This paper considers the relation between (total factor) productivity measures for lower level production units and aggregates thereof such as industries, sectors, or entire economies. In particular, this paper contains a review of the so-called bottom-up approach, which takes an ensemble of individual production units, be it industries or enterprises, as the fundamental frame of reference. At the level of industries the various forms of shift-share analysis are reviewed. At the level of enterprises the additional features that must be taken into account are entry (birth) and exit (death) of production units.
{"title":"The Dynamics of Productivity Change: A Review of the Bottom-Up Approach","authors":"B. Balk","doi":"10.2139/ssrn.2585452","DOIUrl":"https://doi.org/10.2139/ssrn.2585452","url":null,"abstract":"This paper considers the relation between (total factor) productivity measures for lower level production units and aggregates thereof such as industries, sectors, or entire economies. In particular, this paper contains a review of the so-called bottom-up approach, which takes an ensemble of individual production units, be it industries or enterprises, as the fundamental frame of reference. At the level of industries the various forms of shift-share analysis are reviewed. At the level of enterprises the additional features that must be taken into account are entry (birth) and exit (death) of production units.","PeriodicalId":237187,"journal":{"name":"ERN: Production; Cost; Capital & Total Factor Productivity; Value Theory (Topic)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115520880","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Sixty years ago, Samuelson’s “Pure Theory of Public Expenditure” expounded the classification of goods, and Bain’s “Economies of Scale, Concentration and the Condition of Entry in Twenty Manufacturing Industries” expounded the structure-conduct-performance paradigm. To the present day, rivalry in- and excludability from consumption classify goods, and subadditivity and irreversibility in production classify market structure. Opportunity costs of production in the form of prospective sunk costs incentivise investment and production, and the sunk costs themselves induce subadditivities, specialization and convexity of the marginal rate of technical substitution. Opportunity costs in consumption are determined by the marginal costs of replacement. In light of the recent Nobel price award to Jean Tirole, we revisit some of the forgotten discussions and clarify some of the terminology under a more economic framework of opportunity costs.
{"title":"Opportunity Cost Classification of Goods and Markets","authors":"D. Mance, Nenad Vretenar, Jana Katunar","doi":"10.17573/IPAR.2015.1.06","DOIUrl":"https://doi.org/10.17573/IPAR.2015.1.06","url":null,"abstract":"Sixty years ago, Samuelson’s “Pure Theory of Public Expenditure” expounded the classification of goods, and Bain’s “Economies of Scale, Concentration and the Condition of Entry in Twenty Manufacturing Industries” expounded the structure-conduct-performance paradigm. To the present day, rivalry in- and excludability from consumption classify goods, and subadditivity and irreversibility in production classify market structure. Opportunity costs of production in the form of prospective sunk costs incentivise investment and production, and the sunk costs themselves induce subadditivities, specialization and convexity of the marginal rate of technical substitution. Opportunity costs in consumption are determined by the marginal costs of replacement. In light of the recent Nobel price award to Jean Tirole, we revisit some of the forgotten discussions and clarify some of the terminology under a more economic framework of opportunity costs.","PeriodicalId":237187,"journal":{"name":"ERN: Production; Cost; Capital & Total Factor Productivity; Value Theory (Topic)","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-01-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121545227","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Russian Abstract: При оценке подержанных машин и оборудования используются зависимости их рыночной стоимости от возраста. Обрабатывая рыночные данных о ценах реальных сделок с такими машинами (или о ценах их предложения), можно построить соответствующую статистическую зависимость. В то же время можно построить детерминированную модель той же зависимости, основываясь на общих принципах стоимостной оценки. Оказывается, что полученный результат не согласуется с данными рынка. Разрешить этот парадокс оказывается возможным, учитывая вероятностный характер процесса использования машин. Построенная вероятностная модель позволила получить простую формулу для математического ожидания рыночной стоимости машин, доживших определенного возраста.Казалось бы, техническое состояние машины (а, стало быть, и ее стоимость) должно зависеть не только от возраста, но и от ее наработки. Однако проведенный анализ показал слабое влияние наработки на стоимость машин.English Abstract: Evaluation of second-hand machinery and equipment items requires information on the dependence of their market value on the age. Using market price data for these assets, you can get relevant statistical dependence. At the same time we can build a deterministic model of the same dependence based on common valuation principles. It turns out that the result is not consistent with the market data. We can resolve this paradox taking into account the stochasticity of the process of machinery and equipment items use. Built stochastic model allowed us to obtain a simple formula for the mean of the market value of equipment items lived to a certain age.It would seem that the technical condition of the equipment item (and hence its value) should depend not only on its age but also on its operation time. However the analysis showed that operating time of equipment item has little effect on its market value.
