A comparison of Ad valorem and per unit taxes in regulated monopolies

This paper compares the output and revenue effects in the rate-of-return regulated monopoly model. Both the ad valorem and the unit tax generally decrease the use of capital, and as such, reduce the output and raise the price. In addition, it is shown that Suits and Musgrave's conclusion of higher revenue of an ad valorem tax at a given output can apply to a regulated monopolist if the marginal product of labor under the ad valorem tax is greater than or equal to that under the unit tax. Similarly, their second conclusion, that for a given tax revenue an ad valorem tax has a larger output than a unit tax rate before the revenue-maximizing tax rate, can also apply to the regulated monopolist.     

Book Reviews

W.T. Woo, B. Glassburner and Anwar Nasution, Macroeconomic Policies, Crises, and Long-term Growth in Indonesia, 1965–90, Comparative Economic Studies, The World Bank, Washington DC, 1994, pp. xiii + 216. Paper: $13.95.

Hal Hill (ed.), Indonesia's New Order; The Dynamics of Socio-Economic Transformation, Allen and Unwin, Sydney, 1994, pp. xxxv + 364. Paper: A$29.95.

J. Thomas Lindblad (ed.), New Challenges in the Modern Economic History of Indonesia: Proceedings of the First Conference on Indonesia 's Modern Economic History, Jakarta, October 1–4, 1991, Programme of Indonesian Studies, Leiden University, Leiden, 1993, pp. viii + 306.

Thee Kian Wie, Explorations in Indonesia's Economic History, Lembaga Penerbit Fakultas Ekonomi Universitas Indonesia, Jakarta, 1994, pp. xv + 187.

Nancy Lee Peluso, Rich Forests, Poor People: Resource Control and Resistance in Java, University of California Press, Berkeley, 1992, pp. xv + 321.

Effendi Pasandaran, Agus Pakpahan, Edwin B. Oyer and Norman Uphoff (eds), Poverty Alleviation with Sustainable Agricultural and Rural Development in Indonesia, Published jointly by the Center for Agro-Socioeconomic Research (CASER) (Bogor), and the Cornell International Institute for Food, Agriculture and Development (CIIFAD) (Ithaca), Bogor 1992, pp. vi + 233.

Eric Thorbecke and Theodore van der Pluijm, Rural Indonesia: Socio-Economic Development in a Changing Environment, IFAD (International Fund for Agricultural Development) Studies in Rural Development no. 3, New York University Press, New York, 1993, pp. xxix + 360.

Niels Mulder, Inside Southeast Asia: Thai, Javanese and Filipino Interpretations of Everyday Life, Duang Kamol, Bangkok, 1992, pp. xiii + 178.

M.C. Ricklefs, War, Culture and Economy in Java, 1677–1726: Asian and European Imperialism in the Early Kartasura Period, ASAA Southeast Asia Publications Series no. 24, Allen & Unwin, Sydney, 1993, pp. xi + 425. A$29.95.

Ken Young, Islamic Peasants and the State: The 1908 Anti-Tax Rebellion in West Sumatra, Yale Southeast Asia Studies Monograph 40, Yale Center for International and Area Studies, New Haven, pp. xviii + 361.

Saya Shiraishi and Takashi Shiraishi (eds), The Japanese in Colonial Southeast Asia, Translation Series, Translation of Contemporary Japanese Scholarship on Southeast Asia, vol. 3, Southeast Asia Program, Cornell University, Ithaca, 1993, pp. 172.     

Is Uniform Money Always Better than Separate Monies?

Previous studies that compare a uniform money with separate monies used models in which money is the only asset and in which individuals hold either zero or one unit of money. Here, the comparison is made using a model in which money coexists with a higher-return asset and in which individuals are permitted to hold richer portfolios of assets. The results show that a general conclusion is not possible. A uniform money has a higher expected utility than do separate monies in many examples. However, when the discount on bonds and uncertainty about the nationality of the trading partner are sufficiently high, then there are examples in which separate monies are better.

