nonlinear dynamics in deviations from the law of one price a broad based empirical study abstract in this paper we test empirically the validity of the law of one price using data for five major bilateral us dollar exchange rates and nine goods sectors during the recent floating exchange rate regime since the early 1970s using threshold autoregressive models we find strong evidence of nonlinear mean reversion in deviations from the law of one price with plausible convergence speeds consistent with theoretical arguments on international goods markets arbitrage under transactions costs and with an emerging strand of empirical literature these results contribute towards forming a consensus view in favor of discrete regime switching in deviations from the law of one price and the presence of differing nonzero transactions costs across a broad range of goods and countries

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

testing for market power in multi product industries across multiple export markets a large body of theoretical literature has developed in the past 15 years incorporating various models of imperfect competition into international trade theory empirical work testing for imperfect competition in export markets however has been much more limited in particular the empirical evidence in support of widespread imperfect competition in u s export and import sectors is somewhat scant and mixed 2 one technique for assessing the existence of market power in export markets has been developed by knetter 33 who estimated a reduced form single equation in which the export price to a specific market for a good was a function of the exchange rate a country specific dummy variable and a time dummy knetter rejected the null hypothesis of perfectly competitive markets in nearly all of the u s and german export markets studied 3 his methodology has been adopted by other researchers who have rejected the perfect competition hypothesis in other u s export markets 4

demand for local public spending evidence from the british social attitudes survey the british social attitudes survey bsas is a uk wide survey that provides a rich source of information on individuals attitudes to a variety of topics including locally provided service in this paper we seek to model answers to questions on attitudes to local authority spending which invite the expression of a private demand for local public spending a convincing picture has emerged of locally provided public goods as imperfectly congested public goods with a price elastic and probably income inelastic demand the view that central government grants may induce voter confusion over tax prices of public services also finds support

a dynamic model of voter behavior and the demand for public goods among social groups in great britain abstract a dynamic model of voter behavior is discussed explaining transitions in party choice by imputed party responsibilities with respect to public and private consumption possibilities the model uses a group framework to explicitly describe voter interests it allows for an estimation of the relative preference for public goods as determined by the revealed preference mechanism of voting the model is compared to popularity functions in their general form an empirical application to great britain is presented it appears that retired individuals have the highest relative preferences for public goods followed by housewives men manual workers self employed and non manual workers

exchange rates and prices the adjustment of relative prices to exchange rate movements is explained in an industrial organization approach given labor costs in the respective currencies exchange rate movements change costs for firms selling in the home market and thus disturb the industry equilibrium the extent of absolute and relative price adjustment is shown to depend on market integration product substitutability the relative number of domestic and foreign firms and the market structure the impact of exchange rates on prices is illustrated in a variety of approaches including the cournot a dixit and j stiglitz 1977 and s salop 1979 models some empirical evidence is offered in support of the theory copyright 1987 by american economic association

tariffs quotas and terms of trade the case of new zealand abstract this paper reports quantitative information on the effects of tariffs and quotas on prices of individual goods the analyses uses the natural experiment provided by a comprehensive unilateral trade policy reform in new zealand to examine the response of foreign exporters to an incident of liberalisation that is unique in the developed world the price effects of tariffs and quotas are estimated using a multidestination 7 digit longitudinal product level dataset on export values and quantities the effects are found to be by no means equivalent whereas tariffs display no significant effect the impact that quantitative restrictions have on the terms of trade of the country that imposes them are unequivocally detrimental and quantitatively important

