ABSTRACTS TABLE OF CONTENTS ECONOMIC THEORY; HISTORY; SYSTEMS All Things Equal, Ceteris Paribus Is Misused in Macroeconomics ..............................................................................Herbert M. Bernstein The Free Enterprise Teacher Practicum ........................................................ Jo Ann Cutler Sweeney and Alan W. Garrett Economic Investment in Nursing Education's Disadvantaged Students ................................................................................ Roslyn K. Sykes Europe 1992 - - A Micro/Macro Economic Simulation Game ......................... Carol Lopilato Regulating a Discriminating Monopoly and International Trade .........................................................................................Yaffa Machnes Growth, Interest Rates, Inflationary Expectations, and Endogenous Money Finance ....................................................................... Frank G. Steindl The Consequences of European Integration on U. S. Foreign Deficits .................................................................................... George T. Galbreath On the Lakatosian Apple of Discord Between Historians and Methodologists ........................................................................................ Andrea Salanti Paradoxical Impact of Bureaucracies on Decomposition from Plan to Market .......................................................................................... Peter S. Elek
47 47 48 48 49 49 49 50 50
MONETARY AND FISCAL THEORY AND INSTITUTIONS On Measuring Pure Repressed Inflation ....................................................... Gene Hsin Chang Savings and Loan Problems and the Role of Regulation .......................... William E. Whitesell Financing Federal Entities: The Belgian Experience ................................... Giuseppe Pagano
51 51 52
INTERNATIONAL ECONOMICS An Economic Perspective Toward a Unified Korea .......................................... Dong K. Jeong Structure of U. S. Foreign Trade with Western Europe .......................... Farhang Niroomand International Financial Integration in World Stock Exchanges ........................................................................................... Bang Nam Jeon U. S. Farmers' Agricultural and Trade Policy Preferences for the 1990s ................................... Marshall A. Martin and Dennis A. ShieMs Risk Management in the Latin American Film Industry ..........................................................................................Sister Martin Byrne Austria and the European Monetary System ...................................................... Reinhard Neck
Comment .................................................................................................
WilJ)'ied Fuhrmann
European Integration and Rural Labor Force in Austria ........................................................... Markus F. Hc~)'either attd Christoph Weiss
Comment ...........................................................................................................
K. M. Ortner
52 52 52 53 54 54 55
55 55
ADMINISTRATION; BUSINESS FINANCE; MARKETING; ACCOUNTING Relevance of Consolidating Majority-Owned Subsidiaries Under SFAS, No. 94 ............................................................ Zabihollah Rezaee New Polish Accounting - - How It Will Help To Do Business ........................... Max Gottlieb The Contract Responsibility System in the PRC: A Case Study .................................................... Richard A. Maschmeyer and Yang Ji-Liang
45
56 56 56
AEJ: SEPTEMBER 1991, VOL. XIX, NO. 3
INDUSTRIAL ORGANIZATION-STUDIES; TECHNOLOGICAL C H A N G E Market Prices and Industrial Organization .................................................. Adesoji O. Adelaja
56
AGRICULTURE; NATURAL RESOURCES Environmental and Economic Consequences of Including Legumes in Crop Rotations on Farms in the U. S ...................... John C. Foltz, Marshall A. Martin, and Jess Lowenberg-DeBoer Long-run Relationship Between Productivity and Price Policies in U. S. Agriculture ................................... Adesoji O. Adelaja and Temisan D. A gbayegbe Psychological Traits of Rural Entrepreneurs ............................................................ Emerson M. Babb and Stuart V. Babb The Socioeconomic Impacts of Agricultural Biotechnology: A U. S. Perspective ................................................................................ Marshall A. Martin Implications of New Agricultural and Food Technologies on Spanish Society ....................................................... Julian Briz Escribano Effects of the New Technologies on European Agriculture ................................................ Miguel Merino-Pacheco and Werner Grosskopf
57 57 58 58 58 59
MANPOWER; LABOR; POPULATION Union Membership in the Netherlands: A Cross-Sectional Analysis ....................................... Annette van den Berg and Wim Groot The Destination Decision of Political Migrants: An Economic Approach ........................................ Tikva Darvish-Lecker and Nava Kahana
59 60
WELFARE PROGRAMS; CONSUMER, URBAN, REGIONAL ECONOMICS Demand and Supply for Legal Justice as a Public Good ........................... Miglwl Roig-Alonso Revised Index of Leading Indicators for New Jersey .................................... Shimshon Kinory
60 61
Employment and Unemployment in Andalusia: Medium-Term Prospective ..............................................................................
61
46
Jose M. Otero
ABSTRACTS
47
All Things Equal, Ceteris Paribus is Misused in Macroeconomics HERBERTM. BERNSTEIN Drexel University Ceterisparibus, when applied correctly, offers insight and clarity into economic behavior by isolating pertinent factors. It is particularly useful in situations where the change in one variable does not necessitate inherently a change in other variables. As such, it is more pertinent to microeconomic theorizing. However, the same technique applied to the macroeconomy may be misleading and inappropriate since a shift in one function is very likely to precipitate shifts in other functions leading to conclusions quite different than a simple comparative statics approach would predict. Three textually institutionalized examples of
this misuse are offered: (1) the IS, LM model; (2) the expenditures multiplier; and (3) the balanced budget multiplier. In all three cases, a shift in a particular function is likely to precipitate changes in profit and price expectations or to have differentiated induced effects or to involve, to some degree, the subsequent actions of the central bank or to change the demand for money. The essential purpose of the paper is to argue for the desirability of a more dynamic approach to macroeconomic theorizing rather than utilizing the ceteris paribus approach which treats the aggregate e c o n o m y as simply a larger microeconomic mode.
