SOFTWARE PIRACY AND ITS IMPACT ON SOCIAL WELFARE 1

Size: px
Start display at page:

Download "SOFTWARE PIRACY AND ITS IMPACT ON SOCIAL WELFARE 1"

Transcription

1 SOFTWARE PIRACY AND ITS IMPACT ON SOCIAL WELFARE 1 Toomas Hinnosaar Software piracy involves usage, copying, selling and distributing computer programmes without the permission of its producer. Software piracy is an illegal activity and in Estonia the issues related to that area are regulated by the Copyright Act. Ever since the dawn of wider spread of computers and computer software some 20 years ago piracy has been considered to be one of the most crucial problems for the software industry. To protect software against illegal copying numerous different technical solutions have been worked out so as to enable eventual abolishment of software piracy or make it so costly that the notion of using pirate software would vanish. Attempts to implement different anti-piracy mechanisms have indeed been made, but time has shown that radical protection measures are eventually abandoned. Therefore, this is a paradox which economists are trying to find an explanation to why do software makers not bar piracy of their products, even though it is technologically fully practicable? The objective of this article is to introduce some economic-theoretical reasonings to explain why piracy can still exist. The author is not trying to substantiate or justify usage of illegal software, rather to contemplate on the possible reasons as to why software companies or the government do not take more serious steps to exclude it. Software Piracy in Figures 2 In 1994 the rate 3 of software piracy in the world was 49%; by 2002 the indicator had declined to 39%. In North America and Western Europe the rate of piracy has been consistently smaller while in Eastern Europe it has been the largest. In Estonia the gauged rate of piracy in 1996 and 1997 stood at 90 and 92%, respectively, which even outpaced the average in 1 This article is based on the author s Master s thesis that he defended at the University of Tartu in The thesis is available in Estonian on the web site of the Bank of Estonia at publikatsioonid/seeriad/muud_uuringud/thinnosaar.pdf With his thesis Toomas Hinnosaar won a scientific research contest and was awarded the first ever Urmas Sepp Reward that the Bank of Estonia introduced this year. U. Sepp, a long-term Head of the central bank s Research Department, died tragically and in his honour a 30,000 kroon reward is awarded to a young researcher in the field of economics or a group of researchers. 2 The data has been derived from the research Eight Annual BSA Global Software Piracy Study, International Planning and Research Corporation, The rate of pirate software is gauged as a ratio of computers running illegal versions of the most widely spread software packages to the total number of computers. In the studies mentioned only corporate computers have been taken into account. 17

2 KROON&ECONOMY No 3, 2003 Eastern Europe. However, in recent years the percentage of piracy in Estonia has considerably declined and according to the data derived from a research in 2002, it stood at 53%. The rate of pirated software in Estonia and in different regions of the world in has been illustrated in Figure % 90% 80% 70% 60% 50% 40% 30% 20% Figure 1. The share of pirated software by regions Estonia Western Europe Eastern Europe North America Latin America Asia and Pacific Ocean Region Middle East Africa World Source: Eight Annual BSA Global Software Piracy Study, International Planning and Research Corporation, Losses from the use of pirated software or the revenue that software producers did not get stood at 12.3 billion dollars in The figure has remained stable for a long time, eg in 2002 it was 13.1 billion dollars. Even though utilisation of pirated software is the steepest in Eastern Europe, the revenue forgone in that region accounts for a comparatively small amount of the total losses that software producers sustain, since the markets in Asia as well as in Western Europe and North America, where the piracy rate is much smaller, are significantly larger. While interpreting the figures one has to denote that upon coming to such conclusions, researchers have proceeded from presumptions the accuracy of which gives ground for doubt. When evaluating the rate of pirated software researchers possess accurate data on software sales and the number of computers. However, regarding the software that an average new or used computer might run, evaluations are based on interviews carried out in the United States. There is reason to believe that the consumers in North America and Western Europe are, because of their much larger incomes, willing to invest more in commercial software while in the regions with smaller incomes besides pirated software also comparatively more free software is used, and people just cannot afford to have some programmes. Thus, these figures might be somewhat overestimated. Also, as for interpretation of the amount of revenue not received, the figure represents the upper margin of revenue forgone it is evident that the users of pirated software are not 18

3 willing to pay retail prices for legal software and at least some of them would give up using the software or opt for an alternative solution. Regarding revenue forgone, one can often hear the argument that besides the earnings not received by software companies also the government has lost part of its tax revenue. Such a claim, however, is quite naive for instance in the Estonian context, as local production of software packages is essentially non-existent, which means that sales revenues go abroad and the money saved due to piracy is spent on something else bringing the government at least as much tax income and quite likely creating more jobs. Figure 2 indicates a negative correlation between the rate of software piracy and the prosperity of the inhabitants 4. Such a correlation is logical and functions because of several reasons naturally, people in richer countries find it easier to obtain legal software along with accompanying value added. Also, software companies have a weightier motive to fight against software piracy namely in the countries where potential income of companies are larger and, as we will later see, sooner allow piracy in poorer countries. 100% 90% share of software piracy 80% 70% 60% 50% 40% 30% 20% 10% 0% Figure 2. Correlation between software piracy and the prosperity of inhabitants y = -1E-05x R 2 = ,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 annual GDP (USD per capita) Sources: Eight Annual BSA Global Software Piracy Study, International Planning and Research Corporation, 2003; World Development Indicators, World Bank, Economic-theoretical Idiosyncrasies of the Software Market Compared to traditional goods computer software is somewhat different the value of it is fully represented by the information it includes (programme lines). Such goods are called 4 For assessing the wealth of the inhabitants the GDP per capita indicator has been applied (in US dollars). 19

