TARGETING FARM PROGRAMS

"Targeting" in the agricultural policy context generally means directing payments to small or financially vulnerable farms or to poor farm families. This may seem a worthy objective. If farm programs were designed to act as welfare, then focusing the benefits on the needy clearly would be appropriate. Payments now are roughly the difference between the market price per unit produced and a high government price per unit. Therefore, farms with more output get larger payments. Further, revising farm programs to act as aid to the needy would be difficult. Targeting amendments currently proposed generally are unworkable and likely would do little to change the actual distribution of benefits. Finally, because farmers currently are eligible for other aid programs and because few producers of significant output meet general welfare criteria, seemingly little real reason exists for attempting to convert farm programs rather than simply phasing down the payment levels overall.     

A Theory of Pyramidal Ownership and Family Business Groups

We provide a new rationale for pyramidal ownership in family business groups. A pyramid allows a family to access all retained earnings of a firm it already controls to set up a new firm, and to share the new firm's nondiverted payoff with shareholders of the original firm. Our model is consistent with recent evidence of a small separation between ownership and control in some pyramids, and can differentiate between pyramids and dual‐class shares, even when either method can achieve the same deviation from one share–one vote. Other predictions of the model are consistent with both systematic and anecdotal evidence.     

Okun's Law: Fit at 50?

This paper asks how well Okun's Law fits short‐run unemployment movements in the United States since 1948 and in 20 advanced economies since 1980. We find that Okun's Law is a strong relationship in most countries, and one that is fairly stable over time. Accounts of breakdowns in the Law, such as the emergence of “jobless recoveries,” are flawed or exaggerated. We also find that the coefficient in the relationship—the effect of a 1% change in output on the unemployment rate—varies substantially across countries. This variation is partly explained by idiosyncratic features of national labor markets, but it is not related to differences in employment protection legislation.     

Learning to Wait: A Laboratory Investigation

Human subjects decide when to sink a fixed cost C to seize an irreversible investment opportunity whose value V is governed by Brownian motion. The optimal policy is to invest when V first crosses a threshold V * = (1 + w *) C , where the wait option premium w * depends on drift, volatility, and expiration hazard parameters. Subjects in the Low w * treatment on average invest at values quite close to optimum. Subjects in the two Medium and the High w * treatments invested at values below optimum, but with the predicted ordering, and values approached the optimum by the last block of 20 periods.     

Should Educational Policies Be Regressive?

In this paper, we study optimal educational policies when the ability to benefit from education is private information. We extend the framework of De Fraja (2002) in two directions. First, we replace his specification of the government’s budget constraint, which prevents the government to use tax revenues from an older generation to subsidize the education of a younger generation, by the usual one. We show that the optimal educational policies achieve the first best, are not regressive, and can be decentralized through Pigouvian taxes and credit provision. Second, we consider utility functions that are not quasi‐linear. In this case, we show that the first best can no longer be reached, education may not be monotonic in ability, and progressivities of education are locally welfare‐improving.     

CONCENTRATION-PROFITS MONOPOLY VS. EFFICIENCY DEBATE: SOUTH AFRICAN EVIDENCE

Using the new official measures of concentration, this study finds a strong and highly significant correlation between concentration and industry profitability for South African manufacturing industries. This correlation is consistent with both the monopoly hypothesis of the traditional structure-conduct-performance paradigm and Demsetz's efficiency hypothesis that concentration of industry reflects the dominance of superior low-cost firms. Using the four-firm concentration ratio, this study applies Chappell and Cottle's extension of the Demsetz test to distinguish between the monopoly explanation of this correlation and the efficiency explanation. Using a conventional regression specification of the concentration-profits relationship with no control for efficiency, this study finds a statistically significant coefficient only for the industry and large size class regressions. Because small firms should do at least as well as large firms, under the price umbrella provided by large firms, this result is inconsistent with the monopoly hypothesis but consistent with the efficiency hypothesis. Specifying a variable that measures the efficiency of large plants relative to smaller plants—the cost advantage ratio—yields striking results. Similar to the results obtained by Chappell and Cottle for the United States, this study finds the efficiency variable to be highly significant in the industry and large size class regressions, while concentration becomes insignificant. Moreover, the efficiency variable is insignificant in the smaller size classes Both the statistical insignificance of concentration and the pattern of the efficiency variable coefficients suggest that including concentration in the regression specification without the efficiency variable simply highlights the effect of the efficiency variable. Coming as they do from an environment as different from the United States as the South Africa of the 1980s, these results strongly support the Demsetz efficiency hypothesis.     

Patterns of Hedonic Consumption Over Time

Two experiments investigated whether individuals choose to listen to songs that maximize their enjoyment on each trial (local maximization) or across the sequence of trials (global maximization). In Study 1, participants made repeated choices between one liked song and one disliked song. In Study 2, participants made repeated choices between a liked song and two less-preferred songs. Participants' choices and ratings indicate that they did not maximize locally. In both studies, participants switched to the less-preferred songs before their ratings of the favored songs had declined to the level of the less-preferred songs. Additionally, in Study 2, more participants chose their favorite song on a given trial when it was the last trial of the block than when the block was expected to continue. This indicates that participants who did not choose the favored song in the latter case were not maximizing locally. That individuals continued to choose variety even at the very end of the experiments also suggests that they were not maximizing globally. Thus, the present studies suggest the intriguing possibility that participants' variety seeking did not reflect local or global maximization. Implications for variety seeking are discussed.