representative democracy and capital taxation abstract in this paper we study a political model of capital taxation voters who differ in their relative shares of capital and labor income choose tax policy under majority rule we compare two political regimes direct democracy where the voters vote directly on the policy and representative democracy where they elect a representative who then chooses policy in both regimes some form of commitment by the voters is necessary to avoid excessive taxation of capital but the necessary commitment under representative democracy corresponds closely to that provided by the actual institutions of most democracies

environmental policy instruments in an international duopoly with feedback investment strategies abstract this paper analyses the effects of the environmental policy instruments taxes and standards on the investment behaviour of firms in the context of an international duopoly two production factors are considered the capital stock and a polluting input the government of each country values high profits for its firm and a good environmental quality through standards on the polluting input firms get commitment on output which is not the case under taxes standards thus seem a better environmental policy instrument because for the same use of the polluting input taxes lead the duopolists to higher investment with lower profits this result was derived in a two stage game model it was confirmed in a differential game model with open loop strategies the paper shows that in a differential game model with feedback strategies an effect occurs that counteracts the first effect the cause of this is that taxes induce substitution between capital and the polluting input the conclusion is that under taxes firms invest more due to the absence of commitment but invest less due to substitution between the inputs the net effect depends on the values of the parameters taxes are better than standards for low rates of depreciation and discount for low investment costs and for high productivity of capital

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

political extremism in the presence of a free rider problem this paper provides an explanation for the emergence of political extremism in an environment in which a change in re gime requires an investment that benefits more than one player we show that in order to mitigate the effects of free riding players may choose extreme positions further we show that as the free rider problem becomes more severe both parties move to more extreme positions in the same direction

on the international dimension of fiscal policy this paper analyses the international dimension of fiscal policy using a small open economy framework in which the government finances its spending by levying distortionary taxation and issuing non state contingent debt the main finding of the paper is that once the open economy aspect of the policy problem is considered it is not optimal to smooth taxes following idiosyncratic shocks even when prices are flexible and inflation can costlessly act as a shock absorber to restore fiscal equilibrium the presence of a terms of trade externality lead to movements in the tax rate also in contrast with the closed economy the introduction of sticky prices can reduce the optimal volatility of taxes

research quality and efficiency an analysis of assessments and management issues in dutch economics and business research programs abstract assessments of quality and productivity of academic research programs become more and more important in gaining financial support in hiring and promoting research staff and in building academic reputation most assessments are based on peer review or on bibliometric information in this paper we analyze both bibliometric data and peer review assessments of 169 research groups in economics econometrics and business administration the evaluations are achieved in two independent rounds in 1995 and in 2001 permitting replication of our study the purpose of this study is twofold in the first part we want to see to what degree bibliometric information relates to peer review judgments the results convey how evaluators weight different output categories in their final overall judgment of academic quality the results also have practical meaning since they indicate what the predictive ability of bibliometric data is for future peer review outcomes in the second part of this study we aim at explaining differences in research output quality and productivity by organizational factors like size of the research group composition of staff sources of research funding and academic discipline in this part a composite indicator is used to represent the review committees overall assessment the bibliometric data most strongly related to the peer reviews overall assessment are used to construct data envelopment analyses efficiency scores as measure of research productivity the main conclusions from our study are that the number of publications in international top journals is the best predictor of peer review assessment results changes in the classification of bibliometric information as introduced in the second evaluation round do not alter this conclusion size of the research group appears to be the only permanent characteristic associated with research quality and productivity size is positively related to research quality but negatively related to research productivity larger groups appear to have the potential to improve quality but as groups become larger they also experience problems in maintaining the research productivity of the research team s members the remaining organizational characteristics appear to be temporarily related to research quality and productivity in the first evaluation round research productivity and quality are associated with the discipline variable research programs in more quantitative areas and characterized by a higher level of paradigm development like econometrics and operations research achieved higher levels of research quality and productivity than programs in more diverse and less quantitative areas like business administration this relation however is not permanent since it becomes insignificant in the second evaluation round instead funding relations become more apparent in the second review round the relative amount of national funding in the research group s funding becomes positively related to academic quality whereas the portion of income from committed research is negatively related to academic quality of the programs research output this may have been caused by the increased importance of alternative sources of research funding in the period of the second review

