bank runs liquidity costs and investment distortions abstract in this paper we extend the diamond and dybvig 1983 model of intermediation to study further the conditions under which bank runs can occur and to consider how private parties might adjust to the existence of bank run equilibria we provide weaker necessary conditions for runs we then characterize how banks respond to the possibility of runs in their design of deposit contracts and investment decisions banks might choose to offer contracts that prevent runs but under some conditions the second best contracts will involve accepting some risk of runs in order to achieve higher expected returns from their investments

war and natural resource exploitation abstract we build a theoretical framework that allows for endogenous conflict behaviour i e fighting efforts and for endogenous natural resource exploitation i e speed ownership and investments while depletion is spread in a balanced hotelling fashion during peace the presence of conflict creates incentives for rapacious extraction as this lowers the stakes of future contest this voracious extraction depresses total oil revenue especially if world oil demand is relatively elastic and the government s weapon advantage is weak some of these political distortions can be overcome by bribing rebels or by government investment in weapons the shadow of conflict can also make less efficient nationalized oil extraction more attractive than private extraction as insecure property rights create a holdup problem for the private firm and lead to a lower license fee furthermore the government fights less intensely than the rebels under private exploitation which leads to more government turnover without credible commitment to future fighting efforts private oil depletion is only lucrative if the government s non oil office rents are large and weaponry powerful which guarantees the government a stronger grip on office and makes the holdup problem less severe

the tragedy of the commons in a violent world earlier research has shown that the tragedy of the commons may be resolved by folk theorems for dynamic games in this article we graft on a standard natural resource exploitation game the possibility to appropriate the resource through violent means because conflict emerges endogenously as resources get depleted the threat supporting the cooperative outcome is no longer subgame perfect and thus credible the unique equilibrium is such that players exploit noncooperatively the resource when it is abundant and they revert to conflict when it becomes scarce the players utility is shown to be lower even if conflict wastes no resources

strategic behavior in contests reply in my 1987 paper i modeled contests where the probability of each player winning a prize depends on all players efforts and examined the first order benefits to one player of making a commitment to a strategy slightly different from his nash equilibrium strategy in the special case of a two player symmetric contest i found that this first order effect was zero michael r baye and onsong shin 1999 have taken the useful further step of finding the second order conditions which ensure that the local stationary point is a local maximum they also find an example where such a commitment has a third order benefit whether this is of any substantive economic interest remains to be seen i used the phrase no local effect to mean zero first order effect which was clearly a sloppy use of language but some such restriction on the use of local is essential if the phrase x has no local effect on f x at x 5 a were to mean that all derivatives f a are zero then a taylor series expansion would show that f x 5 f a for all x and no local effect would be the same as no global effect most importantly symmetric contests were only a very special case of my model the focus was on the much more interesting and more general situation of asymmetry among the players where one player s commitment to a strategy different from his nash equilibrium strategy does bring him a first order benefit the favorite benefits by committing to excessive effort and the underdog from committing to too little others for example kyung h baik and jason f shogren 1992 have extended the analysis to endogenize the order of moves and found that it can be in the interests of both contestants to let the underdog make the commitment in my view these are the more interesting economic issues to do with contests than are third order effects in the symmetric case

the role of multilateral institutions in international trade cooperation the world trade organization wfo lacks the power to directly enforce agreements it is therefore important to understand what role the wto can play to facilitate international cooperation and whether a multilateral institution can offer distinct advantages over a web of bilateral agreements this paper examines two potential benefits of a multilateral trade institution first verifying violations of the agreements and informing third parties thus facilitating multilateral reputation mechanisms second promoting multilateral trade negotiations rather than a web of bilateral negotiations the model suggests that a multilateral approach is particularly important when there are strong imbalances in bilateral trading relationships

dictators walking the mogadishu line how men become monsters and monsters become men history offers many examples of dictators who worsened their behavior significantly over time like zimbabwe s mugabe as well as dictators who displayed remarkable improvements like rawlings of ghana the authors show that such mutations can result from rational behavior when the dictator s flow use of repression is complementary to his stock of wrongdoings past wrongdoings then perpetuate further wrongdoings and the dictator can unintentionally get trapped in a repressive steady state where he himself suffers from ex post regret this then begs the question why such a dictator would ever choose to do wrong in the first place the authors show that this can be explained from the dictator s uncertainty over his degree of impunity in relation to wrongdoing which induces him to experiment along this dimension this produces a setting where any individual rising to power can end up as either a moderate leader or as a dreaded tyrant since derailment is accidental and accompanied by ex post regret increasing accountability can be in the interest of both the public and the dictator

on the salience of ethnic conflict ray acknowledges support from the national science foundation under grants 0421852 and 0617827 esteban is a member of barcelona economics xrea and is grateful for support from the generalitat de catalunya and the cicyt sej 2006 00369 this research is part of the polarization and conflict research project cit2 ct 2004 506084 funded by the european commission dg research sixth framework program

why do bank runs look like panic a new explanation this paper demonstrates that even if depositors are fully rational and always choose the pareto dominant equilibrium when there are multiple equilibria a bank run may still occur when depositors expectations on the bank s fundamentals do not change more specifically a bank run may occur when depositors learn that noisy bank specific information will be revealed or when they learn that precise bank specific information will not be revealed the results in this paper are consistent with the empirical evidence about bank runs it also implies that suspension of convertibility can improve the efficiency of bank runs

