The effect of increased labor force participation of married women on the distribution of family income in the Netherlands

Summary In this article we analyse the income equalizing effect of wives' income on the combined income of husband and wife in The Netherlands. We will use the Theil coefficient as a measure of inequality. After some preliminary remarks have been made and relevant data have been presented, the Theil coefficient is decomposed into a number of components. Whereas theory concludes that the effect of wives' income on the distribution of family income should be less equalizing after about 1970, it appears that this does not hold true for the whole period under investigation.The research was carried out in the framework of the project entitled Problems relating to the distribution of social security. The author wishes to thank Professor A. Kapteyn and two anonymous referees for their helpful comments on an earlier draft of this paper.     

Naar De Meetbaarheid Van Een Rechtvaardige Verdeling

Summary The author proposes a method to arrive at a cardinal theory of utility or welfare (considered identical) by the introduction into the utility function of (1) variables, (2) parameters and (3) coefficients. Parameters characterize measured differences between individuals relevant to the problem considered; variables indicate either choices open to individuals (job, income) or exogenous circumstances (a salary scale or a tax scale). The ethical postulate introduced is the equality of each coefficient among different individuals, offered as an interpretation of the fundamental equality of men. Once the utility function has been defined and tested, justice in distribution is defined as equality of the values of that function for all individuals considered. A numerical illustration is added in which years of schooling and degree of independence are used as parameters to characterize twenty social groups and the just as distinct from the actual income distribution is calculated for the Netherlands around 1965.It affords the Board of Editors great pleasure to publish this paper by one of their members. This gives the Board the opportunity, also on behalf of the readers ofDe Economist, to congratulate Professor Tinbergen most cordially upon his 70th birthday, which he celebrated on 12th April, 1973.     

Game equilibrium modelling

Summary Non-cooperative game theory has in recent years become one of the main tools in the social sciences and economics. It deals with decision problems of more than one (rational) player. The actions of those players result in outcomes that are the best that may have happened to a player, given the actions of the other players. This is precisely the content of the 'Nash equilibrium' concept. It would be nice when each game had a unique Nash equilibrium. Unfortunately, both non-existence and multiple equilibria occur. An important role in game theory is played by the information available to the players. Among the economic applications are: the Theory of Industrial Organisation, Bargaining and the Economic Theory of Information.Comments by Eric van Damme and Casper de Vries on an earlier draft of this paper have greatly improved the presentation. I have benefited from the comments of the editor and an anonymous referee ofDe Economist. For all omissions, all possible errors and the revealed views in this paper, I alone am responsible.     

Rational spirits and the post Keynesian macrotheory of microeconomics

Summary The argument that post Keynesian theory rejects rationality and maximization as a basis of agent behaviour and is thus non-rational and lacking micro-foundations is contrasted by reference to Keynes' use of his early work on probability in the General Theory. Instead of presuming rational choice over perfectly known events, post Keynesian theory builds on Keynes' explanation of agents' rational beliefs in uncertain propositions about their knowledge of the world. These rational spirits lead to the recognition of the macro constraints to individual action or a macrofoundations of microeconomics linked to the role of money and to the role of liquidity preference as both a measure of rational belief and a determinant of money prices which equate the rates of return on all existing and newly produced goods. In this equilibrium prices will generally diverge from costs of production, in contrast to perfect competition but in concordance with the post Keynesian microeconomic theories of mark-up pricing.Comments by L. Hoogduin are gratefully acknowledged. He is relieved from any responsibility for my impressionistic presentation of Keynes' views on probability.     

On the scope of hydraulic macroeconomics: Some reflections on Alan Coddington's Keynesian Economics

Summary The questions which Alan Coddington's posthumous bookKeynesian Economics brings to the fore as well as the thought-provoking (rather than fully acceptable) answers it provides make it worthy of being taken up for further analysis and discussion. This review article is intended to be one possible contribution in this respect. It focuses on the way Coddington's book deals with subjectivist approaches in economics and criticises it for going astray in this respect by adopting a mistaken view on the proper method of economics and giving a mistaken interpretation of both Keynesian economics and the economics of Keynes.I am indebted to L. H. Hoogduin, I. M. Kirzner, J. A. Kregel, S. K. Kuipers, J.A.H. Maks, J. Muysken and J. Pen for their valuable comments and discussion on an earlier version of this paper. Of course, they cannot be blamed for any remaining errors.A. Coddington,Keynesian Economics: The Search for First Principles, George Allen and Unwin, London, etc., 1983. Pp. 129. £ 9.95     

