capital structure ownership and capital payment policy the case of hospitals this study examines effects of pertinent features of hospital capital payment policies on hospital capital structure decisions in a one period stochastic value maximization model separate models are developed for for profit and not for profit hospitals hospital debt to assets ratios are analyzed empirically using a cross section of data from the american hospital association although the effect on capital structure of hospital reliance on cost based reimbursement cannot be signed theoretically in both for profit and not for profit cases a higher cost based share leads to higher leverage factors associated with high bankruptcy risk e g earnings volatility cause hospitals to take on less debt the hospital industry exhibits two prominent characteristics that have unique implications for its capital structure first the majority of hospitals are organized as private not for profit nfp institutions since there is no applicable corporate income tax any risk of bankruptcy might imply that the nfp hospital would select an all equity hospital structure yet it is a stylized fact that almost all nfp hospitals have debt obligations at the same time there exists a sizeable minority of hospitals operated by government or as for profit organizations forprofit hospitals are subject to all tax privileges and obligations applicable to forprofit enterprises in other sectors thus the industry provides a laboratory for analysis of the effect of ownership on organizations capital structures a second unique feature of the industry is that almost all hospital revenue is derived from public and private insurers waldo et al 21 at least until very recently insurers in this industry paid hospitals on either a retrospective cost or

transfers and the generalized theory of distortions and welfare recent theoretical attention devoted to the transfer paradox has included attempts to incorporate it into the body of commercial policy in this paper the existence of a family of always feasible corrective tax policies is proved which guarantees normal welfare response the set of pol icies is shown to contain the external trade fixing tariff and the op timal tariff the set of policies is then extended to include a capit al flow fixing profits tax to deal with the problems of foreign inves tment the results are then interpreted in terms of a general proposi tion in the theory of distortions and welfare copyright 1987 by the review of economic studies limited

advantageous reallocations a constructive example this note shows how to construct smooth examples of a phenomenon noted by gale in which a pair of agents make themselves better off at the expense of a third agent by reallocating their own endowments walrasian stability prevails

north south models of growth and trade the paper surveys the literature that combines growth and trade into models of north south interaction we distinguish two strands of growth theory old exogenous and new endogenous growth we also distinguish old trade theory which assumes constant returns to scale and perfect competition and new trade theory which relaxes both of these assumptions this gives us four possible combinations of growth and trade theories which provide the basis of the taxonomy employed in our survey we address the following long standing issues raised in the literature first given that one of the north south asymmetries is that the north leads in technical progress how does the south adjust to such changes second can the models explain patterns of trade and income differentials between the regions third do asymmetries mean that standard prescriptions on the mutual benefits of free trade and free movements of capital need to be modified finally can our models explain why the south continues to favour protection of its manufacturing sectors at the same time that barriers within the north are being dismantled jel classification f43 o41

foreign ownership and the theory of trade and welfare some standard topics in the theory of international trade are reconsidered in this paper by distinguishing between national and aggregate income when fixed supplies of foreign inputs are present within the home country under conditions that would ensure a national welfare gain if foreign ownership were absent international transfer economic growth or tariff policy might cause a national welfare loss in the presence of foreign ownership the techniques developed could be applied to other domestic distinctions such as those based on race sex age or ethnicity and to the theory of customs unions in a three country world

lobbying by ethnic groups and aid allocation we develop a political economic model of foreign aid allocation each ethnic group in the donor country lobbies the government to allocate more aid to its country of origin and the government accepts political contributions from lobby groups initial per capita income of the recipients and those of the ethnic groups are shown to be important determinants of the solution of the political equilibrium we also examine the effects of changes in the degree of corruption aid fatigue and ethnic composition in the donor country on the allocation of aid

the impact of technology and structural change on export performance in nine developing countries summary this paper focuses on nine large developing countries structural decomposition analysis shows that they tend to concentrate innovative activities in industries stagnating at the world level international trends partly offset national improvements in patent shares the same occurs for world export shares although countries display greater adaptation to world demand econometric analysis suggests that technological activity is related to export gains in high technology sectors if a country expands in industries with increasing technological opportunities in medium technology sectors if it moves away from low opportunity sectors in low technology sectors if it is initially specialized in growing sectors in high tech and low tech sectors export performance is also affected by the growth of technical capabilities foreign direct investments productivity and the initial level of technical skills and in medium tech by the growth rates of foreign direct investments

poverty and public policy the problem of poverty is particularly acute in india with 14 of the world s population we have the misfortune of having almost twice as large a share of the world s poor indeed as i shall presently underline the question of poverty and its amelioration has been at the center of our concerns from the beginning of our planning efforts almost four decades ago little therefore can be said on it that some distinguished indian economist has not already said in some ways therefore to talk on the design of public policy for poverty to an indian audience is to carry coal to newcastle or as the old saying goes to teach your grandmother how to suck eggs nonetheless i hope to provide a fresh perspective by putting the problem into an explicit analytical framework that permits alternative policy designs to be sharply defined and contrasted i also intend to draw on international experience to put our efforts and problems into both historical and comparative perspectives

