Manage Research Papers

R. Kanbur and M. Keen

M.W. Cripps

Rational expectations is a maintained assumption in the analysis of economic policy. Here we examine how two types of learning rational expectations (rational and econometric) affect the time profile of optimal policy. In both cases the government adopts policies which delay convergence to rational expectations. There is also a. reduction in the inflationary bias, in one case permanently in the other temporarily.

G.D. Myles

A general equilibrium model of international trade with imperfect competition is presented and the existence of an equilibrium established. The model is applied to the analysis of tariff policy and conditions are derived under which factor price effects strengthen existing partial equilibrium arguments for tariffs. Nash equilibrium and collusive tariff setting are also analysed; collusive tariffs are lower provided there are no negative price effects linking the countries.

G.D. Myles and M.W. Cripps

There are two general issues which bedevil general equilibrium models with imperfect competition: price normalisation and the feedback from prices to incomes. We present a class of normalisations which do not affect the behaviour of oligopolists, this is argued to be the only class of normalisations with this general property. We also provide a set of necessary conditions for the existence of equilibrium with monopoly and feedback effects.

S.N. Broadberry

In this paper we examine the importance of supply and demand shocks after the First World War at both the macroeconomic level and also in the key staple industries of pig iron and cotton textiles. As well as reconciling macroeconomic and structural explanations of interwar unemployment, this provides a much needed focus on the years immediately after the First World War, which despite Dowie's (1975) plea, have remained almost completely neglected.

S.J. Machin

This paper considers the relationship between unions and labour productivity in a sample of British engineering firms. Rather than use a single indicator of union presence to determine the union effect a number of measures of unionisation are combined to form a union presence index. An average union non-union productivity differential calculated using this measure is found to be statistically insignificant although there is considerable variation around this average displayed by the firms in the sample. Finn size is also found to be a key determinant of the union impact on productivity and fines with more than 1000 employees are characterised by negative statistically significant union effects. On the other hand, in smaller firms die union impact is neutral although not very well determined. The results using the index are contrasted with the effects of the closed shop on labour productivity where firm size is also found to be important such that neutral effects occur in small firms but in larger firms the closed shop is associated with lower levels of value added per employee.

N.J. Ireland

A two-stage decision-making process is modelled where members of the firm vote for a feasible set of wage rates and then choose which work process to join. It is shown that this system is characterised by allocative inefficiency, non-continuous supply functions and wage discrimination. These could be limited by outside opportunities for members or by members having sympathy for others.

M. Salmon

The paper considers the conditions under which a system of dynamic equations will be consistent with some prespecified multivariate equilibrium specification. Connections are also drawn between recent developments in the analysis of multivariate error correction models and the theory of co-integration and what is known as —the Internal Model Principle" in the design of robust linear feedback rules . Apart from clarifying and generalising our understanding of error correction systems and co-- integration this approach suggests a relatively simple method for identifying the restrictions that determine whether a given dynamic system satisfies the conditions for being an error correction specification

G. Pyatt

What is a SAM?1 There is only one fundamental law of economics. It states that for every income there is a corresponding outlay or expenditure. The
law is the equivalent for economists of the physicists' law of energy conservation. And it plays a similar role in defining the completeness of a model or analytic formulation: no theory or model can be correct unless it is complete in the sense that all incomes and outlays are fully accounted for. A social accounting matrix, or SAM, is a simple and efficient way of representing this fundamental law. The SAM approach that then follows from it is a way of addressing problems or issues in economics which starts out by setting the problem within the framework of a social accounting matrix.

T. Basar and M. Salmon

In this paper we solve for the optimal (Stackelberg) policy in a model of credibility and monetary policy developed by Cuckierman and Meltzer(1486) . Unlike the (Nash) solution provided by Cuckierman and Meltzer the dynamic optimisation problem facing the monetary authority in this case is not of a linear quadratic form and certainty equivalence does not apply. The learning behaviour of the private sector (regarding the policy maker's preferences ) becomes intimately linked with the choice of the optimal policy and cannot be separated as in the certainty equivalent case. Once the dual effect of the optimal Stackelberg policy is recognised the monetary authority has an additional channel of influence to consider beyond that taken into account by sub—optimal certainty equivalent , Nash, policy rules. Unlike Nash behaviour the Stackelberg solution implies no inflationary bias but it lacks credibility. The learning behaviour of the private sector does not sufficiently inhibit the incentive of the monetary authority to cheat in this model despite the fact that this learning is explicitly recognised in the Stackelberg solution.

J. Driffill

The analysis of macroeconomic policy as a game of incomplete information has concerned itself largely with the problem of domestic monetary policy, inflation and unemployment, from among the areas discussed by Torsten Persson (1987) in his survey in this session. Papers by Backus and Driffill (1985a and b), Barro (1986), Vickers (1986), Driffill (1987), Rogoff (1987), and Cukierman and Meltzer (1986), focus on domestic monetary policy using roughly the same macroeconomic model and obiec tive function as was used by Kydland and Prescott (1977) and Barro and Gordon (198:1a and b).
Horn and Persson (1985) have applied similar ideas to a small open economy using e,rchange rate policy and inflation as the key macro variables, as have Andersen and Risager (1987). Guido Tabellini (1987) has analyzed a situation where a government faces a single labour union rather than a decentralized competitive sector, Keith Blackburn (1987) has introduced incomplete information into a model of international policy coordination

T.M. Anderson

The coordination of Production and consumption decisions is analysed in a static model where the interdependence between production, income and demand is explicitly modelled. With imperfect competition and non-convex production technologies it is shown that there exists a zero pure profit equilibrium with a positive level of employment and possible involuntary employment. Finally, it is shown how to arrange a form of external intervention so as to ensure full employment.

P.A. Gregg and S.J. Machin

This paper examines the relationship between trade unions and the incidence of share ownership, profit sharing and value added schemes in Britain. The first two schemes are more common in the union sector whilst the third occurs more in non-union establishments. A distinction is made between weak and strong unions and it is found that performance linked pay schemes are in general less likely to be present if an establishment has a strong union rather than a weak one.

G.D. Myles

This paper analyses the properties of a model of imperfect competition in conjunction with a preference for product variety. When the consumer treats product variety as parametric, a tax scheme is described that generates a socially optimal equilibrium from market behaviour. Welfare-improving and optimal commodity taxes are also discussed. An alternative, conjectural, definition of equilibrium is introduced; for a single consumer model this is argued to result in greater variety and utility. If further consumers are introduced, variety causes externalities in consumption; their effects are analysed and policies to overcome these discussed.

A. Wolinsky

The paper presents a simple pairwise meetings model of trade. The new feature is that agents have asymmetric information about the true state of the
world. The focus is on the transmission of the information through the process of trade. The qualitative questions is: to what extent is the information revealed to uninformed agents through the trading process, when the market is in some sense frictionless? In particular: does the decentralized process give rise to full revelation results as derived by the literature on rational expectations for centralized and competitive environments? In the context of the model of this paper, it turns out that the information is not fully revealed to uninformed agents, even when the market is in some sense approximately frictionless.

P. Weller and M. Yano

We examine the determination of spot and futures prices in rational expectations equilibrium in a model with three groups of agents, agricultural producers, processing firms and speculators. We find necessary and sufficient conditions for producers to be short, processors to be long, and for the futures price to lie below the expected future spot price (normal backwardation). The conditions impose plausible restrictions on demand elasticities, and on the elasticity of substitution in the processing technology. We use a new technique of analysis which, in contrast to much of the literature does not require restrictive assumptions to be imposed upon the structure of preferences.

Roger E.A. Farmer

This paper introduces a parametric class of Kreps Porteus preferences Chat yield closed form solutions to dynamic stochastic choice problems. These preferences are applied to a simple stochastic macroeconomic model which relaxes the representative agent assumption. This example is designed to illustrate one of the many possible ways in which these preferences may be useful to both theoretical and applied researchers.

