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Empirical work on price-cost margins often treats costs as exogenous. Allowing for endogenous costs when estimating price-cost margins is the topic of this paper. Methodologically, the endogenous cost model we propose leads to an additional equation that allows for the simultaneity in price setting in the product and the input market (labor in our case). In other words, the usual two-equation set-up (demand and first-order condition in the product market) is generalized to include a third equation, which endogenizes costs. We implement the model using data for eight European airlines from 1976-1994, and show that the treatment of endogenous costs has important implications for the measurement of price-cost margins and the assessment of market power.

Cronyism is a serious problem in the United States, but unfortunately it is still not very well understood. In this new essay, Jay Cost explains what it is, and why we should be so worried about it. By mingling private and public interests, cronyism costs us hundreds of billions of dollars per year and threatens to transform our republic into an oligarchy, where the rich dominate the middle class. Worse, modern cronyism has become embedded into the laws themselves, so politicians in Washington assume that such corruption is just the way things should be. To confront the dangers of cronyism, reformers need to think outside the box, paying special attention to how the political process functions

A popular columnist for The Weekly Standard, conservative journalist Jay Cost now offers a lively, candid, diligently researched revisionist history of the Democratic Party. In Spoiled Rotten, Cost reveals that the national political organization, first formed by Andrew Jackson in 1824, that has always prided itself as the party of the poor, the working class, the little guy is anything but that-rather, it's a corrupt tool of special interest groups that feed off of the federal government. A remarkable book that belongs on every politically aware American's bookshelf next to Jonah Goldberg's Liberal Fascism and The Forgotten Man by Amity Shlaes, Spoiled Rotten exposes the Democratic Party as a modern-day national Tammany Hall and indisputably demonstrates why it can no longer be trusted with the power of government.