Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

The variables have the correct signs. Let us first
examine the logic behind the negative sign of (11 T)/V
holding V constant. If TA , the rate by air, rises and T s ,
the ship rate, is constant, falls, or rises less, A T
increases in absolute amount. In this case, the probability
that a commodity will move by air should fall. The implied
sign for (A1 T)/V is therefore negative. Holding b. T
constant, a change in V has the same impact. For example, as
V increases, greater savings in capital can be achieved by
faster transport, and the possibility is greater that the
commodity will go by air. Since an increase in V reduces
( ti 7)/V and increases r, the effect is negative. Thus
the negative coefficient seems reasonable though the impact
of simultaneous changes.in A T and V is less clear. 7
The price variable has, the reader will note, not been
discounted as in the theoretical analysis because adequate
data, on transport time was not available. As mentioned
earlier, information from a large firm estimated that its
sea and air shipments required thirty eight and nine days.
These values were used in a regression on a sample of 69
commodities, a difference in capital costs between the modes
being derived for each of the commodities. The inclusion of
this variable slightly increased the R 2 . '(The increase
being based on other runs of the 69 sample size). The
coefficient had the proper sign but was not statistically
7 As further' substantiation a result shown later shows
that when run separately, V has a positive sign and AT
a negative sign, thus accounting for the negative sign of
log ( T)/V.
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