Pure Profits Research Articles

Why right-wing governments restrict market competition: a demographic theory

Abstract Recent scholarship on the evolution of neoliberalism points out that, despite free market discourse, right-wing rule has often resulted in re-regulation and further market concentration, to the advantage of large corporations. This article argues that such an outcome is not an inevitable result of right-wing incumbency. Instead, I identify an exogenous, demographic, change that prompts right-wing governments to increasingly embrace market concentration: the aging of the workforce, which has intensified the substitution of capital for labor, and as a result, somewhat paradoxically, reduced the amount of pure profits that can be distributed to wealthy households. In response, right-wing governments restrict competition to shore up pure profits. Drawing on data from 14 to 20 OECD countries, I show that as workforce aging intensifies, right partisanship becomes increasingly associated with more regulatory restrictions on competition, greater market concentration, and a greater pure profit share of income.

Imperfect Competition, Real Estate Prices and New Stylized Facts

In this paper, we develop an overlapping generation model with imperfect competition and land to provide a theoretical foundation for some empirical observations made since the end of the 1970s. The problem is that these new “stylized facts” do not coincide with Kaldor’s stylized facts and unfortunately the standard growth models are not able to explain these new facts. By using our model, we are able to theoretically derive these new facts and to provide a theoretical foundation for them. In particular, increasing market concentration leads to a decline in the labor income share, to a decline in the capital income share, to a decline in the natural interest rate, to an increasing wealth to income ratio, and to an over-proportional increase in land prices in developed countries. The model developed for analysis has close similarity with the standard neoclassical overlapping generation model with endogenous growth and land. The main difference between the standard neoclassical and the model in this paper is the market structure. Instead of assuming perfectly competitive markets, we assume an oligopolistic market structure. This leads to the occurrence of pure profits for firms and, accordingly, the input factors are no longer paid their marginal products.

Kaldor and Piketty’s facts: The rise of monopoly power in the United States

The macroeconomic data of the last fifty years have overturned at least two of Kaldor’s famous stylized growth facts: constant interest rates, and a constant labor share. At the same time, the research of Piketty and others has introduced several new and surprising facts: an increase in the financial wealth-to-output ratio in the US, an increase in measured Tobin’s Q, and a divergence between the marginal and average returns on capital. In this paper, we argue that these trends can be explained by an increase in market power and pure profits in the US economy—that is, the emergence of a non-zero-rent economy—along with forces that have led to a persistent long-term decline in real interest rates. We make three parsimonious modifications to the standard neoclassical model to explain these trends. Using recent estimates of the increase in markups and the decrease in real interest rates, we show that our model can quantitatively match these new stylized macroeconomic facts.

Optimal Taxation of Capital in the Presence of Declining Labor Share

We analyze the implications of the decline in labor’s share in national income for optimal Ramsey taxation. It is optimal to accompany the decline in labor share by raising capital taxes only if the labor share is falling because of a decline in competition or other mechanisms that raise the share of pure profits. This result holds under various alternative institutional arrangements that are relevant for optimal taxation of capital income. A quantitative application to the U.S. economy shows that soaring profit shares since the 1980's can justify a significantly increasing path of capital income taxes.

Asymmetry in Boom-Bust Shocks: Australian Performance with Oligopoly

Australia’s comparatively small and open economy is subject to boom-bust shocks that centre on its exporting mining and agricultural industries which, in average years, are minor contributors to its GDP. The associated real exchange rate effects, however, have important implications for overall performance and its distribution between traded industries and largely non-traded services, the latter contributing four-fifths of its GDP with much of it dominated by oligopolies. A common inference concerning the recent “China” boom has been that the following bust will be seriously contractionary, indirectly implying symmetry in economic responses. This paper explores this issue using an economy-wide approach that represents oligopoly behaviour and its regulation explicitly. The results show considerable asymmetry, with booms having proportionally larger effects on performance than busts. This is shown to be affected by oligopoly but to have its roots in neoclassical behaviour. Key implications are that busts do not place all boom gains at risk. Tight regulatory control of pure profits raises and better distributes gains during booms but it prevents pure losses or exits during busts and so exacerbates downturns.

Declining Labor and Capital Shares

ABSTRACTThis paper presents direct measures of capital costs, equal to the product of the required rate of return on capital and the value of the capital stock. The capital share, equal to the ratio of capital costs and gross value added, does not offset the decline in the labor share. Instead, a large increase in the share of pure profits offsets declines in the shares of both labor and capital. Industry data show that increases in concentration are associated with declines in the labor share.