4 KROON&ECONOMY No 3, 2003 information goods. Software as an example of information goods is characterised by three relevant effects that will be elaborated below. Increasing returns to scale on the supply side a large initial investment has to be made to develop the product while its marginal cost, ie the cost per each new copy, is in effect close to zero; Increasing returns to scale on the demand side for all consumers network effect; Increasing returns to scale on the demand side for one consumer, which is created due to very high switching costs. Close to zero marginal cost means that after producing the product the manufacturer can make an unlimited amount of copies whithout significant additional costs. It is known from economic theory that in the context of perfect competition the price will fall to marginal cost, which in the case of software would mean free distribution. With many programmes it is indeed noticeable while most software makers possess sufficient market force to make profit and cover the costs sustained while developing the product. Network effect represents an increase in utility that software users can enjoy if the number of users, ie the network, expands. The network effect is divided into direct effect (eg more people to exchange files with) and indirect effect (eg the number of additional software components with programmes, training opportunities, etc increases). The network effect significally changes the operating mechanism of the market. With traditional goods the demand curve is declining the higher the price, the fewer consumers, and vice versa the more you want to sell, the lower the price has to be. With the network effect the impact is initially the opposite the more products are sold, the more new consumers are willing to pay for them. There are several equilibriums in the market operating with the network effect if the number of consumers is small, nobody is willing to buy the product even at a low price, but if the number is big, also such consumers who attach comparatively little value to the product will buy it. Switching costs are producer- or product-specific investments that have to be made again with a new seller/product while no costs are involved when continuing the old way. Switching costs are divided into transactional (the costs related to any change, eg the cost of time upon re-installment) and informational (one-off costs that do not have to be made when returning to the old product, eg training costs). A frequently given example is a computer operation system that involves very high replacement costs application software has to be replaced, also all the existing documents have to be converted into a new format, you have to learn how to use the new system, etc. If switching costs are big enough, the consumer will never use another product and will be locked to one product. This in turn means that the producer has to some extent monopoly power over the consumer. The Impact of Piracy on Software Producer s Profit A direct impact that the existence of software piracy has on the profit of the producer is, naturally, smaller demand, since some potential users of legal software opt for pirated 20

5 software. On the other hand, surveys on pirated software 5 have indicated that the existence of pirated software also involves positive effects. Besides the fact that making anti-piracy protection mechanisms more efficient is inconvenient for the consumers, the principal negative impact of restricting piracy proceeds from the significant network effect prevailing in the software market: the value of software for each user depends on the number of users of the specific software and compatible software, ie on the size of the network, while pirated software increases the number of users, ie the network. In other words, the direct and indirect impact can be described as follows: Competition effect the producer has to compete against the pirated version of its product. Therefore, the producer cannot put a potential maximum price on the product but has to opt for a price that would not induce too many consumers to switch over to the pirated version; Price discrimination effect discrimination through price generally enables to obtain more out of consumer surplus, ie the aggregate value the consumers derive from the product. Pirated software as a free version enables to sell more units of the product and even if the producer does not derive direct revenue from it, each software user expands the network and thus also demand for legal software, which in turn translates into increased earnings for the producer. Figuratively speaking, the impact might materialise as follows: it might be useful for a software company to let price-sensitive groups (eg household consumers) use its software free of charge, since from the point of view of legal consumers (eg companies) it adds value if computer users related to them use the same software. Therefore, these entrepreneurs are willing to pay considerably more for the software, which compensates for the revenue not received from a few most affluent household consumers who might otherwise have purchased the software. Besides the above-mentioned impact, it has been established that if there were several competing software producers, tolerating the use of pirated software might translate into a competitive advantage and thus be allowed by all competing producers. If one of the competitors barred piracy while the other one tolerated it, a large number of users would opt for pirated software thus expanding the network of the company that tolerates piracy. This in turn would boost demand at the expense of the competitor. Taking into account the time dimension, one might assume that if an increase in consumer affluency or toughening of legislation is expected, in order to maximise profits it is strategically right for software companies to tolerate the use of illegal software in the early years and 5 Economic-scientific discussion was set in motion by the article by K. R. Conner and R. P. Rumelt, Software Piracy: An Analysis of Protection Strategies, Management Science, 1991, Volume 27, No 2, pp A longer overview is available in the author s Master s thesis. 21

6 KROON&ECONOMY No 3, 2003 later make the control mechanisms more effcicient, so that the people who are already accustomed to their software would start paying for it. Such an effect is noticeable regarding differect countries, time and people. The most efficient anti-piracy measures are in place specifically in developed countries where sizable fines are applicable while for instance in China, Russia and Argentina respective legal acts have not yet been implemented in practice. Looking at Estonia, the same phenomenon is noticeable if strict anti-piracy mechanisms had been applied ten years ago, only very few companies and private persons (and naturally also government institutions) would have been able to afford computers and software. However, in recent years supervision has been made considerably more efficient and as a result piracy has decreased. Looking at the same effect from the user point of view, an example one could refer to are students who are generally not willing to buy any software, let alone design programmes targeted at professionals, etc, but if they learn and get used to some programmes, they might later turn into valuable clients. As indicated above, the direct impact of software piracy on software producers is negative while the indirect influence is positive. Whether the total effect is positive or negative depends on different demand factors, primarily on the extent of the network effect. If the overall effect is very negative, the producer is incapable of covering the costs of developing software, which means that in the longer run there will be fewer software available. Software Piracy and Social Welfare It has been indicated that from the point of view of software producers piracy can be either good or bad. But what is its impact on the welfare of consumers and the society at large? The consumers who would not apply software without the option of using pirated software would probably win from its existence they would receive value added without additional costs. For the consumers of legal software the existence of pirated software is also positive: due to the network effect they benefit more from applying legal software and, obviously, they can choose whether to use a legal or illegal version. Knowing that for all users of software the existence of pirated software is sooner positive than negative and if software companies also benefit from it (the network effect is big enough, etc), the existence of piracy is by all means socially optimal. But what happens if the condition is not met but the company itself cannot or will not bar piracy (eg it has a much larger and more important market in mind when writing the programme)? Regarding Estonia, one might conclude that from the point of view of social welfare gain should not be very important for software producers, since software companies are far away and are focusing on much larger markets. If from the point of view of social well-being only the welfare of (all) the citizens of the country is important, it is evident that the existence of piracy enhances it, since the impact on consumer welfare and the overall number of consumers is positive. If it is the users of 22

