inventories and upstream gasoline price dynamics abstract this paper sheds new light on the asymmetric dynamics in upstream u s gasoline prices the model is based on pindyck s inventory model of commodity price dynamics we show that asymmetry in gasoline price dynamics is caused by changes in the net marginal convenience yield higher costs of marketing and storage lead to rising gasoline prices whereas a drop in these costs lowers gasoline prices the former effect is stronger this indicates asymmetric dynamics we also analyze the asymmetry across the sample by analyzing recursive and rolling regressions

rent shifting export subsidies with an imported intermediate product abstract this paper examines the implications of foreign or domestic imperfect competition in intermediate goods supply for strategic trade policy assuming cournot competition an export subsidy aimed at shifting rents from foreign to domestic final good producers may also shift rents to foreign suppliers weakening the incentive for the subsidy however the incentive for a subsidy tends to increase if the intermediate good industry is purely domestic or if the industry is purely foreign but the subsidy reduces the price of the imported input alternative rent shifting policies a production subsidy and an import tariff applied to the input are also considered

trade and protection in vertically related markets abstract we consider home country tariff and subsidy policies in a setting where a home firm is partially dependent on a foreign vertically integrated firm for supplies of a key input the firms are cournot competitors in the home market for the final product we show that a tariff on final product imports may cause the foreign vertically integrated firm to reduce the price charged for the input under circumstances where a simple monopoly supplier of the input would increase its price supply conditions for the input significantly affect whether imports of the input should be taxed or subsidized

backfiring tariffs in vertically related markets abstract this paper examines the effects on the domestic economy of domestic tariffs imposed on an intermediate good or a final good in vertically related markets which are characterized by cournot oligopolies tariffs could lead a foreign firm to enter or exit from the domestic final good market some of our results are counter intuitive it is particularly shown that tariffs on the intermediate good which induce the entry could harm domestic intermediate good producers and or benefit domestic final good producers and that tariffs on the final good which induce the exit could harm both domestic intermediate good and final good producers

diffusion of renewable energy technologies in developing countries a case study of biogas engines in india abstract this paper presents a case study of promoting biogas engines in india using an analytic framework involving i characteristics of the technology ii characteristics of the users iii macro environment iv role of government and other organizations and v structure of the market the case study shows that although the technology was economic from the viewpoint of society it was not adopted by the farmers on a large scale due to the unfavorable macro environment created by the government and because of an inappropriate pricing policy by the manufacturer

equilibrium valuation of natural resources the purpose of this paper is to provide a theoretical investigation of equilibrium spot and futures price behavior in a nonrenewable commodity market the underlying commodity is nonrenewable in the sense that the reserve level of the commodity is expected to decline over time in the absence of successful discoveries of additional reserves i wish to understand how the nonrenewable nature of the commodity influences the intertemporal extraction of the commodity equilibrium spot price behavior and the prices of derivative assets traded on the nonrenewable commodity there is considerable disagreement among economists whether resources are exhaustible in the sense of resource constraints becoming binding on our society in the foreseeable future some economists have argued that natural resources are being depleted at

stochastic convenience yield and the pricing of oil contingent claims this paper develops and empirically tests a two factor model for pricing financial and real assets contingent on the price of oil the factors are the spot price of oil and the instantaneous convenience yield the parameters of the model are estimated using weekly oil futures contract prices from january 1984 to november 1988 and the model s performance is assessed out of sample by valuing futures contracts over the period november 1988 to may 1989 finally the model is applied to determine the present values of one barrel of oil deliverable in one to ten years time

factor demand models with nonlinear short run fluctuations abstract this paper considers asymmetric costs of adjustment that propagate nonlinear shortrun fluctuations in stochastic factor demand systems the model endogenously generates asymmetric cyclical demand for capital and labour between peaks and troughs of the business cycle the empirical analysis of the model is based on quarterly time series data of the dutch manufacturing sector for the period 1971 i 1984 iv and annual time series data of the u k manufacturing sector for the period 1955 1986 i find important differences of adjustment speed of capital and labour inputs between expansionary and contractionary phases of the business cycle

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

scale economies and over capitalization in japanese electric utilities this paper presents empirical evidence on scale economies and overcapitalization in japanese electric utilities we employ the short run equilibrium model in which the variable cost function treats capital stock as a quasi fixed factor we specify the variable cost function as a translog form and estimate it using panel data of nine japanese electric utility firms during the period 1981 to 1985 our results show that eight of the nine firms experience scale economies in the short run but diseconomies in the long run and that seven firms significantly over capitalize as expected by the averch johnson effect

on the optimality of the full cost pricing abstract this article is aimed at defining the full cost pricing as a leader follower game in two tier organizations i the upstream unit fixes the production capacity and uses it as a cost driver to compute the average cost ii the downstream unit operates on the market and chooses the output level on the basis of the average cost in the cournot oligopoly case the full cost pricing is compared with other pricing rules there exists a wide range of values of the fixed cost for which the full cost pricing dominates any other pricing rules in terms of gross profit

diffusion of rural innovations some analytical issues and the case of wood burning stoves abstract the literature on the diffusion of rural innovations in third world countries reveals a spectrum of approaches to the diffusion process it is argued here that the effectiveness of a particular approach in the diffusion of particular innovations would depend on the technical the economic and the social characteristics of the innovations a typology of innovations in terms of these characteristics has been drawn up this provides the analytical framework within which the instance of wood burning stoves is concerned a priori the characteristics of this innovation are seen to be such as to necessitate the close involvement of the users in the design process itself they point to the likely inappropriateness of the usual top down approach to diffusion available evidence relating to actual experience with promoting wood burning stoves is seen to bear this out

