rational expectations changing monetary policy rules and real exchange rate dynamics abstract this paper reexamines the explanatory power of taylor rule fundamentals for real exchange rate determination we assume the agents know the time varying parameters in central bank policy rules the empirical results suggest that a monetary policy rule with regime switching is better able to explain the real deutschemark dollar exchange rate from 1976 to 1998 compared with a fixed regime monetary policy rule the findings show the importance of accounting for the expectation formation effect in changing policy rules as emphasized by the lucas critique ignoring these effects can undermine the value of the rational expectations models

women as policy makers evidence from a randomized policy experiment in india this paper uses political reservations for women in india to study the impact of women s leadership on policy decisions since the mid 1990 s one third of village council head positions in india have been randomly reserved for a woman in these councils only women could be elected to the position of head village councils are responsible for the provision of many local public goods in rural areas using a dataset we collected on 265 village councils in west bengal and rajasthan we compare the type of public goods provided in reserved and unreserved village councils we show that the reservation of a council seat affects the types of public goods provided specifically leaders invest more in infrastructure that is directly relevant to the needs of their own genders

is protection for sale evidence on the grossman helpman theory of endogenous protection grossman and helpman 1994 present a theory of endogenous protection by explicitly modeling government industry interactions for which mere black box models previously existed they obtain a ramsey pricing type solution to the provision of protection which emphasizes the role of inverse import penetration ratios and import elasticities on the lobbying side the model makes predictions about lobbying competition and lobbying spending according to deadweight costs from protection the model not only makes for richer theory in terms of rigor and elegance but its predictions are directly testable whether the grossman helman model stands up to real world data is investigated in this paper predictions from both the protection side and lobbying side are tested using cross sectional u s nontariff barrier data we also compare the second generation grossman helpman model with a more traditional specification our results call for serious consideration of this model in the political economy literature

entry barriers in politics and uncontested elections abstract lott 1986 1987a argues that brand names can be barriers to entry in political markets because political brand names cannot be sold our empirical model examines the effect of inalienability of political capital on entry into nineteenth century british political markets we test the hypothesis that since county races were more expensive than borough races owing to greater costs of information the level of non transferable investment produced by a given number of past campaigns was greater in the rural districts and produced more significant entry barriers

ethnic parties and public spending new theory and evidence from the indian states social scientists largely see ethnic politics as inhibiting public goods provisioning within developing democracies such parties are thought to uniformly rely on distributing excludable benefits t

market access for sale abstract this paper focuses on the links between foreign lobbying and preferential market access granted by the united states government to exporters in the rest of the americas we first develop a simple framework based on grossman and helpman grossman g helpman e 1994 protection for sale american economic review 84 4 833 850 to explain how lobbying by foreign firms affects their preferential access to the united states market we then estimate the model using data on tariff preferences and lobby contributions for the 34 countries in the region empirical results suggest that foreign lobbying is an important force behind preferential market access to the united states the structural estimates indicate that the weight given to foreign lobby contributions in the united states government objective function is five times higher than the weight granted to tariff revenue forgone due to preferences thus our results indicate that market access is up for sale and foreign lobbies are buying it

the logic of political violence this paper offers a unified approach for studying political violence whether it emerges as repression or civil war we formulate a model where an incumbent or opposition can use violence to maintain or acquire power to study which political and economic factors drive one sided or two sided violence repression or civil war the model predicts a hierarchy of violence states from peace via repression to civil war and suggests a natural empirical approach exploiting only within country variation in the data we show that violence is associated with shocks that can affect wages and aid as in the theory these effects are only present where political institutions are non cohesive

separation of powers and political accountability political constitutions are incomplete contracts and therefore leave room for abuse of power in democracies elections are the primary mechanism for disciplining public officials but they are not sufficient separation of powers between executive and legislative bodies also helps to prevent the abuse of power but only with appropriate checks and balances checks and balances work by creating a conflict of interest between the executive and the legislature yet requiring both bodies to agree on public policy in this way the two bodies discipline each other to the voters advantage under appropriate checks and balances separation of powers also helps the voters elicit information

