public employment and the welfare state in sweden this is a nontechnical summary of a much longer study which will appear with the same title in richard freeman birgitta swedenborg and robert topel eds forthcoming i am especially indebted to henry ohlsson and birgitta swedenborg and to stan engerman vic fuchs assar lindbeck stephen lundgren and agnar sandmo for comments on initial drafts i alone am responsible for the views expressed here

transaction costs and the robustness of the coase theorem this paper explores the extent to which the presence of ex ante transaction costs may lead to failures of the coase theorem in particular we identify and investigate the basic hold up problem which arises whenever the parties to a coasian negotiation have to pay some ex ante costs for the negotiation to take place we then show that a coasian solution to this hold up problem is not available this is because a coasian solution to the hold up problem typically entails a negotiation about the payment of the costs associated with the future negotiation which in turn is associated with a fresh set of ex ante costs and hence with a new hold up problem

growth effects of public expenditure on the state and local level evidence from a sample of rich governments there is a vast empirical literature investigating the relationship between government size and economic growth but the empirical evidence of growth effects of public expenditure using cross country regressions is still inconclusive according to a number of authors this is not surprising since the negative relationship only applies for rich countries with a large public sector restricting their analysis on rich countries only they can show the predicted negative impact naturally a selection of a sub sample of rich countries is always somewhat arbitrary another possibility is to concentrate on governments within a rich country however only few studies investigate the effect of state and local spending on economic growth this study concentrates on the relationship between public expenditure and economic growth within a rich country using the full sample of state and local governments from switzerland over the 1981 2001 period the general finding is a fairly robust negative relationship between gov

money velocity and the natural rate of interest abstract m1 velocity is approximately the permanent component of the short term rate this implies that agents in deciding how much wealth to allocate to non interest bearing m1 as opposed to interest bearing assets almost uniquely react to permanent shocks to the opportunity cost essentially ignoring transitory shocks this suggests that money demand models must be modified to allow for such distinct reaction to permanent and transitory variation in the opportunity cost of holding m1 under monetary regimes making inflation stationary permanent fluctuations in m1 velocity uniquely reflect to a close approximation permanent shifts in the natural rate of interest

is there a role for monetary aggregates in the conduct of monetary policy abstract we examine the potential policy role of monetary aggregates by attempting to use them as effectively as possible in the analysis of empirical relationships we focus on their role as information variables since any more ambitious use such as in a policy rule would presuppose some information content in the aggregates our results show that in the united states since 1979 the monetary aggregates fall considerably short of those requirements and results with german m3 are hardly more favorable we also investigate whether empirical relationships are not reflective of information relationships because of the use of these variables in countercyclical policy the results are not consistent with that interpretation

endogenous government spending and ricardian equivalence many analyses of debt policy assume exogenous government expenditures instead the author uses an optimizing model in which the government endogenously selects values of taxes spending and debt to maximize welfare if demand for publicly provided goods is elastic a debt financed tax cut increases consumption because individuals rationally expect some reduced government spending in the future even though future taxes rise they do not offset the expansionary effect of the current tax cut on consumption depending on preferences the marginal propensity to consume out of tax cuts can take any value between zero and the marginal propensity out of ordinary income copyright 1992 by royal economic society

line item veto where is thy sting roponents of giving the president the authority to use a line item veto argue that the institutional change is needed to limit special interest legislation and restrain spending opponents respond that it would grant too much added power to the president thereby upsetting the delicate balance wisely crafted by the founding fathers this article focuses on the presumption evidently shared by both sides in the debate that adoption of item veto authority will have significant consequences in terms of budget outcomes and the distribution of power 1 curiously there presently exists little empirical support for the presumption that item veto authority is important most studies comparing states with various types of veto authority have failed to detect significant effects associated with item veto additional tests of our own are consistent with these results after reviewing the empirical evidence we reconsider the alleged effects of item veto authority by seating the popular depiction in an explicit model of the budgetary process formal modeling exposes logical inconsistencies contained in popular veto discourse further the model makes clear that the predicted consequences of item veto commonly projected as ubiquitous in fact arise only in select settings

renegotiation and symmetry in repeated games abstract the paper derives a theory of renegotiation proofness in symmetric repeated games based on a notion of equal bargaining power according to consistent bargaining equilibrium a player can mount a credible objection to a continuation equilibrium in which he receives a particular expected present discounted value if there are other self enforcing agreements that never give any player such a low continuation value after any history the definition does not imply strongly symmetric solutions but under modest assumptions consistent bargaining equilibria of infinitely repeated games with perfect monitoring are strongly symmetric such solutions have an unusually elementary characterization journal of economic literature classification numbers c7 c72

