Comment on “C.E.S. production functions in the light of the Cambridge critique”

The controversy revived in Bertram Schefold’s paper is based on three common assumptions: (1) the underlying techniques are linear (2) perfect competition obtains (3) the economy operates in a putty-putty context. The consequences of dropping these assumptions are discussed, and the relation between nonlinearity and the error due to the use of an “imprecise” production function is examined.     

What crises could teach us about complexity and systemic management: The case of the Nestucca oil spill

In this article we attempt to uncover some systemic management principles for the better management of complex issues. Taking a pragmatic approach we have expanded the case methodology proposed by John Dewey to the case study of a major crisis. By proposing that crises allow for a better apprehension of complexity, we study the changes which were carried out or not, to this day, after the 1988 Nestucca oil spill that occurred in Canada only three months prior to the Exxon-Valdez disaster. After conducting a linear and systemic analysis of the crisis, we propose that the changes institutionalized thus far spring mostly from what we call “behavioral” and “paradigmatic” learning which are weak for addressing complex issues. Proposing that 15% of the people we have interviewed where able to derive a “systemic learning” from this crisis, we suggest several unlocking strategies that allow these systemic lessons to be institutionalized.     

The case for a “productivity norm”: Comment on Dowd

Instead of aiming for zero inflation, a “productivity norm” would allow permanent changes in the price level reflecting opposite changes in productivity or unit costs of production. Dowd (1995) disputes my claim that a productivity norm would be more conducive to macroeconomic stability than a stable price level. But Dowd's arguments succeed in undermining the case for a productivity norm only to the extent that they also undermine his own case for zero inflation.     

Electrification and energy productivity

Energy productivity is crucial for sustainable development. We use cointegration analyses to investigate the effect of electricity on energy productivity in Swedish industry from 1930 to 1990. Electricity augmented energy productivity in those industrial branches that used electricity for multiple purposes. This productivity effect goes beyond “book-keeping effects,” i. e. it is not only the result of electricity being produced in one sector (taking the energy transformation losses) and consumed in another (receiving the benefits).     

Adjusting the measurement of US manufacturing productivity for air pollution emissions control

We estimate a distance function and derive producer shadow prices for SO₂ and PM-10 emissions. The shadow prices are used to adjust a traditional measure of total factor productivity growth in order to account for the reallocation of inputs from production of the marketed output to pollution abatement activities. Adjusted total factor productivity growth rates are calculated for the two-digit SIC manufacturing industries in the United States for 1970–1996. The results indicate that including the “output” of pollution abatement activities has a measurable effect on the productivity of many industries in the manufacturing sector.     

The Quantity and Quality of Schooling and U.S. Labor Productivity Growth (1870–2000)

This paper accounts for the contribution of the quantity and quality of schooling to worker productivity growth in the United States from 1870 to 2000. Schooling investments rose dramatically over the period before leveling off around 1970. Schooling likely caused 30 to 40 percent of the fivefold rise in worker productivity from 1870 to 1970 and produced a “wave pattern” in productivity growth (previously attributed solely to the timing and diffusion of important technological innovations). The results suggest that about 1 percent of the century-long 1.6-percent growth rate in worker productivity is sustainable. Journal of Economic Literature Classification Numbers: O47, J24.     

Complementary credit networks and macroeconomic stability: Switzerland's Wirtschaftsring

The Swiss Wirtschaftsring (“Economic Circle”) credit network, founded in 1934, provides residual spending power that is highly counter-cyclical. Individuals are cash-short in a recession, and economize by greater use of WIR-credits. A money in the production function (MIPF) specification implies that transactions in WIR form a stabilizing balance that makes up for the lack of ordinary currency. Thus, unlike the ordinary money, WIR money is negatively correlated with GDP in the short run. This implication is confirmed by empirical estimates. Such credit networks play a stabilizing role that should be considered in monetary policy.     

Technology, productivity, and organization

The on-coming age of changing technology and knowledge intensification, and its interactions with human values are expected to bring forth fundamental shifts in socioeconomic environment. The paper presents an overview of the dynamics of technological change, a hypothesis on productivity dynamics, and likely shifts in organizational structure. To cope with changes, organizational productivity has to be increasingly governed by human creativity and managerial effectiveness. The structure will be flatter, action-oriented, entrepreneurial, and, above all, flexible. By being organically alive, it will be different from conventional mechanical setups. The future will witness more of flexible manufacturing and flexible management systems and a change of emphasis from “management of technology” to “management of change”, governed by a multiperspective vision. The paper also analyzes major problems likely to be faced by developing countries in getting prepared for the future. In addition to their current focus on technological aspects, the Third World countries have to be seriously concerned about people and organizational issues.     

