Showing papers in "Economica in 1965"

An economic theory of clubs

Abstract: The implied institutional setting for neo-classical economic theory, including theoretical welfare economics, is a regime of private property, in which all goods and services are privately (individually) utilized or consumed. Only within the last two decades have serious attempts been made to extend the formal theoretical structure to include communal or collective ownership-consumption arrangements.2 The " pure theory of public goods" remains in its infancy, and the few models that have been most rigorously developed apply only to polar or extreme cases. For example, in the fundamental papers by Paul A. Samuelson, a sharp conceptual distinction is made between those goods and services that are " purely private " and those that are " purely public ". No general theory has been developed which covers the whole spectrum of ownership-consumption possibilities, ranging from the purely private or individualized activity on the one hand to purely public or collectivized activity on the other. One of the missing links here is " a theory of clubs ", a theory of co-operative membership, a theory that will include as a variable to be determined the extension of ownershipconsumption rights over differing numbers of persons. Everyday experience reveals that there exists some most preferred or " optimal" membership for almost any activity in which we engage, and that this membership varies in some relation to economic factors. European hotels have more communally shared bathrooms than their American counterparts. Middle and low income communities organize swimming-bathing facilities; high income communities are observed to enjoy privately owned swimming pools. In this paper I shall develop a general theory of clubs, or consumption ownership-membership arrangements. This construction allows us to move one step forward in closing the awesome Samuelson gap between the purely private and the purely public good. For the former, the optimal sharing arrangement, the preferred club membership, is clearly one person (or one family unit), whereas the optimal sharing group

The Value of Time Spent in Travelling: Some New Evidence

Abstract: The valuation of time spent in travelling is important because, first, it has been prominent in studies of the value of investments in roads, a form of analysis recently extended to urban rail transport. In the M.1 motorway study, for example, time savings accounted for 64 per cent. of the measured gross benefits at the first year of operation, when the working time was valued at the lowest end of the range 2s. Od. to lOs. Od. an hour which was considered possible (1957 prices). At lOs. Od. an hour, the proportion was 78 per cent.2 In a study of the Victoria underground railway line, with savings in working time valued at 7s. Od. an hour, and in non-working time (i.e. the vast bulk of the savings in this case) at 5s. Od. an hour (1962 prices), time savings accounted for about 80 per cent. of total benefits at the first year of operation.3 Similarly, the recent Report of the Panel on Road Pricing estimated that the initial annual savings from a nation-wide system of metering vehicles in congested areas would be between ?100 and ?150 million a year.4 Nearly 90 per cent. of these5 come from time savings; of time savings, about 60 per cent. were time savings other than in working time. The evidence to be described later throws doubt on these assumptions about the valuation of non-working time. Second, time spent in travelling is, by definition, time spent on a mode or modes of transport. The relative valuation of time by mode is crucial for predictions of numbers of travellers using each mode, and

Economic Growth and External Debt.

Abstract: This book is a collective effort of the Economic Department of the International Bank for Reconstruction and Development. It is composed of three volumes. The first volume sketches an analytical framework. It views international capital flows and indebtedness as an aspect of the process of economic development. Volume two, a supplement to volume one, contains statistical data on international public indebtedness and on debt service payments. The third volume is a collection of essays that discuss economic growth and external debt. The book contains charts and tables which further illustrate the information presented in each volume.

Adam Smith on the Division of Labour: Two Views or One?

Abstract: Adam Smith's treatment of the division of labour has intrigued readers and commentators for many years. On the one hand it provided a masterful analysis of the gains from specialization and exchange upon which, it is no exaggeration to say, the discipline of economics was nurtured. On the other hand, Smith's apparent afterthoughts of Book V, where he refers to the deleterious effects of the division of labour upon the work force, constitute a major source of inspiration for the socialist critique of capitalist institutions, as Marx himself acknowledged. For Smith states here, in part:

Size of Farm and Productivity: A Problem of Indian Peasant Agriculture

Abstract: One of the most interesting findings of the recent Farm Management Surveys in India has been that input per acre increases as the size of farms (measured in acres per holding) decreases. Associated with this increase in input there is an increase in output per acre, but a decrease in output per unit of input. This shows that although there is diminishing returns to input applied to an acre of land, the marginal returns continue to be positive over the range of observation. In this article, after analysing a little more closely the nature of the variations of input per acre (in Section I), an explanation is offered, based on simple assumptions about an agricultural system making use of family labour. Some implications of the analysis for policy are noted in the last section.

