ALBERT

Notes: Many long-term contracts incorporate a termination clause. This paper argues that when agents have hidden information, such a clause has a beneficial incentive effect—it enables a principal to screen agents' private information at a lower cost. In a two-period model, this paper characterizes the optimal long-term contract with a termination clause, which specifies that the principal will switch agents in the second period when the first-period cost is high. The analysis delineates how the optimality of this clause depends on the intertemporal cost correlation structure, on the limits to agents' liability, and on the principal's degree of commitment.

Notes: Takeovers give raiders the opportunity of breaking implicit contracts inside the firm. If implicit contracts are adopted by workers and management to reach more efficient outcomes, then the possibility of takeovers may cause a welfare loss. We show that, under some conditions, this argument can go through even if the firm and the workers can write explicit and complete contracts. The crucial assumption is that the profitability of the firm is linked to its financial situation, in the sense that a firm which has a high probability of bankruptcy will face fewer opportunities than a financially solid firm. In this framework, the possibility of takeovers imposes constraints on the set of feasible employment contracts, leading to inefficient outcomes.

Notes: This paper deals with the strategic role of the temporal dimension of contracts in a duopoly market. Is it better for a firm to sign long-term incentive contracts with managers or short-term contracts? For the linear case, with strategic substitutes (complements) in the product market, the incentive variables are also strategic substitutes (complements). It is shown that a long-term contract makes a firm a leader in incentives, while a short-term contract makes it a follower. We find that, under Bertrand competition, in equilibrium one firm signs a long-term contract and the other firm short-term incentive contracts; however, under Cournot competition, the dominant strategy is to sign long-term incentive contracts.

Notes: Why is it so common for the seller to provide guarantees that say “Satisfaction guaranteed or your money back” along with the sale of a product? Newly introduced goods and mail-ordered products are usually sold with such guarantees. In honoring money-back guarantees, why is it a common business practice to pay back exactly the purchase price rather than a portion of it? In this paper we study the informational role and optimality of the common business practice of money-back guarantees in a signaling model with quality uncertainty and risk-neutral buyers. We find that money-back guarantees and price together completely reveal a monopoly firm's private information about product quality, Moreover, the private information is revealed at no signaling cost. Furthermore, we show that in terms of the level of monetary compensation specified by a guarantee, price is the profit-maximizing level of monetary payback in case of product failure.

Notes: Manufacturers may intentionally damage a portion of their goods in order to price discriminate. Many instances of this phenomenon are observed. It may result in a Pareto improvement.

Notes: It is generally believed that industries with greater product differentiation have higher rates of return. This paper shows that this effect breaks down in the presence of firm-specific cost shocks. Greater substitutability in products generates two opposing effects: (1) it allows a larger increase in demand when a firm has a favorable cost shock, which more than compensates for the reduction in demand when it has an unfavorable cost shock, and (2) it results in more intense price competition. These two countervailing forces result in industry profit being highest in markets with a moderate degree of product differentiation.

Notes: We present a model of industry evolution where the dynamics are driven by a process of endogenous innovations followed by subsequent embodiments in physical capital. Traditionally, the only distinction between R&D and physical investment was one of labeling: the first process accumulates an intangible stock, knowledge, while the second accumulates physical capital. Both stocks affect output in a symmetric fashion. We argue that the story is not that simple, and that there is more to it than differences in the object of accumulation. Our model stresses the causal relationship between past R&D expenditures and current investments in machinery and equipment. This causality pattern, which is supported by the data, also explains the observed higher volatility of physical investment relative to that of R&D expenditures.

Notes: We examine the question of whether a regulated firm that makes a long-term investment in infrastructure can credibly signal its private information regarding the future demand for its output to the capital market. We show that necessary conditions for a separating equilibrium in which the magnitude of investment signals high future demand may include a low degree of managerial myopia, large variability of future demand, a lenient regulatory climate, and low sunk cost. Our model suggests that in estimating valuation models of regulated firms it is important to separate firms into two groups: firms for which a separating equilibrium is likely to obtain and firms for which the equilibrium is likely to be pooling. The market value of a firm in the first group is positively correlated with its level of investment, but uncorrelated with the level of actual demand, whereas for the second group the opposite holds.

Notes: This paper develops the hypothesis that firms possess a stock of well-established brands, a stock termed brand capital. The firm with the greatest capital is able to introduce new products in response to new information about consumer tastes before rivals. The results using data from the ready-to-eat cereal industry not only support this hypothesis, but also distinguish brand capital from other sources of firm heterogeneity.

Notes: This paper attacks the problem of developing strategies for a firm to deal with technological change. We show that the product market strategies of the firm—including pricing, product positioning, and rent preemption strategies—can play a role in the efficient search for technology-related information when information search is costly and there are adaptation costs due to the presence of agency. We utilize a dynamic model of spatial competition with uncertain technological innovations in which firms can learn from each other about technological developments. Private information and agency conflicts are shown to increase the effective information search costs of incumbents, who then use interfirm learning to their advantage in equilibrium. This viewpoint also allows us to see the role of mergers and acquisitions, subsidiary formation, and internal R&D labs in a new light. The more general point is that organizational structures and, in particular, the differential distribution of information within the organization impose constraints on the information-search and adaptation strategies of the firm, and the formulation of product-market and R&D strategies serves to relax these constraints.

Notes: The paper studies managerial incentives in a model where managers choose product market strategies and make takeover decisions. The equilibrium contract includes an incentive to increase the firm's sales, under either quantity or price Competition. This result contrasts with previous findings in the literature, and hinges on the fact that when managers are more aggressive, rival firms earn lower profits and thus are willing to sell out at a lower price. However, as a side effect of such a contract, the manager might undertake unprofitable takeovers.

Notes: For U.S. futures exchanges, controlling costs while maintaining market performance is an ongoing, difficult challenge. New market realities have made that challenge even more daunting in recent years as costs have escalated, competition has expanded, and the role of information technology has expanded. It is always difficult for regulatory statutes to keep pace with ever-changing markets. Futures markets are no exception. The basic statutory framework represented by the Commodity Exchange Act (CEA) was enacted in 1922, over seventy years ago. In order to maintain appropriate regulatory balance, periodic review and reform has been essential over the years. Our current federal regulatory systems were built for different markets with different competitive realities than we face today. Reforming the CEA to take into account those new market realities is vital to the survival of U.S. futures exchanges.

