factor use and productivity change in the alcoholic beverage industries 1 introductiondemands for wine beer and spirits are in view of their substitutable nature often studied in conjunction with one another heien and pompelli 1989 nelson 1999 yet the alcoholic beverage industries are connected by similarities in their production processes and inputs as well as by the demand substitutability of their products lea and piggott 1995 these industries are therefore usefully examined together when questions about technical change and productivity growth arise little recent attention has been given to the nature of technical adjustments in the beer sector and no such work seems ever to have been published on wine and spirits 1brewing and distilling and to a smaller extent winemaking have become increasingly mechanized during the past half century as they have in most other manufacturing sectors packaging rates are higher shelf lives longer and storage and transportation technology improved tremblay 1987 elzinga 1990 pp 216 219 iserentant 1995 piggott and conner 1995 gisser 1999 the fixed costs associated with these innovations have broadly speaking served as an incentive to build fewer and larger plants industry concentration in the beer sector rose dramatically from the mid 1930s through the mid 1980s plant numbers then expanded as microbreweries catered to the new demand for product variety and idiosyncrasy although four firm concentration continued to rise through the mid 1990s in the spirits sector domiciled largely in the south distillery numbers continue to decline spurred by declining aggregate demand as well as scale economies no such broad consolidation is taking place in the wine industry where several california and new york firms long have occupied a substantial market share instead wineries numbers have grown rapidly and uninterruptedly since 1970 proliferating in regions long thought inhospitable to wine grape production growing consumer interest in wine variety and microclimates a trend similar to that for microbrews has abetted this diversification goodhue et al 2000 prices in the alcoholic beverage industries have in real terms fallen substantially in the past 40 years net prices to brewers have dropped 37 to wineries 16 and to distillers 31 at the same time real wage rates generally have risen and except for brief instability during the 1970s so have capital rental prices real material prices in all three sectors rose from the 1950s through the 1960s fell through the 1970s then recovered by the mid 1990s to their early 1970s levels relative factor prices in the beer industry broadly representative of those in the other two sectors are shown in figure 1 wage rates rose relative to both capital and material prices until 1980 thereafter wages fell relative to capital but continued to rise relative to material prices u s bureau of the census various years expenditure shares illustrated in figure 2 suggest that the beer industry is the most capital intensive of the three sectors by the mid 1990s capital expenditures represented one third of beer production costs compared to only one fifth of wine and distilling costs on the other hand raw materials constituted little more than half of beer expenses but nearly 70 of wine and distilling costs labor accounted for only 10 12 of expenditures in any of these industries figure 2 seems to suggest that at least since the mid 1970s or early 1980s capital has substituted for labor and materials in all three sectors yet as figure 1 reveals much of these share changes are accounted for by the rising relative price of capital the substantial narrowing of output input price margins in the alcoholic beverage sector suggests that the sector has become more cost efficient through either technical change scale economies improved utilization rates or other means technical changes themselves can alter potential scale economies and productive capacities and hence prospects for future variations in industry structure

capital utilization economies of scale and technical change in the growth of total factor productivity an explanation of south korean manufacturing growth abstract this paper presents a method of interpreting the growth of total factor productivity directly linking the productivity growth to key parameters of a specific cost function it shows that the productivity index can be decomposed into effects due to a technical change b non constant returns to scale and c change in capital utilization the decomposition framework was applied to data on south korean manufacturing during the 1961 1980 period in south korean manufacturing the total factor productivity was found to have grown at 3 per annum scale economies contributed about 38 of the growth of tfp the technical change 45 and the change in the capital utilization rate 17 the results of this study support of the view that for growing less developed economies the growth in capital utilization rate is a source of growth in total productivity that is too significant to be ignored

the specification of dynamics in cost function and factor demand estimation this paper concerns the problem of properly specifying the dynamic structure of models of industry costs and factor demands the paper compares three common frameworks long run costs with all factors assumed in equilibrium full static equilibrium short run costs with variable factors in short run equilibrium partial static equilibrium followed by computation of long run costs and short run costs including internal capital adjustment costs partial dynamic equilibrium the approach of the paper is to estimate a capital labor fuel electricity model for six oecd countries g7 less italy for the 1960 1989 period using the three different dynamic specifications we obtain substantially different results in terms of factor demand cross price effects and technical change the implication is that proper dynamic specification is critical the partial dynamic equilibrium model appears to behave most consistently across the cross section copyright 1993 by mit press

broadcast advertising and u s demand for alcoholic beverages quarterly data for 1977 1994 on alcohol consumption and advertising are used to estimate a differential demand system including explanatory variables for broadcast advertising and print advertising the model explains the growth rate of per capita consumption dependent on explanatory variables for prices real income demographic changes and real advertising by media and beverage empirical results also are reported for total consumption of pure alcohol the results for the three beverages and total alcohol indicate that advertising has little or no effect on demand the empirical evidence thus supports the notion that regardless of media advertising affects mainly brand shares

measuring and assessing capacity utilization in the manufacturing sectors of nine oecd countries following a tradition established by cassels klein and hickman we employ the economic theory of cost and production and define economic capacity output as that output at which short and long run average total cost curves are tangent to one another capacity utilization cu rates are then computed as the ratio of actual to capacity output we implement this framework empirically by specifying and estimating a translog variable cost function for the manufacturing sectors of nine oecd countries we find that by the end of the historical sample the early 1980s pervasive and chronic excess capacity exists while the average cost consequence of excess capacity was relatively modest in the 1960s the burden increased considerably after opec i and after opec ii the premium was as large as 15 of average total costs we also find that electricity and fuel price increases had small impacts on capacity output relative to that from labor or capital finally we adjust conventional measures of multifactor productivity growth for changes in cu and find that the adjusted growth is larger after 1973 than that based on traditional procedures

estimation of scale economies underlying growth and productivity the empirical implications of data aggregation estimation of scale economies underlying growth and productivity patterns is typically based on aggregated data raising questions about the potential for aggregation biases this paper provides empirical evidence on the existence and patterns of such biases we use a cost based model to estimate short long run and internal external scale effects for u s manufacturing data at different aggregation levels our results suggest that aggregation biases in such a model are not substantive also internal scale economies seem more appropriately represented by the aggregate data whereas more disaggregated data appears preferable for estimation of external or spillover effects that occur between industries or sectors

