Showing papers on "Price elasticity of supply published in 2021"

Housing Wealth Effects: The Long View

Abstract: We provide new time-varying estimates of the housing wealth effect back to the 1980s. We use three identification strategies: ordinary least squares with a rich set of controls, the Saiz housing supply elasticity instrument, and a new instrument that exploits systematic differences in city-level exposure to regional house price cycles. All three identification strategies indicate that housing wealth elasticities were if anything slightly smaller in the 2000s than in earlier time periods. This implies that the important role housing played in the boom and bust of the 2000s was due to larger price movements rather than an increase in the sensitivity of consumption to house prices. Full-sample estimates based on our new instrument are smaller than recent estimates, though they remain economically important. We find no significant evidence of a boom–bust asymmetry in the housing wealth elasticity. We show that these empirical results are consistent with the behaviour of the housing wealth elasticity in a standard life-cycle model with borrowing constraints, uninsurable income risk, illiquid housing, and long-term mortgages. In our model, the housing wealth elasticity is relatively insensitive to changes in the distribution of loan-to-value (LTV) for two reasons: first, low-leverage homeowners account for a substantial and stable part of the aggregate housing wealth elasticity; second, a rightward shift in the LTV distribution increases not only the number of highly sensitive constrained agents but also the number of underwater agents whose consumption is insensitive to house prices.

Housing supply elasticity and growth: evidence from Italian cities

Abstract: This paper examines the impact of housing supply elasticity on urban development. Using data for a sample of roughly one hundred Italian main cities observed over 40 years, we first estimate housing supply elasticities at the city level, measured as the correlation between the changes in the housing stock and in the house prices. Second, we show that differences in the elasticity of housing supply may determine the extent to which a demand shock translates into more intense employment growth or more expensive houses. To address endogeneity of housing supply elasticity, we exploit a synthetic measure of physical constraints to residential development as instrumental variable. We find that an exogenous increase in labor demand determines a rise of employment and house prices; however, in cities with a less elastic housing supply, the impact on economic growth is significantly lessened while the effects on house prices are larger.

Unmasking the demand for masks: Analytics of mandating coronavirus masks

Abstract: This paper analytically examines the demand for surgical masks following the recent health precautions due to coronavirus. Using a simple linear demand curve and alternatively examining the impacts of requirements that mandate (a) the wearing of masks by frontline workers; (b) suggested but not required masking by the whole public; and (c) compulsory masking by the whole public. The impacts of the different scenarios on the price elasticity of demand are determined along with the slope (or the rate of change) of elasticity. Some of these results differ when a non-linear demand curve is considered instead. The equilibrium mask prices increase when masks are universally mandated, whereas the consumer surplus is higher when masks are recommended but not mandated. However, the ranking of consumer surplus is shown to be sensitive to the supply elasticity of masks. These considerations enable a structured means to view the demand implications of masking requirements and provide some food for policy thought.

What to make of the Kaldor-Verdoorn law?

Abstract: The Kaldor-Verdoorn law refers to a positive but less than one-for-one relationship between the growth rates of output and labor productivity, with causality running from the former to the latter. Empirical research has affirmed such a relationship and have found that the Kaldor-Verdoorn coefficient lies between 0 and 1. But the interpretation of this finding remains unclear. In this paper, we present a model to derive the Kaldor-Verdoorn law. Our results show that the Kaldor-Verdoorn coefficient is jointly determined by the elasticity of factor substitution, labor supply elasticity, the profit share and the increasing returns to scale (or demand-induced technical change) parameter. Hence, estimated Kaldor-Verdoorn coefficients cannot be used, on their own, to infer the presence of aggregate increasing returns to scale - other than in very special cases. We also show that, perhaps surprisingly, an economy without aggregate increasing returns to scale (or without any demand-induced technical progress) can generate a Kaldor-Verdoorn coefficient that lies between 0 and 1.

Geographic Heterogeneity in Housing Market Risk and Portfolio Choice

Abstract: The U.S. housing market is heterogeneous in that house price dynamics vary greatly across regions. Depending on the location of the main residence, households are exposed to completely different housing market risk. This paper examines how geographic heterogeneity in housing market risk affects household portfolio allocations. Housing supply elasticity largely explains variation in housing market risk across regions. Where housing supply elasticity is low, households face higher housing market risk since house price growth rates are more volatile and more positively correlated with stock returns and labor income growth rates. Using the restricted version of the Health and Retirement Study (HRS) data with detailed geographic information, I find that households in areas with low housing supply elasticity tend to hold less stock in their portfolios. This tendency, however, weakens after retirement when labor income risk disappears.

Demand response in the retail electricity market

Abstract: We develop a microeconomic model of the electricity consumer designed to provide insight and a template for simulations of consumer reaction to electricity price changes. We use game theory and illustrate its use in the context of a specific type of electricity Demand-Reduction Program that is popular in the current electricity industry. In this program, the retailer provides participating consumers (who pay fixed, regulated retail prices) with subsidies in return for voluntary reduction of consumption during periods of high wholesale market prices and/or low reserve rate of electricity supply. We find the optimal per-unit subsidies from both the consumer and retailer points of view and solve the game in which buyer and seller interact to determine program participation, the amount of the subsidy, and the amount of load reduction. We also show the empirical case study to support our theoretical model. The results confirm that the retailer’s profit-maximizing subsidy depends upon the wholesale price, and consequent fluctuations in the subsidy link retail and wholesale prices to induce greater demand-side price responsiveness in wholesale markets. Moreover, the responsiveness of electricity consumption to electricity price changes is greater when wholesale prices, consumer income, prior consumption, and supply elasticity are higher, and when retail prices are lower.

