Agendas and Strategic Voting

This paper describes a simple classroom experiment in which students decide which projects to fund on the basis of majority voting. Several agendas are used to generate a voting cycle and an inefficiently high level of public spending. Classroom discussion allows students to discover for themselves how to manipulate outcomes through agenda design and strategic voting. The exercise leads naturally to a discussion of political institutions and the size of government. Use: This experiment can be used in introductory and public economics classes to teach concepts of voting cycles and inefficiencies in public choice. Time required: Twenty minutes for reading instructions and taking votes and 15 minutes for discussion. Materials: A printout of the instructions for each participant and one deck of ordinary playing cards for each group of seven voters.     

Employment and Prices in a Simple Macroeconomy

This exercise sets up interlinked labor and goods markets in a classroom macroeconomy. Students with worker roles are endowed with labor that can be consumed or sold to firms that post wages, purchase labor, and produce goods that can be either consumed or sold to workers. The money from sales is used by firms to purchase labor in the next period. Complicated record keeping is avoided by using ordinary playing cards to represent money and goods. The exercise can stimulate a discussion of potential output, unemployment, and the role of money in determining wages and prices. Use: This experiment can be used in introductory macroeconomics classes to teach concepts of the circular flow, real and money wages, unemployment, and labor market equilibrium and in intermediate classes to consider Keynesian and quantity theories. Time required: Fifteen minutes for reading instructions, 30 to 45 minutes for trading (depending on the number of periods), and 15 minutes for discussion. Materials: You will need one copy of the instructions for each person and one deck of ordinary playing cards for each replicated group of two workers and one firm. No money or other incentives are required.     

Coordination

Many economic games have multiple equilibria, some of which are better than others for everyone involved. Such coordination games are of special interest to economists because they raise the possibility that a group of individuals or even a whole economy might become mired in an unfavorable situation. This paper explains how to use playing cards in the classroom to implement an economic game with multiple, Pareto-ranked equilibria. Discussion can focus on policies and institutions that promote coordination on better outcomes. Use: This experiment can be used in introductory economics to teach concepts of team production and coordination and in intermediate microeconomics to teach game-theoretic concepts of Nash equilibrium and Pareto optimality. Time required: Five minutes for reading instructions, 20 minutes for decision making, and about 15 minutes for discussion. Materials: You will need one or more decks of playing cards, each deck accommodating 26 people. One copy of the instructions should be made for each person. Payment to a randomly selected individual is optional and will require about a dollar or two.     

COMPETITION BETWEEN INTERMEDIATED AND DIRECT TRADE AND THE TIMING OF DISINTERMEDIATION

This paper analyses how intermediation by a middleman who buysfrom sellers and sells to buyers is affected if direct tradebetween buyers and sellers becomes possible. Without coordinationamong sellers and buyers, disintermediation may not occur whenit would be welfare-improving. With such coordination, disintermediationmay occur too early. If direct trade is active, the supply anddemand for intermediation become interdependent: an increasein the bid price thus increases both supply and demand. Thisprocess of interdependence by which the two trade mechanismscompete for trade is a feature of competing markets generally.     

Information and Price Setting in a Rural Javanese Market∗

The paper examines the thesis established by Geertz and Dewey that Javanese rural trading practices, although well suited to the pasar marketing system, are maladaptive to larger scale trade. Focusing on a chilli marketing depot in Java the paper outlines the network of trading links which stretch from farmer to end-market, as well as the mechanisms of price setting and credit arrangements. The conclusions reached are that the volume and value of goods handled at this level are considerable and that both price setting and commercial relationships are largely stable. Constraints on entrepreneurial activity are attributed not to a Javanese peasant ethos of “shared poverty” but to lack of capital, dispersed markets, perishable goods and discontinuous information on supply of produce and current market prices.

