evaluating decision strategies for equity of public risks many important decisions include the loss of life among their possible consequences alternative actions have different implications for the number of possible fatalities the equity of those eventual fatalities and the equity of the process resulting in those fatalities this paper defines a concept of ex ante risk equity to address the equity of the process and distinguishes this concept from the ex post risk equity of the fatalities the paper indicates that an analysis of decision strategies addresses ex ante equity in this context both types of equity as well as loss of life are included in a von neumann morgenstern utility model developed to evaluate public risks this approach provides a method to investigate the implications of different value judgments in examining alternatives and illustrates an appropriate use of von neumann morgenstern utility for problems involving social consequences such as public risks

the excise tax effects of the property tax abstract this paper constructs a theory of how differences across regions in property tax rates affect product prices and factor prices for a model where labor and capital are perfectly mobile between regions it is shown that consumers residing in different regions face the same nontraded good prices even when property tax rates differ across regions

designing products and services for consumer welfare theoretical and empirical issues in this paper we examine the theoretical and empirical issues that arise for a public sector decision maker who wishes to use the target population s preferences as an input for designing new products and services the marketing literature suggests using essentially the same approach as that for the private sector problem with one exception instead of maximizing profits share or volume the sum of benefits to society is maximized however the social welfare literature has suggested several other measures of welfare and shows that no single welfare function dominates all others therefore to choose an appropriate welfare function to maximize the decision maker must first examine the theoretical and empirical similarities between the alternatives for six prominent welfare functions we examine the theoretical differences in terms of the notion of fairness promoted and the kind of preference data required empirically we examine the similarities in social rankings and first choices induced by these welfare functions under various preference configurations we also examine their sensitivity to measurement error and preference normalization

trade and factor movements with three factors and two goods abstract with three factors and two goods there are two extreme and one middle factor regardless of technical complementaries in the individual production functions the extreme factors must be enemies and the middle factor the other factor s friend with constant product prices

backward incidence of pollution damage compensation policy abstract the backward incidence of higher rates of compensation paid for damage on a factor of production is examined in a two sector three factor model with a linear pollution damage function on labour endowment the results implied by the stolper samuelson theorem are obtained with a consequent decrease in pollution and national income provided that the polluting and nonpolluting sectors are respectively intense in capital and labour and the complement relation between pollution and labour are assumed a geometric interpretation of the results is also provided

investment the current account and the relative price of non traded goods in a small open economy abstract this paper incorporates traded and non traded investment expenditure into an infinite horizon setting with optimizing economic agents extending previous research that has incorporated traded and non traded investment into a two period setting the paper analyzes the dynamic adjustment of the relative price of non traded output the market price of capital and the current account following exogenous shocks to the system the exogenous shocks considered by the paper include permanent transitory and anticipated changes in an income tax and an investment subsidy as well as changes in the level of government purchases of traded and non traded output

immigrant specificity and the relationship between trade and immigration theory and evidence studies routinely document that immigrant employment concentrates in non traded goods sectors and that many immigrants have low inter sectoral mobility we consider these observed characteristics of immigrant employment with regard to the question of how immigration affects a nation s pattern of production and trade we model an economy producing three goods one is non traded domestic labor and capital are domestically mobile but internationally immobile allowing that some new immigrants will become specific to the non traded goods sector the model indicates that the effects of immigration on output and trade depend importantly on the sectoral pattern of employment of both new and existing immigrants empirical investigation in a panel data set of oecd countries supports the model s prediction that immigration raises the output of non traded goods consistent with the model we also find that immigration and trade are complements given its empirical support the model s implications for immigration policy are then discussed

a comparative analysis of current credit risk models the new bis 1998 capital requirements for market risks allows banks to use internal models to assess regulatory capital related to both general market risk and credit risk for their trading book this paper reviews the current proposed industry sponsored credit value at risk methodologies first the credit migration approach as proposed by jp morgan with creditmetrics is based on the probability of moving from one credit quality to another including default within a given time horizon second the option pricing or structural approach as initiated by kmv and which is based on the asset value model originally proposed by merton merton r 1974 journal of finance 28 449 470 in this model the default process is endogenous and relates to the capital structure of the firm default occurs when the value of the firm s assets falls below some critical level third the actuarial approach as proposed by credit suisse financial products csfp with creditrisk and which only focuses on default default for individual bonds or loans is assumed to follow an exogenous poisson process finally mckinsey proposes creditportfolioview which is a discrete time multi period model where default probabilities are conditional on the macro variables like unemployment the level of interest rates the growth rate in the economy which to a large extent drive the credit cycle in the economy 2000 elsevier science b v all rights reserved

the impact of development on women a specific factors analysis abstract the specific factors model is employed in this paper as a means of explaining how economic development may serve to diminish women s welfare three changes associated with the development process are analyzed for their effect on women s real and relative wage 1 an expansion of trade induced by an improvement in the terms of trade 2 technological change and 3 an increase in female labor force participation

trade liberalization and factor price convergence abstract this paper examines the effects of trade liberalization on international disparities in factor real returns in a model with more factors than goods existing trade interventions are assumed to be restricting trade we find that any bias for or against factor price convergence depends on the underlying source of comparative advantage where trade is based on differences in factor endowments trade liberalization has a bias towards factor price convergence where trade is based on technology differences biases are more difficult to detect but if they exist they are likely to work against factor price convergence