dynamic efficiency estimation the shadow cost approach is developed in the context of the dynamic duality model of intertemporal decision making to formulate theoretical and econometric models of dynamic efficiency the dynamic efficiency model is applied to a panel of 72 u s major investor owned electric utilities using fossil fuel fired steam electric power generation over the period 1986 1999 the major results show that most electric utilities underutilized fuel relative to the aggregated labor and the maintenance input and overutilized capital in production states adopting a deregulation plan improve the performance of utilities in terms of the technical efficiency of variable inputs

technological choices and regulation the case of the canadian manufacturing sectors the economic environment in which canadian manufacturing firms operate has changed substantially over the last 40 years technological changes new regulations deregulation and exogenous economic shocks all have been important aspects of this economic environment in this article we show how to include such changes in the economic environment faced by the firms in a behavioural model that includes the investment decision of the firm under uncertainty assumptions regarding the expectation formation process and technology are kept minimal we estimate the effects of innovations such as the free trade agreement the foreign investment review agency and the federal environmental policy on the economic decisions of fifteen canadian manufacturing sectors jel classification d24 choix de technologies et reglementation le cas des secteurs manufacturiers canadiens au cours des 40 dernieres annees l environnement economique des firmes manufacturieres canadiennes s est grandement transforme que ce soit a cause du changement technologique de la reglementation de vagues de dereglementation ou de chocs economiques exogenes les firmes ont du s adapter en modifiant leur technologie dans cet article nous montrons comment prendre en compte les changements de l environnement economique des firmes dans le cadre d un modele decisionnel de la firme en incertitude avec investissement les hypotheses concernant la technologie et les anticipations sont aussi generales que possible nous estimons l effet qu ont eu l accord de libre echange l agence de tamisage des investissements etrangers et la politique environnementale federale sur les choix de technologies des firmes de quinze secteurs manufacturiers canadiens

measuring economic welfare is theory a cookbook for empirical analysis welfare economics is first and foremost a policy science in his classic treatise a k sen says welfare economics is concerned with policy recommendations gunnar myrdal in discussing the economist and the politician proposes that the politician may reasonably expect from the economist that he should explain the actual situation and state the effects of different modes of action in relation to the same initial situation empirical welfare economics should provide guidance to policy makers in evaluating actual policies in real markets using available data and reasonable methods real markets are characterized by multimarket spillovers dynamic responses to economic policy uncertainty and incomplete market structures while theoretical models

the arm s length principle and tacit collusion the arm s length principle states that the transfer price between two associated enterprises should be the price that would be paid for similar goods in similar circumstances by unrelated parties dealing at arm s length with each other this paper examines the effect of the arm s length principle on dynamic competition in two alternative models of vertical market structure it is shown that the arm s length principle renders tacit collusion more stable and can reduce welfare when collusion targets the maximum collusive profit achievable in each environment

the intertemporal dimension of neoclassical production theory abstract the aim of this survey paper is to provide a guide to the literature on optimal dynamic factor demands to the non specialist reader interested in applied work we start with the distinction between variable and quasi fixed factors of production and use these to characterize the firm s temporary equilibrium we then review the optimal intertemporal behaviour of the firm using the notion of adjustment costs as a means to solve the firm s optimization problem this process gives rise to a system of interrelated dynamic factor demands in a flexible accelerator format theoretical difficulties and empirical limitations of this model are discussed this fact leads us to review the theory of intertemporal duality we next analyze the issue of expectations in this class of dynamic models a section reviewing the empirical work on dynamic factor demands follows after which we offer some concluding remarks

inventories under joint production an empirical analysis of petroleum refining this study examines the determinants of inventory investment under joint production we simultaneously estimate a set of optimal sales relations variable input demands and a set of euler equations for capital and inventories of raw materials work in process and final products in the petroleum refining industry the euler conditions provide a model for the convenience yield discussed in the returns to storage literature the cost savings from holding inventories and expected changes in marginal production costs are important components of the convenience yield we also find significant cost and stock interactions that may affect short run price and inventory dynamics in petroleum product markets

sources of innovation in agricultural technology abstract this paper focuses attention on environmental and biological characteristics of agriculture which shape the process of technical innovation the interaction of natural selection and human purposive selection and experimentation is shown to result in a continuous process of innovation placing farmers in the informal r and d systems as well as scientists in formal r and d systems in an innovative treadmill the importance and limitations of informal r and d are reviewed a discussion of the characteristics and potential of formal r and d systems leads to the identification of some major problems of policy inherent in and specific to the organization and management of agricultural research resources these include genetic vulnerability choices between environmentally specific or widely adapted technologies the location of research activity the linkages between agricultural producers and scientists and methods for maintaining and strengthening informal r and d systems

quasi fixed inputs in u s and japanese manufacturing a generalized leontief restricted cost function approach in this paper a generalized leontief variable cost function is develope d which permits analytical derivation of steady state levels of quasi fixed inputs and capacity output and does not require specification of a numeraire input this framework is then used to evaluate the fa ctor demand patterns of japanese and u s manufacturing based on bot h one quasi fixed capital input and two quasi fixed capital and la bor input specifications and both static and dynamic optimization t he findings provide evidence of considerable flexibility of demand re sponses in japan which may have contributed to japan s relatively st rong economic performance in the volatile 1970s copyright 1988 by mit press

