Showing papers on "Profitability index published in 1985"

An Empirical Examination of the Relationship between Corporate Social Responsibility and Profitability

Abstract: Although there has been considerable research into the relationship between corporate social responsibility and profitability, it has frequently reflected either an ideological bias or limited meth...

Information Acquisition and the Adoption of New Technology

Abstract: The profitability of a new technology is rarely known with certainty at its announcement date. Consequently, prior to making an adoption decision it behooves the firm considering the adoption of this innovation to reduce the level of uncertainty associated with its profitability. The firm accomplishes this by sequentially gathering information, updating its prior estimate of profitability in a Bayesian manner. Quantifying the uncertainty regarding the innovation permits application of dynamic programming techniques: criteria are derived which tell the firm when to stop collecting information and make the adoption decision. It will be shown that it is optimal for the firm to continue to collect information until its estimate of profitability crosses one of two thresholds: upon crossing the upper threshold the firm adopts the technology, whereas the firm rejects the technology if the lower threshold is crossed. The model predicts that even the manager who behaves optimally will occasionally adopt unprofitable technologies and reject profitable ones.

A Longitudinal Study of Small Business Strategic Planning

Abstract: A small but growing body of research is addressing the important issue of small business strategic planning. Planning in large corporations has been studied extensively, but only recently has the process been studied in smaller firms, which numerically dominate the American business scene. This article reports on a longitudinal study of strategic planning among a sizable sample of small firms in Texas. REVIEW OF THE LITERATURE Small business planning behavior has been characterized as unstructured, irregular, and comprehensive, and as incremental, sporadic, and reactive. The small business manager's goals have been described as "vague or inadequately defined, and . . . generally pragmatic and short-range." In one of the first empirical studies of small business planning, Mayer and Goldstein concluded that lack of systematic planning was a major reason for small business failure. In a more recent study, Potts examined twenty-one successful and twenty-one unsuccessful small manufacturers over a five-year period. He discovered that the successful firms made much more extensive use of outside accounting and financial services. Robinson also assessed the importance of outsiders to small business success, finding that small firms which engaged in "outsider-based" strategic planning achieved significant performance improvement in profit, sales growth, employment, and productivity. In a more recent study, however, Robinson and Pearce investigated the relationship between planning and performance in fifty small South Carolina banks. They found no significant differences in financial performance between the banks that engaged in strategic planning and those which did not. In a 1981 study of 357 small companies in Texas, it was found that only a small minority of firms carried on true strategic planning, defined as: anticipating sales levels, estimating local industry sales levels and the firm's net profits, and planning to accommodate anticipated changes in sales and profits. A sizeable percentage of the sample, however, did engage in less rigorous types of planning. The results reported in this article are derived from a follow-up longitudinal study of that 1981 sample of Texas firms. METHODS In 1981, the authors classified 357 Texas small businesses according to the degree of strategic planning they exhibited. Interviews were conducted with the owners or chief executives of each firm. The firms were classified according to five levels of planning: Strategy level 0 (SL0): no knowledge (predictive ability) of next year's sales, profitability, or profit implementation plans. Strategy level (SL1): knowledge only of next year's sales, but no knowledge of coming industry sales, company profit, or profit implementation plans. Strategy level 2 (SL2): knowledge of next year's company and industry sales, but no knowledge of company profit or profit implementation plans. Strategy level 3 (SL3): knowledge of company and industry sales and anticipated profit, but no profit implementation plans. Strategy level 4 (SL4): knowledge of next year's company and industry sales, anticipated company profits, and profit implementation plans. Only those firms designated SL4 were true strategic planners; i.e., they not only planned ahead for changing levels of sales and profit, but also made specific plans for attaining the anticipated sales and profit levels. Strategic planning was thus defined as managerial planning designed to adapt a small firm to its external environment in a manner perceived to achieve sales and profit goals. Table 1 summarizes the 1981 strategy level classifications arranged by standard industrial code (SIC). Only 18 percent of the sample's small firms attained the SL4 level of strategic planning. Two years later, in 1983, interviews were again held with the same sample to determine each firm's level of strategic planning. …

