Antwoord Aan Prof. Dr. A. Heertje En Drs. D. Furth

Summary The endogeneous duopoly solution as put forward in the author's paper A Dynamic Duopoly Model (De Economist, 1970, pp. 458–490) is not refuted by the objections raised in the preceding article. The contention that the analysis is based on a reaction pattern in the sense of Launhardt neglects the interdepedence between induced and autonomous price changes as formulated in the price reaction functions. The equilibrium prices in a Launhardt model differ from the endogeneously determined equilibrium prices derived in the author's paper. Since the price reaction coefficients are reconsidered in each period by the duopolists, the dynamic process generates these coefficients endogeneously.     

Is there an Anglo-American corporate governance model?

This paper questions the existence of an Anglo-American model of corporate governance and capitalism. Significant differences between the UK and US models of corporate governance are identified. The UK is a principles orientated system based more on voluntary codes operated on a ‘comply or explain’ basis, whilst the US system is more rules based and litigious. The UK focuses more on ex ante protection of ‘outside’ shareholders, whilst the US focuses on ex post protection of share traders. Institutional investors are expected to play a more prominent and wide ranging role in corporate governance in the UK than the US, though the evidence on their voting behaviour and wider ‘engagement’ activity is not readily available. The explosion of private equity led leveraged buy-out activity in the mid 2000s challenges the efficiency of both models and could be a harbinger of a ‘new capitalism’; relying more on incentive compatible remuneration packages and less on public disclosure and market discipline. Alternatively, it could simply be driven by the tax advantages currently enjoyed by debt over equity, the special deferred capital gains (‘carried interest’) tax treatment enjoyed by private equity, low (long as well as short term) real interest rates (‘cheap money’), and rising equity prices.     

Wage and employment effects in the EU of international trade with the emerging economies

The paper investigates whether significant HOS effects are present in the EU from trade liberalization with the emerging economies. Regarding wage inequality, there is only evidence of a trade-induced technological change, but biased towards thelower-skilled-labor-intensive sectors. Relative wages in the EU member states are not affected differently. Trade liberalization under ‘European assumptions’, however, could affect primarily relative factor demand. A flexible cost function approach shows that import competition from the emerging economies influenced relative labor demand in favor of the higher skilled, implying an intrasectoral rather than an intersectoral specialization in skill-intensive activities. JEL no. F11, F14     

Exploring the Structure of the Illegal Market for Cannabis

Summary This paper explores the middle and retail levels of the illegal market for cannabis in New Zealand using national household drug survey data. Those who reported purchasing half or full ounces of cannabis were defined as middle level market participants, while those who purchased smaller weights or merely used cannabis were defined as retail level participants. Those who had purchased cannabis were then further categorised as either cannabis ‘buyers’ (i.e. those who only purchased sufficient cannabis for their own consumption needs) or cannabis ‘dealers’ based on whether the surplus of cannabis they had, after their own personal consumption was deducted, exceeded the legal definition of cannabis dealing (i.e. possession of 28 g of cannabis or more). Nine per cent of those who had purchased cannabis in the previous year were categorised as middle level participants with 69% of these defined as middle level dealers and 31% as middle level buyers. Middle level cannabis dealers were projected to earn, on average, $2927 (NZD) net annual profit from selling surplus (rate of return of 34%). There was a wide variation in the projected net earnings of the middle level cannabis dealers with the majority earning only modest incomes (bottom 50% – $260 per year, top 10% – $25000 per year). Participants at all levels of the market commonly reported receiving cannabis for ‘free’ and this is likely to reflect the social sharing of cannabis during group consumption and non-cash payments for cannabis. This barter and gift giving tradition may provide cannabis users with a degree of insulation from any price increases for cannabis brought about by law enforcement activity. Cannabis selling creates a convenient source of income for heavy cannabis users to finance their own personal cannabis consumption, which may also dampen the impact of any rise in price brought about by law enforcement success.The 2003 HBS-Drug Use was funded by the New Zealand Ministry of Health and carried out as part of the Public Health Intelligence (PHI) Health Behaviours Survey Monitor. The statistical design for the 2003 survey was completed by Dr. Megan Pledger at SHORE, and by James L. Reilly from Statistical-Insights. The questionnaire was adapted and extended from the National Drug Survey questionnaire for the Health Behaviours programme by Dr. Chris Wilkins. Data collection was managed by Dr. Chris Wilkins, Rachael Lane, Joe Morley and Mary Blade. The statistical analysis of 2003 HBS-Drug Use was completed by Paul Sweetsur. The analysis in this paper was partly funded by the New Zealand Police.     

