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We provide evidence of the existence of debt aversion and its negative implications for financial decisions. In a new experimental design where subjects are assigned debt randomly, we quantify the opportunity cost of subjects' debt-biased decisions. One-third of our participants neglect high returns and focus instead on debt repayments. In addition, borrowing to invest is 50 percent less likely when it leads to indebtedness. On average, participants perceive $1 less in debt as equivalent to $1.03 in savings. Hence, a debt-averse agent will undertake a 10 percent guaranteed investment only if the cost of borrowing does not exceed 6.80 percent. [ABSTRACT FROM AUTHOR]

Vote-buying mechanisms allow agents to express any level of support for their preferred alternative at an increasing cost. Focusing on large societies with wealth inequality, we prove that the family of binary social choice rules implemented by well-behaved vote-buying mechanisms is indexed by a single parameter, which determines the importance assigned to the agents' willingness to pay to affect outcomes and to the number of supporters for each alternative. This parameter depends solely on the elasticity of the cost function near its origin: as this elasticity decreases, the intensities of support matter relatively more for outcomes than the supporters' count. (JEL D63, D71, D72) [ABSTRACT FROM AUTHOR]

The proliferation of big data makes it possible to better target city services like hygiene inspections, but city governments rarely have the in-house talent needed for developing prediction algorithms. Cities could hire consultants, but a cheaper alternative is to crowdsource competence by making data public and offering a reward for the best algorithm. A simple model suggests that open tournaments dominate consulting contracts when cities can tolerate risk and when there is enough labor with low opportunity costs. We also report on an inexpensive Boston-based restaurant tournament, which yielded algorithms that proved reasonably accurate when tested 'out-of-sample' on hygiene inspections. [ABSTRACT FROM AUTHOR]

The Great Migration-the massive migration of African Americans out of the rural South to largely urban locations in the North, Midwest, and West-was a landmark event in US history. Our paper shows that this migration increased mortality of African Americans born in the early twentieth century South. This inference comes from an analysis that uses proximity of birthplace to railroad lines as an instrument for migration. (JEL I12, J15, N31, N32, N91, N92, R23) [ABSTRACT FROM AUTHOR]

We explain a counterintuitive empirical finding: Firms facing more import competition do more innovation. In our model, factors are trapped inside a firm. An increase in import competition encourages a firm to innovate by reducing the opportunity cost of inputs. Without trapped factors, trade liberalization leads to a small permanent increase in the worldwide rate of growth. With trapped factors, firms that face more import competition do relatively more innovation. The extra innovation induced by trapped factors induces a small permanent increase in aggregate output, consumption, and welfare, generalizing the appropriate estimate of the gains from trade. [ABSTRACT FROM AUTHOR]

Participating in insurgency is physically risky. Why do people do so? Using new data on 3,799 payments to insurgent fighters by Al Qa'ida Iraq, we find that: (i) wages were extremely low relative to outside options, even compared to unskilled labor; (ii) the estimated risk premium is negative; and (iii) the wage schedule favors equalization and provides additional compensation for larger families. These results challenge the notion that fighters are paid their marginal product, or the opportunity cost of their time. They may be consistent with a 'lemons' model in which fighters signal commitment by accepting low wages. [ABSTRACT FROM AUTHOR]

A popular environmental policy is to pay forest owners for avoiding deforestation on their land. This is an example of 'payments for ecosystem services' (PES). This paper shows that liquidity constraints can limit the effectiveness of PES programs. If an individual would have cut down trees to sell them, his opportunity costs are more front-loaded than the stream of PES income. If credit constrained, he might decline the program even if the net present value (NPV) of the PES income exceeds the NPV of his opportunity costs. I present evidence consistent with this prediction using data on forest owners in Uganda. [ABSTRACT FROM AUTHOR]

Research on intrahousehold time allocations has assumed that housework is a necessary evil and focused exclusively on the causal role of opportunity costs. In fact, agents likely act to maximize happiness, and preferences regarding even mundane household chores differ considerably. I use information from the 2000-01 UK Time Use Survey to examine time spent on laundry, ironing, cleaning, and food shopping. Joint multivariate analysis of his and her time on weekend and weekday days as well as maid service reveals that her opportunity cost of time matters more than his, but that his preferences play a greater role than hers. [ABSTRACT FROM AUTHOR]

