This paper evaluates the argument that differences in physical and intangible capital can account for the large international income differences that characterize the world economy today. The finding is that they cannot. Savings rate differences are of minor importance. What is all-important is total factor productivity. In addition, the paper presents industry evidence that total factor productivities differ across countries and time for reasons other than differences in the publicly available stock of technical knowledge. These findings lead me to conclude a theory of TFP is needed. This theory must account for differences in TFP that arise for reasons other than growth in the stock of technical knowledge.

Many economic agents take corrective actions based on information inferred from the market prices of firms' securities. Examples include directors and shareholder activists intervening in the management of firms and bank supervisors taking actions to improve the health of financial institutions. We provide an equilibrium analysis of such situations in light of a key problem: if the agent uses market prices when deciding on a corrective action, prices adjust to reflect this use and potentially become less revealing. We show that there is a strong complementarity between market information and the agent's information, so that a market-based corrective action leads to the agent's preferred outcome only when the information gap is not too large. We demonstrate that the type of security being traded matters, and discuss other measures that can increase the efficiency of learning from the market.

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The general equilibrium formulations are developed for two important economic environments. The first environment is the Lucas managerial span-of-control theory of the firm. It is shown that, in the spirit of McKenzie, the aggregate production set can be characterized by a convex cone. The second environment permits both the number of hours plants are operated and the number of workers operating them to be varied. For empirically reasonable elasticities of substitution, equilibrium is characterized by employment-consumption lotteries.