Although payment for nearly all other goods and services, including toll (long distance) telephone calls, increases with greater consumption, nearly 90 percent of the residential telephone subscribers and more than half the business subscribers in the United States now pay a flat monthly rate for local calls (see Larry Garfinkel). Recently, however, the telephone companies and regulatory commissions have been moving cautiously toward imposing usage charges for local telephone calls. There is renewed interest in what is currently termed pricingt (USP). It is due to the combined forces of inflation, increased local usage, and competition from independent firms that sell telephone terminal equipment and supply private toll lines to business customers. Under USP, the of such services as telephone installation, directory assistance, and minutes of calling is based on incremental rather than average costs. Since World War II, technological advances have benefited long distance far more than local telephone calling. Development in microwave communications, coaxial cable, satellites, and waveguides have dramatically lowered the costs of long distance transmission. In contrast, the costs of local service have moved upward since the late 1960's at a rate not far below the general price index (see AT&T, 1975). Faced with a continuing stream of requests for local telephone rate increases, state regulatory commissions are finding the concept of tying prices to usage increasingly attractive. AT&T and some of the independent telephone carriers are beginning to test USP plans in several cities. With flat rate tariffs, increases in local calling add to carrier costs but not to their revenues. The local calling rate per subscriber has increased by an average of 2 percent for the past seven years. AT&T's chairman has stated, We are moving more and more in the direction of usage-sensitive pricing (see Washington Star News, p. A12), and according to newspaper accounts of AT&T management documents, the Bell System plans to phase out flat rate telephone service and begin charging for each local call in major metropolitan areas in 1978-80 (see Seattle PostIntelligencer, pp. 1, 10). Still, regulatory commissions, consumer groups, and the carriers themselves remain cautious about requiring usage-sensitive tariffs for all subscribers. The prospective gains from prices more closely related to costs are at least partially offset by the added costs of metering equipment and billing. Most telephone subscribers prefer flat rates, according to Bell System marketing surveys (see Garfinkel, p. 28). And it is by no means clear which groups of subscribers will be helped and which harmed by such revisions in local tariff structures. Will the poor end up paying more because they use their phones more? Should different prices be charged for calls at different times of day? On what bases should the monthly and per call rates be determined? The purpose of this paper is to sort out some of the questions of economic efficiency and equity that arise when changes are considered in the methods of local telephone services. In Section I, I construct a * Department of economics, The Rand Corporation, and the International Institute of Management, Berlin. This study was supported under a grant from the John and Mary R.. Markle Foundation. I am indebted to Walter S. Baer for numerous contributions to this paper, to S. C. Littlechild and Patricia Munch, and to the managing editor and a referee of this Review for critical and constructive review of a draft. I have benefited as well from the comments and suggestions of James H. Alleman, Stanley M. Besen, William S. Comanor, John M. Drew, Leland L. Johnson, John A. Kay, Edward D. Lowry, Carl Pavarini, John Rolph, Ralph Turvey, and Chris Witze. Bryant Mori assisted with the computer programming. See my 1976 paper for a more extensive version of this paper, which also discusses optimal flat rate and optimal peak load tariffs.

For the next few years, perhaps for a longer time, federal tax policy will be inseparably intertwined with deficit-reduction policy. As a result, tax decisions will be more closely related to spending decisions and attention will shift to new kinds of taxes. For decades, federal tax policy debates have been quite separate from debates over what these taxes are supposed to finance. Federal tax controversy has focused heavily on the major general revenue sources, the individual and corporate income taxes. Economists have analyzed the effects of these levies on economic behavior and on the distribution of income, and this analysis has played a considerable role in policy formulation. The substantial reduction in marginal tax rates, as well as base broadening, indexing, and changes in the treatment of depreciation and consumer interest, were greatly influenced by the views of economists. The frequency of recent changes in the income tax rules, capped by the surprisingly comprehensive tax reform legislation of 1986, have left both politicians and tax reformers with little appetite for further tinkering with the income taxes. Moreover, the continuing large deficits in the federal budget, only partially offset by growing surpluses in the Social Security trust fund, have forced policymakers to focus on a new aspect of an old problem: how to get citizens to want less from their federal government or be willing to pay more for it.

Much of the opposition to retail sales taxation stems from its alleged regressivity. The belief that a flat rate sales tax must be regressive is based on cross-section data showing the ratio of consumption to income decreasing as income increases. Proponents of sales taxation contest the regressivity argument by indicating either that current income fails adequately to measure ability to pay, or with a judicious use of exemptions in the tax law, a sales levy can be nonregressive. Among the exemptions often found in states with sales taxes, those for food consumed off the premises, utilities, and clothing appear to be most directly aimed at alleviating sales tax regressivity. Other studies have shown that a food exemption does reduce the regressivity or increase the progressivity of a sales tax [1] [2] [3] [4] [5, Ch. 4]. With budget studies disclosing that outlays on utility services comprise a substantially larger percentage of expenditures by lower income classes, this exemption will also reduce the regressivity of a sales tax to some extent. The impact of clothing exemptions on sales tax regressivity is less clear. Indeed, available evidence suggests that excluding clothing expenditures from the tax base may not increase the progressivity of a sales tax [5, pp. 62, 64]. The purpose of this note is both to provide additional information and to demonstrate that clothing exemptions increase rather than decrease the regressivity of a retail sales tax. This result holds whether annual money income or current consumption as defined by the Bureau of Labor Statistics is employed to measure ability to pay.