an examination of the equilibrium specification and structure of production for canadian telecommunications multiple output models of canadian telecommunications production are estimated under different production equilibria a specification test is conducted between the short and long run equilibrium models and the long run equilibrium is rejected in order to capture the nature of the disequilibrium a dynamic cost of adjustment model is estimated for bell canada there are significant adjustment costs and it is estimated that for 1 00 of marginal capital costs the carrier must incur an additional cost of 0 30 to install the new capital into the production process

the cyclical behavior of the price cost markup countercyclical markups constitute the key transmission mechanism for monetary and other demand shocks in new keynesian models this paper tests the foundation of those models by studying the cyclical properties of the markup of price over marginal cost the first part of the paper studies markups in the aggregate economy and the manufacturing sector we use bils s 1987 insights for converting average cost to marginal cost but do so with richer data we find that all measures of markups are either procyclical or acyclical moreover we show that monetary shocks lead markups to fall with output the second part of the paper merges input output information on shipments to the government with detailed industry data to study the effect of demand changes on industry level markups industry level markups are found to be acyclical in response to demand changes

monetary union a welfare based approach abstract this article attempts to shed light on the consequences of the transition to emu for individual welfare following specific shocks to this end we develop a two country intertemporal general equilibrium model that extends the obstfeld and rogoff journal of political economy 103 3 1995 624 specification to nominal rigidities through price adjustment costs and pricing to market behavior we show that when facing a positive asymmetric permanent shock to either technology or government expenditures occurring in one country implementing a monetary union is beneficial to the households living in this economy conversely it is detrimental to foreigners further a sensitivity analysis shows that if the gains losses to implementing monetary union are qualitatively robust when facing changes in the degree of nominal rigidities and the elasticity of substitution between foreign and domestic goods they are quite sensitive to the degree of pricing to market in the economy

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

extremism as a strategic tool in conflicts abstract this paper studies the strategic role of extremism within a two country multi stage game and shows that in general an equilibrium exists in which extremism is used by both rivals we show that often changes in the environment affect the two countries differently specifically as a country becomes wealthier more powerful or more democratic its level of extremism decreases but at the same time its rival s level of extremism increases similarly higher stakes in the conflict tend to increase the level of extremism in the relatively poorer weaker and less democratic country but decrease the level of extremism in the other country on the other hand higher stakes in a conflict between similar countries and greater destructiveness vis a vis the contested asset will increase the levels of extremism in both countries since changes in the environment may affect the levels of extremism in the two countries in opposite ways we calculate the probability of an extremist destructive episode as a possible measure of the aggregate level of extremism in the conflict we find that the aggregate level of extremism decreases with wealth power and degree of democracy but increases with the stakes in the conflict and with better access to destructive technology finally we use the model to examine levels of extremism within the context of the israeli palestinian conflict

expectations and factor demand this paper develops and estimates a model of interrelated factor demand with rational expectations in the presence of internal adjustment costs invariant technological parameters are distinguished from the firm s adjustment parameters which change when the exogenous processes faced by the firm change the capital demand equation is derived by solving the euler equations which stem from minimization of the present value of costs future exogenous variables are supplied from solutions of arima equations the model is tested on postwar quarterly data for u s manufacturing a regime change in the process for energy prices is simulated as is a temporary suspension of the investment tax credit

lobbying and welfare in a representative democracy this paper studies the impact of lobbying on political competition and policy outcomes in a framework which integrates the citizen candidate model of representative democracy with the menu auction model of lobbying positive and normative issues are analysed on the positive side lobbying need have little or no effect on policy outcomes because voters can restrict the influence of lobbyists by supporting candidates with offsetting policy preferences on the normative side coordination failure among lobbyists can result in pareto inefficient policy choices in addition by creating rents to holding office lobbying can lead to excessive entry into electoral competition

the politics of 1992 fiscal policy and european integration the internal market in europe will greatly increase the international mobility of resources how will this affect fiscal policy in different countries we consider taxation of capital in a two country model where a democratically chosen government in each country chooses tax policy higher capital mobility changes the politico economic equilibrium in two ways on the one hand it leads to more tax competition between the countries this economic effect tends to lower tax rates in both countries on the other hand it alters voters preferences and makes them elect a different government this political effect offsets the increased tax competition although not completely

