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Working papers, 2005

0501
Duane Chapman and Neha Khanna
The Fourth Gulf War: Persian Gulf Oil and Global Security

0502
Edward C. Kokkelenberg, Michael Dillon and Sean M. Christy
The Effects of Class Size on Student Grades at a Public University

0503
Daniel J. Henderson, Subal C. Kumbhakar and Christopher F. Parmeter
Nonparametric Estimation of a Hedonic Price Function

0504
Daniel J. Henderson and Aman Ullah
Nonparametric Estimation in a One-Way Error Component Model: A Monte Carlo Analysis

0505
Oleg Badunenko, Daniel J. Henderson and Valentin Zelenyuk
Technological Change and Transition: Relative Contributions to Worldwide Growth During the 1990's

0506
Daniel J. Henderson
Nonparametric Estimation of Higher-Order Moments of Technical Efficiency

0507
Andrew Feltenstein and Florenz Plassmann
The Welfare Analysis of a Free Trade Zone: Intermediate Goods and the Asian Tigers

0508
Daniel J. Henderson, Alexandre Olbrecht and Solomon Polachek
Do Former College Athletes Earn More at Work? A Nonparametric Assessment

0509
Neha Khanna and Duane Chapman
Guns for Oil? Conventional Weapons Trade in the Post-Cold War Era

0510
Linda Wong
One Estimation of a Two-Sided Matching Mode

0511
Linda Wong and QIqing Yu
A Statistical Analysis on Assortative Matching

0512
William A. Barnett, Barry E. Jones, Milka Kirova, Travis D. Nesmith, Meenakshi Pasupathy
The Nonlinear Skeletons in the Closet

0513
Barry Jones, Thomas Elger, David Edgerton, Donald Dutkowsky
Toward a Unified Approach to Testing for Weak Separability

0514
Thomas Elger, Barry Jones, David Edgerton, Jane Binner
The Optimal Level of Monetary Aggregation in the UK

0515
Donald H. Dutkowsky, Barry Z. Cynamon, Barry E. Jones
US Narrow Money for the Twenty-First Century

0516
Barry Z. Cynamon , Donald H. Dutkowsky, Barry E. Jones
Redefining the Monetary Aggregates: A Clean Sweep

0517
Barry Jones and Philippe de Peretti
A Comparison of Two Methods for Testing the Utility Maximization Hypothesis when Quantity Data are Measured with Error

0518
Neha Khanna and Florenz Plassmann
Total Factor Productivity and the Environmental Kuznets Curve: A Comment and Some Intuition

0519
Daniel J. Henderson and Léopold Simar
A Fully Nonparametric Stochastic Frontier Model for Panel Data

0520
Daniel J. Henderson, Daniel L. Millimet, Christopher F. Parmeter, Le Wang
Fertility and the Health of Children: An Application of a Nonparametric Conditional LATE Estimator

0521
Daniel J. Henderson and R. Robert Russell
Accounting for Two-Club Convergence


Number: 0501

Authors: Duane Chapman and Neha Khanna

Title: The Fourth Gulf War: Persian Gulf Oil and Global Security

Abstract:

This paper reviews the evolution of security, oil production, and pricing in the Persian Gulf from the mid 20th century onwards. We analyze the unique "target price" framework brokered by the U.S. and Saudi Arabia in the mid 1980s. Over the 19 years of its life, this framework had been responsible for providing the world with a steady supply of oil at reasonable prices. However, stability in the global oil market was gained at the cost of a lingering political instability in the Persian Gulf, an instability that was made apparent with the Iraqi invasions of Iran and Kuwait, and the U.S. war and democratization effort in Iraq. The enormous magnitude of oil wealth in the Persian Gulf region has created a significant problem in terms of international policy and security. We conclude the paper by analyzing three possible roads to the future laissez faire, an American system, and a multinational security framework.

File: Working Paper 0501


Number: 0502

Authors: Ed C. Kokkelenberg, Michael Dillon, and Sean M. Christy

Title: The Effects of Class Size on Student Grades at a Public University

Abstract:

We model how class size affects the grade higher education students earn and we test the model using an ordinal logit with and without fixed effects on over 760,000 undergraduate observations from a northeastern public university. We find that class size negatively affects grades for a variety of specifications and subsets of the data, as well as for the whole population of observations from this school. The specifications tested hold constant for academic department, peer effects (relative ability in class), student ability, level of student, gender, minority status, and other factors. Average grade point declines as class size increases, precipitously up to class sizes of twenty, and more gradually but monotonically through larger class sizes. Evidence suggests that this is not exclusively caused by a "small-class" effect.

