input demand under yield and revenue insurance previous studies disagree on the effects of insurance on fertilizer application rates the effect of increased fertilizer on the probability of low yields primarily determines whether fertilizer and insurance are substitutes or complements we estimate conditional distributions of corn yields to determine if the technical relationship between yields and fertilizer supports the hypothesis that insurance increases optimal application rates our results indicate no support for this hypothesis at all nitrogen fertilizer rates and reasonable levels of risk aversion nitrogen fertilizer and insurance are substitutes suggesting that those who purchase insurance are likely to decrease nitrogen fertilizer applications

the effects of taxation on partnership investment abstract partnership are becoming more prevalent in the united states and may represent a significant source of investment in the future consequently understanding the effects of taxation on partnership investment may become increasingly important this paper examines how the level of taxation and the degree of progressivity of the tax system affect partnership investment our analysis also examines how such factors as partner outside income partner preferences for risk taking and the manner in which the partnership is organized can interact with the tax code to alter partnership investment levels

does the tax system favor investment in high tech or smoke stack industries in this paper we examine whether differential use of depreciable assets gives rise to differential tax treatment of high technology industries relative to other industries we calculate the total effective tax rate on a marginal investment in each of 34 assets and weighting by the use of these assets we calculate total effective tax rates for 73 industries we find considerable variation within the high tech sector and within the more traditional sector but for the case of a taxable firm with a given debt equity ratio we do not find any systematic differences between overall rates in the two sectors

errors in variables bounds in a tobit model of endogenous protection the errors in variables eiv problem is pervasive in econometrics but has not received the attention it deserves perhaps because it is difficult to resolve the first objective of this paper is to demonstrate the effectiveness of recently developed methods to deal with the eiv problem in models with censoring the second objective of this paper is to empirically examine in light of the eiv problem theories of endogenous protection that have become important in trade theory in their ability to explain why nations do not follow the traditional economic maxim of free trade these theories emphasizing political economic factors have gained momentum based on a set of empirical studies that have sought to prove their validity whether inferences about the theories of endogenous protection are gravely affected by errors in variables is examined using data on u s nontariff barriers with respect to nine developed countries the theoretical developments in klepper 1988 and klepper and leamer 1984 are combined with a result from levine 1986 which usefully extends the use of eiv diagnostics to a model with censoring

broadly decreasing risk aversion this paper considers decision making in the presence of two additive risk sources with no restrictions on the relation between the two risks a utility function is said to exhibit broad dara if and only if a rise in wealth always decreases the magnitude of the risk premium for one of the risks vis a vis the other a condition on utility functions giving this property is derived utility must be of the linear plus exponential form it is shown that certain problems involving portfolios and risk averse firms give unambiguous comparative statics if and only if utility exhibits broad dara

revenue neutral tax policies under price uncertainty the firm s response to revenue neutral taxation is investigated under price uncertainty revenue neutral policies adjust simultaneously the marginal tax rate and the level of exemptions while keeping expected tax receipts constant nonincreasing absolute risk aversion is sufficient to sign the firm s response a reduction in the marginal rate causes the firm to contract output implications are established for the equilibrium level of treasury receipts

state sponsored violence as a tragedy of the commons england s privateering wars with france and spain 1625 1630 the tragedy of the commons is the familiar problem that open access to a common property resource leads to overexploitation and to zero profits a commons model is applied to an example of state sponsored private violence the practice of privateering or licensed piracy it is predicted that the presence of uncertainty about the value of the prey will reduce the amount of exploitation effort and that industry profits may be positive due to both uncertainty and heterogeneous exploiters using data from england s wars with france and spain between 1625 and 1630 the model suggests that the commons represented by enemy merchant shipping was not overexploited and that privateering profits were positive the dynamic paths of privateering effort ships seized and individual firm profits were however consistent with the normal expectation that commons exploitation will peak and fall as competition drives down returns through entry

some observations on insurance bankruptcy and input demand abstract the effects of insurance on input demand have been central to the debate over crop insurance policy and are of interest in assessing the moral hazard problem facing insurers in general in this paper the effects of insurance on input demand are characterized and related to a schema by which inputs can be assessed as risk reducing risk increasing or risk constant the results are extended to analyze the impact of bankruptcy provisions

