Dek Terrell

Incorporating monotonicity and concavity conditions in flexible functional forms

Empirical economists using flexible functional forms often face the disturbing choice of drawing inferences from an approximation violating properties dictated by theory or imposing global restrictions that greatly restrict the flexibility of the functional form. Focusing on the cost function, this paper presents an alternative approach which imposes monotonicity and concavity properties only over the set of prices where inferences will be drawn. An application investigating elasticities for Berndt-Wood data set using the translog, generalized Leontief, and symmetric generalized McFadden flexible functional forms illustrates the technique. Copyright 1996 by John Wiley & Sons, Ltd.

A Test of the Gambler's Fallacy: Evidence from Pari-mutuel Games

The “gamblers fallacy” is the belief that the probability of an event is decreased when the event has occurred recently, even though the probability is objectively known to be independent across trials. Clotfelter and Cook (1991, 1993) find evidence of the gamblers fallacy in analysis of data from the Maryland lotterys“Pick 3” numbers game. In the Maryland lottery, the payout to all numbers is equal at

Measuring production efficiency of small firms in Pakistan

250 on a winning fifty-cent bet, so the gamblers fallacy betting strategy costs bettors nothing. This article looks at the importance of the gamblers fallacy in the New Jersey lotterys three-digit numbers game, a pari-mutuel game where a lower amount of total wagering on a number increases the payout to that number. Results indicate that the gamblers fallacy exists among bettors in New Jersey, although to a lesser extent than among those in Maryland.

Optimal Betting and Efficiency in Parimutuel Betting Markets with Information Costs

Abstract This paper examines the efficiency of small manufacturing firms in Gujranwala, Pakistan. In the first step of the study, we construct measures of technical and scale efficiency for a sample of 153 small manufacturing firms from nine industries. The second step includes Tobit regressions of these measures on attributes of the firm and entrepreneur to examine sources of firm efficiency. Results reveal that newer firms, firms run by entrepreneurs with at least primary education, and firms engaging in production subcontracting appear more efficient and that many firms operate at less than the optimal scale.

Biases in Assessments of Probabilities: New Evidence from Greyhound Races

Empirical studies of parimutuel games establish several facts not previously explained by theory. For example, market odds fail to provide accurate predictions of outcomes and longshots earn lower expected values than other bets. This paper outlines a model of parimutuel games in which such outcomes arise as a consequence of the takeout of the track. Bettors may purchase true probabilities of events, and equilibrium entry and wagers of these informed bettors lead to patterns observed in previous studies. A case study of the Woodlands Greyhound Park supplies evidence consistent with the model. Copyright 1996 by Royal Economic Society.

Flexibility and regularity properties of the asymptotically ideal production model

This paper investigates biases in the perceptions of probabilities using data from the 1989 and 1994 seasons at the Woodlands greyhound park in Kansas City, Kansas. Results reveal consistent evidence that the gamblers fallacy exists. The results also reveal that gamblers overestimate the probability of a win by the favorite and the dog in the “lucky” seven position. However, the comparison also suggests some learning by bettors between the first season of operation in 1989 and the 1994 season.

Evaluating the semi-nonparametric fourier, aim, and neural networks cost functions

This paper uses simulations to investigate the ability of the Asymptotically Ideal Model(AIM) to approximate unknown technologies. AIM was proposed by Barnett and Jonas (1983) as an expansion which could approximate any indirect utility or cost function arbitrarily well at all prices. By applying AIM to simulated data, we fmd a significant improvement in prediction by higher orders of AIM relative to the generalized Leontief and the translog. The largest error in approximating some CES technologies with AIM is 125 times smaller than that of the generalized Leontief and we find a translog approximation error 1000 times that of AIM in others. We also fmd that non-negativity constraints used by Barnett, Geweke, and Wolfe (1991) to impose concavity on the model greatly restrict the flexibility of AIM, even when all the inputs are substitutes.

Sources of Economic News and Economic Expectations

Abstract This study compares how well three semi-nonparametric functions, the Fourier flexible form, asymptotically ideal model, and neural networks, approximate simulated production data. Results show that higher order series expansions better approximate the true technology for data sets that have little or no measurement error. For highly nonlinear technologies and much measurement error, lower order expansions may be appropriate.

Crime versus Justice: Is There a Trade-Off?

This article considers the process by which local economic news coverage influences individual evaluations of the economy. We improve on prior research by capturing a wider range of news sources (including national network news, national newspapers, local television news, and local newspapers) and connecting the effects of this coverage on individual level attitudes. We find that current personal financial evaluations, personal financial expectations, and short-term (12-month) expectations for the U.S. economy are related to national network coverage. Local television coverage of the economy is related to personal financial evaluations but not short-term economic expectations and local print news is important in structuring expectations of future business conditions. Overall, the findings illustrate important differences in economic coverage across media outlets and the effects of these differences on economic expectations. Exposure to different sources of economic information have significantly different effects on economic perceptions—suggesting a more complicated and nuanced role for the news media in shaping economic perceptions than indicated by previous research.

Where do Americans live abroad

When society is divided into two groups with different actual or perceived crime rates, maintaining a low crime rate, minimizing the total number of innocent individuals convicted of a crime, and keeping the probability of wrongly convicting an innocent individual equal across groups are incompatible social goals. This paper fully develops these trade‐offs. An empirical application of the model finds that these trade‐offs may be substantial. Specifically, we estimate that innocent black Americans would be roughly eight times more likely to be wrongly convicted of murder than innocent white Americans if society placed no value on equality when it comes to convictions. However, we estimate that eliminating inequality entirely could cost up to 1,900 lives annually because of a rise in the murder rate. Estimates reveal similar findings for gender inequality. In highlighting this serious dilemma, this paper suggests a need for awareness of costs of crime‐reduction policies.