the relationship between factor endowments and commodity trade abstract the paper establishes general propositions concerning the relationship between a nation s factor endowments and its pattern of commodity trade in a multi factor multi product context inequality relationships between endowments and autarky prices autarky and free trade prices and between autarky prices and free trade net exports are established using a general model of trade attention is then restricted to a multi product multi factor version of the heckscher ohlin samuelson model of trade from an initial autarky equilibrium a comparative statics analysis yields the effect on net exports of a change in one nation s endowment a bilinear inequality between the changes in endowments and net exports is established it is also shown that if a good were to be exported imported when endowments changed and world prices were held fixed then it will continue to be exported imported when world prices have adjusted to re establish free trade equilibrium

the rybczynski theorem in the three factor two good model abstract this paper proves that if each factor is normal in the three factor two good model the expansion of a factor endowment always increases at constant commodity prices the output of the commodity which uses the expending factor most intensively

factor price convergence in the late nineteenth century the authors examine a dramatic historical episode of factor price convergence in the late nineteenth century their focus is convergence between old world and new and the analysis centers on land and labor wage rental ratios boomed in the old world and collapsed in the new moving the resource rich labor scarce new world closer to the resource scarce labor abundant old world the authors use econometrics and simulations to identify proconvergence forces which include commodity price convergence factor accumulation and factor saving biases the results confirm that open economy characteristics and international market integration are important sources of convergence copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the shadow price of foreign exchange with minimum wages abstract this note derives the shadow price of foreign exchange in a small open economy with minimum wage unemployment under tariffs quotas and voluntary export restraints the analysis is conducted in a dual general equilibrium framework with many goods and factors

equity axioms for public risks from the perspective of a two person society we explain and analyze six axioms for equity among individuals who are exposed to the possibility of death from a public hazard the axioms are concerned with how a given total risk expected fatalities is distributed over the four possible life death consequences for the two people maximal subsets of mutually compatible equity axioms are identified first for a monotonic ordinal utility function and then for a more restrictive von neumann morgenstern utility function

cyclical correlations credit contagion and portfolio losses abstract we model aggregate credit losses on large portfolios of financial positions contracted with firms subject to both cyclical default correlation and direct default contagion processes cyclical correlation is due to the dependence of firms on common economic factors contagion is associated with the local interaction of firms with their business partners we provide an explicit normal approximation of the distribution of portfolio losses we quantify the relation between the variability of global economic fundamentals strength of local firm interaction and the fluctuation of losses we find that cyclical oscillations in fundamentals dominate average losses while local interaction causes additional fluctuations of losses around their average the strength of the contagion induced loss variability depends on the complexity of the business partner network

explaining the absence of international factor price convergence abstract as capital markets have become integrated factor prices have not converged as expected this paper provides an explanation the key observation is that non specific output risks are borne by capital making international portfolio diversification a dominant strategy capital market integration can elicit many patterns of factor price response under this circumstance factor prices will move in parallel if countries are identical when countries differ factor prices may diverge or even have their relative sizes reversed the integration of capital markets affects welfare through changes in risk and in overall returns to savings welfare need not improve

income inequality and international migration the purpose of this paper is to analyse the impact of international factor movements on the personal distribution of income in order to get clearcut results we use a simple model of trade and migration in which there are two traded goods and three factors for any given country one of the traded goods corresponds to exports and the other to imports the three factors include capital and two types of labour skilled and unskilled we focus mainly on the alternative results of international migration of the two types of labour the geographical focus is worldwide excerpt

energy tariffs in a small open economy abstract tariffs on imported energy alter production and redistribute income the present paper examines a small open economy producing two traded goods with capital labor and imported energy a tariff reduces import and domestic factor income but payment to one domestic factor rises energy intensive output falls but the other output may rise in the general equilibrium political opinions on the tariff would differ revenue is concave in the tariff suggesting that the government might set the tariff to maximize revenue a simulation illustrates these general equilibrium properties across a range of tariffs

when efficient is insufficient fairness in decisions affecting a group many key decisions have significant consequences for a group of people rather than a single individual in some cases traditional group decision making techniques such as negotiation voting or compromise can be employed by the group members themselves to determine a satisfactory course of action in other instances however the intervention of a central decision maker may be necessary intervening on behalf of a group raises additional concerns for the decision maker one of which is fairness this paper builds upon envy based fairness concepts from the fair allocation literature and theories of ex ante and ex post equitable distributions from the social risk literature to develop a model for choice among limited options under uncertainty when preferences are heterogeneous the model is therefore appropriate when other existing models are not an example demonstrates an application of the model for choice under uncertainty and contrasts the approach and decision recommendation with that of existing models by quantifying the degree of envy rather than treating it dichotomously the approach captures the balance between fairness and efficiency some envy may be tolerated if it brings greater overall utility and or if some envy already exists in the status quo option lastly implementation issues and the impact of differing preferences and attitudes toward risk on fairness and efficiency considerations are explored

