wage inequality welfare and downsizing abstract by making use of a simple model that does not explicitly include capital this paper examines the impact of downsizing on skilled unskilled wage inequality and welfare the paper shows that downsizing increases wage inequality and its effect on welfare is positive but the relative well being of the unskilled workers declines

oligopoly and trade what how much and for whom abstract this paper integrates the cournot oligopoly model with the ricardian comparative advantage model the ricardian trade pattern is robust and only can be reversed in extreme conditions trade volume increases substantially with increases in competition in world export industries in a symmetrical world a threshold level of competition determines whether capitalists as a group usually gain or lose from trade under all circumstances workers never lose even if a country has a comparative disadvantage in a perfectly competitive world industry but workers gain less in that country than they do in the rest of the world

trade and trade policy with imperfect competition the case of identical products and free entry abstract this paper analyses intra industry trade between economies containing an imperfectly competitive industry in which firms produce a homogeneous output production is subject to increasing returns to scale and there is free entry and exit of firms trade is shown to unambiguously increase welfare by reducing the degree of monopoly in each market and increasing firm size the effects of differences in technology and endowments on the pattern of trade and welfare are examined import tariffs are shown to raise welfare in the country employing the tariff and the welfare implications of various types of industry subsidy are examined

optimal portfolios of external debt in developing countries the potential role of commodity linked bonds much of the spectacular growth in external borrowing by developing countries during the 1970s was in the form of general obligation loans denominated in u s dollars at floating interest rates it is now well understood that this strategy involved substantial risks an unexpected deterioration in a country s terms of trade can quickly erode its ability to service large debts in turn this may induce restricted access to new external credit and a period of forced adjustment in domestic consumption and investment these risks have become all

a trading approach to testing for predictability we propose a market timing test for conditional mean independence of financial returns the new excess predictability ep test statistic has an interpretation of a properly normalized return of a certain trading strategy we discuss similarities of the ep test to the popular directional accuracy da test of pesaran and timmermann power properties of the ep test are advantageous and size properties are comparable to those of the da test we illustrate application of the test using weekly data on the s p500 index

why there are organized futures markets i shall present an explanation of the existence of organized futures markets with more predictive power than the two prevailing rival views my explanation briefly is this an organized futures market facilitates trade among strangers one of the rival prevailing views is a defense of futures trading it asserts that an organized futures market furnishes legitimate businessmen with a means of hedging so that they can obtain insurance against price risk the other prevailing view is an attack on organized futures markets it asserts that such markets enable speculators to manipulate prices to the detriment of outsiders who are less well informed and to the detriment of legitimate businessmen such as farmers the attack on organized futures markets likens them to gambling casinos the defense sees them as a form of insurance neither the attack nor the defense is valid the correct explanation is closely related to why we conduct trade using money instead of by barter

educational opportunity and income inequality affordable higher education is and has been a key element of social policy in the united states with broad bipartisan support financial aid has substantially increased the number of people who complete university generally thought to be a good thing we show however that making education more affordable can increase income inequality the mechanism that drives our results is a combination of credit constraints and the signaling role of education first explored by spence 1973 when borrowing for education is difficult lack of a college education could mean that one is either of low ability or of high ability but with low financial resources when government programs make borrowing easier or tuition more affordable high ability persons become educated and leave the uneducated pool driving down the wage for unskilled workers and raising the skill premium

a continuous time equilibrium model of forward prices and futures prices in a multigood economy abstract this paper is a theoretical investigation of equilibrium forward and futures prices we construct a rational expectations model in continuous time of a multigood identical consumer economy with constant stochastic returns to scale production using this model we find three main results first we find formulas for equilibrium forward futures discount bond commodity bond and commodity option prices second we show that a futures price is actually a forward price for the delivery of a random number of units of a good the random number is the return earned from continuous reinvestment in instantaneously riskless bonds until maturity of the futures contract third we find and interpret conditions under which normal backwardation or contango is found in forward or futures prices these conditions reflect the usefulness of forward and futures contracts as consumption hedges