short and long term equilibria relationships between first and third generation dynamic factor demand models abstract first generation dynamic models of input demands are theoretically inferior to third generation models yet their simplicity makes them attractive for estimation purposes moreover first generation models can be shown to be generically related to third generation models and under certain assumptions input demand expressions in a third generation model collapse to those of the first generation seemingly offering a short cut for estimation however empirical comparisons suggest that first generation specifications do not afford a reasonable approximation to input functions embedded in more complex third generation models furthermore the reduced form coefficients do not permit identification of third generation model structures

the economics of split ticket voting in representative democracies in u s elections voters often vote for candidates from different parties for president and congress voters also express dissatisfaction with the performance of congress as a whole and satisfaction with their own representative the authors develop a model of split ticket voting in which government spending is financed by uniform taxes the benefits from this spending are concentrated while the model generates split ticket voting overall spending is too high only if the president s powers are limited overall spending is too high in a parliamentary system the authors model can be used as the basis of an argument for term limits copyright 1997 by american economic association

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

the cyclical nature of markups in canadian manufacturing a production theory approach in this paper the effects of cost and demand characteristics on the magnitude and cyclical behaviour of markups in canadian manufacturing are measured within a production theory framework price to marginal cost ratios for various manufacturing industries are computed and the impact art their secular and cyclical trends from changes in capacity utilization scale economies variable input prices import competition unemployment and other exogenous market and technological determinants are explored using adjusted markup indexes and elasticities the measured price margins seem weakly procyclical further evaluation of the determinants of these cycles suggests that the procyclical nature of markups is primarily related to exogenous factors affecting costs such as energy price shocks and that cost characteristics underlying scale economies provide a countercyclical influence that counteracts the profitability arising from markups

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

total factor productivity growth technological progress and technical efficiency change dimensions of productivity change in yugoslavia 1965 1978 this article total factor productivity growth technological progress and technical efficiency change dimensions of productivity change in yugoslavia 1965 78 was reprinted with permission from the december 1982 issue of the economic journal this article proposes a methodology that decomposes total factor productivity change into two distinct elements technological progress and changes in technical efficiency technological progress is defined as the change in the best practice production frontier all other productivity change is attributed to technical efficiency change the article provides a theoretical framework for decomposing total factor productivity growth as well as a specification and estimation of the deterministic frontier production function it employs a programming technique to estimate a flexible functional form of the production frontier the paper then applies this technique to empirical data from yugoslavia of the period from 1965 to 1978 it concludes that for yugoslavia improvements to technical efficiency comprise the dominant contribution to total factor productivity change this agrees with accumulating evidence that in many developing economies productivity gain due to technological mastery of imported technology is substantial

economic fluctuations market power and returns to scale evidence from firm level data recent research on aggregate fluctuations coupled with ongoing work in industrial organization has renewed interest in the existence magnitude and cyclical pattern of market power and the extent of increasing returns to scale by exploiting restrictions from dynamic theory and information from financial markets we present a framework for generating quantitative evidence on market power and returns to scale tailoring the econometric model to firm level panel data we calculate the percentage differential between price and marginal cost the lerner index in terms of the parameters from the econometric system results for firms in eleven industries indicate that there is a great deal of heterogeneity in the extent of market power industries with significantly positive lerner indices tend to have substantial increasing returns in the production technology we find that there is only a modest relation between our estimated lerner indices and traditional measures of market power and that when market power varies temporally it is usually procyclical thus variations in the markup of price over marginal cost may help dampen aggregate economic fluctuations

delegation effects in representative democracies do they foster extremism abstract we analyze the political equilibria of a model of representative democracy with strategic delegation where the policy which maximizes ex ante the welfare of a citizen is not in general the one he would select ex post if he were elected we show that these effects give rise to an abstention effect which is likely to lead to the unopposed election of extremist representatives and prevents policy convergence in two candidate elections

the cyclical behavior of marginal cost and price the author examines the cyclical behavior of price marginal cost margins for u s manufac turing after 1956 short run marginal cost is markedly procyclical this is primarily due to procyclical overtime payments incurred beca use employment is not perfectly flexible in most industries output price fails to respond to the cyclical movement in marginal cost so price marginal cost margins are markedly countercyclical the res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing they support theories that explain low production in a recession by the inability of firms to sell their output copyright 1987 by american economic association