international labor flows and national wages when income levels of some group in the economy fall behind those of others the blame frequently is cast on the nature of international trading relationships such has been the case recently in the united states with the struggle to maintain real wages for relatively lessskilled workers much of the debate has asked how changes in world prices or in technology at home or abroad have altered wage rates see e g susan collins 1996 jones and engerman 1996 in this note we focus on another potential culprit immigration and probe more widely into past historical experience in the united states and other countries when inflows of labor from abroad disturb wage rates for nationals such international labor flows could serve to enhance rather than to depress the earnings of the country s own laborers if the question addressed concerns the effects of immigration on the welfare of the original inhabitants of a country a disarmingly simple answer was provided some years ago by harry johnson 1967 as long as immigrants bring an accumulated bundle of labor and physical or human capital that is different from that possessed by local residents the latter must gain from immigration this is the basic gains from trade argument appropriate only if the country originally did not engage in any other form of trade and if all residents held balanced portfolios of capital and labor as well it ignores the social costs incurred and extra taxes collected when migrants flow into a country in this note we focus not on aggregate welfare effects but on the effect of immigration on the return to some homogeneous national group of laborers this question is the one that most sharply divides the views of labor economists from those of trade economists on the one hand increases in the supply of labor would seem naturally to depress the return to labor but in the basic heckscher ohlin trade model with two factors and two produced commodities an inflow of labor can be absorbed with absolutely no change in wage rates as long as the terms of trade remain undisturbed we begin by asking what some basic theoretical models tell us about this issue before turning to the historical record simple theory reveals that there are two basic attributes of immigration that affect income distribution relatively how substitutable immigrant labor is for the national labor force and the occupations in which immigrants are allowed to work

resource rights and markets in a general equilibrium model of production rights to a free resource lead to distributional deadweight losses in partial equilibrium the present paper examines related distortions in a general equilibrium model of production with output prices constant for the small open economy the free resource can result in lower output than a market with weak substitution in the other sector the free resource also leads to a convex production frontier implying a price increase lowers output in the sector regarding policy an import tariff export subsidy or price support would lower sector output these general equilibrium distortions increase the incentives to favor resource markets over rights

bridging trade theory and labour econometrics the effects of international migration this paper surveys current theoretical and empirical research on international migration with a particular emphasis on the links between trade theory and labour empirics

import restrictions capital taxes and welfare this paper develops a two good small country general equilibrium model with trade restrictions i e a tariff an import quota or a voluntary export restraint ver inter national capital mobility and taxes on the rate of return to capital within this context it examines the price and welfare effects of capital taxes the second best policy towards capital in the presence of such trade restrictions and the welfare implications of trade liberalization in the presence of capital taxes the analysis demonstrates among other things that i the optimal policy towards capital is a zero tax when imports are quota constrained and is a tax under a tariff and a subsidy under a ver when the imported good is capital intensive and that ii an asymmetry exists between trade and capital movements liberalization under the various trade regimes

international capital movements under uncertainty in this paper we analyze the determinants of international movements of physical capital in a model with uncertainty and international trade in goods and securities in our model the world allocation of capital is governed to some extent by the asset preferences of risk averse consumer investors in a one good variant in the spirit of the macdougall model we find that relative factor abundance relative labor force size and relative production riskiness have separate but interrelated influences on the direction of equilibrium capital movements these same factors remain important in a two good version with heckscher ohlin production structure in this case the direction of physical capital flow is determinate unlike in a world of certainty and may hinge on the identity of the factor that is used intensively in the industry with random technology

value functions for infinite period planning cost benefit and risk analysis studies that model tradeoffs between the present and the distant future by means of present value discounting have been criticized for according the future and thus future generations far too little importance this paper presents an alternative means of modeling tradeoffs between different periods that accords the future far more importance than present value discounting and that is no more difficult to apply the paper also presents a means of modeling the preference issue of concern for equity or stability between different periods

factor trade and goods trade world equilibria with trade in both goods and some factors are studied when international factor endowment differences are the cause of trade a generalized heckscher ohlin theorem is presented the goods trade patterns with and without factor trade are compared factor trade and goods trade tend to be substitutes complements if traded and non traded factors are cooperative non cooperative

the general role of factor intensity in the theorems of international trade abstract the pattern of factor intensities often allows predictions of directions of change in 2 2 trade theory but the most general higher dimensional extensions have said little about analogous predictions this paper obtains general results in an elementary way

factor intensities and factor substitution in general equilibrium abstract this article examines how factor intensity rankings between industries and the economy wide asymmetry in the degree of factor substitution combine to influence the manner in which changes in relative commodity prices affect the factoral distribution of income the reciprocal influence of factor endowment changes on the composition of outputs is also discussed the analysis is undertaken in a general three factor two commodity framework the minimal sized model that allows both influences to affect factor prices and admits of the possibility of complementarity between factors factors which are good substitutes find their returns behave somewhat similarly when commodity prices change while factors which are complements experience strongly asymmetrical fortunes a crucial role is played by a comparison of the share of the middle factor in each sector

fairness and social risk i unaggregated analyses this paper is the second of a two paper study of fairness issues for decisions that affect the benefits received and the risks encountered by a population the study examines fairness for individuals and for homogeneous groups within the population it considers fairness both for population benefit risk profiles and for probability distributions over profiles our study bases fairness on notions of envy among individuals and groups the first paper focused on fairness in profiles and profile distributions when benefits and risks are not aggregated the present paper uses individual preferences to assess fairness when benefits and risks are aggregated within groups or over the population it concentrates on intergroup envy measures and fairness indices that account for ways that aggregated benefits and risks might be allocated to members of groups or to groups within the population

capital markets urban unemployment and land abstract this paper shows that the remarkable result by khan and naqvi that a reduction in the capital rental differential always improves welfare despite the presence of a rigid urban wage can be obtained only for the 2 2 harris todaro model in an extended harris todaro framework incorporating a third specific factor a decrease in a distortion may not necessarily be welfare improving

