measuring the spillovers from technical advance mainframe computers in financial services measuring the social gains from recent technological advances is difficult because there are no output indexes from some important adopters measurement methods that infer the willingness to pay of theadopting industries from the derived demand curve for a new technologyovercome this difficulty the derived demand for high speed computersfor use in banks finance and insurance is shown to imply a very largesocial gain to computerization that is not captured by computer manufacturers copyright 1986 by american economic association

substitution in the electric power industry an interregional comparison in the eastern us abstract the electric power industry is restructuring as regulations move from states to regional and national levels estimates of regional fuel and input substitution are essential for practitioners and policy makers this paper estimates substitution under static and dynamic scenarios examining changes in technology and total factor productivity from 2001 to 2008 two stage estimation reveals regional characteristics and underlying elements in fuel and factor choice processes substitution varies widely depending on the region coal technology capital investment and r d activities

nonlinear pricing to produce information we investigate the firm s dynamic nonlinear pricing problem when facing consumers whose tastes vary according to a scalar index we relax the standard assumption that the firm knows the distribution of this index in general the firm should determine its marginal price schedule as if it were myopic and produce information by lowering the price schedule bunching consumers at positive purchase levels should be avoided as a special case we also consider a market characterized by homogeneous consumers with a static but unknown demand curve we show that when there are repeat purchases the forward looking firm should tend towards penetration pricing otherwise its strategy should tend towards skimming we extend our insights to more general settings and discuss implications for pricing product lines

estimating griliches k shifts griliches k shift a crucial parameter in the welfare evaluation of technological change is shown to be equal to the radial rate of technological change plus a vector of commodity bias parameters obtained from the distance function the analysis permits decomposition of sectoral productivity growth into productivity growth by commodity the k shifts estimated for wheat corn soybeans and beef in u s agriculture indicate a decrease in the marginal cost of production of corn soybeans and wheat during the 1950 1993 years

the effect of deregulation on us fossil fuel substitution in the generation of electricity abstract fossil fuels produce the majority of electricity in the us with coal being by far the most popular fuel used in the past regulation in the natural gas market in the form of well head price controls and under the boiler fuel use restrictions distorted fuel use away from natural gas more recently with deregulation in the natural gas industry these restrictions have been repealed which has changed fuel use patterns to measure the short run fuel use response from regulatory and other market changes we estimate interfuel substitution using two flexible functional forms the translog and the logit on monthly data from 1991 to 1993 in both models we find coal demand has the least elastic price response while gas and oil demand have the highest both models also suggest there is substitution across fuels in the short run but the patterns and magnitudes vary from comparisons with earlier studies fuel use price response is also found to vary across market conditions and regulatory regime

spillovers and governance an analysis of knowledge and reputational spillovers in information technology investigating spillovers potential costs and benefits to a firm that extend beyond an individual transaction i integrate transaction cost theory and the knowledge based view of the firm in an effort to better understand the efficient governance of knowledge contracts with detailed task descriptions were associated with transactions with the potential to generate new and reusable knowledge the risk of a firm s technology spilling over to others and the risk of reputation impairing spillovers were associated with suppliers using their own employees rather than subcontractors thus results suggest that the creation and protection of knowledge are key factors in understanding governance decisions

optimal dynamic pricing for expanding networks this paper analyzes the dynamic pricing decision of a monopolist marketing a new product or service whose consumption value increases with the expansion of the network of adopters we characterize an optimal pricing strategy which maximizes the present value of the monopolist s profits subject to the dynamics of the demand for network access these dynamics depend among other factors on the current price and consumer anticipations about future network growth we examine the effects of changes in the growth anticipations and the discount rate on the optimal equilibrium access price and network size it is shown that higher growth anticipations and a lower discount rate result in a lower equilibrium price and a larger network

is coal desulphurisation worthwhile evidence from the market abstract the paper develops a forward looking way to estimate the economic benefits of research and development on coal desulphurisation the methodology makes use of survey based techniques pioneered in environmental economics the empirical results illustrate the difficulty of configuring desulphurised coal to meet the requirements of existing electricity generating plants in addition to estimating the returns to investment in coal desulphurisation the contributions of the paper are in extending survey based valuation to meet the needs of r d investors for intelligence about the prospective value of their investments and using robust estimation techniques to reduce the influence of outliers

dealing with debt abstract this paper explores the menu of options for renormalizing public debt levels relative to nominal activity in the long run should governments eventually decide to do so although debt ratios may need to rise further in some cases a vision of longer term options is key to weighing alternative medium term stabilization strategies orthodox ones the standard fare of officialdom include enhancing growth running primary budget surpluses and privatizing government assets heterodox polices include restructuring debt contracts generating unexpected inflation taxing wealth and repressing private finance advanced countries have relied far more on heterodox approaches than many observers choose to remember

information technology and its impact on productivity firm level evidence from government and private data sources 1977 1993 robert solow s quip that we see computers everywhere but in the productivity statistics has prompted a large and growing literature examining the information productivity paradox some aggregate and industry level studies have failed to detect a positive contribution to productivity growth from investments in computer technology more recent studies utilizing firm level data however have detected a significant contribution this paper confirms the results of these latter studies using u s firm level computer asset and financial data for nonagricultural firms during the period 1977 1993 from a variety of data sources including the u s census bureau s enterprise and auxiliary establishment surveys compustat and computer intelligence infocorp a market research firm our principal finding that computers especially personal computers do contribute positively to productivity growth suggests that the traditional information productivity paradox is largely a measurement problemn this is closely related to the more general problem of assessing service sector productivity because computers are used most intensively in the service sector and in the service functions of non service sector firms e g payroll and purchasing as zvi griliches 1994 noted these activities pose the greatest problems for output and productivity measurement moreover although we may see computers everywhere they represent only a tiny fraction of capital stock on about 2 of plant property and equipment so aggregate effects may be hard to detect oliner and sichel 1993 our data indicate that computers not only contributed to productivity growth during the period 1977 1993 but they yielded excess returns relative to other types of capital the data also suggest that computer productivity peaked around 1986 1987 3 that computers are complementary with skilled labour krueger 1993 and autor katz and krueger 1997 and that use of computers may permit reductions in inventory levels finally and perhaps most interesting the evidence

