buy now and price later supply contracts with time consistent mean variance financial hedging abstract we consider a two stage supply chain comprising one risk neutral manufacturer he and one risk averse retailer she where the manufacturer procures consumption commodities in spot market as major inputs for production and sells the final products to the retailer the retailer then sells the final products to the market at a stochastic clearance price we investigate a flexible price contract that allows the manufacturer to determine the product wholesale price and the retailer to determine the order quantity based on the future spot price of consumption commodities compared with the simple wholesale price contract a win win situation can be achieved under the flexible price contract when the manufacturer s postponed processing cost is lower than a threshold however under this flexible price contract the retailer may suffer from the commodity price volatility even if she does not procure the commodities directly we further investigate how the risk averse retailer conducts mean variance financial hedging by purchasing consumption commodity futures contracts we formulate the problem using a dynamic programming model and derive a closed form time consistent financial hedging policy through numerical experiments we show that the commodity price risk from the manufacturer to the retailer is effectively mitigated with the hedging and the benefits of the flexible price contract are maintained

operational flexibility and financial hedging complements or substitutes we consider a firm that invests in capacity under demand uncertainty and thus faces two related but distinct types of risk mismatch between capacity and demand and profit variability whereas mismatch risk can be mitigated with greater operational flexibility profit variability can be reduced through financial hedging we show that the relationship between these two risk mitigating strategies depends on the type of flexibility product flexibility and financial hedging tend to be complements substitutes i e product flexibility tends to increase decrease the value of financial hedging and vice versa financial hedging tends to increase decrease the value of product flexibility when product demands are positively negatively correlated in contrast to product flexibility postponement flexibility is a substitute to financial hedging as intuitively expected although our analytical results assume perfect flexibility and perfect hedging and rely on a linear approximation of the value of hedging we validate their robustness in an extensive numerical study

risk sharing and information revelation mechanism of a one manufacturer and one retailer supply chain facing an integrated competitor this paper develops an information revelation mechanism model of a one manufacturer and one retailer supply chain facing an outside integrated competitor under demand uncertainty we investigate how the manufacturer designs a wholesale price order quantity contract to induce the retailer to report his risk sensitivity information truthfully we try to explore the effects of the outside competitor and the risk sharing rule on the optimal price service level decisions of the retailer and the optimal wholesale prices of the manufacturer we find that the strategic interaction plays an important role in the effect of risk sensitivity on the order quantity for the retailer when the fraction of the risk cost shared by the manufacturer is sufficiently large small the optimal wholesale price for the high risk averse retailer is higher lower than that for the low risk averse retailer

flexible and risk sharing supply contracts under price uncertainty we study supply contracts for deterministic demand but in an environment of uncertain prices we develop valuation methodologies for different types of supply contracts a time inflexible contract requires the firm to specify not only how many units it will purchase but also the timing of the purchase a time flexible contract allows the firm to specify the purchase amount over a given period of time without specifying the exact time of purchase other than time flexibility the suppliers may offer quantity flexibility to the firm as well i e purchase quantities could be within a prespecified quantity window finally risk sharing features can be incorporated in the contract in terms of the purchase price that the firm eventually pays to a supplier within a prespecified price window the firm pays the realized price but outside of it the firm shares in an agreed way added costs or benefits given the structure of a supply contract we study the firm s decision when to purchase and how many units in each purchase such that the expected net present value of the purchase cost plus inventory holding cost is minimized we discuss optimal purchasing strategies for both time flexible and time inflexible contracts with risk sharing features other interesting results include the analysis of two supplier sourcing environments and the exploitation of quantity flexibility in such contracts our discussion illustrates how time flexibility quantity flexibility supplier selection and risk sharing when carefully exercised can effectively reduce the sourcing cost in environments of price uncertainty

the optimal exploitation of a natural resource when there is full complementarity we analyse optimal growth for an economy in the possession of an exhaustible resource when the economy s non resource output is produced by means of capital and the utilization of the resource the optimal trajectories are sketched for the case where these factors of production are complements

