first price auction implements efficient investments abstract this note shows that the first price auction fully implements efficient investments when agents make not only ex ante but also ex post investments the essential assumptions of our model are that i each agent can invest before and after participating in the auction under the same cost function and ii the cost functions are common knowledge among agents in any equilibrium of our model the most efficient agent always wins and makes the efficient level of investment

radicalism versus gradualism an analytical survey of the transition strategy debate academic debate on a transition strategy for former socialist economies continues even a quarter century after the collapse of the communism in central and eastern europe and the former soviet union in this paper through an analytical survey of 137 preceding studies we present an overall picture of the debate and examine the relationship between the debate attitudes and the literature attributes in related studies we found that the radicalists maintain a consistent debate attitude from the viewpoints of time speed and policy sequence of economic transition while the debate attitude of the gradualists is more diversified we also found that there is another group of researchers that stays within the framework of the radicalism versus gradualism debate while at the same time keeping at arm s length from both the radicalists and the gradualists in addition our regression estimation of qualitative selection models provides interesting findings on the relationship between the debate attitudes and the literature attributes

measuring the quality of bank regulation and supervision with an application to transition economies i introduction financial sector development is closely associated with bank performance given that a major part of the financial sector is still accounted for by banks in a large part of the world banks play an essential role in resource allocation so long as depositors have confidence in the banking system s ability to pay the contracted return efficient transmission of resources by banks however can be threatened by adverse selection and moral hazard problems legal and institutional arrangements designed to achieve efficiency in resource allocation contribute to the soundness of the banking sector by reducing both the likelihood and the cost of such problems appropriately designed legal regulatory and supervisory frameworks and deposit insurance schemes constitute an essential part of such arrangements achieving a sound banking system via good regulation and supervision is not an end in itself however as it may also contribute to macroeconomic growth via improving efficiency in resource allocation 1 this article s contribution is twofold first it develops a general framework to evaluate the legal environment for regulation and supervision of the banking sector in doing that it proposes an extensive list of criteria a total of 98 criteria to measure the quality of bank regulation and supervision rs based on banking laws second using these criteria we construct indices of rs and empirically investigate the linkage between bank regulation and supervision quality and growth in transition economies banking laws lay out regulations with regard to bank ownership management asset structure operations reporting recording requirements and such we argue that the more rule based the legal regulatory framework the more transparent and thus easy to monitor are the bank operations this helps reduce the adverse selection and moral hazard problems in the banking sector 2 it is important to note however that the quality of regulation does not necessarily mean strictness of regulation rather by quality we mean the extent of coverage of the regulatory framework along with appropriate safeguards against the risks in the banking sector 3 good supervision reduces the likelihood and the extent of excessive risk taking by banks as a vehicle to ensure effective implementation of the regulatory practices supervision of the banking system is therefore as important for the health of the banking sector as regulation in addition a carefully designed deposit insurance scheme helps improve the quality of both regulation and supervision by mitigating the likelihood of the moral hazard problem in the banking sector these are all pertinent issues but measuring the quality of banking regulation and supervision is not a simple task like the measurement of the quality of any other institutional attribute the approach can be mainly of two kinds 1 evaluation of the letter of the law and 2 surveys the main advantage of measurement based on various legal attributes is to minimize subjective evaluations regarding an institution though it may have the disadvantage of not reflecting the practice especially in case the law is not fully adhered to on the other hand although surveys focus on practice they are also prone to possible subjective judgments of evaluators 4 both approaches have their own advantages and disadvantages but in this article we take the first approach 5 we nevertheless concede that additional information can be obtained by reconciling the approaches that can be complementary to each other to measure the legal bank regulation and supervision quality as objectively as possible we use various sources to develop a comprehensive set of criteria among these sources we primarily utilize the basle core principles bcps 6 other basle guidelines and documents see bcbs 1998a b 1999a b and the banking laws of individual countries

labour supply and saving under uncertainty this article examines how variations in labour supply can be used to self insure against wage uncertainty and the impact of such self insurance on precautionary saving the analytical framework is a two period model with saving and labour supply decisions where preferences are consistent with balanced growth the main findings are that i labour supply flexibility raises precautionary saving when future wages are uncertain and ii uncertainty about future wages raises current labour supply and reduces future labour supply

