Knowledge that Transforms

Economists in an antitrust case have at their disposal quite a large bag of tools and truisms, but for the most part these are derived from studies of static models. In many industries the policy issues concern the implications of firm behavior on market structure and performance over time. A case in point is a recent Federal Trade Commission complaint against the DuPont Corporation. The FTC alleged that DuPont had engaged in a strategy designed to monopolize the market for titanium dioxide, better known as the coloring agent in white paint. The alleged strategy was, in essence, what some would recognize as the Boston Consulting Group story: When a firm has a lead in an industry with significant learning economies, the firm should price below competitors' costs and expand to take further advantage of learning effects and, in the process, to increase market share.' This paper summarizes the results of an analysis of dynamic competition with scale and learning effects. The research is a preliminary exploration. All results are obtained under rather special assumptions about the production technology, the effects of experience on costs, and the strategic interactions between firms. Two kinds of strategic behavior are considered. In the first case, each firm takes the production decisions of competitors as given (the Nash assumption). In the second case, firms consider pre-emptive capacity investments, taking into account that competitors will alter their future investment plans to achieve nonnegative profits. We call this a Stackelberg (CS) game. Using the maximization of net surplus as a socially optimal benchmark, neither form of competition yields an efficient outcome when new investment exhibits increasing returns to scale. In the absence of learning effects, smaller firms in a Nash competition have a greater incentive to add new capacity than do larger firms, and the equilibrium industry structure approaches equal market shares. Introducing learning effects in the Nash game causes a tendency toward increased concentration, but monopoly is not an inevitable consequence. The CS game is competitive than the Nash game in the sense that firms compete for the right to invest at each instant of time. With identical firms and no learning effects, the market structure in a CS equilibrium is indeterminate, although the sequence of industry investments is well defined. Introducing firm-specific and nonstochastic learning has a dramatic effect on the CS equilibrium. All new investment is undertaken by a single firm, even if the learning economies are small. Moreover, the level of output could be lower (and price higher) in a CS equilibrium than it would be in a Nash equilibrium. In this sense more competition can lead to a lower rate of output over time.

An economic model is used to explore the relationship between population growth and 2 of the most commonly used income distribution statistics--the share of the rich and the poor in total income and the rate of growth of real income of the rich and the poor. Brazilian statistics applied to the model illustrate the difficulty of interpreting the common inequality measures under conditions of rapid population growth. Neither income shares nor growth rates can tell much about the degree of progressivity in the growth strategy of a particular country without adjustment. Absolute income for the base-period poor or base-period teenagers was greater than reported for either the poor or teenagers. However the rise in inequality was also greater for the base-period population. Growth in Brazil was seen to be even more regressive than previously thought. Significant upward mobility was however still possible.

To be a housewife is to be a member of a peculiar occupationone with characteristics quite different from all others. The nature of the duties to be performed, the form of the pay, the methods of supervision, the tenure system, the marketplace in which workers find jobs, and the physical hazards are all so different from conditions found in other occupations that one tends not to think of a housewife as belonging to occupation in the usual sense. Yet being a housewife certainly meets the American Heritage Dictionary's definition of occupation, as an activity that serves as one's regular source of In fact, to be a housewife is to be a member of the largest single occupation in the U. S. economy. Thus, it is certainly both legitimate and interesting to compare the advantages and disadvantages of the housewife's source of livelihood with those of other sources of livelihood. Few economists have studied the economic aspects of being a housewife. Gary Becker's economium to the advantages of the division of labor among spouses addresses some of the issues, but its perspective seems to be that of a male member of a traditional family. More recently, Marianne Ferber and Bonnie Birnbaum, as well as Clair (Vickrey) Brown have made contributions in which the interests of each family member are recognized as distinct.' In this paper, I focus on the economic risks of the housewife occupation, which are shown to be very high relative to those of other occupations.

It is natural to consider the stock of any renewable resource as a capital stock and treat the exploitation of that resource in much the same way as one would treat accumulation of a capital stock. This has been done to some extent by Cohn Clark and Gordon Monro and by Ngo Van Long, whose papers contain a discussion of this point of view. However, the analysis is much simpler than it appears in the literature especially since the interaction between markets and the natural biological dynamics has not been made clear. Three issues which have been raised only tangentially are important for the understanding of the economics of renewable resources. The first arises from the fact that the fish population might not be able to sustain the market determined amount of fish and hence should be allocated optimally over time. Second, there is the cost externality. Here costs are affected by the size of the stock of fish which again affects the allocation over time. The third issue is how central (typically used in capital theory) can be employed as a tool in analyzing a decentralized economy with perfect futures markets and property rights. In this paper a simple framework, using only elementary mathematical techniques, will be provided in which many important results new to the literature, as well as many familiar results, can be derived. One bonus of this approach is that much of the previous literature can be organized and rationalized. The simplicity of the mathematics has the effect of revealing the underlying economic intuition of the subject. Throughout the paper, as a matter of convenience, the selfrenewing resource will be referred to as However, it should be clear that the analysis is perfectly general in that it can be applied to any self-renewing resource. In fact, by specializing the production function, an elementary exposition of the theory of exhaustible resources is implicit. There are two main sections to this work plus an Appendix. The first section analyzes the time path of prices, output, and resource stock under the assumption of free-entry competition, and the second section studies optimal planning (or perfect competition). In the first part of the discussion of each market structure, extraction costs are assumed to be independent of the size of the fish stock. In the second part of each section this assumption is relaxed. Finally the Appendix contains several of the results used in the body of the paper. The case of free-entry competition can be treated in a very simple manner. Each period's output is determined by the intersection of the demand and marginal harvesting cost curves (i.e., supply equals demand). Subtracting this output from the natural dynamics yields the dynamics of free-entry competition. Using this technique, it is easy to see the conditions under which free-entry competition leads to the exhaustion of the stock of fish. Furthermore, the free-entry case serves as a benchmark by which to evaluate the effects of the institution of property rights on the exploitation of the resource. The case of a centrally planned economy is studied next. This case is shown to be identical to a competitive outcome in which property rights are clearly defined and prices and outputs are endogenously determined so as to be consistent with demand conditions. One result, coincidentally, is that it is possible that the solution might be obtained without property rights. The tech*The Hebrew University; University of Virginia; University of Illinois and Northwestern University, respectively. Research support from the National Science Foundation under grants SOC 77-27340 and SOC 7905900 and the US-Israel BSF under grant 1828-79 is gratefully acknowledged.