ABSTRACTS TABLE OF CONTENTS ECONOMIC THEORY; HISTORY; SYSTEMS The Theory of a Competitive Firm Under Input Price Uncertainty: Some Further Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hamid Beladi Minimum Wage Noncompliance Under U n c e r t a i n t y . . . Nadeem Naqvi and Brigitte Sellekaerts The Phillips Curve: Which? Whose? To Do What? How? . . . . . . . . . . . . . Nancy J. Wulwick The Theory of Capitalism and the Practice of Economic Policy . . . . . . . . M. Ray Perryman Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . David George Soviet Fixed Asset Replacement Since World War II . . . . . . . . . . . . Richard C. Itarmstone Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Daniel R. Hall Comments About Recent Socialists' Efforts Regarding the French Steel Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Daniel R. Hall The Economic Revolution in Revolutionary China . . . . . L.B. Wallerstein and Mora O'Reilly Improved Pedagogical Approach to Investment Multiplier . . . . . . . . . . . . . Alan Hochstein Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inder P. Ni/hawan

69 69 69 70 70 70 71 71 72 72 "/2

ECONOMIC GROWTH; DEVELOPMENT; PLANNING; FLUCTUATIONS Economic Education in the Soviet Union . . . . . . . . . . . . . . . . . . . . . . . . . John W. Baer Transitory Income and Economic Development: Trinidad and Tobago Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vito B. Lara China's Agricultural Policy: An Evaluation . . . . . . . . . . . . . . . . . . . . . . Steven S. Chang Potential Legal Pitfalls Facing State and Local Enterprise Zones . . . . . . Michael Allun Wolf The Many Faces of Enterprise Zones: Some Transatlantic Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . Michael Savage and Jack Underhill Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stuart E. Weiner Three Approaches to Empirical Analysis of LDC's Debt Service Problems . . . Changhee Chae A Development Strategy for the West African Sahelo-Sudanian Region . . . David Weisenborn Food Production Policy for Eastern Africa: A Case Study of Ethiopia . . . . . . . . Sisay Asefa Water Management, Land Tenure and Agricultural Development in Pakistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DonaM E. Parker and David Blaney Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dong K. Jeong Private Savings Behavior and Estimation of Structural Change: The Case of Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . Demetrios S. Giannaros and Jae Hyung Lee Estimates of Revenue Elasticity and Buoyancy in the Indinn Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vasudeva N.R. Murthy A Critique on Taiwan's Economic Development . . . . . . . Thomas P. Chen and Fu-Tseng Liu Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sisay Asefa The So-Called Islamic Economic System in Tomorrow's World Economy . . . . Izzud-Din Pal Trade and Direct Investment Linkage Between Korea and Japan . . . . . . . . . Youn-Suk Kim The Feasibility of the Caribbean Basin Initiative: The Jamaican Experience . . . . . . . . . . . . . . . . . . . . . . . . . . Robert E. Looney and P.C. Frederiksen Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Christopher J. Waller Late Colonialism and Anti-Socialism: The United States and Latin America Since World War II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warren S. Gramm Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. Edward Chatterton Workers Participation in Management Decision Making Process . . . . . . . N o e l A . Brathwaite A Model for Forecasting the Transfer of Technology . . . . . . . . . . . . . . . . . . . Charles Dale Complex Simulations of Dynamic Empirical Systems: Experiments in Varying Contexts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M. Ray Perryman Tobin's Q, The Demand for Investment and the Corporate Profit Taxation Policy in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hassouna Moussa Money, Economic Activity, and Causality: Empirical Evidence for Canada, 1957-1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jonathan D. Jones Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reinhard Neck

65

72 73 73 74 74 74 75 75 76 76 76 77 72 77 78 78 79 79 80 80 80 80 81 81 82 82 82

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QUANTITATIVE ECONOMIC METHODS AND DATA A Coordinated Fiscal and Monetary Policy for the U.S. Economy . . . . . . . . . . . . . . . . . . . Lawrence W. Taylor, Jr. and Rudeen Smith-Taylor Lawrence Schwartz A Linear Systems Analysis of Business Cycles and Monetary Control . . . . . . . R.C. Wingrove Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Andrew W. Braunstein Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Robert V. Bishop

82 83 83 83 84

A Functional Form for Multivariate, State-Dependent Utility and Risk Aversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

84

Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Catherine Elliott

MONETARY AND FISCAL THEORY AND INSTITUTIONS Equilibrium Credit Rationing In An Open Investment Equity Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . James R. Ostas and Kyoo H. Kim Emergency Currency and the 1914 Crisis: Implications for Financial Deregulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Donald R. Wells and L.S. Scruggs The Case for Financial Reform: Or, Was Irving Fisher Right After All? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John 1t. Hotson Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Central Banking Thought in the 1950's: Anglo-American Comparisons, Internal and External Histories . . . . . . . . . . . . . . . ............ The Impact of Money Market Deposit Accounts on the Allocation of Household Liquid Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bank Performance and Market Concentration: The United States and Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Current Significance of the New Deal . . . . . . . . . . . . . . . . . . . . . International Investment Implications of U.S. Tax Reform . . . . . . . . . . . Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

84 85

Mark L. Ladenson

85 86

Nancy J. Wulwick

86

Martin Fleming William Jackson

86 86

Philip F. Bartholomew Leon H. Keyserling Laurence Jr. Mauer Mai N. Woo

87 87 88 88

The Budget Deficit Debate: A Review of the Recent Empirical Studies . . . . . . . . . . . . . . . . . . . . . . . . . Demetrios S. Giannaros and Bharat R. Kotluri Jean K. Thisen William A. Peek Jean K. Thisen

88 89 89 89

Abbas J. Roayaei . . . Cyrus Sassanpour Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sayeed Kayvan Autocorrelation Analysis of Foreign Exchange Data...Chuan-Yu Ed Chen and James W. Beck

90 90 90 91

Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Economic Base Decline and City Government . . . . . . . . . . . . . . . . . . . . . Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTERNATIONAL ECONOMICS Empirical Investigation of the Ohlin Theory . . . . . . . . . . . . . . . . . . . . . The Effects of Oil Revenues on the Indonesian Economy: 1969-1983

Pure Intermediate Goods and the Theory of Protection in the Presence of Foreign Capital . . . . . . . . . . . . . . . . . . . . . . . . . . .

A. Wahhab Khandker John S. Gafar Japan's Trade Surplus and Redistribution of the World's Wealtil . . . . . . . . . . . Kie Bok Lee Intertemporal Trade Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nadeem Naqvi Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

How an Import Surcharge Would Affect U.S. Trade: An Elasticities Approach . . . . . . . . . . . . . . . . . . . . . . . . . John W. Suomela and DonaM J. Rousslang Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Harold Beladi Charles Dale

U.S. Soybean Exports: Will a European Vegetable Tax Matter? . . . . . . . . . . . . . . . George C. Davis, C. Parr Rosson, III and Michael D. Hammig The North-South Debate on Trade and Investment . . . . . . . . . . . . . . . . . . . Hart Xuan Fo Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Alton D. Law

91 91 91 92 92 92 93 93 93 94

ABSTRACTS

Evaluation of Changes in Direction of Trade of East Asian Nations . . . . . Linwood T. Geiger The Case for Central Bank Intervention . . . . . . . . . . . . . . . . . . . . . . . Gary M. Quinlivan An Investment Portfolio for OPEC : The LaGrangian Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mohammad Shaaf Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Steven S. Chang The Strategic Approach to Situational Financial Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debra R. Sheldon and Alam Hammad Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Robert C Winder Foreign Capital and Economic Integration: With Particular Reference to West Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Francis G. Fawundu Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John S. Gafar

67

94 94 95 95 95 95 96 96

ADMINISTRATION; BUSINESS FINANCE; MARKETING; ACCOUNTING The Univariate Moving Window-Spectral Algorithm . . . . . . . . . . . . . . . . . . A. Denis Ridley Executive Comprndsyion snf Performance of Utility Companies in the United States . . . . . . . . . . . . . . . . . . . . . Pravat K. Choudhury and Amdetsion Kidane Rate of Returns on Equity: The Measure of Electric Utility Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mohammad T. VazM Portfolio Management: An Alternative Method . . . . . . . . . . . . . . . . . . . . . . . . . H. C. Li Firm Valuation Theory Under Uncertain Inflation . . . . . . . . . . . . . . . . Lawrence J. Haber Testing the 'Informational' Efficiency of the Option Market . . . . . . . . . . Ladd M. Kochman Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Saad G. A. El-Fayoumy The Married Working Woman: Her Value of Time and Its Impact on Shopping Behavior . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clare Comm and Robert Eng The Identification of Consumer Demand for VCR's as a Basis for Formulating Strategy . . . . . . . . . . . . . . . . . . . . Algin B. King and Michael Loizides Identification of Changing Consumer Attitudes Among Cigarette Smokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Joyce P. King and Michael Loizides New Documents on the Origin of Banking in Northern Italy (1340-1351) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alvaro MartineUi Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MarshaIl M. Friedman

96 96 97 97 98 98 98 99 99 99 100 100

INDUSTRIAL ORGANIZATION; TECHNOLOGICAL CHANGE; INDUSTRY STUDIES Trends in the Service Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Terence A. Brady An Economic Analysis of Motor Carrier Deregulation in California . . . . . . . . . N. Gail Frey Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jeffrey L. Jordan Price Discrimination in a Deregulated Air Travel Marketplace . . . . . Joseph P. Schwieterman The Adverse Effects of State Divorcement Laws: A Contracting Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Edward C. Gallick Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Richard E. Neel The Upward Mobility of the MicroComputer . . . . . . . . . . . . . . . . . . . . . . . Jeffrey Lippitt, Sudro Brown and Hal Guetal Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bruce L. Oliver Surviving the Information Revolution: The CPA and the CPU . . . . . . . . . . . . . . . . . . . . . . . . . . . Sudro Brown, Jeffrey Lippitt and Hal Guetal

100

101 101 102 102 103 103 103 104

AGRICULTURE; NATURAL RESOURCES Making Rural Markets an Effective Instrument for Small Farms Development . . . . . . . . . . . . . . . . . . . . . . . . . Ra/endra Prasad and Surendra P. Singh 104

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Using a Hedonic Price Function to Evaluate Retail Tomato Handling ..... Jeffrey L. Jordan, Robert L. Shewfelt, Stanley E. Prussia and A. V.A. Ressureccion Debt-Free Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Patrick Madden Economic Changes and Developments on Small Farms, Maryland and U.S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John W. Wysong Changes in U.S. and Maryland Farm Product Sales Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . John W. Wysong and H. Daniel Howar Econometric Evaluation of a Weekly Soybean Futures Price Model . . . . . . . . . . . . . . . . . . . . . . . . . . Lawrence J. Heitkemper and John W. Wysong Toward a New World Oil Structure . . . . . . . . . . . . . . . . . . . . . . . . . George C. Georgiou Measuring the Impact of Elasticities on Commodity Market." . . . . . . . . . . . . . . . . . . . . . . . Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chin-Wei Yang and Walter C. Labys Economic Exploitation of a Non-Renewals Resource with Random Discovery . . . . . . . . . . . . . . . . . . . . . . . . . David Yeung and Chalres Plourde Short and Long Term Resource Supply Elasticities in the Market System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Raphael Shen Changing Resource Usage in the International Oil Market . . . . . . . . . . Kathleen M. Langley

105 105 105 106 106 107 107 108 108 108

MANPOWER, LABOR, POPULATION The Secondary Labor Market Trap: Fact or Fiction? . . . . . . . . . . . . . . . . . . David Rogers Whatever Happened to the Full-Employment Unemployment Rate? . . . . . . Clifford B, Donn Possibility Theory and the Nurse Shortage Paradox . . . . . . . . H.C. Li and Joseph A. Ilacqua Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . William McNaught The Speed of Adjustment of Employment in Irish Manufacturing . . . . . . . . David J. Smyth Career Consequences for a Scientist of a Mistaken Research Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Arthur M. Diamond, Jr. Decomposition of New Black/Wkite Income Inequality Measures . . . . . . . . . Dong K. Jeong Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nancy A. Wentzler Right to Economic Security: The Antinomies of Public Policy . . . . . . . . . . . . . . . . . . . . . . . . . Narayan Viswanathan and Nalini Viswanathan International Migration of Labor When Information is Asymmetric . . . . . . Steven S. Chang Competitive Rating in Workers' Compensation Insurance . . . . . . . . . . . . . Pradeep Ganguly An Historical Account of the Unit Labor Cost Index . . . . . . . . . . . . . . Kathleen E. Franks A Model of the Influence of Consultants on National Labor Relations Board Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thomas P. Frazier Training for Employment Security and Personal Growth: The Communications Workers of America Approach . . . . . . . . . . . . . Ronnie J. Straw and Margaret L. Hilton Comment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Daniel R. Hall Alternative Models for Valuing a Life . . . . . . . . . . . . . . . . . . . . . . . . . Richard S. Martin

109 109 110 110 110 111 111 112 112 112 113 113 114 114 115 115

WELFARE PROGRAMS; CONSUMER ECONOMICS; URBAN AND REGIONAL ECONOMICS Child Support Awards: Differentials and Trends by Race and Marital Status . . . . . . . . . . . . . . . . . . . . . . . . . Andrea H. Beller and John W. Graham Long-Run Impact of Certificate-of-Need and Section 1122 of the Social Security Act on Investment of Hospital Industry . . . . . . . . . . . . . . . . . . . . . . . . . . Sam Mirmirani Market Power and the Economics of Discrimination . . . . . . . . . . . . . . . . William J. Rieber An Innovative Strategy to Capital Formations in the U.S. Black Sub-Economy . . . . L.A. H u f f Industrial and Market Structures Among African Americans in the U.S. Economy . . . . . . . . . . . . . . . . . . . . . . . . . .......... Cleveland A. Chandler Services, High Technology Manufacturing and the U.S. System of Cities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Terence A. Brady Testing the City Rank-Size Distribution of Soviet Urban Systems . . . . . . . . . . Jean Mirucki Rural-Urban Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taghi Ramin

115 116 116 117 117 118 118 119

69

ABSTRACTS The Theory of a Competitive Firm Under Input Price Uncertainty: Some Further Evidence H A M I D BELADI

Central Michigan University

In this paper we examine the behavior of the competitive firm operating in an environment in which input hiring decisions are made before all input prices are fully known. Introduction of random input prices does alter some of the main conclusions of the previous analyses. In particular, in a stochastic, two input, equilibrium model of the competitive firm, we have concluded, among other things, that a change in the price of one input leads unambiguously to a change in demand

for both inputs regardless of whether the firm is risk averse or indeed risk neutral. This is a result which is the same as in the certainty case. Furthermore, the marginal and overall impacts of uncertainty are found to be the same for input demand. Specifically, an increase in uncertainty about the return to capital induces the competitive firm to reduce the demand for capital and labor if the firm is risk averse and exhibits diminishing partial relative risk aversion.

Minimum Wage Noncompliance Under Uncertainty N A D E E M NAQV1 AND BRIGITTE S E L L E K A E R T S

Central Miehigan Universio'

Recent articles, notably by Chang and Ehrlich [Journal of Political Economy, 1985] focused on the economics of firms' noncompliance with the minimum wage provisions of the Fair Labor Standards Act. We remedy shortcomings of the previous studies, by providing a general analysis of the economics of n o n c o m p l i a n c e for a representative firm employing several types of labor, when the cost (or the eventual penalty) of noncompliance is uncertain, so that the previous models developed in this area, based on the implicit assumption that the firm under con-

sideration is risk neutral, become a special case of our model. Following Batra and Ullah [1974], we assume that the objective of the representative firm is the maximization of the expected utility of profits. We draw rather heavily on the seminal work of gatra [1974] and Batra and Ullah [1974] on the theory of input hiring decisions under conditions of uncertainty, and find that firm behavior in terms of compliance with minimum wage regulations or otherwise depends crucially on its attitude of risk aversion, risk preference or risk neutrality.

The Phillips Curve: Which? Whose? To D o What? How? NANCY J. W U L W I C K

Le Moyne College

Often we read in the press that 'economists disagree.' Indeed, the title of this essay points to discord. There are several Phillips curves which represent an inverse relation between inflation and unemployment. The essay analyses why economists have focused on the Phillips relation and explains how competi-

tion between economists has led to development of different Phillips models. The approach is historical while the concern is economic methodology. The conclusion contrasts the importance of competing models in economics and the traditional sciences.

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The Theory of Capitalism and the Practice of Economic Policy M. RAY PERRYMAN

Baylor University

This paper reflects significant intermediate results from a large-scale project designed to explore the inadequacies of c o n t e m p o r a r y e c o n o m i c t h e o r y a n d to s u g g e s t p r o p e r avenues for refinement. In particular, several basic premises underlie a reformulation of economic processes. M a n y of these factors must, of necessity, be characterized as tentative or "working" hypotheses which remain to be explored in detail. Others have already been explored by distinguished authors. The essential focus is to suggest a theoretical f r a m e w o r k which embodies b o t h (1) an intermediate or " m o d e r a t e " position between the classical and neoclassical systems and the t r a d i t i o n a l Keynesian position and (2) significant institutional content. In m a n y respects, the b r o a d e r analysis may best be character-

ized not as an alternative theory, but rather as an alternative synthesis, i.e., a combination of existing ideas within a different context than previously explored. The paper described herein describes an i m p o r t a n t element of the overall analysis, i.e., the nature of classical economics and its prescriptions regarding economic policy. In particular, it will be d e m o n s t r a t e d that these writers did not adhere dogmatically to the non interference principle and, moreover, that their policy prescriptions differed markedly. Nevertheless, a consistent f r a m e w o r k may be set forth which both embodies all of these prescriptions and his significant content which is of value in the current economic environment.

