stylized facts and stylized illusions inflation and productivity revisited recent estimates of a negative empirical relationship between inflation and the rate of growth of productivity provide a strong case for vigorous anti inflationary policy this paper tests the robustness of this evidence using long quarterly and annual datasets for four countries canada united states united kingdom west germany our results from cointegration and other time series tests show no evidence for any connection between inflation and the level of productivity we do find a strong connection between inflation and productivity growth but it is so internally inconsistent as to be incredible the best explanation is that it is accounted for entirely by statistical bias from attempting to cointegrate stationary and non stationary variables

activist monetary policy imperfect capital mobility and the overshooting hypothesis abstract the hypothesis of exchange rate overshooting is investigated in the context of a model that incorporates activist monetary policy variable output imperfect capital mobility and slow price adjustment monetary policy which accommodates prices and or interest rates is shown to increase the probability of undershooting using constrained maximum likelihood methods the model is estimated for germany and japan since the advent of generalized floating in 1973 based on the estimated parameter values the mark exhibits overshooting while the yen is characterized by undershooting the constraints implied by the model cannot be rejected at standard significance levels for either country

complex dynamics in a cobweb model with adaptive production adjustment abstract chaos occurs in a nonlinear cobweb model with normal demand and supply naive expectations and adaptive production adjustment the model differs from existing ones in that it includes adaptive production adjustment instead of adaptive expectations the model exhibits observable chaos strange attractors as well as topological chaos horseshoes associated with homoclinic points as numerical simulations show the faster suppliers adjust their production and the more inelastic demand is the more likely the market behaves chaotically

the asset market model of the balance of payments and the exchange rate a survey of empirical evidence abstract the purpose of this survey is to assemble and evaluate empirical evidence on the asset market model of the balance of payments and the exchange rate in section i the distinctive features of asset market models are compared with earlier keynesian models particular attention is directed to the assumptions and predictions of the monetary model which is a special and well known case of more general asset market models and thereby serves as a useful benchmark for discussion in sections ii and iii the empirical evidence under fixed and flexible exchange rates is evaluated the paper is concluded in section iv with an assessment of our current state of knowledge

the social costs of monopoly and regulation posner reconsidered focuses on social costs of monopoly and trade regulation in the united states benefit of marginal changes on antitrust activities equality of cost in obtaining monopoly and expected profit of monopolist elasticity of inputs in obtaining monopoly ebsco

price leadership and welfare losses in u s manufacturing comment do economists have to worry about the efficiency losses of imperfect competition textbooks especially tend to conclude that the answer is negative the truth is however that the relevant literature can be divided in two opposing parts of roughly equal size that is clearly an unsatisfactory state and novel contributions employing improved methods are therefore welcome this decade has witnessed an enormous upswing in oligopoly theory the deadweight loss literature has been influenced by that to a minor extent only avinash dixit s and nicholas stern s 1982 algorithms are however notable exceptions another valuable exception is micha gisser s 1986 attempt to apply a price leadership model for predicting the order of magnitude of the loss of consumer surplus in the united states our intention is however to show that a couple of quite reasonable modifications challenge the conclusion of small deadweight losses implied by the latter approach we do not suggest any improvement allowing for the influence of product differentiation and concentration of local markets we only note that the deadweight losses are under rather than overestimated by those omissions our contribution is to show that two other assumptions that appear in gisser s analysis are crucial for the results we find that the ideas of unitary demand elasticity and equal supply elasticity for the leaders and the price taking fringe are questionable we also point out that the output distortion percentage loss of output may be quite large even if the percentage loss of consumer surplus is small this fact seems to be ignored in the literature consider first demand elasticity gisser assumes it to be unity like arnold c harberger 1954 empirical estimates are not necessarily reliable but the fact that they are often below unity should in our opinion be taken seriously see for example m s houthakker and lester p taylor 1966 and for the u s food and tobacco industries emilio pagoulatos and robert sorensen 1986 gisser s technique of predicting welfare losses means that realistic values of demand elasticity and concentration are inserted in a formula that is derived from a theoretical model it is therefore inadequate to limit its applicability to the case of unitary elasticity which appears dubious from an empirical standpoint consider then supply elasticity gisser assumes that both the leading group and the fringe of price taking firms have the same supply elasticity our intention is not to discuss the behavior of firms in detail but we nevertheless find it questionable that firms assume the roles as either active leaders or passive price takers if their technologies are more or less identical why do firms not dominate because they have a larger supply elasticity it could even be considered a styl acting professor department of economics abo akademi the swedish university of turku fanriksgatan 3 sf 20500 turku finland participants in the department s research seminars have delivered useful criticism i thank leila stahl for research assistance remaining errors are my own losses that are less than 1 percent of gnp are reported by arnold c harberger 1954 david schwartzman 1960 frederick w bell 1968 dean worcester 1973 john siegfried and thomas k tiemann 1974 bjmrn wahlroos 1984 and outside the united states wahlroos 1984 finland losses that are larger than 1 percent and usually larger than 3 percent are reported by david kamerschen 1966 and keith cowling and dennis c mueller 1978 for the united states the losses may be large in the uk according to cowling and mueller 1978 and malcolm c sawyer 1980 and in france according to frederick jenny and andre paul weber 1983 simulations in different types of models by abram bergson 1973 j a kay 1983 and g k yarrow 1986 suggest losses that are at least potentially large

