SCARCITY AND RICARDIAN RENTS FOR CRUDE OIL*

This paper estimates scarcity rent/user cost and Ricardian rent for crude oil in Oklahoma. A model of firm behavior is proposed incorporating both development and production decisions considering crude oil as a nonrenewable natural resource. Profit maximization conditions derived from the model are applied to take into account cost differentials associated with oil found at varying depths. It is shown that oil with the highest cost is the marginal unit and it is the marginal output that determines Ricardian rent. Time series data is used to estimate equations derived from the necessary conditions. It is found that scarcity rent is a significant proportion of the price of crude oil and has increased in the past decade.     

COMPARING MONOPOLY AND COMPETITION: THE INCREASING-COST CASE

When an increasing-cost competitive industry becomes monopolized, the monopoly will possess some monopsony power in input markets. This paper presents a simple analysis comparing the performance of monopoly and competition in this case. It first assumes fixed input proportions, and then turns to the general case of variable input proportions. With variable proportions, it is shown that the monopoly's marginal cost curve lies above the competitive supply curve but the monopoly's average cost curve lies below it. The welfare cost of monopoly is not identified by the area between the monopoly's marginal cost curve and the demand curve in either case.     

Incremental cost sharing: Characterization by coalition strategy-proofness

Each one of n users consumes an idiosyncratic commodity produced in indivisible units. The n commodities are jointly produced by a central facility and total cost must be shared by the users.  A “sequential stand alone mechanism” shares costs incrementally according to a fixed ordering of the users: the first user always pays stand alone cost, the second pays the stand alone cost of the first two users minus that of the first and so on. If the second derivatives of costs are of a constant sign, such a method yields a unique strong equilibrium at every profile of convex preferences in the game where each user chooses his own demand. This equilibrium, in turn, defines a coalition strategy-proof social choice function.  Under decreasing marginal costs and submodular costs, the sequential stand alone mechanisms are almost characterized by these properties; the only exception is the binary demand case (each agent consumes zero or one unit) where a rich family of cost sharing methods (the Shapley value among them) yields a coalition strategy-proof equilibrium selection. Under increasing marginal costs and supermodular costs, coalition strategy-proofness characterizes a richer family of cost sharing methods: they give out one unit at a time while charging marginal costs, with the users taking turns according to a sequence fixed in advance. These methods contain serial cost sharing as a limit case. Received: 8 July 1997/Accepted: 22 January 1998     

RENT‐SEEKING AND CAPITAL ACCUMULATION

A general model incorporating rent‐seeking activities in the standard neoclassical model of capital accumulation is presented. The welfare of the representative agent is negatively affected by the efficiency of rent‐seeking activities. Although intuitive, this result is not obvious because long‐run income can be positively affected by more efficient rent‐seeking activities. The model is used to provide explanations for some recent experiences in developing countries, including the relative poor performance of economies that experience a move to a more decentralized system and the observed path of total factor productivity (TFP) in countries like Ireland and Venezuela. (JEL D23, D74, O40, O41, O47)     

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.     

The impact of deregulation on labor demand in class-I railroads

This paper examines the impact of the Staggers Rail Act of 1980 on labor demand in Class-I railroads during 1961–1990. The demand for labor is a function of output, hourly wage rates, a time trend, and a vector of interactive dummy variables. Since deregulation, the labor demand curve has shifted downward; wage elasticities have become more elastic, ranging from −0.668 in 1980 to −1.187 in 1990; output elasticities trended upward from 0.557 to 0.809; and the marginal product of labor rose from 3.421 to 5.296 during 1980–1990. These findings suggest that unions’ bargaining power has declined, that the total wage bill is likely to decrease if the real wage rate rises further, and that cost savings and efficiency gains are realized through increases in the marginal product of labor. We thank an anonymous referee and Henry McFarland for insightful comments and assistance.     