{"title":"СТАТИСТИЧЕСКИЕ И ТЕОРЕТИЧЕСКИЕ МОДЕЛИ ЗАВИСИМОСТИ СТОИМОСТИ МАШИН ОТ ВОЗРАСТА (Statistical and Theoretical Models of the Effect of Age on the Market Value of Machinery and Equipment Items)","authors":"S. Smolyak","doi":"10.2139/SSRN.2763681","DOIUrl":"https://doi.org/10.2139/SSRN.2763681","url":null,"abstract":"Russian Abstract: При оценке подержанных машин и оборудования используются зависимости их рыночной стоимости от возраста. Обрабатывая рыночные данных о ценах реальных сделок с такими машинами (или о ценах их предложения), можно построить соответствующую статистическую зависимость. В то же время можно построить детерминированную модель той же зависимости, основываясь на общих принципах стоимостной оценки. Оказывается, что полученный результат не согласуется с данными рынка. Разрешить этот парадокс оказывается возможным, учитывая вероятностный характер процесса использования машин. Построенная вероятностная модель позволила получить простую формулу для математического ожидания рыночной стоимости машин, доживших определенного возраста.Казалось бы, техническое состояние машины (а, стало быть, и ее стоимость) должно зависеть не только от возраста, но и от ее наработки. Однако проведенный анализ показал слабое влияние наработки на стоимость машин.English Abstract: Evaluation of second-hand machinery and equipment items requires information on the dependence of their market value on the age. Using market price data for these assets, you can get relevant statistical dependence. At the same time we can build a deterministic model of the same dependence based on common valuation principles. It turns out that the result is not consistent with the market data. We can resolve this paradox taking into account the stochasticity of the process of machinery and equipment items use. Built stochastic model allowed us to obtain a simple formula for the mean of the market value of equipment items lived to a certain age.It would seem that the technical condition of the equipment item (and hence its value) should depend not only on its age but also on its operation time. However the analysis showed that operating time of equipment item has little effect on its market value.","PeriodicalId":237187,"journal":{"name":"ERN: Production; Cost; Capital & Total Factor Productivity; Value Theory (Topic)","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-09-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122383410","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The price-rent ratio is highly volatile and predicts future returns for commercial real estate. Price-rent variations in commercial real estate also tend to comove with investment and output. We develop a general equilibrium model that explicitly introduces a rental market and incorporates collateral constraints on production as a key ingredient. Our estimation identifies discount-rate shocks as the most important factor in (1) driving price-rent variations, (2) producing the long-horizon predictability of real estate returns, and (3) linking the dynamics in commercial real estate to those in the production sector.
{"title":"Discount Shock, Price–Rent Dynamics, and the Business Cycle","authors":"Jianjun Miao, Pengfei Wang, T. Zha","doi":"10.1111/iere.12455","DOIUrl":"https://doi.org/10.1111/iere.12455","url":null,"abstract":"The price-rent ratio is highly volatile and predicts future returns for commercial real estate. Price-rent variations in commercial real estate also tend to comove with investment and output. We develop a general equilibrium model that explicitly introduces a rental market and incorporates collateral constraints on production as a key ingredient. Our estimation identifies discount-rate shocks as the most important factor in (1) driving price-rent variations, (2) producing the long-horizon predictability of real estate returns, and (3) linking the dynamics in commercial real estate to those in the production sector.","PeriodicalId":237187,"journal":{"name":"ERN: Production; Cost; Capital & Total Factor Productivity; Value Theory (Topic)","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"119021521","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Technological progress affects early retirement in two opposing ways. On the one hand, it increases real wages and thus produces an incentive to postpone retirement. On the other hand, it erodes workers' skills, making early retirement more likely. Using the Health and Retirement Study surveys, we re-examine the effect of technical progress on early retirement, finding that when the technical change is small the erosion effect dominates, but when it is large the wage effect dominates. Our results imply that retraining cost is a strongly concave function with respect to technical progress.
