Durable Commodity Research Articles

Salt and Fish Processing in the Ancient Mediterranean: A Brief Survey

The demand for salt generated by the dietary and domestic needs of most Greek city-states could be usually fulfilled by local resources given the general abundance of salt along the coasts of the ancient Mediterranean. The extremely rare references to interregional salt trade in literary and documentary sources corroborate this idea. As a bulky commodity with little economic value, salt was too expensive to be transported over long distances and was more conveniently obtainable from local resources. However, the situation was different when large-scale fish processing centers entered into the equation. The production and widespread distribution of processed fish required a steady supply of both fish and salt. Salt only was able to transform fish—which is otherwise extremely perishable—into a durable commodity, easy to store and trade. The strategic importance that salt assumed at these centers transformed its economic significance and made interregional trade both convenient and profitable. Also, it was through the medium of processed fish that the surplus of salt production available in certain regions was redistributed across the Mediterranean and came to play an important, albeit indirect, role in interregional trade.

Dynamics of a durable commodity market involving trade at disequilibrium

The present work considers a simple model of a durable commodity market involving two agents who trade stocks of two different types. Stock commodities, in contrast to flow commodities, remain on the market from period to period and, consequently, there is neither unique demand function nor unique supply function exists. We also set up exact conditions for trade at disequilibrium, the issue being usually neglected, though a fact of reality. The induced iterative system has infinite number of fixed points and path dependent dynamics. We show that a typical orbit is either attracted to one of the fixed points or eventually sticks at a no-trade point. For the latter the stock distribution always remains the same while the price displays periodic or chaotic oscillations.

On the dynamics of a durable commodity market

Disequilibria phenomenon appears in the economic model of durable stocks proposed by A. Panchuck and T. Puu in [7]. In this paper, assuming that agents have the same utility functions, we give not only bounds of the disequilibrium but also prove the existence of a compact set of no-trade points such that it does not depend on the initial stock distribution. We also give a description of the nature of $ \omega $–limit sets in the general case proving that disequilibrium points can be attained as limit points of orbits.

The demonetization of gold: transactions and the change in control

Three models of a monetary economy are considered, in order to show the effects of a gold demonetization: the first with a gold money, the second with demonetized gold but no central bank, and the third with demonetized gold, but with a central bank. The distinctions between ownership and control are discussed. Our results show a gain in efficiency (in the case of “enough money”) when a switch is made from a durable commodity money to a fiat money. This is due to players being able to enjoy both the full service value of gold and transactions value of money—something that cannot be done in the original model with gold money. When we further add in the central bank, there is a somewhat further efficiency gain in the case of “not enough money”. We close the paper with a discussion of the usefulness of central banks.

Endogenizing the provision of money: Costs of commodity and fiat monies in relation to the value of trade

We consider the problem of including the costs and value of the institutions that define money and support trade, within the framework of economic optimization. We compare monetary systems mediated by durable commodity monies, versus pure fiat monies, in order to understand the separation and eventual independence of the institutionally-created value of money from the values of underlying traded goods. We treat the emergence of monetary function as a problem in mechanism design, modeled by minimal strategic market games that overcome a generalized Jevons failure when agents must commit ahead of time to specialist resource production. We consider in particular the problem of defining closures with respect to both money flows and labor-allocation and trading decisions, and show that minimal models require many of the fundamental institutions of banking and contract enforcement found in real economies, in order to define a self-policing system. We define costs, value, and the efficiencies of the institutions that support trade in terms of a natural money-metric welfare function, and compare the characteristics of commodity and fiat monies by these measures. Through careful treatment of the stock/flow distinction in repeated-game settings, we find that commodity money, even when its value derives heavily from its institutional role, remains defined by its flow characteristics, in contrast to fiat money, for which the control function is defined inherently in terms of stock variables. Our notation is somewhat nonconventional for economics but to do justice to econo-physics concepts such as scaling and dimensional analysis and to stress the distinction between stocks and flows, we believe this notation is justified. We provide a full listing of notation in Appendix A.

