SECTORAL ELASTICITY OF SUBSTITUTION AND RETURNS TO SCALE IN SOUTH AFRICA

Elasticity of substitution and returns to scale are estimated on a sectoral basis for South Africa using panel-based generalised least square procedure. Apart from sectoral differences in terms of elasticity of substitution, the study found that elasticity of substitution is below unity in all of the sectors. Most of the sectors studied are found to have increasing returns to scale in production. The study further explores the implications of elasticity of factor substitution and returns to scale on growth and employment creation. It is argued that a greater number of jobs can be created from growth of sectors with constant or decreasing returns to scale than from the same level of output growth generated by sectors with increasing returns to scale. This is the case when the employment-creating potential of the same amount of additional output is compared in all the sectors examined. By virtue of scale economies, a sector like finance, insurance, real estate and business services generates more output with less proportional increase in inputs, which means growth in this sector may not have the desired impact on job creation. However, given the sector's large share (20%) of the country's total output and employment, it may generate more jobs, even if sectors like utilities and construction experience the same level of output growth. Given its importance for growth and employment, the study recommends further investigation into the reasons why elasticity of substitution is lower in sectors like utilities, mining and trade, catering and accommodation services.     

A few bad apples: Communication in the presence of strategic ideologues

I propose a very simple model of strategic communication. The motivation is to help explain widespread persistent disagreement about objective facts. In the model, there is a message sender and a receiver, and two possible states of the world, left or right. The sender is one of three types: honest, or a leftist or rightist “ideologue.” The honest type observes a private signal in , with higher values implying stronger support for the right state, and reports the observed value truthfully. Ideologues strategically choose any message from this set to maximize the receiver's belief in their preferred state, ignoring any private information they may have. I show that a small presence of ideologues can have a large effect on communication: while we might expect ideologues to just send extreme messages, in most equilibria ideologues use “strategic understatement,” and in many cases actually mix over all non‐neutral (non‐N∕2) messages to mimic honest types and gain credibility. This distorts the interpretation of these messages such that all messages on a side of the spectrum (above or below N∕2) have the same effect on receiver beliefs. This coarsened communication is less informative than even the weakest non‐neutral messages in the absence of ideologues. I show by example how ideologues can cause large delays in the time required for receiver beliefs to converge to truth.     

Strategic corporate social responsibility of high-speed rail in China

This paper investigates the strategic corporate social responsibility (CSR) of a high-speed rail (HSR) firm when competing with an airline firm in a differentiated transportation market and the interactions with government environmental policies in the context of a Cournot–Bertrand comparison. We find that a standard CSR chosen by the government is lower under Cournot than that under Bertrand when both the marginal cost of HSR and product substitutability are low enough, while a voluntary CSR chosen by the HSR operator is always higher under Cournot than that under Bertrand. We also find that the voluntary CSR could be higher or lower than the standard CSR, depending on marginal costs, product substitutability, and competition modes. We then show that when the government imposes an environmental tax together with CSR activities, both the strategic CSR and environmental tax are always lower under Cournot than those under Bertrand. Finally, we show that equilibrium traffic volumes, ticket fares, consumer welfare, and social welfare are independent of competition modes with environmental tax.     

Returns to scale,imperfect competition and aggregate demand and trade policy effects in a two-country model

This paper constructs a simple general equilibrium two-country model with flexible exchange rates, specialization in production, and oligopolistic firms. The model is simulated in order to investigate how returns to scale and imperfect competition influence the process through which the aggregate demand and trade policy effects are transmitted internationally. The possibility that aggregate demand and trade policies enacted by one country can have beggar my neighbor effects on the other country cannot be excluded.     

The increasing returns to scale CES production function and the law of diminishing marginal returns

This article analyzes the constant elasticity of substitution (CES) production function when there are increasing returns to scale and the elasticity of substitution exceeds 1, which I refer to as the explosive case of the CES. For this explosive case of the CES, the article demonstrates a new and surprising result: marginal and average products of labor and capital approach infinity as either labor or capital approach infinity. Obviously, in this explosive case of the CES, the law of diminishing marginal returns is eventually violated in a dramatic way. Some implications of this result for growth theory are discussed. The article concludes by deriving, for this explosive case of the CES, lower and upper bounds for the capital labor ratio which are consistent with the law of diminishing marginal returns.     