7 legal software who are more important than others, then the socially optimum level of piracy does exist. Making it more difficult or costlier to use pirated software will boost the number of legal software users on the one hand while lessening their welfare by diminishing the network on the other hand. In addition to the motivation of the interest groups, their impact on the decisions of the state regulator should be taken into account. Consumers can influence government decisions for example through voting at elections, but their impact on the government s resolve either to boost the fight against piracy or not is clearly very indirect and insignificant. Meanwhile, software companies have set up organisations and exert comparatively extensive influence. In fact the fight against piracy is being intensified across the world, which leads to the conclusion that the impact of software producers on the governments is more significant than representation of consumer interests. The afore-mentioned fact would well illustrate the situation in the Ukraine and China. Because of the absence of any anti-piracy activities, the United States imposed trade restrictions on the Ukraine in 2001 and opposed its accession to the World Trade Organisation. In January 2001 the parliament of the Ukraine adopted a new act that is expected to reduce piracy considerably. A similar tendency is noticeable in China, where the government recently adopted a new anti-piracy act since otherwise the country s accession to the World Trade Organisation would have been seriously hampered. Conclusion Even though piracy has for more than 20 years been considered to be the biggest problem facing the software industry, there are no visible signs indicating that it would disappear nor have any efficient efforts been made towards its abolishment. A possible economic-theoretical reason behind the existence of piracy is the network effect characteristic of the software market, which leads to the point that software producers do not actually want to shut out piracy. Also, the users of either legal or pirated software are not interested in the abolishment of piracy, since, due to the network effect, piracy enhances the welfare of them all. From the point of view of social welfare it is optimal to make efforts towards abolishing piracy only when it has a negative impact on the profits of the producer and if the producer s profits exert a considerable influence on social welfare eg if it is a local or influential producer. 23

The economic contribution of sport to Australia

The economic contribution of sport to Australia January 2010 Frontier Economics 1 The economic contribution of sport to Australia This note summarises the findings of the longer Frontier Economics report Why is it important to understand the economic

More information

MEASURING A NATION S INCOME

MEASURING A NATION S INCOME 10 MEASURING A NATION S INCOME WHAT S NEW IN THE FIFTH EDITION: There is more clarification on the GDP deflator. The Case Study on Who Wins at the Olympics? is now an FYI box. LEARNING OBJECTIVES: By the

More information

Software Anti-piracy and Pricing in a Competitive Environment: a Game Theoretic Analysis

Software Anti-piracy and Pricing in a Competitive Environment: a Game Theoretic Analysis Software Anti-piracy and Pricing in a Competitive Environment: a Game Theoretic Analysis We study a problem of two software firms competing on price in a market where consumers can choose between purchasing

More information

Practice Problems on Current Account

Practice Problems on Current Account Practice Problems on Current Account 1- List de categories of credit items and debit items that appear in a country s current account. What is the current account balance? What is the relationship between

More information

Knowledge Enrichment Seminar for Senior Secondary Economics Curriculum. Macroeconomics Series (3): Extension of trade theory

Knowledge Enrichment Seminar for Senior Secondary Economics Curriculum. Macroeconomics Series (3): Extension of trade theory Knowledge Enrichment Seminar for Senior Secondary Economics Curriculum Macroeconomics Series (3): Extension of trade theory by Dr. Charles Kwong School of Arts and Social Sciences The Open University of

More information

Agenda. Saving and Investment in the Open Economy, Part 2. Globalization and the U.S. economy. Globalization and the U.S. economy

Agenda. Saving and Investment in the Open Economy, Part 2. Globalization and the U.S. economy. Globalization and the U.S. economy Agenda Globalization and the U.S. Economy Saving and Investment in the Open Economy, Part 2 Saving and Investment in Large Open Economies (LOE) The U.S. Current Account Deficit Fiscal Policy and the Current

More information

Estonia and the European Debt Crisis Juhan Parts

Estonia and the European Debt Crisis Juhan Parts Estonia and the European Debt Crisis Juhan Parts Estonia has had a quick recovery from the recent recession and its economy is in better shape than before the crisis. It is now much leaner and significantly

More information

Terms of Access to Payment Systems

Terms of Access to Payment Systems 1 Terms of Access to Payment Systems The Different Positions of Small and Large Banks English summary of Swedish Competition Authority report 2006:1 2 Summary The Swedish banking market is dominated by

More information

Health & the economic crisis: the Australian case

Health & the economic crisis: the Australian case Health & the economic crisis: the Australian case Country: Australia Partner Institute: Centre for Health, Economics Research and Evaluation (CHERE), University of Technology, Sydney Survey no: (14) 2009

