ALBERT

Notes: We consider the general problem of price discrimination with nonlinear pricing in an oligopoly setting where firms are spatially differentiated. We characterize the nature of optimal pricing schedules, which in turn depends importantly upon the type of private information the customer possesses–either horizontal uncertainty regarding brand preference or vertical uncertainty regarding quality preference. We show that as competition increases, the resulting quality distortions decrease, as well as price and quality dispersions. Additionally, we indicate conditions under which price discrimination may raise social welfare by increasing consumer surplus through encouraging greater entry.

Notes: We model an internal labor market in which employee behavior and compensation are affected by the firm's financial position and the threat of hostile takeover or other exercise of shareholder “voice.” We show how good past performance can result in excessively generous promotion and pay decisions. While the threat of shareholder activism will remove this “slack,” activists optimally face a positive cost barrier, which in turn varies across firms. The cost barrier is higher when cooperation or “helping” between employees is more important, and is lower when employees receive efficiency wages due to an inability to “pay” for their jobs. Since the importance of helping is associated with pay compression and “flat” pay ladders, such firms should also exhibit a greater degree of management entrenchment.

Notes: The literature on the incentives for R & D cooperation with spillovers typically deals only with the factors affecting cooperative profits. This paper focuses on the incentives to cheat and the stability of such cooperative agreements in a repeated game framework. It is shown that the stability of cooperation is influenced by the nature and magnitude of spillovers, relative to the nature and degree of product market competition. While cooperative profits are higher with large positive (exogenous, unintended) know-how spillovers, such as in fundamental research, our anslysis shows that it may be easier to sustain cooperation in areas with lower spillovers, such as applied research, because of the smaller incenfives to cheat on the initial agreement, at least when firms produce substitutes. Alternatively, the possibility of technology sharing (i.e., intended or endogenous spillovers), besides R&D coordination, not only increases cooperative profits but also reduces the incentives to defect from a cooperative equilibrium.

Notes: In a moral hazard setting, we model the fact that the agent may get private signals about the final outcome of his effort before the public realization of this outcome. Actions affect both the distribution of the outcome and the quality of the agent's private information. We compare simple contracts, based on output only, with revelation contracts, based on output and messages about signals. Revelation contracts give the agent some discretionary power during the course of the relationship; they are optimal if and only if lowering effort does not increase the quality of private information in the sense of Blackwell (1953). In the context of managerial compensation schemes, the revelation contracts we analyze can be viewed as allowing the agent to exercise an option on the final profits before the realization of these profits. The theory thus provides an alternative justification of the widespread use of stock options in managerial compensation schemes, as opposed to compensation schemes that rely only on salary, bonus, and (restricted) stock plans.

Notes: Analysis of seven wholesale and retail markets for long-distance telephone services since the AT & T divestiture indicates that service provider concentration declined in the later 1980s and then stabilized in the 2990–1993 period. In addition to this stability in market shares, a number of other conditions established since 1990 have been conducive to the development of market sharing rather than significant price competition. The most important of these conditions has been the tarifing process of the Federal Communications Commission by which MCI and Sprint replicate ATGT's price announcements. As market shares stabilized and became more equal, and as regulation formalized the price-setting process, the price-cost margins of the three large carriers increased and became more nearly identical. These results are consistent not with price competition but rather with emerging tacit collusion among AT&T, MCI, and Sprint.

Notes: The Federal Communications Commission held its first auction of radio spectrum at the Nationwide Narrowband PCS Auction in July 1994. The simultaneous multiple-round auction, which lasted five days, was an ascending bid auction in which all licenses were offered simultaneously. This paper describes the auction rules and how bidders prepared for the auction. The full history of bidding is presented. Several questions for auction theory are discussed. In the end, the government collected $617 million for ten licenses. The auction was viewed by all as a huge success an excellent example of bringing economic theory to bear on practical problems of allocating scarce resources.

Notes: This study examines the investment patterns of all large local exchange telephone companies in the United States over time. It identifies how different regulatoy environments have influenced the recent historical pattern of investment in modern infrastructure equipment. It focuses exclusively on the postdivestiture experience of local telephone exchange companies (LECs). It examines the growth of fiber-optic deployment and of complementary equipment associated with the modernization of today's information infrastructure. The study estimates the influence of different regulatory structures on infrastructure deployment by LECs. The study is unique in that if relates individual LEC investment patterns to LEC-specific regulatory, demographic, and economic characteristics. Thus, it isolates the contribution of state regulatory policies from that of other demographic and economic factors in the determination of infrastructure deployment at the state LEC rather than at the corporate level. Its main findings are as follows: First, price regulation (and, in particular, price caps) is a more potent regulatory mechanism than the standard earnings sharing scheme. Second, when associated with an earnings sharing scheme, price regulation is less effective in triggering infrastructure deployment than when it is implemented by itself. These results raise questions about the effectiveness of a popular regulatory instrument-earnings sharing schemes-and highlight the effectiveness of generic price-cap regulation. These results have implications for the design of regulatory policy at both the state and federal levels. In particular, given the importance currently being placed on the development of the information superhighway, regulatory emphasis should be focused more on price regulation than on regulating profits.

Notes: The House and Senate of the United States Congress recently passed legislation that directs the FCC to establish a system for using auctions to allocate the use of radio spectrum for personal communications services. There is a unique and unprecedented set of issues that arise in this context, which are of interest to economists, industry analysts, regulators, and policymakers. We discuss these issues and evaluate their likely impact on the outcome of the spectrum auctions. In addition, we argue that there may be pitfalls in the auction procedure adopted by the FCC, and we discuss possible alternative procedures.

Notes: Royalty payments from a franchisee to a franchisor serve as incentive for the franchisor to provide appropriate levels of quality and brand, name investment. However, since they also distort the service provided by the franchisee, we should expect relatively lower royalty rates in franchises that are primarily service-oriented. Casual examination of royalty rates across product-oriented and service-oriented franchises shows that the opposite is true, with service-type franchises enjoying higher royalty rates. We resolve this apparent puzzle. The basic argument we put forth is that in product-type franchises, a franchisor can charge a wholesale price on goods transferred to the franchisee, thus using an alternative instrument that also serves as an incentive for the franchisor. Moreover, in general, a franchisor will use both wholesale price and royalty to minimize distortions in retail price and service at the retail level. We then test the predictions of our model on different industries and find confirmation for the same.

