Supply Elasticities Research Articles

Dynamics of a Price Adjustment Model with Distributed Delay

This paper deals with the stability and occurrence of Hopf bifurcation of a distributed delay differential cobweb model using the chain trick technique. This is a generalized form of the fixed delay cobweb model to which it is compared using the same parameter values. The results from the delay distribution showed that whenever less weight (γ=0.146) is put on past prices, the current equilibrium price is adjusted upwards while the reverse is observed when a higher weight (γ=0.186) is put on the previous price. It is also observed that if the initial price is set below/above the equilibrium price, the price adjustment either affects the consumers or benefits the suppliers. However, the fixed delay cobweb model does not display the consumers or suppliers benefits of the price dynamics in either direction. These are unique, underlying patterns in price dynamics discovered when using a distributed delay model compared to traditional fixed delay cobweb models. Furthermore, our model challenges the traditional cobweb model’s requirement for divergence, as it is based on the weight assigned to past prices rather than the relationship between the elasticities of supply and demand, which is the determining factor in the classical model. Based on these insights, we recommend that future price adjustment models incorporate distributed delays, as they reveal more intricate price dynamics and provide a more comprehensive understanding of market behavior than fixed delay models.

Capturing the Benefits of Autonomous Vehicles in Ride Hailing: The Role of Market Configuration

We develop an economic model of autonomous vehicle (AV) ride-hailing markets, in which uncertain aggregate demand is served with a combination of a fixed fleet of AVs and a flexible pool of human drivers (HVs). Dispatch efficiencies increase with scale because of density effects. We analyze market outcomes in this setting under four market configurations, defined by two dispatch platform structures (common platform versus independent platforms) and two levels of supply competition (monopoly AV versus competitive AV). A key result of our analysis is that the lower cost of AVs does not necessarily translate into lower prices; the price impact of AVs is ambiguous and depends critically on both the dispatch platform structure and the level of AV supply competition. In the extreme case, we show that if AVs and HVs operate on independent dispatch platforms, there is a monopoly AV supplier, and labor supply elasticity is sufficiently high, then prices are even higher than in a pure-HV market. Indeed, to guarantee consistently lower prices (relative to a pure HV market) in all scenarios and under all supply and density elasticities, a common dispatch platform between AVs and HVs is required. Furthermore, competitive AVs lead to lower prices than monopoly AVs in every such scenario. Our results illustrate the critical role that market configuration plays in realizing potential welfare gains from AVs. This paper was accepted by Omar Besbes, revenue management and market analytics. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2020.03112 .

Monetary policy and house price heterogeneity: Evidence from the U.K

This paper investigates the effects of monetary policy shocks on regional house prices in the U.K. The empirical results indicate significant heterogeneity in the impact of monetary policy on regional house prices. Focusing on the source of heterogeneity, the paper suggests a demand-side factor to be a major driver. The regions with relatively affordable housing exhibit higher sensitivity to monetary policy than those with less affordable housing. The prevailing view that region-specific housing supply constraints and regional housing supply elasticity are responsible for the heterogeneous response of regional house prices to monetary policy shocks is not confirmed by the empirical findings.

Firm gender labour supply elasticities and sources of separation: evidence from Chile

ABSTRACT We exploit a national administrative dataset to estimate labour supply elasticities at the firm level in Chile, distinguishing for the first time the source of separation (quits versus layoffs), which is crucial as only the former is consistent with employees’ responses to changes in wages. Our results suggest that labour supply elasticities increase by around 18% when all separations (i.e. without identifying its source) are used instead of voluntary separations (i.e. quits). Hence, it transpires that previous literature, which due to data constraints, did not identify the source of separations, presented results which were upward biased, thus overestimating labour market competitiveness. We also find that between firm differences in the gender-specific elasticities are more relevant than within firm differences when voluntary separations are used, a result that should be considered by governments in the design of their gender gap policy agenda.

The small open economy in a generalized gravity model

To provide sharp answers to basic questions in international trade, a standard approach is to focus on a small open economy (SOE). Whereas the classic tradition is to define a SOE as an economy that takes world prices as given, in the new trade literature it is defined instead as one that takes foreign-good prices and export demand schedules as given. We develop a gravity model that nests all its standard microfoundations and show how to take the limit so that an economy that becomes infinitesimally small behaves like a SOE. We then derive comparative statics and optimal policy for the SOE. Ignoring standard tax indeterminacies, optimal policy is characterized by export taxes and import tariffs equal to the (inverse) foreign demand and supply elasticities, respectively, and employment subsidies determined by the scale elasticity (under perfect competition) or markups (under monopolistic competition).

