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Showing papers in "Journal of Political Economy in 1970"


Journal Article•DOI•
TL;DR: In this article, the authors argue that consumers lack full information about the prices of goods, but their information is probably poorer about the quality variation of products simply because the latter information is more difficult to obtain.
Abstract: Consumers are continually making choices among products, the consequences of which they are but dimly aware. Not only do consumers lack full information about the prices of goods, but their information is probably even poorer about the quality variation of products simply because the latter information is more difficult to obtain. One can, for example, readily determine the price of a television set; it is more difficult to determine its performance characteristics under various conditions or its expected need for repairs. This article contends that limitations of consumer information about quality have profound effects upon the market structure of consumer goods. In particular, monopoly power for a consumer good will be greater if consumers know about the quality of only a few brands of that good. This is a significant departure from the literature. Economists have long been interested in the determinants of monopoly power, but studies have always concentrated on the production function or market-size variables. I try to show that consumer behavior is also relevant to the determination of monopoly power in consumer industries. Location theory has also ignored the consumer's lack of information. Since many trips to a store are, in part, quests for information, the location of retail stores can be profoundly affected by consumer efforts to acquire information. I shall also try to show that advertising and inventory policy are affected by consumer ignorance about quality differences among brands. All of these impacts of consumer ignorance have remained unexplored because economists have not developed a systematic analysis of consumer quests for information about quality differences. Information about quality differs from information about price because the former is usually more expensive to buy than the latter. Indeed this is one reason we expect the variance in the utility of quality facing a consumer to be greater than the variance in the utility of price. This difference in the price of information can lead to fundamentally

5,548 citations


Journal Article•DOI•
TL;DR: In this article, the authors present an impossibility result that seems to have some disturbing consequences for principles of social choice, and formalize this concept of individual liberty in an extremely weak form and examine its consequences.
Abstract: The purpose of this paper is to present an impossibility result that seems to have some disturbing consequences for principles of social choice. A common objection to the method of majority decision is that it is illiberal. The argument takes the following form: Given other things in the society, if you prefer to have pink walls rather than white, then society should permit you to have this, even if a majority of the community would like to see your walls white. Similarly, whether you should sleep on your back or on your belly is a matter in which the society should permit you absolute freedom, even if a majority of the community is nosey enough to feel that you must sleep on your back. We formalize this concept of individual liberty in an extremely weak form and examine its consequences.

1,090 citations


Journal Article•DOI•
TL;DR: In this article, the authors consider the question: Why has the incentive been maintained for a relative expansion in the supply of skilled labor in the United States? Three alternative explanations are considered, and one is pursued with an empirical analysis of factors determining relative wages among skill classes in agriculture.
Abstract: There have been several studies of the demand for education as an investment good1 which generally take input and product prices as given and concentrate on computing (internal) rates of return to investment in schooling. Although these estimates usually indicate returns that are high by most standards, there is considerable variation, both through time and space, which points to the need for a clearer understanding of the underlying factors affecting profitability of investment in people. For such an analysis, education must be viewed not only as an investment but also as a factor of production. In this paper, I consider the question: Why has the incentive been maintained for a relative expansion in the supply of skilled labor in the United States? Three alternative explanations are considered, and one is pursued with an empirical analysis of factors determining relative wages among skill classes in agriculture. As we would expect for any factor of production, the evidence suggests that the return to education is affected by factor ratios, but ratios do not tell the whole story. In agriculture, much of the "leverage" distinguishing college graduates from less schooled persons has its roots in technical change as reflected in the level of research activity. Thus the incentive for acquiring a college education is based on dynamical considerations of changing technology; and if technology becomes stagnant, this incentive is reduced and may disappear. Convincing evidence of the maintained incentive for acquiring schooling is found in Gary Becker's (1964) estimates of private rates of return which are reproduced in table 1. When these rates of return are compared to the

1,007 citations


Journal Article•DOI•
TL;DR: In this paper, the authors construct a theory of rational enforcement, a theory which owes much to Gary Becker's major article on the subject (1968), and construct a model for the costs of enforcing various kinds of contracts.
Abstract: All prescriptions of behavior for individuals require enforcement. Usually the obligation to behave in a prescribed way is entered into voluntarily by explicit or implicit contract. For example, I promise to teach certain classes with designated frequency and to discuss matters which I, and possibly others, believe are relevant to the course titles. By negotiation, and in the event of its failure, by legal action, I and my employer seek to enforce the contract of employment against large departures from the promised behavior. Performance of some kinds of behavior is difficult or impossible to enforce-such as promises to be creative, noble, or steadfast in crisis-and as a result such contractual promises are either not made or enforced only when there is an uncontroversially flagrant violation. The influence upon contract, and upon economic organization generally, of the costs of enforcing various kinds of contracts has received virtually no study by economists, despite its immense potential explanatory power. When the prescribed behavior is fixed unilaterally rather than by individual agreement, we have the regulation or law, and enforcement of these unilateral rules is the subject of the present essay. Departures of actual from prescribed behavior are crimes or violations, although one could wish for a less formidable description than "criminal" to describe many of the trifling offenses or the offenses against unjust laws. My primary purpose is to construct a theory of rational enforcement, a theory which owes much to Gary Becker's major article on the subject (1968). In the conclusion the problem of explanation, as distinguished from prescription, will be commented upon.