investment incentives in procurement auctions this paper investigates firms incentives to invest in cost reduction in the first price sealed bid auction a format largely used for procurement two central features of the model are that we allow firms to be heterogeneous and that investment is observable we find that firms will tend to underinvest in cost reduction because they anticipate fiercer head on competition using the second price auction as a benchmark we also find that the first price auction will elicit less investment from market participants and that this is socially inefficient these results have implications for market design when investment is important different market institutions provide different incentives for firms to reduce costs acquire information expand and so on in short to undertake any activity that affects their competitive positions accordingly the performance of these market institutions should be judged not only from a static perspective taking firms competitive positions as given but also from a dynamic perspective auction markets are a natural competitive environment to study because there is a clear sense in which we can design such markets by choosing appropriate rules for competition in this paper we study how the first price auction fpa a format commonly used for procurement affects firms incentives to invest in cost reduction many procurement markets are characterized by a small number of participants heterogeneity among firms and low rates of turnover therefore it is interesting to investigate to what extent the format used for the auction contributes to these characteristics the basic ingredients of our model are as follows there are n firms and one of them has the opportunity prior to the auction to make an investment we model this investment as an improvement in the ex ante distribution of costs for this firm the main question we ask is what are the firm s incentives to invest given that this investment is observed by its competitors clearly the benefits of such investment depend on how the firm s competitors react in other words to determine the firm s incentive to invest we need to compare the equilibrium at the procurement stage if it makes this investment and if it does not in section 3 we derive new comparative statics results for the fpa we find that after the investment the investor s opponents will bid collectively more aggressively this result holds generally when there are only two bidders or when the investor s opponents are symmetric proposition 1 otherwise a sufficient condition is that investment changes market leadership proposition 2 in the language of industrial organization investment has a negative strategic effect in the fpa this erodes 1

labor supply under wage uncertainty abstract we consider an agent in an atemporal setting facing an increase in the uncertainty of her uncertain wage more labor is supplied given small initial wage uncertainty by a person with a ces utility function with an elasticity greater than unity we relate this result to an extended measure of decreasing relative risk aversion a cobb douglas person makes no change in her labor supply in response to increased wage uncertainty

taxation insurance and precautionary labor we examine optimal taxation and social insurance with adverse selection in competitive insurance markets in a previous literature it has been shown that with perfect insurance markets social insurance improves welfare since it is able to redistribute without creating distortions this result has been taken as robust to the introduction of adverse selection as this would only provide additional justifications for social insurance we show however that adverse selection can weaken the case for social insurance compared to a situation with perfect markets whenever social insurance mitigates private underinsurance it also causes welfare reducing effects by decreasing precautionary labor supply and hence tax revenue in addition adverse selection may reduce the redistributive potential of social insurance we illustrate our general results using different equilibrium concepts for the insurance market notably we derive conditions under which a complete renunciation of social insurance is optimal and the government only relies on income taxation to achieve its redistributive objectives

investments in human capital wage uncertainty and public policy abstract the importance of risk characteristics of human capital for the design of tax and education policy is explored wages are uncertain and education while increasing the expected wage may increase or decrease wage variance the government has strong reasons to encourage human capital formation in the latter case partly due to the insurance effect of human capital and partly due to the way the individuals under a plausible restriction on prudence respond to changes in risk the analysis is illustrated using two models of education one where education helps the individuals make better occupational choices and a standard risk augmented becker type model

procurement auctions with entry of bidders abstract in procurement auctions with a fixed number of bidders there is a tradeoff between cost efficiency and rent extraction an optimal mechanism therefore entails distortions of effort laffont and tirole 1987 if potential suppliers must sink an entry investment before they can participate in the auction then decreasing the firms rent may imply reduced entry we show that if potential bidders are uninformed before entry commitment to a plain nondistortive auction is optimal in contrast if potential bidders learn all their private information before entry the optimal mechanism entails the same distortions as in laffont and tirole s static model

patterns of transition from plan to market patterns of transition from plan to market martha de melo cevdet denizer and alan gelb hungary s bankruptcy experience 1992 1993 cheryl w gray sabine schlorke and miklos szanyi why and when do governments initiate public enterprise reform jose edgardo campos and hadi salehi esfahani roads land use and deforestation a spatial model applied to belize kenneth m chomitz and david a gray industrial centralization in indonesia j vernon henderson and ari kuncoro guidlines on searching for a dalton improving tax reform an illustration with data from indonesia shlomo yitzhaki and jeffrey d lewis a new data set measuring income inequality klaus deininger and lyn squire

the invariance of market innovation to the number of firms this article provides a set of conditions under which the r d undertaken in a market economy is invariant to the number or size distribution of firms and the market s allocation is efficient i e given the aggregate expenditure the market chooses socially optimal projects as in several patent race studies we assume that a winner takes all competition determines firms gains but our model differs from earlier studies in that firms are not restricted to undertake only one research project our analysis shows that how one characterizes a firm s choices and innovation technologies has a strong influence on the conclusions one draws from economic analyses of r d

