FAIR TRADE IS COUNTERPRODUCTIVE – AND UNFAIR

Fair trade – paying a price premium for commodities based not on quality but on employment and other conditions – is counterproductive and unfair. It results in consumers getting a lower‐quality product. Much of the gain from the price premium goes to the fair‐trade bureaucracy rather than to the producer. Fair trade may even, if effective, destroy the banana industry. A better solution for consumers and third‐world producers is to abolish all remaining trade barriers.     

Measuring and Assessing Vertical Ties in the Agro-food System

This paper examines the extent to which the concept of vertical coordination in the agro-food sector lends itself to specification or measurement in a manner that is analytically useful. Based on a combination of theory and empirical evidence, it is suggested that vertical organization can be specified as a parameter, variable in degree of control by principal over agent. Such a specification has potential application in analytical models concerned with what gives rise to vertical ties and/or their economic consequences. Drawing principally on the concepts of transactions costs, factor price distortion, and vertical restraint, analytical attention is directed to the economic incentives for, and performance implications of the use of linkages other than spot market transactions for coordinating vertically interdependent stages in the food chain. Research challenges are identified.     

The dark side of financial innovation: A case study of the pricing of a retail financial product

The offering prices of 64 issues of a popular retail structured equity product were, on average, almost 8% greater than estimates of the products' fair market values obtained using option pricing methods. Under reasonable assumptions about the underlying stocks' expected returns, the mean expected return estimate on the structured products is slightly below zero. The products do not provide tax, liquidity, or other benefits, and it is difficult to rationalize their purchase by informed rational investors. Our findings are, however, consistent with the recent hypothesis that issuing firms might shroud some aspects of innovative securities or introduce complexity to exploit uninformed investors.     

HUMAN CAPITAL AND CONVERGENCE: A PRODUCTION‐FRONTIER APPROACH*

Using nonparametric, production‐frontier methods, we decompose labor productivity growth into components attributable to technological change (shifts in the world production frontier), technological catch‐up (movements toward or away from the frontier), and physical and human capital accumulation (movements along the frontier). We find that (1) technological change is decidedly nonneutral, (2) productivity growth is driven primarily by physical and human capital accumulation, (3) the increased international dispersion of productivity is explained primarily by physical capital accumulation, and (4) international polarization (the shift from a unimodal to a bimodal distribution) is brought about primarily by efficiency changes (technological catch‐up).     

Applications of general equilibrium models to the 1986 tax reform act in the United States

Summary This paper examines the structure and predictions of six applied general equilibrium models used to evaluate the 1986 Tax Reform Act in the United States. The models agree that the effects on national income will be fairly small. They disagree on the size of the improvement in economic efficiency from more neutral taxation of different capital assets, and on the size of the intertemporal inefficiency when capital formation is discouraged through a higher rate of taxation. This new application of general equilibrium models to an actual reform highlights the need to test predictions against empirical evidence.The views expressed are solely those of the author and do not necessarily reflect those of the Federal Reserve Bank of Boston or the Federal Reserve System. The author is grateful to J. von Sinderen, Laus Bovenberg, Lawrence Goulder, and other participants at the conference for their helpful comments, and to the authors of the studies reviewed in this paper for instructive discussions.Prepared for The Netherlands Central Planning Bureau Symposium on Applied General Equilibrium Models, Noordwijk, December 4–5, 1989.