Comment DAVID GEORGE, La Salle University

P r o f e s s o r P e r r y m a n has clearly documented what has usually been offered as a "hunch," namely, that the leading classical economists advocated a surprisingly active government to supplant market outcomes. But in praising the a p p a r e n t p r a g m a t i s m exercised by the classicists, Professor Perryman neglects the possibility that it was a failure on the part of these theorists to follow their theories to their full conclusions that might help to explain this advocacy.

In addition, the suggested characterization of the classical economists as " p r a g m a t i c " and their c o n t e m p o r a r y offspring as "dogmatic" seems to neglect the influence of utilitarianism on both groups. The m o d e r n libertarian economist's prescription to lessen drastically the role of the state, however mistaken, is best characterized as " p r a g m a t i c " inasmuch as it claims to take the improved welfare of people as its ultimate justification.

Soviet Fixed Asset Replacement since World War II RICHARD C. HARMSTONE Penn State University

Western economists have achieved a measure of agreement to the effect that the pace of replacement varies inversely with relative capital scarcity. The greater the degree of relative capital s c a r c i t y - - t h e lower wages arc relative to revenues from e q u i p m e n t - - t h e

slower will be the pace of a b a n d o n m e n t . The less the degree of relative capital s c a r c i t y - the brisker is the pace of replacement. Trends in Soviet fixed asset a b a n d o n m e n t conform quite well with this model. The latter is useful in helping explain a d o w n w a r d trend in the

ABSTRACTS

pace of Soviet replacement since the mid1970's, an unwanted development during a period of mounting labor shortages. A governmental policy of contrived capital scarcity-designed to encourage economy in the use of capital r e s o u r c e s - - m a y have inadvertently contributed to the slowdown. Even if this policy is reversed, formidable systemic obstacles to accelerated replacement remain. A m o n g other things, rewards for

71

innovation, including replacement, are not generally commensurate with the risks such activity entails. The enormous Soviet military burden is a further constraining factor. Barring a fundamental overhaul of the Soviet e c o n o m y and a reordering of priorities, progress toward accelerated abandonment will be grudging, involving a "movement against the grain."

Comment DANIEL R. HALL, Trenton State College The discussant concurs with the author's conclusions and outlook statements in an excellent paper. The use of differing observations by Soviet and other economists interpreting the Russian scene from official Russian government documents and other sources underscores the difficulties in weighting trends and making comparisons. For example, it does not appear that official Russian figures include estimates of costs of only a small part of a machine/building when it is replaced. When using monetary figures in Russian

documents the problem of annual comparisons is complicated by the use of administrative prices and difficulties of interpreting replacement, plant expansion, and new construction in respect to scrappage. The use of shadow prices by Soviet planners and managers when making replacement decisions and management "judiciousness" at the individual firm level under Soviet conditions are clearly relevant (and noted) when trying to interpret Russian actions.

Comments About Recent Socialists' Efforts Regarding the French Steel Industry DANIEL R. HALL Trenton Stale College

The French socialist government's measures to increase real GNP, employment, and aid the steel industry since May 1981 have been expensive, both economically and politically. Initial efforts of the government in addition to nationalizing several industries and over ninety percent of the steel industry, involved increasing minimum wages, pensions, benefits for large families, housing allowances while decreasing the work week with weekly salaries/wages remaining at same level. Not only did these measures lead to rapid inflation, three devaluations of the franc, and high labor costs to firms, the

French steel industry's labor costs became a m o n g the highest of the industrial nations. With its nationalized steel industry suffering over $1.2 billion dollar loss in 1983, continued reduction of employment in steel sector, along with modernizing and restructuring of the industry, the government turned its back on its social policy. Although it increased its 1984 and 1985 subsidization of the industry to make it more efficient, it gave the steel industry until 1987 to balance its bookstwo years after France was to eliminate subsidization under European Economic Community agreements. By May 1984, only 23%

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of French citizens felt that the Socialists would run the economy successfully. President Mitterrand thereafter began new politi-

ca1 and non-socialistic economic ventures with the 1986 elections in mind.

The Economic Revolution in Revolutionary China L. B. WALLERSTE1N AND MOIRA O'RE1LLY

Montgomery College

A specter is hanging over the MarxistLeninist world today. That specter is capitalism in the Peoples Republic of China. Recently China launched a whole new series of economic moves. Among these are new major goals of the nation: Modernization in agriculture, industry, defense and science. It has also established major economic zones, encouraged foreign trade and investment, and decided to allow free market determination to establish prices and supply and demand to operate. In short, a para-capitalist market system. However, cracks have already ap-

peared in the new system in the form of foreign exchange loss, corruption, and flaws in the banking system, among others. At this time (August 1985) the jury is still out on the success or failure of the Chinese "economic revolution." We must remember that China had a cultural revolution that killed a whole generation of progress. As China has switched to the "economic revolution" for "pragmatic" reasons, she might, for the same reasons, switch back to a more orthodox MarxistLeninist economic system.

Improved Pedagogical Approach to Investment Multiplier ALAN HOCHSTE1N

Concordia University-Canada

Comment INDER P: NIJHAWAN, Fayetteville State Universio'

Hochstein's claim of improved pedagogical efficiency rests on the extension of block approach to investment multiplier. Pedagogical efficiency demands that given the education production function, the proposed teaching strategy should either maximize student understanding with given effort or minimize effort for the same amount of student understanding. In my opinion, Hochstein's block approach does neither. The block approach is clearly

inferior to the Keynesian cross both in terms of presentation of equilibrium nature of investment multiplier and highlighting the role of M P C / M P S . The author's claim that the block approach can be "easily" adapted to encompass other multipliers is exaggerated. Drawing unequal block sizes for different components of GNP and tracing their effect through the maze of income flows can hardly be considered pedagogically efficient.

Economic Education in the Soviet Union JOHN W. BAER

Anne Arundel Community College

The USSR graduates more economists than any other nation. In 1982 its universities and

institutes graduated about 111,000 economists. In 1982 its specialized secondary edu-

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cation institutions graduated about 246,000 paraprofessional "economists," who assist the Soviet professional economists and management personnel in record keeping, planning, etc. Some of these graduates would be called "business administration" graduates in the USA. In the early 1970's, the Soviet Union began a mass economic education program to train its work force in economics. Its work force is encouraged to take economics courses. Its management and professional people who are party members are expected to take economics courses. The quality of economic education in the

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USSR varies widely and has a large ideological component, especially in the universities. However, taking into consideration the contrast between soviet and American emphasis on the role of government and the market in the economy, the Soviet economic institutes graduate economists whose training probably compares favorably with the economic education of the typical American university and college economics graduate. The CPSU hope that economic education for the Soviet work force and party members would improve the economic growth rate of the USSR, but it apparently has had little effect.

Transitory Income and Economic Development: Trinidad and Tobago Case Study VITO B. LARA

University of the District of Columbia

This paper, based on Milton Friedman's Permanent Income Hypothesis, has three primary objectives: (a) to test the hypothesis that transitory income does not accelerate economic development; (b) to derive a scheme to transform transitory income into permanent income; and (c) to show that permanent income is the mechanism to foster economic development. The statistical results of the regression equations on data of Trinidad and Tobago for the period 1960-1982 affirmed the hypothesis that transitory income does not accelerate economic growth. The results, indeed, showed that permanent income was much more robust than transitory income in explaining economic growth. Four important lessons are learned from the case study. First,

an inflow of resources into a developing country is composed of a permanent component and a transitory component. Secondly, notwithstanding that transitory income does not accelerate economic development directly, this income can be transformed into permanent income for developing countries by the external linkage process. Thirdly, since economic development is a long run process, economic growth must be financed by permanent income. Fourthly, to determine whether a sharp increase in income is permanent or transitory, the government must set up an economic unit to monitor the changes in the relevant economic variables, including export revenues.

China's Agricultural Policy: An Evaluation STEVENS. CHANG

St. John's University

The main purpose of this paper is to provide a critical evaluation and some theoretical explanations of the failures and successes of China's agricultural policy since 1949. There are many fashions in economic

development strategies. Import substitution often leads to misallocation of resources because it can force a labor surplus economy into producing capital-intensive import substitutes. Export-led growth is not suitable for

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China where the aggregate demand for both consumer and industrial goods are so high that it is difficult to produce just for the sake of exporting without hurting some sectors of the economy which need the resources to just maintain a normal rate of growth. Other types of development strategies such as the Big Push as typified by the Great Leap Forward (G.L.F.) played havoc with the Chinese economy.

The best developmental strategy for China in the 1980's is the agricultural Demand-Led Industrialization ( A D L I ) as proposed by Professor Irma Adelman. ADLI has strong linkage effect, an equitable distributional effect and a favorable trade effect. The implementation of ADL1 can prevent China from chaotic unbalanced growth as was experienced in the period of G.L.F.

Potential Legal Pitfalls Facing State and Local Enterprise Zones MICHAEL ALLAN WOLF

Oklahoma City University

A wide range of state and local experimentation with tax, regulatory, and financing incentives directed toward urban (and rural) economic development and neighborhood revitalization has appeared during the last half decade, a variegated phenomenon generally labeled "enterprise zones." This paper, after quickly updating the EZ movement in the U.S. and abroad, locates and analyzes six significant areas in which current or potential zone programs may conflict with federal and state constitutional, common law, or legislative mandates. The list of possible legal barriers to smooth implementation of zone incentives is impressive. The potential pitfalls include: unconstitutional taxation and financing schemes, questionable preferential hiring requirements,

anti-competitive decision-making, equal protection violations, deregulatory complications, and eminent domain strictures. State common law and statutory doctrines favoring uniformity and restricting the power to grant exemptions lie in the path of innovative tax schemes. Deregulation appears much easier to propound than to produce. Federal legislation and constitutional provisions--anti-trust laws, and the equal protection privileges and immunities, and commerce clauses, for example--represent interests seemingly at odds with zone elements and/or practices. The paper juxtaposes those and other legal sanctions with the characteristics of EZ programs, and addresses the policies furthered or hindered by enforcing the law as it currently exists.

The Many Faces of Enterprise Zones: Some Transatlantic Comparisons MICHAEL SAVAGE AND JACK UNDERHILL

Housing and Urban Development

Comment STUART E. WE1NER, Federal Reserve Bank o f Kansas City

Underhill and Savage present a two-dimensional matrix classifying enterprise zone programs by primary orientation (capital, labor) and selectivity. Although the classification is useful, comparative evaluation would be facilitated even more by introducing a third

dimension--relative size of incentive. In considering the proper criterion for evaluation, the authors rightly note that zone growth that comes at the expense of non-zone or non-assisted businesses should be discounted.

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Three Approaches to Empirical Analysis of LDC's Debt Service Problems CHANGHEE CHAE

University of Minnesota

The paper investigates empirically the debt servicing aspect of LDC's debt problems from a short-run and a lender's perspective, taking three different approaches. The paper attempts to find out which economic variables are most important in determining debt servicing capacity. Three approaches are: (l) lender's "perceived risk" approach, (2) "classification" approach, and (3) "probability assignment" approach. For the first approach, our attention was focused on the analysis of interest rate differentials charged by lenders (in the Eurodollar market) to different LDC's. Our rationale is that in analyzing debt servicing capacity one can take the "perceived risk" approach. Interest rate differentials charged by the lenders reflect the perceived risk, which differs among LDC's. The "spread" (the interest rate over and above LABOR) was regressed on several key economic variables. Our rationale for the second approach is that

lenders are interested in classifying which LDC will or will not be in "trouble" in servicing debt. For this classification purpose, we applied a linear discriminant analysis. Our third approach is also to predict whether a developing country will or will not face debt servicing difficulties. But unlike the second approach the debt servicing problem of LDC is to be predicted on a probability scale (rather than countries being categorized in a binary classification). For this probability assignment, we applied the logit analysis. In all three approaches a debt service ratio which is adjusted for the input-content of exports is found to be the most significant explanatory variable in analyzing debt servicing capacity of LDC's. The paper concludes with suggestions and recommendations to solve the debt problems of LDC's in the coming years.

A Development Strategy for the West African Sahelo-Sudanian Region DAVID E. WEISENBORN

Georgia Southern College

The Sahelo-Sudanian region countries have weak economies dominated by subsistence agriculture. The region is semi-arid and has a history of periodic, prolonged droughts, due to the 1968-74 drought, food relief and aid funds poured into these countries during the mid to late 1970's. Because of inexperience of donors with West African problems and low absorptive capacity of the countries, most of the new programs operated at low efficiency levels. One bright spot was the implementation of several basic research projects. The results of the research and the author's experience in West Africa formed the basis for the following proposed strategy. The proposal is that the implicit strategy of much traditional

development programming--a substantial increase in yields and incomes for a limited number of people--be reversed. The aim should be to provide modest but meaningful income increases to large numbers of people. The initial phase involves the widest possible distribution of low producer-risk, low capital inputs using high levels of local participation. A second phase occurring simultaneously requires heavy investment in agricultural research and human resource development. The final phase continues the first two phases on more sophisticated levels emphasizing sequential staging and gradualism.

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Food Production Policy for Eastern Africa: A Case Study of Ethiopia SISAY ASEFA Western Michigan University

The study is based on data from representative farms in Chilalo Province, Central Ethiopia. Assuming a competitive environment norm, a linear programming method is used to explain and simulate the economic behavior of traditional farmers. The results show noticeable patterns in farmers adjustment to alternative production goals, technologies, and resource availability situations. For instance, the pursuit of multiple goals, forces farmers to adjust production structure to ensure the fulfillment of minimum food subsistence. On the other hand, the goal of strict income maximization, results in different resource allocation based on the type of technology, and resource availability. Study results also show the removal of the pre-revolution impediment of the feudal land tenure in Ethiopia, by the 1974-75 land reform has the potential of increasing farm income. However, the increase in farm income

and productivity would be realized and enhanced if and when an opportunity exists for flexible labor and financial markets. A relaxation of the rigidities produced during post-1974 period will permit a more efficient allocation of resources which should increase farm income, productivity, and reduce rural poverty. Finally, the results suggest that an agricultural policy designed to overcome the continuing food crisis and rural poverty should be based on increasing farm productivity that can be achieved by (a) providing adequate management information that will enable farmers to make a more optimal resource allocation, (b) developing labor intensive technology that is appropriate, (c) by providing necessary farm input subsidies, and (d) adopting favorable price policy to traditional farmers.

Water Management, Land Tenure and Agricultural Development in Pakistan DONALD E. PARKER AND DAVID BLANEY University of Denver

Comment DONG K. J EONG, North Carolina A &T State University The authors' conclusion, based on negative correlation between tenancy and water trading, is too farfetched and untenable. If tenants were allowed in contractual agreements a full use of land they should have also been able to exercise a full water trading power. The negative correlation between tenancy and water trading may be attributable to lack of information and/or their traditional lethargy. It should be pointed out that in developing countries agricultural extension service is considered sine-qua-non for a productivity increase. The authors fail to include this

important variable in their model specification. Authors should have employed some important interaction variables among explanatory variables. Besides, since data consist of tenants, owners, small farms, and large farms in their aggregate regression equation, introduction of a dummy variable to catch differential impact of those factors would have provided valuable information. As seen in regression results for tenants and owners in Table VI, only three variables out of fifteen explanatory variables are significant. This may be due to misspecification of

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the model. In view of presence of endogeneity in some of the variables, either a system of

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simultaneous-equation approach or a path analysis is suggested.

Private Savings Behavior and Estimation of Structural Change: The Case of Korea D E M E T R I O S S. G I A N N A R O S AND JAE HYUNG LEE

University of Hartford and Johns Hopkins University

This study analyzes the Korean private savings behavior, examines the interest ratesavings linkage and tests for structural change during the post-1979 period. A significant structural break is observed. Recently, a five-member mission of the IMF recommended that the Korean government increase the interest rates for bank deposits in order to stimulate private savings. The increased savings would sustain economic growth without excessive dependence on loans from abroad. It is implicitly suggested that the savings behavior change structurally and that it may have contributed to a lower rate of growth and a larger foreign debt. Thus, the savings model used in this study

is modified to allow for structural stability analysis. The econometric results show that structural break did occur around 1979 in the savings behavior. The analysis also reveals that permanent income has a positive and significant impact on savings, whereas both the nominal and real interest rates have a neutral direct effect. This seems to contradict the implied assumptions of the 1MF policy recommendations. Given the empirical results, it is more important for government policy makers to encourage and promote a more modern and efficient financial system and promote the development of the capital markets in order to stimulate private savings.

Estimates of Revenue Elasticity and Buoyancy in the Indian Economy VASUDEVA N. R. MU R TH Y

Creighton Universio,

In this paper an attempt was made to derive estimates of revenue elasticity and buoyancy in the Indian economy for the period, 1960-80. Employing a method suggested by C h a n d h r y [ I M F Staff Papers, 1979], statutory and legislative changes in tax structure were adjusted. The econometric

findings reveal that while direct taxes are income inelastic, indirect taxes and total tax revenue as a whole in the Indian economy are income elastic. These findings do have policy implications for equity, efficiency and public choice in the Indian economy.