price discrimination by u s and german exporters the insensitivity of the u s trade balance to the sharp depreciation of the dollar in the past three years has revived interest in the relationship between exchange rates and the trade balance a central issue in most analyses of the relation between the current account and the exchange rate concerns the price adjustment process the simple integrated competitive market model predicts that local currency prices should change in proportion to the nominal exchange rate for a country too small to influence world prices the relationship between local currency import prices and exchange rates has been referred to as the pass through relationship in the empirical literature in international economics if the proportional relationship between import prices and exchange rates holds pass through is said to be complete accounts of recent u s experience cite the failure of dollar prices of imported goods to rise in proportion to exchange rates i e incomplete pass through as an important factor in explaining the persistence of the trade deficit unfortunately observations on pass through alone provide limited insight into the behavior of markets since incomplete pass through is consistent with at least two fundamentally different paradigms one is the standard competitive model of trade in which the law of one price holds but exchange rate fluctuations are associated with large changes in import demand due to other factors for example if dollar appreciation is correlated with increases in world demand and industry marginal cost is increasing then pass through will be less than complete the other is an imperfectly competitive model in which exporters are capable of price discriminating across destination markets a phenomenon paul krugman 1987 has labeled pricing to market in this model incomplete pass through is typically associated with fluctuations in the markup of price over marginal cost on exports 2 these fluctuations in markups are believed to be countryspecific they do not reflect the behavior of prices to other export destinations both models are plausible explanations of recent u s experience unfortunately it is impossible to distinguish between these competing models using only information on import prices and exchange rates for a single country in order to distinguish between the competing models an empirical analysis of goods prices and exchange rates must be capable of measuring either marginal cost or the markup over marginal cost either of these tasks poses formidable empirical problems much of the empirical literature in industrial organization has been concerned with precisely these issues since markups are an important measure of the competitiveness of industries

efficiency effects of exclusive territories evidence from the indiana beer market the welfare effects of vertically imposed exclusive territories and the appropriate antitrust policy toward them have long been debated this paper sheds light on the exclusive territory controversy by examing the effects of indiana s 1979 ban on the grant of exclusive territories to beer wholesalers using time series data for 1948 1990 we find the ban reduced beer consumption in indiana by 6 percent coupled with previous evidence that indiana s ban reduced price our results suggest that exclusive territories in the beer industry increase demand and enhance welfare by stimulating the provision of dealer services

deterring fraud the role of resale price maintenance the economics of fraud like the economics of information itself enjoys a limited but growing literature while economists since alfred marshall have recognized the importance of brand name capital and reputation in protecting consumers against fraud marshall 1949 4 xi only recently has the profession been able to build rigorous models for analyzing market transactions in which the quality of traded goods is subject to uncertainty and deception in a pioneering paper george akerlof 1970 presented a model in which buyer skepticism about the quality of privately offered used cars becomes so intense that all potential sellers of nonlemon used cars are driven from the market leaving it entirely populated with lemons as analyzed by michael spence 1973 this phenomenon may occur because nonlemon owners lack adequate signaling mechanisms specifically an effective signal would be an activity or characterusing a model like that of klein and leffler s we demonstrate theoretically that a manufacturer s desire to signal relative quality differences by relative retail price differences may be thwarted by the misleading markups of independent retailers resale price maintenance is one instrument that a manufacturer can use to avoid this problem we present empirical evidence from a recent antitrust case in which forcing a manufacturer to drop resale price maintenance did lead to misleading and also higher markups

did the strong dollar increase competition in u s product markets sunk cost models of new trade theory have demonstrated that large unanticipated swings in currency values can have permanent effects on trade flows by altering market structure in imperfectly competitive markets the author tests an implication of these models using panel data on export unit values from germany and japan to a number of foreign markets including the united states he finds weak evidence in support of the thesis that u s product markets became more competitive as a result of the large dollar appreciation of the 1980s although the results vary by industry and comparison country copyright 1994 by mit press

revealed preferences for public goods applying a model of voter behavior most analyses of preferences for government supplied goods disregard the fact that in a democratic society these preferences are revealed by an individual choice the vote in this paper this is taken account of in a model explaining the dynamics in voting behavior in a multi party system the model assumes that voters may be categorized into k groups of individuals pursuing the same interests who remember how parties do in representing these interests given the level to which they are held responsible for government policy the model allows one to estimate party identification sensitiveness to economic performances time preference and relative preferences for public versus private goods all for each of the groups furthermore the model allows for an estimation of the level to which various parties are held responsible for government policies

public goods an exercise in calibration this paper considers a measure of the publicness of goods and services implicit in responses that individuals make when asked about public sector spending at the limit all consumers consume equal amounts of a public good thus any differences between an individual s self interest preferences and public interest preferences cannot be based on differential provision but only on differences in the individual s public and self interest utility functions if we rule out the latter self interest and public interest preferences for a pure public good are identical using sample survey data it is possible to calibrate the public good content of different public goods

