agent bank
A bank which arranges with a consortium of banks a credit facility for a borrower.
agglomeration diseconomy
An external diseconomy of scale caused by the growth of a town or city. For example, the population growth of a city often results in increased pollution and congestion.
agglomeration economy
An external economy of scale brought about by the massing of a population in one place. As the population of a town or city increases, a more complex infrastructure is possible and a greater division of labour achieved than in a smaller settlement. The larger the settlement, the more likely it is to have a full range of transport, shopping, cultural and health facilities.
aggregate concentration
The concentration of the economic activity of a nation or an industry in the hands of a few giant firms. Also called absolute concentration.
aggregate demand
The total amount of national planned expenditure by firms, households, governments and other sectors at each price or income level.
aggregate output
An output measure of the national income calculated by summing the amount of value added contributed by each industry. This aggregate is measured at factor cost.
aggregate supply
1 The total output which all the producers of an economy are willing to supply at each price level.
2 Total output as a function of the amount of labour.
aggregation problem
The choice of a suitable procedure for reducing numerous and detailed data to aggregate variables for use in an econometric equation. In particular, microeco-nomic parameters have to be expressed in macroeconomic parameters. The difficult task is to eliminate bias so that stable macroparameters are produced for use in forecasting models. Sometimes aggregation is based on weighted averages of the microparameters.
agio theory of interest
An explanation for interest being paid. Interest is paid to allow money or goods to be obtained now because they are desired more in the present than in the future. ‘Agio’ literally means ease or convenience.
agreement corporation
A state chartered US banking corporation engaged in international banking under an agreement with the federal reserve Board of Governors to limit its activities to those permissible under the edge act.
agribusiness
A large organization which processes or distributes agricultural products. It benefits from economies of scale and is managed as an industrial firm, separating personnel, marketing, finance and production functions.
Agricultural Adjustment Act 1933
The basis of US federal support to farmers which has provided price support to maintain farm incomes. It created the commodity credit corporation to execute its policy.
agricultural household
A farm with a labour force provided by residents of a household. This economic institution, analysed as both a firm and a household, was the basic economic unit of Ancient Greece and is extensive today in less developed countries.
agricultural policy
Price and income support schemes designed mainly to stabilize or increase farmers’ incomes. Although consumers of food suffer through having to pay higher prices under most agricultural policies, it is unlikely that developed countries with highly productive agricultural sectors will allow a market in unsubsidized agricultural products as governments seek the votes of farmers to be re-elected. As the general agreement on tariffs and trade has become increasingly concerned with world trade in agricultural products, national agricultural policies may be harmonized more in the future.
Aid and Trade Provisions
UK governmental assistance to exporters to make their contractual terms more attractive. Some of the ‘aid’ goes to the richer developing countries instead of the poorest. This government financial help is paid as a subsidy to companies and not directly to its ultimate beneficiaries.
Aid to Families with Dependent Children
The us federal welfare programme, originally ‘Aid to Dependent Children’, inaugurated under Title IV of the 1935 Social Security Act. It enabled states to provide financial assistance to needy dependent children: the states had the tasks of planning and supervising the use of these federal grants. When it began in 1936, there were about half a million recipients; by 1987 the average number of monthly recipients was 11 million. Originally intended to enable female heads of households to stay at home to rear their children, in 1967, the scheme was amended to encourage mothers to join the labour force: this was done by reducing the implicit tax rate on earnings from 100 per cent to 67 per cent.
Akerlof, George Arthur, 1940
Born in New Haven, connecticut, and educated at Yale university and the Massachusetts Institute of Technology. A professor at the University of California, Berkeley, from 1968 to 1978, at the London school of Economics from 1978 to 1980 and again at Berkeley from 1980. Won the nobel prize for economics, with stiglitz and spence, in 2001. He became famous in 1970 for raising the problem of asymmetric information in an article on the market for ‘lemons’. Also he has made important contributions to monetary eco nomics, the study of unemployment and wages and the economics of the family. From 1974 he has been a senior fellow of the Brookings Institution.
aleatory contract
An agreement under which the liabilities and benefits depend on chance. This is the basis of much gambling.
alienated work
Wage labour; work which is subject to the will of another. This kind of work is a non-fulfilling means to an end, often because it is work performed out of personal economic necessity. smith’s notion of labour as ‘toil and trouble’ explains much of alienation. As professional jobs are often deeply satisfying they rarely involve alienation.
alienation
Workers’ estrangement from their work which they do not control, from their products which are appropriated, from other men who are capitalists, and from the human species as man becomes a mere animal, according to marx. Adam smith noted that increasing the subdivision of labour would unfortunately affect workers as repetitive simple work dulls the brain and causes a variety of occupational health problems.