the demand for beer wine and spirits a survey of the literature the demand for alcohol literature is vast and much conflicting information about the nature of the demand for alcoholic beverages has been published this paper presents a survey of the literature and then uses the technique of meta regression analysis to establish insights into the nature of the demand for beer wine and spirits unlike previous meta studies of the demand for alcoholic beverages this study adjusts for the precision of each elasticity estimate the analysis presented suggests reported elasticity estimates will be influenced by such factors as estimation technique data frequency and time period under consideration with respect to time the findings suggest that the demand for alcoholic beverages has become less inelastic since the mid 1950s and that the income elasticity has been falling since the mid 1960s the analysis also found support for the idea that alcohol as a commodity group is a necessity and that consumers respond to price discounting with inventory behaviour rather than true substitution behaviour little support is found for the idea that the demand for alcoholic beverages varies fundamentally across most countries although wine may be an exception language en

size and productivity in the u s milling and baking industries from the late 1950s through mid 1990s productivity growth in u s grain milling and feed manufacturing has been consistently strong and positive in grain milling approximately 15 of the growth is due to size economies technical change has been capital using increasingly material saving and in recent years decreasingly labor saving or increasingly labor using the quality of capital has risen relative to that of labor and materials in all but the baking industry capital intensification and incentives for plant size growth remain unabated copyright 2000 oxford university press

partial static equilibrium model of newsprint recycling estimation of the demand for old newspapers as an input to us newsprint production reveals that demand is highly price inelastic in both the short and long run this implies that separation and collection programmes which lower prices in secondary markets will not effectively stimulate recycled newsprint production the results also indicate that policies to raise the price of woodpulp will have little impact a slightly more effectivbe recycling policy may be tax preferences aimed at encouraging investment in newsprint capacity the major finding is that growth in output creates an opportunity for greater old newspaper use thus the most effective recycling policy will be one that promotes us newsprint production

structural change capital investment and productivity in the food processing industry investment in new technology affects structural change and economic performance through its effect on capital and input composition this is particularly important for capital intensive industries such as food processing which lack short run flexibility due to adjustment costs this study considers the impacts of capital quasi fixity on capital and noncapital input decisions made in the u s food and kindred products industry from 1965 to 1991 a cost based production theory model is used to evaluate investment motivations for three capital components productivity growth accompanying changing input patterns is then discussed focusing on capital and farm input demand

equilibrium parallel import policies and international market structure in a north south vertically differentiated duopoly the analysis in this paper derives equilibrium government policies towards parallel imports by incorporating strategic interaction at the policy setting stage and the product market the model sheds new light on i the effects of parallel import policies on pricing behavior of firms and ii the interdependence of national parallel import policies if demand asymmetry across countries is sufficiently large the north forbids parallel imports to ensure its firm sells in the south thereby generating international price discrimination the south s most preferred market outcome as the equilibrium when demand structures are relatively similar across countries the north permits parallel imports and uniform pricing its most preferred market outcome obtains

on the economic interpretation and measurement of optimal capacity utilization with anticipatory expectations this study builds on recent research giving the notion of capacity utilization clearer economic foundations in this research optimal output ye is defined as the minimum point on the firm s short run average total cost curve and capacity utilization is then computed as cu y y where y is actual output here i extend these concepts to include adjustment costs due to changes in the stock of capital and nonstatic expectations of future output demand and input prices the more general notion of cu is shown to depend on the shadow values of the firm s quasi fixed inputs and is decomposed to isolate the effects of anticipatory expectations an empirical comparison is then made between traditional indices and alternative economic cu measures using annual u s manufacturing data 1954 1980 the calculated indices exhibit plausible patterns which can be interpreted as the effects of nonstatic expectations and adjustment costs

alcohol consumption and human capital a retrospective study of the literature grossman proposed an individual s health can be viewed as one aspect of their human capital following this line of thought a number of recent papers have reported a positive impact of alcohol consumption on earnings the rationale for the existence of such a relationship is the positive impact of alcohol on physical and mental health we conduct a meta analysis to determine whether such factors as the estimation technique the presence of ex drinkers in the sample possible sample selection bias and publication bias may all contribute to these findings an additional suggestion for the positive relationship between alcohol and wages is the presence of a common set of personality traits that determines drinking behaviour and also leads to higher earnings we examine this relationship by reviewing the literature that investigates if the personality influencing aspects of alcohol consumption influences measures of human capital we also survey the significant body of research that has examined how alcohol consumption has been found to influence educational outcomes and the work force participation of problem drinkers

international effects of national regulations external reference pricing and price controls under external reference pricing erp the price that a government permits a firm to charge in its market depends upon the firm s prices in other countries in a two country home and foreign model where demand is asymmetric across countries we show that home s unilaterally optimal erp policy permits the home firm to engage in a threshold level of international price discrimination above which it is just willing to export if the firm faces a price control abroad or bargains over price with the foreign government an erp policy can even yield higher home welfare than a direct price control

an elementary proposition concerning parallel imports abstract this paper demonstrates that when countries individually choose whether or not to prohibit parallel imports a global nash equilibrium involves the permitting of parallel importing into all relevant foreign markets i e global uniform pricing this result is sensitive in a straightforward way to the tariff setting powers of countries and to the specification of a government s objective function i e political economy considerations we also show that when countries can prevent parallel exports then any nash equilibrium involves global price discrimination

