Product Complementarity Research Articles

Structure and Dynamics Vol.1 No.2: Editorial Commentary

Structure and Dynamics Vol.1 No.2: Editorial Commentary

Strategic Immigration Policies and Welfare in Heterogeneous Countries

In this paper we consider a model with two industrialized countries and immigrants that come from rest of the world. The countries are distinguished on the basis of three parameters: population size, bias toward immigrants, and production complementarity between native population and immigrants. We consider a non-cooperative game where each country makes a strategic choice of its immigration quota. We first show that our game admits a unique pure strategy Nash equilibrium and then study the welfare implications of countries' choices. It turns out that a country with a higher degree of production complementarity and a higher level of tolerance towards immigrants would allow a larger immigration quota and achieve a higher welfare level. Our results call for coordinated and harmonized immigration policies that may improve the welfare of both countries.

Capital–skill complementarity and inequality over the business cycle

When capital–skill complementarity is present in the production process, changes in the skill premium are driven not only by changes in the ratio of unskilled to skilled labor inputs (as they are in the case with Cobb–Douglas production), but also by changes in the capital–skill ratio. A simple regression analysis demonstrates that the capital–skill ratio has a positive and significant relation to the skill premium at business cycle frequencies as predicted by the capital–skill complementarity hypothesis. This finding motivates the construction of a stochastic dynamic general equilibrium model that allows for capital–skill complementarity in production. The model with capital–skill complementarity can account for the cyclical behavior of the skill premium and much of its volatility. The model without capital–skill complementarity cannot. These results, together with the available empirical evidence, suggest that capital–skill complementarity is an important determinant of wage inequality over the business cycle.

Review of Cooperation between the Convention on Wetlands (Ramsar, Iran, 1971) and the United Nations Educational, Scientific and Cultural Organisation (UNESCO)

In recent years, formal cooperation among multilateral environmental agreements, programmes and other initiatives has grown. There is an intricate web of memoranda of cooperation, joint work plans and the like, and initiatives to harmonise reporting requirements, terminologies and other standards, all of which is sometimes collectively referred to as the agenda on synergy.This report reviews progress with each of the elements of first Programme of Joint Work (PJW) adopted by the Ramsar Convention and UNESCO’s Man and the Biosphere Programme (MAB) for the period 2002-2003. Appendix 1 presents a tabular summary of the findings of the review, following the structure of the PJW. This includes recommendations for how issues may be taken forward or adapted in compiling a second Programme. Appendix 2 follows the same structure and gives the detailed findings of the review. This includes an account of areas of linkage and measures undertaken, an analysis of compatibility and complementarity of relevant activities and products of the two institutions, an evaluation of past and potential future areas of cooperation, some comments on the approach taken in the 1st PJW, and recommendations, most of which are directed towards a 2nd PJW.Appendix 3 presents a suggested draft of a 2nd Programme of Joint Work, based on the recommendations in the review, for consideration and possible adoption by relevant governing bodies of each organisation.

Dimensions of predatory pricing in air travel markets

This paper highlights how particular characteristics of air travel markets impact key dimensions of predatory pricing investigations. The paper suggests that product complementarity, product differentiation and the existence of internally flexible capacity create particular challenges in defining and measuring the extent of predation in air travel markets. These ‘dimensions of predation’ are applied to recent predatory pricing allegations in Germany.

Nonprofit Taxable Activities, Production Complementarities, and Joint Cost Allocations

Nonprofit organizations earn both tax—exempt and taxable revenues. Nonprofits may have a natural aversion to engaging in ancillary activities and, as a result, taxable ventures need to provide higher returns than alternative investments. A nonprofits' ability to exploit production complementarities may increase the return to taxable activities and explain the extent to which it engages in taxable ventures. This paper uses tax return data to test the theory that complementarities encourage taxable activities. Complementarities can lower production costs and make it easier for a nonprofit to allocate joint costs from tax-exempt to taxable activities. I find support for both hypotheses.

Editorial: Multiple Methodologies in Anthropological Research

Editorial: Multiple Methodologies in Anthropological Research

Stratégies de localisation des firmes du secteur TIC : du cyber district au district lisière

This paper proposes an explanation for the emergence of internet activities cluster: the cyber-district. This cluster is characterized with a very fast evolution cycle whereas spatial dynamics are more often longer. We define the principle of cascade location as the product of individual decision making based on the information externalities and mimetic behaviours and as supporting the cluster temporality. We compare the cluster to a good experience where value is revealed ex-post. However, as the cyber-district is more instable than a district, based on productive complementarities and network externalities we could produce some regional policy recommendations associated with the replication and stability conditions of the cluster. Finally, we illustrate the evolution of a cyber-district with the Silicon Sentier located in Paris.