Allais, Maurice, 1911
Educated at the Ecole polytechnique and the Ecole Superieure des Mines before serving in the army from 1943 to 1948. Director of the Bureau of Mines Documentation and Statistics, Paris and professor of economic analysis at Ecole Superieure des Mines from 1944. Inspired by walras, pareto and fisher, he undertook the synthesis of real and monetary phenomena and the relationship between economics and other social sciences in his In Quest of an Economic Discipline, Part 1, Pure Economics (1943) and subsequent five volumes. Later he studied the theory of choice under uncertainty (which included the use of surveys to investigate cardinal utility) and comparative international studies of real income. Awarded the nobel prize for economics in 1988.
alleviation
A development strategy of softening poverty, not eliminating it; for example, by giving every child primary education and every mother health care.
allocative efficiency
The selection of factor inputs which minimises the cost of producing goods and services to satisfy given wants, subject to resource and technological constraints. This allocation includes efficiency of both production and distribution. Setting out the conditions for efficiency, including the appropriate set of prices, has been the concern of welfare economics. Recognition of the existence of indivisibilities and externalities has necessitated departures from the approach of neoclassical economics.
allotment letter
A letter confirming the purchase of newly issued shares.
all-pay auction
A public sale which takes the form of rent seeking. The prize is always awarded to the competitor exerting the highest effort. This means that in an auction setting, each bidder has an incentive to bid just above the highest bidder, providing there is a positive pay-off.
alpha stock
One of the most actively traded stocks of the London stock exchange which is always quoted on the stock exchange automated quotation system. There are usually ten or more market-makers for each of such shares. In 1990, the ISE had about 110 such stocks.
altruism
Seeking the good of others. This alternative to self-interest can be a major motive for economic activity. Many schemes of idealistic socialism rest on this principle. Adam smith used the concept of the invisible hand to show that unconscious altruism can occur in an economy based on the principle of self-interest.
ambient standard
A standard for air quality set in the USA by the environmental protection agency.
American Depository Receipt
A share certificate or bearer security entitling the holder to shares of a non-us company which have been deposited in a bank located outside the USA. This US financial instrument, originally devised in 1927, is now traded on both us and uK stock exchanges.
American Economic Association
The leading US professional association of academic and other economists, founded in 1885 and based at Evanston, Illinois (now at Nashville,Tennessee).Fromitsearliestyearsit has sought to promote economic research, particularly by publishing its prestigious American Economic Review, a core journal of economics, from 1911 and Journal of Economic Literature from 1963. The AEA currently has over 25,000 members.
American option
An option that can be activated before its expiry date.
American Stock Exchange
Previously the New York Curb Market and then the New York Curb Exchange, tracing its ancestry back to trading conducted in the streets of lower Manhattan in 1793. It acquired its current name in 1953 and was incorporated in 1971; by 1987 it had 661 regular members with 60 per cent of its business with private clients and 40 per cent with institutional investors. It ended fixed commissions on dealings in 1975 and from 1985 has been linked to the Toronto Stock Exchange.
America Works
US private company founded in 1984. It seeks to get people off welfare into employment. This privatization of welfare to work programmes is based upon contracts between the company and a state or city. A bounty is paid to the company for each person placed in a job for at least seven months. Job search and interview skills are taught and the worker’s performance is monitored for four months.
amortization
Gradually extinguishing a liability or debt by allocating the cost of it to a number of time periods. Major examples are the depreciation of an asset and the repayment of a loan by regular instalments to cover the amount advanced and the interest.
analysis of variance
The decomposition of the variance in a dependent variable into the variance explained by the regression and the residual variance.
anarchism
The political doctrine which asserts that economic and social life should not be subject to any governmental control. The leading early exponents of this view were Pierre Proudhon (1809-65) and Mikhail Bakunin (1815-76). In practice, anarchism has been applied to industrial organization in the form of workers’ syndicates, but experiments of this nature in France and spain in the early twentieth century were short lived. Although anarchists share with socialists a dislike of capitalism, with laissez-faire economists a mistrust of the state and with members of the co-operative movement a belief that firms should be managed by labour, they are more extreme, especially in wanting the abolition of private property and being prepared to risk the abandonment of systems of law and order.
anchor tenant
The leading commercial tenant of an office block which influences its design and has its logo on the facade in return for leasing a large portion of the building, thereby making the return on the property developer’s investment more secure. Sometimes the anchor tenant is given a marketable share in the equity of the building.