advertising concentration and profitability in manufacturing advertising concentration and profitability in manufacturing i introduction economists have devoted much effort to empirically testing the hypothesized relationships between industrial concentration profits and advertising twenty years ago lester telser concluded that there is little empirical support for an inverse association between advertising and competition 1964 later other economists studying the relationship between advertising and concentration discovered a positive correlation between the four firm concentration ratio a measure of industry concentration and advertising intensity 1 strickland and weiss 1976 went further to show that there is a causal relationship between these elements increases in concentration cause advertising to intensify and conversely a rise in advertising intensity causes an increase in the level of concentration in recent years the empirical literature on advertising concentration and profitability has atrophied because of dissatisfaction with its theoretical basis as a new approach i adopt the theory of advertising developed by stigler and becker 1977 and extend it to incorporate the relationships among advertising concentration and profitability i then test its most important implications using data from the 1977 census of manufactures and the detailed input output structure of the u s economy 2 section ii examines the relationship between concentration and advertising intensity conventional theory known as the inverted u hypothesis asserts that advertising is expected to increase with concentration at first but to decrease at very high levels of concentration because collusion to avoid advertising costs becomes easier extending the stigler and becker theory i hypothesize that when concentration increases even if the large firms do not collude and continue to act independently they will eventually decrease their advertising intensity at high levels of concentration provided that the demand curve for the industry s products is relatively inelastic if the industry s demand curve is relatively elastic advertising intensity increases monotonically with concentration at all levels of concentration this hypothesis is supported by the 1977 data taken from the census and the input output structure of the u s economy section iii focuses on the relationship between advertising and profitability according to conventional theories advertising intensity promotes product differentiation leading to higher barriers to entry and higher profit margins in the past researchers e g strickland and weiss 1976 realized that contrary to the implications of barriers to entry theory the coefficient of advertising in a profit margin equation was longer for a sample of industries producing producer goods than for industries producing consumer goods they viewed this result as an anomaly inconsistent with both their theoretical reasoning and with other important empirical results already published i obtain a similar result which i am able to link to a theoretical structure thus contributing to the refutation of the barriers to entry hypothesis i begin by extending the stigler and becker theory to treat advertising and research and development r d as two complementary intangible capital goods the sample is divided into two groups producers of homogeneous goods who spend relatively more on r d and producers of heterogeneous goods who spend relatively more on advertising since we are unable to measure r d costs at the appropriate industry level it is not included among the regression variables if r d and advertising intensity are correlated we should expect the coefficient of advertising in the profitability equation in the homogeneous goods subsample to exceed the coefficient of advertising in the profitability equation in the heterogeneous goods subsample in this case the omission of the r d variable provides an implication for testing the new hypothesis

the estimation of human capital by administrative archives in a static and longitudinal perspective the case of milan this paper focuses on the estimation of the latent variable human capital hc at disaggregated level worker by available routinely institutional data flows in particular we utilize the lombardy region administrative archive employment centers of the province of milan collecting information about careers of workers in the private sector of the milan area and administrative flows collecting mandatory workers individual income tax returns filed with the national internal revenue service first we propose and empirically estimate hc scores in a static referred to 2004 framework by means of a realistic measurement model within causal relationships among endogenous and exogenous investment hc indicators furthermore the model also specifies a set of concomitant indicators that not belonging to hc investment indicators have causal impact on endogenous variables and on hc scores too second we propose a longitudinal analysis period 2000 2004 aimed to investigate how workers earned income growth rates vary over workers educational levels and other personal characteristics the empirical results of both analyses confirm the characteristics of the italian job market denoted by marked inequalities and knowledge regarding the process of school to work transition characterized by a weak incidence of education on longitudinal trajectories of earned income

are nonconvexities important for understanding growth everyday experience and a simple logical argument show that nonconvexities are essential for understanding growth compared to previous statements of this well known argument the presentation here places more emphasis on the distinction between two of the fundamental attributes of any economic good rivalry and excludability it also emphasizes the difference between public goods and the technological advances that are fundamental to economic growth like public goods technological advances are rionrival goods hence they are inextricably linked to nonconvexities but in contrast to public goods which are nonexcludable technological advances generate benefits that are at least partially excludable hence innovations in the technology are for the most part privately provided this means that nonconvexities are relevant for goods that trade in private markets consequently an equilibrium with price taking in all markets cannot be sustained concluding remarks describe some of the recent equilibrium growth models that do not rely on price taking and highlight some of the implications of these models this abstract was borrowed from another version of this item

the policy environment and relative price efficiency of egyptian private sector manufacturing 1987 88 1995 96 we study the impact of policy and institutional constraints and reforms undertaken to remedy them on relative price efficiency and cost of the private manufacturing sector of egypt we undertake this study using a generalized cost function which subsumes the standard neoclassical cost function as a special case this approach allows us to assess the impact of such constraints which include labor market energy and financial sector ones on relative prices and the structure of production including factor demands shares and cost our findings indicate the presence of substantial distortions in relative prices and hence on cost due to the policy environment we also find improvements in relative price efficiency and cost performance as a result of policy reforms initiated to remove the constraints copyright 2007 john wiley sons ltd

growth accounting when technical change is embodied in capital this paper revisits the hypothesis that technical change is embodied in capital it extends old results to make them more relevant to the contemporary debates about the adjustment of investment goods for quality change and about the role of embodied technical change as a source of economic growth it is shown that the failure to adjust capital for quality change has the effect of suppressing the quality effects into the conventional total factor productivity residual and it is found that approximately 20 percent of the residual growth of quality adjusted output could be attributed to embodied technical change copyright 1992 by american economic association

generic drug industry dynamics both the economics literature and the business press suggest that a typical pattern for a new industry or what jovanovic and macdonald 1994 call an invention i s to have an initial phase in which a small number of firms each earn significant profits followed by a phase in which rapid entry of new firms leads to increased competition and dissipation of some of those profits often accompanied by a shakeout whereby only a few large firms remain especially if subsequent innovations increase the optimal scale although this pattern seems to characterize many industries the length of time during which early movers retain their profits how prices adjust during the entry process and the

trade liberalization and productivity growth new evidence from the turkish rubber industry this paper empirically examines the effects of a change in foreign trade regime on productivity growth based on a generalized leontief factor demand function system total factor productivity growth tfpg rates are calculated for the turkish rubber industry during a substantial trade liberalization in the 1980s tfpg was significantly higher following trade liberalization technological change was the major contributor to this growth when a panel data estimation technique is used to explain technological change the effects of trade liberalization become clearer a one percentage point increase in the protection level led to more than a one percentage point 1 27 decline in the technological change rate

price leadership and welfare losses in u s manufacturing reply a model of price leadership is used to estimate the welfare losses dueto monopoly in u s manufacturing given that the leaders behave independently an hypothesis confirmed empirically the deadweight lossis estimated at 0 114 percent of gnp based on a sample of 445 four digit industries this estimate lends strong support to arnold c harberger s finding of thirty years ago copyright 1986 by american economic association

reference pricing and firms pricing strategies abstract within a horizontal differentiation model and allowing for heterogeneous qualities we analyze the effects of reference pricing reimbursement on firms pricing strategies with this analysis we find inherent incentives for firms pricing behavior and consequently we shed some light on the time consistency of such policy the analysis encompasses different reference price rules i reference price as the minimum of the observed prices in the market ii reference price as a linear combination of firms prices results show that under the minimum policy firms are not able to coordinate on higher prices while the linear policy implicitly provides a coordination device we have also found that relatively to the linear policy when the reference price is the minimum of observed prices after policy implementation total and private expenditures are higher and consumer surplus and firms profits are lower with quality differentiation both the minimum and linear policies unambiguously lead to higher prices