distortions true trade price and quantity indices and welfare trade expenditure functions are used to develop true trade price and quantity indices for multihousehold open economies with domestic distortions such as commodity or production taxes subsidies factor unemployment or exogenous factor price differentials these indices are then used to analyse the welfare effects of changes in world market prices and or the distortions in contrast to earlier literature we derive a set of novel globally valid necessary and sufficient conditions for gains from trade in the presence of the listed distortions novel sufficient conditions for welfare improvement which are readily measurable are also proven

motivations for aid to developing countries abstract this paper attempts to identify the underlying principles of aid allocation and particularly the balance of motivations as between the needs of recipient countries and the interests of donor countries two alternative models are fitted by cross country regressions to bilateral and multilateral aid flows to some 80 developing countries in 1969 1970 and 1978 1980 the first recipient need model assumes that all aid is given to compensate for shortfalls in domestic resources this model provides a reasonable explanation for the distribution of multilateral aid but it is clearly not applicable for bilateral aid flows the second donor interest model assumes that all aid serves only donor interests defined to cover political security investment and trade interests this model gives generally good explanations of bilateral aid but is a poor fit for multilateral aid the relative importance of the various donor interests differs sharply among donors the paper ends with an analysis of the shift in the balance of aid over the 1970s towards the recipient need element and with a reference to the sharp change in policy in the 1980s towards increasing emphasis on donor interest aid

the transfer paradox in a one sector overlapping generations model abstract this paper examines the effects of international income transfers on capital accumulation and welfare in a one sector overlapping generations model it is shown that a strong form of the transfer paradox in which the donor country experiences a welfare gain while the recipient country experiences a welfare loss may occur both in and out of steady state in addition it is shown that a weak form of the transfer paradox where either the donor or recipient but not both experiences a paradoxical welfare effect may characterize all segments of the transition path not already characterized by the strong transfer paradox

international investment and immiserizing growth abstract a country with significant foreign investment can be immiserized by growth of its labor force because this increases the payments that have to be made to foreign investors we show that this occurs when the elasticity of supply of foreign capital and the elasticity of substitution between labor and capital in the host country are low we relate this phenomenon to bhagwati s general analysis of immiserizing growth and identify several new sources of immiserization that can arise from the interaction of the bhagwati johnson mechanisms and international investment

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

the economics of country specific tariffs a three country model of the world economy is used to show that when effective a country specific tariff will have an impact on the world economy that is equivalent to the imposition of a uniform tariff plus a subsidy to the production of home importables in the favored country financed by a transfer from the home country lerner s symmetry theorem and the optimum tariff problem are discussed country specific tariffs were a prominent feature of the congressional debate surrounding the recent u s trade bill a preliminary version of the bill which passed the house contained the well known gephardt amendment that would have required increased tariffs or quotas on imports from countries running unacceptably large bilateral trade surpluses with the u s in addition since 1976 the u s has allowed most goods produced in less developed countries to enter duty free under its version of the generalized system of preferences the country specific nature of these preferences runs contrary to all previous u s trade policy and sparked controversy in the u s congress when the original legislation was passed in 1974 and again when it was extended in 1984 while country specific tariffs are a relatively new feature of u s trade policy they have an established history in other countries prior to joining the european economic community great britain granted preferential tariff rates on imports from the commonwealth countries moreover these countries granted tariff preferences to less developed countries nearly five years before the u s initiated its general system of preferences program a proper theoretical analysis of country specific tariffs and preferential tariff reductions requires a multi country model however most work on tariff policy uses the standard two country framework almost all of the multi country models found in the literature consider only uniform tariffs or as in the customs union literature consider preferential tariffs as part of a multilateral effort to coordinate trade policies rather than as a unilateral policy instrument an exception is the partial equilibrium analysis of mcculloch and pinera 1977 they consider a three country world economy and examine the impact of a preferential tariff reduction

who benefits from aid for trade comparing the effects on recipient versus donor exports recent studies offer an ambiguous picture on the effectiveness of foreign aid in strengthening the export capacity of recipient countries moreover the literature on aid for trade aft has often neglected that exporters in the donor countries may be among the main beneficiaries we hypothesize that aft is as much in the self interest of donor countries as it may have promoted the exports of recipient countries we simultaneously estimate and compare the effects of aft on trade in both directions we find that aft increases recipient exports to donors as well as recipient imports from donors the first effect tends to dominate the latter which contradicts the skeptical view that donors grant aft primarily to promote their own export interests

