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Market conduct refers to how firms 21 determine their price policy, sales and promotions. Significant aspects of the firm conduct include; -pricing behaviour; -advertising; -research and development; -plant investment; -legal tactics; -product choice; -collusion; -merger and contracts 2. It relates to the record of the industry in terms of the benefits which it generates for its various stakeholders.

It refers to the extent in which firms are able to satisfy consumer demands in the current. Important aspects of performance include: - productive efficiency; -allocative efficiency; -equity; - productive quality; -technical progress; -profits 2. The structure-conduct-performance paradigm became 22 Basic Structure Conduct Performance conditions 2.

On the demand side, significant basic conditions include: -price elasticity of demand at various prices; - availability of and cross price elasticity of demand for substitutes; -the rate of growth and variability overtime of demand; -purchase method; the methods employed by buyers in purchasing e.

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Economic development is directly influenced by the performance of the industry via provision of goods and services. Having looked at the theory of industrial economics, it is important that we take a road to look at the theories of economic development, as depending on which theory an economist may be coming from, industrial economics may note directly feed into economic development. For modern economists, however, the status of economic development is somewhat more uncomfortable: it has always been the maverick field, lurking somewhere in the background but not really considered "real economics" but rather an amalgam of sociology, anthropology, history, politics and, all-too- often, ideology.

The subject of economic development dates back to the classical era of, Adam Smith and indeed, perhaps the entire Classical School. Schumpeter's first famous book was entitled a Theory of Economic Development However, the great early concern was still Europe: namely, postwar European reconstruction and the industrialization of its eastern fringes - as exemplified by the pioneering article of Paul Rosenstein- Rodan and Kurt Mandelbaum's tome.

It was only some time after the war that economists really began turning their concerns towards Asia, Africa and Latin America. Faced with a new plethora of nations whose standards of living and institutions were so different from the European, modern development theory, by which we mean 25 the analysis not only of growth but also of the institutions which could induce, sustain and accelerate growth, began in earnest. Arthur Lewis, Hla Myint were among the first economists to begin analyzing economic development as a distinct subject.

The commissioning of numerous studies by these institutions led to the emergence of a non-academic strand of development theory.


As a result, Latin American, Asian and African countries were seen mostly as "underdeveloped" countries, i. As later made famous by Alexander Gerschenkron , and, more crudely, Walt W. Rostow , the stages theories argued that all countries passed through the same historical stages of economic development and that current underdeveloped countries were merely at an earlier stage in this linear historical progress while First World European and North American nations were at a later stage.

The task of the development economist, in this light, was to suggest "short-cuts" by which underdeveloped countries might "catch up" with the developed and leap over a few stages.

Health and innovation: economic dynamics and Welfare State in Brazil

The celebrated early work on the "dual economy" by Sir W. Arthur Lewis , precisely stressed the role of savings in development. Early Keynesians, such as Kaldor and Robinson, attempted to call attention to the issue of income distribution as a determinant of savings and growth. Even modern Marxians such as Maurice Dobb , focused on the issue of savings-formation. Indeed, earlier, Rosenstein-Rodan had argued that increasing returns to scale made government-directed industrialization feasible. The notion of turning "vicious circles" of low savings and low growth into "virtuous circles" of high savings and high growth by government intervention was reiterated by Hans W.

Singer in his doctrine of "balanced growth" and Gunnar Myrdal in his theory of "cumulative causation". Thus, government involvement - whether by planning, socio-economic engineering or effective demand management - was regarded as a critical tool of economic development. Already Hla Myint, Gottfried Haberler and Jacob Viner had stressed this avenue - arguing along lines similar to the classical doctrine of Adam Smith that trade and specialization can increase the "extent of the market".

However, earlier in the s, D. Robertson had expressed his doubts on this account - and these were later reiterated by Ragnar Nurkse, H. Schultz, drawing upon his famous Chicago School thesis, turned away from physical capital accumulation to emphasize the need for "human capital" formation. This led to an emphasis on education and training as pre- requisites of growth and the identification of the problem of the "brain drain" from the Third World to the First and, as would later be stressed, from the private sector to government bureaucracies.

Arthur Lewis and Hans W. Singer extended Schultz's thesis by arguing that social development as a whole - notably education, health, fertility, etc. In this view, industrialization, if it came at the cost of social development, could never be self-sustaining. Development, he argued, was a social phenomenon that involved more than increasing per capita output. Development meant, in Seers's opinion, eliminating poverty, unemployment and inequality as well. Singer, Myrdal and Adelman were among the first old hands to acknowledge the validity of Seers's complaint and many younger economists, such as Mahbub ul Haq, were galvanized by Seers's call to redefine economic development.