de facto political power and institutional persistence much of the empirical work and the conceptual discussion of the impact of institutions on economic development either implicitly or explicitly assumes that institutions persist although acemoglu et al 2001 provide evidence that constraints on the executive persist many aspects of institutions change frequently less developed countries cycle between democracy and dictatorship and often change their constitutions relatedly while the current economic problems in latin america are often traced back to colonial times stanley l engerman and kenneth l sokoloff 1997 acemoglu et al 2002 the specific institutions that once underpinned the colonial economy such as the encomienda the mita or slavery vanished long ago these observations suggest that we need to develop a framework in which changes in certain dimensions of institutions are consistent with overall institutional persistence in this paper we make an attempt to highlight some important mechanisms for understanding simultaneous change and persistence in institutions institutional persistence in this context refers to the persistence of a cluster of economic institutions such as the extent of enforcement of property rights for a broad cross section of society acemoglu et al 2001 such lack of property rights enforcement may be driven by quite different specific institutions e g risk of expropriation entry barriers or economic systems such as serfdom or slavery in turn these different specific economic institutions may exist under different political institutions including dictatorships absolutist monarchies oligarchies and corrupt or even populist democracies given this rich array of possibilities a useful framework must specify which aspects of institutions can change which others have a tendency to persist in equilibrium and how the persistence of certain types of institutions could have lasting effects on economic outcomes in this paper we provide a simple model of the coexistence of change and persistence in institutions first we describe some existing approaches to the persistence of social arrangements as well as the essence of the mechanism we propose next we illustrate the key issues using the experience of the southern united states and last we provide a simple model that formalizes the main mechanism in the paper we conclude by discussing a complementary mechanism to the one presented in this paper

protection for sale the case of oligopolistic competition and interdependent sectors in grossman helpman s 1994 canonical protection for sale pfs model political competition among industry lobbies is driven purely by their interests as consumers this paper introduces demand linkages and oligopolistic competition into the pfs framework to address the rivalry among lobbies stemming from product substitutability it shows that increased substitutability weakens the interest groups incentives to lobby and reduces tariff distortions this may explain why empirical tests of pfs find surprisingly little impact of lobbies on the government s trade policy decision the paper also analyzes endogenous lobby formation suggesting that demand linkages may adversely affect the industry decision to organize resume proteger les ventes le cas de la concurrence oligopolistique et des secteurs interdependants dans le modele canonique de grossman helpman 1994 protection for sale pfs la concurrence politique entre lobbyistes est purement alimentee par leurs interets en tant que consommateurs ce texte presente dans ce cadre d analyse les enchainements de la demande et la concurrence oligopolistique pour prendre en compte la rivalite entre lobbyistes qui derive de la substituabilite des produits on montre qu une substituabilite accrue reduit l incitation des groupes d interets a faire du lobbying et reduit les distorsions tarifaires cela peut expliquer pourquoi les tests empiriques du modele pfs ont decouvert un impact etonnamment faible des lobbies sur les decisions des gouvernements dans le monde des politiques commerciales le texte analyse aussi la formation endogene des lobbies suggerant que les enchainements de la demande peuvent affecter negativement la decision de s organiser

do barriers to candidacy reduce political competition evidence from a bachelor s degree requirement for legislators in pakistan in the 2002 election candidates for pakistan s federal legislature had to possess at least a bachelor s degree this policy disqualified 60 out of the 207 incumbent legislators from running for election again using a difference in differences approach with panel data on all electoral constituencies in pakistan i find that this ballot access restriction does not affect political competition across all constituencies with disqualified incumbents equally stronger political competition is defined as a larger number of candidates contesting election a smaller vote share and vote margin for the winning candidate and a less concentrated candidate field as measured by a herfindahl hirschman index hhi of vote shares competition declined significantly in constituencies where the disqualified incumbent belonged to a small party and where literacy levels were lower signifying a smaller pool of substitute candidates however political competition increased in areas where the disqualified incumbent was stronger in terms of his winning vote margin

