Aggregation of monies must be determined in accord with the theory using the aggregate. This theory must specify aggregation (1) eligibility rules and (2) weights. Four current methods are evaluated on this basis: Fisher's aggregation bases eligibility on significant quantities Vi of monies Mi and attaches quantity weights Vi/Vn (Vn being numeraire). Pesek-Saving aggregation merely substitutes social marginal value weights Vipi/Vnpn. Friedman-Schwartz aggregation has eligibility depend on good subsequent statistical performance and uses weights given by private marginal values (gross of subsidies). Chetty's aggregation has all assets eligible and weighted by cross-elasticities of demand.

[In this paper we give necessary and sufficient conditions such that a decision maker who operates in a world in which finitely many states of nature can occur has an increasing, strictly concave utility function U(.) and a subjective probability measure P(.) and such that he chooses among acts with uncertain outcomes according to the expected value of U(.) (with respect to P(.)) which they offer him.]

Many firms are short of capital. Investment opportunities offering positive net present values often exceed the amount of available internal financing. Management may either impose a capital budget constraint equal to the amount of internally generated funds or finance externally. Assuming that management chooses the latter, it must choose debt, preferred stock, common stock, or various forms or combinations of these securities. Controversy has surrounded the relative costs of debt and equity financing, but, recognizing the tax advantage of debt financing, most theorists agree that a firm will have some debt in its capital structure. This paper will not attempt to examine the important question of the optimal debt/equity ratio in the firm's capital structure but will assume that management has decided it is prudent to issue additional long-term debt. We will delineate the more modest question of the optimal size and timing of the long-term debt issues.

Robert H. Litzenberger, A. P. Budd, Errata: A Note on Geometric Mean Portfolio Selection and the Market Prices of Equities, The Journal of Financial and Quantitative Analysis, Vol. 7, No. 3 (Jun., 1972)

[It is now popular to construct economic models in differential equation form. Perhaps the most serious econometric problem faced when dealing with a differential equation system is the practical difficulty of finding consistent estimates of the important structural parameters. In this paper a simple three-equation Phillips model is considered and consistent estimates of the structural parameters are provided by the minimum-distance procedure. The small-sample distributions of these estimates are investigated by the Monte Carlo method; and the results are then compared with those of the three-stage least-squares estimates found by making a discrete approximation to the system of differential equations.]

R&D, Materiality, Capitalization, Resource allocation decision

From 1954 up to 1964, when Congress approved a new Revenue Act, legal structure of individual income tax of United States remained virtually unchanged. That structure was substantially changed by Revenue Act of 1964. Under previous legislation rate structure had begun at 20 per cent and had ended at 91 per cent; new rate structure started at 14 per cent and ended at 70 per cent. The first bracket, to which 20 per cent rate had applied and which had included tax income of 0 to 2000 dollars, was replaced by four smaller brackets of 500 dollars each (or 1000 dollars for married persons) to which rates of 14, 15, 16 and 17 per cent, respectively, became applicable (Pechman, 1965). The most important but by no means sole objective of new Act was reduction of fiscal drag of Federal budget. Personal income tax liabilities were reduced by 6.7 billion dollars at 1964 levels of income. Further reductions in 1965 cut individual income tax revenues by an estimated total of about 11 billion dollars (Pechman, 1965, p. 247; Council of Economic Advisers, 1965, p. 65). This reduction in revenues was necessitated by characteristics of individual income tax revenue of growing at a somewhat faster rate than income. This high elasticity, together with relative importance of this tax, has made it a powerful automatic stabilizer in United States. However, as it came to be recognized in early part of 1960's, under certain circumstances, automatic stabilization can become an ambiguous blessing. In words of Council of Economic Advisers (CEA), the protection [that] it gives against cumulative downward movements of output and employment is welcome. But its symmetrical 'protection' against upward movements becomes an obstacle on path to full employment . (Council of Economic Advisers, 1963, p. 68). The 1963 CEA's Report continued by stating that: