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

advertising effects in complete demand systems a rationale for including advertising in complete demand systems is presented an advertising analogue of the slutsky equation is derived and properties of the expenditure and indirect utility functions characterized empirical estimates of a complete demand system incorporating dynamic advertising effects support neoclassical restrictions we do not reject homogeneity or symmetry at the 1 level this represents surprisingly strong support for neoclassical theory relative to prior parametric studies

the end of cheap chinese labor abstract in recent decades cheap labor has played a central role in the chinese model which has relied on expanded participation in world trade as a main driver of growth at the beginning of chi

beggar thy neighbor advertising theory and application to generic commodity promotion programs profits from generic advertising by a producer group often come partly at the expense of producers of closely related commodities the resulting tendency toward excessive advertising is exacerbated by check off funding to analyze this beggar thy neighbor behavior we compare a scenario where different producer groups cooperate and choose their advertising expenditures jointly to maximize the sum of profits across the groups and a scenario where they optimize independently in an illustrative example using 1998 data for u s beef and pork the noncooperatively chosen expenditure on beef and pork advertising is more than three times the cooperative optimum copyright 2001 oxford university press

the double marginalization problem of transfer pricing theory and experiment in this paper we find that the idea of using optional two part tariffs as a basis for tariff renegotiations in a bilaterally monopoly setting is a solution to the double marginalization problem that theoretically 1 creates a stable equilibrium 2 at the overall efficient level 3 without the presence of a central management through experimental testing we find that the efficiency of this mechanism is significantly higher than the efficiency of simple direct negotiation both under symmetrically and asymmetrically distributed information

deindustrialization a global perspective recent studies show that within countries manufacturing labor productivity growth has outstripped aggregate labor productivity growth putting significant downwards pressure on national manufacturing employment shares we compile the first nearly global database of national manufacturing employment and output levels over time and use it to document two facts seemingly at odds with these results 1 the manufacturing sector s share of global employment did not fall between 1970 and 2010 and 2 manufacturing and aggregate labor productivity at the global level grew at similar rates we show that these trends occurred because rapid within country manufacturing productivity growth was counterbalanced by a shift of manufacturing jobs towards lower productivity economies

strategic transfer pricing most research into cost systems has focused on their motivational implications this paper takes a different approach by developing a model where two oligopolistic firms strategically select their cost based transfer prices duopoly models frequently assume that firms game on their choice of prices product prices however are ultimately based on the firms transfer prices that communicate manufacturing costs to marketing departments it is for this reason that transfer prices will have a strategic component to them we derive implications for cost system choice and transfer pricing including showing that firms may cross subsidize their products a result consistent with the empirical evidence

income inequality within and across counties in rural china 1988 and 1995 abstract using household data from samples covering 18 provinces in 1988 and 1995 income inequality within and between counties in rural china is assessed the approach enables us to aggregate average income and income inequality to the levels of provinces and the three regions comprising eastern central and western china most of income inequality in rural china in 1995 was found to be spatial and the uneven development of mean income across counties stood for most but not all of the rapid increase in income inequality mean income of the three regions diverged most forcefully

the impact of the global financial crisis on off farm employment and earnings in rural china this paper examines the effect of the financial crisis on off farm employment of china s rural labor force using a national representative data set collected from across china the paper finds that there was a substantial impact by april 2009 the reduction in off farm employment as a result of the crises was 6 8 percent of the rural labor force monthly earnings also declined however while it is estimated that 49 million were laid off between october 2008 and april 2009 half of them were re hired in off farm work by april 2009 by august 2009 less than 2 percent of the rural labor force was unemployed due to the crisis the robust recovery appears to have helped avoid instability

china s uneven progress against poverty while the incidence of extreme poverty in china fell dramatically over 1980 2001 progress was uneven over time and across provinces rural areas accounted for the bulk of the gains to the poor though migration to urban areas helped the pattern of growth mattered rural economic growth was far more important to national poverty reduction than urban economic growth agriculture played a far more important role than the secondary or tertiary sources of gross domestic product gdp rising inequality within the rural sector greatly slowed poverty reduction provinces starting with relatively high inequality saw slower progress against poverty due both to lower growth and a lower growth elasticity of poverty reduction taxation of farmers and inflation hurt the poor external trade had little short term impact