dynamic factor demand equations in u s and canadian agriculture abstract this research provides one of the first empirical estimates of a data based dynamic factor demand model for american and canadian agriculture models such as these deserve more widespread use in the empirical analysis of agriculture these models have the advantage that they do not impose inappropriate dynamics on the data rather they permit the data to select the appropriate dynamics we use a model originally developed by anderson and blundell this model is a general first order dynamic model which contains as testable hypothesis several simpler models this model permits us to estimate the long run agricultural production structure as a subset of the dynamic parameter estimates we will test this long run structure for symmetry homotheticity and neutral technical change the estimated models may be used to test for three alternative dynamic structures in the limit dynamics may not be needed and we can test for the static long run equilibrium model two intermediate cases are the autoregressive and the partial adjustment models which are simpler than the general model but still include dynamics our results suggest that the long run equilibrium model is unsatisfactory in both countries a dynamic model is needed in both countries the two more restricted dynamic models are rejected the general dynamic model is required in canada the long run equilibrium structure is homothetic with neutral technical change in the united states homotheticity is also accepted but neutral technical change is rejected

productivity growth in u s agriculture under dynamic adjustment a dynamic measure of productivity growth adjusted for deviations from the long run equilibrium is established within an adjustment cost framework an empirical application to u s agriculture is presented which permits identifying the dynamic linkages between technical change and productivity growth in u s agriculture total factor productivity as dynamically measured grew at 1 50 per annum the combined effect of scale quality adjusted input growth and long run disequilibrium input use contributes only 3 44 of the growth while technical change dominates the growth of total factor productivity

a test of the theory of exhaustible resources an empirical test of the theory of exhaustible resources requires an estimate of the time path of the shadow price of the unextracted resource that generally is not observable because of the prevalence of vertical integration in natural resource industries in this paper we use duality theory to derive an econometric model that provides a statistical test of the theory of exhaustible resources a restricted cost function is used to obtain estimates of the shadow prices of unextracted resources the procedure is illustrated with data for the canadian metal mining industry for this industry the empirical implications of the theory of exhaustible resources are strongly rejected

the production and inventory behavior of the american automobile industry understanding inventory movements is central to an understanding of business cycles this paper presents an empirical study of the behavior of inventories in the automobile industry it finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations the underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory thelatter being a function of current sales given this cost structure whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process in the automobile industry inventory behavior is destabilizing the variance of production is larger than the variance of sales

real flexibility and financial structure an empirical analysis i examine the empirical relation between real flexibility and financial structure i test whether real flexibility increases debt capacity by lowering default risk and making assets more marketable or decreases debt capacity by facilitating risk shifting and asset substitution i measure real flexibility as the sensitivity of marginal production and investment decisions to variations in the economic environment i find that financial leverage is negatively related to production flexibility but positively related to investment flexibility this split in results suggests that although asset substitution facilitated by investment flexibility can be prevented contractually risk shifting facilitated by production flexibility is intractable copyright 2003 oxford university press

recursive factor of production interrelations and endogenous cycling a multivariate linear rational expectations equilibrium version of the lucas prescott investment model is developed to study the behavior of factors of productions with recursive interrelations the connection between these interrelations and endogenous cycling is established in a testable way maximum likelihood estimates using annual postwar aggregate u s manufacturing data provide strong evidence of capital labor interrelations that induce a labor overshooting type of endogenous cycling this raises questions for the methodology of current real business cycle models which rule out the possibility of such interrelations copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

observable contracts strategic delegation and cooperation the role of commitments in noncooperative games is well acknowledged and documented one way to achieve commitments is by letting delegates represent the players of a game in this paper the authors study a delegation game in which the players can use agents strategically to play on their behalf and the contracts they sign with them are common knowledge they show that in such cases every pareto optimal outcome of the game can become the unique subgame perfect nash equilibrium of the delegation game the authors demonstrate this result by discussing the cournot type duopolistic game copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

manufacturing stocks and forward looking expectations in the uk this paper derives a model of the stocks plan based on optimal behavior by the firm when facing adjustment costs with forward looking expectations formation estimates of the model are reported for manufacturing using three alternative expectations mechanisms for determining expected sales time series published forecasts derived from national institute published forecasts and rational expectations the latter uses a submodel dependent on weakly exogenous variables single equation and whole model comparisons are made of the stocks equation estimated with forward expectations versus a traditional backward looking model these favor the forward looking model copyright 1986 by the review of economic studies limited

an incentive compatible approach to the transfer pricing problem abstract this paper offers an alternative approach to regulating certain types of transfer pricing if the multinational enterprise s transfer price decision is not regulated it will manipulate the transfer price in order to maximize net global profit traditional approaches argue for ad hoc penalty schedules to mitigate manipulative transfer pricing in contrast this paper offers an incentive compatible approach which explicitly incorporates the informational asymmetries that encourage misreports the model has the desirous feature that the optimal regulatory policy has self enforcing properties that is the firm will find it profit maximizing to report true costs

testing the efficiency of extraction from a stock resource the theoretical conditions for efficient extraction from a known stock resource by a competitive mining firm are reviewed these conditions are tested using proprietary data from a mining firm output price data and coefficient estimates from a translog cost system are used to compute the in situ value of the resource and the stock effect changes in the in situ value over time are then statistically compared with the expected price path the results reject the hypothesis that the data are consistent with the theoretical model and the maintained hypotheses variations of the basic model that incorporate a time varying discount rate an alternative expected price series and a constraint on the rate of output are also tested and rejected 46 references 10 tables

