Showing papers on "Factor price published in 2007"
TL;DR: In this article, a simple model of international trade is proposed, in which institutional differences are modeled within the framework of incomplete contracts and empirically whether institutions act as a source of trade, using data on US imports disaggregated by country and industry.
Abstract: Institutions — quality of contract enforcement, property rights, shareholder protection, and the like — have received a great deal of attention in recent years. Yet trade theory has not considered the implications of institutional differences, beyond treating them simply as different technologies or taxes. The purpose of this paper is twofold. First, we propose a simple model of international trade in which institutional differences are modeled within the framework of incomplete contracts. We show that doing so reverses many of the conclusions obtained by equating institutions with productivity. Institutional differences as a source of comparative advantage imply, among other things, that the less developed country may not gain from trade, and factor prices may actually diverge as a result of trade. Second, we test empirically whether institutions act as a source of trade, using data on US imports disaggregated by country and industry. The empirical results provide evidence of “institutional content of trade:” institutional differences are an important determinant of trade flows.
744 citations
TL;DR: In this paper, the authors studied the producer price setting in 6 countries of the euro area: Germany, France, Italy, Spain, Belgium and Portugal, and found that prices change very often in the energy sector, less often in food and intermediate goods and least often in non-durable nonfood and durable goods.
Abstract: This paper documents producer price setting in 6 countries of the euro area: Germany, France, Italy, Spain, Belgium and Portugal. It collects evidence from available studies on each of those countries and also provides new evidence. These studies use monthly producer price data. The following five stylised facts emerge consistently across countries. First, producer prices change infrequently: each month around 21% of prices change. Second, there is substantial cross-sector heterogeneity in the frequency of price changes: prices change very often in the energy sector, less often in food and intermediate goods and least often in non-durable non-food and durable goods. Third, countries have a similar ranking of industries in terms of frequency of price changes. Fourth, there is no evidence of downward nominal rigidity: price changes are for about 45% decreases and 55% increases. Fifth, price changes are sizeable compared to the inflation rate. The paper also examines the factors driving producer price changes. It finds that costs structure, competition, seasonality, inflation and attractive pricing all play a role in driving producer price changes. In addition producer prices tend to be more flexible than consumer prices.
479 citations
TL;DR: The authors showed that the source of price change information, whether human or nonhuman, moderates the effect of the price change on perceptions of price fairness, and demonstrated antecedent roles of both price source and affect.
Abstract: Three experiments show that the source of price change information—whether human or nonhuman—moderates the effect of price change on perceptions of price fairness. Both inferences of the marketer's motive and stimulus-induced affect mediate the effects of the source and price change. Opportunity and motivation to process also affect the relative influence of inferred motive and affect. This research demonstrates antecedent roles of both price source and affect.
266 citations
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TL;DR: In this paper, the authors studied the producer price setting in 6 countries of the euro area: Germany, France, Italy, Spain, Belgium and Portugal, and found that prices change very often in the energy sector, less often in food and intermediate goods and least often in non-durable non-food and durable goods.
Abstract: This paper documents producer price setting in 6 countries of the euro area: Germany, France, Italy, Spain, Belgium and Portugal. It collects evidence from available studies on each of those countries and also provides new evidence. These studies use monthly producer price data. The following five stylised facts emerge consistently across countries. First, producer prices change infrequently: each month around 21% of prices change. Second, there is substantial cross-sector heterogeneity in the frequency of price changes: prices change very often in the energy sector, less often in food and intermediate goods and least often in non-durable non- food and durable goods. Third, countries have a similar ranking of industries in terms of frequency of price changes. Fourth, there is no evidence of downward nominal rigidity: price changes are for about 45% decreases and 55% increases. Fifth, price changes are sizeable compared to the inflation rate. The paper also examines the factors driving producer price changes. It finds that costs structure, competition, seasonality, inflation and attractive pricing all play a role in driving producer price changes. In addition producer prices tend to be more flexible than consumer prices.