Eleven US states have ''bottle laws,'' deposit-refund programs that combine a consumption tax with a recycling rebate. When states set the bottle deposit low enough it becomes a tax on high wage earners, for whom the opportunity cost of their time prevents them from returning containers for their deposit. However, this bottle deposit will still be high enough that harvesting recyclables provides employment for low wage earners. Using individual data on observed cash recycling behavior, this paper shows that an unintended consequence of bottle laws is that they have the potential to increase the incomes of very low wage workers. [ABSTRACT FROM AUTHOR]

We study minority representation in the workplace when employers engage in optimal sequential search and minorities convey noisier signals of ability than mainstream job candidates. The greater signal noise makes it harder for minorities to change employers' prior beliefs. When employers are selective, this leads to minority underrepresentation in the workplace. Diversity improves when the cost of interviewing, the average skill level of candidates, or the opportunity cost of not hiring increases. Reducing the cost of firing also increases minority representation. When employers are sufficiently unselective, the rigidity of employers' beliefs leads to overrepresentation of minorities. ( JEL D83, J15, J24, J71, M12, M51) [ABSTRACT FROM AUTHOR]

Speeding tickets are determined not only by the speed of the offender, but also by incentives faced by police officers and their vote-maximizing principals. We hypothesize that police officers issue fines more frequently when drivers have a higher opportunity cost of contesting a ticket, and when drivers are not residents of the local municipality. We also predict that local officers are more likely to issue a ticket to out-of-town drivers when fiscal conditions are tight and legal limits prevent increases in property taxes. Using data from traffic stops in Massachusetts, we find support for our hypotheses. ( JEL H76, R41) [ABSTRACT FROM AUTHOR]

The article uses residential use of the Internet as a model for calculating consumer gains by considering time expenditures. Residential Internet use has low and fixed marginal costs and very little cross-sectional variation in price. In addition to a minimal expenditure, the major cost is time. Using a simple utility model, the article relates time spent on the Internet to the opportunity cost of that time and finds a demand curve for consumer surplus for Internet access. The calculations put the value of a year's home Internet use at $3,000, while without the time element, the value is under $100.

The article examines the impact of input prices that reflect the cost of an incumbent supplier on make-or-buy decisions. The standard Harold Hotelling model of price competition with differentiated products captures the downstream interaction between an incumbent supplier and a single competitor. It is found that the entrant's make-or-buy decision is insensitive to the price at which it can purchase the upstream input from the incumbent. When it decides to purchase the upstream input from the incumbent, the entrant creates for the incumbent an opportunity cost of increasing its retail output.

What caused the baby boom? And can it be explained within the context of the secular decline in fertility that has occurred over the last 200 years? The hypothesis is that: (a) The secular decline in fertility is due to the relentless rise in real wages that increased the opportunity cost of having children; (b) The baby boom is explained by an atypical burst of technological progress in the household sector that occurred in the middle of the last century. This lowered the cost of having children. A model is developed in an attempt to account, quantitatively, for both the baby boom and bust. [ABSTRACT FROM AUTHOR]

This article examines an economic environment in which two small countries dispute a resource that can be used in the production of tradables. Claims on the resource are developed through arming. The authors analyze the effects of different trade regimes on arming and on the welfare of each country. In the model they consider, one effect the authors find is that trade, by equalizing the prices of traded goods, equalizes the marginal benefits and opportunity costs of arming for two interacting countries and thus levels the playing field for arming. Then, the incentives for arming can be very different in the presence of trade than under autarky. In addition, if the international price of the contested resource is lower than a country's autarkic price, the opportunity cost of arming rises, and thus, the introduction of trade softens the intensity of competition for the contested resource, reduces arming, and raises welfare relative to autarky. However, the opposite can occur when the international price of the contested resource is higher than its autarkic price.

During 1990s, the demand for new high school teachers to staff schools in the U.S. will rise as a consequence of student enrollment increases and increased retirements among an aging teaching force. The article reports evidence from three states of the U.S. concerning factors influencing length of first teaching spells, and the probability of second teaching spells. Results indicate that length of first spells is highly sensitive to opportunity costs and salaries, findings that have considerable relevance to the design of teacher compensation policies. The impact of salary is largest at the start of teachers' careers, and declines the longer teachers remain in the classroom. Results also point out critical weaknesses in the national model that provides projections of teacher shortages or surpluses. One implication of findings is that significant increases in teachers' salaries relative to salaries in other occupations will reduce turnover among beginning teachers, and thereby reduce the number of new teachers that will be required each year to staff American schools.

