Knowledge that Transforms

By the time children enter first grade, significant differences in verbal and mathematical competence exist among them.'These differences reflect variations in (1) inherent ability, and (2) the amounts of human capital acquired before the children reach the age of six.2The stocks of acquired human capital reflect, in turn, varying inputs of time and other resources by parents, teachers, siblings, and the child.The process of acquiring preschool human capital is analogous to the acquisition of human capital through schooling or on-the-job training.Assuming a constant rental rate for human capital, earnings can be interpreted as a measure of capital stocks at later ages.The IQalso can be interpreted as such a measure of human capital stocks.It is related to some commonly used inputs of human capital, for it is well known that measured IQ is not independent of years of schooling acquired before the age of testing.At preschool ages IQmeasures should be related to human capital inputs in early childhood as well as to inherent genetic ability.Viewing measured ability as an index of the stock of human capital puts a different light on earnings functions which include ability and schooling.If contemporaneous ability and schooling measures are used to predict earnings (as itt Hansen, Weisbrod, and Scanlon 1970), it is not surprising to find that earnings are more closely related to an ability measure, which

The assumption that government bonds are perceived as net wealth by the private sector is crucial in demonstrating real effects of shifts in the stock of public debt. In particular, the standard effects of "expansionary" fiscal policy on aggregate demand hinge on this assumption. Government bonds will be perceived as net wealth only if their value exceeds the capitalized value of the implied stream of future tax liabilities. This paper considers the effects on bond values and tax capitalization of finite lives, imperfect private capital markets, a government monopoly in the production of bond "liquidity services," and uncertainty about future tax obligations. It is shown within the context of an overlapping-generations model that finite lives will not be relevant to the capitalization of future tax liabilities so long as current generations are connected to future generations by a chain of operative intergenerational transfers (either in the direction from old to young or in the direction from young to old). Applications of this result to social security and to other types of imposed intergenerational transfer schemes are also noted. In the presence of imperfect private capital markets, government debt issue will increase net wealth if the government is more efficient, at the margin, than the private market in carrying out the loan process. Similarly, if the government has monopoly power in the production of bond "liquidity services," then public debt issue will raise net wealth. Finally, the existence of uncertainty with respect to individual future tax liabilities implies that public debt issue may increase the overall risk contained in household balance sheets and thereby effectively reduce household wealth.

I. The problem, 1. — II. The bonus as a function of profit and sales, 4. — III. The iterative process, 9. — IV. A practical look, 12. — Mathematical note, 15.

l. INTRODUCTIO NEfficiency principles are no guide to optimal tax rates when income redistributio n is the purpose of that taxation.Optimal tax rates for redistributio n must be obtained through maximizatio n of a social welfare function constrained by technology and by what Pigou called the "announcem ent effects" of the tax."Announcem ent effects" refer to the alterations in the economic behavior of individuals induced by the tax scheme, which appear as constraints upon collective choice because they arise from individual utility-maxi mizing behavior that society cannot or will not inhibit.When redistribution is accomplishe d through lump sum transfers, announceme nt effects are assumed to be nil, and the problem of the distribution branch of government 1 -equating everyone's marginal social utility of incomeis transparent.Mirrlees 2 has attempted an analytic solution for the optimal income tax by maximizing a utilitarian social welfare function constrained to allow for the incentive effects of the tax upon work effort.Phelps 3 and Sheshinski 4 repeated this calculation for the Rawls social welfare function, and Fair 5 did a similar analysis for a social welfare function written as the product of individual utilities.This article develops a simulation technique for calculating the optimal income tax under any social welfare

Introduction, 98. — I. The minimum-wage economy, 99. — II. International equilibrium, 109. — III. Summary, 115.

I. Introduction, 194.--II. The model, 196.--III. The market equilibrium, 205.--IV. Optimal allocation of labor and determination of urban wage level, 207.--V. Wage subsidies, 214.--VI. Wages and shadow price of labor in the public sector, 218.--VII. Urban income taxes, 220.--VIII. Concluding comments and summary, 222.--Appendix: "nominal" and "expected" urban wages and the unemployment rate, 223.

Abstract The article reports that the use of the entropy measure must be a function of its context and that the meaning attributable to the entropy should be determined by the nature of the input data which are used in computing the measure. Thus, the same measure of the entropy could be used to measure uncertainty, ignorance, or information, and to measure decomposition. The latter is obtained when proportions are substituted for probabilities. The results of this study also suggest that the indiscriminant utilization of the entropy in accounting measurements should be a matter of concern. Finally, there is a great need in accounting to measure the level of data aggregation which would be considered optimal. Although the results of this research did not support the entropy for fulfilling such a need, they did not preclude the possibility of the usefulness of the measure given the appropriate formulation and decision situation. The entropy may only be used to make a choice from among competing sets, which are acceptable methods of aggregation under the prevailing accounting conventions.

Massachusetts Institute of Technology. Dept. of Economics. Thesis. 1971. Ph.D.