A Note on Measuring the Productivity Offset for Regulatory Purposes

Calculation of the productivity offset or the X-factor used in setting price caps has a fundamental flaw when it is based on conventional growth accounting total factor productivity analysis. The problem is discussed in the context of incentive regulation used by the Federal Communications Commission in the United States and the appropriate correction is indicated. An example of the problem and its correction, using the access charge for interstate service in telecommunications, is provided. The correction shows that the appropriate X-factor is 12 percent greater than that based on conventional growth accounting total factor productivity analysis.     

The Effect of Eliminating Direct Payments to Farmers on Land Values

This study looks at the effects of the complete elimination of direct government payments to farmers on the U.S. economy in general and the effect on land values in particular. The analytical approach used consists of a computable general equilibrium model composed of 14 producing sectors, 14 consuming sectors, six household categories classified by income, and a government. The results suggest that, with a complete elimination of direct government payments to farmers, there will be a reduction in output by all producing sectors of 0.18% or about $14.5 billion, a decline in output in the agricultural sectors of 4.39% or about $12.0 billion, a fall in the consumption of goods and services by about 0.11% or $4.15 billion, a fall in total utility by 0.47% or $22.0 billion, and a net reduction in expenditures for the government of $13.4 billion. Land values will be adversely affected, falling an average of 14%.     

Redistributing the energy tax burden in the Philippines

This paper uses an aggregate modelling approach to assess the impacts of a redistribution of the taxes and duties that currently exist on crude oil and refined petroleum products on the Philippine economy. The approach used in the analysis consists of a general equilibrium model composed of fourteen producing sectors, fifteen consuming sectors, three household categories classified by income and a government. The effects of replacing the taxes and duties on crude oil and refined petroleum products with a more broad based tax on manufacturing and service sectors output on prices and quantities are examined. The results are revealing. For example, the consequences of redistributing the tax burden away from petroleum products to the manufacturing and service sectors of the Philippine economy will be an increase in output by all producing sectors of about 3.5 percent or about 2.4 hundred billion Philippine pesos, a rise in the consumption of goods and services by about 6.1 percent or 1.6 hundred billion Philippine pesos, a rise in total utility by 6.9 or 1.9 hundred billion Philippine pesos, and virtually no change in tax revenue for the government. When subjected to a sensitivity analysis, the results are reasonably robust with regard to the assumption of the values of the substitution elasticities. That is, while the model's equilibrium values do vary in response to different assumptions of the values of these elasticities, the fluctuations are not so enormous to suggest that the model is unrealistically sensitive to these parameters.Notation Y _j Total production in sectorj (j=1, 2, ..., 14) - CD _j Consumer demand for productj - GE _j Government endowment of productj - UM _j Imports of productj - _LRAS_jl RAS balanced input-output intermediate demands - GD _j Government demand for productj - INV _j Investment in sectorj - UX _j Exports of productj - SL _c Supply of labor by householdc (c=1, 2, 3) - SK _c Supply of capital by householdc - SD _c Supply of land by householdc - DL _j Demand for labor in the industryj - DK _j Demand for capital in the industryj - DD _j Demand for land in industryj - GDL Government demand for labor - GDD Government demand for land - TL _j Tax on labor in industryj - TK _j Tax on capital in industryj - TD _j Tax on land in industryj - GCE _i Consumer demand for consumer producti (i=1, 2, ..., 15) - Z _ji A 14×15 transformation matrix - RCS _ic RAS balanced matrix of each household's demand for each consumer good - TC _j Excise tax on consumer goodj - TRN _c Transfer payment to householdc - PIT _c Personal income tax payment for householdc - TAU _c Marginal income tax rate for householdc - SAV _c Savings in householdc - GC _c Gross consumption of householdc - ZTA Consumption plus leisure coefficient - TE Total government endowments - EM _j Demand elasticity of export demand - FE _j Endowment/demand sector of adjusted elasticity of export demand - GSK _j Government endowment of capital in industryj - GDK _j Government demand for capital in industryj - GTL Government wage taxes on its own employees - TXO _j Government output tax on industryj - TC _c Consumption taxes on householdc - CG _c Total government consumption by householdc - SAV _c Total savings by householdc - INV _j Total investment by industryj The views expressed are those of the authors and do not necessarily represent the policies of the organizations with which they are affiliated. They would like to thank Wildrido Cruz of the World Bank and Climenta Habido of the Philippine government for help in acquiring the requisite data to calibrate the model used in the analysis. They would also like to thank an anonymous referee for helpful suggestions.     