The paper argues that vertical restraints and contracts with input suppliers can be fertile ground for raising competitors' costs. By contracting with one or more suppliers to exclude rivals, either by dealing with them on discriminatory terms or refusing to deal with them altogether, a firm sometimes can increase its rivals' costs. As a result, it can sometimes gain the power to raise price in the market in which it sells output. This type of contract often can be characterized as the purchase of an exclusionary right from the input suppliers. That is, in addition to the purchase of inputs, the "predator" also purchases the right to exclude its rivals from access to the suppliers' inputs. Exclusionary rights contracts can exist in a variety of forms. At one extreme are agreements that involve only exclusionary rights. No inputs are exchanged at all. For example, it was reported in Alcoa Inc. that at one time Alcoa purchased exclusionary covenants from power companies from which it did not purchase electricity. The contracts involved only the utilities' promises not to sell electricity to other aluminum companies.

The article investigates the degree of fiscal illusion by directly estimating the response of nominal interest rates to changes in tax rates. Real expenditures depend on the real interest rate after allowance for taxes and for the degree of fiscal illusion, real exogenous export and government demand, a real balance effect and an investment accelerator term. The opportunity cost of holding money is the tax-adjusted nominal interest rate. Direct estimate of the degree of fiscal illusion, is obtained by nonlinear least squares estimation. The specification being used allows estimating directly the extent to which interest rates adjust to changes in tax rates. The potential real gross national product series constructed by the Council of Economic Advisors is used in the measure of natural real output. The logarithm of the nominal money supply deflated by the expected price level and natural real output is constructed. The estimates based on taxable and on tax-exempt yields and on various measures of expected inflation imply that after-tax real yields are invariant with respect to tax rate changes. Thus, these results do not suggest there has been fiscal illusion.

This article is an econometric study of merchant wholesaler inventories. Merchant wholesales buy goods from producers and hold them in inventory for resale to their customers, who are either other producers or retail stores. Individual time-series equations have been estimated in this article. Individual time-series equation explain the monthly inventory levels held by sectors and sub-sectors listed in the article. These inventories are found to be quite sensitive to fluctuations in financial inventory carrying costs. The capital costs associated with financing a firm's inventory or financial inventory carrying costs do vary considerably over time. They consist of two components. First, there is the opportunity cost of the funds invested in the inventory, which depends on the level of nominal interest rates. Second, there is either appreciation, or depreciation, in the price of the good while it is held in inventory. These "inventory profits" reduce the per unit financial inventory carrying costs. Since inventory is held for a relatively short period of time, the beginning-of-the-period nominal interest rate is a good measure of the opportunity cost of funds invested in the marginal unit.

This article focuses on the treatment of rents in cost-benefit analysis. Application of the benefit analysis leads the author of this paper to conclude that the opportunity cost of a factor of production being withdrawn from the private sector exceeds its market price to the extent that it generates rents, so it should be valued at a price that reflects the rents. The author also finds that because of the waste of resources used to compete for rents, the welfare cost of a distortion that creates rents may be greater than what is commonly measured as deadweight loss. The author further demonstrates that the opportunity cost of a factor that generates rent in its present occupation may be lower than it at first appears, because withdrawing the factor from its present occupation may extinguish rents and thereby free some wasted resources.

This article discusses the concept of market signalling. Among many recent developments in the economics of information, none has generated more controversy than the concept of market signalling introduced by A. Michael Spence. If buyers are less well-informed about product quality than sellers, and no additional information is available, market-clearing prices must reflect some weighted average of product quality. Then if potential sellers of the highest quality products have the greatest opportunity costs and these costs exceed price, they will not enter the market. This adverse selection phenomenon is, however, offset if sellers of higher quality products can adopt activities that operate as a signal to potential buyers. Intuitively, an activity is a potential signal if entering into it has a lower marginal cost for sellers of higher quality products. For example, the fly-by-night operator faces a higher advertising cost per unit of sales than the new entrant who plans to build and then maintain his reputation. Or, in the labor market, productivity on the job is positively correlated with performance in school. Therefore, the higher productivity worker has on average a lower personal cost of obtaining a given set of educational credentials.

