a minimum wage can be welfare improving and employment enhancing abstract we examine whether minimum wages can fulfill a useful role as part of an optimal tax transfer scheme the government cannot observe household abilities only their incomes and is constrained to ensure that those working are at least as well off as those not working a minimum wage combined with the institutional features of typical welfare systems allows the incentive constraint to be severed at the ability level associated with the minimum wage if such a scheme can be enforced the government can increase the amount of redistribution from those working to those not working and possibly lower the number of unemployed

the ramsey problem for congestible facilities abstract in recent years a new set of models drawing on vickrey 1969 has been developed to analyze the economics of congestible facilities these models are structural in that they derive the cost function from consumers time of use decisions and the congestion technology standard models in contrast simply assume the general form of the cost function we apply the new approach to analyze the ramsey problem for a congestible facility and show that the solution generally entails cost inefficiency standard models have failed to reveal this result because they treat the cost function as completely determined by technology

the new institutional economics this outstanding book presents new original contributions from some of the world s leading economists including ronald coase douglass c north masahiko aoki oliver e williamson and harold demsetz it demonstrates the extent and depth of the new institutional economics research programme which is having a worldwide impact on the economics profession

equity and efficiency in public sector pricing a case for stochastic rationing a view still widely held among economists is that given the objective of maximizing a paretian social welfare function rationing of private goods is inferior to transfers and subsidies hence existing rationing e g in housing programs involving rent regulation subsidized medical treatment to needy individuals distribution of day care for children according to need etc is often interpreted as a reflection of paternalistic objectives on the part of the government or simply as bad policy see tobin 1970 the purpose of this paper is to challenge the general validity of this conventional wisdom in the context of a traditional model of public sector pricing supplemented by an anonymous rationing scheme which affects individuals consumption patterns significantly as is often the case a government cannot achieve distributional equity i e situations where the social value of marginal utility of income is equal for all individuals by means of taxes and transfers because the use of these instruments is subject to various constraints this is a common feature of many taxation models cf atkinson and stiglitz 1980 from a purely technical point of view there is scope for improving on social welfare in such situations by means of other measures such as rationing but since the use of rationing as well as taxes and transfers is likely to be restricted by the same underlying factors e g information about consumers preferences and endowments or administrative costs it may be questioned whether rationing qualifies as an efficient policy instrument the type of rationing considered in this paper is stochastic rationing when prices are set at levels which generate excess demand some of the potential consumers are randomly barred from the markets entirely so that demand equals supply from the point of view of implementation such a rationing scheme has the desirable property of not requiring the government to have information about preferences and endowments at the individual consumer level nor is extensive administration required another interesting aspect of such a scheme is that in a sense it represents a lower bound on rationing schemes since in most cases actual rationing can be based on some information about consumers therefore if there are cases where a market clearing equilibrium can be improved upon by reducing prices below market clearing levels combined with elimination of excess demand by means of stochastic rationing the argument for rationing as a potentially efficient policy tool is in fact fairly strong in this paper we show that such cases do exist we also indicate that stochastic rationing may still be efficient even in situations where prices can be highly differentiated among different groups of individuals e g income groups we conclude that the absence of costless redistribution of income which indeed seems to be consistent with real world situations is crucial for the results two kinds of policy changes are considered the first involves eliminating a marginal excess demand by means of rationing in the model in this paper there is a continuum of consumers therefore while such a marginal rationing affects some consumers in a nonmarginal fashion it only affects an infinitesimal group of consumers hence it only

the psychology of early institutional economics the instinctive approach of thorstein veblen s conspicuous consumer theory abstract thorstein veblen a founder of original or old institutional economics combined social and evolutionary thought in his institutionalist approach to dealing with psychological social and economic issues the psychological content of veblen s writings takes instinct and habits into consideration the economic literature on the psychological content of veblen s writings has focused on habits despite the importance of instincts in veblen s works this paper attempts to discuss veblen s notion of instincts in order to make its role clearer in his approach to conspicuous consumer decision making it discusses the role of instincts the instinct of workmanship the relationship between habits and instincts and their influence on the conspicuous consumer consequently this paper contributes to a better understanding of how inner forces and socialization culminate in behavior in veblen s conspicuous consumer approach

unemployment and rationality the explanation of persistent excess labor supply is a challenge to macroeconomic theorists in a purely competitive framework it may be argued that unemployment is transitory since wages will react if excess supply is persistent enough for the economy to be driven towards full employment nevertheless classical tatonement models do not support this view since excess demand functions are arbitrary see shafer and sonnenschein 1982 and convergence to the walrasian equilibrium cannot be guaranteed fixed price theory accounts for unemployment at the cost of total indeterminacy of equilibrium allocations many efforts have been made in order to narrow down this set roughly speaking these attempts can be classified into two groups i the conjectural approach cf benassy 1976 negishi 1974 grandmont and laroque 1976 and hahn 1977 1978 ii the game theoretical approach cf hart 1982 madden 1983 and silvestre 1988 in this paper we want to contribute to the first tine of thinking by applying the rationality notion developed for a conjectural equilibrium model in trujillo 1985 to a standard three goods fixed price model both kinds of equilibria are equivalent see john 1985 the motivation behind our approach is that when agents set prices they have to respect the rules of the mechanism for instance in hahn s rationality approach agents may change prices even if they are not constrained however the assumed mechanism is such that this behavior is not allowed see below therefore agents must be cheating le hahn s notion is one of incentive compatibility and it is not surprising that he obtained negative results in our approach agents may change prices if they are conjecturable in the following sense if buyers are rationed they can increase conjecture higher prices and if sellers are constrained

