Showing papers on "Factor price published in 2002"

Directed Technical Change

Abstract: For many problems in macroeconomics, development economics, labour economics, and international trade, whether technical change is biased towards particular factors is of central importance. This paper develops a simple framework to analyse the forces that shape these biases. There are two major forces affecting equilibrium bias: the price effect and the market size effect. While the former encourages innovations directed at scarce factors, the latter leads to technical change favouring abundant factors. The elasticity of substitution between different factors regulates how powerful these effects are, determining how technical change and factor prices respond to changes in relative supplies. If the elasticity of substitution is sufficiently large, the long run relative demand for a factor can slope up.I apply this framework to develop possible explanations to the following questions: why technical change over the past 60 years was skill biased, and why the skill bias may have accelerated over the past 25 years? Why new technologies introduced during the late eighteenth and early nineteenth centuries were unskill biased? What is the effect of biased technical change on the income gap between rich and poor countries? Does international trade affect the skill bias of technical change? What are the implications of wage push for technical change? Why is technical change generally labour augmenting rather than capital augmenting? Copyright 2002, Wiley-Blackwell.

Listing Price, Time on Market, and Ultimate Selling Price: Causes and Effects of Listing Price Changes

Abstract: Information about price changes during a home’s marketing period is typically missing from data used to investigate the listing price, selling price, and selling time relationship. This paper incorporates price revision information into the study of this relationship. Using a maximum-likelihood probit model, we examine the determinants of list price changes and find evidence consistent with the theory of pricing behavior under demand uncertainty. Homes most likely to undergo list price changes are those with high initial markups and vacant homes, while homes with unusual features are the least likely to experience a price revision. We also explore the impact of missing price change information on estimating a representative model of house price and market time. Our results suggest that mispricing the home in the initial listing is costly to the seller in both time and money. Homes with large percentage changes in list price take longer to sell and ultimately sell at lower prices.

Can Price Dispersion in Online Markets be Explained byDifferences in e-Tailer Service Quality?

Abstract: It has been hypothesized that the online medium and the Internet lower search costs and that electronic markets are more competitive than conventional markets. This suggests that price dispersion - the distribution of prices of an item indicated by measures such as range and standard deviation - of an item with the same measured characteristics across sellers of the item at a given point in time for identical products sold by e-tailers online (on the Internet) should be smaller than it is offline, but some recent empirical evidence reveals the opposite. A study by Smith et al. (2000) speculates that this is due to heterogeneity among e-tailers in such factors as shopping convenience and consumer awareness. Based on an empirical analysis of 105 e-tailers comprising 6739 price observations for 581 items in eight product categories, we show that online price dispersion is persistent, even after controlling for e-tailer heterogeneity. Our general conclusion is that the proportion of the price dispersion explained by e-tailer characteristics is small. This evidence is contrary to the hypothesis that search costs in online markets are low, or that online markets are highly competitive. The results also show that after controlling for differences in e-tailer service quality, prices at pure play e-tailers are equal to or lower than those at bricks-and-clicks e-tailers for all categories except books and computer software.

Predicting Equity Liquidity

Abstract: In this paper we develop a measure of liquidity, price impact, which quantifies the change in a firm's stock price associated with its observed net trading volume. For a large set of institutional trades we compare out-of-sample, characteristic-based estimates of price impact to actual price impacts. Predictive predetermined firm characteristics, chosen to proxy for the severity of adverse selection in the equity market, the non-information-based costs of making a market in the stock, and the extent of shareholder heterogeneity, include relative size, historical relative trading volume, institutional holdings, and the inverse of the stock price. We find numerous aspects of trade execution which are significantly related to the price impact forecast error in economically plausible ways: For example, the predicted price impact overestimates the actual price impact for very large trades, for trades executed in a more patient manner, and for trades where the institution pays higher commissions.