the global correspondence principle a generalization this paper generalizes the global correspondence principle by extending in two major ways samuelson s 1971 analysis of the exchange rate response to an international purchasing power transfer first the authors analyze the price effect of a shift in anyparameter not necessarily a transfer second the authors explore the resulting adjustments in any nonprice variable such as welfare as the analysis shows the direction of these adjustments depends neither on whether they are small or large nor on whether equilibrium is locally stable or unstable thus the authors generalize the conventional algebra of comparative statics which typically assumes small shifts from a stable equilibrium copyright 1987 by american economic association

the possibility of recipient harming donor benefiting transfers with more than two countries the possibility of a commodity transfer among nations which simultaneously benefits the donor and harms the recipient is examined an example of a three country exchange economy is presented where a transfer may be made which gives the counter intuitive result the result is then explained

the generalized theory of transfers and welfare bilateral transfers in a multilateral world paul samuelson s 1952 1954 classic papers on the transfer problem addressed two separate analytical issues the positive effect of a transfer on the terms of trade and the welfare effect of the transfer on the donor and the recipient since then a considerable body of literature has grown up on the positive analysis while samuelson 1954 himself had extended the 2 x 2 x 2 free trade analysis to allow for tariffs and transport costs subsequent writers have analyzed other extensions of the model for example to allow for nontraded goods as with leisure in samuelson 1971 or general nontraded goods in john chipman 1974 and ronald jones 1970 1975 remarkably however the welfare analysis of transfers has not paralleled these developments since wassily leontief 1936 produced an example of immiserizing transfer from abroad and samuelson 1947 argued that the example required market instability the proposition that has monopolized attention has been that a transfer in the conventional 2 x 2 x 2 model in its free trade version cannot immiserize the recipient or enrich the donor as long as world markets are stable in the walras sense interestingly samuelson 1954 who did extend the positive analysis to include tariffs did not go on to ask whether immiserization of the transfer recipient and hence symmetrically enrichment of the donor in a two country model could now arise consistent with market stability recently the welfare analysis of transfers has been extended in two different directions both apparently unconnected and both yielding the conclusion that transfers from abroad can be immiserizing and that the donor may improve its welfare despite market stability one route to this conclusion has been the introduction of a third economic agent or country that is outside of the transfer process in the appendix of his 1960 paper analyzing the interaction between trade policy and income distribution harry johnson discussed the possibility of welfareparadoxical redistribution between two factor income classes capital and labor in an open economy thereby providing what can be interpreted as a treatment of the threeagent transfer problem for the case in which donor and recipient are both completely specialized in the ownership of a single different factor an independent analysis of the three agent transfer problem using a restrictive model with given endowments of goods and fixed coefficients in consumption was also undertaken in an important paper by david gale 1974 2 brecher and bhagwati bhagwati department of economics columbia university new york ny 10027 brecher department of economics carleton university ottawa on kis 5b6 hatta department of political economy the johns hopkins university baltimore md 21218 we thank the national science foundation grant no 524718 for partial financial support of the research underlying this paper the paper was written when brecher and hatta were visiting columbia university 1981 82 gratefully acknowledged are helpful comments and suggestions from john chipman avinash dixit jacques dreze robert feenstra jacob frenkel ronald jones murray kemp andreu mas colell michael mussa john riley lars svensson and robert willig from anonymous referees and from seminar participants at berkeley harvard minnesota rochester chicago and the university of california los angeles after the present paper was submitted for publication and following its presentation at rochester our attention was drawn to this appendix which was noticed by a student of ronald jones subsequently we learned from makoto yano that motoshige itoh had pointed out an important related paper by ryuotaro komiya and t shizuki 1967 whose condition 11 for the johnson case anticipated our equation 12 below we are grateful for having both of these references brought to our attention 2 gale constructs an example in which the donor is enriched along with the recipient furthermore this immediately implies that a reverse transfer will immis

estimating aid allocation criteria with panel data in 1990 the net amount of economic aid or official development assistance to all recipients from all multilateral and bilateral sources was about 62 billion an amount that exceeded the gdps of greece and portugal despite the size of this yearly transfer there has been no rigors modeling and estimation of the criteria by which it occurs as a result there is little agreement about the extent to which oda is allocated according to the needs of the recipient countries the purpose of this paper is to develop a rigorous theoretical model of oda allocation that can be used to provide consistent estimates of the importance of recipient needs copyright 1994 by royal economic society

competition for aid and trade policy this paper considers the optimal allocation of a given amount of foreign aid between two recipient countries it is shown that given consumer preferences a country following a more restrictive trade policy would receive a smaller share of the aid if the donor country maximises its own welfare in allocating aid if on the other hand the donor country allocates aid in order to maximize the sum of the welfare of the two recipient countries the result is just the opposite finally we analyze the situation where the recipient countries compete with each other for the given amount of aid it is shown that this competition tends to lower the level of optimal tariffs in the recipient countries

