Knowledge that Transforms

Studies welfare losses due to monopolistic pricing in the United States. Evaluation of calculations indicating that welfare losses from monopolistic pricing is inconsequential; Consumer's surplus analysis; Proposed method in deriving coefficient of net compensating variation. (Из Ebsco)

The supply curve of labor is now accepted as a matter of course by most economists. It has no doubt been perplexing to observe that the most commonly employed types of utility functions do not yield such curves under the usual textbook analysis of the problem.1 Particular preference maps have been found that generate backward bending curves;2 however, they are nonparametric, leading to difficulties of estimation, and upon closer examination seem to imply counter-intuitive results. We will show that taking into account the wealth position of an individual on the one hand and survival consideration on the other greatly expands the variety of shapes that can be derived for the supply curve from some simple utility functions. The use of a specific simple utility function also implies some severe restrictions on the form the supply curve can take, rendering it testable. Empirical evidence is shown to support the conclusion that the supply curve is monotonic. We will also show that the notion that the aggregate supply curve of labor slopes down rests, in part, on an error of aggregation, and that the empirical evidence usually cited in support of the negative slope, when correctly interpreted, cannot be so construed.

This paper highlights results of the National Bureau of Economic Research's (NBER) research project on exchange control, liberalization and economic development from 1970-1973. Initial adoption of exchange controls was generally an ad hoc response to external events. The optimal resource allocation dictum--that the marginal cost of earning foreign exchange should be equated with the marginal cost of saving foreign exchange--was generally abandoned in favor of saving foreign exchange at all costs. An export-oriented development strategy generally entails relatively greater use of indirect, rather than direct, interventions. There is considerable evidence from the individual country studies that direct intervention may be considerably more costly than is generally recognized. Export rebates, tariffs, surcharges, import entitlement schemes, and a host of other devices are generally employed under quantitative restrictions regimes, and they lead to a wide dispersion in effective exchange rates by commodity categories. The effect of liberalization is often to induce a recessionary tendency rather than the traditionally feared inflationary impact. Even when there is a single domestic price for the imported good, the method of license allocation makes an important difference to resource allocation and income distribution.

In a comment to Gardner Brown, Jr. and M. Bruce Johnson (hereafter called B-J), Michael Visscher points out that the B-J conclusions change if the rationing system changes. In the B-J approach it is assumed that available production is allocated to those with the highest consumer's surplus. Visscher analyzes two alternatives. In the first system service is offered first to those claimants with the least willingness to pay given a limited production. In the second system it is assumed that the available production is allocated randomly between all customers willing to pay the price P. The purpose of this note is primarily to point out some unnoticed implications of Visscher's two rationing systems, but also to correct a minor error in his analysis. The notation is the same as that of Visscher.