Notes: We examine the nature of incentive schemes between the principal and the risk-neutral agent in the presence of the agent's limited liability and ex ante action choice. We consider alternative schemes when a simple rental contract is infeasible due to the limited liability of the agent and study the effectiveness of a performance bonus scheme in achieving the first-best outcome. We also discuss some implications of such schemes in real practices.

Notes: Recent theories of vertical integration based on incomplete contracts assume perfect competition on at least one side of the market. As a result, the make-or-buy choice has no redistributive effect and will reflect efficiency considerations only. This paper introduces imperfect competition into an otherwise standard model of a vertical relationship with noncontractable specific investments. We assume that there are a finite number of potential input suppliers with private information about their costs. We first show that a monopoly buyer of such inputs will often prefer to own the seller's assets even though it would be more efficient for the seller's assets not to be so owned. We then show that an increase in the number of potential partners on either side of the market reduces this inclination towards vertical integration. With perfect competition on either side of the market, the make-buy decision will reflect only efficiency considerations.

Notes: This paper interprets private label marketing as a retailer instrument for overcoming the double-marginalization problem inherent in the distribution of well-known manufacturer brands. Retailers with some degree of market power carry private label substitutes for popular national brands in order to capture more profit from the vertical structures they share with brand manufacturers. The net effect of private label marketing is to improve the performance of distribution channels. After presenting a formal model and deriving analytical results, the paper gathers some empirical evidence that supports these results.

Notes: This paper studies the hypothesis that large firms have more bargaining power with suppliers than do small firms, using data from the cable television industry. Employing techniques from the “new empirical lo,” the effect of owner size on marginal costs is inferred from the effect of owner size on observable product market choices. In the cable industry, the downstream firms decide how many subscriptions of cable to sell and how many channels to offer in the cable package. lf large firms have lower costs than small firms, then large firms should be willing to supply more than small firms, at all prices. The effects of bargaining power are identified separately from the effects of scale economies by exploiting the structure of the cable industry. Scale economies, in the cable industry, are likely to stem from regional size, while bargaining power is likely to stem from national size. By controlling for regional size, estimates of the effect of owner national size on the willingness to supply cable subscriptions and to offer channels indicate that large downstream firms offer significantly more subscriptions and channels at all prices than do small downstream firms. These results provide some of the first systematic, industry-specific, evidence consistent with the bargaining-power hypothesis.

Notes: The role of product warranty in segmentation of consumer durable product markets is highlighted. I demonstrate that consumer moral hazard and heterogeneity in product usage create variation in the valuation of product warranties by the different segments in the market. In this context, the firm, by offering a self-selecting menu of base warranty and extended warranties, satisfies the warranty demands of the various segments of the population. The consumer choice behavior prediction of the theory with regard to extended warranty is empirically validated with data from a survey of new car buyers.

Notes: Research on durable goods has shown that because of a time inconsistency problem, a monopolist manufacturer prefers to rent rather than sell its product. We reexamine the relative profitability of renting versus selling from a marketing perspective. In particular, using a simple linear demand formulation, we assume a durable goods monopolist has to use downstream intermediaries to market its product. In contrast to the case of an integrated monopolist, we find that when the monopolist has to rely on intermediaries, then it prefers to go through an intermediary that sells rather than one that rents its product. Similarly, the intermediary that sells the product is more profitable than the intermediary that rents the product. However, if the monopolist can commit to a set of prices, then the intermediary that rents is more profitable than the intermediary that sells.

Notes: Empirically validating and testing the specification of game theoretic models has received limited attention in the marketing literature. The authors provide an econometric framework for estimating the parameters of response functions when the observed data in the market place are the Nash equilibrium outcomes of an underlying dynamic duopoly game specification. Specifically, the estimation procedure accounts for the joint endogeneity of market shares and marketing efforts of market rivals using a system of simultaneous equations that included the market response function and the Nash equilibrium conditions. A formal statistical test is used to detect model misspecification. The empirical analysis is carried out using data from four product markets: pharmaceutical, soft drink, beer, and detergent. Comparisons are provided with conventional estimation of the response function parameters in which the equilibrium conditions are ignored in the estimation. Managerial implications of the empirical results are discussed.

Notes: Private information creates a cost of operating a hierarchy, which becomes larger as the hierarchical distance between the information source and the decision maker increases. When information about a firm's capabilities is dispersed among the individuals in the firm, production is inefficient even though everyone behaves rationally. Because hierarchies need rents in order to function, a firm with a long hierarchy may not be viable in a competitive industry.

Notes: A dynamic model of product rivalry is developed for a market in which firms choose price and advertising intensity. The model, a state-space game, is implemented using data that consist of weekly price, sales, and promotional activity for four brands of saltine crackers sold by four chains of grocery stores in a small town. A number of questions can be asked of this data. First, is advertising predatory (merely changing market shares) or cooperative (shifting out market demand)? Second, are price and advertising own and cross-strategic complements or substitutes? And finally, do investments in stocks of goodwill and in price reductions make firms tough and aggressive or soft and accommodating?

Notes: Why are moving sales a successful and widespread phenomenon? How can it be optimal for a seller to disclose her low valuation for the item to be sold? We propose an explanation based on the “lemons problem” in bargaining with asymmetric information about quality. Disclosing a low valuation signals that there are significant gains from trade, so that trade takes place when it wouldn't otherwise, and all agents are made better off.

Notes: I present tests of a competitive rationale for price promotions. In a model with a population of informed and uninformed customers, price competition yields a static equilibrium in which each seller draws a price from a specified density function. Price data on coffee and saltine crackers products are used to test whether the sample of prices on each product could have possibly come from the theoretically specified density function. The results suggest that some markets are indeed consistent with the marginal distributions of prices predicted by the model. Furthermore, in the process of testing this rationale for price promotions, estimates are obtained for the marginal cost of each product, the number of competing goods, and the percentage of informed consumers. The resulting excess variability of these estimates across competing brands can also raise questions with respect to the empirical validity of the model.

