Knowledge that Transforms

The paper by Walter Hettich and Stanley Winer (1988) on the economic and political structure of tax analysis is an important contribution, introducing a refreshingly positive approach into an analytical tradition where normative judgments have long been overly important. But Hettich and Winer pursue the logic of their approach only part of the way. In this comment, I would like to extend the Hettich-Winer (HW) positive approach to what I consider to be its logical conclusion, which should allow for a more complete analysis that avoids some possible methodological and ethical biases. The HW model features voter support of a government where support is based positively upon the services received from a pure public good and negatively by tax costs including deadweight loss. Tax costs are affected by the choice of tax base, and different tax bases may involve different behavior responses (to avoid taxes) by different voters. The government wishes to maximize expected support, written as

Abram Bergson (1987a) has recently attempted to show that socialist economic systems are underproductive and underefficient.' Close evaluation, however, reveals that this conclusion is too sweeping. Using the USSR as a case in point, this comment demonstrates that Soviet productivity growth using Bergson's data (1987b) and methods (Bergson, 1978) matched Western Europe's and exceeded the U.S. achievement in 1960-75. Moreover the pronounced duality between Soviet industrial and nonindustrial productivity discovered by Bergson for 1960 appears to have increased thereafter through 1975, according to the statistics of the United States Central Intelligence Agency (CIA) similar to those employed in Bergson (1987b). This duality is confirmed further by a separate calculation of comparative machine-building productivity. Using CIA sector of origin data that are consistent with Bergson's counterpart end use data (Imogene Edwards et al., 1979) and his factor share weights (Bergson, 1978), Soviet machine-building productivity is calculated to be 79 percent of the American level in 1975 (Table 1). Revised data for the same year, published by the CIA in 1982, raise this figure to 88 percent. These findings clearly suggest that socialist economies need not be comprehensively underproductive (underefficient). Although they do not dispose of many issues of legitimate controversy2 and pose serious questions about the potential shortcomings of the adjusted data on which Bergson relies, they do demonstrate nonetheless that the positivist debate over the comparative productivity (efficiency) of socialism even in the Soviet case still cannot be completely laid to rest.3

When the asset market is incomplete, the role of prices extends beyond conveying the aggregate scarcity of commodities. In conjunction with the asset structure, they determine the attainable reallocations of revenue. This affects nontrivially the existence, optimality, and determinacy of competitive equilibrium allocations, as well as the revelation of information by prices. Further, it accounts for diverse phenomena, among them the preservation of memory in macroeconomics aggregates. A simple exchange economy extends over two periods. Uncertainty, indexed by finitely many states of nature, s = 1,..., S, is resolved in the second period. Commodities, 1 = 1, .. ., L, are traded in spot markets in the second period after the uncertainty has been resolved and assets have paid off. A commodity bundle is x = ( . . ., x(s), . . . ) = (...,x1(s) ...). Commodity prices are p = (-,P(s) ....) (. (---, Pi(s), -.). Assets, a= 19 . . ., A, are traded in the first period and pay off in the second. A portfolio is y = (..., Ya. ). Assets are real: the payoff of an asset is a commodity bundle ra = (..., ra(s), .. .). At commodity prices p, the payoff of an asset, more precisely the payoff of an asset in terms of revenue, is

In On the Basing-Point System, Bruce Benson, Melvin Greenhut, and George Norman (1990)1 properly correct a misunderstanding by Jacques Thisse and Xavier Vives (1988)2 concerning my 1982 paper on basing-point prices. But BGN then take exception with several of the conclusions I had reached, or that they thought I had reached. Although I have insufficient space to deal with all the points they raise, I will address the most important ones. In 1981 most economists believed that a model of profit-maximizing basing-point pricing would have to assume collusion. My model, as BGN seem to agree, showed that it need not; atomistic competition at one production site accompanied by local monpolies elsewhere may lead to basing-point pricing and freight absorption without collusion.3 Conversely, TV showed that the practice as observed empirically will not arise if all production sites contain noncooperative local monopolies. BGN establish yet another important theoretical result-noncooperative oligopoly at one site could generate the f.o.b. prices (or f.o.b. plus transport) that, in my model, led local monopolies elsewhere to adopt freight-absorbing basing-point prices. The three models would seem to be complements. I. A Paradox