Working Paper Series 2004:

Number	Author(s)	Title
0401	Daniel J. Henderson and Subal C. Kumbhakar	Public and Private Capital Productivity Puzzle: A Nonparametric Approach
0402	Daniel J. Henderson and Daniel L. Millimet	Environmental Regulation and U.S. State-Level Production
0403	Daniel J. Henderson and Valentin Zelenyuk	Testing for Catching-up: Statistical Analysis of DEA Efficiency Estimates
0404	Subal Kumbhakar and Hung-Jen Wang	Estimation of Technical and Allocative Inefficiency: A Primal System Approach
0405	Subal Kumbhakar, Byeong U. Park, Leopold Simar, and Efthymios G. Tsionas	Nonparametric Stochastic Frontiers: A Local Maximum Likelihood Approach
0406	Daniel J. Henderson and Aman Ullah	A Nonparametric Random Effects Estimator
0407	Daniel J. Henderson	A Nonparametric Examination of Capital-Skill Complementarity
0408	Neha Khanna and Duane Chapman	Weapons Trade and Petroleum Price Stability: Are Measures of Political and Economic Openness and Income Important?
0409	Christopher Hanes	The Rise and Fall of the Sliding Scale or Why Wages Aren’t Indexed to Product Prices
0410	Joseph H. Davis, Christopher Hanes, and Paul W. Rhode	Harvests and Business Cycles in Nineteenth-Century America
0411	Christopher Hanes	The Rise of Open-Mouth Operations and the Disappearance of the Borrowing Function in the United States
0412	Solomon W. Polachek	How the Human Capital Model Explains Why The Gender Wage Gap Narrowed
0413	Soo Kyeong Hwang and Solomon W. Polachek	Occupational Self-Selection and the Gender Wage Gap: Evidence From Korea and United States
0414	Solomon W. Polachek, and Jun (Jeff) Xiang	The Effects of Incomplete Employee Information On Wages: A Cross-Country Analysis With Special Reference to Foreign Worker In-migration
0415	Leo Turcotte, John Robst, Solomon Polachek	Medicaid Coverage and Medical Interventions During Pregnancy
0416	Kiril Tochkov	Interregional Transfers and the Smoothing of Provincial Expenditure in China
0417	Kiril Tochkov	Fiscal reforms, Output Fluctuations and the Cyclical Behavior of Net Transfers in China: Evidence from Province-level Panel Data
0418	Daniel J. Henderson and Daniel L. Millimet	Pollution Abatement Costs and Foreign Direct Investment Inflows to U.S. States: A Nonparametric Reassessment
0419	Duane Chapman and Neha Khanna	The Persian Gulf, Global Oil Resources, and International Security

Number:	0401
Authors:	Daniel J. Henderson and Subal C. Kumbhakar
Title:	Public and Private Capital Productivity Puzzle: A Nonparametric Approach
Abstract:	Is public expenditure productive? Is there a shortfall or excess in public capital investment? We address these old issues in the light of new econometric tools. It is argued that the Cobb-Douglas specification that ignores non-linearity inherent in the functional relationship of the production technology causes incorrect estimates of input elasticities. To avoid possible model misspecification, we use Li-Racine Gerneralized Kernel Estimation and propose the Robust Cross-Validation procedure in order to combat outliers affecting estimated bandwidths. These procedures are used to estimate the returns to private capital, employment, and public capital in Gross State Product from a panel of 48 states for 17 years. In contrast to previous studies, we find that the return to public capital is positive and significantly different from zero.
File:	WP0401.pdf

Number:	0402
Authors:	Daniel J. Henderson and Daniel L. Millimet
Title:	Environmental Regulation and U.S. State-Level Production
Abstract:	Using data from the U.S. over the period 1977-1986, we estimate the impact of environmental policy on state-level output using both parametric and nonparametric techniques. We find that while the added flexibility of the nonparametric approach yields much insight, the lack of a relationship between environmental regulation and output is quite robust.
File:	WP0402.pdf

Number:	0403
Authors:	Daniel J. Henderson and Valentin Zelenyuk
Title:	Testing for Catching-up: Statistical Analysis of DEA Efficiency Estimates
Abstract:	We use advances in DEA techniques to examine efficiency scores and investigate the issue of convergence/divergence in a cross-country analysis. Specifically, we take use of bootstrapping techniques to examine a data set of 52 developed and developing countries. We find that when using the standard DEA model the results are sometimes less than desirable. Further, we break the sample into the two groups to examine the two-club convergence phenomenon. We find that efficiency scores are significantly different between the two groups and that there is some evidence of convergence of efficiency scores within each group.
File:	WP0403.pdf

