Analyzes the issues of cross-subsidization in public enterprises with economies of joint production. Incentives to competitive entry and subsidy-free prices; Relation of welfare maximizing prices to subsidy-free prices; Price elasticity of demand; Costs of alternative means of supply; Choice between protected monopoly and open competition.
object for economists' research is which is, by definition, a social organization, an interaction among separate choosing entities. I return deliberately to this element in our primer, because I think that it has been too often overlooked. By direct implication, the ultimate object of our study is not itself a choosing, maximizing entity. The economy does not maximize, and we may substitute polity here without change in my emphasis. No one could quarrel with these simplistic statements. inference must be, however, that there exists no one person, no single chooser, who maximizes for the economy, for the polity. To impose a maximizing construction on the models that are designed to be helpful in policy is to insure sterility in results. Where did economics, as a discipline, take the wrong turn? My own suggestion is that Lionel Robbins marks a turning point. His book defined economic as the location of maxima and minima. Almost simultaneously with this, the Edward H. Chamberlin and Joan Robinson books marked a turning inward, so to speak, a shift toward the maximizing problem of a specific decision-making entity. economics of the firm was born, to be followed by the Hicksian elaboration of the economics of consumer choice. Paul Samuelson put this all together in his Foundations of Economic Analysis. Importantly, he extended the maximizing construction to welfare economics, extolling the virtues of A. Bergson's social welfare function as the tool through which such extension was made possible. For a quarter of a century, we have witnessed many variations on this theme, with economists hither and yon maximizing objective functions subject to specific constraints. I should not imply that the maximizing models have held monolithic dominance. institutional economists, and their successors, have continued their sometimes inarticulate critique of economic theory. Frank Knight, and some of his students, continued to lay stress on the social-organization aspects of the discipline. Game theory, in its solution rather than its strategy search, offered partial redirection of emphasis. More importantly for my purposes, public choice theory emerged as the positive theory of politics, a theory that necessarily treats individual decision takers as participants in a complex interaction that generates political outcomes. But let me return to mainstream efforts of economists in the years since World * University Professor and General Director, Center for Study of Public Choice, Virginia Polytechnic Institute and State University. author is indebted to Amoz Kats and Gordon Tullock for helpful comments.
Section I introduces the material. In section II a model is developed which explores the impact of input-quality uncertainty on factor demand from which is derived a rationale for the use of devices which segment the population into classes differing in their "skill" distribution parameters. The model, however, ignores the motivation of individuals to acquire the characteristics upon which firms screen, in particular, the greater incentive for the more productive to purchase the screen. This aspect has been explored by Spence (1973) and Stiglitz (1973) and will not be explicitly considered here. In section III the social value of schooling's informational context is derived within the preceeding framework. Section IV describes some empirical attempts to isolate the productivity and identification effects. The last section summarizes the paper.
This report examines a class of mean-risk dominance models for investment and capital budgeting situations in which risk is associated with returns that fall below a specified target return. The model is offered as a partial reconciliation among viewpoints that have been associated with a large number of different models for choice in risky decision situations, including various parametric models, expected utility models, and stochastic dominance models. It is argued that the specific type of model examined has promising computational possibilities, and that it has a fair degree of compatibility with expected utility, stochastic dominance, and with the primary concerns expressed by decision makers in investment situations.