minimum unit prices for alcohol minimum unit prices mups have been proposed on the grounds that they can reduce alcohol consumption of the heaviest drinkers without significantly burdening moderate drinkers this paper examines the case for mups in an optimal tax framework such a policy can improve welfare when two conditions are both satisfied first beverage quality and quantity should be substitutes second there should be more distortion to consumption of cheaper alcohol than to more expensive varieties the consequences of a mup for the optimal corrective tax are explored with a calibrated numerical example this example illustrates how the optimal tax rate might be higher when used in isolation than when a mup is also being used

the effect of unit fees on the consumption of quality a law of demand explanation to the alchian allen or shipping the good apples out proposition rests on a change in the relative price of quality when a unit fee is introduced however the manner in which quality is consumed is crucial in some cases for instance there is no substitution between the quality attribute and the priced quantity measured attribute this paper shows that in these cases the relative price of quality is unchanged by a unit fee nevertheless while the unit fee proposition fails to obtain for individual choice it does hold in aggregate

some evidence on the alchian and allen theorem the third law of demand this paper examines empirically the alchian and allen proposition that shipping charges induce consumers to opt for higher quality goods we show in a household productions framework why this holds whether goods or buyers travel using a large sample of individual consumption data for football games we find that buyers who travel the farthest purchase the best tickets in the end we believe that the alchian and allen theorem is so broad and pervasive that it qualifies as the third law of demand

marshall and complexity a necessary balance between process and order according to alfred marshall economics is a complex science which deals with a very compound matter the concept of equilibrium is very widely referred to in his writings not only as a tool to be used in the analytical apparatus as is usually stressed but also and more important as an element that characterises the evolutionary framework of his analysis in the marshallian investigation of economic and social matters the term equilibrium indicates an indispensable degree of order whereas evolution denotes a vital continuous process that characterises every economic and social body the particular relation between equilibrium and evolution which characterises marshall s approach allows us to better understand the balanced interplay between order and process two categories that in marshall pervade every aspect of society considered as a highly complex body

social behaviour as a basis for modelling the urban housing market a review this paper considers how empirical models of urban housing markets might be constructed as a basis for policy analysis it is suggested that this is fundamentally more difficult than national or re

price effects on compound commodities we examine the effect of simultaneous price changes on the total demand for a group of goods which we call a compound commodity specifically we consider unit and proportional cost components e g taxes transportation costs imposed on compound commodities if the unit cost is positive then the proportional cost raises the relative price of the more expensive good and thus induces substitution towards the less expensive good within this group then the substitution effect of the proportional cost for a compound commodity is non negative if and only if the compound commodity and the other goods are on average not strongly substitutable

the yield factor and the learning curve in semiconductor production the role of the yield factor and the learning curve is estimated at the firm level the estimated learning curves for the different generations of semiconductor memory chips are clustered around the 72 per cent type the results are consistent with the persistence of leadership hypothesis an incumbent firm has an advantage over a new entrant in adopting a new technology because it can move quicker down the learning curve

evolutionary theories in environmental and resource economics approaches and applications recent advances in evolutionary theory have important implications for environmental economics a short overview is offered of evolutionarythinking in economics subsequently major concepts and approaches inevolutionary biology and evolutionary economics are presented andcompared attention is devoted among others to darwinian selection punctuated equilibrium sorting mechanisms lamarckian evolution coevolution and self organization basic features of evolution such assustained change irreversible change unpredictability qualitativechange and disequilibrium are examined it is argued that there are anumber of fundamental differences as well as similarities betweenbiological and economic evolution next some general implications ofevolutionary thinking for environmental economics are outlined this isfollowed by a more detailed examination of potential uses ofevolutionary theories in specific areas of environmental economics including sustainability and long run development theories technologyand environment ecosystem management and resilience spatial evolutionand environmental processes and design of environmental policy

competitive dynamics and economic learning an extended resource based view in this paper a conceptual framework for the analysis of economic learning is developed economic learning by analogy with organizational learning results in the development of economic competences or capabilities shared between firms which rest on a foundation of economic resources from which value is generated and economic routines through which resources are utilized it is the mobility of resources and their exchange and production dynamics along evolutionary pathways which underpins the plausibility of a notion of economic learning the paper elaborates this framework as a resource based view rbv of the economy as a whole as an extension of the rbv of the firm such a framework captures the dynamics of exchange and circulation of technologies know how and intangible assets as well as of tangible assets and capital goods it is concerned with investment behavior by entrepreneurs rather than with the behavior of producers and consumers in goods and services markets within this resource economy framework it is possible to generate an account of the resource dynamics that underpin production of goods and services including resource propagation diffusion imitation replication and recombination these processes encompass evolutionary pressures experienced through resource variation selection and retention entrepreneurial initiatives take the form of resource recombinations while resource innovation captures the creation of new economic resources such as technological standards such a perspective brings into focus the resource specialization and configurations that drive real economies within firms and between firms that translates into enhanced or diminished performance of the economy as a whole copyright 2003 oxford university press

increasing returns and competitive equilibrium the content and development of marshall s theory this paper reviews alfred marshall s attempts to reconcile increasing returns and competition from the early economic writings to the later editions of his principles it is shown that while marshall s final solution to the problem involved naming external economies the cause of increasing returns in a regime of competition both the life cycle of the firm and internal economies remained necessary to his argument their function was to give some operation al content to the elusive concept of external economies copyright 1992 by oxford university press

shipping the good horses out this paper formalizes the alchian allen 1964 theorem within a vertically differentiated goods general equilibrium model in contrast to the existing literature equilibrium prices depends on the transportation cost it shows that the eect of a xed transportation cost regardless of quality tilts the importing region s demand towards the consumption of higher quality goods the model extends the alchian allen theorem by showing that the strength of this eect depends on the importing region s endowment specically if the importing region is endowed with the imported goods of similar quality mix the eect is even stronger we also show that the importing region s market size and preferences matter to the strength of the eect using auction data of australian thoroughbred yearlings we conrm that better horses are shipped out further furthermore consistent with the model s prediction the strength of the alchian allen eect depends on the endowment of the importing regions

testing hypotheses about firm behavior in the cigarette industry data on the effects of excise taxes are used to investigate the level of competition in the cigarette industry a lower bound on the numbers equivalent of firms in the context of the conjectural variations model is derived and estimated results point to at least a moderately high level of competition and in particular allow for the rejection of the perfect cartel model this paper relies on comparative statics results and hence circumvents recent criticisms of a study of monopoly behavior in the cigarette industry

the demand for site specific recreational activities a characteristics approach abstract a model of constrained utility maximizing behavior is developed to explain how a representative individual allocates his ski days among alternative sites the physical characteristics of the ski areas and the individual s skiing ability are explicit arguments in the utility function the budget allocation is given along with the parametric costs to ski including travel costs entrance fees equipment costs and the opportunity cost of his time shares a site s share being the proportion of ski days that the individual spends at that site are derived and assumed multinomially distributed a stochastic specification which maintains the inherent properties of the shares maximum likelihood estimation confirms the basic hypothesis that costs ability and characteristics all are important determinants of the sites shares the model explains a large proportion of the skier s allocation of ski days a multinomial logit model of skier behavior is also developed and maximum likelihood estimates of its parameters are obtained examination of the summary statistics from my model and the logit model indicates that my model predicts the skier s choice of sites better than the logit model