An Investigation of Earnings Management through Marketing Actions

Prior research hypothesizes managers use ‘real actions,’ including the reduction of discretionary expenditures, to manage earnings to meet or beat key benchmarks. This paper examines this hypothesis by testing how different types of marketing expenditures are used to boost earnings for a durable commodity consumer product which can be easily stockpiled by end-consumers. Combining supermarket scanner data with firm-level financial data, we find evidence that differs from prior literature. Instead of reducing expenditures to boost earnings, soup manufacturers roughly double the frequency and change the mix of marketing promotions (price discounts, feature advertisements and aisle displays) at the fiscal quarter-end when they have greater incentive to boost earnings. Our results confirm managers’ stated willingness to sacrifice long-term value in order to smooth earnings (Graham, Harvey and Rajgopal, 2005) and their stated preference to use real actions to boost earnings to meet different types of earnings benchmarks. We estimate that marketing actions can be used to boost quarterly net income by up to 5% depending on the depth and duration of promotion. However, there is a price to pay, with the cost in the following period being approximately 7.5% of quarterly net income. Finally, a unique aspect of the research setting allows tests of who is responsible for the earnings management. While firms appear unable to increase the frequency of aisle display promotions in the short run, they can reallocate these promotions within their portfolio of brands. Results show firms shifting display promotions away from smaller revenue brands toward larger ones following periods of poor financial performance. This indicates the behavior is determined by parties above brand managers in the firm. These findings are consistent with firms engaging in real earnings management and suggest the effects on subsequent reporting periods and competitor behavior are greater than previously documented.

The J-curve: evidence from commodity trade between US and China

In testing the short-run (J-curve effect) and the long-run effects of currency depreciation on the trade balance many researchers have used either trade data between one country and the rest of the world or between one country and another trading partner. Both groups are said to suffer from aggregation bias. To reduce the bias, in this article we consider trade data between one country (the US) and her trading partner (China) disaggregated by commodity. We use imports and exports of 88 industries (2-digit and 3-digit classifications) and cointegration analysis to show that the trade balance of at least 34 of the industries react favourably to real depreciation of the dollar. The J-curve effect is detected in 22 industries. Furthermore, most of these industries that are sensitive to currency depreciation are durable commodity groupings.

An Investigation of Earnings Management Through Marketing Actions

Prior research hypothesizes managers use “real actions,” including the reduction of discretionary expenditures, to manage earnings to meet or beat key benchmarks. This paper examines this hypothesis by testing how different types of marketing expenditures are used to boost earnings for a durable commodity consumer product that can be easily stockpiled by end consumers. Combining supermarket scanner data with firm-level financial data, we find evidence that differs from prior literature. Instead of reducing expenditures to boost earnings, soup manufacturers roughly double the frequency and change the mix of marketing promotions (price discounts, feature advertisements, and aisle displays) at the fiscal quarter-end when they have greater incentive to boost earnings. Our results confirm managers' stated willingness to sacrifice long-term value in order to smooth earnings and their stated preference to use real actions to boost earnings to meet different types of earnings benchmarks. We estimate that marketing actions can be used to boost quarterly net income by up to 5% depending on the depth and duration of promotion. However, there is a price to pay, with the cost in the following period being approximately 7.5% of quarterly net income. Finally, a unique aspect of the research setting allows tests of who is responsible for the earnings management. Although firms appear unable to increase the frequency of aisle display promotions in the short run, they can reallocate these promotions within their portfolio of brands. Results show firms shifting display promotions away from smaller revenue brands toward larger ones following periods of poor financial performance. This indicates the behavior is determined by parties above brand managers in the firm. These findings are consistent with firms engaging in real earnings management and suggest that effects on subsequent reporting periods and competitor behavior are greater than previously documented. This paper was accepted by Stefan Reichelstein, accounting.

An empirical model of inventory investment by durable commodity intermediaries

This paper introduces a new detailed dataset of high-frequency observations on inventory investment by a U.S. steel wholesaler. Our analysis of these data leads to six main conclusions: orders and sales are made infrequently; orders are more volatile than sales; order sizes vary considerably; there is substantial high-frequency variation in the firm's sales prices; inventory/sales ratios are unstable; and there are occasional stockouts. We model the firm generically as a durable commodity intermediary that engages in commodity price speculation. We demonstrate that the firm's inventory investment behavior at the product level is well-approximated by an optimal trading strategy from the solution to a nonlinear dynamic programming problem with two continuous state variables and one continuous control variable that is subject to frequently binding inequality constraints. We show that the optimal trading strategy is a generalized (S, s) rule. That is, whenever the firm's inventory level q falls below the order threshold s(p), the firm places an order of size S(p) − q in order to attain a target inventory level S(p) satisfying S(p) ≥ s(p), where p is the current spot price at which the firm can purchase unlimited amounts of the commodity after incurring a fixed order cost K. We show that the (S, s) bands are decreasing functions of p, capturing the basic intuition of commodity price speculation, namely, that it is optimal for the firm to hold higher inventories when the spot price is low than when it is high in order to profit from “buying low and selling high.” We simulate a calibrated version of this model and show that the simulated data exhibit the key features of inventory investment we observe in the data.