A Critique on Taiwan's Economic Development THOMAS P. CHEN AND FU-TSENG LIU St. John's University and Nalional Taiwan University

Taiwan is one of the newly industrialized countries. It is very often mentioned as an example of a successful developing country in the post-war period. According to the official statistics, in the course of its development, Taiwan's economy maintained a moderate

inflation rate, a very low unemployment rate, and a remarkable record of income distribution. This paper gives a critical review on the basis and the governmental policy for the island's economic development. The authors argue that the favorable pre-war conditions,

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the industriousness and self-reliance characters of Taiwanese people and their cultural heritage, the effectiveness of the governmental policies, such as land reform, and import substitution and export promotion policies, and other external factors are the important factors that make the economic growth possible. The authors further argue that a more equalized income distribution in Taiwan is still yet to be achieved; that trading off its

living environment for its economic growth is a short sighted policy; and that for Taiwan's long term survival, at least equally important and urgent to economic growth is the development of the island's social and political systems. To modernize the social and political systems with the support of its economic strength should be the policy for Taiwan in the 1980's and on.

Comment SISAY ASEFA, Weswrn Michigan University First, it is not clear from the paper whether low food price policy, which was instrumental in fueling initial economic growth, was a result of increased market supply of farm commodities or due to a price control policy. Second, the paper fails to account for the effect of foreign investment on Taiwan's economic growth. Third, the distinction made in the paper between "economic development and development of an e c o n o m y " is better termed as the distinction between economic growth and

economic development, since the latter term includes the equity considerations the author's are getting at. Finally, since the paper's uniqueness and potential strength is in its recognition of the lag of social and political development behind economic growth, as well as the adverse effects of negative externalities of rapid econ o m i c g r o w t h , this section o f the paper should be e x p a n d e d and s u p p o r t e d with empirical data.

The So-Called Islamic Economic System in Tomorrow's World Economy IZZUD-DIN PAL University of Victoria- Canada

The main argument of the paper is that the Qur'anic injunctions concerning property, zakat and usury are aimed at promoting social justice, but they do not of themselves constitute an economic system. Also, a case has not been made for a separate discipline called Islamic economics. The issue is related to the question of the Islamic economics. The issue is related to the question of the Islamic state. The Muslim revivalists advocate the classical model based ont he early period of Islam in which the Islamic injunctions are to be reestablished as interpreted by early jurists and the traditionalist ulama. Pakistan claims to have established such a system by introducing zakat and interest-free

banking, in addition to the already existing laws of inheritance in the country. The paper suggests that it is doubtful whether the laws of inheritance have reduced inter-generational concentrations of wealth. Also, zakat in its traditional form is likely to distort the economic system of the country. The effect of interest-free banking will be unfavorable from the point of view of economic growth. A fuzzy c o m m o n index may still emerge to replace interest in order to determine allocation of resources. Ultimately, there may be a reexamination of the classical model of the Islamic economic system, or a further strengthening of the praetorian regime in the name of Islam.

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Trade and Direct Investment Linkage between Korea and Japan YOUN-SUK KIM Kean College of New Jersey

The rationality of Korea-Japan economic relationship is studied in the context of overlapping market segments and intraindustry trade and investment. In terms of factor endowments arguments, international trade is based on dissimilar cost structures that mainly derive from differences in factor endowments. However, the data show that the two countries engage in the simultaneous export and import of products belonging to the same industry, e.g., light manufacturing industry. A great deal of this intraindustry trade is intrafirm trade, having Japan's direct investment in Korea. Thus the economic structures of the two countries are becoming more similar. The trend shows a higher degree of the intraindustry trade by reducing the interindustry trade as Korea's industrialization expands. Nevertheless, the trade disequili-

brium between them must find a way out. Factor movement of Japan's capital and technology is contended as one of the alternatives to remedy the situation. Japan's direct investment in Korea plays a role of technology tutor resulting in expedited product life cycle processes. Korea should be receptive to Japan's investment by incorporating with its existing firms as joint ventures or partnership arrangements for mutual gains. At the same time, improvement engineering and positive income elasticity. Korea should heed market preference, quality, sales promotion and after service, and innovate its exports in accordance with the market trends in its trading partners. To facilitate market requirements, it could resort to strategic ventures including Japanese partners who possess technology and capital.

The Feasibility of the Caribbean Basin Initiative: The Jamaican Experience ROBERT E. LOONEY AND P.C. FREDERIKSEN Naval Postgraduate School

The U.S. Congress recently passed the Caribbean Basin Recovery Act to promote economic growth and alleviate the problems of high unemployment and large debt services in the Caribbean and Central America. The act implements the tax and trade portions of the President's Caribbean Basin Initiative (CBI) by eliminating tariffs on most imported products. This paper assesses the CBI and other U.S. economic policies with special reference to Jamaica. an econometric model is built to explain structural changes in the J a m a i c a n e c o n o m y in the 1970~s and 1980's, and to project values for certain macroeconomic variables to 1990. The pur-

pose of the model is to examine the impact of alternative growth rates of Jamaican exports on the Jamaican e c o n o m y and to compare the impact of an export-led model of development (presumably facilitated by the CBI) with alternative development strategies. The major conclusions are (a) the CBI by itself is unlikely to stem the decline of the Jamaican economy, (b) increased external capital flows to Jamaica are not as effective as an expansion of real exports in raising levels of personal consumption, and (c) if the CBI is to make a major impact in Jamaica, it must be in the context of a sustained U.S. recovery and renewed capital flows to Jamaica.

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Comment CHRISTOPHER J. WALLER, Indiana University

Looney and Fredriksen (LF) appraise the potential effects of the CBI on the Jamaican economy. This export led model of development is based on the idea of using public policy to promote private sector development of the export industry. However, LF essentially ignore the private sector in their analysis. Private sector expectations are not included in their macroeconomic model and thus do not enter into the simulation or control the-

ory exercises. As the rational expectations literature has shown, failing to include private sector expectations usually leads to dismal performances by simulation models when doing policy analysis. This may account for the rather bleak outcome of LF's analysis concerning the impact of the CBI. Ultimately the success of the CB1 will depend on the private sector's perception of U.S. commitment to the CBI.

Late Colonialism and Anti-Socialism: The United States and Latin America Since World War II WARREN S. GRAMM

Washington State University

Comment R. EDWARD CHATTERTON.Lock Haven University

Professor G r a m m ' s thesis is that the United States' estrangement from its Latin American neighbors is an inevitable result of its policies to conduct undeclared economic, political, and, on occasion, even military war on regimes which are, however defined, "left of center." His argument appears valid and his conclusions are persuasive. However, the formal soundness of his argument depends as well on the truth of his premises.

G r a m m states the most crucial premise late in the paper: "Social revolution in the Caribbean stems from internal problems, n o t Sovietsponsored subversion . . ." Other interpretations of the evidence might recognize more than one cause of these revolutions, and would thereby challenge the soundness of Gramm's argument. Nonetheless, Gramm's analysis is a valuable contribution to an important debate.

Workers Participation in the Management Decision Making Process NOEL A. BRATHWAITE

University of North Florida

Worker participation has been conceptualized as a path toward a future which holds the promise of the actualization of human potentialities, of h u m a n development and involvement. It also serves to integrate the public and private spheres of society; and can have a generally reinforcing effect on political stability and social consensus, [Dewitt, 1980] worker participation, and the crisis of liberal democracy. This strategy has been implemented with varying degrees of success in

some centrally planned economies, as well as in some market-directed economies. One of the goals of the Caribbean Basic Initiative (CBI) is to contribute to the economic growth of the region as well as to its social and political stability. CBI private sector managers who are committed not only to profit-making but also to the development of the h u m a n potential, can see the latter realized through workers' active participation in the management decision-making process. This

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strategy can be a t t e m p t e d first of all on an experimental basis using workers in nontraditional e x p o r t industries such as computer and electrical machinery components, sports equipment, food processing, and household chemicals ( A I D Highlights, No.2, 1984). The rationale for this a p p r o a c h is that such activities

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require higher levels of skills and competencies than the so-called t r a d i t i o n a l economic sector ( a g r i c u l t u r e / f o o d production and garment industry). Effective i m p l e m e n t a t i o n of worker participation in management decisionmaking can be instrumental in attaining the goals of the C a r i b b e a n Basin Initiative.

A Model for Forecasting the Transfer of Technology CHARLES DALE U.S. Army Research Institute

It has been hypothesized that the replacement dynamics of new technologies for old follows a logistic distribution. This paper updates some of the earlier w o r k that fitted logistic curves to the evolution of industrial technologies, and extends that work to the development of military weapons systems. The logistic curve works very well for describing the transfer of technology in several manufacturing industries such as steel. There are also surprisingly g o o d fits for several categories of electronic equipment.

The a p p l i c a t i o n of logistics curves to the transfer of technology in military systems is not as straightforward as their application to some other areas, because of recent radically changing military needs between wartime and peacetime. Nevertheless there is still evidence of a slow rate of technology transfer in the initial d e v e l o p m e n t stages of new systems, followed by a very rapid rate of change, which is in qualitative agreement with logistics curves.

Complex Simulations of Dynamic Empirical Systems: Experiments in Varying Contexts M. RAY PERRYMAN Baylor University

This p a p e r discusses a number of diverse issues involved in the development and application of regional econometric models. It reflects to a considerable degree the experiences of the a u t h o r over the past several years in the development, application, and extension of a large-scale system for the e c o n o m y of Texas. This system now includes long-term and short-term models of the state economy, a highly disaggregated t e c h n o l o g y sector model, several long-range and short-range models for m e t r o p o l i t a n areas within the state, n u m e r o u s geographic planning region models, energy usage models, etc. The paper focuses u p o n a n u m b e r of key issues, includ-

ing structural design, model linkage, and m o d e l testing. M o r e o v e r , the analysis presents discussions of a wide variety of simulation exercises. Specifically, the paper examines the results of detailed short-term and long-term baseline and alternative state forecasts, historical simulations, m e t r o p o l i t a n area projections, energy d e m a n d models under varying conditions, technology simulations, and cyclical sensitivity extrapolations. These results are utilized to illustrate the flexibility of the model and to demonstrate the viability of such a system in a wide variety of contexts. The results are readily amenable to generation and, thus, may be widely utilized.

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Tobin's Q, the Demand for Investment, and the Corporate Profit Taxation in Canada (1950-1983) HASSOUNA MOUSSA Acadia University-Canada

Using a dynamic optimization model we construct a demand of investment based on Tobin's Q. We estimated the corresponding equation using annual Canadian data for the period (1951-1983). Our results are very encouraging. They show that most of the reaction of investment to change in Q takes place after one year. A comparison of the Q series before and after tax reveals that corporation taxation policy over the last three decades has not changed the procyclical character of the Q series indicating that the

lag with which taxation policy acts is longer than expected. A complete analysis of the stabilization characteristics of the "current" taxation policy over the (1950-1983) period shows that despite its efforts to stabilize investment demand the policy cannot claim success. Its success lies mainly in its ability to increase investment in the long run. The problem is not that its proponents are remiss, the problem is that the policy does not operate in a vacuum.

Money, Economic Activity, and Causality: Empirical Evidence for Canada, 1957-1983 JONATHAN D. JONES Catholic University of America

Comment REINHARD NECK, University of Economics- Vienna, Austria In this paper the new-classical macroeconomic hypothesis that the conditional means of real economic variables are independent of money supply is tested for Canada. Using seemingly unrelated regressions to test WienerGranger causality for a simultaneous equations model, the author shows that both M-1 and M-2 are causal to real gross domestic product and the long-term real interest rate, suggesting a rejection of the classical policy

ineffectiveness hypothesis. Since monetary policy has been partly accommodating to fiscal policy and foreign influences, it might also be interesting to perform similar tests for these variables. Furthermore, a reconciliation of the result with W o g i n ' s [ J o u r n a l o f Monetary Economics, 6, 1980, 59-68] affirmative evidence for the classical proposition that anticipated monetary growth does not affect unemployment should be attempted.

A Coordinated Fiscal and Monetary Policy for the U.S. Economy LAWRENCE W. TAYLOR, JR. AND RUDEEN SMITH-TAYLOR Investment Analysis Company

A low-order macroeonometric model of the United States is used to study governmental control of inflation and unemployment. The model is developed using contributions attributed to Friedman, Okun, Phillips, Wingrove, Taylor and Smith-Taylor. A criti-

cal aspect of the study is the effect of using feedback variables to represent governmental control of disturbances to the economy. A comparison is made of (1) the monetary policy of Friedman, (2) the monetary and fiscal policies that have been followed by the Fed-

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eral Reserve Board since 1954, (3) the fiscal policy of balanced federal budgets, (4) the fiscal policy of Keynes, and (5) a coordinated discretionary fiscal and monetary policy which utilizes inflation, unemployment, production growth, and interest rates as feedback variables to actively stabilize the economy. The proposed policy is supported by study results showing greatly reduced excur-

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sions in unemployment and inflation. Modern control theory is seen to provide valuable assistance in synthesizing discretionary fiscal and monetary policy. Although much research remains to be done, the results have been quite encouraging. The use of the loworder macroeconomic models is also valuable for the insight provided by relating model elements directly to economic principles.

Comment LAWRENCE SCHWARTZ, Mathematica, Inc. This paper demonstrated that modern control theory is a useful tool to characterize the U.S. business cycle and to assess the stabilizing effects of alternative macroeconomic policies. Armed with characteristic roots and other mathematical statements of a linear, dynamic model of the United States economy, Taylor and Smith-Taylor show that monetary and fiscal policies would have to be coordinated, countercyclical, and adaptable

to feedbacks of economic performance--especially the unemployment r a t e - - t o improve stabilization. However, the underlying macroeconomic model adopted for this investigation is questionable: pieced together from various sources; too little attention paid to explanatory properties and econometric estimation. Nevertheless, such work challenges strategists to more systematically evaluate alternative policies to better balance the U.S. economy.

A Linear Systems Analysis of Business Cycles and Monetary Control R.C. WINGROVE Investment Analysis Company

Comment ANDREW W. BRAUNSTEIN, lona College This interesting paper applies classical linear-systems analysis methods to analyze the effects of monetary control on the business cycle. The evidence presented indicates that procyclical movements in the money supply tend to magnify fluctuations in the growth of real GNP. The author neatly uses his data to argue that, in order to ensure stabilization, future changes in the money supply should be timed to be countercyclical with respect to changes in the growth of real GNP. Of course, one should recognize that the

length of the policy time lag is crucial in determining whether such countercyclical change will indeed promote stabilization or, rather, will exacerbate output fluctuations. the author has shown elsewhere that a policy time lag of .2 years or less is optimal, whereas a lag of .4 to .6 years is too long. Does our only hope lie with the notion of rational expectations?? Obviously, we need something to counteract the lengthy time lags inherent to our system.

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Comment ROBERT V. BISHOP, Hershey Foods Corporation This p a p e r utilizes a systems d y n a m i c a p p r o a c h to examine the effects of m o n e t a r y policy on business activity. The methodological a p p r o a c h u n d e r t a k e n here involves no substantive use of economic theory but relies rather on various " f e e d b a c k l o o p s " and "impulse responses" to describe complex economic relationships. The central theme here asserts that there exists a "widely held view that the (business) cycles are excited by ran-

d o m inputs and are in a frequency range near the natural frequency of the market system" (p. 1). I seriously question how "widely held" that view is, and have no idea what "the natural frequency of the market system" is. If one wishes to gain meaningful insight into complex economic relationships, a firm basis in sound economic theory is a necessary precondition.

A Functional Form for Multivariate, State-Dependent Utility and Risk Aversion CATHERINE ELLIOTT College of William and Mary

This paper investigates the difficulty of analyzing a multivariate, state-dependent expected utility function, while at the same time, attempting to e m p l o y the definitions of risk aversion and risk neutrality generally associated with the traditional assumption of state-independent utility. Within the above framework, these standard definitions become mutually inconsistent, and for the most part, intractable. The tack taken in this paper, therefore, was first to specify precisely what we wanted risk aversion to infer a b o u t consumer behavior, and secondly, to investigate the form an expected utility function must take in order to be consistent with this defini-

tion. It was assumed that the intent of much of the theory of risk preference to date has been to equate risk aversion with th~ consumer's desire to equalize income net of expenditures on insured goods across states. It is then shown that the only utility function consistent with this definition is separable and state-independent in net income. This framework is especially relevant for researchers in health economics and optimal j o b r i s k s - - a state of health can form the basis for an individual's preferences over c o n s u m p t i o n possibilities, and because treatment is not fixed for each diagnosis, medical care is n o r m a l l y considered a separate choice variable.

Equilibrium Credit Rationing in an Open Investment Equity Model JAMES R. OSTAS AND KYOO H, KIM Bowling Green State University

Equilibrium credit rationing has generally been examined in fixed size investment models but rarely in open-end investment models. Some models in which open-end investment does take place are limited in that they consider only one hundred percent loan financing. Meanwhile, in those-open-end investment models allowing for equity financing a crucial assumption needed for an internal solution to

the d e b t / e q u i t y ratio is not made. In particular, previous open-end investment models examining the equilibrium credit rationing issue have assumed constant marginal o p p o r tunity costs of b o r r o w e r equity capital. This has resulted in the fact that needed secondorder conditions for an internal d e b t / e q u i t y equilibrium are not obtainable. By assuming increasing marginal o p p o r -

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tunity costs of borrower equity funds, along with conventional open-end investment model assumptions, the needed second-order conditions for an internal debt/equity ratio solution are obtained in this paper along with the generation of possibilities of equilibrium credit rationing. Whereas previous open-end credit rationing models with debt and equity financing assume, incorrectly, that needed

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second-order conditions existed, the credit rationing model developed in this paper is rigorously shown capable of yielding the needed second-order condition for an internal solution. A discussion is also presented in the paper regarding the nature and validity of the equilibrium credit rationing shown in the recent literature as possible.