in kind transfers self selection and optimal tax policy abstract this paper examines the role of public provision of goods as a redistributive mechanism when tax policies are designed optimally on the basis of the information available to the government we characterize pareto efficient allocations that are attainable through the tax policy and derive the conditions under which public provision will enhance welfare above the maximum that can be achieved through a mix of a general income tax and commodity taxes price subsidies first when there are two produced goods we prove that public provision is always pareto improving the improvement is achieved through changing individuals actual consumption levels second with no restrictions on the number of goods we derive a sufficient condition for public provision to be pareto improving this is achieved by weakening self selection constraints so that welfare improving tax changes are made possible suitable examples include provision of day care basic health care and rights to a minimum old age pension

the political economy of publicly provided private goods abstract this paper integrates two different approaches to the analysis of public provision of private goods education health care day care etc while normative public economics has established an efficiency case for such provision the commonly held political economy view has been that it is an economically inefficient phenomenon generated by the political process we establish a political economy framework which in general yields an efficient choice of distributional policy it follows that the central mechanism studied in the normative theory is equally relevant to voting models of decisions on public provision it is shown that under plausible information constraints economically efficient public provision of private goods will be part of politically rational decisions the result is established both within a median voter process and a representative democracy of political parties

keynesian and classical unemployment in an open economy this paper examines various unemployment equilibria in a fix price model of an open economy with nontraded goods the economy exports an internationally traded good and imports an intermediate input good the comparative static effects of various exogenous variables on total employment and the balance of trade are derived and compared across regimes considerable emphasis is placed on the employment effects of external disturbances both price shocks such as a rise in the price of the imported intermediate good and quantity shocks e g a slump in the demand for exportables are examined and the appropriate policy for restoring full employment is discussed in each case

economics postcolonial theory and the problem of culture institutional analysis and hybridity postcolonial theory has not yet made an impact in economics this may be explained by the different treatment of culture in each field in postcolonial theory culture serves as a central analytical category in economics despite increased attention in recent history general approaches to culture continue to underestimate its role in economic behaviour and decision making borrowing some insights from postcolonial theory this paper calls for further attention to culture in economics it is argued that such a turn improves current understanding of contemporary economic phenomena and allows subaltern cultures currently theorised as less developed to equally participate in the global construction of social meaning and economic well being it is further argued that incorporating the postcolonial idea of hybridity into the institutional economic approach holds the most promise for theorising contemporary postcolonial economies this argument is illustrated by examining some hybrid economic patterns within africa copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the nature of heterodox economics heterodoxy serves as an umbrella term to cover the coming together of separate projects or traditions in answering the question what distinguishes heterodoxy from the orthodoxy the author argues that matters of ontology are central in answering the question how are the various traditions that make up the modern heterodoxy to be distinguished from each other the author defends criteria other than varying commitments to specific substantive theories policy measures or techniques or basic units of analysis

distribution of research gains in multistage production systems comment in a recent paper freebairn davis and edwards hereafter fde have examined an interesting and neglected aspect of the distribution of benefits from research agricultural production is seen to comprise three stages input supply farm production and farm to retail marketing fde have explored the distribution of the benefit stemming from a downwards shift in the supply function at any one of the stages they conclude these benefits are distributed according to the elasticities of consumer demand and supply facing each stage furthermore under the special assumptions they employ this distribution is independent of which of the three supply functions is shifted by research they conclude albeit with due caution that the choice of agricultural research projects should not be limited to farm production research alone especially in view of the cost shares of purchased inputs and marketing services in the retail value of food in fact they argue they farmers may receive greater benefits from off farm oriented research than from farm oriented research p 39 this finding has potentially important implications for agricultural research policy it immediately spurs one to ask whether research funded by the farmer or the fisc might have neglected opportunities for research related to farm inputs or marketing to reach their result fde assume a all supply and demand curves are linear b research induces parallel shifts in supply curves c farmers cannot substitute nonfarm inputs for inputs supplied by farmers in production of the farm product and d marketing firms cannot substitute marketing inputs for raw farm products in the production of retail commodities the purpose of this note is to emphasize the importance of these elasticities of factor substitution in determining the distribution of research benefits between the three stages to do this we use a simple but general two factor model in which we focus attention on the elasticity of factor substitution between marketing services and raw farm products in the third stage marketing this model is not restricted to linear supply and demand curves nor to an elasticity of substitution of zero we maintain the assumptions of parallel shifts of supply curves induced by research and a perfectly elastic supply of marketing services in a revision of fde s application to the u s hog industry the distribution of research benefits is shown to depend crucially on the elasticity of factor substitution their result that such distribution is independent of the stage in which research shifts the supply curve downwards follows only for the special case in which that elasticity is zero this is clearly a restrictive assumption a reexamination of some of the policy issues raised by fde once the assumption is relaxed would seem to be warranted

measuring and testing advertising induced rotation in the demand curve advertising can rotate the demand curve if it changes the dispersion of consumers valuations we provide an elasticity form measure of the advertising induced demand curve rotation in five demand models and test for its presence in the us nonalcoholic beverage market the almost ideal demand system aids model reveals that doubling advertising spending rotates the demand curves clockwise for milk and coffee and tea with associated slope changes of 7 and 12 soft drink advertising rotates its demand curve counterclockwise our policy suggestion is that milk and soft drink firms time advertising to coincide with high and low price periods respectively