the when the how and the why of mathematical expression in the history of economic analysis when one reads about the history of the use of mathematical expression in economics one gets the impression of a few brave but lonely innovators like daniel bernoulli 1738 achille isnard 1781 n f canard 1801 johann von thunen 1826 and antoine augustin cournot 1838 present at the creation of economic thought and later a feisty band of visionaries associated with the marginalist revolution at the turn of the century who had the right tools in their rucksacks and then finally the full flowering of activity in the postwar period through it all there is the unmistakable conviction that this movement was cumulative inevitable and indeed natural

economics and the self organisation approach alfred marshall revisited the economics of alfred marshall is reassessed in the light of new developments in the natural sciences whereby a nonequilibrium thermodynamic approach is adopted to analyze self organization in dissipative structures it is argued that there is a clear correspondence between marshall s treatment of time irreversibility and this modern approach particularly when the latter is set in an informational context thus his principles is viewed as a very useful starting point in adapting the self organization approach for application in economics the main features of such a post marshallian approach to economics are discussed and compared with the mechanical approach of neoclassicism copyright 1993 by royal economic society

measurement of monopoly behavior an application to the cigarette industry a simple scheme is proposed to measure monopoly pricing behavior the coefficient of the tax rate term in a price equation identifies the ratio of price to marginal cost no direct measurement of costs is required so a major problem for other empirical studies of monopoly is avoided empirical results for cross section time series data support rejection of atomistic competition but also provide evidence against the operation of an effective cartel in the cigarette industry the model represents an alternative interpretation of related results in a recent paper by barzel application of the methodology to other markets is feasible

demand shifts due to salience effects experimental evidence we conduct a laboratory experiment that tests two fundamental predictions unique to salience theory if an agent purchases one of two vertically differentiated products salience theory makes the following two distinct predictions first it hypothesizes that a higher expected price level for both products shifts demand toward the more expensive high quality product second it predicts that demand for the high quality product is larger if the price level is expectedly high than if it is unexpectedly high in our experiment subjects purchased fast or slow internet access at different price levels our results strongly support both predictions of salience theory

household production and complementarity an example based on samuelson s coffee cream tea paradox abstract i use a linear programming formulation of samuelson s paradox journal of economic literature 12 1974 1255 1289 where cream and coffee are substitutes to illustrate how cross price effects between goods can depend on the household s production technology rather than or in addition to its subjective preferences

taxes and the quality of capital abstract this paper shows that tax policy toward investment by changing the relative prices of capital varieties even within narrow classes of equipment can have a direct effect on the quality composition of capital goods that firms purchase detailed data on farming mining and construction machinery suggest that this impact is economically important firms significantly shift investment toward higher quality varieties when they receive investment subsidies and do not do so when investment is high for other reasons in the aggregate all of the new investment generated by tax subsidies appears to come from firms shifting to higher quality capital goods rather than buying a larger number of their existing capital types the paper also applies a methodology for calculating the implied deadweight loss from the quality distortion and shows that its magnitude may represent a substantial efficiency cost from capital taxation that is neglected in conventional work

capital theory and the origins of the elasticity of substitution 1932 35 elasticity of substitution was introduced into economics during the early 1930s it was discovered independendy by hicks in the theory of wages and by joan robinson in the economics of imperfect competition and then was the centre of a polemic involving kahn and sraffa among others the debate focused on imperfect competition and capital theoretical issues some elem ents of the 1950s and 1960s capital theory controversy such as the idea of capital as a giffen good or the difficulties of measuring capital were already discussed at this early stage

the firm as a dedicated hierarchy a theory of the origins and growth of firms in the formative stages of their businesses entrepreneurs have to provide incentives for employees to protect rather than steal the source of organizational rents we study how the entrepreneur s response to this problem determines the organization s internal structure growth and its eventual size large steep hierarchies will predominate in physical capital intensive industries and will have seniority based promotion policies by contrast e at hierarchies will prevail in human capital intensive industries and will have up or out promotion systems furthermore e at hierarchies will have more distinctive technologies or cultures than steep hierarchies the model points to some essential differences between organized hierarchies and markets at the root of most enterprises generating economic surplus is an entrepreneur with a unique critical resource such as an idea good customer relationships a new tool or superior management technique a fundamental problem of entrepreneurship is how to enlist the cooperation of the many agents necessary for production without ceding to them too much of the surplus generated by the enterprise the risk of being expropriated however is always inherent in production in particular the entrepreneur has to give her employees whom we call managers close proximity or access to the critical resource for them to learn to produce effectively for example a manager has to understand the idea be in contact with the key customers and suppliers or even learn the entrepreneur s unique managerial techniques in order to work effectively but access also gives the manager the opportunity to expropriate this critical resource and compete against the entrepreneur managers may steal the idea walk away with clients or mimic the entrepreneur s management style and start up a rival concern the greater the access a manager has the more he can appropriate and the more effectively he can compete this paper explores the role of organizational design in

a conditional demand approach to the alchian allen effect abstract we explore the alchian allen effect that is the effect of an absolutely equal increase in the price of two goods on their demand ratio for conditional viz short run and unconditional viz long run demand functions we show that the alchian allen effect for unconditional demand equals its conditional counterpart where the consumption level of a third good is held constant if the two goods feature identical substitution elasticities with the third good remarkably this result holds true for both hicksian and marshallian demand functions

sraffian interdependence and partial equilibrium analysis the conventional partial equilibrium analysis of input demands star ts from the cost minimization condition and then supposes that only one input price changes but if initial prices make price equal to unit cost in every industry changing only one price means violating the price equals unit cost conditions here by contrast price cost equality is maintained throughout primary input price quality relations now need not be negative when there is input complementarit y and produced input price quality relations now need not be negative even when all inputs are substitutes this is so even with a constant zero rate of interest copyright 1988 by oxford university press

defending marshall s masterpiece ralph souter s critique of robbins essay we examine ralph w souter s defence in the 1930s of marshall s principles against robbins attempt to recast economics as a purely formal science of implications souter elaborated on marshall s invocations progressively to increase the realism of economic science and contrasted this perspective on marshall with robbins atomistic bias neglect of historical time and irreversibilities arbitrary restrictions on the scope of economic science and emphasis on logical and mathematical form over content souter demonstrates that robbins takes a walrasian inspired perspective on marshall s equilibrium concept whereas the authentically marshallian equilibrium notion generally incorporates potential for endogenous change on this and other matters souter has doctrinal priority in drawing attention to marshall s incipient evolutionary economics

estimating tax incidence market power and market conduct the european cigarette industry abstract recent theoretical work has shown that the incidence of ad valorem and specific taxes may differ and each may be over or under shifted onto consumers in the presence of imperfect competition these results are used to derive a method of estimating market power and conduct an application is made to the european cigarette industry previous empirical comparison of the incidence of ad valorem and specific taxes is limited for a group of countries with broadly similar cigarette industries there is evidence of undershifting of both taxes with the specific tax having a significantly greater impact on price the extremes of both perfect competition and monopoly can be rejected behaviour is no less competitive than the equivalent of cournot

