Optimal Pricing and Price-Cap Regulation in the Postal Sector

This paper studies the optimal price structure in the postal sector when worksharing is available (e.g., for collection, sorting and transportation) and when the operator faces a break-even constraint. Users differ in opportunity and cost to engage in worksharing. We determine the optimal worksharing discount and provide sufficient conditions (on demand functions) under which it exceeds the ECPR level. Furthermore, we show that the optimal prices can be implemented through a global price cap imposed on a weighted average of the prices of all products. The appropriate weights are proportional to the market demand (evaluated at optimal prices) of the corresponding products.     

Worksharing and Access Discounts in the Postal Sector with Asymmetric Information*

This paper analyzes the optimal worksharing and access amounts granted to mailers and entrants in a liberalized postal sector when there is asymmetric information about the Post Office’s (PO) costs. I show that when the regulator is unable to ascertain which part of the total cost of sorting has to be attributed to each sorting facility, the optimal “access discount” given to entrants is set in a pro-competitive way. This facilitates the entry of firms that are less efficient than the PO. However, the optimal “worksharing discount” may prevent the entry of mailers that are more efficient than the PO.     

Optimal Worksharing Discounts

Forty percent of first-class mail is workshared, meaning that mailers perform part of the postal service work, such as sorting, in exchange for a price discount. Here the optimal discount is shown to depend on whether mailers workshare all their mail. If they do, their marginal decisions will affect usage of the mail, and the normal Ramsey inverse-elasticity rule will apply. If they do not, and their marginal decision involves the amount of their worksharing, then worksharing supply elasticities play a role in the optimal discount. In the latter case, margins will be greater for workshared letters. Problems in balancing these solutions, and in estimating cost savings from worksharing, are also discussed.     

Contingent worksharing

In a setting that focuses on efficient dynamic hours-workers substitution we show that contingent worksharing contributes to worker retention during bad business spells and to sustained hiring during good spells. As a consequence, average employment increases on both accounts. We also show that worksharing interacts with firing costs in affecting workforce decisions and determines the sign of the employment impact from an increase in firing restrictions.     

上市公司、资本虹吸与房价的地区差异

鉴于上市公司与房价地区差异的研究鲜见,文章首次从地区层面寻找上市公司影响房价的微观传导路径.研究发现,上市公司从一级市场上融资、内部人在二级市场上减持均会"虹吸"全国资金,增加当地货币资本,进而正向影响房价,即高融资或高减持地区成为"虹吸方";融资虹吸与减持虹吸对房价的影响存在差异,减持虹吸引起财富集聚,对房价的影响更多地由富裕阶层的购房需求所推动,而融资虹吸带来的财富影响比较分散.地区股票市值与房价呈现螺旋增长关系,在股市上涨期间替代效应占主导地位,两者的增长率负相关;而在下跌期间财富效应占主导地位,两者的增长率正相关.文章从企业层面阐释了房价地区差异的金融成因及路径,并试图厘清股票市场与房价的增长结构,为地区经济的协调发展提供了参考.     

Corporate debt and output pricing in developing countries: Industry-level evidence from Turkey

The present study is an application of capital structure theory to developing economies where markets are commonly imperfect. The industry-level data of Turkey is used as a benchmark case to investigate the effects of corporate debt on output pricing, which in return, might have critical implications for stabilization theory. The panel estimations on the major two-digit industries reveal two basic findings. First, short-term debt leads to an increase in output prices while long-term debt has the opposite effect, and short-term but not long-term debt has a cyclical influence on prices. Second, the inflationary effect short-term debt implies a lower capital gain and induces higher prices, while the effect long-term debt implies a higher capital gain and induces lower prices. Given the predominant share of short-term debt in most developing countries, these findings suggest an explanation for inflation inertia on the side of corporate sector.     

Equity Prices, Productivity Growth and 'The New Economy'

The sharp increase in equity prices over the 1990s was widely attributed to permanently higher productivity growth derived from the New Economy. This article establishes a rational expectations model of technology innovations and equity prices, which shows that under plausible assumptions, productivity advances can only have temporary effects on the fundamentals of equity prices. Using historical data on productivity of R&D capital, patent capital and fixed capital for 11 OECD countries, empirical evidence gives strong support for the model by suggesting that technological innovations indeed have only temporary effects on equity returns.     

THE MEASUREMENT OF U.S. REAL CAPITAL INPUT, 1929–1967

The purpose of this paper is to develop methods for the measurement of real capital input. These methods are based on perpetual inventory estimates of capital stock and corresponding estimates of capital service prices. Stocks and service prices are adjusted for relative utilization of capital. The resulting estimates represent a separation of income from capital into price and quantity components. Estimates of capital input in current and constant prices are constructed for corporate business, non-corporate business, and households and non-profit institutions in the United States for the period 1929–1967. These estimates are prepared in a form suitable for integration into the U.S. National Income and Product Accounts.     