a political economy theory of trade agreements we develop a model where trade agreements in addition to correcting terms of trade externalities help governments to commit vis a vis domestic industrial lobbies the model allows us to explore how the characteristics of the political environment aect the structure of the trade agreement and the extent of trade liberalization the model also highlights the role of intersectoral capital mobility in determining trade liberalization in a dynamic extension of the model we explore the extent to which trade liberalization occurs gradually and how its speed depends on the fundamentals of the problem

on r d timing under uncertainty abstract in this paper we analyze the problem of endogenous r d timing when technological breakthrough and innovation are random events in a dynamic framework which involves the substitution of an exhaustible resource oil for instance by an alternative technology the backstop that provides an everlasting source of energy under fairly general assumptions we characterize the pattern of exploitation of both energy sources and study the effect of uncertain technological breakthrough on the r d timing decision on resource prices and on the pattern of resource use in comparison to the certainty case it is shown that uncertainty consideration might delay the undertaking of r d and might lead to a more rapid resource depletion pattern for a considerable range of r d capital costs while the opposite result the conventional wisdom holds only for some other range

monopoly extraction of a nonrenewable resource facing capacity constrained renewable competition abstract this paper studies monopoly extraction of a nonrenewable resource with the presence of a competitively supplied capacity constrained renewable substitute the monopolist staves off the renewable supply when the latter becomes competitive and then lets the resource price jump up

government taxes and banking crises abstract this paper analyzes the effectiveness of different government policies to prevent the emergence of banking crises in particular we study the impact on welfare of using taxpayers money to recapitalize banks government injection of money into the banking system through credit lines the creation of a buffer and taxes on financial transactions the tobin tax we illustrate the trade off between these policies and derive policy implications

a microeconometric test of the theory of exhaustible resources abstract this paper generalizes extant developments of the economic theory of exhaustible resource production derives and extends a halvorsen and smith 1991 quarterly journal of economics 106 123 140 type test of the theory and applies the test to a sample of natural gas resources to facilitate our empirical test we extend the model developed in chermak and patrick 1995 journal of environmental economics and management 28 174 189 to explicitly account for the fact that the extracted resource gross product must be processed to obtain the final saleable product duality theory is used to derive econometric models with which the theory is statistically tested using panel data from 29 natural gas wells shadow prices of the resource stock through time which are generally unobservable but necessary for the test are estimated via the indirect cost function contrary to the extant literature we find inter alia that i at any point in time ceteris paribus the in situ resource price a decreases with gross production and b increases with final production and ii we cannot reject the theory of exhaustible resources i e producer behavior is consistent with the theory

arms races and negotiations two players simultaneously decide whether or not to acquire new weapons in an arms race game each player s type determines his propensity to arm types are private information and are independently drawn from a continuous distribution with probability close to one the best outcome for each player is for neither to acquire new weapons although each prefers to acquire new weapons if he thinks the opponent will there is a small probability that a player is a dominant strategy type who always prefers to acquire new weapons we find conditions under which the unique bayesian nash equilibrium involves an arms race with probability one however if the probability that a player is a dominant strategy type is sufficiently small then there is an equilibrium of the cheap talk extension of the game where the probability of an arms race is close to zero copyright 2004 wiley blackwell

financial fragility and the exchange rate regime abstract we study financial fragility exchange rate crises and monetary policy in a model of an open economy with diamond dybvig banks the banking system the exchange rate regime and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare if the mechanism fails banking crises and speculative attacks on the currency become possible we compare currency boards fixed rates and flexible rates with and without a lender of last resort a currency board cannot implement a social optimum in addition it allows bank runs to occur a fixed exchange rate system may implement the social optimum but is more prone to bank runs and exchange rate crises than a currency board a flexible rate system implements the social optimum and eliminates runs provided that the exchange rate and credit policies of the central bank are appropriately designed journal of economic literature classification numbers f3 e5 g2

equilibrium valuation of natural resources the purpose of this paper is to provide a theoretical investigation of equilibrium spot and futures price behavior in a nonrenewable commodity market the underlying commodity is nonrenewable in the sense that the reserve level of the commodity is expected to decline over time in the absence of successful discoveries of additional reserves i wish to understand how the nonrenewable nature of the commodity influences the intertemporal extraction of the commodity equilibrium spot price behavior and the prices of derivative assets traded on the nonrenewable commodity there is considerable disagreement among economists whether resources are exhaustible in the sense of resource constraints becoming binding on our society in the foreseeable future some economists have argued that natural resources are being depleted at

conflict and deterrence under strategic risk we examine the determinants of cooperation and the effectiveness of deterrence when fear is a motive for conflict we contrast results obtained in a complete information setting with those obtained in a setting with strategic risk where players have different information about their environment these two strategic settings allow us to identify and distinguish the role of predatory and preemptive incentives as determinants of cooperation and conflict in our model weapons unambiguously facilitate peace under complete information in contrast under strategic risk we show that increases in weapon stocks can have a nonmonotonic effect on the sustainability of cooperation we also show that under strategic risk asymmetry in military strength can facilitate peace and that anticipated peacekeeping interventions may improve incentives for peaceful behavior

information acquisition and financial contagion abstract this paper incorporates costly voluntary acquisition of information a la nikitin and smith 2007 nikitin m smith r t 2007 information acquisition coordination and fundamentals in a financial crisis journal of banking and finance in press doi 10 1016 j jbankfin 2007 04 031 in a framework similar to allen and gale 2000 allen f gale d 2000 financial contagion journal of political economy 108 1 33 without relying on any unexpected shock to model contagion in this framework contagion and financial crises are the result of information gathering by depositors weak fundamentals and an incomplete market structure of banks it also shows how financial systems entering a recession can affect others with apparently stronger economic conditions contagion finally this is the first paper to investigate the effectiveness of the contingent credit line procedures introduced by the imf at the end of the nineties as a mechanism to prevent the propagation of crises