952 citations


Journal Article•DOI•
TL;DR: In this paper, the authors formulate a model of consumer behavior based on habit formation, beginning with a specific class of demand functions derived from the modified Bergson family of utility functions, and then postulate that the parameters of these utility functions and the corresponding demand functions are briefly summarized in Section 1.
Abstract: Most economists would agree that past consumption patterns are an important determinant of present consumption patterns, and that one ought to distinguish between long-run and short-run demand functions. But although the distinction between long-run and short-run behavior is traditional in the theory of the firm, it is seldom made in the theory of consumer behavior. If we regard demand theory as a theory of how a given amount of money (expenditure, called income) is allocated among goods, then-in a world without consumer durables-there are three reasons why longand shortrun demand functions might differ. (i) The consumer may have contractually fixed commitments which prevent him from adjusting some portion of his consumption (for example, housing) in response to changes in prices or income. When these fixed commitments lapse, he is able to adjust to his long-run equilibrium. (ii) The consumer may be ignorant of consumption possibilities or of his own tastes outside the range of his past consumption experience. In this case his adjustment to a new price-income situation will involve a time-consuming learning process. (iii) Finally, goods may be "habit forming" so that an individual's current preferences depend on his past consumption patterns. In this case a change in prices or income will cause a change-in consumption which will induce a change in tastes, which will cause a further change in consumption. In this paper I formulate a model of consumer behavior based on habit formation, beginning with a specific class of demand functions derived from the "modified Bergson family" of utility functions. The properties of these utility functions and the corresponding demand functions are briefly summarized in Section 1. I then postulate that the parameters

870 citations


Journal Article•DOI•
TL;DR: In this article, the authors explore the hypothesis that a common basis for rapid growth in agricultural output and productivity lies in a remarkable adaptation of agricultural technology to the sharply contrasting factor proportions in the two countries.
Abstract: The purpose of this paper is to explore the hypothesis that a common basis for rapid growth in agricultural output and productivity lies in a remarkable adaptation of agricultural technology to the sharply contrasting factor proportions in the two countries. It is hypothesized that an important aspect of this adaptation was the ability to generate a continuous sequence of induced innovations in agricultural technology biased towards saving the limiting factors. In Japan these innovations were primarily biological and chemical. In the United States they were primarily mechanical.

256 citations


Journal Article•DOI•
TL;DR: In this article, the authors investigated whether international trade, even if it equalized rental rates on machines, would equalize rates of interest, in particular if the two countries had different rates of time preference.
Abstract: Two of the most important propositions of the modern theory of international trade are extensions of the Heckscher-Ohlin analysis of comparative advantage: Free international trade completely equalizes factor prices (and thus ensures world Pareto optimality), and the removal of protective barriers decreases the return of the scarce factor in terms of both commodities and increases that of the abundant factor.' Both of these propositions were proved under seemingly general conditions, although in the context of a static model. But whether these results still hold in a dynamic economy has, almost without exception, gone uninvestigated in the literature.2 in a dynamic model, moreover, there is the additional question of whether international trade, even if it equalized rental rates on machines, would equalize rates of interest, in particular if the two countries had different rates of time preference. Recently, Samuelson (1965) showed that if there is nonspecialization (and the other assumptions of the Samuelson-HeckscherOhlin model are satisfied), then interest rates as well as rental rates are equalized. It has long been recognized, however, that if factor supplies are variable, specialization is much more likely to occur. Indeed, one of the principal reasons Ohlin (1933) did not argue for complete factor price equalization