C. Azariadis

This essay analyzes labor contracts as a device for rearranging factor incomes over time when the lack of verifiable public information about future compensation prevents finitely-lived workers from borrowing against their earnings. Specific human capital is used as an incentive to implement
intertemporal self-enforcing contracts between workers and firms. I propose a necessary and sufficient condition for the existence of such contracts, explore the resulting equilibrium earnings profiles, and investigate how imperfections in the credit market influence the way workers allocate time between current production and training.

G.D. Myles

This paper derives optimal commodity tax rules for generalequilibrium models with imperfect competition.This is achieved by constructing functions for each imperfectly competitive industry describing the effect of taxation upon prices and profits, the construction is applicable to most forms of imperfect competition. Intermediate goods prices appear as important determinants of tax rates and it is shown that the implication of the diamond-mirrlees theorem, that intermediate goods remains untaxed, is inapplicable when the competitative assumption is relaxed.

J.R. Cable

It has long been recognised that one of the most important features of a production technology lies in its implications for managerial control over, the production process. Amongst early writers, Charles Babbage observed: "One great advantage which we may derive from machinery is from the check which it affords against the inattention, the idleness, or the dishonesty of human agents." (1832, p19). His contemporary, Andrew Ure, likewise remarked: "This invention [the self-acting mule) confirms the great doctrine already propounded, that when capital enlists science into her service, the refractory hand of labour will always be taught docility." (1835, reprinted 1963, p, 54). In more recent times, the literature of scientific management after Taylor (1911) has built heavily on the principle of technological control, as its radical critics have stressed.1/ Many current examples involve the extended use of computers, as in the use of robotics in place of man-based technology in car assembly; the introduction of computerised machine tools whose programmes are locked away from their operatives; and the displacement of traditional printing skills by direct-input technology in newspaper production.

S.M. Ravi Kanbur

The object of this paper is to review the state of malnutrition and poverty in Latin America. We will be particularly interested in quantifying the magnitudes of the problem, and in identifying who the poor and malnourished are. The former provides the reason for policy action while 'the latter provides the basis for policy strategy. Our focus throughout will be on food related issues. When we discuss poverty we will be restricting attention to an inability to purchase a minimally nutritious diet, and when we discuss malnutrition we will consider the physical con-sequences of prolonged dietary deficiency. We will not, therefore, spend much time on the satisfaction of other, non-food, basic needs, although this is clearly an area of great policy interest too.

S.M. Ravi Kanbur

While there is considerable disagreement about the actual number of hungry people in the world today, there is almost universal agreement that the current situation is unacceptable. Too many individuals are subject to periodic reductions in their food intake - which leaves many dead - and even among those not subject to such transitory reductions, there is too low a level of average food intake. What is the role of global food balances in determining this pattern of individual hunger? The object of this paper is to introduce and elaborate upon three themes which emphasize the regional element in the link between global food balances and individual hunger in an entitlements based approach. The first of these themes is an extension of Sen's (1981) entitlements approach to hunger to the case of nation states in a global setting. The second theme is based around the nature of the world food market as an interlinked system of markets in internationally traded and non-traded food crops. The third and final theme emphasizes the essential and inherent conflict between net sellers and net buyers of food, in an international and national system of market based entitlements.

M. Harrison

By the end of World War II the USSR had become the strongest nation in Europe and a first rate military power. Behind Soviet victory lay her economic achievement, sustaining not only a 12 million strong army but also defence industries which mass produced modern weapons on a scale unimaginable in 1940. Table 1 shows that Soviet munitions output, already at a high4 level before the war, increased rapidly under in wartime conditions; taking the war years as a whole, cumulative Soviet defence output was exceeded only by that of the United States.

R. Naylor

In recent years there has been a growing literature on the role of social customs in the labour market. Marsden (1986), for example, has emphasised the importance of group norms and social custom in various labour market contexts. Jones (1984) develops an economic model of conformist behaviour in which an individual's work effort is determined partly by tradition and by the behaviour of other workers. A central theme of the literature is that a rational economic agent does not inhabit a social vacuum and hence that individual behaviour is influenced, to some extent, by the actions of others. The approach promises the possibility of an escape from the free^-rider problem, which, as we shall investigate, might have a number of labour market applications. Such a potential has been suggested by a number of writers in different fields. Eiser (1978), writing from a socio^-psychological perspective, has stressed the role of social norms in producing cooperative outcomes in the theoretical context of the prisoner's dilemma. Such an emphasis is consistent with Sen's (1977) argument that the concept of commitment might offer a solution to the free rider problem.

P. Burridge and K.F. Wallis

Prediction theory for stationary stochastic processes as developed by Wiener and Kolmogorov and exposited by Whittle (1963) has a wide range of applications in theoretical and empirical economics. Results for the forecasting or pure prediction problem underlie theoretical models of optimal behaviour in dynamic and uncertain environments, and support empirical time series studies in considerable number. The signal extraction problem arises when the variable to be predicted or estimated is jointly stationary with the observed series, specifically as a signal observed with a superimposed error, or more generally as one component of a process comprising several unobserved components; applications range from permanent income theory to the seasonal adjustment of economic time series. The Wiener-Kolmogorov theory is heavily utilized by such textbook authors as Sargent (1979) in macroeconomic theory and Nerlove et al. (1979) in time series analysis.

M.B. Stewart

It is usually felt that workers in the union sector of the economy earn more than they would if they worked in the non-union sector; and similarly that on average unionised plants pay higher wages than comparable non-unionised plants. Recent evidence suggests that the average union/non-union ceteris paribus wage differential in Britain may in fact be quite small, but that there is considerable variation around this average and that some groups of workers may obtain considerably larger differentials. Stewart (1983a) estimated a mean individual union membership differential for the manufacturing sector of around 8%, but found considerable variation with individual characteristics and across industries. Mulvey (1976), using aggregate industry-level data on coverage by collective agreements, found variation in the differential according to the level of bargaining and Geroski and Stewart (1986) found some evidence of difference in the differential according to the extent of coverage itself. The cummulated evidence clearly indicates that contancy of the differential is not an appropriate maintained hypothesis

J.R. Cable

Research suggests that there are potential mutual gains to be had from participatory production, yet traditional non-participatory organisation remains the norm in Western economies, and participatory 'alternatives' constitute a deviation. The paper argues that this apparent non-realisation of mutually beneficial outcomes by rational economic agents may be explained with the aid of a prisoners' dilemma game framework, which provides an insightful new way of looking at the participation issue. Two conceptually separate origins of potential participatory gains are distinguished, in 'efficient bargaining' effects and in technology shifts; and an important distinction between 'ultimate' and 'effective' technology is made. Public policy intervention to promote participation, it is argued, is not ipso facto a denial of mutual social gains, and may be necessary to secure them.

G. Frewer

Well-known models of optimal taxation are considered. Particular functional forms are selected to represent consumer preferences. Uncertainty about the parameters of these functions is introduced. Propositions are stated describing the consequences for optimal taxation.

P.L. Stoneman

Technological diffusion is the process by which innovations (be they new products, new processes or new management methods) spread within and across economies. Some understanding of the process of technological diffusion is essential if we are to gain any insight into processes of economic growth and development, for, whatever the emphasis has been in the past in research and public policy, it is the application of innovations (diffusion) rather than the generation of innovations (invention or R & D) that leads to the realisation of benefits from technological advance.

Andrew Henley

As an attempt at linking together profitability, income distribution and economic crisis the work of Weisskopf (1979) represents a very important seminal contribution to the literature. In a cunningly simple model Weisskopf assesses the importance of the three major Marxist explanations of economic crisis in explaining the behaviour of the rate of profit in the non-financial corporate business sector of the United States economy since World War Two. This paper extends Weisskopf's study in two ways. Firstly we reassemble his database and extend his analysis from 1975 to 1982, incorporating two new complete business cycles in order to assess whether or not his conclusions about profitability crisis in the post-war period still hold. Secondly we break down his measure of labour share into wages, salaries and supplemental benefit contributions (pension schemes, health care schemes, and unemployment insurance schemes contributions) in order to assess the importance of the degree of monopoly theory in explaining what has been observed in terms of profit rate crisis. So in section 2 of the paper an extensive review of Weisskopf's methodology and results is presented. Section 3 extends his analysis to incorporate the new data for two additional business cycles spanning the period 1975 to 1982. Section 4 explains the methodology behind the decomposition of Weisskopf's aggregated measure of labour share and section 5 presents the empirical analysis for this breakdown. In section 6 we assess how the degree of monopoly theory can explain the trend of wage share observed .in section 5 and some final conclusions are drawn in section 7.