tariffs quotas and piecemeal policy reform abstract this paper extends recent results on the welfare implications of piecemeal tariff adjustments to include cases where the initial trade distortions involve both tariffs and quotas it shows that the standard prescriptions for piecemeal tariff reform are largely unaffected by the presence of unalterable quotas on other goods prescriptions for piecemeal quota reform are also derived although they are constrained by the presence of unalterable tariffs

transfers in cash and in kind theory meets the data we review theoretical explanations for in kind transfers in light of the limited empirical evidence after reviewing the traditional paternalistic arguments we consider explanations based on imperfect information and self targeting we then discuss the large literature on in kind programs as a way of improving the efficiency of the tax system and a range of other possible explanations including the samaritan s dilemma pecuniary effects credit constraints asymmetric information amongst agents and political economy considerations our reading of the evidence suggests that paternalism and interdependent preferences are leading overall explanations for the existence of in kind transfer programs but that some of the other arguments may apply to specific cases political economy considerations must also be part of the story

welfare improving user charges for publicly provided private goods it is argued that free provision of publicly provided goods or services is rarely optimal the argument is simple if optimal lump sum transfers are not available then the government will wish to use all handles which provide information about the distribution of welfare one such handle may be the usage of publicly provided goods and services as long as this is not uniform then it is a potentially valuable index for redistributive purposes this is illustrated using two models one in which usage of the publicly provided good is legislated by the government and another in which it is determined in part by the private costs of consuming public services

topping up or opting out the optimal design of public provision schemes there is extensive public provision of private goods in all developed countries the public provision scheme is often designed so that individuals can opt out but not top up supplement the publicly provided quantity quality using an optimal income ta

viewpoint innovations in the theory and practice of redistribution policy we present a survey of key results from second best optimal redistribution theory and their implications for tax transfer policy the core results include the corlett hague theorem the deaton conditions the production efficiency theorem the atkinson stiglitz theorem and the mirrlees saez characterization of the optimal non linear income tax system these have been augmented in recent years by optimal participation tax rates the implications of involuntary unemployment the use of unconventional instruments such as minimum wages in kind transfer and workfare and the optimal taxation of capital income and bequests l auteur presente un survol des principaux resultats theoriques de la redistribution optimale de second ordre et de leurs implications pour les politiques d imposition et de transferts les resultats fondamentaux incluent le theoreme de corlett hague les conditions de deaton les theoremes d efficacite en production le theoreme d atkinson stiglitz ainsi que la caracterisation du systeme optimal d imposition non lineaire du revenu a la mirrlees saez ces derniers resultats ont ete enrichis au cours des dernieres annees par certains autres portant sur les taux d imposition decoulant des allocations conditionnelles les implications du chomage involontaire l usage d instruments non conventionnels tels que le salaire minimum les transferts en nature le workfare ainsi que l imposition optimale des revenus du capital et des legs ces resultats sont exposes et leurs implications pour les politiques d imposition et de transferts sont discutees

ontology and the study of social reality emergence organisation community power social relations corporations artefacts and money the conception of social reality i have previously defended and here extend positing features such as social relations positions and powers is thoroughly naturalistic and even consistent with modern interpretations of quantum field theory it also serves to ground a social science that can be scientific in the sense of natural science this is the thesis defended here central to the argument is an emphasis on a strong form of emergence and the category of organisation in process to bring out various salient features of the position defended i take the opportunity to compare aspects of it with relevant components of the contribution of john searle whose ontological conception appears at once to be both very similar yet also very different copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

ontology and the history of economic thought the case of anti reductionism in the work of friedrich hayek tony lawson has long advocated an ontological turn in the history of economic thought this essay aims to contribute towards that goal by considering how one aspect of the methodology adopted by a prominent heterodox economist was informed by ontological considerations the economist is friedrich hayek the aspect of his methodology concerns the possibility of reductionism while the ontological category that informs his anti reductionist methodology though not as we shall see in a wholly consistent way is that of emergence the account presented below suggests that the notion of emergence played an increasingly important and also increasingly explicit role in the arguments hayek mounts against reductionism in his postwar work on theoretical psychology and social theory in the case of his theoretical psychology notwithstanding the fact that he had access to a set of concepts that afforded him the opportunity to mount an emergentist case against reductionism hayek s most prominent argument against reductionism was and remained computational rather than emergentist in nature in the case of his mature post 1960 social theory however hayek explicitly advanced a consistently emergentist case against reductionism based on the importance of organising relations for the generation of higher level structural properties such as the coordinative powers of the liberal market economy the implications of this ontologically informed discussion of hayek s arguments against reductionism for existing interpretations of hayek s work are considered

optimal redistribution with productive social services publicly provided private goods are conventionally considered consumer goods departing from this perspective we analyze the public provision of inputs that improve household productivity e g education and childcare in a two class economy with distorting taxation public provision is always welfare improving with respect to pure taxation given that the public input directly affects household productivity moreover the case for public provision strengthens as households heterogeneity in input demand fades out contrary to consolidated results in the literature the features of optimal provision schemes depend on the nature of publicly provided input namely if it substitutes household productive capacity or just helps households to exploit it