The Free Enterprise Teacher Practicum JO ANN CUTLERSWEENEYAND ALANW. GARRETT University of Texas at Austin
The University of Texas at Austin Free Enterprise Teacher Intem Practicum is an annual six week program for economics and social studies teachers. The practicum combines coursework in the university classroom with practical experiences at cooperating private businesses. Participating teachers are prepared to address economic topics in the course they teach. Such preparation is especially important for social studies teachers, most of whom have little or no formal training in economics, and, yet, are called upon in Texas by state mandate to incorporate economic content into all social studies courses offered throughout the thirteen years of public education. Participating teachers spend the first week of the practicum, devoted to intensive study of economic concepts and principles at the University. During a three week internship at a participating business, participants observe and take part in a variety of activities related to the operation of that business. In other words, participants experience
economics first hand. The practicum concludes at the University, where participating teachers attend additional classes, present developed instructional materials, and are tested for content mastery and attitudinal changes. Analyses of the various measures of the practicum for the past eight years indicate the program to be a continuing success. Participants consistently show increased cognitive understanding of economics and indicate more favorable attitudes toward economics. Additionally, they develop a variety of original and interesting instructional activities to introduce theirnew knowledge into the courses they teach. Participating businesses also indicate their satisfaction with the practicum through both formal comments and their continued support. The University of Texas at Austin Free Enterprise Teacher Intern Practicum unites public education, higher education, and private business to promote the enhancement of education for the state's students.
48
AEJ: SEPTEMBER 1991, VOL. XIX, NO. 3 Economic Investment in Nursing Education's Disadvantaged Students ROSLYN K. SYKES Southern Illinois University at Edwardsville
Current federal investment in basic nursing education is targeted toward stimulating the entry of individuals from minority and other non-traditional backgrounds into the nursing profession and supporting special project grants in response to national priorities. The availability of educational funding is a major factor affecting the number of individuals pursuing a career in nursing. Both federal and state stipport of nursing education has decreased significantly over the past several years. Coupled with the rising cost of higher education, this has led to higher levels of education-related debts for students. Cost studies on nursing education have shown that there is an increased reliance on loans or self-
funding that results in a longer educational experience. Studies have also shown that students must work to meet the cost of their nursing program. This paper focused on the cost analysis of a population of economically and/or academically disadvantaged nursing students who graduated from a public institution in southern Illinois. It is concluded that this population graduated with tess indebtedness and in a more reasonable time frame because of the financial investment and other supportive activities of a federal p r o j e c t - Project GAIN (Get Ahead in Nursing). Cost analysis of the graduates over a four year period were evaluated and discussed.
Europe 1992 - - A Micro/Macro Economic Simulation Game CAROLLOPILATO California State University
Europe 92 (EC 92) is an attempt to solve the problems of low productivity and slow economic growth by removing all internal barriers to the free movement of people, goods, services, and capital and creating a single European market by 1992. EC 92 directives can be considered exogenous variables in microeconomic and macroeconomic models and models of firm behavior. In microeconomic models players can: (1) simulate EC directives designed to improve productivity and increase competition in the European Community (elimination of non-tariff barriers such as customs, immigration and passport controls; increased mobility of labor and capital; harmonization of health and product standards; and, uniform value-added tax rates); and (2) observe the effect of these changes on microeconomic variables such as economies of scale in production, cost, price, market structure, transfer price, and profits. The welfare effects - - increases in consumer and producer surpluses-- can be demonstrated and the gains from trade due to in-
creased specialization according to comparative advantage can be shown. In macroeconomic models players can: (1) simulate EC directives designed to promote income growth and redistribution in member countries (direct investment; reduction in government spending; coordination of tax policies, movement toward a common currency; and interest rate stabilization); and (2) observe the effect of these changes on macroeconomic variables such as GNP, income, consumption, interest rates, investment, trade, and federal budgets. As models of finn behavior are developed, players will be able to: (1) simulate changes in response to EC directives which are under the control of the finn: plant location and size, prices, standardization, distribution, transportation, technology, marketing strategies, wages, licensing agreements, joint ventures, franchising, and financing; and (2) observe the effect of these changes on the firm's profitability and financial strength.
ABSTRACTS
49
Regulating a Discriminating Monopoly and International Trade YAFFA MACHNES Bar-llan University - - Israel
This paper investigates the optimal policy of a price discriminating finn whose utility is defined over profits denominated in terms of domestic currency. Our firm will regard the profits on its foreign sales as uncertain given exchange rate variability. We compare two finns which are identical in all parameters but differ in the timing of deciding about the allocation of output between the foreign and the domestic markets. In the model described by Katz, Paroush, and Kahana (KPK) [IER, 1982], the allocation takes place before the foreign demand is known, while in the Eldor and Zilcha model (EZ) [IER, 1985], it is possible to shift products from one market to the
other. We show that the profit in the EZ model is First Order Stochastic Dominant to the profit in the KPK model. Generally, it is unknown whether the output is greater in the KPK or in the EZ model. A special case is that in which a regulation exists which requires the monopoly to have minimum sales in the domestic market so that the marginal cost exceeds the marginal domestic revenue. In this case the finn with the ability to shift products to the domestic market when foreign demand is low will increase product and expected exports in comparison to the firm with prior marketing commitments in both markets.
