Varietal Licensing Standards and Canadian Wheat Exports

Canada's wheat grading system is largely based on visual criteria and it is based on relatively high quality standards. A strict varieties licensing system exists to maintain the integrity of the grade standards. One of the consequences of the licensing system is that higher yielding, lower or different quality wheats have not been grown in Canada until recently. The basic objective of this paper is to examine some of the consequences of the regulatory strategy of limiting wheat production to the traditional high quality wheats. This question is analyzed in the context of important changes in the international grain markets. Using a partial equilibrium trade model this paper estimates that if higher yielding wheats were permitted to be grown, annual producer gains would be 5 to 17 percent of current net farm income.
Le classement des blés au Canada est basé sur des critères visuels qui sont de hautes qualités. Le système actuel d'homologation des variétés est tel que l'intégrité de ce système est maintenue. En conséquent, ce système n'a pas encouragé la cultivation des blés de hauts rendements ou des varietés différentes que tout récemment. L'objectif principal de cette étude est d'examiner quelques unes des conséquences de la stratégic de la réglementation visant à limiter la production du blé aux variétés de hautes qualités. Cette question est adressée dans le contexte des changements importants qui ont eu lieu dans le marché international des grains. A l'aide d'un modèle d'équilibre partiel des échanges, la présente étude démontre gu'en permettant la production des blés de hauts rendements, le gain annuel aux producteurs serait de 5 à 17 pourcent du revenue agricole net.     

Budget deficits and real interest rates: Updated empirical evidence on causality

Using error-correction model (ECM) estimation, the paper empirically examines the causality relationship between the federal government budget deficit and the ex ante real interest rate yield on high grade long term tax free municipal bonds in the U.S. To clarify this deficit or interest rate relationship, the budget deficit is measured by the primary budget deficit, which excludes net interest payments by the Treasury. In a model that includes federal personal income tax rates and net international capital flows, as well as money supply growth, the ECM estimates strongly suggest a bi-directional relationship between the primary budget deficit and the ex ante real interest rate yield. Budget deficits apparently do matter! William Simon's concerns were justified.The author is indebted to P. A. V. B. Swamy for ideas and helpful suggestions and Will Perry for data assembly and processing.     

Pricing Options on an Asset with Bernoulli Jump-Diffusion Returns

The price movements of certain assets can be modeled by stochastic processes that combine continuous diffusion with discrete jumps. This paper compares values of options on assets with no jumps, jumps of fixed size, and jumps drawn from a lognormal distribution. It is shown that not only the magnitude but also the direction of the mispricing of the Black-Scholes model relative to jump models can vary with the distribution family of the jump component. This paper also discusses a methodology for the numerical valuation, via a backward induction algorithm, of American options on a jump-diffusion asset whose early exercise may be profitable. These cannot, in general, be accurately priced using analytic models. The procedure has the further advantage of being easily adaptable to nonanalytic, empirical distributions of period returns and to nonstationarity in the underlying diffusion process.     

The effects of mergers on price and output: Two case studies from the airline industry

The literature on industrial organization contains very little direct evidence on the effects of actual mergers. This study estimates the effects of two recent airline mergers approved by the Department of Transportation over the objection of the Department of Justice. The merger of TWA and Ozark appears to have caused a slight increase in fares and a far greater reduction in service on city pairs out of St Louis. The merger of Northwest and Republic appears to have caused a significant increase in fares and a significant reduction in overall service on city pairs out of Minneapolis-St Paul.     

Monetary union and the Maastricht inflation criterion: The accession countries*

We model an accession country facing a Maastricht‐type inflation criterion that specifies an inflation ceiling. In addition to deciding whether or not to satisfy this criterion, the country must decide how much costly economic reform to undertake. If the country puts enough weight on the future that it can credibly meet the inflation criterion no matter what the ceiling is, then the inflation criterion benefits the country but lowers reform. If the country puts less weight on the future, then a criterion with a properly chosen inflation ceiling can increase reform. We derive the inflation ceilings that maximize the country's welfare and its reform.     

Book Review

Books reviewed:
Ira A. Jackson and Jane Nelson, Profits with Principles: Seven Strategies for Delivering Values with Values .     

Half-Way House or Dead End?

Education vouchers ore conventionally attacked by commentators who prefer to maintain the dominance of the srate in the supply of education. Richard Henderson, of the stockbrokers Sheppards & Chase, analyses the vulnerability of vouchers to capture by pressure group and therefore argues for a genuine market in education without the compromise of vouchers.     

GATT,Preferential/Regional Trading Blocs and Agricultural Trade*

Agricultural trade impasses have again frustrated the GATT process. Interest in preferential/regional trading blocs is increasing. the paper probes the theoretical and empirical consequences of preferential arrangements instead of multilateral liberalization. It concludes that in a second-best world preferential arrangements could either improve or decrease global welfare. For agricultural trade, previous experience suggests that in regional groupings such as the EC trade diversion exceeded trade creation. This results from trade distorting domestic policies. Prospects for liberalization of agricultural trade under either GATT or preferential arrangements are limited. the consequences for small agricultural exporters are not positive.