the effects of exports technical change and markup on total factor productivity growth evidence from singapore s electronics industry abstract this paper illustrates a new technique to measure the effect of export demand on the conventional tfp growth index at the industry level we apply the technique to singapore s electronics industry and find that rapid growth in exports accounts for most of the tfp growth in this industry

price leadership and dynamic aspects of oligopoly in u s manufacturing this study which covers a sample of 314 four digit industries taken from an exhaustive set of 450 four digit industries shows that increases in concentration associated with rising productivity occur mainly in low concentration industries while decreases in concentration associated with rising productivity occur mainly in high concentration industries the empirical results of this study indirectly lend support to a plausible hypothesis that a small group of firms makes a big impact on the productivity of an initially unconcentrated industry and thereby concentrates it later the small firms imitate the now big firms and concentration goes down while productivity keeps rising

quasi fixed inputs in u s and japanese manufacturing a generalized leontief restricted cost function approach in this paper a generalized leontief variable cost function is develope d which permits analytical derivation of steady state levels of quasi fixed inputs and capacity output and does not require specification of a numeraire input this framework is then used to evaluate the fa ctor demand patterns of japanese and u s manufacturing based on bot h one quasi fixed capital input and two quasi fixed capital and la bor input specifications and both static and dynamic optimization t he findings provide evidence of considerable flexibility of demand re sponses in japan which may have contributed to japan s relatively st rong economic performance in the volatile 1970s copyright 1988 by mit press

pharmaceutical price controls and entry strategies abstract this paper finds that the use of price controls has a statistically and quantitatively important effect on the extent and timing of the launch of new drugs firms headquartered in countries that regulate price reach fewer markets than those in countries without price controls companies avoid price controlled markets and are less likely to introduce products in additional markets after entering a price controlled country launches into low price european countries are further delayed following legalization of parallel imports the results suggest that price regulation in one country affects entry into other countries and may affect the strategies of domestic firms

the intertemporal dimension of neoclassical production theory abstract the aim of this survey paper is to provide a guide to the literature on optimal dynamic factor demands to the non specialist reader interested in applied work we start with the distinction between variable and quasi fixed factors of production and use these to characterize the firm s temporary equilibrium we then review the optimal intertemporal behaviour of the firm using the notion of adjustment costs as a means to solve the firm s optimization problem this process gives rise to a system of interrelated dynamic factor demands in a flexible accelerator format theoretical difficulties and empirical limitations of this model are discussed this fact leads us to review the theory of intertemporal duality we next analyze the issue of expectations in this class of dynamic models a section reviewing the empirical work on dynamic factor demands follows after which we offer some concluding remarks

searching for the productivity slowdown some surprising findings from west german manufacturing we test the hypothesis of a negative long term trend and or a structural break in total factor productivity tfp after the first oil price shock for west german manufacturing industries within an econometric model based on a flexible cost function with capital as a quasi fixed factor after adjusting tfp growth for scale economies and varying capacity utilization this hypothesis is not supported by our empirical findings for the great majority of industries studied whereas the hypothesis that the log level of tfp follows a random walk with drift is not rejected by various statistical tests authors

price discrimination and social welfare studies the effect of price discrimination on social welfare using methods from duality theory features of the reservation model presented quasi linear utility and consumers surplus upper and lower bounds on welfare change bounds on welfare change with optimal price discrimination from ebsco

production and cost in the us paper and paperboard industry the us paper and paperboard industry has experienced significant structural changes over the past 25 years including reductions in the number of mills lower rates of capacity growth employment cutbacks and a loss of market share to foreign competitors these structural shifts portray an industry that increasingly has difficulty adapting to a more competitive global environment based on aggregate data from 1965 to 1996 this article estimates a short run translog tl cost function for the industry the estimated model fits the data well and all sample points satisfy monotonicity and concavity conditions at all points among the findings the industry operates at slightly increasing returns to capital utilization and labour and energy are allen uzawa complements but morishima substitutes in production technological progress generated 0 02 reduction in annual operating costs and consistent with an ailing us industry estimated marginal costs approximated average operating costs until 1982 after which

advertising expenditure and consumer prices this paper studies the effect of a change in the marginal costs of advertising on advertising expenditures of firms and on consumer prices i make use of a policy change in austria that involved an increase of the taxation of advertising in parts of the country and a simultaneous decrease in other parts i show that advertising expenditures of firms move quickly in the opposite direction of the marginal costs of advertising consumer prices increase with advertising in some industries and decrease in others this effect correlates with informational differences in advertisements across industries

technology and efficiency in a panel of italian dairy farms an sgm restricted cost function approach this article employs a short term specification of the symmetric generalised mcfadden sgm cost function capable of accommodating quasi fixed factors and variable returns temporary equilibrium and scale economies are investigated while maintaining the consistency of the estimated model with microeconomic theory and approximation properties it also makes use of a two step procedure to estimate first the technology parameters and then time varying efficiency at farm level no distributional assumptions are required on efficiency as we consider a fixed effect model a balanced panel of italian dairy farms during the years from 1980 to 1992 serves as the case study the results suggest a rigid productive structure during the pre and post quota period moreover italian milk producers are found to exhibit considerable excess capacity and rather low input technical efficiency

demand for differentiated products price and advertising evidence from the u s beer market abstract this paper employs a nation wide sample of supermarket scanner data to estimate a large brand level demand system for beer in the u s using the distance metric method of pinkse slade and brett pinkse j slade m brett c 2002 spatial price competition a semiparametric approach econometrica 70 1111 1155 unlike previous studies this work estimates the own and cross advertising elasticities in addition to price elasticities positive and negative cross advertising elasticities imply the presence of both cooperative and predatory effects of advertising expenditures across brands however the former effect appears to dominate suggesting that advertising increases the overall demand for beer we discuss the implications of these results in this industry

rapid economic growth with increasing returns to scale and little or no productivity growth total factor productivities for 28 korean manufacturing sectors were estimated jointly with markups scale economies and the capacity utilization rate using the short run generalized leontief cost function concavity conditions necessary for the cost function to be well behaved and consistent with a firm s optimizing behavior were imposed on the estimation by way of bayesian inference the study finds 1 the superiority of the short run equilibrium model over the long run model and of the short run generalized leontief cost function over the translog cost function 2 market imperfection 3 the existence of scale economies and 4 biases in the traditional tfp measures the study also suggests that a rapid growth of output is possible with negative tfp growth copyright 1995 by mit press

