The problem of how to determine the appropriate shadow prices of primary inputs for the evaluation of new projects in an open economy subject to distortions is discussed. These shadow prices are compared with the corresponding free-trade and actual market prices. It is shown that if the distortion is an output subsidy or tax on existing production, the optimal intervention for new projects is subsidies and taxes on primary factors equal to the difference between the shadow prices and the market prices and not an output subsidy or single shadow exchange rate to provide offsetting protection for the new project. It is also shown that projects viable under free trade may reduce welfare if they are introduced into a distorted economy, while projects that would increase welfare in these circumstances might not be viable under free trade.

The problem of how to determine the appropriate shadow prices of primary inputs for the evaluation of new projects in an open economy subject to distortions is discussed. These shadow prices are compared with the corresponding free-trade and actual market prices. It is shown that if the distortion is an output subsidy or tax on existing production, the optimal intervention for new projects is subsidies and taxes on primary factors equal to the difference between the shadow prices and the market prices and not an output subsidy or single shadow exchange rate to provide offsetting protection for the new project. It is also shown that projects viable under free trade may reduce welfare if they are introduced into a distorted economy, while projects that would increase welfare in these circumstances might not be viable under free trade.

Labor allocation and wage-scale formation are studied in the context of competitive hierarchic firms. We show that (1) the wage per effective laborer and his quality increase with the hierarchical position of the employee, and (2) up to a point, the imposition of a minimum wage for production labor increases the quality and quantity of production workers and reduces the wage, quality, and number of supervisors. These results help to explain the skewness of income distribution, and the wage differentials across layers which are inexplicable in terms of differences in labor quality and difficulty of tasks.

Labor allocation and wage-scale formation are studied in the context of competitive hierarchic firms. We show that (1) the wage per effective laborer and his quality increase with the hierarchical position of the employee, and (2) up to a point, the imposition of a minimum wage for production labor increases the quality and quantity of production workers and reduces the wage, quality, and number of supervisors. These results help to explain the skewness of income distribution, and the wage differentials across layers which are inexplicable in terms of differences in labor quality and difficulty of tasks.