Growth, Interest Rates, Inflationary Expectations, and Endogenous Noney Finance FRANK G. STEINDL Oklahoma State University
A Keynes-Wicksell monetary growth model with a government budget restraint and rational inflationary expectations is developed. Government expenditures are financed endogenously with income taxes and a tax on real balances. The rate of monetary expansion is endogenous. There is a credit market because it is there that Fisher established that inflation arbitrage opportunities are eliminated. The model constrains the tax adjusted Fisher Effect to hold exactly in the credit market. The model is solved initially for the impact effects, which have income, nominal, and net real interest rates increasing. The rate of monetary
expansion cannot be signed, because of the behavior of real income relative to its short-run equilibrium level. The govemment expenditures multiplier is greater than the familiar 1/t and depends on the model's private sector partial derivatives. The steady-state results have real income and capital intensity declining. The real net rate may also be higher in the steady-state, and it must be higher if the income effect in the credit market is zero. If the income effect on the nominal rate is sufficiently positive, then the steady-state real net interest rate may be lower.
The Consequences of European Integration on U.S. Foreign Deficits GEORGET. GALBREATH California State Polytechnic University
Even in the extreme scenarios of "Fortress Europe" or "Magnet Europe," the European contribution to U. S. deficits is ambivalent. Speculation has run the gamut from an oligopolistically
oriented "Fortress Europe," exacerbating the deficit problem of the U. S. Investment and relieving the problem. Often concerns about the current account deficit are lumped together with
50
AEJ: SEPTEMBER 1991, VOL. XIX, NO. 3
concerns about the domestic fiscal deficit of the U. S. (the twins), with the size of one attributable to the size of the other; even though no significant simple correlation exists between the two, nor should one be expected. Utilizing the Flow of Funds accounts of the U. S. helps put the foreign deficits of the U. S. in a more understandable and useful context. Analysis of sectoral flows indicates that there have not been any significant and enduring effects on the
deficits of the U. S. as Europe has achieved successively greater integration. The explosion of the current account deficit after 1982 can more easily be attributed to the U. S. policy and the resulting sectoral behavior. Basically, the U. S. and Europe march to the same tune of expanding trade; and as the problems of a global economy become borderless, so must the solutions.
On the Lakatosian Apple of Discord Between Historians and Methodologists ANDREA SALANTI Universitd degli Studi di Bergamo --Italy
Economic methodologists and historians of economic thought seem at present to look at Lakatos' methodology of scientific research programs (MSRP) from very different perspectives. The purpose of this paper is to hint at the possible source(s) of such a disagreement. Methodologists' critical attitude towards Lakatosian theses partly echoes critiques raised by philosophers of science and partly reflects the difficulties encountered in their repeated attempts at devising progressive research programs in economics, while historians rely on the Lakatosian notion of research program mainly in order to circumvent portions of economic analysis whose history is to be rationally reconstructed. My contention is that a further reason behind historians'
sympathetic attitude towards Lakatosian methodology is their commitment to an absolutist (or internal) approach to the history of thought. Indeed, an internal history of economic thought can be justified only if a positive answer can be given to the question "Has economic theory progressed over its history?", and MSRP provides historians with just such a criterion of progressivity. Such a strict association, however, appears to be neither really necessary nor very helpful in order to promote more interest in the field among economists. Hopefully, the recent discussions on Lakatos and economics should be as a stimulus to rethinking prevalent views about the scope (and method) of the history of economic thought.
Paradoxical Impact of Bureaucracies on Decomposition from Plan to Market PETER S. ELEK Villanova University
The elusive riddle, who should benefit from the surplus shares created during the process of production, has been debated by economists for two centuries. Adam Smith believed that such shares should be retained by the entrepreneur. Marx saw it as a rightful share of labor, while Quesney and Malthus (theory of market gluts) argued that such proceeds should accrue to the landlord and his retinue. In Eastern Europe and in the USSR, the landlord was eliminated. Nevertheless, their institu-
tional successors, the ruling bureaucracy managed to retain their respective surplus shares. This was accomplished by administrative overhead generated by increasing their ranks and improving the lifestyle. This in turn, in the absence of significant changes in productivity, exercised adverse effects on costs, which were further augmented by choking off investment flows to the support of the bureaucracy. It became a major contributory cause to the downfall of the ruling socialist ideology as shown in the pilot project on
ABSTRACTS the Hungarian agro sector. In this scenario two paradoxical views emerge in the reconstruction debate: 1) should agriculture be privatized, or 2) should the socialized public sector be retained under more or less their present form. The two proposals represent two distinct groups. The first group claims that change, in the form of privatization, is indispensable for long range eco-
51
nomic survival. To the second group, change is a cliche - - something unwanted and limited to promotional value in the media. To this group, representing the bureaucracy, change means a potential danger threatening their past secure status quo. With sophistication, by stealthy procrastination this group creates logjams to slow down and stall change.
On Measuring Pure Repressed Inflation GENE HSIN CHANG
The University of Toledo
Price controls in a dynamic economy tend to simultaneously produce two distortions, the pure deviation and the pure repressed inflation effects. The pure deviation effect refers to the movement of the output bundle away from the Walrasian equilibrium, yet the existing money stock is not oversupplied with respect to the aggregate price level (i.e., no monetary overhang). The pure repressed inflation effect refers to the inflationary pressure caused by an excess money supply (i.e., existence of a monetary overhang) and is theoreti-
cally independent of the pure deviation effect. Conventional approaches are unable to separate the two effects in measuring repressed inflation. This paper discusses the issues involved in measuring repressed inflation and suggests an approach, the Repressed Inflation Index, to remove the influence of the pure deviation in measuring repressed inflation. Two empirical studies are conducted and pure repressed inflation is found in the U. S. economy during World War II and the Chinese economy during the period 1979-87.