optimal pricing policy in the presence of experience effects i introduction in this paper we analyze the problem of optimal intertemporal pricing for a monopolist when cur rent and past output affect future cost and or demand conditions through experience in production and or in consumption learning by doing the experience curve contagion habit formation bandwagon and snob effects are all examples of terminologies used to describe such situations we call these experience effects for convenience and explore profit maximizing pricing behavior when such effects exist in the traditional profit maximization model a firm chooses the price output combination so as to maximize short run i e current profits the familiar mc mr equality given that price is higher than average variable cost and a nonbind ing capacity constraint is a necessary condition for price takers as well as price makers this as sumes that the current pricing decision has no bearing on the future so that long run profit is maximized by a series of short run maximizing

monetary policy when interest rates are bounded at zero this paper assesses the importance of the zero lower bound on nominal interest rates for the interest rate channel of monetary policy we simulate several interest rate setting policy rules with ei

blessing or curse foreign and underground demand for euro notes public finance solutions to the european unemployment problem developing countries may hold as much as 25 30 of the 1 3 trillion oecd currency supply although dollar holdings appear to exceed dm holdings by a factor of four the advent of the euro may change this balance indeed by issuing large denomination notes of 100 200 and 500 the european central bank appears to be well poised to challenge the dominance of the ubiquitous us 100 note however large denomination notes are also extremely popular in the oecd underground economy which appears to hold at least 50 of the currency supply as a result the seigniorage revenues obtained by issuing large denomination notes may be an accounting illusion substantially or fully offset by losses due to increased tax evasion hence the new european central bank may wish to consider policies that discourage underground use of currency even at the expense of losing out on foreign demand kenneth rogoff

estimating the stock flow matching model using micro data we estimate the stock flow matching model using micro level data from a well defined labor market using a dataset of complete labor market histories for both sides of the market we estimate hazard functions for job seekers and vacancies we find that the stock of new vacancies has a significant positive impact on the job seeker hazard over and above that of the total stock of vacancies there is an even stronger robust result for vacancy hazards thus we find evidence in favor of stock flow matching even when controlling for unobserved search heterogeneity and stratifying into submarkets defined by location and occupation

domestic and international product embodied r d diffusion abstract the paper examines the process of product embodied rd it is the fastest growing acquired technology cluster with the share of other technology clusters steady or declining the authors would like to thank two anonymous referees for their constructive comments to previous versions of this paper while absolving them from any remaining errors the views expressed in this paper are those of the authors and do not necessarily reflect those of the oecd its member countries or the central research institute of the electric power industry in japan

profit maximizing perceptual positions an integrated theory for the selection of product features and price an important component of marketing strategy is to position a product in perceptual space but to realize a perceptual position we must model the link from physical characteristics to perceptual dimensions and we must use this model to maximize profit this paper integrates psychological theories on how consumers process information with economic models and psychometric measurement and it develops a theory for selecting physical features and price to achieve a profit maximizing perceptual position the theory begins with a lancaster like transformation from goods space to characteristics space and investigates the implications of a mapping to a third space perceptual space we show that all products efficient in perceptual space must be efficient in characteristics space but not conversely but consumers vary in their preference and the way they perceive products thus we introduce distributional components to the theory and derive both geometric and analytic methods to incorporate this consumer heterogeneity next we investigate costs and derive a perceptual expansion path along which a profit maximizing position must exist conjoint analysis and quantal choice models provide the measurements to implement the theory the theory is illustrated with a hypothetical example from the analgesics market and some of the potential psychometric measurements are illustrated with an empirical application in the communications market

nonlinear pricing in markets with interdependent demand this paper provides a mathematical framework for modeling demand and determining optimal price schedules in markets which have demand externalities and can sustain nonlinear pricing these fundamental economic concepts appear in the marketplace in the form of mutual buyers benefits and quantity discounts the theory addressing these aspects is relevant to a wide variety of goods and services examples include tariffs for electronic communications services pricing of franchises and royalty fees for copyrighted material and patents this paper builds on several previous results from microeconomics and extends nonlinear pricing to markets with demand externalities the implications of this price structure are compared to results obtained for flat rates and two part tariffs in a similar context a case study is described in which the results were applied to planning the startup of a new electronic communications service

interfuel substitution in us electricity generation ongoing changes in the us electricity market include restructuring and increased competition with this unfettering of the market the fuel choice in generation is expected to become more flexible and responsive to investigate this hypothesis studies of us electricity fuel choices over the last three decades are summarized and the most recent analysis is provided on a market very different from the one on which earlier studies were done modern data handling techniques allow the consideration of the most comprehensive database including 185 utilities on monthly data for 1993 this paper finds fuel choice to show a considerable amount of price responsiveness the amount of responsiveness is sensitive to the fuel substitution possibilities within the utility and the amount of responsiveness seems to have increased recently for oil and natural gas

new products quality changes and welfare measures computed from estimated demand systems this paper examines the construction of a price index based on an estimated demand system in principle the method examined can produce a price index that takes account of the introduction of new p