Two-Stage Team Rent-Seeking: Experimental Analysis

This paper presents a two-stage team rent-seeking model with a contest prize that is not excludable among winning team members. When early effort is a perfect substitute for late effort, early actors can free ride on their late-moving teammates. However, when early and late efforts are complements, all team members exert positive effort levels. Asymmetries in early effort reduce effort choices for all late movers. The theory is tested with laboratory experimental methods. Although subjects overinvest relative to the Nash equilibrium in all treatments, chosen effort levels provide limited support for the model. Early movers exerted higher effort in the complement treatment, and second-stage effort choices were broadly consistent with best response functions. Surprisingly, in both single-shot and repeated play environments, early movers in the substitute treatment did not free ride, choosing effort levels similar to those of late movers.     

Sabotage versus Discouragement: Which Dominates Post Promotion Tournament Behavior?

We explore the behavior of losers of promotion tournaments after the tournament is concluded. We do so with an experiment in which we vary the design of the promotion tournament to determine how tournament design affects post tournament effort. Our design allows us to discriminate between two possible reasons tournaments might lead to decreased work effort among the tournament losers: strategic sabotage and a worker becoming discouraged by the tournament outcome. We examine behavior after the tournament and find evidence suggesting that bad tournament design can lead to workers being discouraged. This discouragement effect is strong for low ability workers but not for high ability workers. Conversely, we do find evidence that some high ability workers engage in strategic sabotage but the incidence does not vary with the design of the promotion tournament and the incidence of it is low.     

Money versus credit in the determination of output for small open economies

It is well known that in a small open economy where there is perfect substitutability between domestic and foreign assets and costless portfolio adjustment, the monetary authorities, pursuing an exchange-rate target, cannot control the money supply, but can influence the balance of payments through the use of domestic credit. It has been argued that domestic credit is therefore the relevant variable in output determination as well. This paper demonstrates, however, using a new classical structural model, that under the conditions that render the money supply uncontrollable, neither money nor domestic credit affects output.     

Realism Versus Statistical Efficiency: A Note on Contingent Valuation with Follow-up Queries

This paper shows that we can improve the statistical efficiency of dichotomous choice contingent valuation surveys by asking a second open question (anchored open-ended approach) instead of the traditional double-bounded approach. The former approach is shown to be more efficient than conventional single and double-bounded approaches using a Monte Carlo experiment, even when we allow for strategic behavior from respondents such as protest votes and yea-saying behavior.

Strategic Interaction in the Dutch Market for Consumer Magazines

Information goods such as newspapers and magazines have a number of distinct economic characteristics such as a high fixed cost – low marginal (variable) cost structure and the possibility to subsidize content through selling advertising space. We develop a simple one-shot duopoly model that analyses strategic interaction in a market with such features. We focus on the firms best responses and test the theoretical predictions of the model empirically by panel regression techniques using a balanced panel data set of 60 Dutch consumer magazines over the period 1991–1998. Our 3SLS estimation results confirm the prediction of our model that the Dutch market for consumer magazines is characterized by strategic complementarity between magazine and ad prices.     

Returns to scale in producing human capital from schooling

This study examines a crucial assumption in much of the recentwork on endogenous growth, namely, constant returns to scalein producing human capital. A simple model is constructed toshow that the returns to scale in human capital production canbe inferred from the relationship between the wage rate andyears of schooling. A large international micro dataset is usedto estimate this relationship. The empirical evidence indicatesthat human capital production displays significant increasingreturns at low levels of educational attainment, and significantdecreasing returns at high levels of educational attainment.     

Government expenditure in the independent and self‐governing national states of Southern Africa: An evaluation

Various commentators recently drew attention to the expenditure and financing of the independent and self‐governing national states in Southern Africa. The inference has been drawn that this expenditure appears wasteful and ineffective and constitutes little more than a costly political luxury.

This article makes an attempt at evaluating government expenditure in the national states in terms of the type and level of expenditure, its benefit incidence, as well as its efficiency.

Expenditure of the governments of the national states is largely on collective or social goods and services and therefore of the type widely expected to be provided by governments. Since the benefit incidence of this expenditure is not confined within the borders of the national states, but spills over into South Africa, government expenditure by these states benefits the common integrated economic system of Southern Africa.

With regard to the levels of expenditure, indications are that expenditure in many instances is too low. Increased expenditure in some categories might well show significantly increasing returns.     

