ON THE KING-DAVENANT “LAW” OF DEMAND1

“Now there is one law of prices which you must know and understand before you can make the least progress in interpreting the simplest problem. It is known to some economists, I do not say all, for it is most unaccountably neglected or obscured in most treatises on the subject, as Gregory King's Law.”     

DOES FEDERAL FUNDING “CROWD IN” PRIVATE FUNDING OF SCIENCE?

Proposed cutbacks in government science funding have caused many to expect that the rate of scientific progress will significantly decline. Before the magnitude of the decline can be estimated, a preliminary question must be answered: what is the extent to which private funding of science may be expected to fill the gap left by the declining government funding? Using data on government and private funding of science, preliminary estimation indicates that past government funding of science has not “crowded out” private funding of science. If this finding is supported by further research, it would indicate that private funding could not be expected to replace lost federal funding of science. (JEL H4, HI, 03, D6, L3)     

WHY SMALL GROUPS AND LOW INCOME SECTORS OBTAIN SUBSIDIES: THE “ALTRUISTIC” SIDE OF A “SELF-INTERESTED” GOVERNMENT*

We develop a model of political support seeking politicians and support supplying voters. Based on Downs' original formulation, the framework yields endogenous political weights with both liberal and conservative properties. Our model reconciles the apparent contradiction between models of self-interested politicians and of governments motivated by social concerns. We show that the “altruistic” aspect of government behavior is consistent with its “self-interested” behavior. We determine that the Olson-Becker pressure group model is not unique. An increase in deadweight costs reduces the equilibrium subsidy. Smaller groups receive a larger per capita subsidy. These results are consistent with Becker's model.     

THE DYNAMICS OF THE “MATURE” PRODUCT CYCLE AND MARKET REYCLING,FLYING‐GEESE STYLE: AN EMPIRICAL EXAMINATION AND POLICY IMPLICATIONS

The product cycle (PC) model of trade has led to an extensive theoretical literature examining the relations between the innovating Northand the imitating South countries. Closely related is the flying‐geese (FG) theory, which emphasizes the transfer of production from a higher developing South country to a lower developing country in search of lower production costs.This article explores empirically the time series pattern of TV exports from 10 Asian economies to the United States and examines policy implications. The observed pattern is consistent with both the PC and FG models in a combined form.     

“ENVIRONMENT”, “NEEDS” AND REAL INCOME COMPARISONS(1)

Conventional measures of national product make no pretence of including everything that affects welfare. As increasing attention is being paid to environmental pollution, the problem of incorporating certain non-economic variables into the analysis of well-being becomes more relevant. The object of this note is to show how a difference in “needs” for, and hence expenditures on, anti-pollutants, which will show up in conventional national accounts comparisons as differences in “tastes”, should be converted into differences in real income.     

“(MA)LINGERING ON THE DISABLED LIST”

In this article, we examine two offsetting incentives that may affect a baseball player's willingness to play with injuries. We allow for the usual disincentive effects associated with long‐term contracts, while also incorporating the importance of the incentives associated with contract renewal. Our results are consistent with the previous work that showed those likely to retire at the end of their current contracts have an increased incentive to shirk. For those who expect to re‐sign a subsequent contract, however, we find that players tend to step up their effort as they approach the final year of their contract. (JEL L83)     

ON THE “PRO‐POORNESS” OF GROWTH IN A MULTIDIMENSIONAL CONTEXT

This paper represents a first attempt to bring together the issues of multidimensional poverty and growth “pro‐poorness” assessments. More specifically, we suggest the use of sequential dominance procedures to test the “pro‐poorness” of observed growth spells when poverty is measured on the basis of income and another discrete well‐being attribute. Sequential procedures are also used to obtain graphical tools that are consistent with the spirit of Ravallion and Chen's growth incidence curve and Son's poverty growth curve. Contrary to traditional unidimensional tests, our method makes it possible to take into account the importance of deprivation correlations at the individual level and thus may reverse results observed with the traditional tools used to check the “pro‐poorness” of growth. An illustration of our approach is given using Turkish data for the period 2003–05.     