a simultaneous equation analysis of advertising concentration and profitability nearly two decades of econometric research have been completed in testing relationships between industrial market structure and performance recently a number of authors have reexamined these studies and cautioned on a number of conceptual difficulties which subject the results and interpretation of previous empirical work to question one primary criticism of previous research has been the failure to account for the simultaneous nature of the interrelation among elements of industry structure conduct and performance 2 4 5 11 22 25 30 while the determinants of variables such as profits advertising and concentration have been examined separately within the context of single equation models the underlying theory suggests that these variables are more properly considered as jointly determined within a system of simultaneous equations estimation of single equation models when a simultaneous system is appropriate leads to parameter estimates that are both biased and inconsistent previous empirical studies of the structure performance relationship have also suffered due to the omission of certain critical variables first the role of international trade as an element of market structure has yet to be generally incorporated into empirical studies in spite of recent theoretical work that has demonstrated its potential importance 3 20 21 second interindustry differentials in the price elasticity of demand have been neglected even though theoretical analysis clearly underscores the necessity of explicity accounting for

a neglected welfare cost of monopoly and most other product market distortions abstract a neglected effect of monopoly is the distortion in the quantity of resources supplied monopoly not only affects the economy s output mix it also results in factor prices that are below social marginal value products this latter distortion is shown to be quantitatively important when other policies such as taxes on labor earnings also depress factor prices under plausible conditions the welfare cost due to this distortion of monopoly is shown to be between five and fifteen times larger than the more familiar harberger triangle output mix distortion of monopoly it is suggested that the resource supply effects of many other policies are similarly likely to be more important than their commonly evaluated output market effects

a comparison of oligopoly welfare loss estimates for u s food manufacturing capitalizing on theoretical advances in calculating deadweight welfare losses due to imperfect competition we compare eight empirical estimates for the u s food manufacturing industries the estimates incorporate varying theoretical assumptions about demand supply and firm pricing behavior and utilize various data sources time periods and assumptions about the proper competitive benchmark while the estimates of average allocative losses range widely there is a high degree of congruence in the rankings of economic losses due to market power thus from the perspective of efficient antitrust enforcement the newer theoretical oligopoly approaches and the traditional structure conduct performance models would target similar industries

deadweight loss in oligopoly a new approach ever since harberger s 18 pioneering article researchers have attempted to estimate the welfare loss resulting from the exercise of market power despite nearly four decades of work in this area however surprisingly few researchers disagree with harberger s finding that deadweight loss is quite small while many dispute his claim that deadweight loss in manufacturing amounts to only about 0 1 of gnp few estimates exceed more than 1 3 of the value of output some of the higher estimates moreover include losses of a broader nature than the purely allocative losses on which harberger focuses in this paper i use a generalization of a recent model of oligopoly to estimate the magnitude of deadweight loss in the u s manufacturing sector while the exact magnitude of the losses depends on several parameters the estimates indicate that deadweight loss may be considerably higher than earlier work suggests ranging from roughly 6 10 of the value of shipments if demand is inelastic to over 20 if demand is elastic

measuring productivity in economic growth since world war ii the improvement in the material well being of their citizens has been an explicit goal of nearly every nation associated with this goal is the challenge of how to utilize primary resources more efficiently to get more from what goes into the productive process success in this endeavor requires that the economic processes be in continual disequilibrium which gives rise to opportunities that decision makers can use to advan

the case for reindustrialisation in developing countries towards the connection between the macroeconomic regime and the industrial policy in brazil the majority of economic literature tends to discuss economic development issues by analysing the industrial policy and other long term development policies separate from short term macroeconomic policy however development strategies require a close coordination of the macroeconomic regime with the industrial policy in addition to brazil our analytical discussion and normative implications can be addressed to other developing countries also facing premature deindustrialisation we propose an analytical discussion of the phenomena of industrialisation deindustrialisation and reindustrialisation including a discussion on the connection between the macroeconomic regime and industrial policy both oriented to reindustrialisation and catching up the main point is that both policy regimes must be closely coordinated with each other concerning the macroeconomic regime we argue that consistent monetary fiscal wage and exchange rate policies are those which are able to not only keep price stabilisation but also provide average real interest rates below the average real return rates on capital a competitive real exchange rate and real wage rates increasing in accordance with labour productivity growth as for industrial policy theoretical and empirical evidence suggest strategies aimed at the diversification of production processes and products especially within the manufacturing sector and within tradable segments of the service sector

advertising concentration and profitability in manufacturing advertising concentration and profitability in manufacturing i introduction economists have devoted much effort to empirically testing the hypothesized relationships between industrial concentration profits and advertising twenty years ago lester telser concluded that there is little empirical support for an inverse association between advertising and competition 1964 later other economists studying the relationship between advertising and concentration discovered a positive correlation between the four firm concentration ratio a measure of industry concentration and advertising intensity 1 strickland and weiss 1976 went further to show that there is a causal relationship between these elements increases in concentration cause advertising to intensify and conversely a rise in advertising intensity causes an increase in the level of concentration in recent years the empirical literature on advertising concentration and profitability has atrophied because of dissatisfaction with its theoretical basis as a new approach i adopt the theory of advertising developed by stigler and becker 1977 and extend it to incorporate the relationships among advertising concentration and profitability i then test its most important implications using data from the 1977 census of manufactures and the detailed input output structure of the u s economy 2 section ii examines the relationship between concentration and advertising intensity conventional theory known as the inverted u hypothesis asserts that advertising is expected to increase with concentration at first but to decrease at very high levels of concentration because collusion to avoid advertising costs becomes easier extending the stigler and becker theory i hypothesize that when concentration increases even if the large firms do not collude and continue to act independently they will eventually decrease their advertising intensity at high levels of concentration provided that the demand curve for the industry s products is relatively inelastic if the industry s demand curve is relatively elastic advertising intensity increases monotonically with concentration at all levels of concentration this hypothesis is supported by the 1977 data taken from the census and the input output structure of the u s economy section iii focuses on the relationship between advertising and profitability according to conventional theories advertising intensity promotes product differentiation leading to higher barriers to entry and higher profit margins in the past researchers e g strickland and weiss 1976 realized that contrary to the implications of barriers to entry theory the coefficient of advertising in a profit margin equation was longer for a sample of industries producing producer goods than for industries producing consumer goods they viewed this result as an anomaly inconsistent with both their theoretical reasoning and with other important empirical results already published i obtain a similar result which i am able to link to a theoretical structure thus contributing to the refutation of the barriers to entry hypothesis i begin by extending the stigler and becker theory to treat advertising and research and development r d as two complementary intangible capital goods the sample is divided into two groups producers of homogeneous goods who spend relatively more on r d and producers of heterogeneous goods who spend relatively more on advertising since we are unable to measure r d costs at the appropriate industry level it is not included among the regression variables if r d and advertising intensity are correlated we should expect the coefficient of advertising in the profitability equation in the homogeneous goods subsample to exceed the coefficient of advertising in the profitability equation in the heterogeneous goods subsample in this case the omission of the r d variable provides an implication for testing the new hypothesis

