buyer initiated vs seller initiated information revelation sales presentations are the core of the selling process where salespeople provide information to prospects one challenge is that the amount of information available to be potentially communicated may exceed salespeople s ability to communicate or customers ability to process there is limited bandwidth between the firm and customers one important decision then is which information should customers see what the firm chooses to tell customers may be informative in itself when constrained to a seller initiated information revelation format where the firm chooses which feature to show the firm never finds it optimal to offer more features than it is able to inform customers about consequently customers never find credible a claim that the product has all features the important implication is that price alone cannot serve as a signal of quality in this setting in contrast a buyer initiated information revelation format where customers decide which information to receive increases the probability of a sale and also results in the production of higher quality products in a competitive setting by adopting buyer initiated information revelation firms are able to attain positive profits this is due to the fact that customers infer the product s quality from the price along with the information revelation format customers know that at some prices firms find it profitable to produce high quality products and at other lower prices this is not the case thus customer empowerment leads to higher profits

on the sources of aggregate fluctuations in emerging economies recent research on macroeconomic fluctuations in emerging economies has advocated introducing a stochastic productivity trend or allowing for interest rate shocks and financial frictions we estimate a model that encompasses these two approaches shedding light on their relative merits and on how financial frictions affect the transmission of shocks the model accounts for aggregate fluctuations by assigning a dominant role to financial frictions in amplifying conventional temporary productivity shocks whereas trend shocks play a minor role a link between spreads and expected future productivity emerges as essential for a reasonable approximation to the data

tracking distortions in agriculture china and its accession to the world trade organization this article examines the impacts of china s accession to the world trade organization wto on prices in its agricultural sector the analysis uses a new methodology to estimate nominal protection rates in china s agricultural sector before its accession to the wto these new measures account for differences in commodity quality within china and between china and world markets the analysis shows that some of china s agricultural commodities are well above world market prices and others are well below the article also assesses market integration and efficiency in china it finds high degrees of integration between coastal and inland markets and between regional and village markets the remarkable improvements in market performance in recent years mean that if increased imports or exports affect china s domestic price near the border producers throughout most of china will feel the price shifts

signaling quality with a money back guarantee the role of transaction costs direct marketing is witnessing explosive growth as consumers increasingly purchase products from their homes their ability to judge the quality of products they buy is significantly reduced in this paper we study how money back guarantees can signal product quality in such environments we interpret product quality broadly to mean both the level of attributes promised as well as the firm s consistency in delivering on those promises key aspects of our formulation are the explicit consideration of transaction costs and alternative signals of product quality transaction costs are the costs the seller or buyer faces when redeeming a money back guarantee we show that money back guarantees signal quality by exploiting the higher probability of returns for a lower quality product and the attendant higher transaction costs however if the seller s transaction costs are very large then there are less costly ways to signal namely charging a high price we compare the signaling performance of 1 price 2 price with uninformative advertising and 3 price with a money back guarantee whereas uninformative advertising does not work at all in our model under certain conditions a money back guarantee is necessary to signal and under other conditions a money back guarantee is a useful supplement to price

china s projected cereals deficits in a world context abstract lester brown s recent writings about trends in china s food consumption production and rapidly rising import requirements and his predictions that the world is running out of potential to increase production of cereals received wide publicity in the press they increased awareness of the problem among the public which was stimulated by recent declines in world cereals production per capita falling stocks and sharp rises in world market prices this paper is an attempt on my part to extract a coherent picture of what brown says about china and the world and examine it in the light of what we know about this country and of possible developments in the world as a whole i make the following conclusions 1 1 brown misjudges china s potential to maintain and indeed increase cereals production because he misinterprets the data on land losses he treats diversion of land from cereals to mainly other crops and aquaculture as if such land were lost to food production he ignores new data which indicate that china has more agricultural land than reported in official statistics and his projected numbers do not account for responses on the part of producers consumers and government policy to an increasing scarcity of products and rising prices 2 2 the analogies he draws with the experiences of japan south korea and taiwan are inappropriate 3 3 china will probably be a growing net importer of cereals but at levels much below those projected by brown 4 4 world production of cereals may indeed grow at a lower rate than in the long term past but not as low as that projected by brown which could be sufficient to accommodate china s growing import requirements and the probable ones of other countries 5 5 the world food problem is one of persistence of very low food consumption levels and high incidence of undernutrition in many developing countries mainly in sub saharan africa and south asia the persistence of severe food insecurity problems reflects not so much constraints in increasing food production in the world as whole but development failures often agricultural development failures and the persistence of poverty in certain countries