noncooperative bargaining hostages and optimal asset ownership this paper re examines the effect of asset ownership on investment decisions for a joint relationship in the absence of contracts on investment levels it obtains some results which contradict findings by sanford j grossman oliver d hart and john moore in particular it finds that the loss of ownership of an asset may increase the asset loser s investment incentive the difference between this paper and those authors papers stems from the different interpretations of the roles of the threat point and outside options in bargaining this paper also clarifies the role of relationship specific investments as a cause of integration copyright 1998 by american economic association

an investigation of the public deficts and government spending relationship evidence for greece this paper tests the validity of the buchanan wagner hypothesis for greece that increases in public spending are the result of the tolerance of large deficits over the period 1961 1994 to test this hypothesis three unit root pretests the dickey fuller phillips perron and kwiatkowski et al and maximum likelihood estimation techniques of cointegrating vectors and a vector error correction model are employed a long run relationship is found to exist among government spending deficit income wages and adult population and the importance of short run deviations are presented the empirical evidence suggests that buchanan and wagner hypothesis seems to find support for greece in the long run and the short run further productivity in the public sector is lower than in the private sector and the growth of income is not an important determinant of the increase in the relative size of public spending

hysteresis in east asian unemployment high performing asian economies are quite distinctive with efficient flexible and responsive labour markets comparing the persistence of unemployment in east asian economies to that in western countries is difficult due to the data s short time spans and possible structural breaks this article employs advanced unit root tests to deal with these problems and fails to reject hysteresis in the unemployment rates of the high performing asian countries even after taking into account structural change an alternative explanation of different productivity growth for the hysteresis phenomenon of the asian countries is proposed herein

public budgetary rules and gdp growth an empirical study on oecd and twelve european countries we study the long term effects of budgetary rules on gdp growth rate and analyse the determinants of the short term gdp growth dynamics for both a sample of 19 oecd and a subsample of 12 european countries we show that in the long run improvements in the cyclically adjusted budget balance as well as increases in the tax burden have negative effects on gdp growth the highest effect of fiscal policy on gdp growth would be obtained if the structural deficits were used to increase the market size by reducing the tax burden in line with barro 1990 a deficit financed reduction of tax burden has a stronger effect for european than for oecd countries because in europe the government size with respect to market size is too large therefore if gdp growth is a dominant policy objective in europe specific actions should redress the 2012 treaty toward a reduction of the tax burden

the ricardian approach to budget deficits persistent budget deficits have increased economists interest in theories and evidence about fiscal policy this paper develops the ricardian approach and contrasts it with standard models the discussion considers from major theoretical objections to ricardian equivalence finite lifetimes imperfect capital markets uncertainty about future taxes and incomes and the distorting effects of taxation the paper then considers empirical evidence on interest rates consumption and saving and current account deficits the conclusion is that the ricardian approach is a useful first order approximation and that this approach will probably become the benchmark model for assessing fiscal policy this abstract was borrowed from another version of this item

cooperative investments and the value of contracting recent articles have shown that contracts can support the efficient outcome for bilateral trade even in the face of specific investments and incomplete contracting these studies typically considered selfish investments that benefit the investor e g the seller s investment reduces her production costs the authors find very different results for cooperative investments that directly benefit the investor s partner e g the seller s investment improves the buyer s value of the good most importantly if committing not to renegotiate the contract is impossible then contracting has no value i e the parties cannot do better than to abandon contracting altogether in favor of ex post negotiation

confidence sets for cointegrating coefficients based on stationarity tests standard methods for inference in cointegrating systems require all the variables to have exact unit roots and are not at all robust even to slight violations of this condition in this article i consider an alternative approach to inference in a cointegrating system this involves testing the hypothesis that a cointegrating vector takes on a specified value by testing for the stationarity of the associated residual confidence sets for the cointegrating vector can be constructed by exploiting the equivalence between tests and confidence sets this method has the advantage that it remains valid even if the regressors have roots that are not exactly equal to unity