Testing Korteweg's rational expectations model for a small open economy

Summary Korteweg extended the Barro, Lucas, Sargent, Wallace type of rational expectations model to a small open economy. This paper tests Korteweg's model with Dutch data. A major error in the specification and estimation is pointed out and corrected: the differenced expected variables are not defined consistently. This error implies that Korteweg's and Bomhoff's previous empirical results on the model are invalid. The test results for the corrected model indicate that this model has to be rejected for The Netherlands. The restrictions implied by an extremely simple empirical alternative are, however, not rejected.I would like to thank Dr. Th.E. Nijman, Professors F. van der Ploeg, W.H. Buiter and J.J.M. Theeuwes and Dr. A. J. de Zeeuw for their stimulus and helpful comments on previous versions of this paper, and Professor P. Korteweg for his open-minded attitude towards this research. Responsibility for the contents remains, of course, with the author. Financial help, from the Stichting Bekker-La Bastide-Fonds and the Stichting A.A. van Beek-Fonds is gratefully acknowledged.     

On Kalecki's theory of income distribution

Summary Kalecki scored a breakthrough by introducing the degree of monopoly into his macrodynamic model. He offered a theory of distribution that was independent of the neo-classical tradition. He introduced a promising alternative theory of distribution, even if it lacked a comprehensively formulated theory of market behaviour and was in some respects deficient in dealing with the question of investment decisions. To build a realistic theory of distribution, Kalecki offered an explanation of how prices in fact are formed by mark-ups on prime costs. This use of mark-ups to cover overheads is very important. Though it entails monopoly power it is not synonymous with it.Earlier drafts of this paper were read by and discussed with M. H. Dobb, F. H. Hahn, R. Goodwin, J. A. Kregel, Joan Robinson, K. W. Rothschild, P. Sraffa, P. M. Sweezy. The final revision benefited from the comments of the Editors of this Journal. In expressing my appreciation to all those mentioned, I should like to make the usual disclaimer.     

On the difference between the keynesian,knightian and the ‘classical’ analysis of uncertainty and the development of a more general monetary theory

Summary In this article it is shown that Keynes concept of uncertainty is not identical with that of Knight, as is often argued. The identification of Keynesian with Knightian uncertainty has contributed to the neglect of an aspect of Keynesian uncertainty that is important in understanding the functioning of a monetary economy. Therefore, it is concluded that monetary theory can benefit from the development of an analytical apparatus that incorporates all aspects of Keynesian uncertainty.I am indebted to Mr. J. de Haan, Professor J.A. Kregel, Professor S.K. Kuipers, Professor J. Pen, Dr. J. Snippe and Mr. A. van Witteloostuijn for their comments on an earlier version of this paper. It goes without saying that they cannot be blamed for any remaining errors.     

Smoke of leets

Summary This is a review of some of Mrs. Joan Robinson's ideas, and the author's conclusion is that these ideas do not contribute to the present state of economic theory. Her view on international trade is lopsided, her criticism of traditional capital theory goes too far, her refutation of income distribution theory is mainly unfounded. Basically, Mrs. Robinson rejects the notion of relative scarcity of capital; the author believes that this is a useful notion in economics. Moreover, her recent work shows a strong anti-empiricist tendency. If Mrs. Robinson's negative train of thought were to be applied to all concepts of macro-economic theory (total labour force, real national income etc.) these concepts would vanish in thin air. The whole of macro-economics might go up in smoke.     

Economic resilience: A two-country analysis

Summary Countries differ with regard to labour-market flexibility and animal spirits of entrepreneurs. The paper aims at an analysis of the consequences of these differences in a climate favourable to economic growth. For that purpose a two-country model is presented in section 2. Although wealth variables are taken into account, expectations are assumed to be static. Despite this simplification the model cannot be solved analytically. The role of a dynamic region (USA) versus a more passive region (Europe) is therefore studied by working through numerical examples.I am indebted to Ir. A. Markink for his invaluable assistance in all computations and to Professor S.K. Kuipers, Mr. A.B.T.M. van Schaik and Mr. J.H.M. Donders for comments on a previous version of the paper.     

