exchange rate pass through in u s manufacturing industries this paper studies exchange rate pass through in u s manufacturing industries and its cross sectional variation through an adapted dixit stiglitz model of product differentiation the paper predicts that pass through is positively related to the degree of product differentiation and inversely related to the elasticity of marginal cost with respect to output empirical estimates of the pass through elasticities show that pass through is incomplete and varies across industries the degree of pass through is found to be positively correlated to different proxies for product differentiation and negatively to a proxy for the elasticity of marginal cost

convergence to the law of one price without trade barriers or currency fluctuations using a panel of 51 prices from 48 cities in the united states we provide an upper bound estimate of the rate of convergence to purchasing power parity we find convergence rates substantially higher than typically found in cross country data we investigate some potentially serious biases induced by i i d measurement errors in the data and find our estimates to be robust to these potential biases we also present evidence that convergence occurs faster for larger price differences finally we find that rates of convergence are slower for cities farther apart however our estimates suggest that distance alone can only account for a small portion of the much slower convergence rates across national borders

the effects of taxation price control and government contracts in oligopoly and monopolistic competition abstract many government contracts with or policies towards oligopolistic sectors essentially involve private firms selling a given proportion or quantity of output to the government at a fixed price p r with the remainder being sold on the open market often this is combined with consumer rationing examples include cement and sugar in india and health housing and defence in many countries the paper investigates the effects of these schemes including sales and excise taxation on prices output and household welfare under oligopoly and monopolistic competition less government control reduced may raise prices and tax shifting can be above or below 100 percent

price pass through and the minimum wage this paper tests a textbook consequence of competitive markets that an industry wide increase in the price of labor is passed on to consumers through an increase in prices using several data sources on restaurant prices i explore the price impact of minimum wage hikes in canada and the united states particular attention is paid to the timing of these price responses to gauge the stickiness of minimum wage cost shocks i find that restaurant prices generally rise with changes in the wage bill and that this response is concentrated in the quarter surrounding the month during which the legislation is enacted

the highs and lows of the minimum wage effect a time series cross section study of the canadian law we examine the effects of minimum wage legislation in canada over the period 1975 93 for teenagers we find that a 10 increase in the minimum wage is associated with roughly a 2 5 decrease in employment we also find that this result is driven by low frequency variation in the data at high frequencies the elasticity is positive and insignificant the difference in the elasticity across the bandwidth has implications for the interpretation of employment dynamics as a result of minimum wage policy and experimental design in minimum wage studies it also provides a simple reconciliation of the new minimum wage research which reports very small negative or positive elasticities

global warming irreversibility and learning a number of economists have argued that the literature on the irreversibility effect implies that current abatement of greenhouse gas emissions should be greater when there is the possibility of obtaining better information in the future about the potential damages from global warming than when there is no possibility of obtaining better information in this paper we show that even the simplest model of global warming does not satisfy either of epstein s 1980 sufficient conditions so it is not possible to use epstein s analysis to tell whether the irreversibility effect applies to models of global warming we derive an alternative sufficient condition for the irreversibility effect to hold

testing hypotheses about firm behavior in the cigarette industry data on the effects of excise taxes are used to investigate the level of competition in the cigarette industry a lower bound on the numbers equivalent of firms in the context of the conjectural variations model is derived and estimated results point to at least a moderately high level of competition and in particular allow for the rejection of the perfect cartel model this paper relies on comparative statics results and hence circumvents recent criticisms of a study of monopoly behavior in the cigarette industry

employment effects of minimum and subminimum wages panel data on state minimum wage laws using panel data on state minimum wage laws and economic conditions for the years 1973 89 the authors reevaluate existing evidence on the effects of a minimum wage on employment their estimates indicate that a 10 increase in the minimum wage causes a decline of 1 2 in employment among teenagers and a decline of 1 5 2 in employment for young adults similar to the ranges suggested by earlier time series studies the authors also find evidence that youth subminimum wage provisions enacted by state legislatures moderate the disemployment effects of minimum wages on teenagers

fundamental irreversibilities in stock externalities abstract this paper concerns the irreversibility effect in stock externalities in an environment of uncertainty with learning taking place one may wish to under emit today to avoid potential environmental irreversibilities alternatively one may wish to under invest in pollution control capital avoiding investments in sunk capital that turn out to be wasted the paper develops theoretical results on the tension between these two effects and separates risk aversion from the irreversibility effect the paper also presents a simple example in climate change policy