London in the European financial services industry: locational advantage and product complementarities

If its prospects were doubted in the early 1990s, London is now the pre‐eminent international financial centre. It dominates its European rivals and is joined with New York and Tokyo in a non‐stop reciprocal global embrace. Whereas some analysts approach this topic concentrating on the nature and quality of market relationships in London, others emphasise the role that government regulation has played in promoting the growth of the City of London with respect to its European rivals. Here, I elaborate the logic whereby financial products and services are produced at a particular point in space even if financial trading is an increasingly ubiquitous virtual activity. I emphasise the competitive dynamics of the financial services industry, the complementary qualities of financial products, and the place of London in corporate global transactions systems. I mean to show that the production of financial products has been brought to ground (so to speak) in London for a variety of (perhaps non‐replicable) reasons. In this regard, my argument is clearly at odds with those analysts of information and communication technology who proclaim the end of geography. However, my argument sits uncomfortably with those who insist upon the persistence and co‐existence of different national financial systems. Implications are drawn for the role of London in the evolving integrated European market for financial services, and for the future of continental European financial centres.

Consumption and the Self-Concept

Consumption and the Self-Concept

Warlord Competition

Warlords compete for turf that provides them with rents and `taxable' resources, but they can also offer a semblance of security within their respective territories. This article first examines two economic models of warlord competition. Because such competition takes place through the use of force or the threat of the use of force, more competition typically leads to lower material welfare as resources are wasted on unproductive arming and fighting. This is in contrast to ordinary economic models, in which typically greater competition leads to higher material welfare. Furthermore, rents from oil, diamonds, and even foreign aid crowd out production. In extreme cases, this crowding out of ordinary production can be complete, whereby all economic resources can be devoted to the unproductive competition for rents. The article then reviews factors that lead either to actual war or to peace in the shadow of war. Because war is destructive, human beings are typically risk averse, and there exist numerous complementarities in production and consumption, we can expect peace in the shadow of war to be most often preferable by all parties. Actual war can take place because of incomplete information about the preferences and capabilities of the adversaries but also, somewhat surprisingly, when the shadow of the future is sufficiently long.

Silences across Disciplines: Folklore Studies, Cultural Studies, and History

The AA. explore why communication between the disciplines of Folklore Studies (Volkskunde), Cultural Studies, and Social History - each concerned with the cultural - has been so uneven and incomplete in (and outside) Dutch and British academe. Folklore Studies in the Netherlands and England stood outside the politically engaged discussions that were involved in the emergence of popular history and Cultural Studies. As far as communication took place, it seems mainly to have been limited to the history of the early modern period. The AA. argue that this disjunction has to do with the Marxist orientation of both Social History and Cultural Studies, neither of which focused on the rural in the way that Folklore Studies did. This silence was deepened by the marginal and conservative image of Folklore Studies, as well as by some folklorists' fears of blurring the border between the political and the scientific. By investigating the reasons for silences across these disciplines, the AA. hope to stimulate transdisciplinary work, since today productive differences and obvious complementarities of theme, theory, method, and political formation and engagement exist among the three fields.

Twin Engines of Growth: Skills and Technology as Equal Partners in Balanced Growth

We develop an endogenous growth model in which skill acquisition by households and innovation by firms make distinct contributions to productivity growth. Nevertheless, the incentives faced by firms and households are inextricably linked because skills are required to implement new technologies. Skills and technologies are dynamic complements but, because their production complementarity is inherently bounded, they are “equal partners” in driving growth: neither can generate sustained growth alone. Our model has important implications for the effectiveness of alternative growth-promoting policies, for interpretating the empirical relationship between growth and schooling, and the relationship between growth and intergenerational wage dispersion.

A new look at the development agenda

This essay summarizes some of the main ideas behind proposals for a new development agenda. It highlights first the need to strike a new balance between the market and the public interest, and to understand by “public policies” any initiative organized in pursuit of common goals, and not just State actions. The author makes five proposals for a new agenda: i) more balanced globalization with genuine respect for diversity, underpinned by a network of regional institutions; ii) a broad view of macroeconomic stability and the role of countercyclical policies; iii) the use of development strategies to foster innovation and production complementarities, without which macroeconomic policies are insufficient to generate dynamic growth; iv) improved social linkages, through long-term equity and inclusion policies, complemented by economic growth to create sufficient high-quality employment and measures to reduce structural heterogeneity among production sectors; v) subordination of the economic system to broader social objectives.