minimum wage legislation and unemployment insurance as instruments for redistribution the use of minimum wages and unemployment insurance as instruments for redistributing income is analyzed the government is assumed to be able to implement an optimal income tax in an economy consisting of two types of individuals who differ in ability the effect of introducing a minimum wage which induces involuntary unemployment will be to improve social welfare under weak conditions circumstances under which combining unemployment insurance with the minimum wage will be welfare improving are also considered

the optimal public provision of private goods abstract this paper sets out conditions for the optimal public provision of in kind transfers rules are derived governing their marginal and optimal use in the presence of linear taxes because of the difficulty of using these conditions to examine what impact optimal transfers would have on optimal tax systems a simple two good simulation model is used to illustrate the problem

second best analysis with markets in disequilibrium public sector pricing in a keynesian regime the paper develops pricing rules for a public sector subject to a budget constraint in an economy where the private sector experiences keynesian unemployment excess supply of labour and of commodities both second best and welfare improving pricing rules are studied it is found that such rules can be defined in operational terms in general they are quite complex involve quantities which are not directly observable reservation wages and prices and require evaluation of income and employment multipliers the general equilibrium approach to second best theory thus involves standard macroeconomic concepts and techniques some discussion of methodological issues and of policy objectives inflation versus unemployment is offered in order to facilitate interpretation the corresponding results for an economy with a competitive private sector are first restated

cost benefit rules in general disequilibrium abstract the consequences of imbalances in markets for goods and factors are the prime issues in many project evaluations this is so in evaluations of measures like migration manpower training programmes and plant locations in the present paper a general disequilibrium model of a small open economy is used to generate evaluation rules to be used when markets do not clear through price adjustments

peasant rationality individuals groups cultures abstract t w schultz s use of evidence in support of his thesis of peasant rationality is selective and unrepresentative even of the studies quoted peasants cannot be rational in the schultz allocational sense because they lack sufficient information and live in a world of uncertainty many studies show that personality and individual circumstances rule out uniform predictable responses to price and profit incentives the works of scott and popkin on collective peasant action and its basis in individual interest are reviewed lastly the importance of custom and culture in peasant decision processes is shown

large cash transfers to the elderly in south africa we examine the social pension in south africa where large cash sums about twice the median per capita income of african households are paid to people qualified by age but irrespective of previous contributions we present the history of the scheme and use a 1993 nationally representative survey to investigate the redistributive consequences of the transfers documenting who receive the pensions their levels of living and those of their families we also look at behavioural effects particularly the effects of the cash receipts on the allocation of income to food schooling transfers and savings in south africa a large social pension about twice the median per capita income of african households is paid in cash to people qualified by age irrespective of previous contributions we present the history of the scheme and explain how such large transfers could come about in an economy in which the recipients were not only politically weak but without any political representation whatsoever we then use a 1993 nationally representative survey to investigate the redistributive consequences of the transfers documenting who receive the pensions their levels of living and those of their families we also look at behavioural effects particularly the effects of the cash receipts on the allocation of income to food schooling transfers and savings the pressing policy issue for south africans is whether it makes sense to target seven billion rand nearly 2 billion of social expenditure through the current pension schemes our analysis contributes to the discussion by documenting the redistributive and behavioural effects of the transfers we find that at least as far as immediate incidence is concerned and without allowance for behavioural effects the social pension is an effective tool of redistribution and that the households it reaches are predominantly poor because so many of the elderly among south africa s african population live with children the social pension is also effective in putting money into house

rationing in an open economy fix price equilibrium and two gap models abstract two gap models have been criticized severely for the lack of realism of their assumptions but are still prominent in development planning and implicitly in discussions of short run policy problems here the model s applicability outside a command economy is considered by comparing it with a rationing model with proper micro foundations it is shown that the two gap model in general violates fix price equilibrium properties but that the fix price model generates quite similar results

socio economic evolution and darwinism in thorstein veblen a critical appraisal the paper questions the idea that a biology based perspective and more speci callydarwinian population thinking constitutes a real alternative for the study of theevolution of social systems this is done through a critical appraisal of the work ofthorstein veblen even though veblen s account of the evolution of humankindmakes the notion of natural selection practically redundant his remainingattachment to darwinism created two other serious tensions for him first hisattachment to the darwinian scheme of descent with modi cation kept him fromdevisingasystematictheoryofthedifferentsocio economicsystemshestudied thisshortcoming is more evident in his analysis of capitalism which not only lacks anelaborated theory but also contradicts his initial evolutionary programme second by postulating that human history is a question of cultural change veblen wastempted to con ate social structures institutions and habits of thought key words evolution thorstein veblen darwinism institutions social structuresjel classi cations b52 b41 b15 p10

the effects of imperfect competition on the size and distribution of research benefits studies of agricultural research benefits usually assume perfectly competitive markets studies that have allowed for market power of agribusiness firms have generally assumed unrealistic pure monopsony or monopoly behavior this paper allows for processing firms to exhibit a range of degrees of oligopsony power in buying raw farm products and oligopoly power in selling processed farm products the results indicate that different types of research induced technical change can exacerbate or ameliorate distortions from the exercise of market power by agribusiness firms which affects the size and especially the distribution of research benefits

