political cycles in oecd economies this paper studies whether the dynamic behaviour of gnp growth unemployment and inflation is systematically affected by the timing of elections and of changes of governments the sample include the last three decades in 18 oecd economies we explicitly test the implication of several models of political cycles both of the opportunistic and of the partisan type also we confront the implication of recent rational models with more traditional approaches our results can be summarized as follows a the political business cycle hypothesis as formulated in nordhaus 1975 on output and unemployment is generally rejected by the data b inflation tends to increase immediately after elections perhaps as a result of pre electoral expansionary monetary and fiscal policies c we find evidence of temporary partisan differences in output and unemployment and of long run partisan differences in the inflation rate as implied by the rational partisan theory by alesina 1987 d we find virtually no evidence of permanent partisan differences in output growth and unemployment

the attack and defense group contests best shot versus weakest link this study analyzes a group contest in which one group defenders follows a weakest link whereas the other group attackers follows a best shot impact function if we fully characterize the nash and coalition proof equilibria and show that with symmetric valuation the coalition proof equilibrium is unique up to the permutation of the identity of the active player in the attacker group with asymmetric valuation it is always an equilibrium for one of the highest valuation players to be active it may also be the case that the highest valuation players in the attacker group free ride completely on a group member with a lower valuation however in any equilibrium only one player in the attacker group is active whereas all the players in the defender group are active and exert the same effort we also characterize the nash and coalition proof equilibria for the case in which one group follows either a best shot or a weakest link but the other group follows an additive if jel c72 d70 d72 d74 h41

the market reaction to international cross listings evidence from depositary receipts abstract this paper examines the stock price impact of international dual listings the sample consists of 181 firms from 35 countries that instituted their first depositary receipt program over the period 1985 1995 the market reaction to a depositary receipt program is larger in magnitude and more pervasive than previously reported the stock price reaction is related to choice of exchange geographical location i e emerging or developed markets and avenues for raising equity capital i e public versus private offerings

political business cycles 40 years after nordhaus the aim of this article is to survey the huge literature that has emerged in the last four decades following nordhaus s rev econ stud 42 2 169 190 1975 publication on political business cycles pbcs i first propose some developments in history of thought to examine the context in which this ground breaking contribution saw the light of the day i also present a simplified version of nordhaus s model to highlight his key results i detail some early critiques of this model and the fields of investigations to which they gave birth i then focus on the institutional context and examine its influence on pbcs the actual research agenda finally i derive some paths for future research

can foreign firms bond themselves effectively by renting u s securities laws abstract the study tests the functional convergence hypothesis which states that foreign firms can leapfrog their countries weak legal institutions by listing equities in new york and agreeing to follow u s securities law evidence shows that the sec and minority shareholders have not effectively enforced the law against cross listed foreign firms detailed evidence from mexico further shows that while some insiders exploited this weak legal enforcement with impunity others that issued a cross listing and passed through an economic downturn with a clean reputation went on to receive privileged long term access to outside finance as compared with legal bonding reputational bonding better explains the success of cross listings

dyke maintenance and other stories some neglected types of public goods the orthodox summation model of a pure nonexcludable public good assumes that each individual consumes a quantity of public good defined as the sum of all individuals contributions to that good recently hirshleifer 1983 1985 has analyzed models that do not fall within this class at one extreme is the weakestlink in which the total quantity available to each consumer equals the smallest individual contribution at the other is the best shot in which the total quantity available equals the largest individual contribution hirshleifer s example of the weakest link case concerns a circular region of which each citizen owns a pie shaped slice the perimeter is marked by a dyke floods may penetrate the weakest point of the dyke and cause damage equally throughout the region each citizen decides the height and state of repair of that section of the dyke adjoining his piece of land its maintenance constituting his contribution to the public good thus the level of protection enjoyed by all is determined by the least well maintained section of the dyke an example of the best shot case concerns a number of antimissile batteries ringing a city firing at an incoming icbm all that matters is the accuracy of the best shot bliss and nalebuff 1984 discuss dragon slaying as another example of a best shot situation section ii of this paper introduces a class of functions of which the summation weakest link and best shot are examples section iii analyzes the properties of equilibrium when consumers have identical tastes and incomes section iv analyzes the implications of income redistribution in the summation case the equilibrium is unaffected by the initial redistribution over a range and outside that range transfers help the recipient and hurt the donor within the broader class of models however the invariance property does not generally hold and there may be opportunities for paretoimproving income redistribution i give an example similar to the weakest link case in which a pareto improving redistribution is

