Strategic Interaction amongst Australia's East Coast Ports

Australia's principal container ports, located in its state capitals, are owned and operated by state authorities that largely return profits from port operations to state governments. Since they govern the volumes of trade in most merchandise, they command immense influence over the openness and flexibility of the national economy. In this study, we estimate the elasticities of substitution between container services of ports in Brisbane, Sydney and Melbourne. We also examine the pricing of port services to estimate the extent of their interaction, from which we derive conjectural variations parameters to assess the actual and potential levels of price collusion. The results confirm the conventional wisdom that the degree of substitution between the major east coast ports is small. While this highlights the possibility that these ports possess substantial market power, actual mark ups are considerably smaller than the predicted mark ups, suggesting that the ports' localised monopoly power is constrained by factors other than price competition.     

Product regulations and persistence of profits: OECD evidence

In competitive markets, profits deviating from the norm will not persist for extended periods. If unimpeded, entry and exit of firms should restore profits to competitive levels. This dynamic process is influenced by regulations that temporarily or permanently impede competition. We study how product market regulations (PMR)—as measured by the OECD—affect competition by their impact on the profit persistence (Wölfl et al. in Ten years of product market reform in OECD countries-insights from a revised PMR indicator, 2009, Product market regulation: extending the analysis beyond OECD countries, 2010). To examine profit dynamics, we follow the methodology developed by Mueller (Economica 44(176):369–380, 1977), which measures both the short run persistence of profits and the long run permanent rents. The method can be used to measure: (1) short run transitory rents; (2) long run permanent rents. To this end we use firm level data from 30 OECD countries over the period 1998–2013. Results show that PMR increase the permanent rents of firms but we find no significant effect on short run profit persistence. We conclude that PMR negatively influence competition and increase permanent rents, resulting in misallocation of resources.     

TECHNOLOGY SHOCKS AND ROBUST SIGN RESTRICTIONS IN A EURO AREA SVAR*

We use a model‐based identification strategy to estimate the impact of technology shocks on hours worked and employment in the euro area. The sign restrictions applied in the vector autoregression (VAR) analysis are consistent with a large class of dynamic stochastic general equilibrium (DSGE) models and are robust to parameter uncertainty. The results are in line with the conventional Real Business Cycle (RBC) interpretation that hours worked rise as a result of a positive technology shock. By comparing the sign restrictions method to the long‐run restriction approach of Galí (Quaterly Journal of Economics (1992) 709–38) , we show that the results do not depend on the stochastic specification of the hours worked series or the data sample but only on the identification scheme.     

Life‐Cycle Patterns of Interest‐Rate Mark‐Ups in Small‐Firm Finance*

We derive empirical implications from a theoretical model of bank–borrower relationships. The interest‐rate mark‐ups of banks are predicted to follow a life‐cycle pattern over the age of the borrowing firms. Because of endogenous bank monitoring by competing banks, borrowing firms initially face a low mark‐up, and thereafter an increasing mark‐up as a result of informational lock‐in, until it falls for older firms when the lock‐in is resolved. By applying a large sample of predominantly small unlisted firms and a new measure of asymmetric information, we find that firms with significant asymmetric‐information problems have a more pronounced life‐cycle pattern of interest‐rate mark‐ups. Additionally, we examine the effects of concentrated banking markets on interest‐rate mark‐ups. The results indicate that the life cycle of mark‐ups is mainly driven by asymmetric‐information problems and not by concentration. However, we find evidence that bank market concentration matters for older firms ? 2 Correction added after online publication on 20^th February 2012; the original text read ‘However, we find evidence that bank market concentration for older firms’, omitting the word ‘matters’.
     

ENTRY REGULATIONS,WELFARE, AND DETERMINANTS OF MARKET STRUCTURE

Welfare effects of entry regulations are theoretically ambiguous in differentiated product markets. We use a dynamic oligopoly model of entry and exit with store‐type differentiation and static price setting to evaluate how entry regulations affect long‐run profitability, market structure, and welfare. Based on unique data for all retail food stores in Sweden, we estimate demand, recover variable profits, and estimate entry costs and fixed costs by store type. Counterfactual policy experiments show that welfare increases when competition is enhanced by lower entry costs. Protecting small stores by imposing licensing fees on large stores is not welfare enhancing.     

CAPITAL MAINTENANCE AS A KEY DEVELOPMENT TOOL

We construct optimal growth models where labor resources can be allocated either to production, technology adoption or capital maintenance. We first characterize the balanced growth paths of a benchmark model without maintenance. Then we introduce maintenance activity via the depreciation rate of capital. We characterize the optimal allocation of labor across the three activities. Although maintenance deepens the technological gap by diverting labor resources from adoption, we show that it generally increases the long run output level. Moreover, we find that equilibrium maintenance and adoption efforts respond in opposite directions to policy or technology shocks. Finally, we find that the long‐term output response to policy shocks is slightly higher in the presence of maintenance.     

