Showing papers on "Factor price published in 1977"

On the Theory of the Competitive Firm under Price Uncertainty: Note

Abstract: Sandmo analyzed the effects of change in the expected value and uncertainty of the price on the optimal output of the competitive firm, which were written as ax/aO and ax/aO in his article, under the assumptions mentioned above. As a result of his analysis, he asserted that while the sign of ax/aO can be clearly judged to be positive, the sign of ax/ay is ambiguous in general. The purpose of this note is to show that investigating the sign of ax/ay under the same assumptions and analytic apparatus as Sandmo's, we can decide the sign of ax/a-y, manifestly in opposition to his assertions.

Specific Factors, Comparative Advantage and International Investment

Abstract: The Heckscher-Ohlin-Samuelson (H-O-S) model has played a central role in the pure theory of international trade, contributing to the clarification of such diverse questions as the determinants of comparative advantage, the effects of trade upon factor prices, the effects of economic growth on international trade and vice versa, the relationship between international movements of goods and factors, and so forth. However, contrary to the original intention of Ohlin himself, as has been exemplified in his discussion in Harrod and Hague (1963, pp. 398-399), this model has tended to concentrate on a relatively small number of generic factors of production such as capital and labour, and to neglect the role played by those factors that are somehow specific to various industries. Harrod, on the other hand, emphasized the importance of industry-specific factors many years ago, viewing their relative abundance as a major cause of differences in comparative advantage. (See Harrod, 1957, pp. 19 and 36, 1958; and Harrod and Hague, 1963, pp. 422-423. For his own definition of specific factors see Harrod, 1957, p. 33.) It may be argued, however, that the emphasis on specific factors may lead to a danger of circular reasoning unless one can successfully explain the mechanism that determines the relative supply of these factors. Take the ordinary two-factor, two-commodity H-O-S model, for example, and suppose that a country has a comparative advantage in the labour-intensive (say, textile) industry because of its relative abundance of labour. In the trade equilibrium position a relatively large proportion of labour will be engaged in the textile industry, and those workers in this industry must have acquired specific skills which are necessary to produce textiles. They are specific factors, at least for the short run. It would not be particularly interesting, however, to state that the country has a comparative advantage in the textile industry because it has a relatively abundant supply of textile workers, since they have become relatively abundant as a result of the expansion of the textile industry in which the country has a comparative advantage, and not vice versa. Thus, there is a clear limitation to a theory based on specific factors which does not analyse the mechanism that determines their supplies. On the other hand, it may also be argued that one need not seek merely the long-run determinants of international trade and investment. We may conceive of specific factors such as those whose inter-industry mobility is limited in the short run, and limit our scope to a relatively short period of time, the length of the period being dependent upon the degree of shiffability of a particular factor of production concerned: see the view of Haberler in Harrod and Hague (1963, p. 396). It is in this context that we now

Farmers' Expectations, Risk Aversion, and Market Equilibrium under Risk

Abstract: The way in which farmers form their price and yield expectations and the consequences of these expectations on ensuing market equilibrium when production is risky are examined. If rational expectations are assumed, competitive market equilibria can be simulated in sectorwide mathematical programming models. This simulation is illustrated using a linear programming model of agricultural production at a subsector level in Mexico. Competitive markets are inefficient if farmers ignore correlations between stochastic prices and yields; competitive markets are efficient if correlations between stochastic prices and yields are taken into account. The simplest way in which this can be achieved is for producers to project last year's per acre revenue for each enterprise. This approach can be incorporated into agricultural sector models by using linear programming methods. As results from an application at a subsector level in Mexico show, the adoption of linear programming methods may cause important differences in the solutions as compared with conventional model formulations. Three tables provide such data on average district cropping patterns, price solutions for the price expectations model, and price solutions for the revenue expectations model. 6 references.

The Effects of Pollution Taxation on the Pattern of Resource Allocation: The Downstream Diffusion Case

Abstract: The notion of ''internalizing'' pollution externality generated by the effluent of an upstream firm that damages the product of a downstream firm is a classical case in the literature on externalities (J. Econ. Lit., 9: 1-28(Mar. 1971)). This paper casts this problem into a von Thunen-like model and analyzes in this framework the effects of externalities on land utilization and rent along the stream. The firms' pollutants accumulate and diffuse by water streams or airstreams, damaging the production of the downstream firms or the welfare of the urban center. The polluters can be agricultural firms, mines, or any other industry located along the stream. The analysis is applied to an industry that operates in a competitive system whose share in the market is relatively small so that product and factor prices are given. The maximization of the joint net profit minus the social costs of pollution at the urban center results in Pareto optimal resource allocation. In the case treated here, the market can achieve this efficient resource allocation if the pollution externalities are internalized by taxation and the tax revenues are redistributed without affecting production decisions. The characteristics of the resource allocation and the corresponding price system, with andmore » without this taxation, are elaborated upon.« less

Some Aspects of the Relations between International Movements of Commodities, Factors of Production, and Technology

Abstract: I am happy to have the privilege to speak after my old friend Gottfried Haberler, who in his paper once more demonstrates his exceptional ability in making difficult problems easily understandable and his reliable judgement in scientific surveys.