financial instruments for consumption smoothing by commodity dependent exporters given the substantial instability in all primary commodity markets one would expect countries that depend on a single primary export for most of their foreign earnings to experience especially sharp fluctuations in export earnings and their underlying wealth to the extent that these fluctuations affect consumption they are costly and we would expect such countries to seek ways of managing these fluctuations and reducing their costs in many countries the nature of the resource endowment and its comparative advantage rule out production diversification as a significant near term strategy and we assume it away here in addition we rule out diversification via exchange of equity investments with foreigners in this paper we consider the cost of export risk and show the potential contribution of commodity bonds in this context we show that in theory appropriate commodity bonds can in fact achieve optimal smoothing of i i d export price disturbances if that is what countries really want or need commodity bonds c bonds are bonds whose principal repayment and perhaps dividend payments may be made in units of physical commodity or the terminal value of some appropriate futures contract typically the bond buyer has the option to receive the nominal face value or the commodity bundle in the finance literature studies of the pricing of c bonds schwartz carr priovolos do not distinguish bonds issued by foreign governments from private corporate bond issues however the literature on foreign borrowing recognizes that the distinction is crucial sovereign borrowing and default prevention

can imperfect competition explain the difference between primal and dual productivity measures estimates for u s manufacturing it is well known that under the assumptions of constant returns to scale perfect competition and the absence of factor hoarding primal and dual productivity measures should be highly correlated the apparent lack of correlation is usually attributed to fixed factors of production in this paper i propose an alternative explanation by relaxing the assumption of perfect competition by controlling for the presence of a markup component i demonstrate that both productivity measures are in fact highly correlated for u s manufacturing the analysis also provides an alternative method of estimating a markup of prices over marginal cost that avoids certain difficulties inherent in some existing methods of estimation

testing for market timing ability abstract in this paper we examine the henriksson merton test of market timing and its potential usefulness in evaluating investment advice the paper proposes a natural extension of the test that is valid under more general assumptions about the distribution of asset returns we show that the henriksson merton test and its more general counterpart are special cases of standard tests of market rationality and efficiency both tests are applied to a group of foreign exchange advisory services

scale effects time varying markups and the cyclical behaviour of primal and dual productivity this paper presents estimates of the degree of returns to scale using nonparametric measures of primal and dual productivity for 2 digit us manufacturing industries as part of the analysis the cyclical behaviour of primal and dual productivity measures are considered time varying markups are allowed for and the small sample properties of the instrumental variables estimator used to derive the estimates from the primal and dual relations examined both the primal and dual estimates indicate the existence of increasing returns to scale for the durable goods industries the simulation results indicate there is a slight tendency for the dual equation estimates to overestimate the degree of returns to scale however small sample bias appears to be most severe for the non durable goods industries

collateral free lending with risk contingent credit for agricultural development indemnifying loans against pulse crop price risk in india this article addresses the problem of collateral free lending in the context of agricultural development we investigate a viable alternative to traditional credit products through the development of risk contingent credit for operating loans and farm mortgages and apply the concept to agricultural loans for pulse crops in india risk contingent credit mitigates business and financial risk by reducing debt obligations depending on the embedded commodity options whose payoffs are linked with commodity price fluctuations we analyze daily commodity spot prices for pulse crops in india and show how risk contingent structured financial instruments can be priced in practice

financial contracts and international lending abstract this paper examines alternative financial contracts for international lending i demonstrate that conventional loans can be pareto dominated by financial contracts explicitly incorporating characteristics of the borrower s product market i provide conditions under which commodity linked debt is desirable and determine when more complicated revenue linked loans are optimal i also demonstrate that the type of lending contract has important real effects on production decisions one result of this research is to demonstrate why equity based lending arrangements may have limited applicability

forward contracts and futures contracts abstract this paper provides a detailed discussion of the similarities and differences between forward contracts and futures contracts under frictionless markets and continuous trading simple arbitrage arguments are invoked to value forward contracts to relate forward prices and spot prices and to relate forward prices and futures prices we also argue that forward prices need not equal futures prices unless default free interest rates are deterministic

luck versus forecast ability determinants of trader performance in futures markets statistical techniques are used to demonstrate that the fortunes of individual futures traders are determined by luck not forecast ability even though a large number of traders appear to exhibit significantly superior forecast ability the investigation strongly supports three conclusions there are fewer participants with significantly superior skill than expected if participants trade randomly there are more traders exhibiting no skill than expected if participants trade randomly and forecast ability is not correlated over time superior forecasters in the early period are only average forecasters in the later period therefore it is luck that determines trader performance copyright 1991 by university of chicago press