drift and breaks in labor productivity abstract we use endogenous break tests and the stock watson tvp mub methodology to investigate changes in the equilibrium rate of growth of labor productivity in the u s the eurozone the u k australia and japan since wwii results for the u s well capture the conventional wisdom of a golden era of high productivity growth the 1950s and 1960s a marked deceleration starting from the beginning of the 1970s and a strong growth resurgence starting from mid 1990s results for the eurozone point towards a deceleration since the early 1980s with the equilibrium rate of growth of output per hour falling to 0 9 in 2004 4

the size of the state economic growth and the efficient utilization of national resources the motives of the state in projecting a more than minimal presence in the economy may be conceived of as benevolent or malevolent whatever the characterization of the motivation increases in the size of the government share of the economy adversely affect economic growth and the allocation of resources nations with relatively large government shares in 1960 on the whole grew more slowly than nations with relatively small state sectors interperiod increases in the size of government were associated with lower growth rates over the period the size of the government share coefficients in the regressions were of sufficiently large magnitude to conclude that the rise in the size of the government has had a substantial depressing effect on economic growth these results are consistent with those reported by landau 1983 and marlow 1986 landau did not adjust economic growth for the growth in factor endowment consequently his results overstate the adverse effect of government size

the growth tax in the united states by providing public goods including law and order national defense and income redistribution that expands the gains from exchange the scope and membership of the constitutional agreement government expenditures act as a positive externality on the growth rate beyond that level taxes act as a negative externality in this paper a simple model is formulated and the optimal growth maximizing tax rate found empirical estimation finds it to be in the range of 21 5 22 9 percent the effect of taxation beyond this level is a cumulative loss of about 30 trillion 1972 dollars in gnp over the period 1949 89

investigating inflation persistence across monetary regimes under inflation targeting estimates of the indexation parameter in hybrid new keynesian phillips curves are either equal to zero or very low in the united kingdom canada sweden and new zealand analogous results hold for the euro area under the european monetary union and for switzerland under the new monetary regime under stable regimes with clearly defined nominal anchors inflation appears to be purely forward looking these results question the notion that the intrinsic inflation persistence found in post wwii u s data is structural in the sense of lucas carnegie rochester conference series on public policy 1 1976 19 46 and suggest that hardwiring inflation persistence in macroeconomic models is potentially misleading

the abrams curve of government size and unemployment evidence from panel data this study investigates the long run relationship between government size and unemployment rate the abrams curve using ten european countries over the period 1961 1999 to this end panel cointegration analysis and estimation techniques appropriate for heterogeneous panels are made use of the results support the idea that there is an abrams curve and the relation between government size and the unemployment rate is positive

power in a theory of the firm transactions take place in the firm rather than in the market because the firm offers power to agents who make specific investments past literature emphasizes the allocation of ownership as the primary mechanism by which the firm does this within the contractibility assumptions of this literature we identify a potentially superior mechanism the regulation of access to critical resources access can be better than ownership because i the power agents get from access is more contingent on their making the right investment and ii ownership has adverse effects on the incentive to specialize the theory explains the importance of internal organization and third party ownership

transaction costs and the property rights approach to the theory of the firm the standard property rights approach is focused on ex ante investment incentives while there are no transaction costs that might restrain ex post negotiations we explore the implications of such transaction costs prominent conclusions of the property rights theory may be overturned a party may have stronger investment incentives when a non investing party is the owner and joint ownership can be the uniquely optimal ownership structure intuitively an ownership structure that is unattractive in the standard model may now be desirable because it implies large gains from trade such that the parties are more inclined to incur the transaction costs

disaggregate supply evidence for the uk 1989 disaggregate supply evidence for the uk applied economics vol 21 no 10 pp 1397 1409

non cooperative bargaining theory an introduction the paper provides an informal introduction to some of the main themes of the recent literature on non cooperative or sequential bargaining models it focuses in particular on the relationship between the new approach and the traditional axiomatic approach exemplified by nash bargaining theory it illustrates the new insights offered by the non cooperative approach by reference to a detailed analysis of the manner in which the presence of an outside option available to one of the parties will affect the negotiated outcome finally the difficulties which arise in extending this analysis to two person bargaining with incomplete information and to n person bargaining are discussed this is a revised version of the fourth review of economic studies lecture presented in april 1985 at the joint meeting of the association of university teachers of economics and the royal economic society held in oxford the choice of lecturer is made by a panel whose members are currently professors hahn mirrlees and nobay and the paper is refereed in the usual way this paper aims to provide an informal and elementary introduction to an approach to bargaining which has received a great deal of attention over the past few years the approach involves writing down some particular sequence of moves offers and replies to be made over time in the course of negotiations and then looking for a non cooperative equilibrium in the game thus specified in practice a perfect equilibrium or in games of incomplete information a sequential equilibrium while the approach appears at first sight to be very different in spirit from the traditional axiomatic approach in which a bargaining solution is specified by appealing to a number of general requirements which are deemed appropriate on the basis of some a priori considerations the two approaches are in fact complementary while the

