Macroeconomics, trade, and social welfare

Advances in Japanese Business and Economics 14 Michihiro Ohyama Macroeconomics, Trade, and Social Welfare Advances in Japanese Business and Economics Volume 14 Editor in Chief RYUZO SATO C.V Starr Professor Emeritus of Economics, Stern School of Business, New York University Senior Editor KAZUO MINO Professor, Kyoto University Managing Editors HAJIME HORI Professor Emeritus, Tohoku University HIROSHI YOSHIKAWA Professor, The University of Tokyo KUNIO ITO Professor, Hitotsubashi University Editorial Board Members TAKAHIRO FUJIMOTO Professor, The University of Tokyo YUZO HONDA Professor Emeritus, Osaka University; Professor, Kansai University TOSHIHIRO IHORI Professor, The University of Tokyo TAKENORI INOKI Professor Emeritus, Osaka University Special University Professor, Aoyama Gakuin University JOTA ISHIKAWA Professor, Hitotsubashi University KATSUHITO IWAI Professor Emeritus, The University of Tokyo Visiting Professor, International Christian University MASAHIRO MATSUSHITA Professor Emeritus, Aoyama Gakuin University TAKASHI NEGISHI Professor Emeritus, The University of Tokyo; The Japan Academy KIYOHIKO NISHIMURA Professor, The University of Tokyo TETSUJI OKAZAKI Professor, The University of Tokyo YOSHIYASU ONO Professor, Osaka University JUNJIRO SHINTAKU Professor, The University of Tokyo KOTARO SUZUMURA Professor Emeritus, Hitotsubashi University; The Japan Academy Advances in Japanese Business and Economics showcases the research of Japanese scholars Published in English, the series highlights for a global readership the unique perspectives of Japan’s most distinguished and emerging scholars of business and economics It covers research of either theoretical or empirical nature, in both authored and edited volumes, regardless of the sub-discipline or geographical coverage, including, but not limited to, such topics as macroeconomics, microeconomics, industrial relations, innovation, regional development, entrepreneurship, international trade, globalization, financial markets, technology management, and business strategy At the same time, as a series of volumes written by Japanese scholars, it includes research on the issues of the Japanese economy, industry, management practice and policy, such as the economic policies and business innovations before and after the Japanese “bubble” burst in the 1990s Overseen by a panel of renowned scholars led by Editor-in-Chief Professor Ryuzo Sato, the series endeavors to overcome a historical deficit in the dissemination of Japanese economic theory, research methodology, and analysis The volumes in the series contribute not only to a deeper understanding of Japanese business and economics but to revealing underlying universal principles More information about this series at http://www.springer.com/series/11682 Michihiro Ohyama Macroeconomics, Trade, and Social Welfare Michihiro Ohyama Professor Emeritus Keio University Tokyo, Japan ISSN 2197-8859 ISSN 2197-8867 (electronic) Advances in Japanese Business and Economics ISBN 978-4-431-55805-7 ISBN 978-4-431-55807-1 (eBook) DOI 10.1007/978-4-431-55807-1 Library of Congress Control Number: 2016942887 © Springer Japan 2016 This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made Printed on acid-free paper This Springer imprint is published by Springer Nature The registered company is Springer Japan KK Preface This book develops new elementary methods of welfare comparison and comparative dynamics between distinct and discretely positioned (rather than continuously related) socio-economic situations They are not only realistic but also uniquely relevant to important problems of economic policy Using these methods, I comprised the book to shed a new light to the theoretical analysis of Keynesian economics, international trade and social welfare Three chapters in Part I illustrate the merits of these methods applying them to the reconstruction of Keynesian economics, an important task in the current scene of political economy Chapter reexamines the Keynesian multiplier theory focusing on the concept of “public goods” as the object of government fiscal policy The distinction between public goods and private goods is blurred in the standard multiplier theory spoiling its applicability considerably In contrast, the government is here supposed to dictate the provision of public goods democratically or dictatorially while the amount of private goods (including labor services required for production of public goods) is determined by the adjustment of income in the market Using the real general equilibrium model I show that the government is capable of achieving full employment even when the public good is intrinsically useless It will, a fortiori, increase national economic welfare if the public good is useful in some sense or another Furthermore, I demonstrate by the use of “expansion path” how the government can increase