Contracting, Search, and Missing Markets
{'Code': '04050100', 'Directorate': {'LongName': 'Direct For Social, Behav & Economic Scie'}, 'Division': {'LongName': 'Divn Of Social and Economic Sciences'}}
{'SignBlockName': 'Daniel H. Newlon'}
This research is part of an on-going upheaval in economic theory                caused by the use of contract theory as a foundation for                        understanding economic behavior.  This project continues work on                two strands of economic theory - search models of macroeconomics                and a model of taxation under global uncertainty.                                                                                                               Trade coordination difficulties appear to be an important cause                 of macroeconomic problems in the US economy.  In part, trade                    coordination difficulties come from the fact that economic                      decisions are made at many points of time.  Search theoretic                    equilibrium models have explored the implications for resource                  allocation of decentralized and staggered economic transactions                 and decisions.  This extension of the research approach will                    focus on credit; including the role of credit in enhancing the                  efficiency of transactions, the determinants of the equilibrium                 terms of credit; and the effects of credit on the presence of                   multiple equilibria.                                                                                                                                            Optimal tax theory is one approach to thinking systematically                   about how the government should set taxes and the levels of                     public expenditure.  Most work on optimal taxation has assumed                  either certainty or individual uncertainty with no aggregate                    uncertainty.  This project explores the implication for optimal                 taxation of uncertainties which are large for the economy as a                  whole.  Attention is paid particularly to the implications of                   limited markets for insuring these uncertainties.                                                                                                               These two strands of research are considered by many economic                   theorists as two of the most important and promising current                    lines of research.  Work on the coordination difficulties could                 provide a synthesis of microeconomic and macroeconomic theories                 of the economy.  The specific work in this project should provide               insights into the way banks and other financial intermediaries                  influence the overall economy.  Research on this topic is very                  timely given concerns about the fragility of US financial                       institutions and the possibility that bank runs could cause a                   depression.  The other line of research is also important because               it addresses a major weakness in the tax theory used by analysts                in policy debates about tax reform.  The weakness is that optimal               tax theory does not rigorously incorporate the uncertainty that                 pervades the economy.   Tax theory is forced to assume away the                 uncertainty because of the lack of a good theory of the behavior                of the firm in the presence of uncertainty, missing markets, and                many owners.  The investigator proposes to develop just such a                  theory of the firm that will be tractable for optimal tax                       questions.  Preliminary work by the investigator suggests that                  many of the results of optimal tax theory change once uncertainty               is introduced into the analysis.
{'FirstName': 'Peter', 'LastName': 'Diamond', 'EmailAddress': 'pdiamond@mit.edu', 'StartDate': '08/15/1988', 'EndDate': None, 'RoleCode': 'Principal Investigator'}
{'Name': 'Massachusetts Institute of Technology', 'CityName': 'Cambridge', 'ZipCode': '021394301', 'PhoneNumber': '6172531000', 'StreetAddress': '77 MASSACHUSETTS AVE', 'CountryName': 'United States', 'StateName': 'Massachusetts', 'StateCode': 'MA'}
{'Code': '1320', 'Text': 'ECONOMICS'}
{'url': 'https://www.nsf.gov/awardsearch/download?DownloadFileName=1988&All=true', 'xml': '8811345.xml'}