Number:	0404
Authors:	Subal Kumbhakar and Hung-Jen Wang
Title:	Estimation of Technical and Allocative Inefficiency: A Primal System Approach
Abstract:	The estimation of technical and allocative ine .ciency using a flexible (translog) cost system is found to be quite difficult (not yet solved satisfactorily), especially when both inefficiencies are random.In this paper we use the alternative primal system consisting of the production function (translog) and the first-order conditions of cost minimization.The estimation of the primal system is more straightforward and it enables us to estimate observation-specific technical and allocative inefficiency. The impact of technical and allocative ine .ciency on input demand and cost are also computed. We use panel data on steam-electric generating plants from the U.S.to estimate the model using both Cobb-Douglas and translog production functions.
File:	WP0404.pdf

Number:	0405
Authors:	Subal Kumbhakar, Byeong U. Park, Leopold Simar, and Efthymios G. Tsionas
Title:	Nonparametric Stochastic Frontiers: A Local Maximum Likelihood Approach
Abstract:	This paper proposes a nonparametric approach for stochastic frontier (SF) models based on local maximum likelihood techniques. The SF model is presented as encompassing some anchorage parametric model in a nonparametric way. First,we derive asymptotic properties of the estimator for the general case (local linear approxima- tions). Then the results are tailored to a SF model where the convoluted error term (efficiency plus noise) is the sum of an half normal and a normal random variable. The parametric anchorage model is a linear production function and an homoscedastic error term.The local approximation is thus local linear for the production function and local constant for the parameters of the error terms.The performance of our estimator is first established with a simulated data set and then with real data on milk production in Spanish dairy farms.The methods appear to be robust,numerically stable and particularly useful for investigating a production process and the derived efficiency scores.
File:	WP0405.pdf

Number:	0406
Authors:	Daniel J. Henderson and Aman Ullah
Title:	A Nonparametric Random Effects Estimator
Abstract:	This paper proposes feasible nonparametric random effects estimators. Specifically, we propose feasible versions of the two estimators in Lin and Carroll (2000) and a modified version of the random effects estimator in Ullah and Roy (1998). Further, the consistency properties of these estimators are established.
File:	WP0406.pdf

Number:	0407
Author:	Daniel J. Henderson
Title:	A Nonparametric Examination of Capital-Skill Complementarity
Abstract:	This paper uses nonparametric kernel methods to construct observation specific elasticities of substitution for a panel of 73 developed and developing countries to examine the capital-skill complementarity hypothesis. The exercise shows support of capital-skill complementarity when skilled labor is categorized according to one of the three lowest thresholds: some secondary education, completed primary education and attained some primary education. However, at the two highest thresholds: attained some college and completed secondary education, the elasticity of substitution between skilled labor and physical capital is often greater than that of unskilled labor and physical capital, possibly suggesting capital-skilled substitutability at high thresholds. In addition, the nonparametric approach also allows for observation specific estimates of elasticities of substitution which are found to vary significantly across countries, groups of countries and time periods.
File:	WP0407.pdf

Number:	0408
Authors:	Neha Khanna and Duane Chapman
Title:	Weapons Trade and Petroleum Price Stability: Are Measures of Political and Economic Openness and Income Important?
Abstract:	The stable oil prices since the mid 1980s can be described as a Nash equilibrium in which weapons trade and military policy play a crucial role. In this paper, we examine whether other economic factors, such as GNP per capita and the degree of income inequality, and political factors, such as the degree of political freedom and the occurrence of an armed conflict, significantly influence the pattern of weapons trade observed between 1989 and 1999. Contrary to our expectations, we find that most of these economic and political variables are not statistically significant and the positive association between weapons trade and trade in crude oil remains unaffected by the inclusion of these additional variables.
File:	WP0408.pdf

Number:	0409
Author:	Christopher Hanes
Title:	The Rise and Fall of the Sliding Scale or Why Wages Aren’t Indexed to Product Prices
Abstract:	Sliding scales - agreements between employers and unions that linked wage rates to product prices - were widespread in some industries, and tried in others, in Britain and the United States from the 1860s through the 1930s. I describe how sliding scales worked in practice and how they were viewed by contemporary employers, unionists and outside observers. I argue that sliding scales were not adopted for the reasons suggested by most theories of wage indexation, but rather in order to reduce the frequency of strikes in an institutional setting where there was no third-party enforcement of labor agreements. This can explain both the presence of sliding scales in the nineteenth and early-twentieth centuries, and the disappearance of sliding scales since the 1930s.
File:	WP0409.pdf