     

Errors-in-variables, supply side effects, and price elasticities in foreign trade

Errors-in-Variables, Supply Side Effects, and Price Elasticities in Foreign Trade.—Previous estimates of price elasticities in foreign trade are likely to be biased upward due to errors-in-variables, omission of supply side influences, aggregation, bad measurement of price competitiveness, and misspecification of the estimation equations. This paper incorporates the supply side into the traditional demand for export equation and uses a panel data approach for OECD manufacturing to provide unbiased estimates of price elasticities. The estimates indicate that the sum of the absolute import and export price elasticities is close to one and that currency depreciations are likely to adversely affect trade balances in the long run due to supply side influences. JEL no. E3, F1, F4     

A centennial: The walras vision

Summary The purpose of the article is to observe the Walras centennial by restating as simply and as succinctly as possible the core of the Walras vision: considerm outputs,n inputs, and s households. Industry demands inputs and supplies outputs; households demand outputs and supply inputs. Define equilibrium demand, supply, and relative price in all resulting, purely competitive, markets as a system of equations sufficiently complete to determine the value of the variables. In restating the core, the article offers nothing original beyond simplicity and succinctness.For careful reading and a comprehensive critique of an earlier draft, I am indebted to Professor William Jaffé of York University. For permission to quote the translation of Walras he prepared with loving care and superior linguistic skills, I am indebted to him as well as to Richard D. Irwin, Inc., Homewood, Illinois.     

Evaluating the risk of Chinese housing markets: What we know and what we need to know

Real estate is an important driver of the Chinese economy, which itself is vital for global growth. However, data limitations make it challenging to evaluate competing claims about the state of Chinese housing markets. This paper brings new data and analysis to the study of supply and demand conditions in nearly three dozen major cities. We first document the most accurate measures of land values, construction costs, and overall house prices. We then create and investigate a number of supply and demand metrics to see if price growth reasonably can be interpreted as reflecting local market fundamentals. Key results include the following:

• (1)Real house price growth has been high, averaging 10% per annum since 2006. However, there is substantial heterogeneity across markets, ranging from 2.8% (Jinan) to 19.8% (Beijing). House price growth is driven by rising land values, not by construction costs. Real land values have risen by 14.4% per annum on average. In Beijing, the increase has been by a remarkable 27.5% per year (or by 1036%) since 2004.
• (2)There is variation about the strong positive trend in house price and land value growth. Land values fell by nearly one-third at the beginning of the global financial crisis, but more than fully recovered amidst the 2009–2010 Chinese stimulus. More recent growth has been much more modest, with some markets beginning to decline. Quantities of land sales by local governments to private residential developers have dropped sharply since 2013. The most recent data show transactions volumes down by half or more. This should lead to a reduced supply of new housing units in coming years.
• (3)Market-level analysis of short- and longer-run changes in supply–demand balances finds important variation across markets. In the major East region markets of Beijing, Hangzhou, Shanghai and Shenzhen which have experienced very high rates of real price growth, we estimate that the growth in households demanding housing units has outpaced new construction since the turn of the century. However, there are thirteen large markets, primarily in the interior of the country, in which new housing production has outpaced household growth by at least 30% and another eleven in which it did so by at least 10%. Regression results show that a one standard deviation increase in local market housing inventory is associated with a 0.45 standard deviation lower rate of real house price growth the following year.
• (4)There are no official data on residential vacancy rates in China, but some researchers have reported very high figures (17%+). We develop a new series at the provincial level which yields a much lower vacancy rate on average, but it has been rising—from 5.2% in 2009 to 7.8% in 2014.
• (5)The risk of housing even in markets such as Beijing which show no evidence of oversupply, is best evidenced by price-to-rent ratios. They are well above 50 in the capital city. Poterba's (1984) user cost model suggests these levels can be justified only if owners have sufficiently high expectations of future capital gains. Even a modest one percentage point drop in expected appreciation (or increase in interest rates) would result in a drop in prices of about one-third, absent an offsetting increase in rents.

     

Margin,Short Selling,and Lotteries in Experimental Asset Markets

The robustness of bubbles and crashes in markets for assets with finite lives is perplexing. This paper reports the results of experimental asset markets in which participants trade two assets. In some markets, price bubbles form. In these markets, traders pay higher prices for the asset with lottery characteristics (i.e., a claim on a large, unlikely payoff). However, institutional design has a significant impact on deviations in prices from fundamental values, particularly for an asset with lottery characteristics. Price run-ups and crashes are moderated when traders finance purchases of the assets themselves and are allowed to short sell.     

