In an earlier paper, we showed that the value of shadow prices depends on how the government contemplates re- equilibrating the economy to the perturbation associated with any project, except in the extreme case where the government has chosen all policy instruments optimally. Only under...

This paper develops a general methodology for analyzing shadow wage (and other shadow prices). Our approach is to identify those reduced form relationships describing the economy which are central to the determination of the shadow wage, and use these to obtain simple formulae for the shadow...

"How does the lack of legitimacy of property rights affect the dynamics of the creation of the rule of law? We investigate the demand for the rule of law in post-Communist economies after privatization under the assumption that theft is possible, that those who have "stolen" assets cannot be...

Is an economy with adverse selection, moral hazard, or an incomplete set of risk markets "constrained" Pareto efficient? There are two sets of papers addressing this question, one asserting that, under seemingly quite general conditions, the economy is constrained Pareto efficient, the other (to...

This paper focuses on two separate problems. The first is that frequently, the most profitable use of funds involves long-term investments, which militiates for long-term debt contracts. The second problem is to monitor the investor's use of funds, as exemplified by the U.S. S&L saga, and we...

Schumpeter argued that economic downturns had positive effects, in the incentives that it provided for firms to increase their efficiency. Part 1. provides a simple model confirming Schwnpeter's insight At thesame time, the model shows that there are real costs to economic fluctuations which...

While bankers and businessmen have long recognized the importance of finance. financial constraints, and financial institutions, they have played a secondary role in neoclassical economic theory. This paper identifies the economic functions with which financial institutions have been concerned,...

This paper reviews and puts into perspective recent work reassessing the first and second Fundamental Theorems of Welfare Economics. It assesses the implications of the Greenwald-Stiglitz theorem establishing the (constrained) Pareto inefficiency of market economies with imperfect information...

While recent alternative approaches to macroeconomics have all begun with the presumption that macro-economic behavior ought to be derived from micro-economic foundations, they have differed in their views concerning the appropriate micro-foundations. This paper explores some of the key...

This paper presents a simple, general equilibrium macroeconomic model incorporating financial constraints, both credit and equity rationing, as well as other informational imperfections in labor and product markets, such as efficiency wage effects. A formulation somewhat analogous to the...