the pricing of oil and gas some further results the hotelling valuation principle hvp implies that the unit value of an exhaustible natural resource can be written as a function of its current price net of extraction costs other variables such as interest rates have no additional explanatory power the results of earlier tests using data from 1979 1981 strongly support the hvp this paper presents a series of follow up tests using time series cross section data covering the period august 1981 to december 1983 because the variance of petroleum prices in this period was substantially less than in the earlier period the follow up sample proved generally noninformative the sample also contains some observations on oil and gas royalty trusts tests of the hvp using these trust data yielded generally satisfactory results although given the limited sample size the results must be viewed with caution the purpose of this paper is to present follow up tests of the hotelling valuation principle hvp for exhaustible resources the hvp and the earlier tests are described in detail in an earlier paper miller and upton 5 and we will limit ourselves here to a brief summary the principle that the unit price of an exhaustible natural resource less the marginal cost of extraction will tend to rise at the rate of interest was first stated by harold hotelling 2 it follows from intertemporal profit maximization on the part of a price taking owner of an exhaustible natural resource if the unit price of resources net of extraction costs is expected to rise by less than the rate of interest why not extract it now and if it will rise by more why extract any today the hotelling principle has become the standard paradigm for natural resource economics although perhaps more from the absence of any viable alternative than from strong empirical validation earlier tests of the hotelling principle generally based on time series of resource prices have yet to provide convincing support

dynamic and static behaviour with respect to energy use and investment of dutch greenhouse firms dutch greenhouse horticulture firms are energy intensive and major emitters of greenhouse gases this paper develops a theoretically consistent model that is able to describe the greenhouse firms behaviour regarding energy use and investments in energy technology the behaviour of the firm is modelled using a combination of a dynamic cost function and a static profit function framework the optimal quantity of energy is derived from the link between these two functions the model is applied to a panel of 97 dutch greenhouse firms over the period 2001 2008 the results show that most dutch greenhouse firms shift from being net electricity users to net electricity producers in the long term investing in energy capital contributes to reducing net energy use however it increases the quantity of carbon dioxide emissions due to an increase in electricity production a 1 increase of the price of gas reduces carbon dioxide emissions by 1 6

review of barriers to the dissemination of decentralized renewable energy systems abstract this paper reviews the available literature dealing with the barriers to the dissemination of decentralized renewable energy systems decentralized renewable energy systems may face a range of technical economic institutional socio cultural and environmental barrier to their dissemination in the paper barriers impeding the dissemination of decentralized renewable energy systems have been identified and assessed in addition appropriate remedial measures and corresponding responsibility centers as reported in the literature have also been discussed inappropriateness of technology unavailability of skilled manpower for maintenance unavailability of spare parts high cost lack of access to credit poor purchasing power and other spending priorities unfair energy pricing lack of information or awareness and lack of adequate training on operation and maintenance of decentralized renewable energy systems are found to be the most critical barriers long term conducive policies appropriate regulatory framework financial incentives capital subsidies and soft loans to users technology and skill development internalization of externalities in the cost of energy withdrawal of subsidies presently being given to fossil fuels development of specialized institutions cooperation with international agencies participation of local community and awareness generation have been recommended for increased dissemination of decentralized renewable energy systems

an operational profit sharing and transfer pricing model for network manufacturing companies abstract new age companies are forging partnerships with other firms to market products that have been assembled through manufacturing activities distributed at different locations these locations belong to more than one company and the product passes through these different sites during its manufacturing stages this manufacturing collaboration is known as network manufacturing according to the network philosophy companies form alliances to manufacture a product and share in its operating profits this paper proposes a framework and methodology for profit sharing and transfer pricing between network companies we propose a paradigm that enables maximization of operating profits by the manufacturing network in its larger supply chain suggesting a departure from the model that maximizes profits for the individual company within the sphere of its own supply chain

primal and dual dynamic luenberger productivity indicators abstract this paper develops primal and dual versions of the dynamic luenberger productivity growth measures that are based on the dynamic directional distance function and intertemporal cost minimization respectively the empirical application focuses on panel data of dutch dairy farms over the period 1995 2005 primal dynamic luenberger productivity growth averages 1 5 percent annually in the period under investigation with technical change being the main driver of annual change dual dynamic luenberger productivity growth is 0 1 percent in the same period improvements in technical inefficiency and technical change are partly counteracted by deteriorations of allocative inefficiency with large dairy farms presenting a slightly higher productivity growth than small dairy farms

decentralization and transfer pricing under oligopoly this paper presents a simple model of a partially decentralized multinational firm mnf in competition with a rival firm it is shown that transfer pricing can be used as a rent shifting device by the mnf to compete with the rival this arises because the mnf headquarters uses the transfer price to manage different subsidiaries the specific value of the transfer price chosen by the mnf depends on whether the rival firm produces the intermediate good the final good or both and whether the rival is integrated or not in particular both decentralization and competition with a fully integrated rival result in lower transfer prices

intertemporal price indices for the firm abstract a notion of intertemporal price aggregation is analysed within the adjustment cost model of the firm and is shown to be feasible precisely for those technologies which imply an accelerator adjustment rule a unique feature of the common quadratic production function specification is established the analysis is shown to be relevant to the possibility of decentralization within the firm to functional form specification for dynamic demand functions and to comparative dynamics analysis