the services explanation for resale price maintenance deleterious results missed in the economics literature and in legal decisions acknowledgment we thank the participants of the economic policy and enforcement branch seminar series in particular alan gunderson patrick hughes and dennis lu the participants of the 2011 canadian economic association meeting especially patrick rey the participants of the 2011 international industrial organization conference for their feedback and the anonymous referees who provided valuable and detailed comments in an earlier draft the authors take responsibility for all remaining errors the views and opinions presented in this article do not necessarily represent those of the canadian competition bureau 1 introductionantitrust policy and court decisions toward resale price maintenance rpm have been influenced by literature that either emphasizes efficiency arguments or portrays rpm as a mechanism that may enable anticompetitive behavior such as collusion or exclusion as the portraying goes it is not rpm that should be abolished rather it is the anticompetitive behavior that must be eradicated however our analysis shows that rpm can indeed be a more socially harmful vertical restraint than has been recognized in the literature in our model rpm is a unilateral practice in isolation that is it is not an element of any illegal or legal strategic interaction among market participants those efficiency enhancing influential ideas are manifest in the 2007 u s supreme court ruling leegin 1 in the legal context 2 since leegin rpm is no longer a per se antitrust violation it is our concern that this current apparent legal leniency toward rpm stretches too far in light of the results of our model it is advisable that antitrust agencies remain vigilant against potentially harmful rpm practices even when apparently used in the way described by telser 1960 we focus on the presales services that inform consumers about the true value of a product prepurchase 3 which provides the single standard for measuring welfare we model optimizing behavior of retailers leading to zero profit no rents equilibrium with an endogenous wholesale price our post rpm demand need not be and in fact is not value in use it is the expected value in use with greater information this distinction is crucial for exposing flaws in some literature that unfortunately have had pivotal impacts on policy and court decisions 4 this has been unnoticed even by prominent dissenting authors 2 related literatureour departing point is telser s 1960 free riding rationale for rpm when manufacturers want retailers to offer demand stimulating services to consumers but telser does not evaluate the implications of vertical restraints for economic efficiency which is the object of bork 1966 who contends that restrictions on output are anticompetitive and that increases in output are procompetitive therefore bork concludes all restraints imposed by manufacturers must be efficiency enhancing and procompetitive because manufacturers would not find it profitable to impose vertical restraints when consumers did not value the services at least as much as their incremental cost bork s analysis is afflicted with what dixit and norman 1978 show is a double standard problem as we shall explain additionally his argument depends on all consumers valuing services by the same amount comanor 1985 and scherer 1983 using all but one of bork s assumptions come to a different conclusion if some inframarginal consumers value services at vi and marginal consumers value services at vm and vi vm then when manufacturers gain and provide rpm one may have a decrease in consumer surplus and total welfare as well thus comanor 1985 p 998 says there is no basis on which to conclude that vertical restraints will always enhance economic efficiency

the limits of antitrust the author argues that the inhospitality tradition in antitrust has serious costs and causes judges to reject economically beneficial business practices he also contends that the main alternative to the inhospitality tradition the rule of reason enunciated by the supreme court does not provide useful guidance to judges in antitrust because it is completely open ended and provides no assistance in determining how to weigh the relevant factors he then proposes his own alternative approach error cost framework to deciding anti trust cases specifically he suggests that judges should mimic the approach taken by economists and deploy a series of presumptions or filters to guide their inquiry the author believes this would make it easier for businesses to plan their affairs and also reduce litigation costs

a theory of channel price promotions manufacturers can stimulate sales by a temporary wholesale price reduction for the retailer a rebate directed toward consumers or a combination of both the trade offs between these price promotions are analyzed providing insights about their roles profitability and welfare properties retailers rebates are also studied while price discrimination is a common explanation for rebates to consumers when a product is sold through a distribution channel the manufacturer may also use rebates to motivate retail participation in the promotion this explains why rebates may be offered even when all consumers use them and price discrimination does not occur copyright 1991 by american economic association

