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

Drawing up a medium term economic plan usually involves a complicated interaction between the planning ministry and representatives of the various industries, firms, or departments. Each economic agent works in his own environment with at best incomplete information about the other agents. Yet somehow the economic system as a whole is typically able to move toward an operational plan which is satisfactory even when judged by the criterion of complete information. This paper examines the properties of one particular theoretical model of economic planning in which the center transmits information via a system of quotas.

The choice of an overall discount rate for climate change investments depends critically on how different components of investment payoffs are discounted at differing rates reflecting their underlying risk characteristics. Such underlying rates can vary enormously, from ≈ 1 percent for idiosyncratic diversifiable risk to ≈ 7 percent for systematic nondiversifiable risk. Which risk-adjusted rate is chosen can have a huge impact on cost-benefit analysis. In this expository paper, I attempt to set forth in accessible language with a simple linear model what I think are some of the basic issues involved in discounting climate risks. The paper introduces a new concept that may be relevant for climate-change discounting: the degree to which an investment hedges against the bad tail of catastrophic damages by insuring positive expected payoffs even under the worst circumstances. The prototype application is calculating the social cost of carbon. (JEL C51, Q54, Q58)

The Stern Review calls for immediate decisive action to stabilize greenhouse gases because “the benefits of strong, early action on climate change outweighs the costs.” The economic analysis supporting this conclusion consists mostly of two basic strands. The first strand is a formal aggregative model that relies for its conclusions primarily upon imposing a very low discount rate. Concerning this discount-rate aspect, I am skeptical of the Review's formal analysis, but this essay points out that we are actually a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged. The Review's second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertainties that are difficult to quantify. Concerning this uncertainty aspect, I argue that it might be recast into sound analytical reasoning that might justify some of the Review's conclusions. The basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consumption smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings.

Journal Article Prices vs. Quantities Get access Martin L. Weitzman Martin L. Weitzman Massachusetts Institute of Technology Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 41, Issue 4, October 1974, Pages 477–491, https://doi.org/10.2307/2296698 Published: 01 October 1974

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 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.