Notes: We develop a game-theoretic version of the right-to-manage model of firm-level bargaining where strategic interactions among firms are explicitly recognized. Our main aim is to investigate how equilibrium wages and employment react to changes in various labor and product market variables. We show that our comparative statics results hinge crucially on the strategic nature of the game, which in turn is determined by the relative bargaining power of unions and managers.

Notes: We develop a simple model in which there is both interfirm (or intraproduct) and intrafirm (or interproduct) competition. The purpose is to develop a classificatoy framework in order to understand product-range or diversification decisions alongside conventional competition. The equilibrium outcomes commonly involve a limited range of the available goods being produced. Deterrence equilibria and other strategic actions are also examined.

Notes: DeGraba and Postlewaite (1992) show that the seller of a durable input can solve the time inconsistency problem by offering most-favored-customer (MFC) protection to buyers. McAfee and Schwartz (1994) show that if a supplier sells inputs to competing firms using two-part tariffs, MFC protection that allows a firm to replace its contract with a contract executed by any other firm will not solve the commitment problem, and argue this implies managers cannot use MFCs as a strategic commitment device in complex contracting situations. This paper shows that if the profits of the seller and the buyers are monotonic in each term of the contract, then applying MFC protection to each term of a contract allows a manager to solve his commitment problem in complex contacting situations. We show that “standard” contract arrangements (two-part tariffs, declining block tariffs, and royalties as a percentage of sales) meet this condition.

Notes: This paper develops a theory of capital structure based on the attempts of a firm to alleviate a holdup problem that arises in its bilateral relationship with a buyer. It is shown that by issuing debt to outsiders, the firm can improve its ex post bargaining position vis-a-vis the buyer and capture a larger share of the ex post gains from trade. Debt, however, is costly because the buyer may find the required price too high and refuse to trade. Since debt raises the payoff of claimholders, it strengthens the firm's incentive to make relationship-specific investments, and therefore alleviates the well-known underinvestment problem. A comparative static analysis yields a number of testable hypotheses regarding the firm's financial strategy.

Notes: Whether vertical integration between a downstream oligopolist and an upstream oligopolist is profitable for an integrated pair of firms is shown to depend on whether one means by this that profits increase no matter what other firms do, that all integrated firms are better off when all firms are integrated than when none are, or simply that no downstream-upstream pair of firms has an incentive to deviate from a situation where all firms are integrated. It is also shown to depend on the number of firms in each oligopoly and on the type of interaction that is assumed between firms that are integrated and firms that are not. In particular, it is shown that if no restriction is put on trade between integrated and nonintegrated firms, integrated firms may continue to purchase inputs from the nonintegrated upstream firms, with the goal of raising their downstream rivals' costs. Furthermore, even though firms are identical, asymmetric equilibria, where integrated and nonintegrated firms coexist, may actually arise as an outcome of the integration game.

Notes: This paper considers the incentives of a firm with power in a market for one good to tie in the sale of a complementary good even though the complementary good is produced in a zero profit market. If the zero-profit price of the tied good is greater than the marginal cost (which occurs for example when the technology is characterized by a fixed cost and a constant marginal cost), a firm will fie in order to increase the sales of the complementary good, which at the margin is profitable. We show that such tying will lower the effective prices paid by customers and increase welfare. This incentive exists if the firm with market power is a monopolist or one of several competing oligopolists.

Notes: This paper examines the effect of a middleman on the search and trading behavior of the traders. It is shown that the buyer and seller types with middle valuations choose to search for each other, while the buyer and seller types with high or low valuations drop out of the search market and choose to trade directly with the middleman. The ask and bid prices of the middleman act as an outside option for the buyer and seller, and influence the outcome of the bargaining between the two. The model generalizes Gehrig (1993) by endogenizing the traders' search intensities, by allowing the traders to go to an intermediary even if thy have engaged in search, and by enabling the intermediary to provide the service of immediacy.

Notes: This paper discusses the supplier power of medical specialists. We argue that a combination of factors, including the structure of health care delivery, reimbursement systems, the presence of option demand, and high consumer switching costs, create circumstances in which medical specialists may be able to exercise significant seller power. We explore the implications of this for the pricing and organization of medical care.

Notes: This paper offers an exact definition of the value created by firms together with their suppliers and buyers. The “added value” of a firm is similarly defined, and shown under certain conditions to impose an upper bound on how much value the firm can capture. The key to a firm's achieving a positive added value is the existence of asymmetries between the firm and other firms. The paper identifies four routes (“value-based” strategies) that lead to the creation of such asymmetries. Our analysis reveals the equal importance of a firm's supplier and buyer relations. Cooperative game theory provides the underpinnings of the analysis.

Notes: The recent emergence of total quality management (TQM) in the U.S. has spawned a great deal of interest in management circles as well as in the mass media. However, despite the growing number of firms that have adopted this management technique, few formal tests exist concerning the pattern of adoption as well as the changes that accompany the adoption of TQM. This paper contrasts models of production for TQM and non-TQM firms in order to explore reasons why some firms but not others have adopted the TQM approach to quality improvement. Predictions arising from such a comparison are tested using a unique data set that combines data on firms from three different sources. Our findings tend to support the proposed theory of systematic differences between firms that find it advantageous to adopt TQM and firms that do not. We also find evidence that firms adopting TQM experience greater growth in sales, employment, and capital stock.

Notes: Duopolistic interaction between a small firm and a large established firm is considered and compared to guerrilla warfare, The paper investigates a “hit and run” equilibrium in which the small firm enters the market, stays there for several periods, exits, stays out for several periods, and then reenters. Occasionally there may be a price war (or retaliation), but the small firm may also exit voluntarily, thereby avoiding possible confrontation. The amount of time that the small firm stays in the market and the timing of the price wars do not follow any predictable pattern, which is part of the mixed strategies that both firms play in equilibrium.