the diffusion of energy technology in the rural areas of developing countries a synthesis of recent experience abstract this paper provides a synthesis of the experience of attempts to diffuse energy conversion technologies in the rural areas of developing countries it draws on the experience reported in the literature as well as the five other articles included in this special section the first four articles report the results of research supported under the rural energy technology assessment and innovation network retain funded by the international development research centre of canada these cover biogas in china gasifiers in the philippines decentralized electricity supply in argentina and dual fuel biogas engines in india the final paper provides a review of the experience of the diffusion of a number of successful mature energy technologies this introductory paper charts the changing perspective of technology diffusion that has occurred in recent years the shift from the largely social psychological concerns to concerns about the nature of the technology itself the political economy of the users and producers and the more evolutionary views of the process of technical change the evidence is grouped under nine headings the role of the market and state diffusion strategies the performance of the technology users needs political economy financial returns the macro policy environment the system overhead costs and adaptation in the light of experience the paper concludes by drawing from this complex picture of rural technical change a set of basic principles which might guide policy makers and researchers in improving the prospects for the diffusion of rural energy technology

a flexible dynamic model of multiproduct technology for the west german economy this paper tests symmetry and negativity of the slutsky matrix for a system of demand functions derived from an aggregate model of multi product technology within a flexible dynamic framework the model considers three inputs and three outputs including imports and exports of intermediate goods we derive a static demand model from a trans log cost function and specify the data generation process by a stationary arx 1 1 model results based on west german quarterly data indicate that the integrability conditions are not rejected when imposed on the arx 1 1 model whereas they are rejected for all the less general dynamic models considered

uncertainty and the convenience yield in crude oil price backwardations abstract this study examines why firms hold stocks of crude oil particularly during price backwardations when spot prices exceed prices for forward delivery using a stochastic control model this paper shows that the equilibrium value of inventories contains the conventional hotelling principle the convenience yield from the classical theory of storage and an option value related to price uncertainty our empirical results suggest that a convenience yield and risk premium are important elements of crude oil price backwardations

transfer pricing rules and corporate tax competition abstract a multinational parent sells a non marketed commodity to a foreign subsidiary that uses the product as an input to produce a product it then sells the subsidiary is controlled by a local managing partner whose compensation consists of a lump sum payment plus a share of the subsidiary s profit the parent chooses an optimal transfer price taking into account incentives for the subsidiary s managing partner and taxes home and host governments impose corporate income taxes on the parent and subsidiary s respective profits subject to a transfer pricing rule e g cost plus price method or comparable profit method a nash equilibrium is derived for effective tax rates chosen by home and host governments we then examine harmonization and suggest that tax rates would be reduced

cost specification and firm behaviour in a hotelling model of resource extraction in applied resource economics much attention has been focused on the ability of the hotelling model to explain observed firm behavior in this paper a preliminary specification search is performed to determine the appropriate cost function parameterization for the firms in the sample before proceeding to the estimation of the euler equation once a cost function specification is chosen the corresponding euler equation is estimated via the generalization method of moments gmm which allows for better estimates of the euler equations than in previous studies even with the preliminary specification search and the use of gmm estimation the behavior of the panel of fourteen canadian copper mining firms in the data set examined does not seem to be consistent with the basic hotelling model used

commodity convenience yield and risk premium determination the case of the u s natural gas market this paper contributes to the understanding of commodity pricing issues by measuring and modeling two of the most important concepts in the storable commodity markets the convenience yield and risk premium an emphasis is placed on the empirical determination of these factors in the u s natural gas market we find that the convenience yield and risk premium are measurable and economically significant while we find that the determination of the convenience yield is largely consistent with economic theories the evidence regarding the determination of the risk premium is mixed

costs of adjustment the aggregation problem and investment this paper looks at the empirical consequences of inappropriately using a representative firm to mimic the aggregate investment decisions of a group of heterogeneous firms faced with costs of adjusting capital inputs improper aggregation generates a bias with two important consequences 1 an apparent insensitivity of the aggregate capital stock to the user cost of capital and 2 predicted responses of the capital stock to shocks that are considerably slower than observed both of these consequences are features of available investment equations copyright 1992 by mit press

stylized facts of investment in canada although fixed business investment accounts for a large and growing share of uptput in canada surprisingly little is known about it some stylized facts of investment in canada are set forth and the ability of some of the standard price variables to explain canadian data are briefly reviewed the behavior of aggregate investment and its components are analysed in both the time domain and in the frequency domain it is founjd that there is only a weak relationship between expenditure on non residential structures and on machinery and equipment and also that at the industry level there has been a great deal of variation of patterns in investment by industry in one example investment in the commercial services indusry is found to lead investment in the manufacturing sector it is also noted that investment and output in the united states lead investment and output in canada with the lead in investment being less strong thatn the lead in output in keeping with the patterns observed in expirical models

