Knowledge that Transforms

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The strategic incentives, with respect to the choice of price policy in spatial competition, are analyzed in a duopoly model. Price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage. Nevertheless, profits may be h igher with uniform pricing. The authors' models are applied to analyz e some common business practices that arise in geographical pricing, like the basing point system, and in the pricing of varieties or opti ons from a base product in a product-differentiation context.

The slowdown in productivity growth in the U.S. economy during the 1970's has been a matter of great concern to policymakers, associated as it is with inflation, unemployment, and declining real wage growth. This paper examines the impact on productivity growth of government regulation, specifically worker health and safety regulation by the Occupational Safety and Health Administration (OSHA) and environmental regulation by the Environmental Protection Agency (EPA). Looking at data for 450 manufacturing industries between 1958 and 1978, the study finds a large, negative relationship between such regulation and productivity growth. Using these results, about 30 percent of the decline in productivity growth in manufacturing during the 1970's may be attributed to such regulation. Several previous studies have looked at the contribution of regulation to the productivity slowdown. Many of these have inferred that the contribution must be small, on the basis of the relatively small amount spent on complying with such regulations. Edward Denison (1979) estimates that only about 16 percent of the productivity slowdown in the 1972-75 period was due to regulation (.35 percentage points out of a slowdown of 2.17 percentage points). Paul Portney (1981) notes that little of GNP is spent on pollution control (under 2 percent), concluding that therefore pollution regulations could have little effect on productivity growth. Norsworthy et al. (1979) also find a small impact of pollution-abatement capital expenditures on productivity growth. Studies based on econometric estimation of the regulation-productivity relationship have found a wide range of results. Gregory Christainsen and Robert Haveman (1981) find regulation reduced labor productivity growth by .27 percentage points, using time-series data and measures of total federal regulation. Robert Crandall (1981) finds a strong relationship between pollution-abatement capital and productivity growth, but this relationship disappears when a measure of energy intensity is included. Robin Siegel (1979) observes a significant contribution (.5 percentage points) from pollution control expenditures to the productivity slowdown for 1965-73, but not for later years. Finally, Frank Gollop and Mark Roberts (1983) examine data for a set of electric utilities and find that regulation of emissions had a large impact on total factor productivity growth, lowering it for regulated firms by .59 percentage points. Many other factors might help to explain the productivity slowdown, including the rise in energy prices, the long and severe recession, and declines in research and development expenditures. There have been a variety of studies examining the contributions of each factor to the slowdown. They generally conclude that many factors contributed to the slowdown, but that a sizable fraction of the slowdown remains unexplained by the estimated contributions of all the factors considered.'

The author examines the cyclical behavior of price/marginal cost margins for U.S. manufac turing after 1956. Short-run marginal cost is markedly procyclical. This is primarily due to procyclical overtime payments, incurred beca use employment is not perfectly flexible. In most industries, output price fails to respond to the cyclical movement in marginal cost; so price/marginal cost margins are markedly countercyclical. The res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing; they support theories that explain low production in a recession by the inability of firms to sell their output.

The authors study international trade between the North and the South where the industrial sector produces goods of different quality. The North exports high-quality products, the South low-quality products. Faster population growth in the South changes the spectrum of products exported by every country, and so does faster technical progress in the southern industrial sector. The latter leads also to the introduction of new high-quality products and the abandonment of old low-quality products. In all cases, there is a product cycle; the North abandons the production of its lowest-quality products which are subsequently produced in the South.

Book description: Oliver Williamson is one of the most important industrial economists of our time. He has made a major contribution to economic scholarship and remains at the forefront of research into transaction costs and the theory of the firm. In this volume he has provided a very careful selection of what he considers to be the most important articles and papers in industrial organization. It contains 23 articles, dating from 1937 to 1987. Papers by Kenneth J. Arrow, Ronald H. Coase, Franco Modigliani, Michael Rothschild, Herbert A. Simon, George J. Stigler and Joseph Stiglitz are included in this collection.

This paper examines empirically the importance of relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities, using data for 277 coal contracts. For each contract, measures of the duration of contractual commitments agreed to by the parties at the contract execution stage and measures of the importance of relationship specific investments are developed. The results provide strong support for the view that buyers and sellers make longer commitments to the terms of future trade at the contract execution stage, and rely less on repeated bargaining, when relationship-specific investments are more important.

How important is monopolistic competition to an understanding of the effects of aggregate demand on output? The authors ask this question at three levels. Can monopolistic competition, by itself, explain why aggregate demand affects output? Can it, together with other imperfections, generate effects of aggregate demand in a way that perfect competition cannot? If so, can it give an accurate account of the res ponse of the economy to aggregate demand movements? The answers are no, yes, and yes.

Current 1 -year forward rates on 1 - to 5-year U.S. Treasury bonds are information about the current term structure of 1-year expected returns on the bonds, and forward rates track variation through time in 1-year expected returns. More interesting, 1 -year forward rates forecast changes in the 1 -year interest rate 2- to l-years ahead, and forecast power increases with the forecast horizon. We attribute this forecast power to a mean-reverting tendency in the 1-year interest rate