measurement of monopoly behavior an application to the cigarette industry a simple scheme is proposed to measure monopoly pricing behavior the coefficient of the tax rate term in a price equation identifies the ratio of price to marginal cost no direct measurement of costs is required so a major problem for other empirical studies of monopoly is avoided empirical results for cross section time series data support rejection of atomistic competition but also provide evidence against the operation of an effective cartel in the cigarette industry the model represents an alternative interpretation of related results in a recent paper by barzel application of the methodology to other markets is feasible

the comparison between ad valorem and specific taxation under imperfect competition abstract this paper compares ad valorem and specific taxation in two models of oligopoly with and without free entry predominantly ad valorem taxation implies a relatively low consumer price high tax revenue and when entry is precluded low profits ad valorem taxation dominates specific taxation from the welfare perspective the set of circumstances under which with free entry specific taxation raises welfare is a strict subset of that in which ad valorem taxation is welfare improving and in both models the maximisation of consumer welfare subject to a binding revenue constraint requires maximum reliance on ad valorem taxation

risk averse mitigation decisions in an unpredictable climate system risk aversion plays a central role in the decisions made in the face of uncertainties and climate change mitigation should be no exception however the interlinkage of risk aversion and climate change uncertainties has hardly been investigated numerically in part because of the computational difficulties of stochastic optimization in this paper we apply the numerical techniques of stochastic optimization to the economic modeling of climate change with the aim of modeling the decision preferences of a risk conscious agent in the face of unpredictable climate change the model underlines the critical role played by the risk aversion parameter in determining the effects of uncertainties on mitigation not only in level but also in sign

uncertainty in integrated assessment models modeling with minicam 1 0 abstract human initiated climate change remains one of the major science based public policy issues facing the nations of the world one feature of the issue that inhibits effective decisions is the ubiquity of uncertainty many if not most of the parameters of mathematical relationships that forecast emissions atmospheric processes impacts and effectiveness of countermeasures are uncertain we have added a stochastic simulation capability to the commonly used integrated assessment model minicam 1 0 to analyze the sources of uncertainty and their relative importance and to help devise strategies for depicting and coping with uncertainty the analysis shows that 1 the projected range of uncertainty in global temperature increase during the next century is greater than previously supposed but the central tendency is not dramatically higher 2 many of the major sources of uncertainty previously discussed in the literature remain significant but not all 3 an adaptive policy of act then learn then act appears to offer better prospects for balancing uncertain costs and benefits of controlling greenhouse gas emissions than do rigid precautionary measures and 4 current targets for atmospheric stabilization appear excessively ambitious

incomplete exchange rate pass through and imperfect competition the effect of local production extent to which product prices respond to exchange rate induced changes in costs this research has revealed that the percentage change in the prices of imported goods is smaller than the percentage change in exchange rates of the exporting country and that price responses differ across destinations a phenomenon termed pricing to market this finding may indicate market imperfections in international trade for example those that may arise in the case of segmented markets alternatively these empirical facts may reflect the sale of products whose production occurs in multiple locations when firms are able to shift their production across borders or alter their location of sourcing their costs will not change one for one with home country exchange rate movements and therefore their prices are unlikely to change one for one with exchange rate movements however this possibility has not been addressed empirically in the literature on pricing to market this study contributes to the literature by estimating exchangerate pass through while controlling for local production in the destination market we focus on the u s automobile market and the pricing of u s and japanese firms in particular for several reasons first we have product level information on pricing and content and there is substantial variation in destination country production across products and over time second existing studies have found evidence of pricing to market and incomplete exchange rate passthrough in automobile markets providing a useful comparison for our results and making this an appropriate market in which to study the effect of local production on exchange rate passthrough consistent with other studies we find that japanese firms partially pass through japanese cost changes to their u s customers in addition we find that this partial pass through characterizes not only japanese cost shocks but cost shocks that these japanese firms experience in their u s production this finding persists in a sample that includes both u s and japanese firms automobile firms generally do not pass through cost shocks in their entirety our data also show that those japanese auto

regulation vertical integration and sabotage we consider the incentive of a dominant firm that supplies a necessary input to a bertrand competitive differentiated products downstream industry to 1 vertically integrate forward and 2 raise its downstream rivals costs through non price activities which we characterize generally as sabotage we examine these incentives both in the absence and presence of a regulatory constraint on the upstream price we find that while an incentive for vertical integration is present regardless of the existence of the regulatory constraint the incentive for sabotage emerges only in the presence of binding input price regulation welfare effects are also explored

the response of exchange rate pass through to market concentration in a small economy the evidence from korea this paper finds that domestic market concentration in korea a small country systematically affects pass through of individual industries the estimates suggest that exchange rates are only partially passed on to import prices in korea the evidence implies that imperfect competition is relevant for the exchange rate pass through even in a small economy this finding has important implications for issues such as inflationary effects of depreciation and the effect of trade liberalization