markets and institutions in financial intermediation national characteristics as determinants abstract given the importance of financial intermediation and the rise of globalization there is little prior research on how national preferences for financial intermediation markets versus institutions are determined by cultural legal and other national characteristics using panel analysis for data on a recent 8 year period for 30 countries this paper documents that national preferences for market financing increase with political stability societal openness economic inequality and equity market concentration and decreases with regulatory quality and ambiguity aversion we confirm with robustness tests that our result for regulatory quality is independent of differences in national wealth and that our result for political stability is independent of both wealth and political legitimacy these results should be of much interest to managers scholars regulators and policy makers

us dairy policy alternatives under bovine somatotropin a dynamic optimal control model is constructed to study us dairy policy alternatives under bovine somatotropin bst the results indicate that the adoption of bst might be slower than that indicated by the early surveys even if adoption is widespread the government can have the potentially large milk surplus problems under control with a combination of price support generic milk advertising and a cow buy out with bst adoption the government would set lower support prices and would increase assesment for milk advertising compared with the no bst case the higher adoption rates the lower the support prices and the higher the advertising assesments it is found that bst adoption is socially beneficial consumers gain at the expense of producers the government can however help produces by giving a larger policy weight to producers in setting the optimal levels of policy variables finally it is found that the current levels of generic advertising are too low and the allocation of advertising bet

financial crises and political crises abstract the simultaneous determination of financial default and political crises is studied in an open economy model political crises accompany default in equilibrium because of an information transmission conflict between the government and the public multiple equilibria are possible if foreign lenders are pessimistic about the country s stability they demand a high interest on the debt exacerbating distortions and possibly leading to political crisis but if lenders are optimistic the cost of the debt falls and political crises disappear in such a case international liquidity packages can select the best equilibrium and rule out political crises at negligible cost

the management of fragile resources a long term perspective excessive exploitation diminishes the capacity of natural resources to withstand environmental stress increasing their vulnerability to extreme conditions that may trigger abrupt changes the onset of such events depends on the coincidence of random environmental conditions and the resource state determining its resilience examples include species extinction ecosystem collapse disease outburst and climate change induced calamities the policy response to the catastrophic threat is measured in terms of its effect on the long term behavior of the resource state to that end the l methodology developed originally to study autonomous systems is extended to non autonomous problems involving catastrophic threats

a demand determined model of the residual fuel oil market abstract this paper examines several questions concerning the equilibrating nature of markets including the flexibility of the price mechanism in equating supply and demand and the impact of government price regulations the residual fuel oil market an important submarket of the us petroleum industry and one closely related to the natural gas market is used as a case study a variety of alternative models are examined both equilibrium and disequilibrium the most important results suggest that the residual fuel oil market should best be pictured using a disequilibrium model that emphasizes the role of inventories

optimal transition to backstop substitutes for nonrenewable resources abstract we analyze the optimal transition from a primary nonrenewable resource to a backstop substitute for a class of problems characterized by the property that the backstop cost decreases continuously as learning from r d efforts accumulates to increase the knowledge base the transition policy consists of the r d process and of the time profiles of the primary and backstop resource supply rates we find that the optimal r d process follows a most rapid approach path mrap the knowledge process associated with r d should approach some endogenously derived target process as rapidly as possible and proceed along it thereafter thus if the initial knowledge level is sufficiently low and the cost structure justifies r d activities the r d efforts should be initiated without delay at the highest affordable rate and slow down later on this pattern contrasts previous findings that typically recommend a single humped r d process with a possible initial delay

banks debt maturity and financial crises abstract we develop a model in which the maturity of external debt of banks their level of international reserves and the term structure of interest rates are jointly determine self fulfilling runs may occur and banks take this possibility into account when choosing the structure of their assets and liabilities if the probability of a run is sufficiently small banks will deliberately choose an illiquid asset liability position and expose themselves to a run in that case short term debt will be cheaper than long term debt and the maturity structure of foreign debt will depend on attitudes towards risk

market structure and resource extraction under uncertainty this paper compares the rate of extraction of a natural resource under alternative market structures when there is uncertainty about the date of discovery of a substitute or about the date of discovery of a new deposit the analysis shows that imperfectly competitive market structures are excessively conservationist for any value of the initial stock of the natural resource the price is higher than in competitive equilibrium and therefore higher than the socially optimal level but markets with limited competition may have a higher price than markets with pure monopoly the same monopolist controlling the natural resource and its substitute in particular we find that the highest prices are associated with nash quantity setting duopolists the next highest prices occur in markets in which the monopolist controls the resource but the substitute is competitively produced the pure monopolist sets his price lower than this while the market in which a monopolist controls the substitute but the resource is competitvely owned is still lower

deregulation endogenous expectations and the evolution of industry structure this analysis of deregulation as a government directed switch of regime from monopoly to competition treats the incumbent producer as a monopolist who anticipates that deregulation will occur at some future date and result in the deployment of substitutes producing a competitive environment the results suggest that the ceiling for the rise in world gas prices will fall capping any domestic price rise the model indicates that any drop in world prices will be moderated by an incumbent producer e g opec who uses market variables like price to improve his forecast of competitive entry when the incumbent recognizes that higher monopoly prices raise the probability of entry the resulting monopoly path of prices will lie closer to the postulated path of initial competitive prices resulting in a less substantial drop in price when the switch of regime actually occurs 27 references

