Tradeable permits,missing markets,and technology

This paper examines the effects of missing markets, heterogeneous pollutants, and the pollution technology of firms on the efficacy of transferable pollution permits. Under the assumption of perfect competition in all markets, we show that if firms can substitute among pollutants, then setting the optimal number of permits for only one pollutant will not, in general, lead to an efficient outcome. The degree of the inefficiency will depend on the information set available to the regulator and the substitutability among pollutants by firms. When establishing transferable pollution rights regulators should, therefore, consider the technology of firms. If firms discharge pollutants in the same fixed proportions, then the regulator need only set a market for one of the pollutants to ensure an efficient outcome. Where firms can substitute among pollutants, however, establishing a market for only one pollutant provides an incentive for firms to substitute to unregulated ones. This is an important policy issue as substitutability among pollutants within and across production processes may dampen the dynamic advantages of a tradeable permit policy.     

Value-added tax and the theory of tax incidence

A value-added tax is examined in a general-equilibrium model of tax-incidence incorporating primary factors and intermediate goods. Production coefficients are variable and demand is elastic. The principal result is that under assumptions of fixed coefficients and inelastic demand which have been commonly employed in the literature, VAT as well as the corporation income tax will be neutral. In the more general setting of this paper, only VAT, applied to every industry at equal rates, will not affect relative factor and commodity prices. Incidence and other economic effects of a partial VAT are also discussed.     

Elasticities of substitution between energy and non-energy inputs in China power sector

Energy substitution is considered as a key process to determine the economic outcome of decisions related to energy and environment policies. The sign and magnitude of energy substitution have been widely debated, and the results are divergent. This paper applies the translog cost function specification to estimate factor share equations based on the energy and non-energy inputs, whose coefficients are used to observe the energy degree of substitutability with the other traditional inputs for power industry in China. The results suggest that energy is the least price sensitive among three production factors. The four types of input elasticities (cross-price, Morishima's, Allen and McFadden's shadow elasticity of substitution) show that there are substantial substitution possibilities between energy and capital, while energy and labor have weak substitution. The findings imply that for power industry in China, to reduce energy consumption, more capital should be invested. With respect to labor, though, it appears less energy-saving potential.     

Neoclassical production theory and growth with unemployment: The stability issue revisited

A common belief in economic growth theory is that the instability of the balanced growth path of models based on a non-neoclassical production theory, such as the Harrod–Domar or Goodwin-type models, may be removed by introducing neoclassical technology and substitutability between factors. This does not need to be true. As shown in this paper, Solow-type models with sluggishly adjusting, non-market-clearing, real wages and endogenous fertility may suffer instability. Not only: instability may be favoured by too strong a degree of neoclassical substitution in the economy.     

Restructuring hospital industry to control public health care expenditure: The role of input substitutability

In this paper we investigate the economic rationality of the bed downsizing process, characterising the hospital industry worldwide in the last decades, as a measure to control public health care expenditure. Considering a sample of Italian hospitals, we provide fresh evidence on the factor substitutability in the production of hospital services. Differently from other studies, based on North-American data and limited to pre-determined cost function models, we estimate a general specification (the Generalised Composite), and test it against traditional nested models (e.g. the Translog). For all the specifications we derive Allen, Morishima and Shadow elasticities of substitution between input pairs, obtaining a fairly consistent picture across all models and elasticity concepts. In particular, our results highlight a very limited degree of substitutability between factors in the production of hospital services, especially between beds and medical staff. These findings suggest that a restructuring policy of the hospital industry, which is confined to reducing the number of beds without involving workforce management, could not be a viable strategy for controlling public health care expenditure.     

Second-Best Pollution Taxes: an Analytical Framework and Some New Results

This paper compares the second-best optimal tax on polluting consumption goods with the Pigovian tax, which would internalize marginal environmental damage at a second-best optimum. It is shown that the relationship between the optimal tax on polluting consumption and the Pigovian tax is determined by the substitutability between labour and polluting consumption or clean and polluting consumption, depending on whether a wage tax system or a commodity tax system is being considered. The key factor determining the relationship between the two taxes is gross substitutability between the two taxed goods. As long as there is gross substitutability, the optimal dirt tax exceeds the Pigovian tax. The opposite can occur if and only if the two goods are gross complements.     