Thus, structural issues such as dualism, population growth, inequality, urbanization, agricultural transformation, education, health, unemployment, etc. Also emergent, in this period, was a debate on the very desirability of growth. Schumacher, in a famously provocative popular book, Small is Beautiful , argued against the desirability of industrialization 30 and extolled the merits of handicrafts economies. As the world environmental crisis became clearer in the s, this debate took a new twist as the very sustainability of economic development was questioned.

It became clear that the very desirability of development needed to be reconsidered. A new or old - depending on one's vantage point idea began to germinate - what may be loosely termed "structuralism". The "structuralist" thesis, succinctly, called attention to the distinct structural problems of Third World countries: underdeveloped countries, they argued, were not merely "primitive versions" of developed countries, rather they had distinctive features of their own.

As mentioned, Chenery had argued a similar thesis, but nonetheless focused on the similarities of experience. The newer structuralists, in contrast, sought to bring attention to the differences. Albert O. Hirschmann was one of the early few 31 who stressed the need for country-specific analysis of development - as was stressed later by Dudley Seers.

This, speculated a few, could give rise to distinct structural problems for development. Thus, Prebisch concluded, some degree of protectionism in trade was necessary if these countries were to enter a self- sustaining development path. Import-substitution, enabled by protection and government policy, rather than trade and export-orientation, was the preferred strategy. Historical examples of government-directed industrialization, such as Meiji Japan and Soviet Russia, were held up as proof that 32 there was not only one path to development, as had been implied by the cruder "stages" theories.

Lenin's arguments on imperialism in it. Frank and Samir Amin took the Prebisch-Singer thesis, merged it the Luxemburg thesis, and drew it into the modern era. Bauer, I. Johnson began to gain more adherents. Their thesis was simple: government intervention did not only not improve development, it in fact thwarted it. The emergence of huge bureaucracies and 33 state regulations, they argued, suffocated private investment and distorted prices making developing economies extraordinarily inefficient. In their view, the ills of unbalanced growth, dependency, etc. However, the evidence is still ambivalent and disputed.

Both structuralists and counter-structuralists point to fast East Asian development and disastrous African experience as proofs of their directly opposing theses. This gets us to the relationship which is given in the figure over leaf. Bearing in mind that the main goal of business is to make profit and survive, the prevailing markets structure influences the need for venturing into Research and Development or generally to acquire improved technology which in turn lowers the cost of production.

This important of innovation is captured in the conduct aspect of our paradigm. The final issue of performance is where economic development is directly measurable. Better performance will be manifested through improved productivity thus increasing the choice of consumers as well stabilizing the prices which naturally are some of the indicators of development.

At first glance, the approaches may seem disparate in that they cover different subjects using different approaches and methodologies. Innovative activity, one of the central manifestations of change, is at the heart of much of this work. Entry, growth, survival, and the way firms and entire industries change over time are linked to innovation. The dynamic performance of regions and even entire economies is linked to how well the potential from innovation. These perspectives span the firm, the industry, the region, and the country, as well as the interactions among all of these 38 3.

The traditional, equilibrium- based view is that new firms to an industry, whether they be startups or firms diversifying from other industries, enter when incumbent firms in the industry earn supernormal profits. By expanding industry supply, entry depresses price and restores profits to their long-run equilibrium level. The papers in this section probe empirically this characterization of entry. They also develop and evaluate alternative characterizations of entry based on innovation and costs of firm growth.

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Four-digit SIC industries regularly experience substantial entry by small startup firms. These firms have high failure rates, and survivors often take more than a decade to reach the size of incumbents. Geroski concludes that entry is less a mechanism for keeping prices down and more a mechanism for bringing about change associated. In reviewing evidence from a large number of industries, he finds such spin-offs are more likely in younger industries whose technology is more embodied in human rather than physical capital and which are composed of more specialized market niches.

Hause and G. Du Reitz develop a theory of entry based on firm costs of adjustment to growth. Consistent with their model, they find that entry is greater in industries subject to greater growth in employment. Thus, strong selection forces exist to reduce diversity among firms in the same industry. Nevertheless, considerable diversity exists within industries. The papers in this section explore the nature, sources, and implications of.

Differences in internal structure are related to differential abilities of entrepreneurs and the need for entrepreneurs to monitor workers. More able entrepreneurs head larger firms and have a higher opportunity cost to monitor workers and thus engage in various practices to economize on monitoring costs, which includes using more capital intensive methods of production and employing better quality and thus more highly. The papers in this section explore the dynamic process that could give rise to such a distribution.