175 citations
TL;DR: In this article, the authors extend the Ricardian model of trade with a continuum of goods by introducing multiple factors of production and by making technologies of supplying goods depend on whether the destination is home or abroad.
Abstract: In contrast to domestic trade, international trade inherently requires more intensive use of skilled labour with expertise in areas such as international business, language skills, and maritime insurance, and the transoceanic transportation is more capital intensive than the local transportation. In the presence of such bias in factor demands, globalization caused by an improvement in the export technologies can lead to a worldwide increase in the relative prices of the factors used intensively in international trade. Furthermore, a worldwide increase in the factors used intensively in international trade can lead to globalization. To capture these effects, we develop a flexible approach to model costly international trade, which includes the standard iceberg approach as a special case. More specifically, we extend the Ricardian model of trade with a continuum of goods by introducing multiple factors of production and by making technologies of supplying goods depend on whether the destination is home or abroad. If the technologies of supplying the same good to the two destinations differ only in total factor productivity, the model becomes isomorphic to the Ricardian model with the iceberg cost. By allowing the two technologies to differ in the factor intensities, our approach enables us to examine the links between factor endowments, factor prices, and globalization that cannot be captured by the iceberg approach. Copyright 2007, Wiley-Blackwell.
149 citations
TL;DR: In this article, the authors argue that when producers have different production costs, competition-driven selection on costs also reduces prices, and find empirical support for this mechanism in the prices of ready-mixed concrete plants.
Abstract: Homogeneous-producer models attribute lower prices in denser markets solely to lower optimal markups. I argue here that when producers have different production costs, competition-driven selection on costs also reduces prices. This selection mechanism can be distinguished from the homogenous-producer case because it implies that higher density leads not only to lower average prices, but to declines in upper-bound prices and price dispersion as well. I find empirical support for this mechanism in the prices of ready-mixed concrete plants. I also show these findings do not simply reflect lower factor prices in dense markets, but result instead because dense-market producers are more efficient.
114 citations
TL;DR: In this paper, the authors show that the specific size of the price adjustment costs depends on the average markup of price over real marginal cost and the average time firms wait to reoptimize their prices.
Abstract: Rotemberg's (1982) price adjustment costs framework is a popular sticky price specification; yet, the data provides little information on the magnitude of those costs. This article finds a plausible range of parameterizations for those price adjustment costs. Our results show that the specific size of the price adjustment costs depends on the average markup of price over real marginal cost and the average time firms wait to reoptimize their price. In particular, the price adjustment costs are higher when the average markup is lower and the mean time between price reoptimizations is longer.
111 citations
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TL;DR: In this paper, the authors measure countries' export quality by exploiting both price and market share information, which contrasts to earlier work that uses only price data, and find that product markets vary widely in their degree of vertical differentiation, measured by the range of qualities observed in the market.
Abstract: Quality specialization may help insulate workers in developed countries from low-wage country competition by weakening the convergence in goods and factor prices implied by international trade. I develop a model in which vulnerability to low-wage country competition decreases with a product market's degree of vertical differentiation. To test the implications of this model, I measure countries' export quality by exploiting both price and market share information, which contrasts to earlier work that uses only price data. The quality estimates reveal that product markets vary widely in their degree of vertical differentiation, measured by the range of qualities observed in the market. The variation in the lengths of these products' "quality ladders" indicates that quality specialization is more feasible in some product markets than in others. Consistent with the model, the impact of low-wage import penetration on U.S. manufacturing employment is weaker in industries characterized by longer quality ladders. This evidence suggests that product quality is an important factor for understanding how international trade affects firms and workers.
110 citations
TL;DR: In this article, a conceptual model of consumer response to different types of price-matching characteristics (i.e., refund depth, length, and scope) across consumer segments with varying levels of price consciousness was developed and tested.