can public sector employment spur human capital acquisition abstract in a general equilibrium model of a product and an education sector we add government employment of educated labor for public goods provision and for political economy reasons education subsidy may cause fewer public goods and retard the product sector

technical note measuring equity in public risk an equitable distribution of risk is often an important criterion in the evaluation of technological and environmental risks in this paper we define the concept of equity precisely and develop measures for ex post and ex ante equity we then show how these measures combined with information on the number of possible fatalities can be used to rank alternatives that involve risks to human life

a synthesis of the heckscher ohlin and the neoclassical models of international trade a comment abstract batra and casas 1976 have asserted that in the two sector three factor neoclassical model an increase in the supply of one factor at constant commodity prices will increase the output of the commodity using the expanding factor relatively intensively and thereby reduce the output of the other commodity the present note points out that there is a case against their assertion

dispersive equity and social risk dispersive equity is concerned with the impact of life threatening risks from alternative policy decisions on homogeneous groups in a population it is not addressed to the disutility of various numbers of fatalities that might occur but rather to how fatalities are distributed over the groups although dispersive equity has long been recognized as an important component of some policy decisions it has received little formal treatment within the matrix of salient factors for such decisions our purpose is to advance its formal development this is done within a formulation based on probability distributions over potential fatality sets the formulation gives rise to four distinct but not independent equity concepts individual risk equity group risk equity dispersive equity and social outcome equity each of these is analyzed but special attention is given to dispersive equity the paper also comments on relationships between total equity and its four components and between total equity and the dis

the missing link the ricardian approach to the factor endowments theory of trade this paper views all interpersonal trade as ricardian while all international trade reflects each country s factor endowment the model provides the logical link betwe en heckscher ohlin and ricardo the strength of the model is that it allows simpler and more robust theorems about trade welfare and fac tor payments factor price equalization holds universally and stolper samuelson is not tied to the number of goods or factors a key resul t is that the old mill theorem that the small country gains all from trade is incorrect trade patterns with three factors and two goods a re completely characterized copyright 1988 by american economic association

free trade and income redistribution in a three factor model of the u s economy the move toward free trade promises to alter the distribution of income in the u s labor groups generally do not favor the move toward free trade which can be characterized by the continuing decline in the price of manufactured goods relative to business services the present study predicts that unskilled labor in the u s will lose under a program of free trade using a general equilibrium model of production factor shares industry shares and estimates of substitution for skilled labor unskilled labor and capital are used to examine comparative statics the interplay of factor intensity and factor substitution in the three factor production structure has proven a considerable analytical challenge building on the textbook production model with two factors the third productive factor allows technical complementarity and creates a more complex pattern of factor intensity both factor intensity and factor substitution affect the qualitative nature of the comparative statics little is known about the model s quantitative properties a 3 x 3 model with outputs of the three major sectors agriculture manufacturing services is specified and a 3 x 2 model without agriculture is also examined factor substitution is estimated with production function across states skilled labor separated by various census categories cannot be aggregated with unskilled labor in any sector and constant returns to scale cannot be rejected as a null hypothesis additionally the three inputs capital labor skilled labor are all technical substitutes comparative static results follow a pattern suggested by factor intensity changing prices of goods generally have elastic effects on factor prices stolper samuelson results in other words have a quantitative weight price changes due to a program of free trade will significantly affect income distribution similarly rybczynski type results are quantitatively significant in that factor endowment changes have elastic effects on outputs the implication is that output patterns will differ significantly across freely trading partners elasticities of factor prices with respect to endowment changes on the other hand are very inelastic this inelasticity suggests that there would only be small long run effects of international migration capital flows or endowment differences on the international pattern of factor income this inelasticity is called near factor price equalization nfpe under nfpe freely trading countries will experience a vector of factor prices nearly equal to each other nfpe suggests that the qualitative effects of changing or different factor endowments

the theorems of international trade with factor mobility abstract this paper addresses the relation between goods trade and international factor mobility in general terms the basic theorems of international trade suitably interpreted are shown to hold in their strong versions if the number of international markets for goods and factors is at least as large as the number of factors the crucial dimensionality issue is hence not the relative number of goods and factors per se but the number of international markets relative to the number of factors only the price version of the heckscher ohlin theorem fails to be essentially preserved by this condition

an energy factor proportions model of the us economy abstract a factor proportions model examines the effects of falling energy input and its rising price in the us economy based on a novel production function motivated by the definition of physical work this physical production function specifies separate interaction of energy and labor with capital estimated with annual data from 1951 to 2008 energy has a large output elasticity and inelastic own input demand a rising energy price lowers the return to capital in the general equilibrium even though capital is a moderate substitute for energy energy has robust comparative static elasticities linked to manufacturing in the general equilibrium

stability of the mobile capital harris todaro model some further results a necessary and sufficient condition for stability is derived for the mobile capital harris todaro model of rural to urban migration in developing countries when land is a scarce factor in agriculture the stability condition when land is ignored that the urban sector comprising manufacturing industry and the urban unemployed be more capital abundant is no longer either necessary or sufficient for stability nevertheless this condition always enhances stability and it is sufficient though not necessary for stability in many circumstances e g when land is separable in production from labour and capital intuitive explanations of these conditions are provided excerpt

factor movements and commodity trade as complements abstract several models are presented in which factor mobility leads to an increase in the volume of world trade the models share the common characteristic that the basis for trade is something other than differences in relative factor endowments these alternative bases for trade include returns to scale imperfect competition production and factor taxes and differences in production technology taken together the models suggest a more general idea the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models