Employment by level of education and production factor substitutability

Summary Several types of elasticities of substitution and complementarity among three labour force aggregates (lower, intermediate, and higher educated) and capital are calculated, based on estimation of demand equations with cross-sectional data by industry groups over two years. Factor substitutability appears to be rather weak. Higher educated labour and capital are complements, as are lower and intermediate educated labour. Employment of unskilled labour is worsened by a reduction of the price of capital. Upgrading the educational level of labour requires the diminishing of the gap between wages of different labour force aggregates; especially the wages of higher educated labour have to decrease.This paper is based on part I.1 of The Elasticity of Substitution between Lower Educated Labour and Other Factors of Production. Research for this paper was supported by OSA (Organization for Labour Market Research). I wish to thank D.P. Broer for numerous and valuable suggestions, J.M.M. Ritzen for the original set-up of sections 2–4 in a preliminary draft and B. van Bunnik for skillful research assistance. I also benefited from comments and suggestions by P.C. Allaart, J.C. Siebrand, O.H. Swank, and a referee.     

民营企业家政治身份与经济收益

随着我国民营企业的兴起,民营企业家政治身份的相关研究也逐渐被学界所重视。结合民营企业家争相追逐政治身份的背景,探讨了企业家政治身份带来经济收益的现象,并提出民营企业家政治身份有利于民营企业突破行业壁垒实现行业多元化经营和进入战略性新兴产业,由此获得较好经济收益,从而构建了一个沟通和整合企业政治关联理论与进入壁垒理论的中介作用模型,并以第八次全国私营企业抽样调查的4098个企业为样本进行实证检验。研究结果表明,民营企业家政治身份能为企业带来显著的经济收益,民营企业多元化经营、进入战略性新兴产业与企业经济收益显著正相关,并且验证了多元化经营、进入战略性新兴产业是民营企业家政治身份带来经济收益的中介途径。     

Managerial Discretion and Task Interdependence in Teams

This study investigates whether task interdependence in teams alters the effectiveness of managerial discretion in motivating team performance. Teams are particularly useful when employees' tasks are interdependent—that is, when the degree to which the increase in team performance resulting from a team member's effort depends on the effort and skills of the other team members. The reason is that the more interdependent tasks are, the more employees need to coordinate their actions and help one another to achieve their objectives. Prior research analyzing settings where task interdependence is absent suggests that providing managers with discretion over team bonus allocation can improve team performance relative to equal team bonus allocations because it strengthens the link between contributions to team output and rewards. Economic theory suggests that managerial discretion will also improve team performance when task interdependence is present and information is efficiently used. However, we use behavioral theory to predict that managerial discretion is less effective in the presence of task interdependence, because managers do not fully incorporate all relevant information into bonus decisions and because managerial discretion hurts coordination and helping, which is particularly problematic under task interdependence. We find that while discretion over compensation has a positive effect on team performance relative to equal bonus allocation when task interdependence is absent, it has a negative effect when task interdependence is present. Additional analyses provide support for our underlying theory. Results of our study contribute to both theory and practice by suggesting that, ironically, managerial discretion may be most useful when the potential benefits of employing teams are lowest and least useful when the potential benefits are highest. Our results help explain why firms often grant managers only partial or no discretion over team members' compensation.     

International capital market integration: Implications for convergence, growth, and welfare

This paper studies the effects of international capital market integration on welfare and the speed of adjustment in a two-region endogenous growth model. Monopolistic firms undertake research and development (R&D) to improve their productivity level. National and international knowledge spillovers affect the returns to R&D. The two countries differ with respect to the initial productivity level and R&D capability (which is a proxy for human capital and structural policies). Long-run productivity gaps are determined by the difference in R&D capability. Over time, there is conditional convergence in productivity levels. The speed of convergence is larger with integrated international capital markets than without. Long-run gaps in consumption levels are larger in the former situation than in the latter. Capital market integration harms (benefits) the leading (lagging) region if domestic spillovers are more important than international spillovers and differences in R&D capabilities are small.The authors research is supported by the Royal Netherlands Academy of Arts and Sciences. He thanks Lucas Bretschger, Theo van de Klundert, and Richard Nahuis, Thomas Steger, and Helmut Wagner for comments on an earlier version.     

Measuring returns to scale in nineteenth-century French industry

Were nineteenth-century French firms too small? Previous research has found either constant returns to scale throughout (Nye, 1987) or increasing returns to scale for most industries (Sicsic, 1994). This research sheds some light on these contradictory results by proposing and estimating a series of models that consider previously ignored econometric issues. My analysis of the 1839-1847 census suggests that there were increasing returns to scale for some industries and constant returns for others, while the analysis of the 1861-1865 census suggests constant returns to scale throughout. Assessing the economic implications of the estimated returns to scale, I argue that there were significant unexploited scale economies in the first half of the nineteenth century. In the second half of the nineteenth century, though, France had little to gain from scale economies.     