86 citations
TL;DR: In this paper, the authors show that a high price floor allows competitors to obtain higher profits than a low price floor, and that the effect of a high floor on the overall procompetitive effect for duopolies is larger than that of a low floor.
Abstract: A potential source of instability of many economic models is that agents have little incentive to stick with the equilibrium. We show experimentally that this can matter with price competition. The control variable is a price floor, which increases the cost of deviating from equilibrium. According to traditional theory, a higher floor allows competitors to obtain higher profits. Behaviorally, the opposite result obtains with two (but not with four) competitors. An error model, which builds on Luce (Individual Choice Behavior, 1959), can adequately describe supra-Nash pricing with a low-floor, but then fails to capture the overall pro-competitive effect of a high-floor seen for duopolies.
67 citations
TL;DR: It is shown how the obtained power plant value converges to the true expected value by refining the price lattice, and it is proved that this framework guarantees existence of branching probabilities at all nodes and all stages of the lattice.
Abstract: In this paper, we use a real-options framework to value a power plant. The real option to commit or decommit a generating unit may be exercised on an hourly basis to maximize expected profit while subject to intertemporal operational constraints. The option-exercising process is modeled as a multistage stochastic problem. We develop a framework for generating discrete-time price lattices for two correlated Ito processes for electricity and fuel prices. We show that the proposed framework exceeds existing approaches in both lattice feasibility and computational efficiency. We prove that this framework guarantees existence of branching probabilities at all nodes and all stages of the lattice if the correlation between the two Ito processes is no greater than 4/√35 ≈ 0.676. With price evolution represented by a lattice, the valuation problem is solved using stochastic dynamic programming. We show how the obtained power plant value converges to the true expected value by refining the price lattice. Sensitivity analysis for the power plant value to changes of price parameters is also presented.
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TL;DR: In this paper, an integrated operations-marketing model is developed to determine the relevant profit-maximizing decision variable values for two pricing policies that the firm might follow -price as a decision variable, and mark-up pricing, used by most practitioners.
Abstract: In this paper, we focus on a firm selling a single make-to-stock product to price-sensitive end customers. We develop an integrated operations-marketing model that can help determine the relevant profit-maximizing decision variable values for two pricing policies that the firm might follow - price as a decision variable, which is advocated by academicians, and mark-up pricing, used by most practitioners. We first consider an EOQ-based model with price and order quantity as independent decision variables. We then develop an analogous model where price is a mark-up over operating costs per unit, and order quantity becomes the sole decision variable. We are able to ascertain the optimal decision variable values for each model for log-linear and linear demand functions. We prove that for such profitmaximizing models, the optimal batch size is not necessarily monotone increasing in set-up cost. Interestingly, our numerical/analytical evidence suggests that from a profit perspective it is better for managers to be aggressive on price rather than reducing price too much, especially for highly price-sensitive and non-linear demand. Moreover, we establish that, in general, the profit penalty for not including inventory costs in determining the optimal batch size, or ignoring the batch size optimization issue in a mark-up price model is not significant. Only when the set-up cost is quite high and/or the firm faces non-linear demand from highly price-sensitive end consumers does it become crucial for managers to determine the exact optimal batch size and base the mark-up price on the entire unit operating cost, not only the unit (variable) production cost.
TL;DR: In this paper, it was shown that the smaller the price change of an individual product, the larger the average price change for the remaining products sold by the store, and that these findings are consistent with extensions of menu cost models of price-setting behavior to multiproduct firms.
Abstract: We find that while some individual price changes are indeed ‘small’, the average price change of different products within a store in any given month is not. Moreover, the smaller the price change of an individual product, the larger the average price change of the remaining products sold by the store. We argue that these findings are consistent with extensions of menu cost models of price-setting behavior to multiproduct firms when these firms have high average costs and low marginal costs of changing prices. Copyright © 2007 John Wiley & Sons, Ltd.