On the theory of macroeconomic policy

Summary Jan Tinbergen originated the theory of policy in the 1950s. Here I apply it to contemporary macroeconomics. The two standard instruments of short-run demand management cannot achieve the two usual targets, full employment and price stability. With respect to those goals, these two instruments are collinear, except for small and transient effects on foreign exchange rates. But the mix of fiscal and monetary policies, relative to one another, does have important effects on the composition of national output, as between investment and consumption.I point out that policy-makers, like portfolio managers, should diversify the instruments they use when they are uncertain of their effects. I discuss some pitfalls in the empirical estimation of policy effects, especially possible misinterpretations of simple correlations, and I note that policy rules cannot be invariant to changes in macroeconomic structure. I argue that policy rules should involve responses to new information and in practice allow discretion. Finally, I suggest that Tinbergen's theory of policy needs to be extended to policy coordination among nations.Third Tinbergen Lecture delivered on October 20, 1989, in Utrecht for the Royal Netherlands Economic Association.     

Utility and economics

Summary Although utility has been the central concept in economics, economists have paid relatively little attention to its measurement. Generally, utility is measured indirectly via the revealed preference approach. We discuss problems with this approach and next introduce alternative direct measurement methods. The direct measurement methods are seen to spawn a so-called theory of preference formation, which explains differences in utility functions of different individuals. The similarities of this theory with related theories in sociology and psychology, and various sorts of empirical evidence, are reviewed. The paper concludes with a discussion of the implications of these findings for economic theories.This is a slightly adapted version of my inaugural address at Tilburg University. I thank Tom Wansbeek for his helpful comments.     

Economic theories of leisure: Some comments and suggestions

Summary Most economic theories of leisure are concerned with valuations of leisure time related to income as an opportunity cost. After a critical discussion of these theories, leisure time as a constraint is introduced in the theory of consumer behaviour by (1) distinguishing between pleasant and unpleasant consumer activities, (2) discussing the effects on individual's welfare of changes, in the duration of both types of activities and (3) developing time-saving concepts. A theoretical framework for consumer choices under time and/or income constraints leads to suggestions for the lines along which leisure research should be developed as a basis for welfare policy in the widest sense.My thanks are due to Professors P. Hennipman, L. H. Klaassen, A. Pais and Mr. D. B. Needham for the valuable suggestions they made during the preparation of this article. Several parts of it will be presented in a more detailed form in a thesis on the subject.     

Exchange rate theories

Summary A four-period classification is used to categorise recent exchange-rate theories or models. In the very short period, only capital flows are relevant. In the short period, both capital flows and payments on the current account play a role. In the long period, the capital account and the current account are individually in equilibrium. In the very long period, purchasing power parity holds. Cash-in-advance models are dealt with separately. Many models that purport to explain exchange rates do in fact not provide for the exchange of currencies. No model stands up satisfactorily to econometric testing. Speculative bubbles, the peso problem and news play havoc with tests of the uncovered interest parity theorem, the core of the monetary models. This aside, the fundamental assumption of rational expectations itself is suspect. There does not seem to be such a thing as a true model.I am indebted to Dr. W.J.B. Smits and Professor J.W. Gunning for helpful discussions on a number of issues pertinent to this article.     

The perspective of the SDR's position in monetary reserves on the robustness of optimal portfolio results

Summary To gain an empirical impression of the SDR's attractiveness as a reserve asset, an amended mean-variance analysis is applied to official reserves. The main amendments bear upon the choice of the numeraire and the rejection of both the capital market line and the effective yield's positive marginal utility-frequently assumed in empirical analysis. Comparison of the outcome with that recently obtained by Ben-Bassat shows a large sensitivity of optimal portfolio results for slight differences in assumptions. A second, substantial kind of sensitivity of an asset's position in a portfolio appears to ensue from the influence of other competing functions of reserves.The authors are Professor and Assistant Professor of International Economics, University of Amsterdam, The Netherlands. The research of the second author was financially supported by the Netherlands organization for the advancement of pure research (Z.W.O.), no. 46-108. This research is part of the project Exchange-rate and monetary policy in international dependence. The paper was presented earlier at the conference Research in international finance, Jouyen-Josas, France (June 19 and 20, 1986). Computational assistance by Jeannette Capel, Reiner Gratama, and Martin O. Nijkamp and comments by an anonymous referee are gratefully acknowledged.     

