variable returns to scale in production and patterns of specialization this paper discusses some trade and welfare implications of the two sector model based on increasing returns to scale irs in one industry and decreasing returns to scale drs in the other it has been shown by horst herberg and murray kemp that given homothetic production functions with irs in one industry and drs in the other the production possibilities frontier ppf is strictly concave to the origin near the irs axis and strictly convex to the origin near the drs axis while this result constitutes an important finding and is contrary to the general impression among economists even twelve years after the publication of herberg and kemp s paper no attempt has been made to analyze its implications for welfare and patterns of specialization in this paper i consider a simple twocommodity model with irs in one industry and drs in the other and discuss some interesting implications of variable returns to scale vrs first i demonstrate that in this model if a small open economy specializes completely in production it will do so in the drs commodity and not in the irs commodity as is generally believed second if at a given price ratio an internal production equilibrium exists a welfaremaximizing small open economy will never specialize completely in production even though the ppf exhibits decreasing opportunity costs over a part of its range third given output generated economies and diseconomies of scale welfare maximization for a small country requires a permanent tax subsidy scheme encouraging expansion of the irs industry and contraction of the drs industry finally in a two country model with identical tastes and technology across the countries free trade equilibrium may result in incomplete specialization by the exporter of the irs commodity and complete specialization by the exporter of the drs commodity in the course of the analysis i argue that tinbergen s formulation of frank graham s case for protecting the irs industry is incorrect i then present a possible reformulation of it in section i the basic production model is introduced in section ii the model is analyzed and in section iii it is argued that all the results continue to hold in the multifactor case

models of policy under stochastic replanning this paper considers a policy environment in which policy is not set by a single policymaker but by a sequence of policymaking administrations administration turnover is determined by a simple random process the consequences of administration turnover are traced through for two versions of a linear rational expectations model and numerical simulations of various policy environments are presented this abstract was borrowed from another version of this item

multiple equilibria coordination and transitional growth abstract we study a small open economy with two sectors and two factors of production in one of the sectors external economies of scale are generated through the industry level capital input this leads to a divergence between private and social production possibility frontiers as well as to multiple equilibria the equilibrium selection problem that arises is solved by agents who follow a simple trial and error learning rule the growth path of the economy as agents learn lies below the production possibility frontier and may display cyclical transitional dynamics we also show that coordination problems which may prevent the economy from attaining the good equilibrium may be alleviated by the temporary use of policy instruments that shape the allocation of resources

optimal market pools for agricultural cooperatives most agricultural marketing cooperatives distribute members net revenues on a pool basis the present paper outlines various pool options and provides a framework for identifying privately and collectively optimal pooling rules individual members pool choices are found to vary according to farm enterprise and risk aversion level a collectively optimal rule depends generally on risk aversion and on the method used to aggregate individuals expressed preferences in the instance examined here however the collective optimum is somewhat insensitive to assumed risk aversion

cooperatives tax advantages growth retained earnings and equity rotation cooperatives are subject to full tax integration for the bulk of their income while corporations net income is subject to what is known as a classical form of taxation this paper derives the condition under which full tax integration gives the cooperative a lower cost of equity capital and develops a model to examine the effect of taxation together with equity rotation on the growth path of cooperatives an examination of some financial data of the largest 100 cooperatives supports our conclusion that cooperatives under current financial practices are capable of extremely high short term growth rates but they are not sustainable

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

a positive theory of discretionary policy the cost of democratic government and the benefits of a constitution we offer an explanation of government s preference for discretionary policy action the main elements are asymmetric information and the ability and desire of governments to maximize reelection prospects discretionary policy imposes a social cost we show that the cost is eliminated if all voters have the same information as the government an optimal state contingent policy rule that precommits government through a constitution eliminates the cost by removing government s opportunities to exploit its informational advantage rules of this kind and constitutional restrictions are difficult to enforce in the presence of uncertainty and different information available to government and the public

production possibilities with a public intermediate good this paper considers the shape of the production possibility set with a public intermediate good of the atmos phere type the elements which tend to give rise to a concave product ion frontier are isolated from those which tend to generate a convex one by using the notion of the production surface the results from earlier models are both generalized and sharpened

estimation of technical inefficiency in manufacturing industry an extension of the method of estimation of technical ineficiency is presented based on the stochastic production frontier approach a derivation of the estimation procedure is given and the technique applied at the industry level the choice of production function is considered and empirical results pertaining to australia and the uk are presented

a theoretical explanation of some stylized facts of economic growth this paper presents a three good two country general equilibrium model that is consistent with several stylized facts of economic growth the three goods are manufactures agriculture and services manufactures are subject to economies of scale the model predicts that services a nontraded good must be more expensive in the country with higher per capita income it also shows that as per capita income increases we should expect the productivity in commodities relative to services to rise the model is able to generate many other stylized facts of economic growth

market structure and ldcs manufactured export performance typically trade theory and analysis of domestic market structure have proceeded separately this paper considers ldcs performance in exporting manufactured products using a model which embraces customary explanatory variables namely factor endowments scale economies and skill levels and a market structure variable in marked contrast to practice in other empirical studies the data employed are not based on coefficients derived from us industries but are taken from local industrial censuses undertaken by individual countries differences in results across countries indicate the need for care in determining policy prescriptions for individual countries with respect to the degree of competition