on the stability of non walrasian equilibria abstract we present a dynamic disequilibrium macro model which permits non walrasian or keynesian equilibria as stationary states unlike the stability results obtained by varian 1977 and eckalbar 1979 1980 1981 in a series of papers in the same model we show that such equilibria have the saddle point property when the real wage rate the real money balances and expected output demand all change in disequilibrium

from simplistic to complex systems in economics the applicability of complex systems theory in economics is evaluated and compared with standard approaches to economic theorising based upon constrained optimisation a complex system is defined in the economic context and differentiated from complex systems in physio chemical and biological settings it is explained why it is necessary to approach economic analysis from a network rather than a production and utility function perspective when we are dealing with complex systems it is argued that much of heterodox thought particularly in neo schumpeterian and neo austrian evolutionary economics can be placed within a complex systems perspective upon the economy the challenge is to replace prevailing simplistic theories based in constrained optimisation with simple theories derived from network representations in which value is created through the establishment of new connections between elements

the kinetics of capital formation and economic organisation we examine the inseparability of capital formation and economic organisation in capitalist economic systems capital possesses a complex multilevel micro meso macro structure that is always in the process of transformation levels of the capital structure are interdependent and interactive correspondingly economic organisation at these various levels is not an independent entity in itself it occurs as a by product and structural aspect of capital formation rather than the transaction our focal unit of analysis is a production notion the capital combination that emanates from the kinetic organisation of material by human agency we consider the behaviour of entrepreneurs as causal agents in specifying and appraising potential capital combinations reorganising production and scrapping capital entrepreneurs combinatorial actions often change existing materials to serve functions for which they were not originally designed thereby changing capital structures and the shape and boundaries of economic organisation at different levels of economic complexity capital is created in a dynamic knowledge generation process that depends on entrepreneurs perceptions of gaps in the capital structure copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

inventories and the structure of macro models the message of this paper can be summed up in two words inventories matter they matter empirically in the sense that inventory developments are of major importance in the propagation of business cycles and they matter theoretically in the sense that recognition of their existence changes the structure of a variety of theoretical macromodels in some fairly important ways this paper is mainly about the implications of inventories for the structure of theoretical macro models but i begin by demonstrating the empirical importance of inventories in business fluctuations this abstract was borrowed from another version of this item

2 00 gas studying the effects of a gas tax moratorium there are surprisingly few estimates of the effects of sales taxes on retail prices especially at the firm level we consider the temporary suspension and subsequent reinstatement of the gasoline sales tax in illinois and indiana following a price spike in 2000 earlier laws set the timing of the reinstatements providing plausibly exogenous changes in the tax rates using a unique dataset of daily prices at the gas station level 70 of the tax suspension is passed on to consumers in the form of lower prices while 80 100 of the tax reinstatements are passed on to consumers some evidence suggests that these short run pass through estimates are smaller near the state borders with the tax reinstatements associated with relatively higher prices up to an hour s drive into neighboring states

the impact of the minimum wage if workers can adjust effort abstract in traditional models a binding minimum wage creates a excess supply of low skilled workers for minimum wage jobs employment falls and some jobs are reallocated from high to low rent workers this disequilibrium cannot persist competition to secure the property rights to now scarce jobs undoes most of the effects of the minimum wage workers who attach the highest value to the jobs are willing to work harder to keep them marginal workers are squeezed out of the market as high rent workers ratchet up effort level this process erodes the rent conferred by the minimum wage but also increases the value of marginal product which reduces the size of the employment effect the minimum wage confers more money income on low skilled workers and creates some distortion in the optimum combination of wage rate and effort level under plausible conditions the minimum wage has little effect on rent employment output and profits

the output inflation relationship abstract this paper shows how the optimal pricing and production policy of a multiperiod profit maximizing firm under demand and output disturbances leads in the aggregate to a positive relationship between production and price deviations from the expected level as depicted by the lucas type supply function the pricing and production decisions are made simultaneously by market agents who base their decisions on the same rational expectations before the disturbances are realized here although the planned production is not affected by the price deviations there is still a contemporaneous positive relationship between them where both production and prices reflect the firm s adjustment to unexpected levels of inventory we show that this positive relationship prevails even when the production decisions are made ex ante based only on expectations before the realization of the random shocks a closed form linear approximation for the supply function is derived which captures the effect of both systematic and unsystematic economic disturbances finally we present an empirical test which supports our assertion that our inventory adjustment mechanism contributes to the creation of the positive relationship between production and price deviations

inventory fluctuations in a disequilibrium macro model as fig i shows this pattern continues to hold with remarkable fidelity over the postwar period as well notice that stock levels tend to peak during recessions shaded areas and to trough shortly after recessions while the stock sales ratio tends to peak during the latter part of recessions and to trough during expansions given the huge role played by stocks in business fluctuations 1 it is surprising that so little theoretical attention is directed toward improving our understanding of the timing of stock and stock sales ratio movements 2 the purpose of this paper is to offer a theoretical model which is consistent with the observed cyclical behaviour of stocks and the stock sales ratio the present model has firms forming sales expectations and then producing enough output if possible to cover the expected sales and to maintain a given stock expected sales ratio trade takes place out of equilibrium and inaccurate sales expectations or capacity constraints give rise to involuntary stock changes we find that stock holding may or may not be destabilising if stocks are not destabilising the familiar keynesian multiplier will obtain though the path of output after a shock will differ from the keynesian path if stocks are destabilising the system is found to enter a cycle with stocks and output ultimately rising and falling in a pattern much like that observed in actual cycles

econometric modelling in the presence of evolutionary change a methodology is offered which can be used to construct an econometric model in the presence of structural change of an evolutionary type the theoretical basis for such modelling is drawn from the self organisation approach and operationalised in the context of the logistic diffusion growth model the latter is augmented to allow for the impact of exogenous effects upon both the diffusion rate and boundary limit we show how the hypothesis of augmented logistic diffusion can be falsified using econometric methods an illustrative case study is used namely the growth and decline of australian building society deposits with the aid of this example it is shown how the approach could be of use to both economic forecasters and regulators in conditions of structural change where conventional econometric methods are often inappropriate jel classification c51 c53 e42 e47 g18 o31

on giffen like goods abstract this paper provides as a counter example to the alchian allen theorem a theory of giffen like goods a per unit charge to two similar goods raises the relative price of the lower quality good and yet increases the relative demand of the good

a comparative evaluation of sraffa s the laws of returns under competitive conditions and its italian precursor in his classic paper the laws of returns under competitive conditions piero sraffa 1926 p 535 noted that the opening pages of this article contain a summary of the con clusions of a paper which he wrote in italian with the title sulle relazioni fra costo e quantite prodotta sraffa 1925 it is my purpose here to compare the relative contri butions found in these two papers the first of which to the best of my knowledge has not appeared in english translation 1 sraffa s thesis that the marshallian partial equi librium analysis of prices and quantities is inadequate in the case of industries subject to variable costs acquires added stature from the clear and detailed exposition it received in his 1925 paper which also contains a critique of the analyses of variable returns of turgot j s mill cairnes edgeworth wicksteed pigou pantaleoni barone j n keynes and particularly marshall among others it is worthy of note that one of the major students and popularisers of sraffa s work a roncaglia holds the view that the 1925 article is today of greater interest for it concen trates on criticism of marshallian theory as well as providing diverse hints of great interest such as the analysis of spurious margins to which sraffa refers in the preface to production of commodities by means of commodities roncaglia 1978 p 19 2 roncaglia adds that the 1925 article greatly impressed the ageing edgeworth who as a co editor decided to invite sraffa to write a second article in the same vein for the

