The mean-variance portfolio model of Markowitz and Tobin has been the most substantive contribution to the theory of individual asset demand under uncertainty, in terms of comparative static results and testable implications. Although subject to a number of criticisms at the axiomatic level, it still stands as the classic portfolio model. The general equilibrium extension of the Tobin-Markowitz model due to Sharpe [14], Lintner [9], and Mossin [11] has led to important propositions about the nature of risk in general equilibrium and its effect on the pricing of assets, and the model has subsequently been subjected to extensive empirical testing. It has been used for a variety of purposes in areas ranging from corporate-finance theory to the debate on the social discount rate.

Consider an industry with many potential firms, each firm characterized by a cost structure with large fixed costs. In determining the socially optimal resource allocation, the number of firms is a crucial variable. In this paper a relationship is established between pure profits with a fixed number of firms and the desirability of increasing or diminishing the number of firms in the industry. Both first-best and nonnegative profit-constrained, second-best cases are considered. The results are related to price and entry regulation in such an industry.

The use of the compensation principle in cost-benefit analysis as a means of separating the efficiency and distributional effects of a project is theoretically suspect for a number of reasons. One difficulty is the lack of a necessary and sufficient criterion for determining that a compensation test is passed in an economy where consumers' and producers' prices are not the same. For this paper we establish such a criterion for projects that are small in the differential sense. The criterion requires the calculation of a set of "shadow prices" which is a weighted average of the consumers' and producers' price vectors.

The use of the compensation principle in cost-benefit analysis as a means of separating the efficiency and distributional effects of a project is theoretically suspect for a number of reasons. One difficulty is the lack of a necessary and sufficient criterion for determining that a compensation test is passed in an economy where consumers' and producers' prices are not the same. For this paper we establish such a criterion for projects that are small in the differential sense. The criterion requires the calculation of a set of "shadow prices" which is a weighted average of the consumers' and producers' price vectors.

An applied general equilibrium model of a small open economy is described. The model incorporates industrial organization structures heretofore absent from applied G.E. trade models. Scale economies, product differentiation and explicit price setting are novel model features. Some illustrative results for trade liberalization policies are given for a 1976 Canadian data set and contrasted with a conventional constant returns neoclassical model on the same data set. Results from the alternative models differ significantly.

Russell Davidson, Richard Harris; Non-Convexities in Continuous Time Investment Theory, The Review of Economic Studies, Volume 48, Issue 2, 1 April 1981, Pages