revealing space in spatial externalities edge effect externalities and spatial incentives abstract this paper analyzes the spatial incentives created by distance dependent negative spatial externalities titled edge effect externalities it illustrates standard externality results in a spatial context and derives several new results while the externality creates an incentive for a recipient to distance himself from the externality generating land use this distance is too small from a social standpoint rationalizing buffer zones imposed by regulatory authorities further the market rental rate of land for the externality recipient is higher than socially optimal resulting in a potential barrier to entry for the impacted land use finally although the recipient understands and can geographically avoid externality damage standard market failure occurs results are demonstrated using graphical and land rent interpretations of familiar aspatial general equilibrium conditions the paper thus strives to provide a more thorough exposition of the spatial impacts of this class of externalities than provided elsewhere in the literature

the geography of market failure edge effect externalities and the location and production patterns of organic farming abstract perceptions of increasing land scarcity and negative impacts of chemical based agriculture have led to increasing concern regarding the sustainability of food systems incompatible production processes among farming systems may lead to spatial conflicts and production losses between neighboring farms and the magnitude of such losses may depend not only on the scale of each activity but also on patterns of land use such conflicts can be classified as edge effect externalities spatial externalities whose marginal impacts decrease as distance from the border generating the negative impact increases this paper tests the hypothesis that edge effect externalities have influenced the location and production patterns of certified organic farms using data from california central valley certified organic farmers using concepts from landscape ecology and spatial statistics we investigate difference in parcel geometry and surrounding land uses between organic and non organic parcels using a generalized method of moments gmm spatially autoregressive econometric model we demonstrate that both parcel geometry and surrounding land uses influence the probability of a given parcel being certified organic we conclude with suggestions for policies to encourage development of organic farming regions

the stolper samuelson theorem under decreasing returns to scale abstract the necessary and sufficient condition for the stolper samuelson theorem is derived under decreasing returns to scale this result is interpreted by separating a factor intensity effect and a scale effect and by using the elasticities of substitution and the factor demand elasticities

location choice by households and polluting firms an evolutionary approach this paper examines several policy regimes to deal with the problem of households suffering from environmental damage by firms in the same region we employ an evolutionary framework to analyze migration movements in the course of time since firms and households will not relocate immediately in response to payoff differentials we show that taxation gives firms and households an incentive to stay away from each other laissez faire compensation only gives households firms an incentive to stay away from firms households we find that taxation creates the right incentives to reach a local welfare maximum however when there are multiple local maxima circumstances may arise under which compensation leads to a better outcome than taxation c 2004 elsevier b v all rights reserved

regulatory balancing and the efficiency of green r d we identify and analyse several dynamic implications of setting environmental standards such as to balance marginal costs and benefits the adoption of such a regulatory approach is shown to effect i the speed of improvement of abatement technologies ii the direction in a sense to be defined of that improvement iii its source and the distribution of the rents from it and iv the rate of development of defensive averting technologies existing views are thoroughly synthesised in the context of a simple diagrammatic model several new results are derived and at least one conventional wisdom questioned the message of the analysis for legislators and regulators is that cost benefit balancing should be done with care

risk self protection and ex ante economic value abstract we develop three propositions about the ex ante value of reduced risk if there is a continuous outcome distribution and if self protection influences outcome probability and severity then 1 unobservable utility terms cannot be eliminated from the ex ante value expressions 2 knowledge of the convexity or the nonconvexity of dose response functions is insufficient to sign changes in these expressions and 3 self protection expenditures need not be a lower bound measure of these expressions therefore many restrictions applied in recent empirical work on the economic value of risk changes are not immediately transferable to settings where endogenous risks prevail