Savings and Loan Problems and the Role of Regulation WILLIAM E. WHITESELL
Franklin and Marshall College
The United States currently faces numerous financial difficulties, both internally and in its external relationships. Superficially, S & L problems are internal and have no lessons for others, but one must recognize that deregulation of markets is taking place in many countries, not just the United States. The paper examines S & L problems by considering traditional managerial rules, legal regulations, and the nature of examinations by regulators. It also discusses regulation and deregulation of S & Ls, changes in powers of regulators, and new roles for S & L managers and regulators. The focus is on noting expanded opportunities for activity by institutions which are becoming
obsolete as a result of market forces. Deregulation is related to issues of market evolution and activity. The paper then addresses three primary concerns. It 1) considers some specific elements of how deregulation may have encouraged excesses among managers of savings and loan associations, 2) draws possible parallels between deregulation in the United States and other countries, and 3) explores questions as to whether or not other countries may gain from the experience in the United States' valuable insights into the opportunities and potential problems inherent in deregulation.
52
AEJ: SEPTEMBER 1991, VOL. XIX, NO. 3 Financing Federal Entities: The Belgian Experience GIUSEPPE PAGANO
French Community University of Mons--Belgium
Belgian Federalism is characterized by a double set of institutions on the federal level: Communities, concemed with culture and education; and Regions, concerned with economic matters. Regions and Communities are financed by a national grant. Its total amount is related to the observed expenses for the policies transferred to federate entities when those policies still were national policies (1988), but Regions will have to pay a given part of the national public debt. As a result, in real terms Regions will receive less than the observed expenses of 1988. If we assume that Regions' total expenses will remain constant in real terms, then equilibrium could be reached in 1995, 1996, and 1998, respec-
tively by the Flemish Region, Brussels, and the Walloon Region. However this is not very realistic as it implies expenses actually devoted to policies should decrease in real terms to compensate for interests of Regions' public debts. If we then assume that expenses actually devoted to policies remain constant in real terms while total expenses increase to compensate for interests, we get significantly different results: the Flemish Region and Brussels would only reach equilibrium in 1996 and 1997, respectively, whereas the Walloon Region would not be able to reach equilibrium before the year 2000.
An Economic Perspective Toward A Unified Korea DONG K. JEONG
North Carolina A&T State University
The purpose of this paper is to analyze the postKorean War economic performance of the two opposing economic systems in divided Korea: namely, the capitalist market economy of South Korea and the socialist command economy of North Korea. The focus of this study will be on their performances in the economic growth and the changes in the industrial structure of the South and North Korean economies. In contrast to South Korea's forward looking, export-oriented industrial development strategy, North Korea adopted a backward looking, selfreliant and independent development strategy in accordance with the North. Korean leader's socalled JUCHE ideology.
This study begins with a brief review of the Korean economy under Japanese colonial rule before World War II. A comparative analysis of the post-Korean War economic growth and the changes in industrial structure of South and North Korean economies is presented in Section II. In Section III, an attempt is made to compare and contrast the present economic conditions between South and North Korea and those in East and West Germany before their reunification in October 1990. In section IV, some conclusions and implications of this study regarding the prospect of reunification of South and North Korea from economic view point are presented.
Structure of U. S. Foreign Trade with Western Europe FARHANG NIROOMAND
University of Southern Mississippi
This paper investigates the determinants of U. S. trade in manufactured goods with Western
Europe and analyzes changes in these determinants over the period 1963-80. Using a modified
ABSTRACTS multi-factor proportions model, it measures the simultaneous impact of human capital, physical capital, and labor on U. S. net exports in manufacturing. Additionally, a measure of economies of scale in production within industries is introduced and tested in a multiple regression model. The model is applied to U. S. manufacturing trade with two groups of countries in Western Europe (WEI and WE2). Using ordinary least squares (OLS) estimation techniques, the correlation between net exports of U. S. industries and different economic characteristics is examined for each of four years (1963, 1967, 1977, and 1980).
53
The multi-factor proportions theory performs well in explaining U. S. trade patterns with WE2 for earlier years (1963 and 1967), but it does not receive much support in explaining United States trade with WEI (for all four years) and WE2 for 1977 and 1980. It is hypothesized that in the latter cases intra-industry trade tends to predominate. Indeed, when inter- versus intra-industry trade was tested directly with our data set, the results confirmed that trade between the United States and Europe is mainly intra-industry. No structural changes were detected for the U. S. trade with either group between 1963 and 1980.
International Financial Integration in World Stock Exchanges BANG NAM JEON
Drexel University
The paper examines changes in price relations among the world's major stock markets since the mid- 1970s. It focuses on the correlation of price movements from 1975 to 1990 in the world's four largest equity markets: New York, Tokyo, London, and Frankfurt. The central issues investigated in the paper include: (1) the interrelationships among stock prices in the major stock exchanges (2) ifcovariations between stock prices in different countries are systematic and stable (3) the transmission effect of volatility and price innovations in one market on another. The multivariate tests for unit roots provide evidence for the existence of a common stochas-
tic trend in a system of stock prices in the world stock exchanges, suggesting comovements of national stock prices in the long run. Estimation results based on the various forms of the generalized autoregressive conditional heteroscedastic model also show that the globalization of the world equity markets, as evidenced by the increasing correlation of rates of return and the speedy and extensive transmission of volatility, has grown steadily in recent years during which the growing linkages in macroeconomic policy and information sharing among national markets has been observed.