strategic pricing signalling and costly information acquisition abstract consider a market where an informed monopolist sets the price for a good or asset with a value unknown to potential buyers upon observing the price buyers may pay some cost for information about the value before deciding on purchases under a belief restriction which generalizes the idea of the cho kreps intuitive criterion we establish a version of the grossman stiglitz paradox there is no separating equilibrium with fully revealing prices yet we also resolve the paradox there is a unique equilibrium and as the cost of information becomes small the equilibrium approaches the full information outcome and prices become perfectly revealing

pricing and patents of hiv aids drugs in developing countries this article provides empirical evidence on the impact of patents on drug prices across developing countries it uses sales data on human immunodeficiency virus hiv acquired immuno deficiency syndrome aids drugs in a sample of 34 low and middle income countries between 1995 and mid 2000 the main findings are that patents do shift drug prices up drug prices are correlated to per capita income levels and drug firms follow a skimming strategy when pricing new hiv aids drugs that is there is across country and intertemporal price discrimination in the global drug markets

high and declining prices signal product quality high and declining prices signal a high quality product high prices are the efficient means of signaling because the consequent loss of sales volume is most damaging for lower cost lower quality products as time passes and the number of informed consumers increases the signaling distortion lessens resulting in a declining price profile the prediction of high and declining prices is robust across a variety of dynamic models and is consistent with recent empirical findings copyright 1991 by american economic association

information marketing and pricing in the u s antiulcer drug market introduced into the united states in 1977 tagamet was the pioneer product in the class of antiulcer drugs known as h2antagonists by promoting ulcer healing through inhibiting acid secretion tagamet was able to heal ulcers and treat pre ulcer conditions pharmacologically on an outpatient basis thereby substituting for more costly hospital admissions and surgeries in 1983 another h2 antagonist called zantac entered and by early 1987 u s zantac sales surpassed those of the pioneering tagamet today there are four h2 antagonists sold in the united states tagamet zantac pepcid and axid zantac is now the world s largest selling prescription drug having estimated worldwide sales in 1994 of about 4 billion each of the four h2 antagonists is among the top 100 in world drug sales although tagamet lost u s patent protection on may 17 1994 in this paper we examine empirically the role of information in facilitating and explaining growth of the overall antiulcer drug market as well as in shaping the changing market shares of the four patented products the dissemination of information is due largely to the use of marketing channels such as visits by manufacturers representatives to physicians called detailing advertising in medical journals and most recently by direct to consumer advertising we examine these and also explore pricing policies product differentiation and orderof entry effects

consumption externalities and diffusion in pharmaceutical markets antiulcer drugs we examine the role of consumption externalities in the demand for pharmaceuticals at both the brand level and over a therapeutic class of drugs externalities emerge when use of a drug by others affects its value and or conveys information about efficacy and safety to patients and physicians this can affect the rate of market diffusion for a new entrant and can lead to dominance of one drug despite the availability of close substitutes we use data for h2 antagonist antiulcer drugs to estimate a dynamic demand model and quantify these effects the model has three components an hedonic price equation that measures how the aggregate usage of a drug as well as conventional attributes affect brand valuation equations relating equilibrium market shares to quality adjusted prices and marketing levels and diffusion equations describing the dynamic adjustment process we find that consumption externalities influence both valuations and rates of diffusion and that they operate at the brand and not the therapeutic class level

two part pricing for experience goods in the presence of adverse selection abstract because customers learn something when they purchase an experience good for the first time a firm selling experience goods may face different demand curves from new and repeat customers the firm can exploit these differences by using a two part pricing strategy to price discriminate between new and repeat customers the firm may also use a two part pricing strategy to mitigate the information problems of adverse selection when its quality is uncertain the analysis is particularly applicable to service markets where customers and firms seek long term relationships and firms maintain customer records which facilitate price discrimination

