Fathali Firoozi

An optimal timing model of water reallocation and reservoir construction

Abstract Growth of the users base often reduces the efficiency of existing water allocation policies and causes new water supplies to cost more than the value of water in existing use. Historically, water management authorities have shown a bias toward undertaking of new supply projects and delay of necessary reallocations. This study provides an analysis of the timing and adjustments associated with construction of new reservoirs and reallocation of existing supplies. A dynamic model yields simultaneously the optimal construction timing of new projects and guidelines for reallocation of existing supplies. A number of sensitivity results provide additional insights.

Sufficient conditions for an inverse relationship between productivity and employment

Abstract This study examines the relationship between the competitive firm s response to technological advances that improve labor productivity and the firms degree of risk aversion when output price is uncertain. One of the investigated cases reveal that when the firms degree of risk aversion is sufficiently large, a technological advance leads to a fall in optimal employment while optimal output rises. The results provide an explanation for the known inconsistency between the deterministic theory and empirical observations regarding employment and output effects of technological advances.

A general model of policies toward international flows of capital and labour

Abstract Several studies in the literature on the theory of international trade and factor flows have focused on the interrelations between the policies of a country toward international flows of labour and capital. For instance, a seminal note of Ramaswami raised the issue of whether a countrys policy should discourage outflow of capital and encourage inflow of labour or vice versa. This and other related issues and results are reexamined in the present study in a more general setting where specialization in different commodities and variable terms of trade are allowed.

A transformation of the inequality-constrained linear model

Abstract The generalized stochastic linear model with a set of independent linear inequality constraints on its parameters is transformed so that the constraint subset forms the positive orthant in the parameter space. It is shown that the transformation preserves the projection relation between the unconstrained and constrained least-squares estimates of the parameters in a different norm. A relation between the pre- and post-transformation constrained estimates is established. The results are applied to derive a procedure for testing a set of inequality constraints on the parameters of the linear model.

International factor flow policy under free trade between diversified economies

Abstract The national income and terms of trade responses to policy-initiated migration and foreign investment are evaluated for a policy-active country within a two-sector model where both capital and labor are internationally mobile, cross-country technological differences exist, and there is no restriction on commodity trade. The significance of variable terms of trade and interdependence between optimal policies toward international flows of labor and capital are studied under diversification (incomplete specialization) by both countries.

On the joint Fourier–ESTAR testing of PPP

ABSTRACT The purchasing power parity (PPP) is the hypothesis that the real exchange rate series are stationary. This study briefly reviews and applies six competing unit root test procedures to test PPP. Reflecting the existing literature, the results are mixed. The Kiliç test is the most favourable while the Kapetanios, Shin, and Snell (KSS) test is the least favourable to PPP and the standard ADF test lies in between. The same conclusion applies to the Fourier extensions of those three tests. The results support a recently suggested F-test for the significance of Fourier terms in unit root test equations.

On Capital Structure and Entry Deterrence

The theoretical literature on the link between an incumbent firm’s capital structure (financial leverage, debt/equity ratio) and entry into its product market is based on two classes of arguments, the “limited liability” arguments and the “deep pocket” arguments. However, these two classes of arguments provide contradictory predictions. This study provides a distinct strategic model of the link between capital structure and entry that is capable of rationally producing both of the existing contradictory predictions. The focus is on the role of beliefs and the cost of adjusting capital structure, two of the factors that are absent in the existing models. The beliefs may be exogenously given or endogenized by a rational expectations criterion.

On information value and mean-preserving transformations

The methods of defining and evaluating evolution of information in economic systems are often based on abstract measure-theoretic mean-preserving transformations (MPTs), also known as second-order stochastic dominance. This study first points out that such abstract MPTs have distributional equivalents and then shows that the distributional MPTs often provide analytical settings that are more accessible than those provided by their measure-theoretic analogs. It is shown that a number of abstract results on information value could be readily obtained via the distributional MPTs. The focus is on the central issue of negative value for information.

A note on "further sufficient conditions for an inverse relationship between productivity and employment"

Abstract The preceding paper in this Review discusses certain sufficiency conditions shown by Firoozi (1994) and presents an extension. This note shows that the preceding paper is a reflection of the generality carried by Firoozi’s setting and results.

On the Second-Best Foreign Investment Policy and Pattern of Commodity Trade

An agreement on free commodity trade often does not preclude countries from protecting their national interests through restrictive policies toward cross-border movements of production factors (e.g., capital and labor). A number of studies have suggested second-best international capital flows (welfare maximizing under free commodity trade) that officials of a country must encourage via various policy measures. However, an emerging literature indicates that policy toward foreign direct investment is being increasingly utilized as a new form of protectionism under free trade. Utilizing a generalized Heckscher-Ohlin model, this study characterizes the necessary adjustments to the suggested second-best foreign investment policies of a country when there is an extraneous protectionist objective regarding the pattern of trade in a commodity. An implication is that until all production factors can freely move internationally without policy impediments of a participating country, unrestricted commodity trade alone cannot achieve its full potential in removing protectionism and setting comparative advantage as the basis for trade. (JEL F21, F15)