valuing the beneficts of air pollution abatement using a health production function a case study of panipat thermal power station india the indian economy today is highly prone to industrial pollution and ismaking compliance decisions in order to meet environmental standards environmental regulations impose significant costs upon industry that arefairly high and therefore require economic justification this justificationcan be given by estimating the benefits associated with these costs whilethe scientific rationale behind air quality preservation is well understood its economic rationale for a developing country like india has to beverified the objective of the present paper is to estimate the economicvalue that people in an urban area in india panipat thermal power station ptps colony in panipat haryana place upon improving the air quality the dose response method based on the gerking and stanley 1986 model is used to estimate the economic benefits of air quality improvement theseestimates range from one to two percent of monthly income income andhealth status variables were significant determinants of peoples willingness to pay wtp for air quality improvements this lends supportto the neo conventional wisdom act now to protect the environment beforeit is too late these people are ready to pay for environmentalimprovements we do believe however that the relatively successfulapplication of the dose response method at ptps colony suggests that thetechnique can be more widely applied in developing countries like india

the control of externalities abatement vs damage prevention both public policy discussions and the theoretical literature on externalities have focused on abatement by emitters as the chief means of mitigating the harmful effects of pollution the purpose of this paper is to broaden that focus by illuminating the role of damage reduction activities undertaken by victims and by showing how the efficient solution is affected when these preventive actions are incorporated into the standard theory of externalities finding the efficient solution requires a comparison of emitters abatement costs and the damages sustained by victims as browning 5 has shown the correct short run measure of damage is the loss in the victims profits given that they have acted optimally to minimize the harmful effects of the pollution if victims have no options other than passive acceptance of ambient pollution levels this loss in profits simply equals the profit level in the absence of the externality less the harm inflicted directly by exposure to it however if victims have available to them some cost effective means of reducing the harmful effects of untreated pollution the loss in profits will be smaller since a victim sees damage from pollution as a cost it will attempt to minimize this cost at each level of its output just as it endeavors to minimize other private costs of production such as labor or fuel costs the victim will maximize its profits only if it takes into account both the cost of pollution damages and the cost of damage reduction measures surprisingly the theoretical literature on externalities includes very little explicit discussion of victims defensive actions browning for example displayed a victim s set of marginal cost curves corresponding to different pollution levels each curve was drawn under the assumption that the victim had undertaken the efficient amount of damage prevention given the quantity of pollution it had received the mechanism by which it chose this amount of prevention was not discussed a different approach was taken by bohm 2 3

depletable externalities and pigouvian taxation abstract in their book baumol and oates the theory of environmental policy externalities public outlays and the quality of life prentice hall englewood cliffs n j 1975 argue that whether an externality is depletable private or undepletable public is the key characteristic in determining the optimal pricing pattern they argue that unlike the undepletable case a negative depletable externality requires not only a charge or tax on the generator of the externality but a payment or compensation to the victim in order to achieve pareto optimality it is shown that the key characteristic determining whether compensation of victims is required for efficiency is not the depletability of the externality but whether the victim can costlessly control or limit the amount of the damaging substance received

strategic control of growth in a system of cities abstract this paper provides an analysis of the supply restriction model of growth controls growth controls in such a model harm consumers while enriching landowners and they will only be adopted if landowners have political power in the model this power is manifested in the city government s use of a social welfare that takes both landlord and consumer welfare into account since cities cannot be small if the supply restriction inherent in growth controls is to have an impact strategic interactions must be considered in the analysis of city choices a general model is presented and an extended example based on leontief preferences is then considered comparative static analysis of nash equilibria in the leontief case shows that perturbations of preferences or other characteristics of a single city can have important spillover effects that alter the choices of all cities in the region

equilibrium of a residential city attributes of housing and land use zoning this paper investigates the impact of land use zoning such as building height and building density restrictions on housing rent land rent the design parameters of a building and population density in a residential city a theoretical land use model with several new features is used building capital the demand for and the supply of housing are explicitly defined housing is treated as a multi dimensional good the elements of which are floor area finishing cost of a dwelling unit garden space and building height building costs are the sum of structural frame costs which are a function of building height and building area and finishing costs which are independent of design parameters zoning restrictions are explicitly considered the utility and profit maximisations are simultaneous through the housing attributes which are implicitly priced there are six major conclusions first the relative gradients of the endogeneous variables all with regard to distance depend not only on demand speci