Notes: We investigate why different states in the United States choose different regulatory plans in their telecommunications industry. We present a simple theoretical model and an empirical analysis of the issue. We find that a state is more likely to replace rate-of-return regulation with incentive regulation when: (1) residential basic local service rates have historically been relatively high; (2) allowed earnings under rate-of-return regulation in the state have been either particularly high or particularly low; (3) the state's leaders tend to come from both major political parties, rather than from a single party; (4) the state's urban population is growing relatively rapidly; and (5) the bypass activity of competitors in the state is less pronounced.

Notes: After the initial breakthrough in the research phase of R&D, a new product undergoes a process of change, improvement, and adaptation to market conditions. We model the strategic behavior of firms in this development phase. We emphasize that a key dimension to this competition is the innovation that leads to product differentiation and quality improvement. In a duopoly model with a single adoption choice, we derive endogenously the level and diversity of product innovations. We demonstrate the existence of equilibria in which one firm enters early with a low-quality product while the other continues to develop the technology and eventually markets a high-quality good. In such an equilibrium, no monopoly rent is dissipated and the later innovator makes more profits. Incumbent firms may well be the early innovators, contrary to the predictions of the “incumbency inertia” hypothesis.

Notes: This paper addresses the strategic commitment value of various price and nonprice vertical contracts. Assuming contract offers are sufficiently public to have strategic importance, we focus on commitment as a necessary and separable condition to be met. The analysis has two components. First, considering the relationship between a monopolist manufacturer and his imperfectly competing retailers, enforcement conditions necessary for alternative vertical contracts to have commitment value are identified in the static (reputation-free) context. It is shown that external help (i.e., enforcement by nonsignatories) is necessary for bilateral minimum resale price maintenance (price floors) and exclusive territory contracts to have commitment value, whereas maximum resale price maintenance (price ceilings) do not require such help (i.e., they are internally enforcing). Second, the paper provides an analysis of the U.S. case law and discusses the empirical validity of the “external enforcement” assumption that is shown to underlie recent proposals to make certain vertical restraints illegal.

Notes: X-ray diffraction (XRD) patterns from nominally β-SiC specimens often differ from those expected for the cubic crystal structure. These differences include the presence of additional peaks, enhanced background intensities, peak broadening, changes in relative peak heights, and shifts in peak positions. It has long been recognized that they are due to the presence of stacking faults, and models relating the experimental observations to stacking fault population have continued to evolve. The presence and relative magnitude of these features vary among different β-SiC specimens. In this work, computer simulations were used to show that the variations are closely related to differences in the type and spatial distribution of stacking faults in each specimen. In these simulations, stacking sequences were generated using a selectively activated 1-D Ising model with a Boltzmann-type probability function for specifying errors, which allows a wide variety of fault configurations to be generated. Direct correlations between different features in the XRD data to the underlying fault population are demonstrated, which are discussed in this paper. It is also shown that this computer model is general, in the sense that many of the models presented in prior work can be interpreted as limiting cases of it.

Notes: Using longitudinal data, 1 estimate the impact of redistribution on the welfare cost of income risk in Germany and the United States. The estimates account fully for behavior because individuals in each country have responded optimally to that country's policy. The results indicate that the welfare cost of income risk is 5.4 percent of disposable income in Germany, 8.5 percent in the U.S. Redistribution has reduced these risks from their pre-tax, pre-transfer levels by 43 percent in Germany, 21 percent in the U.S. The political importance of income security is evident in both countries, as risk relief often eliminates the net burden of redistributive taxes among middle-class households. The conclusions are robust across several models of income expectations.

Notes: The 1993 System of National Accounts is a remarkable document, but the System also has some major imbalances and omissions. The present paper spells out four aspects of the SNA that require further development: (1) accounting for the costs of economic change; (2) delineation of information as an economic commodity; (3) overhaul of the methodology underlying input-output accounts; and, (4) consequences of the System's implicit use of compacted accounting. These developments can be incorporated in a Supplementary Document in the near future. We need not wait 25 years.

Notes: Economic Council of Canada, Employment in the Service SectorDelaunay, Jean-Claude, and Jean Gadrey, Services in Economic Thought: Three Centuries of DebateGriliches, Zvi (ed.), Output Measurement in the Service Sectors

Notes: On average, poverty and income inequality increased in Latin America during the 1980s. Forty-six percent of the increase in poverty took place in the cities of Brazil alone, though part of this reflects the migration of poor rural inhabitants to urban areas. There is strong evidence that both income inequality and poverty mirrored the economic cycle, rising during recession and falling during recovery. Economies that grew (e.g. Colombia, Costa Rica) performed better with respect to poverty and income inequality than those that stagnated. In particular, countries that failed to stabilize effectively (e.g. Brazil, Peru) experienced substantial increases in poverty. Educational attainment has the greatest correlation with both income inequality and the probability of being poor. From a policy standpoint, there is a clear association between the provision of education, lessening of income inequality, and poverty reduction.

Notes: Health problems and physical and mental impairments can restrict the kind and amount of work that individuals can perform. Several studies have estimated the loss in earnings experienced by disabled/health-limited workers, but they do not examine the trend in this loss over time. The authors propose an alternative indicator of productivity loss that is more appropriate for inter temporal comparisons: “lost earnings capability”–the difference between the amount of money persons could potentially earn if they were free of disability/health limitations and the amount of money that they can actually earn given their limitations. The estimates indicate that the mean lost earnings capability per disabled/health-limited person grew over the period from 1973 to 1988, while the population with disabilities/health limitations fell. In 1973, lost earnings capacity totaled about 5.3 percent of Gross National Product (GNP); by 1988, the loss had fallen to about 4.5 percent of GNP as a consequence of the reduction in the number of people with limitations. Data are from the Current Population Surveys and the Survey of Income and Program Participation.

Notes: Review Article on Industrial Efficiency in Six Nations

Notes: From 1980 to 1990 Portugal experienced a generalized liberalization of economic activity, due in large part to its 1986 integration in the European Union. This paper studies the changes in the Portuguese distribution of household income and expenditure during this period, using micro-data on household budgets and applying recent developments in statistical inference for Lorenz curves. We find a significant increase in six measures of welfare and an unambiguous decrease in the inequality of the respective distributions. Different explanations for the findings of decreased inequality are discussed.