employment and welfare over time depicting the dynamic adjustment path under rational expectatons The ultimate destination of the path is not the neoclassical synthesis suggested by Samuelson (1954), but close to the neo-Keynesian synthesis advanced in General Theory (1936) With fixed production technology and static resource endowment, however, the steady state would degenerate to the long-run stagnation in the absence of government intervention, or its growth strategy Chapter extends the real general equilibrium model of Chap taking account of firm-union transactions scheme introduced in Chap It develops the whole story of Keynesian Economics in light of liquidity trap and IS À LM equilibrium originated by Hicks (1936) I explicitly consider the optimizing behavior of v vi Preface households, firms and the government to delineate the monetary transactions between them and examine the effects of monetary policy in the short and long runs in the name of the general theory of money, income and distribution, The traditional monetary policy is well designed to realize the short-run effects on employment, but not necessarily appropriate as the means of attaining the longrun desirable effects on welfare and economic growth In order to achieve such long-run effects, we may have to invoke the inflation-targeting The final goal of Chap is to formulate inflation targeting rigorously and show how to switch from the traditional monetary policy to inflation targeting on the path leading to the long run steady state in some details I employed similar comparative methods in chapters in Part II to reexamine the modern trade policy issues such as gains from trade, the theory of tariffs, free trade agreements and the role of WTO In Chap 9, for instance, I reconsidered the role of WTO in the face of propagating regional free trade agreements and argue that it is high time to alleviate the restrictive stipulation of GATT Article 24 with a view to promoting global welfare even beyond the Kemp-Wang theorem Chapter 10 modifies the general equilibrium model of Chap to incorporate elements of imperfect competition and variable returns to scale covering a related wide range of topics on trade and welfare In Part III, I applied our elementary methods of welfare comparison to dissolve modern controversies over welfare and efficiency in various socio-economic situations In Chap 11, we challenged the popular view that the pursuit of efficiency damages the realization of social values such as safety, health, environment, fairness and what not I considered several examples that suggest the seeming existence of trade-offs between value and efficiency and reveal that trade-offs exist between different values but not between values and efficiency The common fallacy stems from the neglect of cost required to realize value The purpose of Chap 12 is to comprehend a number of problems of mixed economies such as public goods, environments, peak load problems in a unified framework to deal with externalities, elucidating the structure of socially optimal tax-subsidy policies I wish to express my gratitude to the board of editors, Professors Ryuzo Sato, Hajime Hori, Kazuo Mino and Mariko Fujii for giving me the opportunity to publish this book in the Springer series of Advances in Japanese Business and Economics Moreover, they freely gave me many searching comments which led to substantial improvements of the draft I would also like to thank my teachers, Professor Ronald Jones, late Professors Lionel McKenzie, Walter Oi at the University of Rochester, Professor Masao Fukuoka, late Professor Noboru Yamamoto at Keio University, late Professor Hirofumi Uzawa at the University of Tokyo, and Professor Murray Kemp at the University of New South Wales for continued interest in my works and encouragement I am grateful to late Professors Kiyoshi Kojima, Miyohei Shinohara, Akira Takayama and Akihiro Amano for their inspiring instructions I thank Ryutaro Komiya, Nobuo Minabe, Takashi Negishi, Koichi Hamada, Keimei Kaizuka, Hideyuki Adachi, Wilfred Ethier, Elhanan Helpman, Yasuhiro Sakai, Masayoshi Hirota, Walter Diewert, Makoto Ikema, Alok Ray, Anjan Mukherji, Shiro Preface vii Yabushita, Alan Woodland, Kotaro Suzumura, Kazuo Nishimura, Takahiko Muto, Ryuhei Okumura, Masao Satake, Masahiro Matsushita, Akiyoshi Horiuchi, Masahiro Okuno, Katsuhito Iwai, Miyako Suda, Motoshige Ito, Toshihiro Ihori, Hiroshi Yoshikawa, Nobuhiro Nakagawa, Toshihiro Ichida, and Hiroyuki Mizuta for their instructive and constructive comments Moreover, I am indebted to my colleagues and former students at Keio University for their helpful comments and advices on part of the papers collected in this book They are Kunio Kawamata, Hiroaki Osana, Kunikazu Karaki, Yoko Wake, Keiichi Umada, Ryuhei Wakasugi, Miki Seko, Toru Maruyama, Kazuhito Ikeo, Eiji Hosoda, Shuhei Shiozawa, Yasuhiro Nakagami, Atsuko Matsumura, Fukunari Kimura, Sahoko