Exchange Rate Regime and Demand for Reserves: Evidence from Kenya,Mexico and Philippines

This paper empirically investigates the demand for international reserves (and foreign exchange reserves) during fixed and floating exchange rates periods in three developing countries: Kenya, Mexico and Philippines. Based on theoretical models, three factors are identified as important for the demand of international reserves and foreign reserves: average propensity to import, volume of imports and variability of reserves. The paper employs the cointegration methodology and error correction method to investigate the relationships. Cointegration tests results indicate a reliable long-run stationary relationship between the international reserves (and foreign exchange reserves) and the stated explanatory variables across countries and sub-periods of fixed and clean float. The error correction results indicate causality from the explanatory variables to the reserves during both the short and long run. This is true during both the fixed and the floating periods.

Migration and its Determinants: A Study of Two Communities in Colombia

Using data gathered by the author in two communities in Southwestern Colombia, this paper tests a model of migration which incorporates relative deprivation as one of many possible reasons to migrate. The study finds that the product of relative deprivation and family income not only has a sensible interpretation; it is a better predictor of migration than its two component variables alone. Results also show that families with the highest propensities to migrate are those with the most to gain in terms of being better able to reduce relative deprivation through successful migration. These families, however, are neither at the bottom nor at the top of the income distribution in their communities. The study also finds that those most likely to migrate to the USA conform most closely to the immigration policies of the USA.

Trade Costs,Trade Balances and Current Accounts: An Application of Gravity to Multilateral Trade

In this paper we test the well-known hypothesis of Obstfeld and Rogoff (NBER Macroeconomics Annual 7777:339–390, 2000) that trade costs are the key to explaining the so-called Feldstein–Horioka puzzle. Our approach has a number of novel features. First, we focus on the interrelationship between trade costs, the trade account and the Feldstein–Horioka puzzle. Second, we use the gravity model to estimate the effect of trade costs on bilateral trade and, third, we show how bilateral trade can be used to draw inferences about desired trade balances and desired intertemporal trade. Our econometric results provide strong support for the Obstfeld and Rogoff hypothesis and we are also able to reconcile our results with the so-called home bias puzzle.

Output Expectations and Forecasting of UK Manufacturing

This paper analyses both quarterly data from the Confederation of British Industry (CBI) Survey on respondents’ expectations of recent and forthcoming manufacturing output and monthly Office of National Statistics (ONS) figures on actual manufacturing output within the UK. Quarterly output expectations of the CBI manufacturers are explained from the monthly ONS observations using a bounded rationality approach. The logistic formulation models the diffusion process across respondents. There is a backward-looking CBI Survey perspective, explained by past ONS observations, and a forward-looking perspective, explained from future ONS statistics. Also, the forecasting of monthly manufacturing output from earlier values, along with the quarterly CBI Survey information, is examined and tested against the alternative Pesaran/Thomas method. The study provides econometric evidence for the validity of the logistic model and shows that bounded rationality can explain the formation of predictions among business managers in the UK manufacturing sector. The emerging consensus from the literature, supported by this paper, is that the logistic format is a superior approximation to the true data generating process compared with the earlier standard Anderson/Pesaran/Thomas approach. An adjustment to the Survey is used, which achieves perfect symmetry with up and down versions of the data. The benefits of this adjustment are tested in the forecasting section.

Relative Responsiveness of Bargaining Solutions to Changes in Status-quo Payoffs

It is a well-known fact that several prominent bargaining solutions are responsive to changes in status-quo (i.e., disagreement or fallback) payoffs. When an agent’s status-quo payoff increases, his solution payoff either stays the same or increases. A fully general result for these solutions’ status-quo point ranking is impossible to establish. In this paper, using an important class of bargaining problems, a ranking of the relative status-quo point responsiveness of prominent bargaining solutions is obtained. Using the Constant Elasticity of Substitution class of bargaining problems, regardless of the concavity of the Pareto frontier and the level of increase in one’s status-quo payoff, we find the equal gains solution is the most responsive with respect to changes in status-quo payoffs, followed by the Nash solution. The equal sacrifice solutions is the least responsive, followed by the Kalai/Smorodinsky solution.