complexity and renegotiation a foundation for incomplete contracts the paper considers a hold up model where only one of n future trading opportunities will prove to be efficient and where ex post renegotiation of the ex ante contract cannot be prevented as the environment becomes more complex n the outcome under any message contingent long term contract converges to that of the incomplete contracting model where trade is contractible ex post but not ex ante when trades are costly to describe both ex ante and ex post the incomplete contracting result is extended to a broader class of environments

searching for leviathan comment and extension in a recent article wallace oates 1985 investigated whether fiscal decentralization tended to act as a constraining influence on the overall size of the public sector this hypothesis has been advanced by several alternative theories of government behavior including richard musgrave s 1959 model of how the distribution function of government would be carried out by subnational governments geoffrey brennan and james buchanan s 1980 leviathan model and the more traditional public choice model for example walter hettich and stanley winer 1984 all contend that the decentralization of tax and spending decisions introduces competition among governmental units seeking to attract citizens and other mobile resources and thereby constrains taxing power oates analyzed two data sets one pertaining to the state and local sector in the united states and the other consisting of a sample of 43 countries and found little empirical support for the decentralization hypothesis the purpose of this paper is to reconsider his analysis in the case of state and local governments specifically it will be argued that oates s measures of decentralization may be inappropriate to test the hypothesis furthermore by taking into account the structure or composition of local governmental jurisdictions within a state empirical support of the decentralization hypothesis can be marshaled for general purpose local governments such as counties and municipalities i measuring fiscal decentralization among the states

on the relative unimportance of a balanced budget this paper explores the reasoning underlying milton friedman s preference for a small unbalanced budget over a large balanced one because the marginal return from government spending is less than the marginal cost measured in terms of the amount of income private individuals remain free to spend government expenditures have more of an adverse impact on the economy in his view than does the method of financing that spending using a panel data set comprising the 50 states plus the district of columbia we report evidence from the years 1967 through 1992 that growth rates in income per capita tend to be higher in states with smaller public sectors moreover we find that while both deficits and taxes reduce the rate of income growth in a state the negative impact of government spending is considerably larger at the margin

2 the institutional structure of production 1 prize lecture to the memory of alfred nobel december 9 1991 this abstract was borrowed from another version of this item

interpreting suboptimal business outcomes in light of the coase theorem lessons from sidmouth international festival abstract the management team of the world famous sidmouth festival resigned in 2004 after failing to secure bad weather underwriting worth 200 000 and amidst widespread fears that the festival was doomed while claims of a local economic impact of 5 million are seriously flawed it is highly likely that the local economy did benefit by at least several times the amount of the required insurance failure to capture these net positive benefits is linked to ill defined property rights rising transaction costs incomplete information from unreliable sources and actual or feared free riding these conditions prevented the type of efficient bargaining solution in the face of externalities envisioned by the coase theorem practically all of the problems preventing the ideal coasean solution could have been addressed by granting key stakeholders individual ownership rights hence while the coase solution was not applicable the theorem s predictions or its corollary s predictions were confirmed

women s suffrage and the growth of the welfare state in this paper we test the hypothesis that extensions of the voting franchise to include lower income people lead to growth in government especially growth in redistribution expenditures the empirical analysis takes advantage of the natural experiment provided by switzerland s extension of the franchise to women in 1971 women s suffrage represents an institutional change with potentially significant implications for the positioning of the decisive voter for various reasons the decisive voter is more likely to favor increases in governmental social welfare spending following the enfranchisement of women evidence indicates that this extension of voting rights increased swiss social welfare spending by 28 and increased the overall size of the swiss government