A. Harrison & M Stewart

Empirical work on strikes has tended primarily to concern itself with strike incidence, with the recurring finding that strikes occur procyclically. Less attention has been paid to strike duration and the cyclical fluctuations it might display, although a variety of theoretical models have been proposed suggesting that strike duration will vary with the business cycle. This paper presents an empirical investigation of this issue, using Canadian microdata to estimate flexible models of conditional strike-settlement probabilities. Two contrasting hazard models are estimated and compared. Both utilise a flexible polynomial representation for the duration dependence and explicitly incorporate unobserved heterogeneity. The first is a beta-logit model recently proposed by Kennan (1984), and the second is a discrete analogue of the familiar proportional-hazards model with a Gamma mixing distribution. Score tests for a number of potential specification errors are also constructed for both models. The models are estimated on a sample of individual contract strikes in manufacturing over wage issues during the period 1971-1980. The results strongly support the hypothesis that strike duration varies countercyclically, with conditional settlement probabilities at the peak of the cycle being up to twice as high as at the trough. A supplementary finding is that this cyclical sensitivity is even more marked in the paper and printing industries, and that individual conditional settlement probabilities there are much lower, ceteris earibus, than elsewhere in manufacturing. The hypothesis of homogeneity across industries and unions in the remainder of manufacturing is accepted by the data.

D. Leech

The relationship between shareholding concentration and share-holder voting power and the question of corporate control has long seen recognised as being of central importance in the economies of the firm and has given rise to a large literature. Despite this, however, and the fact that quite sharp differences in perspective exist in this literature, relatively little work has been done on actually attempting to measure, in a theoretically rigorous way, the quantitative significance of empirically-observed differences in concentration on the distribution of power. On the other hand the literature on game theory is replete with theoretical examples of the application of the theory of simple games to shareholder voting. Although methods for applying this theory to real-world voting situations exist, little work appears to have been done on this particular question, although applications have been made to problems 1/ in political science. This paper is an investigation of the empirical application of the method of power indices for simple games to shareholder voting using data for a sample of British companies collected by Collett and Yarrow, previously analysed by them (1976) and by Cubbin and Leech (1983).

R.E. Mariano

Many econometric models for forecasting and policy analysis consist of a statistically estimated system of nonlinear simultaneous stochastic equations. The distinguishing feature of these models is the nonlinearity of the solution for the endogenous variables in terms of model disturbances. Despite the widespread use of these models, there has been little formal analysis of predictions based on such models. Furthermore, practitioners' validation of such models has proceeded, for the most part, on an informal basis. This paper covers a preliminary study of the finite-sample properties of predictors in nonlinear systems and as such provides an additional analytical treatment in parallel with the large-sample asymptotic analysis carried out recently by Mariano and Brown (1983a, 1983b, 1984, 1985).

Geoff Frewer

A theoretical model is presented in which the decision marker's choice of step length for reform is allowed to depend on the consequences which this is expected to have for the accuracy of information about the structure of the economy. Also, destabilisation by means of introducing variance into policies, is desirable under some circumstances since it speeds up the learning process.

S. Dowrick

In general we expect efficient bargaining between a union and an employer to cover employment as well as wages. But employers may find that they win higher profits if they bargain over wages alone, since the threat of job losses can inhibit workers from pressing wage demands. This is shown
to be the case in typical models which use the general (asymmetric) co-operative Nash-bargaining solution. So it is argued that the inclusion of jobs in bargaining is not just a question of efficiency, but also a question of power.

R. Kupisz

Empirical work on money demand in developed economies pertains to be based on sound microeconomic principles. If this is truly the case, estimated models should be unaffected by country boundaries, given that as economists we believe the majority of people to be motivated by the same basic forces. In the development literature, however, it is usually maintained that the problems of LDC's must be taken specifically into account, which would appear to contradict the above argument. Surprisingly little attempt has been made to investigate whether functions specific to the LDC's really are better at explaining money demand than the more general functions estimated for the U.K. or U.S.A.; whether there is, in fact, little difference in explanatory powers or whether limitations imposed by the data problems that are notoriously endemic to LDC's allow any meaningful conclusions to be made. These are the questions that I hope to address in this paper.

D. Leech

Capital market constraints on the firm are traditionally described as working through two mutually reinforcing mechanisms. First, a direct limitation on management discretion operates through accountability to shareholders. Larger shareholders are assumed continuously to monitor company performance particularly in its effect on profitability and equity values. In the event of a departure from profit maximisation they will organise to use their voting power to force changes in company policy or, in the limit, to replace the existing top-level management with one more acceptable to them. Behind this institutional threat lies the second constraint, the possibility of an increase in share concentration leading to a takeover should the share price fall low enough or the threat prove ineffective (for example if concentration is too low).

S. Dowrick

Baran and Sweezy (1968, p.85) argue that "the working class as a whole is (not) in a position to encroach on surplus ... under monopoly capitalism employers can and do pass on higher labour costs in the form of higher prices". In Section 2 I examine this claim that employers' power in product markets can transcend conflict over the process and pay of labour, discussing the implications for conflict between groups of workers as well as conflict between workers and employers. Despite ample evidence of employers' monopoly pricing power, there is also evidence that profit margins do change in response to workers' strength - an observation which, I argue, is not adequately explained by theories based on the threat of foreign competition or by theories of oligopolistic uncertainty. Section 4 explores the hypothesis that employers and workers bargain over jobs as well as wages, a hypothesis which could explain workers' potential to erode profit margins.

J. Seade

This paper considers the conjectural variations model of oligopoly and introduces a shift in its equilibrium solution : a cost-side shift, such as a change in technology or input prices, or the introduction of excise tax. The equilibrium effects of this cost-displacement are then found, deriving and examining explicit expressions for the resulting movements in individual outputs and hence in price, profits and market structure.

W. Narendranathan & S. Nickell

A lot of attention has been focussed on the issue of the effects of the level of benefits on the duration of unemployment in the last decade. These analyses have been carried out either in a reduced form framework or an approximate structural form framework allowing for some dynamics, or in a proper structural form static framework. The reduced form approach is mainly concerned with the specification and estimation of the conditional probability of leaving an unemployment spell - see for example, Lancaster (1979), Nickell (1979), Lancaster and Nickell (1980). Search theory is then made use of, to interpret the estimated coefficients in the model. Within the search theory framework, this conditional probability can be interpreted as a product of (a) the probability of coming across a vacancy and being offered the job when applied for, and (b) the probability of accepting this offer. The latter probability, being a function of a minimum acceptable wage (reservation wage) to the individual would therefore depend on various variables like for example, personal characteristics, environmental influences etc. Hence, if one is interested in distinguishing various effects, one needs a structure for the problem.

John Cable

Empirical research on self-managed and participatory firms faces a major difficulty over the measurement of the key, participation variable. Indicators such as the proportion of workers belonging to a cooperative, workers' financial stakes in the firm, the existence of a Works Council, the number of worker directors, and so on, which feature in previous work, capture only aspects of the phenomenon. But the extent of employee involvement in the actual running of the firm - "workers' ability to directly influence or form the management and work process in an enterprise.(1) - can vary extensively under both cooperative and conventional production arrangements, in ways not necessarily caught by variables such as these.