energy price shocks and productivity growth in us and uk manufacturing because sustained changes in the trend of productivity growth are so very important for people s long run economic welfare the dramatic productivity growth slowdown of the 1970 s and early 1980 s has been the focus of much analysis and discussion for some observers it was much more than coincidence that the oil price shocks of 1973 74 accompanied the sharp slowdowns in traditionally measured productivity growth not only in the united states and the united kingdom but throughout the industrialised world however establishing quantifying and explaining sig nificant linkages between energy price shocks and productivity growth has proved to be most difficult traditional and time honoured relationships involving productivity growth have all seemed incapable of explaining this slowdown for example edward denison author of several widely cited productivity studies has concluded that energy had essentially no role in explaining the productivity growth slowdown and that moreover what happened is to be blunt a mystery 1979 p 4

the demand for capital labor and energy in european manufacturing industry before and after the oil price shocks the price and substitution elasticities for factor inputs capital labor fuels and electricity are estimated for total manufacturing industry on the basis of a pooled crosscountry time series analysis for nine west european countries the impact of the economic disturbances in the 1970s on the price sensitivity of demand is analyzed by estimating a translog cost function for two separate periods 1960 72 and 1973 80 hicks neutral technical change is rejected for both periods the results indicate some quite significant changes in the elasticities over the two periods

demand information and spot price information supply chains trading in spot markets abstract this paper investigates the effect of information updating on the members of a two stage supply chain in the presence of spot market the supplier decides the contract price new information becomes available as time progresses the manufacturer updates his belief on demand and or spot price and subsequently decides the contract quantity the demand and spot price are correlated thus the new demand information also updates the belief on the spot price and vice versa we model the problem with an information updating stackelberg game and derive unique equilibrium strategies previous studies have considered only the demand information and concluded that improved demand information always benefits the supplier by contrast we demonstrate that improved demand information benefits both the supplier and manufacturer if the correlation coefficient between the two uncertainties has a small positive value and benefits the manufacturer but hurts the supplier otherwise moreover superior spot price information benefits only the manufacturer and always hurts the supplier surprisingly superior information fails to improve the performance of the supply chain and only changes the allocation of the profits between the supplier and manufacturer our findings likewise provide insights into when the supplier intends to use the contract channel and which type of information updating facility or expertise to invest in if a choice must be made

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

efficient supply contracts for fashion goods with forecast updating and two production modes we examine the problem of developing supply contracts that encourage proper coordination of forecast information and production decisions between a manufacturer and distributor of high fashion seasonal products operating in a two mode production environment the first production mode is relatively cheap but requires a long lead time while the second is expensive but offers quick turnaround we focus on contracts of the form w1 w2 b wherewi is the wholesale price offered for production modei andb is a return price offered for items left over at the end of the season we find that such a contract can coordinate the manufacturer and distributor to act in the best interest of the channel the pricing conditions needed to ensure an efficient solution vary depending on the degree of demand forecast improvement between periods and the manufacturer s access to forecast information we also examine whether these conditions ensure a pareto optimal solution with respect to two traditional production settings

capacity decisions with debt financing the effects of agency problem abstract this paper studies the capacity management problem for a firm that uses debt financing this is done by analyzing the effect of the associated agency problem when making capacity decisions the agency problem arises when there are potential conflicts of interest between the firm owner and the lender we show that this agency problem can constrain the firm s optimal capacity decision because the borrowing rate will increase as the risk of default increases with capacity level chosen the firm will therefore try to optimally choose the level so as to reduce the risk of bankruptcy which the lender will take into account and as a consequence the firm will try to control the risk associated with potentially high borrowing costs however even when the expected bankruptcy cost is carefully controlled the optimal capacity decision is still made at the risk of incurring considerable agency costs in addition the corporate tax level can also play a significant role in capacity choice we show that although a higher tax rate leads to bigger tax benefit of debt and lower agency cost it also gives rise to a higher tax liability after balancing the tax benefit of debt with the agency cost the firm can make an optimal decision on the capacity level required the efficacy of financial hedging for mitigating the agency cost is also analyzed finally we compare and contrast our analysis with existing studies and it appears that we have been able to obtain a deeper insight into the problem