U.S. Farmers' Agricultural and Trade Policy Preferences for the 1990s MARSHALL A. MARTIN AND DENNIS A. SHIELDS
Purdue University
The interpretation of farmers' opinions on agricultural and trade policies, such as the 1990 Farm Bill and the GATT negotiations, is usually left to farm organizations that lobby on behalf of their members and to government officials. Statistical analysis of farmers' views expressed in a scientifically designed survey instrument can help policymakers understand more comprehensively
what policies U. S. farmers desire and those socioeconomic factors that influence their preferences. This study is based on a mail survey returned by 12,778 farmers in 21 states in the United States. These 21 states represent two-thirds of U. S. farmers and about three-fourths of U. S. grain and livestock production. Farmers were
54
AEJ: SEPTEMBER 1991, VOL. XIX, NO. 3
asked their preferences on various commodity price support, environmental, and international trade policies. Selected socioeconomic variables included: farm size, years of schooling, age, farm organization membership, and type of farm. A logit model was used to analyze the survey data. In general, younger, college-educated farmers, livestock producers, and Farm Bureau members
favor less government intervention in agriculture and a reduction in international trade barriers. Grain producers who participate in government programs and National Farmers Union members favor a continuation of current farm subsidy programs and more restrictive international trade policies.
Risk Management in the Latin American Film Industry SISTER MARTIN BYRNE, R.S.H.M.
Loyola Marymount University
The film industry provides cultural and artistic entertainment. Survival of a company between box-office hits requires successful risk management. Production companies require up front financing in large chunks but recovery of costs is slow. The distributor who relies on cash flows from cinema rentals around the world can offset losses against profits. Vertical integration and simultaneous releases provide some assurance that cash inflows will be timely. Cash management is the major risk strategy tool in this high risk industry. In Latin America, risk management is complicated by unstable economies, high inflation, devaluation, and price
and wage controls. The liquidity squeezes in Argentina and Brazil played havoc with domestic cash budgets. Dollar contracts and dollar investments conserve cash, but cash scarcity discourages risk taking and makes break-even determination difficult. Interviews with film company executives in Mexico, Peru, Argentina, Brazil, Chile, and Uruguay indicated that feature film production was being replaced by facility and service rentals and production of shorts and advertising commercials. Optimism about the future led to minimizing risk in the present to maximize the chance of survival.
Austria and the European Monetary System RE1NHARD NECK
Vienna University of Economics and Business Administration --Austria
During the last two decades Austria has pursued hard-currency exchange rate policies, pegging the exchange rate of the Austrian Schilling to the Deutschmark. This policy has reduced inflation, but it need not be sustainable, given the diverging objectives of the government, the central bank, and the trade union in Austria. If Austria will become a member of the EC, it will join the European Monetary System (EMS), too. The EMS is interpreted as an enlarged DM-zone working as a disinflationary device for inflation-prone, member countries. An Austrian membership in the EMS can serve as an international mechanism
enforcing compliance with long-run commitments to price stability. Enforcing the hard-currency policy by international obligations will create an additional incentive for social partners and government to implement a policy committed to price stability. If Austria puts more emphasis on other objectives, such as full employment, these may be reflected to a certain extent by the monetary policies of the EMS. From a strategic perspective, an Austrian membership in the EMS can be interpreted as providing incentives to a move towards Pareto-optimal policies.
ABSTRACTS Comment WILFRIEDFUHRMANN,University 125 words seem splendid to a basic academic economist who does not believe in reliable relationships between economic theory and political processes, as the EC-integration demonstrates. Reinhard's fine game-theoretical explanation of Austria's policymaking and gains from the German anchor can be improved by clearing the meaning of credibility and reputation (imported from the Bundesbank). We know indirect estimating approaches [Fellner; Perry; GiavazziGiavannini], direct ones [Baxter; BarnhardHardouvelis], and ratios [Sachs-Wyplosz,
55
of Linz - - Austria
Dornbusch]. Austria's hard-currency policy is rational; France's regime-shift, too. But, policies can be abandoned easily; both are paying higher capital premiums. Does this make sense? Why not take monetary policies [Ordnungsrahmen] of The Netherlands and Germany as the cooperative EMU-model? Political intentions and other objections are dangerous. We need stepwise implementations of a competitive open European market-system first.
European Integration and Rural Labor Force in Austria MARKUSF. HOFREITHER& CHRISTOPHWEISS University of Linz - - Austria
Comment K.M ORTNER,Federal Institute of Agricultural Using a static general equilibrium model, Neunteufel and Ortner (NO) estimated supply and demand for nine agricultural and one nonagricultural product for exogenously determined EC prices and the corresponding changes of inputs used in the various sectors. They thus don't treat agriculture independently of other sectors of the economy. Hofreither and Weiss address not only the
Research, Austria
effects on agriculture of joining the EC but also those emanating from the elimination of barriers in the EC's domestic market. Another deviation from NO is that they don's assume a shift of productivity in the Austrian economy resulting from higher competition and utilization of scale economies. Whether overall employment will increase in the short run remains open to debate.