209 citations


Journal Article•DOI•
TL;DR: Bank capital has two roles: (1) it cooperates directly with other inputs in the production of bank services, and (2) it is used to attract the deposit input by providing insurance to depositors against a decline in the value of a bank's assets.
Abstract: A bank is the prototypical financial institution; there are notable outward differences between the wealth invested by owners of financial institutions and that of other industries. The capital of a financial institution consists largely of financial assets and only to a small degree of the physical plant and equipment usually associated with capital in other industries. Moreover, these physical differences are associated with important functional differences. A financial institution, like any other firm, faces the problem of combining the inputs which it purchases to produce the outputs which it sells. In banking, the most important inputs are labor and deposits, and they produce liquidity services, brokerage services, accounting and information services, and the like. In this production process, bank capital has two roles: (1) It cooperates directly with the other inputs in the production of bank services, and (2) it is used to attract the deposit input by providing insurance to depositors against a decline in the value of a bank's assets; the more capital a bank has, the more the value of its assets can fall before depositors incur losses. The difference between banking (and financial institutions in general) and most other industries is in the relative importance of these two roles. The equity capital of any firm serves, in part, to guarantee the value of the firm's fixed obligations, but that function is usually subordinate to the provision of assets to the firm. However, in banking, equity capital (and equity is the form that almost all nondeposit ownership interest in bank assets has taken) typically accounts for only about a tenth of total bank resources, and most of the returns to equity capital derive from its insurance function. Bank owners invest capital primarily to attract deposits, which are then used to buy assets, and only secondarily to buy assets directly. Apart from these novel economic aspects, a study of investment in banking provides the opportunity to study the effects of government

196 citations


Journal Article•DOI•
TL;DR: In this paper, the authors consider the question of whether the particular level of spending associated with the property tax is allocatively efficient, i.e., when local revenues are obtained through property taxation, are local school expenditures carried to the point where the marginal social benefit of public education equals its marginal social cost?
Abstract: Of all the major public expenditures in the United States, the expenditures of local public schools are perhaps the most responsive to the preferences of individual citizens. School boards wishing to spend more are often legally obliged to submit their spending proposals to a popular vote. It seems clear that a voter's reaction to a spending proposal will depend on the amount of extra taxes which he is asked to pay. If the tax structure is such that a proposal to build a new high school would impose additional school taxes of $10 annually on a particular voter, then he may vote yes; with another tax structure which imposes a burden of $15, he may vote no on the identical proposal. A given spending proposal may command a majority under one pattern of tax burdens but may be defeated under some other pattern. The level of local school expenditures therefore depends to some extent on the nature of local taxation. The tax used by virtually all American school districts is the property tax. In line with the reasoning presented here, the property tax leads to a level of school spending which is different from what would prevail under some alternative local tax, such as a school-district income tax or sales tax. The question which we consider in this paper is the following: Is the particular level of spending associated with the property tax allocatively efficient? In other words, when local revenues are obtained through property taxation, are local school expenditures carried to the point where the marginal social benefit of public education equals its marginal social cost? A preliminary answer to this question is that the level of aggregate school spending associated with property taxation must be judged inadequate, even when the benefits exported from the local district are ignored. If these "extralocal externalities" are recognized, then one may

124 citations


Journal Article•DOI•
TL;DR: In the current debate on international monetary reform, the protagonists can be grouped into two main camps as mentioned in this paper : the Anglo-Americans and the Continentals, who argue that if governments make a determined effort to eliminate payments deficits as soon as they arise, the need for large injections of new reserves is considerably reduced.
Abstract: In the current debate on international monetary reform the protagonists can be grouped into two main camps. On the one hand, the AngloAmericans maintain that what is most urgently needed is a major addition to the stock of international reserves. They fear that without a larger supply of international means of payment countries will be forced to adopt measures which restrict trade and foreign payments and which interfere with the attainment of domestic policy goals. On the other hand, the Continentals stress the importance of faster adjustment on the part of countries which have deficits in their balance of payments. They argue that if governments make a determined effort to eliminate payments deficits as soon as they arise, the need for large injections of new reserves is considerably reduced. One group therefore sees the world economy as best served if countries are allowed to finance a deficit over an extended period, whereas the other regards less financing and greater speed in making payments equal to receipts as the key to improvement in the international monetary system.'

123 citations


Journal Article•DOI•
TL;DR: In this article, the authors integrate personal philanthropic activity into traditional utility theory, and determine the effects income and price have on tax-deductible giving, and find that charitable contributions might be an expression of truly philanthropic sentiments; on the other hand, a donor might be more interested in the goodwill a charitable act can gain for himself than in the benefits it might bring to others.
Abstract: This paper focuses upon the charitable donations of individuals Its purpose is to integrate personal philanthropic activity into traditional utility theory, and to determine the effects income and price have on taxdeductible giving We recognize that charitable contributions might be an expression of truly philanthropic sentiments; on the other hand, a donor might be more interested in the goodwill a charitable act can gain for himself than in the benefits it might bring to others Thus, the empirical analysis presented here is designed to illuminate the extent to which "philanthropic" behavior is truly influenced by the needs of others Recognition of charity's philanthropic orientation suggests several insights into consumer theory Economic man is no longer recognized as living in social isolation, where (as traditional presentation of utility theory might suggest) income allocation decisions are made with reference to solely personal needs and wants Part I presents the theoretical formulation which underlies the empirical analysis, Part II defines the variables and the regression model employed, and Part III examines the regression results