endogenous markups intensity of competition and persistence of business cycles in order to study the propagation mechanism of business cycles in particular to investigate how the intensity of competition affects market structure and output persistence over business cycles this paper presents a real business cycle model with imperfect competition and increasing returns to scale this analysis considers the markups of price over cost to be endogenous with endogenous markups two standard forms of oligopolistic competition bertrand and cournot are considered results show that 1 the propagation mechanism in the sense of output persistence is greater under cournot 2 the propagation mechanism is unequivocally greater with imperfect competition regardless of whether markups are endogenous or not and 3 under imperfect competition the propagation mechanism is greater with endogenous markups than with exogenous markups overall these results suggest that more intense competition produces lower persistence in output growth and thus a weaker propagation mechanism in a calibration exercise these differences were also found to be quantitatively important

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

technical efficiency and u s manufacturing productivity growth this paper establishes that new inputs increase technical efficiency levels for u s manufacturing over the period 1950 1998 intermediate inputs exhibited higher rates of efficiency growth than labor and capital efficiency adjusted productivity growth annually averaged 0 4 percentage points above measured growth the gap between efficiency adjusted and measured productivity growth arises from aggregating inputs using observed and not efficiency adjusted cost share weights in the calculation of measured growth specifically the decline in efficiency adjusted material cost shares compared to the measured shares coupled with the comparatively high material input growth rate was the main source of the productivity gap

dynamic factor demands and market structure under rational expectations some estimates for the italian manufacturing system this paper deals with a dynamic model of the behaviour of firms under rational expectations the adjustment cost framework is followed to describe production technologies the objective of firms is to maximize the stream of future profits under rational expectation first order conditions for the optimum are derived with respect to input demands and one output supply the output market structure is modelled in order to test price taking behaviour the adjustment costs of quasi fixed inputs are internal and interrelated the model is estimated for the italian manufacturing system with encouraging results

joint pricing and inventory policies for make to stock products with deterministic price sensitive demand abstract in this paper we focus on a firm selling a single make to stock product to price sensitive end customers we develop an integrated operations marketing model that can help determine the relevant profit maximizing decision variable values for two pricing policies that the firm might follow price as a decision variable which is advocated by academicians and mark up pricing used by most practitioners we first consider an eoq based model with price and order quantity as independent decision variables we then develop an analogous model where price is a mark up over operating costs per unit and order quantity becomes the sole decision variable we are able to ascertain the optimal decision variable values for each model for log linear and linear demand functions we prove that for such profit maximizing models the optimal batch size is not necessarily monotone increasing in set up cost interestingly our numerical analytical evidence suggests that from a profit perspective it is better for managers to be aggressive on price rather than reducing price too much especially for highly price sensitive and non linear demand moreover we establish that in general the profit penalty for not including inventory costs in determining the optimal batch size or ignoring the batch size optimization issue in a mark up price model is not significant only when the set up cost is quite high and or the firm faces non linear demand from highly price sensitive end consumers does it become crucial for managers to determine the exact optimal batch size and base the mark up price on the entire unit operating cost not only the unit variable production cost

dynamic factor demands under rational expectations we model the industrial demands for structures equipment and blue and white collar labor in a manner consistent with rational expectations and stochastic dynamic optimization in the presence of adjustment costs but allowing generality of functional form we represent the technology by a translog input requirement function that specifies the amount of blue collar labor needed to produce an output level given quantities of three quasi fixed factors nonproduction workers equipment and structures a complete description of the production structure is obtained by simultaneously estimating the input requirement function and three stochastic euler equations we find adjustment costs are small in total but large on the margin and differ considerably across factors

consistent tariffs with dynamic supply response abstract this paper models a large importer of a competitively produced good for which there are nonlinear adjustment costs in production if producers have rational expectations and the importer is unable to make a credible commitment regarding future tariffs market power may be disadvantageous this is more likely to occur when the difference between short and long run elasticities of supply are large this result depends on the particular subgame perfect equilibrium that is chosen if producers were capable of strategic behavior other equilibria which rely on trigger strategies would be reasonable and market power could no longer be disadvantageous