financing constraints and investment new evidence from hospital industry data this paper tests for evidence of financing constraints in the u s hospital industry the authors hypothesize that small hospitals and free standing hospitals are more likely to face financing constraints than respectively large hospitals and members of hospital chains they estimate the relationship between liquidity and investment within each cohort controlling for a variety of factors that might affect the marginal profitability of hospital investment the results provide strong evidence that small hospitals and free standing hospitals face borrowing constraints due to agency costs this supports earlier work that found evidence of financing constraints in other contexts copyright 1995 by ohio state university press

interjurisdictional capital mobility fiscal externality and a corrective subsidy abstract recent studies emphasize that local property taxation may result in inefficiently small amounts of local public spending this paper shows that the inefficiency can be traced to a fiscal externality when one jurisdiction increases its taxes it causes a flow of capital to other jurisdictions that increases their tax revenues the inefficiency can be corrected with a subsidy that internalizes the externality key empirical parameters determining the magnitude of the externality are identified illustrative calculations indicate that subsidy rates on the order of 40 might be required to achieve efficiency

the demise of hospital philanthropy the demise of hospital philanthropy i introduction until the beginning of this century most hospitals primarily served the poor and derived a major portion of their revenue from private philanthropy the more affluent avoided hospital care and were treated in doctors offices and at home starr 1982 rosenberg 1987 this situation changed largely because of technological improvements such as anesthesia and asepsis and the nonpoor began to demand care in hospitals private insurance plans offering the nonpoor nearly complete coverage for hospital care began in the 1930s and spread rapidly after world war ii major health legislation medicare and medicaid was enacted in 1965 extending hospital insurance to the elderly and the poor by the late 1960s hospitals derived nine tenths of their revenue from insurance real donations for medical facility construction rose from 76 million in 1935 to a peak of 2 1 billion in 1965 and fell to 603 million by 1981 1984 dollars 1 in 1984 only 5 percent of the total spent on such construction was funded by philanthropy levit et al 1985 the conventional wisdom has it that private and public hospital insurance has crowded out philanthropic support of hospitals the public insurance argument is consistent with that of abrams and schmitz 1978 and roberts 1984 who maintain that public welfare expenditures reduce or eliminate private giving to the poor this argument appears to extend to private insurance as well this article describes the decline in donations to hospitals from conceptual as well as empirical perspectives we first describe a simple one period model of hospital and donor behavior hospitals choose utility maximizing levels of output while altruistic donors decide how much to contribute to hospitals and how much to spend on other goods the model is used to analyze how insurance various government subsidies and other factors affect hospital and donor behavior the major insight from this model is that although rising insurance coverage tends to increase hospital output in the same way as a lump sum government subsidy the two have different effects on donations to the hospital growing insurance coverage may increase or decrease donations while lump sum subsidies to the hospital will unambiguously crowd out private donations the empirical work following the model incorporates empirical counterparts of the exogenous and donation variables examined in the theoretical section data come from 1 a time series spanning 1935 81 and 2 a single cross section of nonprofit hospitals in 1978 the results indicate that increased insurance coverage for hospital care especially the enactment of medicare and medicaid in the mid 1960s reduced giving to hospitals the contribution of public subsidies for construction varied depending on whether the subsidy more closely resembled a matching or a lump sum subsidy ii model the model consists of a single not for profit hospital and a single representative donor 2 the hospital chooses output n to maximize its utility from output 3 while the donor chooses donations d to maximize utility from total hospital output and other goods y the donor behaves altruistically in that he does not use hospitals himself the behavior of hospital patients is not explicitly modeled although their presence will be felt the output and donation decisions are interrelated since the donor likes hospital output and the level of donations affects the hospital s budge get constraint to untangle the endogenous feedback effects between output and donations the problem is described as a two stage sequential game in the first stage the donor decides how much to donate in the second stage the hospital chooses how much output to produce given the previously determined level of donation of course the donor is acutely aware that the hospital s subsequent output decision will affect his utility

the measurement of waste in a public goods economy abstract a small open economy model is developed to measure the waste of the whole economy when levels of public goods are determined by the government the allais debreu diewert measure of waste is defined and its second order approximation is calculated this measure utilizes the second order substitution matrices of the restricted profit function and the restricted expenditure function evaluated at an equilibrium finally simple examples and diagrams are utilized to clarify the economic implications of our approach

debt investment and endowment accumulation the case of not for profit hospitals abstract not for profit hospitals benefit from special tax rules that allow state authorities to issue tax exempt bonds on their behalf which may affect their investment and financing choices hospitals may respond by increasing their investment in physical assets however they may also engage in tax arbitrage by using the tax exempt debt while maintaining endowment assets the paper combines data from tax information returns and the annual survey of hospitals by the american hospital association for 1993 1996 overall the results are consistent with substantial tax planning by not for profit hospitals of the us 55 9 billion in tax exempt liabilities of hospitals in 1996 as much as us 32 6 billion could have been eliminated if hospitals spent their endowments instead of borrowing furthermore controlling for hospital size in terms of revenues and operating assets endowment assets are associated with a higher ratio of tax exempt or total debt to operating assets in contrast endowment assets are not related to taxable debt suggesting that the effects of the endowment on borrowing are motivated by tax incentives investment and endowment accumulation regressions suggest that increases in debt increase both physical investment and endowment accumulation but these effects are concentrated among cash rich hospitals for which the effects on endowment accumulation effects are larger than the effects on physical investment