Journal Article•DOI•
TL;DR: In this paper, the authors make the appropriate analytical distinctions among different cases, and show in what sense and in what direction provision by local governments leads to departures from an optimum, and also show that the example which Williams chose as the basis of his model was peculiarly the migration of educated persons.
Abstract: The recent discussion of provision of a public good by politically separate local governments has resulted in a number of contradictory conclusions. Several authors had suggested that a spillover of benefits would cause separate local governments to provide a quantity of a local public good which was less than Pareto optimal (Weisbrod 1964; Break 1967). Williams (1966) challenged this statement, claiming to display a " non-redistributive" Pareto optimal point which involved a smaller quantity of a local public good, education, than that which would be provided in non-optimal equilibrium. Brainard and Dolbear (1967) contended that Williams's scheme to reach optimality did involve a redistribution of income compared with independent-adjustment equilibrium.1 They showed that the optimal quantity of a "public" good can be less than that in non-optimal equilibrium only if the movement to equilibrium makes at least one of the communities worse off. Finally, Holtmann (1966) has argued that the amount of education provided in politically separate communities which maximize net benefits will be equal to a Pareto-optimal amount. This paper will attempt to reconcile these divergent analyses. Confusion has arisen because of the failure to specify clearly in what way the "local public good" being discussed possesses elements of "publicness." A way of making the appropriate analytical distinctions among different cases will be developed in this paper. Then it is possible to specify the characteristics of an optimal situation, and to show in what sense and in what direction provision by local governments leads to departures from an optimum. It will also be shown that the example which Williams chose as the basis of his model the migration of educated persons was peculiarly

Journal Article•DOI•
TL;DR: For nearly two decades discussions of Latin American development have focused on problems of structural imbalance and their possible cures as discussed by the authors, and the alternative advocated by Prebisch and pursued throughout Latin America-import substitution through industrialization-has run into increasing difficulties.
Abstract: For nearly two decades discussions of Latin American development have focused on problems of structural imbalance and their possible cures. Prebisch (1950) began the discussion when he argued that continued dependence on primary exports would place limits on further Latin American growth. While those limits appear to have been real, especially for exporters of tropical agricultural products, the alternative then advocated by Prebisch and pursued throughout Latin America-import substitution through industrialization-has run into increasing difficulties. Industrial growth, despite protection and other preferential policies, has been no more rapid in Latin America than in other parts of the world.' Apart from initial spurts due to import substitution, it has been limited by the slow growth of the other sectors of the economy. This experience points to the need for a more comprehensive analytical framework in designing development policies. In concentrating too heavily on one of the factors limiting growth, the import substitution policy has merely replaced one set of bottlenecks with another. To avoid a wasteful repetition of this process,2 it is necessary to establish a more compre-

Journal Article•DOI•
TL;DR: In this paper, the authors show that the usual conclusion that traded goods prices in at least one market must move with the exchange is based on the implicit and unrealistic assumption of perfectly competitive markets, and that the realities of imperfect markets make stable prices likely over a range of exchange rates.
Abstract: The primary purpose of this paper is to demonstrate that a system of flexible exchange rates will not necessarily destabilize the prices of traded goods. It will be argued that the usual conclusion that traded goods prices in at least one market must move with the exchange is based on the implicit and unrealistic assumption of perfectly competitive markets, and that the realities of imperfect markets make stable prices likely over a range of exchange rates. This hypothesis is tested in a study of six markets during Canada's experience with flexible exchange rates between 1950 and 1962. It is not the purpose of this paper to provide a general defense of flexible exchange rates, but instead merely to invalidate the argument that such a system cannot operate successfully for an open economy because too many prices will be forced to shift from day to day to offset exchange rate movements (McKinnon 1963). The numerous other arguments against exchange rate flexibility are not discussed. If perfect competition is assumed, prices can differ between two markets only by transport costs and tariffs; if the two markets have separate currencies, and the exchange rate varies, at least one of the two prices of any traded goods will have to shift to maintain the equality; percentage changes in the relationship between the two prices should equal the percentage changes in the exchange rate.1 This process provides a rather