Notes: Richard Burkhauser and Dallas Salisbury (Eds.), Pensions in a Changing EconomyJohn Williamson and Fred Pampel, Old Age in Comparative Perspective

Notes: The UK government recently introduced legislation to treat the qualifying distribution on a repurchase of shares in the same way as ‘foreign income dividends’. This paper examines and criticises this reform from two perspectives. First, there is no underlying rationale for such an approach. Second, the legislation moves the tax system away from simplification. A better approach would have been to remove the advance corporation tax (ACT) charge on a repurchase. JEL classification: H25, K34.

Notes: This paper examines the impact of the UK housing benefit system on the financial returns to employment of people in local authority or Housing Association accommodation. It outlines the current structure of housing benefit and examines its effects on the returns to employment using data from the Family Expenditure Survey. It analyses the consequences of a number of reforms to the current system — lowering social rents, increasing the levels of housing benefit received in work and restricting the amount of rent covered by housing benefit payments. This analysis highlights the trade-offs involved in various strategies available for restructuring the present system. JEL classification: H3, H4, J3.

Notes: This paper discusses, and measures the quantitative impact of, a number of conceptual issues relating to the household saving rate data in the National Accounts of Japan. It finds that Japan's seemingly high household saving rate is biased due to the exclusion of capital transfers and real capital gains, the valuation of depreciation at historical cost rather than at replacement cost, the use of a residual measure of financial saving rather than Flow of Funds Accounts data thereon, and the treatment of expenditures on consumer durables as consumption rather than as saving, but that the biases are to a considerable extent mutually offsetting. It also finds that the Japan-U.S. gap in household (personal) saving rates is due largely to conceptual differences and deficiencies and that household saving in Japan consists primarily of financial saving (net lending), meaning that most of it is available to finance investment in other sectors of the economy and/or abroad.

Notes: The paper argues for the use of scanner data from EPOS systems for use in the compilation of consumer price indices. A number of methods of calculating micro-indices from such data are outlined. Scanner data for colour television sets in the U.K. are used as an example. The Tornqvist chained index is used as a benchmark against which alternative formulations, including those based on representative products, can be judged, the errors often being substantial. The paper argues for the use of scanner data, illustrates methods of compiling micro-indices and points to the potential for serious errors from conventional methods.

Notes: Recent economic research has suggested that Medicaid long-term insurance may reduce the personal savings levels of elderly citizens. This analysis shows that the opposite behavior, due to welfare aversion, actually happens. Barring any behavioral effects, personal wealth and income alone should determine the length of time an individual must stay in a nursing home until spend-down occurs. Wealth and income data from two different samples of the elderly are used to predict the distribution of time until spend-down, which is then compared with the actual distribution of the time until spend-down among residents of nursing homes. Contrary to expectations, it appears that the elderly receive transfers to avoid Medicaid eligibility. This result cannot be explained away by sample selection, demographics, or uncertainty about prices. One implication of this result is that Medicaid could expand eligibility by raising the asset limit without dramatically increasing expenditures or the number of residents who spend-down.

Notes: What are the implications of the historically observed economic policy instability in Latin American countries (LACs) for macroeconometric testing? Two pressing restrictions on the econometrician using time-series of LACs arise: time-varying parameters and time-varying specifications. Such an instability also has profound impacts on time-series measurements of national accounts at constant prices. This, together with the “second best methodology” used in LACs for computing real GNP, implies that LACs figures on GNP growth reflect growth in gross production rather than in value added. LACs time-series for private consumption are unreliable. Crucial data set constraints in LACs further complicate the task for the econometrician.

Notes: The purpose of this paper is to analyse income differences betweeen Catholic and Protestant families in Northern Ireland (NI) using Family Expenditure Survey micro-data. The paper's first conclusion is that there is much greater inequality within the Catholic and Protestant communities than there is between them. It's second conclusion, based upon econometric analysis of data for full-time employees, is that the lower mean income of Catholics, relative to Protestants, could be entirely explained in terms of different rates of reward attached to a given set of labour market characteristics.

Notes: Several economists have recently suggested that the national product should be adjusted for the value of environmental damages. In this paper we look at some of the difficulties one encounters when the correcting formulae derived from simple theoretical models are transferred to applied national accounting. In particular, the paper is concerned with the question of whether a corrected national income measure will actually provide relevant information for policy-makers.It is shown that a “green national product” will be very difficult to interpret. In general, it may not give any indications of the necessity of imposing stronger environmental policy actions. Nor does it indicate the hypothetical state of the economy after a change in environmental efforts.

Notes: Using data on regional money stocks, a variant of Fisher's (1911) quantity theory of money identity, and a technique first suggested by Doblin (1951) and Friedman (1961), this paper presents the first consistently-based estimates of real GDP in each of the seven British colonies of Australasia for the period 1861–1991. Examination of the historical pattern of growth in the regional economies of Australasia has not previously been undertaken, due in particular to the dearth of data on aggregate incomes for the colonies (later states) of Australia. The data calculated here reveal the historical pattern of the domination of New South Wales, Victoria and New Zealand in real Australasian GDP, and the shrinkage of the cross-sectional dispersion of real per capita GDP in the seven colonies over this 13 1-year period.

Notes: The United Nations' newly completed study of purchasing power parities covering 34 countries varied in region, income level, and form of economic organization shows the systematic differences between the usual view of the structure of the world economy arising out of international comparisons based upon foreign exchange rate conversions and the structure one sees when actual prices are available.The real per capita GDP of developing countries is understated relative to developed countries when exchange rates are used in converting countries' national income accounts to a common currency, with the degree of understatement for any two countries being inversely related to the per capita income difference between them. The reason for this is that relative prices in the non-traded goods sector are lower relative to traded goods prices in low income countries. The systematic pattern observed in the 1975 data of the 34 countries has been extrapolated over time and space to get estimates of GDP for other years and countries.In the absence of detailed price data, the real shares of final expenditures devoted to particular components of the total can only be estimated as the proportion of own currency total expenditure devoted to the components. The observed differences in the pattern of prices of poor countries relative to rich for different components makes this clearly wrong for international comparisons, and in systematic ways. For example, (i) the relative price of services compared with commodities in poor countries is lower than in rich; so the apparent tendency of the share of services to rise as a country's income rises disappears when real quantities are considered; similarly, (ii) the relative price of capital goods is greater in poor countries compared with rich ones, so the difference in investment ratios out of GDP between rich and poor countries is understated.