Asymmetry in Farm to Retail Price Transmission: Evidence from Brazil

Abstract: In this article, we describe the price transmission mechanism for three groups of agricultural products in Brazil to determine if they follow the pattern found in previous studies+ These groups combine different dimensions of the two arguments normally used to explain price asymmetry: market concentration and product storability+ Results from the study area in Brazil showed that neither product storability nor market concentration were required for intense price-increase transmission+ High and increasing Brazilian inflation rates found through 1994 led the population to expect continual price increases; the society may have been able to assimilate the most intense transmissions of price increments, independent of industry market power+ Consequently, our results demonstrate that the findings from previous price transmission studies cannot be generalized to other industries or for other periods+ New theoretical and empirical studies are needed to improve our understanding of asymmetrical price transmission+ @EconLit Citations: L660, 810# © 2002 Wiley Periodicals , Inc+

Trade Liberalisation and Poverty: What are the Links?

Abstract: This paper asks whether a developing country's own trade liberalisation could translate into increased poverty, and what information would be required to identify whether it will do so. It plots the channels through which such effects might operate, identifying the static effects via four broad groups of institutions – households, distribution channels, factor markets and government – and the dynamic issues of volatility, long–term economic growth, and short–term adjustment stresses. An increase in the price of something a household sells (labour, good, service) increases its welfare. Thus, the paper first explores the likely effects of trade liberalisation on the prices of goods and services, taking into account the distribution sector. Also critical is whether trade reform creates or destroys markets. Trade reform is also likely to affects factor prices – of which the wages of the unskilled is the most important for poverty purposes. If reform boosts the demand for labour–intensive products, it boosts the demand for labour and wages and/or employment will increase. However, not all developing countries are relatively abundant in unskilled labour and trade can boost demand for semi–skilled rather than unskilled, labour. Hence poverty alleviation is not guaranteed. Trade reform can affect tariff revenue, but much less frequently and adversely than is popularly imagined. Even if it does, it is a political decision, not a law of nature, that the poor should suffer the resulting new taxes or cuts in government expenditure. Opening up the economy can reduce risk and variability because world markets are usually more stable than domestic ones. But sometimes it will increase them because stabilisation schemes are undermined or because residents switch to riskier activities. The non–poor can generally tide themselves over adjustment shocks from a liberalisation, so public policy should focus on whether the initially poor and near temporary, setbacks. The key to sustained poverty alleviation is economic growth. There is little reason to fear that growth will not boost the incomes of the poor. Similarly, while the argument that openness stimulates long–run growth has still not been completely proven, there is every presumption that it will.

Persistent Price Dispersion in Online Markets

Abstract: What is the New Economy, what makes it new, and what are the implications for antitrust, regulation and macroeconomic policy? Providing a non-technical and compelling analysis of the modern macro-economy, the contributors to this volume, eminent scholars all, provide their views on the New Economy from a variety of perspectives.

Asset Price Bubbles, Price Stability, and Monetary Policy: Japan's Experience

Abstract: Japan's economy has experienced an extremely large swing against the backdrop of the emergence, expansion, and bursting of asset price bubbles. When examining the emergence and bursting of the bubble economy from the viewpoint of monetary policy management, should the Bank of Japan have given more consideration to asset price fluctuations in formulating its monetary policy? Or, should the Bank not have been perplexed with asset price fluctuations and conducted policies focusing only on the general price level such as inflation targeting? In answering these questions and deciding policy actions, to what extent should the Bank consider financial system problems? This paper aims at forming some tentative answers to these questions.

Customer Anger at Price Increases, Time Variation in the Frequency of Price Changes and Monetary Policy

Abstract: While much evidence suggests tha price rigidity is due to a concern with the reaction of customers, price increases do not seem to be typically associated with drastic reduction in purchases. To explain this apparent inconsistency, this paper develops a model where consumers care about the fairness of prices and react negatively only when they become convinced that prices are unfair. This leads to price rigidity, though the implications of the model are not identical to those of existing models of costly price adjustment. In particular, the frequency of price adjustment ought to depend on economy-wide variables observed by consumers. As I show, this has implications for the effects of monetary policy. It can, in particular, explain why inflation does not fall immediately after a monetary tightening.