Service Deregulation,Competition, and the Performance of French and Italian Firms

This article reports estimates of the impact of service regulation reform on the productivity of French and Italian firms in retail, transports and professional services over the period 1998–2007. We implement a two‐stage least squares estimation: the first‐stage instruments mark‐ups, a financial measure of rents, with barriers to entry and the second stage estimates the impact of instrumented mark‐ups on total factor productivity (TFP), a real measure of firm efficiency. We find that entry barriers lower firm productivity by raising mark‐ups and rents. These estimates imply that, if French and Italian regulators had adopted the OECD best practices in terms of entry barriers, firms in these sectors would have increased their TFP level by five percentage points. We do not find any robust evidence of a non‐linear relation between mark‐up and productivity.     

MULTIPLIER EFFECTS OF PUBLIC SERVICES IN A TWO‐SECTOR MODEL OF MONOPOLISTIC COMPETITION

In a two‐sector model of monopolistic competition, this paper explores what impacts an expansion of government spending on public services has on national income. In the short run where entry and exit of firms are restricted, a rise in government spending on services like health care (which has only a role of substituting for market services) increases national income, but that on services like elderly care (which has not only this role but also another role of contributing to home production of services) decreases it. These results are reversed in the long run. Welfare effects of public services are also examined.     

Policy matters. The long run effects of aggregate demand and mark-up shocks on the Italian unemployment rate

This paper estimates a VAR including labor productivity, real wage and unemployment rate, to identify the dynamic effects of technology, demand, and mark-up shocks, respectively, on the Italian labor market. Identification is achieved by imposing recursive restrictions on the matrix of long run multipliers. Our results show that both mark up and aggregate demand shocks permanently reduce the unemployment rate. Finally, technology shocks do not significantly affect the unemployment rate in the long run. These findings convey important policy implications: expansionary aggregate demand and deregulation policies reducing the mark up permanently decrease the Italian unemployment rate.Jel classification: C32, E32, J29This paper has been produced as part of a CEPR Research Network on New Approaches to the Study of Economic Fluctuations. We would like to thank Marcello DAmato, Mario Forni, Marco Lippi and Antonio Ribba for useful comments. We are also grateful to Bernd Sussmuth for pointing out to us several significant improvements to the paper.First version received: November 2001/Final version received: October 2002     

Imperfect competition and indeterminacy of aggregate output

This paper shows imperfect competition can lead to indeterminacy in aggregate output in a standard DSGE model with imperfect competition. Indeterminacy arises in the model from the composition of aggregate output. In sharp contrast to the indeterminacy literature pioneered by Benhabib and Farmer [J. Benhabib, R. Farmer, Indeterminacy and increasing returns, J. Econ. Theory 63 (1) (1994) 19-41] and Gali [J. Gali, Monopolistic competition, business cycles, and the composition of aggregate demand, J. Econ. Theory 63 (1) (1994) 73-96], indeterminacy in our model is global; hence it is more robust to structural parameters. In addition, sunspots in our model can be autocorrelated. The paper provides a justification for exogenous variations in desired markups, which play an important role as a source of cost-push shocks in the monetary policy literature. Our model outperforms a standard RBC model driven by technology shocks in several dimensions, including the volatility of labor market and the hump-shaped output dynamics.     

Partial Privatization in a Differentiated Mixed Oligopoly

A model of differentiated mixed oligopoly is developed to systematically discuss the welfare consequences of partial privatization of a public firm. We analytically derive the optimal degree of partial privatization not only in the short run with restricted entry but also in the long run with free entry. It is shown that the short-run optimal policy is non-monotonic in the degree of love of variety, while the optimal degree of privatization is monotonically increasing in the consumer's preference for variety in the long run.      

Understanding the effects of technology shocks

The research led by Gali (AER 1999) and Basu et al. (AER 2006) raises two important questions regarding the validity of the RBC theory: (i) How important are technology shocks in explaining the business cycle? (ii) Do impulse responses to technology shocks found in the data reject the assumption of flexible prices? Using an RBC model, this paper argues that the conditional impulse responses of the U.S. economy to technology shocks are not grounds to reject the notion that technology shocks are the main driving force of the business cycle and the assumption of flexible prices, in contrast with the conclusions reached by the literature.     

Investment-specific shocks and real business cycles in emerging economies: Evidence from Brazil

This paper investigates the role of the RBC (Real Business Cycle) model with investment-specific technology shocks in explaining business cycle fluctuations in Brazil. I consider the role of transitory and permanent components of neutral and investment-specific technology shocks. I fit the model to the data using Bayesian techniques to show that the investment-specific shocks are important sources of fluctuations in the estimated model. In fact, in the context of the model, investment-specific shocks can account for remarkable percentages of fluctuations in consumption growth, GDP growth, investment growth and trade balance to GDP ratio. Furthermore, I present simulation evidence showing that the RBC model cannot account for some important features of the data.     

