PRICES AND PRICE ANALYSIS IN THE FRAMEWORK OF THE NATIONAL ACCOUNTS

The paper discusses the role of prices in the framework of the new System of National Accounts (SNA) in terms of three major uses: (1) deflation, (2) price indicators, and (3) price analysis. Following a brief review of the price and quantity measures required by the new SNA with its emphasis on deflation of commodity flows and input-output accounts, in addition to the more conventional deflation of final demand categories, the paper discusses some of the conceptual, methodological and data problems involved in implementing the various uses of prices in the new SNA. Implementing the use of prices as deflators depends, in part, on the concept of output selected (national versus domestic; gross versus net), and which of six concepts of valuation, ranging from purchasers'value to true factor cost, is used. Some of the difficulties in deflating nonmarket flows (e.g., interplant transfers) and industry value added, based on the double deflation method, are discussed. In concept price deflators, which have shifting weights, cannot be used as price indicators, which should have fixed weights. In practice, this is often disregarded and the deflators are used as price indicators. The paper support the SNA recommendation for the development of price indexes with fixed weights to be used as price indicators, in addition to the implicit price deflators. Research in the United States indicates that differences in weights can result in different price measures for various subperiods, components of demand and sector output. Periodic revisions in weights to provide more current fixed weights for price and quantity indexes in each subperiod may minimize the problem but it introduces a new problem—lack of comparability with the constant price tables in the SNA which have fixed weights for the entire period. The new SNA provides a comprehensive and integrated framework for price analysis including the analysis of the structure of aggregate price changes, the industrial origin of final demand prices, and the impact of price change in one sector of the economy on the rest of the economy. Some major gaps which need to be overcome in order to implement the use of the new SNA for price analysis include the development of industry capital stock estimates, separate estimates of proprietors’income, reconciliation of value added and distribution share estimates, and the development of a wide variety of information to supplement the conventional input-output tables in the SNA. Implementing the various objectives of price measures within the framework of the accounts will require a number of improvements in existing price measures and expanding the scope of coverage. “List” prices should be superseded by “transactions” prices and better techniques and data need to be developed to provide for quality adjustment of prices. Coverage will need to be expanded to include services, freight rates, trade margins, government expenditures, and also fill in gaps for many manufactured products. Finally, where possible, use of unit values as price indexes or deflators, e.g., imports and exports, should be replaced by direct price measures.     

Anarchy, efficiency, and redistribution

This paper develops a contractarian theory of the state and the existence of redistribution. The existence of rules of redistribution is explained without any recourse to the risk-aversion of agents. No veil of ignorance is needed. This avoids obligational problems inherent in most other contractarian theories of justice. Hence, this paper departs from the standard legitimization of redistribution as fundamental insurance and interprets it as stemming from a principle of reciprocity in trade. Since this paper deals with an anarchic society, the implementation of redistributional rules is constrained by the assumption of self-enforcement. We show that this assumption changes the interpretation of the state: the state is characterized by a particular design of equilibrium strategies, not by the existence of enforcement agencies.     

Slack-adjusted efficiency measures and ranking of efficient units

In non-parametric methods many units are calculated as efficient. The article suggests a method for ranking efficient units, not by their efficiency, but by importance as benchmarks for the inefficient units, in contrast to earlier suggestions in the literature which rank units high if they are specialized. However, the total potentials for improvement frequently remain unrevealed by calculating radial efficiency measures of the Farrell type only. The article therefore first develops efficiency measures that explicitly extend the radial measures to include slacks. The new measures are applied to a typical multidimensional small-sample data set for Norwegian employment offices.     

New Technology in Unionized Firms: Advantages of Mandatory Bargaining

U.S. Labor Law currently allows employers whose work forces are unionized to introduce new technologies without bargaining over the decision to do so. This forces unions to adopt inefficient strategies when negotiating collective bargaining agreements in an effort to minimize the impact of technological change on their members. Allowing unions to bargain over the decision to introduce new technologies would obviate their having to resort to these inefficient strategies. In addition, it might increase the likelihood of employees suggesting alterations in production processes that would increase the rate of technological change. For these reasons, this article advocates amending U.S. labor law to require employers to bargain over the introduction of new technologies.     

