Knowledge that Transforms

IF EACH AUTOMOBILE PAYS AVERAGE RATHER THAN MARGINAL SOCIAL COST OF A HIGHWAY TRIP, THERE WILL BE TOO MUCH AUTO TRAVEL DURING PERIODS OF CONGESTION. BY USING ONLY INPUTS TAXES, ADJUSTMENTS IN FARES ON ALTERNATIVE TRANSIT MODES, AND INCOME REDISTRIBUTION, RESOLVE THIS PROBLEM IN TWO WAYS: COMPLETE (FIRST-BEST) OPTIMALITY IN PEAK PERIODS AND SECOND-BEST OPTIMALITY IN OFF-PEAK PERIODS; OR FIRST-BEST OPTIMALITY IN OFF-PEAK PERIODS AND SECOND-BEST OPTIMALITY AT THE PEAK. IT IS SHOWN THAT WITH CONGESTION INTERDEPENDENCE, AS WHEN AUTOMOBILES AND BUSES CONTRIBUTE TO ONE ANOTHERS CONGESTION, THE SECOND-BEST PEAK SOLUTION CAN WARRANT AN URBAN BUS TRANSIT FARE BELOW AVERAGE COST CALLING FOR A SUBSIDY. AND UNDER A FIRST-BEST PEAK SOLUTION, INVOLVING BOTH AN INPUTS TAX AND A TRANSIT FARE ADJUSTMENT, A COMPANION SECOND-BEST OFF-PEAK TRANSIT FARE IS SHOWN THAT WILL MITIGATE THE (THEN INAPPROPRIATE BUT STILL EFFECTIVE) INPUTS TAX. /AUTHOR/

[The paper discusses the problem of pooling cross-section and time-series data in the framework of likelihood functions and the associated posterior distributions and shows how this analysis can be useful in deciding whether or not to pool.]

[This paper is an attempt at overcoming various logical inconsistencies which have been found in the Leontief dynamic model. It is based on an interpretation of the Leontief model in the framework of a general model of capital accumulation of the Walras-Hicks type. A particular case of such a model, corresponding to the hypothesis of static expectations, turns out to be the competitive capital theory underlying the Leontief model. This theory, capable of defining a meaningful equilibrium even when the Leontief equilibrium based onfull employment of all stocks is not possible, allows us to overcome the difficulty in retaining the economic interpretation of solutions. In the terminology of Hicks (Capital and Growth), this theory solves the problem of the traverse between two full employment equilibria. It will be evident, contrary to current opinion, that output levels and prices are indissolubly connected also inside the Leontief model. Finally, Solow's prices, which give rise to the striking "dual stability paradox," will be discussed. The ultimate reason for such a paradox will be identified as an intrinsic inconsistency in the assumption of correct expectations on which these prices are based.]