union membership in the united states 1973 1981 this paper reports estimates of union membership gathered from may current population surveys from 1973 to 1981 the authors present data by occupation industry selected states and smsas race gender and educational attainment the paper both extends and differs from that by freeman and medoff which presents unionism estimates for the private sector for 1968 75 to facilitate longitudinal analysis this paper reports three year moving averages of occupational and industry data and annual estimates of demographic classifications the data include public sector as well as private sector workers and they exclude workers not covered by the national labor relations act also the authors provide only union membership estimates not estimates on workers covered by union contracts this paper suggests that the percentage of all workers that are unionized in the united states remained fairly constant over the 1973 81 period

mean gini analysis of stochastic externalities the case of groundwater contamination the mean gini approach is used to analyze stochastic externalities generated by agricultural production the model addresses the problem of groundwater pollution caused by excessive fertilizer application inherent in the mean gini approach to expected utility maximization is a two fold value the simplicity of the two parameter mean variance model and satisfaction of necessary and sufficient conditions for stochastic dominance price and quantity policy recommendations to control externalities are formulated based upon the relative assessment of uncertainty by the regulatory authority and the farmers using the gini as a measure of risk allows for the quantification of control policy measures under differentiated risk aversion and multiple sources of pollution the model shows that when producers underestimate uncertainty quota policies restricting fertilizer are more efficient than tax policies in reducing groundwater contamination

corporate financial policy with personal and institutional investors abstract in this paper we present a simple general equilibrium model of the portfolio behavior of households and institutions paying particular attention to the influence of differences in tax rates and attitudes toward risk under the plausible assumptions that households are more risk averse than institutions and possess a greater relative tax preference for equity versus debt we are able to characterize the equilibria which may result when debt is subject to bankruptcy risk

the effect of technological uncertainty on the optimal location of a competitive firm abstract the purpose of this paper is to analyze the location decision of a competitive firm which is facing technological uncertainty this technological uncertainty could be the result of changes in production methods production machinery or input quality the analysis assumes the firm is risk averse and has decreasing absolute risk aversion using a simple model the results show that a competitive firm will locate closer to its sources under technological uncertainty when it is risk averse

on the production efficiency of a location regulated firm this paper evaluates the effect of location regulation on a monopolist s output and examines the desirability of such regulation it is shown that a location regulation can increase the output if the production functions do not exhibit constant returns to scale and that the output level could be higher than the social welfare maximum without intervention if demand curves are sufficiently convex to the origin

trade wars and trade talks when governments meet in the international arena their actions reflect the political situations at home previous studies of trade relations have focused on governments that are immune from political pressures and that act as benevolent servants of the public interest here we introduce domestic politics into the analysis of international economic relations we study the interactions between national leaders who are concerned both with providing a high standard of living to the general electorate and collecting campaign contributions from special interest groups our analysis sheds light on the determinants of the structure of protection in non cooperative and cooperative policy equilibria

a model of homogenous input demand under price uncertainty this paper examines the empirical validity of a model of homogeneous input demand under price uncertainty in which firms trade off expected input cost against its variability risk in selecting the optimal input supplier mix using recent work in time series econometrics this model is applied to the japanese steam coal import market where five suppliers compete china the soviet union south africa the united states and australia copyright 1991 by american economic association

adjustment to production uncertainty and the theory of the firm this paper considers the behavior of the firm which faces uncertainty in its production process but can adjust its output once the uncertainty is resolved ex post adjustment unlike previous treatments involves a marginal cost penalty if more output is required and a lowering of price if too much is produced with ex post adjustment allowed in this fashion it is found that nonlinear risk preferences do not affect the sign of the firm s marginal risk premium at optimum ex ante output the firm will produce less output than under certainty whether it is risk averse risk neutral or prefers risk

the elasticity of scale and the shape of average costs different concepts of returns to scale the first which is most widely used for defining returns to scale is the relative increase in output as all input quantities are increased proportionally along a ray through the origin the second which is the more relevant concept for micro economic analysis is the increase in output relative to costs for variations along the expansion path where input prices are constant and costs are minimized at every output 2 as it turns out these two concepts yield equal measures for the elasticity of scale3 e at every minimum cost point in the input space however the change in e with output is generally different for the two concepts 4 since expansion paths do not coincide with rays unless the production function is homothetic 5 but it is the change of e along the expansion path and not along the raywhich determines the shape of the average cost curve ac and which is therefore relevant for the analysis of firms and industry behavior under competition 6 these relations are stated and analyzed below it is shown that assumptions made in the literature7 which are related to the behavior of e along rays or to the slope of the technically optimal surface where returns to scale are locally constant are irrelevantbeing neither necessary nor sufficient for implying classical u shaped average cost curves the following definitions and results are used here