THE LAW OF DEMAND, POSITIVE SLOPING MARGINAL REVENUE, AND MULTIPLE PROFIT EQUILIBRIA

This paper demonstrates that the conditions for a positively sloping marginal revenue curve are much less stringent than is generally recognized. Simple transformations of any well-behaved convex demand function can easily result in a demand for which marginal revenue is positively sloping. For this reason, positively sloping marginal revenue functions must be considered whenever convex demand functions are analyzed. The existence of positively sloping marginal revenue makes multiple profit equilibria for the firm a very real possibility.     

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)     

Strategic Groups and Rent Dissipation

We consider a rent-seeking contest in which players can form strategic groups before expending their outlays. We examine the profitability of endogenous group formation and the effect of such group formation on rent dissipation. We show the following: When just one strategic group is formed in equilibrium, group formation is beneficial both to the group members and to the nonmembers, and rent dissipation is smaller than with usual individual rent seeking. However, when more than two strategic groups are formed in equilibrium, group formation is never profitable to any players, and rent dissipation is greater than with individual rent seeking.     

TWO-PART PRICING FOR A MULTI-PRODUCT MONOPOLIST

This paper examines profit-maximizing multi-part pricing arrangements by multi-product monopolists. The results indicate that prices set by such firms will deviate from the marginal-cost-pricing efficiency norm when multi-part tariffs can be set on only a subset of the firm's product line. Per unit prices will be set above marginal cost when the monopolist sells goods that are substitutes, while per unit prices for complements may be set above or below marginal cost. In either case, the pricing strategy will involve increasing the demand for goods on which an entry fee can beset.     

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)     

Union rent seeking and import competition

conclusion We empirically evaluate two issues: (1) how the union rent seeking responds to import competition and (2) whether union bargaining power, as proxied by the proportion of the labor force in an industry that is unionized, moderates the impact of import com-petition on union wage differentials. Unlike other studies, our emphasis is on the influ-ence of import competition on union rent seeking, rather than on union wages per se. Our primary results indicate that while import competition negatively and significantly affects union rent seeking, the extent of unionization does not substantially influence the impact of import competition on the union wage differentials. This is a somewhat surprising result since the literature suggests that union wages are greater in the pres-ence of stronger unions.     

ON INFLATION AND REAL PRICE VARIABILITY

This paper studies the consequences of costly price adjustments for the variability of real prices accompanying inflation. For constant-elasticity demand and cost of production it is shown that a higher demand, a lower cost of production, or a lower cost of price adjustment leads to less intertemporal variability of real prices. If the marginal cost of production does not increase "too" fast, then the average real price is less than the real price that would prevail in the absence of inflation; additionally, a higher demand, a lower cost of production, or a lower cost of price adjustment leads to a higher level of real prices.     

RENT SEEKING AND DEMOCRACY: EMPIRICAL EVIDENCE FOR URUGUAY

We provide evidence for Granger causality between rent-seeking behavior and democracy in Uruguay, where both rent-seeking behavior and political shifts have varied widely in the past 80 yr but ethnolinguistic heterogeneity and inequality have remained low. This helps identify "pure" interactions and their link with rent-seeking outcomes. The presence and duration of democracy appear to have been conducive to a decrease in rent seeking, although the reduction in rent seeking does not appear to have had a bearing on the quality of democratic regime. While the duration of democratic regime may impact rent-seeking behavior, rent seeking also displays a Granger causality to democratic duration. ( JEL O10, O1)     

DO CIGARETTE EXCISE TAX RATES MAXIMIZE REVENUE?

Buchanan and Lee [1982] suggest that politicians choose tax rates on the positively sloped segment of the short-run rate-revenue curve but the negatively sloped segment of the long-run curve. This paper uses recent estimates of the slope of the cigarette demand curve by Becker, Grossman and Murphy [1994] to test the hypothesis. Becker, Grossman and Murphy's parameter estimates combined with state-by-state data on key variables yields strong evidence against the hypothesis and instead suggests that marginal revenues from cigarette excise taxes are positive in every state.     

