Monopoly power and terms of trade

The Prebisch-Singer (PS) theory predicts that tenns of trade, given low income elasticity of demand for primary products and market power of industrialized countries, for producers of primary cornmodities in developing countries worsen as income increases. Due to problems of defining the correct price index no pure empirical test of the PS hypothesis exists. This paper uses experimental methods to test the basic premise of the PS hypothesis. The experiments do not support the PS hypothesis. The monopolist is unable to exploit its market power and tenns of trade do not worsen for the primary producers as income increases

Monopoly power and terms of trade.

The Prebisch-Singer (PS) theory predicts that tenns of trade, given low income elasticity of demand for primary products and market power of industrialized countries, for producers of primary cornmodities in developing countries worsen as income increases. Due to problems of defining the correct price index no pure empirical test of the PS hypothesis exists. This paper uses experimental methods to test the basic premise of the PS hypothesis. The experiments do not support the PS hypothesis. The monopolist is unable to exploit its market power and tenns of trade do not worsen for the primary producers as income increases.Theory of unequal exchange; Double Auction; Terms of Trade; Market power;

Pension funds in Central Europe and Russia : their prospects and potential role in corporate governance

Social pension systems in most countries in Eastern Europe and the former Soviet Union face severe financial pressure. Aging populations are increasing that pressure, which stems mainly from in the%design in the %in the flaws and incompatible incentives in the systems. The authors describe the features of the ion systems that have led to the current dire predicament: a big discrepancy between system and demographic dependency ratios, unsustainable targeted replacement rates, the high contribution rates needed, growing evasion, and growing deficits. Radical basic reform is inevitable, they say, but may not be politically feasible or even advisable in the short run. After reviewing experience in other countries, they conclude that restructuring and downsizing the social ion system will leave adequate but affordable (thus sustainable) benefits and will allow for the creation and growth of private pension funds. The shortcomings of company-based defined benefit plans (limited portability, restricted vesting, inadequate funding) suggest that transitional economies should opt in the longer run for non-employer, defined contribution plans based on individual capitalization accounts with full immediate vesting, full portability, and full funding. To cope with the need for a targeted replacement rate, such schemes could operate with variable contribution rates, reset each year in accord with the salary growth of each worker, the cumulative investment return on his/her acount, and the targeted pension benefit. Once private pension funds are established, long-term financial resources should accumulate rapidly. They can then play a major role in modernizing securities markets, stimulating innovation, fostering better accounting and auditing standards, and promoting more disclosure of information. They could also greatly help improve corporate governance and the monitoring of corporate performance. Their"voice"in corporate affairs could be exercised more effectively through collective bodies. They could thus help create more robust structures of corporate governance, lower monitoring costs, and avoid the problems caused by"free riding".Contractual Savings,Pensions&Retirement Systems,Payment Systems&Infrastructure,Non Bank Financial Institutions,Banks&Banking Reform,Non Bank Financial Institutions,Economic Stabilization,Contractual Savings,Banks&Banking Reform,Pensions&Retirement Systems

Experimental tests of the endowment effect

The discrepancy between WTA and WTP is supposed to be a manifestation of the endowment effect (KKT). The discrepancy between the average WTA-WTP disappears in the sense of statistical significance (Shogren et. at.) in settings with repeated interactions. In this paper we reexamine the KKT experimental procedures for identifying an endowment effect for consumer goods. No evidence of income or role effects is found. We show that even though the discrepancy between WTA-WTP diminishes undertrading can still persist in markets

Market power, inelastic income elasticity of demand, and terms of trade

The "Theory of Unequal Exchange" predicts that terms of trade for the producer of primary commodities worsen over time given the low income elasticity of demand for primary product exports and the market power of the industrialized countries. We set up a laboratory economy to test the influence of market power and low income elasticity of demand on trade. An experimenta

Monopoly Power and Terms of Trade

The Prebisch-Singer (PS) theory predicts that terms of trade worsen for developing countries producing primary commodities as income increases, given low income elasticity of demand for primary products and market power of industrialized countries. Due to problems of defining the correct price index no pure empirical test of the PS hypothesis exists. This paper uses experimental methods to test the basic premise of the PS hypothesis. The experiments do not support the PS hypothesis. The monopolist is unable to exploit its market power and terms of trade do not worsen for the primary producers as income increases.Publicad

Experimental tests of the endowment effect

The endowment effect, which predicts undertrading and a willingness-to-accept greater than willingness-to-pay, is studied using responses that remove all reference to buying or selling and focuses only on choice tasks. The results significantly lower the willingness-to-pay/willingness-to accept discrepancy, but the latter is still significant. A high efficiency open display uniform price auction is used to exchange mugs for money. Since mugs are randomly assigned to half of 2N subjects, N/2 mugs are predicted to trade. Less than N/2 mugs trade on average, but more than previously reported. The phenomenon exists but is less prominent than reported previously.Publicad

Fairness: Effect on Temporary and Equilibrium Prices in Posted Offer Markets

Questionnaire studies suggest that perceptions of fairness cause people to resist price increases following abrupt changes in conditions with no cost justification. This hypothesis is examined in posted-offer markets extending previous work. Consistent with the hypothesis, in the profit disclosure (fairness) treatment prices are initially below those in the cost and the no disclosure treatments. But over time prices in all treatments converge to the competitive surplus maximising equilibrium. Thus 'fairness' is interpreted as being the result of expectations that are not sustainable. Expectations adapt as the market converges to the standard competitive equilibrium prediction.Publicad

Do terms of trade have to worsen for developing countries? How low-income elasticity of demand affects the terms of trade in a laboratory market, in combination with the effect of market power.

A laboratory economy was created to test the influence of both market power and low income elasticity of demand on the terms of trade. The Prebisch-Singer "Theory of Unequal Exchange" predicts that terms of trade worsen for developing countries, due to low income elasticity of demand for their primary product exports. A model is presented to show that, ceteris paribus, the terms of trade improve with population growth and differential technological progress. The effect of market power on the terms of trade was analyzed by comparing a 'competitive' market, a primary commodity cartel, and an industrial monopoly. The competitive (price taker) model predicts declining prices in both markets and worsening terms of trade as production grows. The cartel model predicts higher prices of the primary product, which increase as income grows, lower prices of the manufactured product, and better and improving terms of trade. The monopoly model predicts lower prices for primary commodities, higher and increasing prices in the market for manufactured products, and lower and worsening terms of trade. Experimental results. Trading occurred in a multiple-unit double auction. Prices usually converge from above in both markets. Only sellers succeed in exploiting their market power, buyers fail to do so. In the competitive design, prices in both markets generally converge to the competitive equilibrium. The terms of trade worsen in all experiments as income grows (caused by the low income elasticity of demand), confirming the prediction of the Prebisch-Singer model. The commodity cartels increase primary export prices, but cannot stop the decline of prices when income increases. They cannot decrease prices of the manufactured product. Terms of trade for the cartels are usually better and do not always worsen. Earnings of industrialized countries facing the cartel are lower than competitive, but earnings of the cartel members are not significantly higher. The single industrial country fails to lower prices for primary products, but can charge higher prices for manufactured products. Terms of trade usually improve as income grows, contradicting both the competitive and the cartel model. When the monopoly faces a cartel, a substantial deadweight loss occurs