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Working papers, 2004

0401
Daniel J. Henderson and Subal C. Kumbhakar
Public and Private Capital Productivity Puzzle: A Nonparametric Approach

0402
Daniel J. Henderson and Daniel L. Millimet
Environmental Regulation and U.S. State-Level Production

0403
Daniel J. Henderson and Valentin Zelenyuk
Testing for Catching-up: Statistical Analysis of DEA Efficiency Estimates

0404
Subal Kumbhakar and Hung-Jen Wang
Estimation of Technical and Allocative Inefficiency: A Primal System Approach

0405
Subal Kumbhakar, Byeong U. Park, Leopold Simar, and Efthymios G. Tsionas
Nonparametric Stochastic Frontiers: A Local Maximum Likelihood Approach

0406
Daniel J. Henderson and Aman Ullah
A Nonparametric Random Effects Estimator

0407
Daniel J. Henderson
A Nonparametric Examination of Capital-Skill Complementarity

0408
Neha Khanna and Duane Chapman
Weapons Trade and Petroleum Price Stability: Are Measures of Political and Economic Openness and Income Important?

0409
Christopher Hanes
The Rise and Fall of the Sliding Scale or Why Wages Aren’t Indexed to Product Prices

0410
Joseph H. Davis, Christopher Hanes, and Paul W. Rhode
Harvests and Business Cycles in Nineteenth-Century America

0411
Christopher Hanes
The Rise of Open-Mouth Operations and the Disappearance of the Borrowing Function in the United States

0412
Solomon W. Polachek
How the Human Capital Model Explains Why The Gender Wage Gap Narrowed

0413
Soo Kyeong Hwang and Solomon W. Polachek
Occupational Self-Selection and the Gender Wage Gap: Evidence From Korea and United States

0414
Solomon W. Polachek, and Jun (Jeff) Xiang
The Effects of Incomplete Employee Information On Wages: A Cross-Country Analysis With Special Reference to Foreign Worker In-migration

0415
Leo Turcotte, John Robst, Solomon Polachek
Medicaid Coverage and Medical Interventions During Pregnancy

0416
Kiril Tochkov
Interregional Transfers and the Smoothing of Provincial Expenditure in China

0417
Kiril Tochkov
Fiscal reforms, Output Fluctuations and the Cyclical Behavior of Net Transfers in China: Evidence from Province-level Panel Data

0418
Daniel J. Henderson and Daniel L. Millimet
Pollution Abatement Costs and Foreign Direct Investment Inflows to U.S. States: A Nonparametric Reassessment

0419
Duane Chapman and Neha Khanna
The Persian Gulf, Global Oil Resources, and International Security


Number: 0401

Authors: Daniel J. Henderson and Subal C. Kumbhakar

Title: Public and Private Capital Productivity Puzzle: A Nonparametric Approach

Abstract:

Is public expenditure productive? Is there a shortfall or excess in public capital investment? We address these old issues in the light of new econometric tools. It is argued that the Cobb-Douglas specification that ignores non-linearity inherent in the functional relationship of the production technology causes incorrect estimates of input elasticities. To avoid possible model misspecification, we use Li-Racine Generalized Kernel Estimation and propose the Robust Cross-Validation procedure in order to combat outliers affecting estimated bandwidths. These procedures are used to estimate the returns to private capital, employment, and public capital in Gross State Product from a panel of 48 states for 17 years. In contrast to previous studies, we find that the return to public capital is positive and significantly different from zero.

File: Working Paper 0401


Number: 0402

Authors: Daniel J. Henderson and Daniel L. Millimet

Title: Environmental Regulation and U.S. State-Level Production

Abstract:

Using data from the U.S. over the period 1977-1986, we estimate the impact of environmental policy on state-level output using both parametric and nonparametric techniques. We find that while the added flexibility of the nonparametric approach yields much insight, the lack of a relationship between environmental regulation and output is quite robust.

File: Working paper 0402


Number: 0403

Authors: Daniel J. Henderson and Valentin Zelenyuk

Title: Testing for Catching-up: Statistical Analysis of DEA Efficiency Estimates

Abstract:

We use advances in DEA techniques to examine efficiency scores and investigate the issue of convergence/divergence in a cross-country analysis. Specifically, we take use of bootstrapping techniques to examine a data set of 52 developed and developing countries. We find that when using the standard DEA model the results are sometimes less than desirable. Further, we break the sample into the two groups to examine the two-club convergence phenomenon. We find that efficiency scores are significantly different between the two groups and that there is some evidence of convergence of efficiency scores within each group.

