Showing papers on "Factor price published in 1973"

Consumption externalities and imperfect corrective pricing

Abstract: Pricing congested facilities above marginal production cost is a conventional approach to improving resource allocation. Where everyone is producing the same externality, a uniform price (in excess of marginal cost by the value of the externality) permits the competitive equilibrium to be Pareto optimal. Where individuals give rise to different externalities, but a uniform price is in effect, we have a second-best situation. When demands depend only on price, price should exceed marginal cost by a weighted average of externalities generated, the weights being the price derivatives of demand. When demands also depend on congestion, the optimal price generally diverges from this rule. The price should be lower when the individuals giving large external diseconomies per unit demanded tend to be price insensitive and congestion sensitive in their demands (relative to the average). In this case public expenditures to decrease congestion directly should not be carried to the point where the marginal direct benefit from congestion reduction equals the marginal cost. Optimal income distribution is also examined.

Production Flexibility, Price Uncertainty and the Behavior of the Competitive Firm

Abstract: THE PAST FEW YEARS HAVE WITNESSED important advances in the theory of the firm under price uncertainty, with increasing attention being devoted to the question of how a firm's decisions are affected by its attitude towards risk taking.' Specifically, recent work by McCall [7] and Sandmo [15] has established that a competitive firm's output under uncertainty will be smaller, larger, or the same as it would be under certainty, depending upon whether it is risk averse, risk attracted or risk neutral, respectively.3 Leland [6] has shown that, with the addition of a mild restriction on the stochastic demand function, these results obtained under quite general conditions by Sandmo, extend to the case of a quantity setting monopolist as well.4 He also analyzes the same question for the price setting monopolist and indicates some additional complications that arise in that case. Practically the entire literature on the subject makes the assumption (either implicitly or explicitly) that the firm is required to make all its production decisions for a given period before the selling price for that period is known and that once these decisions are made, they are irrevocable.5 Demand and sales are then determined after the market price has been established. In other words, the firm has no flexibility in its production decisions and this is a rather restrictive assumption. The purpose of this paper is to develop a one period model of the competitive firm relaxing this assumption and to determine how a firm having production flexibilities responds to uncertainty. The firm being considered here makes its production decisions on the basis of stochastic information about the selling price of its product, but possesses the ability to modify these plans-at additional cost-after it learns the true selling price. Hence the

A note on the factor-price frontier

Abstract: For an economist the possibility of an upward sloping factorprice frontier is extremely surprising. It has been shown that although such a factor-price frontier is theoretically possible, it is not very likely that it can occur under given economic and technical conditions since it would imply that capitalists are a class of borrowers (from nature) whereas we can be fairly sure that they are a class of lenders.

Economic Integration Via External Markets and Factors

Abstract: In a previous paper, I compared the definitions and concepts of economic integration of Tinbergen, Balassa and Myrdal [1]. To Tinbergen, integration meant free trade, to Balassa, the absence of governmental discrimination, to Myrdal, factor-price equalisation.1 There is something to be said for each definition, and something against it. Free trade provides factor-price equalisation, of course, under certain assumptions regarding competition, absence of transport costs, numbers of goods and factors, etc. In the real world these conditions are seldom met, and freedom to trade cannot provide integration between two countries which are so distant from one another that they barely trade at all. The absence of governmental discrimination subsumes free trade, but goes beyond it to permit factor movements. With free trade under certain limited assumptions, or with free movement of all factors, or some combination of the two, factor-price equalisation could be achieved, and the Balassa definition would be covered by the Myrdal. But it need not be. If governments do not discriminate against factors by nationality, the factors may themselves do so.

The Insensitivity of Interregional Migration to Wage Differentials

Abstract: This paper seeks to demonstrate the general proposition that there can be a substantial range of interregional (or international) factor price differentials that will not lead to interregional (international) factor flows. First, interregional migration under conditions of perfect factor mobility is analyzed. Second, the costs of interregional migration are considered. Finally, interregional migration under conditions of a "mobility cost constraint" is analyzed. The last part of the paper consists of an empirical exploration of the propositions advanced.