Notes: I investigate how different sources of information influence the diffusion of pharmaceutical innovations. In prescription-drug markets, both advertising and scientific information stemming from clinical trials can affect physicians' prescription choices. Using novel indices of clinical-research output, I find that both marketing and scientific evidence directly influence the diffusion process in the antiulcer-drug market, with marketing having a more pronounced influence. I also find evidence that clinical outputs are important drivers of firms' marketing efforts, affecting sales indirectly. Taken together, the direct and indirect effects of science on demand imply strong private incentives for clinical research. I conclude that product-market competition in the pharmaceutical industry is shaped by both advertising rivalries and scientific rivalries. Moreover, drug advertising may perform an important informative function.

Notes: The paper studies the effects of bundling on the bidding strategies and seller revenues in auctions when the bidders have common values for the objects. Bundling of objects before the auction reduces the problem of the winner's curse, and the bidders bid more aggressively. This does not mean that a bundled auction is always better for the seller's revenue. Indeed, there is another effect that makes the bundled auction preferable (from the seller's standpoint) if and only if the number of bidders is small. While this is the only effect present in an independent-private-values model, it does not vanish when bidders have pure common values for the objects. The paper concludes that a bundled auction is unambiguously better for the seller than separate auctions when the number of bidders is small.

Notes: There are a growing body of theoretical work, wide anecdotal evidence, and a few large-scale empirical studies supporting the view that business firms quite rarely change their organizational structure, a phenomenon usually referred to in the literature as structural inertia. The present paper aims to analyze empirically the determinants of structural inertia and organizational change. As far as we know, this work constitutes the first attempt to directly address such issues through econometric estimates based on a large, longitudinal dataset at plant level. For this purpose, we consider changes of the organizational structure within a sample composed of 438 Italian manufacturing plants observed from 1975 to 1996. More precisely, we specify and test a duration model of the likelihood of an individual plant changing the number of hierarchical tiers after a spell r, provided that no change has occurred up to T. We also analyze the direction of change, distinguishing increases from decreases of the number of managerial layers. We consider a set of plant- and industry-specific explanatory variables that are expected to induce or oppose organizational change. The findings show that the adoption of advanced manufacturing technologies and new human-resources management practices favors organizational change. On the contrary, the presence of sunk costs and the extent of influence activities figure prominently in explaining structural inertia of business organizations.

Notes: A simple model of open source software (as typified by the GNU-Linux operating system) is presented. Individual user-programmers decide whether to invest their own effort to develop a software enhancement that will become a public good if so developed. The effect of changing the population size of user-programmers is considered; finite and asymptotic results are given. Welfare results are presented. It is shown that whether development will increase when applications have a modular structure depends on whether the developer base exceeds a critical size. Potential explanations of several stylized facts are given, including why certain useful programs don't get written.

Notes: This paper examines the effect of memory loss on the continuity of behavior. We consider a player (individual or firm) who remembers previous actions but not underlying rationales. In a stable environment, relative to a full-recall scenario, memory loss increases the probability of following old policies (inertia). In a volatile environment, memory loss can decrease this probability (impulsiveness). The model provides a memory-loss explanation for some documented psychological biases, implies that inertia and organizational routines should be more important in stable environments than in volatile ones, and provides empirical implications relating memory and environmental variables to economic decisions.

Notes: Syndication arises when venture capitalists jointly invest in projects. We model and test two possible reasons for syndication: project selection, as an additional venture capitalist provides an informative second opinion; and complementary management skills of additional venture capitalists. The central question is whether venture capitalists are engaged primarily in selection or in managerial value added. These alternatives imply contrasting predictions about comparative returns to syndicated and standalone investments. Our empirical analysis, using Canadian data, finds that syndicated investments have higher returns, favoring the value-added interpretation. We also discuss risk sharing and project scale as possible reasons for syndication.

Notes: In the context of an employment relationship, I present an argument suggesting that it is more efficient for the boss to own the productive assets. The idea is that a conflict between productivity and depreciation is internalized if the player deciding what an asset is used for also has residual claims. An empirical test finds evidence consistent with this. By asking whether the boss should own the assets, the paper reverses the reasoning from the literature in which it is argued that the owner has power and thus is the boss.

Notes: Cooperative equilibria can be supported in a repeated game when players use trigger strategies. This paper tests how well trigger strategies explain behavior in two-person experimental games. Reducing payoffs for choices larger than the Cournot level induces smaller average outputs, behavior generally consistent with trigger strategy models. Reducing payoffs for choices well above the Cournot level will not affect behavior if actions are consistent with a trigger strategy involving longer-lived, less intense punishment phases (the grim-reaper strategy), but would matter for trigger strategies with short-lived but intense punishment phases. Results show that behavior is most consistent with the former.

Notes: Knickerbocker (1973) introduced the notion of oligopolistic reaction to explain why firms follow rivals into foreign markets. We develop a model that incorporates central features of Knickerbocker's story—oligopoly, uncertainty, and risk aversion—to establish the conditions required to generate follow-the-leader behavior. We find that rival foreign investment will make risk-neutral firms less inclined to move abroad once its rivals have done so. We show that Knickerbocker's prediction relies on risk aversion and derive an expression for the minimum amount of risk aversion needed to generate oligopolistic reaction.

Notes: Horizontal mergers between firms that have different costs are examined. Owners can transfer technology to an acquired firm and decide whether to consolidate or operate their firms as separate entities in the product market. Thus mergers can exhibit both efficiencies and a market-power effect. The prices of target firms are determined via a bargaining game. An equilibrium sequence of mergers entails the largest firm targeting the next largest rival firm. Initially, this sequence of mergers with technology transfers involves no consolidations and improves welfare. Ultimately, the acquisitions lead to consolidation and may decrease total welfare.

Notes: This note corrects Proposition 3 of Chang (1998).

Notes: It is often claimed that (i) managers work too hard on operational issues and do not spend enough effort on strategic activities, and (ii) something can be done about this by introducing nonfinancial performance measures, as for instance with a balanced scorecard. We give an explanation for both claims in a formal model. The distortion toward operational effort arises because with financial performance measures strategic effort can only be rewarded in the future. But renegotiation-proof long-term compensation plans entail too weak variable components in the future. This problem can be reduced by introducing performance measures that help to disentangle strategic and operational effects.