Subjective evaluation of delayed risky outcomes for buying and selling positions: the behavioral approach

This paper analyzes time discounting as a function of risk, using reservation prices. Based on experimental data, we compare bidder reservation prices for riskless assets with those for risky assets. The experiments rely on a second price auction with real monetary incentives and real delay in payoffs. We estimate the pure time discount rate for different maturities, considering riskless assets (bonds) and risky assets (delayed lotteries). An innovation in the experimental design allows disentangling pure time from pure risk discounting effects. If subjects bid for assets, we find implied discount rates for risky assets to be uniformly lower than those for riskless assets, across all maturities (the risk moderation effect). However, there is no risk moderation effect if subjects quote ask prices. We argue that delaying a payoff has a stronger effect on the price of bonds than on the price of risky assets since, in the case of bonds, the investor moves from a position of certainty to a position of risk, or uncertainty. Our findings on the risk moderation effect may be used to explain the attractiveness of compensation contracts with options, as commonly used in the financial industry.     

Fungicide use under risk in Swiss wheat production

The short-run effects of fungicide application on economic risk and the effects of risk on fungicide use in Swiss wheat production are empirically explored. A quadratic production function model is developed. With the help of the moment-based approach, marginal contributions of fungicides (representing controlled inputs) and of rain (representing uncontrolled inputs) to the variances of yield and revenue are analyzed. It is not possible to show risk-reducing effects of fungicides on yield or revenue. At low rain quantities during the vegetation period fungicides have a statistically significant risk-increasing effect on revenue. Increasing risk leads Swiss wheat growers to use more fungicide. This increase is statistically significant at higher levels of revenue. For example, when risk is doubled fungicide inputs are raised by 44% at the highest revenue quartile.     

Productivity Change,Technical Progress,and Efficiency Improvement in Telecommunications

Implementation of incentive regulation intelecommunications requires the accurate measurementof the change in productivity. An approach isintroduced that not only provides a measure of thechange in productivity but also allows for adecomposition into two mutually exclusive andexhaustive components – changes in technicalefficiency over time and shifts in technology overtime. Using annual data on four output measures andsix input measures for the period 1988 to 1998 fornineteen individual local exchange carriers, theresults indicate that productivity increased by about5.0 percent per year. This growth is due primarily toinnovation rather than improvements in efficiency. Ofthe nineteen LECs in the sample, thirteen wereoperating efficiently throughout the entire 1988–1998period. Of the remaining six, two showed a slightimprovement in efficiency while the efficiency of fourdeclined. In the aggregate, however, there wasvirtually no change in efficiency. Finally, acomparison is made between two methods of estimatingthe change in productivity. The conventional growthaccounting approach yields a lower estimate of therate of change in productivity than does the Malmquistindex approach. The difference between theseestimates is interpreted as the lower bound of thebias associated with the conventional growthaccounting approach to measuring the growth inproductivity.     

Management contribution and the allocation of time in a labor-managed firm

The problem of time allocation in a labor-managed firm is considered under a technology specification in which the role of management in the production process is different from that of “ordinary” members. Two allocation schemes are discussed, the egalitarian and the Nash equilibrium. It is shown that in the model discussed the Nash solution brings about an output level that is lower than the Pareto-optimal output level. If the manager seeks employment opportunities outside the cooperative that reflect his success as manager, he increases his time input so that the output of the cooperative and the “ordinary” members' utility levels increase.     

What's in a name? Anonymity and social distance in dictator and ultimatum games

The standard procedure in experimental economics maintains anonymity among laboratory participants, yet many field interactions are conducted with neither complete anonymity nor complete familiarity. When we are involved in interactive situations in the field, we usually have some clues concerning the characteristics of others; however, in some environments (such as e-commerce) these clues may not be very substantial. How will people respond to varying degrees of anonymity and social distance? We consider the effect of one form of social distance on behavior by comparing the standard procedure of playing dictator and ultimatum games with the same games played by participants who knew the family name of their counterparts. When these names were revealed, dictators allocated a significantly larger portion of the pie. However, this information had no significant effect on the offers in the ultimatum game, as it appears that strategic considerations crowd out impulses toward generosity or charity.