Survival and efficiency curves for capital and the time-age-profile of vintage prices

The decline in the service flow from a stock of capital goods with age, due to the physical retirement of capital units and to the gradual loss of efficiency of each unit remaining, can be described by survival curves and efficiency curves. The paper reconsiders the relationship between these curves and the vintage prices of capital under neo-classical assumptions about perfect second hand markets and malleability, using duality between quantites and prices. Three examples with parametric survival and efficiency curves are presented. Concavity of the survival and efficiency curves may be compatible with convexity of the age-price profile. This approach is contrasted with the frequently cited Hulten-Wykoff approach. Empirical illustrations, focusing on the cenvexity/concavity issue, are given.     

Taxes on capital in a specific factor model with international capital mobility

The efficiency and distributional effects of sundry capital taxes are analyzed in a simple two-sector specific factor model where capital is mobile both between the two sectors and between the home country and the rest of the world. Two cases are discussed: the small country case where factor and commodity prices are parametric; and the large country case. The optimal tax on capital export is illustrated when commodity prices are parametric. A simple approach to the case when both factor and commodity prices are variable is demonstrated.     

Direct Investment Liberalization,Commodity Trade and Income Distribution: What Can the WTO do?

This paper analyzes a model of two-way movement of physical capital, and examines the effects of direct investment liberalization on resource allocation, income distribution and commodity trade. If either country or both countries liberalizes investment under exogenously given commodity prices, some factor owners in a country will gain but some others will lose. If capital movement affects commodity prices, all factor owners in a country may be better off after multilateral investment liberalization. In these cases, it will be much easier for the home country to sign an agreement liberalizing investment flows.     

DOES WORKSHARING WORK? SOME EMPIRICAL EVIDENCE FROM THE IAB‐ESTABLISHMENT PANEL

Recent policy debate in Europe suggests that a shorter workweek will lead to more jobs (worksharing). We derive and estimate a model where the firm employs two types of workers, some working overtime, the rest standard hours. Worksharing is not always a prediction of the theory. Using German establishment‐level panel data (the IAB‐ESTABLISHMENT panel), 1993–1999, we find no evidence of pro‐worksharing effects except in small plants in the East German non‐service sector. There is evidence that a cut in standard hours lowers the proportion of overtime workers in a plant, as predicted by the theory, and increases the proportion of standard‐time plants.     

Financial openness and economic policy

Economic policy works via two interrelated areas: changes in supply-demand balances and changes in relative prices. Effectiveness of economic policies then depends on the environment in which a given economy operates. The analysis shows that traditional economic policies of fostering growth via public sector investments crucially depend on the private capital account being closed (practically, on the capital mobility being low). An open capital account requires a different set of policies, aimed at facilitating the functioning of private markets and an increase of domestic private savings. This shift in the policy and growth paradigm constitutes the biggest challenge to the global economic community in the beginning of the 21st century.     

Financial crises and liquidity shocks a bank-run perspective

In contrast with the financial multiplier literature, this note explores a case in which the shock triggering a financial crisis stems from the financial sector itself; it is not a shock stemming from the real sector which gets amplified by, say, agency problems. The basic intuition is provided by the bank-run literature of the Diamond and Dybvig (1983) variety. Financial development is modeled as a mechanism that endows real assets (e.g., land and capital) with liquidity. However, liquidity can be impaired by shocks that are equivalent to a bank run. Liquidity creation enhances real asset prices, while a liquidity crunch generates asset price collapse. This bubble-looking episode is not driven by standard fundamentals, although it is fully in line with rationality. In this context, devoid of other frictions like price stickiness, the note examines the effect of monetary policy in the absence of nominal rigidities. It shows that preventing price deflation is not enough to offset relative (to output) asset price meltdown, but lower policy interest rates increase relative asset prices and steady-state output. Moreover, in the neighborhood of a first-best capital allocation, an increase in the liquidity of capital may lower the welfare of the representative individual, even if the higher liquidity of capital is sustainable and, hence, not destroyed by future crash – illustrating the possibility of “excessive” financial innovation. An extension of the basic model supports the conjecture that low policy interest rates may have given further incentives to the development of “shadow banking.”     

Capital Inflows and House Prices: Aggregate and Regional Evidence from China

Rising house prices in China have been of concern for investors and policymakers. Prices have risen substantially in the last decade, especially in large urban cities, and some economists have expressed concerns about the affordability of residential housing for young adults. This phenomenon becomes a major concern for policymakers, in terms of managing policies to balance the residential needs of individuals and the transition to a market economy. Theoretically, house prices ought to be linked to economic factors such as disposable income, availability of land to build and credit policy. However, it appears that traditional economic theories fail to appropriately explain house prices in China. We provide an explanation from the perspective of capital inflows into China. In terms of per capita remittances, China receives the highest inflow of foreign capital, and this may have a significant impact on risk adjusted returns in the Chinese market. To investigate this relationship, we use the vector error correction model to assess the impact of capital inflows on house prices. We find that capital inflows have a significant positive effect on house prices. The study makes important contributions to understanding the relationship between house prices and foreign remittances after controlling for other economic factors. China is a large economy. Because the impact of economic development in China has not been consistent across the country, we address the regional differences in the house price changes to capital inflows. Using regional data, we show that capital inflows have an asymmetric effect on the housing market across different provinces and cities of China. This has important implications for the development of economic policies in China that aim to provide fair access to residential housing for everyone. These findings are also relevant to investors in the housing market, whether investing for a personal residential home or as part of their diversified investment portfolio. It will also be informative to see how a reversal of capital inflows associated with tighter financing conditions in advanced countries will affect house prices in China.     