How firm capabilities affect who benefits from foreign technology

We explore how firm capabilities affect the diffusion of technology brought with foreign direct investment (FDI). Using a panel dataset on Indonesian manufacturers from 1988 to 1996, we measure how the productivity of differing domestic firms responds to the entry of multinational competitors. We find that firms with investments in research and development and firms with highly educated employees adopt more technology from foreign entrants than others. In contrast, firms that have a small “technology gap,” meaning that they are close to the international best-practice frontier, benefit less than firms with weak prior technical competency. This finding suggests that the marginal return to new knowledge is greater for firms that have more room to “catch up” than it is for already competitive firms.     

Pitfalls to avoid when measuring institutions: Is Doing Business damaging business?

Over recent years, both governments and international aid organizations have been devoting large amounts of resources to “simplifying” the procedures for setting up and formalizing firms. Many of these actions have focused on reducing the initial costs of setting up the firm, disregarding the more important role of business registers as a source of reliable information for judges, government departments and, above all, other firms. This reliable information is essential for reducing transaction costs in future dealings with all sorts of economic agents, both public and private. The priorities of reform policies should therefore be thoroughly reviewed, stressing the value of the legal institutions rather than trivializing them as is often the case. Journal of Comparative Economics 35 (4) (2007) 729–747.     

Bargaining under a deadline: evidence from the reverse ultimatum game

We study a “reverse” ultimatum game, in which proposers have multiple chances to offer responders a division of some fixed pie. The game ends if the responder accepts an offer, or if, following a rejection, the proposer decides not to make a better offer. The unique subgame perfect equilibrium gives the proposer the minimum possible payoff. Nevertheless, the experimental results are not too different from those of the standard ultimatum game, although proposers generally receive slightly less than half of the surplus.We use the reverse ultimatum game to study deadlines experimentally. With a deadline, the subgame perfect equilibrium prediction is that the proposer gets the entire surplus.Deadlines are used strategically to influence the outcome, and agreements are reached near the deadline. Strategic considerations are evident in the differences in observed behavior between the deadline and no deadline conditions, even though agreements are substantially less extreme than predicted by perfect equilibrium.     

The weak core of simple games with ordinal preferences: implementation in Nash equilibrium

In a simple game, coalitions belonging to a given class are “absolutely powerful” while others have no power. We attempt to make this distinction operational. Toward this end, we propose two axioms on social choice correspondences, Strong Non-Discrimination and Exclusion. Strong Non-Discrimination describes circumstances under which certain coalitions, the losing coalitions, have no influence over social choice. Exclusion requires that there are situations in which certain coalitions, the winning coalitions, can exercise their power. We show that the weak core correspondence is the minimal correspondence satisfying Maskin Monotonicity and Strong Non-Discrimination. We also show that the weak core is the unique correspondence satisfying Nash implementability, Strong Non-Discrimination, and Exclusion.     

Half empty, half full and why we can agree to disagree forever

Aumann [Aumann R., 1976. Agreeing to disagree. Annals of Statisitics 4, 1236–1239] derives his famous we cannot agree to disagree result under the assumption that people are expected utility (=EU) decision makers. Motivated by empirical evidence against EU theory, we study the possibility of agreeing to disagree within the framework of Choquet expected utility (=CEU) theory which generalizes EU theory by allowing for ambiguous beliefs. As our first main contribution, we show that people may well agree to disagree if their Bayesian updating of ambiguous beliefs is psychologically biased in our sense. Remarkably, this finding holds regardless of whether people with identical priors apply the same psychologically biased Bayesian update rule or not. As our second main contribution, we develop a formal model of Bayesian learning under ambiguity. As a key feature of our approach the posterior subjective beliefs do, in general, not converge to “true” probabilities which is in line with psychological evidence against converging learning behavior. This finding thus formally establishes that CEU decision makers may even agree to disagree in the long-run despite the fact that they always received the same information.     

Giants, pygmies, and the social costs of fundamental research or price revisited

Social resource and opportunity costs of fundamental science are explored utilizing a model which integrates a) the determinants of the talent distribution of the cadre of fundamental scientists, b) the relationship of individual scientific productivity to scientific talent, c) the scientific value of aggregate scientific product, and d) the value of scientific personnel in nonscientific pursuits. On this basis, total, average, and marginal resource and opportunity costs of varying degrees of realization of “scientific potential” are derived. This comparative- static analysis is then applied to the United States over the period 1940 to 1975–1985, suggesting a four- to fivefold increase in the marginal resource cost and a five- to tenfold increase in the marginal opportunity cost of fundamental science over this period. In light of these findings and of the “free-good” aspect of the products of fundamental science, it is concluded that the level and mode of support for fundamental science must, ultimately, be determined with reference to the non- or quasiscientific contributions of fundamental scientists.     

