I would like to extend my thanks to my colleague, Harry G. Johnson, for hi8 helpful comments, to Daniel Wisecarver, for help extending well beyond the normal call of duty for a research assistant, and to Rudiger Dornbusch and Robert Gordon for valuable suggestions given after the first draft of this paper was completed. Needless to add, they do not bear any responsibility for such flaws or deficiencies as may remain in this paper.

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

In the cost-benefit analysis of commodity taxes or subsidies, distributional weights complicate the standard textbook "triangle analysis." Net benefits are maximized with optimal subsidies in some circumstances, optimal taxes in others. Demand and supply elasticities play important roles in determining these weighted-welfare effects of commodity taxation. I then explore how to use distributional weights (a) to analyze investment projects and (b) to determine an optimum income-tax structure. In all these applications, the use of distributional weights is shown to have very strong and (to many people) disquieting implications. A final section explores alternative "solutions" to these difficulties.