Notes: The change in goods and services available in a national economy brought about by the shifting of external price relationships is referred to as the terms of trade effects. This paper reviews the various methods which have been devised since the war to define and quantify such effects on the Gross National Product. The statistical annex shows that, as far as OECD countries are concerned, the differences between the various measures are not significant. Whereas the effects from terms of trade represented, on average, less than one half of one percent of the GNP of OECD countries during the 1960's the percentage has increased substantially since 1973, due most importantly to the increase in the oil price; by 1977 (on a 1970 price basis), it had reached 5 percent of GNP in Japan and up to 6 percent in Italy. On the other hand, the extreme case of Saudi Arabia where various formulas generate effects amounting to between one half and the whole of GNP, indicates that the measurement of terms of trade effects by various methods may give different results.

Notes: The concern with income distribution has always mainly existed because of a concern with individuals' economic welfare. In recent years, the question has arisen whether the distribution of annual income—the distribution most often studied—is the best proxy for the distribution of economic welfare. Other measures, such as lifetime income, have been proposed instead.The paper starts with a discussion of how to define and measure the distribution of lifetime income. By using a simulation model, which partly consists of estimated functions and partly of tax functions taken directly from tax laws, distributions of lifetime income, variously defined, are then constructed. These distributions are compared with each other, and with distributions of annual income. The simulations indicate that the distribution of lifetime income is considerably less unequal than the distribution of annual income. Whether inheritances are included or not seems to be of no importance for the inequality of lifetime income. If, on the other hand, we include the value of leisure time in lifetime income, inequality increases by about 10–15 percent. Distributions of income after tax have Gini coefficients which are approximately 25 percent less than the Ginis for the before-tax distributions. We thus find that the picture of inequality we get is very much dependent on which income concept we use.

Notes: The charitable giving of UK households has changed considerably over the past 20 years. In particular, the proportion of households giving to charity fell by 5 percentage points between 1974 and 1993–94. An increase in the average size of donations meant that total voluntary income increased in real terms over the period, but, since 1988, voluntary income has stagnated. The greatest falls in the number of givers are among households in their twenties and thirties. There are clear trends in giving across households by age and income, with younger and poorer households tending to give less. But not only are today's younger households less likely to give than today's middle-aged households; they are also less likely to give than today's middle-aged households did when they were young. These generational trends in giving do not bode well for levels of voluntary income in the future. JEL classification: D12. D16.

Notes: The tax system in the UK has developed through numerous ad hoc changes to its structure. This has resulted in a situation where the way in which the tax system is described does not readily correspond to the marginal rate schedule actually faced by taxpayers. This paper outlines the connection between the formal description of the tax system and the marginal rate schedule faced by taxpayers. It argues that the operation of the tax system would be greatly clarified if it were described explicitly in terms of its marginal rate schedule.

Notes: This paper considers some of the economic impacts that demographic change may have in developed economies over the next fifty years. I focus on the role that financial markets might play in economies where the pressure on government-run unfunded pension systems is likely to rise. The role of unfunded schemes is considered in a world where financial markets are incomplete and important types of risk cannot easily be offset by trading. How demographic shifts might affect labour productivity, asset prices and aggregate output is investigated using a simulation model of an economy where population structure is changing. JEL classification: E21, E60, G10, H1.

Notes: The ‘Green Book’ and the recent EGRUP report support exchequer cost per job as a key input in the ex-ante appraisal of individual applications for Regional Selective Assistance (RSA) and the ex-post evaluation of the RSA scheme as a whole. In this paper, following a recommendation in the House of Commons Trade and Industry Committee's report on regional policy, the merits of an alternative, explicitly cost-benefit, framework are outlined. This approach incorporates the administration and compliance costs of the subsidy, costs at present ignored in RSA evaluation studies. An optimal ex-ante appraisal rule is developed. This takes the form of a cost-per-job ceiling, and a representative value is calculated for this figure. JEL classification: H20.

Notes: Using a good inequality index, and data on personal income and cost-of-living estimates for the period 1981–90, interstate inequality in “nominal” and “real” personal income per capita is compared. Four points are noted. First, inequality in real income is smaller than that in nominal income. Second, while the nominal-income inequality shows the well-known increase over the 1980s, real-income inequality declined during the period. Third, inequality patterns in the wage and the non-wage components of income are somewhat different. Last, even the nominal-income inequality indicates a decline in the early 1990s.

Notes: This study presents a series of matrices of the capital stock disaggregated both by branch of origin and by branch of destination for the years 1985 to 1988 for Italy. The tables, whose dimensions are 23 × 23, were constructed using the perpetual inventory method and are based on disaggregated time series of gross capital formation provided by Istat (Italian Statistical Institute). The tables refer to both gross and net capital (with straight-line depreciation) and have been tested on alternative hypotheses for the average expected service lives of capital goods and their survival functions.

Notes: This paper presents some estimates of international trade in banking services. We use IMF data on assets and liabilities of both domestic banks and non-banks with foreign banks, and of foreigners with the domestic banking system to construct measures of the volume of transactions on which banking intermediation services are provided across national borders. We then use estimates of the spread between borrowing and lending rates for depositors and borrowers with the financial institutions involved to estimate the value of international flows of intermediation services. Estimates are presented for 1982–84 and 1991–93 for the U.S., the U.K., and Canada.

Notes: In this paper, we define environmental protection (EP) activities in the context of an input-output (I-O) framework. The U.S. I-O table is adjusted to separate inputs purchased by various economic sectors to abate pollution. We use I-O concepts and the I-O matrix adjusted for EP activities to derive a matrix of inputs to EP activities, which is independent of the matrix of inputs to traditional economic activities. This matrix is the basis for deriving measures of the economic importance of EP activities, including the size of EP activities relative to GNP and direct employment and indirect employment attributable to EP activities.

