I introduce and study dynamic persuasion mechanisms. A principal privately observes the evolution of a stochastic process and sends messages over time to an agent. The agent takes actions in each period based on her beliefs about the state of the process and the principal wishes to influence the agent’s action. I characterize the optimal persuasion mechanism and show how to derive it in applications. I then consider the extension to multiple agents where higher-order beliefs matter. (JEL D82, D83)

Affirmative action policies have come increasingly under attack in recent years. Both in the courts and in public discourse questions have been raised about the legitimacy of government efforts on behalf of blacks and other racial minorities.' The criticism seems to have two central themes. First, it is argued that those policies which have been tried have not had a noticeable effect on the economic standing of minority group members. (See James Smith and Finis Welch.) They thus constitute yet another example of costly but ineffective government regulation, according to this view. The second theme strikes more deeply at the foundation of these policies. Its adherents argue that even if effective programs could be designed, they ought not be implemented. There have been philosophical and empirical arguments advanced to support this conclusion. Essentially, the philosophical argument states that it is wrong for government to intervene on behalf of certain groups (and thus, necessarily, at the expense of others); this amounts to reverse discrimination-a visiting of the fathers' sins upon the sons.2 The empirical argument concludes that, moral issues aside, such intervention is unwarranted because the consequences of historical discrimination have been (or will soon be) largely eliminated. (See B. Wattenberg and W. Wilson.) In this essay I would like to offer a defense of affirmative action policies against the second of these thematic criticisms. That is, I shall hold in abeyance questions concerning the efficacy of particular programmatic efforts, and concentrate instead on whether government should in principle be taking actions to facilitate economic progress for minority group members. This would seem to be the logical first step in constructing an intellectual basis for affirmative action policies. Of course, philosophers and legal scholars interested in theories of distributive justice have devoted considerable attention to this question in the past ten years. (See R. Dworkin and T. Nagel.) The approach adopted here differs from these earlier efforts in two ways. First, I shall endeavor to meet the empirical argument directly, by pointing to evidence which suggests that significant racial economic disparity persists. Secondly, I will treat the philosophical argument in a manner in keeping with the economist's traditional approach to the question of the desirability of laissez-faire. This approach is based upon the concept of failure. Intervention is favored over laissez-faire when, because of some externality, the outcome is inefficient. Below I argue that an analogous market failure contributes to the maintenance of economic inequality between racial groups in our society. As such, intervention which redresses this inequality is warranted.

In analyzing deterrence of large-scale entry, two classes of entry barriers may be distinguished. An innocent entry barrier is unintentionally erected as a side effect of innocent profit maximization. In contrast, a strategic entry barrier is purposely erected to reduce the possibility of entry. Two types of innocent barriers may also be distinguished. A postentry absolute advantage has the property that, if entry did occur, the established firm would be at a profit advantage over the entrant. Examples are superior technology or product design, patents, and lower input prices. A preentry asymmetry advantage arises from the fundamental preentry asymmetry between established firm and potential entrant. Before the entrant makes his entry decision, the established firm has already committed resources. This prior existence gives first-move advantages. The preentry asymmetry is independent of symmetry or asymmetry in the rules (the equilibrium concept) of the postentry game that might ensue; even if the postentry game will be played according to Nash-Cournot or entrant-as-leader rules, the preentry leadership

This paper is motivated by a sense that we as a profession need to understand, much better than we now do, how the world capital market works. We seem to be genuinely schizophrenic in the ways we build models-many of them are closedeconomy models in which the rest of the world does not even appear, yet others of them are models of the small, open economy in which hardly any degree of freedom is left for economic policy to influence events. Lying behind the schizophrenia is, I believe, a genuine ignorance on our collective part of how the world capital market

The work on the Phillips curve has been predominantly empirical, but policy intervention designed to decrease both inflation and unemployment requires a better theoretical understanding of the determinants of this relation. This paper attempts to sketch out the basic labor market relationships that appear to the author to account largely for the Phillips relation2 and then to consider the kinds of policy measures that this analysis suggests are relevant for moving the Phillips curve. The basic issue involved in the stability or instability of the Phillips curve when the inflation rate is constant is explored with a simple model in the appendix. The emphasis in this paper is on the atomistic operation of the labor market because it appears sufficient to generate the Phillips relation, but we do not deny that union bargaining and price dynamics may also be involved to some degree. This paper concentrates on conceptual issues. Continuing research will be devoted to the statistical measurement of relationships.