the welfare analysis of product innovations with an application to computed tomography scanners the main goal of this paper is to put forward a methodology for the measurement of product innovations using a value metric that is equating the magnitude of innovations with the welfare gains they generate this research design is applied to the case of computed tomography scanners a revolutionary innovation in medical technology the econometric procedure centers on the estimation of a discrete choice model the nested multinominal logit which yields the parameters of a utility function defined over the changing quality dimensions of the innovative product the estimated flow of social gains from innovation is used to compute a social rate of return to r d to explore the interrelation between innovation and diffusion and to trace the time profile of benefits and costs the latter suggesting the possible occurrence of technological cycles

a general model of r d competition and policy this article constructs a model of r d with heterogeneous firms each firm s probability of success is a function of its sunk and recurrent r d expenditures the social gains from an innovation are not fully captured by the successful firm the comparison of the social optimum and the market equilibrium involves balancing spillover and crowding effects pigovian corrective policies as well as strategic policies for a subset of colluding firms are discussed

the solow productivity paradox what do computers do to productivity 1 you don t see computers everywhere in a meaningful economic sense computers and information processing equipment are a relatively small share of gdp and of the capital stock 2 you only thinkyou see computers everywhere government hedonic price indexes for computers fall too fast according to this position and therefore measured real computer output growth is also too fast 3 you may not see computers everywhere but in the industrial sectors where you most see them output is poorly measured examples are finance and insurance which are heavy users of information technology and where even the concept of output is poorly specified 4 whether or not you see computers everywhere some of what they do is not counted in economic statistics examples are consumption on the job convenience better user interface and so forth 5 you don t see computers in the productivity statistics yet but wait a bit and you will this is the analogy with the diffusion of electricity the idea that the productivity implications of a new technology are only visible witlh a long lag 6 you see computers everywhere but in the productivity statistics because computers are not as productive as you think here there are many anecdotes such as failed computer system design projects but there are also assertions from computer science that computer and software design has taken a wrong turn 7 there is no paradox some economists are counting innovations and new products on an arithmetic scale when they should count on a logarithmic scale

a dynamic analysis of interfuel substitution for swedish heating plants abstract this paper estimates a dynamic model of interfuel substitution for swedish heating plants we use the cost share linear logit model developed by considine and mount considine t j mount t d 1984 the use of linear logit models for dynamic input demand systems review of economics and statistics 66 434 443 all estimated own price elasticities are negative and all cross price elasticities are positive the estimated dynamic adjustment rate parameter is small however increasing with the size of the plant and time indicating fast adjustments in the fuel mix when changing relative fuel prices the estimated model is used to illustrate the effects of two different policy changes

substitution between clean and dirty energy inputs a macroeconomic perspective in macroeconomic models the elasticity of substitution between clean and dirty energy inputs within the energy aggregate is a central parameter in assessing the necessary conditions for long run green growth using new sectoral data in a panel of 26 countries we formulate specifications of nested constant elasticity of substitution production functions that allow estimating this parameter for the first time we present evidence that it significantly exceeds unity a favorable condition for promoting green growth

sequential auctions with randomly arriving buyers we analyze a dynamic market in which buyers compete in a sequence of private value auctions for differentiated goods new buyers and new objects may arrive at random times since objects are imperfect substitutes buyers values are not persistent instead each buyer s private value for a new object is a new independent draw from the same in this paper we consider a model of dynamic markets in which buyers and sellers arrive randomly to the market and examine the equilibrium behavior of market participants in response to these arrivals in particular we investigate the role of current and anticipated future market conditions in determining endogenous outside options in this setting we characterize the influence of these outside options on equilibrium price determination and study the manner in which equilibrium payoffs and behavior are affected by both current conditions and future dynamics in our model buyers face an infinite sequence of auctions for heterogeneous but stochastically equivalent objects each buyer s private value for a new object is a new independent draw from a fixed distribution that arrive at random times moreover new buyers probabilistically arrive on the market in each period thus in any given auction buyers are presented with the outside option of participating in a future auction for an imperfectly substituted equivalent object but with a potentially different number of competitors we describe the unique symmetric markov equilibrium of this model by deriving a precise characterization of this option value

turnover externalities with marketplace trading this article considers equilibrium decentralized trade when there is a marketplace where buyers and sellers meet costlessly since buyers have idiosyncratic match payoffs for each seller s good some buyers rather than trade with the current stock of sellers wait for new sellers to enter the marketplace to obtain a good they like a turnover externality exists where all traders are better off with higher entry rates of new traders furthermore this turnover externality supports multiple pareto rankable equilibria this provides new insights into similar results obtained in the random matching literature

marketplaces and matching this paper models equilibrium trading patterns when marketplaces exist and goods are differentiated when first visiting the market a buyer samples a stock of goods if fortunate the buyer matches with and purchases one of these goods and then exits the market if an initial match does not exist the buyer can now only match with the flow of new goods for sale the previous stock has been sampled and rejected in a steady state the current stock of unmatched traders on one side of the market is trying to match with the flow of new traders on the other side it is shown that this market behaviour describes matching patterns between unemployed job seekers and vacancies in uk job centres

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

regional differences in nuclear and fossil fuel generation of electricity previous research on electric gen eration costs has mainly relied on economy wide data this study disaggregates a broad sample into regions known to have marked differences in fossil fuel availability climate regulatory ef fects and other variables we find differences exist in generation costs among the studied re gions and nuclear power using estimates of scale economies and other measures we also find smaller minimum efficient size fossil fuel firms than previous studies based on recent cost information this study provides insights into several industry structure issues such as capac ity expansion competition input costs environ mental policy and transmission access jel q42

electric utilities fuel use and responsiveness to fuel prices this research tests the impact of changes in fuel price to explain fuel use by electric utilities we employ a three stage least squares model that explains changes in fuel use as a function of changes in three fuel prices this model is repeated across sub samples of data aggregated at the plant level and operating holding company level we expect that plants and holding companies reduce fuel use when fuel prices rise several fuel substitution effects within and across plants and holding companies are demonstrated as well as several frictions at the plant level higher prices of natural gas lead to less natural gas consumption less coal consumption and more fuel oil consumption at the operating holding company level results demonstrate the inelasticity of coal use and the increases of natural gas in response to higher coal prices subsamples demonstrate heterogeneity of results across different plants results emphasize that technological market and regulatory frictions may hinder the performance of energy policies