Accounting Rates of Return

Abstract: Many economic studies provide empirical evidence regarding cross-sectional differences in firm profitability. In most of these studies, firm profitability is measured by an accounting rate of return (net income dividend by the book value of assets, hereafter, ARR) rather than an economic rate of profit.' Franklin Fisher and John McGowan define the firm's economic rate of profit (IRR) as that interest rate which "equates the present value of its net revenue stream to its initial outlay" (1983, p. 82). Fisher and McGowan examine the analytic relation between a firm's ARR and its IRR in a series of examples and conclude that the ARR is such a bad surrogate for the IRR that the results of ARR-based empirical studies are likely to be "totally misleading" (p. 91). William Long and David Ravenscraft (1984) have criticized the theoretical work of Fisher and McGowan because the nature of the analytic relationship between the ARR and the IRR in the context of highly simplified hypothetical "examples" may not be indicative of the nature of the relationship in empirical settings. Their criticism adopts the utilitarian view that the ARR has to be treated as a suitable surrogate for the IRR as long as no preferable alternative measure of profitability is available for empirical work. This view has merit as long as the measurement error which is contained in the ARR is random rather than systematic. Unfortunately, the nature and extent of the measurement error which is contained in the ARR in a particular empirical setting can only be determined unequivocally if the IRR is unequivocally known. In such a case, of course, there would be no need to rely on the ARR at all. Due to this unhappy circle, empirical research on firm profitability has continued to rely on the ARR despite the fact that many persons reasonably believe that the results of such research may be totally misleading (Fisher and McGowan; G. C. Harcourt, 1965), while others reasonably believe that the results are reliable enough to form a basis for policy decisions (Long and Ravenscraft). Recent work by Y. Ijiri (1978; 1979; 1980) and by myself (1982) has shown that conditional IRR estimates can be obtained from data in firms' financial statements. While these IRR estimates are conditional, they do abstract from certain extraneous factors that influence ARRs and that differ across firms. Consequently the conditional IRR estimates are free from some of the sources of measurement error which are known to contaminate the ARR. Thus, the conditional IRR estimates can be used to provide evidence on whether these sources of measurement error have or have not affected the outcome of prior studies in which profitability was measured by the ARR. Such evidence can help to objectively resolve the conflict between the opposing views on the reliability of ARR-based profitability research. This paper uses conditional IRR estimates to examine the properties of the measurement error in the ARR in a study of the relationship between firm profitability and firm size. The remainder of the paper is organized as follows. In Section I, the theoretical work of Fisher and McGowan is used *Professor of Accounting, University of Iowa, Iowa City, IA 52242. I gratefully acknowledge the comments of William Albrecht, Dan Dhaliwal, Gary Fethke, Franklin Fisher, Scott Linn, William R. Kinney, Jr., and the participants of a workshop at the University of Florida on earlier versions of this paper. 1 Some authors (for example, William Long and David Ravenscraft, 1984) have used the sales margin ratio (earnings/sales) as a measure of profitability. However, if one views profitability as return per unit of sacrifice, the sales margin ratio is not a profitability measure since it ignores the sacrifice (or investment) required to generate a dollar of sales. Consequently, this paper does not attempt to shed any insight into prior studies that have relied on the sales margin ratio as a measure of profitability.

Growth, acquisition, and investment : an analysis of the growth of industrial firms and their overseas activities

Abstract: Economic analysis has focused increasingly on the forces governing the growth and performance of firms in capitalist countries. This book presents the results of an empirical investigation into some aspects of firm growth which have either been relatively neglected or about which there is no recent evidence. Four aspects are examined in detail: the relationship between size, growth and profitability; the degree of trade-off between growth by acquisition and growth by new investment; the role of different forms of financing; and the implications of external markets and overseas production for firms' performance. These issues are important for understanding both firms, growth and the industrial and competition policies pursued in the UK and other capitalist countries recently. The results are based on the most comprehensive recent data on industrial companies in the UK or, indeed, in any other advanced country.