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

commodity bonds and consumption risks this paper analyzes the economic role of commodity bonds by examining the nature of the demand for these securities i show that while commodity bonds protect against relative price changes they do so by introducing variability into the future real income stream this variability limits the desirability of using commodity bonds to provide price insurance for future consumption however this variability may allow commodity bonds to hedge risks to consumption caused by stochastic changes in income the analysis also suggests that it is this income insurance rather than price insurance that is important in hedging risks to future consumption in 1863 the confederate states of america csa took the unusual step of issuing bonds payable in bales of cotton in 1980 the sunshine mining company took the unusual step of issuing bonds payable in ounces of silver although the csa commodity bond offering proved to be of an isolated and rather shortlived nature recent developments suggest that commodity bond offerings like that of sunshine mining may become more commonplace for example both mexico and the british oil and gas corporation have issued petroleum bonds and the reagan administration has proposed issuing oil indexed bonds to finance the strategic oil reserve france has experimented with gold bonds as have several private companies commodity indexed debt also has appeared outside of organized bond markets shared appreciation mortgages for example represent a debt indexed to the price of housing even bank loans can be indexed to underlying commodities as evidenced by the oil indexed loans between japanese banks and the soviet union 2 such developments suggest that debts linked to a wide variety of commodity indices are certainly feasible this paper analyzes the economic role of commodity bonds by considering the nature of the demand for these securities because commodity bonds can hedge graduate school of management cornell university this paper has benefitted greatly from discussions with david easley seymour smidt and piet sercu i would also like to acknowledge the extremely valuable comments of an anomymous referee 1 for discussion of the reagan petroleum bond plan see a new plan to finance oil reserve new york times january 15 1981 devious device to trim a budget new york times february 6 1981 and building an oil reserve the thrifty way new york times february 16 1981 britain s oil bonds are discussed in oil bonds may not bring riches world business weekly october 27 1980 gold bonds are featured in gold indexed bond is costly for france new york times june 30 1980 hot seller bonds indexed to oil and gold business week august 3 1979 and sale of gold bonds in europe planned new york times january 28 1981 2 numerous articles on such indexed loans have appeared in the wall street journal see for example wsj february 15 1979 p 33 june 11 1979 p 18 august 15 1979 p 29 april 7 1980 p 7 april 8 1980 p 35 and may 14 1981 p 31

the drivers of income inequality in rich countries rising income inequality has recently come centre stage as a core societal concern for rich countries the diagnosis of the forces driving inequality upwards and their relative importance remains hotly contested notably with respect to the roles of globalization versus technology and of market forces versus institutions and policy choices this survey provides a critical review and synthesis of recent research the focus is on income inequality across the entire distribution rather than only on what has been happening at the very top we pay particular attention to including what has been learned from the analysis of micro data to ensuring that the coverage is not unduly us centric and to analyses of the interrelations between the different drivers of inequality the marked differences in inequality trends across countries and time periods reflect how global economic forces such as globalisation and technological change have interacted with differing national contexts and institutions major analytical challenges stand in the way of a consensus emerging on the relative importance of different drivers in how income inequality has evolved in recent decades

ability biased technological transition wage inequality and economic growth thispaper develops a growthmodel characterizedbyability biasedtechnological transition in which the evolution of technology education attainment and wage inequality is consistent with the observed pattern in the united states and other advanced countries over the past several decades it argues that an increase in the rate of technological progress raises the return to ability and simultaneously generates an increase in wage inequality between and within groups of skilled and unskilled workers an increase in average wages of skilled workers a temporary decline in average wages of unskilled workers an increase in education and a productivity transitory slowdown

international competition downsizing and wage inequality a country with cournot competition and free entry experiences an increase of its market size either due to economic growth or international integration of its goods markets this implied increase in competition leads to shrinking mark ups and forces firms to reduce overhead costs relative to output this implies a reallocation at the aggregate level from administrative to productive activities relative factor rewards change and wage inequality increases the factor which loses in relative terms can even lose in real terms from a quantitative perspective international competition is demonstrated to be the more plausible cause of rising wage inequality c 2007 published by elsevier b v