informative advertising in differentiated oligopoly markets abstract this paper examines the welfare implications of informative advertising in differentiated product oligopoly markets the analysis reconciles the conflicting results in previous studies that find advertising to be undersupplied in homogeneous product markets but oversupplied in differentiated product markets when the degree of differentiation is small in equilibrium purely informative advertising is undersupplied when brands are sufficiently close substitutes and oversupplied when brands are more differentiated product differentiation also has welfare implications for the effect of technological change in the advertising sector in response to an advertising cost innovation equilibrium prices fall and the market converges to the socially optimal resource allocation for brands that are sufficiently close substitutes whereas equilibrium prices rise and divergence occurs when brands are more differentiated

the own wage elasticity of labor demand a meta regression analysis firms labor demand responses to wage changes are of key interest in empirical research and policy analysis however despite extensive research estimates of labor demand elasticities remain subject to considerable heterogeneity in this paper we conduct a comprehensive meta regression analysis to re assess the empirical literature on labor demand elasticities building on 942 elasticity estimates from 105 different studies we identify sources of variation in the absolute value of this elasticity heterogeneity due to the theoretical and empirical specification of the labor demand model different datasets used or sectors and countries considered explains more than 80 of the variation in the estimates we further find substantial evidence for the presence of publication selection bias as estimates of the own wage elasticity of labor demand are upwardly inflated

dynamic gains and static losses in oligopoly evidence from the beer industry i introduction more than 40 years ago arnold harberger 1954 estimated the welfare loss due to monopoly in the united states harberger s finding that the welfare loss caused by monopoly is surprisingly small sparked a lively debate that enriched the economic literature enormously the articles by david schwartzman 1960 david kamerschen 1966 frederick bell 1968 dean worcester 1973 and john siegfried and thomas tiemann 1974 constitute but a small sample out of the vast number of studies of this issue later keith cowling and dennis c mueller 1978 found some higher values of deadweight losses ten times as large as harberger s in a subsequent study i was able to lend support to harberger s results by analyzing the interactions between the minority of large firms in an industry that act as independent oligopolists and most of small firms that behave as price takers 1986 the exploration of the dynamic relationship between concentration and prices started with schumpeter 1949 who hailed the entrepreneur who can produce more cheaply make a profit that remains in his pocket until others who follow him copy his model the process eventually results in the annihilation of the surplus over costs when the new business form has become part of the circular flow 1949 133 in a related set of studies demsetz 1973 peltzman 1977 and lustgarten 1979 explored the relationship between concentration ratios and increased efficiencies in manufacturing industries and found them to be positively correlated i could lend support to this conclusion by postulating a dynamic process of cause and effect cast in a price leadership model 1984 in a recent study salinger 1990 concluded from a cross sectional study that large changes in concentration whether negative or positive are associated with price reductions the present paper builds on past research to demonstrate that while innovation may lead to increases in market share and market concentration the price increases that might be expected to follow from increased concentration are likely to be offset by the price decreases that bring the increased concentration into being 1 if so estimating deadweight losses by subtracting the static consumers losses from producers gains is misleading because it ignores intertemporal consumers gains the dynamic link among efficiency falling prices concentration and welfare losses suggests that a very useful method of evaluating an industry s contribution to welfare would be to study its economic history if today an industry is heavily concentrated an appropriate starting point for a historical study would be an earlier year when the industry was still relatively less concentrated this paper presents first a welfare theory of dynamic evolution of an industry that becomes progressively more concentrated over time second an empirical study based on the history of the beer industry that focuses on the calculus of dynamic social gains from technological change and third an examination of a small group of industries that became more heavily concentrated between 1963 and 1982 the last section sets forth the conclusions to be drawn from this research ii dynamic gains and static losses suppose a concentrated industry was unconcentrated 40 years ago the industry s firms were small but not atomistic and they sold their product in nearly perfectly competitive markets practically causing no deadweight losses the dynamic process begins when initially a group of pioneering firms invests in the development of a new technology that reduces costs and by lowering the price to consumers succeeds in increasing its market share the gain to consumers flows directly from this intertemporal decline in price the increase in the share of the innovating firms can initially mitigate the downward pressure on prices but in the long run reversing it is not likely

structural change in factor demand relationships in the u s food and kindred products industry this analysis utilizes multivariate gradual switching regression techniques and bayesian inferential procedures to evaluate structural change in factor demand relationships in the food manufacturing industry food materials are included as an input into the food manufacturing industry the results confirm a significant gradual structural change that initiated in 1980 price elasticities indicate that the demands for raw food materials and energy have become more elastic while the demand for labor has become less elastic morishima elasticities of substitution indicate that nearly all factors are substitutes and that the degree of substitutability has significantly increased in recent years

the multivariate flexible accelerator model its empirical restrictions and an application to u s manufacturing this paper derives an exhaustive set of restrictions implied by the multistock flexible accelerator specification of the adjustment cost model for the firm the flexible accelerator specification of the demand for capital and labor is estimated using u s manufacturing annual data for the 1947 1976 period the consistency of the data with the model is examined by testing the validity of the derived restrictions finally the conditions which permit aggregation over firms are determined and tested empirically the flexible accelerator specification has been popular in the empirical literature on interrelated investment and employment decisions see nadiri and rosen 38 coen and hickman 10 and schramm 40 more recent examples include sargent 39 berndt fuss and wavermann 4 berndt and morrison 6 and meese 34 under suitable assumptions the specification may be rationalized by the adjustment cost model of the firm eisner and strotz 13 lucas 30 mortensen 35 extends the work of lucas and derives some empirically testable restrictions of the accelerator specification that are implied by the adjustment cost framework the broad objective of this paper is to provide a more rigorous and comprehensive test of the adjustment cost model than is presently found in the literature this objective is achieved in three stages first we offer an alternative derivation of the mortensen restrictions and more importantly we prove theorem 1 that his restrictions are exhaustive i e we establish an integrability result for the flexible accelerator adjustment cost model second the flexible accelerator specification of the demand for capital and labor is estimated using total u s manufacturing annual data for the 1947 76 period it is assumed that firms minimize expected production costs subject to a technology which implies that capital and labor stocks are costly to adjust while a third factor materials is freely adjustable the consistency of the data with the adjustmentcost framework is examined by testing for the validity of the derived restrictions further we test the validity of some separability restrictions on the adjustmentcost technology that to varying degrees are imposed a priori in all of the cited empirical studies finally we provide a complete characterization of the individual firm technologies which justify the common assumption of the existence of a representative firm this problem of aggregation over firms which has been