Hours of work and the long‐run effects of in‐work transfers

AbstractPolicymakers have increasingly turned to ‘in‐work transfers’ to boost incomes among poorer workers and strengthen work incentives. One attraction of these is that labour supply elasticities are typically greatest at the extensive margin. Because in‐work transfers are normally subject to earnings‐related phase‐outs, they tend to most strongly incentivize part‐time work, weakening incentives to increase hours beyond that. But if part‐time work generates relatively little in the way of human capital and career progression, then policy design should factor in the longer‐term consequences of labour supply choices along the intensive margin. To that end, we use a dynamic model of female labour supply with endogenous human capital accumulation, and study actual and hypothetical welfare reforms in the UK. We show that for a given expansion in the government budget, those reforms that incentivize full‐time work can do considerably more to increase incomes, including among poorer households, and to raise welfare. Our results suggest that in‐work transfers could be refined by paying greater attention to the intensive margin effects through the design of their phase‐outs.

Emission Taxes and Capital Investments: The Role of Tax Incidence

ABSTRACT This paper examines investment responses to emission taxes and the role of tax incidence in passing on tax burdens. Using private firms from Spain and the introduction of an emission tax in 2013 in the Autonomous Community Valenciana, we show that investments decline in response to the emission tax. Importantly, this investment decline does not depend on the level of pollution but on economic factors related to tax incidence. Investments in firms operating in highly competitive markets, firms with low pricing power, and firms with low financial flexibility are the most affected by environmental taxes. We generalize the investment findings using the introduction of carbon taxes in France and Ireland in a stacked difference-in-differences design. Overall, our results indicate that emission taxes affect not only polluters but also other firms and stakeholders such as suppliers, customers, and consumers depending on the relative elasticities of supply and demand. Data Availability: Data are available from the sources cited in the text. JEL Classifications: H22; H23; H32; G31.

Supply analysis of mushroom in Malang, Indonesia

Background: This study aims to determine the factors that influence the supply and elasticity of mushroom supply in Malang. Method: The primary method used in this research is descriptive and analytic. The research location was chosen purposively in Malang. The type of data used is secondary data in the form of time series for 39 months. The data analysis method used is multiple regression linear analysis with the partially adjusted Nerlove Model. Findings: The results showed the variable price of mushrooms, the area of the harvested mushroom, the price of chicken meat, the price of urea fertilizer, and interest rates individually affected the supply of mushrooms in Malang. The variable of mushroom production and the average rainfall had no significant effect. Variables that are elastic in the short term are the area of the harvested mushroom, and elastic in the long term are the area of the harvested mushroom and the price of chicken meat. Conclusion: The mushroom farmer needs production planning to anticipate increases in the price of substitution products. Mushroom farmers are advised to make storage for supply and expand the mushroom house with more substantial materials to increase supply. Novelty/Originality of this study: This analysis provides an in-depth understanding of supply dynamics, identifying key factors that influence supply elasticity in the short and long term. This study offers practical recommendations for mushroom farmers to optimize their production in the face of market fluctuations.

Understanding the individual labor supply and wages on digital labor platforms: A microworker perspective

The emergence of crowdsourcing as a new form of work has introduced a paradox among workers who receive small payments for piecemeal microwork yet continue to participate in microwork digital labor platforms (DLPs). To better understand what sustains microworkers’ participation, this study draws upon individual labor supply theory to quantitatively examine the impacts of microworkers’ motivations, perceptions, and preferences on their labor supply and wages. To explore the meaning of monetary rewards for microworkers, a qualitative inquiry explores microworkers’ spending patterns. Based on a survey of 306 microworkers on Amazon Mechanical Turk, our hierarchical regression analysis reveals that while individual motivations for monetary rewards, enjoyment, and microtime structure have some impact on the microwork labor supply and wages, their impact is limited. Our thematic analysis uncovers diverse meanings attached to microwork earnings. The two most noted are meeting subsistence needs and nonessential expenditures, both of which have positive effects on microwork wages. By investigating the elasticity of the microwork labor supply and wages and offering a nuanced understanding of monetary rewards, our study contributes to information management research on DLPs. Moreover, it provides practical insights for various stakeholders, including microworkers, requesters, and DLP operators.

Multinational entry and exit, technology transfer, and international business cycles

I develop a general equilibrium model of trade and horizontal multinational firms with firm heterogeneity and parent-to-affiliate technology transfer to evaluate how multinationals affect international business cycles. When calibrated to match micro and macro features of the United States, the impact of multinational firms crucially depends on the labor supply elasticity and the technology transfer parameter. Surprisingly, with standard (elastic) labor supply, multinationals lead to lower international correlations and higher macroeconomic volatility. A novel mechanism – procyclical exit of multinational firms – drives these results. The results are overturned only when inelastic labor supply and a high level of technology transfer are implemented together. Using novel bilateral data on the number and sales of multinational affiliates, I find evidence that the key model mechanism, i.e., entry and exit by multinationals, increases international output correlation.

