Knowledge that Transforms

E. Fama (1971) has shown that the classical, two-period, two-parameter capital asset pricing model can be generalized to the case of symmetric stable distributions. Fama develops his results using a one-factor ("market-model") distribution of returns. The present research shows that the same equilibrium results hold for all stable distributions of returns which allow for a concave and differentiable objective function; there is no need to assume symmetry or any other restrictions on the return structure. Furthermore, derivations are straightforward in that they rely only on elementary properties of homogeneous functions.

This paper investigates whether or not the multiproduct-multifactor analogues of the factor proportions and the Rybczynski theorems receive empirical support. They are analyzed with reference to the Swedish engineering trade pattern in 1960-70. A major change in this pattern is shown to be related to three factor intensities. The results seem encouraging for the modern factor proportions theory in two respects. First, they are broadly consistent with comparative static models of factor accumulation. Second, the relative differences in the factor intensities of engineering subindustries are shown to be stable in the long run.

This paper provides new evidence on consumer subjective discount rate and the consumer horizon. Deriving the subjective interest rate for the United States, directly from total private wealth, the findings support Friedman's contention of a 3-year average horizon. Using the varying parameter method of estimation, a time series of factor of proportionality has been constructed and its behavior analyzed over the sample period 1929-69. Finally, the correlation between the permanent elements, permanent and transitory elements, and the transitory elements is verified. The results overwhelmingly support Friedman.

This paper extends the case for shadow pricing traded commodities at their relative international prices in benefit-cost analysis. This result is shown to hold (a) when there are nontraded commodities whose (possibly distorted) prices are indirectly affected by public production of traded commodities, and (b) when there is a government budgetary constraint. Contrary to arguments found in the literature, neither of these cases in itself provides an argument for shadow pricing traded commodities at values other than their relative international prices.

The analysis extends beyond the standard case of the monopolist who integrates in order to isolate some of his customers from arbitrage in the monopolized good so that he can discriminate against them. It examines the exploitation of factors employed by, and the customers of, the monopolist's customers. By vertical integration the monopolist may utilize barriers to arbitrage that would otherwise be unexploited because the market is competitive. Sometimes looser forms of vertical control, for example, tying arrangements, can be employed, and in some circumstances it is possible to extract surpluses from parties with whom the monopolist does not trade.