The economics of services: microfoundations, development and policy

338 Pages·2013·12.807 MB·English

by  Jan Owen Jansson

The Economics of Services
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Jansson, Jan Owen. The Economics of Services : Microfoundations, Development and Policy, Edward Elgar Publishing Limited,
2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/centraleurope-ebooks/detail.action?docID=1164200.
Created from centraleurope-ebooks on 2021-03-23 08:13:19.
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Jansson, Jan Owen. The Economics of Services : Microfoundations, Development and Policy, Edward Elgar Publishing Limited,
2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/centraleurope-ebooks/detail.action?docID=1164200.
Created from centraleurope-ebooks on 2021-03-23 08:13:19.
The Economics of
Services
Microfoundations, Development and Policy,
Second Edition

Jan Owen Jansson
.d Professor Emeritus, Linköping University, Sweden
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Cheltenham, UK • Northampton, MA, USA
Jansson, Jan Owen. The Economics of Services : Microfoundations, Development and Policy, Edward Elgar Publishing Limited,
2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/centraleurope-ebooks/detail.action?docID=1164200.
Created from centraleurope-ebooks on 2021-03-23 08:13:19.
© Jan Owen Jansson 2013
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system or transmitted in any form or by any means, electronic, mechanical
or photocopying, recording, or otherwise without the prior permission of the
publisher.
Published by
Edward Elgar Publishing Limited
The Lypiatts
15 Lansdown Road
Cheltenham
Glos GL50 2JA
UK
Edward Elgar Publishing, Inc.
William Pratt House
9 Dewey Court
Northampton
Massachusetts 01060
USA
A catalogue record for this book
is available from the British Library
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r sth Library of Congress Control Number: 2012953528
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etim Economics Subject Collection, E-ISBN 978 1 78254 824 9
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Jansson, Jan Owen. The Economics of Services : Microfoundations, Development and Policy, Edward Elgar Publishing Limited,
2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/centraleurope-ebooks/detail.action?docID=1164200.
Created from centraleurope-ebooks on 2021-03-23 08:13:35. 3
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Contents
_____________________________________________________________

Preface vii

Foreword to the second edition ix

PART I THE SERVICE ECONOMY IN PERSPECTIVE

1 Two approaches to service sector definition and measurement 3
2 Merit goods 17

PART II MICROECONOMIC FOUNDATIONS

3 Production costs of non-storable goods 31
4 Distribution costs of non-transportable goods 52
5 The basic trade-off and the resulting market areas 67
6 Market forms and competition 79
7 Supply and demand at the system level 90
8 Welfare economics 1: Towards A-efficiency 102
9 Welfare economics 2: Towards X-efficiency 119
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gir llA .d 1101 UStnrupcretucreadle cnhteadng reis oef i nth teh eec sotannodmayrd of living 114365
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Jansson, Jan Owen. The Economics of Services : Microfoundations, Development and Policy, Edward Elgar Publishing Limited,
2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/centraleurope-ebooks/detail.action?docID=1164200.
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vi Contents

20 Summary and conclusions 285

References 306

Index 325
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Jansson, Jan Owen. The Economics of Services : Microfoundations, Development and Policy, Edward Elgar Publishing Limited,
2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/centraleurope-ebooks/detail.action?docID=1164200.
Created from centraleurope-ebooks on 2021-03-23 08:13:46.
Preface

The roots of this book go back to the 1970s, when I was teaching and doing
research as a general microeconomist and was struck by the neglect of ser-
vices in classical (and neoclassical) economics. In the nineteenth century,
when the subject of economics took shape, the Industrial Revolution was tak-
ing place and the change of focus from agriculture to the manufacturing in-
dustry as the main creator of wealth and welfare was very natural. I wondered
why 70 years of the twentieth century had passed without another change of
focus in view of the fact that, in terms of employment, the service sector had
grown to surpass industry at the beginning of the 1960s?1
However, in the 1960s prominent economists such as William Baumol
(1967) and Victor Fuchs (1965; 1968) published work that promised a long
overdue change, which was very inspiring. I started to prepare for a PhD pro-
ject with the aim of exploring how mainstream microeconomics could be
adapted in order to better suit the service sector. This project was never
launched, as I had become engaged in a couple of research projects concern-
ing transport problems – road pricing in Stockholm, the development of cost-
benefit analysis for application to road investment, the containerization of in-
ternational liner shipping and the concomitant seaport adaptation – subjects
which proved to be very absorbing. For 30 years transport economics has
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se main lesson as far as the theoretical foundations of the field of transport eco-
r sth nomics is concerned, is that a separate theory has to be patched together in
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.d seems either too general to be really helpful or, in some cases, designed too
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glE ‘Technology and Social Change’ at Linköping University. Many of the ideas
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1 At that time I did not know about the work by Colin Clark, who in his book, The Conditions of
Economic Progress (1940), had pointed at many of the problems discussed in later studies
vii
Jansson, Jan Owen. The Economics of Services : Microfoundations, Development and Policy, Edward Elgar Publishing Limited,
2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/centraleurope-ebooks/detail.action?docID=1164200.
Created from centraleurope-ebooks on 2021-03-23 08:13:57.
viii Preface