Notes: Central to so many accounts of post-war Japan, the keiretsu corporate groups lacked economic substance from the start. Conceived by Marxists committed to locating “domination” by “monopoly capital,” they found an early audience among western scholars searching for evidence of culture-specific group behavior in Japan. By the 1990s, they had moved into mainstream economic studies, and keiretsu dummies appeared in virtually all econometric regressions of Japanese industrial or financial structure. Yet the keiretsu began as a figment of the academic imagination, and they remain that today. Regardless of the keiretsu definition used, cross-shareholdings within the “groups” were trivial, even during the years when keiretsu ties were supposedly strongest. Neither does membership proxy for “main bank” ties. Econometric studies basing “keiretsu dummies” on the available rosters produce predictably haphazard and unstable results. In the end, the only reliably robust results are the artifacts of the sample biases created by the definitions themselves.

Notes: We use survey data and field research to investigate the effects of employee involvement practices on outcomes for blue-collar workers in the auto-supply industry. We find these practices raise wages by 3–5%. The causal mechanism linking involvement and wages appears to be most consistent with efficiency-wage theories, and least consistent with compensating differences. We find no evidence that employee involvement affects plants' survival or employment growth.

Notes: The modern corporation is characterized both by a separation of ownership from management and by managerial incentives that often include strategic elements in addition to the standard incentive elements. Despite the importance of these two features in the agency and corporate-governance literatures, they are absent in the treatment of the firm in the patent-licensing literature. The analysis in this paper shows how, by simply taking into account these two features of the modern corporation, it is possible to offer a new explanation for the use of royalties in licensing agreements.

Notes: This paper introduces a theory of network incentives in managed health care. Participation in the plan's network confers an economic benefit on providers; in exchange, the plan expects compliance with its protocols. The network sets a target for the number of outpatient visits in an episode of care. A provider failing to satisfy the target may be penalized by the plan's attempt to direct patients to other providers within its network. There is an equilibrium in which every provider in the network uses the target. We test the theory by observing behavior of providers before and after the introduction of managed mental health care in a large, employed population. Managed care consisted of price reductions, utilization review, and creation of a network. Quantity per episode of care fell sharply after initiation of managed care. We identify a network effect in our empirical work. The results indicate that in this case, network incentives account for most of the quantity reduction due to managed care.

Notes: In this field-based study, we interview top- and middle-level managers at Insteel Industries and conduct statistical analysis of firm-level data in order to shed light on whether activity-based costing (ABC) provides new information to managers and whether activity-based management (ABM) significantly influences product and customer-related decisions. We find that after the ABC analysis, Insteel undertook a number of process improvements that resulted in significant cost savings. Additionally, Insteel displayed a higher propensity to discontinue or increase prices of products and discontinue customers that were found comparatively unprofitable in the ABC study. Thus we provide empirical evidence that ABC influences both strategic and operational managerial decisions.

Notes: Managed care organizations control costs through restrictions on patient access to specialized services, oversight of treatment protocols, and financial incentives for providers. We investigate possible effects of such practices on the care patients receive by studying frequencies of in-hospital complications. We find significant differences in complication rates between managed care and fee-for-service patients. We investigate the sources of this variation by comparing probabilities of complications among patients with different types of managed care coverage and patients treated in different hospitals. For several patient categories, the differences in outcomes we find appear to arise not from differential treatment of patients within hospitals or from heterogeneity in patients, but from variations in care across hospitals that tend to treat patients with different insurance types.

Notes: One of the mechanisms that are implemented in the cost containment movement in the health care sectors in western countries is the definition, by the third-party payer, of a set of preferred providers. The insured patients have different access rules to such providers when ill. The rules specify the copayments patients must pay when using an out-of-plan care provider. This paper studies the competitive process among providers in terms of both prices and qualities. Competition is influenced by the status of providers as in-plan or out-of-plan care providers. Also, there is a moral hazard of provider choice related to the trade-off between freedom to choose and the need to hold down costs. It is possible to achieve the first-best allocation by an appropriate definition of the reimbursement scheme when decisions on prices and qualities are taken simultaneously (as in primary health care sectors). In contrast, some type of regulation is needed to achieve the optimal solution when decisions are sequential (as in specialized health care sectors). We also derive normative conclusions on how price controls should be implemented in some European Union member states.

Notes: If an illness is not contractible, then even partially insured consumers demand treatment for it when the benefit is less than the cost, a condition known as moral hazard. Traditional health insurance, which controls moral hazard with copayments (demand management), can result in either a deficient or an excessive provision of treatment relative to ideal insurance. In particular, treatment for a low-probability illness is deficient if illness per se has little effect on the consumer's marginal utility of income and if the consumer's price elasticity of expected demand for treatment is large relative to the risk-spreading distortion when these are evaluated at a copayment that brings forth the ideal provision of treatment. Managed care, which controls moral hazard with physician incentives, can either increase or decrease treatment delivery relative to traditional insurance, depending on whether demand management results in deficient or excessive treatment.

Notes: This paper asserts that brand pharmaceutical firms (those mostly involved in the invention and production of new drugs) engage in a set of complementary activities that are different from those of generic pharmaceutical firms (those that primarily make off-patent medicines). Complementarities of the Milgrom-Roberts variety within, but not across, these two kinds of firms make it more efficient for pharmaceutical firms to specialize in either brand or generic production. Using FDA data, I show that this is indeed the case. I then examine the firms that produce both types of drugs to see if there are market-level strategic synergies between brand and generic products. I find generic entrants that belong to a corporation that owns the brand in the market are (1) not more likely to enter, (2) not more likely to be approved faster, and (3) not more likely to deter other generics from entering. Thus the advantage, or synergy, from mixing brand and generic activities in one corporation must arise elsewhere in the operations of the firm. If not, the integrated pharmaceutical firm is not the most efficient organizational form for the production of ethical drugs.