Emergency Currency and the 1914 Crisis: Implications for Financial Deregulation D O N A L D R. WELLS AND L.S. SCRUGGS Memphis State University

The U.S. banking system, prior to establishment of the Fed, experienced recurring liquidity crises when depositors could not exchange their deposits for currency. These uniquely American crises occurred because the National Bank System was composed of many unit banks, required to hold a rigid cash reserve and prohibited from issuing banknotes in amount greater than their holdings of 2% government bonds. In 1873, 1893, and 1907, banks were forced to suspend cash payments to save their gold reserves. They issued an illegal currency, clearinghouse loan certificates, to settle balances because they could not exchange one liability for another (banknotes for deposits) while banks in other

countries did so without disturbing their cash reserves. After the 1907 panic, the Aldrich-Vreeland Act permitted national banks to form currency associations to issue a legal currency backed by other assets, such as commercial paper. No use was made of these provisions until August 1914, when Europe went to war, and after the Federal Reserve Act extended the provisions of Aldrich-Vreeland for one year. National banks were quickly able to satisfy the public's demand for currency, increasing the total outstanding by 11% in 12 weeks, proving there was no need for a central bank to increase the money base.

The Case for Financial Reform: Or, Was Irving Fisher Right After All? JOHN H. HOTSON University o f Waterloo - Canada

This paper maintains that the Keynesian loan financed solution to the great depression was much inferior to the Fisher-Simons 100% reserve solution. Had we abolished fractional reserve banking 50 years ago we should not now be faced with a Hobson's choice between renewed inflation and debt repudiation and financial collapse. The paper sets forth the characteristics of a sustainable financial system to demonstrate

the insustainability of a debt money system and attributes much of our inflation to the substitution of increasingly bad money, bank money, or BM, for good money, government money, or GM. Three alternative reforms are considered: Wilmeth's dual reserve requirement, 100% reserves, and the LET System experiments now taking place in British Columbia.

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Comment MARK L. LADENSON, Michigan Slate University Although Hotson invokes Irving Fisher's memory to argue for 100% bank reserves, his analysis and prescriptions would cause Fisher to stir in his grave. Fisher sought stability through exclusive use of c o m m o d i t y money. He would ridicule the notion of achieving stability through exclusive use of governmental f i a t money. Furthermore, Hotson ignores

Fisher's distinction between nominal and real interest rates. While nominal rates set records in the past decade, realized real rates were near or below zero, providing strong incentives for everyone, not just Hotson's rentiers, to engage in an orgy of debt-financed speculation.

Central Banking Thought in the 1950's: Anglo-American Comparisons, Internal and External Histories NANCY J. WULWICK Le Moyne College Analyzing the evidence of the American and English monetary authorities presented to the Radcliffe Committee, this essay contrasts the concept of money, theory of a monetary e c o n o m y and technical operations of monetary policy in the two countries during the 1950's. Much consistency appeared between the theoretical and operational aspects of the respective systems: it made sense to analyze the Federal Reserve System in terms of a neoclassical synthesis; why the

English had their discount mechanism and bank credit control was comprehensible, as Paul Samuelson has said, in the framework of Keynes' 'Model T version.' Yet, could each monetary system have been described using the other's theoretical framework? What was the interaction between external history and economic analysis in the Radcliffe evidence? In concluding, the essay poses answers to these questions.

The Impact of Money Market Deposit Accounts on the Allocation of Household Liquid Assets MARTIN FLEMING Cahners Economics

Comment WILLIAM JACKSON, Congressional Research Service This analysis of how money market deposit accounts affect deposit growth is well done, and carries broader implications. Commercial banks will survive the future scramble for funding. In the bank time and savings deposit equation, interindustry competition is not significant. But banks must watch their checkable deposits; interest incentives to flee household M-1 are significant in that equation. Savings institutions' deposit competitors

are essentially money market mutual funds. Competition between them is significant, confirming the general belief. The money market deposit account variable demonstrates dominance of federally insured deregulated savings institution deposits, over non-insured money fund balances. Yet looking ahead, if F S L I C ' s financial health worsens, then savings and loan associations could lose public confid e n c e - a n d deposits once again.

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Bank Performance and Market Concentration: The United States and Canada P H I L I P F. B A R T H O L O M E W

University of Michigan-Dearborn

There is an extensive literature in the field of commercial bank structure having to do with the relationship between market concentration and commercial bank performance. It is hypothesized that increased concentration of banking markets leads to greater bank profitability. The evidence presented in the literature is both inconclusive and contradictory. The poor results obtained may be due to the use of poorly specified models; however, the studies have contributed greatly to the understanding of bank behavior in that related subsequent issues have been addressed. Thus, the methods employed may be useful in addressing related issues.

Few studies have examined the relationship for other than U.S. banks, and fewer still have attempted cross-country comparisons. This paper examines the relationship based upon 1983 data for the 50 largest U.S. and 6 largest Canadian banking concerns. These two countries have very similar banking industries, but quite different levels of national market concentration. The results of the estimations are only preliminary. Only the variables accounting for the number of branch offices (which negatively affect profit rates) and nationality (Canadian banks were estimated to be more profitable than U.S. banks) showed any significance.

The Current Significance of the New Deal LEON H. KEYSERLING

Conference on Economic Progress

The Congress, President, and media are in unreflective frenzy about the deficit in the Federal Budget. This spawns neglect of problems more important than the budget. Reason and long experience dictate that the budget is merely one i n s t r u m e n t or m e a n s toward achieving, through optimum real economic growth, fuli production of goods and services, and distributing this product in accord with economic equilibrium or balance and focus upon priority needs. The cost of national policy aberrations during 1953-1984 has been a gap between actual and reasonable potential GNP aggregating about 19.5 trillion 1984 dollars, and a gap between actual employment and reasonably full employment aggregated 118.2 million years. To remove this gap by 1990, national policy must learn from past experience; enlarge rather than diminish the role of the Federal Government; set the goal of 4 percent overall

unemployment (3 percent for adults) by 1990, instead of regarding 6 or 7 percent as "full"; treat economic progress and social justice as mutually reinforcing instead of in conflict; restore economic equilibrium or balance and social justice by increasing domestic federal spending, meeting needed defense requirements, and restructuring taxation in a progressive direction; and recognize that the e c o n o m y takes priority over the budget. Instead of attempting the failed "trade-off" between unemployment and inflation, national policy should honor the conclusive empirical evidence that price stability has been and can be achieved only t h r o u g h healthy economic performance. The President and the Congress should compel the Federal Reserve to reverse the chronic trend toward excessively tight money and high interest rates.

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International Investment Implications of U.S. Tax Reform LAURENCEJ. MAUER

St. John's University-New York

The three m a j o r tax reform p r o p o s a l s - Treasury II, the K e m p - K a s t e n F A S T bill, and the Bradley-Gephart F A I R b i l l - - a l l have in c o m m o n to repeal or drastically reduce the provisions for capital recovery in the present tax code. This paper examines how these proposed tax changes would affect international direct investment f l o w s - - b o t h U.S. direct investment a b r o a d and foreign direct investment in the United States. Direct investment flows have been ignored in other studies a t t e m p t i n g to assess the economic effects of the tax reform proposals. It is shown that changes in the capital recovery provisions affect business investment decisions in a direct

and significant manner, Focusing on the T r e a s u r y II proposal, it is seen that the aftertax cost of capital would rise for all but one capital asset class, as c o m p a r e d with treatment under the present tax code. Moreover, when c o m p a r e d internationally, the treatment under Treasury II would raise the cost of capital in the U.S. to be a m o n g the highest of the m a j o r industrial nations. Under current law, the after-tax cost of capital in the U.S. is the lowest in both the equipment and structures asset classes. Finally, estimates are provided as to the extent of j o b losses in the U.S. from adverse direct investment effects should the Treasury II tax proposal be adopted.

Comment M A I N . WOO, U.S. General Accounting Offi'ce

The 1981 Tax Act contained powerful investment incentives, such as the I T C / A C R S provisions, but few saving incentives. Consequently, to sustain the increase in investment that followed, it was necessary to i m p o r t large quantities of saving. By 1984, $100 billion of foreign saving was imported. Mauer's n a r r o w focus on the $20 billion direct foreign investment of this $100 billion inflow was not suitable for evaluating the effects of the I T C / A C R S on domestic investment and on jobs. Mauer concluded that these tax incentives for investment should be retained; or

else, over a million U.S. jobs would be lost. However, if the I T C / A C R S provisions are repealed, better use of existing capital would follow a reallocation of capital out of the currently subsidized industry such as housing into more productive uses. Because other features of the tax reform proposal would leave more after-tax income in the hands of individuals, supporting an increase in household saving and thus investment. The total investment flow over the long-term would not be adversely affected.

The Budget Deficit Debate: A Review of the Recent Empirical Studies DEMETRIOS S. GIANNAROS AND BHARAT R. KOLLURI

University of Hartford

This study presented a review of some i m p o r t a n t empirical studies, including some of our own, on the controversial issue of the budget-deficit interest rate linkage. The popular belief is that higher deficits cause higher interest rates. However, some economists state

that there is no such cause and effect relat i o n s h i p while o t h e r s , in fact, s u g g e s t a depressing effect of budget deficits on interest rates. The conclusions reached from the fifteen studies reviewed here are mixed and c o n t r a d i c t o r y . D i f f e r e n c e s in d a t a bases,

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model specification, sample used, and variable definitions are some possible reasons for these varying conclusions. In our own studies, we attempted to improve upon these problems somewhat by examining the stability of the model and i n c o r p o r a t i n g the appropriate modifications, and testing the propositions on a multi-country basis. The conclusions arrived at seem to be somewhat conflicting. However, based on the overall results of our own studies, one can conclude that budget deficit/debt are not significant determinants of interest rates. Based on this review, more theoretical as well as empirical work is required before one

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attains strong convictions on the propositions regarding the budget deficit effects on interest rates. One, for example, could conduct a causality test between budget deficits and interest rates, apply other efficient estimation procedures and include other determinants of interest rates like net capital flows form abroad. More important, one should consider specifying a simultaneous larger scale econometric model in testing the budget deficit-interest rate linkage in order to take into account the simultaneity effects and the interrelationships that exist between the various money markets.

Comment JEAN K. TH1SEN, United Nations Economic Commission for Africa The empirical studies reviewed by the authors present conflicting results which do not support theoretical formulations. Data bases, model specifications, and variable definitions are the causes of empirical distortion on the budget deficit-interest rate linkage. The models presented consider the interest rate and budget deficit relationship within a closed economy framework. This does not represent reality. Fluctuation in the budget deficit and interest rate in the U.S. has a tremendous influence in the world economy, as the recent rise in the interest rate combined with the strong position in the U.S. dollar currency have brought about a high

capital inflow from abroad. Balance of payments variables should not be left out of the model specification if one wants to fully understand the workings of the overall U.S. economy and the relationship between interest rate and budget deficit. The authors should test their model using a pooling of annual or quarterly time series data across the industrialized countries as was done by Hutchinson and Pyle (1984). Further research should consider the budget deficit interest rate linkage within a simultaneous larger scale econometric model using a two-stage least squares method.

Economic Base Decline and City Government WILLIAM A. PEEK Niagara University

Comment JEAN K. THISEN, United Nations Economic Commission for Africa The author should have critically examined the literature mentioned in his introduction. Peek presented a fine analysis of both the theory and the evidence. However, why has there been a decline in the economic base (population, employment and income) in

Buffalo. Was it due to the decline in the productive activity of the city on which the economic base variables rely? What are the cause and effect relationships and the direction of each variable and factor? Was the decline in the city economic base

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due to c o m p e t i t i o n with other cities which offer better e m p l o y m e n t opportunities, income leisure, security, etc.? A cross-section analysis by the same a u t h o r for 39 other metr o p o l i t a n cities reached the same conclusion.

Where then had gone the p o p u l a t i o n variable? M o r e explanations are needed to back up the theory and the evidence presented in this paper.

Empirical Investigation of the Ohlin Theory ABBAS J. ROAYAEI Towson State University

A family of production functions has been devised to estimate and s u p p o r t trade flows theoretically. F o r reasons of c o m p u t a t i o n a l simplicity a modified C o b b - D o u g l a s production function shall be employed to demonstrate p r o b l e m s in the process of verification of Ohlinian t r a d e theory. Our perspective in estimating the production function shall focus on the p r o d u c t i o n function as a part of a larger macro system. The m a c r o system can be characterized as a "General P a t i n k i n Type System" which incorporates the modified Cobb-Douglas production function as a block recursive unit. The restriction applicable to the p r o d u c t i o n function are derived from the Heckscher-Ohlin assumptions, which exclude technological change form the p r o d u c t i o n

function. As a special case of the CES production the modified C o b b - D o u g l a s contains properties suitable for estimation by O L S and by TSLS. This model compensates its lack of elaboration by adding an input factor namely energy, which serves as a p r o x y for technological change. In examining the empirical findings under both OLS and T S L S one finds that Stern's hypothesis that, "There exists capital-skill c o m p l e m e n t a r i t y across all manufacturers in the U.S . . . . it appears that skilled workers and physical capital are complements and that unskilled workers and capital are substitutes," is valid.

The Effects of Oil Revenues on the Indonesian Economy: 1969-1983 CYRUS SASSANPOUR International Monetary Fund

Comment SAYEED KAYVAN,Towson State University The rationale underlying the model might indicate an extensive use of oil revenue as a key variable in the structural relationships. But the specification is somehow different. Oil revenue has been used as an exogenous variable in g o v e r n m e n t revenue identity; Then, through government expediture, affects other macro-variables. This specification is agreeable with the e c o n o m y of developing countries, where oil revenue is effective when injected to the

e c o n o m y by government. Besides, it increases the flexibility of the model for a d a p t a t i o n by other countries, like coffee-producers, copperproducers, etc. In case of declining oil revenue the model is not effective for forecasting. In, short-term, government expenditure is rigid downward. A n y reduction in oil revenue will be replaced by other means of financing. The model cannot read this rigidity and needs refinements.

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Autocorrelation Analysis of Foreign Exchange Data CHUAN-YU ED CHEN AND JAMES W. BECK Montclair State College

A p r e l i m i n a r y analysis of foreign exchange rate d a t a indicates that the a u t o c o r r e l a t i o n coefficients are consistently higher for weekly than for the daily data and the differential gets wider as the time period increases. M a n y econometric models were used to test particular hypotheses on exchange rate determination, to examine statistical properties of variables relating spot to forward rates, or to test the efficiency of foreign exchange in international financial markets. These studies were mostly based on time series data which would inevitably contain serial correlation in the

disturbance term and would in turn affect the efficiency of the estimates. One alternative to this p r o b l e m , especially for prediction purposes, is the use of time series analysis models. This paper examines the preliminary analysis results of exchange rate daily d a t a to see how the a u t o c o r r e l a t i o n s behave by varying the time period. The ultimate objective is to address the m o r e f u n d a m e n t a l issue of how the selection of the a p p r o p r i a t e time period would affect the results of the estimated forecasting models.

Pure Intermediate Goods and the Theory of Protection in the Presence of Foreign Capital A. WAHHAB KHANDKER University fo Wisconsin at La Crosse

Comment JOHN S. GAFAR, Long Island University This p a p e r assumes a d e b t o r country and a creditor country, two c o m m o d i t i e s - - a final c o m m o d i t y Y and an intermediate good X which is used to p r o d u c e good Y; well behaved p r o d u c t i o n functions, perfect competition, l a b o r is t a k e n to be mobile domestically while capital is assumed to be specific to both sectors (except that the capital used to p r o d u c e X is mobile internationally). The d e b t o r c o u n t r y i m p o r t s the final good, while the creditor c o u n t r y i m p o r t s the intermediate

good. The model reduces to two excess d e m a n d functions. The p a p e r argues that if the d e b t o r country imposes a tariff on its imports, Metzler's p a r a d o x will hold. This result is surprising given that partial derivatives of the excess d e m a n d functions with respect to the relevant v a r i a b l e s are a s s u m e d to be n e g a t i v e . In short, this a s s u m p t i o n not only ensures local stability, but it guarantees that the MarshallLerner condition is satisfied.

Japan's Trade Surplus and Redistribution of the World's Wealth KIE BOK LEE Skidmore College

P r o f o u n d changes are taking place in the global t r a d e surplus run up by J a p a n and a huge t r a d e deficit being accumulated by the U.S. This p a p e r a t t e m p t s to assess the nature and m a g n i t u d e of J a p a n ' s t r a d e and currentaccount surpluses with the U.S. and the rest

of the world over a period of the last 30 years. An analysis is then conducted with regard to the disposition of funds generated by J a p a n ' s c u r r e n t - a c c o u n t balance in order to appraise a d r a m a t i c redistribution of the world's wealth between J a p a n and the U.S.