Input Price Discrimination with Downstream Cournot Competitors

Abstract: This Paper addresses the question of third-degree price discrimination in input markets. I propose a solution that relies on a method that decomposes the upstream monopolist's profit into two parts, one that depends on average input prices, and one that depends on their distribution. I am able to obtain rather general results, and, in the linear demand case, I obtain a full characterization of the equilibria in the two regimes of price discrimination and price uniformity, generalizing the findings of Yoshida (2000). Under reasonable assumptions, input price discrimination negatively affects both consumer surplus and total welfare.

Neoclassical Growth and Commodity Trade

Abstract: We construct and numerically solve a dynamic Heckscher-Ohlin model in which the initial distribution of production factors in the world makes worldwide factor price equalization impossible, and leads countries to group in two diversification cones. We study the dynamics of income per capita and factor prices. Our results suggest that the Ramsey model under complete specialization overcomes several shortcomings of its autarky and factor price equalization counterparts. In comparison with the autarky model, for example, it can produce similar transitional dynamics and account for important cross-sectional differences in the levels and growth rates of income per capita while generating much smaller rental-rate differentials across countries. Moreover, it does not necessarily yield convergence in levels for identically parameterized economies. All in all, the Ramsey/Complete Specialization model seems to provide a better benchmark from which to depart when studying the dynamic behaviour of countries and cross-sectional differences in income per capita levels and growth rates.

Comparative Price Advertising: Believe It or Not

Abstract: Advertisers' attempts to enhance consumers' perceptions of the value of a deal by using comparative price advertisements, in which they implicitly or explicitly compare the selling price to some suggested reference price, is widespread. Rare is the price advertisement that only proclaims the selling or "sale" price. Although the additional information contained in an advertised reference price may be useful to consumers, a crucial issue concerns the deceptive power of comparative price advertising that provides inflated and exaggerated reference prices. Under these circumstances, it is possible for consumers to develop perceptions of the deal that are not based on actual savings. Such issues have been the focus of a number of lawsuits and have spurred research on what constitutes deception (see Grewal, Grewal, and Compeau 1993 for a description of relevant FTC guidelines and summary of major legal cases against popular retailers). In a comprehensive review of the literature, Grewal and Compeau (1999) examine critical public policy issues associated with pricing strategies. The authors stress that although many substantive conclusions can be drawn from the extant research, several gaps still exist. They also provide a conceptual framework to understand key issues, and emphasize the need for additional research to investigate whether firms can (intentionally or unintentionally) mislead consumers. This research focuses on one gap, the effects of the advertised reference price and the selling price on consumers' believability of the advertised reference price as well as their perceptions of the value of the deal. BACKGROUND Researchers have spent over two decades assessing the effectiveness of comparative price advertisements. The primary substantive issue centers on whether consumers are influenced by advertised references prices. Based on an integrative review of the literature, Compeau and Grewal (1998) conclude that the mere presence of a comparison price enhances consumers' internal reference prices and overall perceptions of value, reduces search intentions, but has no significant effect on purchase intention. However, the effect on believability was not assessed because of an insufficient number of studies that have addressed this issue. In general, including a reference price in an advertisement provides the consumer with a point of comparison by which to judge the lower selling price, thus providing a basis for a more favorable evaluation of the deal. Moreover, as the gap between the advertised reference price and the selling price (i.e., advertised savings) increases, perceptions of value will also increase. However, t his effect is thought to occur only so long as consumers believe that the advertised reference price has some validity. Empirical research (see Compeau and Grewal 1998, Urbany et al. 1988) supports the conclusion that reference prices, even when exaggerated, can enhance subsequent evaluations. In light of the potential harm that can come to consumers, it is important to further scrutinize the extent to which consumers believe advertisers' claims and how these claims influence consumers' evaluations of the offers. CONCEPTUAL FRAMEWORK Thaler (1985) suggests that a consumer's overall perception of the "value" of a purchase is not just the acquisition value (i.e., the value associated with possessing the product), but also includes an assessment of the "deal," i.e., the transaction value. Thaler suggests that transaction utility is the comparison between the reference price and the sale price. If the reference price is greater than the sale price, the transaction utility is positive. Thaler's (1985) transaction utility has been adapted for use in understanding comparative price advertising effects, and has been called transaction value--the pleasures associated with getting a good deal (Grewal, Monroe, and Krishnan 1998). …

Systems and methods for providing price improvement in an active trading market

Abstract: Systems and methods for providing traders an opportunity to improve prices for an item trading in an active market are provided. After a trader HITS or LIFTS a bid or offer, a market becomes active. When the market is active, traders can submit orders that improve on the price of the current market price of an item. Whenever a price improvement order is currently available for use in a transaction order, a price improvement indicator is displayed to indicate to other traders that price improvement is occurring. When a price improvement order is used to fill a transaction order, a portion of the difference between the market price and the price improvement price may be divided between the trader associated with the price improvement order, the trader associated with the transaction order, and the system host.