John Cable

In recent years there has been a widespread growth of producer cooperatives, codetermination, profit-sharing and other participation schemes. This has occurred not only in Western industrialised countries, including Britain, but also in the developing world, and in some Eastern-bloc 'command' economies. These developments provide social scientists with rich and expanding opportunities for research on self-managed and participatory firms: on their relative survival, growth and productivity rates; on the interrelationship between participation and human capital formation or the ',quality' of the labour force; on the implications for wage determination, unionisation, the quality of working life; and so on.

Keith Cowling

We now live in an era where production and markets are controlled by giant corporations with a trans-national base. We also live in an era where national and international controls over trade and capital flows have been progressively reduced. The resulting combination of unified international markets and giant international firms bestriding them provides a ready mechanism for the processes of deindustrialisation to develop wherever the conditions for capitalist accumulation are weakened. In contrast to the earlier history of the development of monopolies and cartels around the turn of the century, when protectionism was demanded to restrict or eliminate foreign competition in domestic and colonial markets, the new period of international oligopoly is characterized by demands on the part of the giant corporations for free trade 1) and the supranational institutions to pursue and sanction it: a global freedom to pursue accumulation, given their own dominance within the global system and given the threat, or potential threat, of organized labour
and universal suffrage at the level of the nation state. It might be said we now have a neo-imperalism of free trade in similar vein to the nineteenth century British imperialism of free trade2), but this time, rather than being of national origin, the imperialism is that of the Transnationals.

Andrew Henley

The question of what effect if and trades unions have on the functional distribution of income is an old one. Conventional production theory suggests that the presence of a monopoly element on the supply side of a particular labour market may well raise wages but in the long run any factor substitution away from labour would have an ambiguous effect on the factor income distribution depending on the value of the elasticity of substitution. Distributional gains would only accrue to labour under conditions of inelastic factor substitutability (see, for example, Addison & Siebert 1979). A considerable body of econometric research (surveyed in King and Regan 1976) has given general credence to the view that the elasticity of substitution between capital and labour, using cross sectional analysis, is equal to one across a large array of different industries. Adoption of this "stylised" fact leads to the conclusion that a rise in the price of labour would cause such a substitution from labour to capital as to leave the functional distribution unaffected. One might therefore conclude that trades unions can have little or no effect on income distribution. Time series research has tended to conclude (King & Regan 1976) that the elasticity of substitution is, if anything, a little below unity. Under such conditions a monopolistic trade union could increase its income share by raising wages. The descriptive evidence of Levinson (1954), however, suggests that in the long run unions may have very little impact on wage share. Levinson noted that although union membership had increased in the United States by a multiple of five over the period 1929 to 1952 profit share had remained more or less constant and labour share had only risen slightly. Other authors (see King & Regan 1976) suggest that labour share has been constant, if not falling. A recent paper (Kallenberg et. al. 1984) also concludes from a time series model that trades unions have had little or no impact on labour share (variously defined) in the U.S. printing industry over the period 1946 to 1978.

Paul Stoneman & N.J. Ireland

In the literature on the Economics of Technological Change it has become almost a convention to analyse the generation of new technology (Research and Development, or invention and innovation, or patenting behaviour) and the diffusion of new technology, as separate components in an overall process. It is the purpose of this paper to argue that the generation and use of new technology are inextricably linked and that separate analysis should be considered at best as yielding only part of the answers to any problems in the economics of technological change.

John Brack

This paper is concerned with the generation and testing of predictions on price adjustment from a model of symmetric oligopoly. Two types of industry demand regimes are considered, linear, and iso-elastic. It is shown that these can be distinguished by a simple test, and linear demand is given strong support. It is then shown that the industry conjectural variation may be treated as a function whose properties can be established by non-linear estimation of the price adjustment equation.

C.N. Pitelis

The main purpose of this paper is to test the substitution hypothesis of saving for the case of Life Assurance and Pension Funds (LAPF) on the one hand, and other (personal and corporate) savings, on the other. The focus is the postwar U.K. period. Earlier U.K. findings on this issue rejected the substitution hypothesis. Most, in particular time series, studies though, are subject to various limitations: that is, they focused on a very short period of time: made an uncritical use of the official data, that may cast doubt on their results: estimated consumption functions, which do not explicitly allow the testing of the effects of LAPP on other than personal savings too, such as corporate retentions: finally, confined their attention to in most cases - one specification of the consumption function.

P. Burridge & K.F. Wallis

Public discussion of seasonally adjusted time series usually concentrates on the current data, that is, the seasonally adjusted value of the current month's unemployment or money supply, for example. That such figures will be revised in subsequent months, as new data offer a clearer picture of short-run movements in the series, is increasingly recognised. One*might then wish to attach a standard error to the preliminary data as an indication of the likely magnitude of subsequent revisions. Moreover, if the final adjusted value that eventually emerges is regarded as only an estimate of a "true" deseasonalized series, then again, an indication of the likely error is called for. It is the purpose of this paper to propose a framework for the calculation of such quantities, in the• context of an approach to seasonal adjustment that is gaining increasing support. While research that would have as an "important byproduct... estimates of the random 'variability of seasonally adjusted series" was recommended over twenty years ago by the President's Committee to Appraise Employment and Unemployment Statistics (1962, p.19), the problem still appears to be open.

A.R. Hall

We derive the information matrix test, suggested by White (1982), for the normal fixed regressor linear model, and show that the statistic decomposes asymptotically into the sum of three indep­endent quadratic forms. One of these is White's (1980) general test for heteroscedasticity and the remaining two components are quadratic forms in the third and fourth powers of the residuals respectively. Our results show that the test will fail to detect serial correlation and never be asymptotically optimal against heteroscedasticity, skewness and non-normal kurtosis. The information matrix test is contrasted with the test procedures of Bera and Jarque (1983) and Godfrey and Wickens (1982), who construct a composite statistic from asymptotically optimal and independent tests against particular alternatives. Our results suggest that this alternative strategy is likely to be a more fruitful source of a general regression diagnostic.

A. Henley

This paper presents evidence on the impact of trade unions on wageshare under different collective bargaining arrangements, using a Kaleckian degree of monopoly frame-work. Comparable results are presented for union impact on wage levels and from these inferences are drawn about how the impact on wageshare is broken down into wage and productivity effects. It is found that unions make most distributional gains where bargaining is on a two-tier level, allowing unions flexibility to push down the degree of monopoly yet preserving national solidarity.

S. Wijnbergen

Using a standard complete specialization model of a small open economy within a rigorous intertemporal optimization framework with contract-based wage rigidity, we show that permanent tariffs lead to a current account deterioration and a fall in employment, contradicting most of the literature on macro-economic effects of import tariffs. The crucial lactor in this complete reversal of standard results is the impact of tariffs on domestic real product wages via wage indexation. Temporary tariffs will have less of a negative impact on the CA or potentially even a positive impact, because they increase the consumption rate of interest (the terms at which future consumption can be traded for current consumption) and so increase private savings. Extensions towards incorporating a more general production structure, investment and the use of tariff revenues to provide wage subsidies are presented.

D. Leech

Berle and Means' classic study of the separation of ownership and control remains authoritative and influential despite having been criticised on various grounds by a number of authors. This paper argues that, firstly, the Berle and Means approach to determining company control implicitly assumes a static framework inappropriate to analysing early twentieth century corporations. Secondly, accepting their approach, their control-type criterion in terms of shareholding concentration is too high and biases their results. Thirdly, the use of the same criterion for all companies fails to recognise the importance of shareholding dispersion and further biases their results-. A probabilistic voting model is-described which makes explicit the assumptions behind the concept of factual control. This is applied to the data on 16 companies used by Berle and Means and their classification of them as managerial is shown to be invalid.

Richard Urwin

An efficient financial market is one which is efficient in processing information, so that current prices incorporate all relevant data, correctly evaluated. It has two features which ought to be emphasised. Firstly, as prices are presumed to move Immediately to a new equilibrium when 'shocked', they represent the harmonious outcome of utility and profit maximising behaviour. The signals sent by these prices will ensure that any consequent resource allocation is an efficient one. Secondly, since the return on a financial asset consists of a yield and capital gain or loss, expectations of the future play an important role in determining the current price. Asset markets are inherently speculative, but the efficient markets hypothesis suggests that all opportunities for investors to earn unusual profit by exploiting available information will be eliminated. The price of a security at time t will reflect all relevant knowledge about the future which will affect its expected return, which results in the anticipated return to speculative activity being zero.