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

strategic bargaining and competitive bidding in a dynamic market equilibrium this paper extends the bargaining and matching literature such as rubinstein 1985 and gale 1986 and 1987 by considering a new matching process we assume that a central information agency exists such as job centres and newspapers in the labour market or real estate agents in the housing market which puts potential traders into direct contact with each other with agent heterogeneity equilibrium trade is characterized by existing traders on the other side since existing traders have already sampled and rejected each other two procedures of trade coexist namely strategic bilateral bargaining and a competitive bidding process depending on the number of potential matches a new trader obtains we characterize the unique symmetric markov perfect equilibrium to this stochastic trading game

a partial adjustment approach to evaluating and measuring the business value of information technology abstract in this paper we develop a partial adjustment approach based on the theory of partial adjustment to assess the value of information technology we also propose a performance measure derived from the approach the constrained structural or implicit and unconstrained non structural or explicit models derived from the approach are fitted into a set of panel data at the country level covering the period from 1993 to 2006 for a sample of 12 countries including the g7 nations and are estimated by the seemingly unrelated regression estimation the results produced by the models are robust with respect to the choice of the production function representing the true desired or maximum output and challenge the widely held belief that the productivity paradox has disappeared and the view that the productivity paradox exists in developing economies only the proposed approach compares favorably with the time varying stochastic production frontier approach since it is easier and simpler to apply but unlike the non parametric data envelopment analysis approach it is parametric

an empirical model of mainframe computer investment this paper introduces a dynamic model of investment decisions in mainframe computer systems i estimate and test the model using detailed micro data from a company in the telecommunications industry the model accounts for technological depreciation which distinguishes computers from other investment goods where physical depreciation is typically a key factor underlying replacement investment decisions the company increased its installed mainframe computer capacity by over 30 fold over the 10 year sample period part of this growth was undoubtedly due to the huge increase in performance and the corresponding drop in the per unit cost of processing capacity of mainframes a consequence of moore s law however there was also tremendous growth in the need for computers for billing account processing and other tasks due to the rapid growth in the telecommunications industry over this same time period i estimate the unknown parameters of the investment model using a nonlinear least squares nested fixed point algorithm nls nfxp which solves the bellman equation underlying the dynamic model of investment and replacement of mainframe computers by nonlinear least squares i demonstrate that it is feasible to estimate this model on an ordinary pc whereas standard discretization approaches to solving the firm s optimal investment policy might not even be feasible using supercomputers i show that the estimated model fits the data very well and accurately captures the large growth in installed mainframe capacity the timing and magnitude of replacement investment as well as periodic upgrades of existing mainframe units i use the model to decompose how much of the 30 fold increase in mainframe computer capacity is due to moore s law i e the huge drop in the unit cost of installed mainframe capacity and how much is due to the growth in demand for services of mainframes due to the rapid growth in demand for telecommunications services particularly cell phone accounts by the firm s customers copyright 2010 john wiley sons ltd

computerisation and wage dispersion an analytical reinterpretation the rich countries have recently seen a dramatic rise in income inequality all the more surprising because the long term trend had been toward equality this paper examines one of the leading explanations computerisation in the workplace i offer a theory of computers impact on white collar work which goes far toward explaining the timing form and locus of recent labour market changes the theory looks at the bureaucratic and organisational applications of computers that have been first largest and most influential they have two effects on firms demand for labour at different skill levels

dealing with monetary paralysis at the zero bound recently the key constraint for central banks is the zero lower bound on nominal interest rates central banks fear that if they push short term policy interest rates too deeply negative there will be a massive flight into paper currency this paper asks whether in a world where paper currency is becoming increasingly vestigial outside small transactions at least in the legal tax compliant economy there might be relatively simple ways to finesse the zero bound without affecting how most ordinary people live surprisingly this question gets little attention compared to the massive number of articles that take the zero bound as given and look for out of the box solutions for dealing with it in an inversion of the old joke it is a bit as if the economics literature has insisted on positing assume we don t have a can opener without considering the possibility that we might be able to devise one it makes sense not to wait until the next financial crisis to develop plans fundamentally there is no practical obstacle to paying negative or positive interest rates on electronic currency and as we shall see effective negative rate policy does not require eliminating paper currency

the contingent valuation debate why economists should care t he contingent valuation method involves the use of sample surveys questionnaires to elicit the willingness of respondents to pay for generally hypothetical projects or programs the name of the method refers to the fact that the values revealed by respondents are contingent upon the constructed or simulated market presented in the survey a spirited and occasionally mean spirited battle over such methods is currently being waged involving competing factions within the federal government economists and lawyers representing business and environmental groups and interested academics as well at issue is a seemingly quite specific question should environmental regulations currently under development at both the department of the interior and the department of commerce sanction the use of the contingent valuation method in estimating the damage done by spills of oil chemicals or other substances covered by federal law more generally the debate raises broad questions about what economists have to say about the values that individuals place on public or private goods the two papers that follow this one make cases for and against the use of the contingent valuation method my aim here is to provide an overview of the technique and the debate surrounding it i also want to suggest why this debate should matter to economists both professionally and in their roles as citizens and consumers