Notes: This paper addresses the following subjects: biotechnology and consumers, concern about risks, consumer acceptance, labelling of foods produced using biotechnology, the legal approach to consumer protection, and consumer protection policies relating to biotechnology products in the European Union, the United States, Turkey and global institutions such as the Convention for Biological Diversity (CBD) and the World Trade Organisation (WTO). It is likely that biotechnology will gain ground much more rapidly in the twenty-first century than in the past. Despite rapid, detailed and precise advances in gene technology, its applications have not been the received with a great deal of consumer enthusiasm. Consumers have approached genetically modified foods with considerable apprehension and opposition. Consumer concerns about bioengineered food products focus on the questions of human health, environmental and social risks and benefits. The most important stages in the process of marketing new foods produced using biotechnology are to demonstrate user need and consumer acceptance. Generally, the technical complexity of biotechnology makes it difficult for consumers to understand details of the product and the specific attributes of biotechnology applications. Scientific uncertainty, the nature of consumer concerns and general reluctance to accept biotechnology products, increase the importance of consumer protection. Legal protection is a very important factor in the solution of new social problems related to technological advances. More specifically, consumer and environmental law support consumer protection related to foods produced with biotechnology. The basic principles of consumer law can be re-formulated as consumer rights. Environmental law is a new phenomenon, but precautionary principles and public participation in decision-making for environmental law are relevant to consumer protection relating to bioengineered food products.

Notes: Many variables have been proposed as additions to the theory of planned behaviour structure, and evidence exists to support the value of a measure of ethical obligation and self-identity. Furthermore, some research has suggested that ethical obligation may serve as an antecedent to attitude as well as intention. This paper presents findings from a large scale survey that highlights the usefulness of ethical obligation and self-identity in the prediction of intention. Additionally, the role of both these variables in the prediction of attitude is also suggested. This is examined within the ‘ethical’ context of fair trade grocery purchases. Methodological implications for further research are discussed.

Notes: This paper first presents evidence from Spain on the relationship between the labour situation of both spouses within the family and the time dedicated to the care of the children, the elderly and the infirm. Second, it analyses the effect that government benefits for such care would have on the labour market and on household poverty. The results show that while Spanish society has advanced in the incorporation of women into the labour market, most of them still have to assume total responsibility for housework and the care of the children, the elderly and the infirm. Against this background, we find that benefits would decrease female participation in the labour market and the number of hours worked, while they would also contribute towards reducing poverty.

Notes: The curriculum that pupils are taught within the classroom environment can either be reinforced or weakened by what goes on in the rest of the school environment. The study focused on pupils aged 11–12 years, to establish if healthy eating theory was put into practice in the school environment. The research encompassed three areas within the school: the pupils who are the recipients of the theory; the teacher who teaches them the importance of food and cooking skills; and the providers of food within the school environment. Three different post-primary schools located within the Coleraine area of Northern Ireland were used.

Notes: Focus group interviews were carried out at 12 preschools. The aim was to investigate children's perceptions and experiences of food, and the possibility of using focus group techniques with children aged 3–5 years. A total of 103 children participated. The children associated food and eating with rules and norms. Most children described these rules and norms as well as what they were and were not allowed to do. They knew very well the difference between acceptable and non-acceptable mealtime behaviour, and were especially aware of what they were not allowed to do. When children were asked to rate foods they ‘disliked’, they spoke instead about their favourite foods. They did not categorize food as good or bad, as adults often do, but as ‘food’ and ‘non-food’, for example, sweets were not food. The method used in this study, the focus group interview, was judged to be a useful tool for exploring how children think about and jointly reflect upon food.

Notes: The Food Standards Agency was set up in April 2000 to protect the health of the public and the interests of consumers in relation to food. Its principal purpose is to put the consumer first. But what does this mean in practice? The Agency is finding ways to help consumer organizations and consumer representatives contribute more effectively to its work. However, consumer organizations cannot hope to represent the full range of consumer perspectives, and so the Agency is keen to reach out to individual consumers using a variety of innovative mechanisms. This article will describe why the Agency was established and how it achieves its main objective of putting the consumer first. It will discuss how the Agency is developing and testing new ways of working to ensure that the consumer perspective is fully accounted for when developing and evaluating policies, including setting up an influential new Consumer Committee. It will go on to highlight a number of recent innovative consumer consultations and structures that have been established to involve consumers in Agency policy making. It will discuss these processes and how the lessons that have been learnt are informing future Agency strategies. The article will then describe how the Agency protects consumers through effective risk communication strategies and how its Annual Consumer Attitudes Survey will help it measure success so that it can continue to set new stand-ards in putting consumers first in relation to food.

Notes: Despite the increased documentation of consumers’ purchases of organic food products, the motivations for such purchases are relatively under-researched. An individual’s choice of food products can be linked clearly to ethical stances, but ethical choices can also vary from individual to individual, from industry to industry and among countries. Consequently, this paper investigates the degree to which ethical beliefs influence Scottish consumer perceptions, beliefs, attitudes and purchasing decisions, with regard to organic dairy products. Consumer purchasing motivations are revealed as being self-interest-centred (i.e. better tasting, safer), rather than altruistic. Therefore, to achieve future market development, organic dairy producers cannot rely upon the minority of hardcore green consumers to sustain growth, but must aim to modify perceptions and attitudes of larger consumer segments by implementing educational marketing campaigns that reinforce the ethical, environmental and societal benefits of organic production.

Notes: Physically disabled women today have to face the inconvenience of shopping for their own as well as their families’ clothes and the inability of finding fashionable clothes that fit any disability. A total of 40 physically disabled women between the ages of 21 years and 60 years were interviewed on the problems they experienced when shopping for fashionable clothes that fit their disabilities. A total of 40 clothing shops were observed to get information on the extent to which the shops cater for the needs of the physically disabled consumer. Results from the interviews showed that the majority of physically disabled female clothing consumers experienced major problems in finding fashionable clothes that fit their disabilities. It was also clear that these women experienced problems with unusable access routes, unsuitable parking lots, display racks that are too high, spaces between racks that are too narrow, inadequate space in fitting rooms and a lack of assistance in shops. The observations were compared with the complaints the women had and it was found that these women had not overestimated their problems.