approximating farm level returns to incremental advertising expenditure methods and an application to the australian meat industry equilibrium displacement modeling is used to analyze the effects of incremental advertising expenditure by the australian beef lamb and pork industries in domestic and export markets the effects on prices quantities traded revenues producer surpluses and profits net of advertising expenditure are reported cross commodity impacts of advertising are highlighted including how one industry has to adjust its advertising expenditure to preserve profit levels in the face of increased advertising by another industry the procedures used are useful when decisions about advertising expenditure need to be made quickly

the evolution of income inequality in rural china abstract in this article we analyze trends in income inequality and the distribution of income in rural china from 1987 to 1999 we find an uneven but long run increase in inequality in rural china and show that nearly half of the rural population was not much better off in 1999 than at the start of the period we rule out geography as the most important factor for explaining income differences and the increases that occurred over time much more important were growing differences between households living in the same village province or region we also find that access to nonagricultural incomes from local wage employment and family businesses contributes to inequality but that employment outside the county in which a household lives and accessed through temporary migration is relatively equalizing finally we document important strengths and weaknesses of the primary data set used for our analyses relative to other data sources available for study of inequality and poverty in rural china

cost based transfer pricing under r d risk aversion in an integrated supply chain abstract this paper examines the economic role of transfer pricing for a vertically integrated supply chain when a risk averse production division manager faces uncertainty on the outcomes from r d investment in particular we compare two representative cost based transfer pricing methods full cost and variable cost pricing we construct an economic model based on the assumption that r d investment reduces the expected fixed costs of a production factor as well as the variable production costs we show that a firm s profit under full cost transfer pricing is greater than that under variable cost transfer pricing under certainty contrary to this benchmark result variable cost pricing becomes more profitable than full cost pricing when the risk averse manager bears relatively high risk

a game theoretic approach to transfer pricing in a vertically integrated supply chain we study the problem of setting transfer prices in a vertically integrated supply chain in which the divisions share technology and transactions costs we develop a cooperative game that provides transfer prices for the intermediate products in the supply chain this model is applied both when the market prices for these products are known and also when their valuations differ we provide a solution that is fair and acceptable to all divisions in the perfect information case the shapley value generates the transfer prices while in the asymmetric case we obtain transfer prices from the solution to a linear program

transfer pricing of a service department facing random demand copyright c 1996 elsevier science b v all rights reserved most servic departments have occasionally idle capacity and occasionally saturated capacity the reason for these phenomena is that a service department faces a random demand for the service it renders how shall its transfer pricing be influenced by this randomness we discuss this question by analyzing an abstract model of a service department the model depicts a service department as an m d 1 queueing system with an upper limit ul on the time in the system potential input to the system is operating departmentsr requests for service which arise according to a poisson process all requests for service take the same amount of time the net benefit defined as the benefit minus any direct costsr of satisfying a request is uniformly distributed and is known at the time the request materializes if the net benefit is larger than the net transfer price defined as the transfer price minus any direct costsr and the delivery time does not exceed ul then the request is submitted to the service department we develop two algorithms to find the optimal transfer pricing and the best simple transfer price respectively numerical computations indicate that the expected net benefits earned per unit time by employing the solutions found by the two algorithms differ by at most 3 we also investigate the relationship between the best simple net transfer price and the cost of service capacity

a general unconstrained model for transfer pricing in multinational supply chains multinational supply chains operate in more than one country or tax jurisdiction and face decision problems concerned with trade flows of resources products and services transfer prices and allocation of transport costs between their divisions these decisions must consider for the sake of optimality corporate and governmental parameters such as the payment of dividends and royalties ownership of and control over subsidiaries income taxes differentials duties and quotas etc in this paper we generalize and extend the theory of the multinational firm to the case of multinational supply chains we propose a model that is more general and comprehensive than the previous ones proposed in the literature to be more specific our model integrates many of the previous research factors and includes new ones such as transport costs and duty drawbacks which are critical for supply chains that operate under international trade regulations under the maximization of the repatriated earnings objective we study the optimality conditions of the corporate decision variables to derive managerial guidelines and to determine how decisions regarding trade quantities transfer prices and transport cost allocations affect the amount of taxes to be paid to host governments as well as the total after tax repatriated earnings of the corporation