This article studies the qualitative properties of equilibrium in markets for agents. An agency relationship arises when one party, the agent, takes actions on behalf of another party, a principal. The theory of agency was first developed in different contexts by Robert Wilson (1968, 1969), A. Michael Spence and Richard Zeckhauser (1973, 1974), and has been extended in a number of different directions. Steven Shavell, for example, has examined moral hazard issues associated with imperfectly monitoring the agent's effort and Milton Harris and Artur Raviv have looked at optimal contract structures. Consider a market in which agents compete to serve the interests of principals. Agents have a sure opportunity cost or wage ω0, and an agent will supply his services to the market as long as the certainty equivalent wage of serving as an agent does not fall short of ω0. The service performed by agents consists of choosing an act α ∈ A, a set of feasible actions. Subsequent to the choice, a state of nature θ ∈ Ω is realized yielding a monetary payoff, w (α, θ). The payoff is shared, with the agent receiving a fee schedule ƒ (w(α, θ)), and the principal receiving w -- ƒ.

The article discusses the economics of marine fisheries management in the era of extended jurisdiction in Canada. In a sudden rush of unilateral declarations the 200-mile fishing limit in 1977 became the accepted norm in world practice and thus in international law. The Third Law of the Sea Conference has failed to produce a new international convention. But from its deliberations has emerged an Informal Composite Negotiating Text (ICNT), the fisheries provisions of which have been received with near-universal support or acquiescence. Several countries, including Canada and the U.S., have indicated that they will adhere to the rules of the ICNT in administering their 200-mile fishing zones. The principal effect of the ICNT, with respect to fisheries, is to accord to coastal states sovereign rights for the purpose of exploring and exploiting, conserving and managing the fish stocks in an exclusive economic zone extending 200 nautical miles outward from the coast. The sovereign rights, however, are implicitly diminished by the requirement of a coastal state, where it does not have the capacity to harvest the entire allowable catch, to give other states access to the surplus. In international fisheries relations Canada's position is that of a developed coastal state par excellence. This country has the technical capability to exploit the extensive stocks available in its coastal zone and is economically motivated to reinforce the fishing economy of depressed coastal communities. With nearby resources far in excess of domestic needs and facing high opportunity costs for capital intensive operations, Canada is disinclined to engage in distant water fishing operations.

The article focuses on the relationship between an individual's wage growth pattern and his employment history. If, as the human capital framework suggests, individuals increase their wealth by investing in on-the-job training, one might expect workers who spend less time on the job during a given period of time to acquire less human capital. Thus, it is expected that the growth rate of wages will be related not simply to an individual's chronological age, but also to the amount of time spent on the job during the period under consideration. If this is in fact the case, then part of the opportunity cost of being unemployed consists of a non-measured human capital component of the wage rate. The total cost of unemployment is then the sum of foregone observed earnings plus the value of the unobserved payment of human capital. By calculating the amount of human capital investment foregone during periods of unemployment, an estimate of the importance of on-the-job training is obtained. It was found that young workers receive approximately one-third of their total employment compensation in the form of human capital. The effect of current work experience on wage growth is therefore substantial.

The suggested model of the demand for reserves is based on government welfare maximizing behavior under uncertainty. Random disturbances in the balance of payments can either be financed with reserves or eliminated by changes of internal variables provoked by so-called balance-of-payments adjustment policies. Thus, there is an "objective" tradeoff between reserves and adjustment policies on the one hand and a "subjective" tradeoff between the opportunity cost of reserves holdings and the variability of internal variables induced by adjustment policies on the other hand. This basic idea can be found in the fundamental contributions of Clark and Kelly. Their basic assumptions, however, are a caricature of actual central bankers' behavior. On the one hand, the monetary authorities are not restricted to expenditure-changing policies as a means of altering reserve holdings. In addition, diminishing returns or increasing disutilities from larger doses of any adjustment policy call for a mixture of available adjustment policies. Uncertainty is another factor breaking down the simple pairing of n instruments with n targets and argues for the efficiency of assigning several adjustment policies to the balance-of-payments target on the basis of the ordinary diversification principle. Another set of issues arises concerning the speed of implementation of this "optimum mix" of adjustment policies, which is neither continuous nor symmetrical above and below the desired level of reserves. It is not irrational for central banks to give high priority to the internal stability target in case of temporarily persistent balance-of-payments surpluses and to give equal priority to internal and external stability targets in case of persistent deficits. [ABSTRACT FROM AUTHOR]

