perceived advantages of the dual approach to studying production structure have led to some applications in which the maintained hypothesis concerning economic behavior is unlikely to be appropriate for example neoclassical cost functions have been used to study the characteristics of production in regulated industries despite an extensive theoretical literature indicating that a profit maximizing regulated firm would not minimize costs subject to market prices 2 in this paper we propose a generalized cost function that retains the principal advantages of the neoclassical cost function but does not require that cost minimization subject to market prices be imposed as a maintained hypothesis in our model firms are assumed to base their production decisions on unobservable shadow prices which reflect the effects of regulation on the effective prices of inputs parametric tests for cost minimization are obtained by expressing shadow prices as functions of market prices the generalized cost function is estimated with data for regulated electric utilities the parametric restrictions corresponding to cost minimizing behavior subject to market prices are rejected implying that the use of a neoclassical cost function is not appropriate in this application 3

patent protection innovation and technology transfer in a schumpeterian economy abstract this paper analyzes the cross country effects of intellectual property rights ipr protection on the relative wage innovation and technology transfer in a north south quality ladder model with innovative northern r d and adaptive southern r d the degree of ipr protection in two countries differs in terms of patent breadth which determines the markups of northern firms and their southern affiliates respectively in this model stronger ipr protection in the south leads to a permanent decrease in the north south wage gap a temporary increase in the northern innovation rate and a permanent increase in technology transfer by contrast stronger ipr protection in the north leads to a permanent increase in the north south wage gap ambiguous effects on the northern innovation rate and a permanent decrease in technology transfer finally we perform a quantitative analysis by calibrating the model to the us china data and the numerical results support these policy implications in addition to a welfare implication such that strengthening patent protection in one country leads to sizable welfare improvements in both countries

the welfare cost of one size fits all patent protection to analyze the welfare gain from allowing for differentiated patent protection across sectors this study develops a two sector quality ladder growth model in which patent breadth is a policy variable and derives optimal patent breadth under two patent regimes we show that a uniform optimal patent breadth is a weighted average of sector specific optimal patent breadth and b sector specific optimal patent breadth is larger in the sector that has a larger market size and more technological opportunities to derive the optimal policy we allow for an arbitrary path of patent breadth and derive the optimal path by solving a stackelberg differential game we find that the optimal path of patent breadth under each patent regime is stationary time consistent and subgame perfect finally we perform a numerical investigation and find that even a moderate degree of asymmetry across sectors can generate a significant welfare cost of uniform patent protection

public sector unions and public spending this study examines the influence of public sector unions on the expansion of the public sector based on public goods theory our paper models how unions influence the supply of and demand for public sector activities on the demand side public sector unions are special interests which advocate public sector expansion to policy makers on the supply side they exert pressure to maintain and expand monopoly powers empirical evidence supports the hypothesis that a positive relationship exists between public sector unionism and public spending

does competition among public schools benefit students and taxpayers tiebout choice among districts is the most powerful market force in american public education naive estimates of its effects are biased by endogenous district formation i derive instruments from the natural boundaries in a metropolitan area my results suggest that metropolitan areas with greater tiebout choice have more productive public schools and less private schooling little of the effect of tiebout choice works through its effect on household sorting this finding may be explained by another finding students are equally segregated by school in metropolitan areas with greater and lesser degrees of tiebout choice among districts

evidence on voter preferences from unrestricted choice referendums from 1939 to 1968 florida used a unique referendum system to set property tax rates for public school operating expenditures at the median millage rate selected by voters these referendums revealed the entire distribution of voter preferences which is not possible in the standard up or down referendum we are the first to use the florida referendum data the form of the ballot played an important role in how people voted voting machine elections were much more likely than paper ballots to result in rejections of the recommendations of school boards and produced much greater dispersion of expressed preferences

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

fiscal and spending behavior of local governments identification of price effects when prices are not observed this paper analyzes local public fiscal andspending behavior in a setting where localgovernments represented by the dominantparty or coalition are treated as utilitymaximizing agents the econometricanalysis which is based on a modifiedversion of eles recognizes total spendingas well as total income as endogenousvariables identification of the priceeffects is achieved by utilizing data onenvironmental cost factors and localtastes the performance of the estimatedmodel is investigated by testing itsability to make out of sample predictionsof local government behavior