money barter and convergence to the competitive allocation menger s problem abstract this paper explores the propensity of a bilateral exchange economy to get stuck away from the competitive allocation even when the competitive prices have been established this is menger s problem necessary and sufficient conditions for a menger problem are found to relate to the presence of corner solutions when money is introduced convergence can be established

shipping the good apples out a new perspective i introduction the alchian and allen substitution theorem posits that a per unit tax or shipping fee applied to similar goods will increase the relative consumption of the higher quality good originally formulated in alchian and allen s 1964 textbook university economics the theorem is often called the shipping the good apples out theorem because of the empirical observation that supermarkets in apple importing areas such as indiana have a higher proportion of high quality apples relative to low quality apples than supermarkets in apple growing areas such as washington state a washington resident on holiday in indiana might well conclude that the good apples are getting shipped out the theoretical basis for the alchian and allen result was questioned by gould and segall 1969 who demonstrate that the result holds unequivocally only in a two good world borcherding and silberberg 1978 defend the alchian and allen result in an n good world but only when the two taxed goods are close substitutes this special case appears to be all that can be salvaged in terms of theory for further discussion see umbeck 1980 the purpose of this article is to reinterpret the alchian and allen result in an n good world this reinterpretation shows that their result holds more broadly than suggested by borcherding and silberberg and indeed more broadly than though not as robustly as originally claimed by alchian and allen ii background consider a world with n goods x sub 1 x sub 2 x sub n the first two of which can be thought of as respectively the high quality and standard quality versions of some product e g good apples and bad apples by assumption then p sub 1 p sub 2 0 following borcherding and silberberg i phrase the alchian and allen thesis as differential x sub 1 x sub 2 differential t 0 where x sub 1 p sub 1 p sub 2 u and x sub 2 p sub 1 p sub 2 u are hicksian income compensated demand functions and t is a per unit charge applied to both goods 1 the chain rule gives us differential x sub i differential t differential x sub i differential p sub 1 differential x sub i differential p sub 2 and combining this with the quotient rule i get mathematical expression not reproducible in ascii substituting in the compensated elasticities epsilon sub ij p sub j x sub i differential x sub i differential p sub j i arrive at differential x sub 1 x sub 2 differential t x sub 1 x sub 2 epsilon sub 11 p sub 1 epsilon sub 12 p sub 2 epsilon sub 21 p sub 1 epsilon sub 22 p sub 2 the first term here is always positive so i will focus attention on the second term 1 epsilon sub 11 p sub 1 epsilon sub 12 p sub 2 epsilon sub 21 p sub 1 epsilon sub 22 p sub 2 the alchian and allen claim is that 1 is positive iii a two good world with only two goods hicks s 1946 310 11 third law mathematical expression not reproducible in ascii reduces to epsilon sub ij epsilon sub ii and one can substitute for epsilon sub 11 and epsilon sub 21 in 1 to get 2 epsilon sub 12 epsilon sub 22 1 p sub 2 1 p sub 1 the first term here is positive because the two goods in a two good world must be substitutes epsilon sub 12 0 and own price elasticities are negative epsilon sub 22 p sub 2 0 i therefore get the alchian and allen result differential x sub 1 x sub 2 differential t 0 the intuitively compelling story is that consumers are substituting out of bad apples and into good apples

effect of generic cigarettes on us cigarette demand and smuggling abstract this paper examines the effects of generic cigarettes on overall cigarette demand and smuggling and studies influences of casual and organized smuggling for the united states generic cigarettes lower the price elasticity and diminish the effect of formal smuggling

stable quantities in fixed price disequilibrium recent work in the area of non walrasian process analysis has focused on three primary deficiencies in the walrasian tatonnement assumptions these are the walrasian neglect of endowment and spillover effects together with the failure to assign a special role for money in detail first it has long been known that if trade takes place during the process of price adjustment the resulting capital gains and losses coupled with the change in the distribution of commodities will tend to shift the position of the equilibrium for an early source see 18 book v chap ii this leaves the system with the problem of trying so to speak to close in on a moving target this is the endowment effect surprisingly hahn negishi and others see 17 1 chap 131 h ave found that stability follows in this class of models more readily than in walrasian models second clower 3 and patikin 9 chap xiii have argued that if trade takes place away from equilibrium we should expect that non zero excess demands in some markets will influence trading plans in other markets this is the spillover effect the classic case is that if a worker on the long side of the labor market cutting his planned consumption below its walrasian level because of spillovers the demands which actually get expressed in the marketplace can differ significantly even in sign from the demands which the walrasian auctioneer responds to initially there was speculation that spillovers would generate instability and or unemployment equilibria but thus far the theoretical results are mixed compare for example 11 io finally clower 4j has argued that the patikinesque macromoney general equilibrium models have not succeeded in formally distinguishing between money and other durables as a means of payment noting that the walrasian budget constraint implicitly allows trading in any pair of commodities he urges that a tighter restriction be introduced in the interest of enforcing the rule money buys goods and goods buy money 302 0022 0531 81 050302 12502 00 o

inventories and sticky prices note in a recent contribution to this review alan blinder provides an interesting analysis of the relationship between optimal inventory decisions and the process of price adjustment arguing that inventory permits separation of production and sale decisions and allows the firm greater flexibility in responding to anticipated demand disturbances blinder shows that the responsiveness of relative prices depends critically upon the cost of storage and the temporal structure of the demand shocks few economists would fault the intuitive substance of blinder s basic proposition and the proposition is justified with characteristic precision the analysis however is considerably less general than blinder maintains the formal argument of his paper relies upon a simple model of a monopolist capable of backlogging orders and storing unsold goods as the model is constructed order backlogs assume a role of fundamental importance in any stationary equilibrium this feature of the model vitiates blinder s extension of his result to situations in which order backlogs are prohibited the basic monopoly model developed in sections i and ii of blinder s paper places no restriction upon the sign of inventory negative inventory is interpreted as net unfilled orders while no distinction is drawn between reductions in gross inventory and additions to the order backlog as a result the cost of holding inventory is symmetric around an arbitrary minimum point the only role of inventory is to permit the time paths of production and sales to differ gross inventory allows production to antedate sales while order backlogs generate revenue before production costs are borne under these circumstances if future costs and revenues are discounted it is natural to expect any stationary equilibrium level of net inventory to be negative this can be shown to be true of blinder s model it is useful to distinguish in general between the nonstochastic stationary level of inventory n and the stochastic stationary level n the former is realized when the current expected demand disturbance eo is zero and production equals sales the latter which differs from customary usage represents the level of inventory expected to prevail when adjustment to the current nonzero expected demand disturbance is complete if the demand disturbance is not a random walk so that p 1 in blinder s 5 the two equilibria coincide relatively little attention is devoted to either stationary solution because blinder s main interest is in the optimal current solution level n1 the stochastic stationary level is crucially important however since it represents the goal toward which the current choice must provide an optimal first step to verify that both nand n are negative whenever production is strictly positive note that blinder s necessary condition 7 with the coefficient cl set equal to zero together with the definition of xa as the deviation of the shadow value of inventory q from its nonstochastic stationary value q implies

