competitive storage rational expectations and short run food price determination this paper demonstrates that lags between retail and wholesale food prices can be explained by inventory behavior of retailers theoretical considerations indicate that the markup model should be modified to include a jorgenson type user cost variable which depends on expected future wholesale price the rational expectations hypothesis is used to derive price expectations the retail price specification therefore depends on the stochastic process generating expected wholesale price the econometric methodology employing both causality testing and nonlinear estimation is illustrated by estimating monthly price relationships for beef the results are consistent with the theory and indicate rejection of the markup model

optimal price and inventory adjustment in an open economy model of the business cycle this paper presents a macroeconomic model containing optimizing inventory holding firms that is consistent with a number of prominent empirical regularities concerning fluctuations in output exchange rates relative prices and money prices are sticky but they are not predetermined still our model is consistent with exchange rate overshooting in the sense of dornbusch typical sticky price models allow a divergence between current production and current demand but this divergence is never allowed to feed back into the model our optimal inventory adjustments reconcile divergences between current demand and production and the inventory stock movements provide expected future dynamics

multiperiod sales production decisions under uncertainty abstract this paper studies the behavior of an expected profit maximizing multiperiod firm under uncertainty in output and demand the firm s problem is to determine in each period the level of sales and inventory and the expected output for the coming period the optimal policy is derived in an explicit closed form and is proved to be myopic it is shown that the observed phenomenon of downward price inflexibility can be explained and further specified by using the results of our model

asymmetric price adjustments a supply side approach using a model of dynamic price competition we provide an explanation from the supply side for the well established observation that output prices react faster in response to input cost increases than to decreases when costs decline the opportunity of profitable storing in anticipation of higher future costs allows competitive firms to coordinate on prices above current marginal costs the initial price response is only partial and profitable storing relaxes competition conversely when costs rise storing is not beneficial in anticipation of lower future costs and firms immediately adjust their prices to current marginal costs which entails the standard bertrand outcome our results shed new light on the empirical evidence about asymmetric pricing and can stimulate further empirical investigation on this puzzle

discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

price and output adjustment inventory flexibility and cost and demand disturbances this paper analyses how inventory output and sales of a monopolist firm respond to both production cost and demand disturbances if cost shocks dominate output exceeds sales variability and sales and inventory holdings arepositively related as empirical evidence indicates sales and inventory holdings are negatively related as the theoretical literature generally suggests only if demand shocks dominate greater inventory flexibility or persistance of shocks contributes to the smoothing of production to demand disturbances but leads to the amplification of the production response to cost disturbances ajustement des prix et des quantites flexibilite des inventaires chocs du c6te des couts et de la demande ce memoire examine la reaction d une firme monopoliste dans son niveau d inventaires son niveau de ventes et son niveau de production quand cette firme fait l experience de chocs en provenance de ses cofits de production ou de sa demande si les chocs en provenance des couts sont les forces dominantes le niveau de production depasse les ventes et ventes et inventaires sont positivement co relies ventes et inventaires sont negativement co relies ainsi que la litterature specialisee le suggere quand ce sont les chocs du c6te de la demande qui sont la force dominante une plus grande flexibilite des inventaires ou la persistence des chocs tendent a attenuer les effets d echo des perturbations de la production sur la demande cependant cela tend a amplifier les effets d echo des perturbations dans les cofits sur la production

measuring the performance of foreign direct investment a case study of china abstract within the new growth framework this paper attempts to investigate the performance of foreign direct investment i e how efficient fdi as one of the factor inputs in an economy has been utilised in the empirical analyses an input oriented distance function approach is employed to estimate the technical efficiency of fdi in china s coastal regions over the period 1983 1995

greenhouse gas emissions from power generation and consumption in a nordic perspective during the last decade there has been an intensive debate on going in sweden about how power generation and use affect global warming more precisely the discussion has considered how electricity shall be assessed from an environmental and climate perspective in different situations this article gives a critical analysis on the main viewpoints a number of environmental impact assessment principles are outlined and critically examined concepts like average electricity and marginal electricity are discussed and electricity disclosure as a basis for evaluation is addressed the impact from emission trading and tradable green certificates is also considered recommendations to concerned stakeholders are given the clash points in the swedish debate are highlighted and thus made available to a broader audience outside scandinavia

the past decade s natural rate and the dynamics of german unemployment a case against demand policy this paper attempts to highlight some recent cyclical and structural aspects of the german labor market moreover whenever possible the results of our analysis are compared with findings for the u s labor market finally policy implications which may be inferred from our study are discussed at some length research on unemployment may draw attention to at least two different but not mutually exclusive problems the cyclical movement of unemployment gives rise to concern about the amount of the unemployment rate that can be reduced by aggregate demand policy only at the cost of an accelerating inflation rate the relevant question is whether this unemployment rate has been constant during the last decade or whether it has been subject to exogenous shocks such as the oil price explosion and the productivity slowdown with this knowledge the policy maker can be advised as to what extent an expansive demand policy is an appropriate tool for achieving lower rates of unemployment without facing an accelerating inflation rate and moreover why the reduction of inflation in the seventies by restrictive demand management might cost more unemployment than in the sixties the latter query calls in question some economic policy measures in the seventies macroeconomic policy may not be able to make oil cheaper but can try to mitigate adverse secondary effects on aggregate output and employment but a recovery will not make the problem of unemployment simply disappear evenly for everyone the analysis of aggregate unemployment is silent about which group of the labor force shoulders the main burden of unemployment and is more likely to suffer from extreme low escape probabilities from unemployment if the notion of a hard core of unemployed

exchange rate and wage price dynamics a theoretical analysis and an econometric investigation abstract this paper is an attempt to analyze inflation dynamics in a small open economy as the result of the interaction between wage and price determination behaviors and the interest rate exchange rate feedback in the context of dornbusch s model an extended version of this model is specified and analyzed formally then the model is estimated for five oecd countries using a full information maximum likelihood technique finally simulations of the effect of monetary shocks are presented for four countries