More information

Business Foreign Exchange Contracts

Business Foreign Exchange Contracts Business Foreign Exchange Contracts Product Disclosure Statement 1 August 2012 Copyright HSBC Bank Australia Limited ABN 48 006 434 162. 1 August 2012. ALL RIGHTS RESERVED. No part of this publication

More information

Click to edit Master title style

Click to edit Master title style Click to edit Master title style BASIC PRINCIPLES OF ECONOMICS FOR COMPETITION LAW Lino Briguglio University of Malta Economic principles.1 Competition as a desirable condition In mainstream Microeconomics,

More information

Chapter 18. MODERN PRINCIPLES OF ECONOMICS Third Edition

Chapter 18. MODERN PRINCIPLES OF ECONOMICS Third Edition Chapter 18 MODERN PRINCIPLES OF ECONOMICS Third Edition Fiscal Policy Outline Fiscal Policy: The Best Case The Limits to Fiscal Policy When Fiscal Policy Might Make Matters Worse So When Is Fiscal Policy

More information

The Analysis of the Article Microsoft's Aggressive New Pricing Strategy Using. Microeconomic Theory

The Analysis of the Article Microsoft's Aggressive New Pricing Strategy Using. Microeconomic Theory 2 The Analysis of the Article Microsoft's Aggressive New Pricing Strategy Using Microeconomic Theory I. Introduction: monopolistic power as a means of getting high profits II. The review of the article

More information

Global Investing 2013 Morningstar. All Rights Reserved. 3/1/2013

Global Investing 2013 Morningstar. All Rights Reserved. 3/1/2013 Global Investing 2013 Morningstar. All Rights Reserved. 3/1/2013 World Stock Market Capitalization Year-end 2012 18.5% 9.6% United States International: Other Europe United Kingdom Japan Other Pacific

More information

The Circular Flow of Income and Expenditure

The Circular Flow of Income and Expenditure The Circular Flow of Income and Expenditure Imports HOUSEHOLDS Savings Taxation Govt Exp OTHER ECONOMIES GOVERNMENT FINANCIAL INSTITUTIONS Factor Incomes Taxation Govt Exp Consumer Exp Exports FIRMS Capital

More information

An analysis of strategies for protecting digital software products against the Internet piracy using econometric modeling

An analysis of strategies for protecting digital software products against the Internet piracy using econometric modeling An analysis of strategies for protecting digital software products against the Internet piracy using econometric modeling Alexey Laushkin Donetsk National University, Ukraine Structure of presentation

More information

. In this case the leakage effect of tax increases is mitigated because some of the reduction in disposable income would have otherwise been saved.

. In this case the leakage effect of tax increases is mitigated because some of the reduction in disposable income would have otherwise been saved. Chapter 4 Review Questions. Explain how an increase in government spending and an equal increase in lump sum taxes can generate an increase in equilibrium output. Under what conditions will a balanced

More information

How To Find Out If International Debt Securities And Gdp Are Related

How To Find Out If International Debt Securities And Gdp Are Related Are Securities Secure: Study of the Influence of the International Debt Securities on the Economic Growth Darya Bonda 1 and Sergey Mazol 2 1 Belarus State Economic University, Minsk, Belarus bondadasha@gmail.com

More information

The Credit Card Report May 4 The Credit Card Report May 4 Contents Visa makes no representations or warranties about the accuracy or suitability of the information or advice provided. You use the information

More information

How to make changes to your annuity income

How to make changes to your annuity income How to make changes to your annuity income What s inside 2 Your annuity income 4 TIAA Traditional annuity income 6 TIAA and CREF variable annuity income 9 Ways to adjust your annuity income 9 Transfer

More information

MEASURING GDP AND ECONOMIC GROWTH CHAPTER

MEASURING GDP AND ECONOMIC GROWTH CHAPTER MEASURING GDP AND ECONOMIC GROWTH CHAPTER Objectives After studying this chapter, you will able to Define GDP and use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

More information

Economic Commentaries

Economic Commentaries n Economic Commentaries Sweden has had a substantial surplus on its current account, and thereby also a corresponding financial surplus, for a long time. Nevertheless, Sweden's international wealth has

More information

Using systems thinking to better understand the implications of ebusiness strategies. Mark Rowland Principal Consultant, Business Dynamics Group, PricewaterhouseCoopers email: mark.rowland@au.pwcglobal.com

More information

How to Win the Stock Market Game

How to Win the Stock Market Game How to Win the Stock Market Game 1 Developing Short-Term Stock Trading Strategies by Vladimir Daragan PART 1 Table of Contents 1. Introduction 2. Comparison of trading strategies 3. Return per trade 4.

More information

Effective Inventory Analysis

Effective Inventory Analysis Effective Inventory Analysis By Jon Schreibfeder EIM Effective Inventory Management, Inc. This report is the sixth in a series of white papers designed to help forward-thinking distributors increase efficiency,

More information

chapter: Solution Fiscal Policy

chapter: Solution Fiscal Policy Fiscal Policy chapter: 28 13 ECONOMICS MACROECONOMICS 1. The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant to

More information

1 st edition of the Latin American Business travel barometer

1 st edition of the Latin American Business travel barometer 1 st edition of the Latin American Business travel barometer Content Executive summary... 3 Methodology of the barometer... 4 Part 1: Overview of the Business Travel Market... 5 Quickly growing business

More information

Political participation: Model by Verba in the EU and Russia

Political participation: Model by Verba in the EU and Russia Political participation: Model by Verba in the EU and Russia Introduction Democracy is a political system based on 1) representative government; 2) citizen participation in the political process; 3) freedom

More information

Global Cloud Storage Market. More Info: hitesh@researchfox.com. Contact: 080-61341600/500 Visit: www.researchfox.com. saran@researchfox.