The article discusses competitive interest payments on bank deposits and the long-run demand for money. It tests two assumptions made in previous demand for money studies. The first assumption concerns the role assigned to "the" interest rate in the demand for money function. Common practice identifies the rate of interest with "the opportunity cost of holding money." In Section I of the article, this formulation is shown to blur an important distinction between "the price of money" and "the price of money substitutes" and to implicitly assume that the relevant price variable is the difference between these two distinct prices. The second assumption is that the current ban on interest payments on demand deposits is fully effective. In Section II of the article, price variables are defined and perfectly competitive interest payments on commercial bank deposits are estimated. This is done by crudely measuring commercial bank marginal costs and assuming that all "excess" profit is passed on to depositors in indirect ways.

An economy's human-capital stock is determined by both entrepreneurs and professionals. Entrepreneurs provide the economy with new ideas, products, and ways of doing things, while professionals utilize their accumulated knowledge to facilitate economic transactions. Both skills are necessary for a healthy economy. Yet, while professional and entrepreneurial skills can complement each other in aggregate production, they can compete for an individual's time in their accumulation. [ABSTRACT FROM AUTHOR]

Dynamic competitive models are interesting tools for studying industry behavior over time. Although there is some overlap, such models of industry evolution can be divided into two classes: learning (or internal shocks) models and external shocks models. [ABSTRACT FROM AUTHOR]

This article presents the result of examination on the cost and returns to graduate education in the United States. The finding of the study on a private and social rate of return on investments in undergraduate education needs to reallocate the educational expenditures by government from graduate education to undergraduate education. Furthermore, the researcher made measurements on the returns stream and cost and find out that the most of the resourced to be removed from investment process in graduate education should come from the humanities, education and certain of the social sciences. Moreover, pre-selection and immediate quality control measures should be given much attention to reduce the dropout rate in graduate school.

One of the most ubiquitous of all urban problems is that the cities' public facilities-their roads, airports, shopping streets, license bureaus, schools, parks, beaches, pools, day care centers and public health clinics-are frequently crowded in ways that inflict time costs upon users. Waiting time does allocate public services, rationing them, as would money prices, according to the tastes, income and opportunity costs of consumers. Time prices differ from money prices, however, since they appear relatively lower to persons with a lower money value of time. While such persons are likely to be considered more deserving, time prices have a defect: queues are a burden. Despite assertions that some people enjoy a good wait, the article authors assume that queuing raises the cost of acquiring the good with which it is associated and that the burden from queuing is a deadweight loss. Time spent in a queue cannot be used productively. The deadweight loss produced by a queue depends directly on the opportunity cost of time of those who wait. Thus when two individuals who value their time unequally wait in the same queue, they face different prices. This departure from the usual equilibrium conditions implies, in itself, that a queue of persons with different opportunity costs of time is inefficient.

The article presents discussions by economists on some papers that are published in the May 1, 1970 issue of the journal "American Economic Review." The author states that one of the greatest obstacles to the efficient pricing of communication services seems to be a wide gap between costs of service of established common carriers and costs of facilities embodying the most modern technologies, which are microwave radio, satellite and the newest coaxial cable. Economist Harvey J. Levin's paper, published in the present issue of the journal, reminds its readers that this generalization applies clearly only to the comparison of private costs, until opportunity cost of the spectrum, that the first two of these new media use, is taken into account. Without them one cannot be sure how great is their margin of superiority in terms of social costs. But even with this correction, the rate of technological progress in long-distance communication has been so rapid that it has apparently outrun the rate of depreciation permitted by regulatory commissions on existing facilities.

Economist William Baumol raises the intriguing problem of choosing a rate of interest for the public sector when risk or tax interposes a spread between the subjective rate of time preference and the technical rate of opportunity cost between present and future consumption in the private sector. A number of writers have suggested that the rate of time preference is appropriate for discounting projects in the public sector. Baumol first goes to the other extreme by proposing that government projects ought to be discounted at a rate representing opportunity cost in the private sector. Later in the article, he takes the more moderate position that both subjective time preference and opportunity cost are relevant. Baumol may be alluding to the divergence of views among economists on the appropriate rate of discount for government projects. Even when the rate of time preference differs from the rate of opportunity cost in the private sector, an optimal rate of discount for the public sector is implied by rules for maximizing the welfare of the community in the choice of public and private goods.

