a dynamic theory of collective goods programs a collective goods program such as an entitlement program distributes benefits and costs according to constituents characteristics this paper presents a dynamic theory of the legislative choice of collective goods programs based on a sequential model of proposal making and voting in a majority rule legislature where the status quo in a session is given by the program last enacted a stationary markov perfect equilibrium is characterized for a unidimensional collective goods program and yields a generalized median voter theorem comparative statics on preferences and legislative procedures and a characterization of the dynamics of such programs equilibrium programs can expand or contract over time but they ultimately converge to the median on the path to that point legislators may act strategically to address the durability problem that a future legislature can undo the actions of the present legislature by strategically positioning the status quo to limit the changes that future legislatures can make

three party competition in parliamentary democracy with proportional representation this article studies the long run dynamics of policy choices government formations and voting behavior under a parliamentary constitution and proportional representation i develop an infinite period game where in each period voters participate in a proportional representation election and three farsighted parties bargain over one dimensional policy programs and government positions the model incorporates the interaction between elections and coalition bargaining which is the essence of politics in most parliamentary systems as well as a dynamic environment of policymaking a policy once implemented remains in effect until another replaces it i find a markov perfect equilibrium in which 1 there is no majority party in any election 2 election results converge over time to a stable vote distribution 3 policy outcomes change over time but eventually stay within a set of three points 4 minimal winning coalitions and minority governments are formed with positive probability and alternate over time

permanent income hedonic prices and demand for housing new evidence abstract housing demand is examined by looking quite specifically at the income and price variables based on individual household data permanent and transitory incomes are computed through instrumental variables related to human and nonhuman wealth a price is constructed by spatially varying hedonic techniques separation of measured income into permanent and transitory components substantially improves the predictive power of the housing demand estimation and leads to demand elasticities of 1 and 1 with respect to permanent income and price the permanent income elasticity is roughly twice the measured income elasticity

on the imputation of rental prices to owner occupied housing this paper challenges the usual objections to the possibility of applying the rental equivalent approach to determine the weight that nonrental housing services should have in the consumer price index cpi using data from two spanish household budget surveys it is shown that market rents can be well represented in terms of an index of housing quality two geographical variables and the year of occupancy this parsimonious empirical model is used to impute a rental value to nonrental housing units taking into account the possible selection bias induced by systematic differences in housing characteristics between the market rental sector and the nonrental stock on average the estimated hedonic values are relatively close to the self imputations provided in the household surveys by the occupants of such dwellings therefore using either of the two alternatives to assess the importance of nonrental housing services in the cpi have small consequences for inflation instead dropping these services from the cpi creates a downward bias in the measurement of inflation of 0 33 percentage points per year during 1985 1992 and an upward bias of 0 38 percentage points per year during 1993 to 2000 jel c43 d12 r21 c21 e31

measuring the cost of shelter for homeowners theoretical and empirical considerations recent economic developments have aroused substantial interest in the treatment in the consumer price index cpi of the cost of shelter for homeowners from december 1977 when the latest version of the cpi was introduced until december 1980 the all items cpi increased at an average annual rate of 11 6 while the homeownership component increased at an average annual rate of 16 2 relative to all of the other goods and services in the cpi the homeownership component has increased by 17 5 over the same time period if the relative price of homeownership had remained constant the growth rate of the cpi would have been reduced to 10 1 the question which has been raised is whether the rapid relative increase in the homeownership component which has had such an important impact on the cpi truly reflects changes in the cost of shelter this question is not only important but difficult encompassing many subsidiary questions and auxiliary issues the purposes of this paper are threefold 1 to outline briefly a conceptual framework for the cpi which leads to a straightforward specification of what the shelter component of the cpi should measure 2 to evaluate the theoretical properties of alternative procedures designed to approximate this measurement objective and 3 present empirical evidence on the operational difficulties involved in pursuing a new approach to shelter cost measurement two main conclusions are reached first on both theoretical and empirical grounds a rental equivalence approach to measuring shelter costs for owner occupants is preferred second an estimated rental equivalence measure has grown more slowly over at least the past six years than the official cpi homeownership component given the way in which the cpi is used to escalate both private and public expenditures these results demonstrate that the choice of measurement technique has important distributional implications