credible signals of the release of new versions i introduction many products are marketed some time after they have been developed for instance a new smartphone may be developed and tested well before it is available for purchase a new car might be prototyped and driven months before it comes to the market indeed a firm will often have several products concurrently in a development pipeline consumers may know a product is in that pipeline without knowing its progress towards the market because the outcome of such development and testing is not visible to outsiders the firm knows whether it can market a product before consumers do consumers are uninformed about when and if the new product will be marketed to them economists have long recognized that the present demand for durable goods depends on future prospects such as the future price or the introduction of an improved version 1 the existence of such an improved version is often the seller s private information if consumers anticipate a new version some will defer purchases until the new version is available and the seller will face low demand for the present version disclosing the new version is not in a monopoly seller s interest a seller whose good does not have a new version would also like to communicate that fact to consumers while a firm with a successful product innovation can credibly disclose the new version with relative ease a firm that has failed to develop a new product could have great difficulty convincing consumers that the product has no new version in such situations it is important to examine whether prices can inform consumers whether a new version will be marketed in the near future in a recent paper choi et al 2010 developed a model with a risky product development process in which reputation effects allow cheap talk announcements to signal successful product development to consumers an announcement induces consumers to delay or divert purchases to the announcer s coming product which increases the announcer s profit and can improve welfare 2 in their model the announcer and her non innovative rivals supply the original good competitively because of this an announcement does not reduce profit on the current version this paper will focus on markets where the seller has substantial market power before innovating so announcing a successful product development has a cost in terms of current revenue further because we attend to prices as signals this model may also apply to markets where a long run relationship between consumers and firms may not be sustainable another objective of this paper is to examine the welfare effects of mandatory disclosure a government policy mandating disclosure of any new version is an alternative means of informing consumers 3 as long as firms are not willing to lie to the government such a policy would credibly communicate whether a new version of a durable is coming mandatory disclosure would bring about full information as consumers are informed about any improved future version before observing the price of the current version in this paper we explore a two period model of a durable good monopoly in which consumers are initially uninformed about whether there will be a new version of the current good the monopoly seller is privately informed if he will be able to market an improved version in the second period in the first period consumers must decide whether to purchase the good now or wait for an upgraded version they may be able to infer from the price of the current version whether the seller will bring a new version to the market it is important to see first whether prices can serve as signals and second how welfare compares between any signaling outcome and a full information benchmark corresponding to mandatory disclosure we will show that there is a unique equilibrium supported by intuitive beliefs in this equilibrium the seller s private information about an improved version is completely revealed to consumers

sudden stops sectoral reallocations and the real exchange rate abstract a sudden stop of capital flows into a developing country tends to be followed by a rapid switch from trade deficits to surpluses a depreciation of the real exchange rate and decreases in output and total factor productivity substantial reallocation takes place from the nontraded sector to the traded sector we construct a multisector growth model calibrate it to the mexican economy and use it to analyze mexico s 1994 95 crisis when subjected to a sudden stop the model accounts for the trade balance reversal and the real exchange rate depreciation but it cannot account for the decreases in gdp and tfp extending the model to include labor frictions and variable capital utilization we still find that it cannot quantitatively account for the dynamics of output and productivity without losing the ability to account for the movements of other variables

pricing dynamics in the pharmaceutical industry pricing behaviour has traditionally been approached from the concept of long term static equilibrium this paper argues that this approach is inappropriate at least with respect to the pharmaceutical market because new innovation and patent expiry lead to a continually changing environment a theoretical analysis argues that price change will depend on the age of the therapeutic class the degree of brand loyalty the extent to which it is sold over the counter rather than on prescription and measures of competition the empirical results based on an analysis of the leading twenty five therapeutic class of pharmaceuticals in the usa the uk west germany and france over the period 1981 1988 tends to support the theoretical conclusions although it would appear that government controls in the uk are distorting profit maximizing behaviour more than in the other three countries

strategic pricing of new pharmaceuticals this paper provides empirical evidence on the leading factors affecting the prices of new pharmaceuticals both at introduction and after 4 6 and 8 years most important is the extent of therapeutic advance embodied in a new product for drugs which represent important therapeutic gains launch prices can be two or three times those of existing drugs used for the same purposes while drugs that largely duplicate the actions of currently available products are typically priced at comparable levels in addition the number of branded substitutes has a substantial negative effect on launch prices which reflects the importance of competitive pressures duplicate products thereby play an important economic role in pharmaceutical markets