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

has democratization reduced infant mortality in sub saharan africa evidence from micro data does democracy help babies survive in sub saharan africa by using retrospective fertility surveys conducted in 28 african countries i compare the survival of infants born to the same mother before and after democratization to disentangle the effect of democracy from that of changes in population characteristics which is infeasible with country level statistics on infant mortality i find that infant mortality falls by 1 2 percentage points 12 of the sample mean after democratization in the post cold war period relevant aspects of democracy appear to be the combination of multiparty elections and leadership change

the impact of ballot access restrictions on electoral competition evidence from a natural experiment measuring the effect of ballot access restrictions on electoral competition is complicated because the stringency of ballot access regulations cannot be treated as being exogenous to candidates entry decisions this paper exploits the 1968 u s supreme court decision to strike down ohio s ballot access law as a natural experiment to overcome the endogeneity problem the evidence from difference in difference estimations suggests that the court s decision and the accompanying sharp decrease in ohio s petition requirements resulted in major parties facing a significant increase in competition from third party and independent candidates

the slave trade and the origins of mistrust in africa in a recent study nunn 2008 examines the long term impacts of africa s slave trade he finds that the slave trade which occurred over a period of more than 400 years had a significant negative effect on long term economic development although the article arguably identifies a negative causal relationship between the slave trade and income today the analysis is unable to establish the exact causal mechanisms underlying this reduced form relationship in this article we examine one of the channels through which the slave trade may affect economic development today combining contemporary individual level survey data with historical data on slave shipments by ethnic group we ask whether the slave trade caused a culture of mistrust to develop within africa initially slaves were captured primarily through state organized raids and warfare but as the trade progressed the environment of ubiquitous insecurity caused individuals to turn on others including friends and family members and to kidnap trick and sell each other into slavery sigismund wilhelm koelle 1854 p e h hair 1965 charles piot 1996 we hypothesize that in this environment a culture of mistrust may have evolved which may persist to this day we show that current differences in trust levels within africa can be traced back to the transatlantic and indian ocean slave trades combining contemporary individual level survey data with historical data on slave shipments by ethnic group we find that individuals whose ancestors were heavily raided during the slave trade are less trusting today evidence from a variety of identification strategies suggests that the relationship is causal examining causal mechanisms we show that most of the impact of the slave trade is through factors that are internal to the individual such as cultural norms beliefs and values jel j15 n57 z13

incentives to cultivate favored minorities under alternative electoral systems a simple model is used to compare under different electoral systems the incentives for candidates to create inequalities among otherwise homogeneous voters by making campaign promises that favor small groups rather than appealing equally to all voters in this game model each candidate generates offers for voters independently out of a distribution that is chosen by the candidate subject only to the constraints that offers must be nonnegative and have mean 1 symmetric equilibria with sincere voting are analyzed for two candidate elections and for multicandidate elections under rank scoring rules approval voting and single transferable vote voting rules that can guarantee representation for minorities in multiseat elections generate in this model the most severely unequal campaign promises

does delegation of fiscal policy to an independent agency make a difference evidence from intergovernmental transfers in india abstract one area of fiscal policy in which several countries have delegated responsibility to an independent agency is the distribution of national resource transfers across regional and local governments such delegation is expected to promote equity and efficiency and mitigate distortions created by political incentives this paper tests whether delegation to an independent agency indeed makes a difference by contrasting the impact of partisan politics on two types of fiscal transfers to states in the indian federation over a period of time 1972 1995 the pattern of evidence shows that while the transfers that are determined by the central political executive are indeed distributed to favor particular states that are politically important for the central ruling party the transfers that are delegated to an independent agency serve to constrain such partisan impact