should export share requirements be implemented under quota protection in this paper the authors develop a model to analyze the effects of export share requirements when a quota is in place they show that when foreign capital is located in specific economic activity zones identified with the importable sector an increase in export share requirements reduces welfare owing to the price induced higher payments to foreign capital

trade and factor prices in a model of capital utilization in recent years there has been considerable work on the economics of capital utilization but the implications of endogenous capital utilization for trade and comparative advantage have not been worked out empirical research has revealed that there is a great deal of variation across countries in the willingness of employees to work during evening and night hours and on weekends and the partial equlibrium theory of optimal capital utilization shows that a willingness on the part of employees to work during abnormal hours can reduce the cost of production frequently by reducing the need for fixed capital the effects on production costs will depend of course on the wage premium demanded by workers for abnormal hours work it stands to reason therefore that recognition of the varying degrees of willingness of employees to work during abnormal hours will have important implications for comparative advantage and trade this paper will be concerned with the introduction of endogenous capital utilization into one of the sectors of the standard two factor two sector model of trade there are two fundamentally different ways in which this introduction can take place in the first approach as each firm increases its level of capital utilization it in effect imposes abnormal hours of work on its existing labor force and it must increase the wage premium for labor during abnormal hours in this model the firm s optimal level of capital utilization occurs where the increased wage premium from the increase in abnormal hours work balances the saving of capital costs from the increase in capital utilization in the second approach the firm regards as given the wage rates for normal hours and for abnormal hours work and therefore the wage premium for abnormal hours is also

globalisation and factor returns in competitive markets abstract the standard competitive trade model extended to include many goods and factors is used to analyze the effect of goods and factor market integration on average international disparities in the real returns of internationally immobile factors it is shown that goods market integration decreases international real return differentials for all factors we derive sufficient conditions for this result to hold for the subgroup of internationally immobile factors as well while there is a presumption for similar results to hold with international factor market integration we show that this is true for international migration but in general not for international investment

procompetitive gains from trade and comparative advantage having made the concepts of pro or anticompetitive output changes precise necessary and sufficient conditions for trade gains are derived under conditions of increasing returns to scale and imperfect competition in a general equilibrium model with any finite number of goods and factors these conditions yield generalizations of the theorems of comparative advantage in goods and implicit factor trade the factor content version of the h o theorem other generalizations can be obtained if one assumes quasihomothetic preferences and that welfare effects are dominated by price rather than income effects copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

potential and realized trade patterns the case of sweden observations of the trade pattern between countries have been used as a method to infer in what industries or commodities a country has comparative advantage the method was introduced by balassa 1965 and named the revealed comparative advantage rca approach the approach arose from difficulties in measuring an industry s actual comparative advantage in production and trade given the difficulties in 1 accounting for all the factors which influence an industry s comparative advantage and 2 actually measuring and comparing these factors between countries and industries balassa argued that the revealed performance of an industry s trade pattern would serve as a reasonably adequate indicator of that industry s comparative advantage more specifically the rca approach argues that if a country s share in world exports of a particular good is greater than its overall share in total world exports then the country has a revealed comparative advantage in exporting that good such a revealed comparative advantage should also appear as a tendency towards a positive trade balance for that good that is an export import ratio in excess of unity balassa argued that export import ratios would be more influenced by protectionist measures than relative export shares and hence the latter would be more reliable indicators of comparative advantage balassa consequently gave more weight to relative export shares as measures of comparative advantage since balassa 1965 this method has been used by e g hirsch 1974 parry 1975 donges riedel 1976 and balassa 1977 it should be obvious that the theoretical foundation of the approach is less satisfactory in the international trade literature there exist several definitions of the concept of comparative advantage it seems that the most adequate definition for theoretical purposes is that a country has compara

international factor movements and the ramaswami argument in a succinct but classic article appearing in economica in 1968 ramaswami put forth an argument supporting the superiority of a policy that attracts foreign factors over a policy that allows a relatively abundant factor to emigrate in each case the active home country is assumed to levy taxes on factor flows so as to capture for itself the discrepancy in return to the same factor at home and abroad the asymmetry reflected by this policy ranking rests on a basic propeity of production functions the convexity of technology plus the ability of the active home country to hire or rent out factors at wages or rentals prevailing in the foreign country briefly put the ramaswami argument proceeds as follows suppose the active home country is capital abundant and has levied on optimal tax on earnings of its own capital operating abroad now consider repatriating this capital and allowing for the first time some inflow of foreign labour in particular suppose the home country allows a level of immigration identical to the labour force previously employed with the home capital that is being repatriated such a transfer of home capital and foreign labour out of the foreign country leaves factor proportions abroad undisturbed and thus does not alter the wage that must be paid to attract the requisite bundle of foreign workers although the home country thus avoids any increase in factor costs in foreign markets it can increase output since the capital labour ratiooriginally employed at home at high home wage rates is greater than the ratio in the freshly acquired bundle from abroad by adopting a uniform capital labour ratio over all factors now employed at home output and thus real income rises there may be even further gains to be had by allowing yet a different optimal level of immigration in the home country which has now banned capital exports 2 essential to the ramaswami argument is the ability of the home country to extract a bundle of factors previously employed abroad without disturbing factor prices in that country indeed jones coelho and easton 1983 have suggested that in the context of the ramaswami discussion the original argument could be pursued to suggest that the home country gains not only from repatriating its own capital but from actually encouraging foreign capital to be employed at home such a capital flow is admittedly uphill the home country would have to pay out more in rentals than such capital can earn at home despite this fact such an import of capital and labour in the same proportions found abroad does not alter foreign factor prices but does via the same ramaswami type argument on the convexity of the technology result in gains at home although ramaswami s own discussion starts with a repatriation of home capital previously invested abroad his argument can be applied directly to the foreign autarky factor endowment bundle if technology exhibits constant returns to scale and if all both factors are indeed internationally