differential pricing parallel trade and the incentive to invest abstract i consider the case for imposing uniform pricing on a monopolist in a setting where markets can be segmented according to differences in marginal costs and or consumer demand i also analyze the ex ante impact on incentives to invest in r d i show how two opposite trade offs arise when differential pricing is demand based uniform pricing has good ex post welfare properties but leads to lower investment ex ante conversely when differential pricing is cost based uniform pricing has bad ex post welfare properties but leads to higher investment ex ante

reference pricing competition and pharmaceutical expenditures theory and evidence from a natural experiment abstract we study the impact of regulation on competition between brand names and generics and pharmaceutical expenditures using a unique policy experiment in norway where reference pricing rp replaced price cap regulation in 2003 for a sub sample of off patent products first we construct a vertical differentiation model to analyze the impact of regulation on prices and market shares of brand names and generics then we exploit a detailed panel data set at product level covering several off patent molecules before and after the policy reform off patent drugs not subject to rp serve as our control group we find that rp significantly reduces both brand name and generic prices and results in significantly lower brand name market shares finally we show that rp has a strong negative effect on average molecule prices suggesting significant cost savings and that patients copayments decrease despite the extra surcharges under rp

shadow prices environmental stringency and international competitiveness abstract empirical tests of the relationship between international competitiveness and the severity of environmental regulations are hampered by the lack of pollution abatement cost data for non u s countries the theory of the firm suggests that environmental stringency can be measured by the difference between a polluting input s shadow price and its market price we make a first attempt at quantifying such a measure for two industries located in nine european oecd countries overall we provide i a new approach to measure cross country regulatory differences in that we use a theoretically attractive measure of industry specific private compliance cost and ii empirical estimates that are an attractive tool for researchers and policymakers who are interested in examining how economic activity is influenced by compliance costs

further results on aggregation of differential demand equations barnett 1979a 1981 theil s extending 1971 work aggregates differential demand equations in absolute undeflated prices this paper extends further these results by deriving aggregate macro demand equations in relative prices under stated assumptions these equations are analogous to the individual consumer s micro demand equations and the properties of the microcoefricients carry over

parallel imports demand dispersion and international price discrimination parallel imports goods imported by unauthorized resellers are advocated worldwide for undermining international price discrimination for a continuum of markets we find that uniform pricing by a monopolist yields lower global welfare than third degree discrimination if demand dispersion across markets is large though uniform pricing avoids output misallocation too many markets go unserved mixed systems permitting discrimination across but not within designated groups of markets yield significantly higher welfare than uniform pricing or unrestricted multimarket discrimination and can pareto dominate uniform pricing thus while parallel imports might benefit some countries our results weaken the multilateral case for allowing them

an adjustment cost model of long term employment in japan summary a dynamic factor demand model is presented which pays special attention to the prevalence of a longterm employment relationship in japan the model is based on the representation of technology by a variable cost function with adjustment costs for employment and capital stock where the variable cost consists of the sum of overtime costs and materials costs with employment being quasi fixed and scheduled hours institutionally regulated short run adjustments are mostly made by overtime hours application to a time series data on the japanese electrical machinery industry indicates quasi fixity of capital and employment and reproduces short run overshooting of overtime hours to compensate for the sluggish adjustment of employment

the specification of partial static equilibrium models in conducting an investigation into the specification of partial static equilibrium factor demand models this paper isolates 1 the endogeneity of output and quasi fixed factor levels 2 the choice of omitted share equation and 3 the presence of serial correlation when using time series data as the specification issues that most affect the existing empirical literature the impact of specification changes are studied via a series of experiments conducted on an illustrative data set and are found to have significant effects on parameter estimates and model diagnostics departures between observed and full equilibrium levels of quasi fixed factors and price elasticities as a consequence caveats must be attached to several previous studies and care must be taken by future researchers in addressing using such models copyright 1987 by mit press

excess capacity a permanent characteristic of us airlines this paper examines the permanence of excess capacity in the us airline industry to avoid the problems with the standard engineering measure of capacity utilization load factor we define and measure capacity as an economic concept two measures of economic capacity utilization are then computed one a demand based measure and the other an output based measure of capacity utilization both measures share little in common with the standard engineering measure load factor and reveal some interesting attributes of airline travel demand this paper also provides interesting new insights into the role of deregulation and the costs of excess capacity during regulation specifically it is found that deregulation with the concomitant rationalization of route structures enabled airlines to move closer to their optimal levels of capacity and facilitated substantial improvements in capacity utilization and cost reductions over the period considered 1998 john wiley sons ltd

measuring human capital and its effects on wage growth ever since mincer years of labour market experience were used to approximate individual s general human capital while years of seniority were used to approximate job specific human capital this specification is restrictive because it assumes that starting wages at a new job depend only on job market experience in this paper i investigate the effects of human capital on wage growth by using a more flexible specification of the wage equation which allows for a rich set of information on past employment spells to affect the starting wages in addition i endogenize the labour mobility decision in order to illuminate the effects of human capital accumulation patterns on wage growth i compare counterfactual career paths for representative individuals copyright 2010 blackwell publishing ltd

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

the impact of parallel imports on investments in cost reducing research and development abstract we develop a two country model of endogenous investment in process innovation by a manufacturer facing competition from parallel imports pi we find that the distortions associated with pi inhibit innovation however the difference between the manufacturer s expected profits under successful and failed innovation is u shaped in the cost of engaging in pi thus the reduction in r d investment depends on both legality of pi and transport costs the reduction in innovation could harm global welfare depending on whether the manufacturer was deterring pi with a high wholesale price if so banning such trade would raise expected welfare

a marginal measure of energy efficiency the shadow value abstract economists are well aware of the importance of marginal versus average measures of energy efficiency yet in the energy literature there is no consensus on the appropriate method for defining and measuring energy efficiency this paper sets out the shadow value of energy as a proper and meaningful marginal energy efficiency index a restricted profit function is used to model the shadow value we explore four scenarios to characterize and evaluate the shadow value of energy a within country comparison of different production processes with different energy requirements a comparison of different countries with different resource endowment a government policy to impose a tax to alter the shadow value to address environmental issues and a within country comparison of externalities arising from two sources of energy a comparative static analysis is carried out to sign the functional arguments defined for the shadow value