Estimating leakage rates for Ontario forest offset projects

Forest offset projects can contribute to climate change mitigation. The key question is whether mitigation benefits of forest offset projects are undermined by shifting emissions elsewhere—a problem known as leakage. In this study, we estimated leakage caused by market effects for forest offset projects in Ontario, Canada, using a well-known method developed by Murray et al. (2004). Leakage was calculated using price elasticities of supply and demand from a literature search of studies relevant to Ontario. The average leakage rate was 52.2%, with the 5–95th percentile range from 24.7% to 76.2%. Leakage estimates were tested for sensitivity to policy scale and substitutability parameters.

FRICTIONAL SORTING: THE IMPACTS OF DUAL CONSTRAINTS ON MOBILITY AND HOUSING SUPPLY IN CHINA

AbstractUsing an equilibrium sorting model and microdata from China, we evaluate the impacts of dual constraints on mobility and housing supply on workers’ sorting behavior, quantifying the welfare and distributional consequences. Counterfactual simulations show that lowering migration costs associated with institutional restrictions and migrant‐specific amenities would increase welfare and reduce inequality by moving workers from inland to coastal regions in China. These impacts depend on the housing supply elasticity in coastal regions. Similarly, the impacts of relaxing housing supply restrictions depend on mobility constraints. Results highlight the policy complementarities between reducing the two kinds of frictions.

The supply elasticity and housing price bubbles in New South Wales, Australia

AbstractIn this study, we use a supply and demand model to estimate housing supply elasticity in New South Wales Australia based on yearly data for the 126 local government areas from 1991 to 2019, and investigate effects of supply elasticity on responses of housing prices and new constructions to housing price bubbles from 2002 to 2004. In particular, when conducting supply elasticity estimation, we use multi‐factor error structures to address cross‐sectional dependence issues, which is ignored by previous studies. We find that the supply elasticity estimates are statistically significant at the state level (0.36), in the regional coastal area (0.97) and in the regional inland area (0.41 but can be inconsistent and inefficient due to cross‐sectional dependence), while perfectly inelastic in the metropolitan area. Effects of supply elasticity on the market responses to bubbles are largely affected by market heterogeneity such as overall supply elasticity levels and demand degrees. The findings may compensate for the limitations of the theory in Glaeser et al. (2008, J Urban Econ, 64:198–217) and offer potential avenues for future development of the theory. Our results implies that bubbles promote development in elastic areas of the metropolitan market and inelastic areas of the regional coastal market, and that balancing urban and regional development is important for dealing with bubble‐related affordability issues.

Wealth Elasticity, Agent Heterogeneity and Fiscal Dynamics

The literature on fiscal policy has identified wealth elasticity of labor supply and agent heterogeneity as the linchpin of shaping different transmission mechanisms for fiscal policy. In this paper, I build these two important edifices on an otherwise canonical business-cycle model to conduct quantitative analyses of various fiscal policies. To underscore the relative importance of agent heterogeneity, I compare results from the model with agent heterogeneity with those from a standard model without agent heterogeneity. I also compare results from changes in wealth elasticity to analyze how the model ingredient delivers different macroeconomic and fiscal dynamics. The main finding reveals that in the context of the model formulated in this paper, the capital tax is the least detrimental to business cycles and fiscal states and the consumption tax is the most appropriate policy tool since it yields positive output and tax-revenue multipliers in the short and long runs. All the results from counterfactual experiments suggest that macroeconomic and fiscal outcomes hinge fundamentally on agent heterogeneity and wealth elasticity. An important value that this paper adds to the literature is to offer results from a comprehensive analysis of all possible fiscal policies by considering both essential forces.

Distributional effects of immigration and imperfect labour markets

In canonical models, the labour share is orthogonal to immigration shocks in the long run, regardless of the impact of immigration on productivity. In contrast, this paper provides evidence that immigration increases labour productivity while reducing the labour share. We produce this evidence using data from Great Britain with a shift-share instrument that exploits European Union expansions and changes in immigration to other high-income countries. Our results are consistent with the predictions from imperfect labour market models, where immigrant and native workers are heterogeneous in skills, and the former have lower labour supply elasticities than the latter. A significant implication of our analysis is that immigration redistributes income from workers to employers.