costly bargaining and renegotiation we identify the inefficiencies that arise when negotiation between two parties takes place in the presence of transaction costs first for some values of these costs it is efficient to reach an agreement but the unique equilibrium outcome is one in which agreement is never reached secondly even when there are equilibria in which an agreement is reached we find that the model always has an equilibrium in which agreement is never reached as well as equilibria in which agreement is delayed for an arbitrary length of time finally the only way in which the parties can reach an agreement in equilibrium is by using inefficient punishments for some of the opponent s deviations we argue that this implies that when the parties are given the opportunity to renegotiate out of these inefficiencies the only equilibrium outcome which survives is the one in which agreement is never reached regardless of the value of the transaction costs

testing the buchanan wagner hypothesis european evidence from panel unit root and cointegration tests according to the buchanan wagnerhypothesis public deficits reduce theperceived price of public goods to thecurrent generation of voters who in turn increase the demands for such socialservices several recent studies haveattempted to test this proposition in thispaper we apply modern time seriestechniques organized around panel unit rootand panel cointegration to draw sharperconclusions from the short time series thatare typically available we find that thereis a long run positive relationship betweengovernment spending and government deficitsfor each country individually as well asfor the panel as a whole this providessupport for the bw hypothesis we alsoanalyze the implications for the relativeproductivity performance of the public andprivate sector the existence of scaleeconomies in the provision of publicservices as well as the extent of crowdingout effects

does asset ownership always motivate managers outside options and the property rights theory of the firm this paper studies the grossman hart moore ghm property rights approach to the theory of the firm under alternating offers bargaining when managers can pursue other occupations while negotiating over the division of the gains from cooperation the ghm results obtain if taking the best alternative job terminates bargaining outcomes are very different sometimes an agent with an important investment decision should not own the assets he works with sometimes independent assets should be owned together sometimes strictly complementary assets should be owned separately

renegotiation proof implementation and time preferences this paper explores how the requirement that the implementation of contracts be renegotiation proof affects the set of contracts that can be implemented in a seller buyer scenario in which the information regarding the agents valuations is nonverifiable this paper explicitly adds a time dimension to an implementa tion problem and introduces a natural criterion of renegotiation proofness for the case of time consuming renegotiation the main insight gained is that the addition of the time dimension enlarges significantly the set of contracts that can be implemented in a renegotiation proof manner jel c70 d23 this paper explores how the requirement that the implementation of contracts be renegotiation proof affects the set of con tracts that can be implemented in a seller buyer scenario in which the informa tion regarding the agents valuations is non verifiable the paper s main contributions are that first it explicitly adds a time di mension to an implementation problem and second it introduces a natural criterion of renegotiation proofness for the case of time consuming renegotiation for concreteness the discussion will be conducted in the context of the following example there are two agents a seller and a buyer who sign a contract for the sale of one unit in the future their valuations for the unit denoted by s and b respectively are not known when they sign the contract they become known to both parties after the contract is signed and before it is imple mented thus when it comes to implement ing the contract the parties information is complete but it is assumed to be nonverifi able i e not observable to third parties such as a court 1 when they sign the con tract the parties want to specify for any possible realization of the valuations s b whether or not there will be trade and the price p s b at which it will take place the contract describes the procedure that will be followed after the valuations are real ized the purpose of this procedure is to make sure that the original intentions of the parties are indeed carried out the idea is that the steps laid out in the contract are independent of s b and hence are en forceable by a third party or by a social convention in game theoretic terms a contract specifies a game form that imple ments the function p in the sense that for all s and b p s b is the resulting game s unique subgame perfect equilibrium out come in the context of this scenario we shall investigate the set of price functions p s b that can be so implemented by a contract and examine how this set is affected by the requirement that the contract be renegotia

bureaucracy inefficiency and time this paper examines the bureaucrat s choice between devoting resources to economic rents organizational slack and maximizing the budget of the agency a new model of bureaucracy is developed using utility rather than a demand function as its foundation it is shown that increases in income alter the slack budget constraint to favor organizational slack over budget maximization modern federal bureaucracies in the u s are predicted to be slack maximizing and x inefficient

the impact of banking and fiscal policies on state level economic growth this paper investigates the hypothesis that economic growth is affected by banking structure and fiscal policies we use data from the 48 contiguous states for the period 1950 1980 aggregated into six five year time periods primarily to test the effect of the following factors on growth of state per capita income i restrictions over branch banking ii restrictions over multibank holding companies iii the depth of financial assets in a state iv the financialintermediary mix v the size of state government and vi the methods of financing state government we find no support for the hypotheses that branch banking or multibank holding company restrictions affect growth however financial depth and the mix of financial intermediaries are strongly correlated with economic growth finally the state fiscal policy variables had no significant effect on income growth