A Dissenting View of Duopoly and Spatial Competition

Abstract: The process of competitive product-differentiation has a threefold foundation. A firm in competition aspires to maximum profits by seeking an efficient combination of three economic variables: adjustments over space, and changes in both quality and price of product. Unlike price analysis, however, the theory of location or of quality under conditions of imperfect competition has never been a cause celbre.2 Significantly, too, over the years economists have suffered a growing tendency to regard the concepts of " price competition" and " competition " as synonymous. As a result, the term " spatial competition" is gradually disappearing from our vocabulary, though sporadically one still encounters it in the classroom and in print. But if this anomaly persists, an undesirable imbalance in microeconomic theory may become entrenched. A change in emphasis, therefore, is mandatory. Accordingly, my primary concern in this essay is to stimulate thought and discussion on so deserving a topic, chiefly by presenting the reader with a fresh pattern of analysis. The new analytical apparatus, leading to some interesting conclusions, is introduced below in a manner also suitable for the study of competition in quality. We open the discussion with a quotation from Professor Chamberlin's summary endorsemelnt of the prevailing views on spatial competition between two sellers. The reference is a convenient one. It contains both a clear statement of, and a typically faithful attachment to, a veteran thesis, in turn the principal target against which this article is directed:

Textual Exegesis as a Scientific Problem

Abstract: The problem of inference which is posed by such an example is more interesting than the example itself. If a substantive economic relationship were under discussion-say the proposition that the per capita demand for corn has zero elasticity we would never dream of establishing its validity by citing one or two or three facts (observations on pairs of years, say)-let alone by citing two "facts" against it and one "fact" for it, as Barkai does. We would all agree that larger, more objectively chosen bodies of evidence be brought to bear unon the problem.

Resale Price Maintenance and Retail Outlets

Abstract: Resale price maintenance (r.p.m.), the marketing practice by which the producer or brander of products requires subsequent resellers to offer them at minimum or stipulated prices, has been a subject of discussion and analysis for over a quarter century. There does not, however, seem to exist in the literature any formal analysis of the optimal choice of price and margin by a manufacturer (brander) practising r.p.m. The purpose of this article is to investigate some aspects of this problem in the context of a simple model. Our analysis leaves out of account the two most frequently advanced explanations of r.p.m., each of which involves an assumption of a cartel or of cartel-like behaviour at either the manufacturing or the retailing level.' We investigate here the possibility that r.p.m. might be introduced on the initiative of a single manufacturer dealing with a large group of competitive retailers. Any discussion of price policy must assume some degree of monopoly power on the part of the policymaking firm. We consider here a model in which a single-product monopolist manufacturer sells directly to a large number of competitive single-product retailers, each operating under identical conditions of demand and cost. Throughout, the discussion is in terms of static, long-run equilibrium analysis. Under the conventional assumptions about the determinants of market demand and production costs, the monopolist manufacturer has no incentive to practise r.p.m. Given the market demand schedule, the manufacturer's average revenue schedule is determined by deducting the retail margin directly from the demand price.2 Since the highest average revenue curve will be that associated with the smallest retail margin, the manufacturer has no incentive to increase the margin through r.p.m. Perfect competition and free entry among the retailers will ensure that the retail margin per unit is just equal to the minimum average retail operating cost per unit, the competitive long-run equilibrium solution. No smaller margin can be offered without forcing the retailers into bankruptcy; any larger margin simply reduces the profits of the manufacturer.