factor substitution in u s manufacturing does plant size matter we use micro data for 10 412 u s manufacturing plants to estimate the degrees of factor substitution by industry and by plant size we find that 1 capital labor energy and materials are substitutes in production and 2 the degrees of substitution among inputs are quite similar across plant sizes in a majority of industries two important implications of these findings are that 1 small plants are typically as flexible as large plants in factor substitution consequently economic policies such energy conservation policies that result in rising energy prices would not cause negative effects on either large or small u s manufacturing plants and 2 since energy and capital are found to be substitutes the 1973 energy crisis is unlikely to be a significant factor contributing to the post 1973 productivity slowdown

expectations and factor demand this paper develops and estimates a model of interrelated factor demand with rational expectations in the presence of internal adjustment costs invariant technological parameters are distinguished from the firm s adjustment parameters which change when the exogenous processes faced by the firm change the capital demand equation is derived by solving the euler equations which stem from minimization of the present value of costs future exogenous variables are supplied from solutions of arima equations the model is tested on postwar quarterly data for u s manufacturing a regime change in the process for energy prices is simulated as is a temporary suspension of the investment tax credit

competitive and cooperative inventory policies in a two stage supply chain we investigate a two stage serial supply chain with stationary stochastic demand and fixed transportation times inventory holding costs are charged at each stage and each stage may incur a consumer backorder penalty cost e g the upper stage the supplier may dislike backorders at the lower stage the retailer we consider two games in both the stages independently choose base stock policies to minimize their costs the games differ in how the firms track their inventory levels in one the firms are committed to tracking echelon inventory in the other they track local inventory we compare the policies chosen under this competitive regime to those selected to minimize total supply chain costs i e the optimal solution we show that the games nearly always have a unique nash equilibrium and it differs from the optimal solution hence competition reduces efficiency furthermore the two games equilibria are different so the tracking method influences strategic behavior we show that the system optimal solution can be achieved as a nash equilibrium using simple linear transfer payments the value of cooperation is context specific in some settings competition increases total cost by only a fraction of a percent whereas in other settings the cost increase is enormous we also discuss stackelberg equilibria

pre season stocking and pricing decisions for fashion retailers with multiple information updating abstract motivated by the industrial practice we investigate in this paper the pre season inventory and pricing decisions for fashion retailers before the selling season a retailer can place orders for a seasonal fashion product from her supplier at two distinct stages via two different delivery modes market information from the sales of a pre seasonal product is collected and used to update the demand forecast of the seasonal product at the succeeding stages by using bayesian approach we formulate a dynamic optimization problem and obtain the optimal stocking policy after the ordered seasonal product has arrived and just before the start of the selling season the retailer can determine the optimal selling price of the product with respect to the latest demand information and the amount of product on hand we study the pricing policy under different objectives sensitivity analysis is carried out and the features of the policies are revealed managerial insights are generated

dynamic factor demand systems and the adjustment speed towards equilibrium most models of factor demand can be grouped into two categories the first is static models which consistently account for substitution among several factors without imposing a priori restrictions on the production structure such models utilize flexible functional forms to represent the underlying technology however they impose strict restrictions on the dynamic behaviour of the technology in that either full or partial static equilibrium is assumed studies in this group providing a rationale for modelling some input factors as fixed in the short run include brown and christensen 1980 and kulatilaka 1985 a partly dynamic approach was suggested by pindyck and rotemberg 1983 who explicitly model the adjustment costs of some factors however the underlying production technology is still regarded as static the second category consists of dynamic models that incorporate cost of capital stock adjustments such models often apply a single factor and typically impose ad hoc assumptions in both categories the researcher selects the inputs which are not regarded as completely variable mostly on the basis of a priori assumptions in this paper we will focus on implications of a dynamic modelling of factor demand systems it is clear that a firm will adjust to price changes only when it is profitable to do so accordingly the cost of adjustment may serve as a rationale for why different factors may adjust towards equilibrium at different speeds hence when we are able to model the adjustment speed of the different factors we are also able to parametrically test for the

