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Showing papers on "Factor price published in 1980"


Journal ArticleDOI
TL;DR: In this article, the authors provide some tests of the proposition that bubbles were absent during the German hyperinflation, a proposition we are unable to reject, and the test methodology that they propose is general enough to be applied to other historical or contemporary episodes.
Abstract: When current market price depends partly on the expected rate of market price change, it is possible that the market will launch itself onto a price bubble with price being driven by arbitrary, self-fulfilling elements in expectations. The purpose of this paper is to provide some tests of the proposition that bubbles were absent during the German hyperinflation, a proposition we are unable to reject. The test methodology that we propose is general enough to be applied to other historical or contemporary episodes.

495 citations


Journal ArticleDOI
TL;DR: In this article, an extension to product markets of the theory of implicit long-term wage contracts leads to a simple hypothesis which explains the pattern of industry and sectoral price response to monetary change by implicit contract length, the latter being determined by relative price variability.
Abstract: The traditional explanation for the pattern of commodity price adjustment to monetary change, which stresses factors affecting the short-run elasticities of supply and demand in different markets, does not take into account price flexibility. This paper offers an explanation for the pattern of commodity price adjustment to monetary change based on differing degrees of price flexibility across industries, where price flexibility is determined by contract length. An extension to product markets of the theory of implicit long-term wage contracts leads to a simple hypothesis which explains the pattern of industry and sectoral price response to monetary change by implicit contract length, the latter being determined by relative price variability. Tests of this hypothesis across broad sectors and industries using postwar U.S. data produce favorable results. Also confirmed by the empirical evidence is the pattern of industry and sectoral price response to monetary change suggested by the tradition approach.

179 citations


Journal ArticleDOI
TL;DR: In this paper, a model for testing all types of relative price inefficiency expands the Averch-Johnson effect and makes it possible to test for absolute price efficiency, which exists if the value of the marginal product for each factor is equated to factor price and implies both cost minimization and production of the optimal quantity of output.
Abstract: A model for testing all types of relative price inefficiency expands the Averch-Johnson effect and makes it possible to test for absolute price efficiency, which exists if the value of the marginal product for each factor is equated to factor price and implies both cost minimization and production of the optimal quantity of output. Duality theory is used to derive the empirical model using 1973 data for electric utilities. The results indicate that relative and absolute price efficiency were generally not achieved by electric utilities in that year. 36 references, 1 table.

129 citations


Journal ArticleDOI
TL;DR: In this paper, an indirect trade utility function is introduced, its properties are developed, and its application to the theory of international trade and to the econometric estimation of export supply and import demand functions are discussed.
Abstract: In this paper the concept of an indirect trade utility function is introduced, its properties are developed, and its application to the theory of international trade and to the econometric estimation of export supply and import demand functions are discussed. The indirect trade utility function expresses the maximum level of utility a trading nation can attain, assuming the existence of a direct community utility function, as a function of a vector of prices for commodities, a vector of factor endowments and the balance of trade. As such it provides a summary of all the consumption and production decisions within a competitive economy. In Section 2 the indirect trade utility function is defined in terms of the ordinary indirect utility function and the gross national product (or variable profit) function. An extension of Roy's Identity is developed, allowing the easy generation of net export functions by differentiation. The fact that the derivatives of the indirect trade utility function with respect to the prices of commodities are proportional to the excess supply or net export functions implies that indirect utility is stationary at a closed equilibrium. It is then proved that the set of price vectors which minimize the indirect trade utility function coincides with the set of closed equilibrium price vectors. Section 3 specifies the properties of the indirect trade utility function implied by the model and then illustrates various applications in the theory of international trade. These include the welfare effects of divergence of prices from autarky levels and the characterization of optimal tariff structures. Section 4 briefly considers the extent to which the results of Section 2 can be extended to the case where there are many consumers. In Section 5 the relationship between the indirect trade utility function and the direct trade utility function of Meade, and between the latter and the direct utility function and the production possibility set are outlined. Section 6 is devoted to establishing rigorously the formal relationships between all these functions under quite general conditions. The results of this section serve to widen the application of duality theory, as surveyed by Diewert (1974), (1978b) for example, to the area of international trade theory. Some of the results on the direct trade utility function have previously been developed by Chipman (1970) in unpublished notes, but he did not consider the indirect trade utility function. In Section 7 the usefulness of the indirect trade utility function in generating functional forms for export and import demand functions and factor price functions suitable for the purposes of econometric estimation using data on prices, net exports and factor endowments is discussed. Section 8 concludes the paper with an indication of how the model may be reinterpreted to accommodate nontraded goods and variable factor supplies. While the discussion is focussed on a national economy trading with other nations in the world market, it should be clear that the model applies equally well to the individual consumer who undertakes marketable production. Examples include the self-employed businessman or farmer. The indirect trade utility function then indicates the maximum utility attainable given the prices of the commodities (marketable products and purchasable

