This paper reviews agency theory and its application to accounting issues. I discuss the formulation of models of incentive problems caused by moral hazard and adverse selection problems. I review theoretical research on the role of performance measures in compensation contracts, and I compare how information is aggregated for compensation purposes versus valuation purposes. I also review the literature on communication, including models where the revelation principle does not apply so that nontruthful reporting and earnings management can take place. The paper also discusses capital allocation within firms, including transfer pricing and cost allocation problems.

A number of developing countries have adopted deficit finance regimes involving multiple- (currency and bond) reserve requirements. A key characteristic of these regimes is that the real interest rates on reservable bonds are higher than the real return rates on currency, so that the nominal interest rates on the bonds are positive. We seek an efficiency-based explanation for the existence of multiple-reserve regimes and for this key characteristic. We find that there are economies in which some of the efficient allocations can be supported only by multiple-reserve requirements, and that positive nominal bond rates may be needed to support some of these allocations. We also find that there are economies in which allocations supported by multiple-reserve regimes with negative nominal bond rates Pareto dominate single-reserve allocations, even when the latter are efficient relative to other single-reserve allocations. Journal of Economic Literature Classification Numbers: E42, E58, H62.

Here is how the 1817 Ricardo comparative advantage trade benefit analysis has to be modified to take account of post-1960 Sraffian benefits from capital-using technologies. By bringing J. S. Mill's demand model up to date in terms of its implicit geometric-mean money-metric utility, specific measurements for real net national product are calculated to partition sources of welfare gains (from output enhancements and taste-preference accommodations) in scenarios of (1) trade between equals, (2) trade between poor and rich nations, and (3) for biased inventions that enable a poor country to take over production of items in which formerly the rich place enjoyed comparative advantage. History of economic doctrine is mined to advance today's frontier of scientific knowledge—a forward-looking function for “Whig history.”

This article reviews Monetary Policy Rules, edited by John Taylor. The book evaluates the Taylor rule, a policy rule that specifies changes in the central bank's interest rate according to what is happening to two variables, real output and inflation. Questions are raised about (a) how well the models fit the data; (b) the validity of the assumption that there has been clear improvement in monetary policy; and (c) the rule's microfoundations.

Financial and real investment flexibility, tax competition, and superior economic information by transnationals both create a rationale for corporate income taxation and limit the effectiveness of such taxation. While these factors have led to a variety of transnational tax policies, such as deferral, double taxation, apportionment, and trade rules, very few of these institutional features have been integrated into tax competition and agency models. In this paper, I show how the integration of investment flexibility, tax competition, and agency issues is crucial to our understanding of corporate tax policies.

Administrative and political reorganization is being actively debated even in the mature, stable economies of Western Europe. This paper investigates the possibility that such a reorganization is tied to the integration of economic markets. The paper describes a model where heterogeneous individuals form coalitions for the provision of a public good and shows that the number and composition of these jurisdictions depend on the overall size of the market. The range of economic activities engaged in by jurisdiction members increases when the size of the market increases, and so does the range of their preferences over the public good. The result is a change in the endogenous borders of the jurisdictions, and a reorganization of all coalitions. The optimal number of jurisdictions is unique and increases with market size. In the absence of compensating transfers, however, the decentralized equilibrium need not be optimal and is not unique, although there is no restriction on individuals' ability to coordinate the formation of coalitions. It remains true that a large enough increase in market size will trigger an increase in the number of jurisdictions.

This is a critique of “Essays on Disclosure” and the literature reviewed in “Essays”. The critique evaluates “Essays” in terms of its coverage of the relevant literature, its insightfulness, and its boldness in identifying future research areas. It also provides commentary on the strengths and weaknesses of several popular models in the literature. It concludes with a discussion of recent trends in the disclosure literature.

Exploiting long term interindustry demand shifts, this article provides evidence that (1) industry‐level wages do not respond to industry demand conditions; (2) at the industry level, the employment of young workers responds more to demand shifts than does the employment of experienced workers; and (3) the postdisplacement wages of displaced workers are strongly affected by demand in their predisplacement industries. These findings are consistent with a model in which worker's investments in industry‐specific skills pose a barrier to interindustry labor mobility and wages do not respond to spot labor market conditions.