the generalized alchian allen theorem a slutsky equation for relative demand we generalize the alchian allen theorem so as to account for income and endowment effects and provide two versions of a generalized alchian allen theorem one for a unit cost component and one for a proportional cost component both versions provide a decomposition of an uncompensated change in the demand ratio of two goods into a substitution effect and an income endowment effect and may thus be regarded as extensions of the familiar slutsky equation for relative demand finally we apply our results to the choice of real estates and to parental time allocation decisions the latter providing implications for child care policies uel dll h21 j22 r21 i introduction the alchian allen theorem see alchian and allen 1964 74 75 suggests that an increase in the prices of two goods by the same amount leads to a decrease in the relative price of the more expensive good and hence to a relative increase in the compensated demand for that good as this pure substitution effect applies to any pair of goods with a common but abstract unit cost component the alchian allen theorem has a broad range of applications for example the common unit cost component may be interpreted as a specific tax as a fixed transportation cost as a flat transaction cost or as the wage forgone in favor of different leisure time activities accordingly the alchian allen theorem has been discussed in various fields of both theoretical and empirical economics 1 above all borcherding and silberberg 1978 formulated the alchian allen theorem for compensated demand in the standard consumer model with three goods then hummels and skiba 2004 extended the analysis of borcherding and silberberg by introducing an ad valorem tariff on the two goods under consideration and showed that the effect of a change in the ad valorem tariff is basically opposite to the effect of a change in the unit cost in this paper we generalize the two formulas for substitution effects one for demand changes resulting from the unit cost components and one resulting from the proportional cost components 2 within the alchian allen framework so as to incorporate income and endowment effects we believe that this generalization constitutes an important result as these effects are arguably significant for a broad variety of goods in this way we arrive at two versions of the generalized alchian allen theorem gaat which essentially provides a decomposition of an uncompensated change in the demand ratio of two goods into a substitution effect compensated effect and an income endowment effect because of the apparent similarity of our decomposition of the change in the demand ratio with the renowned slutsky equation the two versions of the gaat we provide here may be regarded as the proper versions of the slutsky equation for relative demand the alchian allen result i e an increase in the demand for the more expensive good relative to the demand for the less expensive good resulting from an increase of a common unit cost component of both goods has been examined empirically for example bertonazzi maloney and mccormick 1993 interpreted the alchian allen theorem within a household production framework 3 and found that football fans traveling farther tend to purchase higher quality tickets hummels and skiba 2004 presented the hypothesis that an increase in unit transport costs increases the share of the higher quality goods and therefore the share weighted average of prices and confirmed this using international trade data moreover some researchers have indirectly provided findings that are consistent with the alchian allen result sobel and garrett 1997 found that an increase in specific taxes is estimated to increase the market share of premium brand cigarettes and nesbit 2007 found that an increase in specific taxes is estimated to increase the market share of premium grade gasoline

a discrete choice model of recreational participation site choice and activity valuation when complete trip data are not available abstract a discrete choice model of the demand for site specific recreational activities is developed and estimated it simultaneously predicts both how many trips the individual will take and which site will be chosen on each trip the model is formulated to estimate demand when the data set reports the total number of trips in a given time period but the actual destinations for only a subset of the total the model also includes a correction for sample selectivity bias the application is marine recreational fishing the consumer s surplus associated with any change in supply conditions is derived and used to assess the impact of changes in species availability

marshall s theory of value the role of external economies the view that marshall relied upon the assumption of external economies in his attempt to reconcile the existence of competition and decreasing long run average costs continues to attract many supporters however it is argued here that in marshall s writings external economies were to play only a very minor role in the reconciliation exercise subsequent writers emphasis on the role of external economies is shown to reflect a lack of understanding of the object of marshall s as opposed to the marshallians reconciliation problem

good grapes and bad lobsters applying the alchian and allen theorem i the theorem the alchian and allen theorem states that adding a common charge to the price of two substitute goods increases the relative consumption of the higher quality good real income held constant the classic example of this theorem is from alchian and allen s 1964 75 textbook university economics suppose that grapes are grown in california and that it costs 5 cents a pound to ship grapes to new york whether the grapes are choice or standard suppose further that in california the choice grapes sell for 10 cents a pound and the standard for 5 cents a pound if grapes are shipped to new york the shipping costs will raise the costs of choice grapes to 15 cents and of standard grapes to 10 cents in new york the costs of choice grapes are lower relative to standard grapes 1 5 to 1 than in california 2 to 1 new yorkers faced with a lower price of choice grapes relative to standard will consume relatively more choice grapes than californians will alchian and allen s theorem is solely about relative price effects and does not rely upon income effects or selection effects it assumes that those most willing to pay the fixed charge do not have systematically different preferences and incomes as those not paying the charge furthermore the theorem does not hold for corner solutions where the high and low quality goods are consumed by different classes of consumers or equivalently each consumer purchases only one unit of the good in question we must then consider the different rates at which consumers of high and low quality goods decrease consumption when price changes purchasers of high quality items need not reap more consumer surplus than purchasers of low quality items 1 ii per unit costs versus fixed and sunk costs the alchian and allen theorem applies only when the costs are applied to each good on a per unit basis charging a single fee or fixed tax to allow consumption of the good to take place does not create a substitution effect the fixed fee once paid is treated as a sunk cost and consumers face the same relative prices they faced initially an increase in the cost of a grape shipping permit for instance will not have any direct effects on the quality of grapes many of the examples of the alchian allen theorem that have been given in the literature do not specify true per unit taxes umbeck 1980 for example argues that an increase in the installation charge for phones will increase phone usage but in this case the relevant charges are fixed the installation or monthly service charge will increase current phone usage only if individuals are planning to go without a phone in future periods in contrast individuals who will continue phone service into the foreseeable future cannot minimize their monthly charges or their installation charges by increasing their phone usage now any change in behavior would be due to an income effect which is unpredictable a trickier problem is raised by borcherding and silberberg 1978 133 who claim that it does not matter if the goods are shipped to the consumers or the consumers are shipped to the goods going to maine or the country involves a transport cost to people not from maine or the country what the alchian allen theorem predicts therefore is that tourists in maine will consume on average higher quality lobsters than the natives and similarly for city versus rural dweller s purchases of produce at roadside stands if people who make a special trip to maine in fact choose to eat truly delectable instead of inferior quality lobsters sold there this confirms alchian and allen s thesis emphasis added when the tourists are transported the alchian allen theorem applies only if 1 the tourists are planning both high quality and low quality trips in the future and 2 high quality lobster is strongly and positively related to a high quality vacation in maine