does hometown advantage matter the case of institutional blockholder monitoring on earnings management in korea this study uses a large sample of korean firms to examine institutional blockholders influence on corporate earnings management the korean market is an interesting setting to study institutional monitoring because it is dominated by chaebols which are characterized by ineffective internal governance mechanisms we find evidence that institutional blockholders deter opportunistic financial reporting and such activities are the most evident among domestic institutional blockholders foreign institutional blockholders especially those with short term investment objectives lead to more discretionary reporting our findings are robust to various empirical models and endogeneity checks moreover this study offers new insight into the proximity advantage of domestic institutional investors with regard to monitoring information it also highlights institutional investors roles in shaping corporate governance in emerging markets in which sound corporate governance has become increasingly important for firms long term sustainability one important policy implication is that regulatory authorities should aim to promote institutional investors participation in these markets

electoral business cycles in oecd countries studies of oecd countries have generally failed to detect real economic expansions in the pre election period casting doubt on the existence of opportunistic political business cycles we develop a theory that predicts a substantial portion of the economy experiences a real decline in the pre election period specifically the political uncertainty created by elections induces private actors to postpone investments with high costs of reversal the resulting declines referred to as reverse electoral business cycles are larger the more competitive the electoral race and the greater the polarization between major parties we test these predictions using quarterly data on private fixed investment in ten oecd countries between 1975 and 2006 the results suggest that reverse electoral business cycles exist and as expected depend on electoral competitiveness and partisan polarization moreover simply by removing private fixed investment from gross domestic product gdp we uncover robust evidence of opportunistic cycles

intergroup conflict and intra group punishment in an experimental contest game we study how conflict in a contest game is influenced by rival parties being groups and by group members being able to punish each other our main motivation stems from the analysis of socio political conflict the relevant theoretical prediction in our setting is that conflict expenditures are independent of group size and independent of whether punishment is available or not we find first that our results contradict the independence of groupsize prediction conflict expenditures of groups are substantially larger than those of individuals and both are substantially above equilibrium towards the end of the experiment material losses in groups are 257 of the predicted level there is however substantial heterogeneity in the investment behaviour of individual group members second allowing group members to punish each other after individual contributions to the contest effort are revealed leads to even larger conflict expenditures now material losses are 869 of the equilibrium level and there is much less heterogeneity in individual group members investments these results contrast strongly with those from public goods experiments where punishment enhances efficiency and leads to higher material payoffs

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

behavior in group contests a review of experimental research group contests are ubiquitous some examples include warfare between countries competition between political parties team incentives within firms group sports and rent seeking in order to succeed members of the same group have incentives to cooperate with each other by expending individual efforts however since effort is costly each member also has an incentive to abstain from expending any effort and instead free ride on the efforts of other members contest theory shows that the intensity of competition between groups and the amount of free riding within groups depend on the group size sharing rule group impact function contest success function and heterogeneity of players we review experimental studies testing these theoretical predictions almost all studies of behavior in group contests find significant over expenditure of effort relative to the theory we discuss potential explanations for such over expenditure including the utility of winning bounded rationality relative payoff maximization parochial altruism and social identity despite over expenditure most studies find support for the comparative statics predictions of the theory with the exception of the group size paradox finally studies show that there are effective mechanisms that can promote within group cooperation and conflict resolution mechanisms that can de escalate and potentially eliminate between group conflict

vagabond shoes longing to stray why foreign firms list in the united states abstract how do firms that go public decide whether to list on a major stock exchange or locally using a unique data set on israeli ipos in the us and tel aviv we show that companies that list in the us are young and overwhelmingly high tech oriented we argue that high quality innovative firms are willing to incur additional costs associated with listing in the us in order to reveal their value and distinguish themselves from firms that issue stock back home costs of listing in the us include first day underpricing and relinquishing corporate control

the max min group contest weakest link group all pay auction we investigate a group all pay auction in which each group s effort is represented by the minimum among the effort levels exerted by the group members and the prize is a group specific public good we fully characterize the symmetric equilibria for two groups there are four types of equilibria the pure strategy equilibria in which all active players exert the same effort the semi pure strategy equilibria in which the players in a group play the same pure strategy whereas those in the other group play the same mixed strategy the nondegenerate mixed strategy equilibria with continuous support and the nondegenerate mixed strategy equilibria with discontinuous support we then analyze a general contest with n groups

elections and capital flows this paper investigates the extent to which elections affect capital flows i find little evidence of political capital flow cycles in advanced economies in emerging and developing countries however presidential elections significantly lower preelection foreign direct investment fdi inflows but have no effect on other types of capital flows furthermore i find evidence that these cycles are not caused by economic crises related to elections or preelection manipulation of policy variables these results suggest that uncertainty about future government policies which should have greater impact on more irreversible forms of capital flows like fdi may be an important factor in generating this cycle