the multivariate flexible accelerator model its empirical restrictions and an application to u s manufacturing this paper derives an exhaustive set of restrictions implied by the multistock flexible accelerator specification of the adjustment cost model for the firm the flexible accelerator specification of the demand for capital and labor is estimated using u s manufacturing annual data for the 1947 1976 period the consistency of the data with the model is examined by testing the validity of the derived restrictions finally the conditions which permit aggregation over firms are determined and tested empirically the flexible accelerator specification has been popular in the empirical literature on interrelated investment and employment decisions see nadiri and rosen 38 coen and hickman 10 and schramm 40 more recent examples include sargent 39 berndt fuss and wavermann 4 berndt and morrison 6 and meese 34 under suitable assumptions the specification may be rationalized by the adjustment cost model of the firm eisner and strotz 13 lucas 30 mortensen 35 extends the work of lucas and derives some empirically testable restrictions of the accelerator specification that are implied by the adjustment cost framework the broad objective of this paper is to provide a more rigorous and comprehensive test of the adjustment cost model than is presently found in the literature this objective is achieved in three stages first we offer an alternative derivation of the mortensen restrictions and more importantly we prove theorem 1 that his restrictions are exhaustive i e we establish an integrability result for the flexible accelerator adjustment cost model second the flexible accelerator specification of the demand for capital and labor is estimated using total u s manufacturing annual data for the 1947 76 period it is assumed that firms minimize expected production costs subject to a technology which implies that capital and labor stocks are costly to adjust while a third factor materials is freely adjustable the consistency of the data with the adjustmentcost framework is examined by testing for the validity of the derived restrictions further we test the validity of some separability restrictions on the adjustmentcost technology that to varying degrees are imposed a priori in all of the cited empirical studies finally we provide a complete characterization of the individual firm technologies which justify the common assumption of the existence of a representative firm this problem of aggregation over firms which has been

an econometric analysis of fluctuations in aggregate labor supply and demand the paper contains a simple equilibrium model of the labor market the supply function allows for intertemporal substitution in response to real wage fluctuations and the demand function allows for adjustment costs on employment the supply and demand functions both solve quadratic partial adjustment problems driven by rational expectations about future real wages the market equilibrium also solves a partial adjustment problem driven by rational expectations about future preference and technology shocks two related issues are emphasized the identification of dynamic labor supply and demand functions and the theoretical interpretation of serial correlation in employment and real wages when the supply and demand shocks are assumed to be ar 1 processes which are not causally related the model delivers a simple structure for the equilibrium process for employment and real wages which is a restricted var 2 this simple structure facilitates the interpretation of summary statistics on the time series properties of observed employment and real wage series the supply and demand functions can both be locally identified using only employment and real wage data an illustrative application is presented using u s manufacturing data for the period 1948 1971

vertical foreclosure and international trade policy international differences in the cost of production of a key intermediate product can mean that a domestic firm is dependent on supplies from a foreign vertically integrated firm this paper considers the incentives for the foreign firm and foreign country to supply the domestic firm when the firms compete in a cournot or bertrand market for the final product the vertical supply decision is significantly affected by domestic supply conditions for the input and a domestic tariff on final product imports optimal policy by the exporting country may require a tax on both exports or a subsidy on both exports countries that are dependent on imports of a key intermediate product or raw material from a dominant world supplier are often concerned about the price and the availability of imports a notable current example involves the computer industry japanese suppliers with the help of the japanese government recently restricted the exports of dram semiconductors substantially raising their price these suppliers control about 80 of the market for semiconductors and the higher prices and shortage in supply have forced u s producers of computers to curtail production and increase prices vertically integrated japanese firms such as toshiba and n e c have benefitted both from increased profits in the export market for semiconductors and from the improvement in their competitive position in the market for final computers as this example indicates the price and availability of imported supplies can depend on both public and private incentives in the exporting country in this paper we first examine the private incentives for a vertically integrated firm to export an intermediate product to a higher cost rival lowering its rival s costs the exporting firm may choose vertical foreclosure thus fully cutting off supplies we then consider the public interest of the exporting country does the exporting country gain by encouraging the export of the intermediate product or alternatively might government foreclosure occur the government is in a position to affect the quantity of exports of both the input and the final product by an appropriate choice of export tax and subsidy policies

output response to prices and public investment in agriculture indonesian food crops abstract this paper analyzes dynamic food crop supply response in indonesia the effects of technology prices and investments on output growth for rice corn soybean and cassava are examined the analysis generates crop wise area yield and input demand parameters suitable for the evaluation of price and investment policies and shows the large impact of public investment in agricultural research extension and irrigation on long run output growth in indonesia elimination of the fertilizer subsidy and reinvestment of the resulting fiscal savings in research extension and irrigation would produce large benefits

returns to scale in the long run the dynamic theory of cost the concept of scale economies is muddled by the problem specific nature of determining the length of run the distinction between the short and long run becomes a prime consideration in determining the appropriate time scale of economic decision making strategies these strategies center on the choice of factors of production that are assumed to be fixed when factor allocation decisions are to be made

the effects of rwanda s biogas program on energy expenditure and fuel use summary dependence on biomass to meet domestic energy needs raises several socio environmental concerns in contrast cattle manure which may be used to generate biogas is considered a cleaner and cheaper energy source despite several initiatives toyears of education promote biogas systematic analyses of its effects are limited this paper uses data from rwanda to examine the effects of participating in a biogas program on energy related expenditures and consumption of traditional fuels we find evidence of substantial reductions in firewood use and large savings however the attractiveness of the program is hampered by a long payback period and low rates of return

a theory of commodity price fluctuations this paper studies the price fluctuations of storable commodities that are traded in open markets and are subject to random shocks to demand or more particularly to supply it relaxes the common assumption that the shocks are identically and independently distributed in favor of temporally dependent and periodic disturbances the existence of a unique stationary rational expectations equilibrium is demonstrated for each of the models analyzed and testable implications of the models are derived an illustrative empirical investigation is then undertaken for the model with periodic disturbances using monthly time series observations for seven commodities over the period 1960 93

