bluuebunny/crossref_metadata_2025 huggingface dataset:
An Economic Analysis of the Eutrophication Problem of the Barwon and Darling Rivers in New South Wales
Authors: Alaouze Chris M.
Published: March 2003

The focus of the paper is the 1000 km toxic blue‐green algal bloom which afflicted the Barwon and Darling Rivers in 1991. Factors which contributed to the bloom are increased water use for irrigation, drought and nutrient pollution, mainly phosphorus from sewage treatment plants and other point sources. A model for finding the optimal allocation of nutrient removal amongst point sources is developed in which the blue‐green algal externality impacts on a number of locations on the rivers. The cost of pollution function is unknown but our results suggest that if the marginal costs of phosphorus removal are low, the equilibrium level of phosphorus at each location is likely to be below that which reduces the recreational value of the rivers.
A New Approach to Identifying Structural Development in Economic Systems: The Case of the Queensland Economy
Authors: Schnabl Hermann , West Guy , Foster John , Cook Averil
Published: March 2003

Recently, some economists have come to view economic development as a process of ongoing structural change which has self‐organisational features. What is required is evidence concerning the self‐organisational character of economic development. In other words, is economic growth associated with growth in the complexity of its structure and with a parallel rise in organisational interdependence? An extended version of qualitative input‐output analysis, termed Minimal Flow Analysis (MFA), is used in this paper to analyse the structural linkages and changes that have occurred in the Queensland economy over the last two decades. The MFA evidence confirms that there has been a steady increase in the complexity of the Queensland economy. Economic coordination has occurred, to an increasing extent, through market intermediation. From a self‐organisational perspective, it is clear that the Queensland economy has followed a rapid and coherent developmental path, marked by the emergence of bonded structures in its core and increasing complexity on its periphery.
The Volatility of Real Exchange Rates: The Australian Case
Authors: Henry Olan T. , Summers Peter M.
Published: March 2003

This paper presents an empirical investigation into factors underlying the real U.S.‐Australian dollar exchange rate. We find that the random walk model of the real exchange rate can be improved by various GARCH specifications. In particular, we find that the estimated risk premium from a GARCH‐M model is not robust to model specification. When the model is extended to include the $US/Yen real exchange rate and an index of commodity prices the GARCH‐in‐mean term is no longer significant. The additional variables seem to account for the increased volatility of the real exchange rate in the post‐1983 period. Somewhat surprisingly, we find that changes in the Australian term spread and US‐Australian interest rate differential have little or no explanatory power for the real exchange rate.
Its Bark is Worse Than its Bite: The Wage and Employment Effects of the Minimum Wage in the US
Authors: Belman Dale , Wolfson Paul
Published: March 2003

This study examines the effect of changes in the US minimum wage on wages and employment in 32 industries selected for their presumed sensitivity to the minimum wage. Applying time series techniques commonly used in macroeconomics and finance to changes in the minimum wage occurring from 1967 and 1991, we initially test for a wage response; only where one is found do we test for an employment response. Twenty‐five per cent of the industry/minimum‐wage‐increase pairs show evidence of an appropriate wage response. Eight of these 54 show a statistically significant negative employment response, while six show significant, positive employment responses. Positive effects may be due to either a high variance distribution centred on zero or markets with ‘lemons’ problems concerning worker quality. Limiting analysis to industries in which the minimum wage binds provides no evidence of a consistent negative relationship between the historical minimum wage and employment.
Export‐led Growth and Import Compression: Further Time Series Evidence From LDCs
Authors: Asafu‐Adjaye John , Chakraborty Debasish
Published: March 2003

This paper conducts tests of the export‐led growth and the import‐compression hypotheses for four less developed countries (LDCs) – India, Nigeria, Fiji and Papua New Guinea (PNG). Based on Johansen's multiple cointegration test preceded by unit root tests, we test for cointegration between real output, exports and imports. Non‐rejection of cointegration between the variables excludes the possibility of Granger non‐causality and suggests at least one way Granger causality. Real output, exports and imports are found to be cointegrated in two of the countries and the resulting error‐correction models suggest that Granger causality runs from exports and imports to real output in these cases. Exogeneity tests are conducted for exports with respect to real output. However, while the assumption of weak exogeneity is validated in two of the countries, the null hypothesis of super exogeneity is rejected. The test results therefore cast doubts on policy recommendations for the LDCs based on the export‐led growth hypothesis.
Factor Supplies, Welfare and Output When Non‐traded Intermediate Production Has Increasing Returns
Authors: Anwar Sajid
Published: March 2003

