A Time Series Analysis of Department of Justice Antitrust Filings Partisan Politics versus Public Choice Theory Tom Fomby and Dan Slottje Department of Economics SMU OUTLINE I Posner s Seminal 1970 JLE Paper II The DOJ Count Data III Using Count Models Poisson Regression and QML Negative Binomial Regression IV The Core Equations to adjust for trend and autocorrelation V Tests of Over Under Dispersion VI Empirical Analysis of Counts VII A Retrospective View of Posner 1970 VIII Conclusions Posner s 1970 Paper A Statistical Study of Antitrust Enforcement JLE Annual 1890 1969 Hypotheses i Size of Economy GNP ii Size of Budget of Agency iii Economic Contractions Scapegoat Hypothesis Monopoly Causes Contractions iv Periods of War Antitrust could be divisive v Politics Party in White House Republicans Democrats vi Four Years Following Switch of Presidential Party vi Presidential Election Year vii Interactions between Economic and Political Factors All Informal Findings Were Negative no association Shortcomings of Posner Paper Relatively Short Data Span Antitrust Policy has continued for 34 years hence Statistical Analysis Very Informal For example he compared simple proportions heuristically and used no formal statistical tests No analysis of trend and autocorrelation in data Possibly the use of additional data and more sophisticated statistical methods could shed additional light on factors affecting antitrust activity of DOJ DOJ DATA TOTAL FILINGS CRIMINAL CIVIL ANNUAL 1891 2002 SERIOUS FUNDING OF DOJ DID NOT BEGIN UNTIL 1925 DATA SPAN WE CHOOSE TO ANALYZE IS 1925 2002 GRAPH DOJ FILINGS 120 100 80 60 40 20 0 00 10 20 30 TOTAL 40 50 60 CRIM 70 80 90 CIVIL 00 DEPENDENT VARIABLES COUNTS TOTAL TOTAL NUMBER OF CASES CRIM CRIMINAL CASES CIVIL CIVIL CASES POLITICAL EXPLANATORY VARIABLES PARTY 1 if Republican 0 if Democrat ELECTYR 1 if Presidential ElectionYear 0 otherwise SWITCH 1 for First Four Years after Party Switch 0 Otherwise ECONOMIC PUBLIC CHOICE EXPLANATORY VARIABLES DUNEMP First Difference of Unemployment Rate DINF96 Change in Inflation Rate 1996 dollars ERI DUNEMP DINF96 GDOJ96 Growth in DOJ budget 1996 dollars GGNP96 Growth in GNP 1996 dollars WAR 1 for War Year 0 Otherwise RECESS 1 for negative growth year 0 0therwise CORE EQUATIONS FOR TREND AND AUTOCORRELATION TOTAL f C TIME TIME2 LOG DOJFILE 1 LOG DOJFILE 2 Q 12 3 5232 P 0 991 CRIM g C TIME LOG CRIM 1 Q 12 9 7698 P 0 636 CIVIL h C TIME TIME2 LOG CIVIL 1 Q 12 3 5116 P 0 991 TESTS FOR OVER UNDER DISPERSION TOTAL Cameron and Trivedi 1990 t 2 758 p 0 0073 Wooldridge 1997 t 2 563 p 0 0123 QMLE parameter 0 043 CRIM Cameron and Trivedi 1990 t 3 227 p 0 0018 Wooldridge 1997 t 0 901 p 0 3702 QMLE parameter 0 074 CIVIL Cameron and Trivedi 1990 t 3 968 p 0 0002 Wooldridge 1997 t 3 083 p 0 0028 QMLE parameter 0 081 PARTISAN POLITICS EQUATIONS PUBLIC CHOICE EQUATIONS RETROSPECTIVE POSNER EQUATIONS CONCLUSIONS I We analyze Total Criminal and Civil Antitrust filings by the Department of Justice over the years 1925 2002 We find that Partisan Politics Party doesn t seem to affect any of the filings of the DOJ In other words when it comes to Antitrust enforcement Democrats and Republicans are alike in terms of their activism passivity other factors held constant CONCLUSIONS II Turnover in administrations doesn t appear to bring with it reactionary change vis vis the previous administration Switch Election year politics Electyr doesn t seem to affect the number of antitrust cases brought by the DOJ That is Antitrust activity of the Presidential election year appears to be no different than that of non election years CONCLUSIONS III The impact of economic Public Choice variables on DOJ Antitrust activity comes through a select few variables and then only affects Total and Criminal filings and not Civil filings Possibly Criminal cases have a higher profile than Civil cases and as a result are more important in conveying messages to the Public about the Administration s concern over economic variables of interest to the public Evidently DOJ officials engage in Antitrust activity with a reticence that depends on the most recent changes in the unemployment rate and inflation rate We measure this reticence with what we call the Economic Reticence Index ERI dunemp dinf96 CONCLUSIONS IV DOJ officials appear to be more reticent in engaging in Antitrust activity when unemployment is increasing possibly in fear of creating more unemployment and less reticent in bringing Antitrust cases when inflation is increasing possibly thinking that inflation is being caused by monopoly power There is tenuous evidence that DOJ officials may weigh unemployment somewhat more heavily than inflation when deciding on the vigor with which to pursue Antitrust activity CONCLUSIONS V Finally we examine an interesting historical question If Prof Judge Posner had had in 1969 the econometric methodology of today would he have found the same ERI effect that we found here Or even in the presence of advanced econometric methodology would the limited span of the data he had available at the time have prevented him from finding any meaningful relationships at all as implied by the lack of associations he reported in his 1970 paper A related question Do advanced econometric methods help steepen the learning curve in economics CONCLUSIONS VI In fact if Prof Posner had had the current econometric methodology available at the time he wrote his 1970 paper he too would have found the ER effect some 34 years earlier than this paper To whit yes advanced econometric methodology can help steepen the learning curve of economics