determinants of local school spending some consistent estimates the traditional median voter model predicts that median income and taxprice are the primary determinants of local school spending levels it further implies that lump sum grants wills be utilized like private income and thus income and grant coefficients should be the same our comprehensive search technique shows that excluding equalized assessed value these predictions hold up quite well over 2048 specifications income and taxprice elasticities are reasonable and tightly distributed with income and blockgrant effects of the same general size as note above any hint of flypaper effect is completely dependent on the inclusion of equalized assessed value in the regression equation since the state of new york has annual district level tax levy elections it would be hard to rationalize bureaucratic power or agenda control as capable of producing flypaper type effects so this absence is not surprising future research should 1 investigate the specification sensitivity of flypaper effects with other datasets and wealth variables and 2 examine election and tax rules for the possibility of budget maximizing actions by school officials finally the consistently positive effects of private schooling nonwhite and in poverty suggest that future work should attempt to model non linear income effects

does restricting choice in referenda enable governments to spend more if school boards represent the preferences of the median voter referendums to approve school expenditures should not constrain school expenditures if school boards would choose expenditures larger than the median voter s preference referendums that restrict voters to approving or disapproving a school board s recommended expenditure level will result in expenditures larger than the median voter would prefer however florida used a unique referendum system which guaranteed the median voter s most preferred outcome using florida education expenditures as a benchmark the evidence suggests that spending was slightly higher in restricted choice referendum states than in florida

microdata estimation of school expenditure levels an alternative to the median voter approach the main purpose of this paper has been to present an alternative approach to estimating individual demand for a local public good in this case education most empirical studies of the private demand for public goods utilize the median voter framework for preference aggregation to justify the use of median values over geographical areas for the independent variables in the estimation however the median voter approach assumes that voter characteristics are well represented by population characteristics and that median or mean values on all independent variables can be used to describe accurately the fictional median voter we cannot know whether the crucial voter has the median income level or other median characteristics with the median framework we also have great difficulty in specification of a model containing household characteristics as an alternative this paper utilizes actual household observations from a large random sample data set for the independent variables in the estimation while we have no way of ascertaining whether the observations in our sample are in equilibrium or are for the crucial voters in their jurisdictions the same problems exist for the median voter representation we can however know that the results are statistically reasonable and that specification and simultaneity problems are greatly reduced relative to the median voter approach

the effect of school district structure on education spending this paper develops a theoretical and empirical model of local spending on education that analyzes the effect of institutional structure on education spending it attempts to determine whether the theory of bureaucratic behavior is consistent with school district spending decisions by testing the hypothesis that the number of school districts in a county has a negative effect on per pupil expenditures the results are not consistent with the theory but indicate that a fragmented school district structure serves to increase expenditures

choice of ontario high schools and student sorting by ability to what extent can offering more choice in schooling lead to cream skimming or the sorting of students by ability i study whether increased choice leads to student sorting by ability into high schools in the greater toronto area on average 41 of students opt out of the high school to which they would normally be assigned based on their residence students are more likely to opt out in areas where accessibility to other schools is greatest due to population density and explicit open enrolment policies while students of higher ability are generally more likely to opt out an interaction term between school choice and ability is insignificant suggesting that increased choice does not have differential impacts by student ability findings are robust to changes in assumptions about instrument exogeneity

the influence of private school enrollment on public school performance school choice reform refers to changes that allow parents greater freedom to choose schools for their children school choice reform is contentious because it fundamentally alters the environment in which public and private schools operate and could result in significant changes for both demanders and suppliers of education this article develops a model of public education with imperfect exit to predict how private school enrollment influences performance of public schools empirical evidence from data on all private and public schools in california provides substantial support for the hypothesis that public school test scores are inversely related to private school enrollments and charter school enrollments when private and charter schooling reflects exiting by parents unhappy with local public schools implications regarding how expanded private school choice might influence public school performance in california and elsewhere are discussed

capital vintage time trends and technical change in the electric power industry beginning with tinbergen in 1942 economists have employed a time trend in cost or production functions to represent the rate at which new technology is introduced into the production unit in sufficiently flexible models of the production process the time trend may be used to obtain estimates of the rate as well as direction of technical change the use of the time trend is generally defended on pragmatic grounds as no theoretical justification exists for assuming that new technology is introduced at a steady rate that is independent of a firm s investment in r d education capital of a more recent vintage etc in recent years alternatives to the traditional time trend have been sought to represent the rate at which new technology is introduced research in this area has been concentrated in the telecommunications industry where the stock of r d or the percentage of calls completed by direct dialing or modern switching facilities have been employed as technological indices by nadiri and schankerman 32 denny et al 14 and christensen et al 7 the latter two studies indicate that explicit technological indices provide a better representation of the pace of innovation than the time trend this conclusion must remain tentative however as it is not possible to determine what is the true direction of technical change in these studies this shortcoming is overcome in a recent study by kopp and smith 24 who compare the performance of time trends and explicit technological indices in a study using pseudo data generated by process analysis models their results unambiguously support the use of technologically explicit indicators of technical change and indicate that the use of a time trend may not provide a consistent estimate of the direction of technical change this study does not however shed any light on the ability of a time trend to accurately reflect the rate of technical change the purpose of this study is to investigate the effects of alternative technological indices on the estimated rate and direction of technical change in the electric power industry the performance of a time trend is compared with that of a vintage index computed as the average age of a firm s steam generating capacity this latter index is consistent with the notion that new technology is embodied in newly constructed capital an assumption sup