inventory behaviour and market power an empirical investigation abstract this paper examines the empirical relation between the market power of a firm and the level and variability of its inventories we suggest that firms with greater market power hold more inventories and that their inventories are more volatile these hypotheses were tested on a large sample of industrial firms using two different measures of market power and applying a number of estimation techniques the results strongly support our hypotheses

production lags and price behaviour this paper explores the implications of the production lag for the firm s decisions the authors establish a significant relationship between price behavior and the length of the production lag they show that specific results in the literature are crucially dependent upon the assumption about the production lag by allowing the production time to exceed the decision period the basic framework of the earlier price inventory models is significantly extended the model thus incorporates finished goods inventories as well as goods in process inventories copyright 1992 by the london school of economics and political science

inventory and price behaviour the point of this paper is that inventory adjustment attenuates downward pressure on price when realized demand is low because firms accumulate inventory hold overs speculating that demand will be stronger in the succeeding period when realized demand is high the firm draws down its inventories until a stock out occurs and price rises to clear the market

understanding the inventory cycle abstract careful examination of aggregate data from the u s and other oecd countries reveals that production and inventory behavior exhibit paradoxical features 1 inventory investment is strongly countercyclical at very high frequencies e g 2 3 quarters per cycle it is procyclical only at relatively low cyclical frequencies such as the business cycle frequencies e g 8 40 quarters per cycle 2 production is less volatile than sales around the high frequencies it is more volatile than sales only around business cycle or lower frequencies 3 unlike capital investment or gdp the bulk of the variance of inventory investment is concentrated around high frequencies rather than around business cycle frequencies these features of production and inventory behavior at the low and high frequencies provide a litmus test for inventory theories this paper shows that the stockout avoidance theory kahn j 1987 inventories and the volatility of production american economic review 77 667 679 has much better potential than other competing theories for explaining the seemingly paradoxical features of inventory fluctuations observed at different cyclical frequencies my analysis suggests that demand shocks are the main source of the business cycle

optimal auctioning and ordering in an infinite horizon inventory pricing system we consider a joint inventory pricing problem in which buyers act strategically and bid for units of a firm s product over an infinite horizon the number of bidders in each period as well as the individual bidders valuations are random but stationary over time there is a holding cost for inventory and a unit cost for ordering more stock from an outside supplier backordering is not allowed the firm must decide how to conduct its auctions and how to replenish its stock over time to maximize its profits we show that the optimal auction and replenishment policy for this problem is quite simple consisting of running a standard first price or second price auction with a fixed reserve price in each period and following an order up to basestock policy for replenishing inventory at the end of each period moreover the optimal basestock level can be easily computed we then compare this optimal basestock reserve price auction policy to a traditional basestock list price policy we prove that in the limiting case of one buyer per period and in the limiting case of a large number of buyers per period and linear holding cost list pricing is optimal list pricing also becomes optimal as the holding cost tends to zero numerical comparisons confirm these theoretical results and show that auctions provide significant benefits when 1 the number of buyers is moderate 2 holding costs are high or 3 there is high variability in the number of buyers per period

normal costs and demand effects in price setting a study of retailing the study aims at contributing to the debate whether there are demand effects in models that seek to explain prices as mark ups on costs for costs it considers actual costs normal costs and an intermediate model with a partial adjustment to the deviation of actual from normal costs for demand effects it considers an effect on the price level of a change of demand with an allowance for asymmetry between demand growth and demand decline tests and estimates are conducted on the basis of data from retailing

money and economic activity inventories and business cycles abstract incomplete information is a necessary condition for any real effects produced by monetary impulses an alternative to the local global inference problem is explored in this paper agents are confronted with permanent and transitory shocks even with full knowledge about the stochastic structure their best perception at any particular time will usually be erroneous prices for each period are set at the beginning of the period on the basis of market conditions the realization of the shock process thus creates a short run disequilibrium absorbed by inventory adjustments this adjustment translates perceived transitory monetary shocks into serially correlated output movements the analysis proceeds within the context of rational expectations it offers a generalization of equilibrium analysis in two respects prices are always in equilibrium relative to perceived conditions but they do not reflect all ongoing shocks quantity adjustments reflect the perceived transitory shocks the framework used involves moreover a stock flow interaction operated by inventory adjustments the stock flow interaction imposes at any time a future expected adjustment path for price level and quantities to the system s unique stock equilibrium a major implication of the analysis resolves a puzzle experienced in a recent paper by robert hall it reconciles intertemporal substitution with lagged effects of monetary impulses it also reconciles small and inconclusive cyclic movements in real wages with the occurrence of production function and large variations in unemployment lastly the nature of the inference problem determined by the pattern of incomplete information produces serially correlated movements conditioned on large permanent shocks

a model of inventory and layoff behaviour under uncertainty this paper develops a model of firm behavior under uncertainty designed to study the interac tion of inventories and layoffs the model is a blend of a buffer sto ck model of inventory behavior and an implicit contract model of layo ffs the model creates a distinction between inventory biased and lay off biased firms each of which exhibits inherently different pattern s of response of inventories and temporary layoffs to demand shocks in addition the model implies that the inventory layoff interaction tends to strengthen weaken the response of price and the work force to changes in anticipated demand real interest rates copyright 1988 by royal economic society

some stabilizing and destabilizing effects of foreign debt accumulation in developing countries abstract recent research indicates that current account imbalances in the three largest industrial countries germany japan and the united states are self correcting a long run equilibrium relationship exists between the cumulated current account which is the net stock of these countries foreign assets or liabilities and other economic factors the situation appears to be different in a sample of 26 developing countries examined here this paper attempts to explain why it examines the effects on the current account of government and government guaranteed foreign debt on the one hand and net foreign liabilities or the cumulated current account deficit on the other while the cumulated current account deficit does generate stabilizing forces possibly through wealth effects large amounts of government and government guaranteed debt create destabilizing effects by stimulating capital flight