a theorem on income distribution in a small open economy abstract if the number of productive factors exceeds the number of commodities produced changes in factor endowments and or any commodity price will alter factor prices in a way that depends both upon factor intensities and the degree of factor substitutability however bilateral factor intensity rankings for constant price industries by themselves restrict possible factor price changes if factors are ranked from most to least intensive in any such pair of industries all the gainers cannot be located at one end of the ranking

the general validity of the heckscher ohlin theorem despite a number of attempts to extend it the heckscher ohlin theorem remains woefully restricted in terms of the generality of the assumptions needed for its proof in its traditional form as a statement about the commodity composition of trade the theorem is valid only in the highly abstract environment of the two factor two good twocountry model that has been the mainstay of trade theory for half a century a weaker version of the theorem involving the factor content of trade rather than its commodity composition has been proved for any number of factors goods and countries but this generality has so far been bought only at the cost of other and perhaps equally restrictive assumptions 2 the purpose of this paper is to provide statements and proofs of the heckscher ohlin h o theorem that are more general than those currently available the approach taken is similar to that used in my 1980 article for an extension of the theory of comparative advantage in terms of correlations between autarky prices and trade in section i i lay out the assumptions on which the analysis is based these assumptions provide the outlines of a reasonably general model in which there may be any numbers of goods and factors and in which factor prices may be equalized or not trade impediments in the form of tariffs or export taxes are permitted though transportation costs are not 3 in section ii i discuss the difficulty of inferring the factor content of trade in a world of unequal factor prices and i provide several alternative definitions of that concept for use later in the paper these together with the assumptions of section i are used in section iii to prove a theorem on the value at autarky prices of the factor content of trade in section iv this theorem is used to prove a first corollary that makes a more direct statement about the pattern of trade it says that worldwide there must be a negative correlation between the factor content of trade by factor and country and the corresponding autarky factor prices it is precisely these autarky factor prices that constitute the ohlin measure of factor scarcity therefore the corollary provides a formal statement of the general idea that countries tend to export the services of those factors which they have in relative abundance and it may be regarded as a generalization of the factor content version of the h o theorem finally a generalization of the commodity version of the theorem is proved in section v the concept of a covariance is generalized university of michigan i have benefitted greatly from the comments of paul degrauwe wolfgang mayer michael mussa carl simon and robert stern as well as others who participated in seminars at the universities of michigan chicago and cincinnati and at the national bureau of economic research an anonymous referee also made valuable comments with additional goods and factor price equalization the theorem runs afoul of the indeterminacy of production and trade noted by paul samuelson 1953 and james melvin 1968 without factor price equalization trade impediments and intermediate production can cause reversals of the pattern of trade as shown in my 1979 article if additional factors and countries are also added it becomes difficult even to state the theorem let alone to prove it 2melvin stated such a theorem for the three good two factor case and jaroslav vanek 1968 proved it for the general case but only by assuming factor price equalization trent bertrand 1972 and jon harkness 1979 were able to drop the factor price equalization assumption but replaced it with restrictions on consumption of either goods or factors by country of origin it is unclear to me however that these restrictions can ever be met in a model that is otherwise plausible harkness 1978 has also used the factor content version of the theorems as the motivation for a regression equation relating commodity trade to factor intensities this bears some resemblance to my analysis below in section v see however james anderson 1981 and edward leamer and harry bowen 1981 who have criticized his result with a reply by harkness 1981 3for ease of exposition i do not allow here for transportation costs these were included in an earlier version of this paper following the technique in my 1980 article

two way capital flows cross hauling in a model of foreign investment this paper presents a simple model of a small open economy which is open to both commodity trade and foreign investment of a sector specific kind and which exhibits the phenomenon of cross hauling or reverse flows of internationally mobile capital in two different sectors the model which assumes that a single domestic factor is combined with internationally mobile but sector specific capital in each of two sectors one of which produces a non traded good appears to be the simplest possible which permits cross hauling as an endogenous phenomenon

international factor mobility minimum wage rates and factor price equalization a synthesis this paper examines the behavior of a small open economy facing perfectly elastic supply curves for some of its productive factors in particular the paper derives some comparative statics properties of such economies compares them with the properties of otherwise identical economies in which all factor prices are determined endogenously and investigates the relationship between factor price rigidities factor price equalization and the pattern of specialization among the new results which are proved it is shown that as more and more factor price rigidities are imposed on an economy it comes closer to a state of factor price equalization

