In conducting an investigation into the specification of partial static equilibrium factor demand models, this paper isolates: (1) the endogeneity of output and quasi-fixed factor levels; (2) the choice of omitted share equation; and (3 ) the presence of serial correlation (when using time series data) as the specification issues that most affect the existing empirical literature. The impact of specification changes are studied via a series of experiments conducted on an illustrative data set and are found to have significant effects on: parameter estimates and model diagnostics; departures between observed and full equilibrium levels of quasi- fixed factors; and price elasticities. As a consequence, caveats must be attached to several previous studies and care must be taken by future researchers in addressing using such models.

In this paper we examine the strategic value of flexibility in a world with incomplete contracting. The study of incomplete contracting is motivated by four factors: 1) In a world of complete contingent contracts, most (but not all) interesting strategic considerations disappear. 2) There is a significant literature that addresses the implications of bargaining under the assumption of incomplete contracting. 3) There are sound theoretical reasons why we would expect contracts to be incomplete. 4) Empirically, we observe that most contracts are indeed incomplete.

This paper tests whether forward prices equal the traders' expectations of the future spot prices at maturity, under two different models of expectations formation: full information rational expectations and incomplete information mechanical forecasting rule. The tests are performed, over the period January 1970 through September 1980, on the forward markets for the primary metals—copper, tin, lead, and zinc‐traded in the London Metals Exchange. We find evidence consistent with the existence of time varying risk premia.