Increasing returns to scale and productive systems

We consider an economy in which some producers may have nonconvex technologies, in particular they may operate under increasing returns to scale. These producers constitute the I-part of the economy. The prices of all goods and the target supply of the I-part are supposed to be given. Each producer in the I-part produces a certain output in a cost-minimizing way. There is a planning board which has to find decentralizing (gross) output levels for the producers in the I-part such that the net output equals target supply. The existence of such output levels is proven under a productivity assumption which includes the case of strongly increasing returns to scale as well as productive Leontief systems.     

Estimating tax noncompliance with evidence from unaudited tax returns

This article estimates the degree of tax noncompliance using evidence from unaudited tax returns. Measurements of noncompliance are derived from the relationship between reported charitable contributions and reported income from wages and salary as compared to alternative reported income sources such as self-employment, farm and other small business income. Assuming that the source of one's income is unrelated to one's charitable inclinations and that the ratio of true income to taxable income does not vary by income source, any difference in the relationship between charitable contributions and the source of income can be attributed to (relative) underreporting by the individual. We find that the implied amount of noncompliance is significant and that it varies by source of income, as well as between positive and negative values of each type of income.     

Real-time decentralized information processing and returns to scale

We use a model of real-time decentralized information processing to understand how constraints on human information processing affect the returns to scale of organizations. We identify three informational (dis)economies of scale: diversification of heterogeneous risks (positive), sharing of information and of costs (positive), and crowding out of recent information due to information processing delay (negative). Because decision rules are endogenous, delay does not inexorably lead to decreasing returns to scale. However, returns are more likely to be decreasing when computation constraints, rather than sampling costs, limit the information upon which decisions are conditioned. The results illustrate how information processing constraints together with the requirement of informational integration cause a breakdown of the replication arguments that have been used to establish nondecreasing technological returns to scale. November 24, 1999; revised version: March 14, 2000     

Aggregate returns to scale in Greek manufacturing

This paper takes an imperfect competition model of the economy in order to investigate for retuns to scale in Greek manufacturing and examines, through a small-scale macroeconomic model, the implication of estimates. For this purpose a price, wage and demand for output equations are estimated, using annual data for the period 1954–94. Prices come through the profits maximization process and depend on wage, capital rental, demand and a number of other variables denoing technology and market competition. Results are clearly in favour of increasing returns to scale hypothesis, although alternative explanations for the negative demand effect on prices cannot be excluded.     

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.     

On the concepts of returns to scale

We clarify various concepts of returns to scale scattered in the literature by presenting their six different concepts. We find the global relationship among them and apply some of the results to determine the shape of the average cost curves.     

Experimental evidence on tax salience and tax incidence

Although a basic theoretical principle in public economics assumes that individuals optimize fully with respect to the introduction of a tax, a growing body of research is proving that several heuristics are in place when people take decisions. We re‐examine the well known liability side equivalence principle in the light of the concept of salience. While these two topics have been extensively investigated in isolation, this paper innovates on the previous literature in that it focuses on their joint effects. Is tax incidence dependent on whether the subjects face a salient rather than a nonsalient tax? Does the salience of a tax exert a different effect depending on who is legally committed to bear the tax burden? We address these questions through a laboratory experiment in which one unit of a fictitious good is being traded through a double‐auction market institution. Based on a panel data analysis, our contribution shows that point of collection matters and determines the economic incidence of tax. Additionally, we find that the joint effect of salience and statutory incidence does not alter the informative efficiency, but has a positive effect on buyers’ allocational efficiency when the tax is levied on sellers.     

Heterogeneity, returns to scale, and collective action

Abstract .  I analyze the effects of resource inequality and valuation heterogeneity on the provision of public goods with increasing or decreasing returns to scale in production. The existing literature typically takes the agents' characteristics as given and known to the researcher. In contrast, this paper compares collective action provision across groups of agents with resources and valuations for the public good drawn from different known joint distributions. Specifically, I characterize the expected equilibrium public good level as function of various distributional properties and moments. A resource-valuation distribution that first-order stochastically dominates another distribution always results in higher expected public good provision level, independent of the production technology. With decreasing returns to scale in the public good production, higher resource inequality results in higher expected provision. With increasing returns the same result holds when the mean resource level is relatively low, but expected provision decreases in inequality when the mean resource level is high. A parallel result holds for agents' valuations.     