unemployment equilibrium in an economy with linked prices wage inflexibility has been widely regarded in modern writing as a cause of unemployment almost any keynesian or non walrasian equilibrium which involves equilibrium excess supplies also contain some form of wage or price inflexibility yet the micro mechanism of wage inflexibility its causes and form remains somewhat a mystery in this paper we study the allocation of resources in an economy in which prices of some goods or services are linked to other goods or services this is not wage rigidity in the traditional sense but it is a form of rigidity which is widely observed following the recent literature on non walrasian equilibrium see for example dreze 1975 barro and grossman 197 l grandmont and laroque 1976 malinvaud 1977 and many others one would expect the allocation to be attained via a set of quantity constraints on net trades we show in this paper however that the allocation mechanism in the economy will not require a general set of limitations on excess supplies and excess demands but rather will tend to have the following two properties

distribution of gains from research and promotion in multi stage production systems the case of the u s beef and pork industries a producer financed program that leads to either an increase in retail demand from promotion or a decrease in marketing costs from research will generate returns to producers that are generally smaller than returns generated through an equivalent change in producer supply from research the distribution of gains depends on the degree of substitutibility between farm and nonfarm inputs comparative statics of equal absolute changes in demand supply and marketing costs in the u s beef and pork industries show the significance of input substitutibility for distribution of gains and sensitivity of the results to beef and pork demand interrelationships

distributional consequences of rural food levy and subsidized urban rations abstract governments in many developing countries have imposed food levies on farmers to provide subsidized food to urban consumers the resulting price discrimination between individuals has general equilibrium effects so that the welfare consequences of such a policy for different socio economic groups have been controversial we relate the distributional consequences to the parameters of the economy and identify systematic relationships among different partitions of the outcomes we show for instance that if the policy helps hurts richer city dwellers then it hurts helps poorer farmers

estimating labour supply disequilibrium with fixed effects random coefficients regression long term contracting adjustment costs or efficiency wages can make a worker supply fewer more hours than desired at the current economic opportunity set a regression model with cross correlated random coefficients is used to obtain new theoretically based measures of the direction and relative intensity of labour supply disequilibrium among prime aged male hourly paid workers in the united states during 1978 82 evidence of widespread underemployment is found among primeaged male salaried workers some overemployment appears regressions incorporating person specific fixed effects are consistent with a life cycle labour supply model for salaried workers and suggest a need for fresh ways to include short run labour demand forces in micro labour supply models of hourly paid workers

subsidies versus public provision of private goods as instruments for redistribution the literatures on differential commodity taxes and on quantity controls to supplement income taxation have developed separately this paper combines these two strands in the standard framework of optimal non linear income taxation we use a model with two types of households where the government has access to both subsidy policy and public provision of a good substitutable for leisure and households can supplement the publicity provided good from the market we present conditions under which policy should involve one or both of these two instruments alongside income taxation the model is extended to many ability types

public production and shadow pricing in a model of disequilibrium in labor and capital markets abstract this paper develops second best rules for public investment and employment in various regimes of disequilibrium on the capital and the labour markets the model used is very simple so as to imply rules which can easily be interpreted and contrasted with the current literature on the subject another issue considered is that of possible changes of regimes within a process of welfare improvement involving adjustments in the public production plan it is dealt with through a numerical example which points out that such changes can indeed occur

the calculation of research benefits with linear and non linear specifications of the demand and supply reply this paper provides a comparison of research benefits for linear and nonlinear constant elasticity nlce specifications of supply and demand with a pivotal supply shift framework the comparison allows for a sensitivity test of results to different values for demand and supply elasticity the main finding is that the values of the gross annual research benefits calculated for the nlce specification are larger than those calculated for the linear specification with price elastic supply but are smaller with price inelastic supply the analysis suggests that the use of an nlce specification and a pivotal shift due to research is usually preferable to use of a linear supply curve with pivotal shift

optimal minimum wage policy in competitive labor markets this paper provides a theoretical analysis of optimal minimum wage policy in a perfectly competitive labor market and obtains two key results first we show that a binding minimum wage while leading to unemployment is nevertheless desirable if the government values redistribution toward low wage workers and if unemployment induced by the minimum wage hits the lowest surplus workers first importantly this result remains true in the presence of optimal nonlinear taxes and transfers in that context a binding minimum wage enhances the effectiveness of transfers to low skilled workers as it prevents low skilled wages from falling through incidence effects second when labor supply re sponses are along the extensive margin only the co existence of a minimum wage with a positive tax rate on low skilled work is always second best pareto ineffcient a pareto improving policy consists of reducing the pre tax minimum wage while keeping constant the post tax minimum wage by increasing transfers to low skilled workers and financing this reform by increasing taxes on higher paid workers overall our results imply that the minimum wage and subsidies for low skilled workers are complementary policies pa

veblen on the machine process and technological change this paper explores veblen s analysis of technological change i claim that rather than succumbing to the traditional criticisms his approach founders due to his failure to fully articulate a social ontology whilst veblen s analysis of his own time remains in many ways compelling this failure creates a gap between meta theoretical promise and current theoretical results i show how work in the social studies of technology has successfully avoided the ontological problems associated with veblenian economics this success is tempered by the fact that the field has not yet provided an appropriate framework to systematise the ways in which technical innovations transform social relations in ways that are beyond conscious control and manipulation copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the genealogy of modern theoretical public economics from first best to second best abstract the development of second best modelling in the seventies has shaped modern theoretical economics the paper discusses some key changes in the economists conceptions the first two sections examine the efficiency equity dilemma the study of non convexities has shown that counterintuitive efficiency enhancing income redistribution might occur the introduction of asymmetric information has shed doubts on virtues of lump sum compensation the last sections focus on the intricate geometry of second best optimisation and the ambiguous value of the signals provided by the price system outside a first best world

