Degree Of Market Imperfections Research Articles

Market Imperfections within the European Wheat Value Chain: The Case of France and the United Kingdom

The focus of this paper is on the analysis of market imperfections in the French and U.K. wheat value chains. We used mark-up and mark-down models and stochastic frontier analysis to estimate the degree of market imperfections in two completely different wheat-to-bread chains for two stages/sectors—milling and baking. Our results reveal some degree of market imperfections within the input and output markets for both the milling and baking sectors in France and the United Kingdom. However, the abuse of bargaining power is especially pronounced in the input market for the second stage of wheat processing, particularly in the French baking sector. However, we did not observe the expected positive association between the degree of market imperfections and company size except for a group of middle, large, and very large companies within the millers’ input market. Small companies indicate considerably high values of “Lerner”/Lerner indices, suggesting a benefit from other sources of competitive advantage (such as quality, niche markets, etc.).

Labor market imperfections, markups and productivity in multinationals and exporters

This paper examines the links between a firm’s internationalization status and the type and degree of market imperfections in product and labor markets. We develop a framework for modelling heterogeneity across firms in terms of (i) product market power (price-cost markups), (ii) labor market imperfections (workers’ bargaining power during worker-firm negotiations or a firm’s degree of wage-setting power) and (iii) revenue productivity. We apply this framework to analyze whether the pricing behavior of firms in product and labor markets differs across firms that engage in different forms of internationalization using an unbalanced panel of 7,458 manufacturing firms over the period 1994-2012 in Japan. Engagement in international activities is found to matter for determining not only the type of imperfections in product and labor markets but also the degree of imperfections. Clear differences in behavior between firms that serve the foreign market either through exporting or through FDI are observed. Exporters are more likely to be characterized by imperfect competition in the product market whereas the opposite holds for multinationals. Exporters are more likely to share rents based on the bargaining power of workers whereas a firm’s wage-setting power seems to generate wage dispersion across firms with foreign subsidiaries.

The happiness puzzle: analytical aspects of the Easterlin paradox

We apply an optimizing model with relative comparisons (habit formation) in consumption and labour supply to the economics of happiness, specifically the 'Easterlin paradox'. Studying a generalization of the paradox, which we label the 'happiness puzzle', we analyse ways in which income growth affects happiness. In our model, those factors include agents' risk aversion; whether the economy experiences balanced or unbalanced growth; how non-pecuniary factors affect well-being; and the degree of market imperfections. We also demonstrate that the dynamic specification of habit formation rather than its mere existence matters for whether the happiness puzzle arises on a balanced growth path. Only when habit is modelled in ratio form, does this possibility open up. Our model thus bridges the gap between theory, empirics and social policy. It provides a basis for studying a number of specific policy issues, such as corrective taxes. Copyright 2012 Oxford University Press 2011 All rights reserved, Oxford University Press.

Diversified business groups and corporate restructuring in China

PurposeThis paper aims to explore the roles different ownership structures, the joint effect of related and unrelated diversification strategies, and previous performance levels have on the restructuring strategies of such firms.Design/methodology/approachAnnual reports of publicly traded firms in the two Chinese stock exchanges are used to collect data. Multiple regression and ANOVA analysis are used to examine the impact of ownership structure types, match between diversification strategies, and previous performance on the change of business scopes of the sample business groups.FindingsCompared to other ownership types, government owned business groups tend to increase their business scope during asset restructuring, while private business groups tend to decrease their scopes through divestitures and spinoffs. Poor previous performance is also found to be negatively related to change in business scopes. The “match” between related and unrelated diversification strategies of the business groups leads to increase in business scopes, while “mismatch” between these two strategies tends to lead to decrease in business scopes.Practical implicationsThis study provides some recommendations to managers and public policy makers in emerging economies. There is a need to monitor the changing institutional environment a firm operates in. It is up to the managers of business groups to determine the degree of market imperfections they are facing and the need to compensate with internal market mechanism and social exchange mechanism within the group structure. As China opens its door further to private ownership and foreign ownership, the pressure to increase efficiency and effectiveness along with the continuous improvement of the institutional environment will require that managers adopt strategies that can enhance the competitiveness of the firms, whether it is through further diversification or scope reduction.Originality/valueThis research deepens our understanding of restructuring strategies of Chinese business groups, by linking factors such as ownership structure, diversification strategies, and past performance to scope changes in these groups. It can broaden our understanding of corporate restructuring in transitional economies, such as China and India.

