Factor price

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

Some evidence on lump sum versus convex costs of changing prices

Abstract: 2 Two models in which price stickiness results from price adjustment costs are tested. One, an (s,S) pricing model, assumes lump-sum adjustment costs and predicts firms will make relatively large, infrequent price changes. The other assumes convex adjustment costs and predicts frequent, partial price adjustments. Survey data of firms'price behavior reveal patterns consistent with the (s,S) model. However, many of the patterns are also consistent with partial-adjustment rules, although the high percentage of firms which fix prices for a quarter or more casts doubt on the plausibility of the partialadjustment hypothesis. I. INTRODUCTION In "new" Keynesian economics "price stickiness" arises not because of wage rigidity so much as because either the gains to individual firms from changing prices are negligible or the costs of doing so deter full and immediate price changes. As a result, nominal shocks which affect demand for the firm's product, as well as real shocks, give rise to changes in output. The nature and the timing of the effects of demand changes, such as those initiated by monetary policy, thus depend on how individual firms respond to the signals they receive. Sticky-price models based on costs of price adjustment take at least two different forms. One assumes a lump-sum cost to changing prices, which leads to predictions that firms generally keep prices fixed and make infrequent, relatively large price changes. The other assumes convex adjustment costs and leads to the prediction that firms make relatively small and frequent partial adjustments toward a target level. Evidence drawn from a series of surveys conducted by the National Federation of Independent Business will be used to test the predictions from these two types of models. While the data do not allow a definitive test between the two models, the available evidence supports the model with lump-sum costs of changing prices with the important proviso that there be substantial heterogeneity in the relative costs to firms of making price changes so that the frequency and size of changes vary considerably across firms. II. (s,S) RULES WITH LUMP-SUM COSTS OF PRICE CHANGES How frequently should a firm change its price? When a change takes place, how large should it be? Sheshinski and Weiss [1977] and Barro [1972] provided the first answers to these questions. In their models an individual firm incurs a lump-sum cost when changing its nominal price, and the firm's profits depend on its real price, where real price is defined as the firm's nominal price divided by an index of the prices of all other firms in the economy. Sheshinski and Weiss assume that the firm tries to maximize the present value of its real profits. Their solution amounts to what is known in the optimal inventory literature as an (s,S) rule, in which S-s units are ordered when stocks run down to s. As applied to a pricing rule, when prices rise elsewhere in the economy, the firm's real price falls to a lower bound s, at which point the firm raises its nominal price so that its real price jumps to S. They prove that a more rapid general inflation rate calls for a lower s and higher S. Furthermore, subject to a monotonicity condition, a higher general inflation rate calls for a shorter time between price changes. After showing a number of numerical examples, Sheshinski and Weiss report "that numerical experiments with a quadratic profit function ... give high intervals between price changes (1-2 years) even with very low adjustment costs" [1977, 300]. When the profit function is flat in the neighborhood of the profit-maximizing real price, there is little benefit from changing price. A similar argument appears in the "menu cost" explanation for real effects of nominal disturbances. In the absence of private incentives for individual price changes, there may be real aggregate effects of nominal disturbances. For example, see Mankiw [1985], Akerlof and Yellen [1985], Kuran [1986], Blanchard and Kiyotaki [1987]. …

Maintaining Price Stability: A Proposal

Abstract: The Neal Resolution would make price stability the dominant goal of monetary policy. This paper proposes giving the Fed and Fed-watchers a measure of whether ongoing policy is consistent with this goal.

Factors Influencing Final Price of Public Procurement: Evidence from Slovakia☆

Abstract: In this paper, we summarized the current findings about competitiveness and its impact on the results of public procurement. Many authors proved, that increasing number of competitors in public procurement is, in average, decreasing prices. The relation between number of competitors and quality of purchased goods, services and works is questionable and there are only a few research studies (i.e. partly mentioned in Szymansky, 1996). Using regression analysis, we found out that competitiveness has great impact on the final price, but also usage of lowest price criterion and financing through EU funds can influence the final procurement price.

Protection, Real Wages, and the Neoclassical Ambiguity with Interindustry Flows

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