welfare losses in canadian manufacturing under alternative oligopoly regimes abstract welfare losses are computed for 167 canadian industries using simulations of a general oligopoly model the computations cover a wide range of oligopoly behavior and reveal the implications of different demand marginal cost and conjectural variation elasticities for the case of horizontal cost losses are a maximum of 0 51 percent of gnp under cournot equilibrium and 6 35 percent under a collusion equilibrium in general losses increase as the absolute value of the price elasticity of demand declines and as marginal cost and conjectural variation elasticities increase

the impact of electric power on productivity according to the historical record the increased use of energy in general and electric power in particular stands as one of the key factors in productivity growth growth accountants however find little support for this view rejecting claims that the productivity slowdown can be attributed to the lower rate of growth of the energy input in us manufacturing in this study an attempt at reconciling the historical record with the empirical facts is made specifically the commonly used factor income shares in the relevant divisia input growth index are replaced by the estimated output input elasticities the latter attribute a considerably larger role to electric power than previous studies indicated these are then used to reevaluate the sources of growth in us manufacturing

firm and industry effects in industrial economics the traditional view in industrial economics suggests that high concentration leads to tacit collusion poor performance and elevated profit followers of the traditional view relied upon the empirical relationship between profit rates and market concentration to justify the highly activist antitrust policy of the 1945 1980 period the activist antitrust era reached its zenith with the nearly per se prohibition of horizontal mergers as outlined in the 1968 merger guidelines issued by the justice department s antitrust division the 1980s have witnessed the emergence of the revisionist school as the dominant view in the field of industrial economics the revisionists contend

tests of the performance of reduced form exchange rate models this study analyzes the performance of reduced form exchange rate models through a number of tests of specification stability and prediction it confirms earlier tests showing that monetary models do not perform well but it finds more positive results for other models some portfoliobalance models are sufficiently stable to do better than a random walk in post sample tests the study concludes that monetary models are unduly restrictive in the way they incorporate purchasing power parity and perfect asset substitutability

the category demand effects of price promotions although price promotions have increased in both commercial use and quantity of academic research over the last decade most of the attention has been focused on their effects on brand choice and brand sales by contrast little is known about the conditions under which price promotions expand short run and long run category demand even though the benefits of category expansion can be substantial to manufacturers and retailers alike this paper studies the category demand effects of consumer price promotions across 560 consumer product categories over a 4 year period the data describe national sales in dutch supermarkets and cover virtually the entire marketing mix i e prices promotions advertising distribution and new product activity we focus on the estimation of main effects i e the dynamic category expansive impact of price promotions as well as the moderating effects of marketing intensity and competition both conduct and structure on short and long run promotional effectiveness the research design uses modern multivariate time series analysis to disentangle short run and long run effects first we conduct a series of unit root tests to determine whether or not category demand is stationary or evolving over time the results are incorporated in the specification of vector autoregressive models with exogenous variables varx models the impulse response functions derived from these varx models provide estimates of the short and long term effects of price promotions on category demand these estimates in turn are used as dependent variables in a series of second stage regressions that assess the explanatory power of marketing intensity and competition several model validation tests support the robustness of the empirical findings we present our results in the form of empirical generalizations on the main effects of price promotions on category demand in the short and the long run and through statistical tests on how these effects change with marketing intensity and competition the findings generate an overall picture of the power and limitations of consumer price promotions in expanding category demand as follows category demand is found to be predominantly stationary either around a fixed mean or a deterministic trend although the total net short term effects of price promotions are generally strong with an average elasticity of 2 21 and a more conservative median elasticity of 1 75 they rarely exhibit persistent effects instead the effects dissipate over a time period lasting approximately 10 weeks on average and their long term impact is essentially zero by contrast the successful introduction of new products into a category is more frequently associated with a permanent category demand increase several moderating effects on price promotion effectiveness exist more frequent promotions increase their effectiveness but only in the short run the use of nonprice advertising reduces the category demand effects of price promotions both in the short run and in the long run competitive structure matters as well the less oligopolistic the category the smaller the short run effectiveness of price promotions at the same time we find that the dominant form of competitive reaction either in price promotion or in advertising is no reaction short run category demand effectiveness of price promotions is lower in categories experiencing major new product introductions finally both the short and long run price promotion effectiveness is higher in perishable product categories the paper discusses several managerial implications of these empirical findings and suggests various avenues for future research overall we conclude that the power of price promotions lies primarily in the preservation of the status quo in the category

price leadership and welfare losses in u s manufacturing reply a model of price leadership is used to estimate the welfare losses dueto monopoly in u s manufacturing given that the leaders behave independently an hypothesis confirmed empirically the deadweight lossis estimated at 0 114 percent of gnp based on a sample of 445 four digit industries this estimate lends strong support to arnold c harberger s finding of thirty years ago copyright 1986 by american economic association