Risk Management and Distributive Justice

This paper surveys the relationship between risk management, particularly financial risk management, and questions of distributive justice. Risk management proceeds by mitigation or transfer. When risk is transferred, questions of distributive justice are often relevant, but they are seldom addressed or even acknowledged by risk managers. Questions of distributive justice in risk management arise with varying intensity in different market settings. This paper argues that perfect financial markets provide a context in which questions of distributive justice are seldom salient. In such markets, all traders have access to the same information about the item being traded and traders are generally anonymous. For the most part, I argue, these conditions justify ignoring questions of distributive justice. In imperfect markets, managing risk becomes relevant to distributive justice. Differential information between trading parties can quickly lead to a situation in which one party exploits another, particularly when the advantageous information is gained by some privileged position or by some illegitimate means. As the degree of market imperfections increases, so does the importance of considerations of distributive justice. In non-financial markets generally, and in labor markets particularly, the firm’s efforts to manage risk often affect others in ways that may be unjust. Finally, the risk management activities of firms can create risks for parties far beyond those who actually manage the risk or participate in the risk management process. These affected parties can even include the public at large.

Degree of market imperfections: evidence from four Asian index futures markets

The degree of market imperfections has important implications for the behaviour of stock index futures. This work extends the evidence regarding the degree of market imperfections in three ways. First, this work represents the first attempt to compare the market imperfections of four Asian index futures markets. As anticipated, the degrees of market imperfections are significantly higher in the emerging markets (Korea and Taiwan) compared to the developed markets (Japan and Hong Kong). Second, this work compares the relative performance of three alternative volatility estimators in estimating the degree of market imperfections: the bivariate error correction GARCH(1,1) model, the exponentially weighted moving average (EWMA) and the power EWMA. The comparison results provide support for the conclusion that among the volatility estimators examined, the bivariate error correction GARCH(1,1) model performs the best. Third, this work tests the stationarity of the degrees of market imperfections. The empirical ...

Optimal Fiscal Policies, Congestion and Over‐entry*

AbstractBy shedding light on market imperfections and the congestion of public goods, we show that free entry in a market equilibrium will lead to excessive entry relative to the social optimum. Moreover, by specifying a generalized congestion function, it is also shown that different fiscal policies, including labor income tax, capital income tax and government expenditure, play a distinct role in terms of remedying market distortions. Specifically, optimal income taxes decrease with the degree of market imperfections in order to remove the monopoly inefficiency, while they increase with the degree of congestion in order to remedy the adverse externality caused by congestion distortion. Since a higher degree of increasing returns to an expansion in the variety of intermediate goods is found to intensify the congestion effect of government infrastructure expenditure, the optimal rule of government expenditure proposed by Barro (1990) should be modified.

The Political Economy of the Consumption Tax

1. The problem and points of view: On April 1, 1989, consumption tax went into effect in Japan, demonstrating the various effects at all levels of the economy that might be expected of tax described by its proponents as a consumption tax with tax burden spread widely and lightly. This multistage, Japanese-style value-added tax, which was based on the assumption that it would be easy to shift, is plainly showing its defects in the short-term price effects that have been so conspicuous at each level of tax shifting—the opportunistic price increases and the excessive shifting or insufficient shifting, as the case may be, depending on the degree of market imperfections and the relative competitiveness of the various participants.