Global Cloud Storage Market. More Info: hitesh@researchfox.com. Contact: 080-61341600/500 Visit: www.researchfox.com. saran@researchfox. Global Cloud Storage Market Technology, Education, Training and Infrastructure are key areas which are rapidly developing in emerging Tier II and Tier III cities across the Globe. For IT and ITeS industries,

More information

Become an international consultant

Become an international consultant Become an international consultant Peter Bowbrick Copyright Peter Bowbrick, www.bowbrick.eu, peter@bowbrick.eu 07772746759. The right of Peter Bowbrick to be identified as the Author of the Work has been

More information

Introduction to microeconomics

Introduction to microeconomics RELEVANT TO ACCA QUALIFICATION PAPER F1 / FOUNDATIONS IN ACCOUNTANCY PAPER FAB Introduction to microeconomics The new Paper F1/FAB, Accountant in Business carried over many subjects from its Paper F1 predecessor,

More information

chapter >> Externalities Section 2: Policies Toward Pollution

chapter >> Externalities Section 2: Policies Toward Pollution chapter 19 >> Externalities Section 2: Policies Toward Pollution Before 1970, there were no rules governing the amount of sulfur dioxide power plants in the United States could emit which is why acid rain

More information

Option Theory Basics

Option Theory Basics Option Basics What is an Option? Option Theory Basics An option is a traded security that is a derivative product. By derivative product we mean that it is a product whose value is based upon, or derived

More information

Chapter 4 Specific Factors and Income Distribution

Chapter 4 Specific Factors and Income Distribution Chapter 4 Specific Factors and Income Distribution Chapter Organization Introduction The Specific Factors Model International Trade in the Specific Factors Model Income Distribution and the Gains from

More information

Insurance Market Outlook

Insurance Market Outlook Munich Re Economic Research May 2014 Premium growth is again slowly gathering momentum After a rather restrained 2013 (according to partly preliminary data), we expect growth in global primary insurance

More information

How Cisco IT Reduced Costs Through PC Asset Management

How Cisco IT Reduced Costs Through PC Asset Management How Cisco IT Reduced Costs Through PC Asset Management Centralized network-based PC management program keeps employee desktops current and reduces costs. Cisco IT Case Study / IT Services Expense Management

More information

European Payment Card Systems for the 21 st Century. A paper from MasterCard Europe

European Payment Card Systems for the 21 st Century. A paper from MasterCard Europe U European Payment Card Systems for the 21 st Century A paper from MasterCard Europe For four decades, MasterCard Europe 1 has been working successfully with European banks to deliver secure, efficient

More information

China Search International Introducing Baidu

China Search International Introducing Baidu China Search International Introducing Baidu Introducing Baidu THE CHINA OPPORTUNITY China China is the third largest country in the world in terms of land mass after Russia and Canada. It s the largest

More information

Long-term macroeconomic forecasts Key trends to 2050

Long-term macroeconomic forecasts Key trends to 2050 A special report from The Economist Intelligence Unit www.eiu.com Contents Overview 2 Top ten economies in 5 at market exchange rates 3 The rise of Asia continues 4 Global dominance of the top three economies

More information

Business Ethics Concepts & Cases

Business Ethics Concepts & Cases Business Ethics Concepts & Cases Manuel G. Velasquez Chapter Four Ethics in the Marketplace Definition of Market A forum in which people come together to exchange ownership of goods; a place where goods

More information

Chapter 15: Monopoly WHY MONOPOLIES ARISE HOW MONOPOLIES MAKE PRODUCTION AND PRICING DECISIONS

Chapter 15: Monopoly WHY MONOPOLIES ARISE HOW MONOPOLIES MAKE PRODUCTION AND PRICING DECISIONS Chapter 15: While a competitive firm is a taker, a monopoly firm is a maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The

More information

Beacon Hill Institute

Beacon Hill Institute Beacon Hill Institute The Economic Effects of Massachusetts Health Care Reform David G. Tuerck, PhD Paul Bachman,, MSIE Michael Head, MSEP BHI Policyy Study September 2011 THE BEACON HILLL INSTITUTE AT

More information

"The European Union's Security Architecture and its role to strengthen Peace and Security"

The European Union's Security Architecture and its role to strengthen Peace and Security Chairman EU Military Committee General Patrick de Rousiers at the 29 th Asia Pacific Round Table in Kuala Lumpur 02 June 2015 "The European Union's Security Architecture and its role to strengthen Peace

More information

2. New Trend 1: From Fairness to Efficiency

2. New Trend 1: From Fairness to Efficiency Hitotsubashi Symposium Fundamental Tax Reforms in Japan In Search of Equity-Efficiency Balance Shigeki Morinobu Professor, Chuo Law School President of Japan Tax Institute 1. Introduction Upon entering

More information

1 Uncertainty and Preferences

1 Uncertainty and Preferences In this chapter, we present the theory of consumer preferences on risky outcomes. The theory is then applied to study the demand for insurance. Consider the following story. John wants to mail a package

More information

Common in European countries government runs telephone, water, electric companies.