the effect of the minimum wage on the fast food industry using a longitudinal survey of fast food restaurants in texas the authors examine the impact of recent increases in the federal minimum wage on a low wage labor market less than 5 of fast food restaurants were using the new youth subminimum wage in july august 1991 even though the vast majority paid a starting wage below the new hourly minimum wage immediately before it became effective although some restaurants increased wages beyond the level needed to comply with higher minimum wages in both 1990 and 1991 those federal minimum wage increases greatly compressed the distribution of starting wages in the texas fast food industry two findings at variance with conventional predictions are that 1 employment increased more in those firms likely to have been most affected by the 1991 minimum wage increase than in other firms and 2 price changes were unrelated to mandated wage changes

uncertainty and climate change uncertainty is pervasive in analysis of climate change how should economists allow for this and how have they allowed for it this paper reviews both of

minimum wage increase and firm productivity evidence from the restaurant industry abstract the purpose of this paper is to examine the effects of increasing the federal minimum wage on productivity in the restaurant industry based on the equity theory and fair wage hypothesis this study empirically investigated the relationship between the federal minimum wage and restaurant productivity the results revealed that increasing the federal minimum wage immediately enhances restaurant productivity for up to two years the results further indicated that both full service restaurants and low wage restaurants benefit from the positive effect while there is no significant effect on limited service restaurants and high wage restaurants the results suggest that restaurants should cope with minimum wage policies by focusing on implementing initiatives that can maximize enhanced work efforts and productivity more importantly the results further highlight that restaurants should consider either continuously raising wage levels or raising them every two years to consistently obtain enhanced motivation and productivity

global warming endogenous risk and irreversibility this paper develops two period analytical and numerical models to study the question given a stock of greenhouse gases that poses a risk of future damages of unknown magnitude and the possibility of learning about damages how do sunk abatement capital and a nondegradable stock of greenhouse gases affect optimal first period investment we show that both affect investment the former negatively and the latter positively additionally endogenous risk the risk of damages dependent on the stock of gases results in an increase in optimal investment for any level of capital sunkness or greenhouse gas degradability quantitatively the effect of sunk capital is stronger than the effect of greenhouse gas irreversibility or that of endogenous risk

scientific progress and irreversibility an economic interpretation of the precautionary principle abstract we consider the problem of the optimal use of a good whose consumption can produce damages in the future scientific progress is made over time that provides information on the distribution of the intensity of damages we show that this progress induces earlier prevention effort only if prudence is larger than twice absolute risk aversion this paper thus identifies the class of quite restrictive but plausible conditions such that scientific uncertainties justify an immediate reduction of the consumption of a potentially toxic substance

pollution control in an uncertain environment abstract the effects of the threat of occurrence of environmental catastrophes on optimal pollution control are considered recent analysis of irreversible events is extended to two types of reversible events single occurrence and multiple occurrence recurrent events while it is possible that the threat of irreversible events induces more pollution we show that reversible events under quite general conditions induce more conservation less pollution the analysis is carried out via a simple method the h method to identify optimal steady states by comparing steady state policies with small variations from them for recurrent events the optimal state process must approach a unique steady state from any initial level in this case the h method characterizes the dynamic behavior of the optimal state process without actually solving for it

commodity taxation and imperfect competition a note on the effects of entry abstract this paper looks at the effects of allowing the number of firms to vary in seade s model of oligopoly and taxation we show that the normative and positive consequences of a specific commodity tax are affected by entry in significant ways

optimal pricing use and exploration of uncertain natural resource stocks abstract units of natural resources to be called mines are assumed distributed over an unexplored territory according to a poisson process in space at any moment total reserves and unexplored land are given society can determine the rate of consumption and the rate of exploration reserves are drawn down by consumption and increased by discoveries made during exploration the amount of unexplored land is decreased by exploration at any moment the payoff of society is a concave function of consumption less a linear function of exploration with future payoffs discounted optimal policies are considered and in particular it is shown for a large amount of unexplored land the shadow prices of reserves and of unexplored land move in random cycles but show only a slight upward tread thereby casting some light on the failure of mineral prices to rise at the market rate of interest

the impact of the minimum wage on other wages in this paper i explore how changes in the minimum wage affect various occupational wages i postulate that other wages increase for two reasons first firms try to mitigate the deterioration in a worker s relative wage which would cause him to reduce his work effort and second there is an increase in the demand for nonminimum wage workers wage adjustment patterns are examined to ascertain whether wage comparisons play a role in the adjustment process the empirical work shows a short run wage compression among white collar occupations which is consistent with the wage comparison model however large standard errors make inferences weak