price smoothing and inventory this paper explains the phenomenon of price rigidity or price smoothing as the outcome of the optimal inventory policy of a multi period profit maximizing firm under demand and output uncertainties price smoothing may be manifested in two forms first price changes may be moderated with respect to those implied by the demand function and second the firm may choose to restrict price fluctuations by establishing upper and or lower bounds on prices we show that the extent of the asymmetry in price smoothing depends on the relationship between the inventory holding cost and the backlog penalty cost our model accommodates a wide range

price smoothing and inventory behavior abstract consider a monopolist who cannot hold inventories he would increase price in response to a demand increase if desired sales did not increase too much and lower it otherwise if the former case holds for all realizations of a random demand curve the possibility of holding inventories will lead to reduced price variability if the latter case holds systematically inventory holding will lead to more price variability if the effect depends on the level of demand we can say nothing about the consequences of inventory holding for price variability this contrasts with the results of a number of recent papers

the interrelationship between price and output decisions and investment decisions microfoundations and aggregate implications abstract this paper develops a model of firm behavior in which both price and output decisions and investment decisions are made the model permits an analysis of the dynamics of inventory and capital accumulation on price and output behavior there are two main results 1 short run price and output levels will differ from long run levels as desired stocks of inventory and capital diverge from actual levels 2 the size of the elasticities of price and output to changes in demand and cost variables depends on the speed with which gaps between desired and actual stocks are closed through investment

the impact of demand and price expectations on the behavior of prices the effects of demand and price expectations on price behavior are analyzed using data from the manufacturing sector and a model formulated to pinpoint the demand oriented factors affecting prices and to incorporate price expectations as a direct influence on price behavior the expected normal demand is seen to have a strong and systemic influence on price behavior the expected normal level of new orders is found to be an adequate measure with sector data in general although some industries require more specification the effects of inventories and unfilled orders on prices are sporadic and across sectors and industries demand oriented forces are concluded to perform as well statistically as cost push determinants expectations concerning the current normal industry price level have a significant and consistent impact on price behavior this supports the idea that firms setting prices take into account their estimates of competitor s prices future price expectations appear to have little effect on current price information 15 references

interest rate demand and input price uncertainty and the value of firms abstract in an infinite horizon inventory model an increase in interest rate uncertainty increases the value of a firm which has positive value an increase in input price uncertainty increases the value of the firm if decisions are made before the realization of demand uncertainty increased uncertainty about an additive demand shock reduces the value of a price setting firm with a concave value function and leaves unchanged or increases the value of a quantity setting firm if decisions are made after the realization of demand uncertainty an increase in the uncertainty of an additive demand shock increases the value of the firm

a var approach to the economics of fdi in china using a vector autoregression var approach this study re examines several hypotheses suggested by the economic literature on the economics of fdi applying quarterly time series data from china a country which has recently become the second largest host country for fdi innovation accounting variance decomposition and impulse response function analysis is applied to analyse the various interrelationships between fdi and other economic variables of interest in a var system the empirical research using this method in the case of china is limited the study therefore provides an interesting advance in the literature on the economics of fdi in china

an evaluation of excess demand actual cost and normal cost pricing hypotheses using non nested tests this paper has emperically analyzed three versions zero lag geometric lag and almon lag of three price change hypotheses namely the excess demand actual cost and the normal cost hypothesis the goal being to select the hypothesis that describes the underlying price dynamics for manufactured goods the rival models are specified as non nested alternatives and each version is estimated by using an efficient estimator the traditional discrimination criteria which clearly reject the zero lag version are found to be impotent in discriminating between the dynamic versions of the models a sequential cross evaluation of the two dynamic versions using both pairwise and multiple non nested hypothesis tests proposed by davidson and mackinnon reveals a systematic domination by the almon version of normal cost pricing over both the excess demand and the actual cost pricing mechanisms in the canadian manufacturing sector during the period 1961 1 87 4 this result is robust under alternative specifications of th

the information content of quantity signals and downward inflexible prices it is shown that nonmarket clearing prices can persist in noncooperative nash competition among firms when the dis semination of information depends critically on the flexibility of pr ices the key to this explanation is that the value of the informatio n revealed by quantity signals when prices are fixed can be greater t han the short run profit obtained by an instantaneous price adjustmen t copyright 1987 by the editors of the scandinavian journal of economics

adjustment lags economically rational expectations and price behavior source and the extent of lags in the response of prices to changes in various explanatory variables knowledge of the relevant lag patterns is of obvious importance for forecasting movements in prices and for formulating policies that are designed to reduce the rate of inflation in the recent empirical literature on prices the model most commonly used to specify price equations is the static neo classical model of price formation 1 this model presumes that the representative firm behaves as if it were a simple monopolist that faces competitive factor input markets the firm is assumed to set its price so as to maximize current profits the model yields the proposition that the firm s long run optimal price depends on expected normal factor input prices and variables e g expected real income that shift the firm s demand curve lags are introduced into the pricing process of this model in two ways some authors2 focus on expectation formation lags whereby normal factor input prices or variables that shift the firm s demand curve are related through distributed lags to past values of the variable being forecast often the distributed lag is assumed to be