News shocks and labour market dynamics in matching models

We enrich a baseline real business cycle (RBC) model with search and matching frictions on the labour market and real frictions that are helpful in accounting for the response of macroeconomic aggregates to shocks. The analysis allows shocks to have an unanticipated and a news (i.e., anticipated) component. The Bayesian estimation of the model reveals that the model that includes news shocks on macroeconomic aggregates produces a remarkable fit of the data. News shocks in stationary and non‐stationary TFP, investment‐specific productivity and preference shocks significantly affect labour market variables and explain a sizeable fraction of macroeconomic fluctuations at medium‐ and long‐run horizons. Historically, news shocks have played a relevant role for output, but they have had a limited influence on unemployment.     

On monopolistic competition and optimal product diversity: workers' rents also matter

Abstract .  In the Dixit-Stiglitz model of monopolistic competition, entry of firms is socially too small. Other authors have shown that excess entry is also a possibility with other preferences for diversity. We show that workers' rents also contribute to explain excess entry through a general equilibrium mechanism. Larger wages indeed raises the aggregate earnings and firms sales and profits, which entices too many firms to enter. We discuss the possibility of over-provision of varieties by comparing the equilibrium to unconstrained and constrained social optima and to other regulatory frameworks where wages are not controlled.     

Market entry,privatization and bank performance in transition1

This paper examines how market entry and privatization have affected the margins and marginal costs of banks in the post‐communist transition. We estimate bank revenue and cost functions, allowing the estimated parameters to change over time. In the first sub‐period (1995–98), we find that privatized banks earned higher margins than other banks, while foreign start‐ups had lower marginal costs. In the third sub‐period (2002–2004), foreign banks remained low marginal cost service providers, while privatized domestic banks had the widest margins. Subtracting marginal costs from margins to calculate mark‐ups, an indication of demand for services, shows that initially privatized banks had the largest mark‐ups. However, by the third sub‐period, differences among private banks diminished. In comparison to private banks, state banks persistently under‐performed in controlling costs and attracting demand. Our evidence therefore indicates that foreign bank entry promoted lower costs and that privatization and market entry encouraged more demand for services.     

技术冲击和劳动供给对经济波动的影响分析--基于可分劳动RBC模型的实证检验

文章根据国内外经济波动的不同特征,构建了用于研究中国经济波动的可分劳动RBC模型,并对改革开放以来的中国经济进行了实证检验,从供给角度考察技术冲击对中国经济波动的影响,并在RBC模型框架下分析了技术进步对中国劳动市场的影响。研究发现,一是在固定劳动和可分劳动RBC模型中,技术冲击可以解释中国经济波动的主要部分;二是可分劳动RBC模型的实证结果表明,劳动供给变动对经济波动的影响较小,技术进步对改革后的产出、居民消费和就业都产生了正向冲击效应。技术进步对就业增长效应较小,致使我国的劳动需求增长率明显小于劳动供给增长率,劳动市场供需严重不平衡,这也是导致就业波动较为平缓、失业问题日趋严峻的一个重要原因。     

Financial intermediation and entry-deterrence

Summary. In this paper, we analyze the interaction between an incumbent's financial contract with a bank and its product market decisions in the face of a threat of entry, in a dynamic model with asymmetric information. The main results of the paper are: there exists a separating equilibrium with no limit pricing; the low-cost incumbent repays more to the bank in the first period due to the threat of entry; and there are parameter values for which the bank makes more profits with the threat of entry than without. Received: July 19, 2002; revised version: December 4, 2002 Correspondence to: N. Jain     

Trade Marks and Performance in Services and Manufacturing Firms: Evidence of Schumpeterian Competition through Innovation

We develop Lancaster's model of consumer behaviour under product differentiation to analyse Schumpeterian creative destruction. Launching new products with novel characteristics enables firms to temporarily steal market share from rivals. Product launch is monitored by using trade marks, patents and research and development. The dataset covers a large sample of UK service and manufacturing firms. We find that stock market value is positively associated with own trade mark activity and trade mark‐active firms achieve significantly higher value‐added. Greater trade mark activity by competitors reduces net output of firms, but raises their stock market value. This is consistent with the Schumpeterian process of competition through innovation.     

Sequential Equilibrium and Competition in a Diamond–Dybvig Banking Model

Within the framework of a Diamond–Dybvig model [J. Polit. Econ.91(1983), 401–419], but with explicitly modelling the autarky choice during the planning period, we demonstrate that a mixed strategy bank run equilibrium that does not rely on sunspots may coexist with the sunspot run equilibrium previously studied in the literature. In a version of the model with multiple banks, there exist sequential equilibria that imply positive profits. However, the zero-profit contract in which runs never occur can be supported as the unique equilibrium outcome if the agents play pure strategies only and their beliefs are restricted to be consistennt with a forward induction argument.Journal of Economic LiteratureClassification Numbers: C72, G21