Monopoly supply

Summary and Conclusions In the preceding sections, it is shown that a supply curve in the ordinary sense does exist and can be derived, which corresponds to a specified family of demand curves described by changes in a single parameter of demand. If the demand curve hasn parameters, an equal number of supply curves can be derived, one corresponding to each family of demand curves generated by variation in one of the parameters, holding the remainingn–1 constant. Since the demand curve family facing the perfectly competitive firm has the formP =a, there is only one supply curve in this case. Further, that supply curve does not involve demand parameters since the sole demand parameter,a, is eliminated in its derivation. In general, this is not the case and the marginal cost schedule will be insufficient to describe the supply relation for imperfectly competitive firms.In the teaching of graduate and undergraduate microeconomics, students often become confused by conflicting discussion suggesting that monopoly nopoly supply is meaningless, irrelevant, or a point. If there is only one demand curve, the equilibrium price-quantity supply will be one point regardless of whether monopoly or perfectly competitive firms are being considered. The broader definition of supply advocated here offers the pedagogic advantage of stressing the fundamental uniformity of the supply concept in the theory of the firm. With shifting demand, there is a meaningful supply relation in both the competitive and monopoly case.As indicated in Section III, this generalized definition of supply has strong implications for empirical work, showing that it is tractable to estimate monopoly supply relations as well as marginal cost curves in the monopoly case and thus opening the door to useful new empirical work.     

Choosing Winners and Losers in a Classroom Permit Trading Game

This paper presents a classroom game in which students trade pollution permits. By changing the distribution of permits across firms, the game shows students how the allocation of property rights determines the winners and losers in the permit trading system but does not affect the efficiency of the system. This game can be used in a variety of classes, including principles or environmental economics, and can be conducted in a 50-minute class period with follow-up discussion in the next class.     

Tracing Trade Interdependence between EU and East Asia

Abstract

There have been two related trends shaping global trade during the past couple of decades: the increasing role of international supply chains and the rise of China. Increased complexity in global trade has generated a need to construct more processed trade data — trade in value added — in order to deepen our understanding of trade relations between countries. In this article, we present a broad picture of trade in value added between the EU28 and East Asian countries. We find that East Asia is important as a final demand and supply chain export destination, especially for Northern European countries, while for CEE countries it is more important as an import source for both final demand and supply chain trade. Trade with East Asia is least important for Southern European countries. The production structure of an EU country seems to be one of the main factors explaining the importance of supply chain trade with East Asian countries. The data also suggest that supply chain trade could support the growth of domestic value-added exports to the supply chain trade partner country as well as to other countries.     

Black markets: Illegality, information, and rents

The analysis of black markets typically treats illegality only in reduced form as an additional cost per transaction. We argue that this misses the essential feature of black markets: that the risk of detection depends upon the dissemination of information. Because the cost of information is increased, traders will change marketing technology from advertising to sequential approaches to potential customers. The trader's decision problem is his offer price: as he raises it he must expect to make more approaches per sale and thereby increase detection risk. This behavior is important because of its implications at the market level. The optimal offer price will be set at a level at which excess demand persists: would-be consumers are not always able to bid themselves into supplies. Hence, black markets are not sufficient to eliminate the shortages which arise from price controls. In an earlier paper the authors established that peasant supply response to crop prices would be perverse in the presence of shortages: black markets therefore need not restore normal responses. The paper includes evidence from rural Tanzania.     

Exchange rate volatility,international trade and labour demand

The purpose of this study is to assess under what conditions exchange rate volatility generates a positive effect on an exporting firm’s labour demand. As the exchange rate volatility increases, so does the value of the export option, provided that firms are flexible with respect to international trade. Higher volatility increases the potential gains from trade and can increase the demand for labour. The firm’s trade flexibility can be interpreted as a real hedging strategy when financial markets are incomplete. In many newly industrializing countries and emerging economies financial markets are imperfect or risk sharing markets are just starting to develop at a rather slow pace.     

对上海市住房市场的实证非均衡分析

文章首先通过理论分析表明,住房市场是一个非均衡的市场。随后把上海短期住房市场分为增量房和存量房两个市场,运用非均衡市场的供需函数模型对其进行了定量实证分析。结果表明住房市场的非均衡程度很高,因为上海住房市场中需求缺乏价格弹性,而对未来房价的预期使得投资需求的     

Exports versus FDI: do firms use FDI as a mechanism to smooth demand volatility?