Number:	0410
Authors:	Joseph H. Davis, Christopher Hanes, and Paul W. Rhode
Title:	Harvests and Business Cycles in Nineteenth-Century America
Abstract:	From the late 1870s to the First World War, the size of the cotton harvest was strongly associated with fluctuations in the next year’s industrial output, accounting for most major cyclical peaks and troughs. The relation does not appear to hold for the wheat crop, or for the cotton crop in the antebellum period. We explore a variety of explanations for the pattern, both monetary and "real."
File:	WP0410.pdf

Number:	0411
Author:	Christopher Hanes
Title:	The Rise of Open-Mouth Operations and the Disappearance of the Borrowing Function in the United States
Abstract:	In the late 1980s, before the FOMC began to announce whether or not it had changed its target fed funds rate, it became apparent that changes in the target could be effected without adjustments to reserve supply or the discount rate, not only within the earlier days of a maintenance period but for the maintenance period as a whole. At the same time, the .borrowing function. - the relation between market overnight rates, the discount rate and the volume of discount-window borrowing - disappeared. I explain both developments as consequences of Federal Reserve discount-window lending practices that began in the 1920s, together with a decrease after the 1970s in the relative importance of discount borrowing by small banks. I show that data on discount borrowing by large versus small banks in interest-rate targeting periods before and after the 1980s are consistent with my explanation.
File:	WP0411.pdf

Number:	0412
Author:	Solomon W. Polachek
Title:	How the Human Capital Model Explains Why The Gender Wage Gap Narrowed
Abstract:	This paper explores secular changes in womens pay relative to mens pay. It shows how the human capital model predicts a smaller gender wage gap as male-female lifetime work expectations become more similar. The model explains why relative female wages rose almost unabated from 1890 to the early-1990s in the United States (with the exception of about 1940-1980), and why this relative wage growth tapered off since 1993. In addition to the US, the paper presents evidence from nine other countries using data gleaned from the Luxembourg Income Study (LIS).
File:	WP0412.pdf

Number:	0413
Authors:	Soo Kyeong Hwang, and Solomon W. Polachek
Title:	Occupational Self-Selection and the Gender Wage Gap: Evidence From Korea and United States
Abstract:	Men and women are sorted differently into jobs. Women comprise 46.5% of the US labor force, but only 9.9% of engineering are women. In contrast nursing is 92.8% female. This difference in occupational structure is called occupational segregation. Occupational segregation poses a number of questions. For example, is occupational segregation responsible for the gender wage gap? Do women entering these female dominated jobs receive low enough wages to bring down the mean earnings of all women? Would these women receive low wages even if they had entered male jobs? This paper examines occupational segregation’s role in explaining the gender wage gap. Specific ally, it tests whether the number of women incumbents in a job is negatively related to workers’ wages. Contrary to popular belief, our results indicate that the proportion of a job that is female does not lead to lower wages. After using the McFadden logit model to adjust for the probability a women enters a women’s job, we find women entering female jobs receive positive rewards, while men entering male jobs similarly receive higher wages. Thus women in women’s jobs do relatively better than women in men’s jobs, and men in men’s jobs do relatively better than men in women’s jobs. This means that the population sorts into jobs to maximize their wellbeing. The results are robust both in Korea and the US. The relatively advantageous position of women in female jobs is found to be associated with gendered comparative advantages in job specific skills. For this reason intervention in the job sorting process might have adverse unintended effects. Rather than raise women’s wages, women’s wages could go down. Similarly, rather than diminish men’s wages, men’s wages could go up.
File:	WP0413.pdf

Number:	0414
Authors:	Solomon W. Polachek, and Jun (Jeff) Xiang
Title:	The Effects of Incomplete Employee Information On Wages: A Cross-Country Analysis With Special Reference to Foreign Worker In-migration
Abstract:	In this paper, we define a tractable procedure to measure worker incomplete information in the labor market. The procedure, which makes use of earnings distribution skewness, is based on econometric frontier estimation techniques, and is consistent with search theory. We apply the technique to eleven countries over various years, and find that incomplete information leads workers to receive on average about 30-35% less pay than they otherwise would have earned, had they information on what each firm paid. Generally married men and women suffer less from incomplete information than the widowed or divorced, and singles suffer the most. Women suffer more from incomplete information than men. Schooling and labor market experience reduce these losses, but institutions within a country can reduce them, as well. For example, we find that workers in countries that strongly support unemployment insurance (UI) receive wages closer to their potential, so that doubling UI decreases incomplete information and results in 5% higher wages. A more dense population reduces search costs leading to less incomplete information. A more industrial economy disseminates wage information better, so that workers exhibit less incomplete information and higher wages. Finally, we find that foreign worker inflows increase incomplete information, and at the same time reduce average wage levels, at least in the short -run.
File:	WP0414.pdf