asymmetric rent seeking with more than two contestants this article considers a rent seeking model with n asymmetriccontestants each contestant may have a different valuation ofthe rent or a different relative ability to win the rent oneof the n contestants is selected as the winner based ontullock s probabilistic contest rule with constant returns toscale a pure strategy nash equilibrium solution is obtainedand its consequences are investigated

alternative collective goods models of military alliances theory and empirics i introduction in a seminal article mancur olson and richard zeckhauser 1966 characterized the north atlantic treaty organization nato in the mid 1960s as a group of allies who shared a pure public good in the form of deterrence to qualify as a pure public good a good s benefits must be nonexcludable i e available to all group members once provided and nonrival in consumption i e consumption opportunities associated with a unit of the good do not decline with the number of users pure public goods are characterized by free riding behavior owing to non excludability which permits individuals to partake in the benefits of the good without expending their own scarce resources olson and zeckhauser also demonstrated that a pure public good such as deterrence is associated with an exploitation hypothesis whereby the large agents allies shoulder the payment burdens of the small agents allies using data from 1964 olson and zeckhauser 1966 274 77 established that defense burdens are positively correlated with the economic size of the allies as measured by gross national product gnp over the next twenty five years a large literature has generalized and extended the olson and zeckhauser collective goods theory of alliances van ypersele de strihou 1967 recognized that defense expenditures could generate country specific private benefits e g disaster relief protection of colonies management of domestic unrest along with purely public deterrence with the presence of ally specific benefits the strength of the exploitation hypothesis is attenuated since a small ally might willingly shoulder a relatively large burden provided that this ally views its defense expenditures as possessing a large share of nation specific benefits in a series of articles murdoch sandler and others 1 formulated a joint product model in which the military activity of an ally yields pure public impure public and or private jointly produced outputs or benefits if the benefits derived from the allies military expenditures were from a single purely public good then the joint product model would obviously degenerate to the model of olson and zeckhauser 1966 murdoch and sandler 1984 sandler and forbes 1980 and sandler and murdoch 1990 have shown that the joint product model outperforms the pure public good deterrence model for nato during various time periods in recent years a number of important contributions to the collective good analysis of alliances have appeared these include the inclusion of foreign trade considerations wong 1991 marginal cost differentials among allies mcguire 1990 weber and wiesmeth 1991 leader follower behavior bruce 1990 and median voter considerations dudley and montmarquette 1981 murdoch sandler and hansen 1991 and okamura 1991 mcguire and groth 1985 engineered an econometric procedure for distinguishing between allocative processes e g non cooperative and cooperative within an alliance while subsequent work by sandler and murdoch 1990 operationalized this econometric procedure until now collective good models of alliances have computed alliancewide defense levels by simply summing the allies expenditures however the appropriate manner for aggregating defense efforts among allies may depend on geographical strategic and technological determinants for example the defense efforts of the weakest ally or link along a front may determine the strength of the allies defenses since the enemy s ability to penetrate behind the front hinges on the weakest fortification hirshleifer 1983 in consequence the minimal defense level of the allies and not the sum determines alliance capabilities the purpose of this paper is fivefold first we intend to look at different methods of aggregating allies military expenditures to determine alliancewide defense levels three procedures summation weakest link and best shot are examined

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

macro prudential governance and central banks facts and drivers abstract the great crisis has highlighted the importance of establishing macro prudential architectures to address problems of financial stability central banks are always part of macro prudential settings but their role is far from being homogeneous across countries reflecting the fact that according to economic theory there are pros and cons in extending central bank influence to macro prudential supervision the issue is then genuinely empirical are there any meaningful drivers explaining the actual choices made by policymakers about the central bank s role in macro prudential governance we identify three potential drivers micro supervision involvement monetary policy discretion overall institutional independence and test for their relevance by analysing current institutional settings in 31 advanced and emerging market economies we find that central bankers already in charge of micro supervision and less politically independent are more likely to get extended macro prudential powers the same is true if they have low monetary policy discretion being constrained by a monetary stability objective we interpret these results by using a political economy perspective

private information group contests best shot competition abstract we model competing groups when players values for winning are private information each group s performance equals the best effort best shot of its members and the group with the best performance wins the contest at the symmetric equilibrium of symmetric contests increasing the number of competing teams may increase or decrease each team s performance but it unambiguously increases the overall expected best shot depending on the elasticity of the distribution of players values individual team and contest performance may increase or decrease with team size considering just two competing groups that differ only in size we show members of the smaller group use the more aggressive strategy but depending on the nature of uncertainty either team may be more likely to win more generally when teams value cdfs differ increasing one team s size decreases increases that team s chance of winning if its value cdf is elastic inelastic