estimating labour and output gap evidence from the athens olympic region in greece the present article estimates potential labour and labour gap as well as potential output and output gap using a cobb douglas production function and a hodrick prescott filter we investigate the athens region in greece by sector of economic activity with the aid of the non accelerating wage inflation rate of unemployment concept the results support the idea that the athens region seems to be working mostly over the regional economy s capabilities a fact which leads to inflationary pressure

do gasoline prices respond asymmetrically in the euro zone area evidence from cointegrated panel data analysis this paper uses the generalized method of moments gmm estimation to a panel data error correction model ecm in order to measure the asymmetries in the transmission of shocks to input prices and exchange rate onto the wholesale and retail gasoline price respectively for this purpose we use an updated data set of 6369 weekly observations january 2000 to february 2011 for 11 euro zone countries the results indicate the existence of asymmetric responses in the retail and wholesale segment due to possible reasons oligopolistic structure of the refining industry existence of consumers search costs regulatory and legal barriers

on the stability of money demand abstract we show that regulatory changes that occurred in the banking sector in the early 1980s that considerably weakened regulation q can explain the apparent instability of money demand starting in the same period we evaluate the effects of the regulatory changes using a model that goes beyond aggregates as m1 and treats currency and different deposit types as alternative means of payments we use the model to construct a new monetary aggregate that performs remarkably well for all the period 1915 2012

government size and unemployment evidence from industrial countries using data from 19 industrial countries for the period 1985 to 2002 this paper analyzes how the size of the government sector affects unemployment controlling for the impact of the business cycle as well as for the impact of all major labor market institutions and unobserved country effects we find that a large government sector is likely to increase unemployment it appears to have a particularly detrimental effect on women and the low skilled and to substantially increase long term unemployment it seems that dominant stateowned enterprises a large share of public investment in total investment as well as high top marginal income tax rates and low income threshold levels at which they apply are particularly detrimental

the effect of government size on the unemployment rate recent empirical studies have revealed that the size of government is inversely related to economic growth and technical efficiency evidence is presented linking the size of government to reported unemployment rates for the industrial countries during recent years this finding helps to explain the empirical link between government size and poor macroeconomic performance

the mirrlees approach to mechanism design with renegotiation with applications to hold up and risk sharing the paper studies the implementation problem first analyzed by maskin and moore 1999 in which two agents observe an unverifiable state of nature and may renegotiate inefficient outcomes following play of the mechanism we develop a first order approach to characterizing the set of implementable utility mappings in this problem paralleling mirrlees s 1971 first order analysis of standard mechanism design problems we use this characterization to study optimal contracting in hold up and risk sharing models in particular we examine when the contracting parties can optimally restrict attention to simple contracts such as noncontingent contracts and option contracts where only one agent sends a message

economic freedom and unemployment around the world author affiliation horst feldmann department of economics and international development university of bath bath ba2 7ay united kingdom h feldmann bath ac uk1 datathis paper applies the economic freedom of the world efw index that has been developed by a group of north american economists under the auspices of the canadian fraser institute with the aid of a worldwide network of further economists and institutes gwartney and lawson 2005 the index has often been assessed to be a good measure of economic freedom and thus has been widely used in the empirical literature it subdivides economic freedom into five areas i size of government ii legal structure and security of property rights iii access to sound money iv freedom to trade internationally and v regulation of credit labor and business for variable definitions and sources see appendix a the two main authors of the index have explained their concept and measurement of economic freedom in each report e g gwartney and lawson 2005 and elsewhere e g gwartney and lawson 2003 economic freedom is complex and multidimensional a major advantage of the efw index is that it reflects all aspects of economic freedom and adequately groups them into five different areas to provide information on the overall linkage between economic freedom and unemployment we use the efw summary index additionally we use the five area indices this allows us to analyze which economic freedoms have the strongest effects as the correlation matrix indicates there is substantial correlation among several of the area variables appendix b therefore we estimate specifications that include these measures one at a time however the correlation matrix also indicates that the area variables are not highly correlated with each other therefore we also present specifications in which we include them jointly estimating the effects of the area variables both separately and jointly allows us to check the robustness of our results for these variables the efw index not only has the advantage that it covers all aspects of economic freedom and adequately groups them into five different areas it also has the advantage that it is based largely on objective data these data and the ratings derived on the basis thereof may be verified by anybody aspects of economic freedom that cannot be measured objectively mainly in the areas legal structure and property rights and regulations are measured using subjective data from the global competitiveness reports of the world economic forum and the international country risk guides of the prs group the data in the global competitiveness reports are based on annual surveys among approximately 4000 to 5000 senior business executives the data in the international country risk guides are computed from an in house panel of experts of the prs group in both cases the data are compiled professionally for example the selection of respondents for the world economic forum s surveys is largely representative of the structure of each economy and the respondents have excellent knowledge of their country s economy the international country risk guides are based on the assessments of experienced experts 1for each variable included in the efw index a total of 38 the relevant data are translated into ratings with the aid of a formula that is published in the reports of the fraser institute the rating scale ranges from 0 to 10 with 0 representing the lowest and 10 the highest degree of economic freedom the area ratings for each of the five areas are calculated as the arithmetic means of the ratings for their respective components in turn the summary rating is the average of the five area ratings applying the most recent methodology which was further developed over the years the efw index was calculated for every fifth year from 1970 on plus for the years 2001 2002 and 2003

