Examines at the microeconomic level the assumption that the rate of change of the labor supply to a firm depends on the wage paid by the firm. Concept of dynamic monopsony; Response in terms of the optimal wage path to different product prices; Properties of the optimal path. (From Ebsco)
Recently, Jan Mossin presented a security pricing model within the framework of a market equilibrium theory. The model is based on particular preference structures of investors, specified in terms of quadratic utility functions with final wealth as the argument of the functions. As an implication of his model for the firm's optimal investment policy, Mossin demonstrates how Proposition III put forth by Franco Modigliani and Merton Miller (1958) can be validated. In addition, the analysis is extended to suggest investment criteria for investments with completely arbitrary yield characteristics. The purpose of this comment is twofold. First, to show that Mossin's proof of the validity of M-M's Proposition III is questionable, given his assumptions. Second, an attempt is made to show how a troublesome assumption of Mossin's analysis could possibly be eliminated. For the sake of exposition, Mossin's securitv pricing model as shown on page 752, equation (6), is stated below with all relevant definitions:
Before the shift in 1973 to floating exchange rates between major currencies, the most widely held views of proponents of floating exchange rates on how economies would behave in such a regime, and what effects monetary and fiscal measures would have at home and abroad were based on simple models. This simplicity was achieved by imposing various strong a priori assumptions. The most common and crucial assumptions were continuous equilibrium in all markets, stable money demand, purchasing power parity, and uncovered interest parity (equality between interest rate differentials and expected changes in exchange rates). While these assumptions were not necessarily expected to hold exactly at all times, they were deemed strong tendencies. Ten years of floating exchange rates have given ample reason to doubt the utility of models based on these assumptions.1 The clash between theory and evidence leaves analytical economists without a firm foundation from which to draw policy conclusions. The one major counter to this eroding foundation has been the development of models which emphasize the role of asset markets, and hence of expectations, for exchange rate determination and for macroeconomic behavior more generally. But expectations are not well enough understood to provide models with good records of prediction, which can be used as reliable guides to policymaking.
An earlier paper by Phlips reported the results of a principal component analysis of the residual correlation matrix obtained after estimating a system of dynamic demand equations. The purpose was to verify the postulated additive nature of the utility function and to collect some information on possible substitution and complementarity relationships among the commodity groups. The residuals were obtained using the original Houthakker-Taylor (HT) 1966 estimation procedure. This procedure presents some advantages, but also some deficiencies. On the other hand, the correlations (in particular their signs) were interpreted on the basis of the Hicksian definitions of substitutability and complementarity, in terms of the signs of the substitution effects. The object of this note is to present some further results. First, it is of some interest to determine to what extent the results reported in the abovementioned article resist not unimportant changes in the estimation procedure. Secondly, the Hicksian definitions are rather deceptive: it is intuitively more appealing to work with the old (cardinal) notions of substitutability and complementarity (stated in terms of the signs of the second cross partial derivatives of the utility function). A decomposition of the (total) residual correlations into and correlations, the latter corresponding to preference relations defined in cardinal terms, is presented here. This corresponds to a breakdown of the substitution effect into a general and a specific effect. The analysis of this specific effect allows us to check our previous conclusions as to the grouping of commodities for which the assumption of additive preferences is appropriate.
It is widely observed, and almost as widely lamented, that everything takes longer than one expects. However, most attempts to explain why deadlines are missed and budgets overrun go no farther than Murphy's (n.d.) often-quoted aphorism. Blaming the phenomenon on unrealistic expectations, as Handtvefer (1982) does, cannot explain why expectations are not revised after repeated disappointment. The problem presents both a theoretical challenge to economic science and an issue of great practical importance; a procedure for predicting delays could save a lot of money and frustration. In the absence of constraints on the time available for a job, it turns out that the ratio of time taken to time expected tends to e = 2.71828... for a job consisting of an infinite number of steps. Shorter jobs exceed the expected time by ratios less than e but never less than 2. Constraints on time, when the time available is less than what is expected to be needed for completion, only make matters worse.
Recent developments in the field of trade policy have been dominated by the elaboration of the theory of domestic distortions in open economies. Essentially the new approach focuses on the choice between alternative policies and provides a greatly improved method of analyzing the effects of trade policies. (See articles by Jagdish Bhagwati and Stephen Magee, 1973.) The analytical rigor and intellectual effort which has gone into this theoretical work has not been matched on the empirical side, where the measurement of the welfare costs of domestic distortions has concentrated on trade distortions and has most often been carried out in a partial equilibrium framework. The main objective of this paper is to examine the context within which the static welfare costs of distortions have usually been estimated and to outline an altemative approach to measurement based on a general equilibrium analysis. Some fixed point estimates based on Colombian data are provided to illustrate this approach. The framework used in measuring the welfare costs is thus in closer agreement with the theoretical analysis.
Twenty years have passed since President Kennedy declared that action was needed to assure that pay rates be comparable with private enterprise rates for the same level of work. Because there are no profit considerations in government and powerful political influences affect all decisions, special guidelines are needed for wage determination. During the subsequent years, the doctrine became the guiding principle in federal pay policy for both bluecollar and white-collar workers. Over time, however, the implementation of full comparability adjustments have more often been downgraded to satisfy other national policy goals. A major reform bill is now under consideration in Congress. Therefore, it is appropriate at this time to examine where we are in terms of achieving and maintaining and consider the prospects for reform.
roeconomics has, in its simpler characterizations, asserted three hypotheses about the economy. First, the short-run expectationsaugmented Phillips curve is vertical. Second, the real rate of interest is independent of anticipated inflation. Third, expectations are formed rationally in the sense that people use mathematical expectations conditional on available information. The three propositions together suggest the neutrality of the economy with respect to anticipated inflation. In this paper I propose a set of regression-based econometric tests of these three neutrality propositions. I carry out simple versions of these tests for the postwar American economy. Such neutrality propositions distinguish the modern neoclassical school from the traditional American Keynes-Hicks school of macroeconomics. It is true that these state