Time to Build, Option Value, and Investment Decisions

Abstract: Many investment projects have the following characteristics: (i) spending decisions and cash outlays occur sequentially over time, (ii) there is a maximum rate at which outlays and construction can proceed -- it takes "time to build," and (iii) the project yields no cash return until it is actually completed. Furthermore, the pattern of investment outlays is usually flexible,and can be adjusted as new information arrives. For such projects traditional discounted cash flow criteria, which treat the spending pattern as fixed, are inadequate as a guide for project evaluation. This paper develops an explicit model of investment projects with these characteristics, and uses option pricing methods to derive optimal decision rules for investment outlays over the entire construction program. Numerical solutions are used to demonstrate how time to build, opportunity cost, and uncertainty interact in affecting the investment decision. We show that with moderate levels of uncertainty over the future value of the completed project, a simple NPV rule could lead to gross over-investment. Also, we show how the contingent nature of the investment program magnifies the depressive effect of increased uncertainty on investment spending.

Designing a Production Line to Maximize Profit

Abstract: The relationship between profitability and efficiency in a production line is discussed at length for the continuous production model. We prove that a solution which maximizes efficiency will not necessarily maximize profit. Several useful relationships between profitability and efficiency are developed which can greatly enhance computational efficiency. A solution procedure is developed which will determine the optimal number of work stations by maximizing an assumed profit function. An example is provided to illustrate these relationships and the entire solution procedure.

Sources of Concentration-Related Profits

Abstract: The relationship between industry structure and market performance plays a central role in the development and implementation of antitrust laws. The overwhelming majority of economic studies reveal a positive, though generally weak, correlation between concentration (a structure index) and profitability (a performance index).' However, two radically different interpretations as to the causality of this relationship have resulted in diametrically opposite recommendations for antitrust policy. The structural view asserts that the positive concentration-profits correlation is evidence of collusive behavior by firms in oligopolistic industries. It also maintains that larger firms do not have a substantial efficiency advantage over their smaller rivals. For example, in an exhaustive (but limited sample) study, F. M. Scherer, et al. [7] found that concentration across industries is considerably greater than required by scale economies.2 Such findings have led structuralists to suggest that an antitrust policy which deconcentrates industries will not create a serious loss of productive efficiency. The structural view is challenged by a group of economists led by Harold Demsetz who are skeptical that monopoly power can be sustained without government sanctions. Demsetz [3] argues that the positive relationship between industry concentration and profitability reflects the superior performance (in a welfare sense) of large firms. A firm captures a large market share and earns above average profits by establishing a cost advantage over its rivals. The cost advantage can be due to scale economies and / or a downward shift of a positively-sloped marginal cost curve. Consequently, economists agreeing with Demsetz believe a deconcentration policy will produce more inefficiency than it eliminates; resulting in a net welfare loss to society. There have been two basic methodologies employed to test the efficiency-based explanations of the profits-concentration relationship. Peltzman [4] has found a negative, significant correlation between changes in concentration and unit cost changes for 165

Purchasing and the Small Firm

Abstract: A study of 81 small businesses in the Lehigh Valley (Pennsylvania) shows a strong relationship between the boundary spanning activities of the owner/operators of these firms and their profitability...

The profitability of vertical integration

Abstract: This paper examines the profitability of vertical integration using alternate indices of vertical integration Our results suggest that the profitability-vertical integration relation is highly sensitive to the specification of the vertical integration measure used.