macroeconomic impacts of the korean financial crisis comparison with the cross country patterns this paper analyzes the macroeconomic adjustment process of the korean financial crisis in a broad international perspective in particular the impacts of the crisis on gdp growth inflation current account balance and employment are analyzed using a cross country data set which compiled 150 financial crisis episodes from all developing countries that have received conditional financial assistance from the imf over the period from 1973 to 1994 the cross country patterns show that gdp growth rates sharply drop with the eruption of a crisis but then recover quickly to the pre crisis level in two or three years showing a v pattern of adjustment inflation and current account deficit exhibit an inverse v pattern but they do not improve to the level of non program period employment growth is most sluggish in the recovery process compared with other macroeconomic variables we find that the korean case is in general consistent with these stylized patterns however the degree of initial contraction and following recovery has been far greater in korea than what the cross country evidence predicts cross country comparison indicates that both the export oriented structure and the swift adjustment of macroeconomic policies contributed to the speedy adjustment of the korean economy this abstract was borrowed from another version of this item

multi battle contests abstract we study equilibrium in a multistage race in which players compete in a sequence of simultaneous move component contests players may win a prize for winning each component contest as well as a prize for winning the overall race each component contest is an all pay auction with complete information we characterize the unique subgame perfect equilibrium analytically and demonstrate that it exhibits endogenous uncertainty even a large lead by one player does not fully discourage the other player and each feasible state is reached with positive probability in equilibrium pervasiveness expected effort in the component contests may be non monotonic in the closeness of the race and realized individual effort may exceed the value of the prize by a factor that is proportional to the maximum number of stage victories required

did the fed raise interest rates before elections the literature on political business cycles focuses on elected incumbents and neglects the incentives of appointed officials we present evidence of rate hikes before elections when the chair of the us federal reserve is from a different party than the incumbent president this finding contrasts with the traditional belief that an inappropriate policy rate bias implies a more expansive pre election policy stance we also find weak evidence that rates are lowered when the chair and president are from the same party the evidence that ideological preferences of the chair matter remains even when we control for career motives

between group contests over group specific public goods with within group fragmentation we model a contest between two groups of equal sized populations over the division of a group specific public good each group is fragmented into subgroups each subgroup allocates effort between production and contestation perfect coordination is assumed within subgroups but subgroups cannot coordinate with one another all subgroups choose effort allocations simultaneously we find that the group that is more internally fragmented receives the smaller share of the public good aggregate rent seeking increases when the dominant subgroups within both communities have larger population shares any unilateral increase in fragmentation within a group reduces conflict and increases the total income of its opponent strikingly the fragmenting community itself may however increase its total income as well even though its share of the public good declines hence a smaller share of public good provisioning cannot be used to infer a negative income effect on the losing community

the impact of cross listing in the united states on the precision of public and private information our study explores the source of improvement in the information environment from cross listing shares on us stock exchanges are the improvements from cross listing in the united states achieved more through public or private information channels while we find evidence that us cross listing is significantly associated with improvements in both public and private information precision the association is stronger between cross listing and improvements in private information precision this suggests that the improvement in the information environment for cross listed firms is largely due to analysts expending more effort on firm specific information discovery as opposed to broader improvements in overall public disclosure this research should influence international business scholars that improvements in the information environment do not occur solely through public information channels they also occur through investors private information search activities

does the fed contribute to a political business cycle in contrast to findings of other studies evidence is presented to support the existence of a federal reserve induced political monetary cycle that corresponds to the u s presidential election cycle using various taylor rules we find support for the view that fed policy turns significantly more expansionary in the seven quarters prior to the election but only when the fed chair and incumbent presidential party have partisan affiliations

group size collective action and complementarities in efforts we revisit the group size paradox in a model where two groups of different sizes compete for a prize exhibiting a varying degree of rivalry and where group effort is given by a ces function of individual efforts we show that the larger group can be more successful than the smaller group if the degree of complementarity is sufficiently high relative to the degree of rivalry of the prize

disentangling the incentive and entrenchment effects of large shareholdings this article disentangles the incentive and entrenchment effects of large ownership using data for 1 301 publicly traded corporations in eight east asian economies we find that firm value increases with the cash flow ownership of the largest shareholder consistent with a positive incentive effect but firm value falls when the control rights of the largest shareholder exceed its cash flow ownership consistent with an entrenchment effect given that concentrated corporate ownership is predominant in most countries these findings have relevance for corporate governance across the world