A Dual‐track Strategy for Managing Mauritania's Projected Oil Rent

High rent creates contests for its capture that, unless skilfully managed, degrade political institutions and distort the economy, leading to a collapse of growth if unreformed. Mauritania's projected oil stream risks such an outcome because past rent‐driven growth has left a legacy of Dutch disease effects, rent‐seeking and dependent social capital. This article proposes a dual‐track strategy for deploying the oil rent as a politically practical means of managing social tensions and improving the economic outcome. Track one promotes a dynamic market economy in the hitherto neglected rural areas, while track two gradually reforms the rent‐driven urban sector, thus postponing confrontation with established rent‐seekers while the dynamic sector drives competitive diversification of the economy and builds a pro‐reform political constituency.     

Cost, convenience and quality in child care demand

This paper presents an economic analysis of child care use by employed women with children under six years of age. Observations of actual child care choices are used to estimate the relative importance assigned by parents to cost, convenience and quality in child care. On the basis of these estimates, the chances that each type of child care arrangement will be used are predicted. Projections of child care use are presented for a range of potential costs, travel times, child-staff ratios, and family circumstances. This study is unique in employing information not only on child care arrangements already used, but also on the alternative arrangements available to individual families. The child care data were collected in a 1977 survey of New York City employees. Overall, the model correctly predicted 78% of the observed child care choices. The results of the analysis show strong effects of cost in child care choice. The demand for day care centers is especially sensitive to user cost; if centers were available free of charge, for example, there is a 65% chance that the average single working mother in the sample would use one. Travel time and child-staff ratios have small but statistically significant effects on the choice of child care arrangements. Weekend work schedules and presence of infants are also important choice factors. Once costs are accounted for, family income has no significant effect on the type of child care chosen.     

RISK, TRANSACTIONS CHARGES, AND THE MARKET FOR FOREIGN EXCHANGE SERVICES

This paper suggests that transactions charges in foreign exchange markets, rather than being solely brokerage fees, represent exchange rate uncertainty in periods of great fluctuations by including remuneration for the assumption of risk by foreign exchange dealers. Since most of the cost of exchange rate uncertainty may be largely endogenously included in the foreign exchange markets, attempts to examine the efficient market hypothesis in these markets should most appropriately include specific consideration of transactions costs. There appears to be empirical support for the premise that transactions charges are positively related to exchange rate risk, and, as well, inclusion of contemporaneous bid-ask spreads into the interest parity schedule leaves few unexplained profits from dollar-pound covered interest arbitrage during the 1970's and underscores the notion of classifying periods by degree of turbulence in analyzing covered interest arbitrage.     

INFLATION DYNAMICS AND SUBJECTIVE EXPECTATIONS IN THE UNITED STATES

We estimate a forward‐looking New Keynesian Phillips Curve (NKPC) for the United States using data from the Survey of Professional Forecasters as proxy for expected inflation. We obtain significant and plausible estimates for the structural parameters independently of whether we use the output gap or unit labor costs as a measure of marginal costs. Moreover, when estimating a Phillips curve where lagged inflation enters due to price indexation by nonreoptimizing firms, we obtain significant parameter estimates of the sign predicted by theory independently of the marginal cost measure used. (JEL E31)     

Experiences from Singapore''s park-and-ride scheme (1975–1996)

The Park-and-Ride Scheme (PRS) is a demand management instrument used to help alleviate the problem of traffic congestion in Singapore. After an abortive launch as a bus-based PRS in 1975, it was revived in 1990 as a mass-transit-based PRS and subsequently fine-tuned over the years. A survey of 122 PRS users in 1996 found that cost savings were a major incentive for participating in the PRS. It is suggested that to attract more users, tighter financial restraints such as higher charges for entering and parking in the CBD (Central Business District) should be employed. Operational problems faced by users such as restrictive operating hours and unsuitable car park locations should also be attended to.