Investment Incentives as Tariff Substitutes: A Comprehensive Measure of Protection

Abstract: This paper extends the effective rate of protection measure to include the effect of investment incentives on resource allocation when capital is mobile internationally. This measure illustrates how investment incentives (such as capital grants and tax holidays) serve as another form of non-tariff barrier that may be substituted for tariffs in the protection package. Calculations made for the case of Ireland indicate that the substitution of investment incentives for tariffs after Ireland's entry into the EEC left the ranking of industries on the basis of effective protection to labor unaffected by the tariff cuts. R ECENT work on commercial policy has suggested that the pattern of tariff and non-tariff protection is the outcome of a political process, and reflects the profitability of protection to domestic producers and the costs of organizing producers.' In such an environment, reductions in tariff barriers negotiated outside the domestic political process (as in multilateral tariff reductions or entry into a free trade area) should result in political pressure by producers for the substitution of non-tariff barriers in the protection package. For example, Marvel and Ray (1983) argue that the Kennedy Round tariff cuts overstate the amount of trade liberalization that has occurred in the United States because of the erection of nontariff barriers that have partially reduced the effect of the tariff cuts. The purpose of this paper is to develop a comprehensive measure of protection, capturing the extent to which trade policies (tariffs and quotas) and investment incentives provide protection to domestic resources, and to present an illustration of the substitution of investment incentives for tariff protection following Ireland's entry into the Common Market. Investment incentives provide an alternative form of protection which may be important in countries where governments are constrained from altering tariffs, or where subsidies to export industries are limited by the likelihood of countervailing duties. Section I presents the rental cost of capital model, which can be used to combine the effects of various types of investment incentives (such as capital grants, tax holidays, and accelerated depreciation allowances) into a single measure that indicates the effect of these incentives on the cost of capital services to firms. This measure extends earlier work by Kopits (1975), Hufbauer (1975), and Guisinger and Kazi (1978), and can be used to make international comparisons of the level of investment incentives. Section II incorporates the rental cost of capital index into Corden's (1966) effective rate of protection measure when capital is mobile internationally. The resulting effective rate of protection to labor includes both output market distortions (tariffs and quotas) and factor market distortions for mobile factors (investment incentives). Therefore, reductions in tariff protection can be offset by increases in factor incentives to maintain the same effective rate of protection to labor in an industry.2 Section III provides a calculation of effective rates of protection to labor in eleven Irish manufacturing industries in 1966 and in 1977. Between these two years, tariff protection declined substantially following Ireland's accession to the Common Market. During the same interval, Ireland undertook a major reorganization of the Industrial Development Authority, armed with a wide array of fiscal incentives and charged with increasing industrial investment. We demonReceived for publication January 26, 1984. Revision accepted for publication July 5, 1984. *The Pennsylvania State University and University of Texas at Dallas, respectively. The authors wish to acknowledge useful comments from Malcolm Gillis, Ed Tower, Bee Roberts, and two anonymous referees on an earlier draft. We are particularly grateful to Dermott MacAleese, who provided us with unpublished data on protection in Ireland. The authors began work on this topic while serving as consultants to the International Finance Corporation. The views expressed .are not necessarily those of the World Bank or its affiliates. 1 Caves (1976) and Pincus (1975) find some support for the role of political pressure groups in tariff policy, and Ray (1981) broadens the analysis to include both tariff and non-tariff barriers. Takacs (1981) and Finger, Hall, and Nelson (1982) also find political variables important in escape clause and less than fair value cases. 2A recent study of the investment strategies of multinational corporations conducted for the World Bank (Guisinger (1983)) found that in the majority of cases examined, host country incentives were the determining factor in the location decision. The World Bank study defined incentives broadly to include both tariff protection and investment incentives, as our measure suggests. For previous work on the effect of tariffs on multinational location decisions see Horst (1972) and Orr (1975).

Learning, Preemption, and the Degree of Rivalry

Abstract: We examine a model in which all firms receive common signals as to the uncertain profitability of an investment whose actual payoffs are split only among those who develop the project earliest. The benefit from preempting rivals yields an equilibrium reduction in the amount of learning and earlier development as the number or rivals increases. The set of equilibria shrinks as the number of rivals gets large, and in the limit only the competitive outcome occurs.

Economic Analysis and Investment Decisions

Abstract: Economic Analysis and Decision Making Estimation of Oil and Gas Reserves Production Decline Curves Cash Flow Time Value of Money Profitability of a Venture Valuation of Oil and Gas Properties Analysis of Risk and Uncertainty Appendixes Index.