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

process innovation activity in a mixed oligopoly the role of cooperatives this article develops a sequential game theoretic model of heterogeneous producers to examine the market and welfare effects of cooperative involvement in process innovation activity in the agricultural sector the analysis examines an open membership input supplying cooperative co op that maximizes member welfare and finances its innovation activity through retained earnings analytical results show that the presence of the co op can increase the arrival rate of innovations while reducing the price of agricultural inputs cooperative involvement in innovation activity can thus be welfare enhancing and socially desirable with its effectiveness being determined by the degree of producer heterogeneity and the size of innovation costs

insider power unemployment dynamics and multiple inflation equilibria this paper incorporates employment dynamics due to insider power into the barro gordon theory of inflation unlike in the static barro gordon case and even though our infinitehorizon model is linear quadratic there can be two markov perfect equilibria so that the same unemployment may correspond to either low or high inflation both equilibrium inflation rates measured per unit of the gap between the insiders and government s employment targets are higher than the corresponding rate in the static case the low inflation equilibrium has intuitive comparative statics properties in that inflation is increasing in insider power and the discount factor but the high inflation equilibrium behaves in the opposite way the highinflation equilibrium can be eliminated by a future precommitment to a fixed inflation regime e g erm but only if this precommitment can be made with certainty contrary to the static model inflation may be lower when the union puts a positive weight on a wage target than when it cares only about employment even when this wage target is consistent with a lower employment level than the employment target

understanding retained patronage refunds in agricultural cooperatives the share of patronage refunds retained by an agricultural cooperative is modeled as arising from the portfolio decision of its median member the member is viewed as maximizing expected utility by allocating wealth between investments in farming assets and equity in the cooperative determinants of the share of patronage refunds retained are the expected rates of return on these two investments their variances their covariance and the expected future share of patronage and its variance empirical examinations of aggregate cooperative data and cross section analysis of seventeen regional supply cooperatives are found to be consistent with the model

on measuring economic efficiency summary this paper considers a system consisting of a production frontier and factor share equations to measure firm specific technical efficiency and input specific allocative efficiency simultaneously in estimating the system as a whole the joint distribution of all errors in the equations is used this is more efficient than using the marginal distribution of a function of the errors as one does by estimating either the profit function or the production function alone the workability of the method is illustrated by applying it to farm level data from philippines agriculture

increasing returns and the gains from trade it is known that gains from trade are positive in the presence of increasing returns to scale if all increasing returns industries expand in the shift from autarky sufficient conditions for gains when some increasing returns industries expand and others contract suffer from the limitations that the production frontier must be convex changes must satisfy a prespecified hierarchical pattern or that total factor supplies must be fixed between equilibria conditions which can not generally be assured this paper develops a necessary and sufficient condition for gains and from it a sufficient condition that does not depend on these restrictions copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

comparative advantage in manufactured goods a re appraisal japanese input coefficients are used to investigate the pattern of comparative advantage in the exportation of manufactured products in a cross country framework estimates are made for the imports of manufactured products as well as for net exports also alternative techniques of estimation are utilized and an attempt to explain the residuals in the regression equations and to indicate the predictive power of these equations is made the paper shows that patterns of comparative advantage in manufactured goods can be explained by reference to commodity characteristics and country characteristics in turn intercountry differences in the extent of trade orientation the concentration of exports and foreign direct investment explain part of the residuals of the cross country regression equations finally it has been found that the method applied permits projecting the factor intensity of trade for individual countries

a note on the neoclassical ambiguity and the specific factor production model under variable returns to scale abstract this note investigates the relationship between commodity price changes and factor rewards in a specific factor production model that admits variable returns to scale the principal result is that in the presence of variable returns to scale the so called neoclassical ambiguity may be resolved without resorting to detailed knowledge of the mobile factor s preferences that is to say the effect of a commodity price change may as it does with the returns to those factors specific to each industry raise or lower the real reward of the mobile factor in terms of either commodity depending only on the characteristics of the technology