Endogenous trade policy in general equilibrium: An interaction of redistribution rule,trade openness,and labor market condition

Using a general equilibrium framework, the paper derives trade policy endogenously for a small country. It shows that, contrary to the existing literature, a lobbying industry is not guaranteed trade protection; it may even face trade taxes. Besides lobbying, trade policy depends on other factors such as the trade revenue distribution rule, income distribution across groups, trade openness, factor substitutability in production, industry employment size, and labor market flexibility. The paper also shows that the observed phenomenon of government preference for import tariffs over export subsidies—a long overdue puzzle—is an inherent outcome of lobbying equilibrium. It also shows that trade policies such as import tariffs and export taxes that have the same impact on economic market—Lerner symmetry (1936)—are driven by the same forces in the political market.     

The effects of economic reforms on manufacturing dualism: Evidence from India

Dualism is a pervasive feature of the manufacturing sectors of less-developed countries, with large differences in productivity between the informal and the formal sectors. Policy distortions are viewed as an important factor behind the prevalence of manufacturing dualism. We examine whether tariff reforms, industrial de-licensing and the withdrawal of reservation of products for small firms implemented since the mid-1980s have had any effects on efficiency differentials between informal and formal firms in Indian manufacturing. We find strong evidence that economic reforms have exacerbated dualism by increasing the productivity differentials between the more efficient formal firms and the less efficient informal firms.     

Nontraded goods,uncertainty, and equilibration in the United States' economy

This paper examines 1) the empirical significance of nontraded goods by estimating the Hicksian gross substitutability between traded goods and goods in the United States' economy at large, and 2) structural changes in the speed of the substitution. The results suggest that the substitutability is substantial, but significantly less than perfect; that the period of price equilibration has been dramatically protracted in recent years, but the ultimate magnitude of the adjustment has not changed; and that exchange rate uncertainty and general price uncertainty appear to explain the protraction, with the latter the more significant factor.     

A simple portfolio allocation model of financial wealth

This paper introduces a simple but highly flexible portfolio allocation model which provides a convenient framework for testing and imposing considerable structure on the data. The model is estimated with Australian data for four financial assets, fixed deposits, savings bank deposits, building society deposits and holdings of a class of government bonds. In contrast to previous findings, interest rate coefficients are estimated precisely and indicate quite a high degree of substitutability.     

Are financial development and corruption control substitutes in promoting growth?

While financial development and corruption control have been studied extensively, their interaction has not. We develop a simple model in which low corruption and financial development both facilitate the undertaking of productive projects, but act as substitutes in doing so. The substitutability arises because corruption raises the need for liquidity and thus makes financial improvements more potent; conversely, financial underdevelopment makes corruption more onerous and thus raises the gains from reducing it. We test this substitutability by predicting growth, of countries and industries, using measures of financial development, lack of corruption, and a key interaction term. Both approaches point to positive effects from improving either factor, as well as to a substitutability between them. The growth gain associated with moving from the 25th to the 75th percentile in one factor is 0.63–1.68 percentage points higher if the second factor is at the 25th percentile rather than the 75th. The results show robustness to different measures of corruption and financial development and do not appear to be driven by outliers, omitted variables, or other theories of growth and convergence.     

Sheila Dow's concept of dualism: clarification, criticism and development

This paper analyses Dow's concept of dualism and decomposesit into eight categories, one not explicitly identified by Dow.It is argued that Dow's original definition is underdevelopedand thereby lacking practical relevance. The paper presentsa development of Dow's definition, which allows her to attackthe splitting of polar categories. This significantly increasesthe relevance of Dow's definition of dualism and buttressesher criticisms of the mainstream. The paper also identifies‘heuristic dualism’ in Dow's work. A distinctioncan be made between Dow's ‘heuristic dualism’, whichis strictly an intermediate step in an argument, and the mainstreamuse of fixed dualistic categories.     

二元性问题的讨论:我们忽略了什么——一个基于资源占有非均衡的分析

除了传统意义的二元结构,在垄断行业与市场竞争行业、计划经济改制的国有企业与完全市场竞争企业及由教育资源分享不公引起的劳动力异质问题上,均有以隐性形式存在的二元结构问题.二元性外延的拓展根源于经济活动中公有资源占有的不公平,并且一经占有,个体理性的本位效率偏好与集体行动的公平目标必然出现一定的背离.二元性的存在不仅影响和谐社会的构建,而且使效率原则出现一定程度的扭曲.     