tunneling and propping a justification for pyramidal ownership abstract this paper links existence of the pyramidal ownership structure to tunneling and propping tunneling refers to a transfer of resources from a lower level firm to a higher level firm in the pyramidal chain whereas propping concerns a transfer in the opposite direction intended to bail out the receiving firm from bankruptcy we show that tunneling alone cannot justify the pyramidal structure unless outside investors are myopic since rational outside investors anticipate tunneling and adjust their willingness to pay for the firm s shares accordingly with propping however they may be willing to be expropriated in exchange for implicit insurance against bankruptcy

contests with group specific public goods and complementarities in efforts abstract this paper starts from the observation that in public goods group contests group impact can in general not be additively decomposed into some sum of functions of individual efforts we use a ces impact function to identify the main channels of influence of the elasticity of substitution on the behavior in and the outcome of such a contest we characterize the nash equilibria of this game and carry out comparative static exercises with respect to the elasticity of substitution among group members efforts if groups are homogeneous i e all group members have the same valuation and efficiency within the group the elasticity of substitution has no effect on the equilibrium for heterogeneous groups the higher the complementarity of efforts of that group the lower the divergence of efforts among group members and the lower the winning probability of that group this contradicts the common intuition that groups can improve their performance by solving the free rider problem via higher degrees of complementarity of efforts

what starts inflation evidence from the oecd countries we use a pooled cross country time series framework to study the factors associated with the start of 73 inflation episodes in oecd countries since 1960 we find that policy makers pursuit of high real growthtargets and national elections were important factors in initiating inflation episodes u s inflation turns out to be a triggering event for simultaneous outbreaks of inflation across countries several other explanations for inflation starts including increases in the natural rate of unemployment oil price shocks changes in the political orientation of governments and government debt policy are not supported by the data

investor protection and corporate governance recent research has documented large differences among countries in ownership concentration in publicly traded firms in the breadth and depth of capital markets in dividend policies and in the access of firms to external finance a common element to the explanations of these differences is how well investors both shareholders and creditors are protected by law from expropriation by the managers and controlling shareholders of firms we describe the differences in laws and the effectiveness of their enforcement across countries discuss the possible origins of these differences summarize their consequences and assess potential strategies of corporate governance reform we argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank centered and market centered financial systems

the impact of government deficits on money growth in developing countries abstract this paper investigates the relationship between government budget deficits and money growth in the developing countries for which reliabile data exist it is sometimes suggested that it is more likely that money growth follows debt growth in developing countries due to the embryonic state of capital markets and because the central bank generally comes under direct control of the minister of finance our results provide only mixed support for this contention however in the majority of countries in our sample there is no evidence that government deficits affect money growth for high inflation years there seems to be more support for a relationship between deficits and money growth

do countries matter for voluntary disclosure evidence from cross listed firms in the us this paper explores the likelihood and consequences of voluntary disclosure proxied by management earnings forecasts for a sample of 1005 cross listed firms in the us from 40 countries over the period 1996 2005 our study is grounded in a three tiered conceptual framework that relies on insights from and implications of institutional theory agency theory and bonding theory to explain the costs and benefits associated with voluntary disclosure consistent with institutional theory and agency theory our results indicate that disclosure likelihood increases with the strength of cross listed firms home country legal institutions and is also influenced by us listing type product market internationalization and ownership structure further our results show that voluntarily committing to us disclosure practice is associated with lower information asymmetry which supports reputational bonding theory overall our study provides a costs and benefits framework to understand voluntary disclosure practices in an international context our work also presents evidence that home country institutions still matter when foreign firms migrate into the us financial market which highlights the importance of country level institution development

rent seeking for pure public goods in this paper we present a formal analysis of rent seeking for public goods by two or more groups with different numbers of individuals we begin by considering equally wealthy groups under risk neutrality a case which constitutes our basic model several surprising and interesting results emerge from the analysis of this basic case the problem is then extended to deal with a groups with different wealth levels and b risk aversion this last extension brings about a further crop of interesting and useful results

rent seeking in groups abstract rent seeking contests between groups involve conflicts of interests at the levels of individuals groups and the society as a whole we conduct a series of economic experiments to study the behavior of groups and individuals competing against each other in rent seeking contests we find substantial over contribution to rent seeking relative to the equilibrium predictions of standard models regardless whether individuals compete against other individuals groups compete against other groups or individuals compete against groups

an integrated test for electoral cycles in the u s economy this paper offers the first integrated test of the electoral model of business cycles the test begins with unrestricted estimates of presidential electoral patterns in u s economic outcomes real gnp unemployment and inflation and policies money growth and the adjusted budget surplus these estimates are then used to determine whether the estimated electoral patterns in macropolicy yield predicted electoral patterns for macro outcomes that are consistent with estimates of both actual electoral patterns in outcomes and voting behavior the results indicate that four year electoral cycles in macroeconomic outcomes and policies are strongly significant for the united states for the period 1951i to 1986ii copyright 1989 by mit press