Economic Controversy in the British Reviews, 1802-1850

Abstract: The professional journal is comparatively new in the history of economics. Most of these journals are the product of the twentieth century, and many, including Economica, began only after the First World War. The Economic Journal started in 1891, when the great issues that had provoked the flowering of economic controversy in the first part of the century either had been laid to rest, or had been revived in a new setting and with new protagonists. The Economist, which one might call a professional journal, although not an academic journal, was founded in 1843, in the twilight of the controversy over tariffs and monetary and banking policy that had sprung from the Napoleonic wars and their aftermath. By then the stage had already been set for the repeal of the Corn Laws and for the Bank Act of 1844, and opposition to the gold standard had almost died out. To find out what British economists were thinking in the first half of the nineteenth century, and to trace the development of modern ideas in an earlier setting, the economist of today turns to the classics of the period-Malthus,iRicardo, Henry Thornton, the Mills; to the books and pamphlets of that tireless salesman of Ricardian economics, John Ramsay McCulloch; to the works of the minor prophets, such as Torrens, Senior, Whately, and Richard Jones; to the extensive pamphlet literature; and to that gift of British government to economists, the minutes of evidence and reports of Parliamentary committees. But comparatively little use has been made of the reviews of the period as a source for the analysis of doctrine, the political setting of economic debates, or for perspective on those perennial issues of economic policy: international trade, banking and the monetary standard, and the care of the unemployed, the incapacitated, and the aged. Individual articles, like Francis Horner's review of Thornton's Paper Credit of Great Britain in the first number of the Edinburgh Review, Malthus' discussion of the bullion controversy in the Edinburgh Review or his treatment of demand in the Quarterly Review, one of Colonel Peronnet Thompson's powerful pleas for free trade in the Westminster Review, or a blast in Blackwood's Edinburgh Magazine against the gold standard, occasionally are read by economists. But such articles are frequently regarded as somewhat out of place, as economic intrusions in a literary and political journal. Yet the British reviews in the first half of the nineteenth century carried on a continuous debate on economic theory and on economic policy, in which many of the great figures in economics, or in the political guidance of economic

Market Power as an Intervening Mechanism in Phillips Curve Analysis

Abstract: Study of the relationship between the rate of change of money wages and the level of unemployment has emphasized the essentially dynamic character of the wage and price structure. That higher positive rates of change of money wages are associated with lower levels of unemployment is not merely an interesting empirical observation; it carries with it important policy implications, especially in a world in which full employment is claimed as the honourable pursuit of all governments. But what is the process by which a given economic state of affairs (as described by the unemployment rate) generates the observed fluctuations in wages ? What patterns of social and economic behaviour provide the motive force for the phenomena observed in the Phillips curve ? If the level of unemployment is considered solely as a general economic indicator that reveals the level of actual relative to potential economic activity, an intervening variable or mechanism must be introduced into the analysis. The intervening mechanism will be an operational construct that will permit a more complete sequential analysis of the process described by the Phillips curve.'

Price Strategies to Promote Cartel Stability

Abstract: A cartel cannot control the price of a product unless all member firms adhere to the agreed price. If collulsive contracts are enforceable, price maintenance is straightforward; if contracts " in restrain-t of trade" are unenforceable, or illegal, this effective control of cheating is eliminated. Yet even without recourse to court-enforced sanctions, cartels have occasionally prospered.1 A cartel can survive by policing the members' behaviour, and threatening believable and punitive retaliation against cheating. In this article the requisite thoroughness of policing, and the deterrent powers of certain pricing strategies, are explored. In particular, it is shown that in an idealized homogeneous market, the cartel can make cheating unprofitable simply by threatening to establish a price that maximizes the profits of loyal member firms in the presence of cheaters. This pricing strategy is certainly believable; that it is also punitive to cheaters is shown in Sections 3-5. Another interesting pricing strategy is the matching of price cuts. This seems a natural course for a cartel confronted by a cheater: it was advocated by the Western Traffic Association in the U.S. when that cartel faced a -breakdown of its rate structure,2 and is suggested in recent theoretical literature as a viable means of enforcement.3 This pricing strategy is examined in Section 2.