Journal Article•DOI•
TL;DR: In this paper, the authors extend the Becker framework to take account of this additional area of social choice and compare the implications of this model with the original, less complete version, and show that the costs of apprehending and convicting a given percentage of offenders will be lower without these conventions than it would be with them.
Abstract: Professor Becker has recently demonstrated the usefulness of "conventional " economic analysis in coming to grips with what is usually considered to be a noneconomic problem-crime and punishment (Becker 1968). In the article, he derives criteria for optimal levels of expenditure on law enforcement and form of punishment subject to a given legal framework. The point of this paper is that the legal framework need not be taken as constant but is itself subject to policy choice. Therefore, I propose to extend the Becker framework to take account of this additional area of social choice and compare the implications of this model with the original, less complete version. Among countries and over time, one can find enormous variations in "rules of the game" pertaining to standards of evidence, presumption of guilt, rights to counsel, and procedures for arrest and indictment. Rulings of the U.S. Supreme Court upholding rights of accused persons and restricting the freedom of police to obtain evidence in certain ways have become a major political issue of late. Indeed, the Becker model as formulated would seem to agree with some proponents of "law and order" who argue that it is undesirable to tie the hands of the police with legal niceties. After all, it is quite clear that the costs of apprehending and convicting a given percentage of offenders will be lower without these conventions than it would be with them. Note that in certain conditions, such as a state of martial law, many legal safeguards are relaxed, presumably to apprehend a maximum proportion of offenders with minimum cost. Despite Geneva Conventions, it has not been unknown for occupying armies to punish entire communities when certain offenses

Journal Article•DOI•
TL;DR: This paper examined a model which combines the Oniki-Uzawa and Komiya features by making the third nontraded good a capital good and showed how factor proportions, and hence the pattern of comparative advantage, in the long run depend ultimately upon the values of two parameters, the propensity to save and the growth rate of the labor force.
Abstract: The basic model of comparative advantage in the theory of international trade has been that associated with the names of Heckscher and Ohlin. The form in which this model has been analyzed over the last few decades has been in terms of the two-factor, two-good geometry developed by Lerner and Samuelson. All the six papers in the new Readings in International Economics (1967) under the section headed "The Theory of Comparative Advantage" are of this type. Recently the model has been extended in some interesting directions. Oniki and Uzawa (1965) have made one of the goods a capital good and studied the effect of accumulation and labor force growth on international equilibrium over time. Komiya (1967) has introduced a third nontrated good into the system and examined the consequences of this for various standard propositions of trade theory within the usual static context. Kenen (1965) has produced an ingenious model in which capital takes the form of augmenting the productivity of labor and land instead of being a separate "factor" in its own right. The present paper examines a model which combines the Oniki-Uzawa and Komiya features by making the third nontraded good a capital good. The main result is to show how factor proportions, and hence the pattern of comparative advantage, in the long run depend ultimately upon the values of two parameters, the propensity to save and the growth rate of the labor force.

Journal Article•DOI•
TL;DR: A variety of such measures have been proposed, both in the study of the sources of economic growth, and in models for the efficient allocation of resources in the educational system.
Abstract: Most recent attempts to explore the relationship between education and economic growth have been based, often implicitly, on a measure of the aggregate supply of labor services in the economy. A variety of such measures have been proposed, both in the study of the sources of economic growth, and in models for the efficient allocation of resources in the educational system. The need for an aggregate measure of the supply of labor services arises when we seek to determine the historical growth contribution of changes in labor quantity and quality. Similarly, in the determination of the efficient allocation of resources in the educational system it is ordinarily helpful to have a measure of the aggregate supply of labor services in the economy; for it is by effecting increases in the total supply of labor services that the schooling system makes its primary contribution to future economic growth. In both the study of the sources of growth and educational planning, the measure of the aggregate supply of labor services must be constructed for periods of time quite removed from the present. We ordinarily do not have adequate time-series data on the relative earnings of labor by schooling category which would be required to construct the labor supply index in a historical sources-of-growth analysis. Similarly, we have no information on the likely movement of relative earnings of various types


Journal Article•DOI•
TL;DR: In this article, a general equilibrium neoclassical model is used to spotlight several important determinants of the sensitivity of industrial location to various general taxes levied in only one region of the United States.
Abstract: The threat that high taxes in a region might drive out or repel industry has traditionally worried those responsible for the tax policies of state and local governments in the United States. More recently, the possibility that subsidies might attract industry has led some state and local governments to engage in various forms of subsidization of industry, including tax exemptions, and has given rise to numerous studies of the effects of taxes and subsidies on the location of industry. These studies have used such varied techniques as interviews, econometric analysis, and comparisons of tax liabilities in different states in their attempts to assess the sensitivity of industrial location to tax and subsidy policies.1 But while these studies have undoubtedly shed some light on this complex question, most of them have been rather ad hoc descriptions of the potentially important determinants of the regional location of industry, including rough estimates of the relative importance of taxes and subsidies. Lacking explicit theoretical foundation,2 they can be of only limited value in specifying under what conditions, in what manner, and to what extent fiscal variables might be expected to influence industrial location. The present paper is an attempt to fill this theoretical void in the literature on the locational impact of tax policy. A general equilibrium neoclassical model is used to spotlight several important determinants of the sensitivity of industrial location to various general taxes levied in only one

