Carlo Milana - Academia.edu (original) (raw)
Papers by Carlo Milana
This paper proposes to clarify some important questions that are stillopeninthefield of index num... more This paper proposes to clarify some important questions that are stillopeninthefield of index number theory. The main results are the following: (i) the so-called Quadratic Identity on which the superlative index numbers are based can be applied in more general cases than those traditionally considered; (ii) it is not only the Törnqvist index number that does not rely on separability restrictions, but also some other indicators of absolute or relative changes are not based on such restrictions; (iii) in practice, however, all the index numbers or indicators that are considered to be superlative in Diewert’s (1976) sense generally fail by construction to be really "superlative"; (iv) these hybrid index numbers may be far from providing the expected secondorder approximation to the true index and may be found beyond the Laspeyres-Paasche interval even in the homothetic case. In conclusion, it would be more appropriate to construct a range of alternative index numbers (includ...
We develop an approach to productivity measurement based on profit functions. We do this within a... more We develop an approach to productivity measurement based on profit functions. We do this within a framework where non-separable outputs and inputs can be aggregated together, rather than separately as with conventional productivity indexes defined as ratios of output to input indexes. Our approach permits us to construct net aggregates that are always linearly homogeneous even in the nonhomothetic production case. We apply our approach to data for Italian industries for 1970-2003 from the EU KLEMS project. Homotheticity seems to be the exception rather than the rule during the period of 1970-2003 in Italy. We find that the negative trend of productivity noted recently in this country almost disappears with the proposed measure. Severe limitations still remain in this exercise, including the assumption that producers are price takers in both input and output markets and a lack of correction for short-run cyclical behaviour. J.E.L. Classification: C43, D24
It has been seldom recognized, after an early clarification made by Samuelson (1947, p. 151) and ... more It has been seldom recognized, after an early clarification made by Samuelson (1947, p. 151) and successive systematic developments of Afriat, that chainconsistent relative price levels can be reconstructed (up to a constant) using several observation points directly and simultaneously. The derived ratios of price levels are mutually consistent by construction and thereby satisfy the circularity or transitivity test as well as other desirable requirements. By contrast, to the best of our knowledge, all the other existing index number methods fall into the realm of the so-called “impossibility theorem”, failing in particular the circularity test intrinsically. This paper builds on the recent reappraisal of this approach by Afriat and Milana (2008) and compares it with akin non-parametric techniques that are based on revealed preferences. An application to productivity measurement using EU KLEMS data highlights the usefulness of the method.
The fundamental and well-known theorem for the existence of a price index that is invariant under... more The fundamental and well-known theorem for the existence of a price index that is invariant under change in level of living is that each dollar of income be spent in the same way by rich or poor, with all income elasticities exactly unity (the homothetic case). Otherwise, a price change in luxuries could affect only the price index of the rich while leaving that of the poor relatively unchanged. This basic theorem was well known already in the 1930's, but is often forgotten and is repeatedly being rediscovered". "[…] Although most attention in the literature is devoted to price indexes, when you analize the use to which price indexes are generally put, you realize that quantity indexes are actually most important. Once somehow estimated, price indexes are in fact used, if at all, primarily to 'deflate' nominal or monetary totals in order to arrive at estimates of underlying 'real magnitudes' (which is to say, quantity indexes!)". "[…] The fundamental point about an economic quantity index, which is too little stressed by writers, Leontief and Afriat being exceptions, is that it must itself be a cardinal indicator of ordinal utility".
This paper examines the impact of the information and communications technologies (ICT) on produc... more This paper examines the impact of the information and communications technologies (ICT) on production technical efficiency in a wide range of industries in Italy. Technical efficiency, defined as the firm's distance from the production efficient frontier, often make up an important component of productivity. Assessing the role of ICT in the organization and control of production processes may be of primary interest for those firms that are trying to rationalize their production techniques. The examined survey of firms (the Italian Istat annual survey on economic accounts of enterprises with at least 20 employees), offers an opportunity to test the hypothesis that ICT, in both hardware and software components, can positively influence the production performance. The analysis is carried out within industries defined by the OECD STAN database to ease international comparability of the empirical results obtained. Technical efficiency of each individual firm is measured by means of d...
This paper attempts to explain why prices are systematically higher in Japan than in the U.S. It ... more This paper attempts to explain why prices are systematically higher in Japan than in the U.S. It is aimed at measuring direct and indirect productivity and input-price components of sectorial costs of production in Japan relative to the U.S. and presenting a methodology for a bilateral comparison of cost structure by using harmonized input-output tables and Purchasing Power Parity data. The empirical application reveals new elements that explain the difference in costs of production between Japan and the U.S. The main finding is that only in a few industries was the "direct" cost efficiency higher in Japan than in the U.S. during 1985, but even in these industries the "indirect" productivity component was significantly lower than that in the U.S.
