Factor price

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

Direct and Indirect Trade Utility Functions

Abstract: In this paper the concept of an indirect trade utility function is introduced, its properties are developed, and its application to the theory of international trade and to the econometric estimation of export supply and import demand functions are discussed. The indirect trade utility function expresses the maximum level of utility a trading nation can attain, assuming the existence of a direct community utility function, as a function of a vector of prices for commodities, a vector of factor endowments and the balance of trade. As such it provides a summary of all the consumption and production decisions within a competitive economy. In Section 2 the indirect trade utility function is defined in terms of the ordinary indirect utility function and the gross national product (or variable profit) function. An extension of Roy's Identity is developed, allowing the easy generation of net export functions by differentiation. The fact that the derivatives of the indirect trade utility function with respect to the prices of commodities are proportional to the excess supply or net export functions implies that indirect utility is stationary at a closed equilibrium. It is then proved that the set of price vectors which minimize the indirect trade utility function coincides with the set of closed equilibrium price vectors. Section 3 specifies the properties of the indirect trade utility function implied by the model and then illustrates various applications in the theory of international trade. These include the welfare effects of divergence of prices from autarky levels and the characterization of optimal tariff structures. Section 4 briefly considers the extent to which the results of Section 2 can be extended to the case where there are many consumers. In Section 5 the relationship between the indirect trade utility function and the direct trade utility function of Meade, and between the latter and the direct utility function and the production possibility set are outlined. Section 6 is devoted to establishing rigorously the formal relationships between all these functions under quite general conditions. The results of this section serve to widen the application of duality theory, as surveyed by Diewert (1974), (1978b) for example, to the area of international trade theory. Some of the results on the direct trade utility function have previously been developed by Chipman (1970) in unpublished notes, but he did not consider the indirect trade utility function. In Section 7 the usefulness of the indirect trade utility function in generating functional forms for export and import demand functions and factor price functions suitable for the purposes of econometric estimation using data on prices, net exports and factor endowments is discussed. Section 8 concludes the paper with an indication of how the model may be reinterpreted to accommodate nontraded goods and variable factor supplies. While the discussion is focussed on a national economy trading with other nations in the world market, it should be clear that the model applies equally well to the individual consumer who undertakes marketable production. Examples include the self-employed businessman or farmer. The indirect trade utility function then indicates the maximum utility attainable given the prices of the commodities (marketable products and purchasable

Does environmental regulation matter? Determinants of the location of new manufacturing plants in India in 1994

Abstract: The costs attributable to complying with environmental regulation are not as important as other determinants of where Indian businesses locate new plants. The level of existing business activity overwhelms all other factors affecting location decisions. The cost of complying with environmental regulations has been cited as a major burden on businesses. Is it enough of a burden to influence where businesses locate new plants, which are not restricted in their choice of location? Mani, Pargal, and Huq examine a unique establishment level dataset to find out whether the stringency of environmental regulation affects where firms locate new plants. Using a conditional logit model, they estimate the importance of different variables in plant location choice. After controlling for the impact of factor price differentials, infrastructure, and agglomeration, they find that the number of new plants commissioned in different states of India in 1994 does not appear to be adversely affected by more stringent environmental enforcement at the state level. In other words, an environmental race to the bottom is unlikely. They find that the level of existing business activity overwhelms all other factors affecting location decisions. Reliable infrastructure and factors of production are also critical. This paper - a product of the Environment, Infrastructure, and Agriculture Division, Policy Research Department - is part of a larger effort in the department to study environmental regulation.

Global Price Dispersion: Are Prices Converging or Diverging?

Abstract: This paper documents significant time-variation in the degree of global price convergence over the last two decades. In particular, there appears to be a general U-shaped pattern with price dispersion first falling and then rising in recent years, a pattern which is remarkably robust across country groupings and commodity groups. This time-variation is difficult to explain in terms of the standard gravity equation variables common in the literature, as these tend not to vary much over time or have not risen in recent years. However, regression analysis indicates that this time-varying pattern coincides well with oil price fluctuations, which are clearly time-varying and have risen substantially since the late 1990s. As a result, this paper offers new evidence on the role of transportation costs in driving international price dispersion.

Trading Inefficiencies in California's Electricity Markets

Abstract: We study price convergence between the two major markets for wholesale electricity in California from their deregulation in April 1998 through November 2000, nearly the end of trading in one market. We would expect profit-maximizing traders to have eliminated persistent price differences between the markets. Institutional impediments and traders' incomplete understanding of the markets, however, could have delayed or prevented price convergence. We find that the two benchmark electricity prices in California -- the Power Exchange's day-ahead price and the Independent System Operator's real-time price -- differed substantially after the markets opened but then appeared to be converging by the beginning of 2000. Starting in May 2000, however, price levels and price differences increased dramatically. We consider several explanations for the significant price differences and conclude that rapidly changing market rules and market fundamentals, including one buyer's attempt to exercise a form of monopsony power, made it difficult for traders to take advantage of opportunities that ex post appear to have been profitable.

Microbes and markets: was the black death an economic revolution?

Abstract: Recent papers have suggested that the Industrial Revolution in Europe ultimately derives from the labor scarce economy of northwest Europe, which some trace back to the Black Death [Voigtlander and Voth (2013a) and Allen (2011)]. This paper examines the effects of the Black Death in England. Specifically, did it merely change relative factor prices, or did it lead to lasting gains in the efficiency of the economy after 1348? Extensive wage and price data from England 1210–1800 suggest that the population losses of the Black Death were associated with a surprising increase in economic efficiency, despite the decline in the scale of the economy. But this efficiency gain disappeared when population rose again in the 16th century. There is no sign of a connection between a labor scarce economy, and a switch to faster long run economic growth through technological advance.