Allocation of workers over jobs

Summary Labour market supply is assumed to depend on the maximization of worker welfare. Welfare is assumed partly to depend on the ‘tension’ between schooling required by the job and actual schooling. Hence in the allocation of workers over jobs a tendency can be expected to minimize tension. Strict minimization produces a matrixt obtained by Hitchcock's Northwest-corner rule. Recent material due to Rumberger allows an explanation of 69 to 85 per cent of frequency variance. The remaining error term can be explained by the assumption of independence of demand and supply.     

Keynes's Approach to Money: An Assessment After Seventy Years

This paper first examines two approaches to money adopted by Keynes in the General Theory. The first is the more familiar ‘supply and demand’ equilibrium approach of Chapter 13 incorporated within conventional macroeconomics textbooks. Indeed, even Post Keynesians utilizing Keynes's ‘finance motive’ or the ‘horizontal’ money supply curve adopt similar methodology. The second approach of the General Theory is presented in Chapter 17, where Keynes drops ‘money supply and demand’ in favor of a liquidity preference approach to asset prices that offers a more satisfactory treatment of money's role in constraining effective demand. In the penultimate section, I return to Keynes's earlier work in the Treatise on Money as well as the early drafts of the General Theory to obtain a better understanding of the nature of money. I conclude with policy implications.     

De ontwikkeling van de concentratie in de Nederlandse nijverheid in de periode 1930–1963

Summary Four firm employment concentration ratios were estimated for manufacturing industries. Basic sources of data were employment figures collected by the 1930, 1950 and 1963 General Economic Census.Due to untractable changes in census classification, historical comparability was restricted to about 70–80% of the working population in manufacturing.Absolute and relative trends were analyzed; it appeared that for the period 1930–1963 as a whole concentration in Dutch manufacturing did not change significantly.The significance of the degree of openness of the Dutch economy for the calculated concentration ratios has been considered.For 24 historically comparable industries with less than four firms each there was net entry while the share of the largest firm generally declined.The hypothesis of a negative relation between concentration and growth was tested and only partly confirmed. *** DIRECT SUPPORT *** AX102008 00002     

Is Numérairology the Future of Monetary Economics?

The paper discusses some fundamental problems in monetary economics associated with the determination and role of the numéraire. The issues are introduced by formalising a proposal, attributed to Eisler, to remove the zero lower bound on nominal interest rates by unbundling the numéraire and medium of exchange/means of payment functions of money. The monetary authorities manage the exchange rate between the numéraire (‘sterling’) and the means of payment (‘drachma’). The short nominal interest rate on sterling bonds can then be used to target stability for the sterling price level. The paper puts question marks behind two key bits of conventional wisdom in contemporary monetary economics. The first is the assumption that the monetary authorities define and determine the numéraire used in private transactions. The second is the proposition that price stability in terms of that numéraire is the appropriate objective of monetary policy. The paper also discusses the merits of the next step following the decoupling of the numéraire from the currency: doing away with currency altogether—the cashless economy. Because the unit of account plays such a central role in New-Keynesian models with nominal rigidities, monetary economics needs to devote more attention to numérairology—the study of the individual and collective choice processes that govern the adoption of a unit of account and its role in economic behaviour.

Decomposition of GDP Growth in Some European Countries and the United States

Summary  The composition of economic growth can be analyzed in two different ways. In the ‘traditional method’ for the decomposition of GDP growth, total imports are deducted from exports. This approach underestimates the importance of exports for the growth in GDP, and overestimates the importance of domestic expenditure categories. In the alternative methodology proposed in this paper, imports are allocated to all expenditure categories. Although this ‘import-adjusted method’ is more complex than the ‘traditional method’, it has the considerable advantage that the contributions of the expenditure categories to GDP growth provide a better understanding of why GDP growth decelerates or accelerates. The methodology and data requirements for calculating the import content of final demand, and the implications for the decomposition of real GDP growth, are discussed. For six European countries and the United States, the paper shows that applying the alternative methodology provides rather a different economic story.      

Zwevende wisselkoersen

Summary It is shown that the most important advantages of fluctuating exchange rates (full employment; protection against the import of inflation; optimal international specialisation) as well as the disadvantages of this system (instability of the economy; inflationary pressure; hampering international economic relations) only have a limited validity. On the other hand the advantages of fixed exchange rates (promoting international trade; impeding internal inflation) and its disadvantages (larger unemployment; import of inflation) have no more general validity. A crawling peg does not give a solution for fundamental disequilibria and a widening of the band implies a more difficult task for the authorities. Fluctuating exchange rates always leave open the possibility of ‘dirty floating’. An adjustable peg with rules for swift adjustment for deficitand surplus countries might well give the best solution.     