SSRN Electronic Journal, 2019
Applied Economics and Finance, 2019
The possibility of the reswitching of techniques in Piero Sraffa’s intersectoral model, namely th... more The possibility of the reswitching of techniques in Piero Sraffa’s intersectoral model, namely the recurring capital-intensive techniques with monotonic changes in the interest rate, is traditionally considered as a paradoxical violation of the assumed convexity of technology putting at stake the viability of the neoclassical theory of production. It is argued here that this phenomenon can be rationalized within the neoclassical paradigm. Sectoral interdependencies can give rise to the well-known price Wicksell effect, which is the revaluation of capital goods due to changes in relative prices triggered by monotonic variations in income distribution. The reswitching of techniques is, therefore, the result of cost-minimizing technical choices facing returning ranks of relative input prices in full consistency with the pure marginalist theory of factor rewards. The theoretical analysis proposed in this article is applied empirically to the counterexamples of various case studies prese...
Foreword (Angus Deaton, Princeton University, USA) PART I: Concept and method 1. The Super Price ... more Foreword (Angus Deaton, Princeton University, USA) PART I: Concept and method 1. The Super Price Index: Irving Fisher, and after 2. The Price-Level Computation Method 3. Price Level Computation: Illustrations PART II: Precursor 1. The system of inequalities ars > xs - xr. 2. On the constructibility of consistent price indices between several periods simultaneously 3. The Theory of Exact and Superlative Index-Numbers Revisited
Cambridge Journal of Economics, 1995
High-technology industries make special contributions to a nation's long-term econom... more High-technology industries make special contributions to a nation's long-term economic performance, and competition among the most advanced countries for high-technology production has increased strongly over the past two decades. The present paper, using an original ...
Dynamic Modelling and Control of National Economies 1983, 1984
The theoretical reference of this paper is general economic equilibrium in an input-output framew... more The theoretical reference of this paper is general economic equilibrium in an input-output framework. The model concentrates on factor demands in the Italian manufacturing industries allowing Leontief coefficients to vary as a function of relative input prices, technical progress and external economies of scale. The variability of input-output coefficients is estimated and analysed within complete systems of factor demands derived from sectoral cost functions. The functional forms in the model have been chosen among the well known class of “flexible” functions which allows us to represent the technology of -production in the most general way. The resulting input-output coefficients show significant variability within the sample period while price-induced input substitution reveals substitutability between primary factors and materials and a widespread capital-labor complementarity. A rise in relative wage rates generally leads to a reduction in the demand for labor and for capital and to an increase in demand for materials.
Ecological Indicators, 2016
Abstract Policy evolution in China has made great achievements in economic development, while its... more Abstract Policy evolution in China has made great achievements in economic development, while its impact on water has also been significant. This study provides detailed insight into how diverse policy evolution affected the water footprint (WF) in China from 1997 to 2007 through input–output analysis and structural decomposition analysis. Input–output analysis was used to measure China's WF. The results indicate that the total WF in China decreased from 495.5 billion m 3 in 1997 to 447.6 billion m 3 in 2007. Structural decomposition analysis was applied to quantify the determinants of the changes in WF. The driving factors of the WF changes were decomposed into technology, sectoral connection, economic structure, gross economic scale and population. The results show that the sector with the most space to save water changed from agriculture to tertiary industry during the periods under study. Technology and economic structure effects always offset the WF increase, whereas gross economic scale effect always hindered water conservation. In 2002–2005, the sectoral connection effect abruptly changed from negative to positive, with the proportion of the total contribution rising to 60%. This phenomenon can be linked to market expansion, which led to a decrease in water utilization when China joined the WTO in 2001. To promote water conservation in China, macro-control policies should be formulated in coordination with self-readjustment policies.
Economic Systems Research, 1995
Oligopoly and Dynamic Competition, 1992
In this paper we examine the process of cost formation and the evolution of profits in some leadi... more In this paper we examine the process of cost formation and the evolution of profits in some leading sectors of the Italian industry. The analytic scheme is based on a model of short run behavior in which the quantity of fixed capital cannot be adjusted and equilibrium between total unit costs and prices is not always achieved. In the proposed interpretative scheme, the existence of quasi-fixed factors constitutes a constraint for the firm in its ability to choose variable factor inputs. The optimal level of capacity utilization is determined at the point where total costs and total revenues are equal. Extra profits therefore arise because the level of production is not optimal. Should the level of production reach its optimal level, extra profits would disappear. Moreover, given the level of production, the variation of factor and product prices leads to a modification of unit profits. In this paper we examine the effect of changes in interest rates on the capacity utilization of existing plants and therefore on unit profits.