Number:	0415
Authors:	Leo Turcotte, John Robst, Solomon Polachek
Title:	Medicaid Coverage and Medical Interventions During Pregnancy
Abstract:	This paper extends prior research on the effect of Medicaid coverage on medical interventions during pregnancy (ultrasound) and birth (cesarean delivery, inducement, and fetal monitor). The data are from two sources: the New York State Vital Statistics (VS) matched infant birth-death file and the Statewide Planning and Research Cooperative System (SPARCS) file for 1993-1996. Medicaid coverage increases the likelihood of teens and adults receiving prenatal care relative to being uninsured. Overall, the effect of insurance type varies depending on whether the procedure is part of standard care (ultrasound and fetal monitor) or more likely to be elective (inducement and cesarean delivery). Insurance type has a greater effective for elective procedures than for procedures that are part of standard care.
Files:	WP0415.pdf, Tables.xls

Number:	0416
Author:	Kiril Tochkov
Title:	Interregional Transfers and the Smoothing of Provincial Expenditure in China
Abstract:	Provincial revenue in China is very volatile and revenue shocks would destabilize provincial expenditure unless they are buffered via markets or the fiscal system. This paper estimates the amount of expenditure smoothing across provinces in China provided by interregional net transfers over the 1952-2001 period. The findings indicate that net transfers minimize expenditure fluctuations by absorbing a very large fraction of province-specific revenue shocks. During the intensive phase of fiscal decentralization in the late 1980s and early 1990s the smoothing effect of net transfers declines. The cushioning properties of net transfers during this period are even weaker when extra-budgetary revenue is taken into account since it amplifies the volatility of total provincial revenue.
Files:	WP0416.pdf

Number:	0417
Author:	Kiril Tochkov
Title:	Fiscal reforms, Output Fluctuations and the Cyclical Behavior of Net Transfers in China: Evidence from Province-level Panel Data
Abstract:	The paper investigates the cyclical properties of interregional net transfers and their components in China over the 1952-2001 period. The findings indicate that net fiscal transfers from the central government to provinces are countercyclical and smooth idiosyncratic shocks to provincial income, but these properties differ across time and across regions. The stabilization effect is much stronger in rich provinces than in poor provinces. The acyclicality of net transfers declined rapidly since the introduction of fiscal decentralization measures in the 1970s, and the fiscal reform in 1994 did not reverse this trend. Countercyclical net transfers are determined by provincial revenue and expenditure both of which are procyclical. Revenue is more procyclical than expenditure due to the strong procyclical response of tax revenue. Capital construction spending, the largest component of provincial expenditure, is only weakly procyclical.
Files:	WP0417.pdf

Number:	0418
Authors:	Daniel J. Henderson and Daniel L. Millimet
Title:	Pollution Abatement Costs and Foreign Direct Investment Inflows to U.S. States: A Nonparametric Reassessment
Abstract:	Keller and Levinson (2002) utilize state-level panel data on inflows of foreign direct investment along with an innovative measure of relative pollution abatement costs to assess the impact of environmental stringency on capital flows. Using standard parametric panel data models, the authors find moderate evidence that capital flows are sensitive to abatement costs. In this paper, we assess the robustness of this conclusion using recently developed nonparametric methods. The nonparametric approach reveals that (i) some of the parametric results are not robust, (ii) the impact of relative abatement costs is far from uniform across states, and is generally of smaller magnitude than suggested by the parametric approach.
File:	WP0418.pdf

Number:	0419
Authors:	Duane Chapman and Neha Khanna
Title:	The Persian Gulf, Global Oil Resources, and International Security
Abstract:	This paper analyzes the interaction of politics and military security in global oil markets since the 1980s. We outline the historical evolution of the pricing structure that maintained a stable world oil market. We argue that the security framework underlying this pricing structure relied on a trade-off between price stability and military security that has contributed to growing instability in individual Persian Gulf countries, and the rise of Al Qaeda and similar groups. We conclude the paper with a discussion of the pros and cons of three possible policy approaches to this dilemma a “hands-off” approach that is similar to the policy that prevailed between 1973 and 1990, a unilateral security system organized and led by the United States, and an international security framework.
File:	WP0419.pdf

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