Showing papers on "Factor price published in 1984"

An Examination of Multijurisdictional Corporate Income Taxes Under Formula Apportionment

Abstract: This paper examines how corporate taxation of multijurisdictional firms using formula apportionment affects the incentives faced by individual firms and individual states. We find that formula apportionment creates factor price distortions which vary in general among firms within a state, and in such a way as often to put multistate firms at a competitive advantage. Formula apportionment also creates incentives for cross-hauling of output,with production in low tax rate states more profitably sold in hightax rate states, and conversely. Politically, formula apportionment appears to be very unstable --states face an incentive to shift to some other form of taxation. None of these problems exist when a corporate tax uses separate accounting.

The factor content of foreign trade

Abstract: In the factor proportions trade theory (the Heckscher-Ohlin theory) the factor content of the pattern of trade plays a major role both in theoretical and in empirical investigations. It is therefore valuable to identify restrictions on permissible vectors of the factor content of trade which necessarily hold in equilibrium. If certain restrictions are empirically testable they can be used for preliminary testing of the theory before a more thorough examination is undertaken, or they can be used to reject the theory. It is my intention to develop in this paper a set of restrictions on the vectors of the factor content of trade which can be used for these purposes. It is well known that autarky commodity prices impose restrictions on possible patterns of trade. These restrictions provide a precise prediction of the pattern of trade for a two-country two-commodity world, in the sense that the exporter of a good is readily identifiable from autarky price data (as the country with the lower relative price of the good). I will start by showing that in the presence of factor price equalisation autarky factor rewards impose restrictions on the factor content of trade patterns which are completely analogous to the restrictions imposed by autarky commodity prices on the commodity patterns of trade. This result is in line with the view that in the factor proportions model trade in commodities represents indirect trade in factor services. Unfortunately, these restrictions rely on autarky information, and they are, therefore, not very useful for empirical work. In order to overcome this difficulty, I explore an alternative approach. I argue that common predictions of the factor content of trade flows Which are based on post-trade observable data - the data relevant for empirical studies rely on unnecessarily restrictive assumptions, i.e. the assumption that preferences are homothetic and identical across countries and the assumption of factor price equalisation. The assumption of identical homothetic preferences seems to be necessary when factor price equalisation is assumed, because in this case there is an indeterminancy in the pattern of production. Nevertheless, the two assumptions taken together imply the same factor content of a country's net import vector from the rest of the world for every equilibrium production pattern. However, in a many-country world the factor content of bilateral trade flows depends on the realised production patterns, and they cannot, therefore, be predicted. I will show that in the absence of factor price equalisation (which many

A Dynamic Specific-Factors Model of International Trade

Abstract: In a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from workinq periods to retirement. Static models of international trade based on the specific-factors model incorporate only the first of these. Once the second is recognized the supply of capital and evaluation of land can be derived from underlying intertemporal optimization behavior.Changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and the composition of output as they do in the static specific-factors model. Changes in these variables affect both total savings and the amount of savings that is diverted toward investment in land. Results derived from the traditional static model are more likely to emerge when the sector using land as a factor of production has a higher labor share than the sector using capital. In this case the land-using sector dominates factor markets more than asset markets.

Neoclassical demand for labour functions for six major economies

Abstract: Can real factor prices, and in particular the real wage, explain the level of employment over the business cycle? The question is of fundamental importance for macroeconomic policy, and is, of course, the subject of longstanding controversy. Dunlop (I938) failed to find the expected negative relationship between employment and the wage in the data, and the subsequent debate is summarised in Bodkin (I969). Crudely, the data seemed to refute the competitive model of the labour market, for if product markets are competitive and firms operate on their demand curves, employment should be explained by real factor prices (relative to product prices), the capital stock, and the state of technology. To explain the lack of relationship Barro and Grossman (I97I) suggested that at times mutuality reinforcing quantity constraints could emerge in labour and output markets, so that firms employed fewer workers than one would predict from the level of real wages and other relative prices. However, recently Sargent (I978) has attempted, with some success, to rehabilitate the demand for labour function by showing that costly adjustment of the workforce obscures the current relationship between the wage and labour demand, while leaving it essentially intact. In his account, firms adjust slowly towards an employment level which is influenced by future expected real wages which might themselves reflect the past history of real wages. His paper (and the related one by Neftci, I978) was criticised by Geary and Kennan (I979) for using retail prices to represent output prices; and they showed for a number of countries that employment could not be satisfactorily explained by the real product wage, taken on its own. However Geary and Kennan failed to allow for the simultaneous effect of the real price of raw materials. In Symons (i 982) one of us showed that allowing for this effect, the real wage has a powerful (elasticity about 2) but slow-acting (two-year mean lag) negative effect of the demand for labour in British manufacturing. This was strong evidence, but it was not completely conclusive: the model fitted well only over subperiods, and, whereas the various breakdowns of the model could be ascribed to firms' discounting certain transient shifts in the real wage, there still seemed to be scope for reasonable doubt about the results. However recently Andrews and Nickell (i 982 a; b), working with annual rather than quarterly data, and for the British economy as a whole, have developed a demand for labour function with similar dynamics and with signifi-

