Most studies of the effects of subsidies or recipient behavior accept the nominal legal provisions of a grant as defining the actual effective resource constraint faced by the receiver. This paper argues that to the contrary the true effect of a subsidy on the receiver’s resource constraint can not be read from nominal administrative requirements. Therefore, an indirect statistical method is required to discover the shape of the post subsidy budget line. This paper develops such a method, which is then applied to U.S. local government expenditure decisions on education for the period 1964-71.

A nation's wealth is both an object of conquest to covetous aggressors and a resource to its owners for self defense. To maintain autonomy every country must mount a defense which either makes its capture ( 1) more expensive than any aggressor can afford, or ( 2) more expensive than it is worth to aggressors. Whether this condition can be satisfied for all countries simultaneously depends as shown in this paper on relative efficacy of military offense versus defense, the aggregate of wealth among nations and its distribution, and the benefits a conqueror may obtain from conquest, including the duration of these benefits. The paper shows how these factors fit together to determine the sustainability and stability of the international distribution of property as embodied in the configuration of sovereign states.

To deserve serious consideration, a strategic defense system must pass four tests: (1) it must be technically feasible. (2) It must preserve the war avoidance stability of mutual deterrence. (3) It cannot be so expensive that an adversary can cheaply overwhelm it. (4) It must be politically feasible. Historically, proposed strategic defenses have failed all four tests. But recent changes could make strategic defense prospectively viable if provided as a global public good. Rather than defense to advance individual national interests, universal missile defense to limit damage globally may pass all four tests. Historically, Mutual Assured Survival has been postulated as a substitute for MAD deterrence. But a global defensive system would mean we can have both mutual survival and mutual deterrence.

This paper develops an approach for incorporating regulation into the theory of production,distribution, and trade, using environmental regulation as an example.

Recent international conflicts have resurrected concerns about how to manage supply disruptions or sudden escalation of need for energy, and other critical imports such as vaccines or military components. Major proactive measures prominently include support of domestic production, and accumulation of reserves or maintenance of stand-by production. This paper develops a clear transparent method for comparing instruments and for identifying the optimum policy mix. We show how a country's risk aversion influences the best mix of policies, and interacts unexpectedly with the degree of risk itself. Specifically, high-risk aversion and low risk are shown to favor domestic production support as the better defense and disfavor stockpiling (and conversely). In clarifying a country’s best policy response to risks of supply interruption, this analysis predicts how income level and risk aversion characteristics should shape arguments for and against interference with free trade on grounds of "national security."

We provide an analysis of odds-improving self-protection for when it yields collective benefits to groups, such as alliances of nations, for whom risks of loss are public bads and prevention of loss is a public good. Our analysis of common risk reduction shows how diminishing returns in risk improvement can be folded into income effects. These income effects then imply that whether protection is inferior or normal depends on the risk aversion characteristics of underlying utility functions, and on the interaction between these, the level of risk, and marginal effectiveness of risk abatement. We demonstrate how public good inferiority is highly likely when the good is “group risk reduction.” In fact, we discover a natural or endogenous limit on the size of a group and of the amount of risk controlling outlay it will provide under Nash behavior. We call this limit an "Inferior Goods Barrier" to voluntary risk reduction. For the paradigm case of declining risk aversion, increases in group size/wealth will cause provision of more safety to change from a normal to an inferior good thereby creating such a barrier.

Often an economic agent dissatisfied with an endowed distribution of utilities desires to optimize this distribution by transferring income or resources across individuals or states of the world. This multi-state optimization theme recurs in a wide variety of economic contexts, ranging across taxation and income distribution, international trade andmarket disruption, labor contracts and unemployment insurance, Rawlsian design of social contracts, provision for retirement, and many others.Because analyses of such topics are frequently so context driven, the generality of this theme seems to have gone unnoticed and, of a particular paradoxical result, unappreciated. Lump-sum re-distribution or perfect and fair insurance in a first best environment will reverse the preference rankings of the endowed distribution of utilities – after redistribution the originally ‘bad’ outcomes become preferred to originally better ones.

The authors propose a new model of trade between developing and advanced economies to capture the effects of important asymmetries in the organizations of their industries. This model demonstates how the industrial structure of a develping economy can evolve to produce what the auhors call "implicit mercantilism." Free entry plus domesitc oligopoly in a developing country , when combined with competititve behavior in developed countries, generates several distinct stages of mercantilism hitherto unrecognized in the literature. Each stage has its own pattern of interaction with a competitive trading world. As the production costs and techniques of the mercantile society converge to world standards, its citizens first lose from this progress, only later to gain. Both effects are due to certain relationships between home prices and world prices, newly identified in this paper. The analysis is particularly relevant to the structure ofAsian economnies, and to policy debates about their reform.