circumstance and choice the role of initial conditions and policies in transition economies the experience of countries in transition from a planned to a market oriented economy has varied greatly the clearest differences are between the east asian countries china and vietnam and the countries of central and eastern europe cee and the former soviet union fsu china and vietnam have contained inflation and benefited from continued high growth in gdp since the beginning of their reforms while all cee and fsu countries have experienced large declines in output and most have experienced hyperinflation but even in cee and the fsu differences are marked some countries have lost over half of their gdp and growth performance in a number of countries is still poor while others are growing strongly some are still suffering from high inflation while others have successfully reduced annual inflation what determines this divergence of outcomes across transition countries no study so far has analyzed the interaction of all factors including initial conditions political change and reforms in a unified framework including cee the fsu china and vietnam the authors examine these broader interactions but focus first on the role of initial conditions such as initial macroeconomic distortions and differences in economic structure and institutions which have been emphasized less in the literature they find that initial conditions and economic policy jointly determine the large differences in economic performance among the 28 transition economies in the sample initial conditions dominate in explaining inflation but economic liberalization is the most important factor determining differences in growth but reform policy choices are not exogenous they depend in turn on both initial conditions and political reform with political reform the most important determinant of the speed and comprehensiveness of economic liberalization other findings provide additional insight into these relationships results show that liberalization has a negative contemporaneous impact but a stronger positive effect on performance over time the results also show that macroeconomic and structural distortions are negatively related to both policy and performance regarding the former unfavorable initial conditions discourage policy reforms but do not diminish their effectiveness once they are implemented the authors find some evidence that the influence of initial conditions diminishes over time this is in part because many of the initial conditions are themselves modified in the course of transition monetary overhangs are dissipated through inflation industrial overhang is eroded as plants shut down and market memory returns through experience

china s macroeconomic performance and management during transition since reforms started in 1978 china has combined rapid growth with moderate price stability this paper analyzes china s macroeconomic performance over the past fifteen years with special attention to factors responsible both for the pace of economic expansion and the periodic fluctuations regarding the former the author identifies four sources of stimuli administrative decentralization high levels of fixed capital investment the elastic supply and quality of the labor force and the increasing volume of savings supplemented in recent years by a large inflow of foreign direct investment future growth with stability calls for controlling and implementing banking and fiscal reform

after state socialism the political origins of transitional recessions transitions from state socialism created a startling range of initial economic outcomes from renewed growth to deep economic crises debates about the causes have largely ignored the political dis

structural adjustment and manufacturing sector competitiveness lessons from post unification east germany abstract the article analyzes how the particular combination of historical circumstances government policies and institutional structures have shaped the quest for competitiveness of the east german manufacturing sector after unification in 1990 the nature of unification precluded the option of achieving short run competitiveness via declining real wages leaving rapid productivity growth as the only possible avenue to pursue the east german experience underlines the importance of crowding in particularly in the context of adverse initial conditions it suggests that large scale investment does not necessarily bring with it a commensurate build up of research and development with positive spill over effects for growth it also cautions against the blind adoption of institutional arrangements from a different political economical context especially regarding capital labor relations

incentivizing r d prize or subsidies abstract this paper studies the optimal design of r d contests a sponsor e g the us department of defense or the world health organization wants to improve the quality of the winning products to do so it partitions its budget between two schemes an inducement prize and efficiency enhancing subsidies to the firms competing in the contest prizes and subsidies have different functions and they provide complementary incentives in the optimally designed contest subsidies increase while the prize decreases if the innovation process is more challenging further sensible conditions are identified under which the optimal contest implements either a handicapping scheme by preferentially subsidizing the underdog or a national champion scheme by favoring the favorite our analysis yields a number of useful implications and sheds light on an array of r d incentive schemes such as the dod s design competitions and vaccine development incentives

negotiating cultures in corporate procurement abstract in a repeated procurement problem the incumbent can undertake a relationship specific investment that generates opportunity costs of switching for the buyer we investigate the impact of the negotiating culture on investment incentives favoritism in the procurement contract allocation and buyer profit we compare a stylized competitive negotiating culture with a stylized protective culture the cultures differ in the way the buyer uses the entrance threat to exert pressure on the incumbent our main result is that the relative performance of the cultures depends non monotonically on the expensiveness of the investment

sudden stops banking crises and investment collapses in emerging markets abstract we evaluate whether financial openness leaves emerging market economies vulnerable to the adverse effects of capital reversals sudden stops on domestic investment we investigate this claim in a broad sample of emerging markets during the period 1976 2002 if the banking sector does not experience a systemic crisis sudden stop events fail to have a significant impact on investment bank crises on the other hand have a significant negative effect on investment even in the absence of a contemporaneous sudden stop crisis we also find that openness to capital flows worsens the adverse impact of banking crises on investment our results provide statistical support for the policy view that a strong banking sector which can withstand the negative fallout of capital flight is essential for countries that open their economies to international financial flows