unemployment and trade liberalisation in contrast to the focus of the public debate over trade liberalisation on job losses there is a widespread view among economists that unemployment and trade issues should be considered separately this view cannot be justified theoretically and ignores the growing number of general equilibrium trade models with unemployment in a simple model with an exogenous wage floor trade liberalisation can lead to either gains or losses depending on the production technology severity of the factor market distortion factor intensities of the industries and conditions in trading partners definite results can be derived about gains from liberalising trade with lower wage floors about relative abundance of the unemployed factor dampening losses when trade is liberalised and about gains when the good which uses the unemployed factor is exported the theoretical models are then linked to the policy modelling literature using the example of recent australian controversies over liberalisation of trade in automobiles and textiles it is argued that trade liberalisation would be better advanced by including endogenous employment in trade policy simulation exercises and by discussing employment effects rather than brushing them aside as temporary adjustment problems or regional difficulties

agricultural supply response in the argentinean economy este trabajo tiene como objetivo estimar la forma reducida de una funcion de oferta agropecuaria de la economia argentina en el marco de un modelo de equilibrio general los resultados de la estimacion de la oferta agropecuaria con datos que cubren los anos 1939 1984 muestran que hay una elasticidad precio de oferta de largo plazo de aproximadamente 1 3 que es estadisticamente significativa y que la convergencia al estado estacionario se logra en aproximadamente nueve anos esta estimacion de la elasticidad de oferta agropecuaria es aproximadamente tres veces mas grande que estimaciones previas con modelos de equilibrio parcial

free trade and factor price polarization abstract factor price equalization between trading partners is perhaps the best known implication of the heckscher ohlin samuelson model of production and trade it has long been known that with more primary factors than goods this result is not necessary recent studies have investigated effects of changing prices on factor payments in the three factor two good trade model this short note emphasizes that when such an economy moves from autarky to free trade payment to a relatively cheap factor may fall polarizing factor prices conditions favoring this outcome are examined

common failings how corporate defaults are correlated we test the doubly stochastic assumption under which firms default times are correlated only as implied by the correlation of factors determining their default intensities using data on u s corporations from 1979 to 2004 this assumption is violated in the presence of contagion or frailty unobservable explanatory variables that are correlated across firms our tests do not depend on the time series properties of default intensities the data do not support the joint hypothesis of well specified default intensities and the doubly stochastic assumption we find some evidence of default clustering exceeding that implied by the doubly stochastic model with the given intensities why do corporate defaults cluster in time several explanations have been explored first firms may be exposed to common or correlated risk factors whose co movements cause correlated changes in conditional default probabilities second the event of default by one firm may be contagious in that one such event may directly induce other corporate failures as with the collapse of penn central railway in 1970 third learning from default may generate default correlation for example to the extent that the defaults of enron and worldcom revealed accounting irregularities that could be present in other firms they may have had a direct impact on the conditional default probabilities of other firms our primary objective is to examine whether cross firm default correlation that is associated with observable factors determining conditional default probabilities the first channel on its own is sufficient to account for the degree of time clustering in defaults that we find in the data

the domino effect of credit defaults test of asymmetric default correlations using realised default data using the research framework of a domino effect in firms we first make theoretical contributions by addressing several testable hypotheses regarding asymmetrical default correlations we then employ lucas s method to provide empirical evidence based on realised historical default data in the united states from 1992 to 2013 our empirical results are consistent with the following notions first default correlations increase with the time horizon second firms with low credit quality small size illiquidity and a high beta exhibit higher default correlations credit risk management without considering asymmetrical default correlations could underestimate portfolio risk due to default clustering

decision analysis models for social attitudes toward inequity social preferences for equity in the distribution of net benefits are not represented in a cost benefit study by the sum of the individuals net present values this paper presents two different decision analysts models for representing such an equity issue for each model conditions on the tradeoffs between different individuals are shown to imply that preferences can be represented by a special type of group value function procedures are presented by which such a group value function can be determined and used as part of a public policy evaluation

factor movements with three factors and two goods in the u s economy abstract ruffin s 1981 theoretical finding that extreme factors must be enemies and the middle factor must be a friend of both extreme factors with constant product prices in a three factor two good general equilibrium model is confirmed empirically for the united states results are used to explain the positions factor owners take on issues of factor movement policies

industrial shut downs and medium run factor intensity reversals while short run factor intensity reversals lead to industrial shut downs when there are two productive factors this paper shows that an industry can undo an intensity reversal over the medium run and avoid shutting down when there are three or more factors medium run adjustment begins with a capital fixed input and extends until it has become perfectly mobile j peter neary 1978 develops a picture of adjustment with two industries and two inputs where an industry must shut down following an intensity reversal the present study adds a third input skilled labor or natural resources to capital and labor

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

do tariffs protect specific factors it is shown that a tariff can lower payment to a productive factor used only in specific to the protected industry in a simple production model this may occur anytime the protected sector shares more than one common factor with the rest of the economy as seems most likely intuition based on the well known specific factors model where sectors share a single common factor should be modified whether specific factors effectively receive protection from tariffs becomes an empirical issue

assessment of preferences by conditions on pricing out amounts a value function for consequences described by a monetary attribute and one or more other attributes can be determined by assessing pricing out amounts between the monetary attribute and each of the other attributes this willingness to pay procedure is restricted to decision problems in which the pricing out amounts are independent of the decision maker s monetary position this paper extends the procedure to decision problems in which the pricing out amounts do depend on monetary position it then presents new procedures by which conditions on this dependence can be used in place of multiattribute risk conditions to determine a utility function