Factor Specificity and The Rybczinski Theorem

Abstract: It has recently been recognized that capital is specific in the short run in the sense that once installed, it can not temporarily be shifted from one industry to another. In a two factor, two goods, small open economy characterized by specificity of capital, the short run and long run behaviors of factor prices induced by an exogenous change in the product price in general differ. W. Mayer (1974), M. Mussa (1974) and K. Okuguchi (1975) have been concerned with implications of factor specificity in the short run for the comparative static, long run Stolper-Samuelson theorem for a two industry model. R. Jones (1975) has analyzed the same problem for a more general model with n industries.

Growth patterns of small scale plants in manufacturing industries: A cross-country analysis

Abstract: An important issue that confronts small sector development policy in manufacturing is the question of whether small-scale plants are in the long-run viable or must they disappear in the development process. This question is important because answers to it may indicate whether small-scale plants are worthwhile developing in the first place and, if they are, which specific industries appear most appropriate for the purpose. Clearly, central to the issues raised are questions of economies of scale and production function in manufacturing. In planning investments the method of mathematical programming has proved to be quite useful in coping with them. In this paper an attempt is made to apply the patterns approach to development as a method of dealing with the question raised in a general way. Briefly, this approach involves estimating by means-of econometric methods the observed long-term quantitative relationship between a sector's relative importance in the economy and a set of variables systematically affecting the sector, in order to be able to indicate its possible development path over time. While the major concern of the patterns approach to development to date has been with structural composition of industries, this paper looks at intercountry differences in the size structure of plants within individual industries. The principal concern of this paper is with the scale effects of economic development and market size on small-scale plants. Assume that at any point of time the same choices of techniques are open to all producers in a given industry in all countries and that these choices are mapped by a production function which is linearly homogeneous. Furthermore assume, to begin with, that the relative factor prices between labour and capital (the two primary factors of production) are the same for all producers in all countries. Under these simplifying assumptions, one sense in which the size of plant in a given industry can vary from country to country is when the size of market is different from one country to another. All other things being equal, the size of plant and that of the market will be positively associated, with one another.

Agricultural price policy and supply response : a review of evidence and an interpretation for policy

Abstract: Since agricultural policy has been given greater priority, this paper represents an attempt to put together the empirical evidence on supply response to price irrespective of whether that price refers to outputs or inputs. If farmers are responsive to price, then agricultural development can be accomplished through relatively decentralized changes in market conditions and incentives. On the other hand, if supply is not price responsive, agriculture will not respond readily to decentralized incentives, and government will have to change the underlying technological or social conditions under which crops are produced. The paper provides a review of supply response to government stimulation in some developing countries. It discusses elasticity elements of individual crops as well as aggregate agricultural production where available. A brief review of the methodology used is also included, since estimates of price elasticity appear to be contingent significantly in the particular model formulation used for estimation. The impact on supply response from non-price variables is tentatively assessed, as is the impact on other factors such as the demand for labor, consumption, land, etc. generated from the variation in price.

An Evaluation of the Role of Factor Markets and Intensities in the Social Security Crisis: A Progress Report

Abstract: This paper begins to evaluate some of the complicated set of economic adjustments which are going to occur as the uneven population age structure of the U.S. matures. It argues that in the 2012-2035 "crunch" years for the social security system not only will workers be scarce relative to retirees, but they will also be scarce relative to capital. This fact will tend to raise the wage-rentals ratio and partially alleviate the problems of a retirement plan supported by taxes on labor income. On the other hand, during this period the large number of elderly persons will be attempting to dis-save by selling their assets to the relatively few younger, accumulating families. Such an imbalance will be equilibrated only by depressed asset prices. The conclusion, thus, is that the problems of the social security system may be partially alleviated by factor price adjustments, while private funded pension plans will have a problem of their own, namely lower than anticipated liquidation values.

A theoretical framework for evaluating social welfare effects of new agricultural technology

Abstract: In recent years economists have expressed growing concern over the potential adverse social consequences of technical change in agriculture, both in developed and developing countries [Falcon ;Gotsch;Hightower; Schmitz and Seckler] . These critics, while recognizing the great benefits of new technology under appropriate circumstances, have focused attention on two important problems. The first is that the welfare gains and losses produced by efficient technological innovations have sometimes been distributed very inequitably among different groups in society. Second, technologies that are socially inefficient for particular settings have sometimes been introduced. The latter problem is especially serious in developing countries which are confronted by a tempting backlog of technology. Factor price distortions and personal biases often combine to raise the private financial return to investment in capital-intensive technologies above the social return in these labor-abundant economies.