This paper considers the impact of an exogenous change in the supply of primary factors on output levels, relative prices and welfare in the presence of output generated increasing returns to scale. Unlike the existing studies, this paper utilises a model of a small open economy where increasing returns do not occur in the production of a traded final good but in the production of a non‐traded intermediate good. Within the context of the present study, it is shown that the Rybczynski theorem is unlikely to hold and an increase in the supply of either primary factor can harm welfare.
Strategic Quality Decisions by Heterogeneously Informed Suppliers — The Role of “Noise Consumers”—
Authors: Sasaki Dan
Published: March 2003

In a differentiated oligopoly market, it is often the case that consumers' ex post preferences over different product qualities depend upon the state of nature which is not yet observable to the consumers at the time of purchase. One of the most typical examples is a market for durable goods or long‐term service contracts, where the state is indeed a future state which has not yet realised when the transaction is made. To analyse such situations, this paper models a two‐stage game, in which multiple suppliers move first to choose the quality of their products based upon their idiosyncratic information about the state. Consumers then observe these products, update their beliefs about the state, and decide which products to purchase. Counterintuitively, suppliers' incentives to reveal their private information are higher when there is a fraction of consumers whose prior about the state is moderately inaccurate, than when every consumer has better prior information. Hence the presence of such “noise consumers” can make all consumers better off, even including noise consumers themselves.
Evaluating the Impact of Educational Expansion on the Occupational Status of Youth
Authors: Vella Francis , Karmel Tom
Published: March 2003

This paper exploits the remarkable increase in the average educational attainment of Australian youth during the 1980's to evaluate the role of education in labour market performance. Rather than focus on the impact of schooling on wages, however, we examine changes in the occupational distribution of recent labour market entrants. The evidence indicates that the educational expansion appears to move all individuals up the educational ladder without altering their relative position. The results indicate that while the second cohort obtained substantially more education than the first cohort the occupational distribution of the two cohorts were almost identical. Furthermore, there was no evidence that the increased education counterbalanced changes in the structure of labour demand or manifested itself in higher wages.
How Important is APEC to China?
Authors: Yang Yongzheng , Huang Yiping
Published: March 2003

APEC is an important forum for China to show its commitment to economic openness. Concerted trade liberalisation in the APEC region reduces the adverse terms of trade effect of China's own trade liberalisation. These help maintain the momentum of reform by reducing domestic resistance. APEC is not a stepping stone to WTO membership, but it gives China an opportunity to rally international support for its early entry into the WTO. However, APEC cannot substitute for WTO membership. This is not only because the WTO framework provides greater security for market access for Chinese exports as well as potentially larger gains to the Chinese economy, but also because it imposes legal bindings on China's trade policy once it becomes a member. In facilitating China's trade liberalisation, APEC and the WTO seems to be mutually re‐enforcing. APEC prepares China for the WTO and the WTO accession pushes China to go along with the APEC process. Both APEC and WTO accession push forward domestic reform.
Repair Market Structure, Product Durability, and Monopoly
Authors: Kinokuni Hiroshi
Published: March 2003

This paper shows that a durable goods monopolist makes consumers choose a level of repairs which is below the socially optimal level if it monopolises the repair market as well. This distortion occurs due to the possibility of substituting new and used goods and a time inconsistency problem concerning repair decisions. However, if the monopolist is unable to commit the repair price, it may prefer to invite competitors into the repair market. If the repair market is competitive, even when the product market is monopolistic, the socially optimal level of repairs, and thus also the socially optimal durability level is chosen.
A Parametric Estimation of Bank Efficiencies Using a Flexible Profit Function with Panel Data
Authors: Huang Tai‐Hsin
Published: March 2003

This paper generalises Kumbhakar's (1996a) single product shadow profit function to a multiproduct one, which in contrast to Berger, Hancock, and Humphrey (1993) is consistent with a firm's profit maximising behaviour. By estimating a parametric translog profit function, which does not require special assumptions about the error distribution, and using panel data from Taiwan's banking industry, the following conclusions can be drawn: (i) Parameter estimates from the translog functional form are more robust than those from the Fuss (non‐logarithmic) form. (ii) More than half of all potential variable profits are found to be lost due to inefficiencies. (iii) Greater reduction in profit results from deficient output revenues than from a suboptimal input mix. (iv) The model finds technical progress during the sample period. (v) A type of ‘weakly’ optimal scope economies is detected, which suggests that the joint production of the two products can increase profits for some banks while not hurting the profits of others.
Variations in the Effect of Uncertainty on Different Types of Investment: An Empirical Investigation
Authors: Goel Rajeev K. , Ram Rati
Published: March 2003

Several recent studies, including those by Pindyck (1991), Pindyck and Solimano (1993), Dixit and Pindyck (1994), Episcopos (1995), and Abel et al. (1996), suggest an important linkage between the effect of uncertainty on investment and the irreversibility of the latter. This paper broadly follows the foregoing tradition, but makes the point that it should be possible to distinguish between investments with different degrees of irreversibility and to relate the effect of uncertainty with the degree of investment irreversibility. A simple empirical illustration is provided by using pooled annual data for 12 OECD countries and estimating fixed‐effects models for different types of investments. Although caution is appropriate in interpreting the estimates, the evidence suggests that the adverse effect of uncertainty is more severe on investments that have a greater degree of irreversibility.
Sustainability and Stability? Australian Fiscal Policy in the Twentieth Century
Authors: Olekalns Nilss
Published: March 2003