This paper proposes to clarify some important questions that are stillopeninthefield of index num... more This paper proposes to clarify some important questions that are stillopeninthefield of index number theory. The main results are the following: (i) the so-called Quadratic Identity on which the superlative index numbers are based can be applied in more general cases than those traditionally considered; (ii) it is not only the Törnqvist index number that does not rely on separability restrictions, but also some other indicators of absolute or relative changes are not based on such restrictions; (iii) in practice, however, all the index numbers or indicators that are considered to be superlative in Diewert’s (1976) sense generally fail by construction to be really "superlative"; (iv) these hybrid index numbers may be far from providing the expected secondorder approximation to the true index and may be found beyond the Laspeyres-Paasche interval even in the homothetic case. In conclusion, it would be more appropriate to construct a range of alternative index numbers (includ...
We develop an approach to productivity measurement based on profit functions. We do this within a... more We develop an approach to productivity measurement based on profit functions. We do this within a framework where non-separable outputs and inputs can be aggregated together, rather than separately as with conventional productivity indexes defined as ratios of output to input indexes. Our approach permits us to construct net aggregates that are always linearly homogeneous even in the nonhomothetic production case. We apply our approach to data for Italian industries for 1970-2003 from the EU KLEMS project. Homotheticity seems to be the exception rather than the rule during the period of 1970-2003 in Italy. We find that the negative trend of productivity noted recently in this country almost disappears with the proposed measure. Severe limitations still remain in this exercise, including the assumption that producers are price takers in both input and output markets and a lack of correction for short-run cyclical behaviour. J.E.L. Classification: C43, D24
It has been seldom recognized, after an early clarification made by Samuelson (1947, p. 151) and ... more It has been seldom recognized, after an early clarification made by Samuelson (1947, p. 151) and successive systematic developments of Afriat, that chainconsistent relative price levels can be reconstructed (up to a constant) using several observation points directly and simultaneously. The derived ratios of price levels are mutually consistent by construction and thereby satisfy the circularity or transitivity test as well as other desirable requirements. By contrast, to the best of our knowledge, all the other existing index number methods fall into the realm of the so-called “impossibility theorem”, failing in particular the circularity test intrinsically. This paper builds on the recent reappraisal of this approach by Afriat and Milana (2008) and compares it with akin non-parametric techniques that are based on revealed preferences. An application to productivity measurement using EU KLEMS data highlights the usefulness of the method.
The fundamental and well-known theorem for the existence of a price index that is invariant under... more The fundamental and well-known theorem for the existence of a price index that is invariant under change in level of living is that each dollar of income be spent in the same way by rich or poor, with all income elasticities exactly unity (the homothetic case). Otherwise, a price change in luxuries could affect only the price index of the rich while leaving that of the poor relatively unchanged. This basic theorem was well known already in the 1930's, but is often forgotten and is repeatedly being rediscovered". "[…] Although most attention in the literature is devoted to price indexes, when you analize the use to which price indexes are generally put, you realize that quantity indexes are actually most important. Once somehow estimated, price indexes are in fact used, if at all, primarily to 'deflate' nominal or monetary totals in order to arrive at estimates of underlying 'real magnitudes' (which is to say, quantity indexes!)". "[…] The fundamental point about an economic quantity index, which is too little stressed by writers, Leontief and Afriat being exceptions, is that it must itself be a cardinal indicator of ordinal utility".
This paper examines the impact of the information and communications technologies (ICT) on produc... more This paper examines the impact of the information and communications technologies (ICT) on production technical efficiency in a wide range of industries in Italy. Technical efficiency, defined as the firm's distance from the production efficient frontier, often make up an important component of productivity. Assessing the role of ICT in the organization and control of production processes may be of primary interest for those firms that are trying to rationalize their production techniques. The examined survey of firms (the Italian Istat annual survey on economic accounts of enterprises with at least 20 employees), offers an opportunity to test the hypothesis that ICT, in both hardware and software components, can positively influence the production performance. The analysis is carried out within industries defined by the OECD STAN database to ease international comparability of the empirical results obtained. Technical efficiency of each individual firm is measured by means of d...
This paper attempts to explain why prices are systematically higher in Japan than in the U.S. It ... more This paper attempts to explain why prices are systematically higher in Japan than in the U.S. It is aimed at measuring direct and indirect productivity and input-price components of sectorial costs of production in Japan relative to the U.S. and presenting a methodology for a bilateral comparison of cost structure by using harmonized input-output tables and Purchasing Power Parity data. The empirical application reveals new elements that explain the difference in costs of production between Japan and the U.S. The main finding is that only in a few industries was the "direct" cost efficiency higher in Japan than in the U.S. during 1985, but even in these industries the "indirect" productivity component was significantly lower than that in the U.S.