labor market consequences of poor attitude and low self esteem in youth in a recent national survey that asked employers to rank the importance of particular applicant traits for nonsupervisory and production positions applicant s attitude was the only trait that was reported to be very important in fact academic performance years of schooling completed teachers recommendations and industry based credentials certifying applicant skills all ranked lower bowles et al 2000 a second independent survey of employers in holzer and wissoker 2000 also suggests that more weight is placed on a good attitude than on basic skills among new hires of low skilled workers in this article i assess the role of pre labor market attitude and self esteem in explaining disparities observed in the labor market experiences of a sample of high school graduates the apparent importance employers ascribe to attitude and self esteem gives clear reason to expect that such a relationship exists i demonstrate that such survey responses are corroborated by real economic consequences for those with poor attitude and self esteem using longitudinal data on a 1972 cohort of high school graduates i show that high school students who reveal negative attitudes and self esteem subsequently attain fewer years of postsecondary education relative to their high school cohort are less likely to be employed 14 years following high school and where working for pay earn less accounting directly for the labor force participation decision i also document a higher incidence of unemployment among these individuals furthermore i find evidence that negative attitudes and self esteem are associated with jobs later in life that require the individual to spend time working with things as opposed to people for example and that those who exhibit poor pre labor market attitude and self esteem are subsequently more closely supervised at work and given less discretion in their daily activities all told attitude and self esteem in youth are shown to have important and long lasting economic implications in the following section i briefly discuss related literatures specifically two areas of the literature are considered the effect of joblessness on self esteem and the relationship between other noncognitive skills or worker attributes and labor market outcomes section ii then introduces the data and methods used in investigating the relationships in question empirical results are reported in section iii and are followed by some discussion and concluding remarks i previous literature this article is closely related to two areas of existing literature first there exists a small body of literature that documents a relationship between labor market activity and self esteem however this literature has heretofore focused more on the damage of joblessness to an individual s perception of self worth than on the direction of causality considered here for example goldsmith et al 1995 1996a find relationships between contemporaneous joblessness and self esteem and historic joblessness and subsequent self esteem respectively arguably the causality between attitudes and jobless spells is not clearly in one direction or the other in this article i contribute clear evidence of the reverse causation causation running from attitude and self esteem to future labor market outcomes second there is a growing body of literature on the importance of noncognitive skills in wage determination this literature suggests that measures of aggression and withdrawal osborne 1999 individual motivation goldsmith et al 2000 behavioral problems in high school cawley et al 2001 one s locus of control or outlook on life goldsmith et al 1997b osborne 1999 bertrand and mullainathan 2001 coleman and deleire 2003 and mental health bartel and taubman 1979 1986 frank and gertler 1991 mullahy and sindelar 1993 each have predictive power with respect to wages that employer surveys suggest that attitude is highly valued alone leads one to anticipate that attitude be related to earnings

a fractiles perspective to the joint price quantity newsvendor model pricing and quantity decisions are critical to many firms across different industries we study the joint price quantity newsvendor model where only a single quantity and price decision is made such as a fashion or holiday product that cannot be replenished and where the price is advertised nationally and cannot be changed demand is uncertain and sensitive to price we develop a method for easily finding the optimal price and quantity that applies to more general cases than the usual one in which uncertainty is either additive multiplicative or a combination of the two we represent a quantity by its fractile of the probability distribution of demand for a given price we use a standard approach to approximating a given distribution with a finite number of representative fractiles and assume that these fractile functions are piecewise linear functions of the price we identify effects that are not usually seen in a joint price quantity newsvendor model for example although the optimal quantity is a decreasing function of the unit cost the optimal price can be nonmonotone in the unit cost and we shed insight into why we illustrate that using a simplified structure of demand uncertainty can result in substantially lower profits

intertemporal profit margin variability and market structure in australian manufacturing abstract three distinct hypotheses have been put forward in recent years by caves and yamey qualls and eckard to explain why intertemporal profit margin variability will be linked positively with market concentration using australian data this paper estimates a two equation model in which the dependent variables are average industry profit margins and intertemporal variability in profit margins and the explanatory variables include various indicia of market structure including concentration concentration is found consistently to be a significant positive determinant of variability in margins and the evidence suggests that this is due to the cyclical factors behind quall s explanation

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

production smoothing in the japanese vehicle industry abstract physical data from the japanese vehicle industry covering monthly observations from 1985 1 to 1994 12 are investigated across nine goods ranging from bicycles to large buses smaller variance of production is found relative to sales across all goods for unadjusted data and in 17 out of 18 cases for seasonally adjusted data such evidence in favor of the production smoothing model psm is confirmed by full information maximum likelihood employed jointly on inventories and sales equations the estimates suggest the industry operates in the range of increasing marginal costs in six out of nine goods positive costs of being away from targeted inventory are also present in six out of these nine goods which make the psm a good description of this industry

robustness of the relationship between price variability and inflation for us manufacturing we study the relationship between relative price variability and inflation in two different ways we first look at product class census unit values for five time periods between 1958 and 1982 and find evidence of a positive relationship between variability and inflation then we directly update the vining and elwertowski 1976 study for the period 1974 91 using individual commodity series from the bureau of labor statistics we conclude by discussing differences across industries in price stickiness

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

the resurgence of inventory research what have we learned abstract recent empirical and theoretical research on business inventories is surveyed and critically evaluated while most inventory research has had macroeconomic motivations we focus on its microtheoretic basis and on potential conflicts between theory and evidence the paper asks two principal questions first how can inventories which are allegedly used by firms to stabilize production nonetheless be a destabilizing factor at the macroeconomic level second why if firms are following the production smoothing model is production more variable than sales in many industries we suggest that the so called s s model may help answer both questions

spatial and temporal variations of marginal electricity generation the case of the finnish nordic and european energy systems up to 2030 abstract assumptions related to energy generation often play a decisive role in abatement studies for estimating the effects of demand side interventions however there can be significant geographical and temporal variation in the emission intensities of electricity generation in different regions the aim of this article is to describe how spatial and temporal variations related to a particular energy system may affect an electricity generation unit operating on the margins the approach takes the generation mix within interconnected electricity markets and the exchange of electricity between these markets into account the short term 2009 2010 and long term until 2030 hour by hour marginal electricity generation unit and marginal emission intensities are identified for electricity use using the finnish nordic and european energy systems as actual cases the estimated marginal electricity generation technology and marginal emission intensities for electricity use differed significantly within the studied time horizon and between the studied countries and energy systems furthermore due to the projected structural changes in the energy systems i e changes in the fuel mix and electricity generation technologies the carbon dioxide co 2 intensity of marginal electricity generation will decrease in the nordic countries and in the eu in the long term however the approach used for calculating the effect of change in electricity exchange on the margin increased the variability of the results considerably for some nordic countries such as sweden and norway whose export of electricity was high and whose marginal generation mix differed significantly from the european system furthermore the spatial and temporal variations of marginal electricity generation will increase in the future this variation combined with the interconnections between market areas for exchanging electricity in the eu will require improved understanding of the impacts of exchanged marginal electricity generation on the possible emission leakage between eu countries to better inform policy decisions