Inter-group Disparities in the Distributional Analysis of Human Development: Concepts,Measurement, and Illustrative Applications

An important feature of most segmented societies is that deprivations and well-being achievements are unequally distributed across well-defined sub-groups of the population, when the latter is partitioned according to a variety of social or geographical categories, such as gender, caste, ethnicity, religion, occupation, sector of origin, or region of domicile. Group disparities are a matter of both instrumental interest in assessing the nature of a society (such as in terms of its propensity for conflict) and intrinsic concern in evaluations of a society’s record of ‘horizontal’ distributive justice. One aspect of a study of population heterogeneity would reside in the measurement of inter-group inequalities in the distribution of a society’s burdens and benefits. It is this aspect of the problem that is reviewed in the present paper. It is useful to note that group inequality can be categorized into different types (which are nevertheless mutually linked by certain commonalities of purpose and motivation), and a particularly instructive taxonomy is available in a recent paper by Arjun Jayadev and Sanjay Reddy (‘Inequalities and Identities’, which is available on the website of the Social Science Research Network, at ). The present paper also presents taxonomy of alternative approaches to reckoning group inequality, and discusses a number of real-valued measures of group disparity, mainly based on work in which this author has earlier engaged, by himself or in collaboration.     

De vraag naar openbaar vervoer in de drie grote steden

Summary This is an analysis of the demand for public transport—provided by tramway and bus services—in Amsterdam, The Hague and Rotterdam. It is principally concerned with the estimation of price elasticities and with an assessment of the future growth of demand. The analysis is based on monthly figures of the numbers of tickets of six different kinds sold at known tariffs in the three cities from 1948 to 1964. The method of analysis is least-squares regression of demand on real price and time; dummy variables are used to eliminate the seasonal variation of demand and to account for changes in the tariff structure as in the case of the introduction of a new type of ticket with special facilities. The data for the three cities are analysed separately throughout. To begin with, demand for each particular type of ticket was analysed separately. The resulting estimates show no coherent pattern in each of the cities. Matters improve, however, when demand is grouped together—according to the type of ticket—in two categories only,viz., “travel to and from work” and “all other transport”. Demand is inelastic with respect to price for both categories, but the price elasticities differ: they are about 0.80 for the first group, and only 0.40 for the second. There is also a marked difference in the trend coefficients. Demand for travel to and from work is increasing annually, while other transport is declining at a rate of about 7%. These results apply uniformly for each of the three cities considered.      

“Mr Keynes and the ‘Classics’” Again: A Methodological Enquiry

Keynes is usually interpreted as proposing, or intending to propose an original theory of employment and income. However, this paper shows that Keynes was actually proposing more than a theoretical alternative. He saw himself breaking away from the ‘Classics’ at the connected levels of theory and methodology. This paper thus argues that modern economists going back to the old story of the relation between Mr. Keynes and the ‘Classics’ can learn something about several controversial issues in macroeconomics and methodology like for instance the role of experiments and formal arguments in economics.The paper is the development of a chapter in my Ph.D. thesis and has greatly benefited from discussion with Mark Blaug, Anna Carabelli, Bill Gerrard, Marc Lavoie, Tony Lawson, Roy Rotheim, and especially Geoff Harcourt and Malcolm Sawyer. Errors and omissions are, of course, solely my responsibility. A first draft of the paper was presented at the UK Autumn HET Conference (Glasgow Caledonian University, September 1999) and the AISPE Conference (University of Florence, September 1999). Finally, the paper was completed when I was visiting Research Professor at the Economics Department and C-FEPS, University of Missouri Kansas City (UMKC), Kansas City (USA) and Visiting Fellow at Clare Hall College and CCEPP, University of Cambridge, Cambridge (UK). I would like to express appreciation to members of those institutions for providing a stimulating and pleasant working environment.     

How Influential is Economics?

Economists often claim that their discipline has a great influence on the economy. An analysis of the existing literature reveals, however, that little convincing empirical evidence exists. The two approaches used are subject to major shortcomings. The ‘Economics Production Function’ relating the input of economic ideas to economic outcomes, is faced with major estimation problems. The ‘Revealed Behaviour Approach’ of choosing to study economics is based on very restrictive assumptions. It is argued that the ‘Case Study Approach’ analysing specific policy instances constitutes a more promising avenue and should be undertaken to identify more general patterns of influence.     

Energy sanctions and the global economy: mandated vs unilateral sanctions

International Economics and Economic Policy - The world is witnessing an unprecedented episode of ‘economic warfare’, with more than 30% of global GDP (the G7’s share) pitched...     