The Control Cycle: Financial Control of a Life Assurance Company.

Abstract: The intention of this paper is to describe, by way of example, how profit testing is carried on in practice and how by making it central to the company's operation the company may be controlled. The mechanism of control is to test the company's results against the results of profit tests built into a model of the company. We shall also describe how the results of these tests of the company's results are fed back into the profit tests to establish the basis for future tests of the company's results. The motivation for this paper arose from the need to communicate to shareholders the links between profit testing and the company's actual results. It is all very well to say to shareholders that the products satisfy a certain profitability standard but how does that show itself and how real is that profitability paticularly for a new or expanding company which displays nothing but statutory losses or, at best, break even? This communication also led to the need to explain variations from the original projections and finally to answer the question: what happens to profitability if these variances continue?

Productnity measurement and management control

Abstract: In recent years, manufacturing firms in the United States have been directing increasing attention to the need for improving productivity in order to strengthen their competitive position. To monitor and evaluate productivity changes, and to communicate and reinforce this new emphasis on productivity improvements, ap­ propriate measures of productivity are required. Productivity mea­ surement can generate information that may be useful for man­ agement control purposes in two ways. First, such measurement may identify dimensions on which productivity improvements are pos­ sible, in which case targets may be generated to guide future operations. The productivity measures may be employed to identify products or processes for which the firm has a competitive edge in productivity or similarly evaluate new technologies or investment projects that are likely to increase the firm's profitability. The second role for productivity measures in management control systems arises from their use in evaluating the performance of managers. In conjunction with the usual profit or cost accounting system, a productivity measurement system can be designed by the corporate

Measurement of Health

Abstract: Expenditure on health care is continuing to rise in all Western countries, both in total and as a percentage of gross national product (Table 1). This has underlined the political importance of demonstrating that this expenditure is giving value for money, both in specific instances and in its totality. In other types of human activity, such as the production of goods or the provision of private services, the success of a venture can be measured by its profitability. The more the public want the goods and services, the more they will pay for them, and the greater will be the rewards for the producers and the providers. But in all aspects of welfare - health, education and the social services - profit has very often been eliminated as a measure of effectiveness and efficiency. Hence there is a need, in the welfare services, to fall back on other measures of success. And, although it is relatively easy to measure the costs of the services provided, it is much more difficult to measure their outcome in quantitative terms. This report deals with recent developments in relation to health care which have been concerned to provide more sophisticated measurements of the outcome of treatment. This means, in effect, developing methods of 'measuring 'health' itself, in terms of the length and quality of life for the individuals in the community.

Productivity Measurement and Management Control

Abstract: In recent years, manufacturing firms in the United States have been directing increasing attention to the need for improving productivity in order to strengthen their competitive position. To monitor and evaluate productivity changes, and to communicate and reinforce this new emphasis on productivity improvements, appropriate measures of productivity are required. Productivity measurement can generate information that may be useful for management control purposes in two ways. First, such measurement may identify dimensions on which productivity improvements are possible, in which case targets may be generated to guide future operations. The productivity measures may be employed to identify products or processes for which the firm has a competitive edge in productivity or similarly evaluate new technologies or investment projects that are likely to increase the firm’s profitability. The second role for productivity measures in management control systems arises from their use in evaluating the performance of managers. In conjunction with the usual profit or cost accounting system, a productivity measurement system can be designed by the corporate management so that it motivates the divisional managers to select actions that are consistent with the overall corporate plans and priorities.

