Knowledge that Transforms

Publisher Summary This chapter explains that the set of feasible net production points is convex if the underlying production functions are of the constant returns, no-joints-products type, and if there are no technological externalities. However, the upper boundary of the set, that is, the transformation surface, is not necessarily strictly concave; it may contain linear segments or, more generally, flats of dimension possibly greater than one. Recently, it has been shown that the degree of flatness is related to the rank of the matrix of primary factor inputs. It has been shown that if at any point P in the transformation surface, there are s industries active, then the surface contains an (s-r)-dimensional flat embracing P if and only if at P there are exactly r linearly independent vectors of primary-factor inputs. As corollary, if the number of primary factors is less than s, then P necessarily lies in a flat of dimension at least one.

[Normally the objective functions used in optimal growth theory either treat present generations more favorable than future ones or give an incomplete ranking of possible welfare distributions. The problem is the infinite horizon. In this paper we analyze the conditions under which it is possible to treat a countably infinite number of generations equally. The existence of equitable objective functions or preferences, giving a complete ranking of possible welfare distributions, is proved.]

PROFESSOR MORISHIMA [1, pp. 621-622] has interpreted his own Generalized Fundamental Marxian Theorem (GFMT) as an extension to the joint production case of the theorem stating that, for systems without joint production, a positive rate of exploitation is a necessary and sufficient condition for a positive rate of profit [2, pp. 63-68]. In fact the GFMT only establishes that a positive warranted rate of profit requires a positive rate of exploitation as defined by Morishima; it does not establish that the same holds for a positive equilibrium rate of profit. An example will now be presented which shows that in fact, under the same assumptions as for the GFMT, a zero rate of exploitation is not incompatible with a positive equilibrium rate of profit. Consider an economy where there is only one (constant returns to scale) technique, consisting of a single process, which jointly produces two goods, z and y, utilizing good z and labor L as inputs, in the following proportions: 2z®1L->4z81y

This paper considers the econometric problems raised by multi-market disequilibrium models. It uses a specification which is derived from general disequilibrium theory and, therefore, provides a first bridge between the economic theory approach and the econometric theory approach of disequilibrium. The model is piecewise linear; the problem of the existence of a reduced form, which is a crucial issue in nonlinear models, is solved. Limited information estimators as well as full information estimators are proposed; a simple numerical algorithm is given for the computation of a FIML estimator.

[This paper analyzes an intertemporal production-investment model of the firm, which includes as a special case the adjustment cost model. Properties of the optimal value function are related to properties of the quasi-profit function. An intertemporal analogue of Hotelling's Lemma is derived, which allows derivation of optimal investment demand equations from knowledge of the optimal value function alone. A simple example illustrates the main results.]

This paper is concerned with testing for causation, using the Granger definition, in a bivariate time-series context. It is argued that a sound and natural approach to such tests must rely primarily on the out-of-sample forecasting performance of models relating the original (non-prewhitened) series of interest. A specific technique of this sort is presented and employed to investigate the relation between aggregate advertising and aggregate consumption spending. The null hypothesis that advertising does not cause consumption cannot be rejected, but some evidence suggesting that consumption may cause advertising is presented.

I. FINANCIAL THEORY. 1. Introduction to Capital Markets, Consumption and Investment. 2. Investment Decisions: The Certainty Case. 3. Theory of Choice Under Uncertainty: Utility Theory. 4. State-Preference Theory. 5. Objects of Choice. 6. Market Equilibrium: CAPM and APT. 7. Pricing Contingent Claims: Option Price Theory and Evidence. 8. Futures Contracts and Markets - Term Structure - Cox, Ingersoll, Ross. 9. Multiperiod Aspects of Financial Theory - Real Options - Investment. 10. Efficient Capital Markets: Theory. 11. Efficient Capital Market: Evidence. 12. Information Asymmetry: Agency Cost Theory and Signaling. II. CORPORATE POLICY. 13. The Role of the CFO and Performance Measurement. 14. Valuation and Tax Policy. 15. Capital Structure. 16. Dividend Policy. 17. Applied Issues in Corporate Finance. 18. External Investment Decisions. 19. International Finance: Theory and Evidence. 20. Open-Ended Issues for Research.