File: Working Paper 0403


Number: 0404

Authors: Subal Kumbhakar and Hung-Jen Wang

Title: Estimation of Technical and Allocative Inefficiency: A Primal System Approach

Abstract:

The estimation of technical and allocative ine .ciency using a flexible (translog) cost system is found to be quite difficult (not yet solved satisfactorily), especially when both inefficiencies are random.In this paper we use the alternative primal system consisting of the production function (translog) and the first-order conditions of cost minimization.The estimation of the primal system is more straightforward and it enables us to estimate observation-specific technical and allocative inefficiency. The impact of technical and allocative ine .ciency on input demand and cost are also computed. We use panel data on steam-electric generating plants from the U.S.to estimate the model using both Cobb-Douglas and translog production functions.

File:Working paper 0404


Number: 0405

Authors: Subal Kumbhakar, Byeong U. Park, Leopold Simar, and Efthymios G. Tsionas

Title: Nonparametric Stochastic Frontiers: A Local Maximum Likelihood Approach

Abstract:

This paper proposes a nonparametric approach for stochastic frontier (SF) models based on local maximum likelihood techniques. The SF model is presented as encompassing some anchorage parametric model in a nonparametric way. First,we derive asymptotic properties of the estimator for the general case (local linear approximations). Then the results are tailored to a SF model where the convoluted error term (efficiency plus noise) is the sum of an half normal and a normal random variable. The parametric anchorage model is a linear production function and an homoscedastic error term.The local approximation is thus local linear for the production function and local constant for the parameters of the error terms.The performance of our estimator is first established with a simulated data set and then with real data on milk production in Spanish dairy farms.The methods appear to be robust,numerically stable and particularly useful for investigating a production process and the derived efficiency scores.

File: Working Paper 0405


Number: 0406

Authors: Daniel J. Henderson and Aman Ullah

Title: Nonparametric Random Effects Estimator

Abstract:

This paper proposes feasible nonparametric random effects estimators. Specifically, we propose feasible versions of the two estimators in Lin and Carroll (2000) and a modified version of the random effects estimator in Ullah and Roy (1998). Further, the consistency properties of these estimators are established.

File: Working paper 0406


Number: 0407

Authors: Daniel J. Henderson

Title: A Nonparametric Examination of Capital-Skill Complementarity

Abstract:

This paper uses nonparametric kernel methods to construct observation specific elasticities of substitution for a panel of 73 developed and developing countries to examine the capital-skill complementarity hypothesis. The exercise shows support of capital-skill complementarity when skilled labor is categorized according to one of the three lowest thresholds: some secondary education, completed primary education and attained some primary education. However, at the two highest thresholds: attained some college and completed secondary education, the elasticity of substitution between skilled labor and physical capital is often greater than that of unskilled labor and physical capital, possibly suggesting capital-skilled substitutability at high thresholds. In addition, the nonparametric approach also allows for observation specific estimates of elasticities of substitution which are found to vary significantly across countries, groups of countries and time periods.

File: Working Paper 0407


Number: 0408

Authors: Neha Khanna and Duane Chapman

Title: Weapons Trade and Petroleum Price Stability: Are Measures of Political and Economic Openness and Income Important?

Abstract:

The stable oil prices since the mid 1980s can be described as a Nash equilibrium in which weapons trade and military policy play a crucial role. In this paper, we examine whether other economic factors, such as GNP per capita and the degree of income inequality, and political factors, such as the degree of political freedom and the occurrence of an armed conflict, significantly influence the pattern of weapons trade observed between 1989 and 1999. Contrary to our expectations, we find that most of these economic and political variables are not statistically significant and the positive association between weapons trade and trade in crude oil remains unaffected by the inclusion of these additional variables.

File: Working paper 0408


Number: 0409

Authors: Christopher Hanes

Title: The Rise and Fall of the Sliding Scale or Why Wages Aren’t Indexed to Product Prices

Abstract:

Sliding scales - agreements between employers and unions that linked wage rates to product prices - were widespread in some industries, and tried in others, in Britain and the United States from the 1860s through the 1930s. I describe how sliding scales worked in practice and how they were viewed by contemporary employers, unionists and outside observers. I argue that sliding scales were not adopted for the reasons suggested by most theories of wage indexation, but rather in order to reduce the frequency of strikes in an institutional setting where there was no third-party enforcement of labor agreements. This can explain both the presence of sliding scales in the nineteenth and early twentieth centuries, and the disappearance of sliding scales since the 1930s.