revenue neutral tax policies under price uncertainty reply in their comment on my 1990 article yeh suwanakul and mai extend my analysis which focused attention exclusively on firm output to allow for simultaneous endogeneity of price aggregate output and numbers of firms they show that with downward sloping demand industry output adjusts positively to revenue neutral changes in the marginal rate of taxation this result is significant for two reasons first we are more often interested in predictions about aggregate phenomena than we are in predictions about individual firms indeed firm level predictions are frequently irrefutable since firm data are often unavailable second the authors derive their result under a set of conditions that appear to be more general than those invoked in my 1990 article in particular they circumvent the need to invoke specific assumptions about the nature of firms aversions toward risk i consider this a useful extension and i appreciate the careful scrutiny of my paper

the economics of special interest politics the case of the tariff this paper investigates the interaction of politicians and special interest lobbies the goal is to model the equilibrium levels of redistributive policies such as taxes subsidies tariffs and regulatory decisions the model is applied throughout to the setting of tariffs by contributing to political campaigns special interest lobbies generate economic returns higher tariffs generate revenue for import competing industries through higher product prices higher milk support prices raise dairy farm income and so forth the lobby invests to maximize these net economic returns in evaluating their chances of election politicians weigh the favorable effects of special interest money against the unfavorable association with the lobby and the social cost of the redistributive policy section i explores the lobby s problem it describes a formalization of mancur olson s discussion of the voluntary provision of public goods and optimal contributions by lobbies to political campaigns section ii describes determination of the equilibrium tariff positions of each politician in a political campaign

revenue neutral tax policies under price uncertainty comment in an interesting paper in this journal holloway investigated the firm s response to revenue neutral taxation under price uncertainty in his analysis revenue neutral policies adjust simultaneously the marginal tax rate and the level of exemptions while keeping expected tax receipts constant using an assumption of nonincreasing absolute risk aversion he concluded that a reduction in the marginal rate would cause the firm to contract output holloway used the 1986 tax reform act as an example of a revenue neutral policy as a matter of fact the act was intended to be revenue neutral while low

the supply of individual hours and labor force participation under uncertainty in the absence of labor supply constraints this paper shows that an increase in wage rate uncertainty alters the optimal supply of individual hours but leaves the decision to participate unchanged in the presence of these constraints it is shown that if researchers are concerned with obtaining consistent parameter estimates of the labor supply function then it is important to correctly specify the type of uncertainty faced by workers specifically a mean preserving increase in wage rate uncertainty lowers the participation rate while an increase in non wage income uncertainty raises participation

taxation portfolio choice and debt equity ratios a general equilibrium model this paper explores the portfolio behavior of investors differing with respect to both tax rates and risk aversion emphasizing the role of constraints on individual and firm behavior in ensuring the existence of and characterizing portfolio equilibrium under certain conditions on the securities available in the market which also are necessary for shareholders to be unanimous in supporting firm value maximization investors will be segmented by tax rate into two groups one specialized in equity and the other in debt though the relative wealths of the two groups determine the aggregate debt equity ratio each firm will be indifferent to its financial policy

corporation tax finance and the cost of capital this paper examines the influence of corporate tax exhaustion on the firm s financial and investment decisions a dynamic programming model is used to establish effective marginal tax rates in the presence of a tax system that permits the carry forward of losses to future periods the paper demonstrates that internal optimal financial structures may result which do not require the imposition of external constraints the cost of capital is highly sensitive to the current taxable earnings of the firm and the implications of this for such tax transfer activities as leasing are discussed

production location decision and free entry oligopoly abstract this paper presents a simple oligopolistic model of location in which all firms in an imperfectly competitive industry are assumed to produce a homogeneous output and make cournot conjectures about their rivals input and location decisions within this framework this paper points out that the key difference between oligopoly and monopoly is the following in the case of monopoly a positive shift in demand requires that a monopolist increase his output but in the case of oligopoly an increase in industry output may or may not increase output per firm because of the number of firms at free entry equilibrium is not constant it is shown that in an oligopoly model of location that allows free entry the demand condition plays an important role on the determination of industrial location

