ECONOMICS:
A World of Opportunity

WATERLOO ECONOMIC SERIES

Abstracts of Working Papers January 1998 - December 1998

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#9801 -- Kevin T. Reilly and Tony S. Wirjanto (September 1997)

Does More Mean Less? The Male/Female Wage Gap
and the Proportion of Females at the Establishment Level

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#9802 -- Robert A. Amano and Tony S. Wirjanto (November 1997)
            (Accepted for Publication - Review of Economic Dynamics, Vol 1, 1998, pp. 719-730)

Government Expenditures and the Permanent-Income Model

    There is substantial empirical literature which examines the relationship between private and public consumption. The conclusions from this literature, however, are generally mixed. In this paper, we attempt to provide some additional evidence on this relationship. We consider a two-good permanent-income model which allows us to estimate both the intraperiod and intertemporal elasticities of substitution. The estimation strategy proceeds in two steps. In the first step, we use cointegration methods to estimate the intraperiod preference parameter while in the second step, we estimate the intertemporal parameter via generalized method of moments. A useful implication of this approach is that it allows us to use the estimated preference parameters to shed some light on whether private and public consumption are best described as complements, substitutes or unrelated (in an Edgeworth-Pareto sense).

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#9803 -- Tan Wang and Tony S. Wirjanto (November 1997)

The Role of Risk Aversion and Uncertainty
in Individual's Migration Decision

    Building on recent advances in the theory of the optimal timing of investment under uncertainty, this paper proposes a stylized theoretical model to study an individual's optimal migration strategy. It shows that, as a result of following the optimal strategy, the individual may choose to delay the migration when the condition appears to be favorable, giving rise to so-called waiting phenomenon observed in the data for Germany following the unification. Using the closed-form solution obtained, it also examines how the duration of the waiting phenomenon is affected by a number of economic factors such as uncertainty with respect to income in Western Germany, the individual's attitude toward risk, etc.

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#9804 -- Tan Wang and Tony S. Wirjanto (November 1997)

On the Existence and Duration "Wait" Migration
in a Generalized Model

    Recently Wang and Wirjanto (1997) proposed a simple dynamic model to study the optimal timing strategy for an individual's migration decision, using the theory of the optimal timing of investment under uncertainty, reviewed in Dixit (1992), Dixit and Pindyck (1994), and Pindyck (1991). It is shown that as a result of the individual's following the optimal timing strategy, there is a "waiting" phenomenon on the part of the potential migrant, giving rise to so-called wait migration observed in the data for Germany following the unification, and that the duration of this waiting behavior is affected by a number of economic factors such as uncertainty with respect to income in Western Germany, the individual's attitude toward risk, etc.

    In this note we extend the model in Wang and Wirjanto (1997) by generalizing the form of the individual's utility function and the stochastic processes of the wage income in Eastern and Western Germany respectively. In particular, we only restrict the utility function to be continuous in its argument without specifying a particular functional form, and allow the wage incomes to be characterized by general diffusion processes with possibly correlated Brownian motions. In this general setting we establish the existence of wait migration, and obtain an analytic expression for an optimal stopping strategy that yields the shortest waiting time among all optimal stopping strategies.

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9805 -- David Andolfatto and Glenn M. MacDonald (January 1998)

Technology Diffusion and Aggregate Dynamics

    This paper develops and analyzes a macroeconomic model in which aggregate growth and fluctuations arise from the discovery and diffusion of new technologies; there are no exogenous aggregate shocks. The temporal behavior of aggregates is driven by individuals' efforts to innovate and/or make use of others' innovations. Parameters describing preferences, production possibilities and learning technologies are estimated using post-war U.S. data. The model delivers predicted aggregates that grow and fluctuate much like the data. The key features of post-war growth are explained by new technologies that differ in terms of the magnitude of their improvement over existing methods and the difficulty of acquiring them. The model implies a negative trend in technological dispersion, and that the generally lower growth witnessed during the last two decades is the result of new technologies offering comparatively minor or less broadly-applicable improvements. Data on the growing and fluctuating share of engineering Ph.D.s support the model's technological interpretation of the growth facts, and data on patent applications and adult schooling are consistent with the notion that newer technologies are more specific and proprietary.

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9806 -- David Andolfatto and James Redekop (May 1998)

 

Redistribution Policy in a Model with Heterogeneous Time Preference

    We examine how redistribution policy affects the distribution of labour income when human capital accumulation is endogenous and the fundamental source of heterogeneity in the economy stems from varying degrees of time-preference across members of the population.

    In comparing the steady states of a dynamic general equilibrium model calibrated to the Canadian economy, we find that progressively more generous income transfer programs (financed with a flat income tax) lead to only modest decreases in income inequality, but significant increases in earnings inequality and large losses in per capita output.

    With the exception of the bottom income quintile, individuals display a strong preference for the long-run situation associated with the absence of government redistribution policy. Nevertheless, taking into account transition dynamics, a majority of individuals would likely vote in favour of implementating a Canadian style redistribution policy. The distribution of time-preference plays a critical role in generating this last result.

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9807 -- Michael A. Busseri, Herbert M. Lefcourt and Robert R. Kerton (1998)

Locus of Control for Consumer Outcomes:  Predicting Consumer Behavior

             Are there some consumers who believe that deliberate decision-making can lead to improved outcomes while others believe that outcomes are beyond
             their control? To predict which consumers take a strategic approach to shopping, we constructed a measure of locus of control focused specifically
             on consumer behaviors and outcomes. Psychometric evaluations of the 14-item Consumer Locus of Control scale indicated that it was a reliable instrument
             whose characteristics were replicated in two separate samples. The scale was used to predict shopping behavior ranging from impulsive to strategic.
             The measure of consumer locus of control was significantly related to consumer behavior, whereas measures of economic and generalized locus of
             control proved to be unrelated to shopping effort, planning, and product knowledge. The more internal their consumer control beliefs, the more
             likely were subjects to be planful and purposive in the act of shopping.

     

     

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