Analisis Elastisitas Permintaan dan Penawaran dalam Ekonomi Modern

The purpose of this study is to analyze the elasticity of demand and supply in today's economy where technology and its development are very large. This article will show how demand and supply are in today's economy. With the literature review method, several relevant articles will be obtained that discuss the demand and supply of the economy and the current economy. This can be an insightful addition to all circles including students. This is very necessary to understand because demand and supply are two things that must be balanced to meet economic needs to run well and produce good results as well. Elasticity analysis provides a foundation for the government to design more effective economic policies. The importance of elasticity analysis is also reflected in the development of responsive price policies. A price policy supported by an understanding of elasticity helps firms improve their competitiveness in a competitive market.

A modest basic income can benefit a poor majority

Given a general utility and income distribution and positive unemployment benefits, we analyze the impact of a universal basic income (UBI) financed by an income tax and reducing unemployment benefits. With extensive margins only and identical fixed costs of work, we show that UBI can benefit a poor majority. Plausible conditions can ensure similar results with different fixed costs. With both extensive and intensive margins but identical fixed costs, a modest UBI can still benefit a poor majority provided the income weighted tax elasticity of labor supply from intensive margins is less than the non-employment rate, which is usually true.

Falling Interest Rates and Credit Reallocation: Lessons from General Equilibrium

Abstract We show that in a canonical model with heterogeneous entrepreneurs, financial frictions, and an imperfectly elastic supply of capital, a fall in the interest rate has an ambiguous effect on aggregate economic activity. In partial equilibrium, a lower interest rate raises aggregate investment both by relaxing financial constraints and by prompting relatively less productive entrepreneurs to invest. In general equilibrium, however, this higher demand for capital raises its price and crowds out investment by more productive entrepreneurs. When this reallocation is strong enough, a fall in the interest rate reduces aggregate output. A numerical exploration of the model suggests that this reallocation effect is quantitatively significant and—in response to persistent changes in the interest rate—stronger than the traditional balance-sheet channel. We provide evidence of the reallocation effect using U.S. firm-level data.

Structural Estimates of Supply and Demand Elasticity for Houses in Sydney

We report estimates of supply and demand elasticities for houses (i.e., non-strata properties) in three geographic locations of Sydney. In the Inner Ring of Local Government Areas (LGAs)—those closest to the Central Business District (CBD)—our estimates indicate that the supply curve for houses is perfectly inelastic. This finding allows us to condition on the stock of houses and estimate the corresponding Inner Ring demand curve using ordinary least squares. In the Middle and Outer Rings—where the supply curve for houses has positive elasticity—we use instrumental variables to estimate the demand curve for houses. For all three locations, we obtain theoretically reasonable point estimates of standard demand elasticities, although the degree of uncertainty surrounding the Outer Ring estimates is relatively large. Averaging across the three regions of Sydney, the price elasticity of demand for houses is −1.3, cross-price elasticity with units is 1.1, and income elasticity is 2.1. Based on our elasticity estimates, only in the Outer Ring are any of the direct burdens of stamp duty born by buyers (about 40 percent).

Estimating the emissions reductions from supply-side fossil fuel interventions

Supply-side interventions that retire highly emitting fossil fuel assets have received increased attention from policymakers and private actors alike. Yet concerns about market leakage—wherein reduced supply from one source is partially offset by increased production from other sources—have raised questions about how much emissions reductions they can achieve. In this paper, we estimate the effects of these supply-side interventions on global emissions, accounting for both market leakage as well as the relative greenhouse gas (GHG) intensity of different sources of supply. We account for uncertainty in market leakage rates and the emissions intensities of the curtailed and substitute sources of supply through a Monte Carlo analysis, drawing on supply and demand elasticities from the economics literature and emissions intensity data from the state-of-the-art Oil Climate Index plus Gas (OCI+) dataset on 586 oil and gas fields around the world. We find a rough band of central estimates for life-cycle emissions reductions from permanent and additional supply-side interventions in the range of 40–50% of the gross life-cycle emissions of each barrel curtailed, depending on the relative emissions intensity of the curtailed and substitute sources of supply. Further, across all of 1.53 million Monte Carlo simulations we conduct, we find very high confidence of net emissions reductions from supply-side interventions (nearly 99% of cases). Finally, targeting the most emissions-intensive sources of oil supply could achieve yet further emissions reductions. How one compares methane and CO2 emissions also has important consequences for which sources to target. Importantly, all estimated emissions reductions we estimate hinge upon a given supply-side intervention being credibly permanent and additional, and our estimates do not assess the uncertainties of those criteria being met due to the idiosyncratic nature of those assessments.