The fading 1990s in Japan: Driving forces behind the unemployment upsurge

This paper sheds new light on the causes of the unemployment upsurge in Japan during the “fading 1990s”, an unprecedented period of structural crisis. We estimate a labor market model and identify the main macroeconomic determinants of labor demand and labor supply decisions in the last decades. We then conduct dynamic simulations and assess the relative contribution of these determinants to the evolution of unemployment from 1990 to 2002. Beyond the leading role exerted by the decline in productivity growth, we find the active and expansionary measures undertaken by the government had an overall negative effect on the labor market.     

Stochastic convergence of per capita carbon dioxide emissions and multiple structural breaks in OECD countries

This research applies an innovative panel data stationarity testing procedure developed by Carrion-i-Silvestre et al. [Carrion-i-Silvestre, J.L., Barrio-Castro, T.D. and Lopez-Bazo, E., 2005. Breaking the panels: An application to the GDP per capita, Econometrics Journal 8, 159–175.], which has the advantage of recognizing multiple structural breaks and the presence of cross-section dependence in order to re-investigate the hypothesis that per capita carbon dioxide (CO₂) emissions stochastically converge for 21 OECD countries from 1950 to 2002. Remarkably, the evidence clearly indicates that the panel dataset of relative per capita CO₂ emissions is stationary after the structural breaks and cross-sectional dependence are introduced into the model. These findings offer strong policy implications for governments, regardless of whether they are in “convergent group” or “divergent group” countries. We also find that the structural breaks in the 1960s and over the 1970–1982 period are associated with time periods of fossil fuel becoming the main source of productivity, higher oil prices, and the development of nuclear power.     

Health and infrastructure in a model of endogenous growth

This paper studies the optimal allocation of government spending between infrastructure and health (which affects labor productivity as well as household utility) in an endogenous growth framework. A key feature of the model is that infrastructure affects not only the production of goods but also the supply of health services. The rate of time preference is also endogenously related to health outcomes. The first part considers the case where health enters as a flow in production and utility, whereas the second focuses on a “stock” approach. Growth- and welfare-maximizing rules for income taxation and the allocation of public spending are derived.     

Technological forecasting and assessment: Science and/or mythology?

A number of radically distinct models (inquiry systems) are described. The models derive from C, West Churchman's recent characterization of the history of Western epistemology. It is argued that only a few of these models are appropriate for technological forecasting problems. Most technological forecasting methodologies rest on a dubious philosophical foundation. They unreflectively assume that the inquiry systems which are appropriate for “well-structured” problems are also appropriate for “ill structured” problems. It is argued that technological forecasting is an inherently ill-structured problem and therefore requires a methodology which is uniquely suited to such problems. The Dialectical and Singerian Inquiring Systems are proposed as particularly appropriate for ill-structured problems.     

Will East Germany Become a New Mezzogiorno?

Despite massive regional policy efforts, GDP per capita in Southern Italy has only briefly converged on Northern Italian levels in the 1960's. Failure of convergence since then is associated with a policy switch from investment toward income maintenance, with reduced wage sensitivity to regional labor market conditions and with increases in rent-seeking opportunities and corruption. East Germany's early experience of rapid wage and income, but not productivity, convergence raised fears that aMezzogiornoscenario could be repeated. Since then, however, investment and productivity have risen while wage setting has become more flexible. Given East Germany's greater “social capability” for growth, and provided that investment continues to be encouraged, the prospects for convergence are now more promising.J. Comp. Econom.,June 1997,24(3), pp. 241–264. Magdalen College, University of Oxford, Oxford OX1 4AU, United Kingdom; University College London, London WC1E 6BT, United Kingdom; and School of Oriental and African Studies, University of London, London WC1H 0XG, United Kingdom.     

Unwrapping some euro area growth puzzles: Factor substitution, productivity and unemployment

In this paper, we estimate a long run supply-side system incorporating a CES production function with time-varying factor-augmenting technical progress for the euro area over the period 1970–2005. We find that the elasticity of substitution lies below unity at 0.7, that labor-augmenting technical progress is dominant in the long run while capital-augmenting technical progress plays an important role in the interim period. Importantly, we also find evidence of a structural break in the pattern of biased technical progress towards the end of the 1990s. Our results help to solve two puzzles in Europe’s recent growth experience which differ markedly from the US experience. The first is related to the effects of the IT boom in the 1990s on productivity growth in Europe. The second puzzle concerns the changes in the “Okun’s law” relationship, linking growth to the reduction of unemployment, which are observable in Europe since the late 1990s.