Work supply and constitutional order

James Buchanan has suggested resolving the issue of labor supply and increasing returns by introducing the concept of a work ethic. This paper offers some additional thoughts to the solution that Buchanan has developed by taking a historical perspective. It was the choice between labor supply to the market and self-employment rather than a choice between work and leisure that the early worker in the transitional period to industrialized labor was confronted with. Starting with this point of view, I argue that the critical motivation for increasing labor supply to the market was the prospect of reaping more benefits under the newly organized firms compared to the benefits that the system of simple labor-ownership rule generated. The paper concludes that entrepreneurship, which promotes the division of labor both within firms as well as among firms, performs a decisive role in increasing labor supply. This in turn made possible the transformation of the constitutional order from the pre-industrialized society to the more advanced civil society of today.     

Endogenous City Formation with Production Externalities: Existence of Equilibrium

I show that equilibria exist in closed city‐system models with production externalities if firms' production possibilities vary continuously with the source of the externality, are constant returns to scale in own inputs, include inaction, and satisfy free disposal; if firms have to employ their own inputs to produce output; if there is a finite number of firm types; and if some standard conditions on preferences and endowments are satisfied. This is the first model to include production externalities in the fully general equilibrium framework required for endogenous city formation. Thus, this result provides formal support for the conjecture that production externalities lead to urban agglomeration.     

发展外部性:区位竞争优势战略定位的研究基础--以济南市为例

发展是有外部性的,既有正外部性,也有负外部性。区域发展的不平衡且差距的扩大就是发展负外部性的表现,区域经济一体多样化中竞争与合作良性互动关系就是发展正外部性的表现。文章以济南市为例,探讨了区域发展中当存在发展外部性时,一个地区如何取得区位竞争优势,化不利因素为有利因素的现实问题,这对区域发展的战略定位研究有重要意义。     

Green auctions: A biodiversity study of mechanism design with externalities

This paper uses a mechanism design approach to study the biodiversity improvement in a territory, where the government is the principal and the landholders are the agents. In particular, I analyze an optimal mechanism that considers multidimensional bid which includes both the biodiversity improvement of the project and its cost. Additionally, this mechanism incorporates the externality (either positive or negative) that a biodiversity project causes in the surrounding agents who decided not to participate. Specifically, I assume that externalities enter in the cost function of the nonparticipating landholders. I show that, in the case of negative externalities, the government will implement a transfer function which is decreasing in the landholder's efficiency level. On the other hand, in the case of a positive externality, paradoxically the government may be interested in the nonparticipation of the most efficient landholders.     

“More is less”: the tax effects of ignoring flow externalities

Using a model of non-linear, non-monotone decay of the stock pollutant, and starting from the same initial conditions, the paper shows that an optimal tax that corrects for both stock and flow externalities may result in a lower tax, fewer cumulative emissions (less decay in emissions) and higher output at the steady state than a corrective tax that ignores the flow externality. This “more is less” result emphasizes that setting a corrective tax that ignores the flow externality, or imposing a corrective tax at too low a level where there exists only a stock externality, may affect both transitory and steady-state output, tax payments and cumulative emissions. The result has important policy implications for decision makers setting optimal corrective taxes and targeted emission limits whenever stock externalities exist.     

Environmental Management: A Non-Traditional Approach

India's wastelands have been classified as both over utilized and underutilized. Perplexingly, an apparent tragedy of the commons exists alongside extensive official management powers. In this paper, I argue that the complexity of governance structures may be inadvertently worsening the situation. Looking to recent work on contested property and the anticommons concept, I suggest that an anticommons amongst those officially controlling the lands is casting a long and unexpected shadow by encouraging the emergence of open-access de facto resource exploitation and discouraging de facto management. This extension of the anticommons concept implies that the effects of anticommons are not necessarily limited to under exploitation, as most commonly used in the developing anticommons literature. It points to a wider examination of the harmful effects of anticommons situations.     

Intrafirm human capital externalities and selection bias

This article investigates the existence of intrafirm human capital externalities in the Spanish economy. In doing so, it focusses on two estimation issues. First, a semiparametric methodology is used to estimate externalities in a more flexible way that allows to affect all parameters in the equation. Second, two approaches to control for selection bias are designed for use in cross-section data. Our results show a higher externality effect on wages when using the semi parametric approach as compared to the standard estimation approach. Additionally, the estimations even when controlling for selection bias give evidence of externalities.     

Consumption externality and indeterminacy under increasing returns to scale and endogenous capital depreciation

This paper incorporates negative consumption externality embodying “jealousy” and “running away from the Joneses” into Guo and Lansing (2007)'s model with production externality and endogenous depreciation, and examines how consumption externality helps to generate equilibrium indeterminacy together with production externality. Specifically, the existence of consumption externality reduces the upper and lower bounds of production externality for local indeterminacy, and when the degree of consumption externality increases, the upper and lower bounds of production externalities for local indeterminacy are both reduced.     

Admission standards,student effort,and the creation of skilled jobs

We consider the implications of expanding enrollment through lower standards in a model with human capital externalities and a market failure. Workers and firms make uncoordinated investment choices prior to random matching. Investment choices depend on the expected productivity of the counterpart in production. The setting generates a potential human capital externality as a more skilled labor force induces more skilled job openings. Exploiting the externality is complicated by a market failure which may cause some workers to earn a degree but not put forth the effort required to become highly skilled. We show that beyond a threshold, increased enrollment through low standards can be poor policy. Policies which increase returns to agents and firms in best matches can improve outcomes.     

Transfers and the Samuelson Rule in Stock Externality Provision—Why Do We Need Them Both?