C.D. Fraser

This paper considers explicitly costly choice between mean-preserving distributions of a random variable. First, we extend a theorem of Diamond-Rothschild-Stiglitz to our environment. We then apply the result to risk and inequality analysis. W.r.t. the former, we generalise Ehrlich and Becker's seminal analysis of self-protection. W.r.t. the latter, we establish a sufficient condition for lump-sum-tax-financed and proportional tax-financed expenditure upon reducing inequality in pre-tax income or abilities to increase with society's absolute inequality aversion. This requires everyone's relative inequality aversion to lie within the interval [1,2]. We draw upon empirical evidence to show:, Norway may satisfy this requirement; the U.S. may not. Additionally, we examine the impact of variations in national income upon proportional tax-financed inequality reduction.

P. Burridge & K.F. Wallis

Time series models are presented for which the seasonal component estimates delivered by linear least squares signal extraction closely approximate those of the standard option of the widely-used Census X-11 program. Earlier work is extended by consideration of a broader class of models and by examination of asymmetric filters in addition to the symmetric filter implicit in the adjustment of historical data. Various criteria that guide the specification of unobserved-component models are discussed, and a new preferred model is presented. Other models generate filters that approximate X-11 rather well, explaining the wide acceptance of the X-11 method.

Saul Estrin & Jan Svejnar

In this paper we model and test alternative explanations of income determination in participatory and labor-managed firms. In the Yugoslav context, this involves distinguishing between the competing contentions that earnings differentials are related to the system of self-management per se or are a consequence of capital rationing by the authorities. Our initial aim is theoretical; to develop an adequate general formulation of the problem and an appropriate framework in which to embed the hypotheses. It is also felt that rigorous empirical findings in this area will be an important input in evaluating the Yugoslav labor-managed system as well as the increasing degree of worker participation in other countries.

M. Harrison

Nikolai Alekseevich Voznesensky was born on 1 December (18 Novem¬ber in the old style) 1903, the second son of a foreman's family. They lived near Chern', a small town of Tula province to the south of Moscow. Leaving full time education at fourteen, Nikolai found his first job in the year of revolution 1917, apprenticed as a carpenter to the local undertaker. At the first opportunity, however, he left to become a typesetter at a printing works.

C.N. Pitelis

An asymmetrical choice approach is followed to analyse the link between corporate control, social choice and capital accumulation; based on the explicit recognition of the existence of different classes in modern capitalist economies. /t is argued that all existing attempts to explore the issue are insufficient in that they are based on a classless-or classes do not matter-framework. We suggest that corporate decisions with regard to retentions do constrain the possibilities of choice over the consumption-saving patterns, of all - but a controlling subset of the owners - classes of the economy. Under plausible assumptions this acts beneficially on potential capital accumulation: a phenomenon due to, and being a specific characteristic of, todays large joint stock companies.

M.S. Grieco

The object of this paper is to present an anatomy of the imbalanced development of Corby in the post-war period. The consequences of this imbalanced development, which caused a small Northamptonshire village to grow into .a major steel town, are now reflected in the grim economic and social problems of Corby following on from the closure of major sections of the steel works. The paper focusses, in particular, on the role of Planning in this failure. It is argued that the principle of balance which has at the heart of the New Town ideology found no place in the development of Corby New Town. Indeed, it is shown that the New Town status itself was used in further accentuating the regional and structural imbalance represented in Corby - a striking contrast with the common view of the role of New Towns. The paper concludes by drawing out the policy implications of this Planning failure.

Richard Whipp & M Grieco

Within the literature on the family, we contend, there has been an over-concentration on the character of conjugal roles and upon the related issue of male authority, to the exclusion of a concern with the wider kinsh4p structure (Bott, 1957; 1971 - Rapoport and Rapoport, 1976). This paper will demonstrate the implications of such shortcoming for the understanding of work organization. Much of this concern with conjugal roles owes it explanation to the quasi-ecological focus on co-residence in both historical and contemporary accounts of the family. A focus on co-residence as the measure of family structure is not surprising, given the relative ease with which such data can be collected; relational data is more difficult to collect and has correspondingly received less attention. This data collection problem has resulted in an imbalance in the attention devoted to the cellular/ nuclear family, with this type of family being portrayed as the predominant form at the expense of a proper consideration of the role of the extended family or the kin network in the modern world (Parson and Bales, 1956).

R. Sugden & C.N. Pitelis

The paper suggests that the largely static, ahistorical existing literature on the theory of the firm is inadequate in its treatment of the control issue. It tends to classify firms as either owner or manager controlled using an ex post analysis of share distribution. In contrast, this paper reverses the direction of causality, explaining the control of firms in a dynamic, historical framework. It concludes that the observed distribution of shares will suffice to give a subset of owners control. The arguments are illustrated by a series of diagrams, and supported by an examination of recently reported empirical evidence.

P.A. Geroski and K.G. Knight

This paper is a. survey of some aspects of U.K. strikes, particularly for the late 1960s - early 1970s period, and a survey of bargaining theory and the theory of strikes. Both theory and evidence combine to present a distinction between "noisy" strikes, and more substantive strikes which play a role in the resolution of issues through collective bargaining processes.

C.N. Pitelis

This paper examines the possibility of an under consumptionist tendency operating in the British economy in the recent recession as a result of (i) increases in contractual savings resulting in an increasing private_ savings-income ratio as a result of the lack of perfect substitutability between contractual and discretionary savings; (ii) a posited link between consumption and investment, either direct or indirect via the effects of falling consumption on capacity utilization and the rate of profit. Comparisons are made between our version and Baran and Sweezylm theory of under consumption. Some temporal, spatial and theoretical limitations of our approach are also examined.

P. Turner

The idea of optimal policy design using an explicit loss function was a natural consequence of the development of econometric models of the macroeconomy. Since the economic theory underlying these was, at first the comparative static Keynesian model the techniques used tended to be static also. This approach can be seen in Tinbergen (1956). In addition since most of the early theory of open-economy macroeconomics was within the small, open economy framework single controller models were felt adequate to capture the policy optimisation problem facing a country. As models have come increasingly to concentrate on the dynamics of macroeconomic variables and the interdependence of economies has become more obvious it has become necessary to modify and extend our optimisation methods. The problem of dynamic models is easily dealt with using the standard techniques of optimal control theory i.e. dynamic programming or Pontryagin methods. The problem of interdependence can be handled by use of game theoretic concepts. We propose to set out the standard solution concepts of game theory in a static context because we feel this gives an intuition for the issues which it is difficult to obtain from the more technically demanding dynamic game literature. As an application we will consider throughout the problem of policy optimisation with interdependent economies.

P. Burridge and K.F. Wallis

The state-space method is applied to the problem of separating an autoregressive (AR) signal from composite AR and white normal noise. In the stationary case, for which the Wiener filter exists, we show explicitly its equivalence to the steady-state Kalman filter. Existing results for difference-stationary processes are generalized to the explosive AR case, with careful attention paid to initial conditions; the limiting filter is shown to be stable. Conditions are given for convergence of the signal extraction error variance, and these are seen to exclude the existence of an unstable common factor in signal and noise autoregressions, but not nonstationarity. The general argument is illustrated with simple examples and the role of controllability and detectability is explored in an appendix.

R. Sugden

The paper criticises the conjectural variation model for saying little about the determinants of industry equilibrium. It therefore examines more closely the behaviour underlying firms' actions. Collusion amongst firms focusing on the possibility of joint profit maximisation is brought to the centre of the analysis. It is suggested that industry equilibrium be analysed in terms of its deviation from the joint profit maximum, the deviation depending upon firms' retaliatory power, cost functions, and demand functions. This is illustrated by examining the formal specification of a firm's price-cost margin.