on the complexities of china s wto accession what are the reasons for and significance of not including china in the wto after recalling why the world has a wto and what membership involves this paper then examines why china wishes to join and the stumbling blocks that have caused the delay in china s wto accession a summary of some recent empirical estimates of the likely orders of magnitude of the economic effects of its accession both to china and to the rest of the world highlight the folly of delaying membership the stumbling blocks concern whether china should be granted developing country status in the wto whether china would be a fair competitor given the dominance of state owned enterprises in that economy still what the extent and conditions of market access into china would be and whether china can deliver on its promise of stricter enforcement of intellectual property rights actions needed by china for getting over those stumbling blocks include building a stronger and broader domestic consensus based on the net benefits from wto membership providing greater trade policy transparency and market access and working towards a compromise on the issue of china s developing country status in the wto

feeding and fueling china in the 21st century abstract this paper addresses the questions to what extent will china become a significant net importer of food and fuel in the foreseeable future and what will be the impact of that import demand growth on international markets it first summarizes what standard trade and development economics and the experiences of other asian economies suggest we should expect of china and then examines china s experience to date before turning to some forecasts for the next decade or so our review suggests that before long china will become a significant net importer of both food and fuels especially petroleum contrary to chinese fears however becoming more interdependent with the rest of the world need not be threatening and it may even offer more supply security for china in the long run

pharmaceutical patents prices and welfare losses policy options for india under the wto trips agreement c oncerns on the effect of product patents on the prices of medicines have been acute in many developing countries which up to the entry into force of the world trade organisation wto agreement on trade related aspects of intellectual property rights trips in 1995 could and did disallow such patenting in their national patent laws with trips all members of and those seeking accession to the wto have to make available with limited exceptions both product and process patents in every sector including pharmaceuticals more specifically trips provides that all wto members have to receive product patent applications for pharmaceuticals from the date of establishment of the wto i e january 1995 it is important to note that even under the trips regime patents are to be granted only on applications received from 1995 onwards for new patentable pharmaceutical inventions thus prices of existing pharmaceuticals already on the market or even those covered by patent

how much of a threat to economic growth is a mature aids epidemic the article models the impact on economic growth of hiv aids when the epidemic is in a mature phase in contrast with previous studies focused on periods of expansion as it is typically the case in african countries simulations for honduras the epicentre of the epidemic in central america show that aids is not likely to threaten economic growth neither through labour nor capital accumulation channels impacts are estimated between 0 007 and 0 27 points of gross domestic product gdp growth annually for the period 2001 to 2010 increasing spending on prevention higher public treatment subsidies and increasing treatment access will not jeopardize economic growth prospects critical factors that slash economic growth in africa such as human capital reductions and shifts in relative skills are not strong in honduras

pricing profits and technological progress in the pharmaceutical industry the decades old debate over pharmaceutical industry prices profits and innovation has again intensified a number of events coalesced to refocus public interest on pharmaceuticals contributing to public concern were bureau of labor statistics price index increases for pharmaceuticals far outpacing those for the products of other industries another prominent characteristic of the pharmaceutical industry has been its extraordinarily high reported profitability this article examines the phenomena that precipitated the current pharmaceuticals debate their historical antecedents and the principal questions at issue in the author s considered judgment a pell mell march toward regulation of pharmaceutical industry pricing could seriously impair the industry s incentives for investment in new products

the economic costs of food self sufficiency in china abstract despite the surge in agricultural output since the late 1970s a comparison of china s resource endowments with those of its trading partners suggests that with continued rapid income growth food imports will again expand unless relative domestic prices are raised quantitative analysis of price policies which would achieve self sufficiency in the 1990s indicates net economic costs ranging between 2 3 of gnp annually these results are however particularly sensitive to the relatively undocumented changes taking place in the dependence of china s rapidly growing livestock sector on feed grains

