Murray C. Kemp

AN ELEMENTARY PROPOSITION CONCERNING THE FORMATION OF CUSTOMS UNIONS

1‘ Introduction In the welter of inconclusive debate concerning the implications of customs u.nions, the following elementary yet basic proposition seems to have been almost lost to sight1 Froposition. Ccnsiaer any competitive world trading ewilibrium, with any number of countries and commodities, and with no restrictions whatever on the tariffs and other commodity taxes of individual countries, and with costs of trans- port fully recognized. Now let any subset of the countries form a customs unton. Then there exists a common tartrvector and a system of lump-sum compensatory payments, involving only members of the union, such that there is an associated tart

On Two Folk Theorems Concerning the Extraction of Exhaustible Resources

ridden competitive equilibrium in which each individual, whether a member of the union or not, is not worse oRthan before theformation of the union2 A detailed list of assumptions, and a relatively formal proof, may be found in section 2. Here we merely note that there exists a common tariff vector which is consistent with pre-union world prices and, therefore, with pre-u,nion trade patterns and pre-union levels of welfare for nonmembers. The proposition is interesting in that it contains no qualifications whatever

Variable Returns to Scale, Commodity Taxes, Factor Market Distortions and Their Implications for Trade Gains

Consider a closed economy with several deposits of an exhaustible resource, with the marginal cost of extraction differing from deposit to deposit but constant for each deposit. It is widely believed that social optimality requires that deposits be exploited in strict sequence, beginning with the lowest cost deposit. It is shown that, in a general equilibrium context, with Ricardian techniques of extraction, the validity of the proposition depends on what is meant by constancy of cost. It is also believed that if there exists a high-cost substitute for the resource then the resource should be exhausted before production of the substitute is begun. It is shown that this proposition is false.

A note of the theory of international transfers

The contemplation of the static theory of the gains from international trade may induce a response of breathless admiration or a mood of deep despair, or both. It all depends on ones point of view: the subject is difficult and one cannot fail to admire the elegance and glitter of the theorems which have been established; on the other hand, the theorems rest on very special assumptions. Specifically, it has been shown that, in the absence of external or internal economies and diseconomies of scale, in the absence of factor market distortions, and in the absence of consumption and production taxes

Set-up costs and theory of exhaustible resources

Abstract If each of N trading countries supplies each of several international public consumption goods then sufficiently small international transfers have no effect on the consumption, production or welfare of any country.

How to eat a cake of unknown size: The case of a growing cake

This paper discusses the traditional specification problem from a geometric viewpoint. While the traditional emphasis is on the properties of estimators, the geometric approach also allows an easy development of corresponding results for inference. Errors arising from artificial inclusion or exclusion of variables are considered in terms of augmentations or restrictions on a given maintained hypothesis, and this allows a corresponding interpretation of tests based upon the Wald and Lagrange Multiplier Principles. It is demonstrated that biases arising from incorrect exclusion of variables do not invalidate the traditional F-test.

The role of natural resources in trade models

Abstract We formulate the problem of managing a renewable resource, the extent of which is known only in terms of a subjective probability distribution. It is shown that, as in the case of non-renewable resources, the optimal path of extraction may be non-monotone but that, in contrast to the case of non-renewable resources, there exists no stationary solution when the probability distribution is exponential.

On the Relation between Commodity Prices and Factor Rewards

Publisher Summary Much of the modern long-run theory of international trade derives from what has come to be called the 2 x 2 or Heckscher–Ohlin model of production; and the rest of the theory derives from straightforward extensions of that model achieved by the accommodation of additional factors and products and by the addition of more-or-less durable produced intermediate goods. In all versions of the model, final goods are produced, directly or indirectly, by two primary or nonproduced factors of production, a unit of any factor yielding its services in a given and steady flow forever. There is need of a theory of international trade that accommodates both exhaustible natural resources and the traditional Ricardian primary factors and of which the standard Heckscher–Ohlin theory appears as a special case. The new theory can be expected to differ in important respects from the old, for in a context of exhaustible resources there are no nontrivial steady states, only transitions. The assumption that resources can be extracted without cost simplifies the calculations and enables concentrating on the implications of exhaustibility as such. The canonical case in which the available processes of extraction display constant returns to scale and are independent of the amount already extracted, costs of extraction make no difference to qualitative conclusions. The chapter also recognizes the historical fact that the extraction and processing of some exhaustible resources have sometimes been under the control of cartels.

Cyclical and Noncyclical Redistributive Taxation

1. 1. CONSIDER A COMPETITIVE ECONOMY with two commodities produced in positive amounts, two non-produced factors of production, and production functions concave and homogeneous of degree one. According to the StolperSamuelson Theorem [12], an autonomous increase in the price of one product gives rise to an increase in the real reward of one factor and to a decline in the real reward of the other. Specifically, an increase in the price of the i-th product results in an increase in the real reward of whichever factor is used vxith greater relative intensity in the i-th industry; and since one is free to number factors in any order, it is possible to associate the i-th factor with the i-th product (at least in a sufficiently small neighborhood of an initial equilibrium). 1.2. This is an exceedingly useful theorem. In a two-by-two model one finds oneself appealing to it in just about every exercise involving the distribution of income. The original article by Stolper and Samuelson was devoted to a single application of the theorem, the relation between tariff protection and real wages.2 But the theorem plays an equally important role in determining the incidence of a sales tax in a closed economy ([1], [4], [5]), and in making clear the distributional implications of capital accumulation [11]. The theorem would be even more useful if it could be extended to the case of n products and n factors. Can we in that more general case claim that an increase in the price of the i-th good results in an unambiguous increase

Gains from trade with and without lump-sum compensation

Consider the optimal time path of a tax on capital income, the proceeds of which are transferred to labor in a lump sum. It is known from earlier open-loop formulations that, if the optimal rate of tax converges to a point, it converges to zero, implying that, in the long run, a tax on capital income can do nothing for social welfare. It is now shown that the optimal rate of tax need not converge to zero and, in the case of feedback formulations, that it may converge to a positive or negative number or to a limit cycle. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.