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The study indicates that the Japanese tendency to adhere to the absolute rather than the comparative advantage trading principle will make it difficult for the world trading system to correct the growing trade gap between Japan and the rest of the world. There is no hard evidence to indicate that the

relative appreciation of the Japanese yen would substantially reduce the Japanese trade surplus. The conclusion of the paper is that unless Japan makes a deliberate effort to increase imports and slow the growth of her exports, the imbalance in trade will continue to grow in the future.

Intertemporal Trade Theory NADEEM NAQVI Central Michigan University

We extend the standard single period, two sector, two factor model of production and factor allocation to a two period setting, involving foreign debt, endogenous savings and endogenous investment. The model can then be readily compared with the two sector model used in trade theory. The intertemporal formulation of the model enables analysis of issues of domestic investment and the current account imbalance in the context of the pure theory of international trade. Using a two-sector, two-period intertemporal model of domestic investment and international trade in a small economy, we have derived the following results: (1) A rise in the propensity to save, at a constant productprice ratio, raises the output of the capital intensive good and lowers the output of the labor intensive good in the long run equili-

brium. This is a straightforward extension of the Rybczynski theorem to our model.; (2) A rise in the labor supply causes a rise in the rate of investment, and this may raise the output of both goods, thereby invalidating the Rybczynski theorem in this case. (3) Economic growth arising from a rise in the propensity to save may cause a deterioration in the current account surplus.; (4) Economic growth arising from a rise in the supply of labor normally causes a deteribration in the current account surplus. The inclusion of intertemporal decision making by the agents in the economy enriches the standard two-sector trade model considerably, and manages to free trade theory from its bondage to treatment of economies that save and invest nothing, and suffer no imbalance in their current accounts.

How an Import Surcharge Would Affect U.S. Trade: An Elasticities Approach JOHN w. SUOMELAAND DONALDJ. ROUSSLANG U.S. International Trade Commission

Comment HAMID BELADI, Central Michigan University In this paper the authors examine the trade effects of a 20 percent import surcharge on detailed industry categories. In doing so, they identify the U.S. industries that are most likely to benefit and those that are likely to be adversely affected by the surcharge. Introduction of domestic macroeconomic variables into the model does alter some of the conclu-

sions of other studies. In particular, they conclude that the industries that benefit from the surcharge would have been apparel (1/O Sector 18) with an improvement of $3.7 billion, Petroleum and Refining (I/O 31) with an improvement of $10.0 billion, and motor vehicles (l/O 59) with an improvement of $7.1 billion. The industries most adversely affected

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by the surcharge are Other Agricultural Products ( I / O 2) with a loss of $4.4 billion, Office M a c h i n e r y ( I / O 51) with a loss of $2.0

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billion and Aircraft and Parts ( I / O 60) with a loss of $3.1 billion.

Comment CHARLES DALE, U.S. Army Research Institute The a u t h o r s have applied a basic international t r a d e model to the t h o r n y question of how the U.S. balance of t r a d e would react to a 20 percent i m p o r t surcharge. They project a $21 billion i m p r o v e m e n t in the balance of t r a d e if there is no foreign retaliation, and a $19 billion i m p r o v e m e n t if there is retaliation.

The a u t h o r s ' contribution to the literature is timely and significant. They focus on individual industries and obtain greatly different results depending upon the size of the d e m a n d elasticities. Their empirical estimates will make a useful starting point for policy discussions.

U.S. Soybean Exports: Will a European Vegetable Tax Matter? C. PARR ROSSON, Ill, GEORGE C. DAVIS, AND MICHAEL D. HAMMIG Clemson University

F r o m 1975 to 1982, the E u r o p e a n Economic C o m m u n i t y (EC) i m p o r t e d 1790 of total U.S. production. This market may be threatened with the consideration of a vegetable oils tax in order to cushion agricultural b u d g e t a r y shocks caused by the accession of Spain and Portugal into the EC in 1986. In order to analyze this possibility, the EC s o y b e a n c o m p l e x was modelled with a simultaneous system of equations in which the U.S. and Brazil were considered the main

suppliers of soybeans and their products to the EC. The model estimated the exports for U.S. and Brazil to the EC with and without the tax. The upshot of the paper was that a vegetable oils tax of 75 ECU's per metric ton would cause U.S, soybean e x p o r t s to the EC to decline from 7,170 T M T to 7150 T M T , and Brazil's to decline from 701 T M T to 684 TMT.

The North-South Debate on Trade and Investment HAN XUAN VO Winthrop College

Progress on N o r t h - S o u t h negotiations on m a j o r trade and investment issues has generally been very slow and uneven, especially from the perspective of Third World's quest for a new international economic order. If viewed as a blueprint for a f u n d a m e n t a l restructuring of N o r t h - S o u t h economic relationships, the major objectives of the N I E O have not been achieved t h r o u g h negotiations. O P E C is an exception which should be correctly considered as a d i s r u p t i o n - - b y unilateral a c t i o n s - - r a t h e r than a s m o o t h stem in the N o r t h - S o u t h dialogue. However, if the

N I E O can be regarded as a prescription for an evolutionary rather than revolutionary process, then f a v o r a b l e changes t h r o u g h negotiations have occurred, slowly but inexorably. These changes came a b o u t mostly as a result of the new political environment since W o r l d W a r II but also as a consequence of increasing global integration and interdependence. Despite frustrations, multilateralism still remains a necessary alternative acceptable to both sides. The institutional r e s p o n s e a la G A T T , U N C T A D , and ( U N ) E C O S O C will continue to bring about

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marginal reliefs for the South, particularly the low-income countries. D o m e s t i c politics, e.g., special interests, protectionism, nationalism, etc., will remain the major stumbling

block for progress on central issues such as trade liberalization and code of conduct for transnational corporations.

Comment ALTON D. LAW, Western Maryland College Vo presents a worthwhile description of his topics, but economic analysis is lacking or spotty. Vo assesses the N o r t h - S o u t h debate in terms of "progress" toward goals of the N I E O supporter, without evaluating those goals in

economic terms. He also gives no evaluation whether "equity", " c o m p e n s a t i o n for past d a m a g e s " and "redistributive justice" are rigorously definable or whether c o m m o d i t y and capital controls are desirable.

Evaluation of Ch~inges in Direction of Trade of East Asian Nations LINWOOD T. GEIGER Eastern College

The p a p e r first analyzes the r e m a r k a b l e growth of the East Asian nation and reviews the success of export p r o m o t i o n strategy in recent years and the determinants of the direction of trade. Then changes in direction of trade statistics for Asia and for Hong Kong. Japan, Korea, Singapore and Taiwan for the period 1970 t h r o u g h 1984 are analyzed and trend lines are calculated. The data clearly d e m o n s t r a t e s a trend t o w a r d a concentration of trade a m o n g the Asian developing countries but a global trade strategy for Japan. The share of Asian L D C exports to Asian L D C countries increased from 14.8%

in 1970 to 26.8% in 1983, while the share of imports changed from 11.7% to 20%. On the other hand the share of Asian L D C exports to J a p a n fell from 21% in 1970 to 14.4% in 1983 and the i m p o r t share d r o p p e d from 27.5% to 20.8% during the same period. The reasons for these trends confirm some of the theories discussed in the paper. As the NIC's ( H o n g Kong, Korea, Singapore and Taiwan) experience increased per capita income they tend to shift production of labor intensive products to lower wage Asian nations, who desire more capital goods embodied with a p p r o p r i a t e technology from the NIC's.

The Case for Central Bank Intervention GARY M. QUINLIVAN Saint Vincent College

This paper demonstrates that central banks contributed, or at least could have contributed, to the stabilization of real exchange rates during the 1970's and 1980's by intervening more aggressively. To prove that central banks stabilized real exchange rates, it is necessary to show that intervention reduced their variability. The p r o o f is a p p r o a c h e d in two steps. First, causality in the sense of

Granger is shown to run from central bank intervention to the variance of the real exchange rate. Second, intervention is revealed to have reduced the variance of real exchange rates. The second part is impossible to empirically verify on a c o n t e m p o r a n e o u s basis because of feedback. F o r this reason c o n t e m p o r a n e o u s effects are examined by a cross comparison of six cases central bank

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intervention. N o n c o n t e m p o r a n e o u s effects are observed by scrutinizing the lagged relationship between the variance of the real exchange rate and the absolute value of central bank intervention. The p a p e r begins with a survey of the literature dealing with the necessity and effective-

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ness of central bank intervention, post 1973, in foreign exchange markets. The volatility and the consequences of the volatility of exchange rates are then discussed. The rest of the paper is devoted to empirically analyzing the effects of central bank intervention on exchange rate volatility.

An Investment Portfolio for OPEC: The LaGrangian Approach MOHAMMAD SHAAF Central State University

Comment STEVENS. CHANG, St. John's University An excellent exposition is m a d e in the L a G r a n g i a n a p p r o a c h to the investment portfolio of O P E C in the c o n t e x t of the M a r k o witz theory of portfolio management. Eight m a j o r currencies were chosen in the early 1970's to stabilize the oil revenues denominated mainly in weak U.S. dollars. Relative soft currencies were sold to acquire hard ones in m a x i m i z i n g the strength of the eightcurrency basket. The intention of the composite currency basket is to stabilize the purchasing power of

oil receipts in U.S. dollars. Perhaps, a brief discussion of the fundamentals of the purchasing power parity ( P P P ) t h e o r y of exchange rates can shed more light on the variation of exchange rates a m o n g the eight currencies. To explore the impact of interest rates on these currencies, it may be possible to a p p l y the interest rate parity ( I R P ) theory to explain why some currencies become soft and others become strong and overvalued as in the case of U.S. dollars.

A Strategic Approach to Situational Financial Forecasts DEBRA R. SHELDON AND ALAM HAMMAD George Washington University

Comment ROBERT C. WINDER, Salisbury State College This is a will-written and interesting paper. But one wonders what would be gained by "situational financial forecasts." It is true that such forecasts would "foster efficient allocation of capital" assuming they are accurate. There is reason to d o u b t however that they would be more accurate than independent and private forecasts. The a u t h o r s argue that variables which are uncertain, as o p p o s e d to risky, would be included in a "qualitative way." The feasibil-

ity of this is questionable. Would the forecast include changing patterns in international trade, changing tastes, class action lawsuits, the possibility of nuclear attack? It seems that many potentially significant variables could not be included in any i m p o r t a n t way. There is also the practical question of whether a firm could m a k e such a forecast without d a m a g i n g its competitive position vis-a-vis other firms. Resistance to this concept by corporations is understandable.

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Foreign Capital and Economic Integration: With Particular Reference to West Africa FRANCIS G. F A WU N D U

Baruch College

Comment JOHN S. GAFAR, Long Island University The author advocates the formation of an economic union for West Africa to reduce the region's "dependence" on the external market, aid the industrialization process, promote economic growth and structural transformation. He recommends a common currency, harmonization of fiscal incentives and mobility of resources within the union. This suggests that the recently independent countries would have to surrender part of their national sovereignty to some regional body.

Creation of an economic union could distort production along the lines of comparative costs, lead to inefficiencies, confer monopoly power to the import substituting industries, and move the terms of trade against domestic agriculture. Given that the production structures of these countries are complementary to each other, that they all have serious balance of payments difficulties and different political systems, the chance for a successful integration process is rather remote.

The Univariate Moving Window-Spectral Algorithm A. DENIS RIDLEY

Howard University

The primary difficulty encountered in time series analysis is the bias in parameter estimates. A new approach aimed at mitigating the effect of this bias is described. The spectral approach also offers the potential for better estimation of cyclical components in economic time series. When recombined by the Moving Window-Spectral Algorithm, the effect of cycles aligning, will produce a forecast of major turning points. Inherent in the method is the ability to induce stationarity in a time series. Quite often the effects of other

potentially explanatory variables are embedded in the history of the time series of interest. When those variables are unknown or unavailable, emphasis must be on efficient methods of extracting this embedded information from the time series. The information may be embedded as component cycles. This paper describes the mathematical model for the MWS algorithm. For purposes of illustration an example using a sample of data from an actual time series is used.

Executive Compensation and Performance of Utility Companies in the United States PRAVAT K. CHOUDHURYAND AMDETSIONKIDANE Howard University

The executive compensation in the U.S. reached a new peak during 1983 and 1984. While the (a) rate of unemployment remains high; and (b) the lower rate of inflation, the amount of compensation to various corpo-

rate reached a record high during the same period. In as much as many U.S. corporations sought refuge from foreign competition, and reductions in benefits and wages from their labor unions, then at the same time paid

ABSTRACTS

their top executives record high salary. This paper examines executive compensation and performance of utility companies in the U.S. and compares them with non-utility companies. The utility companies were chosen because of their unique responsibilities to consumers as well as their regulation by the government agencies and commissions. The study utilized "The Corporate Scoreboard" of The Business Week in which performance of companies on the basis of sales, profit, margin and earning per share, among other variables, was reported. Samples of the utility and non-utility companies were se-

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lected. The data was analyzed using statistical techniques including stepwise regression analysis. Among the conclusions reached are: (1) the average compensation of executives in utility companies is lower than that of executives in non-utility companies; (2) variation in executive compensation of utility companies is explained more by sales while in non-utility companies it is explained more by profit than by any other variable; and, (3) the variables given above do not fully explain the variation in executive compensation both in utility and non-utility companies.

Rate of Returns on Equity: The Measure of Electric Utility's Profitability

MOHAMMAD T. VAZIRI Howard University

The author of this research article studied profit realized by each of the largest investorowned electric utilities in the state of Maryland, Virginia and the District of Columbia for the last 10 years and compared the results with returns obtained by 6 large firms in the oil industry, as well as lending, savings and loan associations and large trucking companies during the same year. Each firm and each industry was analyzed by application of a return-to-equity model to determine if aver-

age returns overtime for the electric utility industries in Maryland, Virginia and the District of columbia were equal to, less than or greater than returns on equity for all or any segment of these other selected financial and non-financial industries. Among the principal findings of this study is that electric utility industry in these regions were greater than the profit reported by all other firms and industries tested.

Portfolio Management: An Alternative Method

H. C. LI Bryant College

Traditional portfolio theory assumes that a decision-maker has the ability to clearly define the states of nature, the probability associated with each state, the life span of an asset, and the return of an investment under each state. In reality, an investor is often required to form a portfolio in a fuzzy environment. The states of nature, their associated probabilities and returns, and maturity of assets are only vaguely defined. Fuzzy set theory, a new branch of mathematics, provides theorists a powerful tool to

model portfolio selection in a fuzzy environment. Portfolio attributes (e.g., risk factor, liquidity, and growth potential of assets; tax exposure, income needs, and life-cycle stage of the investor; socio-political considerations; personal feelings, etc.) and their measures (in terms of numerical or verbal quantifiers) can be combined to form a lattice or semilattice. This lattice structure is then mapped into another lattice which consists of expected and required returns. Portfolio selection may vary as the investor changes his evaluation

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criterion. The incorporation of vagueness into financial theory imposes a restriction on marginal analysis. Under uncertainty, a decision-maker

often does not respond to marginal changes. The proposed theory also raises the issue of the existence of economic behavior without equilibrium.

Firm Valuation Theory Under Uncertain Inflation LAWRENCEJ. HABER Indiana-Purdue University at Fort Wayne

Through use of the model of Chen [Southern E c o n o m i c Journal, 1980], this study derives an explicit model of firm valuation under uncertain inflation. By introducing a price-taking assumption, one finds that the value maximizing firm behaves as a profit maximizing firm would under certainty, the prices that the firm takes as given (the certainty equivalent prices) are the expected price minus adjustment to reflect the systematic risk associated with that price. The change in the value of the firm caused by a change in the uncertainty parameters of the model can be assessed by evaluating first the

effect that the change has upon the structure of the certainty equivalent prices and then, how the changed price structure affects the firm's value. For most of the parametric changes, the effect on firm value is readily ascertainable. Changes in market uncertainty or inflation uncertainty, however, change all certainty equivalent prices in a non-neutral manner. Even though certain empirical results may be used to simplify the results, the effect on firm value of changes in these parameters is ambiguous. This ambiguity is reflected in existing empirical studies.

Testing the 'Informational' Efficiency of the Option Market LADD M, KOCHMAN Nicholls State Universio'

Tests of stock market efficiency" have generally focused on how well new information is processed. Tests of option market efficiency, on the other hand, have centered on the correspondence between market and model prices. The difference in methodologies may account for the failure of option studies to achieve a clear consensus. This study tests the processing skill of option traders by buying CBOE call options every Monday during the five consecutive years beginning 1979 on those stocks ranked in the same-day issue of The Insiders' Chronicle among the fifteen largest insider purchases. While only slightly more than half

(53%) of the 644 calls purchased over the 260 weeks of the study finished up by at least one-eighth, positive changes so dominated negative ones that the average change for all calls was an impressive 17.2 percent. When holding periods were varied, one week emerged as the optimal length (R = 14.4%). The conclusions are twofold. One, the option market seems semi-strong-form inefficient as outsiders can earn excess returns by acting on (implied) information in The Insiders' Chronicle. Two, the usefulness of that information appears to have a limited life of about one week.

Comment SAAD G. A. EL-FAYOUMY,Norfolk State University The paper of Professor Kochman is a

commendable contribution of the literature

ABSTRACTS

and a very constructive piece of work. Following the study of Reilly-Gustavson [1985], the author intended to offer a second opinion on the informational efficiency of the option market. He carefully analyzed a sizeable body of data, examining the effect of The Insiders' Chronicle on the option prices for one, two, and four week holding periods. He showed

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that the greatest volatility occurred during the initial week following publication and concluded that the average appreciation of 4.91 per call seemed to lend strong support to the argument that the chronicle contains information not fully diffused. More research is needed in this area especially after the allowing of trading in stock futures.