This paper examines data on Australian fiscal policy going back to federation to answer two questions. First, has the conduct of Australian fiscal policy been consistent with the government's intertemporal budget constraint? Second, have there been major structural changes in the conduct of Australian fiscal policy and if so, when did these changes occur?
Aggregation Biases in Stated Preference Studies
Authors: Morrison Mark
Published: March 2003

Stated preference studies are often used to provide estimates of non‐market values for cost‐benefit analysis. Applications of these techniques have been criticised because of the hypothetical nature of the surveys and the possibility of bias. Various types of bias have been cited including strategic, payment vehicle, starting point, interviewer and others. However, one type of bias that has received limited attention, but has the potential to have substantial impacts on value estimates, is that associated with aggregation. In this paper the theoretical basis for aggregation is explored, and alternative approaches for aggregation are trialed. It is demonstrated that the choices made by researchers at this stage of the value estimation process can significantly affect the estimates that are to be used in cost‐benefit analyses.
The Relationship Between Environmentally Sustainable Income, Employment and Wages in Australia
Authors: Mallick Seeme , Sinden J. A. , Thampapillai D. J.
Published: March 2003

The environment is an asset that provides essential services. Like any other asset, its services will diminish as it depreciates. The environmentally sustainable income of a nation depends on a sustained flow of these services, and can be estimated by including the environment in a macroeconomic framework, with a goal to achieve both full employment and sustainability. The relationship of national income to employment is estimated at full employment, actual employment and the employment level that is necessary to maintain sustainable income, for the Australian economy. There proved to be a widening gap between actual income and environmentally sustainable income, and between actual income and income to guarentee full employment. Wage reduction and improvement of technology are analysed as possible ways to meet the goal of an environmentally sustainable income.
The Antonelli Versus Hicks Elasticity of Complementarity and Inverse Input Demand Systems
Authors: Youn Kim H.
Published: March 2003

A true measure of input substitution associated with exogenous changes in input quantities requires that the output level be held constant. To this effect, this study presents the Antonelli elasticity of complementarity characterised by the distance function. The more common Hicks elasticity of complementarity assumes that marginal cost is constant and hence does not capture pure substitution effects. The two elasticities of complementarity are related to inverse demand systems and are shown to be equivalent under constant returns to scale. A framework for estimating the Antonelli elasticity from the uncompensated demand system is presented. Estimation results reveal substantial bias of input substitutability with the use of Hicks' measure.
Determinants of Recidivism in Paroled Queensland Prisoners: A Comparative Analysis of Custodial and Socioeconomic Characteristics
Authors: Worthington Andrew , Higgs Helen , Edwards Glyn
Published: March 2003

A multinomial ordered probit model is used to predict post‐release performance in a sample of Queensland prisoners released between January 1992 and December 1994. Post‐release performance is defined in terms of the seriousness of parole breaches and/or reoffences over the length of the parole period or until April 1996. The paper examines the statistical significance of a number of custodial and socioeconomic variables on the likelihood of a parole breach or re‐offence. Factors analysed include family composition, age, occupation, ethnicity, the number of events in custody, the number of prison violations and the length of sentence of the most recent custodial episode. All other things being equal, the marginal effects of readmission with respect to the set of explanatory variables varies markedly according to whether readmission is through a parole breach or through actual recidivist behaviour.
Comprehensive Income Measures, Housing Equity, and Tax‐Transfer Effects
Authors: Flatau Paul , Wood Gavin A.
Published: March 2003

Cash income is widely recognised as a deficient measure of income, as it takes no account of the contribution of net worth to consumption potential. Housing equity is a particularly important component of net worth. Comprehensive income measures incorporate housing equity by adding its annuitized value to cash income. However, such an approach fails to take into account adverse tax‐transfer effects on conversion of housing equity. As such, the contribution of housing equity to potential consumption is significantly exaggerated. A net comprehensive income measure, which directly incorporates the tax‐transfer effects from housing equity conversion, is introduced. Simulation exercises are conducted, to demonstrate the importance of taking into account tax‐transfer effects when measuring the comprehensive income of those homeowner income units in receipt of government pensions and benefits.
The Pareto‐Scorza Polemic on Collective Economic Welfare
Authors: McLure Michael
Published: March 2003