Common in European countries government runs telephone, water, electric companies. Public ownership Common in European countries government runs telephone, water, electric companies. US: Postal service. Because delivery of mail seems to be natural monopoly. Private ownership incentive

More information

How To Understand The Law Of One Price

How To Understand The Law Of One Price Economics for Educators Lesson 18 and 5E Model Revised Edition Robert F. Hodgin, Ph.D. ii Economics for Educators, Revised Copyright 2012 All Rights Reserved 99 Economics for Educators, Revised Lesson

More information

Internet Appendix to Momentum, Reversal, and Uninformed Traders in Laboratory Markets * 1. I. Instructions for Experiment One

Internet Appendix to Momentum, Reversal, and Uninformed Traders in Laboratory Markets * 1. I. Instructions for Experiment One Internet Appendix to Momentum, Reversal, and Uninformed Traders in Laboratory Markets * 1 I. Instructions for Experiment One Overview During this session, you will trade shares in 12 different securities

More information

INVESTMENT MANAGER FEES: A CRITICAL LOOK

INVESTMENT MANAGER FEES: A CRITICAL LOOK HEALTH WEALTH CAREER INVESTMENT MANAGER FEES: A CRITICAL LOOK JULY 2015 In this short article, we suggest a number of ways in which the current and common structures for investment managers fees (for traditional,

More information

Achievements and challenges of the single market. S&D responses to citizens top 10 concerns

Achievements and challenges of the single market. S&D responses to citizens top 10 concerns Achievements and challenges of the single market S&D responses to citizens top 10 concerns The European economic model must be based on three principles: competition which stimulates, co-operation which

More information

Chapter 6 Economic Growth

Chapter 6 Economic Growth Chapter 6 Economic Growth 1 The Basics of Economic Growth 1) The best definition for economic growth is A) a sustained expansion of production possibilities measured as the increase in real GDP over a

More information

Government intervention

Government intervention Government intervention Explain the term free market. In a free market, governments stand back and let the forces of supply and demand determine price and output. There is no direct (eg regulations) or

More information

Let the Pirates Patch? An Economic Analysis of Network Software Security Patch Restrictions

Let the Pirates Patch? An Economic Analysis of Network Software Security Patch Restrictions Let the Pirates Patch? An Economic Analysis of Network Software Security Patch Restrictions Terrence August and Tunay I. Tunca Graduate School of Business, Stanford University Stanford, CA, 94305 Extended

More information

Comparing Levels of Development

Comparing Levels of Development 2 Comparing Levels of Development Countries are unequally endowed with natural capital. For example, some benefit from fertile agricultural soils, while others have to put a lot of effort into artificial

More information

Personal current accounts in the UK

Personal current accounts in the UK Personal current accounts in the UK An OFT market study Executive summary July 2008 EXECUTIVE SUMMARY Background The personal current account (PCA) is a cornerstone of Britain s retail financial system.

More information

Chapter 4 Technological Progress and Economic Growth

Chapter 4 Technological Progress and Economic Growth Chapter 4 Technological Progress and Economic Growth 4.1 Introduction Technical progress is defined as new, and better ways of doing things, and new techniques for using scarce resources more productively.

More information

Demand for Health Insurance

Demand for Health Insurance Demand for Health Insurance Demand for Health Insurance is principally derived from the uncertainty or randomness with which illnesses befall individuals. Consequently, the derived demand for health insurance

More information

Second Hour Exam Public Finance - 180.365 Fall, 2007. Answers

Second Hour Exam Public Finance - 180.365 Fall, 2007. Answers Second Hour Exam Public Finance - 180.365 Fall, 2007 Answers HourExam2-Fall07, November 20, 2007 1 Multiple Choice (4 pts each) Correct answer indicated by 1. The portion of income received by the middle

More information

The Macroeconomic Situation and Monetary Policy in Russia. Ladies and Gentlemen,

The Macroeconomic Situation and Monetary Policy in Russia. Ladies and Gentlemen, The Money and Banking Conference Monetary Policy under Uncertainty Dr. Sergey Ignatiev Chairman of the Bank of Russia (The 4 th of June 2007, Central Bank of Argentina, Buenos Aires) The Macroeconomic

More information

Global Dynamism Index (GDI) 2013 summary report. Model developed by the Economist Intelligence Unit (EIU)

Global Dynamism Index (GDI) 2013 summary report. Model developed by the Economist Intelligence Unit (EIU) Global Dynamism Index (GDI) 2013 summary report Model developed by the Economist Intelligence Unit (EIU) What is the Global Dynamism Index (GDI)? the GDI assesses the dynamism of 60 of the world's largest

More information

An update to the World Bank s estimates of consumption poverty in the developing world *

An update to the World Bank s estimates of consumption poverty in the developing world * An update to the World Bank s estimates of consumption poverty in the developing world * The World Bank has been regularly monitoring the progress of developing countries against absolute poverty. Drawing

More information

Section B. Some Basic Economic Concepts

Section B. Some Basic Economic Concepts This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License. Your use of this material constitutes acceptance of that license and the conditions of use of materials on this

More information

ECONOMIC GROWTH* Chapter. Key Concepts

ECONOMIC GROWTH* Chapter. Key Concepts Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Key Concepts Gross Domestic Product Gross domestic product, GDP, is the market value of all the final goods and services produced within in a country in a given

More information

Why is Insurance Good? An Example Jon Bakija, Williams College (Revised October 2013)

Why is Insurance Good? An Example Jon Bakija, Williams College (Revised October 2013) Why is Insurance Good? An Example Jon Bakija, Williams College (Revised October 2013) Introduction The United States government is, to a rough approximation, an insurance company with an army. 1 That is

More information

ICT deflation and productivity measurement

ICT deflation and productivity measurement Economic Trends 637 December 6 ICT deflation and productivity measurement Gavin Wallis Constant price productivity growth is generally the object of interest for productivity analysis. The rapid value

More information

CEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC.

CEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC. 1 I S L 8 0 5 U Y G U L A M A L I İ K T İ S A T _ U Y G U L A M A ( 4 ) _ 9 K a s ı m 2 0 1 2 CEVAPLAR 1. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market

More information

Ipsos / Europ Assistance barometer Europeans Plans and Concerns for the Holidays Summary Ipsos for the Europ Assistance Group May 24th 2012

Ipsos / Europ Assistance barometer Europeans Plans and Concerns for the Holidays Summary Ipsos for the Europ Assistance Group May 24th 2012 Ipsos / Europ Assistance barometer Europeans Plans and Concerns for the Holidays Summary Ipsos for the Europ Assistance Group May 24th 2012 Contacts Ipsos Public Affairs: Fabienne SIMON 01 41 98 92 15

More information

WHY STUDY PUBLIC FINANCE?

WHY STUDY PUBLIC FINANCE? Solutions and Activities to CHAPTER 1 WHY STUDY PUBLIC FINANCE? Questions and Problems 1. Many states have language in their constitutions that requires the state to provide for an adequate level of education

More information

Supplemental Unit 5: Fiscal Policy and Budget Deficits

Supplemental Unit 5: Fiscal Policy and Budget Deficits 1 Supplemental Unit 5: Fiscal Policy and Budget Deficits Fiscal and monetary policies are the two major tools available to policy makers to alter total demand, output, and employment. This feature will

More information

0 100 200 300 Real income (Y)

0 100 200 300 Real income (Y) Lecture 11-1 6.1 The open economy, the multiplier, and the IS curve Assume that the economy is either closed (no foreign trade) or open. Assume that the exchange rates are either fixed or flexible. Assume

More information

Monopolistic Competition

Monopolistic Competition Monopolistic Chapter 17 Copyright 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department, Harcourt College

More information

Health Economics. University of Linz & Demand and supply of health insurance. Gerald J. Pruckner. Lecture Notes, Summer Term 2010

Health Economics. University of Linz & Demand and supply of health insurance. Gerald J. Pruckner. Lecture Notes, Summer Term 2010 Health Economics Demand and supply of health insurance University of Linz & Gerald J. Pruckner Lecture Notes, Summer Term 2010 Gerald J. Pruckner Health insurance 1 / 25 Introduction Insurance plays a

More information

Market comparison: sales and distribution of travel insurance and the growth of bancassurance

Market comparison: sales and distribution of travel insurance and the growth of bancassurance Market comparison: sales and distribution of travel insurance and the growth of bancassurance Simon Tottman 20th June 2012 Finaccord Ltd., 2012 Web: www.finaccord.com, E-mail: info@finaccord.com 1 Introduction

More information

AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand

AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand Suppose that the economy is undergoing a recession because of a fall in aggregate demand. a. Using

More information

The Smart Meter Revolution_

The Smart Meter Revolution_ The Smart Meter Revolution_ Towards a Smarter Future m2m 1 00 - Contents Contents_ 01_ Introduction - By Rob Searle, Smart Metering Industry Lead at Telefónica Digital 02_ Market dissemination 03_ Installed

More information

Gauging Current Conditions: The Economic Outlook and Its Impact on Workers Compensation

Gauging Current Conditions: The Economic Outlook and Its Impact on Workers Compensation August 2014 Gauging Current Conditions: The Economic Outlook and Its Impact on Workers Compensation The exhibits below are updated to reflect the current economic outlook for factors that typically impact

More information

ATTITUDE TO RISK. In this module we take a look at risk management and its importance. MODULE 5 INTRODUCTION PROGRAMME NOVEMBER 2012, EDITION 18

ATTITUDE TO RISK. In this module we take a look at risk management and its importance. MODULE 5 INTRODUCTION PROGRAMME NOVEMBER 2012, EDITION 18 INTRODUCTION PROGRAMME MODULE 5 ATTITUDE TO RISK In this module we take a look at risk management and its importance. NOVEMBER 2012, EDITION 18 CONTENTS 3 6 RISK MANAGEMENT 2 In the previous module we

More information

CHAPTER 11. AN OVEVIEW OF THE BANK OF ENGLAND QUARTERLY MODEL OF THE (BEQM)

CHAPTER 11. AN OVEVIEW OF THE BANK OF ENGLAND QUARTERLY MODEL OF THE (BEQM) 1 CHAPTER 11. AN OVEVIEW OF THE BANK OF ENGLAND QUARTERLY MODEL OF THE (BEQM) This model is the main tool in the suite of models employed by the staff and the Monetary Policy Committee (MPC) in the construction

More information

INVESTMENT INSIGHTS. All-access, Flexible Approach to Emerging Markets

INVESTMENT INSIGHTS. All-access, Flexible Approach to Emerging Markets INVESTMENT INSIGHTS All-access, Flexible Approach to Emerging Markets Second Quarter 2015 1 1 Please note that the information herein represents the opinion of the portfolio manager and these opinions

More information

Build vs. Buy: The Hidden Costs of License Management

Build vs. Buy: The Hidden Costs of License Management Build vs. Buy: The Hidden Costs of License Management WHITE PAPER In today s dynamic and competitive software business environment, software licensing and management solutions must be flexible. Today,

More information

IN some countries retail price indexes are used in the adjustment

IN some countries retail price indexes are used in the adjustment 5 SOME REFLECTIONS ON PRICE INDEXES, WELFARE INDEXES, AND WAGE ADJUSTMENTS By Kjeld Bjerke IN some countries retail price indexes are used in the adjustment of wages. Generally, as in Denmark, they provide