Kaji, Yuri Okina, Shinichi Suda, Hiroshi Amari, Koji Ishibashi, Yoshihiko Fukushima, Yoshimasa Shirai and Ichiroh Daitoh Masatoshi Tsumagari carefully read the draft of original chapters and cooperated for their improvement at the last stage of its compilation Last but not least, I would like to thank the editorial staff at Springer Japan KK for considerate and efficient preparation for this project in Springer’s Advances in Japanese Business and Economics book series Tokyo, Japan February 24, 2016 Michihiro Ohyama ThiS is a FM Blank Page Contents Part I Welfare and Macroeconomics Multiplier Theory and Public Goods: Macroeconomics of the Mixed System 1.1 Introduction 1.2 The Principle of Effective Demand 1.3 Government and Fiscal Policy (Two-Good General Equilibrium) 1.4 Fiscal Policy Under Full Employment 1.5 Neo-Keynesian Synthesis 1.6 Concluding Remarks References Unemployment and Inflation: The Natural Wage Rate Hypothesis 2.1 Introduction 2.2 The Model: Short- and Long-Run Equilibria 2.2.1 The Labor Market and the Short-Run Equilibrium 2.2.2 The Natural Wage Rate and the Long-Run Equilibrium 2.3 The Wage Dynamics and the Phillips Curve 2.3.1 Adjustment of the Money Wage Rate 2.3.2 The Phillips Curve as the Dynamic Path of the Economy 2.4 Stagnation, Stagflation, and Policy Implications 2.4.1 Stagnation 2.4.2 Stagflation References 3 13 14 18 19 21 21 23 23 25 28 28 29 33 33 35 37 ix 218 12 A Theoretical Framework of Mixed Systems H N H X X ∂w uh X e dW ẳ pi dxi hỵ ỵ p i dxi hÀ h h e ∂u ∂x p hi h1 i i h N X X À βi dbi þ γ j dzj ! À N X αi dai i ð12:31Þ i Where all the demand and supply are determined to maintain the general equilibrium It can be shown that the conditions (12.27, 12.28 and 12.29) are necessary for the maximization of the social welfare In fact, (12.27, 12.28 and 12.29) imply (12.30), so that H N H X X w uh X hỵ e p dx ỵ p i dxi hÀ i i h ∂x h e ∂u p hi h1 i i h N N X X e pi dxi hỵ ỵ ẳ p i dxi hÀ : i ! ð12:32Þ i From Eqs (12.14) and (12.16), on the other hand, we have N N X X pi dxi ỵ dyi ẳ pi dyi ỵ dxi ị: i i In view of (12.11, 12.12 and 12.13) and (12.22), N X pi dxi ỵ ỵ i ỵ N X N X pi dxi À ¼ i N À X 0Á τi À αi dai i M   X θi À βi dbi À σ j À γ j dzj : i Á ð12:33Þ j Substituting Eqs (12.32) and (12.33) into (12.31), we can derive dw ¼ N À X N À M À X X 0Á 0Á θi À β À β dbi À σj À γj i i i i dai ỵ i Á À γ j dzj : i j ð12:34Þ Given Eqs (12.27, 12.28 and 12.29), the infinitesimal changes of equilibrium variables consequent upon the adjustment of policy variables, τi, and σ i satisfy dw ¼ 0, showing that the social welfare function attains the local maximum Conversely, the necessary conditions for the local maximization of the social welfare function are the realization of (12.27, 12.28 and 12.29) for all infinitesimal changes of policy variables We have established the following 12.4 Applications to Specific Problems 219 Proposition 12.1: The General Formula for Optimal Tax-Subsidy Policy Under the present setup, the socially optimal consumption tax τi, sales tax θi, and the government purchase price of the public good σ i must satisfy the formulae of Eq (12.27), Eq (12.28), and Eq (12.29), respectively If an increase of the aggregate demand (supply) causes the aggravation of pollution or congestion, αi, αi0 , (βi, and βi0 ) must assume positive values respectively, as is clear from the definitions of Eqs (12.19), (12.21), (12.23), and (12.24) In such cases, the optimal consumption tax τi (sales tax θi) became positive, and the suppression of the aggregate demand (aggregate supply) is justified On the other hand, if an increase in the aggregate supply of public good brings about net social benefit, j ỵ j must be positive, as seen from Eqs (12.21) and (12.23) The optimal subsidy σ j becomes positive, and the government provision of public good is rationalized A variety of external economies have been discussed in partial or general equilibrium models We can interpret and analyze them in the present theoretical framework The foregoing proposition covers almost all market failures related to externalities formulating the structure of socially optimal tax-subsidy policy uniformly in a comprehensive fashion It may seem, however, too general to be applied to concrete problems Let us specify the present setup more concretely and explain its relevance to various cases of externalities in the sequel 12.4 Applications to Specific Problems 12.4.1 Pure Public Goods As is well known, Samuelson (1954, 1955) discussed the conditions for the optimal provision of the pure public good that does not incur congestion and is free from externalities of any kind Needless to say, this is a special case of the present model, 0 with αi ¼ αi ¼ βi ¼ βi ¼ γ j ¼ 0.Combined with Eq (12.21) and Eq (12.29), it implies σj ¼ H X ∂w ∂uh j ẳ 1, , Mị uh zj h ð12:35Þ From Eqs (12.27, 12.28, 12.29 and12.30), Eq (12.35) may also be written σj ¼ H ∂uh X ∂zj h ∂uh ∂x1 h ðj ¼ 1, , MÞ ð12:36Þ 220 12 A Theoretical Framework of Mixed Systems Proposition 12.2: Lindahl Equilibrium Individual households share the cost of the public good according to their demand price (see Lindahl 1919) If public good v exerts externalities to producers, Eq (12.36) must be modified to σj ¼ H ∂uh X ∂zj h ∂uh ∂x1 h À K ∂gk X ∂zv ∂gk ∂y1 k k : ð12:360 Þ When public good v exerts externalities that increase (or decreases) firms’ productivity, the government purchase price of the public good must accordingly be increased (or decreased) 12.4.2 Congestible Public Good The present setup is particularly suitable for the analysis of public goods, the service of which incur congestion such as parks, expressways, and harbor facilities The problem of congestion was discussed by Pigou (1920) and Knight (1924) in classic papers, and more recent contributions Uzawa (1974), Oakland (1972), and Sandmo (1973) attracted attention as attempts to extend the Samuelsonian concepts of pure public goods The services of congestible public goods are often traded as are ordinary private goods in the market In such cases, it is socially desirable to impose congestion taxes on the buyers those services to alleviate accompanying congestion Consider a congestible public good, a park for example Let an admission ticket for the park be a public good v, which is also tradable as a private good v Ignoring the possibility that the congestion of the park may affect the production of firms, the optimal congestion tax on the entry to the park may be written as τv ¼ À H X ∂w ∂uh : ∂uh ∂av h ð12:37Þ This point is elucidated by many researchers, and especially stressed by Uzawa (1974)), but there seem to be still scant literature that considers the relationship between congestion tax and production subsidy Let us specify the household utility function (12.1) as À Á uh ¼ uh xh , π v ðav ; zv Þ, : h ẳ 1, , H ị 12:10 Þ Here, π v is a measure of congestion (congestion function, so to speak) of public good v For simplicity, the household utility is assumed to be affected by the supply 12.4 Applications to Specific Problems 221 of the public good zv and its aggregate demand av only through congestion function π v The congestion tax on the use of public good v is then written as τv ¼ À H X ∂w ∂uh ∂π v : ∂uh ∂π v ∂av h ð12:370 Þ From Eq (12.29) and (12.29), the government purchase price (subsidy) of public good v becomes σv ¼ H X ∂w ∂uh ∂π v : ∂uh ∂π v ∂zv h ð12:38Þ As is clear from Eq (12.370 ) and Eq (12.38), the relationship between τv and σ v is determined only by the structure of congestion function π v ∂π v τv ¼ À∂av σv ∂π v ∂zv : ð12:40Þ Proposition 12.3: Optimal Congestion Tax The optimal congestion tax is related to the government purchase price (subsidy) of the public good by Eq (12.40) Let us further simplify matters by assuming that the degree of congestion is a linear function of the degree of usage, or v ẳ av =zv ị ỵ s , s > 0Þ: ð12:41Þ For the public good such as a park, this specification seems to beacceptable Combined with Eq (12.40), this yields τ v av η ¼À a: σ v zv ηz ð12:42Þ where ηa and ηz stand for the elasticity of the congestion function π v with respect to av and zv, respectively Corollary: Mohring Rule: Financing Congestible Public Good In this case, the desirable subsidy for public good is less than the revenue from the congestion tax if ηa ! Àηz > 0: See Strotz (1965), Mohring-Boyed (1971), and Oakland (1972) for similar analyses in the context of simpler setups than the present one Note that the foregoing result depends on the specification of the household utility function (12.10 ) and needs to be modified if households enjoy only the availability of public good v (but not its actual use), or if they trade diverse services 222 12 A Theoretical Framework of Mixed Systems stemming from it as private goods One should also consider the possibility that the congestion incurred by the use of public good v may affect the productivity of firms 12.4.3 Peak Load Pricing There are some public goods that continue to exist for many periods of time but become congested only for some of them Expressways, parks, power plants, telephone offices, and gas stations are typical examples of such public goods As Steiner (1957) and Williamson (1966) argued, it is necessary to introduce peak load pricing for the services of such facilities In the present model, all goods are distinguished not only physically and spatially but also timely Suppose that public good v (a power plant, say) can be used from period through period T Let zv signify its size, and avt the aggregate demand for its service in period t, and suppose that the household utility function has the same specific structure considered in the preceding section, or it is affected only through the congestion function π v ðav ; zv ị ẳ ẵ v av1, zv ị, , π v ðavτ ; zv ފ: Ignoring the externalities on production, the optimal