This paper reviews the 1902–03 polemic between Vilfredo Pareto and Gaetano Scorza, an Italian mathematician, on the validity of what is now referred to as the first law of welfare economics – i.e. the proposition that a point of equilibrium determined under conditions of free competition is Pareto optimal. It establishes that, contrary to the received view, Pareto did not write at cross‐purposes to Scorza and his work published after the polemic does not suggest that Pareto eventually sided with Scorza on the issue of collective economic welfare.
Product Safety Provision and Consumers' Information
Authors: Marette Stephan , Bureau Jean‐Christophe , Gozlan Estelle
Published: March 2003

Economic mechanisms related to the provision of product safety are explored, with particular attention paid to the structure of consumers' information. The case of perfect information, of experience goods (for which consumers detect product safety after consumption) and of credence goods (where consumers cannot link a disease to a particular product consumed in the past) are explored. Imperfect competition is assumed in the supply sector. In the case of both perfect information and experience goods, market equilibrium is characterised by a less‐than‐socially optimal provision of safety, when the safety effort is costly. With credence goods, imperfect information leads to the absence of safety effort and to a market closure. Different types of public regulation aiming at increasing consumer protection and circumventing market failures are explored. Particular attention is paid to minimum safety standards, labels and liability enforcement. The relative efficiency of these instruments depends on the information structure. In the cases of perfect information and experience goods, a minimum safety standard can be an efficient instrument. Regulation is necessary but not sufficient to avoid market failure in the case of credence goods.
Divisionalisation and Cournot Competition Yield Bertrand Outcomes
Authors: Yuan Lasheng
Published: March 2003

Bertrand and Cournot model are the main frameworks in the analysis of oligopolistic competition. The outcomes from them are however different. Using a simultaneous‐move two‐stage game, this article shows that, in a homogeneous product market with fairly general demand, the Bertrand outcomes can be achieved by a combination of divisionalisation and ensuing Cournot competition. This finding can be viewed as an extension to or complements of Kreps and Scheinkman (1983), who show that Cournot outcomes can be achieved by quantity precommitment and Bertrand competition.
Taxation and Investment Decisions: A Real Options Approach
Authors: Agliardi Elettra
Published: March 2003

The purpose of the paper is to analyse the impact of the tax system on the firm's incentives to invest and disinvest in an uncertain environment. This paper follows the real options approach, which allows us to investigate the value to a firm of waiting to invest and/or disinvest, when payoffs are stochastic and investments partially reversible. The implications for the magnitude and directions of the effects of tax policy are studied; also the case of tax policy uncertainty is examined.
Redistributive Tax and Growth in a Model with Discrete Occupational Choice
Authors: Bandyopadhyay Debasis , Basu Parantap
Published: March 2003

An optimal redistributive tax‐subsidy formula is derived for a growth model where income inequality is endogenously driven by an adult's choice of occupation between work and management. Investment in human capital is the engine of growth. The world's stock of exploitable knowledge as well as the economy's average human capital determine the potential rate of return from investment in human capital in an economy. How much available knowledge would be exploited in the economy depends on the proportion of innovators in our model. A redistributive tax reform impacts growth as well as income inequality via its influence over the occupational choice. The optimal redistributive tax rate is path‐dependent in the sense that it depends on the initial wealth distribution. The normative implication of the model is that the optimal capital income tax rate could very well be positive if the initial wealth inequality exceeds a threshold. The optimal capital income tax rate depends inversely on the initial wealth inequality.
Lobbying, the Composition of Government Expenditures, and the Politics of Fiscal Policy
Authors: Ghate Chetan
Published: March 2003

This paper constructs a one sector growth model to examine the impact of political lobbying on the formation of fiscal policy. The model predicts that lobbying can induce endogenous regime switches, development traps, and a sub‐optimal allocation of government expenditures between productive and unproductive ends, leading to long run income losses in the economy. A calibrated version of the model is used to generate estimates of the dynamic social costs of lobbying by estimating the optimal savings rates necessary to induce balanced growth in the economy. Finally, the model predicts that lobbying may influence the growth of government.
Seasonality and the Life‐cycle Permanent Income Hypothesis: Evidence for Australia, the United Kingdom and Germany
Authors: Leong Kenneth
Published: March 2003

Intra‐year observed consumption displays substantial seasonality. Consumers allocate their non‐durable expenditure over the four quarters of the year, maximising total utility subject to the period‐to‐period budget constraint. Osborn (1988) derives a seasonally‐varying utility function, for which Hall's (1978) consumption function implies a periodic autoregressive model with a unit root. Using quarterly seasonally unadjusted consumption for Australia, the United Kingdom, and Germany, recently developed tests for seasonality and periodicity are used to examine the modified rational expectations life‐cycle permanent income hypothesis and to reinforce previous findings in the literature. Seasonal habit persistence is introduced as an alternative model and its empirical adequacy is found to be significant. Finally, a multivariate test of the excess sensitivity puzzle excludes a predictive role for lagged income changes.
Joint Venture for a New Product and Antitrust Exemptions
Authors: Battaggion Maria R. , Garella Paolo G.
Published: March 2003

The present paper analyses different forms of organising a JV for the introduction of a new product. It is shown that under non contractible effort levels by the parent companies, a non cooperative solution, due to free‐riding, is less desirable than one where firms cooperate not only at the R&D but also at the selling stage. Also, allowing firms to set up a production JV may be an alternative way to improve upon the fully non cooperative solution. An Antitrust authority should therefore consider the possible destructive effects on the JV results of prohibitions of inter‐firm cooperation.
The Influence of a Neighbouring Market on Product Qualities and Prices
Authors: Frascatore Mark R.
Published: March 2003

This paper analyses a model of vertical product differentiation in which there is a primary market with two firms and a secondary market with no firms. Consumers in the secondary market incur a cost when purchasing the product from the primary market. The firms sequentially choose product quality and then simultaneously choose prices. Firm 1 always chooses the maximum quality, while firm 2''s quality and the prices depend on the cost. Also, the cost determines which firm(s), if either, serves the secondary market. It is shown that the firms and the consumers of each market prefer different levels of costs.
Corporate Financial Policy Biases and the Ralph Reforms
Authors: Benge Matt
Published: March 2003

Australia's recent Review of Business Taxation chaired by Mr John Ralph listed the neutrality of taxes on an entity's financing and distribution decisions as a goal when redesigning entity taxation. In response to the Review the government has agreed to a number of reforms to the taxation of companies and their shareholders. This paper quantifies the financial biases that are created by the Australian company tax system for widely‐held companies owned by Australian residents. It also examines how these have been affected by the recent reforms.
The Development of Commodity Exchanges in the Former Soviet Union, Eastern Europe, and China
Authors: Peck Anne E.
Published: March 2003

The virtual collapse of the centrally planned economies of the countries of the former Soviet Union (FSU) and the more gradual transition from central planning to a market‐oriented economy in China were both accompanied by the opening of hundreds of exchanges trading many agricultural, resource, and other physical commodities. Although many viewed them as harbingers of full‐fledged market‐based economies, most of the new exchanges in fact have since closed either for lack of activity or by government intervention, a history that this paper documents. New exchanges faced numerous obstacles in sustaining interest, from developing standardised contract terms to establishing effective self‐regulation and state regulatory oversight. In several countries, the transparency of transactions on exchanges attracted governments interested in collecting taxes and customs duties which only drove trade away from the exchanges or turned them into little more than state agencies. In China, regulators struggled with duplicative exchanges and products, price volatility, large speculative interest, and several manipulations and have recently reduced the number of exchanges to just three and severely limited the commodities traded. There have been some successes too, including (at least prospectively) the three remaining exchanges in China, the Budapest Commodity Exchange in Hungary, and the Poznan Commodity Exchange in Poland. For all, identifying the terms to create standardised contracts has been (and continues to be) a major challenge.
Forecast Errors and Efficiency in the US Electricity Futures Market
Authors: Avsar S. Gulay , Goss Barry A.
Published: March 2003

In March 1996 the US introduced electricity futures contracts which provided for delivery at the California/Oregon border (COB) and Palo Verde switchyard. These were followed in July 1998 by contracts which provided for delivery of electrical energy into the Cinergy and Entergy systems, and in March 1999 by a contract for the Pennsylvania/New Jersey/Maryland (PJM) area. This paper employs the forecast error approach to study the informational efficiency of these markets (the model prediction and event studies approaches are not feasible). COB and Palo Verde spot and futures prices are stationary, while Cinergy spot and futures prices are I(1) and cointegrated (Entergy and PJM data were not utilised due to insufficient observations). All forecast errors, therefore, are stationary. Estimation is by instrumental variables in the presence of a lagged dependent variable and overlapping observations. For the period 1996 (04) to 1999 (12), with COB and Palo Verde data, the efficient markets hypothesis (EMH) is rejected. This outcome is confirmed by cointegration of the COB and Palo Verde futures prices. A significant M‐GARCH term in the forecast error relationship for both contracts supports the view that a time‐varying risk premium was present. A significant negative relationship between forecast errors and volume for the COB contract suggests that agents were still learning the true model driving this market, and that Stein’s ‘Bayesian error’ was non‐zero.

