Journal Article Savings in Isolation and Under A Collective Decision Rule Get access Stanislaw Wellisz Stanislaw Wellisz Columbia University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 91, Issue 4, November 1977, Pages 663–666, https://doi.org/10.2307/1885888 Published: 01 November 1977

Introduction, 116. — I. The structure of the Italian mechanical industries, 117. — II. The market for consumers' durables, 118. — III. Subcontracting and peak demand orders, 122. — IV. Growth possibility of large and small firms, 124. — V. The availability of financing, 127. — VI. The vulnerability of small firms, 129. — VII. Small firms: an evil or a blessing? 130.

The problem of how to determine the appropriate shadow prices of primary inputs for the evaluation of new projects in an open economy subject to distortions is discussed. These shadow prices are compared with the corresponding free-trade and actual market prices. It is shown that if the distortion is an output subsidy or tax on existing production, the optimal intervention for new projects is subsidies and taxes on primary factors equal to the difference between the shadow prices and the market prices and not an output subsidy or single shadow exchange rate to provide offsetting protection for the new project. It is also shown that projects viable under free trade may reduce welfare if they are introduced into a distorted economy, while projects that would increase welfare in these circumstances might not be viable under free trade.

The problem of how to determine the appropriate shadow prices of primary inputs for the evaluation of new projects in an open economy subject to distortions is discussed. These shadow prices are compared with the corresponding free-trade and actual market prices. It is shown that if the distortion is an output subsidy or tax on existing production, the optimal intervention for new projects is subsidies and taxes on primary factors equal to the difference between the shadow prices and the market prices and not an output subsidy or single shadow exchange rate to provide offsetting protection for the new project. It is also shown that projects viable under free trade may reduce welfare if they are introduced into a distorted economy, while projects that would increase welfare in these circumstances might not be viable under free trade.