This paper extends Merton's intertemporal capital asset pricing model with multiple consumers to include a description of the supply of traded securities. The production decisions of firms are described in a model with stochastic investment opportunities and incomplete markets. Firms maximize the welfare of their stockholders based on the sum of dollar values placed on the projects by shareholders of the firm. The monetary value to stockholders of a marginal change in the contract structure due to changing firm production is analyzed. In this setting, the competitive market achieves an appropriately defined Nash-Constrained Pareto Optimum. Sufficient conditions for investor unanimity, market-value maximization by firms, and the equilibrium to achieve a Constrained Pareto Optimum and full Pareto Optimum are derived.

This paper extends Merton's intertemporal capital asset pricing model with multiple consumers to include a description of the supply of traded securities. The production decisions of firms are described in a model with stochastic investment opportunities and incomplete markets. Firms maximize the welfare of their stockholders based on the sum of dollar values placed on the projects by shareholders of the firm. The monetary value to stockholders of a marginal change in the contract structure due to changing firm production is analyzed. In this setting, the competitive market achieves an appropriately defined Nash‐Constrained Pareto Optimum. Sufficient conditions for investor unanimity, market‐value maximization by firms, and the equilibrium to achieve a Constrained Pareto Optimum and full Pareto Optimum are derived.

THE recent focus of radical economists such as Thomas Weisskopf (1972) and Keith Griffin (1970) on the possible reduction in domestic savings caused by aid inflow has raised an important issue: How much does this matter?' A characteristic answer by orthodox economists would be that increased current consumption is also welfare-improving. Hence, the evidence of reduced domestic savings following on the influx of foreign capital -or, what is the same thing, the evidence that aid is only partially used for investment -may be dismissed as interesting but irrelevant to the discussion of the benefits of aid programmes.2 But, while the radical economists have not systematically spelled out an argument to sustain the thesis that a reduction of domestic savings by foreign capital is harmful, it is clear that their concern arises from the notion of dependence: in particular, that reduced savings would somehow increase on the aid-giving country (which is likely to be part of the imperialist or the social-revisionist bloc). This dependence argument can indeed be formalised. Take a typical Harrod-Domar type model and define the capital-recipient country's objective as reaching a Millikan-RosensteinRodan-Rostow self-reliant growth rate by raising its domestic savings rate to a target level. The radical case can then be constructed by examining whether, in reducing domestic savings, an influx of foreign capital postpones, or renders infeasible, the reaching of self-reliance. (Needless to say, dependence can only be one dimension out of many that would enter a complete social welfare function; but it is certainly one that has to be formalised, as here, before it can be usefully discussed.) Two things are clear as soon as the problem of dependence is defined in this way. First, whether capital inflow creates will depend on the assumed parameters of the model as well as the targeted level of the savings rate and the time by which it must be achieved. Contrary to the radical notions, an aid programme may achieve a targeted increase in the savings rate earlier than in the absence of aid, or may make an infeasible target a feasible one. Second, it is therefore useful to take estimates of the parameters involved and to examine simulation runs to see whether the radical concerns are worth bothering about. It is our intention to derive the logical implications of such savings behavior in a dynamic framework to see where it can lead. This paper constructs a simple version of the Harrod-Domar model and discusses the simulation runs of savings and the savings ratio, with and without aid, for a number of less developed countries (LDCs). These countries are those for which Weisskopf (1972) has fitted savings functions, using time series analysis, so that we have had to add only plausible Received for publication March 19, 1975. Revision accepted for publication November 10, 1975. * The research underlying this paper was financed by the National Science Foundation. The facilities provided by the Institute for International Economic Studies, Stockholm, are also gratefully acknowledged. A companion paper by Bhagwati and Grinols (1975) which examines a different argument linking foreign capital inflow to and hence to the feasibility of transition to socialism has been published separately in the Journal of Development Economics. 1 The precise line of arguments developed below may be considered to be implicit in the concerns and writings of the radical economists, though we have not seen them carefully developed and stated. The focus in many of the radical writings is rather on the inadequacy of the early aid-requirements estimates, where the analyst assumed a Harrod-Domar model and a realistic capital-output ratio, fixed a target rate of growth to get a target rate of investment, then made a Keynesian savings assumption and came out with the estimate of aid or capital inflow required to fill the gap between the required investment and the available domestic savings. This method, along with alternative approaches, is reviewed in Bhagwati (1971). If the aid inflow itself affects domestic savings, the model is clearly specified incorrectly. To be fair, however, to the economists (such as Rosenstein-Rodan) who used the approach being criticised, they thought of the Keynesian domestic savings function as one which the economy would adhere to (via tax effort, for example) as part of its matching effort while receiving the capital inflow, so that it was a policy function rather than a behavioral function as implied by the radical writings. 2 Following this line of argument, the radicals should focus on the distribution of benefits from additional consumption instead of on whether such additional consumption follows on the capital inflow.

Many consider improved dispute settlement one of the leading achievements of the WTO. This paper tests the implication of a game-theoretic approach that predicts that more efficient litigation devices increase the frequency and number of trade disputes. We propose an empirical event history analysis of GATT, WTO, and USTR Section 301 cases, identify the demographic patterns for births and lifespans of U.S. disputes, and test the hypothesis of a WTO structural break. The evidence supports the view that the WTO increased the incidence of U.S. trade disputes, while shortening their lifespan.

We examine the relationship between casinos and crime using county-level data for the US between 1977 and 1996. Casinos were non-existent outside Nevada before 1978, and expanded to many other states during our sample period. Most factors that reduce crime occur before or shortly after a casino opens, while those that increase crime, including problem and pathological gambling, occur over time. The results suggest that the effect on crime is low shortly after a casino opens, and grows over time. Roughly 8 percent of crime in casino counties in 1996 was attributable to casinos, costing the average adult $75 per adult per year.

We examine the relationship between casinos and crime using county-level data for the United States between 1977 and 1996. Casinos were nonexistent outside Nevada before 1978, and expanded to many other states during our sample period. Most factors that reduce crime occur before or shortly after a casino opens, whereas those that increase crime, including problem and pathological gambling, occur over time. The results suggest that the effect on crime is low shortly after a casino opens, and grows over time. Roughly 8% of crime in casino counties in 1996 was attributable to casinos, costing the average adult $75 per year.