bundling decisions in procurement auctions with sequential tasks abstract this paper investigates the principal s bundling decision during a procurement auction for a project consisting of two sequential tasks in which task externality exists and information arrives sequentially we show that although increasing the number of bidders in the market for the second task always tilts the principal s choice toward unbundling increasing the number of consortiums that can perform both tasks tilts the principal s preference toward bundling if the externality is negative

competition for procurement contracts and underinvestment a two period model is considered in which ex ante identical firms invest in period one and in period two after they learn their costs the lowest cost firm is chosen as the winner of the contract it is found that even though firms are racing against one another they end up underinvesting relative to the ex ante socially optimal levels when the buyer is unable to credibly precommit to the second period contract

split award contracts with investment abstract this paper studies procurement contracts where a buyer can either divide full production among multiple suppliers or award the entire production to a single supplier we examine the effect of using multiple suppliers on investment incentives in a framework of generalized second price auctions with pre auction investment we show that the optimality of split award depends on the socially efficient number of firms at the investment stage when that number is greater than one sole sourcing is buyer optimal when that number is one split award lowers the buyer procurement cost

the process of socialist economic transformation in this paper we consider the reform process in those central and east european countries that have made the decision to move from a more or a less planned socialist system to a private market economy one in which private ownership predominates and most resources are allocated through markets because the reform process is both complex and intertwined with political factors especially the shift towards representative democracy and because there are substantial differences among the reforming countries no single detailed road map can guide the way to the new systems rather the paper sets out general considerations that provide a framework for reform and relates the choices to some initial conditions of the various reforming countries the framework applies also to the soviet union or in the event of its disintegration to its successor states as they move to market systems

stabilization and growth in transition economies the early experience this paper analyzes the growth and stabilization experience in 26 transition economies in eastern europe the former soviet union and mongolia for the period 1989 1994 inflation rates have declined significantly in most countries following an inflation stabilization program growth resumes after stabilization occurs typically with a lag of about two years reducing inflation thus appears to be a precondition for growth an econometric analysis of the short run determinants of inflation and growth illustrates the key roles of fixed exchange rates improved fiscal balances and structural reforms in spurring growth and lowering inflation and confirms that inflation stabilization programs have been beneficial for growth even after controlling for structural reforms

democratization and economic liberalization in the postcommunist world how does economic liberalization affect political regime economic liberalization is widely regarded as inimical to democratization the washington consensus which generally endorses shock therapy and envisions a basic compatibility between economic liberalization and democratization is widely disdained in social science many scholars hold that neoliberal economics depresses popular living standards and exacerbates socioeconomic inequalities thereby compromising democratization focusing on the postcommunist region this article tests this hypothesis it examines the data that have been used to assess the relationship between economic liberalization and political democratization and presents analyses using more appropriate and differentiated techniques the authors find that economic liberalization advances rather than undermines democratization using engle granger analysis they find that although economic liberalization has no discernible impact on democratization in the short term democratiza

policy reform and growth in post soviet russia in pursuit of its transition from a command to a market economy russia has witnessed enormous regional differences in economic growth rates moreover the implementation of economic reforms has also differed markedly across regions we analyze whether regional differences in reform policies can account for regional differences in growth rates and conclude that to a considerable degree they can most notably we find that regional differences in price liberalization policies exhibit a positive direct correspondence with growth we also find that regional differences in large scale privatization exhibit a positive correspondence with the regional formation of new legal enterprises which in turn exhibits a strong positive correspondence with growth

the impact of managerial networking intensity and market based strategies on firm growth during institutional upheaval a study of small and medium sized enterprises in a transition economy varying institutional environments provide the foundation for a great deal of international business research yet relatively little empirical work has examined the determinants of small and medium sized enterprise sme growth during institutional upheaval although the importance of sme development for economic transition and growth is widely acknowledged our paper addresses this gap in the literature by examining how the competitive strategies of smes evolve during institutional transitions and assessing the implications for firm growth using data collected from 135 smes in 1993 and 200 smes in 2001 we find that managerial networking intensity i e developing and maintaining relationships that may be used for business purposes declines markedly over time whereas the importance of market based strategies increases managerial networking intensity is strongly associated with firm growth early in the institutional transition process but not later market based strategies are not associated with firm growth in either time period drawing on convergent insights from multiple theoretical perspectives we argue that changes in strategy are concurrently driven by socially constructed norms that legitimize new ways of competing and delegitimize old ones and by knowledge acquisition and learning which provide managers with a more diverse set of tools with which to exercise their strategic choices