congestion tax in period t follows from Eqs (12.21) and (12.29) as τvt ¼ À H X ∂w ∂uh ∂π v : ∂uh ∂π v ∂avt h ð12:43Þ The peak load of public good v is defined as π vt h ¼ minh π vt h h ẳ 1, , H ịwhere v π v h implies τvt ¼ and π v > π v h implies τvt > Alternatively put, this follows Proposition 12.4: Peak Load Pricing The congestion tax must be imposed only in the periods in which congestion exceeds its peak load On the other hand, the government purchase price (subsidy) of public good v is given by σv ¼ H T X ∂w X ∂uh ∂π v : h ∂u t ∂π v ∂zv h In light of Eqs (12.42) and (12.43), we obtain ð12:44Þ 12.4 Applications to Specific Problems T X τv avt À σ v zv ¼ À t 223 H H X ∂w X uh v a ỵ z ị: h u t ∂π v h ð12:45Þ We may conclude as in the preceding section Proposition 12.5: Financing Peak Load Pricing The revenue from the congestion tax is sufficient to finance the subsidy for public good v if ηa ! Àηz > 0: The present exercise extends the partial equilibrium analysis of peak load pricing by Steiner, Williamson, etc 12.4.4 Pollution Mohring-Boyed (1971) argued that pollution has a characteristic very similar to congestion Formally, it may be regarded as a category of congestion The concept of congestion is usually defined in relation to man-made public goods (road, railways, parks, etc.), as the phenomenon that an increase in the aggregate demand for them deteriorates their benefit to individual users In comparison, pollution is ordinarily defined in relationship to natural public goods (air, water, soil, etc.) as the phenomena that are contaminated by an increase in the aggregate demand Incidentally, natural public goods are generally not recyclable, in contrast to man-made public goods Their endowments are exogenously fixed, but it is often possible to alleviate the harm of pollution by increasing the use of man-made public goods Suppose that the aggregate supply of private good μ (a high-polymer compound, say) contaminates water in a lake and proves to be harmful to the households in the vicinity Suppose also that the construction of public good μ (a water purification plant) serves to reduce the contamination For simplicity, suppose also that the aggregate supply of private good does not affect households whatsoever Using Eqs (12.22), (12.26), and (12.30), we obtain the formula of optimal subsidy for public good μ: θμ ¼ À K X k k pk ∂g ∂bμ ∂gk ∂yk1 k : ð12:49Þ Proposition 12.6: Pollution Tax If the relevant externalities work to improve (deteriorate) the productivity of firms, ∂ gk=∂bμ < ð> 0Þ, and therefore, θμ < ð> 0Þ: This finding agrees with Marshall’s recommendation that the government should provide a uniform subsidy (tax) for the aggregate supply of the private good that generate external economies (diseconomies) to firms inside the industry 224 12 A Theoretical Framework of Mixed Systems 12.4.5 Decreasing Cost Decreasing cost (or increasing returns) in the production of a firm arises from its fixed input v (private good) such as fixed material and fixed equipment Therefore, they can be dissolved and its profit maximization can be made compatible with its competitive behavior if they are appropriately internalized, that is, if the government regards its fixed inputs as a sort of public good and shares its cost Suppose that firm k is intrinsically subject to decreasing returns to scale in its production, but because of the government subsidy for its input being internalized as public good v is enabled to operate competitively The subsidy is computed from Eqs (12.9), (12.27), and (12.31), for yi k > 0, σ v ¼ Àpk1 ∂gk ∂gk ∂gk ∂gk = ¼ Àp : i ∂zv ∂yk1 k ∂zv ∂yi k ð12:50Þ Proposition 12.7: Internalizing Firms Fixed Input The government should provide subsidy equal to imputed price of this input as shown in Eq (12.50) 12.4.6 Individual Externalities We have so far presumed that all goods are defined on the basis of their physical, spatial, and timely distinction At this point, let as proceed a step forward by considering distinction of users For instance, gasoline for cars of the same physical quality, to be used in the same period and same place, is a same good by our previous definition, but it can be further distinguished by asking who uses it In other words, gasoline demanded by different individuals may be regarded as different goods Proposition 12.8: Internalizing Individual Externalities Individual households must be levied different purchase (consumption) taxes according to condition (12.29) 12.4.7 Representative Agents Last, we must take up an important special case of representative agents considered in many theoretical studies on economic policy See Samuelson (1956) and MasCollel et al (1995) for instance Let uh ¼ u, xi h ¼ xi for all h, gk ¼ g, yi k ¼ yi for all k, and th ¼ for all h Here, we only take up the case of pure public goods discussed in Sect 4.1 By assumption, Eqs (12.35) and (12.36) reduce to References 225 σj ¼ H X ∂uh , ∂zj h ∂u ∂x1 h ¼ pj : j ẳ 1, , Mị e ph1 ð12:37Þ Proposition 12.9: Representative Agents Pay the Same Individual Demand Price The representative agents behave competitively in the market where the government levies them the same appropriate tax to let them face the same individual demand price The aggregate payment for the public good is M the individual payment The government is in the position to dictate the number and quality of pubic goods and the representative agents take them as given References Knight, F H (1924) Some fallacies in the interpretation of social cost The Quarterly Journal of Economics, 38, 582–606 Lindahl, E (1967) Just taxation: a positive solution In R A Musgrave & A T Peacock (Eds.), Classics in the theory of public finance (pp 168–187) London: Macmillan Marshall, A (1890) Principles of economics (8th ed., 1920) London: Macmillan Mas-Collel, A., Whinston, M D., & Green, J R (1995) Microeconomic theory Oxford: Oxford University Press Mohring, H., & Boyed, J H (1971) Analyzing “externalities,” “direct interaction” vs “asset utilization” frameworks Economica, 38, 347–361 Mohring, H., & Harwitz, M (1962) Highway benefits: An analytical framework Evanston: North Western University Press Oakland, W H (1969) Joint goods Economica, 36, 253–268 Oakland, W H (1972) Congestion, public goods and welfare Journal of Public Economics, 1, 339–357 Pigou, A.C (1920) The economics of welfare (4th ed., 1932) London: Macmillan Samuelson, P A (1954) The pure theory of public expenditure Review of Economics and Statistics, 36, 387–389 Samuelson, P A (1956) Social indifference curves The Quarterly Journal of Economics, 70, 1–22 Samuelson, P A (1969) The pure theory of public expenditure and taxation In J Margolis & H Guitton (Eds.), Public economics (pp 98–123) New York: St Martin’s Press Sandmo, A (1973) Public goods and the technology of consumption The Review of Economic Studies, 40, 517–528 Steiner, P O (1957) Peak loads and efficient pricing The Quarterly Journal of Economics, 71(4), 585–610 Strotz, R H (1965) Urban transportation parables In J Margolis (Ed.), The public economy of urban communities (pp 127–169) Washington, DC: Resources for the Future Uzawa, H (1974) Sur la theorie du capital cllecvtif social Cahier du Econometrie et economique 226 12 A Theoretical Framework of Mixed Systems Weisbrod, B A (1964) Collective consumption services of individual consumption goods The Quarterly Journal of Economics, 78, 471–477 Williamson, O E (1966) Peak load pricing and optimal capacity The American Economic Review, 56, 810–827 Zeckhauser, R J (1969) Resource allocation with probabilistic individual preferences The American Economic Review, 59, 546–552 Name Index A Arrow, K.J., 169, 196 B Baldwin, R.E., 55 Batra, R.N., 153 Bhagwati, J., 56, 67–69, 74, 76, 77, 79, 93, 103, 105, 106, 129, 133 Bickerdike, C.F., 93 Brander, J.A., 170 G Gehrels, F., 84 Graham, F., 93 Graham, F.D., 187 H Hagen, E.E., 93 Helpman, E., vi, 170, 173, 185, 187 I Inada, K., 71 C Casas, F.R., 153 Chang, W., 177, 185 Chipman, J.S., 63 Corden, W.M., 76 D Das, S.P., 175 Diamond, P.A., 57 Dixit, A.K., 74, 145, 146, 150, 151, 170, 187 E Easton, S.T., 153 Edgeworth, F.Y., 78, 93 Ethier, W.J., vi, 146, 170, 177, 187 F Ferguson, D.G., 146, 150 J Johnson, H.G., 75, 76, 79 Jones, R.W., vi, 73, 94, 98, 105, 112, 146, 150, 153, 156, 170, 175 K Kaldor, N., 93 Kemp, M.C., vi, 55, 61, 67, 69, 70, 74, 77, 81, 85, 93, 98, 105, 106, 122, 131, 159, 170 Kennedy, C., 61 Kikuchi, T., 170 Kiyono, K., 182 Knight, F.H., 220 Konishi, H., 182 Kornai, J., 200 Kravis, I.B., 68 Krishna, K., 138 Krishna, P., 163 Krueger, A.O., 69, 72 © Springer Japan 2016 M Ohyama, Macroeconomics, Trade, and Social Welfare, Advances in Japanese Business and Economics 14, DOI 10.1007/978-4-431-55807-1 227 228 L Lancaster, K., 77, 170 Laurence, C., 170 Leontief, W.W., 55, 145 Levinsohn, J., 170 Lindahl, E., 220 Lipsey, R.E., 142 Lipsey, R.G., 77, 84 M Magee, S.P., 98 Mankiw, N.G 182, 204, 206 Markusen, J.R., 170, 187 Marshall, A., 106, 197 Mas-Collel, A., 197, 224 McKenzie, L.W., vi, 60, 169, 178 McMillan, J., 166 Meade, J.E., 55, 56, 73, 84, 85 Melvin, L.W., 170, 187 Metzler, L.A., 101, 102 Mirrlees, J.A., 57 Mohring, H., 221, 223 Mundell, R.A., 73, 79 Musgrave, R.A., 4, 11 Mynt, H., 68 N Negishi, T., 13, 63, 68, 77, 81, 93, 105, 169, 170, 172, 187 Nikaido, H.R., 60, 172 Norman, V., 151, 170, 187 O Oakland, W.H., 220, 221 Ohlin, B., 109, 148, 151, 156 Ohyama, M., 4, 39–51, 77, 80, 159, 160, 163, 170, 173, 178, 179, 182, 186, 189 Okuno-Fujiwara, M., vii Osana, H., vii Ozga, S.A., 85 P Phelps, E.S., 51 Pigou, A.C., 26, 220 Prebisch, R., 142 Name Index R Ramaswami, V.K., 77, 93, 103, 105, 106 Robbins, L.C., 196 S Samuelson, P.A., v, 4, 5, 14, 19, 55, 63, 67–69, 80, 109, 115, 116, 126, 178, 197, 219, 224 Sandmo, A., 220 Schumpeter, J.A., 18 Scitovsky, T., 55 Seade, J.K., 172 Singer, H.W., 142 Sonnenschein, H., 69, 72 Spence, A.M., 