Journal Article•DOI•
TL;DR: In this article, the authors investigated the empirical operation of some recognized theoretical effects of the money stock on market rates of interest over a period since World War 11, the period for which extensive quarterly and monthly data are available.
Abstract: This paper investigates the empirical operation of some recognized theoretical effects of the money stock on market rates of interest. The analysis covers the period since World War 11, the period for which extensive quarterly and monthly data are available. There is a widespread belief among economists that an increase in the money stock lowers interest rates.1 This conclusion seems to follow from the liquidity-preference relation between the level of interest rates and the quantity of money demanded. As stated by Tobin (1947, p. 126):

Journal Article•DOI•
TL;DR: In this paper, the authors developed an operational version of a demand-forbrand model in which quality variation is explicitly recognized and generated implicit prices for the range of qualitative attributes a commodity possesses.
Abstract: To understand the behavior of firms and to assess the degree of competition among firms, we need information on the demand function faced by the firm Despite this, little published work has been forthcoming on the demand for branded goods and two obvious explanations come to mind: the problem of quality variation among brands of the same commodity and the lack of data on market-share behavior This contribution is largely concerned with developing an operational version of a demand-forbrand model in which quality variation is explicitly recognized This is accomplished by following up a suggestion made by Griliches (1961) and generating implicit prices for the range of qualitative attributes a commodity possesses This allows us to construct quality-adjusted prices for each brand which are the correctly specified prices for the demand equation The model is tested out in the UK market for farm tractors and found to give satisfactory results

Journal Article•DOI•
TL;DR: In this article, the authors introduce new and more concrete elements into traditional explanations of comparative advantage, such as product innovation, technological gap, and relative age of industries, to explain trade in manufactured products.
Abstract: Recent contributions to international trade theory have attempted to introduce new and more concrete elements into traditional explanations of comparative advantage. Thus Linder (1961) has presented the hypothesis that the volume of trade between two countries is larger the closer they are in terms of per capita income; this fact being due, according to him, to the export potentiality developed in the two markets by the similar national demand patterns that accompany similar levels of income. Dreze (1960), inquiring into the export-import performance of Belgium, advanced the hypothesis that small countries have a comparative advantage in products that are internationally standardized and subject to economies of scale. In fact, only large markets would allow exploitation of economies of scale; thus, when production entails economies of scale, only large countries are able to produce efficiently products having national characteristics that differentiate them from foreign products. On the other hand, the market for internationally standardized products is worldwide, and small countries are on the same footing in it as large ones. This would give them a comparative advantage to specializing their production onto the latter products, exporting them and importing the former products. Other recent contributions resort to factors like product innovation, technological gap (as reflected in R & D expenditures), and relative age of industries, to explain trade in manufactured products.1 Implicit or explicit in these new explanations of trade flows is the assumption that domestic demand is a prerequisite to developing an export industry, when the products of this industry have to overcome

Book Chapter•DOI•
TL;DR: The problem of finding plausible (or implausible) behavioral assumptions that effectively eliminate the uncertainty has proved to be a frustrating one for economists as mentioned in this paper, since the specific uncertainty revolves around the interrelationship of the two firms and the fact that the decisions of one of them affect the other.
Abstract: Duopoly theory has a long history in economics and a distinguished list of names associated with that history (Cournot 1897; Frisch 1951; Stackelberg 1952). Nevertheless, the problem has proved to be a frustrating one for economists. The obvious reason for the difficulty is the uncertainty that characterizes the problem. The specific uncertainty revolves around the interrelationship of the two firms and the fact that the decisions of one of them affect the other. Solutions have consisted of finding plausible (or implausible) behavioral assumptions that effectively eliminate the uncertainty. Economists have developed duopoly and oligopoly theory through the years by making different assumptions which produce models explaining some regularity believed to exist in duopoly or oligopoly markets (Bishop 1960).