The Married Working Woman: Her Value of Time and Its Impact on Shopping Behavior CLARE COMM AND ROBERT ENG Babson College This study examines the value of time to the married, working woman and homemaker. Contrary to the hypotheses of the authors, time is just as valuable to homemakers for their activities as it is to married working women. After ascertaining the value of time held by these individuals, then certain strategies were identified which are utilized particularly in their shopping to "preserve"

time. Some of these strategies include patronizing stores where lines move quickly and switching grocery stores if long waiting times are consistent at these stores. Lastly, other shopping strategies such as sharing of tasks with husbands were identified as fertile areas for future research regarding the impact of time on the shopping behavior particularly of the married, working woman.

The Identification of Consumer Demand for VCRs as a Basis for Formulating Strategy ALGIN B. KINGAND MICHAELLOIZIDES Christopher Newport College Within the last year there has been rapid sales growth within the VCR industry with a proliferation of firms offering VCR's within their product mix. The purpose of this study is to identify a profile of current VCR users and the intentions of future VCR users. The study investigates the consumer's awareness of VCR's, their attitudes toward VCR's and their perceived uses of VCRs in relation to various socio-economic variables. In addition, this study tries to identify and locate VCR's on the product life cycle continuum.

The data location area was restricted to an East Coast urban Standard Metropolitan Statistical Area (SMSA) of about 400,000. A questionnaire was developed and pretested. Based on a shopping intercept sample of 148 respondents, interviews were conducted in the spring of 1985. The SPSSX statistical package was employed in data analysis to determine if there were any significant differences based on the selected socio-economic variables of age, education, income, and sex.

Identification of Changing Consumer Attitudes Among Cigarette Smokers JOYCE P. KING AND MICHAELLOIZIDES Christopher Newport College In recent years the cigarette industry and

the cigarette smoker have been the subject of

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great controversy. In addition to developing a profile of the current cigarette smoker, the purpose of this study is to investigate the changing attitudes a m o n g cigarette smokers toward brands, types of cigarettes and innovative product offerings by the industry, i.e., generic and 25-pack cigarettes. The study findings are also analyzed by various socioeconomic variables. The data location area was restricted to an East Coast urban Standard Metropolitan

Statistical Area (SMSA) of about 400,000. A questionnaire was developed and pretested. Based on a shopping mall intercept sample of 172 respondents, interviews were conducted in the spring of 1985. The S P S S X statistic package was employed in data analysis to determine if there were any significant differences based on the socio-economic variables of race, sex, marital status, income, education, occupation, and age.

New Documents on the Origin of Banking in Northern Italy (1340-1351) ALVARO MART1NELLI

Appalachian State University

The oldest Genoese ledgers in double entry which have survived are the well known cartularies of the city of Genoa dating back to 1340. A law passed in 1327 stated that the books of the city had to be kept "after the manner of banks." New documents recently found in the State Archives of Genoa prove for the first time that the biggest bank in Genoa during the first half of the fourteenth century was in fact using double entry bookkeeping with the same features to be found in the books of the city. This bank belonged to Paschalis de Furneto, and the content of its ledgers is now partially known through an

extract drawn and signed by a former employee of the bank who, in a footnote to the manuscript, wrote: "Extracted, as above, from the aforementioned ledger by me, Johannes Bonus, former accountant of the aid bank, on request of Raffaelis de Furneto, son of the above-mentioned late Paschalis de Furneto, on December 22, 1351." Very likely this is the same bank lawmakers made reference to in the code of 1327, when the city of Genoa, "because of the many frauds," decided to switch to the new accounting method of double entry bookkeeping.

Comment MARSHALL M. FRIEDMAN, Norfolk State UniversiO'

Dr. Martinelli must be commended for his excellent research effort in discovering the origins of double entry bookkeeping in Italy. His presentation at the meeting provided more evidence than the paper on the fact that the word "banchi" should be translated as bank and not banks as claimed in the past.

Therefore the double entry system's origin can be traced to one bank rather than several banks. Professor Martinelli does not discuss the claim by some experts that the double entry system started in several Italian merchant states.

Trends in the Service Economy TERENCE A. BRADY

St. John's Universio,

A number of recent studies have explored

major changes taking place in the industrial

ABSTRACTS

structure of the U.S. economy. Some suggest that a process of de-industrialization is occurring as basic industry stagnates. There is a growing literature on high technology and services. This paper interprets newly generated statistical materials on growth trends in the service economy. Services are sectored into several classifications: 1) those services meeting the needs of producers and intermediate users (finance, business services, corporate law, etc.); and 2) services to final users (consumers) such as, retail trade, personal services and health. Recent literature empha-

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sizes the very rapid growth of the intermediate services and the sluggishness of personal services and the consumer sphere. While this paper finds some justification for this view on the basis of the data, new and unfamiliar materials are introduced (e.g., from the Department of Commerce, U.S. Travel Data Center) to show that large parts of the consumer sphere are also very dynamic: travel and tourism,health, parts of retailing. Finally, the paper identifies several key characteristics of mature capitalism and shows how they foster expansion in the tertiary sphere.

An Economic Analysis of Motor Carrier Deregulation in California N. GAIL FREY

California State University-Hayward

The California Public Utilities Commission (CPUC) began a program called deregulation of the California intrastate trucking industry in |980. A transition phase of deregulation was initiated with significant reductions in the degree and nature of rate regulation. Although this transition phase was expected to last less than two years, it is now in its fifth year. In 1984, the CPUC ordered an investigation into the transition program and various proposals for post-transition regulation of general freight. This investigation included a study by the CPUC to determine the effects of the transition phase and hearings to allow for the presentation of posttransition regulation proposals and supporting evidence. Despite their opposing view on

regulation, the California Manufacturers Association (CMA) and the California Trucking Association (CTA) presented a joint proposal. Dissatisfied with the compromises CTA had made, the Ad Hoc Truckload Carriers Committee submitted its own proposal. Although the CPUC Transportation Division staff had initially encouraged CMA and CTA to work together, it did not find the resulting proposal acceptable and submitted its own plan. This paper reviews pre-1980 regulation of California intrastate general freight, the transition phase of deregulation, the three proposals for post-transition regulation, and the potential economic effects of each proposal.

Comment J E F F R E Y L. J O R D A N , University of Georgia

Since most recent research on motor carrier regulation has been conducted regarding the national level, it is interesting to examine the experiences of state governments in attempts to deal with regulation for intrastate shipping. As a review piece, the article is thorough. As an economic analysis it requires empirical information.

The analysis would have benefited from a survey of the affected trucking groups and some discussion of the experiences of the unregulated agricultural shipping industry, would have given some weight to the analysis. In California, as elsewhere, the motor carrier industry generally supports rate regulation on the assumption that, left alone, rates would decline. The cases reviewed in this

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paper would have provided a g o o d beginning point to further explore the issues of "ruinous

competition."

Price Discrimination in a Deregulated Air Travel Marketplace JOSEPH P. SCHWIETERMAN United Airlines

The airline industry's fare structure has undergone dramatic change since passage of the Airline Deregulation Act of 1978. The hierarchical multi-tiered structure that has evolved cements the market through the use of travel restrictions, advance purchase requirements, and capacity controls. This structure discriminates between consumers according to demand elasticity and enables air carriers to realize considerably greater revenues than would be possible under a more conventional pricing scheme. Focusing on evolving trends in published airline tariffs, this paper explores the ability for firms to practice price discrimination in the deregulated marketplace. It considers how the removal of pricing controls and entry

regulation have affected price differentials between consumers groups. Published airline tariffs in 75 United States monopoly and n o n - m o n o p o l y markets are analyzed in six-month increments between 1979 and 1985. Conclusions are drawn as to whether the deregulated marketplace, as neoclassical pricing theory suggests, is encouraging the abandonment of elaborate price discrimination schemes in favor of a fare structure more closely reflecting marginal costs. The findings of the paper draw attention to a long-overlooked aspect of intercity air transportation, and contribute to our understanding of the long-range effects of regulatory reform.

The Adverse Effects of State Divorcement Laws: A Contracting Approach EDWARD C. GAILICK Federal Trade Commission

This study analyzes, from an economic perspective, state laws which prohibit an oil refiner from operating retail gasoline stations. These laws, known as "divorcement laws," force refiners who are vertically integrated downward into retailing either to negotiate franchise agreements with dealers to operate affected stations or to sell the stations outright. The major theoretical implication of this study is that in addition to raising price and reducing output, divorcement laws also reduce the mix of automotive services. The theory is that before divorcement, refiners chose to operate a station because the costs of an

employee operation were less than the costs of a franchise operation. Hence, if a company operation was successfully converted to a franchise operation after divorcement, the refiner must have been able to reduce the costs of franchising the station. Since a major franchising cost is the cost of assuring the contractual performance of the dealer, franchising costs can be reduced by reducing the performance of the dealer (i.e., by limiting the range of automotive services offered at the station). Consequently, by reducing the service mix, the refiner is able to sufficiently limit dealer discretion to make franchising a preferred alternative to selling the station.

ABSTRACTS

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Comment R I C H A R D E. NEEL, University of North Carolina at Charlotte

The paper makes a contribution ot the literature through its theoretical analysis of the effects on the output mix, or the range of services available at retail gasoline stations, which are caused by state divorcement laws. The analysis covers both the affected and the competing stations. There is a good analysis of the free-rider problem and of reverse cheating by the franchisor. The paper does not examine any possible advantages (or

benefits) which might result from state divorcement laws. The paper would have been even more valuable had confidentiality problems not precluded a description of the empirical tests of the theory and an evaluation of the empirical findings. Future research efforts might be directed to analyzing the effects of divorcement legislation when the state legislation is different form that which was enacted in Maryland.

The Upward Mobility of the Micro-Computer JEFFREY LIPPITT, SUDRO BROWN AND HAL GUEUTAL

Rensselaer Polytechnic Institute, University of Vermont and State University of New York at Albany

This paper reports the results of a questionnaire designed to gather information concerning the impact of the micro-computer revolution on practicing professional accountants. Three major research questions are addressed. First, to what extent are microcomputers used by accounting professionals. Second, does usage vary with level within the organizations. Third, if usage is related to organizational level, what factors are related to this use? Ninety-one percent of the accountants in the sample reported using computers in their everyday work. The average amount of time spent on micro-computers was about twelve percent of the workday. The unanimous response was that this usage was likely to

increase in the future. Results indicate that there is a weak, but statistically significant tendency for usage to decrease as level increases from senior staff to partner, ignoring the junior staff level. The junior staff level has very low reported usage relative to the other levels. Differences in usage between accountants is reasonably well explained by confidence, gender and experience. The senior people in the firms have the highest levels of confidence and experience with micros. Partners have the highest level of confidence and the second highest level of experience. The junior staff has the lowest level of both confidence and experience.

Comment BRUCE L. OLIVER,Rochester Institute of Technology

The questions surrounding the socio-psychological impacts of implementing emerging information processing technologies are vital success/failure determinants. In accounting, this is especially important because these technologies apply to core professional activities. The questionnaire represents a pilot study into the hierarchical useage of micro-corn-

puters by accounting professionals. The study's research methodology, particularly the self-reporting questionnaire, requires modification. Even as a pilot, the paper suggests potentially interesting and disturbing results. If sustained in subsequent efforts, the lack of usage and low confidence of junior employees, may be indicative of serious educational failures.

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The weak, but statistically significant tendency for microcomputer useage to decrease as organizational level increases may prove important. Additional and revised questions

addressing these areas are suggested. The authors are encouraged to expand and extend their efforts.

Surviving the Information Revolution: The CPA and the CPU SUDRO BROWN,JEFFREY L1PPITTAND HAL GUETAL University of Vermont, Rensselaer Polytechnic Institute and State University of New York at Albany

During the last decade the micro-computer became an important tool in the business community. To examine the current and expected future usage of micro-computers by certified public accountants and their clients, a questionnaire survey was distributed to practicing public accountants. The analysis revealed that approximately 30 percent of the CPA's clients were using micro-computers for various accounting and finance related functions. Virtually all of the public accountants expect the client usage of micro-computers to increase in the future. Common public accountant tasks, such as financial statement and audit work paper preparation, were performed on a regular basis by about

30% of the public accountants. More sophisticated tasks, where the potential payoff is higher, were utilized on a regular basis by less than 20% of the accountants. The client usage of micro-computers has lead to a perceived decrease in the work load of public accountant for bookkeeping and write-up work. In other areas of public accounting, client micro-computer usage has not lead to a consistent perceived change in the work load of the public accountants, the micro-computer is being used by public accountants and their clients. The usage leads to a perceived reduction in work load for routine tasks. Future usage of micro-computers is likely to increase.

Making Rural Markets an Effective Instrument for Small Farms Development RAJENDRA PRASAD AND SURENDRA P. SINGH Bihar State Agricultural Marketing Board-India and Tennessee State University

The proper development of rural markets is probably the least attention paid aspect in many underdeveloped economies. The paper discusses the role of rural markets for small farmers development by surveying a potential rural market in Bihar, India. The survey of existing marketing system in the rural market confirms the popular view that rural markets do not operate efficiently in L.D.C.'s (Less Developed Countries). The survey further revealed that present infrastructural facilities at the market place were not adequate to remove inefficiency. Therefore, several essential physical requirements were proposed, and their cost estimates were determined. The

paper examined the benefits which may accrue to the economy from the investment. The establishment and maintenance of rural market center would approximately add gross benefits of about 3.25 percent of the value of total arrival each year to the economy. The estimated value of Internal Rate of Return (I.R.R.) indicates that the return to the economy would be at least 21 percent. Which is worthwhile to take up the project. Participation by small farmers would increase significantly and would provide gains of at least 1.50 percent of the total value of market arrivals. Also development of market would provide employment opportunities.

ABSTRACTS

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Using a Hedonic Price Function to Evaluate Retail Tomato Handling J E F F R E Y L. JORDAN, ROBERT L. SHEWFELT, STANLEY E. PRUSSIA AND A. V. A. RESSURECC1ON

University of Georgia

M a r g i n a l implicit prices for selected quality attributes that affect the price of t o m a t o e s at the retail level were estimated. Equations were specified and parameters were estimated to derive market determined implicit prices for l a b o r a t o r y and sensory panel quality characteristics. Quality changes were determined by measuring the quality factors when the t o m a t o e s were on the retail shelf, and at the consumer level. D a t a on t o m a t o e s moving t h r o u g h selected retail outlets during the spring of 1985 in Atlanta were collected. A unique feature of this p a p e r was the a d d i t i o n of a consumer-sensory panel evalua-

tion of t o m a t o quality characteristics. T o m a toes were evaluated for flavor, texture, firmness, shelf-life, and other quality characteristics related to consumer preference. These sensory panel evaluations were i n c o r p o r a t e d into a hedonic function using consumer prices as the dependent variable. The measure for firmness appeared to be the most i m p o r t a n t quality factor at the retail level. A one unit increase in firmness (correlated with shelf-life), will increase the price of a p o u n d of tomatoes by 2 cents. Consumers, however, l o o k for a red t o m a t o that is not as firm as desired by retail managers.

Debt-Free Agriculture PATRICK M A D D E N

Pennsylvania State University

A major challenge facing agricultural economists is to devise managerial strategies by which heavily indebted farms may become debt-free, and new entrants can begin farming without plunging into debt. Those farms having the least debt in relation to their asset value and profits are most likely to survive and prosper. The majority of A m e r i c a n farms were found to be debt-free, according to 1982 Census of Agriculture data on farmers reporting zero interest expense on their farming business. The highest incidence of debt-free farms was r e p o r t e d in eight of the southern states where more than 60 percent of the farms reported no interest expense in 1982. Likewise, high percentages of debt-free farms

were found a m o n g those with smaller acreages (68 percent of those with less t h a n 50 acres); those with small sales volume (71 percent of those with less than $10,000 gross sales); part-time farmers (61 percent of those reporting their principal occupation was other than farming); and the elderly (75 percent a m o n g farmers age 65 and older). F o r the U.S. as a whole, nearly a quarter of the farms with 2,000 or more acres were also free of debt, along with 10 percent of those reporting gross sales in excess of half a million dollars, and 22 percent of farmers age 25 to 34. Even a m o n g the 3,800 non-family corporate farms, 41 percent were debt free, c o m p a r e d with 52 percent of individual or family-owned farms.

Economic Changes and Developments on Small Farms, Maryland and U.S. JOHN W. WYSONG University of Maryland The geographical dispersion of the small farm p r o b l e m is global in extent but it has elicited a wide variety of national, regional

and local responses in terms of economic and social adjustments. Recent u p w a r d trends in n u m b e r s and sizes of small farms in M a r y -

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land and throughout the United States since 1974 were analyzed. Increases in small farm numbers and their economic viability as parttime farming activities are a direct result of higher off-farm employment opportunities and incomes in the U.S. The trend toward multiple job holding households has been particularly accentuated in Maryland and some other urban-oriented states because of the close proximity to large urban and suburban centers with increasing availability of jobs of a non-farm nature over time. The small farm sector in Maryland has changed from poultry dominating farm numbers in

1974, to tobacco farms in 1978, and livestock farms dominating since 1982. The reasons for the economic successes and failures underlying these changes in small farm sizes and types, together with some of the policy and programming implications of these trends in Maryland and U.S. agriculture in the future, will be useful to farm producers and government policy makers. Households residing on part-time farms are expected to continue to receive net economic and non-economic benefits to offset theoretical and assumed costs and disadvantages.

