Iam grateful to Alice Amsden, Martin Bronfenbrenner, Christopher Clague, David Felix, Joseph Reid, Kazuo Sato, and referees of this Journal for insightful comments on an earlier draft of this paper. I also thank the Faculty Research Program of the Columbia Business Schoolfor financial support, andjohn Millarfor able research assistance. I bear sole responsibility for any deficiencies in the paper.

In a Walrasian economy, differences among agents in their attitudes towards risk do not constitute an inducement to trade. This is an outcome of the assumption of existence of a complete system of markets in contingent commodities.1 The assumption is, however, empirically unjustified. It is this observation that underlies the implicit theory of employment introduced by Baily (1974) and Azariadis (1975) and further elaborated by Baily (1975), Sargent (1975), Feldstein (1976), Negishi (1976) and Varian (1976). The assumptions and conclusions of the implicit contract theory can be briefly summarized as follows: It is assumed that a firm has a certain pool of workers associated with it and faces an uncertain price for its output. It is further postulated that the firm's objective function is the expected value of its profits, while workers desire to maximize the expected utility of their income, the latter characterized by risk aversion. The firm chooses the employment contract which maximizes its expected profit subject to the constraint that it provide the workers with a minimum of expected utility. The latter is supposed to reflect the opportunities open for workers elsewhere in the economy. Under these assumptions it can be demonstrated that the optimal contract involves full employment of the firm's labour pool at all states of nature, and a constant wage rate-i.e. a wage rate independent of the contingency realized. The above formulation involves a number of conceptual and empirical problems: It is assumed there is unanimity concerning the probability of occurrence of the various states of nature. Furthermore, not only are workers identical, but firms know the exact form of their utility function. The argument depends crucially on the risk neutrality of firms. In the absence of markets for contingent securities this assumption can only be justified in the very special case of perfect negative correlation between the profits of different firms. Otherwise one has to rely either on the superiority of firms vis-a-vis workers concerning the accessibility to capital markets, or in some Knightian distinction between the innate risk neutrality of entrepreneurs and risk aversion of workers. Workers are assumed to have an indirect utility function separable in income and prices. If this is not the case, even though firms behave parametrically with respect to the prices of goods, they must take into account portfolio-theoretic considerations on the part of workers. Since the only constraint faced by a firm is that the expected utility provided by the contract it offers be greater than or equal to some competitively determined level, it is implicitly assumed that workers cannot abandon the firm after the state of nature has been realized. Equivalently, the costs of movement for workers past the initial contracting period are assumed to be infinitely high. For otherwise, the constraints faced by a firm would take the form of a minimum wage to be paid at each state of nature. In the extreme case of costless labour mobility, this implies that firms are wage takers in the labour market.

Journal Article On the Definition and Measurement of Instability and the Costs of Buffering Export Fluctuations Get access A. H. Gelb A. H. Gelb University of Essex and Queen's University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 1, January 1979, Pages 149–162, https://doi.org/10.2307/2297178 Published: 01 January 1979 Article history Received: 01 February 1977 Accepted: 01 February 1978 Published: 01 January 1979

Journal Article On Variable Majority Rule and Kramer's Dynamic Competitive Process Get access Douglas H. Blair Douglas H. Blair University of Pennsylvania Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 4, October 1979, Pages 667–673, https://doi.org/10.2307/2297034 Published: 01 October 1979 Article history Received: 01 December 1975 Accepted: 01 November 1978 Published: 01 October 1979

I'd like to begin by thanking the Western Finance Association for the lunch I just consumed …It is only fair that I inform you at the outset that the views you are about to hear can only be described as biased. They are biased because I'll be limiting my remarks to those parts of finance that I think I know something about; secondly, my comments will contain a disproportionate reflection of my own work. The more generous among you might argue that this puts me in good company. A better explanation would recognize that I am really in a monopoly position for the next half hour or so: there are no contemporaneous sessions within commuting distance, your lunch was paid in advance and is not refundable, and for some of you at least there is a certain cost associated with getting up and leaving in full view of the organizers.

The problem of the portfolio demand for money was first rigorously studied by Tobin [22]. It has been analyzed since then, by Hicks [8] and Arrow [1], among many others. Many interesting results and implications regarding liquidity preference and risk-taking are derived in these studies. However, the effect of purchasing power risk on liquidity preference has been overlooked in these studies.

In a past issue of the Journal of Financial and Quantitative Analysis, Norstrπm [7] has presented a very simple sufficient condition for detecting whether a given pattern of cash flows over time has a unique nonnegative internal rate of return. Nor strum's condition is now widely cited in the literature and included in stock computer routines for analyses using the internal rate of return. See, e.g., de Faro [5] and Newnan [6].

Robert H. Edelstein, An Appraisal of Residential Property Tax Regressivity, The Journal of Financial and Quantitative Analysis, Vol. 14, No. 4, Proceedings of 14th Annual Conference of the Western Finance Association, June 21-23, 1979 (Nov., 1979), pp. 753-768