inflation and innovation with a cash in advance constraint on human capital accumulation abstract this note explores a novel channel a cash in advance cia constraint on endogenous human capital investment through which monetary policy impacts growth and welfare in a scale invariant schumpeterian growth model we find the following an increase in the nominal interest rate leads to a decrease in human capital investment which in turn reduces long run growth and welfare calibration shows that long run growth increases 0 61 by reducing the nominal interest rate from 9 9 the sample mean of the u s to 0 the corresponding welfare gain is equivalent to a permanent increase in consumption of 15 98 the growth and welfare effects depend on the strength of the cia constraint on human capital investment our study has strong policy implications for developing countries where out of pocket money may be important for schooling

self fulfilling prophecies in the quality ladders economy if r d difficulty increases as it accumulates as recent evidence suggests then there is a value in the diversification of the aggregate r d efforts over the whole range of industries in the economy however this paper proves that the quality ladders models allow for self fulfilling prophecies to divert r d from an arbitrary number of sectors with potentially dramatic effects on the dynamics of industry structure and on the long run aggregate growth performance moreover in developing countries perfect markets might allow stagnant monopolies to resist despite the removal of fundamental entry barriers to dynamic competition this kind of coordination failure implies potentially strong effects of socio cultural factors on growth and suggests a positive role for public r d policy even in a framework of semi exogenous growth

pricing efficiency under rate of return regulation some empirical evidence for the electric utility industry the authors test quasi optimal pricing rules for rate of return regulation for a sample of electric utilities they estimate the regulated cost function and demand equations by class of customer for the sample to yield the cost and demand parameters required to assess the utility rate structures the results indicate that the price structure of electricity by class of customer is not quasi optimal and that welfare improvement might be possible under alternative prices searching for the price structure which satisfies the criteria they find that commercial users rates have been too high relative to residential and to a lesser extent industrial rates they note that commercial uses tend to be less organized and more poorly represented in the rate making process 16 references 8 tables

regulatory restructuring and incumbent price dynamics the case of u s local telephone markets prior to the telecommunications act of 1996 many u s states restructured their regulatory framework by replacing rate of return regulation with competition in both the local exchange service and local long distance markets and adopting price regulation price caps and price freezes using a panel data set of incumbent firm prices for three services i investigate whether price regulation and differences in entry conditions affect incumbent operators rate structures i find that competition has prompted a significant amount of rate rebalancing by reducing the amount of cross subsidization present in local telephone markets in addition the added flexibility of price cap regulation speeds the rate rebalance effects of competition

shephard s lemma and rate of return regulation abstract by counter example this paper shows that in general shephard s lemma cannot be used for the usual formulation of the rate of return regulated cost function a solution to the problem is supplied

animal spirits and the composition of innovation this paper shows that the schumpeterian model with both vertical and horizontal innovative research admits many more equilibria than the unique symmetric balanced growth path bgp usually highlighted in the literature each of a continuum of bgps is characterized by a different composition of aggregate r d vertical versus horizontal this appears if firms expect self fulfilling waves of enthusiasm in the newly introduced sectors as is very common in the real world pioneers are challenged by more outsiders and the first monopoly of every new good is likely to last less than in more mature industries by expecting this horizontal innovation is depressed while vertical innovation is more intense such waves of enthusiasm have a positive effect on growth rates and a negative effect on consumption levels

non public competition and public school performance evidence from west virginia abstractin this study we investigate whether non public school enrolment affects the performance of public school districts if homeschooling and private schools act as competition public school districts test scores should be positively associated with non public enrolment using data on west virginia county school districts and controlling for endogeneity with an instrumental variables approach we find that a one standard deviation increase in relative non public enrolment in a county is associated with statistically significant improvements in public school district test scores our findings thus confirm that non public enrolment and the competition it provides act to improve rather than impede public school performance