Externalities, Incentives, and Economic Reforms / Joshua Aizenman, Peter Isard.

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Aizenman, Joshua

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w3395.Publication details: Cambridge, Mass. National Bureau of Economic Research 1990.Description: 1 online resource: illustrations (black and white)Online resources:

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Abstract: The paper emphasizes the role of institutions and incentives in the presence of externalities. An economy with multiple public decision makers is likely to experience "overspending," "undertaxing," "overborrowing," and "overinflation" unless effective institutions exist for overcoming coordination failure. External financing may weaken incentives for adjustment over the longer run unless assistance is made conditional on fundamental institutional reforms. The paper also analyses reforms that strengthen incentives to provide effort. Uncertainty regarding future taxes reduces present effort and the responsiveness of output to market signals. In addition, the paper addresses the adverse effects of bank insurance and soft budget constraints.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w3395 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w3392 An Empirical Model of Labor Supply in the Underground Economy /	nber w3393 The Phillips Curve Now and Then /	nber w3394 The Simplest Test of Target Zone Credibility /	nber w3395 Externalities, Incentives, and Economic Reforms /	nber w3396 Interdependent Pricing and Markup Behavior: An Empirical Analysis of GM, Ford and Chrysler /	nber w3397 Why Doesn't Society Minimize Central Bank Secrecy? /	nber w3398 Occasional Interventions to Target Rates with a Foreign Exchange Application /	Next

June 1990.

The paper emphasizes the role of institutions and incentives in the presence of externalities. An economy with multiple public decision makers is likely to experience "overspending," "undertaxing," "overborrowing," and "overinflation" unless effective institutions exist for overcoming coordination failure. External financing may weaken incentives for adjustment over the longer run unless assistance is made conditional on fundamental institutional reforms. The paper also analyses reforms that strengthen incentives to provide effort. Uncertainty regarding future taxes reduces present effort and the responsiveness of output to market signals. In addition, the paper addresses the adverse effects of bank insurance and soft budget constraints.