44 citations


Posted Content
TL;DR: In this paper, the authors compare the output policy of two types of firms: the profit maximizer whose labor input consists of workers with no share in the firm's profits and a second firm which seeks the optimum number of members to maximize profits or net income per member.
Abstract: The behavior of a cooperative firm which is interested in the well-being of its members has attracted economists' attention in quite a few studies The pioneer work of Benjamin Ward compares the policy of such a firm with that of a profit maximizer under perfect competition The analysis is further carried out by Evsey Domar (1966) and Jaroslav Vanek (1969) The comprehensive study of Vanek (1970) establishes a general theory of labor-managed market economies The theory of cooperatives and participatory structures of enterprises has recently been further extended in several directions by S Charles Maurice and Charles E Ferguson, J E Meade, Eirik Furubotn, among others However, the basic assumption in all these studies is that the cooperative operates with complete information about the prices of the final demand markets This paper is concerned with the behavior of a competitive cooperative firm under price uncertainty That is, the price of the final product is not perfectly anticipated, for instance, as a result of inflation, but is rather uncertain and takes the form of a stochastic variable with a known distribution A recent paper of Allan Taub deals with the very same subject However, the treatment here is more comprehensive and the results are entirely different' Compare the output policy of two types of firms: The profit maximizer whose labor input consists of workers with no share in the firm's profits and a second firm which seeks the optimum number of members to maximize profits or net income per member We shall call the first type a capitalist and the second type a cooperative As noted by Vanek (1970) and others, there are several aspects which distinguish the cooperative firm from the capitalist firm However, we disregard all the other characteristics and concentrate in this paper on the difference of the objective functions of the two types of firms Ward has already shown that under perfect competition and with complete price anticipation, a cooperative produces less than a capitalist who has the same production technology On the other hand, Agnar Sandmo and Hayne Leland have found that under price uncertainty a risk-averse capitalist firm produces less than under complete certainty The main finding of this paper is that Sandmo's result does not apply to cooperatives That is, a cooperative even if risk averse produces more under uncertainty and therefore increases its demand for labor input As a consequence of this result, Ward's conclusion is weakened and becomes less significant That is, in the case of price uncertainty the discrepancy between cooperative and capitalist with respect to production and occupation is smaller than under price stability Section I states the assumptions of the model and compares the optimum solution of a capitalist with that of a cooperative firm under certainty as well as under risk conditions Section II presents comparative statics first with respect to the basic parameters of the price distribution (the average price and the variance), and second, with respect to the basic parameters of the profit function (the wage rate and the fixed cost)

38 citations


Journal ArticleDOI
TL;DR: In this paper, the authors show the predicted differences in price controls for a cross-section of industries for the 1971-74 regime of price controls are used to test the theory.
Abstract: Price controls differ across industries systematically as predicted by the theory regulators maximize political support. This approach views the price controllers as choosing, subject to technology and budget constraints, the appropriate enforcement to balance the support from holding down prices against the opposition from dead-weight loss. Differences in enforcement depend on weights in the official price index, elasticities of supply and demand, and structural characteristics of industries. Data from the 1971-74 regime of price controls are used to test the theory. The empirical evidence clearly shows the predicted differences in price controls for a cross section of industries.