a theory of managed trade this paper proposes a theory that predicts low levels of protection during periods of normal trade volume coupled with episodes of special protection when trade volumes surge this dynamic pattern of protection emerges from a model in which countries choose levels of protection in a repeated game facing volatile trade swings high trade volume leads to a greater incentive to defect unilaterally from cooperative tariff levels therefore as the volume of trade expands the level of protection must rise in a cooperative equilibrium to mitigate the rising trade volume and hold the incentive to defect in check copyright 1990 by american economic association

the costs of uncoordinated regulation patents encourage firms to undertake research and development by protecting innovator revenues from competition controls on pollution of the environment are intended to close the gap between the private and social costs of natural resource use this paper examines the incentives that are created by the interaction of these two separate pieces of regulation a model is developed that shows how an incumbent patent holding firm can take advantage of environmental regulation to exclude rivals from her market

bank fragility money under the mattress and long run growth us evidence from the perfect panic of 1893 abstract this paper examines how the us financial crisis of 1893 affected state output growth between 1900 and 1930 the results indicate that a 1 increase in bank instability reduced output growth by 2 5 a comparison of nebraska which had one of the highest bank failure rates with west virginia which did not experience a single bank failure reveals that disintermediation affected growth through a portfolio change among savers people simply stopped trusting banks time series evidence from newspapers indicates that articles containing the words money hidden significantly increase after banking crises then slowly die out

foreign influence and welfare how do foreign interests inuence the policy determination process what are the welfare implications of such foreign inuence in this paper we develop a model of foreign inuence and apply it to the study of optimal taris we develop a two country voting model of electoral competition where we allow the incumbent party in each country to take costly actions that probabilistically aect the electoral outcome in the other country we show that policies end up maximizing a weighted sum of domestic and foreign welfare and we study the determinants of this weight we show that although foreign inuence is zero in equilibrium its threat may be welfare enhancing from the point of view of aggregate world welfare this is because foreign inuence helps alleviate externalities arising from cross border eects of policies the threat of foreign inuence can however prove harmful in the presence of large imbalances in inuence power across countries we apply our model of foreign inuence to the study of optimal trade policy we derive a modied formula for the optimal import tariand show that a country s import tariis more distorted whenever the inuenced country is small relative to the inuencing country and whenever natural trade barriers between the two countries are small

extraction of a resource with a substitute for some of its uses important resources e g oil may be used for several purposes there may exist good substitutes for such a resource in some of its uses but no substitute in other uses the price and extraction paths for the resource are analysed for several market structures some of these paths differ substantially from the corresponding paths for the case of no substitute and for the case of a substitute for all the resource s uses in particular a jump in the resource price may occur l extraction d une ressource quand il existe un substitut pour certains des usages qu on peut en faire certaines ressources importantes comme 1 huile par exemple peuvent etre utilisees a plusieurs fins dans certains cas il se peut qu il existe des substituts pour certains usages qu on peut en faire alors que dans d autres cas il n existe pas de substituts l auteur examine la tarification et les diverse strategies d extraction dans des structure de marches differentes certaines de ces strategies d extraction different substantiellement de celles qui auraient ete utilisees soit dans le cas oiu aucun substitut n existe soit dans le cas ou substitut existe pour tous les usages qu on peut faire de la ressource en particulier on peut observer un saut dans le prix de la ressource

the optimal production of an exhaustible resource when price is exogenous and stochastic this paper examines the optimal production of a resource such as oil when its price is determined exogenously e g by a cartel such as opec and is subject to stochastic fluctuations away from an expected growth path we first examine the dependence of production on extraction cost and show that the conventional exponential decline curve is indeed optimal if marginal cost is constant with respect to the rate of extraction but is a hyperbolic function of the reserve level we next show that uncertainty about future price affects the optimal production rate in two ways first if marginal cost is a convex concave function of the rate of production stochastic fluctuations in price raise lower average cost over time so that there is an incentive to speed up slow down production second the option value of the reserve i e the ability to withhold production indefinitely and never incur the cost of extraction provides an incentive to slow down the rate of production

determinants of oil price subsidies in oil and gas exporting countries abstract this paper investigates the implicit subsidization of refined products in oil and gas exporting countries most of these countries as well as some other countries mostly developing countries but one could argue that us gasoline prices do not account for external costs distribute large subsidies subsidies that are offered for a long period are not only inefficient but also dangerous due to gradual increases in the energy demand low domestic prices have led to immense oil demand growth that cannot continue if these countries wish to continue exporting only very high price jumps can stop this development but politically these price jumps are very costly if not suicidal for many governments indeed we argue that the currently low oil prices not only harm oil and gas exporting countries but also provide a unique opportunity to eliminate this costly subsidy policy at manageable political costs this paper begins with theoretical normative and positive explanations of low domestic energy prices and then addresses how to phase out subsidies again from a normative and positive perspective finally we empirically address the obstacles that individual countries may face when attempting to eliminate subsidies by quantifying the factors political economic and social that influence the existing subsidies

why resource poor dictators allow freer media a theory and evidence from panel data every dictator dislikes free media yet many nondemocratic countries have partially free or almost free media in this article we develop a theory of media freedom in dictatorships and provide systematic statistical evidence in support of this theory in our model free media allow a dictator to provide incentives to bureaucrats and therefore to improve the quality of government the importance of this benefit varies with the natural resource endowment in resource rich countries bureaucratic incentives are less important for the dictator hence media freedom is less likely to emerge using panel data we show that controlling for country fixed effects media are less free in oil rich economies with the effect especially pronounced in nondemocratic regimes these results are robust to model specification and the inclusion of various controls including the level of economic development democracy country size size of government and others