dynamic factor demands and market structure under rational expectations some estimates for the italian manufacturing system this paper deals with a dynamic model of the behaviour of firms under rational expectations the adjustment cost framework is followed to describe production technologies the objective of firms is to maximize the stream of future profits under rational expectation first order conditions for the optimum are derived with respect to input demands and one output supply the output market structure is modelled in order to test price taking behaviour the adjustment costs of quasi fixed inputs are internal and interrelated the model is estimated for the italian manufacturing system with encouraging results

aggregating quasi fixed factors the problem of aggregating quasi fixed factors within the context of the adjustment cost model is addressed two alternative theoretical justifications are considered one based on a form of hicks aggregation and the other on weak separability it is argued that the latter is not relevant to practical situations on the other hand the former can be used to justify empirical dynamic factor demand studies which employ aggregated input categories some implications for data construction procedures are discussed

the benefits of storage and non renewable resource price dynamics both the theory of storage and the hotelling model play a prominent role in the study of non renewable resource prices this paper combines these approaches by modifying the hotelling model to allow firms to hold inventory in addition to in ground reserves contributing three new results first inventory is more likely to be held if future demand and or the marginal cost of extraction are uncertain second the market price of the commodity is based on the theory of storage when inventory is held third the optimal extraction of the resource is based on the hotelling model a la fois la theorie de l entreprosage et le modele d hotelling jouent un role important dans l etude du prix des ressources non renouvelables le present memoire combine ces approches en modifiant le modele d hotelling pour permettre aux entreprises de detenir des inventaires en plus de reserves souterraines cela produit trois resultats d abord on est davantage susceptible de detenir des inventaires si la demande future et ou le cout marginal de l extraction sont incertains ensuite le prix du marche de la ressource est fonde sur la theorie de l entreposage quand inventaire il y a enfin l extraction optimale de la ressource est basee sur le modele d hotelling

dynamic factor demands under rational expectations we model the industrial demands for structures equipment and blue and white collar labor in a manner consistent with rational expectations and stochastic dynamic optimization in the presence of adjustment costs but allowing generality of functional form we represent the technology by a translog input requirement function that specifies the amount of blue collar labor needed to produce an output level given quantities of three quasi fixed factors nonproduction workers equipment and structures a complete description of the production structure is obtained by simultaneously estimating the input requirement function and three stochastic euler equations we find adjustment costs are small in total but large on the margin and differ considerably across factors

estimating dynamic dual models under nonstatic expectations in this paper we derive a system of equations depicting agents dynamic decision rules under nonstatic price expectations based on the adjustment cost model of the firm the integrability conditions which can serve to guide the specification of flexible functional forms are established a two stage econometric model permitting empirical examination of both the expectations formation process and the dynamic structure of the industry is estimated using two different data series for u s production agriculture the estimation results suggest evidence of the presence of nonstatic price expectations in dynamic dual models for u s production agriculture

competitive storage and commodity price dynamics by buying cheap and selling dear risk neutral commodity speculators can smooth commodity prices and induce serial dependence in price even when none would exist under a simple process of supply and demand commodity prices are variable and strongly positively correlated from one year to the next the variability is often explained by supply factors and the autocorrelation by the activities of speculators we show that this explanation is not consistent with the evidence speculation can substantially increase autocorrelation for prices that are weakly autocorrelated in its absence but not to the high levels that are observed in the data

price and inventory dynamics in petroleum product markets abstract unlike many studies of commodity inventory behavior this paper estimates a model with endogenous spot and forward prices inventories production and net imports our application involves markets for refined petroleum products in the united states our model is built around the supply and demand for storage we estimate the model using generalized method of moments and perform dynamic simultaneous simulations to estimate the impacts of supply and demand shocks supply curves for the industry are inelastic and upward sloping high inventory levels depress prices inventories fall in response to higher sales consistent with production smoothing under higher input prices refiners reduce their stocks of crude oil but increase their product inventories consistent with cost smoothing in some cases imports of products are more variable than production or inventories

adjustment cost and supply response in a fishery a dynamic revenue function in industries where firms can adjust product mix in response to price changes the process can be delayed by adjustment costs an example is fishermen who change fishing grounds to target different species if adjustment costs are sufficiently large this may hamper the fishermen s response so that regulatory tools that are not efficient in the long run are useful in the short run moreover adjustment costs can influence the choice of species targeted in this paper dynamic supply equations are specified using a revenue function approach different hypotheses about the dynamics of the supply equations are tested for norwegian trawlers

optimal control and equilibrium behavior of production inventory systems the relationship between commodity inventory and short term price variations has received considerable attention but the understanding has been limited to single stage cross sectional relation in this paper we aim to deepen our understanding of the inventory price relationship in two dimensions across time and across production stages we first examine an individual firm controlling production and two stages of inventory under uncertain input and output prices and operating costs we next establish and characterize the rational expectations equilibrium for an economy in which competitive production firms link a raw material market and a finished goods market with uncertain and price sensitive supply and demand we characterize the dynamics of inventory market price and gross margin based on theoretical analysis simulation and empirical evidence from the petroleum industry we find that inventory fluctuations lag behind price variations and the length of the lags depend on how far the inventory is from the source of the supply or demand shocks we also find that shocks are both dampened and delayed when propagating through the production stages and that shocks have a prolonged effect on inventories and prices at both stages