TL;DR: In this article, the authors described a macro-micro framework for examining the structural and distributional consequences of a significant external shock-an increase in the world price of oil-on the South African economy.
Abstract: As crude oil prices reach new highs, there is renewed concern about how external shocks will affect growth and poverty in developing countries. This paper describes a macro-micro framework for examining the structural and distributional consequences of a significant external shock-an increase in the world price of oil-on the South African economy. The authors merge results from a highly disaggregative computable general equilibrium model and a micro-simulation analysis of earnings and occupational choice based on socio-demographic characteristics of the household. The model provides changes in employment, wages, and prices that are used in the micro-simulation. The analysis finds that a 125 percent increase in the price of crude oil and refined petroleum reduces employment and GDP by approximately 2 percent, and reduces household consumption by approximately 7 percent. The oil price shock tends to increase the disparity between rich and poor. The adverse impact of the oil price shock is felt by the poorer segment of the formal labor market in the form of declining wages and increased unemployment. Unemployment hits mostly low and medium-skilled workers in the services sector. High-skilled households, on average, gain from the oil price shock. Their income rises and their spending basket is less skewed toward food and other goods that are most affected by changes in oil prices.
TL;DR: In this paper, the effect of asymmetric reference price on the profitability of price promotions is analyzed and the optimal depth and duration of a price promotion is calculated. But the authors focus on the negative effect of reference prices on the degree of price rigidity and flexibility.
Abstract: In this study we demonstrate how a reference price may affect the degree of price rigidity/ flexibility. For this, we construct a model of reference-price formation, which we use to analyze the effect of asymmetric reference price (cut ‘effects’) on the profitability of price promotions. We derive explicit expressions for the additional profits earned during a promotional period due to consumer perception of a ‘gain’, and for the post-promotion loss of potential profits due to consumer perception of a ‘loss’. We show that when effects of losses on demand are greater than effects of gains (‘loss aversion’), price promotions always lead to a decline in profits. When, however, effects of gains are larger than those of losses, price promotions, as well as reverse price promotions (i.e. price increase) can be profitable. In the latter case we calculate the optimal depth and duration of a price promotion. We also show that reference price can affect price rigidity and flexibility. Copyright # 2007 John Wiley & Sons, Ltd.
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TL;DR: In this article, the authors investigated the price-setting behavior in Japan by using the CPI micro data in the Retail Price Survey from 1989 to 2003 and established the four facts as follows: the frequency of price changes for goods is high while that for services is low.
Abstract: This paper investigates the price-setting behavior in Japan by using the CPI micro data in the Retail Price Survey from 1989 to 2003. We establish the four facts as follows. First, the frequency of price changes for goods is high while that for services is low. The frequency of price changes for goods has increased during the 1990s while that for services has greatly decreased. Second, many items have a downward sloping hazard function while some have the flexible-type or the Taylor-type hazard function. Third, in most of the categories in the CPI, a decline in the frequency of price changes has contributed to the drop in the CPI inflation rate since the 1990s while the size of price changes has remained roughly unchanged. Fourth, the heterogeneity in the frequency of price changes acrosscategories and its evolution are strongly influenced by the differences in the share of labor costs in the production costs and changes in the firm's price strategy regarding temporary sales.
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TL;DR: In this article, the authors show that in a world with heterogeneous financial development, the classic conclusion that trade and capital mobility are substitutes does not hold, in particular in less financially developed economies.
Abstract: The classical Heckscher-Ohlin-Mundell paradigm states that trade and capital mobility are substitutes, in the sense that trade integration reduces the incentives for capital to flow to capital-scarce countries. In this paper we show that in a world with heterogeneous financial development, the classic conclusion does not hold. In particular, in less financially developed economies (South), trade and capital mobility are complements. Within a dynamic framework, the complementarity carries over to (financial) capital flows. This interaction implies that deepening trade integration in South raises net capital inflows (or reduces net capital outflows). It also implies that, at the global level, protectionism may backfire if the goal is to rebalance capital flows, when these are already heading from South to North. Our perspective also has implications for the effects of trade integration on factor prices. In contrast to the Heckscher-Ohlin model, trade liberalization always decreases the wage-rental in South: an anti-Stolper-Samuelson result.