Duplication, Growth and ‘Total Return Economics’

Maintenance consumption is an expense recovered in product prices, yet also a source of taste satisfaction which must be exhausted, rather than reinvested, from the capital affording it. This riddle is solved in the duplication rules: the cost of maintenance consumption is recovered in pay and prices, but an equal flow is exhausted from the human capital of the worker earning the pay. The rules impact tradition in several ways. If output is defined in principle as value added, then it cannot also be described as consumption plus net investment without double-counting the maintenance consumption recovered in prices. Also rate of return in the stationary state is not zero, but is the rate sufficient to offset the exhaustion of individual human capital. The rules lead to new insights into economic return, and support an argument that all growth at the scale of closure is due to productivity gain rather than to thrift.     

Asset pricing theory and the valuation of Canadian paintings

Abstract.  The valuation of Canadian paintings is analysed empirically. Using a sample of auction prices for major Canadian painters for the period 1968–2001, we run hedonic regressions to analyse the influence of various factors, including painter identity, on auction prices, as well as to construct a market price index. This index is used in a second‐stage analysis in which we analyse the properties of Canadian art viewed as an investment asset. We apply standard asset pricing theory, as incorporated in the capital asset pricing model (CAPM), to the analysis of price movements in the market for Canadian paintings.     

Shadow pricing of labour and capital in an economy with unemployed labour

This paper derives the shadow prices of labour and capital to be used in the public sector in a situation of unemployment. The setting considered is that of a three-good, two-period general equilibrium model. Then shadow prices are compared to their corresponding market prices and shown to closely depend on own and cross-elasticities of supply and demand for labour and investment. In the first part, a rigid wage rate is the sole source of distortion; then, a tax on capital income is introduced so that our formula for the social rate of discount can be contrasted with that of Harberger, Sandmo and Drèze.     

Global capital markets,housing prices,and partisan fiscal policies

In recent years, global imbalances have channeled the excess savings of surplus countries toward the real estate markets of deficit countries. By consequence, the deficit countries that attracted lots of foreign capital experienced large run‐ups in house prices, whereas most surplus countries that exported capital exhibited flat or slow house price growth. We first use new house price data and a novel instrumental variable design to show the causal relationship between housing prices and capital inflows, particularly through debt bonanzas. We then argue that international capital flows affect the fiscal policy preferences of both voters and political parties by way of their impact on housing prices. Where capital inflows are large and housing prices are rising, we expect voters to respond by demanding both lower taxes and less publicly‐provided social insurance because rising house prices allow homeowners to self‐insure against income loss. In contrast, declining house prices produce greater demands for social insurance, particularly among those most exposed to housing market risk. We present evidence from two cross‐national surveys that supports these claims, as well as a “before and after” analysis of the housing crash in Eastern Europe. We also show that the connection between house prices and social policy also manifests itself in government spending outcomes, mediated by partisan control.     

The Arrow-Debreu model: How math can hide a fatal conceptual error

I argue that math, like love, can cover a multitude of sins, and I use the neoclassical object of adoration, the Arrow-Debreu model, as the case in point. It is commonplace that the Arrow-Debreu (AD) model of general equilibrium does not describe the real world, but it is equally commonplace to accept it as representing the pure logic of the competitive capitalist economy in an idealized world free of transactions costs. I show that the AD model fails even as an idealized model; it actually mistakes the logic of pure capitalism. Unlike McKenzie’s model of idealized general equilibrium under constant returns to scale, Arrow and Debreu claim to have shown the existence of competitive equilibrium under decreasing returns to scale and positive pure profits. The AD model (again unlike the McKinzie model) needs to assign the profits to individuals and this is done using the notion of “ownership of the production set.” But this notion suffers from a fatal ambiguity. If Arrow and Debreu interpret it to mean “ownership of a corporation” then a simple argument in the form “labor can hire capital or capital can hire labor” defeats the alleged necessity of assigning residual claimancy to the corporation. A given corporation may or may not end up exploiting a set of production opportunities (represented by a production set) depending on whether it hires in labor and undertakes production or hires out its capital to others (all by assumption at the parametrically given prices). In the latter case, residual claimancy is elsewhere. There is no such property right as “ownership of a production set” in a private property market economy. The legal party which purchases or already owns all the inputs used up in production has the defensible legal claim on the outputs: there is no need to also “purchase the production set.” At any set of prices that allow positive pure profits, anyone in the idealized AD model could bid up the price of the inputs and thus try to reap a smaller but still positive profit. Therefore,pace Arrow and Debreu, there could be no equilibrium with positive pure profits. In the Appendix, the property rights fallacy that afflicts the AD model is shown to also afflict orthodox capital theory and corporate finance theory.