strategic investments by us firms in transition economies studies in international business have considered both theoretical and empirical analyses of investment strategies by multinational firms in transition economies however there is scant research on the impact of firm specific factors on the likelihood timing and mode of entry decisions in these economies we provide evidence on three aspects of the strategic decisions by us firms to invest in transition economies first we find that firms entering the region have greater advertising intensity and sales growth than industry peers that did not enter the region suggesting that market seeking considerations motivate expansion second we find that earlier entry is undertaken by firms with fewer industry competitors and higher sales growth suggesting that the desire to secure market share ahead of competitors motivates entry timing finally we investigate the choice of entry mode into the region and find that firms from concentrated industries are more likely to enter the region with high equity commitment consistent with market seeking motives we also find that firms incorporate the degree of progress with market oriented reforms in making decisions concerning entry timing and mode

efficient investments in the implementation problem abstract this paper identifies a condition for an efficient social choice rule to be fully implementable when we take into account investment efficiency to do so we extend the standard implementation problem to include endogenous ex ante and ex post investments in our problem the social planner aims to achieve efficiency in every equilibrium of a dynamic game in which agents strategically make investments before and after playing the mechanism our main theorem shows that a novel condition commitment proofness is sufficient and necessary for an efficient social choice rule to be implementable in subgame perfect equilibria the availability of ex post investments is crucial in our model there is no social choice rule that is efficient and implementable in subgame perfect equilibria without ex post investments we also show that our positive result continues to hold in the incomplete information setting

central bank reform liberalization and inflation in transition economies an international perspective this paper develops extensive new data on the legal independence of new central banks in 26 former socialist economies fse this data is constructed using the codification system for measuring legal independence developed in cukierman webb and neyapti 1992 and in chapter 19 of cukierman 1992 this makes it comparable with earlier data on central bank independence cbi in the industrial democracies and in non fse developing countries and permits experimentation with alternative indices of cbi like those reviewed in eijffinger and van keulen 1995 the new indices of independence indicate that central bank cb reform in the fse during the nineties has been quite ambitious in spite of the large price shocks induced by the transformation from plan to market reformers in those countries chose to create central banks with levels of legal independence that are substantially higher on average than those of developed economies during the eighties based on data from 1989 through 1998 the evidence in the paper suggests that cbi is unrelated to inflation during the early stages of liberalization but for sufficiently high and sustained levels of liberalization and controlling for variables like price decontrols and wars legal cbi and inflation are significantly and negatively related these findings are consistent with the view that legal cbi no matter how high cannot contain the powerful inflationary impact of wide scale liberalization of formerly controlled prices but once the process of liberalization has gathered sufficient momentum legal independence becomes effective in slowing inflation down and the cumulative liberalization index developed by de melo et al 1996 becomes relatively less important the paper also presents evidence on factors that affect the level of cbi and examines the relation between inflation and cbi within a broader sample composed of the transition and of the developed economies

risk and farm operator labour supply this study uses a large increase in us federal crop insurance subsidies as a natural experiment to identify the importance of risk for farm operator labour supply subsidy increases induced greater crop insurance coverage which in turn reduced farmers financial risks crop insurance participation data are merged with farm level census of agriculture data from 1992 and 1997 to compare how individuals off farm labour supply changed in response to the policy induced change in insurance coverage the empirical approach controls for unobserved heterogeneity and accounts for the censored nature of the data it is found that greater insurance coverage reduces the off farm labour supply of operators who produced at least 100 000 of output and increased the labour supply of small farm operators who produced less than 25 000 of output

fiscal constraints and the speed of transition abstract this paper develops a model of the process of reallocation of resources from a declining state sector to an expanding private sector the transition is shown to be costly in that it entails unemployment and a deterioration of the fiscal balance the interaction of fiscal constraints with the transition process is examined it is shown that fiscal constraints may induce the government to maintain the state sector slowing the speed of transition and could jeopardize the eventual outcome of the process of restructuring

the first shall be last entrepreneurship and communist cadres in the transition from socialism this article reviews the sociological literature on the transition from socialism to capitalism it distinguishes between the erosion and transition phases and between traditional and corporate segments in the emerging private sector panel survey data from hungary show that during the transition ex communist cadres maintain their advantageous position and do especially well in the more dynamic corporate segment they are successful because human capital is important in both capitalism and socialism and because the cadres are able to convert past political power to economic advantage contrary to the findings of studies based only on agriculture the transition increases income inequalities

cost reducing investment optimal procurement and implementation by auctions the authors analyze a model in which potential suppliers invest in research and development r d and then compete for a procurement contract from a buyer if the buyer is able to commit to a procurement mechanism before the investment stage the full information solution can be uniquely implemented by first price and second price sealed bid auction mechanisms when the r d technology exhibits decreasing returns to scale if the procurement mechanisms and the levels of investment are chosen simultaneously the full information solution cannot be implemented the authors discuss how the second best equilibrium contract varies with the number of suppliers copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