interest rate pass through a meta analysis of the literature the interest rate pass through describes how changes in a reference rate the monetary policy money market or t bill rate transmit to bank lending rates this paper reviews the empirical literature on the interest rate pass through and systematizes it by means of meta analysis and meta regressions the paper finds systematically lower estimated pass through coefficients in studies that focus on transmission to long term lending rates consumer lending rates and average lending rates the interest rate pass through is significantly influenced by country macro financial and institutional factors the estimated pass through tends to be stronger for economies with deeper capital markets measured by market capitalization interestingly central bank independence rising from lower levels can reduce interest rate pass through while central bank independence rising from already high levels can boost the pass through

overcoming the zero bound on interest rate policy the paper proposes three options for overcoming the zero bound on interest rate policy a carry tax on money open market operations in long bonds and monetary transfers a variable carry tax on electronic bank reserves could enable a central bank to target negative nominal interest rates a carry tax could be imposed on currency to create more leeway to make interest rates negative quantitative policy monetary transfers and open market purchases of long bonds could stimulate the economy by creating liquidity broadly defined a central bank needs more fiscal support than usual from the treasury to pursue quantitative policy at the interest rate floor

the liquidation of government debt high public debt often produces the drama of default and restructuring but debt is also reduced through financial repression fr a tax on bondholders and savers via negative or below market real interest rates after world war ii capital controls and regulatory restrictions created a captive audience for government debt limiting tax base erosion fr is most successful in liquidating debt when accompanied by inflation for the advanced economies real interest rates were negative half of the time during 1945 80 average annual interest expense savings for a 12 country sample range from about 1 to 5 of gdp for the full 1945 80 period we suggest that once again fr may be part of the toolkit deployed to cope with the most recent surge in public debt in advanced economies

fuel switching and climate and energy policies in the european power generation sector a generalized leontief model abstract the purpose of this paper is to analyze a the role and the nature of price induced switching behavior between fossil fuels i e coal oil and natural gas in the western european power sector as well as b the fuel choice impacts of a number of public policies implemented in this sector during the last 20 years the analysis is conducted within a generalized leontief cost function framework and employs pooled data across eight countries over the time period 1978 2004 we present short run own and cross price elasticities of fossil fuel demand and assess the impacts of a set of government policies implemented over this time period the empirical results show evidence of notable short run interfuel substitution between oil and gas and particularly in countries where fossil fuels are used extensively for both base and peak load purposes these findings support the notion that ex post fossil fuel substitution takes place in dual and multi fired plants by switching load between different single fuel fired plants as well as through the conversion of power plants to be able to burn alternate fuels the results also illustrate that different public policies i e removal of coal subsidies electricity market liberalization etc have had profound impacts on fossil fuel choices and have in particular favored power generation gas use at the expense of coal finally the paper makes use of the empirical results to simulate the fuel switching impacts of different carbon prices within the european emissions trading scheme eu ets

stock flow matching this paper develops and quantifies the implications of the stock flow matching model for unemployment job vacancies and worker flows workers and jobs are heterogeneous so most worker job pairs cannot profitably match leading to the coexistence of unemployed workers and job vacancies productivity shocks cause fluctuations in the number of active jobs which in turn cause fluctuations in labor market outcomes we derive exact expressions for employment and worker transition rates in a finite economy and analyze their limiting behavior in a large economy a calibrated version of the model is consistent with the co movement of labor market variables observed in u s data and can explain about one third of their volatility

estimating multiple discrete choice models an application to computerization returns buyers in many markets face multiple discrete choices they can purchase multiple units as well as multiple brands at the same time this paper presents a multiple discrete choice model for the analysis of differentiated products demand users maximize profits by choosing the number of units of each brand they purchase i estimate the model using micro level data on the demand for personal computers i use the estimated demand structure to assess the welfare gains from computerization and technological innovation in peripherals the estimated return on investment in personal computers is 92 moreover a 10 increase in the performance to price ratio of microprocessors leads to a 2 2 gain in the estimated user surplus the personal computer pc market is of interest to industrial organization economists because of its size the continual technological change and above all because of the farreaching implications of pcs on the economy as a whole several distinct features make pc demand difficult to model pcs are a differentiated durable good in constant technological evolution moreover buyers make multiple discrete choices firms according to our data spread their purchases of pcs over different brands at the same time they buy pcs in blocks several units of each brand that they have chosen the aim of the paper is to present a model that captures these features and to use this model to estimate the welfare gains from computerization classical discrete choice models allow one choice among mutually exclusive alternatives in contrast the proposed framework allows users to demand multiple units and multiple brands the model can be applied to other cases of multiple discrete choices e g the composition of airline fleets car holdings per household the fields of the faculty in economics departments household cereals consumption or any other good consumed in more than one variety during a relevant time period although pervasive multiple discrete choice problems have received little attention because of their complexity a central issue regarding the pc market is the current controversy in the economics literature about the computerization puzzle this puzzle stems from the empirical finding that computerization has had no effect on firm productivity griliches and siegel 1991 and morrison and berndt 1990 contrary to those results hendel 1994 and lichtenberg 1995 using more disaggregate data than most previous studies report excess returns to computerization this indicates that data aggregation may have created the computerization puzzle in this paper i present a model consistent with the basic

walras retrouve decentralized trading mechanisms and the competitive price we extend the standard analysis of decentralized markets to allow for the possibility that traders interact simultaneously with more than one trader on the opposite side of the market in contrast with the literature we reconcile the walrasian equilibrium with the outcome of decentralized strategic trade we show that there exist generic matching technologies that determine local market conditions such that as market frictions vanish the equilibrium price is the one that would result in the static walrasian market our analysis highlights the importance of local market conditions for the determination of equilibrium prices

multi product pricing for electric power abstract this paper describes methods for determining the prices for a discrete set of interrelated products offered by a single supplier each product has a fixed marginal rate per unit the demand for each product depends upon the price levels of all the products and the supplier s cost function depends upon the demands for all the products for specific demand function forms methods are described for determining the prices that maximize a weighted sum of net revenue and consumer surplus