Rotating Slumps in a Monetary Union

In the decade since its creation in 1999, the European Economic and Monetary Union (EMU) has experienced surprisingly large and persistent inflation differentials across member states causing substantial shifts in relative price levels. At the same time, member countries exhibited distinct non-synchronized output fluctuations, giving rise to a pattern of ‘rotating slumps’ (a term coined by Olivier Blanchard). This paper presents a stylized theoretical model of a monetary union which demonstrates how inflation differentials and relative output movements interact dynamically. A number of implications are derived from the model. In particular, national fiscal policies are shown to have an important role in containing internal macroeconomic disparities in a monetary union. An optimal fiscal policy rule is derived from the model for that purpose.     

How to Share Our Risks Efficiently? Principles for Optimal Social Insurance and Pension Provision

The efficient organisation of social insurance is an important problem for modern societies. The paper discusses evidence that shocks in labour income have largely persistent effects and analyses the implications of this observation for the optimal design of institutions for wage contracting, social security, and pensions. In an optimal contract, wages reflect variations in individual productivity for incentives reasons. However, the optimal contract insures workers against firm specific shocks. These can better be born by shareholders who can diversify risks on capital markets. Progressive income taxation provides further insurance. On top of that there is scope for additional insurance based on ‘verifiable’ information on unemployment and health conditions. As final form of ‘insurance’, the paper analyzes the role of self-insurance. Income shocks can be absorbed partially by precautionary saving. The individual’s saving plans for retirement and for precaution are, therefore, related issues. In an institutional setting with mandatory saving for retirement, an integration of disability and unemployment insurance on the one hand and the pension system on the other hand in a lifetime savings account allows for this interrelation. The paper analyzes how to deal with the uncertainty in the return on savings in the framework of a lifetime saving account.     

On the efficiency of labor markets

Summary Important changes in labor market parameters and a growing awareness of the cost of equity-promoting policies have led to increased interest in the efficiency of labor markets. This paper uses the orthodox result in the case of perfect competition to survey efficiency aspects of deviating assumptions: collective negotiations, imperfect information, risk and dynamics associated with education and technology. Perfect competition is found an inadequate standard, as many ‘imperfect’ market modifications enhance efficiency. This is a translation and revision of my inaugural lecture at the Universiteit van Amsterdam. May 16, 1983.     

Aid-for-trade facilitation

‘Aid for Trade’ is an ongoing and high-profile discussion associated with the Doha negotiations of the World Trade Organization. It also relates to questions of how best to achieve the Millennium Development Goals. Questions remain, however, about whether foreign aid spent on trade facilitation increases trade flows of developing countries. Does it work differently from aid in general? Using detailed data on aid flows from the OECD, the analysis here estimates the relationship between specific types of aid and trade flows, both globally and of the aid recipients. The findings indicate that aid spent on promoting trade is positively associated with global trade. For most types of such aid-for-trade facilitation, it is relatively more strongly associated with recipient exports than their imports. In contrast ‘other’ types of aid are more strongly associated with recipient imports. Based on elasticities estimated over 16 years of trade and aid data for 40 donor countries and about 170 country trading pairs, our results suggest that a 1% increase in aid-for-trade facilitation (of about US220 million in 2008) correlates to about US 220 million in 2008) correlates to about US 290 million of additional exports from the aid receiving countries.     

Payment Instruments as Perceived by Consumers – Results from a Household Survey

Summary Survey results show that Dutch consumers perceive paying in cash as an inexpensive way to pay, compared to paying with electronic payment cards. This finding partly explains the low usage of electronic payment cards in point-of-sale (POS) payments. The objective of the survey was to identify price and non-price features of payment instruments that can be used to stimulate the use of electronic payment cards. Their attractiveness can be increased, through technological modifications that enhance their convenience and by increasing the number of acceptance points. Making it less expensive for consumers to pay with payment cards could also increase the usage of payment cards. I would like to thank Rein Kieviet, Maarten van Rooij, Stijn Schmitz, Ariena van Wageningen and especially Corrie Vis of CentERdata for their help in collecting the data. Furthermore, I would like to thank two anonymous referees, Wilko Bolt, Hans Brits, Jeff Dominitz, Beth Kiser, Beth Klee, Jed Kolko, Philip Maier, Carlo Winder and participants of the DNB lunch seminar, the FRB research seminar and the Boston FED ‘Consumer behaviour and Payment Choice’ conference for their valuable comments on earlier versions of this paper. All remaining errors are my own. The views expressed in this paper are mine and do not necessarily reflect those of the Nederlandsche Bank.