using survey data to test standard propositions regarding exchange rate expectations survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes we estimate extrapolative adaptive and regressive models of expectations static or random walk expectations and bandwagon expectations are rejected current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight in comparing expectations to the process governing the spot rate we find statistically significant bias no variable is as ubiquitous in international financial theory and yet as elusive empirically as investors expectations regarding exchange rates in the past expectations have been modeled in an ad hoc way often by using the forward exchange rate there is however a serious problem with using the forward discount as the measure of the expected change in the exchange rate in that the two may not be equal the gap that may separate the forward discount and expected depreciation is generally interpreted as a risk premium most of the large empirical literature testing the unbiasedness of the forward exchange rate for example has found it necessary either arbitrarily to assume away the existence of the risk premium if the aim

the incidence of classified property taxes in a three sector model with an imperfectly mobile population abstract this paper analyzes the incidence of a classified property tax imposing different effective tax rates on residential commercial and industrial property as compared to a uniform property tax taxing capital and land in all sectors at the same rate our model includes three sectors commercial industrial and residential and three factors of production land labor and capital capital is assumed to be perfectly mobile but we consider varying degrees of labor mobility allowing the possibility that part of a classified property tax may be shifted to workers through lower wages

exchange rate determination and inflation in southeast asian countries abstract we estimate structural open economy models consistent with rational re and theories consistent tce expectations which incorporate cointegration to examine exchange rate determination and inflation in three southeast asian countries the re model is rejected in favor of the tce model our results show that while inflation in all three countries is affected by different external factors malaysia and singapore avoided high inflation despite high levels of economic growth through tight monetary policy in contrast the philippines had high inflation even with a stagnant economy due to loose monetary policy and the monetization of government debt

price leadership and dynamic aspects of oligopoly in u s manufacturing this study which covers a sample of 314 four digit industries taken from an exhaustive set of 450 four digit industries shows that increases in concentration associated with rising productivity occur mainly in low concentration industries while decreases in concentration associated with rising productivity occur mainly in high concentration industries the empirical results of this study indirectly lend support to a plausible hypothesis that a small group of firms makes a big impact on the productivity of an initially unconcentrated industry and thereby concentrates it later the small firms imitate the now big firms and concentration goes down while productivity keeps rising

confidence intervals for elasticities and flexibilities from linear equations information regarding the precision of elasticity and flexibility estimates from equations linear in original variables is typically missing from empirical studies a result due to fieller which allows construction of exact confidence intervals for elasticities and flexibilities from such equations is demonstrated exact confidence intervals are not necessarily narrowest at mean levels nor are they symmetric about the point estimates of the elasticities and flexibilities empirical examples indicate that exact 95 percent confidence intervals for price flexibilities for food items can be quite wide

productivity in the united states trends and cycles productivity growth in the us has taken a sharp downturn in recent years two experts provide a new body of comparative data on productivity since 1948 by major sector and industry the book analyzes 20 industries to highlight trends and fluctuations in productivity and to provide a better context for the discussion of policy options the authors set forth the causes of productivity advances based on growth accounting for the business economy as a whole they detail interindustry regressions with particular reference to the productivity slowdown since 1966 they look at both the traditional measure of productivity labor output per hour and the more recently developed measure of total factor productivity which takes into account capital as well as labor inputs the quarterly and annual data are used to relate changes to other basic variables such as factor prices unit costs and product prices an appendix presents data for 35 industries 42 references 8 figures 30 tables

imperfect knowledge and behaviour in the foreign exchange market this paper explores the consequences of imperfect knowledge for exchange rate dynamics within the monetary class of models the authors framework which they call the theories consistent expectations framework provides a particular formalization of a world in which agents use theories in order to look forward but in which these theories provide only qualitative knowledge rather than quantitative knowledge about the economy the authors find that as long as agents possess at least some degree of imperfect knowledge the monetary models of the exchange rate generate dynamics consistent with the behavior observed in the literature copyright 1996 by royal economic society

looking at the cost side of monopoly welfare loss under oligopoly is defined as that part of consumer surplus which is lost and not regained by higher profits in a model with asymmetric firms this implies that the total welfare loss consists of the deadweight loss triangle plus a cost side inefficiency effect due to the fact that in imperfect markets not all firms utilize the lowest cost technique using a flexible cv model we calculate these effects empirically for two relatively homogeneous industries pulp paper and cement the deadweight loss triangles are shown to be smaller than the cost difference effect the staircase for these industries

welfare changes in the cournot setting with an empirical application to the telecommunications industry i characterize the efficiency of the cournot equilibrium and provide bounds for the loss in consumer surplus producer surplus and welfare when the number of firms in the market changes i only assume that demand is decreasing in price and costs increasing in the quantity produced as long as equilibrium exists i show how price demand and average cost before and after the number of firms in the market changes can be used to compute these bounds i apply these bounds to the portuguese wireline market and conclude that welfare increased significantly when the monopolist was split in 2007

productivity and the embodiment of technical progress this survey of the issues involved in the embodiment hypothesis that technical change and productivity can be explained by changes in the quality of inputs into the production process treats the interrelationships of technical change and productivity presents some empirical findings on this subject and discusses some fundamental issues in further studies of embodiment topics covered include the nature of the embodiment hypothesis the vintage model of capital and embodiment in other inputs the use of the embodiment hypothesis to study productivity trends the embodiment hypothesis and the productivity slowdown in the 1970s and 1980s and potential future applications of the embodiment hypothesis

what determines the elasticity of industry demand abstract this paper develops estimates of price elasticity of demand for a sample of u s food and tobacco manufacturing industries and tests a model explaining differences in interindustry elasticity the empirical results are consistent with the hypothesis that demand elasticity is in part determined by the competitive behavior of firms in an industry in particular high advertising expenditures result in lower elasticities of demand other important variables influencing demand elasticity are industry concentration the stage of production the existence of protection from domestic and foreign entry and the extent of new product introduction in a particular market