{"title":"Technical Progress, Retraining Cost and Early Retirement","authors":"Lorenzo Burlon, Montserrat Vilalta-Bufí","doi":"10.2139/ssrn.2464518","DOIUrl":"https://doi.org/10.2139/ssrn.2464518","url":null,"abstract":"Technological progress affects early retirement in two opposing ways. On the one hand, it increases real wages and thus produces an incentive to postpone retirement. On the other hand, it erodes workers' skills, making early retirement more likely. Using the Health and Retirement Study surveys, we re-examine the effect of technical progress on early retirement, finding that when the technical change is small the erosion effect dominates, but when it is large the wage effect dominates. Our results imply that retraining cost is a strongly concave function with respect to technical progress.","PeriodicalId":237187,"journal":{"name":"ERN: Production; Cost; Capital & Total Factor Productivity; Value Theory (Topic)","volume":"296 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-06-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124244118","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
For much of its life, a tangible capital good is irreversibly committed to an investment projects. The paper examines what it means for capital to be sunk, or to be semi-permanently invested. Value sunk is measured using the options available to managers of a project. External prices may or may not be relevant to an enterprise. Fixing the value of options is the only role for external prices of the assets. Moreover, marginal prices are not used in valuing sunk capital. The choice of real or nominal prices is considered in terms of measured benefits, costs, wealth and income of a project.
{"title":"Accounting for Semi-Permanence","authors":"Robert D. Cairns","doi":"10.2139/ssrn.2446334","DOIUrl":"https://doi.org/10.2139/ssrn.2446334","url":null,"abstract":"For much of its life, a tangible capital good is irreversibly committed to an investment projects. The paper examines what it means for capital to be sunk, or to be semi-permanently invested. Value sunk is measured using the options available to managers of a project. External prices may or may not be relevant to an enterprise. Fixing the value of options is the only role for external prices of the assets. Moreover, marginal prices are not used in valuing sunk capital. The choice of real or nominal prices is considered in terms of measured benefits, costs, wealth and income of a project.","PeriodicalId":237187,"journal":{"name":"ERN: Production; Cost; Capital & Total Factor Productivity; Value Theory (Topic)","volume":"618 ","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-06-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133356181","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we investigate how firms adjust markups across products in response to fluctuations in the real exchange rate. In a theoretical framework, we show that firms increase their markup and producer prices following a real depreciation and that this increase is greater for products with higher productivity, a consequence of local distribution costs. We estimate markups at the market-product-plant level using detailed panel production and cost data from Mexican manufacturing between 1994 and 2007. Exploiting variation in the real exchange rate in the aftermath of the peso crisis in December 1994, we provide robust empirical evidence that plants increase their markups and producer prices in response to a real depreciation and that within-firm heterogeneity is a key determinant of plants' response to exchange rate shocks. We also provide some evidence in favour of a local distribution cost channel of incomplete exchange rate pass-through.
{"title":"Multi-Product Exporters, Variable Markups and Exchange Rate Fluctuations","authors":"M. Caselli, A. Chatterjee, A. Woodland","doi":"10.2139/ssrn.2414178","DOIUrl":"https://doi.org/10.2139/ssrn.2414178","url":null,"abstract":"In this paper we investigate how firms adjust markups across products in response to fluctuations in the real exchange rate. In a theoretical framework, we show that firms increase their markup and producer prices following a real depreciation and that this increase is greater for products with higher productivity, a consequence of local distribution costs. We estimate markups at the market-product-plant level using detailed panel production and cost data from Mexican manufacturing between 1994 and 2007. Exploiting variation in the real exchange rate in the aftermath of the peso crisis in December 1994, we provide robust empirical evidence that plants increase their markups and producer prices in response to a real depreciation and that within-firm heterogeneity is a key determinant of plants' response to exchange rate shocks. We also provide some evidence in favour of a local distribution cost channel of incomplete exchange rate pass-through.","PeriodicalId":237187,"journal":{"name":"ERN: Production; Cost; Capital & Total Factor Productivity; Value Theory (Topic)","volume":"36 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-03-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131921343","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper disproves the U-shape long run average cost curve, for a firm must choose its lowest point to operate from the outset. It also clarifies the meaning of short and long run. Instead of using these layman jargon, professional economists should employ calculus to solve for partial or general equilibrium.
