Estimating global returns to scale with a cone-homogeneous production function: some cross-section results

This paper employs a cone-homogeneous production function to approximate, as closely as desired, a ray-homogeneous production function. Points in input space are projected by an output scaling function on to a fixed ray and a Cobb-Douglas cone function is used to obtain an estimate of global returns to scale. The empirical results indicate that we get a good approximation to a ray-homogeneous production function from the estimated cone-homogeneous function.     

Persuasion and economic efficiency. The cost-benefit analysis of banning abortion

A simple cost-benefit approach to the abortion debate is unlikely to be persuasive if efficiency arguments conflict with widely held concepts of justice or rely on improbable notions of consent. Illustrative of the limitations of economic analyses are the models proposed by Meeks and Posner to make a case against abortion on demand. Meeks posits a tradeoff between the consumer surplus women gain from access to abortion and the expected loss of earnings that would have accrued to the aborted conceptuses. From here, Meeks derives the critical price elasticity that equates welfare gains and losses and argues that a ban on abortion represents a Kaldor-Hicks improvement in welfare if the price elasticity of demand falls above the critical level. Basic to his model are several questionable assumptions: an independence of ability to pay for an abortion and income, all women who select abortion have the same linear demand for the procedure, an abortion ban would eliminate the practice of abortion, economic efficiency generally requires slavery, and the morally relevant population includes the unborn. Posner, on the other hand, argues that an abortion ban would be efficient if the average surplus lost by a woman who chooses not to break the law is less than half the average value of the fetus saved. He assumes that it takes 1.83 abortions avoided to increase the population by 1 individual and favors reducing the current abortion rate by 30% rather than banning the procedure. Although Posner's model does not require specification of any particular value for the fetus, it neglects the increased health risk for pregnant women of illegal abortion. Moreover, Posner assumes that all women obey the law if it is in their economic interest to do so. Detrimental to both models is an assumption that sound normative judgments can be made on the basis of average values for observable data and the goal of maximizing wealth is logically prior to the specification of individual rights. It is concluded that economic arguments can be persuasive on the abortion issue only if there is agreement that cost-benefit analysis is an appropriate basis for decision making.     

The spoils of reform

The nation's most prestigious medical schools and teaching hospitals like the idea of comprehensive health care reform. And little wonder: Thanks to aggressive lobbying and some powerful friends, they seem to have gotten just about everything on their wish list--and then some--in the leading reform plans now under consideration on Capitol Hill.     

CAPITAL GAINS TAXATION, GROWTH, AND FAIRNESS

The question at the heart of the capital gains tax debate is whether taxing some people at a different rate than others having the same income is appropriate. Those who justify such a preference base their arguments on the concepts of economic efficiency and fairness. However, recent experience with capital gains tax decreases and increases strongly suggests that a change in the current law would yield little or no benefit. The burden of proof should rest on those who would violate the basic principle of equal tax rates on incomes from whatever source.     

Methodological individualism: True and false

I apply Hayek’s distinction between ‘true’ and ‘false’ individualism to methodological individualism. Hayek traced ‘false’ individualism to Cartesian rationalism; Hayek’s rejection of Mises’ praxeology was due to its rationalist underpinnings. The first half of this paper identifies praxeology’s foundational philosophical concepts, emphasising their Cartesian nature, and illustrates how together they constitute a case for methodological individualism: intuition and deduction; reductionism; judgement; dualism. In the second half of this paper, I draw upon philosophy and cognitive science to articulate ‘Hayekian’ (N.B. not Hayek’s) alternatives to these Cartesian concepts. The Hayekian alternative allows a ‘gestalt switch’ from the individual- to the system-level perspective. I therefore suggest that methodological individualism is both true and false: true, in that economic phenomena are grounded in the actions of individuals; false, in that certain problems might be reconceived/discovered at the system-level. I finish by suggesting three avenues of research at system-level: optimisation; stigmergy; computational complexity.     

Promotion tournaments in market equilibrium

This paper studies how promotion tournaments motivate workers to accumulate human capital when wages are constrained by outside labor markets. Patient firms can retain some control over tournament prizes through a relational contract, but if the firms are competitive, full efficiency does not obtain in equilibrium even for discount factors arbitrarily close to one. Full efficiency, however, may be feasible in firms with superior technologies; thus, technological efficiency breeds incentive efficiency. The paper also shows that a wage floor leads to insufficient human capital investment in competitive firms, but could lead to excessive investment in technologically superior firms.