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

short run and long run equilibrium for a small open economy with intermediate goods abstract this paper analyzes the effects of changes in relative commodity prices on factor returns and the allocation of factor supplies in a two sector general equilibrium model with intermediate goods and various time horizons it is shown that when intermediate goods are introduced into the standard heckscher ohlin model there can be i nonstandard very short run and short run income effects and ii nonstandard short run and long run reallocations the paper concludes with a discussion of the possible conflict of interests among factor owners with respect to pricing tariff policy in light of these results

optimal fiscal policy with labor selection this paper characterizes long run and short run optimal scal policy in the labor selection framework quantitatively the time series volatility of the labor income tax rate is orders of magnitude larger than the tax smoothing results based on walrasian labor markets but is a few times smaller than the results based on search and matching labor markets to understand these results in terms of model primitives we develop a welfare relevant analytic concept of externalities for the selection model which we label tightness this concept of tightness is the source of the decentralized economy s inecient cross sectional wage premia between the average newly hired worker and the marginal newly hired worker compared to the traditional concept of labor market tightness in the search and matching literature this new concept of tightness plays a highly similar role and like in the matching model is crucial for understanding eciency and optimal policy

optimal capital taxation revisited abstract we revisit the question of how capital should be taxed we allow for a rich set of tax instruments that consists of taxes widely used in practice including consumption dividend capital and labor income taxes we restrict policies to those that respect pre existing promises regarding the current value of wealth we show that capital should not be taxed i e there should be no intertemporal distortions if households have preferences that are standard in the macroeconomics literature we show that ramsey outcomes that must respect such promises are time consistent we show that the presumption in the literature that capital should be taxed for some length of time arises because the tax system is restricted

on the political economy of zoning abstract households choose a community in a metropolitan area and collectively set a minimum housing quality and a property tax to finance a local public good the collective imposition of a lower bound on housing consumption induces an income stratified equilibrium in a specification where meaningful community differentiation would not arise without zoning we show computationally that zoning restrictions are likely to be stringent with a majority facing a binding constraint in communities that permit it by inducing a stratified equilibrium zoning causes tiebout welfare gains in aggregate but with large welfare transfers relative to stratified equilibrium without zoning the zoning equilibrium is significantly more efficient as it reduces housing market distortions

spreading versus concentrating damages environmental policy in the presence of nonconvexities abstract this paper examines the role of nonconvexities in externality control from a policy perspective nonconvexities can arise from a number of sources and can significantly alter the optimal solution to an externality problem for instance it may be socially desirable to concentrate externality damages in one area and prohibit them in another rather than spread the effects of the externality across a number of sites if this solution is optimal a pollution tax will not achieve the social optimum but a system of marketable permits will

economic spillovers in spatial harvest behavior abstract there has been a strong push within natural resource management to incorporate spatial structure into management regimes however discussions surrounding the appropriate designs of spatial management have largely been conceptual this paper develops a spatial econometric model of fishing location choice using non confidential data from the great barrier reef coral trout commercial fishery harvest location decisions are modeled as a function of spatial patterns of expected economic returns the preferred spatially dependent econometric model is shown to outperform ordinary least squares and fixed effects models in out of sample forecasting estimates from the spatial model reveal spatial spillover effects in fleet harvest location behavior in particular harvest activity at any given site is equally sensitive to same site economic returns and surrounding site economic returns the econometric results are illustrated using a fee based policy simulation results suggest non spatial management is characterized by two inefficiencies first heterogeneity between sites is averaged resulting a fee that is too high or too low across space second fees that are too high or too low affect the fishing effort in nearby locations