in kind versus cash transfers in the presence of distortionary taxes in kind transfers can pareto dominate cash transfers as a means of income redistribution if in kind transfers and leisure are hicks substitutes and leisure is a normal good the result holds when redistributive instruments also include a linear income tax the paper proves that if the poor receive more in kind transfers and the rich less than what they would choose for themselves then compared to cash transfers there will be a higher labor supply by the poor a lower labor supply by the rich and higher levels of aggregate pre tax income and tax revenues

shadow prices for public production in an open economy with disequilibrium abstract this paper derives shadow prices for public production employment and imports in a one period one individual small open economy where there is both unemployment and excess supply of some tradeable goods and where there exists a ceiling on the foreign trade balance the model used is made purposely simple so as to yield shadow prices which can be interpreted and contrasted with intuitive understanding and the current literature on the subject

in kind transfers cash grants and the supply of labour abstract this paper corrects the notion that somehow benefits given in kind interfere less with the work leisure choice than cash grants of equivalent monetary value in a simple model the analysis proves that the true effect depends on the extent of the in kind transfer and the substitutability of the good in question with leisure

on the difficulty of evolutionary analysis thorstein veblen s 100 year old question why is economics not an evolu tionary science remains relevant evolutionary analysis even for those social scientists who trace their intellectual heritage to evolutionary thought has been difficult for three reasons effective incorporation of time requires a respectful and detailed treatment of the past dominant social science paradigms have made it difficult to account for novelty and concern with policy and current issues of social debate creates a tendency towards taxonomy the twentieth century history of economic anthropology and institutional economics illustrates that a failure to overcome these difficulties leaves veblen s vision unfulfilled the reasonable reaction to veblen s famous question why is economics not an evolutionary science is to ask a further question why is it still not an evolutionary science and then to continue with the questions why are the other social sciences not evolutionary sciences why especially have the american institutionalists who claim veblen as a founding father and who have an organisation called the association for evolutionary economics found evolutionary analyses difficult in this paper i propose to address these questions by examining aspects of the history of one discipline anthropology and one subdiscipline institutional economics that emerged from the evolutionary vision of the late nineteenth century 1 veblen s anthropological roots were

input substitution and the distribution of surplus gains from lower u s beef processing costs the impact on consumers and input suppliers of allowing substitution between farm and nonfarm inputs in food processing is a controversial issue freebairn davis and edwards 1982 assumed that no substitution between these inputs was possible and concluded that the distribution of surplus gains between producers and consumers is independent of the source of supply shift alston and scobie pointed out that this conclusion depends on the assumption of no input substitution once input substitution is possible farmers can no longer be indifferent about the supply shift since their share of total surplus gains is greater for shifts in farm supply than for marketing input supply furthermore as the degree of input substitution increases the farmers share of surplus gains from a downward shift in the supply of marketing inputs decreases freebairn davis and edwards 1983 replied that while we tend to agree with alston and scobie that the elasticity of substitution in the case of pork is likely to be nonzero we doubt that it is very large and at this stage no satisfactory estimate is available p 357 in this study we obtain a lower bound estimate of the elasticity of substitution and show

the macroeconomic impact of development aid a critical survey the early literature explained aid s macroeconomic impact in the context of the dual gap model showing a clear link between aid and growth many now believe that the empirical evidence shows there to be no such relationship this paper critically reviews the different theoretical perspectives the dual gap model the savings debate recipient fiscal response and aid as dutch disease and the empirical debates on aid savings and growth the basis for denying a relationship between aid and growth is shown to be weak though more recent areas of research offer promising directions for future work

minimum wage legislation as a second best policy mass unemployment is a striking phenomenon of the present economic situation of european market economies although the profession of economists has been criticized for not providing satisfactory cures it has produced a number of different explanations either complementary or contradictory for the occurrence of mass unemployment in this paper we examine the argument that unemployment is the consequence of minimum wage legislation which is socially desirable the observation of current wage legislations suggests that the above argument is broadly at least partly accepted by policy makers curiously enough a defence of this argument meeting the rigorous requirements of modern theory seems to be missing symmetrically attacks against minimum wage legislation often rely upon reasonings of dubious relevance i e the obvious remark that unemployment is a waste with first best efficiency criteria the present paper proposes a second best analysis where second best stems from informational asymmetries which prevent the implementation of lump sum transfers needed for a first best redistribution policy the question under scrutiny can be reformulated in a more precise way as follows does a second best optimal redistribution policy lead to minimum wage legislation and unemployment our elements of answer are gathered in 3 sections in section 2 the principles of the analysis of the desirability of quantity controls and existing results are recalled in section 3 the analysis of section 2 is specified to a simple prototype model for the study of linear income taxation in section 4

variety and size regulation in discrete choice oligopoly imperfectly competitive markets for a differentiated product may underprovide brand variety when consumer tastes for brands are highly heterogeneous we show that when the brands in question are indivisible in consumption and each consumer buys a customized quantity or size of the preferred brand only a welfare improvement can be obtained by regulating the size of purchase we study neutral size regulation which requires that the size of purchase be set equal to the size that would prevail in the absence of regulation this improves brand variety and consumer surplus provided consumer tastes are sufficiently heterogeneous

