A CONTRIBUTION TO THE THEORY OF DEPLETABLE RESOURCE SCARCITY AND ITS MEASURES

Economists commonly use rent and unit costs as measures of non-renewable resource scarcity and identify the types of scarcity as Malthusian or Ricardian. Malthus and Ricardo, however, concerned themselves mainly with renewable agricultural land; Mill and Jevons provided major insights into non-renewable resource scarcity. A simple model of mining brings out the contributions of major classical and other writers and shows that unit costs and rent are not necessarily useful indicators of scarcity. Exhaustibility of the deposit and choice of capital stock appear more pertinent to firms' intertemporal decisions than exhaustibility of world reserves.     

EFFICIENT USER CHARGES IN A RENT-SEEKING MODEL

This paper examines efficient user charges on governmentally provided facilities in the presence of rent seeking. We find that the efficient user charge depends upon the relative slopes of the demand curve for the use of the facility and the corresponding marginal cost curve, as well as the level of rent seeking over the revenue raised. Except for a special case, the efficient user charge is found to differ from the charge indicated by the intersection of demand and marginal cost curves. Examples show that actual user charges on government facilities are often set at inefficient levels.     

ECONOMIES OF SCALE IN A MULTIPLANT TECHNOLOGY: EVIDENCE FROM THE OILPATCH

A unique micro data set detailing operating costs and technical characteristics of 133 Texas oil leases was used to estimate an econometric cost function, yielding a number of interesting findings. First, evidence of economies of scale in crude extraction implies additional gains from oil field unitization and helps explain the paradox that voluntary unitization often occurs in the later stages of a field's life. Second, marginal operating costs per well were found to be about 30 percent below average costs, explaining why many wells remain operational despite falling crude oil prices. Finally, the results confirmed a number of plausible technical relationships. For example, operating costs rise sharply with depth, explaining the existence of shallow, low-production stripper wells.     

CONSUMERS ARE NOT RICARDIAN: EVIDENCE FROM NINETEEN COUNTRIES

I develop a model which nests both Ricardian equivalence and an alternative non-Ricardian theory. The alternative is a stochastic variant of Blanchard's [1985] model, and its empirical implications are derived. I then test Ricardian equivalence against this alternative using data from nineteen countries. Ricardian equivalence is resoundingly rejected. Moreover, the estimated deviation from Ricardian equivalence is roughly what one would expect if households faced perfect insurance markets and did no have altruistic bequest motives. For many purposes, however, the estimated deviation from Ricardian equivalence has no practical import.     

EXPERIMENTAL TESTS OF RICARDIAN EQUIVALENCE

This study employs laboratory experiments to test aspects of Ricardian equivalence. An overlapping generations model forms the basis of the experimental design. Whenever Ricardian equivalence predicts a positive bequest, outcomes close to those predicted occur, after allowance for learning. Observed deviations from Ricardian equilibrium are small, but biased in a Keynesian direction: changes in bequests do not fully offset changes in government debt. The imposition of a binding nonnegativity constraint on bequests produces the predicted neoclassical behavior. The cost to the players of deviations from the theoretical equilibrium is apparently an important determinant of the variability of observed deviations.     

ECONOMIC ACTIVITY IN THE SHADOW OF CONFLICT

Appropriation possibilities significantly alter economic fundamentals in a production and exchange economy. This is the primary lesson of our model, which combines Ricardian trade and the potential for predator/prey behavior. The model shows how conflict can be subdued by mutual gains from trade, but at a resource cost that modifies the exchange itself. On the other hand, it identifies conditions wherein appropriation incentives are so strong that specialized production and trade are precluded altogether. The model also reveals a new way to think about and measure the gains from trade. ( JEL C72, D51, D74, F10)     

THE WELFARE COSTS OF DEFICIT FINANCE

We analyze the welfare consequences of deficit finance in a general equilibrium model fit to the US. economy. Current spending may be financed with current and/or future distortionary taxes. The economy is open to international capital flows. The welfare costs of financing marginal current spending are substantial and are sensitive to the timing of the required taxes; postponing a tax on labor income is advantageous but postponing a tax on asset income is not. Ricardian equivalence poorly approximates the economy we consider.     

Not by Rent Alone: Analysing the Pro‐Poor Functions of Small‐Scale Fisheries in Developing Countries

The dominant view in academic and policy arenas is increasingly one in which the major contribution of capture fisheries to development should be derived from the capacity of society to maximise the economic rent of fishery resources. Drawing upon empirical experience from the South, this article highlights the potentially disastrous consequences that a universal implementation of the rent‐maximisation model would have in developing countries, and argues that a more gradual approach would be preferable. The welfare function of small‐scale fisheries, namely, their capacities to provide labour and cash income to resource‐poor households, should be preserved until the appropriate macroeconomic conditions for rent‐maximisation and redistribution are fulfilled.     