Survey of recent developments

By June 2006, the government had largely completed the difficult tasks of stabilising macroeconomic conditions following the October 2005 fuel price increases, and of drawing up a blueprint to improve infrastructure and the investment climate. On the macroeconomic front, the main issues related to how, and how quickly, the economy could return to the growth rates of late 2004 and early 2005, given still low levels of private and public investment. Sound macroeconomic policies had delivered a stronger rupiah and reduced inflationary pressures, albeit with continued decelerating rates of growth. Private consumption and investment having slowed, government spending had become the key driver of growth, but major delays in public spending continued in the first four months of the year.

The reform agenda includes an impressive raft of new laws, or revisions to old ones, in investment, taxation, customs and labour, all of which were covered under a special Presidential Instruction. However, actual reform was slowed by substantial political obstacles. There was growing concern about divisions within the cabinet on the reform package, and about the capacity of the ministerial team to guide reforms quickly through the bureaucracy and the parliament. This included doubts about the resoluteness of President Susilo Bambang Yudhoyono (SBY) on reform initiatives in the face of vocal opposition (as in the case of labour reform), and about Vice President Jusuf Kalla's commitment when political or business interests close to him were opposed to change (as in the case of divestment of shares in Indonesia by the giant cement multinational, Cemex).

Given likely delays in the reform package's impact on output and employment, uncertainty persists about the level of support the ‘duumvirate’ is prepared to offer reformist ministers, and about the political clout of the reformers themselves, as the government moves into the middle period of the electoral cycle. Examples of weak policy making include watered-down investment reforms, the seemingly ‘quick-fix’ approach underlying a proposal to set up special economic zones, and unsatisfactory handling of continuing disputes in the mining sector. A backdown on labour market reforms, at least for the present, has probably been the biggest setback to date in the SBY–Kalla team's attempt to promote investment: a poorly managed reform effort in terms of both substance and political strategy.

Two other events shook Indonesia during the Survey period. A massive earthquake hit the Yogyakarta region on 27 May, killing nearly 6,000 people and leaving thousands homeless. And on the political front, the attorney general controversially dropped corruption charges against the ailing former president, Soeharto.     

Examining Agency Conflict in Horse Racing

We study UK horse racing for signs of conflict between horse owners (principals) and trainers (agents). Trainers often prepare their own horses for races in addition to having outsiders' horses in their care. Utilizing betting market data to infer the expected performance of a horse, we find that owner–trainer horses outperform outsider–trainer horses, indicating that this principal–agent relationship is characterized by agent shirking. If the owner holds a large proportion of the horses in the trainer's stable, the shirking effect may be mitigated but not eradicated. In a separate result, we find that outsider–trainer horses are more inconsistent than their owner–trainer peers. As inconsistency is a sign of betting market manipulation, this suggests that the agent in this setting extracts a second, informational rent from the principal.     

Engeland en de Europese Technische Samenwerking

Summary This article attempts to evaluate the possible British contribution to research and development in an enlarged European Economic Community, and formulates the conditions for progress of the British economy when joining the Common Market.In the past the stop-go policy of the consecutive British governments created an atmosphere not conducive to economic growth. In the sixties the so called brain drain and the capital export were extensive. Annual gross investment in relation to gross national product was about 5% lower than in the Common Market countries, and pure capital productivity - represented by the ICOR and corrected for the contribution of labour - was unsatisfactory when measured according to EEC standards. These circumstances led to a considerable underinvestment in the United Kingdom (the author's very crude estimate regarding the period 1958–1968 reaches the figure of about £ 11.300 million), a process that probably will go on in the seventies, as the British income policy meets with huge difficulties. Without skilful and efficient use of the more than sufficiently available British research and development resources -so that the capital productivity can be raised - and without a drastic increase of the investment-income ratio as well as an adequate income policy, the success of the British entry into the Common Market will remain doubtful. Otherwise the export of valuable production factors will continue and unemployment will keep on increasing, so that even participation in the scheduled economic and monetary union by 1978 will be questionable. Even if the above mentioned conditions are fulfilled, considerable capital import may still be necessary to modernise capital stock in Britain, especially in the field of infrastructure, factory building and housing.