File: Working paper 0502


Number: 0503

Authors: Daniel J. Henderson, Subal C. Kumbhakar, and Christopher F. Parmeter

Title: Nonparametric Estimation of a Hedonic Price Function

Abstract:

In this paper we attempt to replicate the results of an article (Anglin and Gençay 1996) which applied semiparametric procedures to estimate a hedonic price function. To relax additional restrictive assumptions, we also employ a fully nonparametric model that captures nonlinearity in both continuous and categorical variables. We find that the nonparametric procedure gives more intuitive and meaningful results.

File: Working Paper 0503


Number: 0504

Authors: Daniel J. Henderson and Aman Ullah

Title: Nonparametric Estimation in a One-Way Error Component Model: A Monte Carlo Analysis

Abstract:

This paper considers the problem of nonparametric kernel estimation in panel data models. We examine the finite sample performance of several estimators for estimating a one-way error component model. Monte Carlo experiments show that the pooled estimator that ignores the dependence structure in the model performs well in each trial, but it is not the most efficient estimator since it is generally outperformed in the mean squared sense by both the two-step estimator and the nonparametric feasible generalized least squares estimator. Although the asymptotic bias and variance of most of the estimators converge at the same rate, the two-step estimator, which has smaller asymptotic variance and can have smaller asymptotic bias, generally outperforms most of the other estimators incorporating dependence when the technology is nonlinear and the variance of the error component is large relative to the variance of the random disturbance. Finally, we use an empirical example regarding the public capital productivity puzzle to showcase the estimators in a real data setting.

File:Working paper 0504


Number: 0505

Authors: Oleg Badunenko, Daniel J. Henderson and Valentin Zelenyuk

Title: Technological Change and Transition: Relative Contributions to Worldwide Growth During the 1990's (Appendices Included)

Abstract:

In this paper we use the procedures developed in the Kumar and Russell (2002) growth-accounting study to examine cross-country growth during the 1990's. Using a data set comprised of developed, newly industrialized, developing and transitional economies, we decompose the growth of output per worker into components attributable to technological catch-up, technological change and capital accumulation. In contrast to the study by Kumar and Russell (2002), which concluded that capital deepening was the major force of growth and change in the world income per worker distribution over the 1965-1990 period, our analysis shows that during the 1990's, the major force in the further divergence of the rich and the poor was due to technological change, whereas capital accumulation played a lesser role. In further contrast, we find that efficiency changes led on average to regress rather than progress. Finally, although our study is able to uncover some of the winners and losers among the transitional economies, we find that on average they perform similar to the rest of the world.

File: Working Paper 0505


Number: 0506

Authors: Daniel J. Henderson

Title: Nonparametric Estimation of Higher-Order Moments of Technical Efficiency

Abstract:

In this paper nonparametric techniques are used to estimate higher-order moments of technical efficiency. The procedures given in this paper allow the moments to be estimated with relative ease, while at the same not requiring restrictive assumptions on the distribution of inefficiency. The results given by these estimates will allow researchers to gain additional information on the inefficiency of a given firm. As an empirical example, the estimators are applied to a data set examining labor efficiencies of 17 railway companies over a period of 14 years.

File: Working paper 0506


Number: 0507

Authors: Andrew Feltenstein and Florenz Plassmann

Title: The Welfare Analysis of a Free Trade Zone: Intermediate Goods and the Asian Tigers

Abstract:

We analyze trade reform in the ASEAN group of countries, who are implementing a reform that would remove all trade barriers within the group. In order to avoid complete specialization in traded goods, most disaggregated models use an Armington approach in which goods are distinguished both by physical type as well as place of origin. This methodology is not suitable for the sort of intermediate goods produced by the ASEAN countries. We develop a computational approach in the context of a non-Armington dynamic general equilibrium model. Using a calibrated version of the model, we draw various conclusions about the welfare and income results of trade reform. Trade liberalization is generally welfare improving, but may lead to slightly lower real investment and income in the ASEAN countries over time.

File: Working Paper 0507


Number: 0508

Authors: Daniel J. Henderson, Alexandre Olbrecht and Solomon Polachek

Title: Do Former College Athletes Earn More at Work? A Nonparametric Assessment

Abstract:

This paper investigates how students’ collegiate athletic participation affects their subsequent labor market success. It uses newly developed distributional tests to establish that the wage distribution of former college athletes is significantly different from non-athletes and that athletic participation is a significant determinant of wages. Additionally, by using newly developed techniques in nonparametric regression, it shows that on average former college athletes earn a wage premium. However, the premium is not uniform, but skewed so that more than half the athletes actually earn less than non-athletes. Further, the premium is not uniform across occupations. Athletes earn more in the fields of business, military, and manual labor, but surprisingly, athletes are more likely to become high school teachers, which pays a relatively lower wage. We conclude that nonpecuniary factors play an important role in occupational choice, at least for many graduating athletes.