entrepreneurial skills technological progress and firm growth using cross country establishment level data i show that employment profiles over a firm s life cycle are flatter in fast growing economies than in slow growing economies the difference in average employment over the firm s life cycle increases with plant age i propose a frictionless overlapping generations model with exogenous technological progress firm productivity also depends on entrepreneurs skills entrepreneurs can increase their skills over their life cycle but the growth of the vintage component of younger cohorts skills is higher in fast growing economies than in slow growing economies this model is able to explain most of the differences observed in the sample between fast growing and slow growing economies

did higher inequality impede growth in rural china this paper estimates the relationship between initial village inequality and subsequent household income growth for a large sample of households in rural china using a rich longitudinal survey spanning the years 1987 2002 and controlling for an array of household and village characteristics the paper finds that households located in higher inequality villages experienced significantly lower income growth through the 1990s however local inequality s predictive power and effects are significantly diminished by the end of the sample the paper exploits several advantages of the household level data to explore hypotheses that shed light on the channels by which inequality affects growth biases due to aggregation and heterogeneity of returns to own resources previously suggested as candidate explanations for the relationship are both ruled out instead the evidence points to unobserved village institutions at the time of economic reforms that were associated with household access to higher income activities as the source of the link between inequality and growth the empirical analysis addresses a number of pertinent econometric issues including measurement error and attrition but underscores others that are likely to be intractable for all investigations of the inequality growth relationship

optimal commodity promotion when downstream markets are imperfectly competitive we investigate the optimal collection and expenditure of funds for agricultural commodity promotion in markets where the processing and distribution sectors may exhibit oligopoly and or oligopsony power the conditions that characterize optimal advertising intensity under perfect competition for funds generated from either per unit or lump sum taxes do not in general hold when marketing is imperfectly competitive simulation analyses show that imperfect competition always reduces farmers optimal advertising expenditure and that an imperfectly competitive marketing sector may capture half or more of the benefits from the funds that are expended copyright 2002 oxford university press

a global supply chain model with transfer pricing and transportation cost allocation abstract we present a model for the optimization of a global supply that maximizes the after tax profits of a multinational corporation and that includes transfer prices and the allocation of transportation costs as explicit decision variables the resulting mathematical formulation is a non convex optimization problem with a linear objective function a set of linear constraints and a set of bilinear constraints we develop a heuristic solution algorithm that applies successive linear programming based on the reformulation and the relaxation of the original problem our computational experiments investigate the impact of using different starting points the algorithm produces feasible solutions with very small gaps between the solutions and their upper bound ub

asymmetry in farm retail price transmission for major dairy products an econometric model is used to estimate the net relationship between changes in the farm level price of milk and changes in the retail prices of four major dairy products fluid milk butter cheese and ice cream results indicate that the farm retail price transmission process in the dairy sector is asymmetric retail dairy product prices adjust more rapidly and more fully to increases in the farm price of milk than to decreases the role in pricing asymmetry of retail demand versus farm supply shifts is tested via a chow type test asymmetry is tested using the houck procedure for estimating nonreversible functions

carbon allowance auction design of china s emissions trading scheme a multi agent based approach in this paper a multi agent based ets simulation model is proposed for carbon allowance auction design in china in the proposed model two main agents i e the government the ets implementer and the firms in different sectors the ets targets are considered under the ets policy all agents make various decisions individually according to their own goals and interact with each other through three main markets the commodity market the primary carbon auction market and the secondary carbon trading market different popular auction designs are introduced into the ets formulation to offer helpful insights into china s ets design 1 generally the ets would lead to positive effects on china s carbon mitigation and energy structure improvement but a negative impact on economy 2 as for auction forms the uniform price design is relatively moderate while the discriminative price design is quite aggressive in both economic damage and emissions reduction 3 as for carbon price the uniform price auction might generate a slightly higher market clearing price than the discriminative price auction and the prices under two auction rules fluctuate about rmb 40 per metric ton 4 as for carbon cap the total allowances in the carbon auction market should be carefully set to well balance economic growth and mitigation effect