For the period 1998 (07) to 1999 (12), with COB, Palo Verde and Cinergy data, the EMH cannot be rejected. Finally, an attempt is made to relate this study to the recent electricity crisis in California.
Modelling the Impact of Overnight Surprises on Intra‐daily Volatility
Authors: Gallo Giampiero M.
Published: March 2003

In this paper we evaluate the impact that stock returns recorded between market closing and opening the next business day have on intra‐daily volatility. A simple test shows that the estimated volatility clustering of the intra‐daily returns may be affected by a market opening surprise bias. An extension of the standard GARCH model is suggested here to include the effect of this surprise and is applied on a sample of largely traded US stocks. The performance of two specifications in which this effect is included is evaluated in an out‐of‐sample forecasting exercise relative to their standard counterparts.
Idiosyncratic Uncertainty and Firm Investment
Authors: Bo Hong
Published: March 2003

We test the impact of idiosyncratic demand uncertainty on investment using a panel of 82 Dutch listed manufacturing firms in the period 1984–1995. The measure of uncertainty is constructed by estimating a state space model at the firm level to isolate idiosyncratic uncertainty from other unobserved components. Generalised Method of Moments estimators show that demand uncertainty, which is specific to the firm, depresses firm investment. More interestingly, we find that idiosyncratic uncertainty is more important in explaining firm investment than total uncertainty that mixes idiosyncratic uncertainty with other sources of uncertainty.
Endogenous Specialisation and Endogenous Principal‐agent Relationship
Authors: Yang Xiaokai , Yeh Yeong‐nan
Published: March 2003

The paper develops a general equilibrium model with endogenous principal‐agent relationship within a framework of consumer‐producer, economies of specialisation, and transaction costs. It is shown that if transaction efficiency is low, then autarky is chosen as the general equilibrium where no market and principal‐agent relationship exists. As transaction efficiency is improved, the equilibrium level of division of labour increases, comparative advantage between ex ante identical individuals emerges from the division of labour, and the number of principal‐agent relationships increases. The following features of the model distinguish it from other principal‐agent models in the literature. The principal‐agent relationships are not only endogenous, but also reciprocal between different specialists. In a general equilibrium environment, choice between pure pricing and contingent pricing is endogenised. In the paper, the implications of endogenous transaction costs caused by moral hazard for the equilibrium extent of the market and related degrees of market integration, production concentration, trade dependence, diversity of economic structure, and productivity are explored. The model predicts two interesting phenomena: a man might work harder for the market with moral hazard than working for himself in the absence of moral hazard; a market with moral hazard might be Pareto superior to autarky with no moral hazard.
R&D Subsidies versus R&D Cooperation in a Duopoly with Spillovers and Pollution
Authors: Petrakis Emmanuel , Poyago‐Theotoky Joanna
Published: March 2003

We introduce pollution, as a by‐product of production, into a non‐tournament model of R&D with spillovers. Technology policy takes the form of either R&D subsidisation or pre‐competitive R&D cooperation. We show that, when the emissions tax is exogenous, the optimal R&D subsidy can be negative, i.e. there should be a tax on R&D, depending on the extent of the appropriability problem and the degree of environmental damage. In a wide class of cases, depending on the parameter values, welfare in the case of R&D cooperation, is lower than welfare in the case of R&D subsidisation.
The Fossil Production Function in a Vintage Model
Authors: Michl Thomas R.
Published: March 2003

This paper extends the fossil production function to incorporate embodied technical change. The fossil production function provides an alternative to the standard neoclassical explanation for the aggregate production function. In a Classical Ricardian spirit, the paper assumes that capital‐using, labour saving technical change prevails, and shows that it generates a fossil production function in Cobb‐Douglas form. The power term of the production function mediates the viability of new machines. A sufficient condition for viability is that the power term equals or exceeds the profit share on new machines. Empirical estimates show that this sufficient condition is satisfied, a result inconsistent with the neoclassical interpretation of the aggregate production function.
International Poverty Comparisons on Unit Record Data of Developing and Developed Countries
Authors: Lancaster Geoffrey , Ray Ranjan
Published: March 2003

Cross country poverty comparisons on unit records have, rarely, involved both developing and developed countries. The present study attempts to fill this gap by comparing poverty across fourteen nations with diverse economic and demographic characteristics and at vastly different stages of economic development. The study contains evidence on (a) cross country variation in the equivalence scales estimated in the presence of both household size economies and adult/child relativities, (b) impact of demographic adjustment of the poverty line, that incorporate household size and composition changes, on the poverty rates, and (c) sensitivity of the poverty estimates and their rankings to the ‘equivalence elasticity’. The study finds that country rankings based on per capita GNP bear very little resemblance with that based on the aggregate poverty rates. The latter hide substantial variation in the poverty estimates across different household types.
Income Mobility, Inequality and Social Welfare
Authors: Creedy John , Wilhelm Mark
Published: March 2003