Improving Cash Flow Corporate Taxation (CFCT) and the Z-Tax (ZT) Approach

This paper proposes a method to improve the cash flow corporate tax and in particular to make it better applicable to financial corporations. This takes the S-CFCT – which is a tax on net flows to shareholders - proposed by the 1978 Meade Committee a step further and allows us to tax ‘pure profits’ on debt as well as equity. The other adjustment is to avoid negative tax receipts when cash flows are net inward and replace these with a rebate, which is adjusted upwards over time. The rebate offsets tax when it falls due. This also provides a mechanism to deal with corporations which accumulate cash and don’t distribute, which is a serious issue for the S-CFCT. I call this the corporate Z-tax as it mimics the mechanism provided under the personal Z-tax (as described in Working Paper 6/2019).

ANALYSIS OF SIMPLE FINANCIAL BOOKKEEPERS FOR THE VEGETABLE VENDORS IN EAST BOGOR REGION

Recently there are many vegetable vendors who have difficulties in managing their financial bookkeepers. In maintaining their capital, they borrow some money from moneylenders or mobile banks that provide higher interest than the state bank. The aim of this study is to analyze how they can maintain their financial skill. This type of research is a descriptive development survey with a qualitative research technique. Data are collected from primary and secondary data by using the questionnaires. The stratified sampling method used by taking grouping respondents get 34 people from 92 populations spread across the Bogor region. The result of this study describes there are still many vegetable vendors do not have capabilities in simple bookkeeping skills in the East Bogor Region. A lot of them do not separate the financial management of their business with their personal life. They don't take notes on the entry and expenditure because they think it's too complicated and time-consuming. Even though they have difficulties in detecting pure profits from the sales, they still borrow some money from moneylenders to generate their capitals. They do not understand what the impact of it.

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Declining Labor and Capital Shares

This paper presents direct measures of capital costs, equal to the product of the required rate of return on capital and the value of the capital stock. The capital share, equal to the ratio of capital costs and gross value added, does not offset the decline in the labor share. Instead, a large increase in the share of pure profits offsets declines in the shares of both labor and capital. Industry data show that increases in concentration are associated with declines in the labor share.

Integration of Multi-period Vehicle Routing Problem and Economic Selection of Customers with the Objective of Optimizing Distribution, Sales and Discounts Planning

Making decisions about the economic selection of the customers plays a significant role in the sale and logistic management of the companies. Furthermore, another issue affecting the relationship between the suppliers and the customers is the proper and timely distribution of the products as well as the optimum mixing of the distribution routes to reduce transportation costs. In this paper, the issues of the integration of routing, and the economic selection of customers has been explored aiming at minimizing the transportation, maintenance, and discount costs and maximizing the products selling profits. In addition to the amount of customer's purchasing, costumers' collection period is effective to offer them discounts. The economic customers are selected due to three factors: the discount on the price of the product, the marginal profit of the requested products, and the distance from the supplier's warehouse. Games software was used for the exact solution of the model, and Simulated annealing algorithm was used to solve the model in larger dimension. The efficiency and applicability of the proposed model was approved comparing the optimum results with a high preciseness as 98.91 percent. Moreover, in the case study of Kalleh Company, the results revealed 14% increase in pure profits.

Exploring the effects of social responsibility on coordination and profit division in a supply chain

This paper explores channel coordination and profit division in a socially responsible manufacturer-retailer chain through sub-game perfect equilibrium and extended alternative offer bargaining. The channel members jointly intend to swell stakeholder's welfare by exhibiting corporate social responsibility (CSR) in a proportion. It is found that (i) the channel's non-profit maximizing motive through CSR practice generates higher profit margin than would the profit maximizing objective, (ii) the manufacturer's wholesale price is below its marginal cost or negative above some thresholds of CSR and CSR sharing fraction, (iii) the CSR and CSR sharing fractions are key determining factors for the pure profits of the channel members because variations in choosing these two factors can lead to increment or decrement, even negative pure profits. On the other hand, for the CSR manufacturer, the wholesale price is less than the marginal cost for CSR practice above a threshold and is negative for heavy CSR practice though always larger than the marginal cost for the CSR retailer. So, the manufacturer's pure profit may be negative. Moreover, a channel member always prefers the other's CSR practice. Thus, in cooperative environment, equitable share of CSR may be a compromise solution.