{"title":"The Odyssey of Economies of Scale","authors":"Hak Choi","doi":"10.2139/SSRN.2393865","DOIUrl":"https://doi.org/10.2139/SSRN.2393865","url":null,"abstract":"This paper disproves the U-shape long run average cost curve, for a firm must choose its lowest point to operate from the outset. It also clarifies the meaning of short and long run. Instead of using these layman jargon, professional economists should employ calculus to solve for partial or general equilibrium.","PeriodicalId":237187,"journal":{"name":"ERN: Production; Cost; Capital & Total Factor Productivity; Value Theory (Topic)","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-02-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121182666","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper reviews the concept of fair value adjustments in relation to adjustments that could arise due to counterparty default risk and funding needs. Using a simple economy of a market, a firm and its counterparty, the relationship between the credit value and funding value adjustments of the firm is established. It is shown that the cost of funding from the market does not play any role in the fair valuation of the firm's OTC portfolios. It's main role is to offset the market-facing credit benefit. The credit benefit and the credit charge, that the firm faces its counterparty, will still be the main contributors to the fair value adjustment. Using the allocated cash account which manages the funding of the firm's portfolio with the counterparty, the paper provides a method of calculating the funding cost facing the market. An illustration of a set of four simple scenarios for different cashflow schedules is also provided. The author is seeking feedback. Please contact the author for an updated copy.
{"title":"Funding Value Adjustment (FVA)","authors":"S. Alavian","doi":"10.2139/ssrn.1864148","DOIUrl":"https://doi.org/10.2139/ssrn.1864148","url":null,"abstract":"This paper reviews the concept of fair value adjustments in relation to adjustments that could arise due to counterparty default risk and funding needs. Using a simple economy of a market, a firm and its counterparty, the relationship between the credit value and funding value adjustments of the firm is established. It is shown that the cost of funding from the market does not play any role in the fair valuation of the firm's OTC portfolios. It's main role is to offset the market-facing credit benefit. The credit benefit and the credit charge, that the firm faces its counterparty, will still be the main contributors to the fair value adjustment. Using the allocated cash account which manages the funding of the firm's portfolio with the counterparty, the paper provides a method of calculating the funding cost facing the market. An illustration of a set of four simple scenarios for different cashflow schedules is also provided. The author is seeking feedback. Please contact the author for an updated copy.","PeriodicalId":237187,"journal":{"name":"ERN: Production; Cost; Capital & Total Factor Productivity; Value Theory (Topic)","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-02-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133891107","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper proves that the neoclassical cost theory is a time-wasting odyssey. Instead, an alternative serious production theory is derived. Although the average cost is always increasing, its difference from the marginal cost, which is indeed the supply price, delivers the maximum profit. Any deviation from the indicated quantity, as tried by the neoclassical people, must result in lower profit. Although marginal cost coincides with the supply curve, treating it as supply is a cargo cult science.
{"title":"The Odyssey of the Neoclassical Cost Theory: Marginal Cost is not Supply","authors":"Hak Choi","doi":"10.2139/ssrn.2384462","DOIUrl":"https://doi.org/10.2139/ssrn.2384462","url":null,"abstract":"This paper proves that the neoclassical cost theory is a time-wasting odyssey. Instead, an alternative serious production theory is derived. Although the average cost is always increasing, its difference from the marginal cost, which is indeed the supply price, delivers the maximum profit. Any deviation from the indicated quantity, as tried by the neoclassical people, must result in lower profit. Although marginal cost coincides with the supply curve, treating it as supply is a cargo cult science.","PeriodicalId":237187,"journal":{"name":"ERN: Production; Cost; Capital & Total Factor Productivity; Value Theory (Topic)","volume":"57 6","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120933386","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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