the variable choice set logit model applied to the 2004 canadian election formal work on the electoral model often suggests that parties should locate at the electoral mean recent research has found no evidence of such convergence in order to explain non convergence the stochastic electoral model is extended by including a competence and sociodemographic valance in a country where regional and national parties compete in the election that is the model allows voters to face different sets of parties in different regions we introduce the notion of a convergence coefficient c for regional and national parties and show that when c is high there is a significant centrifugal tendency acting on parties an electoral survey of the 2004 election in canada is used to construct a stochastic electoral model of the election with two regions quebec and the rest of canada the survey allows us to estimate voter positions in the policy space the variable choice set logit model is used to built a relationship between party position and vote share we find that in the local nash equilibrium for the election the two main parties with high competence valence the liberals and conservatives locate at the national electoral mean and the bloc quebecois with the highest competence valence locates at the quebec electoral mean the new democratic party has a low competence valence but remains at the national mean the greens with lowest competence valence locate away from the national mean to increase its vote share

charter value risk taking and systemic risk in banking before and after the global financial crisis of 2007 2008 we investigate how bank charter value affects risk for a sample of oecd banks by using standalone and systemic risk measures before during and after the global financial crisis of 2007 2008 prio

farsighted coalitional stability abstract i define the largest consistent set a solution concept which applies to situations in which coalitions freely form but cannot make binding contracts act publicly and are fully farsighted in that a coalition considers the possibility that once it acts another coalition might react a third coalition might in turn react and so on without limit i establish weak nonemptiness conditions and apply it to strategic and coalitional form games and majority rule voting i argue that it improves on the von neumann morgenstern stable set as it is usually defined but is consistent with a generalization of the stable set as in the theory of social situations journal of economic literature classification numbers c70 c71

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

the power of the last word in legislative policy making we examine legislative policy making in institutions with two empirically relevant features agenda setting occurs in real time and the default policy evolves we demonstrate that these institutions select condorcet winners when they exist provided a sufficient number of individuals have opportunities to make proposals in policy spaces with either pork barrel or pure redistributional politics where a condorcet winner does not exist the last proposer is effectively a dictator or near dictator under relatively weak conditions

dynamic legislative policy making abstract we prove existence of stationary markov perfect equilibria in an infinite horizon model of legislative policy making in which the policy outcome in one period determines the status quo for the next we allow for a multidimensional policy space and arbitrary smooth stage utilities and we assume preferences and the status quo are subject to arbitrarily small shocks we prove that equilibrium continuation values are differentiable and that proposal strategies are continuous almost everywhere we establish upper hemicontinuity of the equilibrium correspondence and we provide weak conditions under which each equilibrium of our model determines an aperiodic transition probability over policies we establish a convergence theorem giving conditions under which the invariant distributions generated by stationary equilibria must be close to the core in a canonical spatial model finally we extend the analysis to sequential move stochastic games and to a version of the model in which the proposer and voting rule are determined by play of a finite perfect information game

a new approach for identifying the parameters of a tax capitalization model abstract this study re estimates property tax capitalization rates with two empirical innovations first the underidentification problem inherent in all capitalization studies is resolved using estimates of rental values instead of estimates of the net user cost second the methodology along with the utilization of a unique data set mitigates biases resulting from potential correlations between property tax rates and unobservable amenities or public services the extent of tax capitalization estimated here is greater than estimates reported in many recent studies and is statistically indistinguishable from full capitalization the study also provides insights regarding the variability of the net user cost of housing

elections governments and parliaments in proportional representation systems this paper presents a theory of parliamentary systems with a proportional representation electoral system a formateur selected based on party representation in parliament and parties that cannot commit to the policies they will implement once in government government formation involves efficient proto coalition bargaining and elections yield unique strong nash equilibrium outcomes depending on the status quo minimal majority surplus or consensus governments can form if parties and voters are myopic and the status quo is subject to shocks consensus governments and centrist policies occur only in a crisis otherwise governments are minimal winning and policies reflect only the preferences of the government parties

local public expenditures and housing prices this paper estimates a hedonic price model which makes it possible to determine how the price of a unit varies with the set of attributes it possesses in the spanish housing market concretely and by means of capitalisation hedonic price models can be used as an instrument to capture how local public expenditures influence housing prices and by extension how homeowners can indirectly receive benefit from local public investment using individual data for dwellings from the city of barcelona spain for the period 1998 2001 it is found that local policies aimed at enhancing the quality of life or the location specific characteristic of the city of barcelona have a positive impact on housing values

income taxes and housing this paper presents new estimates of the distributional impact of special income tax provisions relating to housing it also discusses possible secondary effects of these tax factors resulting from adjustments in the returns to capital shifts in investment and changes in the housing stock the tax benefits to homeowners are shown to be