the cyclical behavior of price elasticity of demand the mark up of price above marginal cost can vary either procyclically or countercyclically across the business cycle depending upon competitive variations among industries the nature of aggregate demand growth international trade market elasticities and other factors the influence of the business cycle and changes in industry growth on market elasticities can in turn impact market performance via the inverse relationship of market elasticity of demand to price cost margin this paper provides evidence on the cyclical behavior of domestic price elasticity of demand for a panel of 38 four digit u s food manufacturing industries from 1972 to 1987 this is a sector that has been found in earlier studies to exhibit countercyclical price cost margins over this period recent theoretical work on business cycles under imperfect competition suggests that one reason for countercyclical profit margins is that elasticities of demand may become less elastic during recessions estimates of price elasticities of demand are used as the dependent variable in a regression model examining the influence of the business cycle and other variables on demand elasticity

real wage growth technical change and competition in the labor market the paper measures the rate of growth of average labor cost and the real wage for the twenty u s two digit manufacturing industries 1948 76 it is argued that these rates of growth give interesting information which other studies on the real wage ignore the results suggest that the gains from technical advance are shared equally across all labor markets consistent with the competitive paradigm a simple and appealing rationale for the observation that high growth industries show the slowest relative rate of growth of prices is also given t he general theory keynes 1936 unleashed many controversies one of the earliest and still topical controversy is the cyclical behavior of the real wage essentially the real wage employment debate has focussed on whether or not the demand schedule slopes downwards and there have been many studies on this topic producing a variety of conflicting findings a common feature of the real wage employment studies is to abstract away from the growth in the real wage that is bound to occur in a growing economy these studies are primarily concerned with deviations from trend or innovations in the real wage and the theme of this paper is that to ignore the growth in the real wage is to throw away valuable and interesting information this information on real wage growth tells us a great deal about competition in the labor market this study should be seen as being complementary rather than conflicting with the real wage employment studies the existence of a downward sloping demand curve for labor is after all not sufficient and probably not necessary for the functioning of competitive labor markets over the span of years 1948 76 i find that individual u s manufacturing industries record widely varying rates of productivity growth however these same industries tend to show a common rate of growth of the real wage this feature of productivity growth was emphasized by the late salter 1960 in his pathbreaking analysis of technical change he writes there is no tendency for above average increases in labour productivity to be accompanied by above average increases in earnings

foreign trade elasticities and import discipline this paper provides new evidence on the trade as discipline7rsquo hypothesis by considering the determination of price cost margins with a panel of 41 four digit us food manufacturing industries from 1972 to 1987 following the empirical specification suggested by competitive fringe oligopoly models we include estimated domestic demand elasticities and cross price elasticities of import demand as explanatory variables and the empirical results confirm the importance of these variables in assessing the hypothesis

foreign exchange market interventions and the exchange rate in the long run this article examines whether foreign exchange market interventions conducted by the bank of japan are important for the dollar yen exchange rate in the long run we rely on a re examination of the empirical performance of a monetary exchange rate model this is basically not a new topic however we focus on two new questions first does the consideration of periods of massive interventions in the foreign exchange market uncover a potential long run relationship between the exchange rate and its fundamentals second do forex interventions support the adjustment towards a long run equilibrium value our results suggest that taking periods of interventions into account within a monetary model does improve the goodness of fit of an identified long run relationship to a significant degree furthermore forex interventions increase the speed of adjustment towards long run equilibrium in some periods particularly in periods of coordinated forex interventions our results indicate that only coordinated inter

dominant firms price leadership and the measurement of monopoly welfare losses abstract the possible welfare losses associated with monopoly power have been the subject of numerous studies over a number of decades recent estimates seem to confirm the earliest estimates which suggested that such losses were relatively trivial this paper suggests that the basis of such estimates is questionable in particular it is argued that the familiar dominant firm price leadership model is not well suited to the task of estimating monopoly welfare losses more appropriate assumptions are identified and their implications for assessing the magnitude of potential welfare losses are illustrated

monopoly welfare losses under uncertainty with the publication of the harberger 10 estimates of the welfare losses due to monopolistic misallocation of resources in the united states came a series of articles purporting to explain a downward bias allegedly contained in these estimates 24 13 since then a wide variety of estimates have been produced some of which fall short of the original ones of approximately a tenth of a percent of gdp but most of which indicate clearly higher losses the estimates now range from siegfried and tiemann s 23 07 percent to kamerschen s six percent of national income the wide variation can mainly be attributed to differences in two of the assumptions on which estimation is based namely 1 the method of determining demand elasticities and 2 the definition of the competitive rate of return where studies reporting high welfare losses in the one to six percent regionmostly assume price elasticities given by the inverse of the price cost margin and low competitive rates of return studies reporting losses of fractions of a percent usually assume elasticity constant and mostly unitary while setting the competitive rate of return equal to the average return 2 in a recent article commenting on a paper by cowling and mueller 7 littlechild 16 noted that within their framework all profit is due to monoply and necessary implies a serious welfare loss the equilibrium model precludes any neutral or socially beneficial interpretation of profit the same is to a lesser degree true for all papers based on the harberger methodology irrespective of how the competitive rate of return is defined

stages of diversification this paper studies the evolution of sectoral concentration in relation to the level of per capita income we show that various measures of sectoral concentration follow a u shaped pattern across a wide variety of data sources countries first diversify in the sense that economic activity is spread more equally across sectors but there exists relatively late in the development process a point at which they start specializing again we discuss this finding in light of existing theories of trade and growth which generally predict a monotonic relationship between income and diversification

