price inertia and market structure empirical evidence from austrian manufacturing 1993 price inertia and market structure empirical evidence from austrian manufacturing applied economics vol 25 no 9 pp 1175 1186

efficient methods of measuring welfare change and compensated income in terms of ordinary demand functions a utility maximizing consumer with a completely known system of ordinary demand functions q h p c is considered let p qo and p q be two arbitrary equilibrium situations the problem is to evaluate in which of the situations the utility is higher without knowing the utility function revealed preference theory tells that the ordinary demand functions which are in principle observable contain enough information to solve the problem remaining difficulties are therefore mainly computational we present how the compensated income c i c p qo and the compensated demand h p cl1 are calculated with arbitrary accuracy using only the ordinary demand system our two efficient algorithms also have interesting interpretations in terms of index numbers and consumer surplus measures

expenditure function estimates of the efficiency and distributive impact of indirect taxes in the united kingdom abstract this paper uses the expenditure function to consider the efficiency and distributional impact of indirect taxes in the united kingdom estimates of the parameters of the linear expenditure system of demand equations are employed to measure the compensating variation and equivalent variation costs of taxes on households in different income groups in addition distributional weights are used to consider the overall impact of different taxes and tax changes on social welfare finally we consider other types of demand system estimates which might be used in this kind of exercise

market structures price cost margins and unionism an empirical note abstract empirical results show the existence of a non linear relationship between concentration and price cost margins a non linear specification provides substantial evidence that unions reduce profits especially in more oligopolistic industries

the payoff to consistency in performance this study investigates whether firms are willing to pay higher wages to workers who demonstrate consistent performance than to those whose performance is more volatile a formal model reflects a production technology view assuming the law of diminishing marginal product this model suggests that a more consistent worker produces higher expected output and therefore receives a higher wage the test of the model uses data from the national basketball association the empirical data support the model players whose performances were more consistent than the performances of other players received higher wages on average jel d41 j31 m52 z20

shirking or stochastic productivity in major league baseball reply firms produce in an uncertain environment the long literature on the theory of the firm under uncertainty has focused on demand uncertainty 4 18 14 the unanimity question 8 15 or technological uncertainty 23 1 7 regarding the latter an interesting question is how that randomness enters the technology one source might be purely unpredictable factors such as the weather or accidents agricultural output for instance is dependent not only on the quantity of inputs hired but on the amount of rainfall natural disasters and the like a different source of technical uncertainty is variations in the quality and reliability of the input services hired in professional sports for example the performance of an athlete varies from game to game and season to season the reliability of capital a crucial issue in nuclear power generation is another example reflecting the stochastic nature of input productivity one economic consequence of this randomness of productivity is that an employer cannot know a priori the input s value but rather must form an estimate of its expected marginal contribution spence 20 showed how an employer uses signals such as educational attainment to determine if a worker is worth hiring once hired the firm still faces the difficulty of determining if a below average realization of productivity resulted from shirking by the employee or a bad draw from his productivity distribution this agency problem outlined in detail by alchain and demsetz 1 and holmstrom 10 has important implications to our perception of work effort especially in the presence of long term labor contracts allegations of shirking due to long term job security have been associated with seniority rights professional athletes and in the academic institution of tenure

the optimal phasing of phased deregulation abstract if producers or consumers behave myopically sudden and complete deregulation of a market with long standing price controls can lead to an inefficient allocation of resources this paper uses a simple model in which producers have adjustment costs to analyze optimal policies for phased deregulation tax policies are also examined and policy implications are discussed