Quality and location choices under price regulation [Qualitäts- und Standortwahl bei Preisregulierung]

Abstract: In a model of spatial competition, we analyse the equilibrium outcomes in markets where the product price is exogenous. Using an extended version of the Hotelling model, we assume that firms choose their locations and the quality of the product they supply. We derive the optimal price set by a welfarist regulator and find that this (second-best) price causes over-investment in quality and an insufficient degree of horizontal differentiation (compared with the first-best solution) if the cost of investing in product quality, or the transportation cost of consumers, is sufficiently high. By comparing the case of price competition, we also identify a hitherto unnoticed benefit of regulation, namely improved locational efficiency.

Industry Dynamics with Adjustment Costs

Abstract: Adjustment costs determine the dynamics of the response of an industry's output to a shift in demand. Absent any adjustment costs, an increase in demand not accompanied by any change in factor prices raises output, labor, capital, and materials in the same proportion. In the presence of adjustment costs, the elasticity of the response of factors with higher costs is less than one while the elasticity of those without adjustment costs exceeds one. I develop a model of industry dynamics to capture these properties and a related econometric framework to infer adjustment costs from the observed ratios of factor responses to output responses. I find relatively precise evidence of moderate adjustment costs.

Size and efficiency in African manufacturing firms: Evidence from firm-level panel data

Abstract: Three dimensions of the performance of firms in Ghana’s manufacturing sector are investigated in this paper: their technology and the importance of technical and allocative efficiency. We show that the diversity of factor choices in not due to a non-homothetic technology. Observable skills are not quantitatively important as determinants of productivity. Technical inefficiency is not lower in firms with foreign ownership or older firms and its dispersion across firms is similar to that found in other economies. Large firms face far higher relative labour costs than small firms. If these factor price differentials could be levelled out, substantial gains thorough improvements in allocative efficiency would be possible.

The North-South Wage Gap, Before and After the Civil War

Abstract: In an economy with 'national' factor markets, the factor price effects of a permanent, regional specific shock register everywhere, perhaps with a brief lag. The United States in the nineteenth century does not appear to have been such an economy. Using data for a variety of occupations, I document that the Civil War occasioned a dramatic divergence in the regional structure of wages -- in particular, wages in the South Atlantic and South Central states relative to the North fell sharply after the War. The divergence was immediate, being apparent as early as 1866. It was persistent: for none of the occupations examined did the regional wage structure return to its ante-bellum configuration by century's end. The divergence cannot be explained by the changing racial composition of the Southern wage labor force after the War, but does appear consistent with a sharp drop in labor productivity in Southern agriculture. I also use previously neglected data to argue that the South probably experienced a decline in the relative price of non-traded goods after the War.

Acceptance of a price discount: the role of the semantic relatedness between purchases and the comparative price format

Abstract: Two studies are reported where people are asked to accept or not a price reduction on a target product. In the high (low) relative saving version, the regular price of the target product is low (high). In both versions, the absolute value of the price reduction is the same as well as the total of regular prices of planned purchases. As first reported by Tversky and Kahneman (1981), findings show that the majority of people accept the price discount in the high-relative saving version whereas the minority do it in the low one. In Study 1, findings show that the previous preference reversal disappears when planned purchases are strongly related. Also, a previously unreported preference reversal is found. The majority of people accept the price discount when the products are weakly related whereas the minority accept when the products are strongly related. In Study 2, findings show that the classic preference reversal disappears as a function of the comparative price format. Also, another previously unreported preference reversal is found. When the offered price reduction relates to a low-priced product, people are more inclined to accept it with a control than a minimal comparative price format. Findings reported in Studies 1 and 2 are interpreted in terms of mental accounting shifts. Copyright © 2002 John Wiley & Sons, Ltd.