Elites,Rent‐Cycling and Development: Adjustment to Land Scarcity in Mauritius,Kenya and Côte d'Ivoire

According to rent‐cycling theory, low rent aligns the interests of the elite and the majority in providing public goods and efficiency incentives to promote economic growth, while high rent risks deflecting the elite into self‐enriching rent deployment, which distorts the economy and triggers a collapse from which recovery is protracted because rent recipients resist reform. The theory also predicts, however, that this collapse will self‐correct by shrinking per capita rent, which strengthens incentives for wealth creation. This article tests the prediction in Mauritius, Kenya and Côte d'Ivoire where intensifying land scarcity has shrunk per capita rent; Mauritius meets the prediction, but Kenya and Côte d'Ivoire do not.     

UNIFORM TWO-PART TARIFFS AND BELOW MARGINAL COST PRICES: DISNEYLAND REVISITED

This paper completely characterizes the demand and cost parameters which induce a constant cost monopolist charging a uniform two-part tariff to choose a marginal price less than marginal cost when selling to two types of consumers with different linear demands. It also provides a quantitative assessment of the potential significance of such pricing. Pricing below marginal cost maximizes profits in large regions of the model parameter space, contrary to widely held beliefs. If fixed costs are zero, pricing below marginal cost can increase profits by a factor of √2, although for most parameters the profit increase is much smaller. ( JEL D42, L11)     

CAPACITY CONSTRAINED EXPORTERS: IDENTIFYING INCREASING MARGINAL COST

This study revisits a central assumption of standard trade models: constant marginal cost technology. The presence of increasing marginal costs for exporters introduces significant market interdependence across borders missing from traditional models of international trade that rely on constant marginal cost technology. Such market interdependence represents an additional channel through which local shocks are transmitted globally. To identify increasing marginal cost at the level of the firm, we build in flexible production assumptions that nest increasing, decreasing, and constant marginal cost technology to an otherwise standard international trade model. We derive an estimating equation that can be taken directly to the data. Our structural equation explicitly guides our inference on the shape of the marginal cost curve from estimated coefficients. The results suggest that increasing marginal cost is predominant at the firm level. Moreover, utilizing plant‐level information on physical and financial capacity constraints, we find that the degree of increasing marginal cost is significantly exacerbated by both types of constraints. The evidence suggests that access to larger markets through greater international integration may not have the expected welfare gains typically predicted in standard models. (JEL F12, F14)     

TAX EVASION AND THE MARGINAL COST OF PUBLIC FUNDS

Tax evasion and deadweight loss have similar implications for the rules of public finance. The optimal mix of taxes can be derived from the minimization of the sum of aggregate deadweight loss and aggregate cost of tax evasion. Similarly, the marginal cost of public funds includes allowances for marginal deadweight loss and marginal cost of tax evasion per dollar of public revenue acquired.     

Testing rent sharing using individualized measures of rent: evidence from domestic helpers

The market for resident domestic helpers offers a rare opportunity where the surplus from employment relationship can be quantitatively measured for each individual employee. Using the difference between employer's cost of time and employee's wage as a measure of rent, it is found that wages for domestic helpers are positively related to rent. However the apparent sharing of rent is better explained by matching than by efficiency wage models. Rent sharing is observed even in households where monitoring or turnover costs are low. Rent sharing is not observed among newly arrived foreign domestic helpers, whose ability remains to be revealed.     

INFLATION DYNAMICS AND LABOR MARKET SPECIFICATIONS: A BAYESIAN DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM APPROACH FOR JAPAN'S ECONOMY

Which labor market specification is better able to describe inflation dynamics, a widely used sticky wage model or a recently investigated labor market search model? Using a Bayesian likelihood approach, we estimate these two models with Japan's data. This article shows that the labor market search model is superior to the sticky wage model in terms of both marginal likelihood and out‐of‐sample forecast performance, particularly regarding inflation. The labor market search model is better able to replicate the cross‐correlation among inflation, real wages, and output in the data. Moreover, in this model, real marginal cost is determined by both hiring cost and unit labor cost that varies with employment fluctuations, which gives rise to a high contemporaneous correlation between inflation and real marginal cost as represented in the New Keynesian Phillips curve. (JEL E24, E32, E37)     