coaching team production coaching team production the actual function of managers is the subject of much debate using data on more than 3000 male college basketball players their coaches and their skill levels we find a positive and significant relation between our ability to replicate an individual coach s allocation of playing time across players and his winning percentage although this result does not answer the central question of just what it is that managers contribute the results do support the property rights paradigm managers are the employees of workers and more generally sports data can be used to help understand related economic processes where quantifiable measures of inputs and outputs are more costly to obtain what is meant by performance input energy initiative work attitude perspiration rate of exhaustion or output sometimes by inspecting a team member s input activity we can better judge his output effect it is not always the case that watching input activity is the only or best means of detecting measuring or monitoring output effects of each team member but in some cases it is a useful way i introduction a major tenet of the alchian demsetz 1972 representation of the firm is that managers are hired by workers to prevent shirking and malfeasance in their own ranks absent overseers individual workers bear only a fraction of the cost of shirking and hence everyone undersupplies labor relative to its opportunity cost in this world the managerial function is to monitor inputs and meter rewards thereby reducing the incentive to shirk and raising each worker s marginal productivity the more dependence there is in the marginal products of laborers the more important the role of management this view of supervision is simultaneously intuitively pleasing and difficult to quantify this paper investigates the role of management in a setting where indisputably there is team production intercollegiate basketball 1 data on 3012 college basketball players across ten years and sixty five teams are used to replicate one aspect of coaching the allocation of playing time next we attempt to link coaching decisions to winning the goal is to determine if coaches who manage well by our standards are successful section ii motivates the paper in section iii the empirical methodology is detailed the monitoring function is estimated and related to coaching success section iv contains a summary and conclusion ii coaching decisions the essence of team production is interdependence and the inherent immeasurability of marginal productivity across workers however this does not mean that proxies for marginal productivity cannot be developed managers monitor worker inputs and deduce marginal products accordingly of course some inputs are more cheaply quantified than others attitude is hard to measure but heart rate is easy sweat is observed cheaply but workers can feign exhaustion in the famous chinese boatpullers fable the coxswain uses his whip to insure that coolies pull efficiently to persuade each worker to give the appropriate effort 2 mcmanus 1975 341 relates a story told by cheung boats are pulled upstream by a team of coolies prodded by an overseer with a whip an american lady horrified at the sight of the overseer whipping the men as they strained at their harness demanded that something be done about the brutality she was quickly informed those men own the rights to draw boats over this stretch of water and they have hired the overseer and given him his duties here the monitor uses his vision intuition and experience to determine shirking counseling the loafers with his whip but employing subjective observation is just one way to monitor

the sports business as a labor market laboratory with superior data on compensation and productivity as well as the occurrence of abrupt dramatic market structure and player allocation rules changes sports labor markets offer an excellent setting in which to test economic hypotheses this paper reviews evidence from sports in four areas employer monopsony discrimination the coase theorem and incentive contracts supervision and performance there is considerable evidence of monopsony as well as for the existence of some forms of discrimination against minority athletes incentive contracts have strong effects on player performance and behavior and there is mixed evidence on the predictions of the coase theorem

incidence and consequences of risk taking behavior in tournaments evidence from the nba we empirically explore the relevance and efficiency of risk taking behavior in tournaments we use data from the national basketball association nba and measure risk taking by the fraction of three point shots in basketball games we examine how point differences between teams during games affect their subsequent risk taking behavior it is found that teams that are trailing are more likely to increase their use of three point shots we additionally analyze the consequences of this change in behavior enhanced risk taking is inefficient in the vast majority of cases and is only beneficial if a team is trailing by a rather large margin we discuss possible explanations for these decision errors jel m5 d81 j30

a game level analysis of salary dispersion and team performance in the national basketball association using game level panel data on the national basketball association nba we examine the causal effect of within team salary dispersion on team performance we exploit three measures of salary dispersion and examine the effect at three levels whether the outcome of the game is influenced by salary dispersion among 1 players participating in the current game active players 2 players who played more than half of their team s games in a season regular and occasional players and 3 the entire player population regardless of the measures used we find that salary dispersion does not influence team performance