Measuring oligopoly power and production responses of the canadian food processing industry

Abstract: This study is concerned with the measurement of factor demand responses and other production characteristics of the food processing industry in Canada. An important feature of the study is that it allows for non-competitive behaviour of the industry and thus permits an estimation of the degree of oligopoly power. The major results of the study are that the hypothesis of (output) price-taking behaviour is statistically rejected and that the average degree of oligopoly power is significant. Moreover, the industry appears to be quite responsive to changes in the factor price structure. Labour and energy are the most responsive inputs while raw food materials and capital show substantially less sensitivity to price variations.

Retail Pricing and Clearance Sales

Abstract: Sellers of new products are faced with having to guess demand conditions to set price appropriately. But sellers are able to adjust price over time and to learn from past mistakes. Additionally, it is not necessary that all goods be sold with certainty. It is sometimes better to set a high price and to risk no sale. This process is modeled to explain retail pricing behavior and the time distribution of transactions. Prices start high and fall as afunction of time on the shelf. The initial price and rate of decline can be predicted and depends on thinness of the market, the proportion of customers who are "window shoppers," and other observable characteristics. In a simplecase, when prices are set optimally, the probability of selling the product is constant over time. Among the more interesting predictions is that women's clothes may sell for a higher average price than men's clothes, given similar cost, even in a competitive market. Another is that the initial price level and the rate of price decline are positively related to the probability of selling the good. Other observable relationships are discussed.

An Examination of Multijurisdictional Corporate Income Taxes Under Formula Apportionment

Abstract: This paper examines how corporate taxation of multijurisdictional firms using formula apportionment affects the incentives faced by individual firms and individual states. We find that formula apportionment creates factor price distortions which vary in general among firms within a state, and in such a way as often to put multistate firms at a competitive advantage. Formula apportionment also creates incentives for cross-hauling of output,with production in low tax rate states more profitably sold in hightax rate states, and conversely. Politically, formula apportionment appears to be very unstable --states face an incentive to shift to some other form of taxation. None of these problems exist when a corporate tax uses separate accounting.

Stochastic inflation and the optimal policy of price adjustment

Abstract: This paper analyzes the optimal policy of price adjustment for a monopolistic firm in the presence of stochastic inflation. It shows that an increase in the expected rate of inflation or in the cost of price adjustment leads to an increase in the initial real price and a decrease in the terminal real price in each period with a fixed nominal price. It also shows that the effects of increased riskiness of inflation are ambiguous.

7 – Comparative Advantage and Development Policy 20 Years Later*

Abstract: Publisher Summary In most developing countries, the early efforts of politicians to raise growth rates and living standards almost always included high trade barriers and a set of policies to foster industrialization through import substitution. These efforts were based largely on an instinctive rejection of the doctrine of comparative advantage, which was understood to imply laissez-faire in all matters pertaining to the trade regime and domestic economic policies. The growth potential of developing countries will inevitably be even greater with more rapid growth of the international economy. Nonetheless, if the major gains from an outer-oriented trade strategy come about because of the effects of that strategy on the domestic economic structure, the costs to developing countries of a deceleration in the growth of world trade will be far smaller than if the technological hypothesis explaining the difference in growth performance under alternative strategies is correct. Distortions in factor prices remain a focal point of concern, though they are more likely to be regarded as the result of government policies than as a constraint on governments. The quantity and quality of productive factors increases still play a central role in development thinking.