price quality and reputation evidence from an online field experiment we examine the link between price quality seller claims and seller reputation in internet auctions after purchasing actual baseball cards and having them professionally graded we find that some buyers in the online graded market are misled by incredible claims of quality they pay higher prices but do not receive better quality and in fact are defrauded more often online seller reputation is effective for identifying good faith sellers but conditional on completed auctions reputable sellers do not provide better quality evidence also suggests that high claim sellers target less experienced buyers we attribute these patterns to two loopholes in the ebay rating system we benefited from the comments of austan goolsbee raphael thomadsen john shea dan vincent david reiley larry ausubel peter cramton v joseph hotz jeff smith jimmy chan vincent crawford mark duggan and attendees at numerous seminars and conferences we are particularly grateful to seth sanders and john list for their constructive advice at the early stage of the research to timothy bresnahan rachel kranton and thomas hubbard for their detailed suggestions in reshaping earlier versions and to editor ariel pakes and two anonymous referees for their careful readings special thanks to eight friends who acted as our agents in purchasing baseball cards in retail markets and to numerous sports card store owners who shared their insights on the sportscard industry excellent research assistance from randy alexander moore and krzysztof fizyta is gratefully acknowledged any remaining errors are ours

do national patent laws stimulate domestic innovation in a global patenting environment a cross country analysis of pharmaceutical patent protection 1978 2002 this paper evaluates the effects of patent protection on phar maceutical innovations for 26 countries that established pharmaceutical patent laws during 1978 2002 controlling for country characteristics through matched sampling techniques to establish two proper comparison sets among 92 sampled countries and through country pair fixed effects regressions this study yields robust results national patent protection alone does not stimulate domestic innovation as estimated by changes in citation weighted u s patent awards domestic r d and pharmaceutical industry exports however domestic innovation accelerates in countries with higher levels of economic development educational attainment and economic freedom additionally there appears to be an optimal level of intellectual property rights regulation above which further enhancement reduces innovative activities

lobbying incentives and the pattern of protection in rich and poor countries in seeking to explain why poor countries tend to choose policies that tax agriculture relative to manufacturing while rich countries do the opposite archetypical parameters for a poor agrarian economy and a rich industrial one are inserted in a computable general equilibrium model to simulate the medium term effects on income distribution of policies that distort the relative prices of tradables the model includes a non tradables sector and intermediate inputs realistic features that ensure even greater skewness in the distributional effects of protection than simpler models suggest the magnitude of the results helps explain the tendency for countries to change gradually from taxing to subsidizing agriculture relative to manufacturing as their economies develop the paper draws out the implications of the analysis for agricultural and trade policy reform in the 1990s this abstract was borrowed from another version of this item

growth in china s grain production 1978 1997 a disaggregate analysis abstract this paper analyzes china s grain production during 1978 97 using disaggregate approach to explore disparities in growth patterns of respective crops the study reveals that during this period almost all the increased output can be attributed to the growth of rice wheat and corn the contribution of other crops as a whole was almost negligible the disparities in growth patterns were partly the result of crop adjustments induced by changes in food demand and dominated by substitutions of high yield crops for low yield crops in this process the adoption of new technologies played an important role varying opportunity costs of grain production in different areas also affected growth patterns of respective crops the trend in china s grain production in the past two decades suggests that the adherence to grain self sufficiency has become not only increasingly costly but also unnecessary

pricing patent loss and the market for pharmaceuticals dustry the drug price competition and patent term restoration act of 1984 very clearly reflects the determination of policy makers to simultaneously address issues of price control and technical progress the 1984 act increased returns to innovation by extending the period of patent protection to take into account the time between receipt of a patent and food and drug administration fda approval of a drug for sale in the market the 1984 act also reduced the testing requirements for approval of new generic brands of existing chemical entities thus reducing entry barriers in markets where patents have expired the expected outcome from eased entry conditions for generic substitutes was substantially enhanced price competition and lower prices for brand name drugs in fact prices for brand name drugs have tended to increase following entry by generics wagner and duffy 28 examined price changes for top selling generics and name brands they show substantial price increases in brand name prices accompanying large reductions in generic prices as entry of generics occurs grabowski and vernon 9 examined data on 18 major orally administered rug products subject to generic competition between 1983 and 1987 and found that the name brand price increased by an average of 7 one year subsequent to generic entry and 11 two years following generic entry

how should china feed itself since the publication of brown s book enormous interest in the issue has been generated among policymakers and scholars around the world this surge in interest coincided with the sharp rises in world food prices in the year to june 1996 following on from harvest shortfalls in several grain producing regions around the world with the slowing of grain output growth since the mid 1980s chinese policymakers have been particularly concerned about food security brown s dire prediction has aggravated their concern