dynamic gains and static losses in oligopoly evidence from the beer industry i introduction more than 40 years ago arnold harberger 1954 estimated the welfare loss due to monopoly in the united states harberger s finding that the welfare loss caused by monopoly is surprisingly small sparked a lively debate that enriched the economic literature enormously the articles by david schwartzman 1960 david kamerschen 1966 frederick bell 1968 dean worcester 1973 and john siegfried and thomas tiemann 1974 constitute but a small sample out of the vast number of studies of this issue later keith cowling and dennis c mueller 1978 found some higher values of deadweight losses ten times as large as harberger s in a subsequent study i was able to lend support to harberger s results by analyzing the interactions between the minority of large firms in an industry that act as independent oligopolists and most of small firms that behave as price takers 1986 the exploration of the dynamic relationship between concentration and prices started with schumpeter 1949 who hailed the entrepreneur who can produce more cheaply make a profit that remains in his pocket until others who follow him copy his model the process eventually results in the annihilation of the surplus over costs when the new business form has become part of the circular flow 1949 133 in a related set of studies demsetz 1973 peltzman 1977 and lustgarten 1979 explored the relationship between concentration ratios and increased efficiencies in manufacturing industries and found them to be positively correlated i could lend support to this conclusion by postulating a dynamic process of cause and effect cast in a price leadership model 1984 in a recent study salinger 1990 concluded from a cross sectional study that large changes in concentration whether negative or positive are associated with price reductions the present paper builds on past research to demonstrate that while innovation may lead to increases in market share and market concentration the price increases that might be expected to follow from increased concentration are likely to be offset by the price decreases that bring the increased concentration into being 1 if so estimating deadweight losses by subtracting the static consumers losses from producers gains is misleading because it ignores intertemporal consumers gains the dynamic link among efficiency falling prices concentration and welfare losses suggests that a very useful method of evaluating an industry s contribution to welfare would be to study its economic history if today an industry is heavily concentrated an appropriate starting point for a historical study would be an earlier year when the industry was still relatively less concentrated this paper presents first a welfare theory of dynamic evolution of an industry that becomes progressively more concentrated over time second an empirical study based on the history of the beer industry that focuses on the calculus of dynamic social gains from technological change and third an examination of a small group of industries that became more heavily concentrated between 1963 and 1982 the last section sets forth the conclusions to be drawn from this research ii dynamic gains and static losses suppose a concentrated industry was unconcentrated 40 years ago the industry s firms were small but not atomistic and they sold their product in nearly perfectly competitive markets practically causing no deadweight losses the dynamic process begins when initially a group of pioneering firms invests in the development of a new technology that reduces costs and by lowering the price to consumers succeeds in increasing its market share the gain to consumers flows directly from this intertemporal decline in price the increase in the share of the innovating firms can initially mitigate the downward pressure on prices but in the long run reversing it is not likely

oligopoly power in the food and tobacco industries in this article we estimate and test for the degree of oligopoly power and economies of scale in forty food and tobacco industries using the new empirical industrial organization neio framework and four digit sic data lerner indices and elasticities of scale are compared throughout the entire food and tobacco industries t tests verify that all but three of these industries exert statistically significant degrees of oligopoly power and that over 82 of these industries exhibit nonconstant returns to scale the empirical results also provide estimates of the price elasticities of demand for each industry

demand shifts and market structure in free entry oligopoly equilibria abstract this papers examines the structural implications of demand shifts in free entry oligopoly equilibria the model generalizes the conjectural variations framework to consider asymmetric firm conjectures allows for the possibility of cost differences across firms and endogenizes conditions of entry and exit in the industry in non competitive environments changes in incumbent output and industry profitability are inversely related to changes in the equilibrium price following a demand shift in response to rotations of demand through the equilibrium point changes in profitability are positively related to changes in industry concentration and when marginal costs are non decreasing inversely related to changes in market power

social costs of oligopoly and the value of competition in this study we present a new methodology for estimating welfare losses caused by market power we depart from past studies by explicitly taking into account different levels of market power we provide estimates of a actual social costs arising from existing market structures and b expected monopoly social costs that would occur if there were no competition actual or potential the difference between actual and monopoly welfare losses represents the value of competition in existing markets we further estimate the separate contributions of actual and potential competition to this value our methodology is based upon an empirical model of oligopoly behaviour and limit pricing from this model we estimate the markup which would occur were there no competition we use this markup in turn to estimate industry demand elasticity at the monopoly price with this elasticity and the assumption of linear demand we can characterise demand cost and welfare conditions at each equilibrium monopoly actual and competitive with this new methodology and some other modifications of earlier techniques we provide not only new estimates of welfare losses but also estimates of the value of competition under existing conditions we find that the actual deadweight loss triangle averages 2 9 of value of shipments for a sample of 37 industries we also estimate that were these industries to maximise joint profits with no threat of entry the welfare loss would be i i 6 the difference 8 7 we attribute to the beneficial effects of potential competition 4 9 and actual competition 3 8 our monopoly benchmark thus yields additional understanding of the value of competition we cannot represent our study as having solved all of the problems associated with social cost estimation of monopoly power indeed given general equilibrium problems associated with horizontal vertical and cross industry aggregation interacting with the second best problem we doubt that all the problems can be solved although we can point out some of the potentials for bias after presenting our estimates we discuss the implications of sampling methodology and aggregation problems demonstrating that potentially strong but possibly offsetting biases exist in all studies including ours

exchange rate theory and practice this volume grew out of a national bureau of economic research conference on exchange rates held in bellagio italy in 1982 in it the world s most respected international monetary economists discuss three significant new views on the economics of exchange rates rudiger dornbusch s overshooting model jacob frenkel s and michael mussa s asset market variants and pentti kouri s current account portfolio approach their papers test these views with evidence from empirical studies and analyze a number of exchange rate policies in use today including those of the european monetary system