aid allocation by german ngos does the degree of official financing matter using a new data set for 41 german non governmental organisations ngos we analyse the allocation of ngo aid across recipient countries in a tobit regression framework by identifying for each ngo the degree of official financing we address the largely unresolved issue of whether financial dependence on the government impairs the targeting of ngo aid it turns out that german ngos are more active in poorer countries while they do not complement official aid by working under difficult local conditions beyond a certain threshold rising financial dependence weakens their poverty orientation and provides an incentive to engage in easier environments in addition we find that the ngos follow the state as well as ngo peers when allocating aid this herding behaviour is however hardly affected by the degree of official financing

optimal foreign aid and tariffs this paper investigates the optimal choice of foreign aid when trade policies are decided in a non cooperative fashion three alternative scenarios depending on the timing of the actions and on whether aid is tied are analyzed it is shown that in the case where aid is decided before tariffs untied aid can lead to the reduction of the recipient s optimal trade tax when the donor can tie the aid to a reduction in the recipient s tariff the optimal aid level is always positive and the world can always achieve a pareto efficient equilibrium

trend and cyclical decoupling new estimates based on spectral causality tests and wavelet correlations the issue of decoupling of emerging market economies emes especially in the asian region from the developments in advanced economies has become a subject of lively debate in recent years basically decoupling seems to comprise three sub hypotheses i growth spillovers from advanced countries to emes decreasing progressively in importance ii business cycles in emes becoming less synchronized with those of the advanced world and iii strengthening of growth spillovers and cyclical synchronization among the emes as a group the received literature fails to distinguish adequately between the trend and cyclical aspects of the decoupling relationship we resort to two frequency domain methods nonstationary spectral causality testing and wavelet correlations which seem to offer a neat separation of trend and cyclical decoupling based on a sample of seven emes from the asian region including the two large emes china and india we uncover strong evidence favouring both trend and cyclical decoupling

on the tying of aid to tariff reform this paper considers the welfare effects of foreign aid that is tied to changes in the recipient s tariff by constructing a three country model with tariffs and by allowing for changes both in the amount of aid and in the tariff rates we are able to consider the welfare implications of two different rules of aid conditionality i a rule which leaves the donor s welfare unchanged and ii a rule which leaves the recipient government s total revenue unchanged it is shown that the tying of aid to a tariff reform can inter alia be used to ensure pareto improvement

multilateral transfers export taxation and asymmetry abstract it has been established that under free trade transfers that are proportional to the trade volumes of recipient nations cannot immiserize them we investigate this result in the context of a three country model of export taxation by recipient nations proportional transfers can be immiserizing in the presence of fixed export taxes under nash welfare maximizing export taxes proportional transfers cannot immiserize the recipients consequences of asymmetry in size and in nash equilibrium tax rates are also explored the findings are relevant for developing nations who use export taxes and also receive foreign aid

can globalisation stop the decline in commodities terms of trade in this paper we address the following question would a fully integrated world economy eliminate the widely reported decline in the terms of trade of primary commodities we address the question by looking at the terms of trade within the us a highly integrated economy our findings show two results first us internal real commodities terms of trade over the 1947 1998 period experienced slowly declining but significant trends second once we control for the effect of us prices on international terms of trade we find a long run relationship between the us and international relative prices these findings support the view that the decline of commodities terms of trade bears no relationship with the process of globalisation this seems to indicate that if world terms of trade behaved as the us terms of trade neither increased integration nor protectionist measures would eliminate this trend

paradoxes associated with the administration of foreign aid abstract this paper shows that if because of administration costs or other wastes only a proportion of an aid reaches the recipient then it is possible that the donor is enriched by its act of charity the extent of the enrichment increasing with the extent of the leakage and or that the recipient is impoverished by aid the extent of the impoverishment increasing with the extent of the leakage these outcomes are possible even when trade is optimally restricted by donor or recipient

does aid cause trade evidence from an asymmetric gravity model anderson and vanwincoop developed what has become the standard framework for framing and interpreting empirical work using the gravity model their framework relies heavily on an assumption of symmetry among countries for issues related to north south trade this assumption is problematic in this paper we develop an asymmetric extension of the anderson vanwincoop framework appropriate to the analysis of north south trade where northern countries produce differentiated goods and southern countries homogenous ones in addition we use an appropriately extended version of baier and bergtrand and taylor linear expansion thus permitting its estimation using good old ols the result is an empirical model that i is better suited to the analysis of north south trade ii is easy to estimate and compute comparative statics not requiring a customised nls routine and given the way the south is included iii provides a simple explanation of zero trade flows between some country pairs a fact still not fully explained in the literature as an illustration of its use we examine the empirical link between foreign aid and trade