money supply variability in a macro model of monopolistic competition the effects of changes in money supply variability are examined for a macro model of monopolistic competition increases in money supply variability raise demand uncertainty causing individual firms to produce more for inventory in addition expected profits decrease inducing a number of firms to leave the economy aggregate income then falls in spite of an increase in firm level production the result on aggregate income is standard but the results on inventories and the number of firms in the economy distinguish this monopolistic macro model empirically from conventional macro models when changes in money supply variability occur

an optimal middleman firm price adjustment policy the short run inventory based pricing policy this paper examines the optimum pricing policies of middleman firms who carry an inventory of goods bought for resale each period the firm in the theoretical model is required to post a price before it observes its realized demand in disequilibrium situations the firm s profit maximizing pricing policy is shown to be a short run inventory based pricing policy which requires the firm to post a price below the long run equilibrium price upon observing its actual beginning inventory level above its optimum level and to post a price above the long run equilibrium price upon observing its actual inventory level below its optimum level the final section suggests that the use of such policies by middleman firms will lead to market price adjustments which are both consistent with the law of supply and demand and which are based on explicit maximizing behavor

factor demand under conditions of product demand and supply uncertainty the paper develops a theory of factor demand under uncertainty that encompasses neo classical factor demand and keynesian effective factor demand as special cases the model allows factor demand and output to move positively with product demand even with a constant product price this in turn permits real wages to move pro cyclically in response to product demand shocks in addition the model provides a new perspective on the adding up problem which posits that total factor payments exceed output if increasing returns to scale exist and generates positive uncertainty profits that are similar in spirit to those of frank knight

supply and demand functions in inventory models the central issue in supply chain management is to match supply with demand and the heart of a planning model is the modeling of supply and demand functions to allow for analytical tractability the existing literature often assumes almost surely linear supply and demand functions which greatly limits the applicability of the models the goal of this paper is to provide a unified approach to analyze general random supply and demand functions by transforming the problem into one defined on a higher dimension we show that many of the seemingly highly nonlinear supply and demand functions in the almost sure sense are linear in the stochastic sense with this new notion of linearity called stochastic linearity in midpoint our ability to analyze supply chain problems is much enhanced we are able to prove the concavity of the profit function in the transformed supply and demand decisions for a general class of supply and demand functions that include but are not restricted to the ones studied in the

price dynamics under imperfect information abstract the paper considers the pricing decision of a monopolist firm having demand and costs exposed to nominal and real shocks which include both permanent and transitory changes the firm obtains information through both price and quantity signals and the price equation is found by use of a filtering technique it is shown that imperfect information implies nominal price smoothing where the price adjusts only partially relative to the past price by incorporating new information observed through price and quantity signals

combined pricing and inventory control under uncertainty this paper addresses the simultaneous determination of pricing and inventory replenishment strategies in the face of demand uncertainty more specifically we analyze the following single item periodic review model demands in consecutive periods are independent but their distributions depend on the item s price in accordance with general stochastic demand functions the price charged in any given period can be specified dynamically as a function of the state of the system a replenishment order may be placed at the beginning of some or all of the periods stockouts are fully backlogged we address both finite and infinite horizon models with the objective of maximizing total expected discounted profit or its time average value assuming that prices can either be adjusted arbitrarily upward or downward or that they can only be decreased we characterize the structure of an optimal combined pricing and inventory strategy for all of the above types of models we also develop an efficient value iteration method to compute these optimal strategies finally we report on an extensive numerical study that characterizes various qualitative properties of the optimal strategies and corresponding optimal profit values

spatial price transmission and asymmetry in the ghanaian maize market abstract this paper utilizes recently developed threshold cointegration tests that allow for asymmetric adjustment toward a long run equilibrium relationship to examine price linkages between principal maize markets in ghana unlike previous studies the approach employed here assumes that economic agents only act to move the system back to equilibrium when the deviation from equilibrium exceeds a critical threshold whereby the benefits of this adjustment exceed the costs the findings indicate that major maize markets in ghana are well integrated both the threshold cointegration and asymmetric error correction models reveal that wholesale maize prices in local markets accra and bolgatanga respond more swiftly to increases than to decreases in central market techiman prices accra prices are found to react faster than bolgatanga prices to changes in techiman market prices

determinants of price adjustment this paper reports results of an empirical study investigating the adjustment speed of prices to change in costs and demand particular emphasis is laid on the impact of concentration on the adjustment speed in addition the effects of the business cycle and capital intensity are considered it shows that concentrated industries tend to adjust prices faster while capital intensity has a negative impact prices are more flexible during an upswing than in times of a recession

monopolistic competition aggregation of competitive information and the amount of product differentiation consider an industry with a large number of homogeneous firms each firm s profits are a function of its own strategy and the strategies the other firms select suppose other firms strategies enter into each firm s profit function only through one or more statistics for example average price in the market may parameterize every firm s profit function we prove that as a general rule the industry s firms will in equilibrium follow at most m 1 distinct strategies where m is the number of statistics by which competitors strategies affect each firm s profits

