Journal Article A Model of the Demand for Money by Firms: Comment Get access Martin Weitzman Martin Weitzman Yale University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 82, Issue 1, February 1968, Pages 161–164, https://doi.org/10.2307/1882250 Published: 01 February 1968

There is a long-standing trade-off in bioculture between concentrating on high-yield varieties and maintaining sufficient diversity to lower the risks of catastrophic infection. The paper uses a simple ecology-based model of endogenous disease to indicate how a local decision to plant more of a widely grown crop creates negative externalities by increasing the probability that new pathogens will evolve to attack the crop globally. Society's basic issue concerns where to locate on an efficiency frontier between economic profitability and a standard formula for ecological entropy-proved here to be a rigorous measure of “generalized resistance” to crop-ecosystem failure.

Job market segmentation refers to the idea that there tends to be a correlation among high wages, high productivity, high capital intensity, high value added, few quits relative to layoffs, and low labor turnover. This paper develops a model of wage dispersion and job market segmentation based on the very sparse assumption that the only departure from a strictly orthodox neoclassical world consists of wages being sticky in the short run. Implications of the model are explored and discussed.

A canonical price-normalized form is proposed as a generalization of the ordinary consumer's surplus expression commonly used to evaluate changes in economic welfare. This familiar-looking formula, it is proved, can be rigorously interpreted as representing the first- and second-order terms of a Taylor-series expansion for the equivalent-variation or willingness-to-pay function of a single consumer. In principle, the lowly consumer's surplus triangle-and-rectangle methodology can be rigorously defended as an exact approximation to a theoretically meaningful measure as long as prices are appropriately deflated. The appropriate price deflator is derived, and some implications are discussed.

A so-called "incentive contract " is a linear payment schedule, where the buyer pays a fixed fee plus some proportion of audited project cost. That remaining proportion of project cost borne by the seller is called the "sharing ratio. " A higher sharing ratio creates more incentive to reduce costs. But it also makes the agent bear more cost un-certainty, requiring as compensation a greater fixed fee. The tradeoff between incen-tives and risk in determining the sharing ratio of an efficient contract is the central theme of the present paper. A formula is derived that shows how the optimal sharing ratio depends on such features as uncertainty, risk aversion, and the contractor's ability to control costs. Some numerical examples are calculated from the area of defense contracting. SUMMARY This paper analyzes the widely used "incentive contract"—a linear payment schedule where the buyer pays a fixed fee plus some proportion of project cost. The remaining proportion of project cost borne by the seller is usually called the "sharing ratio. " A higher

I. Introduction, 156. — II. A formulation of the problem, 156. — III. What is net national product? 159. — IV. Proof of the main proposition, 160. — V. Unanticipated technological change: an application, 161.

I. Introduction, 262. — II. The economic environment, 263. — III. Mechanics of planning, 265. — IV. Material reserves, 266. — V. Plan formulation and material balances. 267. — VI. Effects of uncertainty, 268. — VII. Plan execution and the costs of incorrect planning, 270. — VIII. Short- and long-term plans, 272. — IX. Optimal planning and dynamics programming, 273. — X. Sensitivity analysis, 276. — XI. Concluding remarks, 278. — Appendix: Proof of the form of an optimal policy, 278.