russia austerity and deficit reduction in historical and comparative perspective this paper looks at russian experience with austerity programmes since the breakdown of the former soviet union in 1991 downsizing of the state was one of the major elements in a reform package designed to transform the centrally planned economy into a market one together with deregulation privatisation macroeconomic stabilisation and the opening up of the closed economy this downsizing however proved to be the single most important reason for the collapse of state institutions which in turn deepened the transformational recession contributed to the dramatic rise of income inequalities corruption and crime and the decline in life expectancy the story of the successes and failures of transition is not really the story of consistent shock therapy and inconsistent gradualism the major plot of the postsocialist transformation novel is the preservation of strong institutions in some countries very different in other respects from central europe and estonia to china uzbekistan and belarus and the collapse of these institutions in other countries at least 90 of this story is about government failure the strength of state institutions and not about market failure liberalisation copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the political foundations of post communist regimes marketization agrarian legacies or international influences this article explores the causes of differing post communist regime transitions in eastern europe and the former soviet union emphasizing the increasingly prominent thesis that economic liberalization promotes political democratization we explore this argument in light of findings from other regions that have emphasized modernization agrarian class structure and international influences our results are based on a multilevel design strategy first analyzing data on 26 post communist countries over a 7 to 9 year period using time series cross sectional methods and then turning to a comparative analysis of four purposively selected cases to explore the causal mechanisms implied but not tested in the quantitative analysis our results suggest that faith in economic liberalization as a cause of democratization may be misplaced however there is support for the notion that large agrarian sectors are unfavorable to democratic development whereas positive democratic conditionality from outside agents can p

entry and r d in procurement contracting abstract a model of competitive procurement and contracting is presented in this paper the key features of the model include precontract r d an endogenous number of homogeneous firms and sealed bid auction rules both diminishing and constant returns to scale drs and crs in r d expenditure technologies are considered i find that the sealed bid first price auction fpa is equivalent to the second price auction spa under drs technology the revenue equivalence theorems breaks down under crs because multiple equilibria arise in the r d stage when spa is used howerer spa yields a unique perfect equilibrium given sufficient heterogeneity among potential firms the free entry perfect equilibrium is also characterized the buyer prefers free entry through an appropriate selection of the reservation price

income uncertainty and optimal redistribution 1 introduction redistribution policy under a utilitarian criterion aims to transfer dollars from one group in the population to another if the weighted utility gain to the recipients exceeds the utility cost to the donors under diminishing marginal utility of income part of any exogenous change in one group s income should be shared with the other group for example if taxpaying workers suffer a negative shock to their mean earnings then part of this utility shock should be spread to nonworkers in the form of lower transfer payments and vice versa for the case of a positive shock this article demonstrates the counterintuitive result that under reasonable preference representations a policymaker may respond optimally to a negative utility shock by redistributing income away from the harmed group thus exacerbating the group s utility loss in particular under risk aversion a mean preserving increase in the variance of income typically has an effect on well being analogous to a decrease in mean income 1 it may nevertheless be welfare enhancing to transfer income away from those suffering an increase in income uncertainty even though this policy compounds their welfare loss the main ideas can be demonstrated in a simple framework for illustration the analysis will focus on redistribution from taxpaying workers to nonworkers the central result is that a meanpreserving increase in earnings uncertainty among taxpayers can increase optimal transfer amounts to nonworkers increasing optimal income replacement rates even though the redistribution exacerbates the taxpayers utility loss from the increase in uncertainty 2 model footnote 1 many factors in the economy affect earnings uncertainty even conditional on being employed such as the form of compensation e

transition and agricultural labor reforms have strongly affected agricultural employment in transition countries but in remarkably different ways we present a theoretical model and an empirical analysis to explain differences in labor adjustment during transition we show that the differences are due to a combination of variations in initial conditions and differences in reform policies and effects the removal of price distortions and subsidies caused wage and price adjustments during transition and a reduction in labor demand in agriculture surplus labor outflow from agriculture was further stimulated by the privatization of the farm assets as they improve incentives and remove constraints for optimal factor allocation and structural adjustment the shift to individual farms which was especially strong in labor intensive production systems with low labor productivity in agriculture has reduced the outflow of labor from agriculture by improving farm governance and labor efficiency although this effect was mitigated by losses in scale economies due to disruptions and market imperfections in transition in general labor outflow was considerably lower on individual farms than on corporate farms due to a combination of factors related to human capital access to finance and physical capital in the last section of the article we present a general framework for understanding labor adjustments in transition countries specifically we show that there are several patterns of labor transition in one pattern followed by e g the czech republic and hungary there is initially a strong survival of the restructured large scale corporate farms that have laid off many workers in the second phase of transition gradually the importance of individual farms increases in other countries such as romania the opposite has happened in these countries there is an immediate strong shift to individual farms while labor use increases on average in agriculture after this initial phase the shift to individual farms continues albeit more slowly and labor use in agriculture starts to decline finally our analysis shows that in countries such as russia and ukraine much of the surplus labor is still employed by little reformed former collective and state farms major adjustments await more progress in agricultural and general reforms

