This paper will exploit the structural similarity of the two period overlapping generations model and the dynamic capital accumulation model to provide a pricing characterization of Pareto optimal distributions. With some very simple structural interpretations, the techniques which were developed to characterize efficient capital accumulation, apply directly to the overlapping generations model of the most general form; where generations consist of heterogenous consumer types of varying lifespans.

For a principal with many agents, rank-order contracts remain incentive compatible even when information about agents' performance is known only to the principal because the total payment from the principal to all agents taken together is independent of the outcome that occurs. Under wider conditions than those considered previously in the literature, there is shown to exist a rank-order contract equivalent, exactly or approximately, to any (nonlinear) piece-rate contract. Under those conditions, therefore, results that depend on the unenforceability of piece rates under such asymmetric information disappear if rank-order contracts can be used.

This paper re-examines the case of Citizens Utilities, a firm with one class of common stock which pays stock dividends and one which pays taxable cash dividends. John Long's (1978) study of the two shares' relative prices suggests that investors may prefer cash dividends to equal-sized stock dividends. This paper finds that the cash dividend share's ex-day price decline is less than their dividend payment. Stock dividend shares fall by nearly their full dividend. The disparity between ex-day dividend valuation and the observed prices of the two shares is inconsistent with some explanations of the demand for cash dividends.

Previous static analyses of the work disincentive effects of welfare programs are extended to a dynamic context. Using a sample of continuous longitudinal labor market histories, estimates are derived for welfare-nonwelfare differences in labor market flows among the states of employment, unemployment, and nonparticipation. The estimates are used to identify the main sources of the lower employment and labor force participation rates and higher unemployment rate of welfare recipients. The findings indicate that welfare programs have substantial effects on virtually every labor market transition examined but that the primary source of the static work disincentive effect is slower entry into employment.

Among fraternal pairs from the Wisconsin Longitudinal Study_(1980), the authors model the effects of measured and unmeasured family back ground factors, mental ability, and schooling on occupational status and earnings. The models are estimated from incomplete data with corrections for measurement error, and they permit direct comparisons of within- and between-family regressions. The authors find no evidence that the effects of family background lead to a bias in the effect of mental ability on schooling or in the effects of schooling on occupational status or earnings.

Among fraternal pairs from the Wisconsin Longitudinal Study, we model the effects of measured and unmeasured family background factors, mental ability, and schooling on occupational status and earnings. The models are estimated from incomplete data with corrections for measurement error, and they permit direct comparisons of within- and between-family regressions. We find no evidence that the effects of family background lead to a bias in the effect of mental ability on schooling or in the effects of schooling on occupational status or earnings. Family background does have large independent effects on ability, schooling, and, to a lesser degree, socioeconomic attainment.

[This paper amends the Aumann and Kurz single commodity "Power and Taxes" model in several ways: A linear production technology is assumed, incentive effects are introduced, and tax schedules are restricted to be linear. A theorem is stated which characterizes the linear tax schedules which are the NTU solutions of the model. The solutions of an example are computed, providing a perspective on a result of the Aumann and Kurz model that equilibrium marginal tax rates are not less than 50 per cent. For this example, equilibrium marginal tax rates are less than 50 per cent; incentive effects appear to be responsible for the low tax rates.]

[In this paper several results are established which provide for the consistent estimation of macroeconomic effects using cross-section data, for general assumptions on the movement of the population distribution over time. We show that macroeconomic effects are always consistently estimated by linear instrumental variables coefficients, where the instruments are determined by the form of distribution movement. This leads to a natural way to assess the biases in OLS coefficients as estimators of macroeconomic effects, provides a nonparametric macroeconomic interpretation of linear instrumental variables coefficients when the true microeconomic behavioral model is unknown, and gives a nonparametric interpretation of standard regression decomposition statistics such as R extasciicircum2 relative to the information costs of nonlinearities in aggregation. All of the results are valid without imposing any testable restrictions on the cross-section data.]