macroeconomic fluctuations in developing countries some stylized facts this paper documents the main stylized features of macroeconomic fluctuations and business cycle regularities for a group of 12 developing countries cross correlations between domestic industrial output and a large group of macroeconomic time series including government revenue and expenditure wages inflation money velocity private sector credit international trade and exchange rates are presented the effects of industrial country economic conditions on output fluctuations in these countries are also analyzed the robustness of the results is examined using three detrending procedures a modified hodrick prescott filter the baxter king band pass filter and a nonparametric technique overall the results show some similarities between macroeconomic fluctuations in developing and industrial countries e g procyclical real wages and counter cyclical variation in government expenditure but also some important differences in business cycle characteristics e g countercyclical variation in the velocity of monetary aggregates

international and domestic constraints on political business cycles in oecd economies the effect of increased capital mobility on the national control of macroeconomic policy continues to be a topic of debate empirical contributions to this debate share the assumption that domestic macroeconomic policy is driven by either partisan or countercyclical motivations and that the effects of international financial flows have roughly similar effects in all countries this article reevaluates the integration hypothesis in a framework in which manipulations of the macroeconomy derive from opportunistic motivations the article emphasizes the ways in which prior institutional choices effect the way these motivations are translated into actions evidence from individual country and pooled time series tests suggests that opportunistic cycles are less likely to occur when 1 a government maintains a fixed exchange rate in the presence of highly mobile capital or 2 when the central bank enjoys above average independence

discussion of adrs analysts and accuracy does cross listing in the united states improve a firm s information environment and increase market value lang lins and miller 2002 investigate the relation between cross listing in the united states and information intermediation by analysts the results suggest that cross listing in the united states increases analyst following and forecast accuracy and that both variables are associated with tobin s q these findings are interesting and advance the cross listing literature in several ways this discussion raises two issues first i highlight that the sources of cross listing effects are not obvious and are difficult to disentangle to illustrate this point i replicate the analysis using cross listed canadian firms for which mandated disclosures are held constant thus if disclosure effects are important for documented cross listing effects i expect to find no relation in the canadian sample the findings for forecast accuracy are consistent with this hypothesis however analyst following continues to be significantly higher for cross listed canadian firms these findings suggest that the sources of cross listing effects differ for analyst coverage and forecast accuracy second i discuss the link between analyst variables firm value and cost of capital as they are only tenuously related i draw attention to some unresolved questions and areas for future research

the association between stock returns and foreign gaap earnings versus earnings adjusted to u s gaap abstract this study examines the association between stock returns and foreign gaap earnings versus earnings adjusted to u s gaap using a sample of foreign firms with common stock or american depositary receipt adr traded in u s exchanges we compare the returns earnings relations between u s and foreign gaap based earnings results based on the ja test indicate that earnings based on foreign gaap are more closely associated with contemporaneous stock returns than earnings reconciled to u s gaap we find evidence that our results may be driven by institutional factors which are specific to foreign markets

the effects of market segmentation and investor recognition on asset prices evidence from foreign stocks listing in the united states non u s firms cross listing shares on u s exchanges as american depositary receipts earn cumulative abnormal returns of 19 percent during the year before listing and an additional 1 20 percent during the listing week but incur a loss of 14 percent during the year following listing we show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing our tests provide support for the market segmentation hypothesis and merton s 1987 investor recognition hypothesis the globalization of u s capital markets has accelerated dramatically in the past decade increasing numbers of companies from overseas have chosen to either raise capital through global equity issues or prepare for future capital raising by way of cross listings on u s exchanges as of 1997 about 1 300 non u s companies have listed their shares for trading on the new york stock exchange nyse the american exchange amex the national association of securities dealers automation quotation nasdaq system or

effort levels in contests the public good prize case abstract we examine the equilibrium individual players groups and total effort levels expended in a contest where groups compete with one another to win a group specific public good prize and the players choose their effort levels simultaneously and independently

communication and efficiency in competitive coordination games costless pre play communication has been found to effectively facilitate coordination and enhance efficiency in games with pareto ranked equilibria we report an experiment in which two groups compete in a weakest link contest by expending costly efforts allowing intra group communication leads to more aggressive competition and greater coordination than control treatments without any communication on the other hand allowing inter group communication leads to less destructive competition as a result intra group communication decreases while inter group communication increases payoffs our experiment thus provides an example of an environment where communication can either enhance or damage efficiency this contrasts sharply with experimental findings from public goods and other coordination games where communication always enhances efficiency and often leads to socially optimal outcomes