ethnic diversity and economic development abstract this paper analyzes the role that different indices and dimensions of ethnicity play in the process of economic development firstly we discuss the advantages and disadvantages of alternative data sources for the construction of indices of religious and ethnic heterogeneity secondly we compare the index of fractionalization and the index of polarization we argue that an index of the family of discrete polarization measures is the adequate indicator to measure potential conflict we find that ethnic religious polarization has a large and negative effect on economic development through the reduction of investment and the increase of government consumption and the probability of a civil conflict

ethnic diversity social sanctions and public goods in kenya abstract this paper examines ethnic diversity and local public goods in rural western kenya the identification strategy relies on the stable historically determined patterns of ethnic land settlement ethnic diversity is associated with lower primary school funding and worse school facilities and there is suggestive evidence that it leads to poor water well maintenance the theoretical model illustrates how inability to impose social sanctions in diverse communities leads to collective action failures and we find that school committees in diverse areas do impose fewer sanctions on defaulting parents we relate these results to the literature on social capital and economic development and discuss implications for decentralization in less developed countries

the value of democracy evidence from road building in kenya ethnic favoritism is seen as antithetical to development this paper provides credible quantification of the extent of ethnic favoritism using data on road building in kenyan districts across the 1963 2011 period guided by a model it then examines whether the transition in and out of democracy under the same president constrains or exacerbates ethnic favoritism across the post independence period we find strong evidence of ethnic favoritism districts that share the ethnicity of the president receive twice as much expenditure on roads and have five times the length of paved roads built this favoritism disappears during periods of democracy jel d72 h54 j15 o15 o17 o22 r42

the control of politicians in divided societies the politics of fear autocrats in many developing countries have extracted enormous personal rents from power in addition they have imposed inefficient policies including pervasive patronage spending i present a model in which the presence of ethnic identities and the absence of institutionalized succession processes allow the ruler to elicit support from a sizeable share of the population despite large reductions in welfare the fear of falling under an equally inefficient and venal ruler that favours another group is enough to discipline supporters the model predicts extensive use of patronage ethnic bias in taxation and spending patterns and unveils a new mechanism through which economic frictions translate into increased rent extraction by the leader these predictions are consistent with the experiences of bad governance ethnic bias wasteful policies and kleptocracy in post colonial africa

can mandated political representation increase policy influence for disadvantaged minorities theory and evidence from india accountable governments often fail to reflect the interests of disadvantaged minorities this paper exploits the institutional features of political reservation as practiced in indian states to examine the role of mandated political representation in providing disadvantaged groups influence over policy making ifind that political reservation has increased transfers to groups which benefit from the mandate this finding also suggests that complete policy commitment may be absent in democracies as is found in this case jel d72 d78 hl 1 h50

the inflation aversion of the bundesbank a state space approach abstract a simple backward looking taylor rule is estimated in a time varying coefficient framework with quarterly german data for the period 1975 1998 the main finding is that the inflation aversion of the bundesbank was not constant over time and exhibits some sudden and large shifts during the period of monetary targeting there are phases with low and with high inflation aversion these findings provide an explanation why the estimated inflation coefficient in backward looking taylor rules often does not exceed one and violates the implications of theoretical models moreover the results provide evidence that the bundesbank followed the so called opportunistic approach to disinflation

changing monetary policy rules learning and real exchange rate dynamics when the exchange rate is priced by uncovered interest parity and central banks set nominal interest rates according to a reaction function such as the taylor rule the real exchange rate will be determined by expected inflation and the output gap or the unemployment gap of the home and foreign countries this paper examines the implications of these taylor rule fundamentals for real exchange rate determination because the true parameters in central bank policy rules are unknown to the public and change over time the model is presented in the context of a least squares learning environment this simple learning model captures the volatility and the major swings in the real deutschemark euro dollar exchange rate from 1976 to 2007

