Variation In Opportunity Costs Research Articles

Why Are University Endowments Large and Risky?

We build a model of universities combining their real production decisions with their choice of endowment size and asset allocation. Variation in opportunity cost, that is, the productivity of internal projects, has a first-order effect on these choices. Adding the UPMIFA-mandated 7% payout constraint, the endowment size and asset allocations match those empirically observed. This constraint has little effect on universities that do not value the output of their internal projects but harms those that do: it prevents the endowment's use as an effective buffer stock, thereby increasing the volatility of production, and it slows the growth of the most productive universities

Why do University Endowments Invest so Much in Risky Assets?

We build a model of universities combining their real production decisions with their choice of endowment size and asset allocation. Variation in opportunity cost, that is, the productivity of internal projects, has a first-order effect on these choices. Adding the UPMIFA-mandated 7% payout constraint, the endowment size and asset allocations match those empirically observed. This constraint has little effect on universities that do not value the output of their internal projects but harms those that do: it prevents the endowment's use as an effective buffer stock, thereby increasing the volatility of production, and it slows the growth of the most productive universities.

Heeding the call: seminary enrollment and the business cycle

We examine a panel of divinity school enrollments to explore the motivations of prospective clergy considering post-graduate training in preparation for the ministry. Employing the fixed-effects within estimator allows us to see pecuniary motivations while controlling for the differences between types of divinity school and denomination. We find decisions by prospective clergy to enroll in seminary are responsive to changes in the business cycle as well as salaries. Our results reinforce the view that variation in opportunity costs associated with business cycles plays a significant role in the timing of human capital formation even for those with mostly nonmonetary motivations.

Capital Assistance for Small Firms: Some Implications for Regional Economic Welfare

This paper analyzes the role of finance capital in regional economic development. A cost-benefit approach is invoked in order to estimate the welfare impacts of a re ional loan and guarantee program for small fm in Israel. that separates net from gross employment, is presented. An estimate of net wage benefits is then derived. This involves adjusting wages across diferent earnings classes in order to account for the variation in opportunity costs of labor at d$ ferent levels. The estimation of costs includes the opportunity costs of capital, administration, default, and tax-raising costs. Results point to substantial regional welfare efects. We stress the need to account for changing regional economic structure in this kind of evaluation framework. Program-create cf employment is treated as a beneft and an employment account The provision of finance capital to small firms (in the form of loans, grants, guarantees, etc.) is a standard prescription for jump-starting regional economic growth. Assessments of this approach to regional growth are usually couched in terms of the employment gains, increased investment, and income that ensue in the region. Cost-effectiveness analysis is often invoked in order to evaluate the impact of this kind of assistance and cost-per-job or subsidy-per-job indices are invariably estimated (Miller, Gaskins, and Liner 1969; Hart et al. 1993; Bangsund and Leistritz 1997). Welfare impacts and distributional issues, however, are often overlooked because the standard assessment frameworks are exclusively efficiency driven. This paper presents a new cost-benefit method and then applies it in an empirical evaluation of a capital assistance program for small firms, highlighting the implications for regional economic welfare. We distinguish between regional economic “growth” and regional economic “development.” The former is measured in terms of an increase in regional product, employment, and income. The latter refers to who benefits from that growth, the extent to which local welfare is really improved, and how this This research project was funded by the Department for Rural and Urban Development of the Jewish Agency, Jerusalem. Thanks to the anonymous referees for helpful comments on earlier drafts and to Adi Sidi for assistance with data management.

Business cycles and schooling

It has been suggested that recessions are the appropriate time for undertaking activities that promote long-term performance (such as re-organization, human capital investments, R&D). In this paper, we study the cyclical patterns of one such activity, namely schooling. In particular, we examine the cyclicality in the school enrollment rates of various age groups in the US. The overall pattern is countercyclical. In addition, schooling seems to respond negatively to the expected real interest rate. Overall, the results seem to support the view that variation in opportunity costs associated with business cycles plays a major role in schooling decisions.

School Retention of Teenagers Over the Business Cycle

Variation in school retention and enrollment rates of teenagers, males and females, all races and nonwhites, are examined over the business cycle for the postwar period. It is found that both the retention and enrollment rates of teenage girls vary procyclically. For teenage boys, however, there is no response of enrollment and retention rates to changes in business conditions (with the exception of nonwhite males whose enrollment rates vary countercyclically). This difference in cyclical sensitivity is attributed to the lesser degree of cyclical variation in opportunity costs for teenage girls than for teenage boys, which results from girls' superior productive opportunities in the home. This paper examines how school enrollment and retention rates respond to changes in overall business conditions. A primary motivation for studying this relationship stems from the preoccupation of both government and social critics with the high incidence of teenage unemployment.l If teenagers' schooling decisions are in fact related to the level of unemployment (which reflects their opportunity costs), government policies directed at improving the job opportunities of school dropouts may have the undesirable side-effect of encouraging more teenagers to suspend their schooling. In this study I analyze postwar cyclical variations in the school retention and enrollment rates of teenagers, both males and females, all races and nonThe author is Assistant Professor, Queens College, City University of New York. * I am indebted to Barry Chiswick, Franklin Edwards, and Jacob Mincer for numerous comments on earlier drafts of this paper, and to Glen Cain and anonymous referees for aid in preparing the final revision. 1 Teenage unemployment rates are higher than average unemployment rates at all stages of the cycle, and they display greater (absolute) dispersion. For example, over the 1960-74 period, the unemployment rate of 16-17-year-old not-enrolled males ranged from a high of 28.5 percent in 1970 to a low of 14.8 percent in 1964 (the corresponding figures for all 16-17-year-old males are 18.8 percent in 1963 and 13.7 percent in 1966), while the unemployment rate of all males aged 16 years and over ranged from a high of 6.4 percent in 1961 to a low of 2.8 percent in 1969. Source: [13], Table B-7 and A-19. The Journal of Human Resources XI 2 This content downloaded from 157.55.39.104 on Mon, 20 Jun 2016 07:30:38 UTC All use subject to http://about.jstor.org/terms