urban growth controls transitional dynamics of development fees and growth boundaries abstract this paper investigates how development fees and urban growth boundaries affect urban development when the short run construction supply function is upward sloped i e convex development costs whereas the policies are equivalent in the traditional static model dynamic analysis reveals important differences out of the steady state in particular the development fee that is efficient in the steady state is also dynamically efficient in contrast the long run efficient urban growth boundary generates inefficiently fast development out of the steady state the results are robust with or without location rents and perfect or myopic foresight assumptions

economic instruments for emission abatement under appreciable technological indivisibilities the paper explores the performance of decentralized incentives when abatement involves technological indivisibilities technologically pollution abatement is often carried out as a discrete process if pollution reduction involves relatively large scale investments in emission abatement equipment consequently the firm s response to decentralized economic incentives for pollution abatement is affected by the indivisible property of the technology it can be shown that in such cases efficiency may not be realized installing an abatement device may entail too much or too little investment compared with the eficient solution

housing investment in the united states a supply determined model of housing investment is estimated from quarterly data over the 1963 83 period the model is built on dynamic marginal cost pricing considerations and allows short and long run supply elasticities to differ these are estimated as 1 0 and 3 0 respectively but most of the long run response occurs within 1 year rapid adjustment speed and the sizable long run elasticity of supply are important factors in understanding the volatility of housing investment the data also suggest some anomalies in the expected present value theory of asset pricing for housing capital

should pollution reductions count as productivity gains for agriculture productivity changes have been used to gauge economic performance for at least fifty years because productivity measures have been so closely linked to changes in living standards it is natural to ask whether net increases in marketed outputs are the only things that should count as gains to the standard of living the articles by faere and grosskopf fg and gollop and swinand gs consider several different technical aspects of addressing this question the purpose of this article is to comment on their proposals both articles implicitly accept the notion that changes in commodities that are not available in markets should be considered in evaluating performance faere and grosskopf focus on how they should be valued in the productivity indexes while gollop and swinand define conditions when pollution reductions can be allowed to count the best overall summary of this comment on both papers repeat an overworked phrase the devil is in the details

adaptation and mitigation in global pollution problems economic impacts of productivity sensitivity and adaptive capacity this paper studies the influence of productivity pollution sensitivity and adaptive capacity on optimal mitigation and adaptation in a two country global pollution model we investigate the effects of changes of these parameters on the allocation of emissions adaptation expenditures and welfare in our analysis we distinguish between cooperative and non cooperative behavior our findings imply that unilateral improvements in productivity and adaptive capacity have strategic significance and do not necessarily lead to mutual welfare improvements they raise the emissions not only in the country where the technological improvement takes place but also globally an improvement in global welfare is guaranteed only under cooperative behavior with respect to emission and adaptation choices

the intensity and timing of investment the case of land the authors model the decision to replace durable capital when intensity is variable decisions of this type include land redevelopment decisions where the density of residential or commercial development is a choice variable as well as capital replacement decisions where capacity is variable the authors provide a general yet simple formation of the problem using an optimal stopping framework they characterize the value of the project the timing of investment and the intensity of development the authors show that intensity interacts in important ways with timing taxes and project values the ability to vary intensity raises hurdle rents and delays development decisions copyright 1994 by american economic association

a note on the neoclassical ambiguity and the specific factor production model under variable returns to scale abstract this note investigates the relationship between commodity price changes and factor rewards in a specific factor production model that admits variable returns to scale the principal result is that in the presence of variable returns to scale the so called neoclassical ambiguity may be resolved without resorting to detailed knowledge of the mobile factor s preferences that is to say the effect of a commodity price change may as it does with the returns to those factors specific to each industry raise or lower the real reward of the mobile factor in terms of either commodity depending only on the characteristics of the technology