Robert Eisner has recently entered the debate on the relative potency of monetary and fiscal actions. He demonstrates the ineffectiveness of the 1968 tax surcharge in checking inflation, then goes on to assert that tight money would be similarly ineffective. This paper considers Eisner's analysis as it pertains to the inadequacy of monetary policy. First, it is shown that his conclusions do not necessarily follow from his own model. Second, using parameter estimates representative of other studies, it is demonstrated that Eisner's conclusions are not substantiated by the empirical evidence.

At the meetings in 1974, I presented a paper entitled, A Contractarian Paradigm for Applying Economic Theory (printed 1975). In that paper, along with others (see my 1979 book), I argued that our subject matter is centrally a of or a science of contract,' and that the exchange paradigm should take precedence over the maximizing paradigm. This shift in the focus of positive inquiry carries normative implications. Conceptions such as aggregate efficiency in the allocation of resources become, at best, examples of functionalist error, along with the more explicitly normative variants of the social welfare function. The contractarian or catallactic approach to economic interaction suggests that systems or subsystems be evaluated in terms of the comparative ease or facility with which voluntary exchanges, contracts, or trades may be arranged between and among members of the community. Normative judgments take the form of statements that array better and worse processes (rules, laws, institutions) within which exchanges are allowed to take place. These judgments are categorically distinct from those that array and evaluate results or outcomes. This shift in normative political economy has implications for the issues of constitutional interpretation debated by legal scholars and philosophers. These issues involve disputes along several related and intersecting dimensions: between judicial activism and nonactivism; between judicial deference to legislative authority and judicial independence; between strict constructivism and pragmatism; between original intent and legal environmentalism; between teleological and deontological conceptions of law. My purpose here is to discuss some of these contractarian implications for constitutional interpretation. This is a limited purpose, and I advance no direct and extended argument on either general philosophical issues, or on points of debate in particular legal settings. Any identifiable contribution of the contractarian political economist must emerge from the differentially abstracted order that his perspective imposes on social reality. Section I covers the familiar distinction between an individualistic and a communitarian starting point. The implication for legal interpretation of constitutional rules is almost self-evident. In Section II, I again go over analysis, developed elsewhere, that extends the catallactic paradigm from the economy to the political order, and, in particular, to the design, selection, and enforcement of constitutional rules. Section III examines the implications for judicial interpretation of the political constitution, and, in particular, the implications for the debate between strict constructivism and pragmatism and between original intent and legal environmentalism. In Section IV, the argument is extended to the contractarian's stance in interpretative confrontation with rules that cannot find a logic in any contractarian ideal.

In environments with private information and spatial separation, the ability of agents to establish mutually beneficial arrangements can be limited by their ability to communicate contemporary dealings and histories of past dealings. Indeed, with the extension of some recent work in contract theory and mechanism design, this paper argues that location or person—specific assignment systems, portable object record—keeping systems, written message systems, and telecommunication systems can be viewed as communication systems which are successively more complete in this sense. An attempt is made also to match these various communication systems with systems in use in historical primitive, and/or contemporary societies and to interpret these communication systems as financial structures. Economic agents are naturally separated in time and space. In an economy at large agents reside typically in various locations. work at alternative distinct

A fundamental property of accrual accounting is to smooth temporary timing fluctuations in operating cash flows, indicating an inherent negative correlation between accruals and cash flows. We show that the overall correlation between accruals and cash flows has dramatically declined in magnitude over the past half century and has largely disappeared in more recent years. The adjusted R 2 from regressing (changes in) accruals on (changes in) cash flows drops from about 70% (90%) in the 1960s to near zero (under 20%) in more recent years. In exploring potential reasons for the observed attenuation, we find that increases in non‐timing‐related accrual recognition, as proxied by one‐time and nonoperating items and the frequency of loss firm‐years, explain the majority of the overall decline. On the other hand, temporal changes in the matching between revenues and expenses, and the growth of intangible‐intensive industries play only a limited role in explaining the observed attenuation. Finally, the relative decline of the timing role of accruals does not appear to be associated with an increase in the asymmetrically timely loss recognition role.

We use admissions lotteries to estimate the effects of attendance at Boston's charter high schools on college preparation, college attendance, and college choice. Charter attendance increases pass rates on the high-stakes exam required for high school graduation in Massachusetts, with especially large effects on the likelihood of qualifying for a state-sponsored college scholarship. Charter attendance has little effect on the likelihood of taking the SAT, but shifts the distribution of scores rightward, moving students into higher quartiles of the state SAT score distribution. Boston's charter high schools also increase the likelihood of taking an Advanced Placement (AP) exam, the number of AP exams taken, and scores on AP Calculus tests. Finally, charter attendance induces a substantial shift from two-to four-year institutions, though the effect on overall college enrollment is modest. The increase in four-year enrollment is concentrated among four-year public institutions in Massachusetts. The large gains generated by Boston's charter high schools are unlikely to be generated by changes in peer composition or other peer effects.