It is often argued that an observation of rising annual income inequality need not have negative normative implications. The argument is that if there has been a sufficiently large simultaneous increase in mobility, the inequality of income measured over a longer time period can be lower despite the rise in annual inequality. In this paper, it is shown by example that if normative implications are drawn from a standard social welfare function, the set of circumstances put forward in the above argument are not sufficient to guarantee that social welfare will improve. The reason is that even though rising mobility does reduce longer term inequality, it also increases the variability of income profiles over time and the latter has a detrimental social welfare effect. Hence, there are two types of mobility: one which reduces inequality (regression to the mean), but another that increases inequality (relative movements uncorrelated with incomes). Further, if individuals’ aversion to income variabiltiy is sufficiently larger than the social welfare judge’s aversion to inequality, then an increase in mobility, no matter how large, cannot offset the negative normative effect of rising annual inequality.
Vertically Differentiated Monopoly with a Positional Good
Authors: Lambertini Luca , Orsini Raimondello
Published: March 2003

We analyse positional effects in a monopoly market with vertical differentiation, comparing monopoly and social planning. The provision of quality under monopoly depends upon the relative size of positional effects and the hedonic evaluation of quality. An elitarian equilibrium where quality increases in the level of positional concern emerges under monopoly, only if the market is sufficiently rich. Under social planning, quality increases in the level of positional externality, independently of market affluency. As long as partial market coverage obtains under both regimes, the monopoly deadweight loss decreases as the positional externality becomes more relevant.
The Australian Business Cycle: Joe Palooka or Dead Cat Bounce?
Authors: Bodman Philip M. , Crosby Mark
Published: March 2003

We address the question of whether asymmetry in the business cycle and asymmetry in the persistence of negative versus positive shocks characterises Australian output growth. Using nonlinear time series models we provide some evidence consistent with the idea that Australian output growth is characterised by three distinct phases: contractions, high‐growth recovery periods and ‘normal’ or moderate growth periods. This implies that Australian output fluctuations have a significant transitory component and is supportive of the ‘output‐gaps’ view and ‘plucking’ model view of economic fluctuations. In contrast to recent evidence for the US and Canada however, we find that Australian GDP growth does not exhibit important asymmetries in the responses of output growth to positive and negative shocks.
A Joint Test of the Rational Expectations‐Permanent Income Hypothesis under Seasonal Cointegration
Authors: Huang Tai‐Hsin
Published: March 2003

This study re‐evaluates the validity of the joint rational expectations‐permanent income hypothesis under the framework of seasonal cointegration using seasonally unadjusted quarterly data from Austria, Canada and Taiwan. Evidence is found that the consumption change only depends on the innovations of the income and the unemployment rate changes, and that agents are rational in forming their expectations, i.e., the joint hypothesis is supported by the data used. However, with the same data set, a similar test based on non‐seasonal cointegration tends to reject the joint hypothesis, since the test ignores completely the possible stochastic seasonalities that may contain important information, as has been pointed out by Wallis (1974), embodied in the data.
A Note on Income Inequality and Macro‐economic Volatility
Authors: Levy Amnon
Published: March 2003

Income inequality may influence macro‐economic variables by affecting the money multiplier and the trade‐off between inflation and output. In an AD‐AS model with imperfect foresight income inequality intensifies the volatility of output and inflation rate by increasing the likelihood of oscillations as well as their magnitude. Volatility is, however, moderated when income inequality prolongs the business cycles.
An Exploration of the Conceptual and Empirical Basis of the Environmental Kuznets Curve
Authors: Hill Robert J. , Magnani Elisabetta
Published: March 2003

We examine the conceptual and empirical basis of the environmental Kuznets curve. From both perspectives, the relationship lacks firm foundations. In particular, the empirical relationship is shown to be highly sensitive to the choice of pollutant, sample of countries and time period. This strongly suggests that there is an omitted variables problem. We find that two important omitted variables are education and inequality. Also, we show that the observed relationship is sensitive to the measure of income/welfare used. The paper concludes with a discussion of some policy implications of our findings. (JEL O13, Q21, Q28, Q32)
Public Stackelberg Leadership in a Mixed Oligopoly with Foreign Firms
Authors: Fjell Kenneth , Heywood John S.
Published: March 2003

This is the first paper to consider a mixed oligopoly in which a public Stackelberg leader competes with both domestic and foreign private firms. The welfare maximising leader is shown to always produce less than under previous Cournot conjectures. Introducing leadership also alters previous public pricing rules resulting in prices that may be either greater than or less than marginal cost depending on the relative number of domestic firms. Furthermore, entry of a foreign firm will increase welfare only when the relative number of domestic firms is small, but that share is shown to be larger than has been indicated without leadership. Unlike previous models, the influence on public profit of a foreign acquisition is ambiguous and is related to the relative number of domestic firms. Finally, the consequences of privatisation are shown, for the first time, to depend on the relative number of domestic firms.
The Impact of a Marginal Cost Increase on Price and Quality: Theory and Evidence from Airline Market Strikes
Authors: Schmitt Pamela M.
Published: March 2003

