V.Kerry Smith

The role of site and job characteristics in hedonic wage models

Recent economic analyses of wage rate differentials have generally used some form of hedonic framework in explaining the observed wage structure. While these studies have adopted this common theoretical justification, the models have been used to serve two distinct objectives. The first of these is an empirical test of the theory of equalizing differences originally introduced by Adam Smith. In such applications (see Brown [7], Lucas [26], Olson [28], Thaler and Rosen [36], and Viscusi [40] as examples) specific job characteristics, measured with technical information or with worker perceptions, have been used to explain differences in wage rates across individuals and jobs. While there are a number of these studies,’ there has not been a consistent pattern of support for the theory. Indeed, with the exception of job risks, many characteristics that a priori would be expected to lead to equalizing differences have often exhibited incorrect and/or statistically insignificant measured effects on wages.* The second use for wage models has been as the basis for an index of the quality of life in urban areas. In this framework, households are assumed to select residential locations so as to maximize their individual welfare. Migration between cities provides the mechanism for an equilibrium household assignment. Under ideal conditions the pattern of equilibrium wage rates reflects the attributes of the cities involved (see Hoch [20], Izraeli [23], Cropper [lo], Cropper and Arriaga-Salinas [ 111, and Rosen [31] as examples). The purpose of this paper is to develop a model for wage rate differentials that includes both job and site characteristics, and to estimate the model with a large micro-data set. Our wage models provide estimates of a market clearing envelope which includes each of two types of past analyses as a

The empirical relevance of hotelling's model for natural resources

This paper reports the results of an evaluation of the performance of arbitrage models for explaining the price movements for exhaustible natural resources. This appraisal was based on the ex post forecasting performance for eleven years outside the sample period. Data for twelve minerals over the period 1900 to 1973 provided the basis of study. Two features distinguished the alternative descriptions of arbitrage in these resource markets. They are: the description of the process for each natural resources expected rate of price appreciation, and the measure of the expected rate of return for alternative assets. Overall, the results indicate that the Heal-Barrow (1980) specification was consistently among the ‘best’ models for the twelve minerals studies. It was not, however, uniformly superior to naive models for forecasting price movements.

Congestion, travel cost recreational demand models, and benefit evaluation

Abstract The treatment of congestion in travel cost demand models for recreational sites is a subject of considerable importance for both the allocation and management of public lands. In a recent issue of this journal Wetzel argued that the use of the travel cost method will always lead to underestimates of the true benefits provided by a site because of the role of congestion. The purpose of this paper is to show that his results are misleading. It is not possible to derive a priori the direction of the bias in the aggregate demand for a recreational sites services due to congestion in a given season. Thus, Wetzels conclusions on the bias in benefits are misleading. The most appropriate treatment of congestion requires that travel cost models be amended to reflect the effects of congestion on: (a) the modeling of individual behavior; (b) the estimation of an individuals demand for a recreational sites service; and (c) the description of how a sites services are allocated across individual users.

The role of air and water residuals for steam electric power generation

The decade of the sixties saw increasing concern over the progressive deterioration in environmental quality, and in the early seventies major federal legislation established air and water pollution control strategies. At the time these laws were enacted, information on the costs and benefits of pollution control programs was limited. Today, nearly two decades after the first expressions of concern, there remain few neoclassical models of productions that explicitly incorporate residuals as by-products of production activities. ’ Most of the available information on the costs of pollution control policies is based on engineering cost analyses of model plants. As a rule these studies estimate costs by considering the increments to production costs associated with adding specific types of capital equipment to reduce emissions to specified levels. They often do not consider the full menu of responses possible in meeting a given emission standard. Equally important, they are relevant only for the model plant which formed the basis for the cost calculations. The purpose of this paper is to present the results of a neoclassical analysis of the role of a variety of residuals that generally comprise the major air and water emissions of steam generating electric plants. Our analysis distinguishes plants by vintage of equipment and treats generating capital as a quasi-fixed factor. Thus the results provide a description of the features of the ex post production technology. It should, of course, be acknowledged that a neoclassical production model is an approximate summary of the engineering features of the underlying technology. The value of the approach to describing production activities ultimately depends on its ability to authentically describe the features of that technology. Recent experimental evidence by Kopp and Smith [25] suggests that neoclassical cost models which ignore constraints on industrial effluents may provide seriously misleading descriptions of the features of the underlying production processes. Steam electric generating

Neoclassical Modeling of Nonneutral Technological Change: An Experimental Appraisal

The results of an experimental evaluation of the performance of neoclassical models, using alternative indexes of the pace of introduction of innovations to measure the effects of technical change on the patterns of factor input usage, are reported. The analysis maintains that production processes should be viewed as engineering activities, so that neoclassical characterizations of them and of any innovations to them are best treated as approximations. Two large-scale process analysis models provide the description of the “true” production technology with and without access to six specific process innovations. The analysis considered both input aggregation and the index of the extent of technical innovation. The results suggest that indexes which are explicitly tied to the technical features of the innovations involved perform better in isolating the direction of the input effects associated with each innovation. Moreover this conclusion was found to hold with differing levels of input aggregation.

Elasticities of substitution for a regulated cost function

Abstract This paper proposes a modification to the Uzawa (1962) characterization of the Allen partial elasticity of substitution under cost minimization to take account of the behavioral properties of the cost function for a firm subject to rate-of-return regulation.

Estimating the price elasticity of US electricity demand

Abstract The use of a single electricity price has been seen as a major shortcoming of econometric models of residential electricity demand. It has been suggested that demand estimation should be based on the full rate schedule. This suggestion is evaluated here by examining demand estimates for 27 investor-owned US utilities over the period 1957–1972. The specification errors resulting from using an average revenue price are measured. It is found that statistically valid demand estimated do not necessarily require information on tariff schedules, but that state-wide aggregates of elasticity may often be inapplicable to individual utilities.

The implications of model complexity for environmental management

Abstract The purpose of this paper is to consider the implicatons of model complexity for the quality of the information provided by models of production activities that account for the processes involved in residuals generation and treatment. Using each of the three primary technologies for iron and steel-making industry and models of varying detail for each, the paper compares the estimated levels of residuals generated and treatment costs for both atmospheric and waterborne effluents. The findings suggest that there are strategic details in model construction which have fundamental implications for the design of environmental policies. Moreover, preliminary estimates of the costs of model construction and operation suggest that policymakers may not be able to afford complexity for its own sake. Rather these costs will require the development of methods to isolate the strategic details in each technology that are potentially important to environmental policies.

Estimates of the option values for water quality improvements

Abstract This paper presents estimates of the option values associated with increased oppurtunities for outdoor recreation resulting from improved water quality. The estimates are based on a 1981 survey of 301 households in the Pennsylvania Monongahela River Basin.

CO2, climate, and statistical inference: A note on asking the right questions

This paper argues that the delay required for resolution of uncertainty in the technical information for policy making depends on how the relevant policy issues are posed. The relationship between carbon dioxide and global mean temperature is used to illustrate the argument in terms of the testing of specific hypotheses. 9 references.