the logical foundations of urban economics are consistent the logical foundations of models in urban economics with continua of agents distributed over continuous spaces have recently been questioned it was argued among other things that these models cannot represent properly models with discrete numbers of households each occupying a parcel of land in this paper we propose a mapping based on the continuous model utility and defined over discrete parcels of land which determines the discrete model utility so that the equilibrium solutions of the two models coincide hence the continuous model of urban economics can be used as a tool for studying equilibria and comparative statics of a discrete model which appears to have sound logical foundations journal qf economic literature classification numbers 022 930 1990 academic press inc

on the optimal taxation of capital income abstract we show that in models in which labor services are supplied jointly with human capital the chamley and judd result on zero capital income taxation in the limit extends to labor taxes as long as accumulation technologies are constant returns to scale moreover for a class of widely used preferences consumption taxes are zero in the limit as well however we show by the construction of two examples that these results no longer hold for certains types of restrictions on tax rates or if there are profits generated journal of economic literatureclassification numbers e62 h21

tax smoothing in frictional labor markets we re examine the optimality of tax smoothing from the point of view of frictional labor markets our central result is that whether or not this cornerstone optimal scal policy pre

landscape preferences and patterns of residential development abstract i analyze a model of residential location choice where people derive utility from their proximity to open space when people have such landscape preferences then 1 equilibrium residential development is mixed with undeveloped land 2 equilibrium land price gradients depend sensitively on how land markets are organized are not generally monotonic and may or may not reflect the value of open space and 3 dynamic equilibria generally have the property that more remote areas are developed before more central areas finally when compared to optimal development equilibrium development houses too many residents too close together and remote areas are developed too soon these results imply that equilibrium development may not be sprawling enough and that policies to encourage infill development are not welfare improving

the existence and uniqueness of optimal pollution policy in the presence of victim defense measures abstract it is to be expected that rational people defend themselves against pollution externalities at the very least through spatial separation from the source but even in the simplest models defensive behaviour generates nonconvexities multiple optima and inconclusive policy guidance this raises serious questions for the theory of environmental policy which have been largely ignored this paper derives a sufficient condition for a uniquely optimal emissions level in the presence of defensive activity the condition has an intuitive and in principal empirically testable interpretation two strategies for implementation are discussed an iterative tax rule and a non iterative demand revealing mechanism

decentralized economic incentives under technological indivisibilities a cooperative game approach abstract abatement technology is often characterized by indivisibility in those instances it is usually more efficient to operate the installed abatement device at full capacity in order to capture economies of scale in these situations efficiency may not necessarily be achieved by market incentive schemes such as taxes or tradeable permits installing a device may entail too much or too little investment in relation to the target level a tax could entail higher cost than a command and control approach while equilibrium in a permits market may not even exist the paper proposes an alternative incentive scheme the fine incentive scheme fis which imposes a fine penalty if the given area wide not firm specific emission or ambient standard is violated the performance of the fis is evaluated in a game theoretic framework specifically a cooperative game analysis since a measure of interdependence is introduced via the fis the model is illustrated with data from the haifa area in israel these empirical results are contrasted with a non cooperative framework as well as with command and control cac and the two traditional economic incentive schemes taxes and permits it is shown that taxes are the least desired mechanism while tradeable permits often don t work furthermore the efficacy of command and control relative to the fis varies with the circumstances the latter does not necessarily dominate the former under a rather wide range of circumstances

the effect of emission taxes and abatement subsidies on market structure comment abstract conrad and wang 1993 international journal of industrial organization 11 499 518 determine that a tax on emissions decreases the total output of a polluting industry but if demand is sufficiently inelastic can increase the number of firms in that industry this follows from their proposition that the tax reduces the scale of the polluting firm in contrast the scale of the polluting firm in the present model increases when there are increasing returns to scale in abatement whereas conrad and wang extend their results to cases of monopolistic competition the present paper is confined to perfect competition but extends the analysis to the pollution damaged industry