M. Miller and M. Salmon

It has been argued that the Bretton Woods system (of pegged but adjustable exchange rates) set up after World War II was designed specifically to prevent the manipulation of exchange rates in pursuit of national macroeconomic objectives (see R.Cooper); so it is perhaps no coincidence that the ending of pegged rates has led to the re-emergence of theories and policies involving such "manipulation". Before the War, when inflation was low and unemployment high in the major industrialised nations, this involved "competitive depreciation" as countries tried to gain employment; in the late 1970's and early 1980's, however, countries like the UK and the US have embarked on policies of competitive appreciation in order to cut inflation, regarded as the first priority. Sharp movements in exchange rates, however, constitute a threat to orderly trade and stimulate protectionism, as Bergsten (1981) argues.

C.N. Pitelis

Increases in corporate retentions do not necessarily increase private savings by an equal amount. They may be exactly compensated by reductions in other personal savings, partly compensated, or not compensated at all. The three hypotheses are examined along with the empirical support they have received. Empirical estimation is undertaken to test the three rival hypotheses by use of U.K. time-series data. Three frameworks are adopted; a Simple Linear model, both Static 1SLS) and naive dynamic 1SLD); a General Distributed Lag (GDL) model, and the Life Cycle Hypothesis in its General Distributed Lag Equivalence :(LCHGDLE) form; a Simple Add-on ;(SAO) model derived from three identities and simple behavioural assumption(s). It is shown that; both the GDL and the LCHGDLE models can be obtained from the SAO model. This highlights the underlying naivete of their nature; all models can be nested in a general form, obtained by use of any of the GDL, LCHGDLE and SAO models. Support is found for the Add-on hypothesis; increases in corporate retentions will add-on,on a one-to-one basis, other personal savings. Doubt is cast upon the LCH prediction of perfect substitutability. Some macro-implications are briefly examined.

J.R. Cable

Static concentration measures neglect dynamic changes in market structure entirely, yet the expectation of lost market share, based on the past and current mobility of market shares in an industry, may be an important part of the competitive forces acting on the firm and affecting its behaviour. This note draws out the similarity between market share change and new entry and proposes new, linked measures of both, enabling these additional dimensions of market structure to be incorporated in empirical work.

C. Doyle

In a competitive market for an ex ante homogenous good where stores and consumers enter in a sequential manner, consumers experience either a good match or a bad match. Upon entry the individual consumer selects a store from which to sample and remains with that store if he experiences a good match. The outcome of a match is determined by an exogenous stochastic process. Consumer uncertainty enables stores to price discriminate against loyal consumers. In the steady state the market will feature two prices, with only one store at any one time charging the low price within a particular location.

J.R. Cable and P. Turner

British clearing banks have often been attacked over their provision of industrial finance. Lever and Edwards'(1980) and Edwards and Carrington (1979) are among the more recent critics; in their view the failings of the banks in this area are a major cause of Britain's relative economic decline. They emphasize the distortion of the credit system towards easy credit for consumption (especially housing) and away from productive investment. They argue that 'excessively cautious' lending policies on the part of the banks are to blame, rather than any lack of industrial projects which are viable by international standards. They describe industrial finance in the UK as 'short term, dear, unreasonably restricted in amounts, carrying legal risks, and subject to excessive security requirements', in comparison with that provided in countries such as West Germany and Japan.

H.S. Farber

A model of the determination of the union status of workers is developed that incorporates the separate decisions of workers and potential union employers in a framework which recognizes the possibility of an excess supply of workers for existing union jobs. This theoretical framework results in an empirical problem of partial observability because information on union status is not sufficient to determine whether non union workers are non union because they do not desire union representation or because they were not hired by union employers despite a preference for union representation. The problem is solved by using data from the Quality of Employment Survey that have a unique piece of information on worker preferences which allows identification and estimation of the model.

G. Stewart

An important question is whether the responses to cyclical variations in demand are different for a capitalist firm (CF) and a labour-managed firm (LMF) within a particular economy. The focus of this paper is how a given change in the labour input would be divided between its three components: employment, hours, and effort. The existence of a bilateral monopoly in the F employment relation, together with a differing response to a deterioration in the labour market, leads us to conclude that, relative to the CF, the. LMF will reduce effort more and employment less in a downturn.

G. Stewart

The main aim of this paper is to suggest a model which relates wage rates to the degree of monopsony power in the labour market. Labour market monopsony power has received relatively little theoretical or empirical attention, yet there are a number of reasons for believing it may be a fairly general phenomenon. Firstly, imperfect worker information on the existence and characteristics of alternative jobs will tend to impart a positive slope to the supply curve of labour facing a firm. Secondly, there are many social and institutional barriers to geographical mobility. Finally, the literature on segmented labour markets emphasises the barriers to mobility between jobs even within a region.

G. Stewart

Monopsony power in the labour market is shown to have important consequences for comparisons between an Illyrian labour-managed firm (LMF) and a profit-maximising capitalist firm (CF) operating in the same markets with the same technology. If the CF earns positive profits then workers earn more in the LMF than in the CF, and the level of employment in the LMF may be greater or less than in the CF. Monopsony power is also seen to have interesting implicatings for models of membership contraction in LMF's.

M. Chalkley

In this paper a model of a profit maximising firm's responses to job search is developed. This model explains the determinants of a firm's wage offer and the probability that a firm will be found in a state where it is optimal to make no offer (i.e. a 'null' offer). Comparative statics results for the case of constant returns technology are calculated and the implications of the model for a market characterised by search are discussed.

R. Sugden

Consider a firm with production facilities in various countries - a transnational corporation (TNC). The problem to be discussed in this paper is: why are there such firms? The analysis is essentially theoretical. It attempts to develop a general approach to the problem by drawing upon a critical evaluation of what Hood and Young (1979) call the "orthodox" literature on TNC's No attempt is made to empirically verify conclusions, and there is no consideration of the so-called "radical" literature on TNC's. Both of these issues await a subsequent treatment. The aim is to examine some of the deficiencies in the orthodox theoretical literature on TNC's, suggest improvements, and thus formulate a general approach to the problem "why TNC's?".

A.J. Oswald

The paper studies the theory of optimal intervention in an economy with trade unions. It is shown that the traditional remedy, a flat employment subsidy in the union sector, cannot produce a first-best welfare optimum. But non-linear wage and employment subsidies can generate a full social optimum, and the paper examines their optimal structure. One appealing form turns out to be a wage subsidy schedule which is an increasing and concave function of union employment. Employment subsidy schedules and statutory wages policy are also discussed.

A.J. Oswald

The paper studies the micro-economics of inflation taxes and marginal employment subsidies. It proves that under very weak assumptions (i) an inflation tax will reduce the long-run equilibrium wage or price and (ii) that a marginal employment subsidy will raise the long-run equilibrium employment level. The theorems are illustrated with examples. The paper also proves (iii) that in special circumstances a tax on inflation is exactly equivalent to a marginal employment subsidy.

C.N. Pitalis

The idea that different types of income - classes of income recipients will have different patterns of savings-consumption behaviour, has assumed a prominent position among economic theorists throughout the years. Recent theorising however, does not support this view. This effectively raises the issue of the nature of the savings function under conditions of monopoly capitalism; and this problem we try to tackle in this paper. Thus from section I, i, traces the historical evolution of the theory of the savings function; ii examines the nature of choice over consumption-savings patterns, that different classes of people possess. In iii, we try to identify those who have the control of the corporations. IV examines the implications of our previous theorising on : (a) The role of business retentions in a consumption function (b) The role and expected behaviour of different types of income in a consumption function. In v the previous arguments are brought together and the "monopoly capitalism" savings function is proposed. Section Iii confronts the theory with the data while in ii a justification of our theory in terms of previous existing work is given. The paper concludes with brief remarks.