File: Working Paper 0409


Number: 0410

Authors: Joseph H. Davis, Christopher Hanes, and Paul W. Rhode

Title: Harvests and Business Cycles in Nineteenth-Century America

Abstract:

From the late 1870s to the First World War, the size of the cotton harvest was strongly associated with fluctuations in the next year’s industrial output, accounting for most major cyclical peaks and troughs. The relation does not appear to hold for the wheat crop, or for the cotton crop in the antebellum period. We explore a variety of explanations for the pattern, both monetary and "real."

File: Working Paper 0410


Number: 0411

Authors: Christopher Hanes

Title: The Rise of Open-Mouth Operations and the Disappearance of the Borrowing Function in the United States

Abstract:

In the late 1980s, before the FOMC began to announce whether or not it had changed its target fed funds rate, it became apparent that changes in the target could be effected without adjustments to reserve supply or the discount rate, not only within the earlier days of a maintenance period but for the maintenance period as a whole. At the same time, the .borrowing function. - the relation between market overnight rates, the discount rate and the volume of discount-window borrowing - disappeared. I explain both developments as consequences of Federal Reserve discount-window lending practices that began in the 1920s, together with a decrease after the 1970s in the relative importance of discount borrowing by small banks. I show that data on discount borrowing by large versus small banks in interest-rate targeting periods before and after the 1980s are consistent with my explanation.

File: Working paper 0411


Number: 0412

Authors: Solomon W. Polachek

Title: How the Human Capital Model Explains Why The Gender Wage Gap Narrowed

Abstract:

This paper explores secular changes in women's pay relative to men's pay. It shows how the human capital model predicts a smaller gender wage gap as male-female lifetime work expectations become more similar. The model explains why relative female wages rose almost unabated from 1890 to the early-1990s in the United States (with the exception of about 1940-1980), and why this relative wage growth tapered off since 1993. In addition to the US, the paper presents evidence from nine other countries using data gleaned from the Luxembourg Income Study (LIS).

File: Working Paper 0412


Number: 0413

Authors: Soo Kyeong Hwang, and Solomon W. Polachek

Title: Occupational Self-Selection and the Gender Wage Gap: Evidence From Korea and United States

Abstract:

Men and women are sorted differently into jobs. Women comprise 46.5% of the US labor force, but only 9.9% of engineering are women. In contrast nursing is 92.8% female. This difference in occupational structure is called occupational segregation. Occupational segregation poses a number of questions. For example, is occupational segregation responsible for the gender wage gap? Do women entering these female dominated jobs receive low enough wages to bring down the mean earnings of all women? Would these women receive low wages even if they had entered male jobs? This paper examines occupational segregation’s role in explaining the gender wage gap. Specific ally, it tests whether the number of women incumbents in a job is negatively related to workers’ wages. Contrary to popular belief, our results indicate that the proportion of a job that is female does not lead to lower wages. After using the McFadden logit model to adjust for the probability a women enters a women’s job, we find women entering female jobs receive positive rewards, while men entering male jobs similarly receive higher wages. Thus women in women’s jobs do relatively better than women in men’s jobs, and men in men’s jobs do relatively better than men in women’s jobs. This means that the population sorts into jobs to maximize their well being. The results are robust both in Korea and the US. The relatively advantageous position of women in female jobs is found to be associated with gendered comparative advantages in job specific skills. For this reason intervention in the job sorting process might have adverse unintended effects. Rather than raise women’s wages, women’s wages could go down. Similarly, rather than diminish men’s wages, men’s wages could go up.

File:Working paper 0413


Number: 0414

Authors: Solomon W. Polachek, and Jun (Jeff) Xiang

Title: The Effects of Incomplete Employee Information On Wages: A Cross-Country Analysis With Special Reference to Foreign Worker In-migration

Abstract:

In this paper, we define a tractable procedure to measure worker incomplete information in the labor market. The procedure, which makes use of earnings distribution skewness, is based on econometric frontier estimation techniques, and is consistent with search theory. We apply the technique to eleven countries over various years, and find that incomplete information leads workers to receive on average about 30-35% less pay than they otherwise would have earned, had they information on what each firm paid. Generally married men and women suffer less from incomplete information than the widowed or divorced, and singles suffer the most. Women suffer more from incomplete information than men. Schooling and labor market experience reduce these losses, but institutions within a country can reduce them, as well. For example, we find that workers in countries that strongly support unemployment insurance (UI) receive wages closer to their potential, so that doubling UI decreases incomplete information and results in 5% higher wages. A more dense population reduces search costs leading to less incomplete information. A more industrial economy disseminates wage information better, so that workers exhibit less incomplete information and higher wages. Finally, we find that foreign worker inflows increase incomplete information, and at the same time reduce average wage levels, at least in the short -run.