138 Spiller, P.T., 170 Steiner, P.O., 222, 223 Stiglitz, J.E., 204 Strotz, R.H., 221 Suzuki, K., 153 Suzumura, K., vii, 182 Svensson, L.E.O., 146 T Takayama, A., vi, 177 Tan, A.H.H., 76 Tinbergen, J., 88 U Uzawa, H., vi, 11, 220 V Vanek, J., 85, 159 Viner, J., 84, 160, 162 von Haberler, G., 82, 93 W Warne, R.R., 170 Weisbrod, B.A., 210 Whinston, M.D., 182, 197 Williamson, O.E., 222, 223 Woodland, A.D., vii, 145, 146, 150, 170 Z Zeckhauser, R.J., 210 Subject Index A Abenomics, 16, 19 Aggregate consumption function, Antitrust policy, 170, 180–182, 185–187, 189, 200 Arbitrage, 58, 113, 161 Autarky, 59, 68, 149, 187, 188 Autonomous investment, Average cost curve marginal cost curve, 184 B Bagwell-Staiger view of the WTO, 159, 166 Balanced budget multiplier, 10, 11, 13 Box diagram, 115 Bubble, 3, 4, C Capital rich country exporting capital and labor intensive commodity, 145, 146 Capital stock, 6, 11, 13, 14, 16, 19, 26, 46 Cartel, 171–173, 182 Collusion, 170 Comparative advantage, 71, 185 Comparative advantage under factor mobility, 146 Comparative statics, 46, 73, 112, 169, 178, 184 Competition policy, 170, 180, 181, 188 Composite product, Constant returns to scale increasing returns to scale, 170 Cournot–Nash equilibrium, 172 Currency devaluation, 109 D Deep depression, 5, 18, 39 Deflationary gap, Degree of competition, 170, 172, 173, 180, 181, 183–189 Degree of monopoly, 172, 175, 181 Direct investment, 145 Domestic distortion, 77, 79, 93–106, 110, 160 E Economic aids, 74, 109, 123 Effective demand, 4, 6–8, 13, 18, 39, 42, 44, 48, 207 Elasticity income elasticity, 98, 112, 117 price elasiticity, 130, 133, 134, 172, 175, 180 Electric vehicle, 130 Engel curve, 120, 122 Entrepreneurial resources, 145, 180 Entry policy, 171, 180–182, 186 Equivalence theorem on tax and deficit financing, Ricardo-Barro neutrality proposition, 4, 18 Excess demand, 56, 58, 64, 71, 94, 95, 98, 102, 111, 112, 153, 161, 211 Excess entry thesis, 182 Expansion path, v, 12, 14, 18, 48, 49, 171 Expectation © Springer Japan 2016 M Ohyama, Macroeconomics, Trade, and Social Welfare, Advances in Japanese Business and Economics 14, DOI 10.1007/978-4-431-55807-1 229 230 Expectation (cont.) adaptive expectation, 32, 34, 35 rational expectation, 31, 34, 35 stationary expectation, 30, 31, 34 External economies, 57, 79, 81, 83, 93, 97, 110, 160, 170, 197, 219, 223 F Factor market equilibrium, 176 Factor–reward differentials, 97, 105 Fiscal discipline, Fiscal policy, v, 3–5, 8–14, 47, 48, 200 Flow good, 11 Full-employment, v, 4–7, 13–15, 18, 19, 37, 42, 45, 48–51, 131, 154 G GATT Article 24 of GATT, 159–166 general tariff reduction, 160 General equilibrium, v, vi, 8–14, 18, 41, 46, 55–88, 94, 130, 143, 169–190, 209, 214–219 General theory, v, vi, 4, 18 German transfer problem additional burden of a transfer, 110 trade impediment, 109, 110, 115 transferee, 110, 117, 119, 125 The Giffen paradox, 106 Globalization, 30, 31, 86, 87, 159, 160, 212 Government bond, Government deficit, 3, Government expenditure, 3, 5, 7, 10–14, 16, 18, 21, 25, 27, 29, 40, 44, 45, 47–50, 207 Great depression, 3, 6, 21, 50 Gross national product, 23, 25, 27, 37 H Heckscher–Ohlin theorem, 145, 148, 151, 152, 156, 189 Heckscher–Ohlin–Samuelson (HOS) model, 170, 171, 175, 177 Homogeneous of degree zero, 177 Homothetic preferences for commodities, 148 I Immiserizing growth inverse immiserizing growth, 130, 136, 137, 139, 140 Subject Index Imperfect competition, vi, 169–171, 180, 184, 187, 189 Income compensated elasticity, 98, 112, 117 Income effects, 12, 94, 102, 109, 110, 116, 126, 169 Increasing returns to scale, 169, 189 Index Laspeyres, 112 Paache, 112 Indifference curve homothetic, 115, 116 Industrial concentration, 172, 180, 187 Industry equilibrium, 171–176, 190 Innovations, 4, 18, 50, 129–138, 140–143 cost reducing innovation, 129, 130, 133, 134, 141, 142 process innovation, 129, 132–134, 141 product innovation, 129, 130, 134–141 quality improving innovation, 129, 134–137, 140–142 International competitiveness, 136 International factor mobility internationally immobile factor, 146, 147, 150 internationally mobile factor, 146, 147, 152, 156 Investment multiplier, 10 K Kemp–Wan theorem, 159, 160, 162–166 Keynesian Cross, Keynesian revolution, 3, 39 L Labor abundant country exporting labor and capital intensive commodity, 146 Labor coefficient, 12, 16, 48 Labor contract, Labor service, v, 5, 11, 47, 48, 145 Leisure, 6, 13, 23, 58, 61 Lerner’s symmetry theorem, 125 Liquidity trap, v, 4, 5, 42, 51 Long-term expectation, Lost two decades, 4, Lump-sum subsidy, 95, 110, 123 tax, 57, 69, 74, 111, 205, 209, 210 M The Manoilescu–Hagen case for protection, 105 Subject Index Marginal productivity of labor, 23, 27, 35 Marginal propensity to consume, 43, 99, 112 Market access right, 160, 166 Market equilibrium, 6, 8, 39, 41, 43 Market mechanism, 7, 14, 15, 22, 209, 215 Market structure, 170, 171, 178, 180, 184–186, 188, 189 