Significant Issues for the Future of Product Innovation

The value of a technology strategy has been increasingly discussed by R&D personnel and those involved in product development and business planning efforts. In this issue Albert Rubenstein and Americo Albala elevate this discussion by showing the importance of preparing a firm to compete by stressing the development of important, relevant technologies. Discovery and development must be channeled into areas that will be needed to support business initiatives likely to occur in the future. Albala stresses the importance of this change for the development of economies in nations that have been disappointed by the lack of success of importing technologies from more developed nations, while Rubenstein maintains that the pace of marketplace change requires a technology strategy in order to reduce the misapplication of scarce resources within the firm and the possibility of being blindsided by competitive developments. These essays continue a year-long series of contributions that the editor-in-chief solicited from members of the editorial board. Members were asked to reflect upon changes and opportunities that they see influencing our profession during the coming decade. Both of these short essays are designed to introduce new perspectives. It is not essential that you agree with the recommendations, but we hope that you are stimulated as you reflect on the issues they raise.     

The approximation capabilities of the minflex-Laurents,translog, and generalized Leontief forms

This paper compares the approximation capabilities of the minflex-Laurents translog and minflex generalized Leontief cost functions with their translog and generalized Leontief counterparts in Monte Carlo experiments. The minflex Laurent specifications generally provided closer approximations to underlying technical and economic parameters. Imposition of nonlinear restrictions on some of the parameters of the minflex Laurent models yielded measurable improvement in estimated elasticities of substitutions, returns to scale, and rates of technical change.The refereeing process of this paper was handled through E. Appelbaum.     

Hispanic Ethnicity,English‐Skill Investments,and Earnings

Analyzing synthetic cohorts in the 1980 and 1990 Public Use Microdata Samples, we find that Mexican‐Americans and other Hispanics acquired English fluency at a faster pace than Puerto Ricans and Cuban‐Americans during the 1980s. Additional results indicate that English‐skill investments differently influenced the earnings distributions of these ethnic groups.     

Price Changes and Some Underlying Aspects of Measurement of Poverty

The paper deals with effects of price changes on measurement of poverty. It is shown that there are situations, when prices and nominal incomes change, a higher nutritional intake or an increase in commodity consumption of the poor can be associated with higher poverty gaps and a higher poverty index of the society. A positive relationship of this kind is quite counter-intuitive in the context of poverty measurement. This is caused by the adjustment of the poverty line and/or incomes of one situation by the prices of the other for the purpose of comparison.

     

Offshoring in the New Global Political Economy

abstract    This essay challenges claims by economists and management scholars that 'offshoring' is simply another form of trade with mutual benefits. I argue that reducing wages through offshoring leads to wealth creation for shareholders but not necessarily for countries and employees, and that many displaced workers have difficulty 'trading up' to higher skilled jobs. Offshoring is a new phenomenon that entails the organizational and technological ability to relocate specific tasks and coordinate a geographically dispersed network of activities. It decouples the linkages between economic value creation and geographic location. The result is the creation of global commodity markets for particular skills and a shift in the balance of market power among firms, workers, and countries.     

The Elasticity of Marginal Utility of Consumption: Estimates for 20 OECD Countries*

In social project appraisal, the policy profile of both distributional welfare weights and the social discount rate has risen considerably in recent years. This fact has important implications for the allocation of funds to social projects and policies in countries, and in unions of countries such as the EU. A key component in the formulae for both welfare weights and the social discount rate is the elasticity of marginal utility of consumption, e. A critical review of existing evidence on e suggests that the UK Treasury's preferred value of unity is too low. New evidence presented in this paper, based on the structure of personal income tax rates, suggests that, on average, for developed countries e is close to 1.4. This particular approach to the estimation of e has previously been under‐utilised by researchers.     

The distributional impact of unification and the 1992–93 recession on West German households

The 1992–93 recession in the western states of Germany has been attributed, in substantial measure, to the macroeconomic consequences of policies to finance unification. Studies of the costs of unification have not attempted to measure the burden of the recession. We estimate a dynamic, panel model of household incomes using data from the German Socio-Economic Panel (GSOEP) and use it to forecast what these incomes would have been in 1992–94 without a recession. Using a ratio of actual to forecast incomes, we compare the relative burden of the recession across households. Our findings suggest that western households below the median income bore the brunt of the combined impact of unification and the recession of 1992–93.
JEL classification: P3, D3, E3.     

Neuroeconomics: Why Economics Needs Brains

Neuroeconomics uses knowledge about brain mechanisms to inform economic theory. It opens up the “black box” of the brain, much as organizational economics opened up the theory of the firm. Neuroscientists use many tools—including brain imaging, behavior of patients with brain damage, animal behavior and recording single neuron activity. The key insight for economics is that the brain is composed of multiple systems which interact. Controlled systems (“executive function”) interrupt automatic ones. Brain evidence complicates standard assumptions about basic preference, to include homeostasis and other kinds of state‐dependence, and shows emotional activation in ambiguous choice and strategic interaction.     

Lobbying, multisector trade, and sustainability of free‐trade agreements

Abstract.  This paper is concerned with the sustainability of free‐trade agreements (FTA). FTA sustainability is influenced by governments' valuations of political contributions, discount factors, the lobbying position of the specific‐interest groups in the intra‐industry trade sectors, and the sectoral coverage of the FTA. I find that (i) under certain conditions, the FTA under protectionist lobbying could be more sustainable than the FTA under no political pressure; (ii) the lobby‐supported FTA is more sustainable than the lobby‐opposed FTA and the FTA under no political pressure; and (iii) multisector trade enhances FTA sustainability. JEL Classification: F12, F13, F15.