Relevance of Consolidating Majority-Owned Subsidiaries Under SFAS, No. 94 ZABIHOLLAHREZAEE Middle Tennessee State University
Statement of Financial Accounting Standards (SFAS) No. 94 was issued to standardize the consolidation process and thus, to improve the consistency, comparability, and credibility of financial reporting. The Statement is also a major step in the direction of taking proper action on the growing problem of off-balance sheet financing. The purpose of this paper is to examine the possible impacts of SFAS No. 94 on the financial reports of affected companies. The restated finan-
cial statements of a sample of 64 firms were examined and compared with previously reported financial statements for the fiscal years ended December 1987 and 1988. The adoption of SFAS No. 94; (1) decreased diversity in consolidation practices; (2) mitigated the problem of off-balance sheet financing; (3) encouraged the use of unclassified format of financial statements presentation; and (4) caused consolidated companies to look more leveraged.
56
AEJ: S E P T E M B E R 1991, VOL. XIX, NO. 3 New Polish Accounting - - H o w It Will Help To Do Business M A X GOTTLIEB
College of Staten Island, City University of New York
The new Polish accounting rules, which went into effect January 1991, will provide better information for foreign and domestic investors. All enterprises, both private and governmental, except for banks, insurance, and social organizations, are required to adhere to the new rules. However, the rules are not sufficiently specific to ascertain conformity in financial reporting. The new Polish accounting rules follow the relevant directives of the European Economic Community, rather than the American GAAP. The concept of matching revenues to expenses is fully observed. The ending inventory is shown at the lower of costs or market. Finished goods and work-in-process inventory must be shown at the
net sale price or at standard costs, whichever is lower. Recognition is given to recording and amortization of intangible assets. There are a number of differences with American accounting rules. No recognition is given to time value of money. Disclosure of contingent liabilities such as for warranties is not required. Cost of internal research can be spread over a number of years. There is no requirement to computer earnings per share, or prepare a statement of cash flows. Extraordinary and unusual items are treated alike. Clearly, the new rules will help to do business in Poland.
The Contract Responsibility System in the PRC: A Case Study RICHARD A. MASCHMEYER A N D YANG JI-LIANG
Madrid Business School and Shanghai Academy of Social Sciences
The Contract Responsibility System (CRS) in the PRC provides the financial structure for allocating state enterprise profit between the government and the enterprise. The goal of this control system is to motivate enterprise managers and workers to achieve a level of enterprise profits that will satisfy government funding requirements and, at the same time, allow enterprises to retain sufficient profits for effective long run operations and equitable employee remuneration for their relative performance. Since the national adoption of the CRS in 1987, enterprise profits have resulted in mixed signals on the system's potential to facilitate state enter-
prises toward a self-reliant economic status. This study, which evaluates the relative profits and characteristics of two state enterprises, shows that preconditions, enterprise size, and favored treatment by the government are variables that impact heavily on the potential for the enterprise to succeed within the expectations of the CRS. With over 7000 state enterprises operating at a loss, the CRS appears to be failing the government's objectives. However, in this period of economic transition, past socioeconomic and cultural values, in addition to conservative political views, are impairing the CRS from operating as originally intended.
Market Prices and Industrial Organization ADESOJI O. ADELAJA
Rutgers University
Firms exhibit size related differences in short and long-run supply elasticities [Oi, 1983; Mills
and Schumann, 1985; Adelaja, 1991] due to differences in output flexibility, sunk costs, entry
ABSTRACTS barriers, economies of scale, and financial ability [Adelaja, 1991 ]. Hence, market price movements can affect the size distributions of industry output, revenue, and firm population. For example, given their greater short-run flexibility, a price increase would enable small firms to capture a larger share of industry output and revenue in the short-run. Similarly, if a price increase encourages greater entry of small via-a-vis large firms into an industry, the resulting size distribution of firms and industry organization will favor small firms.
57
This paper examines the short and long-run distributional effects of price movements and the associated equity and public policy implications. Short and long-run price elasticities of output, revenue, and firm population shares are derived. Through the price elasticity of the Gini coefficient for revenue or output distribution, the paper shows that the distributional effects depend on the magnitude of differences among firms in price elasticities of yield, firm size, and finn population. Implications for industrial organization and price related policies are also highlighted.
Environmental and Economic Consequences of Including Legumes in Crop Rotations on Farms JOHN C. FOLTZ, MARSHALL A. MARTIN, AND JESS LOWENBERG-DEBOER
Purdue University
There is public concern in the United States about the environmental impacts of agricultural chemicals. Proponents of sustainable agriculture suggest incorporating forages into conventional crop rotations to reduce soil erosion and minimize water pollution. Forages such as alfalfa naturally fix nitrogen, provide biological control of some insects, and help reduce weed infestations. Critical to its adoption is its economic viability. This paper reports the research results from a study of two typical 202.4 hectare (500 acre) farms in the Eastern Corn Belt in the United States; one with high productivity soil and one with low productivity soil. Different scenarios
were analyzed with a mathematical programming model. Net farm income was the highest when the farms were participating in the government programs and not producing alfalfa. Inclusion of alfalfa in the conventional com and soybean rotations reduced commercial nitrogen fertilizer and pesticide use, but net farm income fell. Hence, trade-offs exist between environmental and economic goals. Government subsidies or regulations, or above average alfalfa yields and/or prices, will be necessary to induce farmers in the United States to alter current crop rotations towards less environmentally damaging farming systems that include legumes such as alfalfa.