Notes: Three denim jeans products from the same manufacturer with differentiated pricing and labels (antiqued, sandblasted, and stonewashed) were used to determine the relationship between price and quality. Both qualitative and quantitative procedures were used to analyse the garments. All three jeans were made of twill weave with 3 × 1 repeat. Both structural and performance characteristics were compared using standardized tests. Analysis of variance was used to compare the selected structural and performance characteristics among the three jeans products. Tukey’s HSD tests were used for post hoc multiple comparisons for three jeans. The findings revealed that despite the fact that all three jeans products were from the same store, and that the fabrics used the same weave, degree and direction of twist, the jeans differed significantly for several structural and performance characteristics. Several possibilities for future research were explored.

Notes: Few economic relationships have been as scrutinized as that between SNA measures of national product, investment and consumption, and welfare. The present paper contrasts SNA economic production and welfare to total production and welfare within the Walrasian framework of usefulness and costliness. An evaluation of deductions and additions to the SNA made by Nordhaus-Tobin, Zolotas, Richard and Nancy Ruggles, Kendrick, Eisner and Jorgenson-Fraumeni, in their research on extended product and income accounts and improved indicators of welfare reveals numerous unresolved analytical and measurement issues; and reaffirms the usefulness of the SNA as a fundamental, initial, welfare indicator.

Notes: Data from the International Comparison Programme (ICP) generate a number of analyses examining price and quantity relationships across countries. Although geographic location is sometimes evoked to explain differences across observations, it is seldom used to measure the extent of this interrelationship. Using ICP Phase V benchmark studies (Summers and Heston, 1991) at the level of household consumption for approximately 64 countries and 23 aggregate headings in 1985, this paper introduces such a measure, testing for spatial autocorrelation among price relatives with respect to three different measures of relative location: the pairwise existence of a common boundary, the distance between capital cities and the amount of trade between two countries.

Notes: This paper examines issues involved in calculating a value added index in order to measure real value added at the industry level. Three methods of calculating real value added are considered; the Laspeyres double-deflation method recommended by the United Nations System of Nation Accounts, the commonly used single-deflation method, and the double-deflation Divisia method. Actual data are employed to clarify and illustrate the issues involved, and the paper concludes with a recommendation for an appropriate index to use when calculating industry real value added.

Notes: The National Accounting Matrix including Environmental Accounts (NAMEA) shows environmental burdens that are consistent with the economic figures in the national accounts. In the NAMEA, the existing national accounts matrix has been extended with accounts in physical units. On the basis of the expected contribution of each polluting substance to a particular environmental problem, emissions are converted to theme equivalents. This results in six summary environmental indicators that are directly comparable to the conventional economic aggregates. In addition, this meso-level information system can be used as the core data framework for integrated analyses and forecasts of economic and environmental changes.

Notes: This paper analyzes how inequality in Before and After Government income has changed in Germany since reunification using the 1990 through 1992 waves of the German Socio-Economic Panel. A Theil decomposable inequality index is used to measure inequality in Germany and in its eastern and western states. Massive public transfers from west to east have narrowed the east-west income gap, substantially offset the rise in income inequality from private sources, and lowered overall inequality in the western states. The net result of this policy has been a drop in After Government income inequality in Germany between 1990 and 1992.

Notes: The paper concerns the links between labour force accounts and national accounts. It first discusses the variation in the perception of labour force among countries which results in much disparity in recorded participation rates. This obviously makes international comparison difficult. Since benchmark labour force information is often tied to population censuses which are infrequent and vary in concepts and approaches, even comparisons within a country over time are difficult. Finally a discussion of the use of labour force data to estimate the unrecorded economy is followed by suggestions on the direction for future work.

Notes: Four alternative measures of the average duration of unemployment are examined with the intention of illustrating: (1) the biases inherent in the average incomplete duration of unemployment, a statistic that is often the only one reported by many statistical agencies; and (2) the robustness of the average complete duration of unemployment to a host of assumptions underlying its derivation by non-parametric methods. Canadian data are employed, but the results offer a guide to the construction of the average complete duration of unemployment that may have broader applications.

Notes: The transformation of a non-market to a market economy ought to change fundamentally the significance of money incomes for welfare. Whereas in a stressful non-market economy such as the former Soviet Union, non-monetized resources could substitute for money income and promote welfare, in a modern market economy money income should be a good proxy for household welfare. This article tests the extent to which Russians are now in a modern market economy by analyzing data from nationwide Russian surveys in January, 1992, and April, 1994. Modern influences are increasingly important as a determinant of the distribution of money incomes, but not as an influence upon household welfare. The “randomness” of temporary disruptions of welfare is in accord with Rawlsian principles of equity.

Notes: This paper investigates the magnitude of the mismeasurement that occurs when only a few education categories are used in the construction of a constant quality index for labor input. By employing a very comprehensive data set it is found that the error resulting from the omission of information on education is relatively small. The empirical results are thus supportive of the current state of practice of constructing indices of constant quality labor input.

Notes: This paper demonstrates a methodology for constructing asset accounts for a commercial fishery in which the stock, harvest, and effort level are out of sustainable equilibrium. The paper adopts the framework used by the U.S. Department of Commerce Bureau of Economic Analysis in its preliminary 1993 Integrated Economic and Environmental Accounts and follows methodologies recommended by the National Research Council committee constituted to review those efforts. The accounts were constructed for the period 1985 to 1995 for the Atlantic sea scallop fishery, a significant commercial fishery, using information obtained with the cooperation of the National Marine Fisheries Service from existing databases constructed for management purposes. No significant additional data collection was required for the purpose of this study. Differences between the net rent and user cost values of the stocks over this period indicate the inefficient exploitation of immature scallop populations.

Notes: Ann Chadeau died in April this year after a long illness. She was 58. Ann was an active member of our Association for many years, serving on the Editorial Board from 1985 to 1990 and on the Council from 1995 to 2000. All those who knew her will be saddened at the loss both for her warm and outgoing personality as well as for her professional abilities.

Notes: This paper investigates the effect of finding work by one of the household members on the probability of escaping from poverty in the Netherlands. For households with non-active heads, finding work by the head of the household is the most important (investigated) event connected with exiting poverty, nearly a third of all poverty endings. However, finding a job by the head of the household does not guarantee one leaving poverty. In practice, the success rate yields 25 percent. A multivariate analysis shows that finding a job by the head of the household increases the chance of leaving poverty with 22 percent points. So, some exits from poverty are a result of other factors or are due to selectivity of the job-finders. This difference is much larger when partners or (adult) children find jobs.

