Do markets underprice natural - resource commodities?

The author examines the efficiency and equity of a market allocation of exhaustible resources and assesses the behavior of scarcity measures, such as relative price and rental rates. She finds little evidence of scarcity or impending shortage. Indeed, the evidence points to falling prices and rents for many commodities. Do markets send the wrong signals? Are resource commodities systematically underpriced? Her conclusions are not completely optimistic. The authors analysis reveals many market failures, any of which would result in inappropriate resource commodity pricing. But,with one exception, she finds no systematic tendency to underprice. The exception concerns the environmental externalities associated with the production and use of natural-resource commodities. Similar externalities lead to underpricing and overuse of all commodities. Mineral commodities, however, are responsible for a large fraction of the pollution that is currently generated, so their underpricing is particularly significant. The market failures associated with common-property and environmental resources can cause market prices to be lower than shadow prices or marginal values. They cannot, however, cause relative resource prices to fall. Falling prices would be associated with a relaxation of environmental standards and a move away from full-social-cost pricing. The tendency, however, is towards increased awareness of environmental damage and increased willingness to pay for its associated costs. Nevertheless, the prices of many natural-resource commodities have fallen in real terms. Factors causing prices to decrease are not associated with market failure, and therefore do not support interference with the market mechanism. Innovations that lower mining and processing costs, discoveries that increase resource stocks, and the provision of lower-cost substitutes are all features of efficiently operating markets.Environmental Economics&Policies,Economic Theory&Research,Access to Markets,Markets and Market Access,Health Economics&Finance

Environmental costs of natural resource commodities : magnitude and incidence

The carrying capacity of our natural environment is an important unpriced input to production. A consensus is growing that users should pay for the environmental damage that they cause. Although most people can accept this policy in principle, many are concerned with magnitude and incidence of its associated costs and the disruptions that would be created during a transition period. Of particular concern is the burden that might be placed on the economics of developing countries. When the industrial world was developing, it was able to benefit from cheap natural-resource commodities. It is fair to expect countries that are trying to imitate this pattern to pay more? Unfortunately there are not reliable estimates of the effects of environmental protection costs on production, consumption, revenues, and foreign exchange. The author explores these issues for the energy and nonfuel-mineral markets, sectors responsible for much of the current industrial pollution. Using a model, the author, examines the consequences of the developing world adopting the environmental standards of the industrialized world. The author assumes: all producers incur clean-up costs; most adjustment is made through changes in prices and quantities, not through altered trade patterns; and the industrialized world increases its environmental expenditures by the same fraction as the developing world. The author finds that increased revenue resources will more than compensate the average developing country for the costs of pollution control, so no assistance or intervention would be required. This assumes, however, that capital markets are perfect, which is far from the case in many developing countries. These imperfections constitute the greatest obstacle to successful environmental regulation. Loans of subsidies from North to South should be considered. Developing country producers should be given access to credit dollars, prices of imported pollution-abatement equipment could be reduced, or aid could be tied to the installation and maintenance of environmental capital. The author finds that environmental protection costs are small. Compliance costs of roughly three percent of product prices lead to changes in export revenues of less than one percent. The principal reason for this result is that mineral commodity demand and supply are inelastic in the long run. As for the incidence of environmental costs, an environmental"tax"is on average progressive, because low-income countries are typically net exporters of mineral commodities, where as high-income countries are net importers.Environmental Economics&Policies,Economic Theory&Research,Energy and Environment,Health Economics&Finance,Consumption

Vertical Integration and Firm Boundaries : The Evidence

Understanding what determines firm boundaries and the choice between interacting in a firm or a market is not only the fundamental concern of the theory of the firm, but it is also one of the most important issues in economics. Data on value added, for example, reveal that in the US, transactions that occur in firms are roughly equal in value to those that occur in markets. The economics profession, however, has devoted much more attention to the workings of markets than to the study of firms, and even less attention to the interface between the two. Nevertheless, since Coase’s (1937) seminal paper on the subject, a rich set of theories has been developed that deal with firm boundaries in vertical or input/output structures. Furthermore, in the last 25 years, empirical evidence that can shed light on those theories has been accumulating.Vertical integration ; firm boundaries ; vertical mergers ; firms versus markets

Merger simulations of unilateral effects : what can we learn from the UK brewing industry?