a drawback of electoral competition in most major democracies there are very few parties compared to the number of possible policy positions held by voters we provide an efficiency rationale for why it might be appropriate to limit the proliferation of parties in our model the larger the number of parties the greater the inefficiency of the outcome of electoral competition the reason is that when the number of parties increases electoral incentives push each party to focus its electoral promises on a narrower constituency and then special interest policies replace more efficient policies that have diffuse benefits the analysis provides a possible explanation for the existence of institutional features that limit the extent of electoral competition thresholds of exclusion runoff electoral systems and majoritarian two party political systems jel d82 l15

what explains the great moderation in the u s a structural analysis this paper investigates what has caused output and inflation volatility to fall in the u s using a small scale structural model using bayesian techniques and rolling samples there are instabilities in the posterior of the parameters describing the private sector the policy rule and the variance of the shocks results are robust to the specification of the policy rule changes in the parameters describing the private sector are the largest but those of the policy rule and the covariance matrix of the shocks explain the changes most jel e52 e47 c53

independent candidates and political representation in india we estimate the causal effect of independent candidates on voter turnout and election outcomes in india to do this we exploit exogenous changes in the entry deposit candidates pay for their participation in the political process changes that disproportionately excluded candidates with no affiliation to established political parties a one standard deviation increase in the number of independent candidates increases voter turnout by more than 6 percentage points as some voters choose to vote rather than stay home the vote share of independent candidates increases by more than 10 percentage points as some existing voters switch who they vote for thus independents allow winning candidates to win with less vote share decrease the probability of electing a candidate from the governing coalition by about 31 percentage points and ultimately increase the probability of electing an ethnic party candidate altogether the results imply that the price of participation by independents is constituency representation in government

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

taylor rules and the deutschmark dollar real exchange rate we explore the link between an interest rate rule for monetary policy and the behavior of the real exchange rate the interest rate rule in conjunction with some standard assumptions implies that the deviation of the real exchange rate from its steady state depends on the present value of a weighted sum of inflation and output gap differentials the weights are functions of the parameters of the interest rate rule an initial look at german data yields some support for the model

state capacity conflict and development the absence of state capacities to raise revenue and to support markets is a key factor in explaining the persistence of weak states this paper reports on an ongoing project to investigate the incentive to invest in such capacities the paper sets out a simple analytical structure in which state capacities are modeled as forward looking investments by government the approach highlights some determinants of state building including the risk of external or internal conflict the degree of political instability and dependence on natural resources throughout we link these state capacity investments to patterns of development and growth

the political economy of government responsiveness theory and evidence from india the determinants of government responsiveness to its citizens is a key issue in political economy here we develop a model based on the solution of political agency problems having a more informed an politically active electorate strengthens incentives for governments to be responsive this suggests that there is a role both for democratic institutions and the mass media in ensuring that the preferences of citizens are reflected in policy the ideas behind the model are tested on panel data from india we show that public food distribution and calamity relief expenditure are greater controlling for shocks where governments face greater electoral accountability and where newspaper circulation is highest

taylor rules with real time data a tale of two countries and one exchange rate abstract using real time data that reflects information available to monetary authorities at the time they are formulating policy we find that estimated taylor rules based on revised and real time data differ more for germany than for the u s taylor rules using real time data suggest differences between u s and german monetary policies and taylor rules for the u s using inflation forecasts are nearly identical to those using lagged inflation rates evidence of out of sample predictability for the dollar mark nominal exchange rate with forecasts based on taylor rule fundamentals is only found with real time data and does not increase if inflation forecasts are used

tax me if you can ethnic geography democracy and the taxation of agriculture in africa it is typically assumed that african leaders enact policies that benefit their ethnoregional group using all types of patronage crop production and political power are geographically concentrated in many african countries and this paper exploits this overlap to cast doubt on this conventional wisdom it shows using data on 50 country crop combinations that cash crop farmers who are ethnically identified with the head of state face higher taxes furthermore democratic regimes impose lower taxes this paper shows that farmers who have few alternatives face higher taxes african leaders have used local intermediaries to exert control over the countryside and to ensure that farmers do not support alternative candidates it suggests that as leaders are better at selecting and monitoring these intermediaries in their home areas they can extract more from the majority at home than abroad using taxes on cash crops which are regionally but not individually targetable