short and long term equilibria relationships between first and third generation dynamic factor demand models abstract first generation dynamic models of input demands are theoretically inferior to third generation models yet their simplicity makes them attractive for estimation purposes moreover first generation models can be shown to be generically related to third generation models and under certain assumptions input demand expressions in a third generation model collapse to those of the first generation seemingly offering a short cut for estimation however empirical comparisons suggest that first generation specifications do not afford a reasonable approximation to input functions embedded in more complex third generation models furthermore the reduced form coefficients do not permit identification of third generation model structures

a multi stage financial hedging approach for the procurement of manufacturing materials abstract this paper addresses the problem of mitigating procurement risk that arises from volatile commodity prices by proposing a hedging strategy within a multi stage time frame the proposed multi stage hedging strategy requires a commodity futures position to be correctly initialised and rebalanced with adequate volumes of short long positions so as to reduce the volatility in the total procurement cost that would otherwise be generated by varying commodity spot prices the novelty in the approach is the introduction of the rebalancing of commodity futures position at defined intermediate stages to obtain an efficient or near optimal multi stage hedging strategy a discrete time stochastic control model dscm is developed numerical experiments and monte carlo simulation are used to show that the proposed multi stage hedging strategy compares favourably with the minimal variance hedge and the one stage hedge a close form optimal solution is also presented for the case when procurement volume and price are independent

valuing risky projects option pricing theory and decision analysis in the academic literature and professional practice there are a number of alternative and apparently competing methods for valuing risky projects in this paper we compare and contrast three different approaches risk adjusted discount rate analysis option pricing analysis and decision analysis focusing on the last two we show that in contrast to some of the claims made in the real options literature when both option pricing and decision analysis methods are correctly applied they must give consistent results we also explore ways in which option pricing and decision analysis methods can be profitably integrated in particular we show how option pricing techniques can be used to simplify decision analysis when some risks can be hedged by trading and conversely how decision analysis techniques can be used to extend option pricing techniques to problems with incomplete securities markets

supply contracts with financial hedging we study the performance of a stylized supply chain where two firms a retailer and a producer compete in a stackelberg game the retailer purchases a single product from the producer and afterward sells it in the retail market at a stochastic clearance price the retailer however is budget constrained and is therefore limited in the number of units that he may purchase from the producer we also assume that the retailer s profit depends in part on the realized path or terminal value of some observable stochastic process we interpret this process as a financial process such as a foreign exchange rate or interest rate more generally the process can be interpreted as any relevant economic index we consider a variation the flexible contract of the traditional wholesale price contract that is offered by the producer to the retailer under this flexible contract at t 0 the producer offers a menu of wholesale prices to the retailer one for each realization of the financial process up to a future time the retailer then commits to purchasing at time a variable number of units with the specific quantity depending on the realization of the process up to time because of the retailer s budget constraint the supply chain might be more profitable if the retailer was able to shift some of the budget from states where the constraint is not binding to states where it is binding we therefore consider a variation of the flexible contract where we assume that the retailer is able to trade dynamically between zero and in the financial market we refer to this variation as the flexible contract with hedging we compare the decentralized competitive solution for the two contracts with the solutions obtained by a central planner we also compare the supply chain s performance across the two contracts we find for example that the producer always prefers the flexible contract with hedging to the flexible contract without hedging depending on model parameters however the retailer might or might not prefer the flexible contract with hedging

loss averse newsvendor model with two ordering opportunities and market information updating abstract a fashion supply chain characterized by a long lead time and a short selling season is considered in this paper facing demand uncertainty the risk averse retailer has two opportunities to make order decisions before the demand is realized the risk aversion is modelled as a penalty to the decision maker the retailer if a target profit is not attained we derive the retailer s optimal ordering decisions and analyze the monotonicity behaviours of the critical market signal the optimal first stage order quantity and the optimal expected payoff with respect to the penalty coefficient we also examine the impact of demand forecast quality on the retailer s decisions and extend the study to the case where order cancellation is allowed

