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The article examines a proposal by the United States Securities and Exchange Commission which will require conglomerate corporations to prepare income statements that show their divisions' individual contributions to the organization's net income. The problems with this type of financial reporting for diversified companies are the intertemporal complementarities and arbitrary allocation of costs over time periods, as well as divisions, and the inaccuracy of profit estimation when management has taken a risk-aversion strategy for investments. Shadow prices or divisional profits and risk reduction are mentioned.

Analyses of the costs of regulating greenhouse gas emissions from dairy production, which could be used to assess the effectiveness of alternative policy measures, is a missing link in the literature. This article addresses this gap by establishing the economic impact associated with a hypothetical greenhouse gas environmental regulatory regime across major dairy producing counties in the United States. In doing so, the article makes three important contributions to the literature. First, it develops a comprehensive pollution index based on Environmental Protection Agency methodologies, which contrasts with previous studies that rely on partial measures based only on surplus nitrogen stemming from the over-application of fertilizer. Second, the article uses a directional output distance function, an approach that has not been employed previously to evaluate polluting technologies in the U.S. dairy sector. Third, the article incorporates a four-way error approach that accounts for unobserved county heterogeneity, time-invariant persistent technical efficiency, time-varying transient technical efficiency, and a random error. The results indicate that regulating greenhouse gas emissions from dairy farming would induce a 5-percentage point increase in average technical efficiency. In addition, the economic costs of implementing this hypothetical regulatory framework exhibit significant spatial variation across counties in the United States. [ABSTRACT FROM AUTHOR]

We evaluate the empirical evidence for costs that penalize changes in investment using U.S. industry data. In aggregate models, such investment adjustment costs have been introduced to help account for a variety of business cycle and asset market phenomena. So far no attempt has been made to estimate these costs directly at a disaggregated level. We consider an industry model with investment adjustment costs and estimate its parameters using generalized methods of moments. The findings indicate small costs associated with changing the flow of investment at the industry level. The weighted average of the industry elasticities with respect to the shadow price of capital, which depends inversely on the adjustment cost parameter, is eight times larger than the largest estimate reported in . We examine a variety of factors that may account for this discrepancy, but a substantial part of it remains unexplained. Our results therefore suggest that more caution is needed when giving policy advice that hinges on a structural interpretation of large investment adjustment costs. [ABSTRACT FROM AUTHOR]

Abstract: We use the directional output distance function to derive estimates of production inefficiency, shadow prices for polluting outputs, and the associated pollution costs. Using a quadratic functional form for the directional output distance function and data for the U.S. agricultural sector during 1960–1996, we find that the pollution costs (the shadow values) from the runoff and leaching of pesticides are 6% of crop and animal revenues and are highest in the Midwest and lowest in the Western states. If states were to reduce technical inefficiency and operate on the production frontier, pollution costs could be reduced by 7%. [Copyright &y& Elsevier]

Studies the effects of operating and capital subsidies on total factor productivity in public transit system in the United States. Establishment of relationships between productivity and operating and capital subsidies; Relation of shadow prices to the distinction between implied and actual costs; Use of an unbalanced panel of time series and cross-sectional data.

Recreational uses of streams, although nonconsumptive, increasingly conflict with traditional off-stream uses of water in arid regions. Recreational demands for instream flows have collective good attributes such that the recreationists' preferences may be inadequately reflected in water allocation decisions. The contingent valuation approach was adapted to impute instream flow shadow prices from a sample of recreationists on the Cache la Poudre River in northern Colorado. During periods of relatively low flows, the estimated instream flow marginal value exceeds the marginal value of water in irrigation, suggesting a need for altered water allocation policies. [ABSTRACT FROM AUTHOR]

Empirical estimation of input market power is hindered by problems in measuring an input's value of marginal product (VMP). By estimating a variable profit function system, however, one can infer a factor's VMP through its shadow price. This technique is used here to specify a structural equation system, which is estimated using time series data for the U.S. sawmilling and paper industries, to empirically measure the degree of oligopsony power for sawlog and pulpwood inputs respectively. Results evaluated at sample means indicate that pulpwood markets are more oligopsomstic than sawlog markets, though both perform closer to perfect competition than monopsony. Time trends for market power differ for each product and perfect competition cannot be rejected for sawlogs in later years.