An empirical model of inventory investment by durable commodity intermediaries: A comment

An empirical model of inventory investment by durable commodity intermediaries: A comment

Effect of Ambulatory Surgery Policy Provisions on Medical Expense Insurance Claims

Effect of Ambulatory Surgery Policy Provisions on Medical Expense Insurance claims Introduction From 1965 to 1987 national medical expenditures rose at an annual rate of approximately 10 percent. (1) The proportion of Gross National Product spent on national medical care increased from about 6 percent to more than 11 percent. In 1987 private health insurance funds paid for 32 percent of national medical care; 39 percent of national health dollars went to hospital care alone (U.S. Department of Health and Human Services, 1988). These figures demonstrate the continued real growth of health care costs in the United States, the large absolute dollar amounts associated with providing medical services, the importance of the private sector's role in funding care, and the effect of hospitalization costs on total medical spending. Economic theory and empirical evidence indicate that costsharing by insureds decreases total medical claim costs. (2) Traditionally insurance plans have required insureds to share the cost of medical services through policywide deductible and coinsurance provisions, up to a designated out-of-pocket maximum amount. Since the early 1980's insurers also have offered policies with specific surgical costsharing provisions in addition to those in effect policywide. Higher deductible or coinsurance requirements for inpatient surgery relative to outpatient surgery are expected to induce the substitution of outpatient for inpatient surgery, and decrease surgical claim costs and in turn total medical costs. This study examines policies which encourage use of ambulatory surgery and investigates the effectiveness of policy design in reducing surgical and total medical care claim costs. The Rand Health Insurance Experiment offers the most comprehensive evidence to date on the effect of insurance policy design on the demand for medical services (Manning et al., 1987). The Rand experiment finds that policywide costsharing decreases demand for total medical services. Evidence also indicates that lower costsharing requirements for outpatient care, surgical and nonsurgical, does not decrease total medical expenditures by reducing inpatient expenditures. However, neither the Rand experiment nor nonexperimental demand studies address the effect of policy design which encourages usage of ambulatory surgery on insurer claim costs. Anecdotal evidence is not conclusive on the effect of policy design which encourages use of ambulatory surgery on insurer claim costs. Most reports exhibit little economic and statistical rigor. Many use firm or area specific data insufficient for producing results which may be generalized to a larger population. The study here improves on previous non-experimental demand analysis through use of a large data base covering 197,911 insureds from across the nation. The article begins with the theoretical model that provides the basis for the empirical work. The model considers the insured's demand for medical and surgical services, both outpatient and inpatient, as a function of policy design and demographic characteristics. The econometric model and the data set used for testing are described, and the empirical results are reported. The study concludes with a brief summary of the major findings. Research Methods Theoretical Model of Demand In Grossman's (1972) model of the demand for health, individuals inherit an initial stock of health which depreciates over time. Health stock is treated as a durable commodity produced by consumers which may be increased through investment of monetary resources and time in medical services. The model implies that individuals partly determine the length and quality of their lives through their health investment decisions. That is, the insured chooses or demands quantities of health (and medical care) in order to maximize utility, subject to budget constraints. …

A Proof of the Existence of Competitive Equilibrium in a Generation- Overlapping Exchange Economy with Money

In this paper, we shall prove the existence of a competitive equilibrium in a generalized Arrow-Debreu economy. Instead of the original Arrow-Debreu formulation, we shall assume that the number of economic agents and the number of (dated) commodities are countably infinite. Our model, therefore, is similar to the Samuelson's consumption loan model [1958]. In fact, we shall inherit Samuelson's generational strtucture and the possibility of the existence of money in our model. In an infinite horizon economy, a durable commodity without intrinsic utility may have a positive exchange value, since it may be held as a store of value. Following Samuelson, we shall call this good money; however, in our economy the amount of money in each period will not be treated as an exogenously determined variable. In particular, as a special case, we consider an economy with a government which, at any time, can increase the amount of money in the form of monetary transfer to the living consumers. We consider the following model. In each period, a finite number of consumers are born. All the consumers (except those who exist in period 1) live the same, but finite, number of periods.' The number of consumption goods is (finite and) constant over the time and these goods are completely perishable. There is only one durable good which we call money. Money does not have any intrinsic value at all but it is completely durable. The amount of money stock may not be constant over time, since we allow the government to subsidize consumers in the form of monetary transfers. We assume that all transactions are costless (including those in future markets). Therefore each consumer faces only one life-time budget constraint instead of a sequence of budget constraints.2 We shall give a proof of the existence of a competitive equilibrium in such an economy. The equilibrium we show to exist may be either one of the following two categories: A monetary equilibrium,