File: Working paper 0508


Number: 0509

Authors: Neha Khanna and Duane Chapman

Title: Guns for Oil? Conventional Weapons Trade in the Post-Cold War Era

Abstract:

This paper analyzes the global conventional weapons trade between 1989 and 1999. We postulate that a key reason for the huge transfer of weapons to the Persian Gulf region is the enormous value of the oil wealth there along with the dependence of Western economies on access to the relatively cheap and steady supply of crude oil. We find a strong, positive, and robust empirical association between arms trade and crude oil trade and explain it as the result of a Nash equilibrium that was responsible for the remarkably stable crude oil prices during our study period.

File: Working Paper 0509


Number: 0510

Authors: Linda Wong

Title: One Estimation of a Two-Sided Matching Model

Abstract:

This paper provides an assessment of the implementation of a canonical two-sided matching model using marriage data from the National Longitudinal Survey of Youth (1979-1998, NLSY). Results indicate that agents tend to be patient in the marriage market, and their attractiveness is more sensitive to permanent income (education) than transitory income (wage). The average marriage premium is about 1.3-1.6 per cent. Results also show that using non-random samples of spouses distorts preference parameters, that matching outcomes are sensitive to singlehood utility specifications, and that segregation in sorting could limit heterogeneity in agents' behavior. The proposed algorithm-- solving for agents' marriage sets based on analytic equations and feeding the solution into the likelihood estimation-- does not demonstrate sufficient flexibility to match singlehood duration data.

File: Working Paper 0510


Number: 0511

Authors: Linda Wong and QIqing Yu

Title: A Statistical Analysis on Assortative Matching

Abstract:

We consider the problem of statistical analysis on assortative matching. The random vector of interests consists of the age and the history of the first passage time of each of the newly-formed pairs. Complete data are not often available, however. Observations in each variate of the random vector maybe uncensored, right-censored, left-censored, interval-censored or missing. We propose a model that allows such kind of data. We estimate the joint distribution function of the random vector by the generalized MLE (GMLE). We use a self-consistent algorithm to obtain the GMLE and establish its asymptotic properties. We apply the estimation method to study age at first marriage using a panel data.

File: Working paper 0511


Number: 0512

Authors: William A. Barnett, Barry E. Jones, Milka Kirova, Travis D. Nesmith, Meenakshi Pasupathy

Title: The Nonlinear Skeletons in the Closet

Abstract:

Although nonlinearity is the rule in economic theory, nonlinearity tends to make life difficult for econometricians. While there have been many advances in nonlinear econometrics in recent years, some problems produced by nonlinearity remain 'skeletons in the closet' in empirical economic research. In this paper, we open the door to that closet and take a look at two of the biggest skeletons.

File: Working Paper 0512


Number: 0513

Authors: Barry Jones, Thomas Elger, David Edgerton, Donald Dutkowsky

Title: Toward a Unified Approach to Testing for Weak Separability

Abstract:

In this paper we propose a unified framework for testing weak separability. We present a new three-step procedure, which is a joint test of necessary and sufficient conditions that takes account of the possibilities of both measurement error and incomplete adjustment. We illustrate the operational capability of the procedure with an empirical example. At the present time our procedure works well in medium sized samples, but may not be practical for datasets with extremely large sample sizes. As computing technology continues to advance, however, high-powered methods like the one we propose should supplant testing approaches that were originally designed to circumvent computational limitations.

File:Working paper 0513


Number: 0514

Authors: Thomas Elger, Barry Jones, David Edgerton, Jane Binner

Title: The Optimal Level of Monetary Aggregation in the UK

Abstract:

This paper tests the weak separability of the assets in the Bank of England's household-sector Divisia index from 1977Q1 to 2000Q4. The study is based on a revealed preference framework and uses a nonparametric procedure that jointly tests necessary and sufficient conditions for weak separability, allows for incomplete adjustment of expenditure on monetary services, and allows for measurement errors in the monetary quantity data. The assets included in the Bank of England Divisia index are weakly separable with complete adjustment in two sub-samples covering most of the eighties. A narrower aggregate is weakly separable with complete adjustment in each sub-sample we investigated.

File: Working Paper 0514


Number: 0515

Authors: Donald H. Dutkowsky, Barry Z. Cynamon, Barry E. Jones

Title: US Narrow Money for the Twenty-First Century

Abstract:

This study focuses on sweep programs in establishing conceptually appropriate and reliable measures of narrow money. We propose the aggregates M1RS = M1 + holdings of funds swept in retail sweep programs, and M1S = M1RS + holdings of funds swept in commercial demand deposit sweep programs. Based upon quarterly observations from 1959:1-2002:4, cointegration tests indicate the existence of long-run relationships between the velocity of M1S and the corresponding opportunity cost of holding money, using either short-term or long-term interest rates. Tests find weaker evidence for M1RS, and little support for MZM.