liquidity and the law of one price the case of the futures cash basis deviations from no arbitrage relations should be related to market liquidity because liquidity facilitates arbitrage at the same time a wide futures cash basis may trigger arbitrage trades and in turn affect liquidity we test these ideas by studying the dynamic relation between stock market liquidity and the index futures basis there is evidence of two way granger causality between the short term absolute basis and liquidity and liquidity granger causes longer term absolute bases shocks to the absolute basis predict future stock market liquidity the evidence suggests that liquidity enhances the efficiency of the futures cash pricing system copyright 2007 by the american finance association

are international trade and factor mobility substitutes abstract this paper analyzes whether factor flows and commodity trade are substitutes or complements i e whether increasing the level of one impacts adversely or favorably on the volume of the other it derives with the aid of a new general equilibrium framework of the world which allows possible differences in factor endowments tastes and technologies across the two trading countries the necessary and sufficient condition for substitutability and complementarity the results are then further examined in two special cases a survey of different concepts of substitutability and complementarity which have appeared in the literature is also given

welfare effects of migration in societies with indirect taxes income transfers and public good provision abstract we construct a general equilibrium trade model of a two class small open host or source country when consumption tax revenue finances the provision of a public good marginal migration reduces social welfare in the source country and raises it in the host when consumption tax revenue is equally distributed among domestic households in each country then migration has an ambiguous impact on social welfare in either country when tariff revenue in either country is either equally distributed among domestic households or it is used to finance the provision of a public good then migration has an ambiguous effect on social welfare in the host country and is expected to reduce social welfare in the source

counterparty risk and the pricing of defaultable securities motivated by recent financial crises in east asia and the united states where the downfall of a small number of firms had an economy wide impact this paper generalizes existing reduced form models to include default intensities dependent on the default of a counterparty in this model firms have correlated defaults due not only to an exposure to common risk factors but also to firm specific risks that are termed counterparty risks numerical examples illustrate the effect of counterparty risk on the pricing of defaultable bonds and credit derivatives such as default swaps it has been well documented in moody s reports on historical default rates of corporate bond issuers that the number of defaults the number of credit rating downgrades and credit spreads are all strongly correlated with the business cycle this has motivated reduced form models such as duffie and singleton 1999 and lando 1994 1998 which assume that the intensity of default is a stochastic process that derives its randomness from a set of state variables such as the short term interest rate this approach has the convenient features that conditioning on the state variables defaults become independent events and default correlation arises due to the common inf luence of these state variables on the other hand a default intensity that depends linearly on a set of smoothly varying macroeconomic variables is unlikely to account for the clustering of defaults around an economic recession this is evident from a casual inspection of the exhibits in the latest moody s report see keenan 2000 within the usual affine framework one can model the state variables as jump diffusions see duffie pan and single

why doesn t capital flow from rich to poor countries an empirical investigation we examine the empirical role of difierent explanations for the lack of ows of capital from rich to poor countries the lucas paradox the theoretical explanations include difierences in fundamentals across countries and capital market imperfections we show that during 1970i2000 low institutional quality is the leading explanation for example improving peru s institutional quality to australia s level implies a quadrupling of foreign investment recent studies emphasize the role of institutions for achieving higher levels of income but remain silent on the speciflc mechanisms our results indicate that foreign investment might be a channel through which institutions afiect long run development

accumulation of human capital in ldcs in the presence of unemployment this paper takes up an aggregative growth framework to study how human and physical capital evolve over time as households allocate their investment between the two assets in the context of unemployment of educated labor it develops a general equilibrium model of an economy with two sectors a composite good sector and a schooling sector where output is subject to increasing returns to scale a temporary equilibrium for this economy depends on the endowments of physical and human capital as well as on the output elasticity of returns to scale and the price elasticity of education the dynamic evolution of this economy is explored in terms of the accumulation of the two types of capital a rise in education subsidy increases the demand for education at the cost of investment in physical capital and could lead to inefficient substitution between skilled and unskilled workers in the long run copyright 1994 by the london school of economics and political science

capital utilization and factor specificity in this study a model of firm behavior that allows the level of capital utilization to be optimally chosen by cost minimizing firms is embedded into the standard specific factors model employed in the international trade literature the resulting generalization of the specific factors model provides several new insights for instance allowing for variable utilization in either or both sectors gives rise to a greater variety of possible trade patterns than forcing utilization to remain constant similarly international differences in the willingness to work during abnormal hours generate a wider variety of trade patterns than are possible in the standard specific factors model finally this model allows a reconciliation of the dual scarcity explanation of the nineteenth century anglo american pattern of trade with the historical evidence on levels of utilization

risk sharing and group decision making in a decision making problem where a group will receive an uncertain payoff which must be divided among the members of the group the ultimate payoff of interest is the vector of individual payoffs received by the members of the group in this paper preferences are quantified in terms of cardinal utility functions for such vectors of payoffs these utility functions can represent preferences concerning equitable and inequitable vectors of payoffs as well as attitudes toward risk the individual utility functions are aggregated to form a group utility function for the vector of payoffs and this latter function is in turn used to generate a group utility function for the overall group payoff and a sharing rule for dividing the group payoff into individual payoffs the resulting group decisions are pareto optimal in utility space properties of the sharing rule and the group utility function are investigated for additive and multilinear group utility functions

complementarity in a simple general equilibrium production model a simple three factor two good general equilibrium model allowing complementarity in production is examined conclusions of general equilibrium economics with two factors must be reinterpreted and qualified when complementarity is possible sign patterns of how changing factor endowments affect outputs and how changing prices affect factor payments are uncovered for a small open economy results should prove valuable to a wide range of economists interested in extending general equilibrium analysis to include complementary factors of production