Y. Miyamoto

So far it has been thought that a labour-managed (LM) firm's reaction function slopes upward in Cournot's short-run duopolistic situation where the variables acted on are quantities of output (see Vanek, 1970, pp.114-115; Ireland and Law, 1982). In this paper we will make it clear that this statement holds in some limited sense. In inquiring into the shape of the LM firm's reaction function in the short-run situation, it seems that the firm's labour cost function as defined by Meade (1974) is not only assumed to be subject to the increasing marginal labour cost of output everywhere but is also assumed to have the property that the elasticity of the short-run labour cost curve, which is defined as the proportionate rate of change of labour with respect to output, is greater than unity. However, if we assume that the marginal labour cost is positive everywhere, and is at first declining and then increasing for fixed positive levels of the other factors,1 or that, even if it is always increasing in the output, the short-run labour cost function has the property that its elasticity is at first less than, equal to, and eventually greater than unity according to an increase in output because of the existence of overhead labour, then what will happen to the LM firm's reaction function?

M. Chalkley

The predictions of job-search theory for an analysis of unemployment have long been of interest (e.g. see Lippman and Mc Call (1976 b), Barron (1975) and Feinberg (1977)). In particular an important question is with regard to the duration of search un-employment and its determinants. Unfortunately robust results in this area are few. The reason for this being the complexity of the solutions to optimal job search problems. In many cases (see
Chalkley (1982) for summary) the optimal search strategy involves setting a reservation wage. If an offer in excess of the reservation wage is obtained it is optimal to accept the offer, otherwise continued search is preferable. Where the reservation property holds it is relatively simple to relate the expected duration of search unemployment to the (set of) reservation wage(s). However the reservation wage(s) themselves can seldom be expressed analytically. In the absence of analytic expressions for the reservation wages an examination of the effect of changes in parameters of the problem on (for example) the duration of unemployment would seem to require numerical analysis.

N.M. Kiefer and M. Salmon

A specification test based on an Edgeworth expansion is proposed and some of its useful properties are noted. In particular the test has an important additivity property, in that a test for higher-order alternatives simply adds additional, asymptotically independent x2 variates to tests against lower order alternatives

K.G. Knight and M.B. Stewart

As unemployment increases to record levels in the U.K. increasing attention has been devoted to the distribution of unemployment. This has revealed substantial inequality in the incidence of unemployment not only by occupation, region, race and sex, but also amongst individuals. Moreover it also becomes apparent that as the total number out of work has increased so has the degree of inequality of its distribution. Nowhere is this more apparent than in the age distribution of the unemployed. A great deal of emphasis has been placed on the phenomenal increase in youth unemployment since the mid-seventies but of considerable significance has been the deterioration in the position of older workers, especially males. The evidence suggests this to be a process that has been going on since the mid-sixties in the U.K.

J.R. Cable

Internal capital markets may help solve or reduce the informational problems that impair the provision of industrial finance and the control of managerial behaviour via external capital markets. The paper argues that the participation of banks in the running of German companies may confer advantages of an internal capital markets kind, which will be reflected in firms' financial performance. Empirical results for a sample of 48 leading companies show a significant positive relationship between profitability and the nature and degree of bank involvement. Policy implications must be drawn with care, however, if some part of this could alternatively be attributable to anticompetitive effects.

C. Greenhalgh and M.B. Stewart

Job training is an important subject for discussion, since the skills on which an economy depends are largely created by the process of training. Various theories, especially the human capital model, have focussed attention on skill acquisition through training as a central determinant of individual economic success. What little empirical literature exists on this subject concentrates almost entirely on the effects of individual, government sponsored, special training programmes for those not currently at work. However, the vast majority of training experiences occur whilst the individual is in employment

C. Greenhalgh and M.B. Stewart

One of the main differences between the labour market behaviour of men and women lies in the discontinuity of labour force attachment exhibited by most women over their lifetime - largely, but not exclusively, for the purpose of raising a family. These interruptions to their labour market experience constitute an important influence on the labour market position of women and provide a potentially important factor in the explanation of their labour market disadvantage. Skills are obtained to a considerable extent through labour market experience and may be blunted in periods of absence from the labour force. In addition, absence from the labour force removes an individual from the internal labour market and may thereby reduce the probability of gaining entry to the better jobs on re-entry.

C. Greenhalgh and M.B. Stewart

Although there exists a wealth of data relating to the British labour market, there are a number of important issues for which reliance has previously had to be placed on small surveys or case studies in order to form an opinion. Thus it has been known for some time that men and women cluster in different industries and occupations and that there are relatively few women in some jobs and rather a lot in others. Even so, no clear idea has been available of the extent to which men and women achieve different average levels of occupational status, when occupations are ranked in some way that enables us to compare the various jobs done by men and women. The average amount of formal schooling has risen over the period in which the present adult labour force was entering the labour market, but there has been no clear view as to whether or not the structure of occupations has changed accordingly, nor as to whether the relative position of women has improved, deteriorated, or stayed the same. The rapid increase in labour force participation and the rise of part-time working by married women in the post-war period have been well documented, but there is little evidence on whether or not this has had a detrimental effect on the labour market position of men.

N.J. Ireland

A large literature has accumulated which examines how the optimal solution of an agent maximising the expectation of a real-valued function depending on a random parameter p and the agent's behaviour x reacts to perturbations in the first and second moments of p . In this literature p is given exogenously, i.e. independent of x . We extend the theory in two aspects. First we allow there to be many agents and broaden our attention to regard market behaviour. Second, we allow p to depend on the behaviours of the participating agents, for example when p is a price vector relevant to an oligopoly. The method used is an extension of Ireland (2), in that an analogy is made between the effects on behaviour of uncertainty in p and the effects of a change in p. We study, in particular, the Cournot solution with respect to perturbations in the first two moments of two types of parameter defining a linear demand for an industry - one parameter corresponding to ordinate intercept and the other to slope. This analysis immediately gives the old results as a corollary. We also apply the analysis to a cooperative of individuals where there is uncertainty in the return to communal work. In the applications we study the kind of simplifying assumptions necessary and the nature of the results.

M. Miller

Current macroeconomic policy differs from conventional Keynesian demand management in two major respects, namely in the announced objectives of policy and in the means chosen to pursue them. Early in its period of office the present Government indicated that it did not endorse the conventional list of objectives (namely low unemployment, low inflation, positive growth and "external balance"): in committing itself only "to reduce inflation and to create conditions in which sustainable economic growth can be achieved", it implicitly abandoned the level of unemployment and external balance as objectives. in addition, however, the Chancellor announced that "the Government intend to restore a broad balance of power in the framework for collective bargaining". In pursuing these aims the Government decided that there was no place for incomes policies (which "had failed in the past and
had led to distortions in the labour market") and that the instrument of monetary and fiscal policy should be constrained by a Medium Term Financial Strategy to achieve an explicit intermediate target for the rate of growth of a broad monetary aggregate. The initial target ranges for monetary growth (for ZM3) and the projected path for the Public Sector Borrowing Requirement (PSBR) as a percent of output are shown in Figure 1, which is reproduced from the proceedings of the Treasury Committee (1981a).

R. Sugden

This paper explores the impact, on an average degree of monopoly used to analyse the functional distribution of income, of transnational corporations (TNC's) producing in and yet trading between several countries. Cowling (1976), and Cowling and Waterson (1976) consider a closed economy and relate an industry's degree of monopoly (defined as the mark up of price over marginal cost) to its Herfindahl index of concentration, degree of collusion, and price elasticity of demand. Lyons (1979) introduces international trade into the model, allowing for imports from overseas corporations- i.e, firms which do not produce in the domestic market. This ignores the possibility of a transnational corporation, a firm which produces in more than one country, engaging in domestic production and importing from its overseas affiliates. The importance of such trade is difficult to quantify, due to lack of data, but Pani6 and Joyce (1980) assert that the proportion of UK imports of manufactured goods coming.from related enterprises may be similar to that estimated for the USA, namely 50%. Information is available for the car industry; Table 1 shows that domestically producing TNC's accounted for nearly 30% of imports in 1978, and this in spite of the excitement created by the activities of Japanese producers. Clearly, the phenomenon is a significant characteristic of international trade.