foreign debt instability an analysis of national saving and domestic investment responses to foreign debt accumulation in 28 developing countries abstract i specify and estimate a foreign debt model that exploits the balance of payments identity current account national saving domestic investment foreign debt can affect both saving and investment behavior in this model if an increase in foreigndebt reduces investment by more than it reduces saving or raises investment by less than it raises saving the current account will eventually be brought into a steady state equilibrium with a sustainable ratio of foreign debt to gnp in such case the debt crisis is more illusory than real for the country sample analyzed here however the buildup of government and government guaranteed foreign debt appears to have produced perverse private sector responses an increase in this type of foreign debt reduces saving by more than it reduces investment hence the current account deficit worsens over time as such foreign debt accumulates dynamic simulations identify only government policy that it raises national saving as an effective way of improving the current account the consequent real depreciation in the exchange rate may increase exporrts and reduce imports sufficiently to cause a current account surplus surprisingly export promotion policies alone seem unlikely to produce any substantial improvement in the current account

optimal pricing and production in an inventory model abstract this paper deals with the problem of simultaneously determining the optimal price policy and production rate over a given planning horizon for nonlinear demand functions and convex inventory and shortage cost functions the optimal solution paths are derived by using optimal control theory the treatment of linear nonsmooth cost functions requires the use of a generalized maximum principle the solution method is a phase portrait analysis providing insight into the optimal pricing and production policies as well as the resulting inventory paths moreover it is shown that in the case of nonsmooth piecewise linear cost functions the equilibrium is approached within finite time although the model is nonlinear in the control variables finally it is illustrated that exogenous fluctuations in the demand rate seasonal demand pattern amount to cyclical optimal solutions

investment in finished goods inventories an analysis of adjustment speeds it is well known that fluctuations in inventory investment are a major source of fluctuations in gross national product this has stimulated numerous empirical studies designed to understand the causes of changes in inventory investment these studies include those for example michael lovell that utilize a flexible accelerator model of inventory behavior as well as those for example david belsley that utilize the linear decision rule approach to optimal inventory holding the latter approach however can be interpreted in terms of a flexible accelerator model see j c r rowley and p k trivedi for a survey of the literature recently several authors for example martin feldstein and alan auerbach observed that these studies yield very implausible empirical results the basic difficulty is that the estimates of the speed with which firms close gaps between desired and actual inventory stocks are very low often the estimated speed of adjustment is less than 10 percent per quarter as feldstein and auerbach stress this is extremely implausible when even the largest swings in inventories in a given quarter amount to less than one day s production the purpose of this paper is to undertake an analysis of adjustment speeds for finished goods inventory investment in our empirical work we utilize a modified flexible accelerator model of inventory investment 1 like the conventional flexible accelerator the model permits firms to close a fraction of the gap between desired and actual inventories in any period the relevant fraction is of course the adjustment coefficient and it may vary in principle between zero and unity our model differs from the conventional model in assuming that the desired stock of finished goods inventories depends on the normal levels of exogenous variables that firms must forecast to make decisions on inventory holdings these include not only the normal level or orders or demand which is a standard explanatory variable in the empirical literature but also the normal levels of real factor input prices and real interest rates in addition we permit the normal levels to change relatively slowly in response to changes in past levels of orders real factor input prices and real interest rates our objective is to investigate whether the slow adjustment speeds that have been estimated in the literature are due to the use of models which contain an incomplete menu of exogenous variables to determine desired inventories and pay inadequate attention to lags in the adjustment of normal levels of exogenous variables

the effects of changing input costs on food prices the relationships between changes in food sector input costs and retail food prices are examined results indicate that increases in factor prices pass quickly to consumers within two quarters for most foods in addition rising farm level prices and substantial increases in nonfarm resource prices appear to explain why food prices rose more rapidly than nonfood prices in the 1970s the analysis is based on a twenty equation econometric model of the food price determination process specified following popkin s stage of processing approach causality and validation test statistics for the model are presented

law or economics w hen aaron director and edward levi launched the journal of law and economics in 1958 director suggested the title law or economics this alternative title certainly described the world more accurately at that time the traditional attitude of each discipline toward the other had been one of indifference only gradually has that attitude been replaced by a mixture of cooperation and hostility the first systematic application in america of economics to law was the use of price theory to explain economic phenomena involved in the antitrust cases director made creative use of price theory to explain phenomena such as tie in sales and patent licensing and assisted younger colleagues such as john mcgee and lester telser in their respective studies of predatory competition and resale price maintenance in such applications professional economic analysis was replacing the amateur economics of the lawyer lawyers did not welcome this development the national committee for the study of the antitrust laws was the scene of a deep schism between the fifty three lawyers and the eight economists 2 these numbers probably represented the belief that 13 percent of antitrust policy is economics the remainder law at one point the lawyers attempted to exclude the economists completely from the formulation of the report the division was not simply one between angels and legally trained devils consider the question of price discrimination economists insisted that price discrimination could persist only under noncompetitive conditions under full competition rivals would undermine any attempt to sell part of the supply at a higher price the lawyers argued to the contrary

target buffer stocks the behaviour of a buffer stock holding firm facing stationary demand shocks is considered from the viewpoint of recent evidence on inventories and price setting attention is focussed on the responses of price and supply to changes in autonomous demand and compared with those of a nondurable producer the results conflict with recent theoretical work in providing support for a keynesian interpretation of inventory series

inventory adjustment and dynamic winery behavior this paper develops a dynamic model of processor behavior which is applied to the california wine industry price production and input demand functions are derived from an optimal control model which takes into account inventory growth from aging and the linkage between product inventories and input purchases an important feature of the model is that expected future market conditions and beginning inventories influence current behavior through changes in the inventory shadow price the empirical results generally conform to the theoretical specification and emphasize the role of demand expectations on winery behavior

