His influence on academic economics is reflected in part by the widespread use of the term "Harberger triangle" to refer to the standard graphical depiction of the efficiency cost of distortions of competitive equilibrium.
He is known for maintaining close ties with his former students, many of whom have held influential government posts throughout Latin America, especially in Chile.
[5] In the case of Chile, Harberger's influence on the "free-market" reforms undertaken by the Pinochet regime (after the failure of its initial policies of direct economic control) was solely through former students of his, dubbed the Chicago Boys by commentators, who had agreed to work in that government to address the ongoing economic crisis.
The net welfare cost is the sum of the gains that would be obtained if output were reallocated in such a way as to bring the rate of profit in each industry to the economy-wide average.
Over a decade later, Gordon Tullock argued[10] that Harberger's estimate of the welfare cost of monopoly was low because some resources would be used to compete for or protect monopoly rents, but his argument applies principally to instances of non-price competition for protected status, as in the case of tariffs or restrictions on entry into an industry through government regulation.
Harberger's approach laid the groundwork for the later use of computable general equilibrium analysis of the impact of taxes on an entire economy.
In Harberger's model, the output of both sectors is produced under conditions of constant returns to scale, using homogeneous labor and capital.
If the net effect of the intersectoral shifts is to reduce the total demand for labor, then the wage falls and workers bear a part of the burden of the tax.
If the aggregate demand for labor (and so the wage) rises, then capital's income falls by more than the revenue raised by the tax.
Some years later, Harberger extended his analysis to the case of an economy that buys and sells goods, and imports or exports capital, in worldwide markets.
A summary of his views on the practical policy considerations regarding the corporate income tax in particular countries can be found in his 2008 paper.