alcohol consumption and alcohol advertising bans the purpose of this paper is to empirically examine the relationship between alcohol advertising bans and alcohol consumption most prior studies have found no effect of advertising on total alcohol consumption a simple economic model is provided which explains these prior results the data set used in this study is a pooled time series of data from 20 countries over 26 years the empirical model is a simultaneous equations system which treats both alcohol consumption and alcohol advertising bans as endogenous the primary conclusions of this study are that alcohol advertising bans decrease alcohol consumption and that alcohol consumption has a positive effect on the legislation of advertising bans the results indicate that an increase of one ban could reduce alcohol consumption by 5 to 8 the alcohol price elasticity is estimated at about 0 2 the results suggest that recent exogenous decreases in alcohol consumption will decrease the probability of enactment of new bans and undermine the continuance

dynamic factor demands and the effects of energy price shocks a dynamic model is used to understand how sharp changes in energy prices affect investment behavior employment and energy use the authors discuss the theory behind their model selection model specifications estimation methods and data list parameter estimates and elasticities for the selected model and describe the simulations they conclude that 1 the data strongly reject the hypothesis of constant returns to scale within their specification of aggregate production 2 the data indicate adjustment costs on labor are small and 3 their results help reconcile some of the conflicting estimates of energy demand elasticities appearing in recent literature 23 references 3 figures 3 tables

promotion and fast food demand many believe that fast food promotion is a significant cause of the obesity epidemic in north america industry members argue that promotion only reallocates brand shares and does not increase overall demand we study the effect of fast food promotion on market share and total demand by estimating a discrete continuous model of fast food restaurant choice and food expenditure that explicitly accounts for both spatial and temporal determinants of demand estimates are obtained using a unique panel of canadian fast food consumers the results show that promotion primarily increases demand and has a smaller effect on restaurant market shares

temporal aggregation the data interval bias and empirical estimation of bimonthly relations from annual data in an important study reviewing the literature on econometric studies of the relationship between advertising and sales clarke clarke darral g 1976 econometric measurement of the duration of advertising effects on sales j marketing res 13 november 345 357 concluded that the implied duration interval of the effects of advertising on sales were too long when the studies used annual data a theoretical explanation is provided here for the observation of parameter estimates which vary with the data interval employed in the analysis parameter estimates are developed on the basis of data aggregated at various levels of temporal aggregation and compared with theoretical values it is demonstrated that it is possible to recover bimonthly parameters when only annual data are available

national television and the market for local products the case of beer information technology lowers the cost of distributing information to dispersed consumers because national firms reap larger benefits from new media than firms serving only local consumers media innovations may reduce the market for local products this paper considers the effect of television on the market for local beer using market level data on television penetration local breweries and brewery production from 1945 1960 results show that increases in television penetration are associated with fewer local breweries and less local beer production the results indicate that the industrial organization of media markets can affect the structure of markets for local products

alfred marshall lecture intellectual property rights protection in developing countries the case of pharmaceuticals patent enforcement in developing countries generates considerable controversy especially when patents involve potentially life saving drugs this paper argues that common concerns regarding the effects of patents on prices and on research incentives of pharmaceutical multinationals are misplaced rather the most significant effects are likely to concern access to patented drugs in poor countries because prices in developing countries are much lower than in the developed world multinationals may choose to enter such markets with a delay or not at all implying a complete loss of access to patented drugs in developing countries even when multinationals enter countries like india their marketing and distribution networks are not currently built out leading to limited access within the country such considerations may provide a justification for policies targeting access in the short and medium run such as compulsory licensing

long run determinant of korean economic growth empirical evidence from manufacturing this paper challenges the recent contrarian view that the phenomenal growth of east asian nics is fuelled mainly by the accumulation of production inputs not by tfp growth to appraise this view we investigated and re evaluated south korean manufacturing growth 1973 q1 1993 q4 using johansen s cointegrating analysis our results show that south korean manufacturing appears to have increasing returns to scale in production technology the learning by doing effect defined by lucas 1988 is empirically supported this effect appears to be observed as a long run determinant of south korean manufacturing growth consequently south korean manufacturing growth can be described by an endogenous economic growth model such as the lucas 1988 model contradicting the contrarian view

cost and income based measures of human capital human capital is increasingly believed to play an important role in the growth process however adequately measuring its stock remains controversial in this paper three general approaches to measurement are identified cost based income based and educational stock based this survey focuses on the first two approaches and provides a critical review of the theories and their applications to data from a range of countries particular emphasis is placed upon the work of jorgenson and fraumeni 1989 1992 and some new results for new zealand based upon their approach are also presented

measures of capacity utilization and its determinants a study of indian manufacturing we estimate capacity utilization cu rates in for selected industries in indian manufacturing for the 20 year period 1976 1996 we estimate a generalized leontief variable cost function with capital as a quasi fixed input to derive our cu measures using error component techniques we note substantial variations in cu both across industries and over time in general we find that cu rates were higher in the earlier time period dropped in the mid 80s and started rising again in the early 90s cu rates in our analysis are sensitive to input prices with the sole exception of the price of labor we also confirm the standard result that variations in demand are a significant driving force for variations in cu we find that cu is positively related to the magnitude of labor intensity in production this holds for both between industries and within industries empirical results also indicate that traditional measures of cu such as minimum capital output ratio and peak to peak are not appropriate proxies for

the east asia challenge to neoclassical orthodoxy abstract this article reviews the east asian miracle economic growth and public policy which concludes that east asian economic success has little to do with government using criteria similar to that used in the world bank report this study shows that contrary to world bank contention industrial policies used in east asian economies have been effective non neoclassical tools for economic development with government complementing market factors by creating an environment conducive to economic growth given that japan and korea are the most representative examples of industrial policies and that the report seems to acknowledge the success of the japanese industrial policies the present study confines itself largely to a discussion of korean evidence