the production smoothing model is alive and well abstract monthly data in physical units for seven industries are used to examine the production smoothing hypothesis the results strongly support this hypothesis significant effects of expected future sales on current production are found for four industries and the estimated decision equations for all seven industries imply production smoothing behavior the previous negative results appear to be due to the use of data biased against the hypothesis the shipments and inventory data of the department of commerce the paper also shows that sensible results can be obtained from estimating approximations to decision equations as opposed to estimating euler equations

foreign direct investment under oligopoly profit shifting or profit capturing abstract in this paper a model of taxation of foreign source corporate income is developed when the output market is not perfectly competitive profit shifting policies similar to those in the new trade literature are also present in the case of foreign direct investment fdi there are however important differences to the new trade theory since in case of fdi i corporate taxation and double taxation relief are the policy instruments rather than output or revenue taxes ii countries are not symmetric in the sense that the host country has the first right to tax the multinational s profit and the home country reacts by providing double taxation relief and iii output but not corporate taxation is specific to imperfectly competitive industries it is argued that a variants of a tax credit are analogous to export subsidies b when the home country operates a tax credit system the host country s incentive to capture the multinational s profit is bounded under imperfect competition c when the host country offers a tax holiday the home country should imitate this policy and d in the presence of perfect competitive industries double taxation relief is a good instrument to target imperfectly competitive industries

multinational firms global strategies host country indigenisation of ownership and welfare abstract this paper examines the costs and benefits that may arise when host countries aim to indigenise the ownership of foreign subsidiaries it is shown that there may be an optimal level of indigenisation beyond which the marginal social costs of such policies will exceed the corresponding benefits the analysis also shows that the optimum indigenisation may depend among other things on whether the subsidiary is autonomous or fully controlled by the parent company a further result is that if the subsidiaries equity is purchased by private firms or individuals the privately optimum level of indigenisation is likely to be greater than the socially optimum

on estimating dynamic factor demands many recent empirical studies on inter related factor demands involve factor demand functions whose arguments depend on the researcher s arbitrary normalization rule this paper shows how sensitive the estimated elasticities are to the various normalizations that are possible alternatives that are not dependent on a normalization are suggested

a test of the hotelling valuation principle time series tests of the hotelling r percent rule for natural resource prices have not been strongly supportive but the tests and the data are subject to serious difficulties we propose here an alternative testing strategy based on another but less widely known implication of the hotelling model we test this implication which we call the hotelling valuation principle by regressing the market values of the reserves of a sample of u s domestic oiland gas producing companies on their estimated hotelling values we find that the estimated hotelling values account for a significant portion of the observed variations in market values and that the hotelling measures are better indicators of the market values of petroleum properties than two widely cited publicly available alternative appraisals

a market driven transfer price for distributed products using mathematical programming a distributed product has its manufacturing activities distributed among many locations these locations could belong to one or more firms in a manufacturing network often components needed to manufacture a distributed product move through different nodes in the network and sometimes across international borders hence a transfer price is needed for the purpose of estimating duties and drawbacks being aware of the fact that transfer price can be used to manipulate taxable profits many countries have instituted rules concerning transfer price estimation for example in the united sates the internal revenue service irs says that the right price is the market value but for many components it is difficult to find a free market similar products may exist in the market but they may have different attributes in such cases it is important to be able to estimate the market driven transfer price given other similar products in the open market we develop a method using a mathematical programming model and providing companies an opportunity to work proactively with the irs in a cooperative manner in order to avoid costly audit and litigation this way companies avoid penalties and also gain certainty regarding tax liability an example illustrating the method is presented

hotelling confronts capm a test of the theory of exhaustible resources a model of pricing of natural resource commodities that integrates financial and product markets is derived and tested the model unifies two strands of the economic and financial literature one that builds on the hotelling model of pricing of exhaustible resources and the other that extends the capital asset pricing model of pricing risky assets tests of the predictions make use of a cost function that was estimated from a panel of small canadian copper mines young 1992 the authors tests fail to reject the theoretical restrictions that are implied by the hotelling capital asset pricing model

interrelated factor demands for manufacturing a dynamic translog cost function approach abstract in this paper we report the results of estimating a joint model for labour capital and energy using the transcendental logarithmic cost function of christensen jorgenson and lau 1973 this allows us to determine both the own price and cross elasticities of substitution between labour capital and energy we combine a model of factor shares with a dynamic adjustment process for each factor we also impose on the cross equation restrictions necessary to provide additivity homogeneity and symmetry since the covariance matrix in systems of share relationships is singular we follow the suggestions of anderson and blundell 1982 and employ a mullivariate error corrrection model the results suggest that additivity symmetry and homogeneity restrictions do hold and that there are short run increasing returns to scale

the existence of input and output aggregates in aggregate production functions in this paper we make two contributions to the literature on aggregating inputs and outputs in economy production functions first we present necessary and sufficient conditions for aggregating efficiently allocated goods under general assumptions on the technology second we present a general theorem on the conditions for the existence of aggregates of both efficiently allocated goods and arbitrarily allocated goods we use this theorem to elucidate the role of efficiency in determining the existence of aggregates

adjustment costs and factor demands in canadian manufacturing industries the question of whether regional disparities in canada could arise as a result of nonconstant returns to scale and non identical production functions is examined this is accomplished by estimating and comparing the decision rules for factor demands across canadian regions the decision rules are based on a flexible and dynamic production technology which allows for the presence of internal adjustment costs do not impose constant returns to scale or require hours and workers to have the same output elasticities the model is estimated for four separate canadian regions ontario quebec the western and eastern provinces on annual data ranging from 1965 to 1985