characterization of the von neumann morgenstern stable set in a non cooperative model of dynamic policy making with a persistent agenda setter abstract we generalize the dynamic bargaining game of diermeier and fong 2011 to arbitrary quota rules to provide a non cooperative characterization of the von neumann morgenstern stable set assuming that players are sufficiently patient and have strict preferences a pure strategy stationary equilibrium exists and in any such equilibrium a policy is a steady state if and only if it is in the stable set the result provides a non cooperative foundation of stable sets in settings with dynamic policy making and a persistent agenda setter

inefficiency in legislative policymaking a dynamic analysis this paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining the policy space incorporates both productive and distributive public spending and distortionary taxation the productive spending is investing in a public good that benefits all citizens e g national defense and the distributive spending is district specific transfers e g pork barrel spending investment in the public good creates a dynamic linkage across policymaking periods the analysis explores the dynamics of legislative policy choices focusing on the efficiency of the steady state level of

mexican enclaves and the price of culture abstract studies of mexican immigrant earnings consistently find a negative relationship between concentration of mexicans and earnings smith and newman economic inquiry 15 51 66 1977 and yuengert journal of human resources 30 194 204 1995 among others attribute this enclave effect as the compensating differential for culture however the existence of a land market suggests that the price of culture may also depend on culture s effect on the price of land adopting a model developed by roback economic inquiry 26 23 41 1988 i first show that the price of mexican culture is a function of culture s effect on both earnings and rents second using data for california and texas from the 1990 census i estimate the price for mexican culture consistent with the model culture lowers earnings and increases rents in enclaves with larger concentration of mexicans in fact land s share of the price of culture is as much as 42 therefore studies that attribute the lower earnings in enclaves as the compensating differential for enclave externalities underestimate the value of culture this paper also tests several predictions implied by the theoretical model satisfying the general equilibrium conditions the earnings of other workers are higher in enclaves furthermore except for mexican americans the assumption that culture is not an amenity to other workers is supported by the data

covering dominance and institution free properties of social change this paper shows that different institutional structures for aggregation of preferences under majority rule may generate social choices that are quite similar so that the actual social choice may be rather insensitive to the choice of institutional rules specifically in a multidimensional setting where all voters have strictly quasi concave preferences it is shown that the uncovered set contains the outcomes that would arise from equilibrium behavior under three different institutional settings the three institutional settings are two candidate competition in a large electorate cooperative behavior in small committees and sophisticated voting behavior in a legislative environment where the agenda is determined endogenously because of its apparent institution free properties the uncovered set may provide a useful generalization of the core when a core does not exist a general existence theorem for the uncovered set is proven and for the downsian case bounds for the uncovered set are computed these bounds show that the uncovered set is centered around a generalized median set whose size is a measure of the degree of symmetry of the voter ideal points

proposal rights and political power in a canonical model of sequential collective bargaining over a divisible good we show that equilibrium expected payoffs are not restricted by players voting rights or their impatience for all monotonic voting rules and discount factors and for all divisions of the good among players there exists a stationary proposal making rule such that this division represents players expected payoffs in a stationary subgame perfect nash equilibrium in pure strategies the result highlights the significance of proposal rights in determining political power in collective deliberations t he purpose of this article is to further our understanding of political power in a committee environment we consider the problem of a group of two or more agents who must split a fixed divisible good agents cannot use physical force to divide this good our goal is to clarify the role and relative significance of other features of the political environment such as voting rights proposal rights agents patience etc in determining political power following shapley and shubik 1954 we gauge political power in terms of expected outcomes rather than a priori equate it with individual prerogatives 1 in that spirit political power is the share of the divisible good that agents can expect to obtain when their behavior conforms to an appropriately defined equilibrium notion 2 we model committee interaction using a canonical sequential bargaining game in each period a member of the committee is recognized with some probability that is fixed across periods and proposes a division of the good committee members then vote on the proposal if the proposal is approved in accordance with the underlying voting rule the proposed division is implemented and the

dynamic pivotal politics we analyze a dynamic extension of a parsimonious model of lawmaking in which preferences evolve over time and today s policy becomes tomorrow s status quo unlike in existing models of pivotal politics policy makers voting behavior depends on the institutional environment and on their expectations about future economic and political shocks relative to sincere voting the equilibrium behavior exhibits a strategic polarization effect which increases with the degree of consensus required by the institution the volatility of the policy environment and the expected ideological polarization of the future policy makers the equilibrium behavior also exhibits a strategic policy bias which works against any exogenous policy bias embedded in the voting rule our analysis implies that the existing literature underestimates the inertial effect of checks and balances and overestimates the impact of institutional biases such as fiscally conservative budget procedures

a three player dynamic majoritarian bargaining game this file contains two sets of calculations first we report the calculations of demands and continuation values of proposition 1 second the mixing probabilities of proposition 1 are shown to be well defined