the generalized theory of transfers and welfare exogenous policy imposed and endogenous transfer induced distortion this paper reconsiders the welfare effects of a transfer payment in a two commodity world with two agents countries by taking the presence of exogenous and endogenous distortions into account when there is an exogenous tax cumsubsidy on production consumption or trade the analysis demonstrates that a transfer may paradoxically enrich the donor and immiserize the recipient under certain specific conditions these welfare paradoxes are also shown to be possible if the transfer endogenously induces directly unproductive profit seeking activity of lobbyists concluding remarks emphasize the paper s relevance for policymakers

the welfare effects of targeted export subsidies a general equilibrium approach a three country model of export subsidies is developed with an exporter an importer and a neutral country which can act on either side of the market when the neutral country is an exporter the country offering a targeted export subsidy always suffers a welfare loss however when the neutral country is an importer the possibility of a paradoxical result that the subsidizing country can gain and the subsidized country can lose is shown to exist and the conditions under which this result occurs are derived the model fails to provide justification on national welfare grounds for widespread use of targeted export subsidies such as the export enhancement program

equilibrium and optimality some imprints of david gale abstract the paper is a review of some of the themes to which david gale made lasting contributions it touches upon a number of the fundamental issues in the walrasian equilibrium theory existence uniqueness and stability the overlapping generations model non optimality and indeterminacy of competitive equilibria the von neumann equilibrium as a turnpike and in the theory of decentralized intertemporal allocation through competitive prices efficiency and golden rules duality and existence of optimal programs

targeted export subsidies as an exercise of monopoly power a country with monopoly power in its export good normally benefits from an export tax however if it exports to two countries and the tax on exports to one is suboptimal then it may be best to subsidize exports to the other this is more likely the smaller is the import demand elasticity in the country being taxed suboptimally and the larger the elasticity in the other it is also more likely the larger are exports to the first and the smaller are exports to the other finally it is more likely the less elastic is home export supply

foreign aid and the question of fungibility this paper analyzes whether the foreign assistance provided for specific categories of expenditure is shifted among them contrary to the wishes of donors it also considers whether aid reduces the tax effort of recipient governments econometric results are presented for the dominican republic that show that the fungibility of aid has resulted in a thwarting of the intentions of donors an attempt is made to account for the observed differences in behavior of individual countries in altering expenditures copyright 1993 by mit press

welfare effects of aid under quantitative trade restrictions the paper examines the effects of tied aid on the welfare of both the donor and the recipient countries we depart from the previous literature by assuming preexistence of quantitative trade distortions to mitigate these distortions the donor country provides aid that is tied to the rationed good conditions for the presence of the transfer paradox and of the enrichment of both countries are derived and interpreted under the stability of the system furthermore we show that whereas untied aid cannot increase global welfare tied aid unambiguously does so

foreign aid and public goods abstract most less developed countries ldcs use foreign economic aid to finance public consumption goods or public intermediate inputs this paper constructs a two country general equilibrium trade model where an income transfer that takes place between the two countries is used by the recipient to finance a public consumption good within this framework the paper identifies the conditions under which the income transfer improves or deteriorates the donor country s terms of trade and shows that the transfer can be welfare enriching for the donor and welfare immiserizing for the recipient country the paper also demonstrates that the transfer can raise reduce world welfare in which case a welfare increase decrease in both the donor and the recipient country is possible

impure public goods and transfers in a three agent model abstract this paper extends previous models of non cooperative private funding of pure public goods by allowing for impure public goods the analysis is developed in the context of international public goods under certain conditions the consequences of transfers on utility are paradoxical if the preferences are divergent a country may gain by giving a transfer the receiver may lose and these two phenomena may appear at the same time

the fungibility of u s military and non military assistance and the impacts on expenditures of major aid recipients abstract this paper examines the impact of u s military and non military assistance on the allocation of public and private sector spending for eight major recipients over the 1972 1987 period the model assumes that an aid recipient s effective post assistance budget constraint is a priori unknown and must be estimated two versions of the model are tested in version a the data is converted into real u s dollars using official exchange rates in version b the data is converted using purchasing power parity exchange rates provided by summers and heston 1991 major findings are the same for both versions u s aid is highly fungible with a significant portion channeled to the private sector where it finances current consumption relatively more than investment

cost of capital to the hospital sector this paper provides estimates of the cost of equity and debt capital to for profit and non profit hospitals in the u s for the years 1972 83 the cost of equity is estimated using alternatively the capital asset pricing model and arbitrage pricing theory we find that the cost of equity capital using either model substantially exceeded anticipated inflation the cost of debt capital was much lower accounting for the corporate tax shield on debt and capital paybacks by cost based insurers lowered the net cost of capital to hospitals