TL;DR: In this paper, the authors use a dynamic stochastic general equilibrium model to examine price dynamics under alternative policy regimes and show that Fisher's compensated dollar (or pure price path targeting) reduces inflation uncertainty by an order of magnitude at all horizons.
Abstract: The classical gold standard has long been associated with long-run price stability. But short-run price variability led critics of the gold standard to propose reforms that look much like modern versions of price path targeting. This paper uses a dynamic stochastic general equilibrium model to examine price dynamics under alternative policy regimes. In the model, a pure inflation target provides more short-run price stability than does the gold standard and, although it introduces a unit root into the price level, it leads to as much long-term price stability as does the gold standard for horizons shorter than 20 years. Relative to these regimes, Fisher's compensated dollar (or pure price path targeting) reduces inflation uncertainty by an order of magnitude at all horizons. A Taylor rule with its relatively large weight on output leads to large uncertainty about inflation at long horizons. This long-run inflation uncertainty can be largely eliminated by introducing an additional response to the deviation of the price level from a desired path.
TL;DR: In this article, the authors present a dynamic comparative advantage model in which moderate reductions in trade costs can generate sizable increases in trade volumes over time, showing that trade liberalization can lead to a non-linear increase in the trade share of output.
Abstract: We present a dynamic comparative advantage model in which moderate reductions in trade costs can generate sizable increases in trade volumes over time. A fall in trade costs has two effects on the volume of trade. First, for given factor endowments, it raises the degree of specialization of countries, leading to a larger volume of trade in the short run. Second, it raises the factor price of each country’s abundant production factor, leading to diverging paths of relative factor endowments across countries and a rising degree of specialization. A simulation exercise shows that a fall in trade costs over time produces a non-linear increase in the trade share of output as in the data. Even when elasticities of substitution are not particularly high, moderate reductions in trade costs lead to large trade volumes over time. We present further empirical evidence in favour of our approach, documenting the link between trade liberalization and the cross-country divergence of investment shares.
TL;DR: The concept of sticky prices has been used as a metaphor for the perceived importance of monetary policy since at least as far back as the 1930s as discussed by the authors, and it is natural to think that monetary policy can influence the level of real economic activity through its ability to determine the nominal quantity of money.
Abstract: heconceptof“stickyprices”hasbeenoneofthemostcommonexpla-nations for the perceived importance of monetary policy since at leastas far back as the 1930s. Simply put, if nominal prices for individualgoods do not continuously adjust to economic conditions, then it is natural tothink that monetary policy can influence the level of real economic activitythrough its ability to determine the nominal quantity of money. In evaluatingwhether this channel for monetary policy is important, two sets of researchquestions are relevant. First, do individual prices indeed change infrequently,and if so, why? Second, within macroeconomic models, what are the ag-gregate implications of the pricing behavior found in the data, and are thoseimplications consistent with aggregate economic data? This article reviewsresearch on the first set of questions in the hope of deriving lessons useful forimproving the macroeconomic models that can address the second set.
TL;DR: This work proposes a collaborative pricing and replenishing model with finite horizon when the vendor's purchase cost and the end-consumer's market price are reduced simultaneously, and results indicate that higher decline-rate in the vendors' purchase cost leads to a smaller vendor lot size, and the higher drop in the market price leads to larger buyer lot size.