In his recent article W.J. Baumol errs in his handling of social opportunity costs. The error is also found in a more subtle, because less explicit, form in some recent writings of E. J. Mishan and it should presumably be corrected before it becomes a new doctrine. On assumptions of a 50 percent corporate income tax and that all resources are transferred to government from corporations, Baumol concludes that where r is the public's time preference rate for consumption, 2r will be the opportunity cost of transfer, since he treats the corporate income tax as being shifted. This is unobjectionable. But he argues further that whether resources are transferred by borrowing or by taxation makes no difference. The fundamental difference between attracting resources from consumption, as would largely be the case with taxation and attracting resources from saving, as would largely be the case with government security issue, is that a larger quantity of resources would be passed to the future if the taxation route is used.

The article focuses on the social rate of discount. Economists understand thoroughly just what this variable should measure, The opportunity cost of postponement of receipt of any benefit yielded by a public investment. They agree also on the components that should be considered in making up this figure. Primarily the welfare foregone by not having these benefits available for immediate consumption or reinvestment and a premium corresponding to the risk incurred in undertaking government projects. Above all, economists are quite generally in accord on the view that a very serious misallocation of resources can result from the use of an incorrect estimate of the value of this variable in a cost-benefit calculation. Some calculations by governmental agencies and others have even employed discount rates as low as three per cent or have even discounted at a zero rate. Since the choice of investment projects can be so sensitive to the magnitude of this variable, little help is provided to the decision maker who is confronted by such an enormous range of estimates.

Those attracted to the idea of multilateral disarmament are mainly motivated by the hope that a properly designed international peace-keeping system could more reliably safeguard national security than the present precarious balance of national forces. However, the possibility that a more rational organization of world security arrangements would also permit savings in defense expenditure sufficient to bring about a rise in living standards of at least several percent is hardly to be ignored as a collateral advantage. The potential benefits of free trade a subject of great fascination for generations of economists-appear rather trivial by comparison. Thus the opportunity costs of the world's military activities or the potential increase in real income obtainable as a result of disarmament seem at least as worthy of the economist's study as the losses occasioned by tariffs or other international barriers to trade. It is believed that real cost estimates, crude and experimental though they are, provide one of the most useful ways to measure the economic resources utilized in national defense programs.

The article presents a reply by the author on the comments of Robert L. Bennett. Bennett fails to see which assumptions underlying the market economy model of the firm have to be modified for the average Indian farmer who purchases only a small percentage of his inputs, whose capital stock and land improvements represent in large part accumulated family labor in the classical sense, and whose objective is not just to maximize entrepreneurial profit but to maximize farm business income and yet keep the family functioning as a unit. Legally child labor is prohibited in industry and the part-time agricultural labor performed by women with families may have little use in the industrial sector. Thus the opportunity cost of a considerable portion of the labor inputs used on the family farm may be near zero. It is concluded that government investment is needed to help shift agricultural production functions upward. Government land-tax and food price policies should also be revised so as to offer both pressures and inducements to the Indian farmers to respond to the output requirements of the market economy.

Upward convexity of the production-possibility curve has been an exceedingly convenient assumption to make when dealing with problems of allocative efficiency. Constant returns to industry scale permit us to say that competitive markets equate marginal transformation and substitution rates, and this condition for efficiency becomes a sufficient one through convexity of the production set. One way of providing for it in a general-equilibrium model has been to assume differences in factor intensities between industries. To put the argument loosely, if manufacturing is labor-intensive and agriculture land-intensive, a shift of output from the latter to the former leads to a rise of wages and a fall of rent. Manufacturing, since it uses relatively more labor and less land, undergoes a rise in cost compared to agriculture; and this fact makes the transformation curve convex. A variant of the same argument is to assume that at least one sector has a factor employed only there, which gets increasing rent as output in the sector expands.

The purpose of this article is to develop a geometrical model for discussing multicountry trade with two commodities. This is done via a natural generalization of the Marshall-Edgeworth reciprocal demand technique which has been employed for two countries. The article proceed from a model with the simplifying assumption of constant opportunity costs to a model with general cost and utility assumptions. This involves an extension of the opportunity cost analysis to many countries. One application of the author's technique will be a rigorous derivation of the offer curve "of the rest of the world." Free competition, no transportation costs and a constant level of resource employment will be assumed throughout. In Sections I and II, constant opportunity costs in each country have been assumed. Section III shows that situations of variable opportunity costs can be treated in almost exactly the same manner as constant opportunity costs.

