Knowledge that Transforms

Attention has been directed toward analyzing the impact of monopoly control on the utilization of depletable resources. Several theoretical works indicate that, under most circumstances approximating reality, the monopolist will overconserve resources relative to the competitive optimum. There does not seem to be general agreement on the degree of severity of the intertemporal bias caused by the existence of monopoly. This paper develops some quantitative evidence of the differences between competitive and monopolistic behavior. By comparing estimated production profiles of oil-producing states grouped according to their degree of market power, estimates of the extent to which relatively competitive and monopolistic output profiles differ are acquired. Results indicate that the monopoly type group exhibits a production profile which is initially lower, peaks later, and eventually exceeds the profile estimated in the competitive group.

The pioneer proposal by Henry Wallich and Sidney Weintraub marks an important step in the evolution of a more effective high employment policy: the application of microeconomic incentives that discourage inflationary wage decisions and in effect internalize their social costs in order to achieve macroeconomic goals. Evolving from this innovative tax-based incomes policy (TIP) concept we have a wide variety of plans and variants, some of which have been published in the special Brookings volume, including Arthur Okun's tax bonus TIP; Laurence Seidman's hybrid approach to reduce the nonaccelerating-inflation rate of unemployment (NAIRU); Abba Lerner's wage increase permit plan (WIPP); and now the all-purpose plan embodied in the legislative draft developed by the Senate Committee on Banking, Housing, and Urban Affairs. Conceptually productive, the new pluralism complicates a compact analysis of design issues. It would be impossible for me to cover this waterfront. This discussion highlights major areas of design and implementation with emphasis on the Wallich-Weintraub wages TIP.

Over the past several years there has been a considerable resurgence of interest in the theory of consumer's surplus with the general aim of identifying those circumstances under which it may serve as a viable welfare indicator. In a recent issue of this Review and in this vein, Robert Willig has attempted to establish criteria or rules of thumb for determining when consumer's surplus may reasonably approximate the equivalent and compensating variations. Unfortunately, his striking conclusions are based on some rather special assumptions which severely limit the applicability of his approach. In this comment, I shall first examine the two main problems with Willig's approach: (a) it cannot be easily generalized to cases where the prices of several commodities vary; (b) it is valid only when price and income changes are relatively small. Second, I shall present some numerical examples to illustrate that the magnitudes of error involved in Willig's approach may be far from negligible. Finally, his procedures are contrasted with the one recently presented by Ivor F. Pearce and the author, which enables an exact, not an approximate, money metric welfare indicator to be constructed on the basis of observable information.

Recently the major issue in the international aspects of economic development has been the so-called dialogue in connection with the UN resolutions calling for a New International Economic Order. The intellectual basis for the proposed reforms, in so far as one exists, appears to lie in the well-known writings of Raul Prebisch and Hans Singer. Both of them argue that there is a fundamental asymmetry in the workings of the global economic system which biases the resulting income distribution in favor of the industrial North and against the predominantly primary producing South. Neither writer has been successful in putting forward convincing arguments for such asymmetry. The standard trade theory of the HeckscherOhlin variety is usually presented in such a way that countries A and B are identical in all respects except for a difference in factor proportions that leads to pretrade product and factor-price differentials that are removed by free trade. There is no room for any asymmetry here. It would therefore seem to be both relevant and interesting to construct and investigate models that exhibit the PrebischSinger asymmetry at the level of rigor that generally prevails in pure trade theory. The rest of this paper will present two examples of such models from current research. The first consists of a simple diagrammatic exposition of an interesting but heavily mathematical paper by Murray Kemp and M. Ohyama and the second outlines the essential features of an approach to the analysis of North-South economic relations found in my earlier paper. 1. The Kemp-Ohyama Model

It is well known that aggregate concentration levels in the United States have been increasing over time (see Table 1). Although the economic importance of such concentration has long been controversial, this upward trend is, nonetheless, greeted by many with alarm (see, for example, John Blair, ch. 4). Since the potential dangers of aggregate concentration are likely to be magnified if the largest firms are solidly entrenched in their positions, an analysis of the turnover and mobility of these firms is of some import. Several early analyses in this Review indicated that the degree of mobility among large firms was falling and that large firms were increasingly able to maintain their positions over time.' The purpose of this study is to reexamine the data and to determine if these trends have continued. Section I reviews the results of the previous studies and concludes that the apparent diminution of turnover and mobility has ceased. Section II briefly considers some possible causes of the observed turnover and mobility, and Section III summarizes the results.

That fluctuations in primary commodity export markets have significant impacts on the economies of the producing countries is intuitively clear and widely accepted. But there is little consensus on the direction and significance of these impacts on economic development. Fluctuations in the value of primary commodity production and exports have the potential for affecting the growth path through a number of channels. This paper is concerned with delineating these channels of influence and with establishing quantitative dimensions for their effects. As an illustration we focus on coffee in relation to the economy of Brazil. The relationships between the coffee producing sector and the national economy are established econometrically and integrated into a macro model of the Brazilian economy. Alternative scenarios for coffee production and exports illustrate the nature of the impacts throughout the economy and the potential effects on Brazilian growth.

In the last decade there has been a growing awareness of the role that domestic taxation can play in determining international commodity flows and the importance of the method of taxation for the balance of payments. There has been considerable discussion on the pros and cons of valueadded taxation, and of the desirability of replacing the corporate income tax with a value-added tax.' There has, however, been a surprising lack of empirical research,2 and it is to the task of furthering our knowledge in this area that the present paper is addressed. The analysis begins with a few brief comments on some theoretical issues. I first consider the question of the effect of the corporate income tax on commodity prices, for an understanding of this issue is crucial to the entire discussion. I then go on to describe how these price effects could influence trade patterns. Finally, I present the model which will be used to estimate the price effects of the tax. I turn next to the actual calculation of price effects for the U.S. economy, and to carry out international comparisons, do the same calculations for Canada. I then test to see whether the calculated price effects would be expected to remain stable over the business cycle. Some comments on the importance of these results for international trade patterns are then made. It will be argued that the price effects of the corporate income tax may to a considerable extent offset the price advantages in trade that capital-rich countries are expected to have.

The author comments on the article by Stiglitz (Am. Econ. Rev.; 66: 655-661(Sep 1976), especially taking issue with the intuitive model used; the model, a two-period model, uses zero extraction costs and a constant elasticity of demand in appraising the OPEC cartel. He also points to another quite unrealistic assumption, namely: That part of the stock which we do not consume in the first period will be consumed in the second. Pointing out that the constant elasticity assumption is usually used for mathematical convenience - never fits any real world situation - Tullock proceeds to show that not only have the oil-producing countries made a great deal of money from their cartel, but that this is what theory indicates should happen.