Markup ration, 170, 171, 173, 175, 177, 179, 180, 182, 183, 186, 188–190 Marshall–Lerner expression, 101, 114 Merger, 170–172, 181 Metzler condition, 102, 105, 125 Mixed economies, vi, 12, 15, 19, 196, 207, 209–215 Mixed system, 3–8, 10–16, 18, 19, 209–225 2Â3 model 2-commodity, 2-immobile factor, 1-mobile factor, 153–156 Monetary policy, vi, 5, 18, 25, 27, 37, 40, 49–51 Money wage rate, 22, 23, 25, 28–29, 31–35 Multiplier effect, 3, 4, 8, 10 Multiplier theory, v, 3–8, 10–16, 18, 19 N National disposable income, 5, 7, 18 National income, 3, 4, 6, 7, 11–13, 18, 43–46, 48, 51, 151, 153 National product, 4, 6, 23, 25, 27, 37, 44, 47, 81, 138, 178, 179, 182, 188, 190 Natural rate of unemployment, 22, 26, 29, 39 Natural wage rate, 21–37 Neo-classical synthesis, 14, 19 Neo-Keynesian synthesis, v, 14–17 nÂm model n-commodity, m-immobile factor, 147 Nominal interest rate, 27, 28, 41, 42, 44, 45, 48, 49, 51 Numeraire, 149, 175, 214 O Oil price hike, 21 Opportunity cost, 5, 13, 18, 98, 103, 106 Optimal policy mix, 183 Optimal supply of public goods, 19 Optimal tariff, 93, 94, 103, 104 P Pareto optimum, 19, 202 Partial equilibrium, 46, 143, 169, 182, 195, 223 231 Pattern of trade, 71, 151–153, 184, 185 commodity trade, 145, 146, 151, 152 factor trade, 145–156 Perfect competition, 14, 15, 130, 147, 169–171 Phillips curve, 22, 28–35 Prebisch–Singer thesis, 142 Preference for leisure and income, 23 Price consumers’ price, 58, 68, 87 market price, 173, 175, 211, 212, 214 producers’ price, 58, 68 prohibitive price, 134 Price-taker, 175, 177, 178, 190, 210 Price-taking country, 55, 59, 73–76, 79, 80, 82, 83, 87, 88, 188 Primary product, 134, 142 Private consumption, 6, 8, 13, 15 Private good, vi, 3, 5–7, 10–16, 18, 19, 196, 199, 206, 210, 213, 215, 220, 222, 223 Production frontier, 5, 8, 12–14, 16, 17, 19, 48, 50, 179, 196, 197, 207 feasibility frontier, 171, 179, 181, 184, 186–188 possibility frontier, 184 Propensity to spend, Public capital stock, 11, 16 Public finance, 3, 5, 16, 18 Public good, v, vi, 3–8, 10–16, 18, 19, 44, 47, 48, 50, 199–201, 207, 209, 210, 212, 213, 219–225 Public investment, 11, 13, 15, 16, 18, 19 Pure competition, 178 R Real cash balance, 24, 27 Real income, 4, 56, 61, 63–65, 78, 84, 86, 93, 94, 97, 99, 102–105, 109–114, 116, 117, 119, 120, 122–126, 161 Real rate of interest, 6, 24, 30, 51 Regional free trade agreement, vi Remittance, 59, 109 Reparation, 59, 74, 109 Representative consumer, 40, 131, 143, 181, 182, 199 worker, Reservation wage rate of labor, 23, 26, 29 Resource allocation, 3, 14, 19, 183, 184, 186, 196 Returns to scale constant, 146, 148, 154, 170, 178 increasing, 169, 189 Ricardian model, 170, 175 Rybczynski theorem, 177 232 S Social common capital, 11 Social indifference curve, 5, 12, 16, 19, 48, 120, 188, 195, 197, 199, 201, 204 Social utility function, 5, 12, 56, 63 Social welfare, v, 4, 5, 12–14, 19, 48, 49, 63, 203, 207, 215, 217 Solar generator, 130 Sovereign risks, Stability condition, 43, 101, 114, 115, 123 Stagflation, 21, 22, 33–37 Stagnation, v, 3, 14, 18, 21, 22, 33–37, 50, 51, 130 Stationary state, 15, 18, 43, 45, 49, 50, 175 Steady state, 49, 51 Stolper–Samuelson theorem, 177 Surplus consumer ’s, 134, 140, 197 producer’s, 134, 140 T Tariff-import multiplier process, 116, 122 Tariff reduction preferential (PTR), 166 welfare-improving PTR, 165 Tariff revenue, 67, 74, 79, 80, 106, 110, 113, 116, 117, 119, 120, 122, 126, 162, 165, 166 Tax ad valorem tax, 58, 175 revenue, 8, 10, 24, 25, 40, 46 specific tax, 211 Taxation, 4, 5, 11, 207 Terms of trade deterioration, 78, 112, 133, 140, 142, 164, 165 improvement, 66, 69–72, 124, 125, 138, 165, 189 Subject Index Tied transfer, 110, 123–127 Trade horizontal, 142 vertical, 142 Trade equilibrium, 55, 94–97, 110, 112, 132, 185, 187 Trade surplus, 109, 112, 116 Transfer problem transfer payment, 112–115, 120, 126 Transferee, 127 Trust, 198 U Underemployment equilibrium, 18 Unemployment, 3, 6, 8, 11, 12, 14, 18, 21–37, 44, 46–51 insurance, 23, 26, 37 involuntary, 6, 18, 22, 23, 33, 37, 207 voluntary, 22 Utility function quasi-concave, 212 quasi-linear, 131, 143, 182 strictly quasi-concave, 212 W Wage contract wage, 6, 10, 14 explosion, 21, 35 reservation wage, 6, 8, 26 Welfare comparison of different situation, 64 Welfare economics, 4, 14, 41, 68, 160, 197, 209 Work (income)-sharing, 11, 18 World Trade Organization (WTO), vi, 159, 160, 166 ... Ohyama Macroeconomics, Trade, and Social Welfare Michihiro Ohyama Professor Emeritus Keio University Tokyo, Japan ISSN 2197-8859 ISSN 2197-8867 (electronic) Advances in Japanese Business and Economics... 11.2.1 Social and Individual Values 11.2.2 Production Frontier and Value Standard 11.2.3 Social Optimum 11.3 Security and Efficiency... and expenditure It should be distinguished from public finance in the narrow sense limited to the provision of public goods © Springer Japan 2016 M Ohyama, Macroeconomics, Trade, and Social Welfare,