multidimensional separating equilibria and moral hazard an empirical study of national football league contract negotiations this paper empirically tests for a multidimensional separating equilibrium in contract negotiations and tests for evidence of the moral hazard inherent in many contracts using contract and performance data on players drafted into the national football league from 1986 through 1991 we find evidence that players use delay to agreement and incentive clauses to reveal their private information during contract negotiations in addition our empirical tests of the moral hazard issue indicate that a player s effort level is influenced by the structure of his contract

auditing the producer price index micro evidence from prescription pharmaceutical preparations from january 1984 through december 1989 the bureau of labor statistics bls price index for prescription pharmaceuticals grew at 9 09 per year using bls type laspeyres index procedures with monthly price and quantity data on all prescription pharmaceuticals sold by four u s pharmaceutical manufacturers accounting for 24 of industry domestic sales we find that the four company index increases at 6 68 per year when we employ a divisia price index with smoothed weights incorporating new goods the index grows 6 03 per year why does the bls index grow 50 more rapidly than the divisia index that mystery is the focal point of our article

price endings when prices signal quality this paper provides a theoretical explanation for why firms behave as though they use round prices to signal quality by replacing the linear demand curve in bagwell and riordan s 1991 price as a signal of quality model with a kinked demand curve and analyzing what price endings firms are most likely to use the following observations can be made 1 firms that are using high prices to signal quality are more likely to set those prices at round numbers and 2 price endings themselves are not necessarily signals of quality a simulation was conducted to demonstrate that these findings generally hold true even in the presence of demand spikes at 9 ending prices e g schindler and kibarian 1996 finally empirical evidence is provided to demonstrate that firms tend to use more round prices for higherquality products and that this relationship is even stronger for product categories where consumers are less able to detect the true level of quality prior to purchase

sudden stops and output drops in recent financial crises and in recent theoretical studies of them abrupt declines in capital inflows or sudden stops have been linked with large drops in output do sudden stops cause output drops no according to a standard equilibrium model in which sudden stops are generated by an abrupt tightening of a country s collateral constraint on foreign borrowing in this model in fact sudden stops lead to output increases not decreases an examination of the quantitative effects of a well known sudden stop in mexico in the mid 1990s confirms that a drop in output accompanying a sudden stop cannot be accounted for by the sudden stop alone to generate an output drop during a financial crisis as other studies have done the model must include other economic frictions which have negative effects on output large enough to overwhelm the positive effect of the sudden stop this abstract was borrowed from another version of this item

trade policy biotechnology and grain self sufficiency in china abstract over the past 20 years the growth of china s agricultural economy has been extraordinary however it seems unlikely that china will maintain self sufficiency in grains by 2005 without substantial intervention we develop a cge model to assess the options available to chinese policy makers we compare the welfare effects of import tariffs and domestic support and explore the potential of biotechnology as a means to achieve self sufficiency through improvements in agricultural productivity our results indicate that the price interventions that would be required to maintain china s desired self sufficiency ratios are considerable and are unlikely to be compatible with wto accession the productivity improvements required are also significant and likely beyond the current potential of biotechnology

aggregate price indices new goods and generics this paper examines the appropriate treatment in the cost of living index of the appearance of new varieties of old goods existing theory here applies to individual households thus we first show in what sense laspeyres and paasche indices for groups of households can be considered approximations to theoretically desirable group indices and then go on to the case of new goods we apply our results to the case of the introduction of generics in pharmaceuticals and show that proper treatment can make a considerable difference

generics and new goods in pharmaceutical price indexes drug prices and their rate of inflation are a major focus of current policy debates on u s health care in this paper we show that where patent expiration and generic entry are significant as they are for many important classes of drugs movements in the official price indexes may be poor indicators of the actual prices paid and the resulting changes in consumer welfare when a drug goes off patent those consumers who regard the branded and generic versions as more or less perfect substitutes experience a substantial price decline and concomitant welfare gain which the current methods used by the statistical agencies fail to capture we suggest a number of alternative ways of proceeding although our computations are based on a limited number of cases they imply that the overall rate of inflation in drug prices may be quite seriously overstated while generic pharmaceuticals are the topic of our calculations the problem discussed is also of wider importance generic drugs are a special and possibly easy case