Energy-Dependent Production Functions and the Optimization Model “PRISE” of Price-Induced Sectoral Evolution

Abstract: In an attempt to integrate thermodynamics with economics, production functions are proposed that depend on capital, labor, energy and technological parameters associated with the energy conversion efficiency of the capital stock. Based on these production functions, which resolve most of the unexplained Solow residual of conventional economic growth theory, we develop the optimization model PRISE of PRice-Induced Sectoral Evolution. The model is designed to analyze potential changes of inputs, outputs and profits in differently energy- and labor-intensive sectors of an economy in response to changing factor prices. The model has been tested by comparing its predictions with the German sectoral economic evolution, 1968-1989.

Factor Price Equalization in the UK

Abstract: This paper develops a general test of factor price equalization that is robust to unobserved regional productivity differences, unobserved region-industry factor quality differences and variation in production technology across industries We test relative factor price equalization across regions of the UK Although the UK is small and densely-populated, we find evidence of statistically significant and economically important departures from relative factor price equalization Our estimates suggest three distinct relative factor price areas with a clear spatial structure We explore explanations for these findings, including multiple cones of diversification, region-industry technology differences, agglomeration and increasing returns to scale

Industry Dynamics with Adjustment Costs

Abstract: Adjustment costs determine the dynamics of the response of an industry's output to a shift in demand. Absent any adjustment costs, an increase in demand not accompanied by any change in factor prices raises output, labor, capital, and materials in the same proportion. In the presence of adjustment costs, the elasticity of the response of factors with higher costs is less than one while the elasticity of those without adjustment costs exceeds one. I develop a model of industry dynamics to capture these properties and a related econometric framework to infer adjustment costs from the observed ratios of factor responses to output responses. I find relatively precise evidence of moderate adjustment costs.

Mixed Signals: Market Incentives, Recycling and the Price Spike of 1995

Abstract: Environmental economics assumes that reliance on price signals, adjusted for externalities, normally leads to efficient solutions to environmental problems. We explore a limiting case, when market volatility created ‘mixed signals’: prices of waste paper and other recycled materials were suddenly extremely high in 1994–1995, then plummeted back to traditional low levels in 1996. These rapid reversals resulted in substantial economic and political costs. A review of academic and business literature suggests six possible explanations for abrupt price spikes. An econometric analysis of the prices of wood pulp and waste paper shows that factor which explained price changes in 1983–1993 contribute very little to understanding the subsequent price spike. From the econometric analysis and from other sources, we conclude that speculation must have played a major role in the price spike, perhaps in combination with modest effects from changes in government policy and in export demand. If speculatively driven price spikes can disrupt an environmentally important industry such as recycling, what is the appropriate role for public policy? When price volatility is sufficiently disruptive, then measures to control or stabilize prices, rather than interfering with the market, might help to make it more efficient.

Disturbing the fiscal theory of the price level: can it fit the EU-15?

Abstract: With the fiscal theory of the price level (FTPL), Leeper -Sims-Woodford (LSW) argued that the government budget constraint plays a key role in determining the price level. Indeed, there could even be a dispute vis -a-vis the role of monetary policy in the formation of the price level. Apart from several theoretical criticisms, also addressed in the discussion given in this paper, the attempts to validate empirically the novel theory are, so far, rather sparse. Therefore, one of the purposes of this paper is to tentatively assess the possible empirical evidence, concerning the FTPL, for the EU -15 countries.

Controlling the Price Level

Abstract: Governments determine the size of the unit of value just as they determine the length of the length and weight of physical units of measure. What are the different ways that a government can control the size of the unit of value, that is, control the price level? In general, the government designates a resource—gold, paper currency, another country’s currency—and defines its unit of value as a particular amount of that resource. An interesting variant—proposed by Irving Fisher in 1913 and implemented more recently in Chile—is to alter the resource content of the unit to stabilize the price level. Another idea is to alter the interest rate paid on reserves in a way that stabilizes the price level.