gray market trade with product information service in global supply chains abstract this paper investigates the economic effects of a product information service when potential consumers who are segmented by their taste exist in gray markets specifically we construct an economic model that considers a multinational firm mnf who expands business to a country and chooses whether to provide information service regarding product characteristics if receiving the information consumers in a specific segment whose taste suits the characteristics have positive utility from consuming the product while those in other segments have no utility by contrast consumers in all segments have positive expected utility before consuming the product without information with these settings we demonstrate that there arises the equilibrium that the mnf provides no information service when gray market trade i e parallel trade is allowed in the country leading to lower consumer welfare than when it is prohibited a primary finding in the equilibrium is that such a situation arises especially when potential consumers are less segmented in this situation the regulator in the country should ban the parallel imports so as to enhance consumer welfare the result is counterintuitive and notable because one might intuitively infer that gray market trade is less desirable when customers are more minutely segmented and the product information service is thus more specific and necessary

gradual reforms and the emergence of energy market in china evidence from tests for convergence of energy prices this study investigates the emergence of energy markets by testing for convergence of energy prices with a new dataset on energy spot prices in 35 major cities in china both descriptive statistics and unit root are employed to test the convergence of energy prices for each of four fuel price series the whole study period is divided into two sub periods in order to reconcile the gradual energy reforms the results show the steady improvement in energy market performance in china especially during the second sub period which suggests that the market appears to be playing an increasing role in determining energy prices while panel unit root tests show energy markets are integrated in china as a whole city by city univariate unit root tests suggest that there are still many regional energy markets probably because energy reserves especially coal vary widely across regions since china s energy economy is gradually moving towards market oriented mechanisms the existing literature may become obsolete soon

intrafirm trade arm s length transfer pricing rule and coordination failure abstract this paper demonstrates that uniform imposition of the arm s length principle on transfer pricing leads to coordination failure among countries in terms of economic welfare if the countries trade products in the form of intrafirm transactions by multinational firms mnfs to highlight this implication we first show that imposition of the arm s length principle on an mnf induces it to transfer a product among subordinate divisions at marginal cost i e the competitive price which is consistent with the purpose of the principle nonetheless if regulators in each country impose the principle on mnfs all of the following economic welfare measures decrease compared with the situation where the principle is not imposed 1 consumer welfare in each of the trading countries 2 profit of each mnf and thus 3 total world economic welfare this result indicates that it is possible that enforcement of the principle has no positive effect at all in the world because economic welfare of all economic agents deteriorates when the principle is imposed a numerical analysis demonstrates that this possibility arises in a broad range of circumstances even including the situation where a giant economic world power and a small underdeveloped country mutually trade products in these circumstances an agreement among trading countries that no country imposes the arm s length principle may encourage pareto improvement of the world economy

evidence on adverse selection equilibrium signaling and cross subsidization in the insurance market the configuration of equilibrium in the market for automobile collision insurance is examined empirically by representing the premium deductible menu and the demand function as a standard hedonic system using contractual data from a representative insurer we estimate a reduced form hedonic premium equation and the inverse of the marginal bid equation for insurance coverage the data reveal an equilibrium with adverse selection and market signaling but lead us to reject the hypothesis that high risks receive contracts subsidized by low risks

rising regional inequality in china fact or artifact summary china s local populations can be counted in two ways people with hukou household registration from each place and people actually residing in each place for most of the first three decades of the reform era the hukou count denominated per capita gdp figures output and living standards were overstated in coastal provinces and understated in the interior the distortion grew bigger as the non hukou migrants increased to over 100 million much of the apparent increase in inter provincial inequality is a statistical artifact caused by this distortion the recent switch to using the resident count to denominate gdp introduced new distortions