group contests with internal conflict and power asymmetry we investigate simultaneous inter and intra group conflict in the shadow of within group power asymmetry and complementarity in members group conflict efforts a more symmetric group faces a higher degree of internal conflict and might expend more effort in external conflict when the group conflict effort technology is highly complementary depending on the degree of complementarity the stronger player s relative contribution to external conflict might be higher in a more asymmetric group and as a result it is possible for the weaker player to earn a higher payoff in the absence of any complementarity the rent dissipation is non monotonic with the within group power asymmetry

top guns may not fire best shot group contests with group specific public good prizes we analyze a group contest in which n groups compete to win a group specific public good prize group sizes can be different and any player may value the prize differently within and across groups players exert costly efforts simultaneously and independently only the highest effort the best shot within each group represents the group effort that determines the winning group we fully characterize the set of equilibria and show that in any equilibrium at most one player in each group exerts strictly positive effort there always exists an equilibrium in which only the highest value player in each active group exerts strictly positive effort however perverse equilibria may exist in which the highest value players completely free ride on others by exerting no effort we provide conditions under which the set of equilibria can be restricted and discuss contest design implications

presidential elections and federal reserve policy an empirical test traditional macro economic models of federal reserve fed behavior typically assume that the fed enjoys a well defined objective function based on social welfare and generally predict counter cyclical monetary policy the increasing observation of procyclical monetary policy has led many researchers to investigate new models of fed behavior several recent papers imply that procyclical fed behavior is due to a lack of political accountability friedman 7 toma 23 and shughart and tollison 21 all attribute considerable bureaucratic discretion to the fed and seek to explain monetary policy by examining typical bureaucratic objectives other papers such as pierce 19 20 weintraub 26 and kane 10 11 argue that the fed operates in an arena filled with political constraints that cause sub optimal monetary policy but these constraints are not modeled explicitly one possible political constraint on fed behavior is the incumbent president s desire for re election in the political business cycle pbc literature presidential re election opportunities are enhanced by the production of a precise set of inflation and unemployment outcomes leading up to the election thus to the extent that presidents desire cyclical macro economic outcomes there will be executive pressure on the fed to create or accommodate such outcomes the effect this pressure will have on fed policy is ultimately an empirical question but most models deal with it by assumption traditional macro modeling assumes a zero effect while the pbc models implicitly assume that a favorable election cycle is a primary goal of all economic policymakers this paper examines presidential influence on the federal reserve by testing for an election cycle in money growth the major result is the identification of a regular 16 quarter cycle in money growth corresponding with presidential elections this cyclical effect is found to be stable over time and significant under a wide range of model specifications further when the cyclical component of money growth is used to simulate a simple macro model it produces a classic political business cycle in inflation and real output growth

elections and the fed is there a political monetary cycle to understand the political causes of macroeconomic policy it is necessary to examine the institutions that actually make such policy and the incentives those institutions face an explanation of the political causes of united states monetary policy must treat the various institutions that are influential in the monetary policy process which are at a minimum the federal reserve fed and the executive including the president the treasury department and other advisors in the executive office of the president the reelection motive has proven useful in modeling presidential incentives in this article i investigate whether electoral incentives associated with the theory of the political business cycle pbc can help to explain the behavior of the fed over the last quarter century the political business cycle has had a curious hold on modern political economy while the empirical evidence in favor of the cycle is far from overwhelming its theoretical importance leads to continuing empirical

does the bonding effect matter in a more integrated capital market world abstract this paper examines the bonding effect of cross listing before and after the stock market liberalization reforms in china consistent with the bonding hypothesis we find that chinese firms with foreign listings attain higher valuations than firms without foreign listings we also find that they manage earnings less than comparable purely domestic listed firms and have more informative stock prices further investigation indicates that the divergence in earnings quality between cross listed and non cross listed firms shrinks dramatically after the chinese stock market liberalization reforms in 2001 and 2002 overall the results suggest that the bonding effect is mitigated in an increasingly integrated capital market world

the effects of information voids on capital flows in emerging markets information voids reflect a lack of publicly available information about a country s investment climate and represent the information problems associated with institutional voids we argue that foreign investors differ in their sensitivity to information voids based on their own private information and their flexibility in responding rapidly to change we predict that foreign banks will be least hampered by information voids due to their privileged access to private information about local conditions and ability to adapt quickly to new information portfolio investors while impeded by information voids due to their severely limited access to local private information are able to quickly respond to new information foreign direct investors have moderate access to local private information yet their inability to adapt quickly creates problems dealing with information voids using time series cross sectional data on local public information and capital flows to the thirty largest emerging markets from 1994 to 2012 we find preliminary support for our hypotheses regarding the sensitivity of different investors to information voids we find that direct investors are most sensitive to information voids and banks are least sensitive while portfolio investors are moderately sensitive