32 citations


Book
31 Oct 1980
TL;DR: In this article, the authors studied the sources of growth from the supply side in Turkish manufacturing over the period 1963-1976 and found that there was no pronounced tendency for import-substitution industries to have higher total factor productivity growth than traditional industries.
Abstract: This paper studies the sources of growth from the supply side in Turkish manufacturing over the period 1963-1976 Primary factors and intermediate inputs are explicitly included in both the theoretical framework and the empirical analysis The empirical analysis is based on data on output and factor inputs, at the two-digit industry level including eighteen manufacturing industries The major findings are that: there is: (1) a secular declining trend in productivity growth over the period due perhaps to the continuing reliance on an import-substitution development strategy; (2) periods of especially low productivity growth are roughly those in which there were especially restrictive foreign exchange controls; (3) the public sector had a higher rate of total factor productivity than the private sector although it was absolutely less efficient; and (4) there was no pronounced tendency for import-substitution industries to have higher total factor productivity growth than more traditional industries

26 citations


Journal ArticleDOI
TL;DR: In this paper, the role of trade composition in the transmission of external price disturbances is investigated and it is shown that the effects of an increase in the price of imports on domestic prices and the trade balance depend on the cross price elasticity of demand and substitution between factors in the case of intermediate goods.

23 citations


Journal ArticleDOI
TL;DR: The parity price concept was introduced in the early 1920s by Luttrell as mentioned in this paper, who argued that prices of farm commodities should be maintained at levels sufficient to cover production costs.
Abstract: Price supports have been used to increase the price of various agricultural commodities in the United States since the 1930s. Although price supports were conceived as a way of increasing farm income relative to nonfarm income, the level at which prices should be supported has been a key issue. Various farm organizations, economists, and politicians have maintained since the early 1920s that prices of farm commodities should be maintained at levels sufficient to cover production costs (Luttrell). The parity price concept was, in itself, an attempt to relate the support price to production costs through the prices-paid index. The shortcom

23 citations


Journal ArticleDOI
TL;DR: In this article, it was shown that the responses of an L-M firm under price uncertainty are qualitatively the same as those under price certainty given Muzondo's assumptions.

20 citations


Journal ArticleDOI
TL;DR: The strong relationship between commodity price changes and factor price changes that characterizes the standard Ricardo-Viner model does not extend to a model which includes inter-industry flows as mentioned in this paper.
Abstract: The strong relationship between commodity price changes and factor price changes that characterizes the standard Ricardo-Viner model does not extend to a model which includes interindustry flows. A change in relative commodity prices, induced, for example, by a tariff, may have an unambiguous effect on real wages--an effect that is free from index-number considerations involving labor's preferences. Labor may gain or lose more than any other group in the economy. Capital owners in the protected industry may be hurt by protection, or capital owners in the unprotected industry may benefit from protection. Employment may be shifted from the protected to the unprotected industry.

Journal ArticleDOI
TL;DR: In this article, Deshmukh and Chitke showed that the expected discounted value of the price leader's profits over the time horizon as a function of the industry size increases with the number of firms in the industry and in the limit converges to the monopolistic price.
Abstract: In analogy to the notion of delayed gratification, economists have long been aware that profit maximization entails taking account of the entire planning horizon with a mind to balance immediate profits against long term profits As applied to the oligopolist, Bain (1949) noted that the threat of competition might cause established firms to sacrifice current profit in order to preclude entry and the concomitant competition However, in defining the " limit price " as the highest price the established firms can set without inducing entry, it is clearly revealed that Bain viewed entry as a deterministic event The first probabilistic approaches to the entry issue were suggested by Williamson (1963) and Stigler (1968) where it was noted that the probability of entry is an increasing function of the product price and that retarding rather than precluding entry is associated with the profit maximizing strategy More recently, Kamien and Schwartz (1971), Baron (1973), Deshmukh and Chikte (1976), and Deshmukh and Winston (1979) have treated models with probabilistic entry In the model presented here the industry is composed of (nearly) identical firms selling the same product and experiencing the same constant average cost of production, with industry demand divided amongst the established firms A product price must be selected at each instant of time during the time horizon Entry occurs according to a Poisson process with the arrival rate at any given point in time an increasing function of the product price at that time; thus, any number of firms can enter during the time horizon The profit rate is a function of both the current product price and the current industry size The crucial feature of this model as well as in those cited above is the fact that there is a dominant firm or price leader or, equivalently, the established firms (industry) act collectively as a cartel to maximize industry profits Competition appears not within the industry but rather with potential entrants The problem is to find the prices, termed optimal, that maximize the expected discounted value of the price leader's profits over the time horizon as a function of the industry size (which increases with the passage of time) Our model is nearly that of Deshmukh and Chitke (1976) and Deshmukh and Winston (1979) The fundamental difference between our model and Baron's discrete time model is that there the immediate profit is a function of the product price only if there is no entry during the period The basic model is presented in Section 2, whereas the fundamental result, one not found elsewhere in the literature, regarding the nature of the optimal price as a function of the industry size is presented in Section 3 There we demonstrate that the optimal price increases with the number of firms in the industry and in the limit converges to the monopolistic price That is, in the presence of a price leader, a decrease in industry concentration leads to an increase in the product price rather than to a more " competitive " price Of course, this result depends upon the price leadership being maintained even as the industry grows (See Telser (1972, Chapter 5) for a discussion of the problems associated with cartel maintenance) When we allow the entry rate to be a decreasing function of the industry size as well as the price, we can show only that the optimal price converges to the

