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Curtin University
Centre for Research in Applied Economics (CRAE)

CRAE Working Paper Series 2014

The have published new papers authored by CRAE Key Researcher, Emeritus Professor Harry Bloch and CRAE members Dr Adrian Cheung and Dr Wei Hu.

Prices in Motion: Schumpeter's Contribution to Price Theory

Harry Bloch
Curtin University


Schumpeter distinguishes between the circular flow of economic activity and economic development. The former is characterised by equilibrium, while the latter involves discontinuous change that induces business cycles. Schumpeter argues that with development prices are generally in motion. Schumpeter’s theory of the business cycle has been heavily criticised. Specific criticisms relating to his price theory include its characterisation of prices stabilising near the Walrasian competitive equilibrium for a stationary economy and its prediction of a downward trend in prices over the longest cycles. This paper reviews Schumpeter’s theory and the critiques before suggesting a way forward to a revised theory of prices in motion.

Keywords: Schumpeter, Price theory, Evolutionary economics

JEL Classification: B25

Disclosure Quality, the Cost of Capital and Strategic Correlation

Adrian (Wai-kong) Cheung
Curtin University

Wei Hu
Curtin University


We investigate the strategic role of correlation between disclosure error and payoff shock in affecting a firm’s cost of capital or share price. We show that the correlation affects the relationship between disclosure quality and the cost of capital or share price. The standard result where disclosure quality unambiguously lowers the firm’s cost of capital or share price can be observed only in the case where the correlation is zero. In the extreme case where the correlation is perfect, disclosure quality does not affect the cost of capital or share price. When compared to other non-perfect correlation cases, the extreme case where the correlation is perfect results in, on average, a higher share price. This implies that the firm can achieve a higher share price by influencing the correlation (i.e., making it nonzero) and suggests a new way as to how the effectiveness of a disclosure should be evaluated.

Number of Pages in PDF File: 19

Keywords: Cost of capital, disclosure quality, strategic correlation

JEL Classification: G10, G14