the pioneers of the 1960s as far as the necessary adaptation of economic the-
ory to the changing conditions of the service economy is concerned. Several
interesting works describing and analysing the development of the service
sector have appeared including: Bell (1973), Skolka (1976), Gershuny
(1978), Inman (1985), Scharpf (1985; 1991), Petit (1986), Giarini (1987),
Ingelstam (1995) and Schön (2000). However, the original task I had set my-
self appeared doomed to remain uncompleted. The feedback to mainstream
economic theory of all the new insight into the dominant part of the modern
economy is insignificant.
Secondly, another anomaly of mainstream economics now stands out more
clearly than 30 years ago: the post-war years have been a period of unprece-
dented economic growth and yet the question of whether this tremendous ad-
dition to the material wealth of already wealthy countries is really worthwhile,
is barely asked in the profession. In the course of the work on this book, how-
ever, I became aware of an emerging field of research where this is ques-
tioned. The survey article by Bruno Frey and Alois Stutzer (2002) and the
lectures by Rickard Layard (2003) show that recent results of ‘happiness re-
search’ go straight to the heart of the matter. It also seems that this new re-
search has an important bearing on the economics of services.
Finally, it has been interesting to discover a new dimension to my own
speciality. Transport plays a double role in the service sector. Transport is it-
self an important service, and it turns out that a high distribution cost per out-
put unit and kilometre (including transport in a wide sense) relative to the
production cost per unit is the outstanding characteristic of services when it
comes to economic analysis.
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Jansson, Jan Owen. The Economics of Services : Microfoundations, Development and Policy, Edward Elgar Publishing Limited,
2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/centraleurope-ebooks/detail.action?docID=1164200.
Created from centraleurope-ebooks on 2021-03-23 08:13:57.
Foreword to the second edition

Besides the normal need for an update of the book published in 2006, two as-
pects of the recent economic policy discourse have motivated a revised, sec-
ond edition.
In the field of service economics, the remarkable inclination in the litera-
ture towards intermediate services – that is producer services – at the expense
of consumer services has been strengthened. It is true that the producer ser-
vices have been the most expansive kind in recent decades (due to continuous
outsourcing in industry), but the service provision for the final consumers
(households) still constitutes 70 per cent of the value added of the total ser-
vice sector. Therefore the basic outlook of the book remains: economics is in
essence the study of consumer want satisfaction by scarce resources. How-
ever, to partially comply with the conventional direction, a twofold statistical
account of the service sector in line with the National Accounts is presented
in this edition. Now the supply-side approach to the GDP compilation, where
the value added of all service industries are shown, is supplementing the de-
mand-side approach by which the intermediate service sector is invisible.
The other aspect is the strong influence on economic policy discussions of
the prolonged financial crises. This tends to block the view of crucial issue for
the future of the real economy of the welfare states.
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se current debate. It has established the medial misuse of the growth concept. All
r sth increases in demand and/or production, however casual or temporary, are re-
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.d icy, that is short-term demand management with a view to full capacity utilisa-
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that is all right in Baumol’s view. It reflects consumers’ willingness to pay,

ix
Jansson, Jan Owen. The Economics of Services : Microfoundations, Development and Policy, Edward Elgar Publishing Limited,
2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/centraleurope-ebooks/detail.action?docID=1164200.
Created from centraleurope-ebooks on 2021-03-23 08:14:07.
x Foreword to the second edition

and thanks to continuous productivity growth in sectors untainted by the cost
disease, US consumers can afford all what they need for satisfying other
wants in spite of the shrinking share of the labour force in manufacturing in-
dustry. The present book adds the welfare state perspective to this picture.
What then appears is alarming. Contrary to the original aim and expectation,
where Health, Education and Care (HEC) are tax-financed the relative re-
source use in this sector is lagging well behind the US development, and a de-
teriorating quality of HEC services becomes a major problem. The hope that
higher economic growth could solve the problem is in vain, and a social order
emerges where people’s efforts are directed to things they do not need while
they are told that what they do need, society cannot afford.
A way out of this dilemma that many economists recommend could be to
abandon the tax-financing of HEC. However, it seems unnatural to give up the
whole idea of the welfare state, that of sharing with other people, when the
production possibilities are greater than ever.
In this edition the natural policy alternative that would preserve the welfare
state is developed in depth.

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Jansson, Jan Owen. The Economics of Services : Microfoundations, Development and Policy, Edward Elgar Publishing Limited,
2013. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/centraleurope-ebooks/detail.action?docID=1164200.
Created from centraleurope-ebooks on 2021-03-23 08:14:07.