M.B. Stewart

Models estimated from censored samples are now familiar in the econometrics literature. For many cases Least Squares approximations to the Maximum Likelihood estimators are now well established. This paper is concerned with a more general problem; that of estimating an equation on the basis of data in which the dependent variably is only observed to fall in a certain range on a continuous scale, its actual value remaining unobserved. The data are also censored in the usual sense in that both end ranges are assumed to be open-ended. A number of Least Squares approximations to the Maximum Likelihood estimator are derived and compared. The results of Greene (1981) on the asymptotic bias of OLS are extended to this case. The question of information loss as a result of the grouping is also considered.

M. Chalkley

Not available online

J. Cable, Alan Carruth & Avinash Dixit

Since the pioneering study of Harberger, monopoly welfare loss has received much attention in the literature. However, no attempt has been made explicitly to incorporate oligopolistic interaction. In this paper we postulate a specific social welfare function and solve directly for the level of welfare (net surplus) under various duopoly equilibria. Our approach departs from the long-standing tradition in industrial economics in which performance (profit) is explained by structure (concentration). We look directly at welfare, and concentration is found jointly with prices, outputs and profits as part of a solution determined by preferences, behaviour (conduct) and technology. Numerical analysis and computer graphics are employed to generate estimates of welfare loss under each oligopoly solution concept, relative to the social optimum, across plausible ranges of underlying cost and demand parameters.

W.H. Buiter & M.H. Miller

The proposition that under a floating exchange rate regime restrictive monetary policy can lead to substantial "overshooting" of the nominal and real exchange rate is now accepted fairly widely. The fundamental reason is the presence of nominal stickiness or inertia in domestic factor and product markets combined with a freely flexible nominal exchange rate. Current and anticipated future monetary policy actions are reflected immediately in the nominal exchange rate, set as it is in a forward-looking efficient auction market while they are reflected only gradually and with a lag in domestic nominal labour costs and/or goods prices. Nominal appreciation of the currency therefore amounts to real appreciation - a loss of competitiveness. Since in most of the simple analytical models used to analyse the overshooting propositions there is no long-run effect of monetary policy on the real exchange rate, any short-run real appreciation implies an overshooting of the long-run equilibrium. The transitory (but potentially quite persistent) loss of competitiveness is associated with a decline in output below its capacity level. This excess capacity is one of the channels through which restrictive monetary policy brings down the rate of domestic cost and price inflation.

J. Peter & D.D. Purvis

This paper presents a model designed to cast some light on the nature of macroeconomic responses to sectoral shocks and to provide a basis for investigation of the interaction between resource allocation and exchange-rate variability. We first develop the implications for the dynamics of the real exchange rate of a Marshallian distinction between short- and long-run supply responses to an endogenous disturbance. Marshall's partial-equilibrium analysis stressed the overshooting of a relative price due to short-run factor fixity; our analysis derives this result in a general equilibrium context. (However, in the general-equilibrium model it is possible that the long-run price response is perverse so that, rather than overshooting, the short-run relative price response would actually be in the "wrong direction".) We then extend the framework to incorporate the behaviour of money prices in the face of these changing relative prices. The model focusses on monetary equilibrium combined with rational speculation; the dynamic behaviour of the nominal exchange rate exhibits a straightforward dependence on that of the real exchange rate. But the latter is independent of monetary equilibrium and, in particular, of any speculative behaviour; any influence of speculators on the nominal exchange rate gives rise to identical movements in the equilibrium nominal price of services.

R.C. Marston

How much difference a flexible exchange rate makes to the economic performance of a country depends significantly on wage behavior. If wages are sufficiently sensitive to exchange rates, flexible rates will exhibit much the same variability of output as a fixed exchange rate regime. Foreign wage behavior is also of key importance, since high wage flexibility abroad can insulate the domestic country from some foreign disturbances regardless of domestic wage behavior, while for other economic disturbances it is the relative degree of wage flexibility that determines the desirability of flexible rates. This paper re examines the choice between fixed and flexible rates taking into account both domestic and foreign wage behaviour. Wage behavior is important to the choice between exchange rate regimes because it determines to what extent a change in the exchange rate also changes the relative prices of foreign and domestic goods. It is primarily through changes in relative prices that exchange rates affect domestic output and employment. Traditional treatments of fixed and flexible exchange rates, of which Mundell's Canadian Journal study (1963) is the best known, assumed that any change in the exchange rate resulted in an equal change in relative prices because both wages and domestic prices were assumed constant. When wages are responsive to changes in the general price level, however, domestic prices respond indirectly to changes in exchange rates, with correspondingly less effect on relative prices. In such circumstances, as shown earlier by Sachs (1980), changes in exchange rates lead to relatively small changes in real output and employment.

D.D. Hester

This paper explores how monetary policy should be conducted when the definition and measurement of money are time varying. It suggests that the recent debate about the desirability of controlling monetary aggregates or nominal interest rates is not helpful in a regime where financial innovations are occurring. The first section argues that money should be defined as immediately spendable (or collected) funds and provides empirical evi—dence that both currency and overnight repurchase agreement and Eurodollar borrowing are more closely related to personal income than are different types of bank deposits. The second surveys the adequacy of policy instru—ments and information available to the Federal Reserve in recent years. The third considers how policy should be conducted in a system that experiences innovations. A filtering approach proposed by Kalchbrenner and Tinsley is recommended. The paper argues that greater and faster data collection are desirable and that even in the best circumstances greater uncertainty about the effects of monetary policy is very likely to obtain. It concludes by recommending that monetary authorities focus on real interest rates, that banks be induced to raise new capital through stock issues, and that the Federal Reserve consider introducing real time reserve accounting.

W. Buiter

The paper presents a general solution method for rational expect-ations models that can be represented by systems of deterministic first order linear differential equations with constant coefficients. It is the continuous time adaptation of the method of Blanchard and Kahn. To obtain a unique solution there must be as many linearly independent boundary conditions as there are linearly independent state variables. Three slightly different versions of a well-known small open economy macroeconomic model were used to illustrate three fairly general ways of specifying the required boundary conditions. The first represents the standard case in which the number of stable characteristic roots equals the number of predetermined variables. The second represents the case where the number of stable roots exceeds the number of predetermined variables but equals the number of predetermined variables plus the number of "backward-looking" but non-predetermined variables whose discontinuities are linear functions of the discontinuities in the forward-looking variables. The third represents the case where the number of unstable roots is less than the number of forward-looking state variables. For the last case, boundary conditions are suggested that involve linear restrictions on the values of the state variables at a future date. The method of this paper permits the numerical solution of models with large numbers of state variables. Any combination of anticipated or unanticipated, current or future and permanent or transitory shocks can be analysed.

M. Salmon

The interface between economic theory and applied econometrics is often one of uneasy compromise, with the pragmatic justification for many accepted procedures resting on a tenuous theoretical base. This paper examines the surprisingly strong arguments that exist in terms of economic theory, for the use of error correction mechanisms in the specification of short run dynamic adjustment. A common heresy exists that while economic theory provides a detailed analysis of comparative static equilibria it can offer no guidance as to the appropriate specification of dynamic adjustment towards an equilibrium. Perhaps in consequence it is not uncommon to find examples where the-necessary dynamic specification is achieved by "tacking" onto an existing equilibrium specification some relatively ad hoc short run adjustment scheme. The intercession of stochastic arguments in this process is confused and critical implications are frequently ignored in practice, but perhaps more importantly there will typically be no guarantee that the dynamic specification is consistent with the prescribed equilibrium. Consistency in this sense requires that the short run dynamic adjustment be directed by the perceived disequili-brium and that eventual convergence to the equilibrium position be ensured. That two separate theoretical arguments, co-exist within the final specification is the root cause of many difficulties both theoretical and empirical.