the economics of fuel choice at us electric utilities abstract this paper compares and contrasts results obtained from estimating fossil fuel cost shares in the generation of electricity in the usa from two models one national and one regional while the national model provides acceptable first order results correct signs and magnitudes of critical parameters it is the regional model that reveals the underlying economics of this fuel choice problem results which hold consistently across regions and across fuels are more plausible than those which are found to be special cases in each region of the country or for each fuel type

computers productivity and input substitution i introduction the last two decades has been a puzzling time for many productivity analysts while computer prices fell at extraordinary rates and firms invested hundreds of billions of dollars in new computer equipment aggregate productivity growth remained sluggish this computer productivity paradox has generated a large literature that examines the economic impact of the computer revolution 1 this paper offers a simple solution to the computer productivity paradox by making careful distinction between computers as an output from one sector and an input to other sectors data for 35 manufacturing and service sectors for 1947 1991 show that sectoral differences are crucial in understanding the impact of computers aggregate analysis is inappropriate since it obscures basic distinctions between a shifting production function in the computer producing sector multi factor productivity growth and movements along production functions in the computer using sectors substitution and capital accumulation once these differences are isolated the growth impact of computers is readily observable the computer producing sector experienced fundamental technological progress and now produces cheaper better computers the sectoral data show this as rapid multi factor productivity mfp growth for 1973 1991 although aggregate mfp growth remains below historic averages the computer producing sector has clearly done its part mfp growth in this sector is many times the economy average and has contributed over one third of aggregate mfp growth for 19811991 the sectoral detail shows that the slowdown in aggregate productivity would have been much more severe were it not for such large mfp gains in the computer producing sector for the other sectors of the economy computers affect growth in a more traditional although less glamorous way when the price of real computing power fell so dramatically in the 1970s and 1980s firms responded by substituting away from relatively expensive labor and non computer capital and investing heavily in cheap computers for these sectors the computer revolution affects output growth not by raising mfp but by inducing firms to accumulate computers at extraordinary rates real computer services for example grew in excess of 20 per year in 14 out of 35 sectors for 1973 1991 although virtually all sectors are rapidly accumulating computer equipment computers remain small in levels in 1991 for example computer investment was only 10 of private fixed investment so the growth contribution of computers remains small relative to sectoral aggregates of labor and non computer capital the rapid rates of accumulation however are clearly making computers a more important source of growth across sectors with this heavy investment also came the wide spread expectation that computers would fundamentally alter the way firms operate and lead to higher mfp the reality has been very different as the most computer intensive sectors show steep declines in mfp growth after 1973 with three quarters of all computers concentrated in three service sectors trade fire and other services however this finding must be interpreted with caution as griliches 1994 notes output in these sectors is largely unmeasurable and thus mfp growth will be understated nonetheless it is quite reasonable that even computer using sectors where output is easier to measure show no mfp gains computer investment creates a capital input that enters the production function like any other purchased input since constant quality deflators embody productivity improvements in investment the direct impact is seen through the rapid capital accumulation only if the adoption of computers leads to production externalities or spillovers would computer investment also increase mfp growth the data however show no evidence of this ii computers and growth the national statistics most clearly show the computer revolution in the investment data

asymmetric information in cattle auctions the problem of revaccinations the authors acknowledge the help of chris boessen glenn grimes joe horner robert larson k c olson and kurt richter this revision is dated july 2004

globalization trade and income my purpose in this paper is to address two questions that confront our discipline repeatedly these days first what is a useful classification of the symptoms and the determinants of globalization a phase used in a remarkable variety of contexts to economists globalization is generally thought of as the increasing internationalization of the production distribution and marketing of goods and services the term is used less precisely in the popular literature perhaps best exemplified by kenichi ohmae s book the borderless world and when used loosely it invokes a wide variety of political sociological environmental and economic trends that are the concern of media attention almost daily however one defines globalization it is surely a development that is having a profound impact on the subject of economics as a whole and ought to have on the field of international economics in particular my second purpose is to ask how globalization is affecting our profession s view of theory and empirical work in international economics traditional trade theory was concerned with a set of fairly well defined questions regarding the determinants of trade the pattern of trade and the welfare consequences of various trade policy instruments the last two decades and perhaps the last decade in particular has led to a much wider interpretation of what living in an open economy means the change that is occurring on a wide range of economic social scientific and

too much investment a problem of endogenous outside options this paper shows that when agents on both sides of the market are heterogeneous varying in their costs of investment ex ante investments by firms and workers or buyers and sellers more generally may be too high when followed by stochastic matching and bargaining over quasi rents the overinvestment is caused by the fact that low cost agents by investing more can increase the value of their outside option and thus shift rent away from high cost investors numerical simulations show that overinvestment can occur given parameter values calibrated to oecd labour markets

investigating and comparing the dynamic patterns of the business value of information technology over time abstract the long debated issue of the business value of information technology it to the firm country has received a great deal of attention in the literature but the studies have rarely examined the dynamic patterns of the it value as measured by the firm s productive efficiency over time the objective of this paper is to apply the three factor constant elasticity of substitution ces time varying stochastic production frontier models and use the same data set as used in several previous studies to investigate the dynamic patterns of it value over time in connection with the issues of inputs substitution and complement and the productivity paradox this paper adopts two analytical skills collective and individual to analyze the empirical results collectively we find that the dynamic patterns of it value are closely related to the substitution and complement of three inputs and the it productivity paradox individually we identify five common dynamic patterns of the it value measured by productive efficiency and interpret their implications for the productivity paradox as summarized in a two by two matrix of practical applications and strategies this matrix accounts for four different scenarios of the relationship between the average productive efficiency and the it productivity paradox illustrates some practical applications by the analytical results and provides some business insights and managerial strategies for it decision makers and po is managers this represents a new contribution to the understanding of the dynamic influence of it investments upon the value of it over time