Journal Article•DOI•
TL;DR: In this paper, the welfare implications of price stabilization achieved by an international buffer stock were examined, and the effects of a buffer stock on both the expected value and the variance of a producer's income were examined.
Abstract: The production of an agricultural commodity is subject to risk. The producer makes decisions and commits resources several months (for annual crops) or years (for tree crops) before any output is realized. These decisions must be based on estimates of what yield and price will obtain at harvesting time (or, in the case of perennials, what set of yields and prices will obtain for the bearing life of the crop). But both yield and price are stochastic variables. Thus the producer's income is also stochastic. The present paper deals with some welfare implications of price stabilization achieved by an international buffer stock. Stabilization is taken to mean not a reduction over time in price fluctuations (although this may result from a buffer stock) but a reduction in the riskiness of this year's income, as viewed by the producer at planting time. That is, a distinction is made between the stability and the certainty of income; my concern is with the latter. It is possible in principle for income to fluctuate over time yet be known in advance with certainty. I examine the effects of a buffer stock on both the expected value and the variance of a producer's income, and I note that these effects depend on the degree of price variance reduction provided by the buffer stock. I then derive an expression for the degree of price stabilization that is optimal from the producer's point of view. In the final section of the paper, I discuss an alternative scheme for producer income stabilization, suggested by Ronald I. McKinnon, and compare risk reduction obtainable from this scheme with that obtainable from a buffer stock.

Journal Article•DOI•
TL;DR: Boulding as mentioned in this paper argued that money as such will one day disappear; then, what is not there we won't have to define, and this would be almost too true to be funny.
Abstract: We must have a good definition of Money, For if we do not, then what have we got, But a Quantity Theory of no-one-knows what, And this would be almost too true to be funny Now, Banks secrete something, as bees secrete honey; (It sticks to their fingers some, even when hot!) But what things are liquid and what things are not, Rests on whether the climate of business is sunny For both Stores of Value and Means of Exchange Include among Assets a very wide range, So your definition's no better than mine Still, with credit-card-clever computers, it's clear That money as such will one day disappear; Then, what isn't there we won't have to define [Boulding 1969]

Journal Article•DOI•
TL;DR: In this paper, a positive relationship was found between the correlation of growth rates of plants in successive time periods and economies of scale, and the positive relationship is more than offset by the opposite impacts of organization parameters.
Abstract: In the literature on the growth of firms, two factors on the supply side have received great emphasis. The first factor is economies of scale. Where economies of scale are present, growing firms reap greater profits and command the resources needed for further growth. In addition, growth is also induced for the profit-maximizing firm by the prospect of still higher profits. The second factor is the group of organization parameters constraining growth (Penrose 1959). These parameters are related to the history of the firm and in general cause a fast-growing firm in one period to slow down in the next. Evidently the actual growth of firms is partly explained by the balance of these two factors. More specifically, it may be hypothesized that the constraint by organization parameters is reflected by a negative correlation between the growth rates of firms in successive time periods. The negative correlation, however, is expected to be weaker in those industries where economies of scale are large. The objective of the present paper is to test empirically this hypothesis at the plant level, focusing on the intraplant basis of organization parameters and economies of scale. It turns out that the more important impact of economies of scale on growth of plants is indirect. Plants of different sizes have different input structures and are therefore affected in different ways by the secular changes in the relative prices of inputs and in technology. With this indirect factor taken into consideration, a positive relationship is found between the correlation of growth rates of plants in successive time periods and economies of scale. However, the implications of economies of scale on the growth behavior of plants were more than offset by the opposite impacts of organization parameters. As a consequence, rapidly growing plants in one period are compelled to slow down their growth

Journal Article•DOI•
TL;DR: Lucas and Rapping as discussed by the authors argued that the long-run labor supply is not part of the short-run supply, and that the distinction between voluntary and involuntary unemployment is not a useful one.
Abstract: In a recent issue of this Journal Lucas and Rapping (1969b) present some original and interesting views on the nature of equilibrium in labor markets. Unfortunately, in the process they seriously misinterpret some of the post-Keynesian literature, leaving the impression that their departure from generally accepted positions is much less substantial than is in fact the case. The issues they raise concerning the voluntary or involuntary nature of measured unemployment have important implications for policy. Although Lucas and Rapping do not explore these implications, they lurk close enough to the surface to make clarification of the issues a matter of importance. Lucas and Rapping explicitly assume that the labor market is in continuous short-run equilibrium at the current wage rate, where equilibrium has the meaning that quantity supplied is exactly equal to quantity demanded. In other words, the short-run labor supply is always equal to employment. Measured unemployment, though it is a component of long-run labor supply, is not part of the short-run supply. This is equivalent to assuming that measured unemployment is voluntary, though the authors believe that the distinction between voluntary and involuntary unemployment is not a useful one. The view just described sounds more classical than Keynesian, but the authors surprisingly assert that "many [post-Keynesian] writers appear to treat labor markets as being in equilibrium throughout the cycle" and specifically attribute this view to Lange and to Modigliani (Lucas and Rapping 1969b, p. 724, n. 3). This startling assertion arises out of confusion over a difference in view in the post-Keynesian literature in which Lange (1944) and Modigliani (1944) take one position and Patinkin (1965) and