Constant returns to scale and competitive equilibrium under uncertainty

This paper considers the implications of the assumption of constant returns to scale in expected utility maximizing models of the competitive firm or industry in which markets for risk are absent. Under widely used assumptions about risk preferences it is shown that with constant returns to scale average profits are more than necessary to cover the implicit costs of risk-bearing. When the free entry of identical firms is possible this assumption about technology is shown to be incompatible with the assumption that entrepreneurs are risk averse.     

Increasing returns to scale and the reverse flexible accelerator

We show that the flexible accelerator principle characterizes optimal investment behavior only when the firm's technology exhibits decreasing returns to scale throughout. When there are increasing returns we show that there is a range in which investment increases as the capital stock increases towards its long-run equilibrium level.     

Institutional inequality and tax incidence

This paper analyses the effects of taxation when inequality is not innate. A theory of institutional inequality is presented which employs a trade model with circular production and the theory of clubs. Inequality is introduced by constraints on entry into sectors and ‘local’ groups within sectors. Individual time is treated as a fixed factor of production, and work and leisure are re-defined. The analysis suggests that when inequality is institutional and government policy does not alter the mechanisms by which institutions translate the distribution of power into the distribution of income, a redistribution of income by conventional tax-transfer schemes may not always be feasible.     

The multiplant firm with increasing returns to scale

The paper analyzes allocation among plants whose production is characterized by “nicely convex-concave production functions” (intended to fulfill the property of initial increasing returns to scale followed by subsequent decreasing returns to scale). Necessary conditions for optimal allocation are derived. The complete solution is given for the simplified case of identical plants, and examples show the various possibilities that may arise. The relative difficulty of solution for even the simplest case emphasizes the problem of applying our economic theories to the real world.     

The Stolper-Samuelson theorem under decreasing returns to scale

The necessary and sufficient condition for the Stolper-Samuelson theorem is derived under decreasing returns to scale. This result is interpreted by separating a factor-intensity effect and a scale effect and by using the elasticities of substitution and the factor demand elasticities.     

Game theoretic modeling of increasing returns to scale

This paper surveys the analysis, by means of cooperative game theory, of economies in which there are increasing returns to scale. In the first section necessary and sufficient conditions for the existence of a core of a general equilibrium economy are considered. In the second section, the partial equilibrium approach to increasing returns production, which developed along with the natural monopoly literature, is surveyed. The close relationship between the general equilibrium and partial equilibrium approaches is emphasized.     

Unionization and distribution of income under variable returns to scale

Variable returns to scale are introduced into the two-sector analysis of unionization and income distribution, and some new results are obtained. Specifically, with increasing returns to scale it is possible for both union and non-union workers to lose (gain) from unionization even when the unionized sector is relatively capital (labor) intensive.     

The incidence of,and returns to overeducation in the UK

Drawing on German data we look for evidence of a supply-side political business cycle. The hypothesis suggests that centralized trade unions with political interests and some degree of monopoly power may fine-tune their collective wage bargaining strategies so as to help preferred or to harm rejected parties in power. The regression results confirm that between 1960 and 1988 German trade unions exercised additional wage pressure before general elections under a Christian Democratic incumbent drew closer, trade unions pursued a restrictive wage policy to promote the government' chances for re-election.     

Estimating productivity and returns to scale in the US textile industry

In light of the textile industry's growing foreign competition, trade deficit and job loss, we estimate its productivity and efficiency for the period 1975–93 utilizing a variable elasticity of substitution production function. The results indicate that, despite job losses, the industry adjusted by increasing labor productivity and maintaining fairly stable profits. This performance does not warrant protectionist policies. However, with an elasticity of factor substitution less than one and decreasing, the impact of factor price increases could result in higher apparel prices and preference for cheaper imports. Furthermore, with an elasticity of capital output rapidly decreasing, significant technological improvements will be required to improve competitiveness since textile production is capital intensive. Recently revised rules on trade liberalization could increase competition in the industry. First version received: October 1999/Final version received: August 2000     

Shadow prices in intertemporal plans under constant returns to scale

It has been shown, in connection with Tobin's ‘q’ theory of investment, that, under constant returns to scale and for interior solutions, the market value of a firm is its capital valued at the shadow price of capital. This result is here generalized to cover many fixed (and variable) factors and non-interior solutions.