the economics of special interest politics the case of the tariff this paper investigates the interaction of politicians and special interest lobbies the goal is to model the equilibrium levels of redistributive policies such as taxes subsidies tariffs and regulatory decisions the model is applied throughout to the setting of tariffs by contributing to political campaigns special interest lobbies generate economic returns higher tariffs generate revenue for import competing industries through higher product prices higher milk support prices raise dairy farm income and so forth the lobby invests to maximize these net economic returns in evaluating their chances of election politicians weigh the favorable effects of special interest money against the unfavorable association with the lobby and the social cost of the redistributive policy section i explores the lobby s problem it describes a formalization of mancur olson s discussion of the voluntary provision of public goods and optimal contributions by lobbies to political campaigns section ii describes determination of the equilibrium tariff positions of each politician in a political campaign

television and voter turnout i use variation across markets in the timing of television s introduction to identify its impact on voter turnout the estimated effect is significantly negative accounting for between a quarter and a half of the total decline in turnout since the 1950s i argue that substitution away from other media with more political coverage provides a plausible mechanism linking television to voting as evidence for this i show that the entry of television in a market coincided with sharp drops in consumption of newspapers and radio and in political knowledge as measured by election surveys i also show that both the information and turnout effects were largest in off year congressional elections which receive extensive coverage in newspapers but little or no coverage on television

economic adversity and voter turnout does economic adversity affect whether people vote data from the november 1974 current population survey are used to estimate the effect that unemployment poverty and a decline in financial well being have on voter turnout each economic problem suppresses participation these individual level findings are corroborated with aggregate time series data from presidential and midterm elections since 1896 when a person suffers economic adversity his scarce resources are spent holding body and soul together not on remote concerns like politics economic problems both increase the opportunity costs of political participation and reduce a person s capacity to attend to politics

exchange rate determination under interest rate rules we propose a theory of exchange rate determination under interest rate rules in a two country model we first show that simple interest rate feedback rules can determine a unique and stable equilibrium without any explicit reaction to the nominal exchange rate we characterize how the behavior of the exchange rate and of the terms of trade depends in a critical way on the monetary regime chosen though not necessarily on monetary shocks we give a simple account of exchange rate volatility in terms of monetary policy rules we provide an explanation of the relation between nominal exchange rate volatility and macroeconomic variability in terms of the monetary regime adopted by monetary authorities

endogenous lobby formation and endogenous protection a long run model of trade policy determination this paper provides a theory of lobby formation within a framework in which trade policy is determined through political contributions under certain conditions free trade turns out to be an equilibrium outcome either when the government has a high affinity for political contributions or when it cares a great deal about social welfare moreover greater inequality in asset distribution results in a greater number of lobbies and in most cases more protection for each of these lobbies furthermore industries with higher levels of capital stock fewer capitalists more inelastic demand and smaller geographical dispersion are the ones that get organized

us brazil cotton dispute and the world cotton market us policies for its cotton producers depress world cotton prices adversely affecting exporters such as brazil which filed a complaint to the wto despite wto rulings in brazil s favour meting out the right to enact retaliatory countermeasures the united states continues to subsidise its cotton farmers after prolonged negotiations brazil and the united states reached an agreement which allowed the united states to pay brazil to refrain from enforcing the countermeasures to capture the adverse effects of us policies theoretical analyses are conducted the theoretical model is extended by constructing an empirical model of the world cotton market the adverse effects of us policies on brazil are estimated and compared to the compensation the united states pays brazil