public expenditure growth in greece and portugal wagner s law and beyond in the tradition of wagner s law this study examines the relationship between aggregate income and public expenditures in greece and portugal during the years 1958 85 unlike more conventional specifications our analysis focuses on the movement of different componenets of public expenditures permanent income relative prices stabilization policy and socio political factors emerge as thomain determinants of public expenditures while the results reveal significant difference in responses to these determinants across components of expenditures and between the two countries

restricted coasean bargaining we investigate the efficiency of coasean bargaining when restrictions are placed on the set of feasible bargaining outcomes when property rights are costly to defend appropriate we find bargaining restrictions may be pareto superior to unconstrainedvoluntary exchange under cost uncertainty over the harmful activity we show an efficient configuration of restrictions must balance the potential reduction in appropriation costs with the possibility of allocatively inefficient bargaining restrictions for an all pay auction we find conditions where precluding bargaining is always ex ante preferable to unrestricted bargaining for cases where the restrictions are contested we show conditions for the continuing existence of welfare improvements

optimal ownership of public goods in the presence of transaction costs a non governmental organization ngo can make a non contractible investment to provide a public good only ownership can be specified ex ante so ex post efficiency requires reaching an agreement with the government besley and ghatak 2001 argue that the party with the larger valuation should be the owner we show that when transaction costs have to be incurred before the bargaining stage can be reached ownership by the government can be optimal even when the ngo has a larger valuation our finding also contrasts with the standard private good setup where the investing party i e the ngo should always be the owner

bureaucratic choice and nonoptimal provision of public goods theory and evidence local governments allocation decisions are modeled in the context of a slack maximizing bureaucrat who produces public goods according to a production function that includes both provision and the constituents socio economic characteristics to gain a better understanding of the determinants of slack comparative statics and an empirical study of illinois municipalities are conducted the indirect output distance function provides efficiency scores upon which we regress several variables representing socio economic characteristics costs and competition measures we find that slack or inefficient behavior is associated with richer communities lower education levels and a lack of competition for residents among municipalities

does voluntary participation undermine the coase theorem abstract the coase theorem states that costless enforcement of voluntary agreements yields efficient outcomes we argue that previous treatments fail to recognize the full meaning of voluntary it requires a two stage game a non cooperative participation decision followed by coaseian bargaining only among those who choose to participate we illustrate this in a simple public goods model and find outcomes ranging from extremely inefficient to fully efficient however the efficient equilibrium is not robust to even very small transaction costs thus we cast doubt on coaseian claims of universal efficiency finally we outline a kind of coercion that restores efficiency

public expenditures and the unemployment rate in the american states panel evidence we reexamine the unemployment rate ur government expenditure nexus in a panel of 50 state and local governments slgs over the period 1977 2006 to provide new pre recession empirical evidence that helps put the expectations on the effects of the federal relief to slgs in a broader context we found that 1 per capita real public spending total and capital assistance and subsidies wages and salaries and social insurance categories was part of a cointegrating relationship with ur and real per capita state personal income 2 with the exception of social insurance other spending variables when statistically significant actually had a depressing effect on ur the magnitude of this effect however was generally small ur was most sensitive to increases in wages and salaries 3 long term causality analysis based on panel error correction coefficients provided consistent evidence of a causal effect from spending to ur but less consistent evidence of such effect in the opposite direction soci

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null