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

the saving collapse during the transition in eastern europe almost all of the transition economies in eastern europe and the former soviet union experienced a severe decline in their national saving rates the saving collapse could be explained by the elimination of involuntary saving a feature of central planning or by a change in equilibrium saving reflecting the new economic circumstances following the end of socialism the predicted saving rates of market economies with the same fundamentals as the transition economies before the transition are computed to test for the presence of involuntary saving the results provide some support for the hypothesis of consumption smoothing also considered is whether differences m the extent of liberalization affected saving rates in the cross section of transition economies this is found to be the case greater liberalization is association with lower saving with a one year lag to the extent that liberalization is associated with future growth this finding is consistent with smoothing m the face of output evolving along j curve

growth in transition what we know what we don t and what we should abstract this essay surveys macroeconomic issues that marked the transition from planned to market economy in central and eastern european and former soviet union countries we first establish stylized facts of the transition so far we then critically survey the theoretical literature on transition discussing explanations for the initial output fall and mediumterm issues such as optimal speed of transition disorganization institutions and sectoral reallocation as source of output dynamics we review the empirical literature to assess how well it translates the theoretical models and explains the stylized facts we conclude with suggestions for future research

development aid and growth in transition countries empirical studies normally analyze diverse and heterogeneous groups of countries producing very mixed evidence on the effectiveness of development aid in promoting growth we focus on whether aid promotes economic growth in transitional economies we find that aid on average has had a positive impact on growth for this specific group of countries this result is robust to samples estimators and the use of alternate instruments to address endogeneity aid effectiveness is not conditional on good policy and there is little evidence of non linear growth effects arising from aid

structural adjustment and international trade in eastern europe the case of poland poland andrew berg and jeffrey sachs the polish economic programme is important not only in its own right hut as a key example of the benefits and possible costs of a rapid movement to convertibility this paper proposes an analytical framework and new estimates of the costs and benefits the framework shows that convertibility revolves around the relationship of two nominal variables the money supply and the nominal exchange rate return to convertibility is achieved not mainly through a real depreciation but through a nominal depreciation which helps to bring the overall price level back into line with nominal aggregate demand and particularly with the money supply the new estimates show that the costs a drop in living standards and output are less than commonly believed given the extreme inflationary conditions in 1989 and the shock following the disintegration of cmea trade the loss of output was not caused in any important way by the rapid move to free trade

macropolicies in transition to a market economy a three year perspective countries in transition to market economies have had to implement macroeconoimic stabilization programs at the same time that they were engaged in massive changes of their political institutions and the systemic framework of their economies what has been the interaction of stabilization with economic liberalization and deep institutional reform in the countries of eastern europe in particular the relations among initial conditions political developments reform strategies and outcomes experience in eastern europe suggests that when there is a political breakthrough as in the countries under review a radical stabilization liberalization stragety is probably the least risky approach to reform and will not constrain output or structural reform over the medium term even stabilization that is initially successful in containing inflation will later come under pressure because of social policies and the structural transitions impelled by reform several factors are identified that affect the credibility of reforms and lessons are derived for countries that have stabilized and those that yet face this task

incentive and sampling effects in procurement auctions with endogenous number of bidders abstract we study an auction contest for a procurement of innovation firms exert effort and the resulting quality of innovation is ex ante uncertain given this uncertainty there is a trade off regarding the number of participating firms in the contest increasing the number of firms reduces each firm s chance of winning the auction leading the firms to reduce effort level meanwhile the chance of obtaining a high quality of innovation increases with the number of firms due to the randomness of the quality thus the procurer faces a nontrivial problem of how many firms to invite we show that in the high level of randomness it is optimal for the procurer to invite many firms as the randomness vanishes however inviting only two firms is optimal we also show that a fixed prize tournament may outperform the auction when the randomness is large

auctions when bidders prepare by investing in ideas abstract we consider auctions assuming bidders spend resources to increase their valuations standard auctions are efficient yet reserve price requirements entail a double inefficiency moreover optimal auctions differ from the well known static optimum finally we sketch the impact of information spillovers

us companies in transition economies wealth effects from expansion between 1987 and 1999 this study uses a unique sample to evaluate changes in shareholder wealth from announcements of expansion by us firms into 18 transition economies through four entry modes from 1987 to 1999 on average expansion in transition economies is associated with significant positive wealth effects results show that value creation is most significantly associated with expansion through less risky entry modes into host countries that are in the more advanced stages of market liberalization and structural reform sample firms with lower profitability also experience significantly higher abnormal returns while significant value creation documented for firms entering transition economies in 1989 1990 and 1992 suggests first mover advantages