Nonhomotheticity and Technological Bias in Production

Abstract: This paper develops an approach to estimating nonhomotheticity and technological bias within the class of nonhomothetic CES production functions. The model is applied to cross-section firm level data covering seven industries in Mexico, Brazil, Colombia, and four Central American countries for the period 1970-74. Positive nonhomotheticity (higher capital intensity for larger plant size given factor price ratios) is found in six industries. Other results are that, once nonhomotheticity is accounted for, technological bias is not predominantly capitalusing, and equality of capital intensity between transnational and domestic firms is pervasive.

Facilitating Indigenous Technical Change in Third World Countries

Abstract: What is indigenous technology? I take it to be a local capacity to create/adapt/modify technology. In other words, as well as the creation of some completely new technology, it includes the local development of technology already known elsewhere and the local modification of imported technologies.

The Effects of Price Uncertainty on the Factor Choices of the Competitive Firm

Abstract: It is well known that if the price of a variable factor or of output is uncertain when the level of a quasi-fixed factor must be chosen by a competitive firm, the profit-maximizing allocative choices differ from those made when all prices are fixed at their expected values. The expected responses of input levels to price uncertainty depend on the characteristics of the production function, but even their signs are difficult to determine empirically, as they depend on, among other parameters, the third derivatives of the production function, which are difficult to identify. This paper shows that the response of the quasi-fixed factor, and the expected short-run response of the variable factor, are directly related to observable characteristics of the input demand and output supply functions. But concentration on the responses of individual inputs provides only a partial view of the allocative effects of price uncertainty. When the full effects on both factors are considered together, both types of price uncertainty induce different biases in expected factor proportions, relative to choices under certainty. The directions of these biases cannot be inferred from results regarding the sign of the response of either factor viewed in isolation. Previous studies in this field' include Sandmo [11], Batra and Ullah [1], and Holthausen [4], who showed that non-neUtral attitudes toward risk can affect the level of output and the amount of a quasi-fixed input chosen by a firm faced with product price uncertainty. Stewart [12] showed a similar result for factor price uncertainty. The above studies all assume explicitly or implicitly [6; 4] that there is no reduction in price uncertainty between the time (if any) separating decisions on different inputs. Thus the usual distinction between short-run and long-run allocative decisions is ruled out. Turnovsky [13] showed that this assumption is crucial, using a model which maintained an alternative assumption that firms could modify their planned output at additional cost after the selling price is known. The effect of output price uncertainty on planned

Commodity price stabilization : the theory and its application

Abstract: This essay attempts to clarify and simplify the results of the literature on price stabilization in order to provide a better sense of the conditions under which commodity stabilization schemes will be successful and the welfare effects of such schemes. After introducing the early framework under which price stabilization was analyzed, the paper demonstrates the variance of results under alternative and more realistic situations. It treats topics such as storage and food security, inflation and economic development, public storage and futures markets, and non-storable goods. The conclusions are: (i) some countries may lose from price stabilization even though there is a net global gain; (ii) liberalized trade reduces the need for buffer stocks; (iii) futures markets reduce instability at a lower cost than buffer stocks; (iv) many national price stabilization schemes are actually price support systems used to improve farmers' incomes; (v) good price forecasting is a prerequisite to well-managed buffer stocks; (vi) price stability in poorer countries is not sufficient to avoid occasional food shortages; and (vii) food is costly to store and may not alleviate famine if transportation and distribution systems are inadequate.

Do Countries' Factor Endowments Correspond to the Factor Contents in their Bilateral Trade Flows?

Abstract: Given that international specialization in production is reflected in trade, when trade flows are broken down regionally (destination of exports and origin of imports), the basket of exports from a capital-abundant country to a labor-abundant country would be expected to be more capital intensive than the basket of imports from the labor-abundant country. "Countries in the middle of the factor-endowment ranking will tend to specialize in producing commodities in the middle of the factor-intensity ranking. They will import labor-intensive commodities from more labor-abundant countries and capital-intensive commodities from countries with relatively higher capital-labor endowments." [Krueger, (1977) p. 9]. This formulation of the Heckscher-Ohlin hypothesis regarding a world with many countries and many commodities is investigated in this paper. I. The Model The models of Jones (1974) and'Krueger (1977) used as the basis for our investigation are characterized by many commodities, many countries (or many regions within which factor prices are equalized) and two factors of production. Each production function displays standard constant returns to scale and diminishing marginal product to each factor. In the model, factor-intensity reversals are excluded by assumption (a sufficient condition for this is that all production functions have the same elasticity of substitution). Preferences are identical and homothetic in all countries. The existing technology is common to all countries. In each country, production is efficient, i.e., on the production possibility frontier, with the implication that the domestic marginal rate of transformation between any pair of (produced) commodities is equal to the price ratio. Countries differ only between each other in their (fixed) factor endow