primary commodity prices manufactured goods prices and the terms of trade of developing countries what the long run shows the authors revisit in this article the empirical foundation of the alleged secular decline in the prices of primary commodities relative to those of manufactures they use a newly constructed index of commodity prices and two modified indexes of manufactured good prices and find that from 1900 to 1986 the relative prices of all primary commodities fell on trend by 0 5 percent a year and those of nonfuel primary commodities by 0 6 percent a year they thus confirm the sign but not the magnitude of the trend implicit in the work of prebisch but even the more limited secular decline shown by their relative price indexes may be magnified by an incomplete account of quality improvements in manufactures they then show that the evolution of terms of trade of nonfuel primary commodities is not the same as that of the net barter terms of trade of non oil exporting developing countries finally they find that despite the decline that has probably occurred during the current century in the terms of trade of nonfuel primary commodities the purchasing power of total exports of these products has increased considerably similarly the fall that may have occurred after world war ii in the net barter terms of trade of developing countries seems to have been more than compensated for by the steady improvement in their income terms of trade

agricultural incentives in developing countries measuring the effect of sectoral and economywide policies the impact of sector specific direct and economywide indirect policies on agricultural incentives for 18 developing countries for the period 1975 84 are estimated the direct effect is measured by the proportional difference between the producer price and the border price adjusting for distribution storage transport and other marketing costs the indirect effect has two components 1 the impact of the unsustainable portion of the current account deficit and of industrial protection policies on the real exchange rate and thus on the price of agricultural commodities relative to nonagricultural nontradables and 2 the impact of industrial protection policies on the relative price of agricultural commodities to that of nonagricultural tradable goods the authors found that a in almost all cases the direct effect is equivalent to a tax on exportable goods and to a subsidy for importables b the indirect effect also taxes agriculture and dominates the direct effect and c the direct policies for both importables and exportables stabilize domestic producer prices

accounting for the great depression economists have offered many theories for the u s great depression but no consensus has formed on the main forces behind it here we describe and demonstrate a simple methodology for determining which theories are the most promising we show that a large class of models including models with various frictions are equivalent to a prototype growth model with time varying efficiency labor and investment wedges that at least on face value look like timevarying productivity labor taxes and investment taxes we use u s data to measure these wedges feed them back into the prototype growth model and assess the fraction of the fluctuations in 1929 39 that they account for we find that the efficiency and labor wedges account for essentially all of the decline and subsequent recovery investment wedges play at best a minor role this article originally appeared in the american economic review american economic association

monetary policy in a financial crisis what are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis under what conditions will a cut stimulate output and employment and raise welfare under what conditions will a cut have the opposite effects we answer these questions in a general class of open economy models where a financial crisis is modeled as a time when collateral constraints are suddenly binding we find that when there are frictions in adjusting the level of output in the traded good sector and in adjusting the rate at which that output can be used in other parts of the economy then a cut in the interest rate is most likely to result in a welfare reducing fall in output and employment when these frictions are absent a cut in the interest rate improves asset positions and promotes a welfare increasing economic expansion

emerging market fluctuations what makes the difference aggregate fluctuations in emerging countries are quantitatively larger and qualitatively different in key respects from those in developed countries using data from mexico and canada this paper decomposes these differences in terms of shocks to aggregate efficiency and shocks that distort the decisions of households about how much to invest consume and work in a standard model of a small open economy the decomposition exercise suggests that most of these differences are explained by fluctuations in aggregate efficiency distortions in labor decisions over the business cycle and most importantly fluctuations in country risk other distortions are quantitatively less important

the political economy of coal subsidies in europe abstract both the mining and the burning of coal is polluting so we might expect to observe taxes on coal production and consumption yet several countries of western europe subsidize coal production and most east european countries subsidize coal consumption the first part of this paper shows that those subsidies which are emulated by other rich and poor countries respectively have become enormous neoclassical political economy is used to examine why governments adopt such inappropriate policies when they are so wasteful of resources and damaging to the environment several new and offsetting political forces have been at work in western europe in recent years though causing some countries to dismantle their coal producer subsidies the paper concludes that these pressures for reform will continue to operate in the few remaining protectionist countries if coupled with more commercial diplomatic pressure from coal exporting countries they could be sufficient to see the end of such protection by early next century