This paper examines the relationship between the Samuelson rule for efficient provision of stock externality and unilateral transfers for equalization of mitigation costs among the agents. Using a generic model of stock externality provisions, we proved that the revised Samuelson rule that allows transfers is a necessary and sufficient condition for efficient provision of stock externalities. In addition, selection of social welfare weights of the agents plays a key role in directions and magnitudes of the transfers. We discuss the implications of the revised Samuelson rule in economic modeling of climate change, an empirical case of stock externality, through numerical simulations in the RICE model.     

Schumpeterian Growth with Gradual Product Obsolescence

The model in this article captures several important aspects of the real world: gradual obsolescence of goods in the form of gradually declining net profit derived from each product until it is phased out, expanding variety of goods over time, and both dynamic and static internal increasing returns to scale of production. To eliminate the scale effect, Jones's specification that gives rise to a semiendogenous rate of innovation is adopted. The most interesting finding of the article is that, when the research duplication effect is small (large) relative to the intertemporal knowledge spillover effect in R and D, the decentralized market delivers insufficient (excessive) obsolescence and allocates too little (much) labor to R and D, while a small subsidy (tax) to innovation is welfare-improving. All these results hold because the positive knowledge spillover externality overwhelms (is overwhelmed by) the negative research duplication externality.     

Optimal taxation of externalities interacting through markets: A theoretical general equilibrium analysis

This study develops a theoretical general equilibrium model to examine optimal externality tax policy in the presence of externalities linked to one another through markets rather than technical production relationships. Analytical results reveal that the second-best externality tax rate may be greater or less than the first-best rate, depending largely on the elasticity of substitution between the two externality-generating products. These results are explored empirically for the case of greenhouse gas and nitrogen emissions associated with biofuels and petroleum.     

Revenue-Neutral Environmental Tariff Reform, Growth, and Welfare

This paper analyzes the growth and welfare effects of revenue‐neutral tariff reform in a small open endogenous growth model with environmental externalities. As is the case in countries that depend primarily on imported energy, the employment of a foreign intermediate good causes negative environmental externalities in production. This paper shows that substituting a tariff on the foreign intermediate good for a tariff on the foreign consumption good in a revenue‐neutral way raises the growth rate and the welfare, if the environmental externality is sufficiently strong and if the elasticity of substitution between inputs lies within a certain range.     

EXTERNAL ECONOMIES IN TAIWAN'S MANUFACTURING INDUSTRIES

This paper presents estimates of indexes of internal returns to scale and external economies for two-digit manufacturing industries in Taiwan. Estimating the returns to scale indexes involves using both SUR and 3SLS estimation procedures. The data strongly support the presence of external increasing returns to scale. The findings indicate no evidence of internal increasing return in all two-digit manufacturing industries. According to the endogenous growth literature, the existence of externalities in production bears important economic implications in some aspects of economic growth, even though the data cannot distinguish the transmission mechanism.     

Cooperative Management of Groundwater Resources in the Presence of Environmental Externalities

This paper investigates how cooperation among users can achieve a better management of groundwater in the presence of environmental externalities. Cooperation allows users to internalize the damages caused by their activities and reduce extractions. The paper develops a game theoretical framework to assess the value of cooperation in an aquifer that is divided into three sub-aquifers that are being overly exploited. Two types of externalities are modeled: first, water extractions in each sub-aquifer impact water levels in neighboring sub-aquifers (extraction externality). Second, the three sub-aquifers are also connected to an ecosystem and thus decisions in each sub-aquifer affect the health of the ecosystem (environmental externality). A cooperative game theory model is applied. The model empirically shows how the uncontrolled extractions in each sub-aquifer affects neighboring groundwater users but also cause severe impacts to the linked ecosystem. The model is tested empirically in one of the most important aquifers in Spain, the Eastern la Mancha aquifer. The results illustrate how both extraction and environmental externalities interact in affecting the likelihood of cooperation among the users. The paper estimates the value of cooperation and its stability with and without the environmental externality.     

Keeping up with the Joneses, consumer ethnocentrism, and optimal taxation

This paper sets up a two-good (domestically- and internationally-produced goods) model of a small open economy with consumption externalities and uses it to examine the optimal taxation. Since keeping up with the Joneses leads an individual consumption's to impose a negative externality on the consumption of others, a consumption tax and tariff are thereby socially desirable to correct this distortion. Due to the fact that the government has to account for additional distortion caused by consumer ethnocentrism and that keeping up with the Joneses in the consumption of domestic goods tends to reinforce the influence of ethnocentrism on the purchase of domestic products, the consumption of imported goods is subject to a higher tariff rate because of the cross-market externality. Of interest, if consumption only involves an own-market externality, there is no cyclical consequence for the optimal taxes. However, if consumption involves both own- and cross-market externalities, the optimal tariff is state-contingent and, more specifically, is countercyclical.     

Externalities: A Note on Avoiding Confusion

In distinguishing the difference between a genuine externality and a pecuniary externity, Bohanon observes that the latter never enters third-party utility (or production) functions, whereas this is always the case with technical externalities.     

Household Demand, Network Externality Effects and Intertemporal Price Discrimination

This paper examines the optimality of intertemporal price discrimination when network externality effects are present in the consumption of a durable good. We conduct our study in two settings. In a model with two household types, utilities are dependent on the cumulative proportion of households that have purchased the durable good. Next, in a model with a continuum of household types, we extend the analysis to the case where households consume both a durable good and a stream of non-durable goods. We show that in both settings, the presence of network externalities facilitates a sales strategy with intertemporal price discrimination.