on the nonexistence of market equilibria in exhaustible resource markets with decreasing costs this paper examines the existence of competitive equilibria in markets for exhaustible resources where there are initial economies of scale in either the extraction of the resource or the utilization of the resource as an input in production in such instances which are fairly common we find that the classic hotelling rule for competitive extraction does not apply since competitive price equilibria generally do not exist this is in marked contrast to static markets where the usual textbook example of firms with u shaped average cost curves is not inconsistent with the existence of competitive equilibria furthermore oligopolistic market equilibria in which resource firms act as nash producers may also fail to exist when there are returns to scale in production

guns butter and anarchy a state in the international system implicit in realism must allocate its limited resources between satisfying its intrinsically valued ends and the means of military power i formalize this guns versus butter problem in a simple infinite horizon model in which two states must continually decide how to allocate their resources and whether to attack the other state the analysis establishes sufficient conditions to ensure the existence of an equilibrium in which neither state attacks shows that there is a strictly pareto dominant pair of peaceful equilibrium payoffs characterizes the unique peaceful markov perfect equilibrium that yields them and describes the comparative statics of the equilibrium allocations more broadly the analysis also suggests that the notion of anarchy has little if any substantive significance distinctively related to international politics and that the problem of absolute and relative gains is superfluous

deregulation as a switch of regime price effects using a modified hotelling rule abstract concern over rising energy prices has led to support for government intervention to regulate the price of domestic non renewable energy resources however us policy makers appear to be looking more towards competition rather than regulation to decide who will provide energy resources and how these will be priced this paper models possible dynamic price effects occasioned by the removal of a regulatory constraint the analysis focuses on a government decision to eliminate binding price ceilings on a non renewable energy substitute when the incumbent resource is monopolistically controlled using deregulation of natural gas as an illustration under certain conditions it is shown that one will get continuity of marginal revenue and a fall in the world price following decontrol the expiration of a patent or a decision to grant mineral rights on federal land in general however the model suggests that both marginal revenue and prices will be discontinuous and that the discontinuity is likely to result in a fall in price

anarchy and its breakdown anarchy defined as a system in which participants can seize and defend resources without regulation from above is not chaos but rather a spontaneous order however anarchy is fragile and may dissolve either into formless amorphy or into a more organized system such as hierarchy under anarchy each contestant balances between productive exploitation of the current resource base and fighting to acquire or defend resources anarchy is sustainable only when there are strongly diminishing returns to fighting effort the decisiveness parameter is sufficiently low and incomes exceed the viability minimum these considerations explain many features of animal and human conflict

scarcity growth and r d abstract the limits to economic growth due to resource scarcity can be alleviated only by the development of backstop substitutes this paper combines resource based economic growth with r d to reduce the cost of backstop technologies characterizing the entire dynamics of optimal growth and r d processes we find that an economy s growth prospects depend on its type as determined by its production technology and learning ability and by its knowledge capital endowment a wide variety of growth patterns emerges ranging from cases in which an economy that without r d eventually stagnates converges to a steady state is diverted by r d onto a path of sustained growth to cases in which r d is not warranted resource scarcity is shown to encourage r d due to the increased reliance on the backstop technology

the economics of early warfare over land abstract we investigate the incidence of early warfare among foragers and farmers in prehistory our focus is specifically on conflict over land food is produced using inputs of labor and land and the probability of victory in a conflict depends on relative group sizes the group sizes are determined by individual migration and malthusian population dynamics both factors result in larger populations at better sites which deters attack there are two necessary conditions for warfare high enough individual mobility costs and large enough shocks to the relative productivities of the sites together these conditions are sufficient in particular technological or environmental shocks that alter the productivities of sites can trigger warfare but only if individual agents do not change sites in response these results are consistent with evidence from archaeology and anthropology

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

trade wars and trade talks when governments meet in the international arena their actions reflect the political situations at home previous studies of trade relations have focused on governments that are immune from political pressures and that act as benevolent servants of the public interest here we introduce domestic politics into the analysis of international economic relations we study the interactions between national leaders who are concerned both with providing a high standard of living to the general electorate and collecting campaign contributions from special interest groups our analysis sheds light on the determinants of the structure of protection in non cooperative and cooperative policy equilibria

models of resource markets and the explanation of resource price behaviour abstract much of the recent theoretical work in resource economics has been aimed at relaxing the stringent simplifying assumptions of the basic hotelling model in an attempt to better explain observed resource price behaviour this paper surveys the characteristics of exhaustible resource markets that are likely to be important for the development of successful positive models in particular we discuss exploration and its relationship to production and market price the effects of various forms of uncertainty on price behaviour and for some resources the treatment of durability finally we address the question of whether producer behaviour can properly be viewed as that of dynamic optimization this paper should be seen as an attempt to stimulate discussion over research directions and priorities in resource economics

a dynamic theory of resource wars we develop a dynamic theory of resource wars and study the conditions under which such wars can be prevented our focus is on the interaction between the scarcity of resources and the incentives for war in the presence of limited commitment we show that a key parameter determining the incentives for war is the elasticity of demand our first result identifies a novel externality that can precipitate war price taking firms fail to internalize the impact of their extraction on military action in the case of inelastic resource demand war incentives increase over time and war may become inevitable our second result shows that in some situations regulation of prices and quantities by the resource rich country can prevent war and when this is the case there will also be slower resource extraction than the hotelling benchmark with inelastic demand our third result is that because of limited commitment and its implications for armament incentives regulation of prices and quantities might actually precipitate war even in some circumstances where wars would not have arisen under competitive markets copyright 2012 oxford university press

