This paper focuses on the impacts of oil revenues on government fiscal policy when we have externality of human capital in economic. Therefore, we devised a fiscal policy capable to make the decentralized economy to achieve the first-best equilibrium in the Uzawa-Lucas model. The results of this paper show that optimal policy requires making use of a subsidy to investment in human and physical capital. Human capital can be financed by oil revenues and tax on labor income and physical capital can be financed by oil revenues. Government size dependent to oil revenues: When share of oil revenue in GDP or ratio of oil revenue in physical capital increase, government size increases and conversely. The results show the return on the physical capital must be free of taxes, but tax on labor income needed to balance the government budget in the steady state or in the transitional phase.
Though public intervention in the market for research is virtually universal, economists have paid surprisingly little attention to the choice of the form of research incentive in a given market structure. Many studies concentrate on patents, but any assumption of their superiority over other incentives has been founded on intuition rather than on formal analysis. In this paper I analyze the choice between three of the most alternative means of public intervention in the research market, namely, patents, prizes, and direct contracting for research services. I show why, and under what conditions, any one of the three may be preferred by a social welfare-maximizing administrator in a competitive economy, using a model that, for the first time, pays explicit attention to differences in the informational roles of each of these alternatives. In the extensive literature on the economics of patents (see Arnold Plant, 1934; Fritz Machlup, 1958; Charles Taylor and Z. A. Silberston, 1973; Morton Kamien and Nancy Schwartz, 1975; and F. M. Scherer, 1977, for valuable surveys), formal analysis weighs the benefits of patents as a solution to the market failure associated with the inappropriability of knowledge against the welfare cost due to the restriction on the use of the knowledge generated, and this tradeoff is optimized by patent life adjustment in William Nordhaus (1969). Scant analytical attention is paid to alternative incentive mechanisms. (An exception is Ben Yu, 1981, who considers the role of prior contracting for inventions.) But as many writers (for example, Dan Usher, 1964; Yoram Barzel, 1968; Joseph Stiglitz, 1969; Carole Kitti, 1973; Glenn Loury, 1979; Partha Dasgupta and Stiglitz, 1980a) have pointed out in various contexts, the incentive offered by an unlimited patent to competitive researchers may be excessive, due to the common pool problem discussed further in Section I below. If the patent administrator and researchers share the same information, as implicitly assumed in previous models, then the patent life limitation can be adjusted to provide the optimal patent incentive, given the pool problem. But in all such models, patents would not be chosen in a fully optimized fiscal system. Researchers and the administrator are assumed to have identical information about the shadow price of potential inventions; a patent is just a means of turning this shadow price into a monetary reward. But monetary compensation can instead be offered directly to researchers by the state. Assuming that patent revenues incur a higher deadweight loss than an equivalent amount of public funds financed by less distortionary means (for example, a minimally efficient tax system), appropriate prizes or government contracts are socially preferable to patents with optimal lives. If the patent is ever to be the optimal incentive mechanism for research, it must possess advantages not captured in existing models. Informal discussions of patents emphasize their informational role. To include the latter as a justification for decentralized invention incentives, I incorporate an ex ante imbalance of information about costs and benefits of research in the model presented in Section II. But this alone is not quite enough. It is further necessary to specify that the terms of the award must be fixed before *Department of Economics, Economic Growth Center, Box 1987 Yale Station, Yale University, New Haven, CT 06520. I thank, with the usual caveat, Marguerite Alejandro-Wright, Cindy Arfken, Martin Baily, Nuong Brennan, Steven Englander, Robert Evenson, Richard Levin, Richard Nelson, Susan Rose-Ackerman, Denis Wright, and two referees for assistance of various kinds.
This article constructs a decentralized growth model with two production sectors, one having competitive firms and the other oligopolists. Since capitalized pure profits for the latter sector constitute an asset which household savings must finance, we show that imperfect competition can reduce steady-state national output through both a "static effect" on allocative efficiency and a "dynamic effect" on aggregative capital accumulation. After presenting a theoretical analysis, we generate several numerical examples. The latter suggest that the "dynamic effect" of monopoly may be significantly larger than the "static effect" in practice.
For a self-financing business enterprise (or for an underdeveloped economy subject to constraints on the availability of foreign investment funds), three theorems are presented. Each result is based upon the assumption that the firm's investment opportunities follow constant returns-to-scale, and are of the “point input—stream output” type. Theorem 1 shows that if the enterprise is attempting to maximize a linear function of the cash dividends paid out, the optimization model cannot explain a readily observed phenomenon: both investment expenditures and also cash dividends at the same point in time. Theorems 2 and 3 explore the consequences of supposing that the maximand is a concave, nonlinear function of the cash dividends paid out, and that the optimal solution consists of positive investment expenditures over time. (The optimal policy may or may not call for positive dividends during each time period.) Then Theorem 2 shows that the optimal dual variable price ratios are determined uniquely by the set of investment opportunities available, and Theorem 3 shows that the optimal policy can be evaluated numerically through optimization of the original utility function subject to a specially constructed single linear equality constraint on the cash withdrawals. An economic decentralization interpretation is attached to this auxiliary maximization problem.