governments as bankers how european bonds have substituted bank deposits the purpose of this article is to empirically analyse the relationship between marketable securities government bonds and treasury bills and bank deposits in european markets using a proper data

stock flow matching and the performance of the labor market we estimate outflow equations for vacancies and unemployed workers in britain departing from the stock based analysis of matching in two ways first we deal with the temporal aggregation problem that arises when discrete time data are used to describe continuous time processes second we allow for a stock flow matching mechanism in which the stock of traders on one side of the market matches with the flow of traders on the other side our estimates are in line with the predictions of stock flow matching in terms of higher exit rates of flows and of matching combinations between labor market stocks and flows furthermore employer search effectiveness did not seem to decline between the 1960s and the 1990s nevertheless some deterioration in worker search effectiveness is detected however less severe than that implied by previous stock based work

technological and organisational change in a process of industrial rejuvenation the case of the italian cotton textile industry the coevolution of technological and organizational change shapes modernization in mature industries only large vertically integrated managerial firms can bear the delays between the adoption of new information technologies and their positive effects on productivity growth a feature of the italian cotton industry is the highly specialized colocalized family owned small firm that is functionally organized it emerged in the 1970s to cope with the introduction of technological changes such as shuttleless looms and open end spinning this structure risks delaying the successful implementation of technological innovations an industrial policy aimed at the adoption of both technological and organizational change could counterbalance the trend toward decline copyright 1998 by oxford university press

the information content of the interest rate and optimal monetary policy optimal monetary policy rules are derived in a rational expectations cum contracting framework monetary policy is redundant if wage setters exploit the incomplete current information embodied in today s nominal interest rate however the monetary authorities can save wage setters the costs of indexing to the interest rate a contemporaneous money supply feedback rule is as effective as wage indexation a lagged rule relevant under a regime of money supply targeting is also as effective if investors use the interest rate both rules have the same implications for the real interest rate as poole s combination policy however the two rules have strikingly different implications for the nominal interest rate

prescribing product upgrades prices and production levels over time in a stochastic environment abstract competitive pressures cause the price of high technology products to erode over time the purpose of this paper is to describe a decision support tool to maximize profit by prescribing three related decisions product upgrading pricing and production levels a stochastic dynamic programming dp model prescribes when to upgrade a product and what new technologies to incorporate to maintain product competitiveness and profit margins it deals with the two major sources of risk demand and the lead time required to complete an upgrade the objective of the dp model is to maximize expected profit over a given planning horizon decision variables prescribe which alternative upgrades to implement and when pricing and production levels benchmarking computational tests are described along with an example demonstrating model application managers can use this dp model to coordinate decisions related to product upgrading pricing and operations management to better meet business objectives

chapter 11 pricing models in marketing publisher summary this chapter brings together a set of diverse efforts in the recent literature on the modeling of price decisions and related questions in marketing there has been an impressive growth in the array of topics investigated in the literature various trends in the development of pricing models are evident from the foregoing review first one trend has been to develop theoretical models to describe observed pricing strategies in the marketplace and to derive conditions under which certain strategies are optimal this trend is clearly evident when one considers the area of dynamic pricing models another trend is an attempt to develop pricing models in which certain aspects of consumer behavior e g asymmetric response to price increases versus price decreases are incorporated this development is quite recent and does offer a large potential a third dominant direction is the use of game theoretic models for developing equilibrium pricing strategies

fossil fuel flexibility in west european power generation and the impact of system load factors this paper analyzes short run interfuel substitution in west european power generation and the impact of system load factors on fossil fuel choice the problems are studied within a restricted translog cost share model the paper concludes that interfuel substitution in existing power plants is substantial especially that between oil and gas this is consistent with the notion that short run fuel substitution takes place in dual or multi fired plants by switching load between different single fired plants and by some conversions of power plants to be able to burn alternate fuels the empirical investigation also indicates that the system load factor is a notable determinant of fossil fuel choices in west europe and the paper ends with an assessment of the fuel consequences of some load management schemes in the region

the relative performance of real estate marketing platforms mls versus fsbomadison com we compare house sales on a for sale by owner fsbo platform to multiple listing service mls sales and find that fsbo precommission prices are no lower but that fsbo is less effective in terms of time to sell and probability of a sale we do not find direct evidence of the importance of network size as a reason for the lower effectiveness of fsbo we do find evidence of endogenous platform differentiation patient sellers use fsbo while patient buyers transact more often on the mls where they avoid patient sellers we discuss the implications for platform competition two sided markets and welfare

innovation r d cooperation and labor recruitment evidence from finland this article investigates the role played by one type of firm interaction namely rd rd and labor acquisition appears to be only of limited importance for innovation

new product pricing in quality sensitive markets this paper considers the problem of pricing a new product in a market having competing products of different qualities and market penetration levels as measured by the cumulative number of units sold each customer type selects his optimal product based on maximizing consumer surplus pricing policies for a new product are determined for the seller based on cumulative profit maximization without discounting an example is solved in detail for two demand function forms

the macroeconomics of trend inflation most macroeconomic models for monetary policy analysis are approximated around a zero inflation steady state but most central banks target an inflation rate of about 2 percent many economists have recently proposed even higher inflation targets to reduce the incidence of the zero lower bound constraint on monetary policy in this survey we show that the conduct of monetary policy should be analyzed by appropriately accounting for the positive trend inflation targeted by policymakers we first review empirical research on the evolution and dynamics of u s trend inflation and some proposed new measures to assess the volatility and persistence of trend based inflation gaps we then construct a generalized new keynesian model that accounts for a positive trend inflation in this model an increase in trend inflation is associated with a more volatile and unstable economy and tends to destabilize inflation expectations this analysis offers a note of caution regarding recent proposals to address the existing zero lower bound problem by raising the long run inflation target jel e12 e31 e32 e52 e58