valuing the incremental benefits of groundwater protection when exposure levels are known both economic theory and psychological research indicate that benefit functions for reductions in health risk exposures may be conditional on current exposures using nitrates found in household wells it is demonstrated that perceptions of health risks across exposure levels are affected by the individual s current exposure level thus providing support for a conditional benefits function approach functions of conditional incremental benefits are estimated from a contingent valuation study of households that had been informed of their water test results incremental benefits reach a peak at an intermediate level of nitrates and then decline possible explanations for this non convexity are provided

intangible investment and ramsey capital taxation the standard analysis of optimal fiscal policy aggregates different types of assets into a unique capital good and all types of capital taxes into a unique capital tax this paper considers a disaggregated framework an economy with corporate and dividend taxes where firms invest in both tangible and intangible assets which can be expensed or sweat in our setup firms can always respond to changes in the timing of taxation we find that the optimal long run policy features zero corporate taxes and positive dividend taxes with labor and dividend taxes being identical moreover the initial capital levy is relatively small

a note on incomplete factor taxation abstract optimal capital taxes may be positive in the steady state in ramsey models with an incomplete set of factor taxes i show this possibility crucially depends on how fiscal policy is constrained at date t 0 if the government is barred from manipulating the value of initial assets the chamley judd result reappears the optimal capital tax is always zero in the steady state

environmental degradation as engine of undesirable economic growth via self protection consumption choices we analyze growth dynamics in an economy where the well being of economic agents depends on three goods leisure a free access environmental good and a private good that can be consumed as a substitute for the environmental resource the processes of production and consumption of the private good by each agent impose negative externalities on other agents through the depletion of the environmental good this paper shows that in such context the existence of private substitutes for environmental goods may fuel an undesirable economic growth process this process is driven by the continuous increase in agents needs for private consumption generated by the progressive reduction in free consumption of the environmental good

should capital income be taxed in the steady state this paper provides a new economic interpretation of the well known dynamic optimal taxation principle that capital income should not be taxed in the steady state we show that the result is related to the minimization of distortions at the intratemporal margin when every factor of production can be taxed at the optimal rate capital income should not be taxed in the steady state but when there are restrictions on the taxation of production factors the tax rate on capital income in the steady state is different from zero

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

evaluation of price policy in the presence of water theft mathematical programming models of representative farms are commonly used to evaluate policies such as input subsidies and output price supports on canals in india upstream farmers routinely use more irrigation water than allotted in such circumstances the programming model should encompass farmers locational heterogeneity here a representative watercourse with thirty farms is calibrated to the eight crops fifteen irrigation turns yield responses to water and seepage in maharashtra not only does water theft increase the social cost of price policies but the policies increased inducement to theft by upstream farmers leaves those downstream with less water and lower incomes

land use and zoning in an urban economy zoning statutes are a nearly ubiquitous phenomenon in urban america allen manvel in his report to the national commission on urban problems p 31 estimated that 90 percent of the cities and towns in the united states with a population of over 5 000 had some kind of zoning statute in 1967 in addition 51 of the 52 largest cities possessed such ordinances in spite of this ubiquity and in spite of the recent public controversy concerning the legality of suburban exclusionary zoning the modern economics literature on the institution is amazingly sparse there have been some significant contributions in recent years notably those by otto davis martin bailey davis and andrew whinston and john crecine davis and robert jackson however i think it is fair to say that economists have barely scratched the surface of what seems to me to be a very complex subject in particular there has been very little progress made in the task of incorporating zoning or land use parameters into the kinds of micro economic models that economists are accustomed to deal with the contrast with another urban economic institution the property taxis rather striking in this respect the basic objective of this paper will be to attempt to fill this gap the first section introduces a simple model of an urban space economy with a manufacturing and residential sector having constructed this model i will show how a change in the allocation of land between the two sectors affects the spatial pattern of land rents the size of the urban labor force and the wage rate the second section of the paper will then be devoted to a discussion of the appropriateness and implications of a land allocation policy which maximizes aggregate land rent