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

economic development as self discovery in the presence of uncertainty about what a country can be good at producing there can be great social value to discovering costs of domestic activities because such discoveries can be easily imitated we develop a general equilibrium framework for a small open economy to clarify the analytical and normative issues we highlight two failures of the laissez faire outcome there is too little investment and entrepreneurship ex ante and too much production diversification ex post optimal policy consists of counteracting these distortions to encourage investments in the modern sector ex ante but to rationalize production ex post we provide some informal evidence on the building blocks of our model

welfare losses due to market power hicksian versus marshallian measurement this paper warns against the use of marshallian welfare loss in applied analysis of market power we show how to compute the hicksian deadweight loss from an ordinary demand then from an experiment using real data on twenty one sectors of the french food industry we find that the marshallian deadweight loss poorly approximates the exact hicksian measure hence it is advisable to use the latter in applied welfare analysis copyright 2001 oxford university press

is there a peso problem evidence from the dollar pound exchange rate 1976 1987 one of the most puzzling aspects of the floating exchange rate regime since 1973 has been the apparent irrationality embedded in investors exchange rate expectations this paper investigates whether exchange rate forecasts although biased are still rational the idea is that investors can be rational and yet make repeated mistakes if the true model of the exchange rate is evolving over time the author s results support the hypothesis that the exchange rate has followed a switching regime process moreover the switching regime model estimated can explain about 75 percent of the bias implied by the forward market and the survey data copyright 1993 by american economic association

market structure determinants of national brand private label price differences of manufactured food products reply this paper estimates the relationships between market structure and the lerner index of monopoly constructed from price data on processed food products sold through grocery stores a theoretical model of a differentiated oligopoly specifies two determinants of price cost margins the herfindahl hirschman index of seller concentration adjusted for the elasticity of demand and the industry advertising to sales ratio the results indicate that the three principal determinants of price cost margin variation in order of their impacts are advertising intensity elasticity of demand and concentration previous structure performance studies that did not incorporate the elasticity of demand were probably misspecified

on empirical exchange rate models what does a rejection of the symmetry restriction on short run interest rates mean abstract the purpose of this paper is to interpret the well documented rejection of reduced form symmetry restrictions on short run interest rates and to show that such a rejection implies a rejection of rational expectations re and or uncovered interest rate parity uip the paper also shows that if this rejection is due to failure of uip it cannot be explained by the presence of a standard risk premium in order to provide for well specified alternatives the paper explores the reduced form implications of imperfect capital mobility and a recent alternative to re called the theories consistent expectations framework

seniority rules and productivity an empirical test the primary purpose of this paper is to test empirically the effect of labor quality on short run manufacturing productivity in doing so the study makes major advances in two areas for the first time a job tenure function is estimated and a time series of job tenure in manufacturing is developed this estimated tenure series empirically verifies the use of seniority rules in the firm worker employment relationship having generated a tenure series the authors then test whether tenure enhances productivity in manufacturing the results clearly indicate that seniority rules have a statistically significant positive impact on productivity and the pattern of the seniority rules is reminiscent of a model where human capital has a specific component copyright 1989 by the london school of economics and political science

oligopoly and welfare a unified presentation with applications to trade and development abstract we develop a unified sequence of models to examine the determinants of price output profitability and concentration for different kinds of oligopolistic market we relate various magnitudes of significance to judges of welfare and to policy makers such as consumer surplus profit or added benefits of employment or trade surplus to observable magnitudes such as the size and concentration of the market it emerges that various appropriately formulated herfindahl indices are useful in several of these relations we attempt to present results in a way that is useful for empirical investigations and pay particular attention to applications in trade and development

demographic effects in demand analysis estimation of the quadratic expenditure system using microdata the purpose of this paper is to estimate a complete theoretically plausible system of demand equations on microdata using the rich detail of these data to investigate the impact of demographic variables on demand behavior the system which we estimate is the quadratic expenditure system qes introduced by howe pollak and wales we evaluate four methods for incorporating demographic variables into the demand system three of these procedures imply parameter restrictions while the fourth does not tests on the restrictions imply that for our data unrestricted estimation yields significantly greater explanatory power

foreign exchange rate expectations micro survey data this paper analyzes the panel data of biweekly surveys on the yen dollar exchange rate expectations of forty four institutions for two years and contains four major findings first market participants are heterogeneous that is significant individual effects exist in their expectation formation second the individual effects have a characteristic of wishful expectations exporters expect yen depreciation and importers expect yen appreciation relative to others third many violate the rational expectations hypothesis fourth forecasts with long horizons show less yen appreciation than those with short horizons cross equation constraints implied by the consistency of the forecast term structure are strongly rejected in the data copyright 1990 by american economic association

educational expansion and economic output in the united states 1890 1969 a production function analysis our research analyzes the effect of educational expansion on economic output in the united states from 1890 to 1969 in a departure from the individual level inferences often used in prior research we use an aggregate production function framework to estimate directly educational effects on economic output net of labor and capital the two basic factors of production using aggregate time series analyses we find that expansion at the secondary and doctorate levels was positively related to economic output in the years since 1933 we do not however find consistent evidence for effects of these or other levels of schooling from 1890 to 1928 consequently while we have found that educational expansion has made contributions to economic output the effects of education are more limited and time specific than shown in previous studies

a general equilibrium approach to the measurement of monopoly welfare loss abstract the paper presents a framework for the evaluation of monopoly welfare losses in a general equilibrium context which includes factors of production it shows that aggregation of partial equilibrium estimates is likely to be seriously misleading as in indicator of aggregate welfare costs however simple approximations to aggregate losses can be derived even in general equilibrium in the case where there are no constraints on the exercise of monopoly power these approximations suggest that welfare losses are potentially large if empirically observed losses are small the implication is not that allocative efficiency is unimportant but that real economies are competitive

dominant firms and their alleged decline abstract by way of a survey of recent literature on the theory of strategic competition this paper focuses on the question of whether dominant firms decline the traditional argument suggesting decline is found to be based on a rather unsatisfactory modelling of dominance and more acceptable conceptualizations suggest that such privileged positions will persist

perspectives on positive political economy this volume serves as an introduction to the field of positive political economy and the economic and political processes with which it is concerned this new research tradition is distinct from both normative and historical approaches to political economy grounded in the rational actor methodology of microeconomics positive political economy is the study of rational decisions in a context of political and economic institutions more analytical than traditional approaches it is concerned with the derivation of principles and propositions against which real world experience may be compared its focus is on empirical regularities and its goal is theoretical explanation the field has focused on three main areas of research models of collective action constraints on competitive market processes and the analysis of transaction costs developments in all of these areas are covered in the book the first part of the volume surveys the field while the second part displays positive political economy at work examining a variety of subjects the final part contains essays by leading political economists on the theoretical foundations of the field