Hospital Bed Scarcity: An Analysis of the Effects of Interregional Differences

Abstract: Economic analysis is becoming a powerful tool for the efficient administration of public programmes. Techniques of public expenditure evaluation have already been widely applied to problems of water resource development, defence and transport. Econometric investigations are being used in studies of urban areas and transport services. This article is an example of the use of economic analysis in studying the operation of health care systems. Since its inception in 1948, the National Health Service (N.H.S.) has tried to achieve not only a more just distribution of medical services but also a more efficient use of the nation's health care resources. Although the early years of the service saw the latter aim overshadowed by the attempt to curtail spending and reduce costs, the Ministry of Health has more recently shown a renewed interest in improving the service's efficiency.2 A previous article reviewed this growing interest and discussed the contribution that economic analysis could make in providing a conceptual framework for choosing among competing potential uses of health care resources.3 In the present study we examine the effects of area differences in the scarcity of hospital beds on the way in which these beds are used. We show the surprising result that the number of cases treated per 1,000 population is more responsive to bed scarcity than is the average duration of stay per case. We then discuss the responsiveness to bed scarcity of patients in different age-sex groups and diagnostic categories. These findings are not only interesting in themselves to anyone concerned with the operation of the N.H.S., but also suggest some policy consequences. In addition, they illustrate the way in which analysis of this kind can improve understanding and uncover previously unrecognized problems. DATA

The Sensitivity of Businesses to Initial and Investment Allowances

Abstract: 1. Following the introduction of a target for the annual average rate of growth in output in the U.K. economy put forward by the National Economic Development Council, renewed emphasis was placed by the Chancellor of the Exchequer in the 1963 budget on those financial incentives which might be expected to help businesses accelerate their rate of investment in new plant and equipment. This article discusses the effectiveness of two such incentives-initial allowances and investment allowances. The discussion is based on the results of a postal sample survey carried out by the first of the authors during National Productivity Year into factors affecting productivity in businesses in the south-west of England. Complete details of the productivity survey and the procedures employed will appear elsewhere, but a brief resume will be given later in this article to enable readers to appreciate the significance of the results obtained within this section of the inquiry. 2. Initial allowances were first introduced in 1945, and have been in force at varying rates and with varying coverage ever since. Under the initial allowance, a firm may claim a specified extra proportion of the cost of certain classes of asset in the first year, but this supplementary allowance (over and above the normal annual or " wear and tear " allowance) is then deducted from the written down value for tax purposes, and so reduces the sum on which subsequent depreciation allowances are calculated. The eventual sum of the initial allowance and the ordinary depreciation allowances may not exceed the original cost of the asset. The investment allowance was first introduced in 1954, and has also been revised from time to time in scope and amount. Like the initial allowance, it permits a firm to claim a specified extra proportion of the cost of certain classes of asset in the first year, but unlike the initial allowance, this supplementary allowance is not taken into account in the calculation of subsequent depreciation allowances. It is therefore possible with the investment allowance eventually to write off for tax purposes a sum greater than the original cost of the asset.2 3. Initial allowances are usually characterized in their effects as an "interest-free loan ", and investment allowances as " a concealed subsidy ". The Royal Commission on the Taxation of Profits and

Say's Law, Effective Demand, and the Contemporary British Periodicals, 1820-1850

Abstract: Recent research has made it increasingly difficult to agree with the type of view expressed by J. M. Keynes when he wrote: .. . Ricardo conquered England as completely as the Holy Inquisition conquered Spain. Not only was his theory accepted by the city, by statesmen and by the academic world. But controversy ceased; the other point of view completely disappeared; it ceased to be discussed. The great puzzle of Effective Demand with which Malthus had wrestled vanished from economic literature ".1 There has been a growing awareness that, during the early decades of the nineteenth century, critical voices were repeatedly raised against the validity of Say's law, its acceptance by the Ricardians, and their dismissal of the problem of effective demand. However, as yet it is not widely recognised that a significant portion of this opposition was provided by certain of the leading British quarterlies and monthlies of the period. Hence, as a contribution to a more balanced understanding of the economic thought of those years, this article is designed as a survey of the scope of the attack on the abovementioned aspects of Ricardian thought in a number of the influential periodicals during each of the three decades from 1820 onwards.2