Distant Shocks, Migration, and Housing Supply in India

Abstract: It is hard to estimate housing supply elasticities. India is a particularly useful country to study housing supply because it is large and has a variety of housing typologies. We estimate the supply elasticity of non-durable, durable, and vacant residential housing units in urban India. We use two migration-inducing exogenous events --- negative rainfall shocks and a highway upgrade program --- occurring in a distant state as demand shifters for local urban housing markets. We apply the Rosen-Roback spatial equilibrium framework to show that both the negative rainfall shocks and the highway upgrade program in a distant state increase inter-state migration. This increase leads to higher population and household growth, and therefore, higher demand for housing in local urban markets. Our findings are three-fold. First, we estimate the long-term supply elasticity of durable housing in urban India to be 1.64. This estimate is substantially lower than the long-run housing supply elasticity estimates of 6-13 for metropolitan areas in the United States seen in the literature. Second, we find that the supply elasticity of non-durable housing is -0.55. Negative supply elasticity of non-durable housing is consistent with the existence of urban gentrification through the demolition and upgrading of slums. And finally, we estimate the elasticity of vacant residential housing unit supply to be 2.63. We posit that a relatively higher vacant housing unit elasticity indicates speculative building by developers.

Oligopsony and Minimum Wages

Abstract: This article presents a model of oligopsony. It considers different conjectural variations that cover the whole range between the extreme cases of monopsony and perfect competition, such as Collusion, Threat, Cournot, Stackelberg, and Bertrand, and compares them in terms of prices, quantities, profits, mark-down, price elasticity of supply and welfare. It also considers the impact of minimum wages, under the different conjectures analyzed.

An Equilibrium Analysis of a Secondary Mobile Data-Share Market

Abstract: Internet service providers are offering shared data plans where multiple users may buy and sell their overage data in a secondary market managed by the ISP. We propose a game-theoretic approach to a software-defined network for modeling this wireless data exchange market: a fully connected, non-cooperative network. We identify and define the rules for the underlying progressive second price (PSP) auction for the respective network and market structure. We allow for a single degree of statistical freedom—the reserve price—and show that the secondary data exchange market allows for greater flexibility in the acquisition decision making of mechanism design. We have designed a framework to optimize the strategy space using the elasticity of supply and demand. Wireless users are modeled as a distribution of buyers and sellers with normal incentives. Our derivation of a buyer-response strategy for wireless users based on second price market dynamics leads us to prove the existence of a balanced pricing scheme. We examine shifts in the market price function and prove that our network upholds the desired properties for optimization with respect to software-defined networks and prove the existence of a Nash equilibrium in the overlying non-cooperative game.

Factors of export incomes formation and ways to increase currency incomes of ukraine

Abstract: . Under conditions of persistent trade balance deficit, there activates a search for ways of export increase and, consequently, of currency incomes of Ukraine. The goal of this article is to evaluate the state of Ukraine’s export, its dynamics, development of extended classification of the factors influencing the formation of export incomes, detecting the problems in this sphere, development of recommendations concerning the growth of export and increase in currency incomes of Ukraine. The methods of research applied are analysis and synthesis, system approach, comparison, generalization, scientific abstracting, and statistical method. This work contains a substantial analysis of the current state and dynamics of foreign trade of Ukraine in general and its exports in particular. There has been developed an extended classification of factors influencing the formation of export incomes, sum total of which falls into two groups: the factors determining the quantity of exported goods, and the factors determining their prices. The first group includes the following: availability of export potential, export potential realization, state of the market regarding consumers. The second group comprises the following: production costs level, existence of trade obstacles, currency exchange rate. The influence of all mentioned factors on Ukraine’s export has been analyzed. There have been disclosed the main problems in this sphere, such as imperfect export structure, high expenditure level and the share of import in export, unfavorable market environment for development of export-oriented enterprises. There have been given recommendations concerning an increase in export and currency incomes of Ukraine, including efficient utilizing of both home and foreign resources, optimizing export structure, creating a favorable market environment, taking into consideration elasticity of demand on national exported goods and elasticity of supply from foreign countries to gain competitive advantage, introduction of new technologies, production modernizing, utilizing the advantages of economic integration, and ensuring devaluation effect. Keywords: export incomes, export, import, export potential, elasticity of national export’s demand and supply, trade barriers, currency incomes, currency exchange rate. JEL Classification F19, F31, F49 Formulas: 0; fig.: 3; tabl.: 0; bibl.: 15.

Housing supply in the presence of informality

Abstract: We study housing supply in markets where informal housing is common. Using a combination of census and satellite data, we estimate housing supply for more than 90 metropolitan areas in Brazil. We find that widespread informal housing increases the housing supply elasticity, partially offsetting the downward pressure of geographical constraints. Our empirical approach is guided by a monocentric city model that includes informal housing. Our identification strategy relies on the use of two novel instruments, combining demographic data and public land ownership. We use the supply elasticity estimates to forecast the response of future housing prices to natural population growth.

Optimal Design of Closed-Loop Supply Chain Network Considering Supply Disruption

Abstract: Considering the supply interruption in supply chain network, a closed-loop supply chain network model with dual objectives including total profit and total carbon emissions based on recycling mechanism was proposed. In this paper, we considered not only the elasticity of supply chain network but also the recycling prices. The model investigated the impact of the recycling mechanism on the supply interruption. The numerical results revealed the relationship between the degree of supply disruption and the recovery price, as well as the influence of the loss of suppliers’ supply capacity and the tolerance coefficient of shortage on the planning results.