a martingale characterization of the price of a nonrenewable resource with decisions involving uncertainty abstract this paper presents a general model of nonrenewable resource consumption and exploration decisions involving uncertainty about the time of occurrence of an event such as exhaustion stock discovery or a substitute development the resulting price process is characterized in terms of necessary and sufficient conditions under which the price is expected to rise at a rate equal to greater than or less than the discount rate the general model is illustrated and the price process and the optimal decisions are characterized by examining the three types of uncertainty indicated above

invention and innovation under alternative market structures the case of natural resources this paper examines the interactions between market structure and resource allocation over time when there is endogenous technical progress the structures considered are a planned economy pure monopoly and competition with patent rights in an efficient allocation the date of invention coincides with the date of innovation the date at which technology is used this is also true with a pure monopoly but monopoly retards technical progress relative to the efficient level competition for patents rights to a new technology results in excessively rapid technical progress if the resource endowment of the economy is sufficiently large also competition may lead to sleeping patents where invention strictly precedes the date of innovation

domestic policies national sovereignty and international economic institutions to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world this question is at the center of the debate over the future role of the wto formerly gatt in the realm of labor and environmental standards in this paper we establish that the market access focus of current wto rules is well equipped to handle the problems associated with choices over labor and environmental standards in principle with relatively modest changes that grant governments more sovereignty not less these rules can deliver globally efe cient outcomes i introduction to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world at a broad level this question probes the limits of any international economic institution whether geared toward real or e nancial concerns that is designed to promote global efe ciency while respecting national sovereignty naturally the answer depends upon the particular problem that the institution is meant to solve in other words the answer depends upon the inefe ciency that would arise under unilateral policy choices at a more specie c level this question is at the center of the debate concerning the appropriate scope of the world trade organization wto formerly gatt recently member countries have considered ways to broaden the wto s orientation beyond conventional trade policy measures to include labor and environmental standards there are now initiatives to introduce the issue of labor standards directly onto the negotiating agenda of the wto with the purpose of creating a wto social clause the social clause would specify a set of minimum international labor standards and then permit restrictions to be placed against imports from countries not complying with these minimum standards with regard to environmental policies a wto committee on trade and environment has been established to identify the relationships between trade and environmental measures and to

are renewable energy policies climate friendly the role of capacity constraints and market power abstract this paper studies the impacts of renewable energy support policies on energy prices fossil fuel supply and thus carbon emissions from fossil fuels such supports are climate friendly if the renewables are already competitive against fossil fuels but if the renewables are not yet competitive the climate change impacts are often ambiguous and are sensitive to capacity constraints of renewables production and to the fossil fuel market structure if the renewables do not have capacity constraints then the subsidies are subject to the green paradox under perfect competition but might be climate friendly under monopoly supports for capacity constrained renewables under perfect competition lead to more current fossil fuel supply but delay fossil fuel exhaustion time and these effects are reversed under monopoly our results highlight the importance of considering the long term effects on fossil fuel supply as well as capacity constraints and market power in designing renewable energy policies and evaluating their carbon footprints

rationalist explanations for war realist and other scholars commonly hold that rationally led states can and sometimes do fight when no peaceful bargains exist that both would prefer to war against this view i show that under very broad conditions there will exist negotiated settlements that genuinely rational states would mutually prefer to a risky and costly fight popular rationalist and realist explanations for war fail either to address or to explain adequately what would prevent leaders from locating a less costly bargain essentially just two mechanisms can resolve this puzzle on strictly rationalist terms the first turns on the fact that states have both private information about capabilities and resolve and the incentive to misrepresent it the second turns on the fact that in specific strategic contexts states may be unable credibly to commit to uphold a mutually preferable bargain historical examples suggest that both mechanisms are empirically plausible

small scale partial equilibrium model of natural gas markets responses to alternative deregulation scenarios and oil price changes a small scale model of natural gas markets explains regulated gas prices using past changes in residual fuel oil prices the study examines three different accelerated complete wellhead gas decontrol scenarios to find the impact of current law immediate decontrol and accelerated decontrol it finds that accelerated decontrol simply shifts price increases forward with minor impact while the revenue transfers are fairly substantial a windfall profits tax could capture much of this transfer but the revenues from such a tax would decrease sharply by the end of the period 23 references 4 figures 8 tables

war and conflict in economics theories applications and recent trends we review the main economic models of war and conflict these models vary in details but their implications are qualitatively consistent highlighting key commonalities across a variety of conflict settings recent empirical literature employing both laboratory and field data in many cases confirms the basic implications of conflict theory however this literature also presents important challenges to the way economists traditionally model conflict we finish our review by suggesting ways to address these challenges

ownership risk investment and the use of natural resources the effect of insecure ownership on ordinary investment and natural resource use is examined insecure ownership is postulated to depend on the type of government regime in power and the prevalence of political violence or instability the political determinants of economy wide investment are estimated from cross country data and the results are used to form an index of ownership security when introduced into empirical models of natural resource use this index has a significant and quantitatively important effect on the use of forests and petroleum contrary to conventional wisdom ownership risk slows resource use in some circumstances

trade and insecure resources we construct a model of conflict and trade to study the consequences of interstate disputes over contested resources land oil water or other resources for arming welfare and trade flows different trade regimes imply different costs of such disputes in terms of arming depending on world prices free trade can intensify arming to such an extent that the additional security costs it brings swamp the traditional gains from trade and thus render autarky more desirable for one or all rival states free trade though is always an equilibrium and sometimes is a dominant one with features of a prisoner s dilemma outcome furthermore contestation of resources can reverse a country s apparent comparative advantage relative to its comparative advantage in the absence of conflict and where such conflict is present comparisons of autarkic prices to world prices could be inaccurate predictors of trade patterns

