Duke Economics

Selected Publications

• • E. Tower.
  • (October, 2010).
  • Are GMO’s Predictions Prescient? Using them to predict Vanguard’s Mutual Fund Returns.
  • .
  • [web]
• • E. Tower.
  • (October, 2010).
  • GMO versus Vanguard: Assessing the Performance of Comparable Funds.
  • .
  • [web]
• • E. Tower.
  • (October, 2010).
  • Strategic Asset Allocation in Practice: Using Vanguard Funds to Clone GMO’s Benchmark-Free Allocation Fund.
  • .
  • [web]
• • E. Tower and John Gilbert.
  • (2000).
  • "A Golden Jubilee Note on Graaff's Optimum Tariff Structures".
  • History of Political Economy
  • ,
  • 421-436.

  Publication Description

  Part of a symposium celebrating Graaff's classic paper on the optimum tariff, appriximately fifty years earlier. The other contributors are Murray C. Kemp, Kiji Shimomura and Jan Graaff (who in his 90's replied to the K&S and T&G pieces. Argues that Graaff anticipated important general equilibrium literature that followed.

• • Patrick Conway, Wilfrid Csaplar and Eward Tower.
  • (2000).
  • "How to Encourage Exports Without a Budgetary Cost: Comment on Wang and Tsai".
  • Revista Internzaionale de Science Economiche e Commercialli (International Review of Economics and Business"
  • ,
  • 47
  • (4)
  • ,
  • 701-704.

  Publication Description

  Argues that if a government uses the combination of an ad valorem tax and a specific subsidy, it can shape the demand curve facing a domestic firm, making it flatter and raising its marginal revenue at the same time, thereby raising the firm's output to the socially optimal level while acquiring tax revenue at the same time. "

• • John Gilbert and E. Tower.
  • (2002).
  • "Protectionism, Labor Mobility and Immiserizing Growth in Developing Countries".
  • Economics Letters
  • ,
  • 135-40.

  Publication Description

  In a small, tariff-ridden, developing economy with imperfect labor mobility, we show that capital accumulation may not immiserize even with foreign rent repatriation. Employment creation effects can outweigh losses in tariff revenue. With perfect immobility, immiserization cannot occur without repatriation.

• • Ryan Gibbs, Omer Gokcekus and E. Tower.
  • (2002).
  • "Is Talk Cheap? Buying Congressional Testimony with Campaign Contributions".
  • Journal of Policy Reform
  • ,
  • 5
  • (3)
  • ,
  • 127-132.
  • Blackwell.
  • [web]

  Publication Description

  For the steel import quota bill of 1999, our answer to the question posed in the title is that each word in the Congressional Record costs $39 in campaign contributions from the steel industry. Consequently, our answer is “Yes.”

• • Vladamir Cvijanovic, Mia Mikic and E. Tower.
  • (2003).
  • "Evaluating Croatian Equities".
  • Zagreb Journal of Economics
  • ,
  • 7
  • (10)
  • ,
  • 73-88.
  • [web]

  Publication Description

  In this paper we evaluate all three of the first quotation equities that are available in Croatia. First quotation equities are those that meet the highest accounting and reporting standards in Croatia. We find that two of the three compare favorably with stocks available on the world market. We also suggest the need for more and better data on Croatian equities.

• • Matthew Harney and Edward Tower.
  • (2003).
  • "Rational Pessimism: Predicting Equity Returns by Tobin's q and Price/Earnings Ratios".
  • The Journal of Investing
  • ,
  • 12
  • (2)
  • ,
  • 58-69.

  Publication Description

  In the spring of 2000, two books predicted a substantial fall in the S&P500 Index. Robert Shiller’s Irrational Exuberance found that, historically, a high price earnings ratio, with real earnings averaged over 10 years, accurately predicts a low real rate of return from investing in the S&P500 Index. Smithers and Wright’s Valuing Wall Street found that a high Tobin’s q for the non- financial equities in the S&P500 does the same. We discover that q beats all variants of the PE ratio for predicting real rates of return over alternative horizons. We also formalize the feedback mechanisms considered in both books.

• • William H. Kaempfer, E. Tower and Thomas D. Willett.
  • (2003).
  • "The Employment Maximizing Import Quota Under Domestic Monopoly".
  • Journal of International Logistics and Trade
  • ,
  • 1
  • (1)
  • ,
  • 22.
  • [web]

  Publication Description

  We consider a domestic monopolist who is protected by an import quota on the product he produces. He faces a domestic demand curve which is characterized by a constant price elasticity. He is unable to export and has an upward sloping marginal cost curve. We demonstrate that in this case his employment of labor rises with the import quota until imports rise to a fraction 1/e of domestic output where e is the elasticity of domestic demand. Thus, the employment maximizing quota sets permissible imports at a fraction of domestic output which is at least as high as the reciprocal of the elasticity of demand. We also make a case for liberalizing all the way right away, “cold turkey liberalization.”

• • Omer Gokcekus, Joshua J. Phillips and E. Tower.
  • (2004 forthcoming).
  • "School Choice: Money, Race and Congressional Voting on Vouchers".
  • Public Choice
  • ,
  • 20.