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TL;DR: In a recent article and subsequent monograph dealing with the Jacksonian era, Temin (1968, 1969) has brought into serious question the traditional interpretation of the effects upon the economy of Jackson's victory over the Second Bank of the United States.
Abstract: In a recent article and a subsequent monograph dealing with the Jacksonian era, Temin (1968, 1969) has brought into serious question the traditional interpretation of the effects upon the economy of Jackson's victory over the Second Bank of the United States. In the process he prepared annual estimates of the money supply for the years 1820-58, a period for which a published series had previously been lacking. In this note I do not intend to question Temin's criticism of the traditional historical thesis; rather, I wish to point to some implications contained in the monetary estimates which Temin did not highlight but which cast additional light on the cyclical and secular role of the Second Bank and the effects of its demise. The traditional version of the effects of the Bank War emphasized, as Temin details, the expansion of the banking sector and the development of what have come to be called wildcat banks. The termination of the Second Bank, with its ability to control state banks, presumably meant that banks expanded their liabilities at a very rapid rate, with an insufficient specie base to maintain this quantity of liabilities. Temin points out that this version is empirically testable. The hypothesis is that the banking sector should show a decline in the reserve ratio-the ratio of specie to liabilities.' However, the annual data indicate that no such decline occurred during the 1830s. Temin argues that the major factor in the expansion of the money supply was the increased specie stock, which Temin implies went mostly into bank reserves and provided a base for the expansion of bank liabilities. Thus the increased specie, attributed by Temin to capital imports from England and the accumulation of Mexican silver in the United States, is held to account for the inflation of the mid- 1 830s, while the attempts of the Bank of England to defend its specie supply are considered as a primary

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TL;DR: The role of land reform in agricultural production in Latin America has become a major public issue, especially since the Cuban revolution, arousing passionate debate among politicians, laymen, and economists as mentioned in this paper.
Abstract: Agricultural production per head in Latin America has been some 10 percent below its pre-World War II level for the past two decades. Mexico is the only notable exception to this general picture of relative stagnation. Malnutrition is widespread, with intake of calories and proteins averaging from one-sixth to one-third below that of Europe or North America. While Latin America's agricultural exports are estimated to have increased by about 16 percent since the 1930s, agricultural imports, mostly foodstuffs, have gone up by more than 80 percent in volume, with serious balance-of-payments consequences in many cases.1 Meanwhile, agrarian reform has become a major public issue, especially since the Cuban revolution, arousing passionate debate among politicians, laymen, and economists. Attitudes about the role of land reform differ widely. Many Latin Americans, including a few economists, believe land reform to be the solution to the agricultural production problem,, apparently believing that reform by itself will automatically increase productivity.2 On the other hand, bank missions, foreign "experts," and economic planners usually play down the urgency of agrarian reform, emphasizing instead greater agricultural investment, improved price policy, accelerated rural-urban migration, and cheaper farm inputs. Although they recognize an agrarian problem apart from the productivity problem, many economists regard it

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TL;DR: In this article, it is shown that the marginal efficiency of capital is not appropriate for ranking investment projects, as it is essentially an equilibrium concept; that the "internal rate of return" and the "marginal efficiency" must be distinguished; and that, when the internal rate-of-return is appropriately defined, the ranking of projects by the internal-rate of return and by net present value for projects with equal time spans is identical.
Abstract: During the period of the late fifties and early sixties there was a considerable amount of discussion in the literature on the usefulness of the concept of the marginal efficiency of capital in the evaluation of alternative investment projects; see, for example, Masse (1962) and Merrett and Sykes (1962). There are basically two problems: multiplicity of roots for the solution of the marginal efficiency of capital, given in income stream and capital cost, and the different results obtained in ranking projects according to marginal efficiencies of capital and according to net present values. With respect to the former problem, some thought has been given to the economic meaning of the multiple roots and to the choice of root for ranking projects. The objectives of this paper are to show that the marginal efficiency of capital is not appropriate for ranking investment projects, as it is essentially an equilibrium concept; that the "internal rate of return" and the marginal efficiency of capital must be distinguished; and that, when the internal rate of return is appropriately defined, the ranking of projects by the internal rate of return and by net present value for projects with equal time spans is identical. Further, it is shown that the internal rate of return can always be calculated and has a unique value relative to the market interest rate. Finally, an economic interpretation is given to the multiple roots for the solution of the marginal efficiency of capital and to the case where there are no real roots.