Taxes and Corporate Investment in Japanese Manufacturing

Abstract: This paper examines the impact of taxes on the incentive to invest for the Japanese manufacturing sector in the postwar period The idyosyricratic feature of the Japanese corporation tax system as compared to the US is the prevelence of tax-free reserves and the tax deductibility of a part of taxes paid by corporations in the previous year Our formula for the tax-adjusted Q and the cost of capital incorporates this The main conclusions areas follows While the postulated negative relation with the cost of capital cannot be found, investment in Japanese manufacturing shows until 1974 a strong association with the tax-adjusted Q Since the change in stock prices, not taxes, is the primary source of changes in Q, the profitability of capitalis the major determinant of investment

Inflation and non-neutralities in the taxation of corporate source income

Abstract: IN the literature on the welfare effects of inflation one view which has developed is that it is not inflation per se that is harmful but rather its interaction with pre-existing institutions which were not designed for an inflationary world. Particular emphasis has been given to the failure to index the tax system. The purpose of the present paper is to examine one such interaction and consider the view that high inflation rates combined with unindexed systems of personal and corporate taxation have imposed substantially higher tax burdens on corporate source income. The general background to this issue is the substantial decline in real share values over much of the 1970's and early 1980's in almost all countries where major stock exchanges exist (the one exception appears to be Japan). In the UK the Financial Times index of industrial ordinary shares (measured as an average of working days) rose by only 66.7% between 1975 and 1981 while the Retail Price Index increased by 118.9% over the same period. Given some link between share prices and investment it is possible to argue that the decline in the real value of equities will have been accompanied by a reduction in the level of the capital stock below that which would otherwise have been attained. This view has been argued most forcefully (for the US) by Feldstein (1980a, 1980b), who suggests that the long-run reduction in the real share value and capital stock of US non-financial corporations as a result of the interaction of inflation and an unindexed tax system over the 1970's is of the order of 20-30%. These conclusions have been challenged by Hendershott (1981), again for the US, who argues that on the basis of tax biases alone real share prices should have increased with the inflation rate in the short run whilst being independent of inflation in the long run. Our concern here is to examine the specific question of how changes in the fully anticipated steady state rate of inflation affect share prices and the corporate capital stock when the tax system is unindexed, and to do so with particular reference to the UK. There are many possible explanations of the decline in real equity values: there may have been a fall in pre-tax profitability; high inflation rates may have made equity a more risky investment; investors may have made valuation errors. In this paper, however, we are

An alternative to new product development—business products for consumer markets

Abstract: Theodore Levitt's classic article “Marketing Myopia” pointed up the potentially catastrophic results possible when companies and industries view their products too narrowly. This piece discusses an extension of that concept: companies making products for the industrial, business, and commercial market frequently obtain fewer benefits (revenue, profitability, market share) than they might because they have defined their customer too narrowly. In many cases, a company can profitably look beyond the relatively few business users of a product.

How Inflation, Risk and Corporate Profitability Affect Common Stock Returns

Abstract: (1985). How Inflation, Risk and Corporate Profitability Affect Common Stock Returns. Financial Analysts Journal: Vol. 41, No. 5, pp. 59-65.

Energy pricing in developing countries: Role of prices in investment allocation and consumer choices

Abstract: As noted in preceding chapters, the basic objectives of energy pricing policy will include the achievement of (1) economic efficiency and (2) social equity, while maintaining (3) financial viability. Some of these objectives may be translated in terms of criteria of fixing administered prices, e.g., “lifeline rates” for electricity, subsidized kerosene for meeting basic needs, control of inflation, encouragement to domestic resources, optimum investments in fuel-producing sectors, optimum product mix of refineries, and profitability and efficient management of public sector units. Administered prices could be changed at one or more of the following stages: (1) resource pricing, (2) transfer pricing (to conversion units), (3) output pricing (for the manufacturing unit), and (4) consumer pricing through taxes and subsidies. It is important to realize that some of the objectives of energy pricing can be achieved by adjusting the final product prices through appropriate taxes and subsidies. Adjustment of consumer prices is sufficient to attain objectives such as meeting basic needs, controlling inflation, and considering environmental requirements. Thus, distortions in the mine-mouth or well-head pricing of energy resources, transfer pricing, and product prices can be avoided if it is kept in mind that these prices do not have to be used for achieving macro-economic objectives.