a nonparametric approach to multiproduct pricing developed by general motors gm the auto choice advisor website http www autochoiceadvisor com recommends vehicles to consumers based on their requirements and budget constraints through the website gm has access to large quantities of data that reflect consumer preferences motivated by the availability of such data we formulate a nonparametric approach to multiproduct pricing we consider a class of models of consumer purchasing behavior each of which relates observed data on a consumers requirements and budget constraint to subsequent purchasing tendencies to price products we aim at optimizing prices with respect to a sample of consumer data we offer a bound on the sample size required for the resulting prices to be near optimal with respect to the true distribution of consumers the bound exhibits a dependence of o n log n on the number n of products being priced showing thatin terms of sample complexitythe approach is scalable to large numbers of products with regards to computational complexity we establish that computing optimal prices with respect to a sample of consumer data is np complete in the strong sense however when prices are constrained by a price ladderan ordering of prices defined prior to price determinationthe problem becomes one of maximizing a supermodular function with real valued variables it is not yet known whether this problem is np hard we provide a heuristic for our price ladder constrained problem together with encouraging computational results finally we apply our approach to a data set from the auto choice advisor website our analysis provides insights into the current pricing policy at gm and suggests enhancements that may lead to a more effective pricing strategy

the microeconomics of manufacturing modernization programs abstract manufacturing modernization programs are designed to improve the competitiveness of small and medium sized manufacturers by accelerating their use of best practice technologies justification for these programs is most often cast in terms of past slow rates of adoption international economic competitiveness and market failures in the provision of information these frameworks however do not adequately address policy and programmatic issues related to program design financing and program evaluation using a microeconomic model based on the firm and industry level effects of these programs we examine the importance of spillover benefits from modernization efforts both horizontal spillovers to rivals of program clients and vertical spillovers to clients customers and the implications for these policy and programmatic issues

matching with phantoms searching for partners involves informational persistence that reduces future traders matching probability in this article traders who are no longer available but who left tracks on the market are called phantoms we examine a dynamic matching market in which phantoms are a by product of search activity no coordination frictions are assumed and non phantom traders may lose time trying to match with phantoms the resulting aggregate matching technology features increasing returns to scale in the short run but has constant returns to scale in the long run we embed a generalized version of this matching function in the canonical continuous time equilibrium search unemployment model long run constant returns to scale imply there is a unique steady state whereas short run increasing returns generate excess volatility in the short run and endogenous fluctuations based on self fulfilling prophecies

analyzing the relationships between information technology inputs substitution and national characteristics based on ces stochastic frontier production models abstract this research examines four interrelated issues at the country level the value of information technology it inputs substitution and complement the complementarity phenomenon created by it and national characteristics and the productivity paradox jointly and critically from a global perspective using the so called productive efficiency as the performance measure to that end we develop the three factor constant elasticity of substitution ces stochastic production frontier model and apply it to a set of panel data from 15 countries over the period 1993 2003 along with the traditional two factor ces models within the one and two equation frameworks in the two equation setting six national characteristics are selected as the contributing factors of the productive efficiency the findings include i the value of it as measured by the productive efficiency is duly recognized ii the productivity paradox is found to be absent from the production process in a majority of developed and developing countries considered rejecting the existing argument that the paradox exists only in developing economies but does not exist in developed countries however the developed countries have used it capital in their production systems more productively efficiently than the developing nations iii traditional capital non it capital traditional labor and it capital are not pairwise substitutable contrary to the notion that they are pairwise substitutable at the firm level iv constant returns to scale as commonly assumed are not supported by the data v different national characteristics affect a country s output represented by gross domestic product or gdp and its productive efficiency differently and vi the complementarity phenomenon is observed in most of the countries developed and developing under study

computing productivity firm level evidence we explore the effect of computerization on productivity and output growth using data from 527 large us firms over 1987 1994 we find that computerization makes a contribution to measured productivity and output growth in the short term using one year differences that is consistent with normal returns to computer investments however the productivity and output contributions associated with computerization are up to five times greater over long periods using five to seven year differences the results suggest that the observed contribution of computerization is accompanied by relatively large and time consuming investments in complementary inputs such as organizational capital that may be omitted in conventional calculations of productivity the large long run contribution of computers and their associated complements that we uncover may partially explain the subsequent investment surge in computers in the late 1990s

elasticity of substitution and technical efficiency evidence from the us electricity generation abstractthe implications of national or regional energy policies for technical efficiency and environmental outcomes in electricity generation depend on fossil fuel input substitution this study u

the structure of technology in a multioutput branch banking firm we formulate and estimate a multioutput bank s cost function amenable for distinguishing between economies of scale and economies of network density we find significant returns to network density especially for smaller banks diseconomies of scale are found for the larger banks whereas the hypothesis of constant returns to scale could not be rejected for the smaller banks

monopolist pricing with dynamic demand and production cost this paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream the interdependency of cost and demand on cumulative production makes the problem inherently dynamic cost is assumed to be declining with cumulative production learning curve effect while demand is a function of price and cumulative sales representing word of mouth and saturation effects the paper addresses this problem in a general framework that includes several previous results as special cases and provides new insights in other situations while the learning curve and word of mouth effect cause prices to be lower than the price that maximizes immediate revenues the saturation factor has the opposite effect the price path over time is affected by these factors and the interest rate we characterize the price path under several different situations and interpret the results for policy guidelines