'Public sector pricing' : theoretical analysis in a dynamic macroeconomic model

• Main Author: Narayan, Padmini Venkat
• Published: London School of Economics and Political Science (University of London) 1990
• Subjects: 339
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.645263

This thesis examines the role of public policy, with specific reference to public sector pricing, in an economy where all markets do not necessarily clear. The discussion focuses on three non-Walrasian market situations termed, in the nomenclature of Malinvaud and others, as: Keynesian Unemployment, Classical Unemployment and Repressed Inflation. In chapter 1, there is a brief summary of the literature in this area. The framework of the model used, is described in some detail in chapter 2. In chapter 3, the role of the traditional instruments of taxation and public expenditures is analysed in the framework of the present model. The "non-traditional" instrument of public sector pricing throws up some interesting results. Among other things, my results indicate that public sector pricing can be designed to effectively influence the level of aggregate income and employment. The method of financing the government deficit is the subject of chapter 4. My results indicate that the bond-financed multiplier of Blinder and Solow or Tobin and Buiter is simply a special case of the multiplier in my model, when the public sector enterprise prices its output at marginal cost. Equally important, I establish that the Blinder-Solow result "the long-run multiplier for bond-financed deficit spending exceeds that for money-financed deficit spending" is not necessarily true. Furthermore, the stability and convergence properties of the system are shown to rest on the choice of public sector prices. The characterisation of optimal public sector prices is dealt with in chapters 5 and 6, viewed from a different perspective in each of the chapters. In chapter 5, optimal pricing rules are derived which are explicit and readily operational. Finally, in chapter 6, we characterise the dynamic time-path of optimal public sector prices.