product line selection production decisions and allocation of common fixed costs abstract product costs are determined in practice for the purpose of pricing make buy and product line decisions while many costs are directly assignable to individual products common costs have historically presented a difficult conundrum a variety of cost allocation methods are used in practice or have been suggested in the literature to attach these costs to individual products while such procedures are theoretically unsupported they may be able to mimic the correct decisions adequately in this paper we investigate the efficacy of certain cost allocation schemes in a competitive environment the schemes are evaluated with reference to a scenario in which there is a single fixed cost incurred in manufacturing any subset of a set of products under idealized conditions a cournot nash model is developed that describes the number of entering firms and the equilibrium price and production levels using this as a point of reference it is shown that by using gross contribution as an allocation basis optimal product line decisions are achieved without distorting the selection of production levels moreover competitive pressure sufficient to drive total net profits close to zero is sufficient to require that any allocation rule supporting optimal product line decisions yields allocations nearly proportional to gross contributions an analogy is drawn with the allocation of joint costs to coproducts in a competitive environment and the corresponding allocation in proportion to net realizable value

measuring the effects of generic dairy advertising in a multi market equilibrium we develop a multi market equilibrium displacement model that allows demand linkages across downstream product markets and supply linkages through the common use of a raw commodity as the key input applying the model to the dairy sector we find that the effectiveness of producer funded advertising depends on the demand relationships across dairy product markets cross price and cross advertising elasticities as well as the reallocation of milk toward the advertised market we show that the previous literature which ignores the horizontal linkages highlighted here tends to overstate the effectiveness of generic commodity promotion for dairy and thus results in too much advertising

manufacturing matters but it s the jobs that count we assemble a large database of countries manufacturing employment and output shares for 1970 2010 we ask whether increased global competition and labor displacing technological change have made it more difficult for countries to industrialize in employment and whether there are alternative routes to prosperity we find that 1 all of today s rich non oil economies enjoyed at least 18 manufacturing employment shares in the past and often did so before becoming rich 2 manufacturing employment peaks at lower incomes and shares today typically below 18 than in the past often over 30 3 although manufacturing labor productivity grew faster than non manufacturing labor productivity within countries they grew at similar rates globally because factory jobs moved to less productive countries and 4 manufacturing s global employment share has not declined during the last 40 years industrialization has become more difficult not because the sector has eliminated labor globally but because of heightened international competition

asymmetric information incentives and intrafirm resource allocation this paper considers the question how should a firm allocate a resource among divisions when the productivity of the resource in each division is known only to the division manager obviously if the divisions as represented by their managers are indifferent among various allocations of the resource the headquarters can simply request the division managers to reveal their private information on productivity knowing that the managers have no incentive to lie the resource allocation problem can then be solved under complete or at least symmetric information this aspect is a flaw in much of the recent literature on this topic i e there is nothing in the models considered which makes divisions prefer one allocation over another thus although in some cases elaborate allocation schemes are proposed and analyzed they are really unnecessary in the model we develop a division can produce the same output with less managerial effort if it is allocated more resources and effort is costly to the manager we further assume that this effort is unobservable by the headquarters so that it cannot infer divisional productivity from data on divisional output and managerial effort given these assumptions we seek an optimal resource allocation process our results show that certain types of transfer pricing schemes are optimal in particular if there are no potentially binding capacity constraints on production of the resource then an optimal process is for each division to choose a transfer price from a schedule announced by the headquarters division managers receive a fixed compensation minus the cost of the resource allocated to them at the chosen transfer price resources are allocated on the basis of the chosen transfer prices if there is a potentially binding constraint on resource production a somewhat more complicated but similar scheme is required

the impact of regional and institutional factors on labor productive performance evidence from the township and village enterprise sector in china this paper investigates the determinants of township and village enterprise tve labour productivity in china examining behaviour at both the national and regional levels the results suggest that human capital the real wage level foreign intensity export intensity capital investment and firm size are the most important factors affecting labour productivity at the national level but their relative importance varies significantly between the regions the results also indicate that government privatization reforms had a major impact on labour productivity in the tve sector across the regions