on the theory of the firm underlying empirical models of aggregate price behavior recent empirical work on aggregate and industrial price behavior has been conducted within the framework of a static neo classical theory of price formation 2 the purpose of this paper is to propose a more general theoretical framework for analyzing price behavior the proposed framework is neo classical in its basic characteristics but unlike the recent literature it is based on a dynamic theory of firm behavior in which decisions on price inventories and the capital stock are integrated to serve as a basis for comparison with the model developed here it is useful to state briefly the main propositions of the static neo classical model the model presumes that the typical firm behaves as if it were a simple monopolist that faces competitive factor input markets and sets its price so as to maximize current profits assuming a log linear demand function and production function the model yields the result that the firm s long run optimal price policy in general is

price smoothing under capacity constraints this paper examines monopolistic pricing decisions under production and storage capacity constraints which firms may well encounter in practice but which have generally been ignored in earlier price inventory analyses if these capacity constraints are present they evidently influence firms pricing decisions these constraints should therefore be formally modelled for a more complete theory of price behavior the paper addresses the issue of whether or not inventories will lead to an asymmetry in price behavior amihud and mendelson 2 and reagan 15 have noted that inventory adjustments moderate downward price adjustments in periods of low demand but do not moderate upward price adjustments in periods of high demand when stockouts occur these analyses are in contrast to blinder 4 wherein a possible symmetric role of inventories and unfilled orders in dampening price adjustments is considered blinder argues that stockouts may not be empirically significant abel 1 observes however that casual empiricism may lead one to think that stockouts are rather

foreign debt accumulation financial and fiscal effects and monetary policy reactions in developing countries abstract this paper analyzes the effects of the current account of government and government guaranteed foreign debt on the one hand and net foreign liabilities or the cumulated current account deficit on the other hand in a sample of 26 developing countries while the cumulated current account deficit generates stabilizing forces pissibly through financial and wealth effects large amounts of government and government guaranteed debt produce destabilizing effects by stimulating capital flight i also find that monetary policy reactions are stabilizing in the case of the cumulated current account deficit but desstabilizing in the case of a build up of government and government guaranteed foreign debt jel f32 f34

local business taxes theory and practice local taxes which are borne by business are an aspect of local government revenue systems in almost all western countries these taxes cover a wide range of possible structures from the highly visible and direct such as taxes on business profits assets and wealth to the more indirect which bear on the inputs to a firm such as payroll property and resource rentals and severance taxes or taxes which bear on outputs such as sales taxes most local governments also employ in addition to taxes user fees and charges the range of local business tax is still further widened when we extend consideration beyond corporate business to include sole traders and partnerships in this case in addition to most of the above taxes we must also consider local taxes on personal income capital gains capital transfers and inheritance hence the range of taxes to be considered amongst local business taxes is both large and very complex

price versus production postponement capacity and competition this article presents a comparative analysis of possible postponement strategies in a two stage decision model where firms make three decisions capacity investment production inventory quantity and price typically investments are made while the demand curve is uncertain the strategies differ in the timing of the operational decisions relative to the realization of uncertainty we show how competition uncertainty and the timing of operational decisions influence the strategic investment decision of the firm and its value in contrast to production postponement price postponement makes the investment and production inventory decisions relatively insensitive to uncertainty this suggests that managers can make optimal capacity decisions by deterministic reasoning if they have some price flexibility under price postponement additional postponement of production has relatively small incremental value therefore it may be worthwhile to consider flexible ex post pricing before production postponement reengineering while more postponement increases firm value it is counterintuitive that this also makes the optimal capacity decision more sensitive to uncertainty we highlight the different impact of more timely information which leads to higher investment and inventories and of reduced demand uncertainty which decreases investment and inventories our analysis suggests appropriateness conditions for simple make to stock and make to order strategies we also present technical sufficiency and uniqueness conditions under price postponement these results extend to oligopolistic and perfect competition for which pure equilibria are derived interestingly the relative value of operational postponement techniques seems to increase as the industry becomes more competitive

cyclical price flexibility a test of administered pricing the study of cyclical price behavior has been a debate over the extent to which prices behave in a classical manner falling in recessions and rising in expansions at one extreme in this debate the proponents of administered prices state that in recessions administered prices tend to fall less than market dominated prices similarly since administered price does not fall as much in recession it rises less in recovery 8 p 292 some proponents 4 i 7 p ii have suggested a response lag in administered price industries resulting in countercyclical price behavior in these industries at the other extreme in this debate stigler and kindahl sk and annual data do not exactly test cyclical hypothesis rice i i used three concentration intervals and found little relation to the standard deviation of the percentage change in average annual prices he used both bls list price data and nber transactions price data his test is also biased against any cyclical hypotheses since business cycles are not annual phenomena if the relation between price changes and concentration is u shaped the concentration intervals selected will be crucial to any u shape test also a chi square test of this sort is weaker than the parametric tests which could have been used on the same data weiss investigated the relations between concentration percentage price changes and deviation from trend for the nber transactions price series over different stages of the business cycle using three concentration groups he found that in recessions prices in the least concentrated industries were more likely to fall both absolutely and relative to trend then other price series but there was no distinction between price behavior in the two most concentrated

inventories and sticky prices more on the microfoundations of macroeconomics the role of inventories in making prices sticky is studied by analyzing a dynamic linear quadratic model of a monopoly firm facing stochastic demand but able to store its finished goods in inventory it is shown that in contrast to the usual presumption firms that exhibit the smallest output responses to demand fluctuations may also exhibit the smallest price fluctuations specifically firms which have very flexible inventory storage facilities or are subjected to very transitory demand shocks will rely on inventories as buffers and will change neither production nor price very much on the other hand firms which have very inflexible storage facilities or whose demand shocks are quite permanent will display large swings in both price and output the standard assumption about inventory carrying costs that has been used in the literature that they are linear is shown to imply that production is impervious to fluctuations in demand it is also established that prices may respond more strongly to positive demand shocks than to negative ones if it is impossible to hold negative inventories i e to have unfilled orders the model offers an explanation for stickiness in relative prices however under certain circumstances it may help explain the persistence of inflation this abstract was borrowed from another version of this item