the history of the theory of the firm from marshall to robinson and chamberlin the source of positivism in economics a widely believed story in the folklore of the economics profession is that the theories of perfect competition and monopoly were well established from the time of marshall or perhaps pigou s economics of welfare and that the role of imperfect or monopolistic competition theory was to fill in the middle ground between these extremes it will be shown in this paper that the folklore conflicts with the historical evidence robinson and chamberlin created the theory of perfect competition in the course of inventing imperfect and monopolistic competition theory robinson and chamberlin between them were concerned with the same issues that concerned marshall the difference is that robinson and chamberlin derived their analyses from a few clear axioms while marshall sought to develop his analysis from a well informed but necessarily impressionistic description of actual business behaviour and dynamic processes along with the introduction of indifference analysis to english speaking economists by hicks and allen robinson and chamberlin gave the theory of value and distribution a complete and logically consistent axiomatic basis because their axioms relating to business motivation and behaviour were amenable to empirical verification the work of robinson and chamberlin rendered the theory of value and distribution open to a new empirical criticism it will be argued that the widespread acceptance of friedman s 195 3 positive methodological position was a necessary response to these empirical criticisms if the new axiomatic foundations of the theory of value and distribution were to be as secure as those previously provided by marshall

on the keynesian notion of equilibrium and dynamics harrod had always maintained that keynes s treatise was much more amenable for dynamic analysis than the general theory however in much of the later work on keynesian dynamics the general theory became the foundation in this paper i argue that recent developments in neoclassical general equilibrium theory have the effect of undermining the conventional keynesian conception of dynamics based on the general theory and recasting keynes as a coarse precursor of modern general equilibrium analysis opposing this renewed orthodox reinterpretation of keynes might require a reconsideration of the treatise as the foundation for an alternative keynesian dynamics 1996 academic press limited

the evolutionary firm and cournot s dilemma to transform this competence based approach into an evolutionary theory the con nection between the firm and veblen s concept of social knowledge is more fully devel oped once established the evolutionary theory of the firm is utilised to bypass marshall s reconciliation problem and solve cournot s dilemma

ambiguous changes in product quality economic goods are frequently sold according to a price per unit quantity where the quantity characteristic does not measure all the economically important characteristics of the good milk is sold by the quart automobiles rented by the mile physicians services bought by the visit and tennis lessons by the hour in all cases heterogeneous units are available in the market and the price per unit quantity depends upon the amount of the unpriced characteristic contained in each unit the per quart price of milk depends upon the butterfat content the mileage costs of automobile rentals on the cars make and the price per unit time for personal services on the providers skill and training the common distinction made between these variants of the same good is that they differ in quality where quality refers to the amounts of the unpriced attributes contained in each unit of the priced attribute thus milk is packaged according to the attribute milk liquid and the quality of milk refers to the ratio of butterfat per unit of liquid 2 this paper considers some of the unique aspects of the economics of supply and demand under this situation where products contain at least two desired attributes only one of which is quantified and measured prior to purchase product quality is here defined by the ratio of the second quality attribute per unit of the measured quantity attribute 3 this simple specification of quality allows a direct link between standard economic models of related products and the economics of variable product quality previous analyses which treat quality simply as a shift parameter in the demand function are shown to obscure the actual subtleties of supply and demand with variable endogenous quality 4 the paper proceeds by first examining the efficient quality and quantity and the competitive equilibrium the market equilibrium under monopoly is then contrasted in the second section the general theme of the

shipping the good fish out an empirical study on the eu seafood imports under the eu s generalized system of preferences abstractthe impact of the eu european union generalized system of preference gsp on the relative eu s demand for seafood quality was evaluated in the study we first explored the theoretical alchian allen result of change in ad valorem tariffs in an n good world and then tested this result in the empirical study the theoretical analysis suggests that whether a reduced ad valorem tariff in an n good case raises the relative demand for high value goods depends not only on the substitutability between high value and low value goods but also on the substitutability between these similar goods with their weak substitutes in the empirical sections we first estimated the elasticities of the substitutions and then used these elasticities to evaluate the quality composition of the eu s seafood imports from the beneficiary countries the empirical results in general confirm the occurrence of shipping the good fish out due to the reduced tariff rates under the eu s gsp arrangements

adaptive expectations and perfect foresight in a nonlinear metzlerian model of the inventory cycle it has long been known that the motions of aggregate inventory investment are an important facet of the business cycle see e g blinder and maccini 1991 some elementary insights into the dynamic feedback effects between inventories production and sales were provided by metzler 1941 in a small theoretical model the present note adopts his framework but seeks to overcome the limitation of its linear specifications our basic idea corresponds to the concept of a flexible inventory accelerator while metzler postulated that desired inventory investment in discrete time is equal to the gap between desired and actual stocks of inventories some later studies have introduced a constant proportionality factor for the adjustment of inventories here we go one step further and hypothesize a variable stock adjustment speed as it turns out fast adjustments in a vicinity of the stationary equilibrium cause local instability but if for

imagination and leadership the neglected dimension of an evolutionary theory of the firm abstract bounded rationality prevents humans from tracing all action plans that could in principle be imagined in the present paper individuals partly socially shaped cognitive frames explain which action plans do gain attention this provides the basis for a new entrepreneurial theory of the firm where business conceptions which underlie any entrepreneurial venture play a key role coordination and motivation of the firm members can be achieved and opportunism be held down if through cognitive leadership the entrepreneur succeeds in implementing and defending his own business conception as a tacit cognitive frame collectively shared within the firm

organizational capabilities and the economic history of the industrial enterprise in my book scale and scope 1990 i focused on the history of the modern industrial firm from the 1880s when such firms first appeared through world war ii i did so by comparing the fortunes of more than 600 enterprises the 200 largest industrial firms at three points in time world war i 1929 and world war ii in each of the three major industrial economies those of the united states britain and germany in this paper i first describe the similarities in the historical beginnings and continuing evolution of these enterprises and then outline my explanation for these similarities next i relate my explanation of these empirical regularities to four major economic theories relating to the firm the neoclassical the principal agent the transaction cost and the evolutionary finally i suggest the value of the transactions cost and evolutionary theories to historians and economists who are attempting to explain the beginnings and growth of modern industrial enterprises

how much and how often a model of repeated consumption with endogenous consumption frequency abstract we study the consumption pattern for a repeated good in which individuals choose both consumption frequency and intensity in response to income price and setup cost results include that increased setup costs reduce frequency and increase intensity and that the effects of a setup cost increase are qualitatively different from those of a price increase or an income reduction

economic emergence an evolutionary economic perspective abstract the standard neoclassical approach to economic theorising excludes by definition economic emergence and the related phenomenon of entrepreneurship we explore how the most economic of human behaviours entrepreneurship came to be largely excluded from mainstream economic theory in contrast we report that evolutionary economists have acknowledged the importance of understanding emergence and we explore the advances that have been made in this regard we go on to argue that evolutionary economics can make further progress by taking a more naturalistic approach to economic evolution this requires that economic analysis be fully embedded in complex economic system theory and that associated understandings as to how humans react to states of uncertainty be explicitly dealt with we argue that knowledge because of the existence of uncertainty is to a large degree conjectural and thus is closely linked to our emotional states our economic behaviour is also influenced by the reality that we and the systems that we create are dissipative structures thus we introduce the notions of energy gradients and knowledge gradients as essential concepts in understanding economic emergence and resultant economic growth