two fallacies concerning central bank independence this paper takes issue with two basic conclusions prevalent in the literature on central bank behavior first the paper argues that it is inappropriate to presume that central banks will in the absence of any precommitment technology necessarily behave in a discretionary fashion that implies an inflationary bias since there is no functional connection between average rates of money creation or inflation and policy responsiveness to cyclical disturbances it is entirely feasible for the bias to be avoided in other words there is no necessary tradeoff between flexibility and commitment second to the extent that the absence of any absolute precommitment technology is nevertheless a problem it will apply to a consolidated central bank plus government entity as well as to the central bank alone thus contracts between governments and central banks do not overcome the motivation for dynamic inconsistency they merely relocate it this abstract was borrowed from another version of this item

gold monetization and gold discipline gold and its price have emerged as frequent topics of both academic and government debate 2 public attention focused on the gold market since gold s price began fluctuating violently in 1980 and 1981 has turned to gold as a possible means of removing some discretion inherent in the current fiat money system since lack of adherence to monetary rules can lead to problems of dynamic policy inconsistency academic economists have begun seriously to reconsider monetary standards based either on gold or on some other commodity as politically feasible methods of establishing rules 3

dynamic commitment and incomplete policy rules considering the dynamics of commitment highlights some neglected features of time inconsistency problems we modify the standard rules versus discretion question in three ways 1 a government that does not commit today retains the option to do so tomorrow 2 the government s commitment capability is restricted to a class of simple rules and 3 the government s ability to make irrevocable commitments is restricted three results stand out first the option to wait makes the incumbent regime rules or discretion relatively more attractive second the option to wait means that increased uncertainty makes the incumbent regime more attlwactive third because the commitment decision takes place in real time policy choice displays hysteresis when monetary policy is subject to dynamic inconsistencies optimal policy requires some precommitment by the central bank despite a proliferation of mechanisms designed to address this problem work in this area has continued to assume a once and for all choice between rules and discretion this paper asks two closely related questions first what happens if commitment decisions are made in real time so that failure to commit today does not rule out the possibility of commitment tomorrow second if governments can make only commitments that are difficult but not impossible to reverse what determines the dynamics of commitment and reversal the assumption of once and for all choice enforces simplistic dynamics on the policy process if the standard models are interpreted literally for example the commitment problem for u s monetary policy is moot having been resolved with the founding of the federal reserve system in 1914 if not at the constitutional convention of 1789 much of the interest in dynamic inconsistency however arises pre

trade spatial separation and the environment we develop a simple two sector dynamic model to show how pollution can provide a motive for trade by spatially separating incompatible industries we assume that the production of smokestack manufactures generates pollution which lowers the prod uctivity of an environmentally sensitive sector farming two identical unregulated countries will gain from trade if the share of world income spent on smokestack goods is high in contrast when the share of world income spent on the dirty good is low trade can usher in a negatively reinforcing process of environmental degradation and real income loss for the exporter of smokestack goods 1999 elsevier science b v all rights reserved

immiserizing transfer under variable returns to scale this paper examines the welfare consequences of a unilateral transfer for both the transfer paying and the transfer receiving country in which the production functions are subject to variable returns to scale we obtain the conditions for the strong paradox that is the welfare of the transfer paying country improves and that of the transfer receiving country declines in the standard two country framework the conditions for the weak paradox that is both the transferor and transferee gain or lose simultaneously and the normal results that is the transferor loses and the transferee gains are also derived transferts appauvrissants quand les rendements a l echelle sont variables ce memoire examine les effets de bien etre d un transfert unilateral a la fois pour le pays donateur et le pays recipiendaire quand les fonctions de production ont des rendements variables a l echelle les auteurs d6veloppent les conditions qui sous tendent le paradoxe fort i e le cas oii le bien r ils d6rivent aussi les conditions qui sous tendent le paradoxe faible i e le cas oui les deux pays gagnent ou

measuring market distortion international comparisons policy and competitiveness this paper develops a framework to simultaneously estimate production possibility frontiers and measure distortions in factor and product markets the econometric results based on a panel of 61 countries over the period 1970 through 1985 reveal very little distortion in factor markets but considerable distortion in product markets in addition the distortions tend to vary with the cyclical behaviour of economic activity further the results suggest that in order to improve efficiency commercial policy should aim at reducing product market distortions rather than factor market ones

the formation of cooperatives a game theoretic approach with implications for cooperative finance decision making and stability this paper departs from the traditional organization oriented approach to cooperative analysis it exploits cooperation s functional similarity to vertical integration to examine individuals incentives to form cooperatives a model of formation of a purchasing cooperative is presented and developed as an n person game with the core as a solution concept core existence is examined for both single and multiple cooperative configurations and cooperative finance methods are examined relative to finding core compatible allocation rules the results provide insight into a cooperative s equilibrium output stability decision making financing methods and choice of open or restricted membership

factor mobility trade and welfare abstract the paper develops a north south model which is driven by scale economies in the modern sector the model predicts that skilled and unskilled labor migrate from south to north and capital migrates from north to south migration of skilled labor and capital exhibits complementarity with trade while migration of labor may exhibit complementarity or substitutability if the terms of trade effects are ignored small movements of all factors affect the welfare of the population in south negatively and of that in north positively the effects of migration on the terms of trade are ambiguous in general

