"Industrial De-Diversification and Its Consequences for Productivity"

Due in large part to intense takeover activity during the 1980s, the extent of American firms' industrial diversification declined significantly during the second half of the decade. The mean number of industries in which firms operated declined 14 percent, and the fraction of single-industry firms increased 54 percent. Firms that were "born" during the period were much less diversified than those that "died", and "continuing" firms reduced the number of industries in which they operated. Using plant-level Census Bureau data, we show that productivity is inversely related to the degree of diversification: holding constant the number of the parent firm's plants, the greater the number of industries in which the parent operates, the lower the productivity of its plants. Hence de-diversification is one of the means by which recent takeovers have contributed to U.S. productivity growth. We also find that the effectiveness of regulations governing disclosure by companies of financial information for their industry segments was low when they were introduced in the 1970s and has been declining ever since.

Private Investment in R&D to Signal Ability to Perform Government Contracts

Official government statistics on the "mission-distribution" of U.S. R&D investment are based on the assumption that only the government sponsors military R&D. In this paper we advance and test the alternative hypothesis, that a significant share of privately-financed industrial R&D is military in orientation. We argue that in addition to (prior to) contracting with firms to perform military R&D, the government deliberately encourages firms to sponsor defense research at their own expense, to enable the government to identify the firms most capable of performing certain government contracts, particularly those for major weapons systems. To test the hypothesis of, and estimate the quantity of, private investment in 'signaling' R&D, we estimate variants of a model of company R&D expenditure on longitudinal, firm-level data, including detailed data on federal contracts. Our estimates imply that about 30 percent of U.S. private industrial R&D expenditure in 1984 was procurement- (largely defense-) related, and that almost half of the increase in private R&D between 1979 and 1984 was stimulated by the increase in Federal demand.

IR&D Project Data and Theories of R&D Investment

This paper analyzes data on a large sample of research and development (R&D) projects documented in the Defense Department's Independent R&O Data Bank, both to provide some stylized facts about R&O investment at the project level and to test the implications of a control-theoretical model developed by Grossman and Shapiro. We calculate moments of the marginal distributions and elasticities of cost with respect to time, by type of project (e.g. basic research, development), and discriminate between alternative hypothesis concerning the shape of the hazard function of R&D investment. Consistent with the major implication of the Grossman-Shapiro model, the rate of investment in a project tends to increase as the project approaches completion.

Importation and Innovation

Importation of drugs into the U.S. would result in a decline in U.S. drug prices. The purpose of this paper is to assess the consequences of importation for new drug development. A simple theoretical model of drug development suggests that the elasticity of innovation with respect to the expected price of drugs should be at least as great as the elasticity of innovation with respect to expected market size (disease incidence). I examine the cross-sectional relationship between pharmaceutical innovation and market size among a set of diseases (different types of cancer) exhibiting substantial exogenous variation in expected market size. I analyze two different measures of pharmaceutical innovation: the number of distinct chemotherapy regimens for treating a cancer site, and the number of articles published in scientific journals pertaining to drug therapy for that cancer site. Both analyses indicate that the amount of pharmaceutical innovation increases with disease incidence. The elasticity of the number of chemotherapy regimens with respect to the number of cases is 0.53. The elasticity of MEDLINE drug cites with respect to cancer incidence throughout the world is 0.60. In the long run, a 10% decline in drug prices would therefore be likely to cause at least a 5-6% decline in pharmaceutical innovation.

The Effect of New Political Administration on Federal Government Productivity and Employment

There have been a number of econometric studies of the effect of changes in management and control on the productivity and employment of private,but not but not of public, enterprises. This paper examines the impact of changes in political administration on the productivity and employment of the entire executive branch of the U.S. government using data compiled under the Bureau of Labor Statistics' Federal Productivity Measurement Program. The estimates Measurement Program. The estimates indicate that the mean rate of productivity growth in the first year of administrations is 2.6 times as high as the mean growth in subsequent years. Also, employment growth is strictly increasing with respect to the administration's tenure: 95% of federal employment growth during the period 1967-94 occurred in the fourth or later years of political administrations, although administrations were that old only 36% of the time. These findings are broadly consistent with evidence about the private sector. They suggest that the inauguration of a new administration initially purges the executive branch, but as an administration's tenure increases, fat and inefficiency tend to accumulate.

The Output Contributions of Computer Equipment and Personnel: A Firm- Level Analysis

This paper examines the output contributions of capital and labor deployed in information systems (IS) at the firm level during the period 1988-91 throughout the business sector, using two different sources of data on these inputs. Our production function estimates suggest that there are substantial excess returns to both IS capital and IS labor, although the size and significance of the excess returns to IS capital is larger. Computer capital and labor jointly contribute, or account for, about 21 percent of output, although only about 10% of both capital and labor income accrue to IS factors. Although IS employees accounted for a very small share of total employment by 1986, IS employment growth is estimated to have made a larger contribution to 1976-86 output growth than non-IS employment, due to the very rapid growth (16% per annum) of IS employment. The estimated marginal rate of substitution (MRS) between IS and non-IS employees, evaluated at the sample mean, is 6: one IS employee can be substituted for six non-IS employees without affecting output.