File: Working paper 0515


Number: 0516

Authors: Barry Z. Cynamon, Donald H. Dutkowsky, Barry E. Jones

Title: Redefining the Monetary Aggregates: A Clean Sweep

Abstract:

This paper focuses on the role of sweep programs in properly measuring money. We propose new monetary aggregates that adjust the conventional measures to account for the medium of exchange capability of funds in sweep programs. Using data on swept funds in retail and commercial demand deposit (DD) sweep programs, we provide time series of monthly data on the sweep-adjusted money measures. By the twenty-first century, DD sweeps have led to distortion in reported MZM of approximately 3%, 5% for M2, and 6% for M2M. Underreporting of M1 due to retail and DD sweep programs is almost 70%.

File: Working Paper 0516


Number: 0517

Authors: Barry Jones and Philippe de Peretti

Title: A Comparison of Two Methods for Testing the Utility Maximization Hypothesis when Quantity Data are Measured with Error

Abstract:

The Generalized Axiom of Revealed Preference (GARP) can be violated due to random measurement errors in the observed quantity data. We study two tests proposed by Varian (1985) and de Peretti (2004), which test GARP within an explicit stochastic framework. Both tests compute adjusted quantity data that are compliant with GARP. We compare and contrast the two tests in theoretical terms and in an empirical application. The empirical application is based on testing a large group of monetary assets for the US over multiple sample periods spanning 1960-1992. We found that both tests provided reasonable results and were largely consistent with each other.

File: Working paper 0517


Number: 0518

Authors: Neha Khanna and Florenz Plassmann

Title: Total Factor Productivity and the Environmental Kuznets Curve: A Comment and Some Intuition

Abstract:

Chimeli and Braden (2005) derive a necessary and sufficient condition under which inter-country differences in total factor productivity can yield an Environmental Kuznets Curve. They argue that their results emphasize the importance of differences in total factor productivity across countries as well as the need for decreasing returns to scale in pollution-abating technologies for the existence of an EKC. We show that their Proposition 1 is equivalent to Proposition 2 in Lieb (2002). This implies that, even in Chimeli and Braden's model, contemporaneous changes in the marginal rate of substitution between environmental quality and consumption on the demand side and the marginal rate of transformation between these goods on the supply side drive the pollution-income relationship. This is a very general condition that does not rely on either differences in total factor productivity or decreasing returns to scale in abatement and is widely applicable.

File: Working Paper 0518


Number: 0519

Authors: Daniel J. Henderson and Léopold Simar

Title: A Fully Nonparametric Stochastic Frontier Model for Panel Data

Abstract:

In this paper we estimate the frontier and time variant technical efficiency fully nonparametrically by exploiting recent advances in kernel regression estimation of categorical data. Specifically, we model firm (unordered) and time (ordered) categorical variables directly into the conditional mean. This approach allows us to smooth the firm and time specific effects, which formally entered the model linearly. Our setup allows for more flexible and accurate estimates of the frontier and time variant technical efficiency. Further, the estimators are consistent and achieve the standard nonparametric rate of convergence. We apply these techniques to a data set examining labor efficiencies of 17 railway companies over a period of 14 years. Not only are our results for the elasticites more economically intuitive than the parametric and semiparametric procedures, we obtain different rankings in terms of labor efficiencies.

File: Working Paper 0519


Number: 0520

Authors: Daniel J. Henderson, Daniel L. Millimet, Christopher F. Parmeter, Le Wang

Title: Fertility and the Health of Children: An Application of a Nonparametric Conditional LATE Estimator

Abstract:

Although the theoretical trade-off between the quantity and quality of children is well-established, empirical evidence supporting such a causal relationship is limited. This paper applies a recently developed nonparametric estimator of the conditional local average treatment effect to assess the sensitivity of the quantity-quality trade-off to functional form and parametric assumptions. Using data from the Indonesia Family Life Survey and controlling for the potential endogeneity of fertility, we find evidence supporting the trade-off. Moreover, the magnitude and statistical significance of the results are different from the standard two-staged least squares estimates.

File: Working Paper 0520


Number: 0521

Authors: Daniel J. Henderson and R. Robert Russell

Title: Accounting for Two-Club Convergence

Abstract:

We decompose the growth of labor productivity of 52 countries into three components attributable to (1) technological change (the increase in total factor productivity), (2) capital deepening (the increase in the capital-labor ratio), and (3) the accumulation of human capital. We find that (a) two-club convergence (international polarization) is generated primarily by technological change, with help from capital deepening, whereas (b) the increased dispersion of the distribution in the 1965-1990 period is attributable primarily to capital deepening, with help from technological change and human capital accumulation.

File: Working Paper 0521


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Last Updated: 6/16/09