Evsey D. Domar

Proportional Income Taxation and Risk-Taking

I. Summary and conclusions, 388. — Loss offset provisions, 391. — II. The rationale of investment behavior: yield and risk defined, 393; yield and risk of an asset combination, 398; investors indifference map and investment equilibrium, 402. — III. Taxation without loss offset: effects of the tax on yield and risk, tax sensitiveness, 403; adjustment of asset combination held, 405. popular versions of the argument, 408. — IV. Taxation with full loss offset: effects on yield and risk, 409; total risk and private risk distinguished, 410; adjustment of asset combination held, 411; total risk increased as result of tax, 412. — V. The general case, taxation with variable loss offset: effects of varying tax rate and varying loss offset, 415; adjustment of asset combination to changes in tax rate, with given loss offset, 418; adjustment to changes in loss offset, with given tax rate, 419. — VI. Qualifications, 421.

The Causes of Slavery or Serfdom: A Hypothesis

The purpose of this paper is to present, or more correctly, to revive, a hypothesis regarding the causes of agricultural serfdom or slavery (used here interchangeably). The hypothesis was suggested by Kliuchevskys description of the Russian experience in the sixteenth and seventeenth centuries, but it aims at a wider applicability.

On the Optimal Compensation of a Socialist Manager

I. The problem, 1. — II. The bonus as a function of profit and sales, 4. — III. The iterative process, 9. — IV. A practical look, 12. — Mathematical note, 15.

The Case for Accelerated Depreciation

Introduction, 493. — I. Assumptions, 494. — II. Financing investment from internal funds, 496. — III. Various schemes of accelerated depreciation, 499: the American system, 500; the British system, 504; the hybrid system, 506. — IV. Conclusion, 508. — Mathematical appendix, 513.

The Capital-Output Ratio in the United States: Its Variation and Stability

If only a decade ago the demand for capital coefficients greatly exceeded the supply, recent empirical findings have rectified, if not reversed, the imbalance. Produced by Leontief and his associates in the Harvard Economic Research Project’s dynamic input-output model on the one side, and by Kuznets and his associates in the National Bureau of Economic Research study of capital formation on the other, American capital coefficients are now reaching the market in such variety and numbers as to make the exercise of their consumers’ choice a fascinating, if not an easy, occupation. It seems that the days of the good old general capital coefficient which could be so conveniently divided into the propensity to save to yield the warranted, required, equilibrium, or some other rate of growth are about over. A present-day American fisherman who is happy to have a box of modern flies each for a particular type of water, fish, season and even hour, may yet be nostalgic for the old-fashioned earthworm good for almost any kind of fish at any time. Similarly, the user of these coefficients must be grateful for the vast and useful amount of research done, and at the same time not quite certain how to pick the right coefficient for the right problem. Fortunately, in some instances the trends are so pronounced that the choice does not matter; but in others it does.

Reflections On Economic Development

Editor’s Introduction Originally published in Volume 10, Number 1, Spring 1966, pages 5-13. Three years after the merger that created Omicron Delta Epsilon, Evsey Domar (1914-1997) became one of the first established “big names” to publish a paper in The American Economist. The occasion was precipitated by the inaugural delivery of the John R. Commons Lecture at the annual American Economic Association conference the previous December. ODE presents the Commons Award biennially to an outstanding economist in recognition of academic achievements and for service to the economics profession. The award memorializes Professor Commons who founded one of ODE’s predecessor honor societies in 1915 at the University of Wisconsin. Professor Domar, immortalized as one of the originators of the Harrod-Domar model of economic growth, was the first in a long and continuing line of prominent economists to receive the Commons Award, including Milton Friedman, Kenneth Arrow, Douglas North, Gary Becker, and Peter Diamond. In this paper, Professor Domar outlines his thoughts and ideas on why and how underdeveloped countries should institute market-oriented reforms to promote economic growth and prosperity. Fifty years later his words still ring true, “Economic development is a difficult and complex process, hard to deal with, because contrary to some of our favorite models, it is essentially not a capital but a human problem.”

The Interrelation between Capital and Output in the American Economy

That capital is a necessary factor of production must have been known to men, beavers and bees from time immemorial, but serious and fruitful attempts to find a quantitative relationship between capital and output and to incorporate it into the body of economic theory have, with a few exceptions, been remarkably recent.1 Part of this delay may be conveniently attributed to a lack of statistical data. Yet sources which could have yielded reasonable estimates of capital for the country as a whole and by industries had existed for quite some time,2 and might have been utilised earlier if demand for information of this kind had been present. The principal blame for the neglect of this subject should be attributed, I believe, to traditional economic theory. With the exception of the quantity of money, it has been very wary of stocks and has almost completely neglected the balance sheet as an economic document.3 But more important in this connection has been its general preoccupation with the static optimum combination of factors of production as determined by relative prices, and its exaggerated emphasis on the elasticity of substitution between factors and products. If capital and labour were easily and freely substitutable for each other, their respective relationships to output could hardly have much significance.

The Profitability of Serfdom: A Reply

In discussing Catherine IIs proficiency in the Russian language, the historian Kliuchevaskii remarked that “she could make four mistakes in spelling a Russian word consisting of three letters.†According to Peter Toumanoff, we have performed a similar feat by making no fewer than five major mistakes in a single paper.

Comments on the Papers on East-West Trade : 2

My official invitation called for discussion of the papers by Professors Vajda and Nove. I shall make a few occasional references to Professor Khachaturov’s contribution as well.