women in politics evidence from the indian states abstract this paper uses panel data from the 16 larger states in india during the period 1967 2000 to study the effects of female political representation in the state legislatures on public goods policy and expenditure it finds that politicians gender affects policy but that their social position i e their caste should be taken into account as well female legislators in seats reserved for lower castes and disadvantaged tribes invest more in health and early education and favor women friendly laws such as amendments to the hindu succession act which was designed to give women the same inheritance rights as men they also favor redistributive policies such as land reforms in contrast female legislators from higher castes do not have any impact on women friendly laws oppose land reforms invest in higher tiers of education and reduce social expenditure the causal effect of female legislators is estimated using close elections between women and men

campaign war chests as a barrier to entry in congressional races i introduction issues surrounding the nature and degree of competition in political races have been examined extensively in both the economic and political science literature with most attention focused on the interplay between incumbent and challenger expenditures and electoral success this study extends our understanding of political competition by investigating the impact of an incumbent s war chest on a challenger s decision to mount a campaign 1 for this purpose a war chest is defined as a pool of unencumbered funds accumulated prior to the start of a campaign for elective office 2 sorauf 1988 182 has observed that early receipts even without early spending discourage competition in the primary and attractive challengers in the general election jacobson 1985 26 has argued the most effective strategy for keeping a seat in congress is to avoid serious opposition contemporary critics and reformers of campaign financing practices use such words as frighten intimidate and overpower to describe the role of an incumbent s war chest 3 despite this kind of attention little is actually known about the degree to which war chests diminish entry or reduce the quality of a challenge we present three alternative mechanisms to explain how an incumbent s war chest might deter entry each is based upon a war chest serving as a credible commitment to spend heavily if challenged specifically war chests may either represent excess capacity in financing a campaign or serve as a signal of non observable incumbent characteristics that define a formidable opponent aside from determining whether an incumbent is challenged a war chest might also affect the quality of the challenger for example potential candidates with prior political experience may be unwilling to risk their political capital on a long shot proposition to test for these effects on entry into house races a trichotomous logit model is estimated the choices are uncontested race contested by an ordinary challenger and contested by an experienced challenger although the empirical model is not sufficiently rich to fully distinguish among competing mechanisms the regression results are robust incumbent war chests negatively affect the likelihood of a contested race and the quality of the challenger ii war chests as a barrier to entry becker 1958 106 in comparing economic and political competition observed i n an ideal political democracy competition is free in the sense that no appreciable costs or artificial barriers prevent an individual from running for office in the theory of the firm entry occurs when the expected postentry stream of profits minus the cost of entry is positive analogously an individual will enter a political race when the expected gain from holding office is positive expected gain as defined by baron 1989 is a function of campaign costs the probability of winning and the personal valuation placed by the candidate on the office the first two determinants are partly endogenous depending upon the strategic interplay of the candidates the third aside from its direct effects indirectly affects the first two for example persons hungry for office may be committed to expending greater effort and funds on their campaigns thus increasing their probability of winning similarly as lott has emphasized nontransferable brand name capital would be another factor creating a commitment to aggressively pursue office thereby affecting campaign costs and the probability of winning 4 that some challengers are deterred however need not imply the existence of a political market failure in a contestability sense the lack of a viable challenger on the ballot does not imply a lack of competition good representation will discourage entry similarly the fact that some incumbents will aggressively seek re election frightening away potential challengers is not a sign that competition is lacking

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

out of sample exchange rate predictability with taylor rule fundamentals abstract an extensive literature that studied the performance of empirical exchange rate models following meese and rogoff s meese r a rogoff k 1983a empirical exchange rate models of the seventies do they fit out of sample journal of international economics 14 3 24 seminal paper has not convincingly found evidence of out of sample exchange rate predictability this paper extends the conventional set of models of exchange rate determination by investigating predictability of models that incorporate taylor rule fundamentals we find evidence of short term predictability for 11 out of 12 currencies vis a vis the u s dollar over the post bretton woods float with the strongest evidence coming from specifications that incorporate heterogeneous coefficients and interest rate smoothing the evidence of predictability is much stronger with taylor rule models than with conventional interest rate purchasing power parity or monetary models