Abstract: Owing to rapid technological innovation and severe competition, the upstream component price and the downstream product cost of hi-tech industries like computers and communication consumer's products usually decline significantly with time. From a practical viewpoint, there is a need to develop a collaborative pricing and replenishing model with finite horizon when the vendor's purchase cost and the end-consumer's market price are reduced simultaneously. To entice collaboration, the vendor may offer some price discount to the buyer using a negotiation factor to balance the net profit for each player. A numerical example and sensitivity analysis are carried out to illustrate the model. Our results indicate that higher decline-rate in the vendor's purchase cost leads to a smaller vendor lot size, and the higher decline-rate in the market price leads to a larger buyer lot size. The percentage increase in the net profit is approximately 6.57% when cost/price reduction is considered. Therefore, it is significant to consider the effect of the cost/price reduction, especially in hi-tech industries.
TL;DR: In this article, the authors estimate the export equation for Fiji and show that inappropriate specification of the relative price variable may give underestimates of the price elasticity and overestimation of the income elasticity.
Abstract: Accurate estimates of the price and income elasticities of exports are valuable for growth policies based on trade promotion. However, not sufficient attention seems to have been paid to the specification of the relative price variable in some influential empirical works. This article estimates the export equation for Fiji, to show that inappropriate specification of the relative price variable may give underestimates of the price elasticity and overestimates of the income elasticity.
TL;DR: In this article, an empirical analysis of farm-gate tomato price negotiations under asymmetric information is presented, showing that farmers are less committed to their initial ask price when the buyer speaks out the transaction price first, when their quality perceptions of the tomatoes being transacted differ from those of the buyers, and when their tomato farm is at a large distance from the main road.
TL;DR: In this paper, the authors show that in a world with heterogeneous financial development, the classic conclusion that trade and capital mobility are substitutes does not hold, in particular in less financially developed economies.
Abstract: The classical Heckscher-Ohlin-Mundell paradigm states that trade and capital mobility are substitutes, in the sense that trade integration reduces the incentives for capital to flow to capital-scarce countries. In this paper we show that in a world with heterogeneous financial development, the classic conclusion does not hold. In particular, in less financially developed economies (South), trade and capital mobility are complements. Within a dynamic framework, the complementarity carries over to (financial) capital flows. This interaction implies that deepening trade integration in South raises net capital inflows (or reduces net capital outflows). It also implies that, at the global level, protectionism may backfire if the goal is to rebalance capital flows, when these are already heading from South to North. Our perspective also has implications for the effects of trade integration on factor prices. In contrast to the Heckscher-Ohlin model, trade liberalization always decreases the wage-rental in South: an anti-Stolper-Samuelson result.
15 Oct 2007
TL;DR: In this article, the authors explored the role of cognitive response theory as a primary construct underlying the determination of the price customers are willing to pay and found that potential customers for a new software service generated significantly more support arguments at the optimum price point than they did at price points above or below the acceptable pricing range.
Abstract: Understanding the price sensitivity of potential buyers is a requirement for successfully determining the price for a new product. Marketers desire to set a price that will maximize demand and ensure a profitable business result. The price sensitivity measurement approach to price setting provides a methodology for mapping the upper and lower bounds of acceptable prices from the customer's perspective. Price sensitivity measurement is based on value perceptions and is a useful tool for pricing new products. This paper explores the role of cognitive response theory as a primary construct underlying the determination of the price customers are willing to pay. Potential customers for a new software service generated significantly more support arguments at the optimum price point than they did at price points above or below the acceptable pricing range. Concomitantly, counterarguments were significantly higher at prices above the upper price threshold and below the lower price threshold. The implications of these findings are discussed. The complementary use of price sensitivity measurement and cognitive response methodologies provides a convenient and easily implemented set of customer- value based tools for pricing new products.
TL;DR: In this paper, the authors present empirical evidence on the interplay important topics of consumer price rigidity and market power in the German food retail industry, addressing the causal relationship between market structure and pricing behavior highlighted in the industrial organization literature.
