This paper presents a theory capable of analysing the welfare effects of a wide variety of institutional innovations which have in common that they involve the deregulation of, or the lowering of tariffs and taxes on, a range of economic activities that can be effectively separated from the regulated, taxed and protected industries of which they are a part. The partial deregulation of economic activities in this manner will be shown to lead to the expansion of trade, but also to involve potential costs of locational diversion of trade and negative externalities. In the context of the debate over deregulation the development of free economic zones can be seen as a practical compromise that generates powerful local interest groups pushing partial deregulation against the well-known in terest groups opposing general deregulation.
This paper provides a price-theoretic explanation of the well-known phenomenon that automobiles in developing countries depreciate less rapidly and are scrapped at a greater age than they are in industrial countries. This paper then argues that the renewal of barriers to free trade in used cars would lead to substantial welfare gains for developing countries through both capital gains implicit in the arbitrage and positive externalities from car repair industries. Negative externalities from increased car supplies are evaluated and the final part of this paper considers what policies might be needed to develop international trade in used cars on a large scale.
The models of portfolio balance developed by Markowitz and Tobin explain the real world phenomenon of diversified asset holdings elegantly and properly. The models have been criticized, extended, and empirically tested; by now their basic content has become economic orthodoxy. Strangely, however, the analysis has not yet been applied explicitly to the explanation of long-term asset holdings that include claims denominated in foreign currency .The present paper fills this gap and yields some interesting results.First, the international diversification of portfolios is the source of an entirely new kind of world welfare gains from international economic relations, different from both the traditional "gains from trade" and in creased productivity flowing from the migration of the factors of pro duction. This specific theoretical proposition is illustrated with some calculations based on empirical data drawing on ex post realized rates of return from investment in 11 major stock markets of the world.Second, the theoretical model shows that international capital movements are a function not only of interest rate differentials but also of rates of growth in total asset holdings in two countries. As a result, capital may flow between countries when interest rate differentials are zero or negative and may not flow when a positive interest differential exists.Third, the analysis has some important policy implications in a growing world where monetary and fiscal policies are mixed to achieve internal and external balance.
Whether price and output stabilization schemes for primary commodities are likely to increase or decrease foreign exchange earnings from what they would be otherwise is a question of great importance to countries contemplating the formation of such institutional arrangements. This paper sheds some light on this question and clarifies under what circumstances Ragnar Nurkse's assertion is valid that countries will fail to maximize foreign exchange earnings if they do stabilize prices.
This paper gives precision o the meaning of the term "moral hazard". It then analyses the implications which the phenomenon of moral hazard has on the welfare effects of public insurance schemes and the present shortage of medical doctors and hospitals in the United States. I concludes that the existence of moral hazard does not necessarily invalidate the case for welfare increasing public provision of insurance as Pauly has claimed in his criticism of Arrow. Finally, the analysis explores the implications the phenomenon of moral hazard has for Knight's famous distinction between risk and uncertainty.
We model competition between two firms selling identical goods to customers who arrive in the market stochastically. Shoppers choose where to purchase based upon both price and the time cost associated with waiting for service. One seller provides two separate queues, each with its own server, while the other seller has a single queue and server. We explore the market impact of the multi-server seller engaging in waiting cost-based-price discrimination by charging a premium for express checkout. Specifically, we analyze this situation computationally and through the use of controlled laboratory experiments. We find that this form of price discrimination is harmful to sellers and beneficial to consumers. When the two-queue seller offers express checkout for impatient customers, the single queue seller focuses on the patient shoppers thereby driving down prices and profits while increasing consumer surplus.
Spiteful, antisocial behavior may undermine the moral and institutional fabric of society, producing disorder, fear, and mistrust. Previous research demonstrates the willingness of individuals to harm others, but little is understood about how far people are willing to go in being spiteful (relative to how far they could have gone) or their consistency in spitefulness across repeated trials. Our experiment is the first to provide individuals with repeated opportunities to spitefully harm anonymous others when the decision entails zero cost to the spiter and cannot be observed as such by the object of spite. This method reveals that the majority of individuals exhibit consistent (non-)spitefulness over time and that the distribution of spitefulness is bipolar: when choosing whether to be spiteful, most individuals either avoid spite altogether or impose the maximum possible harm on their unwitting victims.
The Sharpe ratio is the prominent risk-adjusted performance measure used by practitioners. Statistical testing of this ratio using its asymptotic distribution has lagged behind its use. In this paper, highly accurate likelihood analysis is applied for inference on the Sharpe ratio. Both the one- and two-sample problems are considered. The methodology has O(n-3/2) distributional accuracy and can be implemented using any parametric return distribution structure. Simulations are provided to demonstrate the method's superior accuracy over existing methods used for testing in the literature.