technical note optimal inventory policy in the presence of a long term supplier and a spot market we consider a stochastic inventory control problem in which a buyer makes procurement decisions while facing periodic random demand and two supply sources namely a long term contract supplier and a spot market the contract between the buyer and the supplier partially shields the latter from the vicissitudes of the spot market in that the price paid by the buyer to the supplier is only partially linked to the spot price at the moment after fulfilling the minimum order commitment with the supplier the buyer has the full freedom to source from both the supplier and the market procurement from the spot market also incurs a fixed setup cost we show that an optimal policy consists of three different policy forms with the realization of each depending on the buyer s inventory level and the prevalent spot price certain conditions are identified under which monotone trends exist between policy parameters and the current spot price

hedging long term exposures with multiple short term futures contracts this article analyzes the problem facing an agent who has a long term commodity supply commitment and who wishes to hedge that commitment using short maturity commodity futures contracts as time evolves the agent has to roll the hedge as old futures contracts mature and new futures contracts are listed this gives rise to hedge errors the optimal hedging strategy is characterized in a world where contracts of several different maturities coexist the strategy is independent both of the agent s risk aversion and under certain conditions of beliefs about expected returns from holding futures contracts the methodology is compared with approaches based on dynamic models of the term structure it is tested on data from the oil futures market article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

dynamic factor demands and the effects of energy price shocks a dynamic model is used to understand how sharp changes in energy prices affect investment behavior employment and energy use the authors discuss the theory behind their model selection model specifications estimation methods and data list parameter estimates and elasticities for the selected model and describe the simulations they conclude that 1 the data strongly reject the hypothesis of constant returns to scale within their specification of aggregate production 2 the data indicate adjustment costs on labor are small and 3 their results help reconcile some of the conflicting estimates of energy demand elasticities appearing in recent literature 23 references 3 figures 3 tables

testing dynamic specification of factor demand equations for u s manufacturing this paper addresses the question of dynamic specification of empirical models of factor demand for annual u s manufacturing data from 1947 to 1981 frequently used models that treat a subset of factors as variable are shown to be misspecified an error correction model is considered as an alternative specification this model is shown to dominate several more parsimonious models in several respects however like the other models considered the error correction model is unable to generate satisfactory estimates of long run elasticities the issue of dynamic specification remains unresolved copyright 1992 by mit press

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

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

multiechelon procurement and distribution policies for traded commodities we consider a firm that procures and distributes a commodity from spot and forward markets under randomly fluctuating prices the commodity is distributed downstream to a set of nonhomogeneous retailers to satisfy random demand we formulate a model that allows one to compute approximate but near optimal procurement and distribution policies for this system and we explore the value of the commodity s market in providing managers with a additional flexibility in procurement and b information on price dynamics generated through the trading of futures contracts our results indicate that the presence of the commodity market and the information that it conveys may lead to significant reductions in inventory related costs however to obtain these benefits both the spot procurement flexibility and the term structure of prices generated by the commodity market must be incorporated in the formulation of the operating policy managerial insights on the procurement strategy as a function of variability in prices and demand are also discussed this paper was accepted by john birge focused issue editor

systematic effects of capital service price definition on perceptions of input substitution earlier attempts at reconciling disparate substitution elasticity estimates examined differences in separability hypotheses data bases and estimation techniques as well as methods employed to construct capital service prices although these studies showed that differences in elasticity estimates between two or three studies may be attributable to the aforementioned features of the econometric models they have been unable to demonstrate this link statistically and establish the existence of systematic relationships between features of the econometric models and the perception of production technologies generated by those models using sectoral data covering the entire production side of the u s economy we estimate 34 production models for alternative definitions of the capital service price we employ substitution elasticities calculated from these models as dependent variables in the statistical search for systematic relationships between features of the econometric models and perceptions of the sec

