We present a model in which a government's current capital-control policy signals future policies. Controls on capital outflows evolve in response to news on technology, conditional on government attitudes toward taxation of capital. When there is uncertainty over government types, a policy of liberal capital outflows sends a favorable signal that may trigger a capital inflow. This prediction is consistent with the experience of several countries that have liberalized their capital accounts.

We propose and solve an optimizing model which explains counterintuitive effects of fiscal policy in terms of expectations. If government spending follows an upward-trending stochastic process which the public believes may fall sharply when it reaches specific "trigger" points, then optimizing consumption behavior and simple budget-constraint arithmetic imply a nonlinear relationship between private consumption and government spending. This theoretical relation is consistent with the experience of several countries.

When a stabilization has significant distributional implications (e.g., tax increases to eliminate a large budget deficit), socioeconomic groups may attempt to shift the burden of stabilization onto other groups. The process leading to stabilization becomes a "war of attrition," each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden. We solve for the expected time of stabilization in a model of "rational" delay and relate it to several political and economic variables. We motivate this approach and its results by comparison to historical and current episodes.

How does the organization of rural land and labor markets affect capital accumulation and long-run aggregate income in the development process? We show that in a simple dual economy model capital accumulation and aggregate income will be lowest when both factor markets in agriculture are fully competitive, higher when land is not traded but the labor market is competitive, and may be highest in the absence of competitive markets in both factors in the agricultural sector.

Standard one-sector growth models often have the counterfactual implication that economies with access to similar technologies will converge to a common balanced growth path. We propose an elaboration of the Diamond model that permits multiple, locally stable stationary states. This multiplicity is due to increasing social returns to scale in the accumulation of human capital.

The authors consider how the organization of rural markets will affect capital accumul ation and long-run aggregate income in the development process. They show that in a simple, dual economy, overlapping-generations model, c apital accumulation and aggregate income will be lowest when both fac tor markets in the agricultural sector are fully competitive. Both ca pital and aggregate income will be higher when land is not traded but the labor market is competitive, and highest in the absence of compe titive markets in both factors in the agricultural sector, when incom e distribution favors rural workers over landlords. Copyright 1988 by American Economic Association.