A Hierarchical Process of Applicant Screening by Korean Employers

Korean employers screen job applicants’ detailed personal backgrounds with the intent to discriminate among them. This study develops a statistical model of employers’ problem in recruiting, and identifies a hierarchical process whereby employers screen applicants’ personal characteristics in the diminishing order of their incremental predictive power or increasing order of their cost. Recognizing that benefit of marginal screening depends on information obtained through inframarginal screening, this study evaluates different elements of screening jointly using conditional count-variable and probability models, in a sample of job application forms of 365 firms. Firms are found to screen applicants systematically, according to the information content versus intrusiveness of marginal factors screened—from applicants’ appearance, through lifestyle and background, to detailed health and financial status. Companies’ working conditions, labor costs and labor-organization rate help explain the extent of companies’ screening. Working hours and mandatory compensation in the relevant market are associated positively, and bonuses and discretionary benefits negatively with the extent of screening, agreeing with theoretical predictions. Worker unionization is associated positively with screening, suggesting that unions may be protecting their membership at the cost of harming non-members and propping up firms’ traditional practices. Results for the occurrence of individual screening questions are also reported.     

BERTRAND COMPETITION WITH ASYMMETRIC MARGINAL COSTS

This article tests the prediction of three discrete asymmetric duopoly price competition games in the laboratory. The games differ from each other in terms of the size of the cost asymmetry that induces a systematic variation in the difference between the firms' marginal costs. While the standard theory requires the low‐cost firm to set a price just equal to the high‐cost firm's marginal cost, which is identical across all three games, and win the entire market, intuition suggests that market price may increase with a decrease in the absolute difference between the two marginal costs. We develop a quantal response equilibrium model to test our competing conjecture. (JEL L11, L12, C91, D43)     

INCOMPLETE OWNERSHIP, RENT DISSIPATION, AND THE RETURN TO RELATED INVESTMENTS

The welfare loss from free access resource use is examined in a general equilibrium model. Actions that intensify competition for the resource, either by lowering the private cost or raising the private benefit of using it, can raise this loss above the rent the resource would earn if owned. Such 'excess dissipation'is illustrated with examples applicable to unowned groundwater. Regulatory policies that fix inputs needed to acquire the resource work by transferring part of the resource's rent to controlled inputs. The resulting welfare effect depends on the elasticity of substitution between, and relative prices of, controlled and uncontrolled inputs.     

THE WELFARE COSTS OF RATIONING BY WAITING

With price controls and rationing by waiting, rational consumers increase the quantity bought per purchase. This individually rational response is socially wasteful and the cost of making it is a deadweight loss. This cost plus the value of time spent in queues may exceed the total rent transferred from suppliers to consumers by price controls; i.e., the value of resources spent competing for the rent may exceed the rent itself. This point is illustrated by an empirical application to gasoline price controls. Rent seeking exhausts an estimated 116 percent of the rent transferred.     

Can High Prices Ensure Product Quality When Buyers do not Know the Sellers' Cost?

The 1981 Klein-Leffler model of product quality does not explain why high-quality firms would dissipate the rents they earn from quality-assuring price premia, and it relies on consumers knowing the cost functions of firms. In the present article, consumers do not know any firm's cost of producing quality goods, so firms with a low cost of producing high quality engage in conspicuous spending to demonstrate they earn a profitable mark-up over cost. Complete rent dissipation does occur if such firms have the same cost of producing low-quality items as other firms that are worse at producing high quality.     

The Canadian agricultural frontier

Selon les formulations classiques de la théorie de la rente foncière, les concepts de manque et de monopole sont essentiellement requis pour l'émergence de cette rente. Tel a été le cas dans les prairies canadiennes malgré la disponibilité de millions d'acres de terre agricole vierge. Cette étude explique pourquoi, en appliquant les théories ricardienne et marxiste de la rente foncière au contexte canadien. L'étude soutient que les contraintes techniques ont contribuéà ce manque de terre qu'on aurait pu diriger vers la production commerciale, mais qu'elles n'ont cependant pas été la seule cause de l'émergence de la rente foncière. De plus, l'étude appuie la théorie marxiste en démontrant que l'émergence de la rente foncière était due à la position structurelle des propriétaires de la terre qui leur a permis d'empêcher cette terre viable de produire. It argues that technical constraints produced a scarcity of land that could be brought into commercial production. Yet, it demonstrates that scarcity was not a sufficient condition for the emergence of ground-rent. Furthermore, it supports Marx's theory by demonstrating that the emergence of ground-rent rested upon the structural position of the landholders, which permitted them to withhold viable land from production. Classical formulations of the theory of ground-rent focus on the concepts of scarcity and monopoly as essential pre-conditions for the emergence of ground-rent. With millions of acres of free homestead land available on the Canadian Prairies, how could there have been either scarcity or monopoly? Yet, ground-rent clearly emerged on this agricultural frontier. By specifically applying the Ricardian and Marxist theories of ground-rent to the Canadian frontier, this study proposes an explanation.