Ancient Greeks
one of the earliest groups of writers on economic problems who, despite living in an underdeveloped economy mainly agrarian in character, discussed value, money, comparative property systems, the division of labour, exchange controls and public finance.
Andean Common Market
An association of Bolivia, chile, colombia, Ecuador and peru set up in 1969 to co-ordinate responses to overseas investors and to organize a common market.
Anderson, James, 1739-1808
scottish farmer and agricultural economist who was probably the first to expound a clear theory of differential rent in his An Inquiry into the Nature of the Corn Laws (Edinburgh, 1777), regarding rent as a payment for using land superior in fertility. This was to inspire malthus and ricardo. His other major work of economic interest was Observations on the National Industry of Scotland (1775). In addition, he proposed schemes for developing the scottish Highlands and edited The Bee, a weekly journal with articles on literature and current affairs, from 1790 to 1794. As his professional papers are reputed to have been used by his widow to scorch chickens, research on his work is difficult.
angel
An investor in a stage production or new business venture. The risk and returns to this kind of investment can be very high. in London, for example, there are several hundred ‘angelic’ investors in the theatre.
Anglo-Saxon capitalism
An economic system based on private enterprise, highly flexible labour practices, disproportionately large remuneration for top executives, a fast responsiveness of firms to economic conditions, a major role for financial markets in determining the industrial structure and rapid growth based on rapid diffusion of technology. Both the us and uK economies attempt to follow these principles.
animal spirits
keynes’s description of the whimsical investment attitudes of entrepreneurs, sometimes optimistic, sometimes pessimistic; an approach much emphasized by Joan robinson.
announcement burden of a tax
The loss of producer’s and consumer’s surpluses as a consequence of a tax change. The announcement has the effect of adjusting taxpayers’ behaviour, e.g. in supplying labour.
announcement effect
The immediate effect on households and firms of a government’s publication of a change in monetary or fiscal policy. unlike the other effects of policy changes, there is no time lag. The first effects are felt in financial markets as security prices can be adjusted immediately.
annualized-hours system
A form of labour contract under which a worker agrees to work for a year of working weeks; an alternative to the standard working week. The annual number of hours is calculated by aggregating the previous weekly hours, less leave. it is a useful system for avoiding substantial overtime and other premium payments. continuous-process industries were among the first to use this system.
annual percentage rate (of interest)
Actual annual cost of borrowing. The Truth in Lending Act (USA, 1968) and the Consumer Credit Act (UK, 1974) have required all lenders to state the true cost of borrowing. This annual rate, expressed as a percentage, is calculated by using the formula
where t is the number of years of the loan. annuity (G0)
An amount of money paid annually or at other regular intervals. Major examples include life assurance premiums, pensions, rent payments and instalment payments. An annuity certain has a fixed term, unlike a perpetuity whose payments continue indefinitely (e.g. an unredeemable government stock). An annuity contingent depends on an uncertain event, e.g. the death of a person. The purchase price, or present value V, of an annuity depends on the rate of interest used in the calculation
where i is the rate of interest (expressed as a decimal) and n is the number of periods that the annuity is paid.
antagonistic growth
1 Tensions, often of a social nature, in the growth process because of the trade-offs between growth, stability and equity.
2 The deliberate creation of disequilibria to bring about new economic activities, e.g. an infrastructure deficiency which stimulates the growth of a transport industry.
anthropogenic climate impact
A climate change brought about by humans, rather than by Nature.
anticipatory pricing
The practice of including expected cost increases in the make-up of prices. Firms adopting this policy hope that it will stabilize their prices as prices will not have to fluctuate with every change in costs. This type of pricing reduces the menu costs of inflation.
anti-competitive practices
Corporate behaviour in a market which attempts to increase a firm’s market power, e.g. licensing agreements, special selling conditions and other measures less serious than monopolization or cartelization.
antitrust
us policy to prevent monopolistic practices in interstate commerce. It started with the Sherman Act 1890; the states have similar legislation applicable to production industries. Although national competition policies are common in oEcD countries, few are as tough, with criminal sanctions, as the us antitrust legislation administered by the Department of Justice and the Federal Trade Commission. The chief federal antitrust statutes are: sherman act 1890; clayton act 1914; federal trade commission act 1914; robinson patman act 1936 and celler kefauver antimerger act 1950.