Changes in U.S. and Maryland Farm Product Sales Categories J O H N W. WYSONG AND H. DANIEL HOWAR

University of Maryland

Some major change have occurred in both the United States and Maryland farm product sales according to U.S. Agricultural Census categories from 1974 to 1982. Maryland, while a deficit, food-producing state, continues to rank in the top ten in poultry and tobacco leaf sales. Other agricultural product sales such as dairy, corn and soybeans have also continued to increase, and total farm product sales have reached over a billion dollars per year in the early 1980's in Maryland. Poultry has continued to increase relative to dairy products, hog and beef cattle sales to 36 percent of the state total since the 1950's. Poultry sales, primarily broilers, have increased on the Eastern Shore since 1940 which resulted in a decline of the Western Shore's share of total Maryland farm product

sales. This trend has stabilized during the 1970's and 1980's resulting in a 59 percent to 41 percent ratio of Eastern Shore to Western Shore farm product sales. Nationally, there has been a shift away from animal agriculture to crop production and sales between 1969 and 1982 as sales of beef, hogs and other livestock declined from 42 percent to 33 percent. Dairy accounted for 12 percent of sales in both periods, but poultry products, including eggs and broilers, declined from nine to seven percent. Feed crop sales increased from 28 to 36 percent. Fruits and nuts, vegetables, and horticultural specialties and greenhouse sales were four, three and one percent respectively of U.S. crop sales.

Econometric Evaluation of a Weekly Soybean Futures Price Model LAWRENCE J. HEITKEMPER AND J O H N W. WYSONG

Earth Satellite Corporation and University of Maryland

An economic model for soybeans was developed that showed skill and reliability in forecasting short-term commodity prices. The forecasting model specification was formulated on changes in expectations and supply of storage theory relating inventory levels to

price. Although market participants continuously formulate new expectations of price based on rational behavior, the participants actions are not perfect nor is the information costless. If a new model can be developed that outperforms the market as an estimator

ABSTRACTS

of prices in the future, then the market is not perfectly efficient. There were four key areas which could lead to improvements in the informational efficiency relating prices to present and expected inventory levels. First, the weather term can be moved from its degraded position as a r a n d o m shock by including an objective weather forecast in an expected production subsystem. Secondly, a model term can be added to predict the effects of foreign production. Thirdly, weekly use of soybeans can be evaluated as it relates to

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changes in expected ending stocks. Lastly, an auto-regressive approach can be added to evaluate the structural residuals and further reduce the error. The model developments of this study further support the importance of market expectations and the effect of expectation changes on prices. The results obtained indicate that there is a lag in discounting relevant market information. A methodology is provided for improving market efficiency through the proper evaluation of market information.

Toward a New World Oil Structure GEORGE C. GEORGIOU Towson State University

This essay has three objectives. First, it briefly identifies the underlying structural changes in the world oil market. Second, it attempts to delineate the costs and consequences of the resulting instability of the oil market. Finally, it assesses the prospects for energy stabilization through some form of oil dialogue between O P E C and the major oil consuming nations. First, the underlying trends in the world oil market are analyzed including: trends in crude oil production, energy demanded and consumption by fuel type, the potential staying power of oil producers, O P E C ' s push into downstream operation, the expansion of nonO P E C production, the increased volatility of the oil market, and the world's access to

crude. The resulting costs and consequences of this instability are then postulated on the basis of the most favorable scenario, i.e., falling oil prices. It is shown how the existing interdependent economic system can come unravelled at any number of points including: the Persian Gulf, the Industrial Countries, the International Banking System or the Third World. Finally, the prospects for energy stabilization through a new oil dialogue between oil consumers and oil producers is assessed through a review of past attempts at such a dialogue, the new impetus for a fresh attempt, and an evaluation of the prospects for success.

Measuring the Impact of Elasticities on Commodity Market Stability CHIN-WEI YANG AND WALTER C. LABYS Clarion University of Pennsylvania and West Virginia University

The impact of changing spatial price elasticities on the c o m m o d i t y consumptions, productions, and flows, to the best of our knowledge, has not been investigated either theoretically or empirically, In this paper, we first conduct the sensitivity analysis of the well-known S a m u e l s o n - T a k a y a m a spatial equilibrium model based on the Kuhn-Tucker

theorem. It can be shown that within the framework of spatially separated markets, the magnitude of the price elasticities is a satisfactory index of commodity stability. We then perform the experiment by systematically varying the demand, supply and transportation parameters. This simulation based on the estimated model reveals that the high

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value of the spatial price elasticities is indicative of dwindling economic activities in the

commodity markets.

Economic Exploitation of a Non-Renewals Resource with Random Discovery DAVID YEUNG AND C H A R LES P L O U R D E

Queen's University and York University

At the core of the analysis of exploitation of non-renewable resources is the well known Hotelling rule. This rule suggests that there will be an exponential growth path for the shadow rent of a non-renewable resource. This paper presents a generalization of the Hotelling rule by relaxing the assumption of inexhaustibility to the extent that discovery of new supply through exploration is allowed. However, the size of discovery is stochastic. The time paths of the shadow rent and market price are derived for centrally planned

economy, a monopoly, and a perfectly competitive market. The expected rate of growth of the shadow rent is equal to the discount rate. A discovery, which size is larger than the expected level would lead to a fall in the shadow rent relative to its expected path and vice versa. The derivation of a stochastic Hotelling rule allows producers to adjust the shadow rent in cases of unexpected outcomes. The movement of resource price is obtained using the relationship between the shadow rent and the producer's output.

Short and Long Term Resource Supply Elasticities in the Market System R A P H A E L SHEN

UniversiO' o f Detroit

Supply of a given mineral is a function of demand for its potential usefulness, cost of production and substitutability. It is the minerals' ability to perform specific functions that causes them to be demanded. T h r o u g h demand is called forth supply. Supply is inelastic in the short run. Years pass between the initial investment and the mineral's being in its eventual marketable form. Once an investment is made, production inelasticity materializes. Besides, new and more economic sites can no longer be as readily identified. A time lag caused by mining input-suppliers also needs be reckoned with. Finally, with increasing institutional impediments, investors are slower to respond to supply-increasing

policies. In the longer run, supply elasticity tends to increase due to the interplay of market forces and h u m a n rationality/ingenuity. With technological advances, the useful properties formerly found extractable only from one or a few of given minerals can now be found in an ever increasing number of others. Not only the quantity of such useful properties on the aggregate is enhanced, but superior quality, wider-range usefulness and higher potential value product from substitute sources likewise materialize over time. Apprehension over resource depletion due to short term supply inelasticity is academic in a market economy.

Changing Resource Usage in the International Oil Market KATHLEEN M. LANGLEY

Boston University

The relatively recent move into hydrocarbon-based industries, that is, into down-

stream oil industry activities, by oil-exporting countries--especially those located in the

ABSTRACTS

Arabian/Persian Gulf area--has important implications both for them and for oil importing industrialized countries. The entry of oilproducing states into markets for industrial goods is not likely to be without resistance from established producers as hydrocarbon based industries are high technology activities offering skilled employment opportunities-not easily replaced. The reasons why oil-producing countries were excluded from downstream activities in the past and the hazards likely to be encountered today in the attempt to capture the expected, but possibly, elusive 'value-added'

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in hydrocarbon industrialization are evaluated. The prospects for export refineries, natural gas exports and petrochemicals are explored. Marketing problems confront the oil producers and will probably be costly-both in open or disguised subsidies to the projects and in battling protectionist forces in the industrial world. Despite anticipated problems including the effects of product pricing on the crude oil market, the lure of capturing downstream markets proved to be irresistible to the oil producing states. In the long-run, however, national pride and economic profitability may converge.

The Secondary Labor Market Trap: Fact or Fiction? DAVID ROGERS

Le Moyne College

Ever since the concept of a dual labor market was first advanced, social scientists have devoted considerable effort to the investigation of certain related propositions. Of particular interest is the dualist contention that a set of jobs comprising the secondary sector can impede the subsequent mobility of an individual. While the described workings of this secondary market trap differ across authors, the basic conclusion is unambiguous: For a given individual, current secondary employment will increase (decrease) the probability of future secondary (primary) employment. Even though most researchers in this debate agree that an appropriate empirical test of the trap requires a panel set

of data, the bulk of work supporting the trap hypothesis is cross section in nature. The present effort analyzes the work histories of a sample of young men culled from the National Longitudinal survey tapes. In reproducing the approaches of previous authors, similar support for the notion of sector persistence is observed. However, when controls for unobservable individual-specific effects are introduced, all evidence of sector persistence is eliminated. This suggests that previous empirical support for the trap hypothesis may have been flawed by a spurious correlation between sector of employment and these unobservable effects.

Whatever Happened to the Full-Employment Unemployment Rate? CLIFFORD

B. D O N N

Le Moyne College

It has been widely noted that the rate of unemployment is successive periods of "full employment" has risen over the post-war period. The reasons for this phenomenon have been widely discussed but are not well understood. The most commonly cited explanations, those relating to changes in the demo-

graphic composition of the labor force and to changes in the level and availability of unemployment insurance benefits and other transfer payments can explain only less than half of the total change. It seems clear that demand side factors have also played a role in the increase. Aggregate analysis seems to confirm

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this hypothesis in particular suggesting that changes in the maximum taxable level of

income under that social security system have contributed to the rise.

Possibility Theory and the Nurse Shortage Paradox H. C. LI AND JOSEPH A. ILACQUA

Bryant College

Hospitals have faced a chronic shortage of registered nurses following the Second World War. The shortage has been coupled with decreases in real wages, a paradox which defies conventional analysis. Most studies use marginal analysis to explain the existence of nurse shortage. The proposed theory explains the paradox by applying the fuzzy set theory. Demand for nurses is derived from lattice or semilattice structures, which are constructed on the basis of nurse attributes and wages. Similarly, supply of nursing services is derived from such structures based upon employer attributes and wages. Because supply and demand are in the form of strips, their interaction form a fuzzy equilibrium, an area not pre-

cisely defined. The coexistence of chronic shortage and decrease in real wage is therefore explained by the presence of vagueness in human thinking. The sources of fuzziness include the vagueness of definitions, constraints, objective; the inadequacy of information; and the complexity of market mechanism. Beyond this, human psychology does not guarantee the willingness to obtain exact solutions in decisionmaking. Given the existence of supply and demand strips, the meaningfulness of marginal analysis and elasticity concept are in doubt. The presence of fuzziness also raises questions about the interpretation of regression results in empirical studies.

Comment WILLIAM MCNAUGHT, U.S. General Accounting Office Professors Li and Ilacqua have presented a paper which in the guise of addressing an interesting labor market--the market for nursing services--attacks the foundations of neoclassical economic theory. Putting aside my criticisms of their empirical work, I have two central criticisms of their argument that economic theory ignores the "fuzziness" is simply a manifestation of imperfect informa-

tion in the marketplace, a phenomenon analyzed extensively by George Stigler, Jerry Greene, Michael Rothchild, and others. Second, even if the authors were correct in their approach to "fuzziness," their theory is deficient in not specifying the incentives which guide market participants in their attempts to maximize their own welfare when confronted with "fuzzy" decisions.

The Speed of Adjustment of Employment in Irish Manufacturing DAVID J. SMYTH Wayne State University

The conventional approach to the analysis of short-run employment fluctuations uses a model in which desired employment is a function of output and actual employment is determined by a partial adjustment process. The speed of adjustment is taken to be con-

stant. The present paper shows how the adjustment speed may be made endogenous. The theoretical model derived is fitted to quarterly data for the Irish manufacturing sector. The ratio of non-wage labor costs to standard wage costs and the Ireland-United

ABSTRACTS

K i n g d o m u n e m p l o y m e n t rate differential plays a significant role in determining the

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speed of adjustment when e m p l o y m e n t is rising but not when it is failing.

Career Consequences for a Scientist of a Mistaken Research Project A R T H U R M. DIA MO N D , JR. Ohio State University

The extent to which a scientist's subsequent l a b o r market experience is effected by an isolated ex post " m i s t a k e " is not clear since the ex post fruitfulness of a scientist's research provides only a signal with noise of his future productivity. The aim of the current research is partly to develop the economic theory of scientific behavior, but mainly to learn what the stylized facts are u p o n which future t h e o r y should focus. F o r the present study, limited d a t a has been collected on over 400 scientists who either wrote on p o l y w a t e r o r else were members of the p o p u l a t i o n of scientists who could have written on polywater. M o r e detailed biographical

and professional d a t a has been obtained for a subsample of a b o u t 100 scientists from the larger sample. As measures of current l a b o r m a r k e t success we use n u m b e r ot citations received and separation from university employment. We find that the choice of polywater as a research project does adversely effect the n u m b e r of citations received by a scientist but does not have any measurable effect on the probability of separation from university e m p l o y m e n t . The evidence currently available does not s u p p o r t the hypothesis that the effect on the n u m b e r o f citations varies with the age of the scientist.

Decomposition of New Black/White Income Inequality Measures DONG K. JEONG North Carolina A & T State University

F r o m 1960 to 1981, the income gaps between black and white families have remained virtually unchanged. In 1960, the m e d i a n income of black families in 1981 constant dollars was $9,919, which a m o u n t s to 55 percent of the m e d i a n income of white families. The m e d i a n income of black families has steadily increased to $14,835 in 1975, which is 62 percent of white family income. However, it started sliding d o w n w a r d again to 56 percent of white family median income in 1981. This study develops an aggregate income inequality measure model that can readily be used to show the direction and the extent of overall i n t e r t e m p o r a l changes in determinants of racial i n c o m e gaps. The m o d e l is applied to estimate quantitatively structural changes

in socio-economic and d e m o g r a p h i c factors that affected income gaps between the two income g r o u p s in the past two decades. A set of causal index numbers is generated by means of a logarithmic decomposition technique to measure relative contributions of each factor in the d e t e r m i n a t i o n of prevailing racial income gaps. This study f o u n d that the d i s p r o p o r t i o n ately high incidences of female-headed families a m o n g blacks have exerted the greatest i m p a c t on racial income gaps. Other contributing factors include chronic high concent r a t i o n o f black families in the lower range of income scales, lower life expectancy of blacks, and low financial rewards to the educational a t t a i n m e n t of blacks.

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Comment NANCY A. WENTZLER, Office of Management and Budget In the absence of control for family composition over time, no clear conclusions can be drawn from this study. I am also suspicious of any conclusions regarding the effectiveness of the social programs of the 1960's when only aggregate median income is compared. M a n y of the programs of the 60's and 70's were directed to the provision of particular goods and services; hence, we should make comparisons when income-in-kind is included. The major objective of the study is to measure the relative contribution of var-

ious factors in the determination of prevailing income of racial groups. The author proceeds to develop these measures of contribution using aggregated data. This comparison and measurement should be made using disaggregated data for relatively homogeneous family groups. Use of aggregate estimates will result in a comparison of simply the net effect of many factors, only some of which are captured in aggregate measurements. A review of the literature is clearly necessary.

Right to Economic Security: The Antinomies of Public Policy NARAYAN VISWANATHAN AND NALINI VISWANATHAN A delphi University

The passage of the Social Security Act of 1935 is a historical landmark in the annals of public policy in the U.S. Representing as it did a unique amalgam of Keynesian theory and New Deal philosophy, the Social Security Act launched a new era of Federal activism on a broad front and transformed the relationship between the American people and their government. The Social Security Act clearly embodied the concept of economic security as a collective or part-collective g o o d available to all citizens as a basic h u m a n right or entitlement. The subsequent amendments to this Act enlarged the benefits structure and incorporated new benefits. Nevertheless, each time new amendments were added there was renewed debate about the extent to which the Federal government can or should intervene in the o p e r a t i o n s of the p r i v a t e s e c t o r

economy. The year 1985 represents the fiftieth anniversary of the inauguration of this public policy, but the underlying issue of whether economic security should be a public or private good is by no means fully resolved. More recently, confidence in the system has been battered by four years of intense debate over the financing of social security, its near insolvency in 1982 and proposals to freeze or restrict benefits. Is the provision of economic security as a collective good the appropriate goal of public policy? What are the appropriate tools or means to be used toward reaching this goal? This paper examines the antinomies of public policy that makes a satisfactory resolution of the issues implicit in these questions extremely difficult, perhaps even impossible.

International Migration of Labor When Information is Asymmetric STEVENS. CHANG St. John's University

In recent years, the assumptions of Ricardian doctrine of free trade, such as perfect information, free factor mobility, and fixed

technology and resources, have increasingly come under the scrutiny of many modern theorists. The assumption of free perfect infor-

ABSTRACTS

marion has been questioned by George Stigler [1961] and George Akerlof [1970]. Readers can see Michael Rothchild (1973) for a good survey. An asymmetry of information can be a factor encouraging out-migration ("braindrain") Kwok and Leland [1982]. One of the reasons for the brain drains from less developed countries (LDC's) is that employers in more developed countries (MDC's) can read the job market signals better than their counterparts in LDC's Michael Spence, [1973]. This paper argues that labor can become

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an inferior input in L D C ' s when their employers fail to understand the job market signals of the labor force. Such an asymmetry of information can lead to an under-utilization of labor in LDC's. Under such a situation, labor can be treated as an inferior input. If this occurs, LDC's face an upwardsloping demand curve for labor because labor is an inferior input Ferguson [1969]. As a consequence, the international labor market is unstable.