hospital investment decisions and the cost of capital this study addresses two issues conceptually and empirically how does hospital ownership type affect hospital investment choices how do differences in the way hospitals are paid cost versus charge based reimbursement affect hospital investment the authors compute cost of capital measures for both for profit and not for profit hospitals whether or not hospital dependence on cost based payment stimulates investment depends on the generosity of such payment relative to the economic cost of capital empirically they find that for profit hospital exit entry decisions are guided by the generosity of payment to a greater extent than the not for profits copyright 1989 by the university of chicago

tax exempt debt and the capital structure of nonprofit organizations an application to hospitals the availability of tax exempt financing provides nonprofit np organizations with their own tax based incentives to issue debt in this article we develop a theoretical model in which nps gain an indirect arbitrage from tax exempt debt issuance constrained by 1 the requirement that fixed investment exceed tax exempt debt flows the project financing constraint and 2 the constraint against share issuance these constraints cause them to impute tax benefits to projects that afford access to the tax exempt bond market empirical tests indicate that np hospitals behave as if they have target levels of tax exempt debt debt targeting is constrained by the availability of capital projects while excess debt capacity stimulates investment financial theorists have generally been reluctant to apply the tenets of corporate finance to nonprofit institutions in particular there has been little or no follow up to the important work of fama and jensen on the relationships between agency contracting and ownership written over a decade ago current understanding of the financial basis and behaviors of nonprofit institutions is limited to three basic insights provided by their prior work 1 the attenuation of residual claims characteristic of nonprofit organizations addresses the agency problems associated with private donations fama and jensen 1983b 2 like other organizations nonprofits require decision systems that separate the processes of management and control fama and jensen 1983a and 3 given certain preconditions investment opportunities available to nonprofits can be evaluated with the net present value rule using discount rates defined by outside capital markets fama and jensen 1985 these observations comprise much of what is currently known about nonprofit corporate financial behavior foremost among the set of unresolved issues is the theory of debt issuance by nonprofits an area not explicitly addressed by the fama and jensen

immiserizing transfer under variable returns to scale this paper examines the welfare consequences of a unilateral transfer for both the transfer paying and the transfer receiving country in which the production functions are subject to variable returns to scale we obtain the conditions for the strong paradox that is the welfare of the transfer paying country improves and that of the transfer receiving country declines in the standard two country framework the conditions for the weak paradox that is both the transferor and transferee gain or lose simultaneously and the normal results that is the transferor loses and the transferee gains are also derived transferts appauvrissants quand les rendements a l echelle sont variables ce memoire examine les effets de bien etre d un transfert unilateral a la fois pour le pays donateur et le pays recipiendaire quand les fonctions de production ont des rendements variables a l echelle les auteurs d6veloppent les conditions qui sous tendent le paradoxe fort i e le cas oii le bien r ils d6rivent aussi les conditions qui sous tendent le paradoxe faible i e le cas oui les deux pays gagnent ou

bilateral war in a multilateral world carrots and sticks for conflict resolution this paper constructs a three country many good and many factor trade theoretic model in which two of the countries are in conflict and where war eort is determined endogenously

do multinationals deteriorate developing countries export prices the impact of fdi on net barter terms of trade this paper explores the economic relationship between foreign direct investment fdi to developing countries and the export prices of the latter measured by terms of trade it is rst shown that economic theory suggests such a relationship for various reasons but is inconclusive about the direction of the eect to address this open issue empirically i analyze data on more than 50 developing countries throughout the period 1980 2008 using robust dynamic panel data methods the results show that fdi had an economically relevant and statistically signicant positive impact on developing countries net barter terms of trade a higher level of education in the developing country fosters this eect

the limits of trade policy reform in developing countries trade reform is now raising some new issues this paper deals with three sets of questions first how can trade reform be sustained can governments convince business labor or consumers that trade reform will be lasting so as to forestall possible adverse reactions that would jeopardize the sustainability of the reform second what role should trade reform play when it is implemented in the context of macroeconomic instability are there potential conflicts between the standard desiderata for trade reform and the requirements of macro stability finally should we be worried about the consequences of trade reform in the imperfectly competitive market environments that characterize the developing economies

international redistribution of income summary how do international policies on aid trade and factor movements affect the international distribution of income we calculate the impact by world decile of the actual level of aid flows and the effect on income of merchandise trade restrictions by high income countries we find that aid s distributional impact is equality enhancing extremely small in terms of changes in inequality measures but of some importance for the lowest decile of the distribution we also find that some of this impact is counteracted by lost potential income in the lower deciles from merchandise trade barriers imposed by high income countries