electoral manipulation via voter friendly spending theory and evidence abstract we present a model of the political budget cycle in which incumbents try to influence voters by changing the composition of government spending rather than overall spending or revenues rational voters may support an incumbent who targets them with spending before the election even though such spending may be due to opportunistic manipulation because it may also reflect sincere preference of the incumbent for types of spending voters favor classifying expenditures into those which are likely targeted to voters and those that are not we provide evidence supporting our model in data on local public finances for all colombian municipalities our findings indicate both a pre electoral increase in targeted expenditures combined with a contraction of other types of expenditure and a voter response to targeting

the impact of central bank independence on political monetary cycles in advanced and developing nations this paper examines the extent to which monetary policy is manipulated for political purposes during elections we do not detect political monetary cycles in advanced countries or developing nations with independent central banks we do find evidence however in developing countries that lack central bank independence furthermore we find some evidence that these cycles are not caused by monetization of election related fiscal expansions this suggests that pressure by politicians on the central bank to exploit the phillips curve may be an important factor in generating political monetary cycles

reputation effects and the limits of contracting a study of the indian software industry this paper examines evidence of the role that reputation plays in determining contractual outcomes we conduct an empirical analysis of the indian customized software industry using a data set we collected containing detailed information on 230 projects carried out by 125 software firms we propose a model ofthe industry where reputation determines contractual outcomes the evidence supports the view that reputation matters ex ante contracts as well as the outcome after ex post renegotiation vary with firms characteristics plausibly associated with reputation this holds after controlling for project client and firm characteristics

firm characteristics and analyst following abstract this paper examines the major determinants of the number of analysts following a firm a simple model of analyst following is proposed and several firm characteristics are suggested that are likely to influence the extent of a firm s analyst following by either affecting the aggregate demand for or supply of analyst services or both for the firm almost all of these characteristics are found to be strongly significant in affecting the extent of analyst following of firms and the empirical results generally accord well with economic intuition

preemption contests between groups we consider a preemption game between competing groups firms lobbying individually for their groups interests provide an empirical example among symmetric groups the first firm to take action bears an unobserved cost and wins the prize on behalf of its group in equilibrium the firm with the lowest cost takes action but with delay more competition and a smaller ratio of costs to benefits reduce delay firms in larger groups wait longer but group action can occur earlier as the probability of a low cost firm is higher asymmetries in group size or strength of externalities also matter

bidding for a group specific public good prize abstract we examine the equilibrium effort levels of individual players and groups in a contest in which two groups compete with each other to win a group specific public good prize the players choose their effort levels simultaneously and independently and the winning group is determined by the selection rule of all pay auctions we first prove nonexistence of a pure strategy nash equilibrium and then construct a mixed strategy nash equilibrium at the nash equilibrium the only active player in each group is a player whose valuation for the prize is the highest in that group all the other players expend zero effort and the equilibrium effort levels depend solely on two values the highest valuation for the prize in each group

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

international business responses to institutional voids for nearly two decades scholars in international business and management have explored the implications of institutional voids for firm strategy and structure although institutional voids offer both opportunities and challenges they have largely been associated with firms efforts to avoid or mitigate institutional deficiencies and reduce the transaction costs associated with operating in settings subject to those institutional shortcomings the goal of this special issue is to advance scholarship on this topic by a exploring institutional voids that are new to the literature b providing a deeper assessment of the different ways in which firms respond to these voids and c utilizing diverse disciplines and theoretical approaches to do so in this introduction we first review and synthesize extant research on institutional voids tracking the evolution of institutional void scholarship since the inception of the concept khanna palepu journal of economic literature 45 2 331 372 1997 and providing our perspective on its contributions and limitations we then summarize the contributions of the articles included in this special issue in addition to identifying an array of institutional voids economic and social the articles highlight four different strategies for responding to them internalization substitution borrowing and signaling drawing on these we develop new insights on the implications of institutional voids for firm behavior we conclude with suggestions for future research

the modern history of exchange rate arrangements a reinterpretation we develop a novel system of reclassifying historical exchange rate regimes one key difference between our study and previous classifications is that we employ monthly data on market determined parallel exchange rates going back to 1946 for 153 countries our approach differs from the imf official classification which we show to be only a little better than random it also differs radically from all previous attempts at historical reclassification our classification points to a rethinking of economic performance under alternative exchange rate regimes indeed the breakup of bretton woods had less impact on exchange rate regimes than is popularly believed