The theory of comparative cost has lately been replaced by more modern theories of international trade. This paper considers the relations between these different theories. Haberler's opportunity cost analysis emphasizes continuity with and similarity to the older doctrine by taking as data the scales of relative prices established by the pricing process. Ohlin's general equilibrium theory is simply a more general and explicit formulation of the opportunity-cost doctrine. Though Ohlin, like Haberler, demonstrates that mutually beneficial trade is possible only where relative price scales differ, he is less concerned with this result than with its underlying basis: the relative supplies of the productive agents. Elaboration of this ultimate scarcity aspect of international trade is what distinguishes this theory and gives it superior explanatory value. For dealing with welfare problems, the abbreviated opportunity-cost version is handier. Both modern formulations differ from the classical in that they assume a multiple, the latter a single-factor world. [ABSTRACT FROM AUTHOR]

It is true that being "out" of this war would bear some resemblance to being "in" it, but the two would differ so much in degree that we are mainly concerned with the results of being in it. There is a dose relation between the total cost of being in the war and the distribution of this total between wartime and postwar periods. Both depend on the manner of marshaling resources for the war, whereas the manner of marshaling resources depends chiefly on the military character of the war. On the military front, what counts is not so much the direct destructiveness of weapons as the element of mobility. High mobility means that the advantage lies with the offensive and that the chances are good for a quick decision and a low cost. Immobility, or an advantage for the defensive, makes for a stalemate and a high cost. The opportunity cost of war is the loss of peace. But so does peace have an opportunity cost; namely, the loss of the values peculiar to war. In order to show that war has any net cost at all, it seems necessary to show that mankind does not get its money's worth out of a war and this cannot be demonstrated by mere quantitative measurement.

The repressed utopian bias of many academic economists, and the intellectual burdens involved in attempting a further development of economic dynamics, suggest a psychological hypothesis to account for the amount of intellectual labor expended in recent years in carrying a one-sided utility theory of value to its logical conclusion within statical limits in the doctrine of opportunity cost as a substitute for the concept of real cost. The dialectical process immanent in the evolution of economic theory urgently demands a corresponding logical exhaustion of the implications of the cost school along lines herein indicated. It is daringly suggested that more intensive study of the pioneer work of Marshall might reveal at least obscure adumbrations of a satisfactory Hegelian synthesis of these two schools in terms of modern psychological analysis. Finally, doubt is cut on the hypothesis that the vigor of that school which sees no merit in any distinction between land and capital is dependent upon the fate of the monistic utility theory of value school. [ABSTRACT FROM AUTHOR]

This article focuses on the opportunity cost. The concept of cost, however, is one of the latest to have become involved in the confusion, and it is toward that one element that this article is directed. The two points of view, social and individual, as involved in cost, may be confused in at least two ways. (1) They may both be adopted without logical discrimination and used in a treatment, which on the whole is either societistic or individualistic. (2) But a no less serious shortcoming is apparent when the one is adopted, not with due recognition of the existence of the other, but as superseding that other. That, too, is confusion in its way. In this article, the writer will endeavor to demonstrate: (1) that this reasoning begs the point in question in economic analysis, (2) that the so-called "opportunity cost" is not a cost in any true or price-determining sense, and (3) that the importance of the entrepreneur viewpoint has been exaggerated and made the basis of Serious error.

Traditionally, restrictive licensing is assumed to create monopoly profits by restricting output, and therefore to produce two kinds of social costs: the deadweight loss due to reduced output and the resources devoted to rent seeking. However, the fact that nonsalvagable resources spent on rent seeking create their own bathers to entry has not been recognized. By increasing nontransferable rents, licensing prevents the least costly producers from entering, and thus produces a third kind of social cost. Risk-neutral individuals are willing to pay the present value of the monopoly rents for a license. Individual opportunity costs may change over time so that the marginal cost curve of the initial licensees shifts. Professional licensing causes rents to be competed away through queuing and sometimes through additional investments in human capital to obtain nontransferable rights. Each new entrant incurs rent-seeking costs, with no payments to purchase the slots of existing licensees. Many professions require minimum times of study before allowing the state board examinations to be taken. Obviously, such a time restriction increases the cost of entering the profession.