a model of farsighted voting i present a new method of interpreting voter preferences in settings where policy remains in effect until replaced by new legislation in such settings voters consider not only the utility they receive from a given policy today but also the utility they will receive from policies likely to replace that policy in the future the model can be used to characterize both long term preferences and distributions over policy outcomes in situations where policy is ongoing and voters are farsighted

a dynamic theory of public spending taxation and debt this paper presents a dynamic political economy theory of public spending taxation and debt policy choices are made by a legislature consisting of representatives elected by geographically defined districts the legislature can raise revenues via a distortionary income tax and by borrowing these revenues can be used tofinance a national public good and district specific transfers interpreted as pork barrel spending the value of the public good is stochastic reflecting shocks such as wars or natural disasters in equilibrium policy making cycles between two distinct regimes business as usual in which legislators bargain over the allocation of pork and responsible policy making in which policies maximize the collective good transitions between the two regimes are brought about by shocks in the value of the public good in the long run equilibrium tax rates are too high and too volatile public good provision is too low and debt levels are too high in some environments a balanced budget requirement can improve citizen welfare

on dynamic compromise abstract most legislatures require the consent of only a simple majority to pass a proposal so why don t legislative outcomes favor only a bare majority we show that compromise can be achieved if legislators are neither too impatient nor too patient and initial allocations are not too unequal the compromise is only sustainable if starting from the unequal allocations there is a possibility of spiraling towards a complete absence of compromise we find that the range of discount factors for which the equilibrium exists increases as the number of legislators increases in this sense compromise is easier in larger legislatures

legislative bargaining with reconsideration we present a dynamic model of legislative bargaining with an endogenously evolving default policy and a persistent agenda setter policy making proceeds until the agenda setter can no longer pass a new policy to replace an approved bill we prove existence and necessary conditions of pure strategy stationary equilibria for any finite policy space any number of players and any preference profile in equilibrium the value of proposal power is limited compared to the case that disallows reconsideration as voters are induced to protect each other s benefits to maintain their future bargaining positions the agenda setter in turn would prefer to limit his ability to reconsider the lack of commitment due to the possibility of reconsideration however enhances policy efficiency

vested interests in a positive theory of stagnation and growth we study a positive theory of stagnation and growth aimed at understanding the large variations in growth outcomes across actual economies the theory points to the fundamental role played by vested interests in determining policies which are key to the growth process some agents seek to prevent the adoption of new technologies we develop a model of technology adoption and show how technological innovation may sow the seeds of its own destruction in particular we find that the equilibrium is characterized by a long cycle of stagnation and growth over this cycle incumbents are phased out of the economy will new innovation occur in formalizing our theory we make a methodological contribution by characterizing dynamic voting equilibria when voters must forecast the effects of different current policies on future prices and policy outcomes

voting for pareto optimality a multidimensional analysis we compare unanimity rule and majority rule in their abilities to produce pareto superior and pareto optimal alternatives in fixed number of rounds of voting using a two dimensional spatial voting model with random proposals sincere proposals and strategic proposals our findings show that for random or sincere proposals majority rule is at least as likely to select a pareto optimal outcome as unanimity rule for strategic proposals the subgame perfect equilibrium under unanimity rule is pareto optimal for other k majority rules the outcome is pareto optimal or very close to it for outcomes that are both pareto optimal and pareto superior unanimity rule outperforms majority rule

housing price functions and ownership capitalization rates abstract in this paper we examine the problem of consistently estimating capitalization rates and hedonic housing prices we specify a hedonic pricing model for housing that combines owner occupied and rental unit samples in a manner yielding hedonic prices not subject to selection bias and capitalization rates which vary with the age and family income of the residents we use the 1982 annual housing survey ahs for metropolitan philadelphia to obtain parameter estimates for this model our findings indicate that selectivity bias is present in price functions utilizing only owner occupied or rental unit samples our results further indicate that the mean annual capitalization rate for owner occupied units is approximately 10 however the capitalization rate is non monotonically related to both age of the head and family income

a theory of voting in large elections this paper provides a game theoretic model of probabilistic voting and then examines the incentives faced by candidates in a spatial model of elections in our model voters strategies form a quantal response equilibrium qre which merges strategic voting and probabilistic behavior we first show that a qre in the voting game exists for all elections with a finite number of candidates and then proceed to show that with enough voters and the addition of a regularity condition on voters utilities a nash equilibrium profile of platforms exists when candidates seek to maximize their expected margin of victory this equilibrium 1 consists of all candidates converging to the policy that maximizes the expected sum of voters utilities 2 exists even when voters can abstain and 3 is unique when there are only 2 candidates