cointegration and exchange rate dynamics abstract we utilize systems methods of estimation which impose the unit root structure to estimate both the long run equilibrium relationship the cointegrating vector and the short run dynamics of an open economy macroeconomic model in which the exchange rate and the domestic price level are endogenously determined for the united states the model is estimated over the flexible exchange rate period and over two sub periods chosen by structural change tests on the exchange rate both rational and theories consistent expectations are utilized the models with theories consistent expectations outperform those with rational expectations

rent seeking and the welfare cost of trade barriers this paper estimates the potential social cost of trade barriers using the harberger and the tullock posner approaches for a sample of u s food and tobacco manufacturing industries in addition it tests the relationship between the computed welfare losses and special interest political activity pac contributions if all rents were dissipated through rent seeking the social cost of trade barriers would be about 12 5 percent of domestic consumption and would be particularly large for sugar and milk products where quotas are the main instrument of protection furthermore the results indicate that welfare losses are positively associated with industry lobbying but the strength of such association is strongly dependent on industry concentration

the monetary model of the exchange rate long run relationships short run dynamics and how to beat a random walk abstract the monetary model is re examined for the sterling dollar exchange rate first it is demonstrated using a multivariate cointegration technique that an unrestricted monetary model is a valid framework for analyzing the long run exchange rate second we find once proper account has been taken of the short run data dynamics that an unrestricted monetary model outperforms the random walk and other models in an out of sample forecasting contest jel f31

welfare losses in oligopoly and monopolistic competition estimates of the magnitudes of monopoly welfare losses mwl appearing in the economics literature have tended to differ quite widely at one end of the spectrum we find figures of the order of o i of gnp quoted by harberger i 954 in his pioneering study while at the other extreme cowling and mueller i 978 have derived estimates of around i o of gross corporate product from some of their measures two of the major sources of such differences lie in the treatment of a the general equilibrium aspects of deviations between prices and marginal costs and b the impact of market power on the cost levels of firms but unfortunately the tendency of writers to adopt rather different analytical frameworks often makes it difficult to accurately assign the variations in the estimates to specific factors in the present paper the issue of monopoly welfare loss is considered in the context of a differentiated goods model based upon work on monopolistic competition by spence i976 and by dixit and stiglitz i977 within a set of common assumptions about demand the effects of varying cost conditions and differing equilibria on the level of mwl are examined on this basis four major factors connected with suboptimal resource allocation can be identified a supernormal profits b product differentiation c suboptimal scale and d factor bias the first of these needs little explanation its association with welfare loss has been well explored in structure conduct performance theory and is used extensively in applied anti trust economics attention will therefore be focused upon the remaining three all of which can produce mwl in zeroprofit equilibria the paper is organised as follows section ii sets out and discusses the differentiated goods framework which will be used throughout the rest of the analysis it is also shown how a simple transformation of variables reduces the model to the homogeneous goods case and thereby makes immediately available a number of familiar results from the structure conduct performance literature in section iii the focus is on welfare analysis of monopolistic competition the results here are essentially restatements of earlier work although the transformation of variables helps to clarify their foundations section iv extends the analysis to incorporate additional decision variables such as advertising research and development etc while section v considers the case where market conditions will not sustain a large number of firms in equilibrium and suboptimal scale effects become important factor bias is analysed in

real exchange rate overshooting and the output cost of bringing down inflation implementing a gradualist policy of monetary contraction in an open economy with a freely floating exchange rate but with nominal inertia in domestic labor costs can lead to prompt and substantial changes in the nominal and real exchange rate one of the virtues claimed for such exchange rate overshooting however is its immediate effect on the price level and so on domestic wage and price inflation in this paper we show that in a model which is super neutral and has nominal inertia in both the level of labor costs and their trend or core rate of growth this early overshooting of the exchange rate does not succeed in cutting the output costs of reducing steady state inflation those output and unemployment costs which are initially avoided by over valuing the currency have to be paid later when this overvaluation is corrected relative to other policies which achieve the same effect on steady state inflation exchange rate overshooting brings inflation down more quickly this abstract was borrowed from another version of this item

an empirical analysis of the effect of monetary disequilibria in open economies abstract a dynamic disequilibrium simultaneous equation econometric model for france and west germany is set up estimated and simulated to consider the ways in which disequilibrium in the money markets is eliminated the results provide suggestive evidence to support the monetary approach to the balance of payments

mixed oligopoly and spatial agglomeration abstract we investigate a mixed market where a state owned welfare maximizing public firm competes against profit maximizing private firms we use a circular city model with quantity setting competition in contrast to a pure market case discussed by pal 1998a spatial agglomeration of private firms always appears in equilibrium all private firms locate at the same point and the public firm locates at the opposite side we also find that this equilibrium pattern of the location is second best provided that output of each private firm cannot be controlled by the social planner jel classification h42 l13 oligopole mixte et agglomeration spatiale les auteurs examinent un marche mixte ou une entreprise publique possedee par l etat et cherchant a maximiser le niveau de bien etre est en concurrence avec des entreprises privees qui cherchent a maximiser leurs profits on utilise un modele de cite circulaire ou la concurrence se fait en choisissant la quantite produite en contraste avec le cas du marche parfait discute par pal 1998a l agglomeration spatiale des entreprises privees parait etre en equilibre toutes les entreprises privees se localisent au meme point et l entreprise publique se localise du cote oppose il appert que ce pattern d equilibre de localisation est un equilibre de second ordre compte tenu du fait que la production de chaque entreprise privee ne peut etre controlee par le planificateur social