human capital measurement theory and practice in early 2010 the us economy sits in its most precarious position since the great depression of the 1930s at its height in 1933 25 of all workers and 37 of all non farm workers were completely out of work the unemployment rate in the usa is now over 9 5 1 as figure 1 indicates when the us economy spirals into severe recession unemployment cascades up as well periods of recession coincide with significant rise in unemployment and the two forces feed on each other taxing economic systems when consumer spending declines and capital stock markets endure significant loss unemployment spirals upward earned income tax revenue declines government expenditure on benefits for the unemployed increase consumer spending declines further and sales tax revenue declines housing values decline in a recession which causes property tax revenue to decline which causes a shortfall in municipal tax revenue so city budgets do not balance so more unemployment occurs now in the public sector the us and the world economy in general are still in the throes of such cataclysmic events even while this is written in the summer of 2009 europe s economy continues in a similarly dire situation with overall unemployment at 9 5 for the european union as of may 2009 2 interestingly australia unemployment hovers in the 5 8 rate range 3 the crash of the us economy has reverberated throughout the world and adversely impacted virtually every other economic system on the globe this sad fact is well known and undisputed by economists and social scientists throughout the world the us congress sits as this is being written in the summer of 2009 and debates an almost 1 trillion dollar healthcare package to assist in part in bringing the us economy out of crisis on february 17th of 2009 us president obama signed into law an 800 billion plus stimulus package significant debate in the usa continues as to whether the immense government spending and attendant increase in debt has done any good britain germany and other world powers are undergoing similar investments and debates hundreds of millions of these dollars are earmarked for projects to increase employment and increase the human capital hc of the world labour force on programmes such as educational loans and subsidies

on estimating dynamic factor demands many recent empirical studies on inter related factor demands involve factor demand functions whose arguments depend on the researcher s arbitrary normalization rule this paper shows how sensitive the estimated elasticities are to the various normalizations that are possible alternatives that are not dependent on a normalization are suggested

organizational change skill formation human capital measurement evidence from italian manufacturing firms basing on a job competition approach in this paper we provide a labour demand oriented measure of human capital as defined by the amount of specific skills a firm generates through work based training wbt activities by merging three rich firm level datasets we estimate the impact of a set of variables that are supposed to affect both the propensity to invest in wbt and the intensity of training within the italian manufacturing industry over the period 2001 2005 the estimates show that the effects of innovation on wbt is higher when the introduction of new technologies is supported by organizational innovations when looking at the nature of wbt we investigate the different determinants of the firms propensity to provide both in house and outside training finally we estimate training intensity in terms respectively of the number of training activities provided private and total training costs and the share of trainees

detailed estimation of worklife expectancy for the measurement of human capital accounting for marriage and children abstract measuring an individual s human capital at a point in time as the present actuarial value of expected net lifetime earnings has a lengthy history calculating such measures requires accurate estimates of worklife expectancy here worklife estimates for men and women in the usa categorized by educational attainment race marital status parental status and current labour force status are presented race has a much larger impact on the worklife expectancy of men than women education is associated with larger worklife differentials for women the association between marriage and worklife expectancy is significant but of opposite sign for men and women married women men have a lower higher worklife expectancy than single women men parenthood is associated with a reduction in the worklife expectancy of women the association is smaller and varies from positive for some education marital status groups to negative for others for men

differential demand systems a further look at barten s synthesis barten s synthetic model is attractive to applied researchers since it is useful for testing the adequacy of the competing functional forms of differential demand systems including the popular rotterdam and almost ideal demand systems this article shows that the synthetic model is not a mere artificial composite of the known differential demand systems as it has been considered but rather viewed as a model in its own right it is demonstrated that at the individual consumer level barten s model has the same marginal budget shares as generated by specific forms of engel curves formulated by the box cox transformation

alcohol advertising bans consumption and control policies in seventeen oecd countries 1975 2000 this article uses cross country panel data to study the effects of advertising bans and other control policies on alcohol demand the null hypothesis is that advertising bans do not decrease alcohol consumption the study addresses several shortcomings in four previous cross country studies first an explanatory variable is included for other alcohol control policies second the study examines the history of advertising bans in oecd countries third the study also examines differences in cross country trends that characterize developed countries including aging of the population increased tourism higher unemployment rates and increased consumption of wine the mediterranean wine drinking countries are shown to be categorically distinct from the beer drinking countries and nordic spirits drinking countries fourth the study examines the panel data for unit roots and employs model specifications that correct for nonstationary data the empirical results indicate a significantly negative effect for th

how do banks adjust to changing input prices a dynamic analysis of u s commercial banks before and after the crisis abstract the 2000 2013 period was characterized by substantial regulatory monetary and technological change especially after the onset of the global financial crisis this study assesses the total impact of these policy shifts and technological changes on u s commercial banks short run and long run substitution elasticities an endogenous break test divides the sample into a pre crisis period and a post crisis period during the former period banks inputs tend to be inelastic substitutes after the onset of the crisis particularly the long run substitutability of most input factors decreases to even lower levels due to changes in both cost technology and economic conditions at the same time banks response to input price changes becomes more sluggish hence especially after the onset of the crisis banks have little flexibility regarding input factor usage and are thus sensitive to input price changes from a cost perspective

the macroeconomic relationship between advertising and consumption profit maximizing firms advertise in order to increase the demand for the goods they produce hence we would expect increases in a firm s advertising to be associated with increases in consumption of the firm s goods ceteris paribus the increased demand for the firm s goods may be associated with decreased demand of their rivals goods at the market level increases in advertising by the industry may not be accompanied by increased consumption of the industry s output this is because changes in the levels of advertising among firms in a particular industry could merely rearrange market shares if this is true then in that industry a firm which increases its advertising relative to its rivals will gain sales at the rivals expense advertising in this case is a zero sum game when we aggregate across markets to consider advertising at the national level the question of the effect of advertising upon consumption has still different implications if increased advertising levels for the economy are associated with increased consumption this suggests that consumers are increasing current consumption at the expense of future consumption i e savings if this is true then advertising affects aggregate consumption and the business cycle in this paper we consider the relationship between aggregate advertising and aggregate consumption while previous research e g ashley granger and schmalensee 2 and schmalensee 24 has suggested that consumption affects advertising most previous empirical studies of the causal relationship between aggregate advertising and aggregate consumption reject the hypothesis that advertising affects consumption 6 section 8 3 12 an early study was verdon mcconnell and roesler 28 who studied the relationship between advertising and aggregate demand gnp while they found advertising to be pro cyclical and to have a positive effect on aggregate demand correlations between various leads and lags led them to conclude that no clear pattern existed this study was followed by ekelund and gramm 14 who faulted the verdon mcconnell and roesler study for considering the relationship between advertising and aggregate demand instead ekelund and gramm concentrated upon the relationship between advertising and