This article focuses on short-run output and factor demand effects of a residual charge. As other authors have recognized, residuals generation is fundamentally a materials balance problem. All economic activities can be viewed as processes that combine varying proportions of physical matter and intangible resources such as labor and capital services to produce final products. Until recent years the marginal cost to the firm of disposing of this side-product stream was very nearly zero, the environment was exploited as a common property disposal medium. But the passage of several environmental laws has generally, through the predominant promulgation of regulations, at least imposed shadow prices on the use of the environment as a dump. However, the allocative inefficiency and relative ineffectiveness of regulations are becoming more and more apparent as their implementation continues. Despite the voluminous economics literature on the potential advantages of residuals charge systems relative to other systems for controlling pollution, surprisingly little formal attention has been devoted to the partial equilibrium effects of alterations in such a charge, once established.

Inclusion of the shadow prices for natural gas in a dynamic fuels model for the United States shows that the primary reason for the relatively large fly-up in new marginal gas prices in the early 1980's was the release of the pent-up price effects of the U.S. government's price regulations. In accordance with principles, the shadow price of natural gas fell siginificantly following de-regulation of the high-cost gas (section 107) in 1980, which represented the precursor for downward adjustments in marginal wellhead prices of new high-cost gas and drilling activity. The modeling results show that no significant fly-up in new marginal gas prices for lower-cost gas (section 102) is likely to occur in 1985, when its phased de-regulation ends and it is finally de-regulated, because no shadow price precursor currently exists for this gas. Shadow price principles clear up the primary misconceptions with regard to natural gas pricing. This application indicates the significance of shadow price principles for regulated pricing in general. [ABSTRACT FROM AUTHOR]

This paper presents a method for determining shadow prices for a physician's services on the basis of actual prices charged. The Ramsey rule is used as the shadow-pricing formula. This is combined with the physician's profit-maximizing condition to produce an expression for the social prices in terms of the price elasticities of demand for the third parties paying for the services. On the basis of implicit estimates of the elasticities for a hospital plastic surgeon in the USA, it was found that roughly half (between 42 and 59 cents of every dollar charged) was not relevant for social-valuation purposes. [ABSTRACT FROM AUTHOR]

The article examines the impact of risk aversion on optimal allocative behavior and its correspondence with the observed acreage allocation pattern in terms of quadratic risk programming models applied to vegetable farming in California. The results show among other things that water shadow prices are dependent on the risk aversion measure assumed in the models. Quadratic risk programming has been commonly applied in empirical studies to analyze the impact of risk aversion on optimal production and acreage decisions in farm planning. Two main approaches are commonly adopted. The first is the assumption of an exponential utility of income and the normality of distribution to derive a risk preference function, which is quadratic in the decision variables. The second approach uses the dual solutions to the quadratic risk programs to estimate the risk aversion parameter under assumptions that the shadow prices approximately equal the observed market prices of factors of production and the observed production activities approximately equal the optimal levels.

We develop a duality approach to study an individual's optimal consumption and portfolio policy when the individual has limited opportunities to borrow against future labor income and cannot totally insure the risk of income fluctuations. The individual's intertemporal consumption and portfolio problem is cast in a continuous-time setting under uncertainty. We transform the individual's intertemporal problem into a dual shadow prices problem that solves the shadow prices for the individual's optimal consumption plan or equivalently the individual's intertemporal marginal rates of substitution. We show that the shadow prices process can be expressed as a product of a martingale and a decreasing process (normalized by the bond price). The existence of an optimal solution to the individual's intertemporal consumption and portfolio problem is established via duality. The duality approach also allows us to characterize in a sample way the individual's optimal consumption and portfolio policy in the presence of labor income and borrowing constraints. Equilibrium implications of borrowing constraints on asset prices are also discussed in the paper. [ABSTRACT FROM AUTHOR]

An upward trend in the divorce rate in the U.S. has been attributed to an increase in the earning ability of women. The reasoning for the increase in marital instability is that high-wage women gain less from marriage than other women do because higher earnings reduce the demand for children and the advantages of the sexual division of labor in marriage. Also divorced women tend to invest more in work experience and thus command a higher wage. This article presents evidence that adds support to the economic approach to divorce. It shows that the divorce rate is significantly and substantially affected by the earning ability of women in market work. Data has been drawn from the U.S. farm sector. After a brief overview of the economic theory of divorce and its relevance to the farm sector, data sources and regression specifications are discussed in the article. Perhaps more importantly, the shadow price of divorce is less for high-wage women. The reason for this is simply that an increase in the earning ability of women enables them to leave an unhappy marriage and either remain divorced or remarry.

Discusses the development of a two-stage procedure for discounting the benefits and costs of environmental regulations that is a variant of the shadow price of capital approach. Description of how capital costs imposed by a regulation in the United States are annualized; Use of the marginal rate of return on capital; Discounting of benefits and costs using the social rate of time preference.