Notes: This paper presents results of an examination of poverty in Poland in the 1980s. The individual welfare measure is expenditure on consumption per equivalent adult. Household equivalence scales are estimated using a quasi-exact scales trans logarithmic model. Four poverty indices are calculated. These are intended to capture the following aspects of poverty: (1) incidence, (2) relative deprivation, acid (3) social ability to eliminate poverty by income transfers. The study revealed significant changes in poverty during the investigated period, from 9 to 30 percent with persistent poverty resulting for pensioners, farmers and low educated persons.

Notes: We provide an alternative axiomatization of Sen's (1976) poverty measure. We derive the measure from the general definition of a poverty measure by using a version of Sen's rank order axiom, and a substantially weaker form of his normalization axiom. These two axioms, together with a continuity axiom, lead uniquely to the measure suggested by Sen (1976).

Notes: This paper discusses the history of the French development of satellite accounts during the late 1960s and 1970s, noting the circumstances that led to the initiation of work in this area and describing the types of problem encountered. It then goes on to draw, on the basis of the French experiment, more general conclusions and to present a proposed accounting framework. The final section considers the concept of social expenditure, but concludes that, at least for the present, it is not possible to construct a useful global concept.

Notes: The economy of Liberia is one in which, in spite of past satisfactory growth performance, a high level of income inequality persists. In 1977, for instance, a mere 2 percent of the people accounted for some 33 percent of nation-wide wage income. These people live disproportionately in Montserrado County in which the capital city is located. While each of the other counties are largely rural and poor, each has far lower intra-county inequality than wealthy Montserrado.Intersectoral location of the income-earner, average income levels and the extent of access to human capital formation opportunities are some characteristics of the economy that have been found to explain significant portions of intercounty variations in the levels of household income concentration. Income inequality is reduced with increases in the extent of agricultural activity as the share of the top income group falls and that of the bottom group rises. The reverse happens with growing urban-area activity. Higher income concentration occurs with rising per capita incomes as the top group's income share rises and the bottom income group's share falls. While this appears to be an instance of the Kuznet U-shaped hypothesis, here there are no definite signs of a possible reversal any time soon. The levels of access to educational facilities move inversely with the level of inequality, with expanding elementary facilities benefiting the poorer people at the expense of the wealthy while the reverse happens in the case of expanding secondary educational facilities.

Notes: This article describes what happens to income distribution during intensive changes in gross domestic product due to external market conditions. It deals specifically with an open market petroleum-based economy, Trinidad and Tobago, and reviews changes in national product and income levels and the income distribution pattern over the twenty year period 1957–76.The paper argues that during the period characterized by subperiods of steady growth and rapid growth in GDP (the latter associated with the petroleum price rise), income inequality increased between 1957 and 1972 and then decreased in the post petroleum-price-rise period of rapid growth 1973–76. While the effect of intensive changes in national product did trickle down to the lower income groups, income inequality in 1975–76 was greater than that existing in 1957–58. An examination of the spatial, occupational and temporal aspect of the distribution pattern points towards the elimination of structural dualism in the economy as the surest path towards greater income equality in Trinidad and Tobago.

Notes: The debate on how to deal with changes of relative prices in national accounts has, so far, remained inconclusive, especially with regard to the question of how to measure gains from changes of terms of trade. Keeping the experiences of the 1970s in mind (i.e. substantial changes of relative prices sparked off by increased oil prices), this state of affairs is not considered tenable.On this background, the paper takes up the old debate on how to deflate figures of domestic product, total as well as by industries. It tries to argue that deflated figures should be presented not only as real product figures by industries (using the double deflation method), but also as real income figures, obtained by deflating the current-prices figures of a certain year by the same general price index. When this is done according to procedures spelled out in detail, gains/losses from changes of the terms of trade in foreign trade will show up as an integral part of the framework.In the paper, special attention is given to the concept of industry terms of trade. On the basis of simplifying assumptions (which are, however, relaxed in the final part of the paper), it is shown how the ratio of real income divided by real product of a certain industry will be proportionate to the terms of trade of the industry concerned, when the latter concept is defined in the appropriate way. Furthermore, the sum of the industry gains/losses from changes of their terms of trade will be equal to the gain/loss of the economy taken as a whole from changes of the terms of trade in foreign trade.

Notes: In this paper, I investigate the validity of the Modigliani-Brumberg (M-B) model as an explanation of the variation of wealth holdings among households. The model as such, even with the inclusion of estimates of household lifetime earnings, explains only a minute portion of the variation in household wealth. Indeed, for certain groups such as non-white, rural residents, and the low educated, the coefficients of the regression model are insignificant. Moreover, when the top wealth holders are removed from the sample and when non-cash financial and business assets are eliminated from the household portfolios, the explanatory power of the M-B model increases markedly. Essentially, the validity of life-cycle wealth accumulation models must be restricted to the white, urban, educated middle classes and their accumulation of housing, durables, and cash. The rich have very different motives for saving and very different sources of saving, while the poor do not earn sufficient income over their lifetime to accumulate any non-negligible wealth.

Notes: This paper presents an analysis of the distributive impact of government expenditures in the United States. The analysis uses a household-level microdata file drawn from the 1970 U.S. Census of Population, with additional income and tax variables drawn from the Internal Revenue Service 1969—70 Tax File.The results are presented at both federal and local levels and include analyses of the distribution of individual benefits, as well as of overall taxes and net benefits. Since a microdata file was used, distributional effects are examined with respect not only to the “traditional” variables of income class and household size, but also with regard to the number of earners in the household and the sex and race of the household head.In a further paper in a subsequent issue of this review we will present the results of a similar analysis for the United Kingdom, and compare the results for the two countries.