equilibrium adjustment with endogenous information and inventories the paper analyzes the interaction of information acquisition and inventory flexibility with industry adjustment to imperfectly perceived cost and demand disturbances improved information about disturbances reduces the extent to which disturbances are unperceived and dampens the use of inventories reduced inventory flexibility induces firms to devote more resources to acquiring information about disturbances the analysis demonstrates how equilibrium price and output adjustment depend endogenously on the degree of inventory flexibility and other structural parameters influencing the acquisition of information in this paper we analyze how endogenous information acquisition and inventory flexibility influence price and output adjustment in a competitive industry we focus on the potential substitutability of information acquisition for inventory flexibility when disturbances are imperfectly perceived by individual firms the analysis highlights the general issue of how market adjustment depends on structural parameters that influence agents incentives to acquire information there are several reasons why information acquisition may play a role in market adjustment first the rapid development of information technology has enabled firms to gather and process data relevant to production and sales decisions from a greater number of external and internal sources this trend has reduced the costs of forecasting and monitoring factors influencing production and demand conditions for the individual firm relative to those of its competitors as well as for the industry as a whole in particular it has permitted quicker awareness of changing customer demand as well as greater control of the flow of inputs and intermediate goods during the production process this implies that the resources devoted to information acquisition and processing have come to play an important role in firm decisions 2 second improved information about demand and cost conditions may affect the function of inventories inventory adjustment allows a firm s production costs to be smoothed in response to anticipated movements in demand and costs and to be buffered against unanticipated disturbances see ashley and orr 1985 thus

price rigidity inflation and market concentration some canadian evidence from the 1970s in the literature on industrial pricing there is a long standing dispute over the theoretical rationale for and the empirical validity of price rigidity briefly the arguments is that the speed of price adjustment is a function of market structure in competitive markets prices are flexible they adjust rapidly to supply and demand shocks but in oligopoly they can be relatively rigid they adjust only slowly if it all to these same shocks 1 but because the theoretical basis fot the rigidity hypothesis is decidedly ad hoc it is often summarily dismissed 2 empirically however a number of studies for various countries and time period have found relationship between concentration a proxy for oligopolistic market structure and price change and or some other measure of the speed of price adjustment compatible with price rigidity 3 although these result are not totally unambiguous 4 the canadian evidence at least prior to the 1970s strongly supports the rigidity hypothesis sellekaerts and l

price determination in a competitive industry with costly information and a production lag we analyze the role of information for price and output adjustment when competitive firms with rational expectations cannot directly distinguish between industrywide and firm specific cost disturbances firms may become informed about industrywide cost conditions by acquiring information at a cost the sensitivity of price and output to cost disturbances decreases as more firms choose to purchase information the equilibrium industry share of informed firms increases as the cost of information falls and total cost variability increases the equilibrium share of informed firms is largest when there is a comparable degree of variability in both industrywide and firm specific costs

integrating dynamic pricing and replenishment decisions under supply capacity uncertainty this paper examines an integrated decision making process regarding pricing for uncertain demand and sourcing from uncertain supply which are often studied separately in the literature our analysis of the integrated system suggests that the base stock list price policy fails to achieve optimality even under deterministic demand instead the optimal policy is characterized by two critical values a reorder point and a target safety stock under this policy a positive order is issued if and only if the inventory level is below the reorder point when this happens the optimal order and price are coordinated to achieve a constant target safety stock which aims at hedging the demand uncertainty we further investigate the profit improvement obtained from deploying dynamic pricing as opposed to static pricing our results indicate that either supply limit or supply uncertainty may induce a significant benefit from dynamic pricing and the compound effect of supply limit and uncertainty can be much more pronounced than the individual effects whether or not the supply capacity is limited has a major implication on the value of dynamic pricing under unlimited supply dynamic pricing is more valuable when procurement cost is high or when demand is more sensitive to price with limited supply however the capacity restriction tends to be relaxed reducing the value of dynamic pricing

hourly based greenhouse gas emissions of electricity cases demonstrating possibilities for households and companies to decrease their emissions abstract greenhouse gas emissions from electricity production are a crucial part of the environmental impact assessments of any kind of product service or consumption usually average annual emissions are used but lately there has been increased interest in the daily based and hourly based emission coefficients for electricity in such markets where the technology mix in the production process includes technologies with different emission factors there is potential for large variation in hourly based emission factors and consequently this offers potential for decreasing the emissions by real time based demand management however in real life the timing of electricity use in households and companies has restrictions in this paper we show illustrative household and company cases with realistic shifts in the timing of electricity use we determine hourly based emission factors and give examples of how emissions may be decreased in households and companies by changing usage patterns and consequently the timing of electricity use with the total amount of electricity consumed remaining unchanged the examples show decreases of emissions in the range 3 8 due to optimised timing indicating that there is important potential for managing hourly based demand loads and the resulting emissions even with realistic assumptions of the timing of consumption

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

price and output adjustment in a model with inventories econometric evidence from categorical in this paper we investigate the role of inventories in the adjustment process of prices and output in response to demand and cost shocks using the qualitative information contained in business surveys of u k firms the discussion is organized around a model based on the assumption of monopolistic competition and which permits a production smoothing role for inventories the econometric results suggest that the stock of inventories has no impact on output decisions the effect on pricing decisions is weak at best anticipated demands shocks are the main factor accounting for output changes while both cost and demand shocks are important determinants of prices coauthors are fabio schiantarelli jon breslaw and william low copyright 1993 by mit press

inventories rational expectations and economic activities abstract this paper examines the role of inventories when adjustments in output involve fixed employment costs such as hiring and training costs these costs force the firm to use inventories to stabilize output fluctuations contrary to the blinder fisher model unanticipated aggregate disturbances in the present model may have no subsequent impacts on the economy the exchange between mccallum and blinder frydman are also discussed in this context