modelling companies debt and dividend decisions with company accounts data reliable empirical models of company financial decisions have proved hard to construct using aggregate data this paper uses company specific data drawn from the published accounts of a large sample of uk companies to estimate a model of debt and dividend decisions an attempt is made to assess the relative importance of costs of funds the tax system the balance sheet and profitability of the company and of statutory controls in determining these key financial decisions diversity of behaviour is analysed by allowing for unobserved company specific effects and by examining subsets of the full sample

supply response under proportional profits taxation a striking result in the theory of the competitive firm under certainty is the proposition that a proportional profits tax with full offsets for losses will have no impact on optimal output this result does not apply under uncertainty it is shown that under constant or increasing returns to scale a proportional profits tax will yield an unambiguous expansion in output the same result is shown to hold for the more general rank dependent expected utility rdeu model

location and the theory of the imperfectly competitive firm under demand uncertainty there is a large and growing literature on location and the theory of the firm in a heterogeneous space i e in the space where markets are given at discrete points such as weber 22 isard 7 moses 15 sakashita 18 19 bradfield 3 emerson 5 woodward 23 khalili mathur and bodenhorn 8 miller and jensen 14 mathur 13 eswaran kanemoto and ryan 6 and mai and shieh 11 what is perhaps surprising is that within this large body of literature nothing has been said about how the firm would and should locate theoretically under conditions of uncertainty it only with webber 21 and mai 10 that any real indication is given that uncertainty due to imperfect market information may exert an influence on locational choice in particular mai 10 presented a formal mathematical model to show that the results and implications of the optimum location of the firm under demand uncertainty is different from that applicable to the state of certainty however mai s analytical framework is restricted to the case of pure competition where price is given all buyers are assumed to be concentrated at given market point and each firm seeks to minimize expected cost and is thus risk neutral the purpose of this paper is to extend the location theory of the competitive firm under demand uncertainty to the case where the imperfectly competitive quantity setting firms are not risk neutral and are interested in maximizing expected utility from profit including cost and demand factors 2 this expected utility approach will provide a more general formulation of the firm s attitude toward risk for analyzing its location decisions the basic model evaluating the firm s location and input choices is presented in section ii section iii examines the overall impacts of demand uncertainty on the optimum location and input demands the effect of a marginal increase in demand uncertainty on the optimum location is investigated in section iv section v analyzes the effect on the optimum location of a change in the expected output price section vi then evaluates the

the effects of alternative regulatory policies on utility investment strategies the environment for planning and constructing power plants has undergone substantial changes since the early 1970s after this decade of change many utilities are completing costly plants that are larger than necessary to satisfy current demand and requesting that the plants be added to the rate base the used and useful uu and the prudent investor pi criteria have been applied by increasing numbers of regulatory commissions to determine whether excess capacity plants should be included in the rate base this paper considers whether these criteria will induce firms to invest efficiently much of the discussion of these criteria has focused on developing an appropriate method for allocating excess capacity costs between consumers and investors it is widely recognized that allocating some of the excess capacity costs to investors increases the risk faced by utilities 2 this increased risk both increases the market cost of capital and reduces the utility s incentive to invest efficiently in new plants in the future consumers therefore trade lower current expenses for higher capital and operating costs in the future the importance of these concerns depends on the answers to two questions 1 how soon will new capacity be needed and 2 to what extent will the current policy affect future allowed rates of return and capital investment in response to the first question some analysts indicate that the situation of current excess capacity will be reversed in the early 1990s 3 this paper explores the second question by developing a simple model to consider the relation between the uu or pi policies the allowed rate of return and the level of future investment this important relationship is complex some writers have emphasized capital market con

some results on comparative statics under uncertainty this paper presents results on comparative statics for a class of decision problems under uncertainty necessary and sufficient conditions are derived for parameter changes and stochastically dominant shifts in the return in the two asset portfolio problem these results give conditions for the demand for money to be inversely related to the rate of interest further applications include the qualitive behavior of aggregate savings under uncertainty and the production decision of a firm facing price uncertainty copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a note on adjustment to production uncertainty and the theory of the firm this paper analyzes the impact of production uncertainty on the firm s optimal output decision if uncertainty is introduced by an additive risk variable then short run optimal output is unchanged but the owner manager s expected utility can change causing long run output effects if uncertainty is introduced by a multiplicative random variable then short run output can change as well