Notes: In an important recent book dealing with the measurement of income inequality with particular reference to poverty,1 Prof. N. Kakwani derives several poverty indices, investigates the effect of negative income tax schemes with the help of those indices and gives a numerical illustration based on Malaysian data.The aim of this note is to point out some logical flaws in his argument. Some of the ideas expressed in the part of his book we are concerned with have been disseminated for some time now2 and referred to in subsequent literature;3 yet their shortcomings do not seem to have attracted anyone's attention. The introductory section gives a concise presentation of the relevant part of Kakwani's contribution. The next two sections deal with some problems with his approach.

Notes: The conceptual framework of the system specifies that societal resources are limited by two basic factors: the amount of available human time, and the stock of wealth inherited from the past. Wealth is defined very broadly to cover not only the conventional tangible capital assets familiar to economists, but also intangible human and other capital assets, stocks of organizational capital reflected by networks of social support systems (the family, the neighbourhood), stocks of environmental assets (the sun and air), and stocks of socio-political assets (security, freedom of choice). Human time covers market work, household production, leisure, and biological maintenance.Human time and capital stocks are used within households to produce a variety of tangible and intangible outputs, and these outputs in turn are used to produce a variety of satisfactions (utilities) or to augment stocks of capital, or both.The basic sources of well-being in the system are ultimately of two types: well-being is produced as a consequence of the intrinsic benefits from all activities engaged in by individuals, which is to say that people have preferences over the way they spend their time; secondly, people derive utilities from the existence of various stocks or states of society, and these satisfactions are independent of the way in which time is used. The satisfactions associated with flows of goods are subsumed by satisfactions derived from activities associated with those goods.The system contains a set of linkages among the various parts:inputs of goods and time are used to produce tangible household output, using the familiar notions of household production functions and constrained optimization; tangible household products, which are intermediate in the system, are used in conjunction with human time to produce direct satisfactions or to augment household capital stocks; both household (micro) and societal (macro) capital stocks are linked directly to psychological well-being; household activities are linked directly to flows of satisfactions, termed process benefits in the system; household preferences and values relating to policy variables are linked to public policies of various sorts, and policies modify the constraints and opportunities relevant for household decisions.The system also has dynamic linkages. Modifications of household or public stocks produce impacts on future flows of well-being; satisfactions from activities may adapt to the existence of constraints, hence changes in constraints can modify preferences and subsequently modify activities; and household behavior has a life-cycle dimension which is inherently dynamic.

Notes: Widely used summary measures of inequality or the idea of the “disappearing middle class” are potentially misleading. Divergences between evidence cited and conclusions drawn include failing to distinguish between the concepts of inequality and polarization, and using scalar “inequality” measures which are not consistent with rankings based on Lorenz curves. In addition, inappropriate claims about trends in inequality can arise from focusing on only a sub-population such as full-time male workers, and failing to account for sampling variability. These divergences are illustrated using Canadian data on labour incomes over the 1967 to 1994 period.

Notes: There are few sources of high-quality data on the dynamics of wealth accumulation. This paper uses newly available data from the 1983 89 panel of the Survey of Consumer Finances to examine household saving and portfolio change over the 1980s. Our main findings are as follows. First, median household wealth rose modestly over the period. Second, while overall wealth inequality increased, households in the top 1 percent of the wealth distribution in 1983 saw their share of total wealth decline, probably reflecting turnover among the very wealthy. Third, although age, income, and initial wealth had significant effects in regressions on household saving, a large part of the variation in saving was unexplained. Finally, there were clear life-cycle patterns in the portfolios of assets and liabilities held by households, with younger households acquiring homes, businesses and all types of debts, and older households divesting themselves of these assets and debts.

Notes: There is a growing awareness that it is important to understand patterns of family assistance; however, there is still a great deal of information about private transfers that is not known. This study begins to fill this void by presenting results from a new survey and integrating these findings with evidence from recent studies that use other new data sets. It is found that: (i) a large share of households participate in private transfer networks, (ii) a greater amount of financial assistance is provided to lower income family members, (iii) altruism does not fully explain transfer behavior, and (iv) people in their 20s and 30s receive more assistance than people of other ages, even the very old.

Notes: In this paper we analyze the determinants of material inputs into individual production activities as a function of their outputs. We use observations on a large cross-section of U.S. manufacturing plants from the Census of Manufactures, including those that make goods primary to other industries, to study differences in production techniques. We find that in most cases material requirements do not depend on whether goods are made as primary products or as secondary products. We thus elucidate support for the commodity technology model as a useful working hypothesis.

Notes: The 1993 SNA recommends chain volume indices over traditional fixed base indices as the principal measure of year-to-year volume movements in economic aggregates. Recognising, however, that “additive consistency” is important to many users, the SNA recommends that countries continue to compile traditional constant price data alongside the chain indices. In addition, the new international guidelines suggest a supply-use table framework for deriving indices. This paper considers how these demands can be met in practice. Particular attention is paid to deriving chain indices for industry value added within the same framework as that used for final demand components.

Notes: A large part of official economic data sets is produced with the help of assumed functional relations between variables. Constructing economic models on the basis of such model-generated data results in a “modeling on the basis of the results of modeling.” This common procedure can lead to consequences that seriously endanger the quality of empirical analyses. After discussing some of these dangerous consequences the authors explore the reasons behind this development. To avoid some of the most severe difficulties a “Charter for Compilation and Correct Handling of Economic Data” is proposed.

Notes: The paper shows that the Canadian System of National Accounts includes exhaustible resources but treats them as if they were produced goods. Thus, the claim that conventional accounts ignore the contribution of exhaustible natural resources is partly true. To fully account for exhaustible resources, we present an alternative national accounting framework that incorporates natural resource flows and stocks. The framework modifies the measure of the net domestic product by a factor that differs from the Hartwick-Solow-Weitzman rule and leads to different estimates of GDP, national wealth, and productivity growth. An application to the Canadian oil and gas industry shows order-of-magnitude effects.

Notes: This paper presents up-to-date estimates of the ability of non-resident fathers to pay child support. While no nationally representative data exist on the incomes of fathers, this issue has become more pertinent in recent years, as child support has become an important national issue. We find that fathers on average are able to pay nearly five times more in child support than they currently pay, and also that low income fathers can afford to pay substantially more than they actually pay. We also find that changes in nonmarital childbearing and the returns to education have had only minimal effects on trends in fathers' incomes.

