AN ILLUSTRATIVE PRODUCTION FUNCTION FOR LABOUR-MANAGED FIRMS*

An illustration of the ambiguities in the behaviour of a labour-managed firm in the long run when both capital and labour are variable is provided by means of an example which can be completely solved. Input demand and output supply functions are derived from a suggested production function. The special case of a homothetic production function is yielded by one of five parameter sets identified.     

OPTIONAL REAL-TIME PRICING OF ELECTRICITY FOR INDUSTRIAL FIRMS

Abstract. This paper proposes a pricing mechanism, optional real-time pricing (RTP), with day-ahead hourly prices, that exploits the potential offered by a competitive wholesale power market. When an electric utility offers the option to its industrial customers, the retail prices are based on an existing Hopkinson tariff and expectations as to the wholesale market's next-day hourly spot prices. The proposed RTP mechanism is Pareto-superior to the tariff in that it assures both the utility and the customer of profits that will be at least as great as under the tariff.     

A NEW METHOD FOR THE ESTIMATION OF CAPACITY UTILIZATION: THEORY AND EMPIRICAL EVIDENCE FROM 14 EU COUNTRIES

In this paper, we develop a new and at the same time simple method of obtaining a measure of the rate of capacity utilization (CU) which makes use of the structural vector autoregression (SVAR) system of equation estimating technique with long‐run restrictions. The measure of CU that we derive for each of 14 EU countries replicates to a great extent the European Commission's Directorate General for Economic and Financial Affairs (ECFIN) measure. On closer examination we find that the in‐sample explanatory content with respect to the inflation rate of the SVAR measure exceeds more often than not that of the ECFIN's measure; however, the out‐of‐sample forecasting performance of the two models is approximately equivalent.     

SUNK COSTS OF CAPITAL AND THE FORM OF ENTERPRISE: INVESTOR‐OWNED FIRMS AND WORKER‐OWNED FIRMS*

ABSTRACT ** : This paper examines implications of sunk costs of capital for efficient forms of enterprise. It is assumed that firm owners and outside traders are asymmetrically informed of venture risks, and that there are sunk costs associated with investment in physical and human capital. We then make an efficiency comparison between investor‐owned and worker‐owned firms. We find that the firm is efficient when it is owned by the input supplier (the investor or worker) who incurs large sunk costs. This is because such an input supplier can credibly signal to the other input supplier that he in fact has a safe project. An empirical study based on the Japanese manufacturing industry seems to support the theoretical result.     

IS THE COST OF DEBT CAPITAL HIGHER FOR YOUNGER FIRMS?

Not much is known about the returns to aging (maturing) in the market for small business finance. Using a large panel of closely held micro firms, we document that the cost of debt capital is higher for young firms. The main finding of this paper is that this negative qualitative relation is also obtained when cross‐sectional variation in unobservable creditworthiness of small businesses and within‐firm (i.e., inter‐temporal) variation in their observable creditworthiness are held constant. We control for the former by firm‐specific fixed effects and for the latter by a commercial credit score. We also provide an estimate of the quantitative magnitude of the aging effect, on which both economic theory and earlier empirical research are silent. We find that when a small business ages one year, its cost of debt capital decreases by 1–2 basis points. The effect is neither negligible nor alarmingly large.     

STRATEGIC TRADE POLICY WITH INTERNATIONALLY OWNED FIRMS*

The consequences of international firm ownership for strategic trade policy are examined both in a general and in a simple linear model of an international duopoly with two governments using production subsidies as policy instruments. At first sight, the case for strategic trade policy seems to be weakened, because international ownership reduces a government's incentive for rent-shifting. Closer inspection shows, however, that there are ownership structures leading to optimal policies which induce the duopolists to behave more collusively. This tends to resolve the conflict between national and international rationality in a policy game with retaliation and makes strategic trade policy look more attractive.     

THE MEASUREMENT OF CONSTANT PRICE AGGREGATES IN CANADA*

This paper is in part directed towards a partial examination of Canadian concepts and methods used in the deflation of constant price estimates of gross domestic product from both an expenditure and industry-of-origin point of view, and in part toward certain problems arising in the development of a conceptually balancing set of accounts in real terms. It also provides reference material to allow the reader to pursue the detailed methodology and data underlying the Canadian constant price accounts.     

RENT-SEEKING FIRMS AND CONSUMERS: AN EQUILIBRIUM ANALYSIS*

This paper examines the probability of success in a rent-seeking contest as a general function of the resources that both firms and consumers devote to lobbying the government. The object of lobbying is a possible restriction of market supply, where the likelihood that supply will be restricted to a given extent depends on everyone's lobbying efforts. In equilibrium the expected social loss due to rent-seeking activities is at most equal to the size of the contested rent, and this upper bound does not depend on the active participation of consumers in the contest. Markets in which supply is not restricted may also be associated with rent-seeking waste. Finally, consumers' rent-seeking efforts are shown to be socially productive, both on the margin and in total.