Organization, Performance and Equity

Recently the Japanese retail sector has received growing attention in both academic research [(Krugman (1992), Miwa and Nishimura (1991)] and in international negotiations. In fact, the Japanese distribution system was one of the main issues in the Structural Impediment Initiative negotiation between the United States and Japan. Trade negotiators of the United States argued that the Japanese distribution system was very different from theirs and many other countries’, and they blamed this difference for its inefficiency and closeness to imports. However, there is a deeper question academics must resolve — what exactly has caused the Japanese retail sector to be so different?

It is often said that distribution is the “Dark Continent” in the Japanese economy. Traditional models of industrial organization have difficulty of explaining the existence of distribution systems, i.e., a sequence of intermediaries which connect producers with consumers. In our opinion, a suitable framework has yet to be invented for the analysis of distributive intermediation. The purpose of this paper is to explore the informational role of intermediaries in the market economy, thus shedding new light on the Dark Continent.

One of the conventional wisdoms which are deeply rooted and widely held among economists is the welfare-improving effects of increased competition. As Baumol (1982, p.2) has put it, “… the standard analysis [of industrial organization] leaves us with the impression that there is a rough continuum, in terms of desirability of industry performance, ranging from unregulated pure monopoly as the pessimal arrangement to perfect competition as the ideal, with relative efficiency in resource allocation increasing monotonically as the number of firms expands.”Contrary to this conventional wisdom and capitalizing on the neat counterexamples constructed by von Weizsäcker (1980a; 1980b), Mankiw and Whinston (1986) and Suzumura and Kiyono (1987) have recently proved the excess entry theorem to the effect that, in an oligopolistic industry with economies of scale and homogeneous product, where firms compete in terms of outputs, the free entry equilibrium number of firms exceeds the welfare-maximizing (first-best as well as second-best) number of firms. It follows that the restriction of firm entry so as to prevent the number of firms from exceeding the welfare-maximizing number in accordance with the profit incentives improves social welfare. Although the excess entry theorem was originally established by partial equilibrium analysis, Konishi, Okuno-Fujiwara and Suzumura (1990) have shown that the basic message of the theorem is maintained even when we introduce some general equilibrium interactions into the model. It has also been shown by Okuno-Fujiwara and Suzumura (1993) that the excess entry theorem holds in the three stage model of oligopolistic competition. In the first stage, each firm decides whether to enter into, or stay out of the industry.

There are industries in which not every firm is on an equal footing. Some firms play a dominant role, while others, following the lead of the dominant firms, act rather passively. There are two common approaches to incorporate these passive firms in theoretical analysis. In the dominant firm framework, passive firms are modeled as competitive fringe firms which take market prices as given, and do not recognize the impact of their production decisions on the market price and thus the output decisions of dominant firms. In the Stackelberg leader-follower framework, passive firms are modelled as followers which take the dominant firms’(leaders) output decisions as given, although the followers are fully aware of the impact of their production decisions on the leaders’ output decisions. In both approaches, dominant firms are envisioned as those who not only recognize that their production decisions affect market prices and hence other firms’ output decisions but also take full advantage of the passiveness of competitive fringe firms or followers. The choice of approach may well depend on the type of industry one is interested in investigating. For example, if the industry is highly concentrated, the Stackelberg approach may be considered better suited than the other.

Intergenerational transfers may be conducted in two ways; private transfers in the form of financial bequests and human capital investment and public transfers in the form of social security. This paper attempts to analyse the normative role of public transfers such as pay-as-you-go social security in the dynamic framework of an overlapping generations growth model in which private transfers are operative and crucial for positive economic growth.

What is considered equitable when it comes to increase in tax payments as income increases? In spite of the importance of “vertical equity in taxation”, economic theory has not been successful in proving its theoretical foundation regarding how the exact amount of increase of tax payment can be assessed in practice while maintaining the vertical equity among different income groups.