Reputation and Perfection in Repeated Common Interest Games

We consider a wide class of repeated common interest games perturbed with one-sided incomplete information: one player (the informed player) might be a commitment type playing the Pareto dominant action. As discounting, which is assumed to be symmetric, and the prior probability of the commitment type go to zero, it is shown that the informed player can be held close to her minmax payoff even when perfection is imposed on the equilibrium.Journal of Economic LiteratureClassification Numbers: C73, D83.     

Nonlinear incentive provision in Walrasian markets: a Cournot convergence approach

The paper studies insurance with moral hazard in a system of contingent-claims markets. Insurance buyers are modelled as Cournot monopolists or oligopolists. The other agents condition their expectations on market prices, as in models of rational-expectations equilibrium with asymmetric information. Thereby they correctly anticipate accident probabilities corresponding to effort incentives induced by insurance buyers’ net trades. When there are many agents to share the insurance buyers’ risks, Cournot equilibrium outcomes are close to being second-best. In contrast, if insurance buyers are price takers, equilibria fail to exist or are bounded away from being second-best.     

On the public provision of the performing arts

In this paper, we present a model in which the performing arts are modelled as congestible public goods. In accordance with empirical evidence, the production of seat capacity is assumed to be subject to fixed costs. We estimate the parameters of the model's demand and cost functions using German data. Using these estimates in a subsequent social choice analysis, we show that the current situation in the German performing arts sector is best described by a directorship that under the influence of a selfish theater lobby maximizes only the welfare of the spectators. Such an equilibrium, characterized by too low ticket prices and too large capacity, is most likely to establish if citizens have a very positive ex ante notion of the performing arts.     

How to invest over the life cycle: Insights from theory

We analyse the state of the art in the field of life cycle portfolio choice, a recent strand of the literature on intertemporal portfolio selection. Life cycle models are designed to identify optimal savings and portfolio policies over the lifetime of investors. They can help to improve pension schemes by showing how these could be specifically tailored to the individual employee’s circumstances to overcome the ‘one-size-fits-all’ philosophy still prevailing in parts of the mandatory retirement savings system. To facilitate comparison, we first describe set-up, solution method and characteristic results for a basic model and then derive a general framework to classify existing contributions. We highlight the models’ strengths and weaknesses and assess their ability to resolve existing portfolio puzzles. Lessons from the literature are summarized and promising areas for further research identified. JEL classifications G11, D14, D91, H55     

The Helios strategy: An heretical view of the potential role of solar energy in the future of a small planet

Over the next hundred years there must be a worldwide transition from reliance on fossil fuels to the use of some combination of long-term and abundant primary sources for the production of heat, electricity, and synthetic fuels. The rate at which such options can be developed and employed, as well as the maximum rate at which they can provide energy at a sustained rate, will place important constraints on the rate and limits to growth of other human activities. It is generally argued that only the fission option, in the form of the fast-breeder and high-temperature reactors, can provide the energy required for a livable world, particularly if this means a world of 10 billion people living at the present energy level of Western Europe. However, a careful examination indicates that the use of solar energy, through a menu of technological options, can provide the needs of a world at this scale of energy use, and that this can be accomplished within the constraints of land availability and requirements for energy, materials, and labor. No scientific breakthroughs are required, although a number of these would be helpful, but very substantial engineering advances are required, and the transition of such a world-wide system would take no less than a century. However, the feasibility of such large-scale use of solar energy will substantially alter those aspects of the “limits to growth” discussions in which future growth strategies are constrained by available and acceptable energy alternatives. This paper outlines a global solar-energy system considered feasible for more than 10 billion people living at 5 kW per capita.