UNITED STATES OF AMERICA
Before The
POSTAL RATE COMMISSION
Postal Rate and Fee Changes, 2000
1
RECEIVEII
JUL7 8 rc6JIH“00
Docket No. R2000-1
ANSWERS OF THE OFFICE OF THE CONSUMER ADVOCATE
TO INTERROGATORIES OF UNITED STATES POSTAL SERVICE
WITNESS: J. EDWARD SMITH (USPS/OCA-T449-51)
(July 7, 2000)
The Of&
of the Consumer Advocate hereby submits the answers of J.
Edward Smith to interrogatories of United States Postal Service, dated June 23,
2000. Each interrogatory is stated verbatim and is followed by the response.
Respectfully submitted,
OFFICE OF THE CONSUMER ADVOCATE
e
Director
Office of the Consumer Advocate
KENNETH E. RICHARDSON
Attorney
1333 H Street, N.W.
Washington, D.C. 20268-0001
(202) 789-6859; Fax (202) 789-6819
ANSWER OF OCA WITNESS J. EDWARD SMITH
TO INTERROGATORIES USPEIOCA-T449-51
USPS/OCA-T4-49. Please refer to your response to USPSIOCA-T4-20. Please
also refer to the material you cite from Intriligator. Bodkin, and Hsiao’s
Econometric
Models, Techniques, and Applications.
As necessary, please
assume that the variable z, defined in USPSIOCA-T4-20, is exogenous to the
firm’s decision process for the purpose of your answer.
a.
b.
C.
Please confirm that, in the discussion of the cost curve you cite,
Intriligator, Boskin, and Hsiao characterize the short run cost curve as an
“alternative expansion path.” If you do not confirm, please explain.
Please confirm that the material in Intriligator, Bodkin, and Hsiao that you
cite implies that the (long- or short-run) cost function and the (long- or
short-run) “expansion path” are conceptually identical. That is, in terms of
the notation of USPS/OCA-T4-20, the cost function c = f (y,w,x*,z)
represents either the short- or long-run (depending on whether there are
“quasi-fixed” factors x*) “expansion path.” If you do not confirm, please
explain.
Please confirm that the material in Intriligator, Bodkin, and Hsiao that you
cite implies that the (long- or short-run) labor cost associated with the
(long- or short-run) “expansion path” is, in terms of the notation of
USPSIOCA-T4-20, given by c, = w
h(y,w,x*;z)-i.e.,
the function
h(y,w,x*,z) is defined to equal the derived demand for labor associated
with the short- or long-run (depending on whether there are “quasi-fixed”
factors x*) cost function or “expansion path” c = f(y, w*,z). If you do not
confirm, please explain.
Please confirm that, in the discussion of the cost curve you cite,
Intriligator, Boskin, and Hsiao indicate that the short-run cost curve
c,(y)and the long-.run cost curve Cb)must satisfy the relationship
~,~(y)~Cdy) at each level of output, given by y. If you do not confirm,
please explain.
Please confirm that, given the notation in USPSIOCA-T4-20, the elasticity
dlnc/dlny=
8lnf(y, ~,~‘,r)/dlny
measures the percentage change in
short- or long-run (depending on whether there are “quasi-fixed” factors
x’ ) cost, moving along the cost function or “expansion path”
c=f(y,w,x’,z),
resulting from a percentage change in output. If you do
not confirm, please explain.
Please confirm that, given the notation in USPS/OCA-T4-20, the elasticity
)) /alay measures the percentage change in short-run
8ln(w.h(y,w,x*z
or long-run (depending on whether there are “quasi-fixed” factors x*) labor
cost, consistent with moving along the associated cost function or
“expansion path” c = f(y,w,x*,z),
resulting from a percentage change in
output. If you do not confirm, please explain.
l
d.
e.
f.
ANSWER OF OCA WITNESS J. EDWARD SMITH
TO INTERROGATORIES USPEIOCA-T4-49-51
RESPONSE TO USPS-T4-49.
(b) Not confirmed.
(a) Confirmed.
