NONPECUNIARY BENEFITS AND ASSET MARKET EQUILIBRIUM

Investments that yield nonpecuniary benefits have been studied empirically in previous research; the existence of such benefits has been inferred as the difference between actual returns and returns predicted by the capital asset pricing model. The authors reformulate the security market line to reflect nonpecuniary benefits and examine the equilibrium conditions for a market wherein some assets yield nonpecuniary benefits for some investors. The reformulated security market line is shown to perform better in such a market. The authors also discuss implications for investors.     

Wage Differentials and Moonlighting by Civil Servants: Evidence from Cote d'Ivoire and Peru

As part of their efforts to reduce fiscal deficits, many governmentshave allowed public sector salaries to erode, often on the assumptionthat government workers are overpaid vis-à-vis thosein the private sector. We test that assumption by analyzingpublic-private pay differentials in Côte d'Ivoire andPeru. Switching regressions models are estimated using fullinformation maximum likelihood (FIML), and the results are comparedto those obtained using ordinary least squares (OLS) techniques.The OLS yields seriously biased estimates of the pay structure,suggesting that public wages are higher than private wages;the FIML estimates show the opposite. Our probit analysis alsoshows that the wage disadvantage of civil servants is a determinantof the greater prevalence of moonlighting among public thanprivate employees. The evidence suggests that reductions inemployment rather than pay, while being less palatable in theshort term, will be more effective in the long run.     

ON THE TREATMENT OF TAXES AND GOVERNMENT IN THE NATIONAL ACCOUNTS

Framed in the context of the ongoing revision of the 1993 System of National Accounts (SNA), this note proposes a new presentation of the National Accounts. While it does not require new information, nor difficult calculations, it is suggested to be conceptually clearer and practically simpler. The changes concern the treatment of taxes and government in the national accounts which imply that: (i) GDP, measured at basic price, is now exactly the sum of all value added, which is split in the compensation of employees and an enlarged operating surplus; (ii) the two functions of government are clearly distinguished in a modified sequence of accounts, that is, as producing non-market services up to the allocation of primary income account, and then as redistributing the national income; and (iii) with a conventional allocation of government services and GDP broken down between market GDP and non-market GDP, households remain the only final consumer and the so called question of consumption subsidies is resolved.     

A look at productivity at the firm level in eight French service industries

In this paper, we take advantage of information collected by the French annual survey of market services to analyze productivity differences and changes among firms in eight major industries (restaurants, hotels, engineering, computer programming, computer processing, legal services, accounting and building cleaning), over the five-year period 1984–1988. We find a pattern of cross-sectional and time-series type estimates of the Cobb-Douglas production function, which is comparable to that typically found in studies of manufacturing industries, thus raising similar issues of interpretation and modeling. Using a capital stock measure corrected for rented equipment and building and taking into account the number of hours of work of work per employee improve these estimates to some extent. An interesting finding is that the output elasticity seems significantly smaller with respect to hours per employee than with respect to the number of employees.     

On the optimality of the full-cost pricing

This article is aimed at defining the full-cost pricing as a leader-follower game in two-tier organizations: (i) the upstream unit fixes the production capacity and uses it as a cost driver to compute the average cost; (ii) the downstream unit operates on the market and chooses the output level on the basis of the average cost. In the Cournot oligopoly case, the full-cost pricing is compared with other pricing rules. There exists a wide range of values of the fixed cost, for which the full-cost pricing dominates any other pricing rules, in terms of gross profit.     

Sacrifice ratio dispersion within the Euro Zone: what can be learned about implementing a single monetary policy?

This article focuses on the comparison of sacrifice ratios as an indicator for structural dispersion within the euro area over the period 1972–2003. Estimates of the sacrifice ratio, defined as the cumulative output cost arising from permanent inflation reduction, are obtained using structural VAR models. Results from sub‐period analysis as well as 10‐year‐period rolling estimates lead to two main conclusions. First, empirical evidence displays a recent increase in the average sacrifice ratio, which can be linked to the simultaneous decrease in the average inflation rate: this negative relationship between the initial level of inflation and the cost of disinflation can be seen as a justification for the choice of an inflation objective close to 2% for the European Central Bank (ECB) rather than a target of perfect price stability, potentially very damaging. Second, we cannot provide evidence of any reduction in European sacrifice ratio dispersion, which would suggest that the nominal convergence triggered by the Maastricht Treaty did not involve a true reduction of structural differences. It is likely to be a problem in the stance of a single monetary policy, because structural differences imply asymmetric responses of real national economies to the same monetary impulse.     

“Almost” subsidy-free spatial pricing in a multi-dimensional setting

Consider a population of citizens uniformly spread over the entire plane. The population faces a problem of locating public facilities financed by its users, who face an idiosyncratic private access cost to the facility. We show that, under mild assumptions, an external intervention that covers a tiny portion of the facility cost is sufficient to guarantee secession-proofness or no cross-subsidization, where no group of individuals is charged more than the cost incurred if it had acted on its own. Moreover, we demonstrate that in this case the Rawlsian access pricing is the only mechanism that rules out secession threats.