Employment opportunities and labor force participation

Conclusions The research reported here provides a link between expected mix of job opportunities and labor force participation rates for various demographic groups in the working age population. The model produced statistically significant results, generally, for the expected employment opportunities indices, and appears to be a useful device for analyzing labor force participation changes in reaction to varying employment opportunities.The empirical results give further evidence of the existence of a dual labor market in which several worker groups, encompassing younger and older workers and non-family heads, are not as strongly attached to the labor force as prime age males. In particular, percentage increases in job seekers in secondary labor force groups induced by expanding employment opportunities may well exceed percentage increases in employment opportunities in an area. These groups' labor force participation elasticities with respect to employment opportunities are usually greater than one, thus adversely affecting attempts to reduce the official unemployment problems of these secondary groups.Given the greater difficulties these so-called marginal or secondary workers have in finding employment, manpower planners need to anticipate shifts in the labor force composition in assessing needs to be met through job creation and manpower programs. In particular, the results suggest that selective job creation and training programs may be necessary to solve unemployment problems.Finally, this research provides additional evidence demonstrating the inadequacy of unemployment counts to show the total number of persons desiring a job and, thus, the total size of the employment problem faced in a labor market. Moreover, the number of hidden unemployed who will became active job seekers as job openings develop is related to the mix of specific job openings as well as to the demographic mix of the population age 16 years and over.The authors wish to thank the Economic Development Administration and the Bureau of Economic and Business Research at the University of Utah for funding portions of this research. The authors also wish to thank Professor Dan Mitchell, Graduate School of Management, UCLA, for his comments on an earlier version of this paper.     

Forward exchange,short term capital flows and monetary policy: A comment

Summary In this comment it is argued that the theoretical explanation of Coulbois and Prissert of the functioning of the forward exchange market (the cambist theory) is nothing but a simplified version of the interest parity theory, because in their theory the horizontal arbitrage function implicitly plays a dominant role.Further some critical remarks are made concerning the role of non-bank arbitrages and the influence of interest arbitrage on the spot rate, on the size of the international short-term capital movements and on the domestic money supply.They want to thank Mr. William Schep for his helpful comments with regard to the translation into English of the original text.     

Cash Management, Payment Patterns and the Demand for Money

We analyse cash management and payments behaviour using 1990–1994 panel data for Dutch households. The results largely confirm the transactions demand for money theory, including an income elasticity of substantially less than one, and they are consistent with the hypothesis of technology resulting in households' economizing on currency balances. The results indicate up to 40 per cent lower transactions balances in the future, which is affirmed by direct questioning on future expectations. The effect on total money outstanding is considerably lower, due to significant amounts of missing money in hoards, which are insensitive to new developments in the payments system.     

Policies for economic growth

Summary The old growth theory of the 1950s led to certain conclusions about the sorts of economic policies that would promote economic growth, and also about their limitations. The new growth theory of the 1980s makes much stronger assumptions and leads to correspondingly stronger conclusions about the scope of growth-promoting policy. This article argues that: (1) empirical work so far has neither confirmed nor denied the strong assumptions underlying the new theory; (2) the theory is worth pursuing because of its intrinsic interest and the possibilities it opens up; (3) whatever the final verdict on the new theory, both theory and evidence support the belief that significant long-run gains, even if not permanent changes in the growth rate, can be achieved by increased investment in the broadest sense, including human capital, technological knowledge, and industrial plant and equipment.Fifth Tinbergen Lecture delivered on October 4, 1991, in Amersfoort for the Royal Netherlands Economic Association     

Transaction Cost Economics: How It Works; Where It is Headed

This paper begins with a sketch of the New Institutional Economics, with special emphasis on the institutional environment (North and others) and the institutions of governance (Coase and others). Thereafter the paper mainly emphasizes the applications of transaction cost economics to the study of governance, the object being to effect an economizing alignment between transactions, which differ in their attributes, and governance structures (firms, markets, hybrids, bureaus), which differ in their cost and competence. I raise a series of issues – phenomena of interest, describing human agents, describing firms, purposes served, scaling up – to which any would-be theory of the firm should be expected to speak and indicate how transaction cost economics responds to each. I thereafter describe the mechanisms through which transaction cost economics is implemented and develop some of the core conceptual supports out of which it works. Applications to public bureaus, strategic management, and intractable transactions are sketched.