This paper examines the impact of a marginal cost increase for one firm on price and quality in a duopoly market. The results are derived theoretically and then tested empirically. The marginal cost increase is interpreted as an increase in the wage one firm pays its workers. The predictions are tested with two United States airline strikes during the 1990's. Quality is proxied in three ways: (1) the number of flights per day, (2) the percentage of flights cancelled, and (3) the percentage of flights arriving late. The results show that the strike coefficients for the effects on quality are most consistent with theoretical predictions when quality is measured as the number of flights per day. These results are encouraging because of the three measures of quality, it seems that number of flights per day is the measure of quality that is most controllable by the .rm. The strike coefficients for the direct effect on price are most consistent with theoretical predictions when quality rankings are determined by the percentage of flights cancelled. The strike coefficients for the total effect on price are most consistent with theoretical predictions when quality rankings are determined by the percentage of flights arriving late.
The Organisation of Wage Bargaining in Divisionalised Firms
Authors: Bárcena‐Ruiz Juan Carlos , Garzón María Begoña
Published: March 2003

This paper analyses the organisation of wage bargaining in multiproduct firms since it affects the distribution of power between workers and firms. We assume that each firm has two plants and chooses who bargains the wage with the workers: either the head of the firm or the manager of each plant. Similarly, in each firm, its workers choose whether they set up plant unions or a single union.
The One That Got Away? Crime and Punishment In Queensland's Commercial Fisheries
Authors: Bodman P. M. , Campbell H. F. , Skinner R. B.
Published: March 2003

Analysis of a combined cross‐sectional/time‐series sample of records of the activities of patrol officers, reports of breaches of fisheries regulations, and associated court records in Queensland lends support to the hypothesis that economic factors are important in determining crime rates. An increase in the probability of apprehension, higher penalties, and reduced delays before cases are heard in court are predicted to reduce crime rates. The analysis also identifies a loss of reputation effect which suggests that moral and social factors are also relevant.
Introduction to “Exchange Rates in Europe and Australasia: Fundamental Determinants, Adjustments and Policy Implications”
Authors: Stein Jerome L. , Lim Guay C.
Published: March 2003

The papers in this issue are concerned with the behaviour of exchange rates — their fundamental determinants, adjustment processes and policy implications. The authors combine theory with empirical evidence, test hypotheses as well as show the relevance of their analysis for policy. This Introduction addresses several questions. What are the contributions of the articles to the economics of exchange rates? Are they significant in increasing our understanding of the current issues and in addressing questions of policy? How can one explain the movements in the European and the Asian currencies? What can we expect to happen to the euro with the enlargement of the euro area? Do the papers provide frameworks to guide empirical research? In this Introduction, we highlight aspects of each paper that addresses these issues.
The Real Exchange Rate Always Floats
Authors: Gylfason Thorvaldur
Published: March 2003

This paper makes two main points. First, irrespective of nominal exchange rate arrangements, the real exchange rate always floats — if not through nominal exchange rate adjustment, then through price change. Further, because prices and wages tend to be sticky, the adjustment of real exchange rates towards long–run equilibrium takes time, as witnessed by long–lasting currency misalignments around the world. In second place, real exchange rates are rather likely to fluctuate on their way towards long–run equilibrium because of the dynamic interaction between real exchange rates and the current account or, put differently, because the structure of lags with which exchange rates impact the volume of exports and imports may give rise to oscillatory behaviour.
What Do We Know About Long–run Equilibrium Real Exchange Rates? PPPs vs Macroeconomic Approaches
Authors: Duval Romain
Published: March 2003

Despite the fact that the presence of non tradable goods is one of the most frequently advanced reasons for the failure of PPP, the empirical analysis conducted in this paper shows that it explains only a very small portion of the long run behaviour of real exchange rates (RERs) in developed countries: in most cases, there appears to be a very strong long run relationship between RERs calculated on price indexes for tradables and non tradables. As a consequence, deviations from PPP usually appear to be as large for both kinds of goods. To a certain extent, this stylised fact is also verified in the case of the yen/dollar RER, yet formerly known as a typical illustration of the so–called Balassa–Samuelson effect. In this context, so–called macroeconomic approaches of ERERs may be viewed as an alternative to all versions of PPP. We develop a model which combines the contributions of the most fruitful dynamic approaches, namely the NATREX and the BEER. An estimate of this model shows that the main long run determinants of the dollar/euro RER are the rate of consumption and the level of technical progress of the euro area relative to the US.
Modelling the Long–run Real Effective Exchange Rate of the New Zealand Dollar
Authors: MacDonald Ronald
Published: March 2003

In this paper we use the behavioural and permanent equilibrium exchange rate approaches to produce long–run equilibrium exchange rates for the effective real exchange rates of the New Zealand dollar. We demonstrate that a well founded measure of the equilibrium value of the dollar may be recovered from a relatively small set of fundamental variables and that this can be used to produce an assessment of the dollar in terms of periods of misalignment.