Notes: The formidable expansion in the scope of the United Nations International Comparison Project has brought into evidence limitations of the methodology used in the first three phases. The author considers that there are two indispensable conditions needed to give renewed impetus to the ICP: (a) the objectives must be redefined, and (b) the methodology must be built on an entirely new basis. He considers the broad lines of such an evolution to be the following.(a) The objective of volume comparison must be kept distinct from that of purchasing power comparison, given that both the basic material and the formulae to be used at the aggregate level differ in the two cases.(b) At the basic heading level, it is proposed, for both volume and purchasing power comparisons, to replace the multilateral approach by a “minimum scale” binary and unilateral approach, and to use the EKS method. This will make possible an improvement in the accuracy of the estimates, a reduction in the overall costs, and a drastic reduction in execution time. What is more, it would be possible to regionalize the worldwide comparison, in the sense that the results of the basic heading comparisons already obtained at the regional level for regional purposes can be used as an input in the framework of the worldwide comparison. At the aggregate level, in the framework of volume comparison, it is proposed that a constant price procedure in the spatial sense should continue to be used. It is, however, proposed that the prices of the set of countries (GK) be replaced by a structure of common “equi-distant” prices (G). This would permit the elimination of the significant systematic distortions observed in the comparison between rich and poor countries in the first three phases of ICP. What is more, this gives maximum stability to results obtained for the same countries at different geographical levels. By using a set of common “equi-distant” quantities, the same advantage can be obtained in the purchasing power comparison.

Notes: Income redistribution studies on the macro–economic level have been undertaken in Denmark for the years 1938–39, 1949, 1955, and 1963. By use of national accounts figures and all other available statistics, it was on certain assumptions possible to distribute public sector income and expenditure by income groups.A quite different approach is used in a Danish redistribution study on the micro-economic level for 1971, which relies solely on the comprehensive data from the family budget survey for that year. Unfortunately this study only relates to employee households.This paper deals with the 1963 and 1971 studies. First it describes and discusses the differences in methodology between the two studies and indicates some ideas for future studies in this field in Denmark. In the following sections some main results of the two studies are given, briefly for the 1963 study and more comprehensively for the 1971 study. The studies show the great and growing strength of the policy of redistribution through public sector income and expenditure in Denmark.It is the opinion of the authors that the appearance of redistribution studies based on comprehensive family budget surveys makes for a substantial improvement of redistribution figures, and that the purely micro-level frame of reference makes it possible to interpret the results in a more satisfactory way than before. Furthermore, the appearance of detailed input-output based national accounts data should bring about further improvements in redistribution figures through better data on indirect taxes and subsidies as well as supporting data which are necessary to link the micro and macro levels in a consistent way.

Notes: It is often discussed that inflation introduces a substantial, arbitrary and regressive redistribution of income and wealth under even mild inflation. But after a quarter century of experience with inflation in postwar Japan, very little is known about these costs of inflation on an empirical basis. Due to the complexity of the evaluation of the redistributional impact on Japan, the present paper analyzes the effects of inflation on individuals or groups as wage earners, debtors and creditors, taxpayers, and holders of real estate.The main results of the present investigation suggest that the Japanese inflation for 1955–75 did not seem to introduce much inequality in the income (flow) account in the economy, but that the inequality between households has appeared more in the wealth (stock) account, especially between the house-owner groups and non-house-owner groups. These observations are mainly derived from the following investigations; (i) the wage lag hypothesis about inflation, even if not wrong, does not seem acceptable when applied to the entire period (1955–75) as well as to each of the five sub-periods; (ii) there has been a substantial transfer of real purchasing power from households to non-financial corporations, and, to a lesser extent, to government entities in the debtor-creditor redistribution; (iii) among households, the most substantial redistribution takes place from the non-houseowners to houseowners with land, because of the huge amount of capital gains from the rapid increase in the price of real estate relative to the prices of other assets or the consumer price index, except for the last three years of rampaging inflation.

Notes: Preliminary estimates of the total incomes system of accounts (TISA) are provided for 1959 and 1969. They extend conventional accounts to include all consumption services produced by government and households as well as by enterprises, but define household purchases of durable and semi-durable goods as investment. Acquisitions of capital throughout the economy, intangible as well as tangible, and not only in the business sector, are included in capital accumulation along with, for tangible capital, net revaluations, that is capital gains net of increases in the general price level. Imputations are offered for non market consumption and capital accumulation, most prominently in unpaid household work and education. Much of government output, particularly police services and defense, is recalculated as intermediate, along with expenses related to work, while media services, treated by the United States Bureau of Economic Analysis (BEA) as business purchases of intermediate product, enter into TISA consumption. Subsidies are included in the value of product, as are services of volunteers and imputations for the underpayment of military conscripts and of jurors. Separate accounts are offered for the national income and product, business, nonprofit institutions, government enterprises, government and households.The ratios of BEA to TISA Net National Product were 81.4 percent and 76.5 percent in 1959 and 1969, respectively. BEA national income was 74.1 percent of the corresponding TISA net national income in 1959 and 69.6 percent in 1969, reflecting a greater per annum rate of growth of TISA net national income, 7.49 percent, as against 6.82 percent for the corresponding BEA national income.BEA gross private domestic investment, restricted to business acquisitions of tangible capital at original cost, was estimated as only approximately 22 percent of comprehensive TISA gross domestic capital formation in 1959 and some 20 percent in 1969. The BEA net private domestic investment growth rate of 7.32 percent per annum from 1959 to 1969 may be compared with a TISA net domestic capital formation growth rate of 9.42 percent.

Notes: The paper is concerned with the concept, definition and measurement of a service. Although services are often dismissed as immaterial goods, they are not special kinds of goods and belong in a quite different logical category from goods. The search for appropriate units of quantity in which to measure services is not an idle metaphysical pursuit. Without quantity units there can be no prices, and most economic theory becomes irrelevant. Indeed, large parts of economic theory may be irrelevant to the analysis of services anyway, precisely because they are not goods which can be exchanged among economic units. Services are as important as goods in modern developed economies and they need to be identified and quantified properly if the measurement of economic growth and inflation is to have any meaning for the economy as a whole. The concept of a service is explained in some detail in the paper, and various ways in which services can be classified for purposes of economic analysis are elaborated. The distinction between private and public goods, or rather between private and collective services, is re-examined in the light of the general concept of a service proposed in the paper. Externalities are shown to be simply special kinds of services.