CES Production Functions in Manufacturing and Problems of Industrialization in LDCs: Evidence from Korea

Abstract: Information about the elasticity of substitution between capital and labor is very important in LDCs for several reasons. First, development policies in many LDCs pursue both rapid industrialization and widespread distribution of its benefits by expanding industrial employment opportunities. If the elasticity of substitution is high, it is relatively easy to expand employment opportunities without sacrificing output growth by manipulating relative factor prices properly (or, for that matter, by reducing the wage-rental ratio since the factor intensities of output depend on relative factor prices). Second, high elasticity of substitution makes possible a flexible response to external changes. For example, a factor price change in the international market (i.e., an oil price shock) can be partially absorbed by adopting laborintensive production processes.' In this article, I am going to discuss CES production functions for two-digit industries in Korea. One of my main purposes in this article is to show empirically that the elasticities of substitution are not zero in almost all of Korea's industries regardless of the firm's size.2 Furthermore, I shall show that production functions differ across different size groups of business firms in a given industry. Since it is widely acknowledged that wage-rental ratios in small and medium firms are lower than in large firms,3 nonzero elasticities of substitution between labor and capital in small-medium firms will have an important policy implication. That is, by encouraging the activities of smalland medium-sized firms one can expand employment opportunities in the manufacturing sector and enhance the efficiency of the economy by adjusting the industrial structure to be consistent with domestic factor endowments. It is conceivable that the direct importation of production technologies

A Dynamic Specific-Factors Model of International Trade

Abstract: In a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from workinq periods to retirement. Static models of international trade based on the specific-factors model incorporate only the first of these. Once the second is recognized the supply of capital and evaluation of land can be derived from underlying intertemporal optimization behavior.Changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and the composition of output as they do in the static specific-factors model. Changes in these variables affect both total savings and the amount of savings that is diverted toward investment in land. Results derived from the traditional static model are more likely to emerge when the sector using land as a factor of production has a higher labor share than the sector using capital. In this case the land-using sector dominates factor markets more than asset markets.

Investment incentives for industry : some guidelines for developing countries

Abstract: Developing countries frequently offer special incentives to investors as a way to promote industrialization. Many of the incentives offered, however, and many of the criteria used to select the beneficiaries have actually tended to encourage a structure of production that is inefficient, ill suited to the pattern of comparative advantage, and sometimes inconsistent with the original objectives of the incentive system. This paper describes the incentives most frequently offered, with the exception of protection and other trade incentives, and shows how they can lead to distortions and reduced efficiency in the economy, while proving costly to the government in terms of foregone revenue. It then reviews the evidence on the impact of investment incentives and presents some general principles that could be used in designing incentive systems.

Prices, Incentives, and Economic Growth

Abstract: This paper examines the economic effects of government directives and interventions in developed, developing and socialist countries that create distortions in the system of incentives. The discussion concerns policy-imposed distortions rather than endogenous distortions, which find their origin in market imperfections. Government measures designed to correct market imperfections fall outside the scope of this paper. Consideration is given to policy-imposed distortions in product and factor markets, and the effects of these distortions on the efficiency of resource allocation and economic growth that have been often neglected in the past. In so doing, use is made of empirical evidence that has accumulated in recent years.