efficiency measurement in rotating panel data rotating panel data are used with estimation of stochastic production frontier the model can be viewed as a generalization of the regular production function estimation that accommodates technical inefficiency as well as firm heterogeneity in particular while estimating technical efficiency for each firm over time we control for firmspecific effects and separate them from technical inefficiency estimation of the model is considered in two steps in the first step we estimate parameters of the underlying productionfunction using generalized least squares methodwhich are then used in the estimation of technical efficiency in the second step as an empirical application we used rotating data on 1425 swedish dairy farms observed during 1976 1988 the mean technical efficiency of these farms is found to be 94 5 and 16 of the farms are fully efficient evidence of technical regress about 1 per annum is observed during 1976 to 1984

central bank reputation in a forward looking model this paper examines whether reputation concerns can induce the central bank to implement the time inconsistent optimal monetary policy in the standard new keynesian model interestingly the forward looking nature of this model enables us to account for the coordination of the private agents on the punishment length of their trigger strategy our results suggest that both the inflation bias and the stabilization bias can be overcome by a reputation concerned central bank for the calibrations used in the literature these results enable us to endogenize woodford s timeless perspective and tend to weaken the case for recent monetary policy delegation proposals

entitlements and distributive equity in cooperative marketing pools abstract inter member allocation of marketing pool income is contingent on the rule used for valuing members raw product contributions such valuations depend in turn upon forecasts of the raw product s resale net returns an entitlement based notion of a pool s distributive equity which generally differs from a welfare based notion is expressed weakly in the expectations domain or more strongly in expectations and variance domains valuing raw products according to unbiased unit return forecasts may or may not guarantee weak form equity if weak equity is not guaranteed strong equity is assessed only in reference to a loss function in any event improved equity may involve increased information cost

managing permit markets to stabilize prices the political economy of environmental policy favors the use of quantity based instruments over price based instruments e g tradable permits over green taxes at least in the united states with cost uncertainty however there are clear efficiency advantages to prices in cases where the marginal damages of emissions are relatively flat such as with greenhouse gases the question arises therefore of whether one can design flexible quantity policies that mimic the behavior of price policies namely stable permit prices and abatement costs we explore a number of quantity plus policies that replicate the behavior of a price policy through rules that adjust the effective permit cap for unexpectedly low or high costs they do so without necessitating any monetary exchanges between the government and the regulated firms which can be a significant political barrier to the use of price instruments

the positive theory of production externalities under perfect competition abstract aggregate cost and factor demand functions are used to develop a local envelope function which is applied in a general equilibrium model with production externalities to shed new light on the relationship between the true economy marginal costs and outputs this relationship induces a structure to the relationship between actual prices and outputs by means of the assumption of no factor demand reversals associated with externality effects we also provide generalisations of the stolper samuelson and rybczynski theorems highlighting the role of the externality effects

economies of scale imperfect competition and the pattern of trade it has been long recognised that economies of scale and market structures have significant impacts on a country s comparative advantage and pattern of trade but the assumption of perfect competition used since the classicists has deterred the analysis of these elements in international trade theory this is evidenced by most of the current textbooks on international trade which usually offer a small section or at best a small chapter on imperfect competition and economies of scale in relation to international trade very recently however a handful of works have appeared that have dealt with economies of scale and imperfect competition in a general equilibrium framework in keeping with the modern theory of international trade negishi i972 krugman i979 i980 dixit and norman i980 helpman i981 and ethier forthcoming a brief summary of these contributions can be given as follows negishi is mainly concerned with proving the existence of equilibrium and gains from trade in a world of imperfect competion krugman i979 using the negishian model basically allows for product differentiation a la dixit and stiglitz i977 the very existence of product differentiation in turn allows for intra industry trade and it also implies that there are gains from trade from consuming more varieties of products even between economies which are identical in factor endowments technology and tastes using this model krugman i980 shows a larger domestic market hypothesis of pattern of trade which says that a country tends to be a net exporter of the products which have relatively larger domestic markets the existence of economies of scale is what explains this dixit and norman present three models of imperfect competition in the first one they consider a cournot model with entry in which it is shown that trade leads to a greater equilibrium number of firms and hence more competition and to an increase in welfare in the second model they examine the effect of trade on product selection in a monopoly model their third model appears to be richest among the three it incorporates product differentiation and intra industry trade as in krugman s papers an economy is divided into two sectors a competitive sector and a monopolistically competitive sector and then equilibrium in a trading world economy is characterised two conclusions stand out first as for the inter industry trade the factor abundance hypothesis the heckscher ohlin theorem explains the pattern of trade second as for the intra industry trade a smaller country has comparative advantage in the production of differentiated goods which are produced in the monopolistically