assigning resources to budget constrained agents this article studies different methods of assigning a good to budget constrained agents schemes that assign the good randomly and allow resale may outperform the competitive market in terms of utilitarian efficiency the socially optimal mechanism involves random assignment at a discount an in kind subsidy and a cash incentive to discourage low valuation individuals from claiming the good copyright oxford university press

multilateral policy reforms and quantity restrictions on trade abstract we specify a many nation many commodity model of international trade involving tariff and quota distortions we derive conditions for the existence of strict pareto improving multilateral reforms of quotas and obtain recommendations for specific directions of such quota reforms given a mild rank condition on the world trade matrix all directions of quota reform that attain a strict pareto improvement using international lump sum compensation remain strict pareto improving even without lump sum compensation provided that the quota reform is accompanied by a multilateral reform of tariffs the precise nature of the tariff reform that accomplishes the redistribution task is determined

market size and substitutability in imperfect competition a bertrand edgeworth chamberlin model competition is often associated with the idea that there are many traders in the market or that each price maker is small as compared to the market this paper introduces this notion of market size in a model of price competition with imperfect substitutes by constructing a model which creates a bridge between the chamberlin and bertrand edge worth lines of work on price competition we investigate the role of two fundamental parameters in the existence of an equilibrium the market size given by the number n of competitors and the degree of substitutability we prove that a for a given number of n 2 of competitors a sufficiently large but finite degree of substitutability entails nonexistence this thus generalizes the bertrand edgeworth nonexistence result which applies only to perfect substitutes b conversely for a given upper bound on the degree of substitutability a sufficiently large number of competitors ensures existence which thus introduces a significant role for market size in models of imperfect competition we finally investigate the proximity of an equilibrium when it exists to a competitive outcome and we find that both high substitutability and large market size are a condition for competitiveness

the foreign exchange constraint suppression of the trade deficit and the shadow price of foreign exchange in a fix price economy abstract the foreign exchange gap is analysed as a possible feature of a fix price economy the implications of closing the gap by means of import rationing are then discussed finally a set of shadow rates of exchange is derived these shadow prices are conditional on the prevailing regimes and include the paradoxical possibility of a negative shadow rate of exchange

shadow prices and public policies in a disequilibrium model of an open economy the paper focuses on the interaction between the goals of optimal stabilization and of allocative efficiency in project evaluation in an economy that is small as an exporter which must maintain trade balance and where some disequilibrium may prevail on goods and labour markets the criteria that are developed reflect an aggregation of profitability and reduction of unemployment additional foreign demand foreign currency savings should be evaluated in welfare terms after weighting by the gap between the relevant market and shadow prices the shadow prices also lead to the definition of an optimal taxation system

general equilibrium when some firms follow special pricing rules in this paper we study the existence of a general equilibrium in an economy in which some of the firms behave competitively whereas others follow special pricing rules an even casual observation of economic reality confirms the need for the inclusion of price setting firms in the study of general equilibrium models and in fact this has been emphasized in the economic literature for some time we consider this a sufficient justification to present a general equilibrium model which allows for both types of behavior price setting as well as price taking behavior the model to be presented will account for a wide range of price setting rules we however find it appropriate to point out at the start that not all economically relevant price setting rules are covered although our model permits the drawing of useful conclusions for the general equilibrium theory of oligopolistic competition through prices it is not especially designed for that purpose in particular our results are not applicable to the general equilibrium analysis with price making monopolistic firms a subject on which there exists some literature 2 our motivation as well as our modelling options and assumptions are directed to two fields where an increased interest in the theoretical foundations recently could be noticed

order and process in institutionalist thought commons and ayres process is a central category in institutionalist economics conceptions of process often bound up with ideas of historical time and circular or cumulative causation are regularly used to distinguish institutionalism from mainstream theorising and to highlight similarities or complementarities with other heterodox positions discussions of institutionalist ideas of process however have tended to concentrate on the contributions of thorstein veblen to the exclusion of those of other major institutionalists in contrast this article considers two other important contributors to institutionalist thought john commons and clarence ayres the differences between these authors works are often thought to articulate some kind of a fault line in institutionalist thought highlighting very different and indeed incompatible positions i argue that although their overall projects are clearly very different if attention is focussed on the general ontological presuppositions of each author there exists a good measure of common ground between them this is especially the case if comparisons are made in line with the focus of this special issue between their conceptions of process and order from an ontological perspective moreover those aspects of their accounts that at first appear at odds are rather shown to be quite compatible and even usefully complementary

public economics and the theory of public policy when james mirrlees and william vickrey were awarded the nobel prize in economics last year it marked only the third time that the award had gone to scholars of public sector economics in contrast to the reception given to the previous two winners ronald coase and james buchanan the news was greeted with some bewilderment by policy specialists once removed from the academic literature who are mirrlees and vickrey and what have they done that has been of lasting benefit to the study of public economics let alone of practical benefit to policy makers this seems to me to be a fair question coase after all had set out a conceptual approach to the study of externalities and transaction costs that has become an implicit part of the methodological baggage carried around by policy economists and policy makers alike buchanan was in part responsible for the welcome emphasis on institutions in public sector decision making and for insisting that politicians bureaucrats and voters are human beings with human motives the legacy of mirrlees and vickrey is less well known but i would argue it is every bit as profound their approach to the theory of economic policy which is grounded on the importance of imperfect information as a constraint on public policy has changed the very nature of public economics research and of its implications for economic

