This paper introduces and analyzes a monopolistically competitive model of airline markets which takes account of the product differentation effect resulting from variation in flight departure times, and the effects of flight frequency and load factor on service quality. The basic results are that (1) when the direct benefits (to consumers) of increasing flight frequency are exhausted, socially optimal choices of price and frequency result in zero profits for the industry, but (2) a noncooperative, free entry equilibrium always results in higher prices, lower load factors, and greater frequency than are socially optimal.
Government subsidies for solar energy are examined in terms of the rationale for a Federal subsidy program, the type of program required, and the methods used to determine the funding level of each program. Justification for solar energy funding is based on the benefits to social welfare for both first best and second best reasons, which are described. Five policy instruments for optimal and socially acceptable subsidies are needed to solve all the problems outlined in the first- and second-best problems in order to analyze the associated economic problems, define the objectives, choose the proper instruments to meet those objectives, choose specific programs that are within the framework of those instruments, and optimize funding levels. 12 references.
The New Jobs Tax Credit was one of the four programs in the 1977 economic stimulus package. This program, although viewed primarily as a countercyclical measure, may also alter the equilibrium unemployment rate, UN.' This paper presents our preliminary analysis of the Department of Labor survey, conducted by the Bureau of the Census, in which firms described their responses to this employment tax credit (ETC). To date, our results indicate the potential for a large employment effect. Ordinary least squares estimates suggest that firms which knew about the program increased employment 3 percent faster than other firms. A second analysis which uses multinomial logit techniques indicates that the ETC shifted the entire distribution of employment growth to the right: slowly growing firms increased employment to capture the credit. Since the firms which knew about the program, however, were not randomly drawn, our results may overstate the program's employment effect. Due to the nature of the survey data, we can only focus on direct employment effects.2 It is useful, however, to at least mention the other potential effects of the program. First, unlike Comprehensive Employment Training Act (CETA) programs which increase public employment, the ETC should increase employment in the private sector. Within the private sector, the rules of the current ETC program provide an additional stimulus to the growing industries and, to a lesser extent, to small establishments. Second, the long-run structural effects of this two-year program are probably small. A permanent ETC, however, may be able to lower UN of disadvantaged workers.
This study applies Lance Girton and Don Roper's (hereafter G-R) monetary model of market pressure to the postwar Brazilian monetary experience. The model was designed specifically for the Canadian managed float during the period 1952-62. The object of their model is to explain what they term exchange market pressure; that is, the pressure on foreign reserves and the rate when there exists an excess of domestic money supply over money demand in a managed floating rate regime. The basic theoretical proposition is that any such excess supply of money can be relieved by an depreciation, a loss in foreign reserves, or, in the context of a managed float, by some combination of the two. In this sense, the G-R managed float model used here is firmly rooted in the modern monetary approach to rates and the balance of payments.' Brazil provides a particularly good example for testing this approach, not only because it is in many senses a unique example of a postwar managed float system, but also because it can be treated as a small, open economy in the sense that world prices and monetary conditions faced by Brazil are taken as given. This particularly suits the purpose of most modern monetary models which make this assumption and obviates the problems of monetary dependence and neutralization dealt with in the pioneering G-R paper. Specifically, the small-country assumption permits us to devise a simple one-country equation of managed floating which depends upon four essential ingredients: 1) money demand, 2) money supply, 3) purchasing power parity, and 4) monetary equilibrium.2 Furthermore, in Brazil a much greater proportion of market pressure was absorbed by rate depreciation than in the Canadian case where changes in reserves were large relative to rate movements. In short, postwar Brazil provides a singularly good opportunity to test the monetary model of market pressure. Section I briefly states the essential elements of the monetary model, and derives the equation to be tested for the Brazilian experience from 1955 to 1975. Section II reports empirical results for the market pressure model, and Section III examines the applicability of the relative version of purchasing power parity for the time period considered. Section IV summarizes the results and discusses the merits of the monetary approach in light of the Brazilian experience.