markets segmented by regional origin labelling with quality control it is the objective of this paper to provide a methodological framework for the analysis of regional marketing programs which inlclude regional origin labelling as well as quality assurance and control such programs are increasingly being introduced in europe and other parts of the world as a means against quality uncertainty in globalized markets an equilibrim displacement model is developed for a segmented market with differential qualities that can be utilized for a broad variety of marketing programs it is applied to one selected european case i e gepruefte qualitaet bayern it is shown that the price impacts on high quality and low quality segments depend crucially on substitutive relationships between the markets and the advertising elasticities welfare implications for producers in a program depend strongly on advertising elasticities too but also on the costs of participation including quality control and on the co financing mechanism between government and producers

the significance and insignificance of demand analysis in evaluating promotion programs the estimated effects of promotion on demand are often small and insignificant yet the estimated effects of promotion on industry profit are often positive and large this puzzle is explained by demonstrating that in significance of promotion in a demand equation does not imply and is not implied by in significance of promotion in an industry profit equation a monte carlo example is provided the econometric modeling implications are discussed the short run marginal effect of a dollar of generic beef promotion on slaughter cattle industry profit is estimated to be about 9 84 with a standard error of 3 77 for 1997 the 1996 farm bill requires that check off based commodity promotion programs be evaluated at least once every five years this legislation has increased the interest in the effects of commodity promotion programs a

the impact of surges in net private capital inflows on manufacturing investment and unemployment abstract we use local projection methods to examine the dynamic response of surges in net private capital inflows on the output and employment shares of manufacturing the investment output ratio and the unemployment rate high income countries are studied separately from emerging economies both from asia and latin america our sample covers the years from 1970 to 2010 we find that surges in high income countries do not magnify the trend toward deindustrialization however the persistent decline in the investment to gdp ratio and the rise in the overall unemployment rate suggest that surges may negatively affect longer run growth prospects and employment opportunities in these countries in middle income asian countries surges tend to induce deindustrialization in both output and employment in the medium run but they do not lower the investment to gdp ratio in middle income latin america surges speed up deindustrialization lower investment and raise economy wide unemployment

the erroneous use of china s population and per capita data a structured review and critical test hundreds of studies in economics misinterpret china s subnational population and per capita data the most widely used population counts are of hukou registrations from each province prefecture county or city rather than of the people living in each place and generating local gross domestic product over 220 million people have left their place of registration while almost none had when reforms began creating time varying errors in estimates of per capita income of subnational units we survey empirical articles in blue ribbon journals in development journals and in regional and urban economics journals that use china s subnational data over 80 of articles use these data erroneously most commonly the wrong population or employment counts are used to measure the size of subnational units and per capita data are calculated with the wrong denominator for how variables are interpreted we provide examples of errors from each group of journals and a critical test of one highly cited study specifically we show that if hukou registrations are erroneously used to measure the local population following existing practice conclusions about driving forces for urban area expansion are reversed we give recommendations for more careful use of china s subnational population and per capita data

distributional impacts of generic advertising on related commodity markets a neglected aspect of the advertising spillover issue is the levy s role for example if two goods are substitutes a per unit levy on one of the goods to fund an advertising scheme will cause the demand for the other good to increase with upward sloping supply and abstracting from the advertising effect the price of the substitute good increases which confers a welfare benefit to producers of the competing product this welfare benefit is typically ignored when assessing advertising spillover e g kinnucan xiao and hsia piggott piggott and wright a related issue is that it is often assumed or implied that if advertising decreases the demand for a substitute good it will decrease the welfare of producers of that good e g green carman and mcmanus in reality competing producer welfare may increase or decrease depending inter alia on the strength of substitution effects between the advertised

the law of one price evidence from the transitional economy of china abstract this paper applies the recently developed econometric methods of panel unit root tests and nonlinear mean reversion to investigate price convergence in china the largest transitional economy in the world we find that prices did converge to the law of one price in china for an overwhelming majority of goods and services based on a large panel data set the finding sheds light on the extent of the market economy in china and casts doubt on young s proposition that the economic reform has led to the fragmentation of chinese domestic markets