They show that if in each period the distribution of firm growth rates is the same for all firms above a minimum size and the birth rate of new firms is constant over time, then a positively skewed steady-state size distribution emerges that conforms closely with industry and economy firm-size distributions.

The parameters of the distribution for each industry provide a natural way to measure industry market structure, and departures from the predicted size distribution at small firm or plant sizes provide a way of inferring the minimum efficient size firm or plant. He shows that allowing the probability of failure and the variability of firm growth rates to decline with firm size can accommodate his findings that the mean and variance of firm growth rates among surviving firms declines with size.

Young firms have less experience and respond more sensitively to signals, which Jovanovic shows can account for smaller firms having higher probabilities of failure and higher and more variable growth rates. The theory can also explain other patterns, including why more concentrated industries tend to have more stability over time in firm rates of return, greater 44 variability in firm rates of return at a moment in time, and higher rates of return enjoyed by larger firms. The papers in this section dig deeper empirically into the firm growth process in order to develop a greater understanding of the forces governing the firm-size distribution and industry market.

Manufacturing Sector, Bronwyn Hall explores growth patterns among publicly traded manufacturing firms. She demonstrates that the tendency for mean firm growth rates to decline with size is robust to two econometric problems that could spuriously contribute to this pattern--errors in measuring firm size and sample selection due to small firms having higher failure rates.

Manufacturing Plants, Timothy Dunne, Mark Roberts, and Larry Samuelson investigate further the size-growth relationship 45 as well as other influences on the mean and variance of growth rates using Census data on all U. They find that the failure rate and the mean and variance of the growth rate for nonfailing plants decline with size and age for both plants owned by single and multi-plant firms. Their most striking finding is that for plants owned by single-plant firms mean firm growth rates continue to decline with size, but for plants owned by multi-plant firms the decrease of failure with size overwhelms the decline in growth rates with size for non-failing plants, leading the mean growth rate for all plants to increase with size for larger and older plants.

These older and larger plants of multi-plant firms have distinctively low failure and high growth rates. His model yields a lower bound relationship for the firm-size distribution that is well satisfied by industries in the UK, US, and Germany. The model implies a positively skewed firm-size distribution, with industry concentration dependent on the extent to which absolute firm growth increases with firm size. Another that is closely linked to growth is survival. The papers in this section explore empirically the characteristics of entrants and the industries that enter that influence survival.

Audretsch and Talat Mahmood find that the survival of new establishments in the manufacturing sector depends on establishment and industry conditions. The hazard of exit is also greater in more 47 innovative industries and when unemployment is high. Larger firms tend to be more advanced technologically, more capital intensive, and more productive, all of which 49 independently contribute to longer survival and greater growth.

They analyze the effects of entry, exit, and differential firm growth rates on aggregate productivity growth. They also probe the factors that influence productivity growth within firms, including industry conditions and ownership changes. Although surviving 50 entrants eventually have greater productivity than exiters, initially their productivity is comparable to exiters. Among continuing plants, they find that the productivity rankings of plants persists over time, which is consistent with plants differing in terms of management quality as discussed in the papers by Oi and Doms, Dunne, and Roberts.

Over time, continuing plants with higher productivity gain market share, which is an important contributor to aggregate productivity growth along with improvements in productivity within plants. Tybout examine total factor productivity growth in manufacturing industries in Chile and Columbia in the late s and early s. During this period, Chile experienced a severe recession and experienced a financial crisis whereas Columbia experienced more mild cyclical swings.

In contrast to Baily, Hulten, and Campbell, however, they find some periods in which higher productivity firms were more likely to exit. They also find that reallocations of output among continuing plants contributed less to aggregate productivity growth than in the United States. Geroski explores the factors that account for differences in total factor productivity growth across U.

He finds that total factor productivity growth varied greatly within industries over time, suggesting that high industry productivity growth did not persist over time.

Productivity and welfare: an application to the Spanish banking industry

Entry was interpreted as a measure of competition, and the effects of domestic entry were interpreted as indicating that greater competition spurs productivity growth. Various explanations were offered to reconcile why international entry was associated with lower productivity growth if entry in general spurs innovation.

Lichtenberg and Donald Siegel analyze the relationship between total factor productivity and ownership change. Focusing on relatively larger U. Are there particular circumstances that undermine the leaders? The selections in this section explore these questions, focusing particularly on how innovation affects the persistence of leadership. They consider innovations that are not drastic in that both the challenger and incumbent would compete if the challenger innovated first.

