On the dynamics of industrial evolution

Recent ideas emerging from the Brussels school of non-equilibrium systems analysts are adapted to formulate some simple evolutionary models of a self-organizing industrial system. Certain forms of technological change are represented as structural fluctuations (innovative variations), which can result in quite different development paths for each industry. The chosen approach postulates a random element in the timing and location of industrial innovations, whereas the growth or survival of particular firms is still governed by economic and demographic constraints in the urban or regional marketplace. More complex models of industrial change, which allow for joint consideration of the demographic and industrial dimensions of social development over space and time, are also contemplated.     

Labor supply,uncertainty, and efficient taxation

We analyze the structure of an optimal linear income tax when workers are uncertain about their wages at the time they choose their labor supplies. Background for the normative analysis is provided by an outline of the positive theory of wage taxation and labor supply under uncertainty. It is then shown that given imperfect information about wages, lump-sum taxation is not necessarily efficient. Because a wage tax reduces the riskiness of wage income, some combination of a lump-sum tax and a wage tax generally will minimize excess burden.     

Tax evasion and labour supply

The total effect of a change in the probability of detection, or other parameters, on the level of tax evasion can be divided into three separate effects, only one of which is determinate.     

Land use Controls: The Case of Zoning in the Vancouver Area

This paper explores the relationship between rezoning and changes in observed property values and the ability of zoning to mitigate externalities. Three separate methodologies are used in three locations in metropolitan Vancouver to examine these issues. Our results imply that rezoning does not necessarily lead to changes in land use and value. Further, no evidence was found to support the assertion that there are significant negative externalities due to incompatible land uses in residential property markets. Based on these results, we feel it is reasonable to question the continued use of zoning in developed areas of urban regions.     

The World Bank and Poverty: A Review of the Evidence on Whether the Agency Has Diminished Emphasis on Aid to the Poor

Abstract . The World Bank's loan patterns in recent years are examined to see if there is any empirical evidence of a diminution of interest in poverty alleviation programs. Four very different concepts on what poverty alleviation is are used to categorize the international agency's loans: the share of lending going to (1) poor countries; (2) programs targeting direct aid to poor individuals; (3) certain sectors deemed to be intrinsically beneficial in meeting basic human needs, and (4) overall country programs which make poverty a key element of their goals. Each of the concepts has different criteria and standards. Analysis of the data indicates that the Bank seems to be doing at least as well today in the struggle against poverty as in previous decades. In some ways the Bank's current program is more poverty-oriented than are bilateral aid programs financed by the United States and other major donor countries.     

Adjustable Rate Mortgages: Valuation

A simulation method is employed to value Adustable Rate Mortgages, (ARMS). It is used to price two typical instruments: an ARM linked to a Treasury interest rate and an ARM linked to a Cost of Funds Index. Contractual provisions such as the margin over the index, caps and floors on the ARM's rate or on the monthly prepayment, reset frequency, and the teaser rate are examined for their influence on value. The effects of interest rate trend and volatility are also analysed.This paper was written when both authors were employees of Goldman, Sachs & Co. in New York.The material in this paper is for private information, and Goldman, Sachs & co. is not soliciting any action based on it. Opinions expressed are the authors present opinions only. The material is based upon information which Goldman, Sachs & Co. considers reliable; but it does not represent that the material is accurate or complete, and it should not be relied upon as such. Goldman, Sachs & Co. may from time to time have a long or short position in, and buy or sell, securities mentioned.     

Bankruptcy risk and impaired investment decisions

This paper examines situations where the firm's investment decisions are impaired due to the presence of bankruptcy risk. Two situations are examined, one in which the firm is motivated to reject a positive NPV project and another in which the firm is motivated to accept a negative NPV project.