Trade,Migration, and Inequality in a World without Factor Price Equalization

The behavior of trading economies in the absence of factor price equalization is not well understood, although empirical evidence against factor price equalization is overwhelming. We map regions of diversification and specialization for competitive world economies with different factor endowment partitions. Goods and factor price responses as economies move within and across different regions of specialization are explored using a series of novel diagrams. The usefulness of endogenizing patterns of specialization is illustrated by considering the impact on inequality of migration flows (such as US–Mexico), the substitutability of trade and migration, and the impact of the entry of a large unskilled labor‐intensive economy (such as China) on factor prices and factor flows.     

Economic Integration,Process and Product Innovation,and Relative Skill Demand

The interaction between economic integration, product and process innovation, and relative skill demand is analyzed in a model of international oligopoly. Lower trading barriers increase the degree of foreign competition. The competing enterprises respond by investing more aggressively in lowering marginal costs of production. Moreover, firms reduce the substitutability of their products through additional investment in product innovation. The paper also shows that the relative demand for skilled workers may increase as a result.     

Rural–Urban Migration,Substitutability of Human Capital and City Productivity: Evidence from China

Among the studies on the productivity effect of migration, the role of the substitutability of human capital between migrant workers and local workers has not received much attention. The elasticity of substitution is important for rural–urban migration in China, because there is a substantial difference in schooling quality between rural and urban regions and because there is imperfect competition in city labor markets. Using aggregate city‐level data from the 2010 China Population Census, we find that the positive effect of human capital on city productivity improves as the substitutability increases. Moreover, a grid‐search shows that the “best” estimate of the substitutability in China is between 2.1 and 2.5, far from being complete.     

A tale of two countries: Directed technical change,trade and migratory movements

We propose a North-South model that reconciles trade and production strategies, flows of innovators and the path of economic divergence, or convergence, between countries. We explain the mechanisms behind these forces and show how the technological and economic gaps can be reversed if southern countries stop imitating northern goods and, instead, produce complementary goods. Such a strategy of complementarity on production yields the necessary incentives to innovators to engage in research in southern countries, which enhances the catching-up process between countries. It is also shown that migratory movements of unskilled labor between countries are also relevant to understand the dangers and benefits of different trade strategies for economic growth. This paper suggests a positive (negative) correlation between technological innovation in the North (South) and the level of substitutability in production, while under complementarity, technological innovation catches up in the South, therefore fostering the economic catching up process. A positive correlation between inflows of skilled and unskilled labor and substitutability of production between countries is also verified.     

The LeChatelier principle: the long and the short of it

Summary. Using ordinary calculus techniques, we investigate the conditions under which LeChatelier effects are signable for finite changes in parameter values. We show, for example, that the short run demand for a factor is always less responsive to price changes than the long run demand, provided that the factor of production and the fixed factor do not switch from being substitutes to being complements (or vice versa) over the relevant range of the price change. The absence of a sign change in the complementarity/substitutability relation holds under conditions that are considerably more general than supermodularity of the production function.     

How substitutable is natural capital?

One of the recurring themes in the sustainability literature has been the extent to which a loss of natural capital can be made up for in welfare terms by an increase in other forms of capital. This issue was raised early on in the debate on sustainability by Pearce and has never really been resolved. This paper is an empirical attempt to measure the degree of substitutability between different forms of capital. A nested CES production function is used to allow flexibility in the estimated elasticities of substitution. Also, within this specification, natural resources and other inputs are combined in different levels of the function, thus allowing for different levels of substitutability. Institutional and economic indicators are also incorporated in the production function estimated. Results show that the elasticities derived from functions involving land resources were generally around one or greater, implying a fairly high degree of substitutability. Furthermore, changes in trade openness and private sector investment have a statistically significant and direct relationship on the efficiency of production and hence on income generation. No statistically significant relationship between income and any of the institutional indicators was found.      

Capital as a Single Magnitude and the Orthodox Theory of Distribution in Some Writings of the Early 1930s

Some writings of the early 1930s by Dennis Robertson and John Hicks present, with a clarity not easily found elsewhere, the reasons why marginalist economists, who until recent decades normally treated capital as a single magnitude, were in fact compelled to do so. This paper focuses on a first reason that emerges from these writings: namely the fact that only this treatment of capital can lend plausibility to the notion of substitutability between factors of production on which the orthodox theory of distribution is built.