The current (Summer 1985) world oil price, and changes since 1973, cannot possibly be explained by scarcity, or by changes in scarcity. The level and dispersion of marginal costs, and the pattern of investment behavior since 1973, prove that supply is being restricted to maintain the price, which can be maintained so long as the low-cost oil is dammed up. If the dam breaks, so will the Statement of the Problem M X ANY public and private investment decisions, affecting a significant fraction of world income, depend on the expected price of crude oil. Since the price explosion of 1973, and especially since the second explosion of 1979, there has been a wide consensus: Oil has become, and will continue to be, in increasingly short supply for the rest of the century. Further price increases are necessary and inevitable. We need cite only a fraction of even the post1978 predictions of rising oil prices, which were and are used as a basis for private and public investment, and taxation. (U.S. CIA, 1979, p. iii; Fesharaki, 1980; U.S. Senate, 1982; OGJ, 1982, pp. 118, 210; OGJ, 1984a, p. 32; Canada, 1980, 1981a, 1981b.) The price decline since 1980-81 has not weakened the consensus, but has lowered the rate of expected increase. Prices are expected to be weak or stable for a few years, then begin the inexorable increase. (EMF 6, 1982; US. GAO, 1983; World Bank, 1983, p. 28; and 1985, pp. 37-38; New York Times, 1984; DOE, 1985; Erickson, 1985; Saunders, 1984.) The oil-company acquisitions of 1983-84 were obviously based on the consensus view. An expert panel convened by the CIA in April 1985, like one convened by the California Energy Commission, expected that prices would rise, at an increasing rate, starting around 1990. (Wall Street Journal, 1985; California, 1985.) The International Energy Workshop of the International Institute of Applied Systems Analysts compiled a consensus forecast in December 1981, July 1983, and July 1985. The first consensus was that the price would nearly equal $60 in 1990; the most recent has it approaching that number only by 2010. A twenty-year postponement is no small change, of course. But in each case, the consensus was that the current price of oil was approximately equal to, or mildly above, the scarcitydetermined price. In the long run, it would have to rise above the current level. (Manne and Nordhaus, 1985; it should not be assumed that they themselves share the consensus, or that they do not.) The Economic Theory of the Consensus In general, absent monopoly restriction of output, a rising price registers increasing scarcity as consumption puts increasing strain upon productive resources. Some formal oil price models are explicitly competitive. (Mead, 1979, 1985; Cremer and Salehi-Isfahani, 1980; MacAvoy, 1982; Roumasset et al., 1983). More often, competition is an implicit major premise. Prices are said to reflect not monopoly but forces or deeper forces. Or it is said that if the cartel of producing nations (not the unimportant organization OPEC) disappeared, oil prices would not be strikingly different from what they are. Or that discoveries had been shrinking, and demand increasing up to 1973, hence prices had to rise, so at most the cartel pushed them up a bit faster. Other models are non-committal, but implicitly competitive, in that they have price driven by total consumption pressing against reserves. Figure 2 does not, of course, disprove this proposition but it does suggest that if scarcity pushed up prices, scarcity must have been very sudden and strong. There have also been attempts to model the oil market as a monopoly, in the generic sense: a few Received for publication June 24, 1985. Revision accepted for publication November 19, 1985. * Massachusetts Institute of Technology. The research for this paper has been supported by the National Science Foundation, grant SES-8412971, and by the Center for Energy Policy Research of the M.I.T. Energy Laboratory. I am obliged to Michael C. Lynch for valuable assistance. For many helpful comments and criticisms, I am indebted to Paul G. Bradley, Harry G. Broadman, Richard L. Gordon, William W. Hogan, Gordon M. Kaufman, Stephen Martin, James W. McKie, Joe Roeber, James L. Smith, G. Campbell Watkins, and to two anonymous referees. But any opinions, findings, conclusions or recommendations expressed herein are those of the author, and do not necessarily reflect the views of the NSF or any other person or group. Copyright ? 1986 [ 387 ] This content downloaded from 157.55.39.17 on Wed, 31 Aug 2016 04:37:42 UTC All use subject to http://about.jstor.org/terms 388 THE REVIEW OF ECONOMICS AND STATISTICS sellers restraining output and raising prices. (For an excellent survey, see Gately (1984).) But these models are also based on rising scarcity. They aim to show the difference between the competitive response and the monopoly response. Perhaps, given the increasing scarcity inherent in an exhaustible natural resource... there is a very limited scope for the monopolist ... indeed, under the natural 'first approximation' of constant elasticity demand schedules, with zero extraction costs, monopoly prices and competitive equilibrium prices will in fact be identical (Stiglitz,