Prior to successful innovation, the incumbent enjoys monopoly profits and thus has a greater amount to lose than the challenger from earlier innovation. Thus, uncertainty in the innovation process can undermine the incentives for industry leaders to maintain their leadership over.

Even if incumbents can make preemptive commitments, she argues it is the mechanism underlying such commitments and not the patent system, as Gilbert and Newbery claim, that is responsible for the persistence of.

He finds considerable persistence in above and below average firm rates of return over the period among the largest firms in the U. In contrast to various theories, they find that nonincremental innovations that required new types of technical expertise or that altered the interrelationship of components did not consistently undermine the leaders. Innovations that were pioneered by entrants and undermined incumbents were ones that led to new types of disk drives that appealed primarily to new users. Christensen and Rosenbloom explain their findings as reflecting that the attention of firms tends to be captured by their customers, which makes incumbents slow to pursue 58 innovations opening up new markets.

They also indicate that in certain types of industries a few firms capture a large market share and maintain it over time. The papers in this section explore the factors which affect the number of firms in an industry and the market share of the leading. These patterns are explained using a model that features random, persistent firm cost differences, limited firm growth and imitation of more efficient rivals, and sunk entry costs.

He tests this prediction by examining the market structure of 20 food and drink industries in six countries of varying size. Such enterprises were concentrated in the food, chemicals, petroleum, primary metals, machinery, and transportation equipment industries. This new growth theory, posited by Paul Romer and Paul Krugman, among others, 63 focuses on the positive externalities associated with knowledge. This paradox involves the geographic dimension. Knowledge spills over from the source where it is produced, but at the same time the geographic extent of the spillover is geographically bounded.

An important implication is that geographic proximity is important in accessing knowledge spillovers. In particular, regions represent a different unit of observation in which knowledge is organized and innovative activity occurs. Glaeser, Hedi Kallal, Jose A. Scheinkenman and Andrei Schleifer. They link the performance of economic activity to the organization of economic activity for a geographic unit of observation -- the city.

Economic performance is measured by the growth rate of the city. Feldman and David B. Audretsch provide systematic empirical evidence demonstrating that the dynamic economic performance of cities, measured in terms of innovative activity, is shaped by the underlying structure of economic activity in terms of 1 greater diversity and less specialization, and 2 a greater degree of competition within the city. Competition among firms for the ideas embodied in these economic agents results in a greater degree of innovative activity.

Glaeser, examines Geographic Concentration in U. Manufacturing Industries: A Dartboard Approach. Ellison and Glaeser introduce a model in which localized industry-specific spillovers, natural advantages, and pure random chance all contribute to geographic concentration. The empirical evidence provides a strong confirmation that localized spillovers play an important role in shaping the geographic concentration of industries. The former type of improvement has been dubbed active learning.

It can result from learning by doing in which firms discover how to do things better through experience in production. It can also result from firms exploring how to improve their performance through activities such as research and development. As modeled by Jovanovic, it can occur through a process of selection in which less efficient firms exit as they learn through experience about their relative efficiency.

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The papers in this section explore these two types of learning. He considers the evolution of the number of producers when there are multiple potential entrants with exogenously determined entry times and bounded learning. Using different equilibrium concepts, he shows that a moderate rate of learning yields the most concentrated industry structure.

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Jeremy C. Kashyap, Mitchell A. Rajan, Sumit Agarwal, Fiordelisi, Franco, Full references including those not matched with items on IDEAS More about this item Keywords banking spatial competition ; bank branch productivity ; interest rates ; branch dynamics ; bank economic profits. You can help correct errors and omissions.

Lesson on Total Welfare, Consumer and Producer Surplus

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If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation. Please note that corrections may take a couple of weeks to filter through the various RePEc services. Economic literature: papers , articles , software , chapters , books. Productivity and welfare: an application to the Spanish banking industry. Registered: Alfredo Martin-Oliver. This paper examines the links between productivity and social welfare, with an application to the banking industry.

The model predicts that more productive banks set lower higher interest rates on loans deposits and increase their market share through both higher demand per branch and a larger network of branches. Specifically, the paper i uses a new measure of bank productivity; ii provides a productivity differences-based explanation of the distance between bank branches and bank customers; and iii shows how the intensity of market competition may be unaffected when the number of banks decreases, provided that banks continue expanding their branch network.

The empirical implementation of the model uses Spanish banks over the period and it confirms the theoretical predictions of the paper. Handle: RePEc:bde:wpaper as.