intertemporal distortions in the second best we consider a very general class of public nance problems that encompasses ramsey models of optimal taxation as well as economies with limited commitment private information and political economy frictions we identify a su cient condition to rule out permanent intertemporal distortions at the optimum if there exists an admissible allocation that converges to the rst best steady state then all intertemporal distortions are temporary in the second best we analyze a series of applications to illustrate the signi cance of this result

the resistibility and shiftability of depletable externalities abstract in their recently revised book baumol and oates the theory of environmental policy 2nd ed cambridge univ press cambridge uk 1988 accept bird s argument on the optimal taxation policy when externalities are shiftable and depletable their conclusion is that the standard pigouvian tax which is placed upon the generator of a negative externality can be extended to tax the victims who shift the externality to others or extended to compensate recipients in order to achieve pareto optimality it is shown in this paper that their conclusion is not free from error because the possibility of resisting a shifted externality and conjectural variations by recipients is not recognized whether an externality is shiftable depends not only on the shifting activity of the original victim but also the resisting activity of his neighbors and their conjectures about each other s action as such the shifters should be taxed and the recipients should be compensated at the same rate per unit of externality shifted if the tax base is the output of the shifting and resisting activities on the other hand if the tax base is the input which produced the shifting of the externality then both the shifters and the recipients should be subject to a tax or subsidy per unit of input that they have engaged in whether it is a tax or a subsidy depends on the direction and magnitude of the conjectural variation the model and its policy implication can be generalized to cover the omnipresent and wasteful rent seeking activities

factor demand and substitution under decreasing returns to scale an application to the rybczynski theorem in the first part of this paper the elasticity of substitution and factor demand are determined under decreasing returns to scale by applying the properties of homogeneous functions elasticities of marginal products with respect to factor uses are shown to be useful when determining the elasticity of factor substitution and factor demand elasticities second the results are applied to the theorem developed by rybczynski 1955 according to which an increase in the endowment of one factor while the endowment of the other factor and commodity prices remain unchanged will increase production of the good intensive in this factor and will reduce production of the good intensive in the other factor this theorem has been developed within the context of a two good two factor model under constant returns to scale in the more general case under variable returns to scale the conditions for the rybczynski theorem have been derived by jones 1968 panagariya 1980 and herberg kemp and tawada 1982 the case of variable returns to scale includes both decreasing and increasing returns to scale in this paper however we assume the simple model under decreasing returns to scale formulated by hansson and lundahl 1983 we interpret the necessary and sufficient conditions for the rybczynski theorem using the elasticities of substitution and the factor demand elasticities and derive the condition under which expansion can occur in both sectors

optimal fiscal policy in a stochastic growth model although most neoclassical growth models focus on competitive equilibria which are pareto optimal and ignore the role of government recent works by romer 28 29 judd 20 baxter and king s and bizer and judd 7 have shown that government can be introduced into and suboptimal equilibria can be studied in these models as well their studies however are positive analyses of the effects of fiscal policy in competitive equilibria the purpose of this paper is to apply ramsey s 27 theory of optimal taxation to the normative study of fiscal policy in a stocastic growth model ramsey studied a static representative consumer economy with many goods in his formulation a government consumes a fixed amount of these goods which it purchases at market prices and finances by levying flat rate excise taxes prices and quantities are determined in a competitive equilibrium the government is benevolent and its objective is to choose the optimal tax rates to maximize the representative consumer s utility a number of economists among them kydland and prescott 23 barro 3 turnovsky and brock 31 and lucas and stockey 26 have noted that ramsey s formulation can be applied to dynamic economies with uncertainty if one reinterprets the goods in static problems as dated state contingent goods in this framework a fiscal policy is a rule which specifies state contingent tax rates and the amount of public debt issue in each date the optimal fiscal policy is defined as the one which leads to a quantity