Journal ArticleDOI
TL;DR: In this paper, the effect of price variability on optimal savings in a two-period context is considered, and the effect on expected utility of increased variability in the relative price of a single commodity in two-commodity context is analyzed.
Abstract: The observation that an increase in the variation of the price of a commodity about its mean raises the expected consumer surplus generated by that commodity originates with Waugh (1944). Waugh and subsequent investigators (e.g. Massell (1969), Turnovsky (1976) and Bradford and Kelejian (1977)) use this result to derive propositions on the welfare and distributional effects of price stabilization schemes.' This approach ignores the uncertainty in real income generated by price variability. It also fails to consider the role of hedging against price variation through appropriate portfolio diversification. In this paper demand theory is used to show that relative price variability has an ambiguous effect on expected utility when only a single asset is available as a store of value. A positive effect is more likely when the demand elasticity is large relative to the degree of relative risk aversion and when the marginal propensity to consume the commodity in question is large. When there exists a futures market for each commodity, the consumer can hedge against price variation to insure a positive effect. Increased variance in a log-normally distributed price unambiguously raises expected utility when the consumer hedges optimally. A second purpose of this paper is to explore the implications of price variability for optimal savings as well as for expected utility. While the effects of uncertainty in the value of future endowments and assets on optimal savings have been explored extensively scant attention has been paid to the effects of relative price uncertainty.2 The present paper attempts to fill this gap for the case in which utility is intertemporally additively separable. Section 2 presents a general framework for analysing expected utility maximization in a two-period, multi-commodity, multi-asset environment in wh;-" prices and income in the second period are stochastic. Section 3 analyses the effect on expected utility of increased variability in the relative price of a single commodity in a two-commodity context. Here and in Section 5 the geometric mean preserving spread of Flemming, Turnovsky and Kemp (1977) provides a definition of increased variability. Section 4 derives optimal portfolio behaviour for the special case in which the relative price is log-normally distributed. The effect of price variability on optimal savings in a two-period context is considered in Section 5. Some concluding observations and an extension to a general equilibrium problem appear in Section 6.


Journal ArticleDOI
TL;DR: In this article, the authors elaborate on the remark that free international trade equalizes factor returns as well as the quantities of public inputs, and they further elaborate on their analysis of the effect of trade on public inputs.

Journal ArticleDOI
TL;DR: In this article, an alternative model for estimating industry factor demand in the effort to reduce energy consumption by manufacturers recognizes that rising costs of materials can no longer be treated as exogenous.
Abstract: An alternative model for estimating industry factor demand in the effort to reduce energy consumption by manufacturers recognizes that rising costs of materials can no longer be treated as exogenous. The cost and demand functions for the industry are conditional upon the level of industry deliveries to the balance of the economy. This net model displays substantially smaller factor price elasticities than the gross formulations commonly employed. The conditional own-price elasticity for energy is estimated to be about one-third of the value found in earlier studies. A shortcoming of this model is the need to separate materials into internal and external (primary) categories and to rely upon national input-output tables. 33 references, 4 tables.


