Triggers and Priority: An Integrated Model of the Effects of Bankruptcy Law on Overinvestment and Underinvestment

Specifically, in this Article two dimensions of investment are considered: (1) the firm\u27s choice of capitalization or its capital-intensity of production (including the amount of capital invested in the firm, and the debt/equity mix); and (2) given the firm\u27s choice of capitalization, its choice among alternative investment opportunities. Dimension (1) covers what is usually referred to as the underinvestment problem by characterizing the firm\u27s endogenous choices of debt and equity capital. Dimension (2) covers what is usually referred to as the overinvestment problem by characterizing the use to which the firm applies any amount of capital

The Political Economy of Fiscal Policy

If there has been a dominant trend in the evolution of the modern industrial societies of this century it has been the growing importance of government in the allocation of social resources. It is important that we appreciate the fundamentally political nature of the formation of government economic policy. This survey reviews and assesses our present understanding of how the political system might shape a nation's fiscal policy. Our approach is eclectic, drawing both from economics and political science, and decidedly micro-analytic in its orientation. From economics we adopt the perspective of utility maximizing agents and the analytics of trade, agreement, and market failure. From political science we learn just how and when these individual agents might act collectively to provide public goods, redistribute income, or issue government debt. Together the micro-analytics of economics and political science form the core theory of the 'new' political economy and provide a framework for understanding the emergence, and the performance, of governments. There is no more important test for the new discipline than providing a compelling explanation for the formation of fiscal policy in democratic societies.