Delegation Games: A Game Theoretical Perspective for Managerial Incentives

Companies employ managers for either practical, legal or administrative reasons. However, no matter what the reason, the good performance of managers and the success of companies are vital elements for firms. At this point, managerial incentives play a key role. In this paper, we use the VFJS model proposed by Vickers (1985), Fershtman and Judd (1987) and Sklivas (1987). We assume that owners in a duopoly each hire a manager with a publicly observable contract which is not renegotiable. The remuneration of a manager consists of a fixed part and a bonus (incentive), which can be based on pure profits, sales, relative profit or market share.We assume that firms have different marginal costs. We find that even an inefficient firm can obtain Stackelberg leadership profits if it compensates its manager with a market share or a relative profit incentive whereas its rival is just owner-led. We also consider duopolies where the efficient firm remunerates its manager with a market share incentive and the rival firm uses a sales, a relative profit or a market share incentive. We find that the efficient firm could achieve Stackelberg leadership profits if the difference between marginal costs of two firms exceeds a certain benchmark. Finally, we determine that the less efficient firm owner always prefers to use a managerial bonus based on relative profits. If the difference between marginal costs is large enough, the owner of the more efficient firm prefers to use a managerial bonus based on market share.

A welfare comparison of ad valorem and unit tax regimes

This paper strives to merge two strands of the literature. The first group of papers compares ad valorem and unit taxes in a tax competition framework in terms of welfare. The second group of papers regards capital income taxes as a conjunction of taxes on pure profits and taxes on capital income. We find that, given decreasing returns to scale, there always exists a level of the share of deductible capital costs strictly smaller than one, such that for all values larger than this threshold, an ad valorem tax regime unambiguously Pareto-dominates a unit tax regime.

Extending The Scope Of Proprietary Remedies To Recovery Of Pure Profits From Successful Investment Of Bribes: The Endgame In Lister V Stubbs

For more than a century Lister v Stubbs (1890) 45 Ch D 1 stood as authoritative Court of Appeal judgment denying the recovery of profits acquired from the successful investment of gains obtained in breach of fiduciary duties. The rule was rationalized on the basis that while the claimant was entitled to the proceeds so unlawfully obtained, he lacked any form of proprietary title to the profits accumulated by the defaulting fiduciary. The harsh reality of the rule produced an unfair outcome to the claimant and the Privy Council refused to apply it in Attorney-General for Hong Kong v Reid [1994] 1 AC 324. The rule also fell out of favour in other leading commonwealth jurisdictions and recently the English courts at all levels had the opportunity to reassess its relevance when the Supreme Court in FHR European Ventures LLP and others v Cedar Capital Partners LLC [2014] 4 All ER 79 consigned it to oblivion. The objective of this paper is to analyse the merits and the deficiencies of the rule and show how the judges of the English courts were prepared to act on policy ground, in comity with other common law jurisdictions in upholding justice in a borderless world. Keywords: breach of Fiduciary duty; Accounts of profits; Proprietary interests; Recovery of pure profits.

Entrepreneurial Action, Unique Assets, and Appropriation Risk: Firms as a Means of Appropriating Profit from Capability Creation

This paper examines organizational boundary choice from an entrepreneurial perspective. Entrepreneurs create new profit opportunities by recombining existing assets into novel combinations based on their subjective judgment under conditions of uncertainty. In doing so, they become vulnerable to ex post appropriation by owners of uniquely complementary assets, especially where ex ante uncertainty translates into ex post causal ambiguity. Firms are a means by which entrepreneurs overcome this problem, maximizing the appropriation of pure profits from their actions. The paper formalizes this insight in an integrative model of entrepreneurial governance choice, highlighting the trade-off between the risk of appropriation and the incremental cost of asset ownership. Comparative statics from this model provide predictions about the conditions under which hierarchical governance will be preferred. In particular, they suggest that firms are preferred where entrepreneurial action results in the creation of combinations of assets that are rare, valuable, and difficult to imitate (i.e., the creation of strategic capabilities). The paper thus contributes to work on the dynamics of capabilities and transaction costs, highlighting the structurally uncertain nature of capability creation and its implications for the theory of the firm.

Broadening the tax base of neutral business taxes

The Samuelson tax is a neutral business income tax on the normal return on capital only. I discuss two modifications of the Samuelson tax in order to include pure profits in its tax base, but still achieve neutral business taxation.

Managerial Bonus Systems in a Differentiated Duopoly: A Comment

A differentiated Cournot duopoly is considered where firm owners delegate the output decision to a manager, who is rewarded on the basis of his performance. If this performance is measured in terms of (i) pure profits, (ii) a combination of profits and sales, (iii) a combination of profits and market share or (iv) relative profits, the latter option strictly dominates the others if the products are perfect substitutes. Recently it was claimed that this result does not hold for all levels of product substitutability. In this comment, we show however that this result is robust against the introduction of product differentiation. Copyright © 2011 John Wiley & Sons, Ltd.

Taxation of profits when there are profits

Profits taxes fall on both pure profits and the use of capital as an input. Simulations of a Cournot oligopoly suggest that gains from the former are not outweighed by losses from the latter.