Abstract: This paper presents empirical evidence on the interplay important topics of consumer price rigidity and market power in the German food retail industry. In particular, the analysis addresses the causal relationship between market structure—collusion—and pricing behaviour highlighted in the industrial organization literature. Extensive analysis of retail scanner data across beef and pork products reveals considerable differences in price rigidity across store types. Supermarket pricing behaviour is evaluated with respect to all price changes retail sales action and price adjustments indicating that food discounters exhibit the highest degree of rigid prices. Retail concentration, as an important explanatory factor of price stickiness is investigated via the analysis of retail market power employing a conjectural-variation approach. The analysis of market conduct in the marketing of beef and pork products indicates simultaneous oligopolistic and oligopsonistic behaviour of retail firms. Copyright © 2007 John Wiley & Sons, Ltd.
28 Jun 2007
TL;DR: In this paper, the authors estimate the effect of a rise in petroleum prices on living standards in Madagascar combining information on expenditure patterns from the Enquete Aupres des Menages 2005 with an input-output model describing how petroleum price increases propagate across economic sectors.
Abstract: In this paper the authors estimate the effect of a rise in petroleum prices on living standards in Madagascar combining information on expenditure patterns from the Enquete Aupres des Menages 2005 with an input-output model describing how petroleum price increases propagate across economic sectors They identify both a direct welfare effect (heating and lighting one's house become more expensive) and an indirect effect (the price of food and anything else which has to be transported from factory to shop rises) They find that, a 17 percent rise in oil prices produces, on average, a 175 percent increase in household expenditures (15 percent for high-income households, 21 for the households in the bottom expenditure quintile) Circa 60 percent of the increase in expenditures is due to the indirect effect, mostly via higher food prices Although energy price increases hurt the poor more in percentage terms, subsidizing would involve a substantial leakage in favor of higher income households This raises the issue of identifying more cost-effective policies to protect the poor households against energy price increases
TL;DR: In this article, the authors analyzed the price difference between Japan and Korea by using goods-level consumer price data and found that the source of price dispersion depends on the characteristics of goods.
Abstract: This paper analyzes the price difference between Japan and Korea by using goods-level consumer price data. The national border has a large effect on price dispersion in both time-series volatility analysis and cross-sectional difference analysis. By categorizing goods by their perishability, I find that absolute purchasing power parity (PPP) applies to a greater extent for durable goods. Although perishables deviate more from absolute PPP, the difference is due to distance. This implies that the source of price dispersion depends on the characteristics of goods. J. Japanese Int. Economies 21 (2) (2007) 237–259.
TL;DR: In this article, the authors introduce the first effort to quantitatively document the small arms market by collating field reports and journalist accounts to produce a cross-country time-series price index of Kalashnikov assault rifles.
Abstract: This paper introduces the first effort to quantitatively document the small arms market by collating field reports and journalist accounts to produce a cross-country time-series price index of Kalashnikov assault rifles. A model of the small arms market is developed and empirically estimated to identify the key determinants of assault rifle prices. Variables which proxy the effective height of trade barriers for illicit trade are consistently significant in determining weapon price variation. When controlling for other factors, the collapse of the Soviet Union does not have as large an impact on weapon prices as is generally believed.
TL;DR: In this article, a dynamic optimizing sticky price model is proposed to study the effect of unanticipated inflation on the distribution of income and wealth in a dynamic setting, where agents are heterogeneous with regard to their age and their productivity.
Abstract: Inflation is often associated with a loss for the poor in the medium and long run. The cyclical effects are basically unknown. We study this question in a dynamic optimizing sticky price model. Agents are heterogeneous with regard to their age and their productivity. We emphasize three channels through which unanticipated inflation affects the income and wealth distribution: 1) factor prices, 2) the 'bracket creep', and 3) sticky pensions. In our model, unanticipated inflation decreases the inequality of factor income, while the redistributive effect of inflation on total income depends on whether the government is spending the additional revenues on transfers or public consumption.