Notes: In the United Kingdom there is a wide range of sources which make it possible to construct a series for components of personal wealth for the period 1920–56. The data are consistent with contemporary estimates produced for specific years in the 1920s and 1930s. They indicate that a stock-market boom and the effects of deflation and low interest rates on the nominal value of the national debt took the wealth/income ratio in the mid-1930s to a level not seen again until the housing boom of the 1980s.

Notes: The increased availability of cohort data and use of dynamic microsimulation models means that more attention is now being paid to longer term income concepts. Results are usually reported for only one income concept and a limited number of summary measures, and it is not clear whether results are influenced by the income concept used. This paper uses simulation methods to compare different approaches. For this purpose a very simple lifecycle earnings model was used to generate profiles of pre-tax incomes. Many comparisons were made using a flexible tax structure and four alternative income concepts. It was found that there was a substantial amount of agreement among the alternative concepts in making pairwise comparisons, with tentative support for the use of present values.

Notes: Using microdata from Household Budget Surveys of the Member States of the European Community, this paper examines the sensitivity of poverty statistics with respect to the choice of the equivalence scale. The results show that the ranking of the countries with respect to the overall poverty incidence is hardly affected when different equivalence scales are used. However, the composition of the poor population shows considerable changes when e.g. subjective equivalence scales are used instead of the OECD equivalence scale. The poverty incidence among specific household groups, such as single elderly and households with children, is particularly sensitive to the choice of the equivalence scale.

Notes: This paper discusses to what extent the economic growth in China in the 1980's has improved the economic well-being in urban regions of the provinces Sichuan and Liaoning and whether or not the economic growth has been attained at the cost of increased inequality. The study is based on individual household data from the State Statistical Bureau's Urban Household Survey during the 1986–90 period.

Notes: New GNP estimates in current and constant prices for the Belgian economy in the interwar period are presented. The series are conceptually and methodologically consistent with the post-World War Ii data and cover both the income and expenditure approaches. The new estimates differ considerably from the data that have been published before, casting new light on our present understanding of Belgian economic growth in the 1920s and 1930s.

Notes: While much of the evidence suggests that there was an increase in inequality in the U.S. during the 1980s, the reasons are less evident. Using the U.S. Consumer Expenditure Survey data, we find that the inequality of consumption-expenditures, as well as the inequality of other measures of resources, widened considerably during the 1980s. While previous studies suggest that increasing inequality is mainly due to increases in within group inequality, we show that by decomposing inequality by the interaction of family type and education almost three-fourths of the increase in inequality is accounted for by changes in inequality between groups and by shifts in the population.

Notes: This paper, using six waves of data (1984-89) from the United States Panel Study of Income Dynamics (PSID) and the German Socio-Economic Panel (GSOEP), compares economic well-being using single year income, multi-year income, and wealth as measures. We find inequality to be greater in the United States than in Germany regardless of the measure used. However, the relative degree of inequality varies across measures. When we disaggregate our data by age and gender categories, in general we find greater inequality in the United States, but wealth inequality among older Germans is greater than it is among older Americans.

Notes: National accounting concepts of value and income differ from their economic theoretic counterparts in two respects. Firstly, they are more precise in order to give concrete guidelines for measurement, e.g. with respect to the concept of capital formation and the treatment of taxes. Secondly, they are fundamentally different. Valuation in the national accounts is not forward-looking and not based on a notion of perfect competition. Similarly, concepts of income in the national accounts are not measures of net return to wealth or welfare and they do not intend to show income as a reward for some specific factors of production. The national accounts concepts of value and income are descriptive concepts that can only be well understood in view of the specific accounting framework to which they belong.

Notes: Can Eastern European families most severely impoverished during the transition to capitalism rely on private family safety nets? This question is likely critical for the transition's success, but little is known about family networks in Eastern Europe. We analyze newly available Polish household surveys, conducted both before and after Poland's economic transition, which measure private inter-household transfers. Such transfers are large and widespread in Poland, and in many ways appear to function like means-tested public transfers. They flow from high to low-income households and are targeted to young couples, families with many children and those experiencing illness. Private transfer patterns also suggest that they are responsive to liquidity constraints. Our results from 1987 data indicate that private transfers could fill a non-trivial portion of the income gap left by unemployment. However, we also find evidence from 1992 data suggesting that family networks weakened somewhat after the transition.

Notes: Using a nationwide household income survey, different types of income in the People's Republic of China at the end of the 1980s is analysed. The results show that various income types play quite different roles in rural and urban areas. Subsistence income makes up about half of the total income in rural China. Money income makes up about two-thirds of total income in urban China and is the major contributor to inequality in the entire country. In kind income, of which highly subsidized housing is the single most important category, is highly concentrated in urban areas and contributes greatly to inequality.

Notes: Poverty in Madagascar has increased between 1962 and 1980 both in the rural and urban areas based on a comparison of some poverty measures, but decreased based on others. However, it remains predominantly a rural phenomenon. Distributional inequality is the major determinant of the variation in rural poverty, while the changes in urban poverty are due to the lack of economic growth. Thus, the urban bias introduced in government policies in the mid-1970s was not justifiable on strictly poverty-reduction grounds. A reduction of sectoral disparities would have led to a significant reduction of aggregate poverty.

Notes: Models of aggregate productivity growth linked to sectoral models of production typically assume that all intermediate goods markets are perfectly competitive. An econometric analysis reveals that many intermediate goods markets exhibit transactions at prices quite different than marginal cost. Measures of productivity growth that ignore these market imperfections are biased. A measure of the actual magnitude of the bias that emerges under the assumption of equating price to marginal cost is constructed.

Notes: In this paper we examine household wealth and income in the Netherlands using data from the Socio Economic Panel (SEP) in the period 1987–89. We provide an evaluation of the quality of the data and some simple statistics which describe the behavior of wealth, saving, and income over the life cycle. We find there is substantial heterogeneity in the behavior of households, and wealth holdings vary substantially even among the same age group. By exploiting the panel feature of the SEP, we derive saving from first differencing wealth. We find that a sizeable fraction of households do not dissave when old and we find some evidence in favor of the bequest motive.