Long-run Relationship Between Productivity and Price Policies in U. S. Agriculture ADESOJI O. ADELAJA AND TEMISAN D. AGBAYEGBE
Rutgers University and City University of New York
The profitability index is the product of indexes of productivity and parity. Hence, productivity growth must result in parity decline, increased profitability, or both. The idea that productivity growth in U. S. agriculture results in reduced parity ratio in the long-run is widely accepted since it is difficult to believe that profitability can increase perpetually in a competitive industry. Extensions of this idea are that produc-
tivity growth always results in reduced parity while price support always results in productivity slowdown in the long-run and that the joint policies of price support and public research spending are counter-productive in the long-run. Using data covering the 1910-88 period, this paper investigates the long-run relationship between productivity and parity in U. S. agriculture via the causality and cointegration approaches.
58
AEJ: SEPTEMBER 1991, VOL. XIX, NO. 3
Granger causality tests reveal simultaneous causality between productivity and parity. However, stationarity of profitability and cointegration of productivity and parity levels are rejected. Hence, profitability appears capable of wandering exten-
sively over time and has no mean reversion tendencies, while productivity and parity can drift apart from a set inverse relationship in the longrun. These results imply that price support policies do not necessarily hurt farms in the long-run.
Psychological Traits of Rural Entrepreneurs EMERSON M. BABB AND STUART V. BABB University of Florida and Indiana University
This research focused on differences between rural and urban entrepreneurs. It replicates and extends a study of owner/managers of small New England high tech and manufacturing firms using data from 926 low tech, retail/service firms in rural North Florida. Probit and ordered probit models were used to analyze data. Entrepreneurial status and measures of firm performance were related to psychological traits. Psychological traits performed modestly in identifying entrepreneurs and in explaining their subjective evaluations of firm performance. Type A
behavior, need for achievement, ascendancy, emotional stability, and personal relations were the traits which differentiated founders and nonfounders. "Evaluation of performance was positively related to Type A behavior, need for achievement, risk aversion, internal locus of control, emotional stability, sociability, vigor, and lower original thinking. No major differences in psychological traits were found between rural and urban managers. Thus, psychological traits do not seem to pose constraints on expansion of entrepreneurship in rural areas.
The Socioeconomic Impacts of Agricultural Biotechnology: A U.S. Perspective MARSHALL A. MARTIN Purdue University
Agricultural biotechnology offers exciting opportunities to increase agricultural productivity, increase international competitiveness, increase the quantity and quality of food and fiber, and reduce food prices. Yet, there is considerable controversy about the potential environmental and socioeconomic impacts of agricultural biotechnology. E x ante socioeconomic assessment of agricultural biotechnology can be useful for
public and private decisionmakers but should not be used by government regulatory agencies as part of the scientific approval process of biotechnology products. A transatlantic exchange of ideas and socioeconomic research results is essential in order to enhance the public understanding of the potential benefits and risks associated with agricultural biotechnology.
Implications of New Agricultural and Food Technologies on Spanish Society JULIAN BRIZ ESCRIBANO Universidad Politecnica - - Spain
The paper analyzes the main factors influencing agricultural and food technologies on Spanish society. In some ways it is difficult to analyze the future because of the complexity of political,
social, and economic factors. It has been considered the evolution in the global context of the EEC. The shaping of future relations with Central and East European countries and the creation of a
ABSTRACTS European Economic Area with the EEC and the six EFTA countries may influence the market competition and facilities for adoption of new technologies. On the other hand, Spain, one of the countries with greater economic growth in last decades, is facing accommodation problems. Agricultural production has surpassed the market demand and there are surpluses in some sectors (cereals, wine, meat) although in some of them that is a consequence of integration in the EEC. However, to get higher productivity in agriculture is not a negative goal, and research should continue with restrictions related to its cost, natural resources used, environmental, and social consequences. Technological progress should be submitted to public
59
acceptance, and the best way for this is to ensure a good information system. So far the public in Spain is not well enough informed about the scientific research being carried out in European agriculture. There is a necessity to motivate the dialogue among the different protagonists: researchers, politicians, farmers, industrial enterprises, and consumers. Some questions have to be answered by the Spanish society before taking any actions in this area: (1) In which way should the administration motivate research and development of Biotechnology?; and (2) How can society combine common safety demands with new technology in order to increase farmer welfare with appropriate use of the environment and natural resources?
Effects of the N e w Technologies on European Agriculture MIGUELMERINO-PACHECOAND WERNERGROSSKOPF Institute of Agricultural Policies and University of Hohenheim - - Germany
The possible effects of the introduction of newly developed technologies into farms upon the European agricultural sector are broadly analyzed. Main points addressed are consequences for agricultural markets, environment, and structural change. Due to the fact that all these aspects are interwoven, they are treated as a whole, explaining their equilibrium and mutual relationships. The possibility to alleviate the overflowing European agricultural markets through the opening of new outlets for traditional crops is also discussed. Special attention is paid to environmental aspects. Focus of discussion is the environment as a non-traditional production factor. If environment is a production factor and tech-
nology changes the substitution possibilities and rates among them, the new technologies will influence the amount of its consumption. With environment being a public good, this amount of consumption is likely to be too high without society putting the right price to this factor. As a consequence, society assumes a role as demandant for environment-saving technologies in the innovation market. The capability of the Common Agricultural Policy to cope with the oncoming problems caused by the application of new technologies is discussed as well. As a conclusion it can be stated that the CAP is not in place to manage the future situation, and substantial reform is needed.