Taxes and Corporate Investment in Japanese Manufacturing

Abstract: This paper examines the impact of taxes on the incentive to invest for the Japanese manufacturing sector in the postwar period. The idyosyricratic feature of the Japanese corporation tax system as compared to the U.S. is the prevelence of tax-free reserves and the tax deductibility of a part of taxes paid by corporations in the previous year. Our formula for the tax-adjusted Q and the cost of capital incorporates this. The main conclusions areas follows. While the postulated negative relation with the cost of capital cannot be found, investment in Japanese manufacturing shows until 1974 a strong association with the tax-adjusted Q. Since the change in stock prices, not taxes, is the primary source of changes in Q, the profitability of capitalis the major determinant of investment.

The Basis for Chinese Agricultural Growth in the 1980s and 1990s: A Comment on Document No. 1, 1984

Abstract: Rather than considering the possible ramifications of each clause of Document No. 1, 1984 separately, this comment will focus on aspects of the document which are consistent with Chinese development strategy in the 1980s and those which acknowledge the principal vulnerabilities of the strategy as they pertain to agriculture. Much of the document is concerned with: (1) consolidating the gains achieved since the late 1970s in transforming rural organization via the production responsibility system and the attendant liberalization of rural markets; (2) extending the current areas of profitability in terms of increased production and the sale of farm goods that have become available through this transformation and especially in terms of reaping the rewards from specialization, hitherto untapped; and (3) more effectively setting the stage for future growth by attempting to generate confidence as to the durability of these organizational, and other critical policy changes. China's current remarkable rate of growth, so quickly attributed both in the west and in the Chinese media, to the success of the responsibility system has, in fact, a number of interlinking sources, the relative impact of which is difficult, and to some extent misleading, to quantify separately.' One source has to do with improvements in the efficiency of resource allocation within localities. Growth from this source is due to price adjustments (especially in the case of foodgrains and cotton) and also to the removal of various restrictions limiting the modus operendi of the farmers, that is, how, what and where to produce. While liberalization in this area is far from complete, it has moved well beyond the circumstances of the mid 1970s, and Document No. 1 emphasizes the Central Committee's intention to move even further along these lines. Another source of current growth is the improvement of resource allocation efficiency among localities and among regions of the country. While this effort is facilitated by the responsibility system and its attendant liberalizing measures (particularly the more recent ones easing interlocality trade restrictions), improvements to date may be primarily due to more suitable national and provincial plans for regional production specialization, and to the guarantee that inputs and necessary traded

A profitability analysis of property liability insurers using different distribution systems

Abstract: The market structure of the property and liability insurance industry has undergone substantial changes in recent years. The American agency system, traditionally the most prevalent method of property and liability insurance distribution, has lost a large portion of its market share to insurers employing other types of marketing systems. The market share of direct writer insurers using salaried employees, exclusive agents, or direct mail systems to distribute their products grew by 17.7 percent between 1975 and 1982, as direct writers increased their share of the property-liability market to 38.6 percent by the end of this period.' Shifts in market share of this magnitude could affect insurer profitability. To investigate the effects that such market shifts have had upon insurer profitability, this study compares the rates of return earned by property and liability insurers using alternative distribution channels. Previous studies have compared property and liability insurers using alternative distribution systems, but have focused primarily upon insurer cost effectiveness. Studies by Hammond, Melander, and Shilling [9], Joskow [15], Etgar [51, and Johnson, Flanigan, and Weisbart [14] have generally concluded that the operating expenses incurred by American agency insurers were comparatively higher than those incurred by insurers using other distribution methods. These findings could have substantial implications for insurer profitability. If the cost differential between American agency and direct writer insurers is reflected in their relative measures of profitability, one may expect the underwriting returns earned by direct writers to be higher than those earned by American agency insurers.

A comparative analysis of agricultural tractor investment models

Abstract: An implicit rental price approach is used to analyse the determinants of farm tractor investment at the aggregate level. Three models, based on different assumed factor substitutabilities, are compared. Variations in the rental price of tractors appear to have less effect on demand than variations in factors affecting the profitability of the cropping enterprise as a whole. The implications for forecasting and for policy instruments, such as the investment allowance, are discussed.