monetary rules for small open emerging economies abstract this paper develops a variant of the imf s global economic model suitable to analyze macroeconomic dynamics in open economies and uses it to assess the effectiveness of taylor rules and inflation forecast based ifb rules in stabilizing variability in output and inflation our findings suggest that a simple ifb rule that does not rely upon any direct estimates of the equilibrium real interest rate and places a relatively high weight on the inflation forecast may perform better in small open economies than conventional taylor rules

financial structure production and productivity evidence from the u s food manufacturing industry this study integrates production and financing to examine the impacts of financial structure change on the production profitability and productivity growth in the u s food manufacturing industry empirical results show that during the period covered by this study agency cost associated with increased debt use by this industry negatively affected its output growth input demand profitability and overall productivity growth dividend payment positively contributed to the production and performance of this industry via signaling benefit however the negative effects of increased debt use by this industry far outweighed the positive contribution of dividend payment the u s food industry achieved a 0 9 average annual productivity growth which came primarily from technological progress and capital adjustment the rapid increase in debt use by this industry was responsible for slowing down the pace of productivity growth via its negative contribution to the total factor productivity growth capital expansion was the principal driver of output growth and profitability in this industry

markups in u s and japanese manufacturing a short run econometric analysis in this article a production theory based model of firms markup behavior is constructed the theoretical structure is based on variants of generalized leontief cost and expenditure functions this framework yields a specification of behavior from which the impacts of both supply and demand shocks on firms markup behavior can be assessed through elasticities adjustment costs on both labor and capital and economies of scale are incorporated estimation is carried out using manufacturing data for the united states and japan from 1960 through 1981 the empirical results suggest that markups for manufacturing firms in both the united states and japan have increased over time but have somewhat different cyclical characteristics stemming primarily from differential investment behavior in addition capacity utilization and especially returns to scale tend to counteract the short run profit potential from markup behavior so that markups measured assuming constant returns are typically biased downward finally

productivity growth technical progress and efficiency change in industrialized countries this paper analyzes productivity growth in 17 oecd countries over the period 1979 1988 a nonparametric programming method activity analysis is used to compute malmquist productivity indexes these are decomposed into two component measures namely technical change and efficiency change we find that u s productivity growth is slightly higher than average all of which is due to technical change japan s productivity growth is the highest in the sample with almost half due to efficiency change jel c43 d24 in this paper we apply recently developed

interrelated factor demands for manufacturing a dynamic translog cost function approach abstract in this paper we report the results of estimating a joint model for labour capital and energy using the transcendental logarithmic cost function of christensen jorgenson and lau 1973 this allows us to determine both the own price and cross elasticities of substitution between labour capital and energy we combine a model of factor shares with a dynamic adjustment process for each factor we also impose on the cross equation restrictions necessary to provide additivity homogeneity and symmetry since the covariance matrix in systems of share relationships is singular we follow the suggestions of anderson and blundell 1982 and employ a mullivariate error corrrection model the results suggest that additivity symmetry and homogeneity restrictions do hold and that there are short run increasing returns to scale

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

strategic delegation in a legislative bargaining model with pork and public goods abstract this paper examines the incentives of voters to appoint legislators with different preferences from their own the paper adopts an underlying legislative bargaining model proposed by volden and wiseman 2007 in which legislators with heterogeneous preferences divide a fixed budget between a public good and pork projects local public goods we show that voters have an incentive to strategically delegate to affect how the budget is divided at the legislative level when voters preferences for pork are not too strong the incentives for strategic delegation exist to appoint representatives who will direct more money to the public good and not to pork projects this generally results in at least as many representatives as districts that favor the public good the comparative statics predict that when strategic delegation occurs increasing the size of the legislature increases the fraction of the budget spent on the public good

unraveling the productivity growth slowdown in the u s canada and japan the effects of subequilibrium scale economies and markup measures of productivity growth typically include in the productivity residual the impacts of fixity of factors subequilibrium costs of adjustment returns to scale and markups this paper proposes a general framework for adjusting the residual to accommodate these impacts by first correcting and then decomposing traditional measures use of the framework is illustrated empirically for the united states japanese and canadian manufacturing sectors using an econometric model that allows explicit incorporation and measurement of these factors the adjusted measures show that a significant amount of cyclical and secular change in measured productivity growth can be attributed to production characteristics other than technical change particularly scale effects copyright 1992 by mit press