Journal Article
TL;DR: The use of inappropriate technologies in the developing countries has been explained by the existence of factor price distortions, but these can be overcome when the following conditions are met: a national consensus about the need for development efforts and importance of policy goals, promising market prospects and/or an effective marketing system, and sufficient industrial competition in both home and international markets.
Abstract: Traditionally the use of inappropriate technologies in the developing countries has been explained by the existence of factor price distortions e.g. the price of labor being artificially raised by labor legislation and the price of capital being reduced by subsidies and unrealistic exchange rates. In reality the technological choice is often determined by economic conditions and the local sociocultural/political conditions. The institutional framework of the country may discourage the appropriate technology. The obstacles can be overcome when the following conditions are met: 1) a national consensus about the need for development efforts and importance of policy goals; 2) promising market prospects and/or an effective marketing system; and 3) sufficient industrial competition in both home and international markets. Institutional problems come from the generation and diffusion of technologies from the supply side which are introduced to people who do not see the need for them. More emphasis on the marketing side ususally results in application of correct technology especially where governments fund research and development projects and formulate their plans on the basis of a concrete investment or production plan and a clear idea about the target market. Land reforms and agricultural price policies are needed as well as the establishment of an efficient national administrative network.

Journal ArticleDOI
TL;DR: In this paper, the authors argue that there is little economic, as opposed to political, justification for the prevalence of government price controls in poor countries, and they show how appropriate price control measures in the highly monopolistic conditions characteristic of the manufacturing sector of poor countries can contribute towards improved economic efficiency in that sector by inducing monopolist manufacturers both to increase their level of production and to cut their production costs.
Abstract: This paper challenges the view that there is little economic, as opposed to political, justification for the prevalence of government price controls in poor countries. It is shown how appropriate price control measures in the highly monopolistic conditions characteristic of the manufacturing sector of poor countries can contribute towards improved economic efficiency in that sector by inducing monopolist manufacturers both to increase their level of production and to cut their production costs. The role of price control in income redistribution is also discussed.



Book ChapterDOI
01 Jan 1980

Journal ArticleDOI
TL;DR: In this paper, a dynamic optimization model was developed to determine the optimal fixed investment, employment, working capital investment, and financial policies for UK quoted manufacturing companies classified into industry groups at a 2-digit level.
Abstract: This paper develops a dynamic optimization model which allows a simultaneous determination of optimal fixed investment, employment, working capital investment and financial policies. Subsequently, the system of inter-related dynamic demand equations derived from the model, combined with price expectations formation behavior, is applied to UK quoted manufacturing companies classified into industry groups at a 2-digit level SIC Orders 1968). The methodology adopted is along the lines of the ‘new’ microeconomics. The model allows relative factor prices and financial risk effects to be estimated directly and its overall performance is satisfactory. The best equations are obtained when expectations are generated with the Integrating Moving Average Process (0, 1, 1).

Journal ArticleDOI
TL;DR: In this article, a stepwise regressions show that coupon and yield data add no information about bid-ask price spreads not already impounded in the duration statistic, which casts doubt on the nonduration arguments often used to support these variables as separately meaningful in transactions cost analyses.



Posted Content
TL;DR: In this article, the authors show how one can predict the relative importance of price and delivery lag fluctuations as equilibrating mechanisms and provide strong support for the theory that delivery lags are an important influence on market behavior and therefore that an understanding of their influence is crucial in predicting how markets will respond to supply and demand shocks.
Abstract: To say that the price of some good is inflexible over time has little meaning if the "good" is changing over time. In this paper we concentrate on delivery lags as being the only dimension other than price that varies. We show how one can predict the relative importance of price and delivery lag fluctuations as equilibrating mechanisms. The complications of the theory as well as the surprising results underscore the complexity of predicting price behavior when the characteristics of the good are endogenous. The empirical results provide strong support for the theory that delivery lags are an important influence on market behavior and therefore that an understanding of their influence is crucial in predicting how markets will respond to supply and demand shocks.



Journal ArticleDOI
TL;DR: In this paper, the authors examined several ways of measuring the aggregate rate of technical change: with the aggregate production function, in a disaggregated framework of the multisector model; and with the net social production possibility frontier or the generalized factor price frontier.