stockholder tax rates and firm attributes abstract this paper develops a rigorous theoretical model to assess when investor clienteles may be empirically identified using ex dividend day data and what firm attributes these clienteles should respond to it then presents empirical results for the period 1963 1977 suggesting that 1 tax based investor clienteles do exist and are reasonably stable over time and 2 these clienteles are strongly influenced by the dividend price ratio but insignificantly by direct measures of risk and other firm characteristics

fixed costs sunk costs entry barriers and sustainability of monopoly this paper shows that i fixed costs of sufficient magnitude assure the existence of a vector of sustainable prices for the products of a natural monopolist prices making him invulnerable against entry ii nevertheless fixed costs do not constitute barriers to entry that is they need not have undesirable welfare consequences iii indeed in market forms that we call perfectly contestable large fixed costs are completely compatible with many desirable attributes of competitive equilibrium iv sunk costs do however constitute barriers to entry and v finally the profit and welfare consequences of entry barriers are described formally in this paper it is shown that i fixed costs of sufficient magnitude assure the existence of a vector of sustainable prices a set of product prices that make a natural monopolist invulnerable against successful entry ii nevertheless costs that are truly fixed do not constitute barriers to entry that is they do not have the welfare consequences normally attributed to barriers to entry iii indeed there are markets of a form which we call perfectly contestable markets and whose properties may be approximated in practice in which large fixed costs are completely compatible with many if not most of the desirable attributes of competitive equilibrium iv sunk costs do however constitute barriers to entry and v finally the resource allocation problems that stem from fixed costs are formally identical with those that accompany public goods both their sources and their character are the same thus the rationale for public supply of public goods may be no different from that pertaining to nationalization of natural monopolies

constrained choices under risk there has recently been a revival of interest in the implications of rationing for economic theory extending the work of samuelson 21 tobin and houthakker 24 and pollak 16 recent papers by bruno 3 howard 8 latham 13 and neary and roberts 15 have explored the theory of producer and consumer behavior under quantity rationing these developments have provided useful hypotheses in the investigation of economic behavior for example they have stimulated a reexamination of macroeconomic disequilibrium however previous work seems to have focused on economic models in the absence of uncertainty yet given that production decisions are often made before output prices are known and in the absence of complete contingent markets sandmo 22 batra and ullah 2 and others have developed the theory of the competitive firm under price uncertainty under the expected utility maximization hypothesis such a theory provides useful information about the influence of changing economic conditions or of risk behavior on production decisions but because of the presence of short run adjustment costs leading to short run input fixity or because of regulatory or institutional constraints quantity rationing often influences production decisions in order to evaluate how rationing influences such decisions there is a need to develop a conceptual model of constrained choices of the firm under risk the objective of this paper is to explore the implications of quantity rationing in the context of production theory under price uncertainty by introducing risk and risk behavior it extends the classical analysis of quantity constrained production decisions 3 21 the implications of quantity constraints for risk responsive choice functions are derived using the concepts of compensated choice functions and virtual prices it is shown that expected price effects can be decomposed into substitution effects and wealth effects the substitution effects measure the effects of a change in expected price on the compensated choice functions the compensation being made through a change in initial wealth holding expected utility constant the wealth effects characterize risk preferences since a non zero wealth effect reflects a departure from an arrow pratt constant absolute risk aversion utility function the influence of rationing on the properties of ordinary as well as compensated choice functions is analyzed in details by deriving the implications of quantity constraints for firm behavior under uncertainty the paper presents a number of useful results concerning the influence of risk or technology on economic behavior under rationing for example a

tax exempt investors and the asset allocation puzzle abstract investors frequently hold equity in pensions and other tax exempt savings plans despite the prediction of the standard model that they hold only bonds we provide a new explanation for this empirical puzzle based on differences between tax exempt and taxable assets in the tax treatment of capital losses we show how limits on refundability of losses on taxable equities leads to diversity of investors preferences for corporate leverage on the basis of tax rates in the simplest equilibrium of the model tax exempt savers hold risky highly levered equities while low bracket taxable savers hold bonds and high bracket taxpayers hold relatively safe unlevered equities we discuss the implications of tax exempts for risk taking and agency costs within the firm