  Publication Description

  : This paper discovers that a campaign contribution to a member of the U.S. House of Representatives by the American Federation of Teachers or the National Education Association (the two major teachers’ unions) in the 2000 election cycle reduces the probability that a Representative will vote for a school choice amendment to the “No Child Left Behind Act of 2001.” It also discovers that a Representative whose district has a large African American population or who is Republican is more likely to vote for vouchers.

• • Kenneth S. Reinker and E. Tower.
  • (2004 forthcoming).
  • "Predicting Equity Returns for 37 Countries: Tweeking the Gordon Formula".
  • Journal of Investing
  • ,
  • 13
  • (2)
  • ,
  • 21 pp..

  Publication Description

  Recently, there has been a lot of discussion about whether and how much the U.S. stock market is overvalued, leading some economic gurus to suggest that foreign markets may be good investments. We ask whether this is the case and apply the Gordon formula to predict future real rates of return on three Morgan Stanley Capital International indices and 37 individual country indices. Our conclusion is that, as a whole, foreign markets do indeed promise significantly higher future returns than the U.S. market does, suggesting that an increased focus on international diversification by investors and fund managers could be beneficial. JEL classification: G11 & G12.

• • Kenneth S. Reinker and E. Tower.
  • (2004 forthcoming).
  • "Index Fundamentalism Revisited".
  • Journal of Portfolio Management
  • ,
  • 31.

  Publication Description

  Is there any justification for investing in managed mutual funds or are managed funds for suckers, as indexing advocates argue? We answer this question by looking at a long time span of real fund returns (26 years) for one specific company (Vanguard) that is notable for its low fees on managed funds. By creating synthetic portfolios— portfolios based on weighted averages of the assets of Vanguard’s mutual funds—we find that whether index funds or managed funds are the superior buy depends on the time span in question, but that managed funds almost always have a lower standard deviation of return than index funds.

• • Omer Gokcekus and E. Tower.
  • (2004 forthcoming).
  • "An Efficiency Enhancing Minimum Wage".
  • Journal of Policy Reform
  • ,
  • 7
  • (2)
  • ,
  • 22pp..
  • [web]

  Publication Description

  We consider an economy (e.g., Chile 1973-83 or modern Turkey) with a minimum wage sector and a free sector, and a tax on labor earnings. We ask “Can a slightly binding minimum wage simultaneously raise tax revenue, employment, and economic efficiency?” We answer “Yes, if the elasticity of demand for labor in the free sector exceeds the elasticity of demand in the minimum-wage sector.” The logical key is that the minimum wage draws high reservation- wage workers into the labor force, who give up untaxed leisure in exchange for taxed work and thereby increase revenue, employment and efficiency.

• • William H. Kaempfer, Edward Tower and Thomas D. Willett.
  • (2003).
  • "Trade Protectionism".
  • In Charles K. Rowley and Friedrich Schneider (Eds.),
  • The Encyclopedia of Public Choice
  • ,
  • (pp. 550-576).
  • Kluwer Academic Publishers.
  • [web]

  Publication Description

  This paper is a short, nontechnical exposition of the political economy of protection. It asks how do political forces operate to generate protection, and what determines the magnitude and form that protection takes.

• • Gretchen Phillips and E. Tower.
  • (2004 forthcoming).
  • "Labor PAC Campaign Contributions and NAFTA Legislators: Rhetoric or Retribution?".
  • In Michael Plummer (Eds.),
  • Empirical Methods In International Trade: Essays in Honor of Mordechai E. Kreinin
  • Edward Elgar.
  • [web]

  Publication Description

  Prior to the congressional vote, organized labor threatened to punish legislators who voted for NAFTA. Building on work by Engel and Jackson, we explore whether or not organized labor made good on its threat by reducing campaign contributions to House members who voted YES. We postulate contribution functions for both Democrats and Republicans, with pre-NAFTA vote contributions on the horizontal axis and post-NAFTA vote contributions on the vertical axis. For members of both parties, we find that a YES vote on NAFTA results in a change in the contribution function, which is a combination of a downward proportional shift and a downward parallel shift.

• • Omer Gokcekus, Justin Knowles and E. Tower.
  • (2004 forthcoming).
  • "Sweetening the Pot: How American Sugar Buys Protection".
  • In Devashish Mitra and Arvind Panagariiya (Eds.),
  • The Political Economy of Trade, Aid and Foreign Investment Policies
  • Elsevier.
  • [web]

  Publication Description

  Abstract — Sugar growers have been capturing substantial rents from the U.S. sugar program. Despite well-documented huge welfare losses of this program, legislators have always voted against phasing it out. This paper uses Tobit analysis to explore the determinants of campaign contributions from the sugar industry to Senators from 1989 to 2002. It finds that the power and willingness of the Senators to protect sugar influence the campaign contributions significantly: Membership of the Senate Agriculture, Nutrition and Forestry Committee attracts $4,266 of sugar contributions per two-year election cycle. Membership of the relevant subcommittee that deals with sugar legislation is even more profitable than membership of the agriculture committee alone: membership of the Agricultural Production, Marketing, and Stabilization of Prices Subcommittee is worth an additional $2179 for a total of $6,445. These results suggest the strength of the subcommittee in drafting specialized legislation and attracting interested members. Moreover, while the particular party affiliation does not make any difference, membership of the majority party is worth $1,235. Finally, an impressionable freshman Senator from a sugar cane state receives $8,366 more than a more senior senator from a non- sugar state.