David L. Ryan

Imposing local concavity in the translog and generalized Leontief cost functions

Abstract We propose and illustrate a method for imposing concavity at a single point, which may result in concavity at many points, in the familiar Translog and Generalized Leontief cost functions, while at the same time maintaining flexibility of the forms.

A Simple Method for Imposing Local Curvature in Some Flexible Consumer-Demand Systems

We introduce a procedure for imposing curvature conditions locally in a class of flexible demand systems. Aside from the simplicity of the procedure, a major advantage is that flexibility is maintained. We illustrate the technique by estimating three flexible demand systems—the normalized quadratic, the almost ideal, and the linear translog—using highly aggregated Canadian data for the period 1947 through 1993. When curvature is not imposed, these demand systems violate the appropriate curvature conditions at every data point. When curvature is imposed, curvature conditions are satisfied not only at the point of imposition but at every data point.

Flexible And Semiflexible Consumer Demands With Quadratic Engel Curves

In this paper, we introduce three flexible consumer demand systems in which expenditures on goods are quadratic functions of income. We view these alternatives as to the demand systems used heretofore in the empirical modeling of rank-three demands, namely those in which expenditure shares are quadratic functions of the logarithm of income. Curvature conditions required by theory can be imposed locally during the estimation for each, and a semiflexible version can be estimated. For illustrative purposes, we estimate various forms of two of the systems using Canadian data on seven categories of goods for the period 1947 to 1995.

Testing for Non-jointness in Oil and Gas Exploration: A Variable Profit Function Approach

The empirical validity of the hypothesis of nonjointness is investigated in the context of a multiple-output production process that utilizes both fixed and variable inputs. Specifically, global tests of the hypotheses of almost nonjointness in the input quantities and prices, and separability of inputs and outputs, are conducted using data on oil and natural gas exploration in Alberta, Canada. Based on estimation of a generalized linear-Generalized Leontief variable profit function, the authors reject the separability hypothesis, but not the nonjointness hypothesis. Empirical issues concerning oil and gas exploration activity are examined using the maximum likelihood estimates obtained under nonjointness. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Empirical testing of a risk-adjusted Hotelling model

Abstract The Hotelling model of the optimal depletion of an exhaustible resource specifies that in a world without risk, equilibrium rates of return on nonrenewable resource assets and on alternative assets will be equalized. In applied work, where the rate of return on the resource asset is typically measured as the rate of increase of marginal profits while the return on the alternative asset is measured by a market rate of interest, the Hotelling model has not, in general, held up well to empirical scrutiny. In the recent literature, the Hotelling model has been reconsidered in the context of a world where risk is present. In such a context, the expected rates of return on an exhaustible resource and on other assets will not necessarily be equalized in equilibrium. In fact, unless agents are risk neutral, the relative riskiness of the resource asset will play a crucial role in a ‘risk-adjusted’ Hotelling rule. Specifically, with competitive firms, the expected rate of return on an exhaustible resource will differ from the expected rate of return on alternative assets by the risk premium associated with the resource asset. In this paper we investigate how well this ‘risk-adjusted’ Hotelling model withstands empirical scrutiny. Given the role of expectations in this modified Hotelling rule and in the Euler equations that yield this rule, we use Generalized Method of Moments (GMM) estimation in our empirical analysis. Our application, which is based on three different utility specifications, examines returns for various resource industries (lead, zinc, copper, silver), utilizing aggregate annual Canadian price, extraction cost, and interest rate data since 1950.

The Political Costs of Taxes and Government Spending

The marginal political costs of different types of taxes and government spending, as well as voter preferences over different fiscal variables, are examined using two different specifications for political cost--one based on the probability of incumbent defeat and the other based on the incumbents percentage of the vote. Models associated with these two specifications, in which voting behavior depends on disaggregated taxes and government expenditures, are estimated using data from Canadian provincial elections. The empirical results, which indicate that different types of taxes and expenditures have quite different marginal political costs, have important implications for models that incorporate voter preferences.

Asymmetric Price Responses of Residential Energy Demand in Ontario

During the last few decades, oil prices have experienced both sharp increases and, more recently, equally sharp decreases. A number of researchers (e.g. Gately 1993a, 1993b; Hogan 1993; Shealy 1990) have examined the demand responses to these price movements and concluded that price-induced changes in demand have not been symmetric. More specifically, this asymmetry is said to have taken the form of larger demand changes for price increases than for price decreases. To explain this phenomenon, it is typically argued that the oil price rises of the 1970s and early 1980s set in motion behavioural changes that had long-lasting effects, so that when price decreases occurred later in the 1980s, relatively small changes in demand were observed. Shealy (1990), among others, points to the capital stock as playing an important role in this process, but does not explicitly incorporate infornmation on the stock of capital in the model he estimates. Studies that have examined this issue are typically based on as many as three broad levels of aggregation. They tend to aggregate geographically, focusing on entire countries or even groups of countries. Many of these studies also aggregate across sectors of the economy, and thus fail to take into account the different patterns of energy utilization in different regions and/or sectors of the economy. Finally, by looking only at the demand for oil products or at total energy demand, these studies do not explicitly allow for inter-fuel substitution. In contrast, we examine residential energy demand in a single province (Ontario) and allow for inter-fuel substitution by specifying a system of fuel expenditure share equations, which is estimated using annual data for the period 1962-1989. Our focus on the residential sector is predicated on the

Smaller and smaller? The price responsiveness of nontransport oil demand

Abstract Despite a sharp decrease in world oil prices in 1986 that was sustained for almost 15 years, nontransport oil demand growth has remained rather weak in most industrialized countries. We implement various approaches to modeling this observed phenomenon using data for Canada, France, Japan, the U.K., and the U.S. In general, we find that nontransport oil demand has become less responsive to own-price changes, and that specifications allowing for different components of prices to induce different demand responses tend to dominate specifications that exclude this feature. Further, incorporating this feature in a model that allows elasticities to vary over time appears to provide a more appealing characterization of the evolution of nontransport oil demand during the last three decades.

Subscribe, Cancel, or Renew: The Econometrics of Reading by Subscription

The authors investigate a consumers decision of whether or not to join a bookclub, and once his/her contractual obligations are fulfilled, whether to remain as a member, cancel his/her membership outrights or cancel his/her membership and subsequently rejoin the bookclub. Since the consumers subscription strategy depends on the transaction costs of purchasing books and on the marketing strategy adopted by bookclubs, the authors investigate why bookclubs make introductory offers and/or enforce minimum purchase requirements. Introductory offers allow bookclubs to price discriminate between consumers who self-select alternative subscription strategies. Minimum purchase requirements increase the bookclubs profit by appropriating part of the consumer surplus.

An econometric-spatial analysis of the growth and decline of shopping centers

Abstract Using a model which is based in large part on the Eaton and Lipsey theory of central places and its implications, we examine empirically why the internal composition of shopping centers might change over time and how such changes might be due to competition from neighboring centers in the city. Through regression analysis of data on the locations and internal compositions of shopping centers in Edmonton, Alberta over a 19-year period, we find that changes in a shopping centers store count depend on certain shopping center characteristics, particularly changes in excess capacity, which in turn depend on changes in a centers market area brought about by new competition.