who supports global economic engagement the sources of preferences in american foreign economic policy in this article we bring together opposing international relations theories to better understand u s foreign policy in particular foreign trade and aid using votes in the u s house of representatives from 1979 2004 we explore different theoretical predictions about preferences for foreign economic policy we assess the impact of domestic factors namely political economy and ideological preferences versus foreign policy pressures our three main results highlight the differential effect of these factors in the two issue areas first aid preferences are as affected by domestic political economy factors as are trade preferences second trade preferences but not economic aid ones are shaped by the president s foreign policy concerns for economic aid domestic political economy factors matter more than foreign policy ones third aid preferences are shaped more by ideological factors than are trade ones but ideology plays a different substantive role in each different constituencies support aid and trade this finding has implications for foreign policy substitutability the internationalist coalition in u s foreign policy statist theories of foreign policy and the connection between public opinion and legislative voting

dynamic aid allocation abstract this paper introduces a framework for studying the optimal dynamic allocation of foreign aid among multiple recipients we pose the problem as one of weighted global welfare maximization a donor in the north chooses an optimal path for international transfers anticipating that consumption and investment decisions will be made by optimizing households in the south and accounting for limits in the extent to which recipients can effectively absorb aid we present quantitative results on optimal aid policy by applying our approach to a neoclassical growth model where the scope for aid funded growth is determined by the recipients distance from steady state

politics and the effectiveness of foreign aid abstract critics of foreign aid programs have long argued that poverty reflects government failure in this paper i test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes i find that aid does not significantly increase investment nor benefit the poor as measured by improvements in human development indicators but it does increase the size of government the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive but liberal political regimes and democracies ceteris paribus have on average 30 lower infant mortality than the least free regimes this may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs an implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs

global imbalances revisited the transfer problem and transport costs in monopolistic competition we study the welfare eects of trade imbalances in a two sector model of monop olistic competition as in perfect competition a trade surplus involves an income transfer to the de cit country and possibly a terms of trade deterioration unlike the conventional wisdom however trade imbalances do not impose any double burden on surplus countries this is because of a production delocation eect which leads to a reduction in the local price index in the presence of intermediate goods new results arise a trade surplus may lead to an appreciation of the exchange rate to a terms of trade improvement and to a welfare increase under standard parameter con gurations in addition policies that stabilize the exchange rate can make the balanced trade equilibrium unstable these results can explain why the manufac turing sector may agglomerate in countries that resist the real appreciation of their currency and suggest that a xed exchange rate and nominal rigidities may generate short run instability

unification of dual exchange markets abstract this paper develops the model of an economy under a dual exchange system comprising an official market with a crawling exchange rate and a free market with a floating exchange rate after analyzing the behavior of the economy under the dual system the paper discusses the effects that switching to a unified floating system or a unified crawling peg system has on the exchange rate and on the balance of payments particularly in the short run the paper shows that these effects depend on the composition of the private sector s portfolio at the time of unification which in turn depends on the various policies that were followed while the economy was under the dual system

immiserizing transfers from abroad abstract this paper shows that an international transfer payment may paradoxically immiserize the recipient country or increase the donor country s welfare even when world markets are stable despite the traditional view that such a paradox theoretically requires market instability to demonstrate this paradoxical possibility the paper extends the conventional trade theoretic analysis to admit exogenous distortions created by tax cum subsidies in domestic production or endogenous distortions due to additionality requirements imposed by the donor on the recipient this analysis of immiserizing transfers from abroad immediately suggests significant implications for important policy issues including the evaluation of real benefits from foreign aid

negotiating free trade we develop a dynamic bargaining model in which a leading country endogenously decides whether to sequentially negotiate free trade agreements with subsets of countries or engage in simultaneous multilateral bargaining with all countries at once we show how the structure of coalition externalities shapes the choice between sequential and multilateral bargaining and we identify circumstances in which the grand coalition is the equilibrium outcome leading to worldwide free trade a model of international trade is then used to illustrate equilibrium outcomes and how they depend on the structure of trade and protection global free trade is not achieved when the political economy motive for protection is sufficiently large furthermore the model generates both building bloc and stumbling bloc effects of preferential trade agreements in particular we describe an equilibrium in which global free trade is attained only when preferential trade agreements are permitted to form a building bloc effect and an equilibrium in which global free trade is attained only when preferential trade agreements are forbidden a stumbling bloc effect the analysis identifies conditions under which each of these outcomes emerges

competition for environmental aid and aid fungibility abstract aid from environmentally conscious donors to developing recipients has long been thought of as a very promising way of preserving the global environment however aid is fungible and recipients cannot commit to using it for the purpose it was intended we analyze competition for aid games with aid fungibility and cross border pollution to gain insights on how to allocate environmental aid more efficiently we set up a two stage game of two recipients receiving aid from a donor interested in minimizing pollution recipients cannot commit on the use of aid but they can commit on the infrastructure necessary to use aid for pollution abatement we find that the success of competition for aid games depends critically on the degree of cross border pollution this determines whether it is more efficient to set up such games between recipients with little or a lot of cross border pollution between them