File: Working Paper 0414


Number: 0415

Authors: Leo Turcotte, John Robst, Solomon Polachek

Title: Medicaid Coverage and Medical Interventions During Pregnancy

Abstract:

This paper extends prior research on the effect of Medicaid coverage on medical interventions during pregnancy (ultrasound) and birth (cesarean delivery, inducement, and fetal monitor). The data are from two sources: the New York State Vital Statistics (VS) matched infant birth-death file and the Statewide Planning and Research Cooperative System (SPARCS) file for 1993-1996. Medicaid coverage increases the likelihood of teens and adults receiving prenatal care relative to being uninsured. Overall, the effect of insurance type varies depending on whether the procedure is part of standard care (ultrasound and fetal monitor) or more likely to be elective (inducement and cesarean delivery). Insurance type has a greater effective for elective procedures than for procedures that are part of standard care.

File: Working paper 0415, Tables


Number: 0416

Authors: Kiril Tochkov

Title: Interregional Transfers and the Smoothing of Provincial Expenditure in China

Abstract:

Provincial revenue in China is very volatile and revenue shocks would destabilize provincial expenditure unless they are buffered via markets or the fiscal system. This paper estimates the amount of expenditure smoothing across provinces in China provided by interregional net transfers over the 1952-2001 period. The findings indicate that net transfers minimize expenditure fluctuations by absorbing a very large fraction of province-specific revenue shocks. During the intensive phase of fiscal decentralization in the late 1980s and early 1990s the smoothing effect of net transfers declines. The cushioning properties of net transfers during this period are even weaker when extra-budgetary revenue is taken into account since it amplifies the volatility of total provincial revenue.

File: Working Paper 0416


Number: 0417

Authors: Kiril Tochkov

Title: Fiscal reforms, Output Fluctuations and the Cyclical Behavior of Net Transfers in China: Evidence from Province-level Panel Data

Abstract:

The paper investigates the cyclical properties of interregional net transfers and their components in China over the 1952-2001 period. The findings indicate that net fiscal transfers from the central government to provinces are countercyclical and smooth idiosyncratic shocks to provincial income, but these properties differ across time and across regions. The stabilization effect is much stronger in rich provinces than in poor provinces. The acyclicality of net transfers declined rapidly since the introduction of fiscal decentralization measures in the 1970s, and the fiscal reform in 1994 did not reverse this trend. Countercyclical net transfers are determined by provincial revenue and expenditure both of which are procyclical. Revenue is more procyclical than expenditure due to the strong procyclical response of tax revenue. Capital construction spending, the largest component of provincial expenditure, is only weakly procyclical.

File: Working paper 0417


Number: 0418

Authors: Daniel J. Henderson and Daniel L. Millimet

Title: Pollution Abatement Costs and Foreign Direct Investment Inflows to U.S. States: A Nonparametric Reassessment

Abstract:

Keller and Levinson (2002) utilize state-level panel data on inflows of foreign direct investment along with an innovative measure of relative pollution abatement costs to assess the impact of environmental stringency on capital flows. Using standard parametric panel data models, the authors find moderate evidence that capital flows are sensitive to abatement costs. In this paper, we assess the robustness of this conclusion using recently developed nonparametric methods. The nonparametric approach reveals that (i) some of the parametric results are not robust, (ii) the impact of relative abatement costs is far from uniform across states, and is generally of smaller magnitude than suggested by the parametric approach.

File: Working Paper 0418


Number: 0419

Authors: Duane Chapman and Neha Khanna

Title: The Persian Gulf, Global Oil Resources, and International Security

Abstract:

This paper analyzes the interaction of politics and military security in global oil markets since the 1980s. We outline the historical evolution of the pricing structure that maintained a stable world oil market. We argue that the security framework underlying this pricing structure relied on a trade-off between price stability and military security that has contributed to growing instability in individual Persian Gulf countries, and the rise of Al Qaeda and similar groups. We conclude the paper with a discussion of the pros and cons of three possible policy approaches to this dilemma a “hands-off” approach that is similar to the policy that prevailed between 1973 and 1990, a unilateral security system organized and led by the United States, and an international security framework.

File: Working Paper 0419


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Last Updated: 6/1/12