Factor price

About: Factor price is a research topic. Over the lifetime, 2764 publications have been published within this topic receiving 86176 citations.

Product Innovations, Price Indices and the (Mis)Measurement of Economic Performance

Abstract: The goal of this paper is to address the problem of 'product innovations' (i.e. new goods. increased variety, and quality change) in the construction of price indices and, by extension, in the measurement of economic performance. The premise is that a great deal of technical progress takes the form of product innovations, but conventional economic statistics fail by and large to reflect them. The approach suggested here consists of two stages: first, the benefits from innovations are estimated with the aid of discrete choice models, and second, those benefits are used to construct 'quality adjusted' price indices. Following a discussion of the merits of such approach vis a vis hedonic price indices, I apply it to the case of CT (Computed Tomography) Scanners. The main finding is that the rate of decline in the real price of CT scanners was a staggering 55% per year (on average) over the first decade of the technology. By contrast, an hedonic-based index captures just a small fraction of the decline, and a simple (unadjusted) price index shows a substantial price increase over the same period. Thus, conventional economic indicators might be missing indeed a great deal of the welfare consequences of technical advance, particularly during the initial stages of the product cycle of new products.

Can Comparative Advantage Explain the Growth of US Trade

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.

A Defense of a Thomistic Concept of the Just Price

Abstract: Since St. Thomas Aquinas was one of the first scholastics to analyze the idea of a “just price,” economists, economic historians and philosophers interested in the philosophical underpinnings of the market have focused on Aquinas’s writings. One group insists that Aquinas defined the just price as the payment needed to cover sellers’ labor and material costs. A second camp vehemently counters that Aquinas’s just price is simply the going market price. We argue that neither of these views is correct. The Thomistic just price is the price that would be agreed to by a just person as part of an exchange. This “just person price” takes into account the well-being of the individual transactors and the good of the entire community. Such a price reduces neither to the cost-covering price nor to the market exchange price. A Thomistic concept of the just person price deserves to be reconsidered, especially because a Thomistic approach offers some useful ways to deal with issues quite differently from the popular neoclassical approach directed toward arriving at a socially optimal market price.

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.