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

do employers pay for consistent performance evidence from the nba i introduction there are many economic models of labor contracting that feature job performance monitoring by employers when there is asymmetric information about worker behavior these models focus on a variety of agency issues and generate implications about contract terms such as initial wages wage tenure profiles termination rates and involuntary unemployment 1 it is typically assumed in these models that a worker s marginal revenue product mrp is known at the time of hiring but that costly monitoring is necessary to enforce contractual terms this paper deals with another issue suppose there is no agency problem but both worker and firm are equally uninformed about mrp when contracts are signed and work begins how are initial wages and other contractual terms influenced by symmetric uncertainty about mrp contracts are often formulated on the basis of various provisional predictors of mrp such as grades in college letters of reference from teachers and former employers work experience and performance test scores typically employers expend resources to acquire such information at hiring and continue to engage in costly performance evaluation afterward under such conditions the purpose of monitoring is discovery not contract enforcement information acquired from on the job monitoring is used to make decisions about adjustment of contractual terms job assignment and retention for example tenure track college professors are often evaluated yearly and must submit information about various aspects of on the job performance such as student evaluations of teaching research papers completed committee assignments etc on the job monitoring of workers is costly and is likely to affect the worker s pay in fact a worker may agree to pay for his monitoring if the information revealed by monitoring has alternative uses elsewhere in the labor market in this paper we develop and test a model of a firm facing costly on the job monitoring when there is symmetric information and we develop a number of novel implications for initial salaries the central feature of our model is that monitoring can be costly when a worker s performance over time is variable notably the model predicts that there will be an unambiguous inverse relationship between variance of mrp and initial wages we obtain this and other predictions without resorting to assumptions about employers and employees utility functions that risk aversion models require we regard our explanation of the relationship between variance and wages to be theoretically more robust than what the risk aversion literature would predict because that literature predicts an ambiguous relationship for example stiglitz 1974 232 uses a risk aversion model to demonstrate that wages and risk are inversely related only under very restricted conditions specifically if the worker is more risk averse than the firm and if labor s elasticity of output does not exceed some threshold level in contrast our prediction is based on an information transactions costs model with no restricted conditions we build upon earlier work by bodvarsson 1987 1989 who created a salary determination model in which a worker s output is variable over time bodvarsson characterized on the job monitoring as a sequential sampling experiment where the employer periodically samples from the worker s mrp distribution and stops when she believes there is enough information to determine the true underlying mrp a key implication of bodvarsson s model is that expected monitoring costs are higher for workers with variable output and therefore if workers pay all or part of the cost of monitoring salaries of such workers will be lower in his earlier paper this proposition was tested using a share contracting model and data on commercial fishing in the later paper a fixed wage model with educational signaling was developed but never tested we extend bodvarsson s fixed wage model and test it on an occupation that has many characteristics described by our model professional basketball players in the national basketball association nba

the intertemporal stability of the concentration margins relationship using a longitudinal data base we find that there has been a substantial narrowing of the spread between the price cost margins of concentrated and unconcentrated industries including measures of macroeconomic fluctuations into standard price cost margin regressions we find significant differences in cyclical behavior across market structure we also explore a possible explanation unionization for differences in cyclical behavior finally we investigate the degree to which our results are affected by the potential simultaneity of concentration advertising and the price cost margin

estimating the precision of welfare measures abstract three methods for constructing standard deviation and or confidence intervals for welfare estimates have been employed in the recreation demand literature a taylor s series approximation the bootstrap and a method proposed by krinsky and robb this paper presents the results of two sets of simulation experiments designed to examine the accuracy of these methods the first simulation examines the methods accuracy in estimating the standard deviation of welfare estimates the second simulation examines the accuracy of the methods in constructing confidence intervals

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

a dynamic model of natural gas deregulation abstract this paper analyses the effects of natural gas deregulation in an optimal control framework the hotelling type model studies the effects of deregulation on the behaviour of a profit maximizing competitive producer who explores and produces both new and old gas we concentrate on the interdependent nature of the extraction and exploration decisions and compute optimal time paths for explanatory effort extraction and prices in particular the natural gas market after january 1985 is analysed the status quo regime is a regime of partial deregulation with new gas completely deregulated and old gas under price controls the price of old gas is exogeneously determined by the regulating authority but the price of new gas is determined endogeneously through the market demand equation various schemes of deregulation which fall between the completely unregulated free market case and the status quo case are analyzed and compared to these limiting cases losses in consumer surplus and producer surplus are calculated to choose a deregulation scheme that would be least costly to society

industrial concentration and price cost margin of the indonesian food and beverages sector this article investigates trends in industrial concentration and its relationship with the price cost margin in 54 subsectors of the indonesian food and beverages sector in the period 1995 to 2006 this study uses firm level survey data provided by the indonesian bureau of central statistics bps classified at the five digit international standard industrial classification isic level the results show a significant increase in industrial concentration in 1995 to 1999 which coincided with the period of the economic crisis in indonesia after 1999 the industrial concentration exhibits a slightly decreasing long term trend furthermore the industrial concentration for all subsectors tends to converge to the same value in the long run additionally results show that higher industrial concentration yields a higher price cost margin finally the introduction of the competition law in 1999 has slightly lowered industrial concentration and the price cost margin