Research Notes

Scale Economies, Asymmetries, and Product Variety: A Case for Protection

MANUEL NAVARRO AND FRANCISCO LEDESMA University of La Laguna--Spain

The result of generalizing Lancaster's model ["The 'Product Variety' Case for Protection," Journal of International Economics, 31, 1991, pp. 1-26] is that his argument for protection is also well founded in asymmetric contexts. Moreover, in spite of the asymmetries, one finds that a nondiscriminatory tariff is required to correct the market failure. Under conditions of asymmetry between characteristics and import prices, there will always be an interval of fixed cost values which lead to a market failure in a free trade context, with the consequent need for application of an import tariff in order to maximize net national gain from variety.

Lancaster's model is generalized in two cases. First, the local variety is offered in the market precisely where the marginal consumer of both imported varieties is situated. Secondly, consider the case when the local variety is anywhere in the interval between the imported goods. In both cases, Lancaster's results hold, i.e., there is an interval of fixed costs values of the local firm that leads to market failure under free trade. Thus, a tariff will maximize the net gain from variety. Moreover, even where the import prices of the imported varieties differ, it would be optimal to apply a uniform tariff to all imports, regardless of origin.

Spatial Disparity of Unemployment in Poland

DOMANSKI CZESLAW AND BARBARA NOWAKOWSKA University of Lodz--Poland

Changes in the labor market have become one of the most important issues of economic transformation in Central and Eastern European countries. Unemployment in Poland, a phenomenon not known before the year 1989, is caused by the deep economic crisis, structural disequilibrium between demand and supply on the labor market, and small mobility of work forces. The paper discuses spatial disparities in size and structure of unemployment and explains them. In the first part of the paper, all administrative provinces are divided into seven groups according to their economic characteristics. For this purpose, taxonomy methods are used.

The second part of the study presents a correlation between economic characteristics of the groups of regions and intensity of unemployment and the structure of unemployment according to sex, age, and level of education. The highest rates of unemployment are observed in agricultural regions, lower rates are noted in industrial and industrial service-type of provinces, and the lowest rate is recorded in the capital region. The final part of the paper presents some perspectives for reduction of unemployment in terms of the economic character of regions.

Monetary Volatility, Real Volatility, and Real Exchange Rate

NICHOLAS APERGIS AND CONSTANTINOS KATRAKILIDIS University of Macedonia--Greece and University of Thessaloniki--Greece

This paper primarily tests the significance of real and monetary volatility (uncertainty) as fundamental factors in the behavior of the real exchange rate with respect to three bilateral real exchange rates among the U.S., Germany, and Japan. The selection of these three particular countries is based on Koedijk and Schotman [1989], who claimed that the real exchange rate movements for 15 industrial countries could be portioned into groups led by the U.S., Germany, and Japan.

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The methodology followed to measure volatility was the GARCH approach, while Vector Autoregression in conjunction with Variance Decomposition tests were employed to estimate the relative contribution of the variables concerned to real exchange rate changes. The empirical findings indicated that, in certain cases, the contribution of the volatility of terms of trade "news" variables played a substantial role in explaining real exchange rate movements. At the same time, the volatility of monetary "news" variables accounted in a minor way for the variability of the real exchange rate. As it concerns the forecasting properties of the authors' approach, it should be mentioned that the specified vector autoregressions were found superior when they included both "news" and "volatility" terms, rather than only "news" terms. However, they still could not beat the "random walk" model for the real exchange rate.

S&P Common Stock Rankings: A Viable Guide for Investors?

GARY E. CLAYTON Northern Kentucky University

This paper examines the usefulness of Standard & Poor 's (S&P) common stock rankings as a guide for investors. The stocks in the study were drawn from the active company file in the S&P Compustat PC Plus database, which contained information for approximately 10,000 companies. The methodology employed was to construct separate stock portfolios for each of the eight S&P rankings--A+, A, A-, B+ , B, B-, C, and D--and follow each over a 10-year period, reconstituting each portfolio annually to include only those stocks with identical rankings. The value of the average stock in each portfolio was computed at the beginning of the year and then again in 12 months (including cash dividends paid) to determine the annual percentage change.

The 10-year study found that the highest ranked stocks generally finished first, with the following annual compound rates of return: A + = 11.80 percent; B + = 10.42 percent; A- = 10.40 percent; A = 10.00 percent; B = 7.03 percent; B- = -2.51 percent; and C = -6.25 percent. The performance of the D (in reorganization) stocks was judged to be unreliable and, therefore, was not reported. In conclusion, despite S&P's disclaimers, the S&P common stock rankings appear to be a useful guide to stock market investments.

Airline Passenger Complaint Behavior: Compar ing Sweden and the U.S.

JAMES P. RAKOWSKI, DAVID BEJOU, AND BO EDVARDSSON University of Memphis, University of North Carolina at Wilmington, and University of Carlstad---Sweden

The study present the results of a "critical incident" survey of airline service failures in the U.S. and Sweden. The survey included interviews with 241 passengers and 100 airline employees in the U.S. In Sweden, 320 passengers and 80 airline employees were interviewed. Only 24 percent of Swedish passengers actively complained about a service failure, compared to 47 percent in the U.S. In Sweden, 16 percent of passengers reported a broken or weakened relationship with the airline, compared to 69 percent in the U.S. American airline employees felt that only 17 percent of the incidents resulted in a weakened or broken relationship with the passenger, compared to the actual 69 percent stated by passengers. The Swedish employees slightly overestimated the impact of the service failures as 20 percent, compared to the actual 16 percent. Employees in both countries overestimated the positive impact of their actions on passenger loyalty. American employees estimated that reaction to service failures strengthened the passengers' relationship with the airline in 6 percent of the instances, compared to the passenger response of only 1 percent. Swedish employees felt there was a positive outcome in 20 percent of the instances, compared to the actual passenger response of only 4 percent.