Costs are either fixed or variable, resulting in short run
and long run cost functions from a theoretical point of view. Assuming that the
question focuses on short run or long run cost functions, to the degree that the
notation is consistent with the notation used in Intriligator, Bodkin, and Hsiao, I
will confirm.
(c) Not confirmed.
Costs are either fixed or variable, resulting in short run
and long run cost functions from a theoretical point of view. Assuming that the
question focuses on short run and long run cost functions and that the notation is
consistent with the notation used in Intriligator, Bodkin, and Hsiao, I will confirm.
(d) Confirmed.
(e) Not confirmed.
Costs are either fixed or variable, resulting in short run
and long run cost functions from a theoretical point of view. Assuming that the
question focuses on short run and long run cost functions and that the notation is
consistent with the notation used in Intriligator, Bodkin, and Hsiao, I will confirm.
(9 Not confirmed. Costs are either fixed or variable, resulting in short run and
long run cost functions from a theoretical point of view.
Assuming that the
question focuses on short run and long run cost functions and that the notation is
consistent with the notation used in Intriligator, Bodkin, and Hsiao, I will confirm.
ANSWER OF OCA WlTNESS J. EDWARD SMITH
TO INTERROGATORIES USPEIOCA-T44g-51
USPSIOCA-T4-50.
Please refer to your response to USPSIOCA-T4-21 (c).
Please also refer to the material provided as Attachment 1 to USPSIOCA-T4-50,
which includes page 565 of The Theov and Practice of Econometrics, Second
Edition, by Judge, et al. Please assume, if necessary, that the page is properly
reproduced. Interrogatory USPSIOCA-T4-21(c) related to the conditions under
which simultaneous equations estimators are needed, without reference to any
particular variable or analysis. Please confirm that a simultaneous equations
estimator (e.g., two-stage least squares) is not needed to consistently estimate
the parameters of a regression equation for which the explanatory variables
consist entirely of exogenous and/or predetermined variables. If you do not
confirm, please explain.
RESPONSE TO USPS-T4-50. I am unable to confirm that your exact statement
appears in the above-mentioned text. However, the statement, “For statistical
purposes the relevant distinction is between jointly dependent variables and
predetermined variables” leads to the conclusion that you suggest. Accordingly,
I will confirm the substance of your interrogatory.
The Theory
and Practice
of .Econometrics
Attachment 1 to
Page 1 of 4
Second Edition
George C. Judge
Universify
of IlfinOiS
W. E. Criffiths
university ol New England
R. Carter Hill
University ol Georgia
Helmut
Liitkepohl
Universirdt Osnabtick
Tsoung-Chao Lee
univcrsifv01connecticu1
John Wiley and Sons
k
York
Chichater
Brisbane
romnto
Singajme
I
Reccmmcsddc.m
l3.B. EmdsK¶
33.7.
13.8.1. Gvlcnl Execiscr
13.1?.2. Exc~ises Using Monte cub Data
13.8.3~. Individual Exercises
I3.8.2b. Group Exercises
ua.
i
Rclennra
550
551
551
552
553
554
5.54
f
i
I
1,
E
$.
PART FIVE
Chapter 14
INFERENCE IN SIMULTANEOUS
MODELS
EQUATION
Specification and Identification
in Simultaneous Equation Models
14.1. I-on
14.2.
me slmoll8newr
Eq88tioIu
hlodd 88d AscanlpGoN
co~oences
01 oYdin8ly
564
Le88l sqmrrr
RdimnlIon of slImclor8l Equiom Pwamelm
14.4.
145.
Redmad
Form Eqn.dlons
and lb&
Eslinnalio~
IdMu0c8lidn
145.1.
143.2.
14.5.X
14.5.4.
563
563
st8Mul
143.
:
561
Basics
IdentilFotion in the Linear
Simuluneour Eqwionr
Model
14.5.2s. kkntification of * Single
Eqlution Using Linear
Rmriclir
on Structural Puame~co
14.5.2b. Idcntiliation
of the System in
Tam of “linur
Estimable Functions”
Identification of Systems .Tlut are Linear
in The F¶mnc~m But Nonlinew in the Vari~bks
GCmrl Mctbodr of Idcn~ion
570..