lifestyle conformity and lifecycle saving a veblenian perspective since the 1950s the lifecycle hypothesis has been the dominant explanation for the inverse u in household wealth accumulation this paper advances an alternative explanation rooted in the ideas of veblen that emphasises the role of lifestyle conformity because people tend to adopt lifestyles common to their social group and modify them in standard ways as they age lifecycle norms impart a certain order to the accumulation of assets and liabilities which enables people to do lifecycle saving via habitual thinking after laying out the argument conceptually the paper provides empirical evidence on the role of conformity in lifecycle saving and discusses its contribution to the current low saving rate in the usa copyright the author 2008 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

correcting for measurement error in food demand estimation use of disappearance data as proxies for actual consumption causes inconsistent estimates of own price retail demand elasticities a system of equations describing consumer processor and producer behavior is used to consistently estimate the retail demand elasticity for beef using available data while avoiding the restrictive assumption of fixed input proportions implicit in disappearance data this approach yields an estimate of the own price retail demand elasticity for beef of 0 45 which is more inelastic than the estimate 0 66 obtained using a traditional approach the methodology is applicable to other food commodities for which disappearance data serve as proxies for actual consumption copyright 1993 by mit press

process order and stability in veblen this is the accepted manuscript version the final version is available from oup at http cje oxfordjournals org content early 2014 09 30 cje beu045 abstract

repeated interaction and the public provision of private goods the literature suggests that governments can use in kind transfers to design efficient and targeted redistribution schemes if individual incomes are not directly observable we investigate the extent to which the self selection property of in kind transfers carries through if redistributive transfers are made repeatedly in a two period setting the government may gain information about the individuals incomes in the first period and exploit this information for making targeted transfers in the second period this however also triggers changes in the individuals behavior if the government can commit to its future policy the least cost policy may involve randomization between cash and in kind transfers without commitment the dynamic setting works against the government s interest it may no longer be able to use in kind transfers to generate information about the individuals types jel classification h42 h2

institutions in economics the old and the new institutionalism 1 definitions and issues 2 formalism and anti formalism 3 individualism and holism 4 rationality and rule following 5 evolution and design 6 efficiency and reform 7 conflicts and complementarities

clarence ayres technology pragmatism and progress this paper explores the origins and continued relevance of clarence ayres definition of technology as a process involving both physical tools and a scientific method of reasoning where science is understood to achieve cross cultural explanatory power by virtue of technological validation ayres concept of technology derived from his training as a pragmatist and was primarily philosophical rather than descriptive but is congruent with the work of modern historians of technology and remains useful in addressing a variety of concerns about both the promise and dangers of technological change copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

patent replacement and welfare gains abstract patents were chosen in an era when modern public finance tools were unavailable the same innovation outcomes can be achieved with higher welfare if patent elements are replaced by modern features this paper constructs two theoretical models of product innovation and simulates the welfare effects of replacing patents with an intertemporal bounty arrangement we find that replacing patents with this alternative has the potential to increase welfare in the united states through reform of pharmaceutical patents by 43 9 194 billion when measured in present value terms this is 0 3 1 3 of annual gdp based on simulations involving four selected drug sectors the potential to increase welfare would be higher if applied to the larger sector of drugs as a whole in principal patents could be replaced in other sectors as well

the silence of the lambdas a test of the almost ideal and rotterdam models during the past decade the linear approximate la almost ideal demand system and the rotterdam model have been adopted by agricultural economists as the demand systems of choice in most applications the apparent explanation is that the two models are both second order locally flexible and compatible with demand theory they have identical data requirements and are equally parsimonious with respect to parameters and both are linear in the parameters while the two models are thus equally attractive in most respects and indeed appear very similar in structure they lead to different results in some applications this article develops a test of each against the other in an illustrative application to u s meat demand the almost ideal model is rejected while the rotterdam model is not

simultaneity and structural change in u s meat demand an inverse of the almost ideal demand system the iaids is developed in order to test the endogeneity of prices and quantities in the u s meat demand system the iaids has all the desirable theoretical properties of the aids except aggregation from the micro to the market level using annual data both prices and quantities appear to be endogenous within the entire meat market including livestock production costs and technical change indicators as instruments eliminates evidence of a mid 1970s demand change

effective demand enterprise reforms and public finance in china economic reform in china athar hussain and nicholas stern this paper examines some problems of transition from a command to a market economy through an analysis of the most important example to date the reforms in the chinese economy since the late 1970s our focus is on the links between enterprise reforms effective demand and public finance the reforms have created a curious and problematic hybrid of market and command economies with serious problems of coordination they have concentrated almost exclusively on the delegation of decision making to enterprises from the higher to lower tiers of the government without taking into account its implications for investment consumption and public finance an understanding of future policy and lessons for other countries requires a careful examination of the effects of these past policies granting discretion to enterprises over investment and wages has resulted in both an investment and consumption boom but paradoxically a fall in profits there are strong reasons to suppose that the investment ratio has been too high in recent years fuelling inflation and slowing additions to supply by prolonging the gestation period of investment there has been a large increase in liquid assets in the hands of households which makes their expectations increasingly important for macroeconomic policy there is need for concerted financial innovation to diversify household wealth away from liquid assets finally the changes in the composition of government revenue and expenditure are disturbing there is an urgent need for a flexible and broad based tax system and for reducing price subsidies and subsidies to loss making enterprises