SSRN Electronic Journal, 2019
Applied Economics and Finance, 2019
The possibility of the reswitching of techniques in Piero Sraffa’s intersectoral model, namely th... more The possibility of the reswitching of techniques in Piero Sraffa’s intersectoral model, namely the recurring capital-intensive techniques with monotonic changes in the interest rate, is traditionally considered as a paradoxical violation of the assumed convexity of technology putting at stake the viability of the neoclassical theory of production. It is argued here that this phenomenon can be rationalized within the neoclassical paradigm. Sectoral interdependencies can give rise to the well-known price Wicksell effect, which is the revaluation of capital goods due to changes in relative prices triggered by monotonic variations in income distribution. The reswitching of techniques is, therefore, the result of cost-minimizing technical choices facing returning ranks of relative input prices in full consistency with the pure marginalist theory of factor rewards. The theoretical analysis proposed in this article is applied empirically to the counterexamples of various case studies prese...
Foreword (Angus Deaton, Princeton University, USA) PART I: Concept and method 1. The Super Price ... more Foreword (Angus Deaton, Princeton University, USA) PART I: Concept and method 1. The Super Price Index: Irving Fisher, and after 2. The Price-Level Computation Method 3. Price Level Computation: Illustrations PART II: Precursor 1. The system of inequalities ars > xs - xr. 2. On the constructibility of consistent price indices between several periods simultaneously 3. The Theory of Exact and Superlative Index-Numbers Revisited
Cambridge Journal of Economics, 1995
High-technology industries make special contributions to a nation's long-term econom... more High-technology industries make special contributions to a nation's long-term economic performance, and competition among the most advanced countries for high-technology production has increased strongly over the past two decades. The present paper, using an original ...
Dynamic Modelling and Control of National Economies 1983, 1984
The theoretical reference of this paper is general economic equilibrium in an input-output framew... more The theoretical reference of this paper is general economic equilibrium in an input-output framework. The model concentrates on factor demands in the Italian manufacturing industries allowing Leontief coefficients to vary as a function of relative input prices, technical progress and external economies of scale. The variability of input-output coefficients is estimated and analysed within complete systems of factor demands derived from sectoral cost functions. The functional forms in the model have been chosen among the well known class of “flexible” functions which allows us to represent the technology of -production in the most general way. The resulting input-output coefficients show significant variability within the sample period while price-induced input substitution reveals substitutability between primary factors and materials and a widespread capital-labor complementarity. A rise in relative wage rates generally leads to a reduction in the demand for labor and for capital and to an increase in demand for materials.
Ecological Indicators, 2016
Abstract Policy evolution in China has made great achievements in economic development, while its... more Abstract Policy evolution in China has made great achievements in economic development, while its impact on water has also been significant. This study provides detailed insight into how diverse policy evolution affected the water footprint (WF) in China from 1997 to 2007 through input–output analysis and structural decomposition analysis. Input–output analysis was used to measure China's WF. The results indicate that the total WF in China decreased from 495.5 billion m 3 in 1997 to 447.6 billion m 3 in 2007. Structural decomposition analysis was applied to quantify the determinants of the changes in WF. The driving factors of the WF changes were decomposed into technology, sectoral connection, economic structure, gross economic scale and population. The results show that the sector with the most space to save water changed from agriculture to tertiary industry during the periods under study. Technology and economic structure effects always offset the WF increase, whereas gross economic scale effect always hindered water conservation. In 2002–2005, the sectoral connection effect abruptly changed from negative to positive, with the proportion of the total contribution rising to 60%. This phenomenon can be linked to market expansion, which led to a decrease in water utilization when China joined the WTO in 2001. To promote water conservation in China, macro-control policies should be formulated in coordination with self-readjustment policies.
Economic Systems Research, 1995
Oligopoly and Dynamic Competition, 1992
In this paper we examine the process of cost formation and the evolution of profits in some leadi... more In this paper we examine the process of cost formation and the evolution of profits in some leading sectors of the Italian industry. The analytic scheme is based on a model of short run behavior in which the quantity of fixed capital cannot be adjusted and equilibrium between total unit costs and prices is not always achieved. In the proposed interpretative scheme, the existence of quasi-fixed factors constitutes a constraint for the firm in its ability to choose variable factor inputs. The optimal level of capacity utilization is determined at the point where total costs and total revenues are equal. Extra profits therefore arise because the level of production is not optimal. Should the level of production reach its optimal level, extra profits would disappear. Moreover, given the level of production, the variation of factor and product prices leads to a modification of unit profits. In this paper we examine the effect of changes in interest rates on the capacity utilization of existing plants and therefore on unit profits.