Competitive Rating in Workers' Compensation Insurance P R A D E E P GANGULY

Maryland Department of Economic and Community Development

Pricing of Workers' Compensation (WC) insurance has traditionally been a function of "cartel-type" rate setting, accompanied by "prior-approval" regulation. Competitive rating is achieved by abolishing the requirement that insurers adhere to the rates and rating systems of the bureau. The rating bureau is then authorized to provide risk classification, and can not include provisions for expenses, overhead, taxes or profits. The rating bureaus, as well as some large insurance carriers, argue that 'back-door' competition exists under administered pricing, that competitive rating would erode concen-

tration. This paper demonstrates that (1) free market forces ensure 'up-front' competition and economically efficient pricing, (2) the data base can be preserved, (3) predatory pricing, (4) there are no 'economies of size' apparent in the insurance industry, (5) competitive pricing is ideal for a 'homogeneous' line of insurance such as WC, (6) open competition brings smaller employers out of the residual market and into the open market, and (7) competitive pricing can significantly reduce employers' premiums. The experience in all of the nine competitive rating states substantiate these findings.

An Historical Account of the Unit Labor Cost Index KATHLEEN E. F R A N K S

U.S. Department of Labor

The most surprising change in the Unit Labor Cost (ULC) index occurred during the 1983-1984 economic recovery between 1983:1 and 1984:2 when there was no growth in unit labor costs. This behavior can be attributed to both institutional and monetary phenomena that developed during the preceding recession. During this period, persistent expectations of continued high inflation and unemployment eventually induced reductions in aggregate demand. Also, declines in both productivity and the competitive position of

major U.S. industries exerted downward pressure on production levels causing steady increases in the ULC, more layoffs, and u n e m p l o y m e n t . The excess labor supply coupled with expectations that the employment situation would worsen exerted a downward pressure on wages. Consequently, new union contract negotiations stressed job security and retraining provisions rather than wage increases. This was by far the most significant difference in the behavior of economic agents during this recession as compared with oth-

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ers. C o n c u r r e n t attempts by the F e d e r a l Reserve to control the money supply eventually caused interest rates to increase. W h e n

the recovery began, as inflation s h a r p l y declined so did the ULC.

A Model of the Influence of Consultants on National Labor Relations Board Elections THOMAS P. FRAZIER Institute for Defense Analyses

This p a p e r is a b o u t a significant and growing force in l a b o r - m a n a g e m e n t relations in the United States, hired by m a n a g e m e n t either to prevent unions f r o m gaining a foothold in their c o m p a n y or, in the case where the union is a l r e a d y present, to oust the i n c u m b e n t union. Specifically, this p a p e r examines the impact of these consultants on the o u t c o m e of National L a b o r Relations Board ( N L R B ) representational elections. In order to assess the impact of these consultants on the outcome of N L R B elections, a weighted least squares logit regression model was constructed to test the hypothesis that the presence of a m a n a g e m e n t consultant in a single union N L R B representational election would decrease the p r o b a b i l i t y of an election unit voting in favor of the union. The results of the model indicate that con-

sultants are responsible for a p p r o x i m a t e l y a 12 percentage p o i n t increase in the p r o b a b i l ity that the unit will vote in favor of the employer. If an election where the union won 50 percent of the vote with no consultant involved was conducted with all things remaining the same except that a consultant was now assumed to play a role in the management campaign, the estimated probability of the unit voting in f a v o r of the union would d r o p to 38 percent. A simulation was perf o r m e d to gauge the impact of consultants on N L R B elections held in 1979, 1980, and 1981. The results of the simulation suggest that if consultants had not been e m p l o y e d in any of the elections over the three-year period, union victories w o u l d have increased by 2,241. This would have meant an a d d i t i o n of a l m o s t a quarter of a million members.

Training for Employment Security and Personal Growth: The Communications Workers of America Approach RONNIE J. STRAW AND MARGARET L. HILTON Communications Workers of America

Permanent, structural u n e m p l o y m e n t appears to be increasing in the U.S. A b o u t 40 percent of workers displaced in the 1980 recession were still u n e m p l o y e d in J a n u a r y 1984. The C o m m u n i c a t i o n s W o r k e r s of America ( C W A ) , is a n a t i o n a l u n i o n r e p r e s e n t i n g a p p r o x i m a t e l y 650,000 workers, mostly in telecommunications. Divestiture and deregulation have m a d e these workers more vulnerable to displacement. C W A has r e s p o n d e d to this p r o b l e m by negotiating for j o i n t training a n d retraining programs. In 1983, A T & T agreed to fund

training to help C W A m e m b e r s qualify for p r o m o t i o n s and for new j o b s within the c o m p a n y when threatened by layoffs. Since divestiture, the training p r o g r a m s are being i m p l e m e n t e d by joining u n i o n - m a n a g e m e n t training committees at A T & T and the now-independent Bell companies. In one of the m o s t successful p r o g r a m s , with Northwestern Bell, 3400 or 26 percent of eligible C W A members are enrolled in counselling and training t h r o u g h the existing network of c o m m u n i t y colleges. O t h e r j o i n t t r a i n i n g p r o g r a m s emphasize home study a n d c o m p u ter aided instruction.

ABSTRACTS

The current training p r o g r a m s should be strengthened. Union leaders should be more involved in counselling; c l a s s r o o m training should be provided t h r o u g h local colleges;

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and retraining should be targeted to match each c o m p a n y ' s business objectives. Finally, b o t h displaced and active workers should be served.

Comment DANIEL R. HALL, Trenton State College The over-all a p p r o a c h and described plan of the CWA are excellent and illustrate enlightened cooperation between l a b o r and management. Discussant suggests state/federal governmental e m p l o y m e n t agencies be used in future agreements involving the j o b displacement training c o m p o n e n t (both cost-wise and counseling), particularly when c o m p a n y a n d / o r industry structural changes indicate that substantial decrease in staff will result. Costs of

personal and career development training and j o b displacement training for employees most likely to continue with c o m p a n y should be borne by the firm. Such t r a i n i n g / e d u c a t i o n activities should take place at or near work site and when possible (operation-wise) during regular working hours. Costs/activities of j o b d i s p l a c e m e n t t r a i n i n g for employees scheduled for t e r m i n a t i o n should involve government, firm, and employe6s with activities usually u n d e r t a k e n outside work hours.

Alternative Models for Valuing a Life RICHARD S. MARTIN University of Hartford

Economists are increasingly active in testifying as to the value of losses in death and disability cases. A c o m m o n element is the loss due to the destruction or i m p a i r m e n t of earning capacity. A variety of different models have been used to measure the value of the loss. This paper surveys, analyzes, and evaluates the most c o m m o n varieties of models. The first section of the p a p e r examines the criteria to be applied, adding those criteria which are c o m m o n to all economic models the considerations arising from the arena and

the a u d i e n c e - - a judge and jury. Models are characterized as follows: a) the use of constant as opposed to current dollars; b) the use of other algebraic offsets or cancellations as o p p o s e d to retention of full information; c) the stage in the calculations at which the discounting to present value occurs; and d) the treatment of risk by single-valued expectancies as opposed to the use of p r o b a bility distributions. The models are then cast against the criteria. F r o m the discussion a preferred modeltype emerges as best satisfying the criteria.

Child Support Awards: Differentials and Trends by Race and Marital Status ANDREA H. BELLER AND JOHN W. GRAHAM University of Illinois at Champaign- Urbana

The p u r p o s e of this p a p e r is to e x a m i n e differentials in the a w a r d of child support by race and marital status. It also evaluates the impact of the child s u p p o r t enforcement program, begun in 1975, on the incidence of

child s u p p o r t awards. The analysis is based u p o n d a t a from the 1979 and 1982 M a r ch/ April M a t c h Files of the Current Population Survey. According to these data, nevermarried mothers are significantly less likely

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than ever-mai-ried mothers to have a child support award but which of the never-married do cannot readily be explained by our model. Ever-disrupted black marriages were considerably less likely than non-black marriages to result in a child support award, but this has

been changing, especially since the passage of the child support enforcement program in 1975. Finally, we find that the value of neither new nor old awards is keeping up with the cost of living or with the increase in men's earnings.

Long-Run Impact of Certificate-of-Need and Section 1122 of the Social Security Act on Investment of Hospital Industry SAM MIRMIRAN1

Bryant College

Rapid growth of health care costs, and of hospital costs in particular, in the past three decades has alarmed the government prompting it to adopt cost containment strategies. Such regulations were implemented through Certificate-of-Need (CON) and Section 1122 of the Social Security Act (1122) at state and later on at federal government level. Using data on the hospital industry in the U.S. covering the period of 1968-1981, the regression analysis performed in this study tested the impact of CON & 1122 on the capital expansion of the industry. Focusing on the impact of regulatory variables, contrary to their objectives, the results of all series of regressions indicate that not only did they not restrict investments but also stimulated investments. Reasons for the failure of CON & I122 are: influence of hospital administrators on

regulatory agencies through exertion of political pressure and the threat of court and legislative process, anticipatory behavior of hospital administrators about regulatory forces, and provision of funds by the government to the industry. Two alternatives were suggested: promotion of competition through Health Maintenance Organizations and more stringent regulation of prospective reimbursement system. Neither the continued regulation of planning, use, reimbursement, and other components of health care process alone, nor the introduction and promotion of the competitive incentives in the market for health care alone can exert the needed controls. What is needed in such a market is a proper balance between competition and regulation with more effective links.

Market Power and the Economics of Discrimination W I L L I A M J. RIEBER

University of Wisconsin- Parkside

International trade models have been used to understand the effects of race and sex discrimination. Yet one feature of these models that is contrary to standard trade models is the assumption of only one commodity. A p r o b l e m with permitting more t h a n one commodity, however, is that race or sex discrimination, while leading to job segregation will not necessarily cause wage discrimination. In the present paper it is shown that introducing an imperfectly competitive market

structure into a standard two society (black and white) trade model can lead to job segregation and wage discrimination where there exists a taste for discrimination. Yet the implications of the present model are different from those models that suggest that firms with greater amounts of market power exercise more discrimination than competitive firms. Here all firms in the white society exhibit the same degree of discrimination: they refuse to hire blacks. Nevertheless, trade

ABSTRACTS

in c o m m o d i t i e s between whites and blacks precludes wage discrimination under perfect competition. However, introducing c o m m o d ity market m o n o p o l y power in the capital intensive i n d u s t r y in the white society causes

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the marginal rate of t r a n s f o r m a t i o n in production to differ between the white and black societies. This difference is the source of the wage discrimination.

An Innovative Strategy to Capital Formations in the U.S. Black Sub-Economy L. A. HUFF Pennsylvania State University

This p a p e r re-examines conventional theories and a p p r o a c h e s to the gap between black and white e c o n o m i c security that have been the analytical (and theoretical) basis for past federal policy. It includes a review of the current and p r o p o s e d "supply-side" a p p r o a c h to the alleviation of poverty in cities. An a t t e m p t is made to explain why past policies were inapplicable to the economic and income insecurity of the U.S. black-subeconomy. The description and characterization of black A m e r i c a as a labor-intensive s u b - e c o n o m y represents the essence of the critical assumption m a d e in this analysis. This basic assumption provides the b e n c h m a r k for suggesting that past policies have been inapplicable to the need to increase capital f o r m a t i o n in black A m e r i c a and to the need to e x p a n d the presence of a viable black business sector. This analysis develops an understanding, in m a c r o e c o n o m i c terms, of the economic state of the U.S. black s u b - e c o n o m y . A m o n g the causes attributed to the wide differences in personal income are the differences between peoples' native abilities, intelligence levels, education, training, and p r o p e r t y ownership.

M u c h of economists' and policy makers' theories, policies, and p r o g r a m s have been designed to address the s o c i a l / e m p l o y m e n t a n d / o r e m p l o y m e n t training needs of disadvantaged groups; especially as viable solutions to the "black socio-economic problem." But an analytical assessment of the critical variable; that is, the extent and impact of p r o p e r t y ownership by blacks in this relatively free enterprise system; is basic to any meaningful understanding (and the potential solving) of the economic plight of black America. Therefore, a critical assessment is m a d e of the extent of capital f o r m a t i o n in the U.S. black business sector. The policy r e c o m m e n d a t i o n made in this paper is that the existing m a r g i n a l black business sector organize into a centralized private sector planning unit(s) for the purposes of economic development (and greater profits). The black business sector is seen as central to economic progress in the black community, given the obvious a s s u m p t i o n that the free enterprise system is the theme of the U.S. economy.

Industrial and Market Structures Among African Americans in the U.S. Economy CLEVELAND A. CHANDLER Howard University

As a subnational economy, African Americans in the United States are earning income and entitlements at the rate of over $200 billion per year. Yet, the industrial and m a r k e t structures a m o n g African Americans do not

a l l o w s u b s t a n t i a l s t r e a m s of i n c o m e a n d expenditures to recycle in that e c o n o m y or to be capitalized as as part of its economic base. Hence, structural change of industries and markets a m o n g African Americans is a prime

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ATLANTIC ECONOMIC JOURNAL

prerequisite for movement of that subeconomy closer tO its potential in the U.S. economy and the rest of the world. Industrial organization, industry case studies, and interindustry economics are utilized as a conceptual and analytical framework in which to assess the current status of the subeconomy and to develop strategies for realizing its potential in selected industries and markets of the U.S. economy as a whole. The Black Church, considered as a part of the institutional industry of the subeconomy, and the program of the Congress of National Black Churches (CNBC) are analyzed in the framework mentioned above. However, when

a cross-section of businesses owned and operated by constituents of a local subeconomy were distributed by standard industry classification (SIC); it was found that CNBC programs will certainly bypass the business sector of the subeconomy. New firms, industries, and markets must be organized and established in the subeconomy, if projected economic uplift programs are to realize their intended purpose. Thus, enhancement of the business sector of the subeconomy, in diversified industries and markets, is essential for the kinds of initiatives by this sector that can feasibly match those on the part of other sectors of the subeconomy.

Services, High Technology Manufacturing and the U.S. System of Cities TERENCE A. BRADY

St. John's University

Over the past 20 years the U.S. economy has undergone a major structural transformation. this has involved retrogression in large parts of the manufacturing sector. On the other hand, services to business, such as finance, insurance, data processing, corporate law, etc. have become dynamic, leading edge activities. Some consumer services, e.g., tourism and health have become increasingly important. Outside the service sector, high technology manufacturing is a growth activity and a key component in the industrial transformation now underway. A fundamental question concerns which regions and cities stand to gain from the industrial re-organi-

zation. This paper examines the impact on new cities in the Sunbelt. Consumer services, such as, entertainment and motion pictures, tourism etc. are shown to be key basic activities in nine urban areas: Orlando (Disney World), Miami, Fort Lauderdale, Anaheim (Disneyland), Las Vegas etc. Six other center are shown to specialize in various services to business: Atlanta, Jacksonville, Dallas, Phoenix, etc. Finally, a case study of the Atlanta region uses regression analysis to show a relationship between employment growth in that area and growth in the basic part of the service sector.

Testing the City Rank-Size Distribution of Soviet Urban Systems JEAN MIRUCKI

University of Quebec at Montreal- Canada

This paper extends the analysis made by Harris (Cities of the Soviet Union, Chicago: Rand McNally and C o m p a n y , 1970) in checking the city rank-size distribution for the U.S.S.R. and its component republics for 1959.

Population census data for 1897, 1929, 1939, 1959, 1970 and 1979 were used for testing. Each census year was subgrouped into three categories: the five largest cities, the middle-sized cities (rank 6-50) and the smallest cities (rank higher than 50), in addition to

ABSTRACTS

the whole sample of observations. Results indicate that, after reaching some degree of primacy in 1926, slope values for the complete sample in 1979 are either close to or lower than those of the pre-Soviet era in 1897, The primate pattern of the largest cities group has reached a peak, by 1959 (-

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1.288) in the U.S.S.R., while the reverse trend was occurring in the Republic of Ukraine. Significant low slope values in the middle-sized cities group kept declining all along in the U.S.S.R. by 1979 (-0.987), due to a gradual movement towards generalized urbanization.

Rural-Urban Migration TAGHI RA MIN

William Patterson College

In recent years, growing attention has been focused on the problems and prospects of h u m a n movements which are settling in increased numbers in the major cities in the Middle East. The population in urban cities is increasing rapidly. Mortality is decreasing as more of the population lives in urban areas where medical facilities and living conditions are better. The birth rates do not show any indication of decrease, and no effort has been made by the government to keep down birth rate. The major urban centers are already too large and growing too rapidly relative to the rural areas, the 1976 census in Iran indicated that about 46.8 percent, over 15.7 million, of the total population lived in urban areas. The

corresponding figure for the 1966 census was 38 percent. This growth has been caused primarily by high rates of natural population increase, as well as by large scale migration from rural districts and smaller towns to large urban centers. Our purpose is to investigate the Interprovincial Migration in Iran for the 19661976 period. The model tested is of the "Push-Pull" stated in the form of a single equation. The main findings are: (1) The majority of migrants proceed only a short distance; (2) Employment and urbanization were highly important pull factors; (3) The major push factor for migrants was education.