ASPECTS OF FARM PROFITABILITY: AN OUTMODED CONCEPT? PRESIDENTIAL ADDRESS

The paper begins by recording Journal articles since 1952 of relevance to farming incomes and efficiency, and follows by reviewing the literature on measuring farmers' incomes and the problems entailed, including consideration of non-farming incomes and capital gains and their relevance to agricultural policy. Definitions of ‘profit’ in selected economic texts are then compared, together with attempts to measure ‘pure profit’ from farming. Suitable charges for management and interest are then determined and estimates made of net profits and losses from different types of farming in 1986/7 and 1987/8 for both average and ‘top’ farms. Real farming incomes and capital gains from land from 1938 to 1988 are then discussed. The paper concludes by summarising why the concept of profitability from farming has now largely lost its significance—though not for all farmers.     

Business Ties and Information Advantage: Evidence from Mutual Fund Trading

This article examines whether ties to portfolio firms’ management via pension business relationships provide mutual funds with an informational advantage. Funds become related to portfolio companies when fund families serve as trustees for firms’ employee pension plans. Selling by related funds is more likely to be motivated by an information advantage than their buying, because the latter is heavily influenced by the desire to secure pension inflows. We find that stocks with larger net sales by related funds experience lower future returns. Information appears related to firm fundamentals, as the return predictability of related funds’ selling concentrates in stocks with negative future earnings surprises. Consistent with an information‐based explanation, the predictive power of related funds’ selling for future returns is more pronounced when information uncertainty about the stock is higher. Our results contribute to a growing literature that shows the sources of informed trading by institutions.     

Estimating Key Economic Variables: The Policy Implications

The current monetary policy debate has focused on current estimates and the future path of the natural rate of unemployment and the equilibrium interest rate. Estimates of the natural rate of unemployment should vary over time with changes in demographics and improvements in human capital. However, these changes should be gradual. This paper shows that the estimates of the natural rate of unemployment by Federal Reserve officials and private-sector economists seem to move pro-cyclically, potentially showing too much weight given to short-term fluctuations in economic variables. As with the natural rate, there are good reasons to expect the equilibrium interest rate to change over time. In fact, the level may actually be more responsive to current economic data, reflecting changes in aggregate savings and investment. Yet, we see that equilibrium interest rate estimates by both Federal Reserve officials and private-sector economists have declined quite dramatically over the past five years. A potential concern raised in this paper is that estimates of these critical economic variables for policy determination appear to be overly sensitive to high frequency economic data.     

CONCURRENT ENGINEERING: CONTEMPORARY ISSUES AND MODERN DESIGN TOOLS EDITED BY HAMID R. PARSAEJ AND WILLIAM G. SULLIVAN Chapman & Hall,London, 1993, xiii + 497 pp. ISBN 0-412-46510-8. List: $75.00.

In a recent paper, Jones and Zydiak [2] discuss the steady state fleet design problem, which has no natural initial distribution of vehicles. For this problem, they develop a new optimality criterion of minimizing annual equivalent cost per vehicle because the traditional optimally criterion of minimizing annual equivalent cost can lead to paradoxical results, as shown by example, when applied to the fleet design problem. In a subsequent note, Hartman [1] argues that this paradox is actually a result of a replacement convention that ignores opportunity costs. In this response, we demonstrate that paradoxical replacement behavior can occur with the traditional criterion even when opportunity costs are accounted for in the replacement analysis. We further conclude that the problems considered respectively by Jones and Zydiak [2] and Hartman [1] are fundamentally different in nature.     

Technology and the services sector: The hidden competitive challenge

Information technology has always played an important role in the services sector of the U.S. economy. In recent years, however, services industries have stepped up their acquisitions of computers, telecommunications equipment, and other such products dramatically. As a result, the broad segment of the economy that can be classified as services providers now owns about 84% of the total U.S. stock of information technology items. Moreover, relative to goods-producing industries, a much larger proportion of the services sector's capital budgets is spent on information technology, revealing a significantly greater dependence by services on such technology as a factor of production. This reliance underscores technology's strategic importance in the United States' competitive challenge. With services now the predominant mode of economic activity in the United States, a productivity payback from information technology is absolutely essential to keep the economy on a longer term path of sustainable growth.So far, the services sector has little to show for its spending binge on technology. Quite simply, massive investments in information technology have failed to boost national productivity growth in the present decade. Furthermore, with manufacturing productivity now on the rebound, problems in the services sector loom increasingly large in the United States' broader competitive struggle. It is certainly not too late. New and creative applications of information technology could still enhance the productivity performance of the services sector's predominantly white-collar work force. Until that payback begins to occur, however, the role of technology spending will be under growing suspicion [3, 8, 9].In what follows, an attempt is made to provide a detailed industry-by-industry assessment of services sector spending on information technology. By way of background, the broad contours of capital formation in services industries are first examined over the post-World War II era.     

Productivity differences in multiple output industries: An empirical application to electricity distribution

Given that electricity distribution is undertaken via a network, it is expected that costs of production are affected both by the nature of the network and the volume of physical output distributed via the network. This two-dimensional concept of firm size, that is involving network size (number of customers) and the level of physical output (kWh), also corresponds to the distinction between productivity measures of returns to density and returns to scale.This approach has been used to specify a restricted multioutput cost function and to estimate this function for the Norwegian electricity distribution industry through the use of a flexible functional form (translog). The results indicate that no economies of scale are present in the industry even for small plants when measured correctly, but that economics of density are present.