climate and the slave trade african societies exported more slaves in colder years lower temperatures reduced mortality and raised agricultural yields lowering slave supply costs our results help explain african participation in the slave trade which predicts adverse outcomes today we use an annual panel of african temperatures and port level slave exports to show that exports declined when local temperatures were warmer than normal this result is strongest where african ecosystems are least resilient to climate change cold weather shocks at the peak of the slave trade predict lower economic activity today we support our interpretation using the histories of whydah benguela and mozambique

insecure resources bilateral trade and endogenous predation a game theoretic analysis of conflict and trade this article analyzes how interstate conflict over resources affects the incentives to trade and how greater trade openness affects the endogenous decisions of arming by enemy countries we identify conditions under which there is trade between two adversary countries and show that each adversary s arming affects domestic welfare in three different ways the first is an export revenue effect which increases welfare because arming causes export revenue to go up i e there is an arming induced terms of trade improvement the second is a resource predation effect which increases welfare because arming increases the appropriation of a rival country s resource input to produce a consumption good the third is an output distortion effect which reduces welfare because arming lowers the domestic production of civilian goods based on these effects we show circumstances in which greater trade openness reduces the intensity of arming we also discuss the implications of resource security asymmetry for conflict and trade

alternative approaches to economic environmental interactions abstract the key questions raised by recent developments in resource and environmental economics have been what useful economic functions does the environment provide and how are these functions affected by the process of economic environmental interaction this paper distinguishes between two different formal approaches to answering these questions the more conventional approach which is concerned with the optimal allocation of economically valuable exhaustible resources and an alternative analysis that considers the trade off between on the one hand environmental quality and on the other resource depletion and waste generation by the economic process to illustrate and extend the latter approach a model is constructed to show how this trade off might lead to continuously declining environmental quality and a future ecological constraint society must therefore optimally allocate output between consumption and services to improve the environment and choose between increased capital accumulation and environmental degradation although strict application of such a model may be limited it has wider implications for the role of technological change and the value of the environment in any system experiencing deteriorating environmental quality

sustainable management of fossil fuels a dynamic stochastic optimization approach with jump diffusion abstract this paper deals with a relevant aspect of energy modeling i e fossil fuels management the issue is faced by using purely operational research techniques which are suitable in this context in particular a dynamic stochastic optimization model is developed to optimally determine use and stock of resources to be employed in consumption and investments in a wide economic sense human and physical capital r d etc it is assumed that a sustainability criterion drives the optimality rules i e decisions are also grounded on the well being of future generations the policymaker maximizes an aggregated intergenerational expected utility under the dilemma of present consumption conservation of natural resources for the future in reference to standard environmental economic theory jump diffusion dynamics for the stock of natural resources and infinite time horizon are assumed extensive numerical experiments complete the analysis and contribute to determine fossil fuels management policies showing that long term investments make the difference for the well being of present and future generations

political economy of dynamic resource wars abstract the political economy of exhaustible resource extraction is analysed in three contexts first if an incumbent faces a threat of being removed once and for all by a rival faction extraction becomes more voracious if the factions do not share rents equally second perennial political conflict cycles are more inefficient if constitutional cohesiveness or the partisan in office bias is large and political instability is high third resource wars are more intense if constitutional cohesiveness is weak the incumbent has a partisan in office bias reserves of resources are high the wage is low governments can be less frequently removed from office and fighting technology has less decreasing returns to scale resource depletion in such wars is more rapacious if there is more government instability the political system is less cohesive and the partisan in office bias is smaller

optimal timing of technology adoption abstract in a dynamic programming framework this paper investigates the optimal timing of technology adoption by a competitive firm when technology choice is irreversible and the firm faces a stochastic innovation process with uncertainties about both the speed of the arrival and the degree of improvement of new technologies a numerical example illustrates how the optimal timing decision is affected by changes in parameter values reflecting market conditions the firm s initial technological attributes and the characteristics of the stochastic innovation process some of these effects turn out to be in sharp contrast to common intuition contrasting the optimal decision rule derived here with the rule obtained under the net present value shows that the former implies a slower pace of adoption than implied by the latter the optimal decision rule is generalized for the case of multiple technology switches and it is shown that for all the switching decisions except the last one the optimal rule satisfies the net present value criterion

industrialization and the demand for mineral commodities abstract this paper uses a new data set that begins in 1840 to investigate how industrialization affects the derived demand for mineral commodities i establish that there is substantial heterogeneity in the long run effect of manufacturing output on demand across five commodities a one percent increase in per capita manufacturing output leads to an approximately 1 5 percent increase in aluminum demand and a roughly 1 percent rise in copper demand estimated elasticities for lead tin and zinc are below unity my results suggest that the experience of japan and south korea s industrialization for example may be used to infer the impact of china s industrialization on future demand for metals the results imply substantial differences across commodities with regard to future demand adjustment to equilibrium takes 7 13 years which helps explain the long duration of commodity price fluctuations

efficient introduction of pigovian taxes this paper considers the dynamics of introducing pollution taxes when firms have to invest into abatement facilities this accumulation of abatement capital however proceeds sluggishly therefore actual policy proposals of pollution taxes consider a phased introduction this paper considers the normative aspects of such a policy more precisely it proves that pollution taxes should be introduced radically rather than gradually