More information

Gutenberg 3.2 Ebook-Piracy Report

Gutenberg 3.2 Ebook-Piracy Report Gutenberg 3.2 Ebook-Piracy Report What does piracy cost the publishers? Ersatzraten (replacement rates) Manuel Bonik Dr. Andreas Schaale Pic. from ref. [1] Berlin, September 2012 Prologue The report Gutenberg

More information

Order bookings 48,719 55,565-12 12,835 14,845 Sales 48,331 56,492-14 13,166 17,076

Order bookings 48,719 55,565-12 12,835 14,845 Sales 48,331 56,492-14 13,166 17,076 28 January, 2002 SCANIA YEAR-END REPORT JANUARY - DECEMBER 2001 After the unsatisfactory 2001, our measures to adjust production to lower global demand, structural changes related to cab production and

More information

The digital customer experience

The digital customer experience 2014 Survey The digital customer experience Learn what consumers think and what companies still need to improve. Table of Contents Introduction....3 The digital customer experience overall....4 What the

More information

Statement by Dean Baker, Co-Director of the Center for Economic and Policy Research (www.cepr.net)

Statement by Dean Baker, Co-Director of the Center for Economic and Policy Research (www.cepr.net) Statement by Dean Baker, Co-Director of the Center for Economic and Policy Research (www.cepr.net) Before the U.S.-China Economic and Security Review Commission, hearing on China and the Future of Globalization.

More information

The Strategic Use of Supplier Price and Cost Analysis

The Strategic Use of Supplier Price and Cost Analysis The Strategic Use of Supplier Price and Cost Analysis Michael E. Smith, Ph.D., C.Q.A. MBA Program Director and Associate Professor of Management & International Business Western Carolina University Lee

More information

INTRODUCTORY MICROECONOMICS

INTRODUCTORY MICROECONOMICS INTRODUCTORY MICROECONOMICS UNIT-I PRODUCTION POSSIBILITIES CURVE The production possibilities (PP) curve is a graphical medium of highlighting the central problem of 'what to produce'. To decide what

More information

Remarks by Dr. N. Gregory Mankiw Chairman Council of Economic Advisers at the National Bureau of Economic Research Tax Policy and the Economy Meeting

Remarks by Dr. N. Gregory Mankiw Chairman Council of Economic Advisers at the National Bureau of Economic Research Tax Policy and the Economy Meeting Remarks by Dr. N. Gregory Mankiw Chairman Council of Economic Advisers at the National Bureau of Economic Research Tax Policy and the Economy Meeting National Press Club November 4, 2003 My remarks today

More information

GCE Economics Candidate Exemplar Work ECON4: The National and International Economy

GCE Economics Candidate Exemplar Work ECON4: The National and International Economy hij Teacher Resource Bank GCE Economics Candidate Exemplar Work ECON4: The National and International Economy The Assessment and Qualifications Alliance (AQA) is a company limited by guarantee registered

More information

Foreign Exchange Investments Discover the World of Currencies. Private Banking USA

Foreign Exchange Investments Discover the World of Currencies. Private Banking USA Foreign Exchange Investments Discover the World of Currencies Credit Suisse Securities (USA) llc Private Banking USA 2 Foreign exchange: There s no ignoring the largest market in the world. Introduction

More information

Key Features of the MetLife Income for Life Bond (UK and International)

Key Features of the MetLife Income for Life Bond (UK and International) Key Features of the MetLife Income for Life Bond (UK and International) 1 Key Features of the MetLife Income for Life Bond (UK and International) Key Features of the MetLife Income for Life Bond (UK and

More information

Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected

Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected Name: Solutions Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected Fall 2015 Prof. Dowell Instructions: This problem set will not be collected. You should still work

More information

Global Sector. How does Travel & Tourism compare to other sectors? GDP. Global Direct GDP. Global GDP Impact by Industry

Global Sector. How does Travel & Tourism compare to other sectors? GDP. Global Direct GDP. Global GDP Impact by Industry Global Sector Agriculture Automotive Banking Chemicals Communications Education Financial Mining Other Service Manufacturing Manufacturing Services Exports Retail (without wholesale) Total Economy Travel

More information

Costs of Doing Business: Retail Trade Industry

Costs of Doing Business: Retail Trade Industry Costs of Doing Business: Retail Trade Industry June 2014 Contents Introduction 0 Rent 1 Wages 1 Training and skills development 1 Compliance 2 Remove employers from superannuation collection 3 Paid Parental

More information

Inflation. Chapter 8. 8.1 Money Supply and Demand

Inflation. Chapter 8. 8.1 Money Supply and Demand Chapter 8 Inflation This chapter examines the causes and consequences of inflation. Sections 8.1 and 8.2 relate inflation to money supply and demand. Although the presentation differs somewhat from that

More information

Seeking a More Efficient Fixed Income Portfolio with Asia Bonds

Seeking a More Efficient Fixed Income Portfolio with Asia Bonds Seeking a More Efficient Fixed Income Portfolio with Asia s Seeking a More Efficient Fixed Income Portfolio with Asia s Drawing upon different drivers for performance, Asia fixed income may improve risk-return

More information

Table of Contents. Excutive Summary

Table of Contents. Excutive Summary Presented by: 1 Table of Contents Excutive Summary I. Introduction II. Methodology III. Results of the Graduate Impact Survey IV. Implications and Outlook V. Literature 2 Executive Summary The Graduate

More information

International Certificate in Financial English

International Certificate in Financial English International Certificate in Financial English Past Examination Paper Writing May 2007 University of Cambridge ESOL Examinations 1 Hills Road Cambridge CB1 2EU United Kingdom Tel. +44 1223 553355 Fax.

More information