Union Membership in the Netherlands: A Cross-Section Analysis ANNETTE VAN DEN BERGAND WIM GROOT University of Amsterdam and Leiden University-- Netherlands
This paper analyzes the determinants of union membership in the Netherlands. Not only the unionization decision is studied, but also the decision which confederation the workers will
join. Furthermore, a test is presented to determine the nature of the decision process; we ask whether the decision to join a union and the decision which confederation to join are sequential or simulta-
60
AEJ: SEPTEMBER 1991, VOL. XIX, NO. 3
neous decisions. The answer is not only of consequence for the model specification, but also affects the conclusions drawn from the estimations. One finds a considerable number of significant variables, most of them with the expected sign. If a variable has an effect contrary to expectation this can largely be attributed to specific Dutch circumstances. This shows that a general theory on the determinants of union membership can never be wholly universal, but always has to
allow for nationally determined exceptions. The results demonstrate the importance of careful specification of the structure of the decision process. The comparison of the results of the multinomial and the sequential logit model show that misspecification of the decision structure can lead to false conclusions. In Holland, the decision to become a union member is taken prior to the decision of which particular union to join.
The Destination Decision of Political Migrants: An Economic Approach TIKVA DARVISH-LECKERAND NAVA KAHANA Bar-llan U n i v e r s i t y - - I s r a e l
Political migrants, despite leaving their countries for primarily non-economic reasons, must still make a vital decision - - they must choose a destination. While this decision may not be based solely on economic considerations, there is evidence that economics does play a role. In many cases, the migrant has a strong cultural and ideological tie to a particular potential destination, and yet emigrates elsewhere. Thus, for example, many Jews have left Russia for political and ideological reasons, and despite their strong emotional ties to Israel, have emigrated elsewhere, even when their stated purpose for leaving Russia was to emigrate to Israel. It seems, therefore, that although the decision to emigrate may not be economically motivated, the destination decision is economically motivated.
In addition, the immigrants' capital is usually considered a transferable resource and is therefore ignored in standard migration models. This is not always the case. There are countries, for example Israel, where it is forbidden to hold capital outside the country. Thus, the amount of capital a migrant possesses may affect his destination decision. This paper presents a model in which the migrants are characterized by two properties; skill level and financial resources, analyzing the destination decision of political migrants. It also presents one of its applications by examining various immigration-encouraging policies and showing that although all of them will increase immigration, in some cases the economic quality of the new immigrants will rise and in some it will fall.
Demand and Supply for Legal Justice as a Public Good
MIGUELROIG-ALONSO Universitat de Valencia - - Spain
In Spain, like in other countries of the Council of Europe, the number of judicial litigations in several ordinary jurisdictional areas - - particularly in the criminal and contentious-administrative ones - - has grown considerably in the last few decades. This explosion in the demand for a constitutionally guaranteed judicial protection service is rising public expenditure needed for courts and endangering the quality of this public
service estimated by the expedience, depth, and justness of sentences. After examining the main causes increasing the quantity of judicial litigations, their repercussions in the rising of the judges' productivity in this public subsector, and the congestion of the judicial protection service in numerous courts, this paper offers a general index for ordinary litigation, the evolution of which is explained by
ABSTRACTS means of two simple econometric models. Some reforms are suggested in order to try to improve the quality of this service, to slow the growth of the social conflicts pushing up the demand for it, and to moderate the rising needs of public expen-
61
diture for justice administration. Methodology and solutions proposed can be of great interest for carrying out similar analysis adapted to the specific economic, social, and legal circumstances in other countries.
Revised Index of Leading Indicators For New Jersey SHIMSHONKINORY Jersey City State College
The revised index consists of the U. S. Leading Indicators Index, a proxy for Help Wanted, five N.J. series and uses the B.E.A. methodology. A major stumbling block is the absence of state GNP values. Consequently, two variants of the Leading Indicators Index were developed, both tied to coincidental indicators. One index was tied to nonagricultural employment and a second index tied to an Index of Coincidental Indicators consisting of nonagricultural employment and an Industrial Index. The Industrial Index was based on a Cobb-Douglas production function without a technology constant using industrial electricity
as a proxy for capital and the real value added in manufacturing based on the U. S. Census of manufacturing as indicative of output. Monthly values for 1970-88 were calculated using state data on manufacturing employment, hours for labor, KW/H for capital, and the annual Census data interpolated. Due to absence of Census data for 88, 89, and 90, the Index for those years was extrapolated. Several scenarios were presented and compared to the Manufacturing Index calculated by the Federal Reserve Board. In general the Leading Index showed a four month lead at turning points.
Employment and Unemployment in Andalusia: Medium-Term Prospective JOSEM. OTERO Universidad de Malaga - - Spain
The central question formulated in this paper is whether or not the actual labor market conditions are propitious to make andalusian unemployment rate, now at 27 percent, decline in the mediumterm. According to this purpose a recursive demoeconomic model is presented and applied. In this regional model a top-down approach is adopted, being the national m o d e l the WHARTON-UAM forecasting model. Both the regional and the national model participate in the HISPALINK project, a Spanish integrated regional modelling project which joins university research teams in fourteen Spanish universities. The regional model consists of two basic
submodels allowing for both demographic (population by age and sex) and economic (added value and employment) forecasts. In addition, a labor force block provides active population forecasts by sex depending on demographic and economic (cyclical) factors. Unemployment is then yielded as the balance between employment and active population. The main conclusion concerning the mediumterm economic planning is that for the first time in the recent andalusian economic history, both unemployment level and rate could be reduced if new jobs are created at a plausible rate according to national economic prospects.