The Adjustment of Product and Factor Markets: An Application to the Pacific Northwest Forest Products Industry

Abstract: An equilibrium model of output and factor markets is used to calculate comparative static effects of demand and factor supply shifts on output and factor prices and employment in the Pacific Northwest forest products industry. The technological link between output and factor levels is provided through a three-input production function. Results over the 1950-76 sample period suggest that changes in product-to-factor price ratios and factor employment are a consequence of differing factor supply elasticities and that factor supply shifts have limited effect on output price and employment levels because of substitution possibilities occurring in the production process and marketplace. A persistent problem in empirical studies of forest product markets has been the lack of a precise relationship between product prices and the prices of factors used in production of that product. Past studies (i.e., McKillop 1967, 1970; McKillop, Stuart, and Geisler; Adams and Blackwell; Robinson; Adams 1974, 1977; Haynes; and Adams and Haynes) have estimated effects of changes in product demand on timber resources and the effects of stumpage supply changes on stumpage prices and final product prices. The lack of an explicit relationship between factor and output quantities in these studies has prevented discussion of factor substitution possibilities in the indus

Relative Factor Price Changes and Equity Prices

Abstract: This paper suggests that the decline in equity prices, and thus in Tobin's average q, during the 1970s may be attributable to changes in expected relative factor prices. More specifically, q is shown to be a negative function of the extent to which current relative factor price expectations differ from those when capital was put in place. Because relative factor prices became more volatile after 1967, the observed decline in average q, and thus in stock prices, can be explained by the "relative price" hypothesis.

Producer Preference for Price Stability

Abstract: Producer preference for product price variability vis-a-vis price stability at the mean has been analyzed extensively. Turnovsky has surveyed this literature. Oi assumed that all producer decisions are executed after the actual price is revealed. He showed that riskneutral producers prefer price variability to price stability.1 Schmitz, Shalit, and Turnovsky relaxed the assumption of risk neutrality and showed that risk-averse producers may prefer price stability. Tisdell (1963), on the other hand, criticized Oi's assumption that all decisions are made ex post and instead assumed that all producer decisions must be made before the actual price is observed. He showed that risk-neutral producers are indifferent between price variability and price stability.

Optimum firm location under factor-price uncertainty

Abstract: This paper presents a cost-minimizing location model to investigate the theoretical impacts and implication of factor-price uncertainty on the optimum location decisions of the firm in linear space. It will be shown that increased input price uncertainty leads the firm to move its factory towards the site of the price uncertain input.

On the Duality of Price Subsidy and the Path to Its Reform

Abstract: In our country price subsidizing is a very important economic policy. An analytical studying of the current price subsidy system and proposing realistic opinions for its reform have practical significance for the improvement of the comprehensive balance of the national economy and for the formation of a reasonable price structure.

Oil Price Instability and Domestic Energy Substitution for Imported Oil

Abstract: This paper considers the effects of unstable world oil prices on domestic firms seeking substitutes for imported oil. Price instability manifested as price uncertainty is shown to inhibit domestic potential competitors' substitution activities, being analogous to a tax imposed on domestic firms by the dominant oil-exporters. This tax analogue of price uncertainty is in distinction to the mutual gain scenario of stochastic limit pricing when there is price variability but no uncertainty.

Small Leading Firms

Abstract: We formally analyze the question of whether a price leader must control a large share of the market. Our main result is that if other producers have rising marginal costs and behave as price takers, even the smallest firm in a competitive industry with a rising supply curve can enhance its profits by cutting output and raising price, becoming a price leader. Therefore, we would expect pure competition to be destroyed under these technological conditions.

Comment on «Capital and Labour Movements in the European Community»

Abstract: goods to equalise the prices of untraded factors. Simple observation tells us that many factor prices do indeed display considerable and persistant international differences. The simple inference is that these factors are substantially non-traded. However, this raises more questions that it answers. Why are factors not traded? What is the impact of regulation on factor mobility? Does the operation of international trading communities affect factor mobility? David Mayes has set out to provide discussion and data related to these questions in the specific context of investment capital and labour movements in the EC. The attempt is to be welcomed since this topic has received little attention in the literature, and the paper certainly brings together a large number of points and a variety of data. Particularly welcome are the discussions of the patterns of regulation in the various member states, and the warnings concerning the problems of intepretation raised by the quality of the data in this area. However, the research underlying this paper is clearly at a relatively early stage so that, like my simple inference, it raises more questions than it answers. The discussion provided centres around the impact of the EC, and its gradual deregulation, on the quantities of factors traded. Although the discussion is not set within a formal model, it is clear that the impact of EC membership on quantity flows between members is ambiguous, whilst deregulation will, unsuprisingly, tend to increase there flows ceteris paribus. The major limitation here, as elsewhere in the paper, is the relative lack of consideration of the many other important influences which can be expected to bear on factor mobility. The informality of the discussion allows Mayes to briefly mention some of these wider issues (such as variations in perceived