571
573
574
574
576
500
582
504
505
14.6.
14.7.
P-y
Rxadsel
506
14.8.
Ref-
500
Estimation and Inference in a
System of Simultaneous Equations
I8ldu&m
TYdRtodMelbodsd
Blim8ll8g Unar slr8dm8l Models
ChaPter 15
ls.1.
ls.2.
1X2.1.
Single Eqwtioi~ or Limited Information Methods
l5.2.k
Indirccl Lusl Squalw
15.2.lb.
A (jcMniize4
Lust Squares Estimator
591
s91
591
595
595
5%
TABLE 14.1 SPECIFICATION
‘OUATIONS
MODELS
--
AND IDENTlFiGtTlON
OF SIMULTANEOUS
Nature of economic variables
and passively generated data
(sccrion 14.1)
I
Specifirxion of rimultanews
tqUdOns sWisliul
(Section 14.2)
models
I
1
c.Ynsequencerof LS
estimation of
rlNclunl pumuters
(section
14.3)
I
Consistent estimation
of
Rduccd form puametvr
(scuion
14.4)
I
Lklivatiom of rwccural
pmmcten
from reduced
form p-etcn
Identikation
(Section 14.5)
concepts
c3eclion 14.5.1)
on snucti
funclions
*
(scclioll 14.5.2b)
gzIzcL2a)
endogcoous variables may be placed in the same &gory as the exogenous
variables since for the EUITCII~period the observed values ue PpadcCermined.
Tbc cxogtnous variables and variables that may involve any I=& of kg are
calkd prede~ermid wriobles. For statistical putposes the relevant distinction
is between jointly dependent variables and predetermined variables.
The final classification of variables involves the nonobranbk
Sodom ermm, or, as they wtrt catkd in Ihe early simultaneous equation IilUatUE.
Attachment 1 to USPS/OCA-T4-50
Page 4 of 4
ANSWER OF OCA WITNESS J. EDWARD SMITH
TO INTERROGATORIES USPUOCA-T4-49-51
USPSIOCA-T4-51. Please refer to your response to USPS/OCA-T4-21(d). The
interrogatory asked whether it was “your understanding that there is a time lag
between the Postal Service’s investment decisions and the availability of the
related equipment for Postal Service operations.” In your response, you state,
“Based on information furnished by the Postal Service, it appears that the current
level of capital is related to the current level of activity, though not necessarily on
a 100 percent basis.”
a.
b.
Please provide detailed citations to all “information furnished by the Postal
Service” you used in formulating your response.
With respect to the original question, does the quoted statement from your
response to USPSIOCA-T4-21(d) indicate that you do not believe that
there is “a time lag between the Postal Service’s investment decisions and
the availability of the related equipment for Postal Service operations”?
Please explain.
RESPONSE TO USPS-T4-51.
(a)
Please
see
OCAAJSPS-T-15-13;
OCAAJSPS-T-15-14; USPS-T-10 at 11 lines 19-31, at 20 lines 7-8, and at 31
lines 14-24; USPS-T-16 at 15 lines 1-7; and “gateway to the household”, United
States Postal Service, 7999 Comprehensive Statement on Postal Operations,
at
4, 83,84,85 and 90.
(b) The concept of “lag” is nebulous.
If capital availability during a time
period is a function of work during the time period, there is no lag, even though
the investment decision may be part of a five year plan, assuming that the plan is
correct in its forecasts. There are a number of explicit and implicit assumptions
involved in the analysis of an investment decision.
In view of the potential
importance of an investment decision on the Postal Service, this subject is
clearly an area for additional analysis and review; possibly the issues could be
clarified and even resolved in a working group focused on segment 3 costs.
DECLARATION
I, J. Edward Smith, declare under penalty of perjury that the answers to
interrogatories USPSIOCA-T4-49-51 of the United States Postal Service are true
and correct, to the best of my knowledge, information and belief.
Executed/i
T,,
l-+vv
CERTIFICATE OF SERVICE
I hereby certify that I have this date served the foregoing document upon
all participants of record in this proceeding in accordance with Section 12 of the
Rules of Practice.
Washington, DC. 20268-0001
July 7, 2000