technological progress mobility and economic growth this paper analyzes the relationship between technological progress wage inequality intergenerational earnings mobility and economic growth in periods of major technological inventions a decline in the relative importance of initial conditions raises inequality enhances mobility and generates a larger concentration of high ability individuals in technologically advanced sectors stimulating future technological progress and growth however once technologies become more accessible mobility is diminished and inequality decreases but becomes more persistent the reduction in the concentration of ability in technologically advanced sectors diminishes the likelihood of technological breakthroughs and slows future growth user friendliness therefore becomes unfriendly to future economic growth copyright 1997 by american economic association

nonparametric retrospection and monitoring of predictability of financial returns we develop and evaluate sequential testing tools for a class of nonparametric tests for predictability of financial returns that include in particular the directional accuracy and excess profitability tests our sequential methods consider in a unified framework both retrospection of a historical sample and monitoring newly arriving data to this end we focus on linear monitoring boundaries that are continuations of horizontal lines corresponding to retrospective critical values elaborating on both two sided and one sided testing we run a simulation study and illustrate the methodology by testing for directional and mean predictability of returns in young stock markets in eastern europe

inflow of labour producer services and wage inequality abstract this paper examines the issue of skilled unskilled wage inequality in the shortrun when varieties of producer services are traded it is shown that irrespective of the relative size of income share of capital inflow of neither skilled nor unskilled labour affects skilled unskilled wage inequality however an increase in i the level of competition in the services sector and ii relative price of the varieties of producer services can affect the level of wage inequality

free trade old and new challenges the paper analyses the old and new challenges to the theory and policy of free trade the old challenges have sought to undermine the case for free trade by citing one or another type of market imperfection thus the postwar period has seen two such challenges factor market imperfections were analysed in the 1950s to 197os product market imperfections in the i980s the new challenges are twofold one comes from the demands for fair trade as a precondition for free trade the other from the concern that free trade while efficient immiserises the unskilled in the richer countries having given a harry johnson lecture four years ago in london i was startled to be invited to give yet another one today but then i recalled his unmatched productivity his articles continued to be published even after his death the pipelines in several journals being full of them it is only appropriate then that he be honoured many times over also in these days of preoccupation with increasing returns to scale such a proliferation of lectures in the memory of a great economist is doubly fitting since harry johnson was in the english tradition of taking his theory from the real world s problems and then taking it back to talk penetratingly about them i thought it appropriate to address the earlier johnson lecture to the threats posed currently to the multilateral trading system by increasing resort

technology trade and factor prices abstract the view that recent changes in the distribution of income primarily reflect technology rather than trade may be the majority opinion but has been harshly criticized by some trade economists this paper will argue that the critique in fact misses the point essentially because the critics undertake the wrong thought experiments trade volumes are not irrelevant if one poses the question correctly one immediately realizes that small trade volumes are inconsistent with a story that attributes large distributional effects to trade the factor bias of technological change is not immaterial except in the case where such change takes place in a small open economy as opposed to one that can affect world prices and where technical change occurs only in that economy rather than occurring simultaneously in other economies as well since the real situation does not meet either criterion factor bias definitely does matter most surprisingly the much maligned use of a factor content approach to infer the effects of trade on factor prices turns out to be an entirely justified procedure when carefully applied

reallocating risks and returns to scale up adoption of distributed electricity resources abstract deployment of distributed electricity resources requires bringing together assets that belong to diverse and geographically diffuse owners using the example of distributed solar pv we analyze the schemes used to encourage induce owners of distributed assets to make them available for electricity generation the dominant model in the u s is long term power purchase agreements ppa offered to owners consumers by solar developers we show that these agreements mis allocate the electricity price risk to owners consumers and impose limitations on the scale up of distributed solar by proper use of financial markets it is possible to shift the electricity price risk from owners consumers to parties that are better positioned to manage it the proposed contracts simplify the adoption decision for owners consumers and can lead to a wider adoption removing barriers to scale up requires i eliminating the tight coupling between consumers and owners and ii rewarding the owners unambiguously for the assets they provide these necessitate the transformation of the current intermediary firms into full fledged distributed generators we discuss the implications of such a transformation and argue that the broad outline of our analysis can be used to assess scale up schemes in other domains of distributed electricity resources as well