Journal Article “The New View of Investment”: Reply Get access E. S. Phelps, E. S. Phelps Yale University Search for other works by this author on: Oxford Academic Google Scholar M. E. Yaari M. E. Yaari Yale University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 78, Issue 1, February 1964, Pages 172–176, https://doi.org/10.2307/1880553 Published: 01 February 1964

CONSIDERATIONS of the impact of changes in the volume and composition of expenditures by the defense and space agencies will be misleading if they ignore the regional component. In considering disarmament, traditional monetary and fiscal policy responses produce an effect which is nationwide in scope. Such policies may not be of much help to states and communities, such as California or Wichita, whose economies are heavily dependent upon defense expenditures. In addition, shifts in the regional pattern of these expenditures can produce similar stresses in local economies. A major problem in this connection has been the measurement of the defense-space expenditure impact in a region. Aside from an induced impact operating through regional consumption and business investment functions, the impact on income and employment can be divided into two components: (1) the direct impact through prime contract awards to firms, and (2) the indirect or inter-industry impact through subcontracts and purchases of supplies by prime contractors. While there have been some attempts to measure the direct impact, little work has been done which also accounts for the indirect impact. This paper reports on an effort to measure both the direct and indirect impact of defense-space expenditures on the manufacturing sector of the Los Angeles-Long Beach Standard Metropolitan Statistical Area (SMSA). The task is an empirical one. Hence, we shall briefly review some of the various techniques of measurement and present the results of a short-cut method to measure the impact on Los Angeles manufacturers. Empirical Difficulties Almost all approaches to the measurement of the regional impact of defense-space expenditure involve variations of an input-output framework.1 Unfortunately, given the present state of data availability, they are not operational, at least without extended research effort. National data from the 1947 table, while useful, are somewhat out of date.2 Regional data are all but nonexistent. Pending the development of more adequate data, some short cuts need to be examined. In the search for short cuts, it is useful to keep in mind what the gross flows data of an interregional input-output table reveal. Row information reflects where sales are made in terms of industries, final demand sectors, and regions. Column information indicates the source of inputs from other industries both inside and outside of the region. Short cuts, essentially, involve something less than the complete cross-check of independent estimates of the row and column entries. Most regional input-output studies, in fact, get these estimates sometimes from row information and sometimes from column information, but rarely from independent estimates of both. A column-oriented approach, which has a good deal of appeal, simply traces down the subcontractors. There is some evidence to suggest, as an order of magnitude, that half of a specific defense or space program prime contract is subcontracted.3 It would seem that tracing down a few layers of subcontractors would account for most of the impact. Unfortunately, this is not the case. When a prime

This paper presents a model in which (1) the market demand for urban automobile travel is a function of a time-price as well as a money-price and (2) the market supply is represented by a flow function that is derived from assumed relationships between traffic density and average speed. Two qualitatively different types of traffic congestion are identified. Marginal cost pricing in terms of both time and money taxes is proposed as an efficient and feasible means of controlling both types of traffic congestion. Using the results of existing empirical studies, tax schedules for three types of urban roads are computed. THERE APPEARS to be unanimous agreement that traffic congestion is prevalent in contemporary urban areas and that certain social costs are incurred as a consequence. The more important questions: how to measure these social costs and how to reduce or eliminate them, remain under debate. Arguing from the premise that the essential physical nature of traffic congestion must be clarified before measurement and remedial action are possible, this paper attempts to (1) define traffic congestion in a precise fashion, (2) develop a model consistent with both traditional price theory and this formal notion of congestion, and (3) bring available empirical evidence to bear on the implications of the model. The analysis rests on the proposition that both time costs and dollar operating costs of automobile trips are relevant to the individual decision process. Formally, it is assumed that individuals face time-price parameters as well as dollar-price parameters and that market demand functions for automobile trips can be expressed in terms of these parameters.