This article focuses on the choice of discount rates for public projects. The critical issue in this paper is David Bradford's calculation of the social present value of a dollar of private investment. Bradford concluded that the social value of a dollar of private investment is worth little more than a dollar of consumption. Bradford therefore recommends the widespread adoption of a social rate of time preference to evaluate all public projects. In this study, the social present value of a dollar of private investment is quite sensitive to the market interest rate, the social rate of time preference, and the rate of savings from income. If the social rate of time preference is used as the public discount rate, the opportunity cost of public investment would be understated.

In his recent article W.J. Baumol errs in his handling of social opportunity costs. The error is also found in a more subtle, because less explicit, form in some recent writings of E.J. Mishan and it should presumably be corrected before it becomes a new doctrine. On assumptions of a 50 percent corporate income tax and that all resources are transferred to government from corporations, Baumol concludes that where r is the public's time preference rate for consumption, 2r will be the opportunity cost of transfer, since he treats the corporate income tax as being shifted. This is unobjectionable. But he argues further that whether resources are transferred by borrowing or by taxation makes no difference. The reason he believes the treatment is the same in either case arises from his view that it makes no difference whether resources are drawn to the public sector from private investment or from private consumption. It is not true that it is a matter without consequence whether funds transfers occur through borrowing or through taxing.

Comments on R.W. Souter's arguments on the issue of opportunity cost. Criticisms against Souter's arguments; Preconception on the doctrine of opportunity cost; Author's disagreement with the view that those who deny the distinction between land and capital do so on the basis of the doctrine of opportunity cost.

The theory of "opportunity" cost has come into such general acceptance that it receives a degree of lip service even from economists who do not clearly understand it. But there are still a good many who argue that tile rent of land does not form part of the cost of production in a sense analogous to that in which wages and interest do. It is this error-for surely no economist who really sees the entire picture will deny that it is an error-which invalidates economist Alfred Marshall's criticism of William Stanley Jevons on rent and the expenses of production. A few stress the fact that much land is so unequally adapted to different uses as to make any alternative to its best use of little or no significance. And it never seems to occur to them that some labor, also is so unequally adapted to different lines as to make any alternative occupation of little or no significance. When a piece of land has alternative uses, the choice among them is just as significant, so far as supply is concerned, as is the choice among different occupations of a worker who has alternative lines of work among which he may choose. The opportunity-cost theory either is not or it is a formulation which helps us better to understand the operation of the market and the forces lying back of it.

This article comments on Michael Visscher's critique of the authors' 1969 article in the 'American Economic Review' about the relationship between welfare-maximizing price and output and stochastic demand. When a public monopoly must choose both price and capacity output before it knows the position of the stochastic demand curve, optimal price should equal short-run marginal cost and optimal capacity output should exceed riskless capacity output. Michael Visscher claims the results depend on an unrealistic rationing system, and two alternative rationing schemes are proposed. Visscher challenges the assumption that the analysis suppressed the costs of identifying those customers with the highest willingness to pay. However, he de facto adopts it himself when he supposes that the product is offered to those claimants with the least willingness to pay.

In this article the author wishes to make an amendment to his communication "Factor Marginal Products and Decreasing Opportunity Cost," which appeared in the March 1965 issue of the journal "American Economic Review." The author asserted that, with at least three factors of production, the production possibility curve could have parts that were concave in the upward direction. This was true despite the assumption of constant returns to scale. The point was illustrated with a pair of production functions that differed in their complementarity relations among the three factors. The author reveals that what he failed to see then was that the production-possibility curve not only could have dips, but could pass below the diagonal connecting the end points of the curve. This bold assertion depends on the distinction between the firm and the economy, and on the important assumption that the firms in this two-sector economy each produce only one product. They are engaged either in manufacturing or in agriculture but not in both. Thus the production-possibility curve for the economy is in no sense a replica or average of those for firms.

The article presents views of the author on comments received by him on his paper on social rate of discount. The author addressed to the analytic difficulty posed by the possibility that the subjective time discount rate is well below the opportunity cost rate of resources drawn from the corporate sector and remarked that the choice of social discount rate becomes a matter of the theory of the second best. Economist Dan Usher takes up the challenge and tackles the difficult task of an explicit second best analysis and argues with its help that under certain quite general assumptions, the appropriate interest rate on government projects lies between the rate of time preference and the rate of opportunity cost between present and future consumption in the private sector. The author thanked economist Estelle James for calling to an attention to the case where governmental and private outputs are substitutes. In that case the issue, essentially, is not which collection of services should be produced, but who should provide them.