political foundations of the resource curse in this paper we argue that the political incentives that resource endowments generate are the key to understanding whether or not they are a curse we show 1 politicians tend to over extract natural resources relative to the efficient extraction path because they discount the future too much and 2 resource booms improve the efficiency of the extraction path however 3 resource booms by raising the value of being in power and by providing politicians with more resources which they can use to influence the outcome of elections increase resource misallocation in the rest of the economy 4 the overall impact of resource booms on the economy depends critically on institutions since these determine the extent to which political incentives map into policy outcomes countries with institutions that promote accountability and state competence will tend to benefit from resource booms since these institutions ameliorate the perverse political incentives that such booms create countries without such institutions however may suffer from a resource curse

on the ideological foundations of environmental policy abstract this paper is an investigation into the philosophies of science inherent in the development of two schools of thought in environmental economics neoclassical and steady state analysis it attempts to gain clearer insight into the direction of inquiry and the policy options of each by contrasting their perspective metaeconomic structures the sets of first principles shaping theoretical development the ontology of steady state analysis while accepting the general principle of rationality differs from neoclassicism by including the ecological interaction of people with nature as an element of spicies being the cosmology of the two schools differs in the steady statists take the laws of thermodynamics and the principle of biospheric assimilation of first principles questions of absolute scarcity take primacy over the neoclassical focus on problems of relative scarcity in policy analysis consequently steady state theorists view the environment problem in its global dimensions over a longer time continuum the result is that steady state policy prescriptions are not necessarily market bound and may transcend the intstitutional arrangements common in western capitalist societies

the optimal phasing of phased deregulation abstract if producers or consumers behave myopically sudden and complete deregulation of a market with long standing price controls can lead to an inefficient allocation of resources this paper uses a simple model in which producers have adjustment costs to analyze optimal policies for phased deregulation tax policies are also examined and policy implications are discussed

resource depletion and conflict experimental evidence abstract understanding how resource scarcity affects violent conflict over resources has been one of the central topics in economics and other social sciences for decades yet we know surprisingly little about how resource scarcity affects individual behaviour that can spur inter group conflict to address this gap we propose the common pool experiment with renewable resources to study how incentives to engage in conflict change with resource depletion moreover we examine how the possibility of conflict affects extraction each round after harvesting the players vote on whether to engage in conflict with the opponent group in which they can annex a part of the opponent group s resource the probability of winning varies between treatments in the 50 50 treatment to which we refer to as a baseline the probability of winning is exogenous and equal for each party in the conflict by greed treatment the probability is proportional to the difference in resources between groups finally in the resource wars treatment the likelihood of winning depends on the number of tokens invested by each group in conflict experimental results show that conflict by greed promotes resource conservation subjects extract less resources compared to the baseline so as to increase chances of winning in war which supports the parochial altruism hypothesis here resource depletion is conducive to conflict which distinguishes conflict by greed from other treatments in addition we find that resource wars are extremely destructive not only is conflict expenditure above the equilibrium but also investing in conflict makes group members increase their extraction as a result the probability of resource exhaustion in the resource wars treatment is twice as high as in the baseline we discuss how differences in uncertainty and the incentive structure between treatments explain these findings

energy transition under irreversibility a two sector approach in this paper we analyze the optimal energy transition of a two sector economy energy and final goods with exhaustible oil reserves a renewable source of energy and a pollution threat the latter corresponds to a pollution threshold above which a part of the capital is lost following flooding for instance we show that the optimal energy transition path may correspond to a corner regime in which the economy starts using both resources then crosses the pollution threshold and therefore loses a part of its capital at the end the sole adoption of the renewable energy is optimal only in the long run this result is in line with the asymptotic energy transition arguments stating that the transition to clean energy may happen only in the long run we also show that economy reduces the use of energy resource as long as the productivity of capital and energy services is high therefore public policies should promote investments in energy innovation that targets productive sector home appliances and buildings and helps to save both money and energy we extend the present model to allow for additional investment in energy saving technologies our main results show that this additional investment favours the energy transition in the sense that it increases the time within which the economy may experience the catastrophe and the welfare of the society for policy implications economic instruments such as taxes on dirty energy subsidies on clean energy or incentives for energy saving technologies need to be implemented in order to promote the energy transition this is particularly important for developing countries that mostly rely on polluting energy resources and are the most vulnerable to climate change but those economic instruments should be carefully designed in line with the asymptotic energy transition result

information and exhaustible resources a bayesian analysis abstract we develop a continuous time bayesian model of investment in information about an exhaustible resource because of the way that information affects expectations the deterministic hotelling rule turns out to be more appropriate as a description of how resource owners forecast the value of their stocks than as a predictor of observed changes in the resource price a flow of information generates both unanticipated changes in expectations which cause the mean rate of change in the resource price to deviate systematically from the deterministic hotelling rule and reductions in uncertainty which do not affect the hotelling prediction

a dynamic model of natural gas deregulation abstract this paper analyses the effects of natural gas deregulation in an optimal control framework the hotelling type model studies the effects of deregulation on the behaviour of a profit maximizing competitive producer who explores and produces both new and old gas we concentrate on the interdependent nature of the extraction and exploration decisions and compute optimal time paths for explanatory effort extraction and prices in particular the natural gas market after january 1985 is analysed the status quo regime is a regime of partial deregulation with new gas completely deregulated and old gas under price controls the price of old gas is exogeneously determined by the regulating authority but the price of new gas is determined endogeneously through the market demand equation various schemes of deregulation which fall between the completely unregulated free market case and the status quo case are analyzed and compared to these limiting cases losses in consumer surplus and producer surplus are calculated to choose a deregulation scheme that would be least costly to society