libertad para competir en el mercado recursos procesos y resultados freedom to compete in the market resources processes and resultsherein we analyze three concepts of market competition although the different aspects of freedom can be appreciated in each one of them they make an especial contribution to some of them we propose that the neoclassical general equilibrium chiefly contributes to the discussion of the outcomes of an economic activity the barriers to entry approach calls for a study of the resources necessary to compete and the competition as a process approach emphasizes the competitive activity itself moreover as we move from the first onwards enriching the meaning of competition the possibility of losing opportunities to participate in the market becomes more evident entry and exit are part of the competitive process each concept of competition responds to theories that specify or allude to certain types and distribution of economic agents freedoms to manoeuvre throughout this study we often quote amartya sen with the purpose of buildingbridges between the study of competition and the approach of development as freedom

the effect of prices on nutrition comparing the impact of product and nutrient specific taxes this paper provides an analysis of the role of prices in determining food purchases and nutrition using very detailed transaction level observations for a large nationally representative sample of us consumers over the period 2002 2007 using product specific nutritional information we develop a new method of partitioning the product space into relevant nutritional clusters that define a set of nutritionally bundled goods which parsimoniously characterize consumer choice sets we then estimate a large utility derived demand system over this joint product nutrient space that allows us to calculate price and expenditure elasticities using our structural demand estimates we simulate the role of product taxes on soda sugar sweetened beverages packaged meals and snacks and nutrient taxes on fat salt and sugar we find that a 20 nutrient tax has a significantly larger impact on nutrition than an equivalent product tax due to the fact that these are broader based taxes however the costs of these taxes in terms of consumer utility are only about 70 cents per household per day a sugar tax in particular is a powerful tool to induce healthier nutritive bundles among consumers

creating holdup through vertical integration fisher body revisited abstract general motors s gm s 1926 acquisition of fisher body has long served as a cornerstone of hold up arguments for vertical integration this paper utilizes primary historical evidence to make three related claims first it shows that gm s initial investment in fisher body occurred primarily to gain access to the fisher brothers specialized human assets second it shows that holdup was not the cause of gm s purchase of fisher body instead the primary factors leading to vertical integration were gm management s fears over the fisher brothers impending departure coupled with problems of financing new body plants finally i show that while holdup was not an issue prior to integration the fisher brothers successfully held up gm after they became employees far from reducing opportunistic behavior vertical integration increased gm s vulnerability to rent seeking behavior based in human asset specificity

the mecca of alfred marshall alfred marshall is often quoted for his statement that the mecca of the economist lies in economic biology and he is seen as a father of evolutionary economics however the limited character of his evolutionary theory and its close resemblance to t he ideas of herbert spencer are sometimes misunderstood or ignored th e argument in this paper is that marshall saw the value of the biologi cal metaphor for economics but in part the spencerian influence thwarted the development of an adequate evolutionary analysis copyright 1993 by royal economic society

taxation and product quality new evidence from generic cigarettes in this journal barzel 1976 theorized that per unit taxes should increase the average quality of a product whereas ad valorem taxes may either lower product quality or leave it unaffected there are several different ways to present the logic behind this theory barzel stresses that per unit taxes do not tax all attributes of a commodity causing a substitution from the taxed attributes quantity into the others quality 1 another way is to draw an analogy to the alchian and allen 1964 theorem where the addition of a fixed fee causes a decrease in the relative price of the higher quality version of the product 2 because ad valorem taxes add the same percentage to the prices of both the highand low quality versions of the product they do not distort relative prices thus ad valorem taxes should

hicksian separability does not hold over space implications for the design of household surveys and price questionnaires abstract if relative prices of goods within a commodity group are constant hicksian separability lets the price of a single good represent the group price level this is relied on by price questionnaires used with household surveys in developing countries and when constructing temporal and spatial deflators methods of estimating demand systems from household survey data also rely on hicksian separability yet this restriction remains untested in cross sections we use unique data from vietnam with multiple specifications from within the same food groups to test if within group relative prices are constant over space the data firmly reject these restrictions some guidelines for survey design are discussed in terms of the characteristics of commodity groups that should be disaggregated and those that should have more elementary goods added to their linked price questionnaire

transaction cost economics in real time this paper attempts to place the theq of the boundaries of thejirm within the context of the passage of time more precisely it resurrects and places in a modem frame some of the insights of the chsical and marshallian theories of organization the modem reinterpretation of those theories centers around the capabilities view of the jirm taken together with governance costs the capabilities ofjirm and market determine the boundaries of the jirm in the short run ovw time capabilities change as firms and markets learn which implies a kind of information or knowledge cost the cost of trandewing the firm s capability to the market w vice versa these dynamic governance costs are the costs of persuading negotiating and coordinating with and teaching others they arise in the face of change notably txchnological and organizational innovation in fit they are the costs of not having the capabilities you need when you need them dynamic transaction costs provide an explanation for vertical integration that is arguably more general than those dominant in the literature in the face of uncertainty and divwgent views ofthe future common ownership of multiple stages of production is a supwior institutional arrangement for coordinating systemic change asset specrfity is neither necessary nor suffient for this to be true dynamic governance costs may also affit internal organization it may sometimes be costly in 3 terms of persuasion negotiation and teaching to create within the firm capabilities readily available on the market indeed in cases in which systemic coordination is not 4 the issue the market may turn out to be the superior institution of coordination in e 2 genwal the capabilities view of the jirm suggests that we look atfim2 and market as alternative and sometimes overlapping institutions of learning 1 transaction costs in the long rzln and the short 9 x classical and neoclassical perspectives

the assumption of constant returns to scale nicholas kaldor was right to maintain that this assumption is unrealistic but that does not mean that it is useless there are propositions that can be proved assuming it which would never have been found without it but that look as if they are independent of it two examples 1 paul samuelson s factor price equalization theorem in international trade and 2 the author s theory of relations between factors in production elasticity of substitution in a modern form p and q substitutes complements must be distinguished weakly related factors are p substitutes and q complements this is the only case when no more than two factors are present otherwise two factors out of many may be strong substitutes substitutes both ways or strong complements complements both ways the excluded case when they would be p complements and q substitutes appears in the presence of scale economies to be excluded a fortiori copyright 1989 by oxford university press

on the evolution of thorstein veblen s evolutionary economics this article addresses the origins of thorstein veblen s evolutionary economics as announced in his 1898 essay why is economics not an evolutionary science before 1897 and partly under the influence of c lloyd morgan veblen rejected biological reductionism veblen s 1897 endorsement of a critique of marxism by max lorenz shows that he found karl marx s account of human action too limiting by this time veblen had also rejected the idea of either the individual or society as exclusive foundations for social science instead he embraced an evolutionary framework of explanation along darwinian lines involving multiple levels of explanation and emergent properties copyright 1998 by oxford university press

giffen behavior and subsistence consumption this paper provides the first real world evidence of giffen behavior i e upward sloping demand subsidizing the prices of dietary staples for extremely poor households in two provinces of china we find strong evidence of giffen behavior for rice in hunan and weaker evidence for wheat in gansu the data provide new insight into the consumption behavior of the poor who act as though maximizing utility subject to subsistence concerns we find that their elasticity of demand depends significantly and nonlinearly on the severity of their poverty understanding this heterogeneity is important for the effective design of welfare programs for the poor jel d12 012