In 1976, Hugh Patrick and Henry Rosovsky edited a book entitled Asia’s New Giant, The book was not about China but about Japan’s high growth in the 1950s and 1960s. The rapid economic growth of the other parts of Asia of recent years has dwarfed Japan’s then unprecedented growth performance. The accumulating stock of knowledge of these fast growing economies offers touchstones by which alternative theories of economic growth should be judged. One strand of endogenous growth theory casts capital accumulation in a leading role in the growth process. In the work of Rebelo (1991) and King and Rebelo(1990), the aggregate production function is assumed to have a property that the private return to capital stays above the discount rate so that capital can be accumulated infinitely even in the absence of exogenous technical progress. In the work of Arrow (1962) and Romer (1986, 1987b), firms’ investments in physical capital contribute to the productivity of capital of other firms.¹ If such externalities make the aggregate production function linear in capital, sustained growth will be possible without exogenous technical progress. These models are simple and accordingly popular. Their prediction concerning the association between capital accumulation and the conventional measure of productivity, however, seems to be inconsistent with the experience of the newly industrializing countries (NICs) of East Asia.

It is often argued that Japan has been a free rider of the international public goods, especially, basic technological knowledge. Those who take critical stance to the Japanese economic behavior in the world market tend to state that most of the significant contributions to the basic technological knowledge have been created by the US and European endeavors to R&D activities, and Japanese firms have simply used them without any substantial compensations. This behavior of the Japanese firms enables them to produce a large amount of products with high quality by saving resources for R&D activities. According to this critical assessment, the success of the Japanese economy depends at least partly upon the fact that the Japanese firms have been free riders of the international pool of the basic technological knowledge that has been created in the US and European countries. This kind of critical argument about the Japanese economic behavior seems to be particularly popular in the United States whose trade deficits towards Japan have shown no sign of decreasing.

Lie group was first used in economics to derive the holotheticity condition under which correspondences were established between classes of increasing returns and those of technical progresses. This has also been the main focus of subsequent work; while other applications of group theoretic methods were discussed in Sato (1981) they have not been elaborated in subsequent discussions. (For example, Sato and Mitchell (1989) or Sato and Ramachandran (1990)). The purpose of this chapter is to examine three applications that relate, in one way or another, to consumption theory. The first of these analvse the ideal index numbers, the second the derivation of the Slutsky equation and the last examine the conditions for the integrability of utility.

The rapid growth of the Japanese economy since the end of World War Two has sharply increased Japan’s weight in the world economy as measured, for example, by its proportions of world GDP, trade and capital movements. Japan has also emerged as the world’s largest net creditor country, having accumulated sizable current account surpluses in the second half of the 1980s and early 1990s. As a result the Japanese yen has appreciated dramatically since the mid-1980s.

Beginning with the well-known controversy on 1950’s, the theory of consumption function and its empirical investigation have been one of the most popular agenda in the discussion of Macroeconomics. The focus of the early controversy was placed on the reconciliation of the short- and long-run consumption functions, but the central interest of the recent literature has apparently shifted from this problem to the elaboration of the short-run, and medium-run implications of life cycle-permanent income hypothesis. There are thus few empirical studies of the long-run consumption function in recent years.¹ It seems, however, still very important to investigate the long-run determinants of consumption both from theoretical and practical viewpoints.

The field of Real Business Cycle theory has seen some of the most notable developments in macroeconomics in the last decade. Earlier articles - Kydlanda nd Prescott(1982), Long and Plosser(1983) and Hansen(1985)- are now renowred in this field. In recent years some researchers have investigated more complex models. For example, Cooley and Hansen(1989)’s model includes money, and Christiano and Eichenbaum(1988) introduce government expenditure into the model. Further, Ohkusa(1993) analyzes the effect of money creation on the business cycle. RBC theory can be appreciated not only as neoclassical business cycle theory but also as a useful framework for macro-dynamics.

Recently the U.S. has been concerned about huge current-account imbalance against Japan, and has proposed various means of trade management. It is also insisted that the imbalance is caused by Japan’s high saving. An asset-holding tax may be a direct means of decreasing saving. In this paper we shall show that although these policies improve the US current-account deficit, they would lower the US lifetime utility. Specifically, using a two-country one-commodity model with dynamic optimization, this paper analyzes the effect on the discounted value of utility stream of saving-control policies which reduce current-account imbalance, such as asset-holding taxes, import quotas, and voluntary export restraints (VERs).