Robert Solow's paper on technical change provides an economic rationale for the so-called total factor productivity residual-the growth rate of real product not explained by the share-weighted growth rates of the real factor inputs. Solow demonstrated that under the assumptions of a Hicks-neutral aggregate production function and competitive equilibrium, the residual is equivalent to the growth rate of the Hicksian efficiency parameter, which in turn is equivalent to the rate at which the aggregate production function is shifting over time. An important implication of this result is that, under the appropriate assumptions, the shift in the production function can be measured using price and quantity data alone, without the need of estimating or assuming the values of such parameters as the elasticity of substitution between capital and labor.' Although the residual is a valid measure of the shift in technology, it does not indicate the true importance of productivity change as a source of economic growth. An increase in total factor productivity will in general lead to an increase in output (as the inputs are used more efficiently) and thus to additional saving and capital formation. Part of the historically observed growth rate of capital stock is, therefore, the result of productivity change, and must be recognized as such when assessing the importance of productivity change as a source of growth. This paper suggests an accounting framework for measuring the importance of productivity change using price and quantities alone. It is based on an intertemporal specification of technology closely related to the framework proposed by Edmond Malinvaud (1953, 1961). An effective rate of productivity change (termed the dynamic residual) is defined to be the residual growth in total consumption not explained by the rate of change of total primary input. This residual is then related to the change in the Malinvaud intertemporal production possibility frontier due to changes in total factor efficiency. Since capital accumulation is endogenous in the intertemporal framework, the dynamic residual measures the impact of annual changes in factor efficiency inclusive of the induced accumulation of capital. It thus provides a measure of the importance of productivity change in economic growth. John R. Hicks and T. K. Rymes have also emphasized the need to measure technical change in a dynamic (capital endogenous) framework,2 but, have implicitly (and explicitly, in the case of Rymes) rejected the conventional residual as a measure of changing technical efficiency. The main result of this paper is, however, that the conventional and dynamic residuals are complements rather than substitutes. They measure different aspects of the same process within a common analytical framework. As will be seen in Table 1, the conventional (atemporal) accounting framework is embedded in a more general *The Urban Institute. I acknowledge the financial support of the National Science foundation in the preparation of this paper. I would also like to thank Larry Epstein, Melvyn Fuss, Dale Jorgenson, and Mieko Nishimizu. IThe recent empirical literature on U.S. productivity change includes Laurits Christensen and Dale Jorgenson (1969, 1970), Edward Denison (1962, 1967, 1974), Jorgenson and Zvi Griliches (1967), John Kendrick (1961, 1973), and Spencer Star. Estimates of the residual have varied greatly: for example, Jorgenson and Griliches (1967) obtain an average annual estimate of 0.10 percent for the period 1945--65, while Kendrick (1973) obtains 2.0 percent for the same period. For a discussion of some of the issues in productivity analysis, see the 1972 Survey of Current Business exchange between Denison and Jorgenson and Griliches. 2Richard Nelson also notes the interaction between productivity change and capital accumulation, but concentrates on the embodied technical change aspects of the problem. See also Denison (1974, pp. I 33-35).
The Social Security system has played an important role in the economic life of American families. It not only provides security for the elderly, but is a device for automatic stabilization, a method of income redistribution, as well as an important factor affecting capital accumulation and the supply of labor. The purpose of this paper is to analyze the long-run effects of the Social Security system in a growing economy. The model employed here extends and generalizes the neoclassical life cycle growth models of Peter A. Diamond and Paul A. Samuelson by explicitly allowing for an endogenous retirement decision and bequest motive. I consider an economy in which the population grows at a constant rate. Each individual lives for two periods. In the first period, he works full time, earning an income of w and paying a Social Security tax of T. In the second period, he works a fraction of time and then retires, receiving from the government a pension of z. He is to choose a consumption path, a retirement age, and an amount of bequest so as to maximize his lifetime utility. From these individual decisions and the assumption that the government budget is balanced each period, we derive the aggregate capital and labor supply functions and analyze the effects of changes in Social Security on capital accumulation and the equilibrium wage and interest rates. The present model is similar to that of Martin S. Feldstein in that retirement decisions are assumed endogenous. The main difference is that his is a partial equilibrium analysis while the model presented here is a general equilibrium model capable of analyzing long-run effects. I show that the short-run effects of Social Security depend primarily on the elasticities of the demand and supply of labor, and its long-run effects are influenced as well by the elasticities of savings and bequest. It is further shown that an appropriate Social Security system can increase the long-run well-being of the economy by causing the rate of return on capital to converge to the Golden Rule level. If, however, the tax and pension levels are tied to the individual workingretirement decisions, the system causes distortions in the labor market. Because of this distortional effect, the optimal Social Security does not necessarily lead to the Golden Rule.