tax changes and cigarette prices the recurring question of the difference between specific and ad valorem taxes has recently been revived by barzel 1976 who argued p 1185 that when quality is not fully controlled the effects of the two types of taxes differ radically the excise tax induces a substitution of quality for quantity resulting in a greater increase in the price per unit than predicted by the constant quality model the ad valorem tax induces a reduction in quality and lower after tax price than predicted evidence consistent with these hypotheses is found in the response of cigarette prices to tax changes in the further tests reported by johnson 1978 prices rise significantly less than the tax in new hampshire where the state tax was ad valorem and significantly more in the remaining states which impose specific taxes the purpose of this note is to question not barzel s analysis but rather the interpretation of the evidence on the pedestrian grounds of implausibility as barzel himself observes p 1194 n 32 the size of new hampshire makes it unlikely that cigarettes would be tailormade for it the scope for removing characteristics is quite limited then the scope for adding characteristics in other states seems equally limited to avoid misunderstanding it should be emphasized that the hypothesized variations in quality are a supply side phenomenon not a demand side response to the relative cheapening of superior brands when a specific tax is increased johnson s estimates imply that the 90 increase in the new hampshire tax over the period 1954 76 should have reduced the net price by 3 6 ceteris paribus the slightly larger mean tax increase in the remaining 48 continental states should have raised net price by 0 90 what changes in the quality of the services sold with cigarettes could have justified such a differential what are the observable counterparts of the tax changes in the absence of a convincing answer to those questions the estimated response of cigarette prices to taxes represents a fact in search of a theory

optimal inventories and equilibrium price behavior abstract this paper departs from the established tradition of equilibrium inventory theory by examining the relationship between inventories and market prices when production is instantaneous but distribution is costly inventory holdings are not buffer stocks and do not facilitate production smoothing rather production variability exceeds the variability of final sales voluntary holdings of marketable finished goods are not restricted to occasional speculation during periods of unexpectedly low demand but may persist even when capital losses are anticipated in these respects the paper reconciles important features of the inventory decision problem with the results of modern investment theory

on the third law of demand i introduction the alchian and allen 1967 63 64 theorem sometimes elevated to the status of a third law of demand as in bertonazzi et al 1993 is a clever application of the fundamental principle of economizing behavior as usually stated the theorem suggests that by reducing the price of higher quality relative to lower quality versions of the same good a fixed transportation charge will trigger a predictable shift in the mix of quality grades purchased by consumers in distant markets as compared to the mix purchased locally producers will respond rationally to this difference in behavior relatively more high quality goods will be included in outbound shipments leaving more low quality goods to be sold nearer the point of origin hence other things being the same the theorem predicts that it will be harder to find good apples in the state of washington a prime apple growing region than in say new york city where bad apples are comparatively more expensive the first law of demand still holds of co urse in that fewer apples of both types will be consumed in new york than in seattle ceteris paribus similarly given that the cost of a babysitter will be the same no matter where the parents of young children decide to spend the evening out they are more likely than an otherwise identical childless couple to choose an upscale restaurant over an inexpensive eatery and to go to the theater rather than to the movies moreover if both couples plan to see a play or a concert the couple with children will opt for better seats the foregoing examples indicate that the alchian and allen theorem is rich in empirical implications in what follows however we show that placed in the context of a market model its range of applications is narrower than has been acknowledged in the literature heretofore more specifically our analysis demonstrates that a fixed charge unambiguously reduces the price of a higher quality good relative to a lower quality version of the same good only when that good is sold by a perfectly competitive constant cost industry under increasing cost conditions or imperfectly competitive industry structures by contrast it is possible for relative prices either to be unaffected by the addition of a fixed charge or indeed for the lower quality good to become relatively cheaper in distant markets depending on the elasticity characteristics of relevant market demand and supply functions our analysis is in no way intended as an attack on alchian and allen or their fine textbook which has taught more than one generation of economists to be better price theorists we do not quarrel in the least with the pedagogical value of their theorem which has been immense our purpose is to identify some plausible scenarios under which the third law of demand may fail to hold the present article is thus in the spirit of yang and stitt 1995 who show that the ramsey 1927 rule for optimal commodity taxation is changed in important ways when the assumption of constant production costs is relaxed it is organized as follows in the next section the fundamentals of the alchian and allen theorem are described in more detail and its predictions are situated within the existing literature section iii explores the theorem s operations under alternative cost conditions and industry structures factors complicating the analysis of the effects of a fixed charge on the relative prices of high and low quality goods are also addressed in this section finally section iv contains some concluding remarks ii shipping the good apples out to borrow an example from a classic statement of the alchian and allen theorem 1 suppose that good washington apples sell for 10 cents each in seattle and bad apples each cost a nickel there because the price of a good apple is twice that of a bad apple seattle s consumers must sacrifice the opportunity of buying two bad apples to obtain a good one

on the classical theory of competition this paper identifies some important theoretical issues remaining unresolved in the wake of piero sraffa s seminal work a central problem concerns the process of gravitation towards uniform profit rates and production prices stringent requirements for convergence and stability are discussed the issue of path dependence being regar ded as most basic other issues concern inter and intraindustry mechanisms of competition choice of technique and technical change and mechanisms of wage profit rate determination prospects for advancing a theory of differentiated profit rates that would be consistent with classical theory are examined against this background it is suggested that sraffa s contribution encompasses two theoretically distinct research programs copyright 1988 by oxford university press

the competence based approach veblenian ideas in the modern theory of the firm the author argues that a contemporary stronghold of a number of thorstein veblen s crucial ideas can be found in the emerging competence based approach to the firm e g penrose chandler winter for example the emphasis in this literature on firms as path dependent entities characterized by their heterogenous and group based knowledge bases can be linked with key themes in veblen s work thus the paper presents the competence based approach as a modern veblenian approach moreover the veblenian aspects of the competence based approach are also those aspects that most differentiate it from the other dominant economic approach to the firm the contractual approach e g alchian and demsetz williamson grossman and hart the aim of the paper is both to make this historical point and to present a contemporary body of theory that may with some justice be called veblenian copyright 1998 by oxford university press

inventories in a dynamic macro model with flexible prices this paper presents a disequilibrium macro model with inventories rational expectations and flexible prices it is found that less than full employment equilibria are possible even highly likely in the intermediate term and that wage reductions will cause employment to drop increasing aggregate demand will raise employment only if it is done gradually on a technical level we have multiple switching lines disconnected regimes and a connected equilibrium set which borders on a switching iline and otherwise lies in a single region

buffer stocks and naive expectations in a non walrasian dynamic macromodel stability cyclicity and chaos in their pioneering work honkapohja ito 1980 constructed a non walrasian macromodel with inventory dynamics some of their assumptions are modified in this paper e g the expected demand for goods is defined by previous rather than actual demand the modified model yields results which are both similar and dissimilar to those of honkapohja and ito for example the keynesian unemployment equilibrium remains invariant but the corresponding stability condition becomes milder the chaotic behavior of the unstable systems is also analyzed