efficiencies without economists the early years of resale price maintenance resale price maintenance rpm continues to be a contentious topic both in economics and in antitrust during the 1980s economists derived new efficiency motivations for rpm while the supreme court reaffirmed the decades old per se ban on its use and congress threatened to extend that ban in the 1990s after several years of federal inactivity during the reagan administration the federal trade commission ftc has once again begun bringing rpm cases while economists have proposed a number of different efficiency explanations for rpm such theorizing has been performed largely without the help of businesses that actually use rpm with little practical evidence such hypotheses have been subject to substantial criticism of course since rpm has been per se illegal businesses may be reluctant to admit that they are engaged in the practice which would appear to be a necessary condition for generating an efficiency defense this article seeks to find out why businesses may believe that they benefit from rpm it does so by examining which efficiency rationales were advanced by firms during a critical time for rpm in the united states 1915 to 1917 these rationales drawn largely from previously unexplored materials are then examined in the light of current economic theory there are two basic sources for these rationales the first is three hearings on rpm held in 1915 1916 and 1917 in the u s house of representatives on a bill to legalize certain forms of rpm the second is the transcript of seven days of hearings the ftc held in 1917 to discuss efficiency motivations for rpm section ii explains several economic theories that have been posited for rpm and briefly discusses the critiques of these theories that have arisen in the legal and economic communities section iii examines federal rpm case law prior to 1918 and posits efficiency rationales from section ii to match the products involved in the case law section iii also discusses the uncertainty in the case law during the period 1908 to 1917 and the concepts behind the various judicial decisions section iv presents the efficiency arguments made during this period of legal uncertainty

an economic theory of the open shop trade union there has been significant interest recently both in the empirical investigation of the determinants of trade union membership in the u k and elsewhere and in the theoretical analysis of the economic effects of the closed shop trade union however there is little rigorous microeconomic explanation of union membership which is relevant for much of the u k and similar labour markets where the open shop union is prevalent this paper attempts to overcome the free rider problem of explaining union membership in the open shop we argue that both private pecuniary gains and social influences affect the individuals union membership decisions citing evidence in support of these basic assumptions we show that stable intermediate union density is a possible equilibrium outcome in a generalised social custom model we also analyse the simultaneous determination of wages and union membership deriving a number of comparative static results in particular we find that both wages and union density depend upon inter alia the level of strike pay the net cost of union membership and the individual s sensitivity to social custom and associated solidarity effects we argue that the approach is consistent with various stylised facts concerning both wage bargaining and union membership and is able to explain a number of otherwise puzzling features of union membership

the nonexcludable publicness of primary and secondary public education abstract existing theoretical models of education as with most practical applications of public good theory suggest some form of joint public private financing empirical work has only rarely addressed these theoretical considerations employing individual level observations we model and estimate the private and social demands for public education in a community an ordered probit model with known thresholds is used to obtain unique parameter estimates the individual private and social demands are then employed to construct a measure of the publicness of education at various quantities

the impact of congestion on local public good production abstract this paper models local public goods production where allocation of the publicly provided input occurs simultaneously with production of the final service output the framework models local public goods as developed in club theory where congestion is an increasing function of population central to identification of the model is that the quantities of the input police are differentiated from the produced output safety estimation is across neighborhoods within a single city the results show there is a very low elasticity of congestion on average but safety in some neighborhoods in more congested than private goods

what should government do problems of social cost externalities and all that public choice as a field introduced the framework for a methodical economic analysis of political markets the output of these markets of course is reflected by the role that government plays that is specifically true with respect to the organization of economic activity gordon tullock has studied a myriad of aspects of this topic for more than half a century we examine his answers to the question of what should government do and how they have influenced and are still impacting the discussion on the proper role of government in the economy

per capita public expenditures and population size a non parametric analysis using french data based on the median voter model we specify a flexible general framework of the effect of municipality size on per capita public expenditures previous literature has recognized that municipality size should have a non linear effect on the quality of public goods provision and to this end different papers have applied a range of alternative parametric specifications using a very large sample of french communes we are able to estimate the effect of municipality size semi parametrically in contrast with the parametric specifications we find evidence of the u shaped relationship between per capita public expenditures and population which is predicted by theory