In this paper, we first develop a simple two-period model of oligopoly to show that, under demand uncertainty, whether a firm chooses to serve foreign markets by exports or via foreign direct investment (FDI) may depend on demand volatility along with other well-known determinants such as size of market demand and trade costs. Although fast transport such as air shipment is an option for exporting firms to smooth volatile demand in foreign markets, market volatility may systematically trigger the firms to undertake FDI. We then use a rich panel of US firms’ sales to 56 countries between 1999 and 2004 to confront this theoretical prediction and show strong evidence in support of the prediction     

三亚旅游旺季“宰客”问题经济学分析

应用经济学方法,分析了三亚旅游市场供给能力受限大、需求季节性明显和需求弹性小等三大特征,构建了三亚旅游市场"宰客"的涨价模型和限价模型,指出三亚应从供给方面,加强旅游基础设施和接待设施改造升级及与周边地区旅游开发与管理的合作,提高旅游供给柔性;从需求方面,通过优化旅游产品结构,减轻旅游需求季节性差异影响,平衡旅游供需矛盾,从根本上解决三亚春节旅游"宰客"问题。     

Market Substitution and the Pareto Dominance of Ad Valorem Taxation

Based on product homogeneity and Cournot competition, past literature has uniformly shown that ad valorem taxation welfare dominates unit taxation in noncompetitive markets. This paper allows goods in a market to be heterogeneous and firms to be Bertrand competing. We confirm the short-run findings of others that consumer welfare and overall welfare are always higher under ad valorem taxation. However, ad valorem taxation generates larger profits (hence Pareto dominates) only when market demand is elastic, perhaps explaining the persistence of unit taxation in markets with inelastic demand. The effects on ad valorem Pareto dominance of within- and between-market substitutability, number of firms in the taxed market, and the level of taxation are also investigated. In the long run, an equal-revenue substitution of ad valorem taxation for unit taxation reduces consumer price, which is welfare improving, but also reduces variety when market demand is elastic, which is welfare decreasing. Nonetheless, ad valorem welfare dominance still holds in the long run.     

Potential demand and external trade

Summary Both in theoretical and empirical studies of international trade relative prices play a dominant role. Standard international trade theory asserts that under certain conditions the price mechanism may lead to an equilibrium between demand for and supply of goods from and to different countries. For short periods, some relevant conditions may not be fulfilled; in that case other adjustments such as changes in non price conditions may equate demand and supply or, alternatively, disequilibria may exist. Direct statistical evidence on non price conditions, excess demand and excess supply is scarce.This paper describes a partly indirect approach of the not price conditioned trade fluctuations. The basic model assumes that these fluctuations are largely dependent on pressure of demand, which is defined as the tension between potential demand and potential supply. In this way both exports and imports are divided in a potential component, dependent on relative prices, and a pressure induced component. The other main assumption is that actual domestic demand changes according to the demand function. Combining these relations, potential demand for domestic products is the sum of domestic demand and potential export demand minus potential import demand. Potential supply is assumed to be a constant fraction of the exogeneously given production capacity.The model is used for an iterative approximation of the changes in potential demand and pressure of demand for the Netherlands. For this purpose estimations for actual exports and actual imports of commodities are derived from the model. In the initial estimations, potential demand is approximated by means of actual demand, during consecutive rounds the results of the preceding stages are used. After three rounds the coefficients are stable. The values calculated for the yearly changes in potential demand are for most years in concordance with a priori expectations. For the reference period, the explanatory power of the computed pressure of demand is either of about the same quality as that of conventional pressure variables or better.     

A Multiperiod Model and Experimental Evidence of Independence and “Lowballing”*

Abstract. Auditors, regulators, and academics are interested in the pricing practice of “lowballing” and its relationship to auditor independence. Several analytical models have examined these issues. However, these theories have gone untested primarily due to a lack of field data concerning important environmental variables. In this study, a multiperiod model of lowballing and independence is developed and tested in laboratory markets via the experimental economics methodology. The study contributes to the literature in two respects. First, it represents one of the first studies providing empirical evidence and theory testing of the relationship between lowballing and independence. Second, the model presents a new rationale for low-ball pricing and its relationship to auditor independence. Lowballing and impairment of independence, occurring without exogenous transaction costs, are caused by positing cross-sectional variation in audit cost and quality and an informational advantage that accrues to an incumbent auditor-client pair regarding future variation in these audit dimensions. The model is operationalized in a multiperiod laboratory market consisting of multiple sellers and buyers. Sixteen markets are conducted to test price and reporting predictions of the model. The markets strongly exhibit lowballing behavior, but the exact price predictions are generally not supported. The markets also support reporting predictions, with sellers deviating from truthful reporting (impairing their independence) only when additional future profits are greater than the additional cost of misreporting. Data availability. The laboratory market data used in this paper are available from the authors upon request.