remittance income volatility and labor supply in mexico author affiliation catalina amuedo dorantes camuedod mail sdsu edu corresponding authorsusan pozo susan pozo wmich edu acknowledgment we would like to thank the anonymous referees and the editor for their comments and suggestions on how to improve the manuscript 1 background and significancea significant body of academic and policy research analyzes the impact of international remittances the earnings that emigrants send home in economies around the globe studies have been carried out to ascertain the effect of remittances on a wide range of economic outcomes including household decisions concerning capital accumulation health and housing expenditures country exchange rates economic growth income distribution poverty rates and as we do in this study labor supply evidence of the impacts of remittances on the well being of recipients and on economic progress is mixed some studies find that countries and households reap positive benefits from these resource transfers e g adam and page 2005 while others find negative or ambiguous effects e g narayan narayan and mishra 2011 an overall consensus on the impacts of remittances is unlikely to emerge for some time given the complexity of this research topic not to mention the varying characteristics of countries under analysis 1we propose to contribute to this important debate using an expanded approach for assessing the effects of remittances on individual and household decision making our contribution is to note that while the level of resource transfers received by the household is likely to influence individual and household behaviors volatility with regard to the stream of inflows is also likely to play an important role to date research on the impact of remittances on remittance receiving households has tended to focus on the way in which the level of remittance inflows affects either individual or household behavior without considering the volatility surrounding these inflows however if the volatility that surrounds remittance inflows influences individual and household behaviors a strategy that only examines the level of inflows is likely to miss out on a more complete understanding of the effects of remittances on individual and household decision making and therefore of their impacts on remittance receiving economies amuedo dorantes and pozo 2010 in this study we focus on the labor market and investigate how volatility of remittance inflows influences male and female labor supply a crucial dimension in the influence of remittances on remittance receiving countries limited numbers of studies have examined the impact of the incidence and level of remittance income on labor supply patterns although conclusions differ owing in part to the various data sources and methodological approaches being used a majority of the studies have concluded that the receipt of remittances results in labor supply reductions for instance rodriguez and tiongson 2001 report that remittances lower employment in the philippines while funkhouser 1992 estimates that remittances reduce the employment likelihood of nicaraguan men and women by 2 and 5 percentage points respectively studies by amuedo dorantes and pozo 2006 and hanson 2007 found that the impact of remittances on the labor supply of mexicans is conditioned on gender they conclude that mexican women reduce labor supply on account of remittance inflows whereas men do not in contrast limiting their study to mexican households that receive persistent remittances cox edwards and rodriguez oreggia 2009 conclude that remittances have no impact on the labor supply of household members remaining in mexico with the exception of urban women in traditionally low migration states for whom labor supply rises however we still lack an understanding of the ways in which the volatility in remittance inflows can impact labor supply in remittance receiving countries

government in transition abstract the speed of economic reforms is not the only important determinant of the success of the transition to a market economy the transition of government from a communist state to an institution supporting a market economy is as critical survey evidence shows that russia lags significantly behind poland in the transition of its government which may account for its inferior economic performance despite adopting similar economic reforms i argue that the lack of turnover of old communist politicians and the creation of inappropriate electoral and fiscal incentives for these politicians may account for the poor performance of the russian government and suggest some strategies for improving the situation

coase versus the coasians who should enforce laws or contracts judges or regulators many coasians though not coase himself advocate judicial enforcement we show that the incentives facing judges and regulators crucially shape this choice we then compare the regulation of e nancial markets in poland and the czech republic in the 1990s in poland strict enforcement of the securities law by a highly motivated regulator was associated with a rapidly developing stock market in the czech republic hands off regulation was associated with a moribund stock market i introduction at the heart of economists traditional skepticism about government regulation is the coase theorem coase 1960 the theorem states that when property rights are well dee ned and transaction costs are zero market participants will organize their transactions in ways that achieve efe cient outcomes when they can do so it is not necessary for the government to engage in corrective actions through taxes regulations or even legal rules financial markets are often used to demonstrate the coase theorem s case against regulation advocates of the regulation of these markets point to a variety of potential failures such as the ability of security issuers to expropriate both potential and existing investors through misrepresentation or proe t diversion investors fear of such expropriation prevents e rms from raising external funds and keeps efe cient projects from being undertaken not so reply the coasians they point out that most securities transactions take place between sophisticated adults and that both the buyers and the issuers of securities have available to them a vast range of private arrangements to achieve efe ciency including contracts such as corporate charters certie cation by intermediaries and various forms of bonding such contracts render most laws and regulations unnecessary stigler 1964 easterbrook and fischel 1991