THE TREATMENT OF “HOME OWNERSHIP” IN THE CPI*

This paper explores the imputed service price approach to the pricing of the services of consumer-owned-and-used durables in the construction of the consumer price index, using the services of owner-occupied housing as an illustration. A theoretical framework for analyzing this question is first developed. Certain practical problems are then discussed. The conceptual difficulty of constructing an appropriate rate of return on the basis of available data on interest rates and house prices, in the context of inflation, is explored. Two arguments are advanced that statistical agencies ought not to follow the imputed service price approach in pricing the services of owner-occupied dwellings and other consumer durables. On the one hand, nominal interest rates will, in any short period, reflect monetary policy and not any change in the money “rental” of owner-occupied houses. Second, movements in nominal interest rates will also reflect changes in the money price of pure consumption goods, as well as changes in the money price of houses. The argument is extended to other consumer durables and, in the limiting case, to monetary balances, and it is concluded that in all but trivial cases the application of the service price approach leads to price movements of little or no meaning.     

MONITORING ABSOLUTE AND RELATIVE POVERTY: “NOT ENOUGH” IS NOT THE SAME AS “MUCH LESS”

Financial poverty indicators assess which people have few financial resources and are thereby at risk of having an unacceptably low living standard. Most countries use one or several “official” poverty indicators, but they typically use either an absolute or a relative benchmark to determine what is unacceptable; absolute benchmarks are based on basic needs or rights while relative benchmarks depend on what is considered to be a “normal” living standard. Applying the absolute U.S. and the relative EU poverty indicators on the U.S. and 15 EU member states, this research shows that it makes sense to use both benchmarks.     

TESTING CATCHING‐UP BETWEEN THE DEVELOPING COUNTRIES: “GROWTH RESISTANCE” AND SOMETIMES “GROWTH TRAGEDY”

This paper provides empirical evidence that there is no convergence between the GDP per‐capita of the developing countries since 1950. Relying upon recent econometric methodologies (non‐stationary long‐memory models, wavelet models and time‐varying factor representation models), we show that the transition paths to long‐run growth (the catch‐up dynamics) are very persistent over time and non‐stationary, thereby yielding a variety of potential steady states (conditional convergence). Our findings do not support the idea according to which the developing countries share a common factor (such as technology) that eliminates per‐capita output divergence in the very long run. Instead, we conclude that growth is an idiosyncratic phenomenon that yields different forms of transitional economic performance: growth tragedy (some countries with an initial low level of per‐capita income diverge from the richest ones), growth resistance (with many countries experiencing a low speed of growth convergence), and rapid convergence.     

THE IMPACT OF INFLATION ON NEW HOUSE PRICES

It is often stated that real house prices respond to inflation in ways similar to assets infixed supply, such as gold or antiques. This paper proposes that, instead, house prices are determined primarily by the cost of producing new houses. Thus, inflation affects price mainly through input markets and through expansion in housing starts. This proposition is supported in an examination of annual changes in house prices between 1965 and 1982 in 12 sub regions of the United States     

EQUIVALENCE SCALES AND THE WELFARE OF CHILDREN: A COMMENT ON “IS THERE BIAS IN THE ECONOMIC LITERATURE ON EQUIVALENCE SCALES?”

In a recent issue of this journal, M. Luisa Ferriera, Reuben C. Buse, and Jan-Paul Chavas argue that the equivalence scales implicit in the official U.S. poverty line and in public welfare programs overcompensate parents for their children, with resulting negative distributional and incentive effects. We show that their analysis is based on a very particular, and ethically unappealing, assumption about the importance of children's well-being.     

COMMENT ON “THE DISTRIBUTION OF MONEY BALANCES AND THE NONNEUTRALITY OF MONEY,” BY ALEKSANDER BERENTSEN,GABRIELE CAMERA,AND CHRISTOPHER WALLER*

An example is constructed to illustrate some points about the Berentsen‐Camera‐Waller article, followed by some comments.