Notes: This article examines several hypotheses concerning the stochastic nature of year to year variations in individual incomes in light of newly available microdata on individual earnings. In particular, the models of Solow (1951), Champernowne (1953), and Rutherford (1955) are examined in some detail, and their predictions as to changes to be expected in the distribution of individual incomes are tested. The author concludes that the distributions arrived at using these models are not very similar either to each other or to the actual distribution of earnings. Thus, he believes that as an “explanation” of earnings dynamics stochastic process models are unsatisfactory. He further criticizes these models on the grounds that they foster a bias toward the belief in the inevitability, and perhaps desirability, of the current distribution of earnings.

Notes: This paper investigates the relation between schooling and earnings across and within occupations. Across occupations earnings are positively related to mean education. Within occupations the variance in schooling levels is generally substantial, but within two thirds of the occupations no relation between schooling and earnings is observed, while in the remaining third the pattern of sensitivity varies considerably. The sensitivity of earnings to education is greater for white males than white females and substantially greater for whites than blacks. When the white sample is divided into age cohorts, the degree of sensitivity of earnings to schooling is found to be greater for younger cohorts than older ones, except for the youngest cohort in 1970. In the conclusion, a structural interpretation of the distribution of earnings is proposed to account for the findings.

Notes: The historical background and present methodology used in compiling the U.K. official estimates of the stock of fixed capital are described. Mention is made of the possibility that with the development of commercial accounting direct estimates of capital stock may be derived from enterprise accounts at some future time. For the present, however, an indirect perpetual inventory approach is followed. Some of the deficiencies of the present estimates are discussed including the effects of possible biases in the life-length assumptions, price indices and the treatment of secondhand assets. Estimates of gross capital stock are given analysed by industry group of ownership and by type of asset.Some conceptual issues are discussed in relation to user requirements, including the distinction between the stock of capital and the flow of services from it.The authors conclude that little can be done to improve the perpetual inventory estimate of fixed capital in the U.K. without devoting more resources to the collection and analysis of new information, particularly on the service lives of fixed assets, the extent of leasing and the transfer of assets between industries.

Notes: This paper is concerned with the theoretical problems of devising indexes of quality change and with some of the practical problems of constructing such indexes from market data, relating these to the various attempts to construct such indexes in the past. The general conclusion is that, while quality is inherently ordinal, there are three different indexes which might be taken as “measures” of quality change. If changes are sufficiently small, the values of all three indexes will coincide and then, only, can we consider any one of them to be an unambiguous measure of the change.

Notes: This paper assesses the effects of including wealth and the variability of income on the incidence of poverty and the degree of income inequality in Israel. A special survey, which includes data on the wealth and income of a national sample of Israeli families in 1963–64 and 1964–65, allows us to go beyond measures based on current income alone.The first section reviews earlier studies of poverty in Israel. The next section looks at poverty and inequality in terms of current income, current wealth, and a combined measure of income and wealth. The combined measure is the Hansen-Weisbrod measure (HW), which equals income plus the annuity value of wealth, assuming all wealth is just consumed at the time of death. It is interesting that, in spite of the much higher wealth inequality than income inequality, the HW measure was slightly more equally distributed than income. This result occurred because the annuity component made up a low share of the total HW measure and the correlation between income and wealth was well under 1. Although overall inequality and poverty were similar for income and HW measures, the incidence of poverty by subgroup depended on the measure used.The final section presents a dynamic view of poverty and inequality. Year-to-year changes in poverty were substantial. Because of the use of a relative poverty concept and the rise in real incomes, the real income poverty line rose by 15 percent between 1963 and 1964. Still, of those in income poverty in 1963, 37 percent managed to escape poverty in 1964. The paper shows how the degree to which poverty was stable or transitory varied substantially by age and country of origin.

Notes: A number of rather traditional problems relating to the estimation of the national accounts have been raised in the recent literature. This paper examines five of these problems from the point of view of a government statistician working within certain time and resource constraints. Credibility, comprehensibility, theoretical validity, cost and analytical usefulness are the criteria which should aid in deciding how to treat such matters as the extension of the boundaries of economic production, proposed changes in the categorization of both final and intermediate expenses, the treatment of “total” welfare and estimation relating to the so-called underground economy.

Notes: Book review in this article:JAMES MEADE: Stagflation Vol 1: Wage Fixing. George Allen & Unwin LA.

Notes: In 1997, the Labour Party was elected in the UK with few explicitly articulated ideas about social security reforms. This paper reviews the large number of subsequent reforms to social security, and argues that some consistent themes have emerged. A commitment to keep to the tight spending plans of the previous, Conservative, administration left little scope for increases in benefit spending during the first two years in office. Since that time, increases in the generosity of some social security programmes have been directed towards achieving certain goals. An emphasis on encouraging paid work has been a consistent theme, whilst aims of reducing poverty rates for children and pensioners have been emphasised since 1999. Spending to achieve these goals has often been directed through means-tested programmes, and there has been a related weakening of the link between paid National Insurance contributions and benefit entitlements. It remains to be seen whether reforms to the process of income assessment will increase take-up.

Notes: This is the text of the IFS Annual Lecture 1996 delivered at the Chartered Accountants’ Hall, London on 17 June 1996.

Notes: Australian governments have recently moved from cash accounting to accrual accounting. Accrual accounting has been accompanied at the national government level by the introduction of a new key fiscal policy measure: the ‘fiscal balance’. This paper explains and evaluates this new fiscal measure. It concludes that, given the present fiscal policy of the Australian government, fiscal balance is a superior fiscal policy measure to the ‘cash’ budget balance measure which it replaced. However, from the alternative ‘golden rule’ policy standpoint, fiscal balance is not a meaningful fiscal policy measure — although its stock counterpart, net financial liabilities, certainly is.