energy conservation in china s light industry sector evidence from inter factor and inter fuel substitution following the impressive economic achievements in the past decades china is faced with energy and environmental challenges to carry out more effective and targeted energy policies the heterogeneities of different industrial sectors are of great importance the energy consumption of china s light industry in 2012 was 316 million tons of coal equivalents which is about the energy consumption of south korea the paper explored the substitution relationships between various input factors and fuel sources and showed that electricity price reform is crucial for energy conservation in china s light industry then the dynamics of energy intensity change is examined by decomposing energy intensity into budget effect substitution effect output effect and technology advance effect the result revealed that the substitution effect between input factors is a key driving force however technology progress seems to contribute very little for future energy policy alternatives promoting the implementation of new conservation technology and electricity price reform may be effective measures

optimal ordering decisions with uncertain cost and demand forecast updating we determine the optimal ordering policy for a retailer who has two instants to order a seasonal product from a manufacturer prior to a single selling season while the demand is uncertain the retailer can improve the forecast by utilizing the market signals observed between the first and second instants however because of the nature of the manufacturing environment the unit cost at the second instant is uncertain and could be higher or lower than the unit cost at the first instant to determine the profit maximizing ordering strategies at both instants the retailer has to evaluate the trade off between a more accurate forecast and a potentially higher unit cost at the second instant we present a nested newsvendor model for determining the optimal order quantity at each instant and characterize the conditions under which it is optimal for the retailer to delay its order until the second instant

financial structure production and productivity evidence from the u s food manufacturing industry this study integrates production and financing to examine the impacts of financial structure change on the production profitability and productivity growth in the u s food manufacturing industry empirical results show that during the period covered by this study agency cost associated with increased debt use by this industry negatively affected its output growth input demand profitability and overall productivity growth dividend payment positively contributed to the production and performance of this industry via signaling benefit however the negative effects of increased debt use by this industry far outweighed the positive contribution of dividend payment the u s food industry achieved a 0 9 average annual productivity growth which came primarily from technological progress and capital adjustment the rapid increase in debt use by this industry was responsible for slowing down the pace of productivity growth via its negative contribution to the total factor productivity growth capital expansion was the principal driver of output growth and profitability in this industry

energy capital substitutability complementarity the dichotomy abstract changes in the price of energy affect not only the demand for energy but also the rates of capital formation and labour utilization these changes depend on the functional relationship between energy and the primary factor inputs in particular the relationship between energy and capital has been characterized by major conflicting evidence time series data classify the two inputs as complements by contrast pooled cross section studies conclude that capital and energy aresubstitutes in the production process in this case higher priced energy will stimulate the demand for investment while several reconciliation attempts on this disparity deserve marked attention the most prominent explanation is that time series studies reflect short term relationships and cross section analyses capture long term effects

optimal ordering and pricing strategies in the presence of a b2b spot market abstract in the current paper we examine the effect of a b2b spot market on the strategic behavior and the performance of a reseller who continues to use the traditional channel while participating in a b2b spot market we analyze the case in which a risk neutral reseller faces an additive or multiplicative demand function and identify sufficient conditions under which the optimal order quantity and retail price exist and are unique we then analytically examine the case in which a risk averse reseller participates in a fully liquid spot market we also study numerically how varying liquidity spot price volatility demand variability and correlation coefficient affect a firm s strategies and performance we find that demand variability significantly affects both pricing and ordering strategies whereas the spot price volatility has less influence on pricing decisions our results also show that for a risk averse reseller to charge a lower retail price when the spot market liquidity increases is desirable we further show that a b2b spot market cannot always improve a reseller s utility these findings shed light on how resellers can adjust their procurement and pricing strategies to align with the new business environment created by the emergence of b2b spot markets as well as have obvious implications for the development of a b2b spot market

input substitution in manufacturing for three ldcs translog estimates and policy implications demand and subsititution elasticities from a translog cost model are estimated for the manufacturing sectors of india pakistan and bangladesh conventional formulae for the standard errors of the estimated elasticities are checked by a bootstrap experiment and their validity is confirmed for the moderate sized samples of india and pakistan the elasticity estimates indicate a high degree of substitutability among capital labour and energy resources in manufacturing sectors of these countries the result yields important policy implications for employment expansion through changing relative resource prices and the ability of these three economies to adjust to energy price shocks without serious impairment to economic growth

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