I discuss the use of simulation techniques to evaluate unilateral effects of horizontal mergers and the pitfalls that one can encounter when using them. Simple econometric models are desirable because they can be implemented in a short period of time and can be understood by non experts. Unfortunately, their predictions are often misleading. Complex models are more reliable but they require more time to implement and are less transparent. The use of merger simulations and the sensitivity of predictions to modeling choices is illustrated with an application to mergers in the UK brewing industry. There have been a number of brewing mergers that have changed the structure of the UK market, as well as proposed but unconsummated mergers that would have had even more profound effects. I assess two of them: the successful merger between Scottish&Newcastle and Courage and the proposed merger between Bass and Carlsberg–Tetley

Merger Simulations of Unilateral Effects : What Can We Learn from the UK Brewing Industry?

I discuss the use of simulation techniques to evaluate unilateral effects of horizontal mergers and the pitfalls that one can encounter when using them. Simple econometric models are desirable because they can be implemented in a short period of time and can be understood by non experts. Unfortunately, their predictions are often misleading. Complex models are more reliable but they require more time to implement and are less transparent. The use of merger simulations and the sensitivity of predictions to modeling choices is illustrated with an application to mergers in the UK brewing industry. There have been a number of brewing mergers that have changed the structure of the UK market, as well as proposed but unconsummated mergers that would have had even more profound effects. I assess two of them: the successful merger between Scottish&Newcastle and Courage and the proposed merger between Bass and Carlsberg–Tetley.Unilateral effects, horizontal merger simulations, UK brewing

Spillovers in Space: Does Geography Matter?

We simultaneously assess the contributions to productivity of three sources of research and development spillovers: geographic, technology and product- market proximity. To do this, we construct a new measure of geographic proximity that is based on the distribution of a firm's inventor locations rather than its headquarters, and we report both parametric and semiparametric estimates of our geographic-distance functions. We find that: i) Geographic space matters even after conditioning on horizontal and technological spillovers; ii) Technological proximity matters; iii) Product-market proximity is less important; iv) Locations of researchers are more important than headquarters but both have explanatory power; and v) Geographic markets are very local.geographic proximity, R&D spillovers, semiparametric and technological proximity

Retail Contracting: Theory and Practice

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/73114/1/1467-6451.00032.pd

Spillovers in space: does geography matter?

Using US firm level panel data we simultaneously assess the contributions to productivity of three potential sources of research and development spillovers: geographic, technological, and product market (“horizontal”). To do so, we construct new measures of geographic proximity based on the distribution of a firm’s inventor locations as well as its headquarters. We find that geographic location is important for productivity, perhaps dominating other spillover mechanisms, and that both intra– and inter–regional (counties) spillovers matter. The geographic location of a firm’s researchers is more important than its headquarters. These benefits may be the reason why local policy–makers compete so hard for the location of local R&D labs and high tech workers

Spillovers in Space: Does Geography Matter?

We simultaneously assess the contributions to productivity of three sources of research and development spillovers: geographic, technology and product–market proximity. To do this, we construct a new measure of geographic proximity that is based on the distribution of a firm’s inventor locations rather than its headquarters, and we report both parametric and semiparametric estimates of our geographic– distance functions. We find that: i) Geographic space matters even after conditioning on horizontal and technological spillovers; ii) Technological proximity matters; iii) Product–market proximity is less important; iv) Locations of researchers are more important than headquarters but both have explanatory power; and v) Geographic markets are very local.

Incentive Contracting and the Franchise Decision

We examine theoretical predictions and econometric evidence concerning franchise contracting and sales-force compensation and suggest a number of factors that ought to influence the contracts that are written between principles and agents. For each factor, we construct the simplest theoretical model that is capable of capturing what we feel to be its essence. The comparative statics from the theoretical exercise are then used to organize our discussion of the empirical evidence, where the evidence is taken from published studies that have attempted to assess each factor's effect on the power of agent incentives. We also discuss theoretical issues and empirical results pertaining to a few topics that have been addressed in the literature but that do not fit easily into our simple modeling framework. A surprising finding of our survey of retail contracting under exclusive marks is the robust nature of the evidence: although researchers assess different industries over different time periods using a number of proxies for a given factor, their empirical findings are usually consistent with one another.