hayek's economics

The dispersal of information in the economy is the key to Hayek's analysis of economic planning, the trade cycle and entrepreneurship. Gerald Steele, a lecturer at Lancaster University, explores Hayek's analysis. The function of the market is to coordinate this dispersed information.     

The Relation between Market Values,Earnings Forecasts,and Reported Earnings*

Recently, much of the research into the relation between market values and accounting numbers has used, or at least made reference to, the residual income model (RIM). Two basic types of empirical research have developed. The “historical” type explores the relation between market values and reported accounting numbers, often using the linear dynamics in Ohlson 1995 and Feltham and Ohlson 1995 and 1996. The “forecast” type explores the relation between market value and the present value of the book value of equity, a truncated sequence of residual income forecasts, and an estimate of the terminal value at the truncation date. The analysis in this paper integrates these two approaches. We expand the Feltham and Ohlson 1996 model by including one‐ and two‐period‐ahead residual income forecasts to infer “other” information regarding future revenues from past investments and future growth opportunities. This approach results in a model in which the difference between market value and book value of equity is a function of current residual income, one‐ and two‐period‐ahead residual income, current capital investment, and start‐of‐period operating assets. The existence of both persistence in revenues from current and prior investments and growth in future positive net present value investment opportunities leads us to hypothesize a negative coefficient on the one‐period‐ahead residual income forecast and a positive coefficient on the two‐period‐ahead residual income forecast. Our empirical results strongly support our hypotheses with respect to the forecast coefficients.     

Stabilization, adjustment, and the poor

This paper attempts to survey the recent literature on the impact of stabilization and adjustment programs upon the poor and to consider some of the key issues in the context of a particular equity-oriented low-income country. Tanzania. After looking at some of the approaches of earlier studies, this paper analyzes the effects of restructuring policies, macroeconomic restraint, and strategic policy change. The author then reviews available evidence on the recent experience of Tanzania with external shock, efforts at stabilization, and relations with the IMF.In conclusion, the author argues that in order to better understand their impact on poverty we need more detailed analyses of specific countries' experience with different kinds of macroeconomic imbalance and different short- to medium-term policy responses. However, he does indicate with some certainty that when equivalent external blows impact upon very low-income countries, there must be a presumption that, other things being equal (including the distribution of income), the proportion of households and people pushed over the line into “absolute poverty” will be greater than in middle-income countries. The international community should provide external finance to aid these low-income countries in limiting the negative impact on the poorest.     

Transaction costs and crop marketing in the communal areas of Impendle and Swayimana,KwaZulu-Natal

High transaction costs are detrimental to the efficient operation or existence of markets for inputs and outputs. The cost of information and the costs associated with the search for trade partners, the distance to formal markets and contract enforcement are likely to influence the marketing of food crops. This study hypothesises that the level of income generated from food-crop sales by small-scale farmers in the Impendle and Swayimana districts of KwaZuluNatal is influenced by transaction costs and certain household and farm characteristics. Regression analysis shows that the depth of marketing methods is significantly influenced by transaction cost proxies, such as cooperation with large commercial farmers and ownership of means of transport. Results from a block-recursive regression analysis show that the level of crop income generated is determined by the depth of marketing methods, the size of allocated arable land and off-farm income. Households with lower transaction costs, sizeable allocated land and off-farm income can be expected to generate higher income from food crops. Investment in public goods such as roads, telecommunications and an efficient legal system (to uphold commercial contracts), as well as farmer support services (input supply, extension, marketing information and research), would probably raise farm and non-farm income by reducing transaction costs. This would increase the effective demand for locally produced goods and services, thus contributing to rural employment and livelihoods within rural communal areas.     

Recent Developments in the Theory of the Firm

Abstract
This article reviews recent literature on the theory of the firm. The issues addressed include the role and determinants of the size of firms, the financial structure and organisation of labour in firms, and the policy implications of this research .     

Inflation and monetary regimes

Correlations of inflation with the growth rate of money increase when data are averaged over longer time periods. Correlations of inflation with the growth of money also are higher when high inflation as well as low-inflation countries are included in the analysis. We show that serial correlation in the underlying inflation rate ties these two observations together and explains them. We present evidence that averaging increases the correlation of inflation and money growth in more when the underlying inflation rate has higher serial correlation.     

The role of marketing in the introduction of technologically new products: the case of the electric car

The energy and environmental crises are important problems facing the United States today. With less than 6% of the world's population, the U.S. accounts for 47% of the world's automobiles and nearly 35% of the total energy demand. Automobiles consume nearly 14.5% of the total energy demand and are the major source of air pollution. Whiel there are many potential solutions for the energy and environmental crises, this paper specifically focuses on how the electric car can be a partial answer to the complex problem of personal transportation. The paper specifically discusses the role of marketing in bridging the gap between technology and the consumer. On the basis of an extensive exploratory study, the authors contend that there is sufficient interest among consumers for an economical, pollution-free, electric car. Understanding the consumer's need and developing a product that is feasible, considering existing technology, is the role that marketing must play.     

Promise and peril in implementing pay‐for‐performance

Why would managers abandon pay‐for‐performance plans they initiated with great hopes? Why would employees celebrate this decision? This article explores why managers made their decisions in 12 of 13 pay‐for‐performance “experiments” at Hewlett‐Packard in the mid‐1990s. We find that managers thought the costs of these programs to be higher than the benefits. Alternative managerial practices such as effective leadership, clear objectives, coaching, or training were thought a better investment. Despite the undisputed instrumentality of pay‐for‐performance to motivate, little attention has been given to whether the benefits outweigh the costs or the “fit” of these programs with high‐commitment cultures like Hewlett‐Packard was at the time. © 2004 Wiley Periodicals, Inc.