Informal sector in general equilibrium: welfare effects of trade policy reforms

The paper demonstrates the welfare effects of trade policy reforms in a general equilibrium framework, in the presence of an informal sector in the economy. The methodology we developed in the paper allows us to use a full-employment model with wage differential. Tariff cuts in this model have ambiguous effects because of the preexisting wage differential and due to the cross-effects in the three-good structure, which is used in some recent works in trade theory. Complementarity in production may lead to negative welfare effects despite improvements in terms of trade.

Heterogeneous forecasts and aggregate dynamics

Motivated by issues raised in both the finance and economics literatures, I construct a dynamic general equilibrium model where agents use differing degrees of sophistication when forecasting future economic conditions. All agents solve standard dynamic optimization problems and face strategic complementarity in production, but some solve their inference problems based on simple forecasting rules of thumb. Assuming a hierarchical information structure similar to the one in Townsend's (J. Political Econom. 91 (1983) 546–588) model of informationally dispersed markets, I show that even a minority of rule-of-thumb forecasters can have a significant effect on the aggregate properties of the economy. For instance, as agents try to forecast each others’ behavior they effectively strengthen the internal propagation mechanism of the economy. The quantitative results are obtained by calibrating the model and running a battery of sensitivity tests on key parameters. The analysis highlights the role of strategic complementarity in the heterogeneous expectations literature and precisely quantifies many qualitative claims about the aggregate implications of expectational heterogeneity.

Natural capital and the theory of economic growth

During the past half century, theorizing about economic growth has forced economists to reconsider and revise the capital concept a number of times. This paper explores the analytical relationship between capital accumulation and economic growth, on the one hand, and the natural world, on the other. Section 1 sketches modern growth theory with an emphasis on whether or not the economy is seen as facing biophysical ‘limits to growth.’ Section 2 argues that analysis of the role that ‘natural capital’ plays in the production process must occur before one can assess the prospects for economic growth. Section 3 inserts natural capital into a simple growth model and discusses the implications that (1) depletion of natural capital, (2) complementarity in production of natural and social forms of capital and (3) accumulation of technical knowledge have for the growth process.

Enter at your own risk: HMO participation and enrollment in the Medicare risk market

We examine HMO participation and enrollment in the Medicare risk market for the years 1990 to 1995. We develop a profit‐maximization model of HMO behavior, which explicitly considers potential linkages between an HMO's production decision in the commercial enrollee market and its participation and production decisions in the Medicare risk market. Our results suggest that the payment rate is a primary determinant of HMO participation, while the price of a supplemental Medicare insurance policy positively affects HMO Medicare enrollment. We also find empirical support for the existence of complementarities in the joint production of an HMO's commercial and Medicare products.

Market Formation in Bilateral Oligopolies

This paper investigates the structure of bilateral oligopolies - a simple version of Shapley Shubik games with two types of traders and two commodities. It shows that interior equilibria exist, studies the example of CES utility functions to uncover the relation between the complementarity of products in the utility functions and the shape of the reaction functions of the traders, and proves that the number of trading posts is irrelevant. Even if traders can split their offers on different markets, they never choose to specialize and all equilibria are equivalent to an equilibrium where all agents trade on a single market.

Heterogeneous Forecasts and Aggregate Dynamics

Motivated by issues raised in both the finance and economics literatures, I construct a dynamic general equilibrium model where agents use differing degrees of sophistication when forecasting future economic conditions. All agents solve standard dynamic optimization problems and face strategic complementarity in production, but some solve their inference problems based on simple forecasting rules of thumb. Assuming a hierarchical information structure similar to the one in Townsend's (1983) model of informationally dispersed markets, I show that even a minority of rule-of-thumb forecasters can have a significant effect on the aggregate properties of the economy. For instance, as agents try to forecast each others' behavior they effectively strengthen the internal propagation mechanism of the economy. The quantitative results are obtained by calibrating the model and running a battery of sensitivity tests on key parameters. The analysis highlights the role of strategic complementarity in the heterogeneous expectations literature and quantifies many qualitative claims about the aggregate implications of expectational heterogeneity.