cross border auction cycle effects of sovereign bond issuance in the euro area we provide evidence for the euro area of spillovers from foreign public debt auctions into domestic secondary market auction cycles we also confirm existing evidence of such spillovers from domestic issues into the domestic secondary market consistent with a theory of primary dealers limited risk bearing capacity we find that auction cycles from domestic issues are stronger during the recent crisis period whereas cross border effects are stronger in the precrisis period but this evidence is not strong this finding likely reflects the opposing effects of reduced sovereign bond market integration during the crisis and higher yield covariances caused by more market volatility

utility functions for public outputs and majority voting abstract this paper studies the existence and stability of majority voting equilibria over sequences of one dimensional choice problems in the public sector voters public sector preferences are derived from their primitive preferences over public outputs and private consumption by maximizing the latter out if agents ignore the potential effects of public sector states on private sector prices we find that majority voting equilibria will exist under the usual assumptions but these equilibria are not stable unless the primitive utility functions are separable and admit no wealth effects on demand for public goods if agents do take account of the effects of public sector states on private sector prices voting cycles may arise even when the choice space is one dimensional

the empirical content of the roy model this paper clarifies and extends the classical roy model of self selection and earnings inequality the original roy model based on the assumption that log skills are normally distributed is shown to imply that pursuit of comparative advantage in a free market reduces earnings inequality compared to the earnings distribution that would result if workers were randomly assigned to sectors aggregate log earnings are right skewed even if one sectoral distribution is left skewed most major implications of the log normal roy model survive if differences in skills are log concave however few implications of the model survive if skills are generated from more general distributions we consider the identifiability of the roy model from data on earnings distributions the normal theory version is identifiable without regressors or exclusion restrictions sectoral distributions can be identified knowing only the aggregate earnings distribution for general skill distributions the model is not identified and has no empirical content with sufficient price variation the model can be identified from multimarket data cross sectional variation in regressors can substitute for price variation in restoring empirical content to the roy model

the impact of the federal reserve s large scale asset purchase programs on corporate credit risk estimating the effect of federal reserve s announcements of large scale asset purchase lsap programs on corporate credit risk is complicated by the simultaneity of policy decisions and movements in prices of risky financial assets as well as by the fact that both interest rates of assets targeted by the programs and indicators of credit risk reacted to other common shocks during the recent financial crisis this paper employs a heteroskedasticity based approach to estimate the structural coefficient measuring the sensitivity of market based indicators of corporate credit risk to declines in the benchmark market interest rates prompted by the lsap announcements the results indicate that the lsap announcements led to a significant reduction in the cost of insuring against default risk as measured by the cdx indexes for both investment and speculative grade corporate credits while the unconventional policy measures employed by the federal reserve to stimulate the economy have substantially lowered the overall level of credit risk in the economy the lsap announcements appear to have had no measurable effect on credit risk in the financial intermediary sector

measuring the incentives to learn in colombia using new quantile regression approaches abstract this paper employs newly developed quantile regression techniques to investigate a policy that could differentially affect students performance the colombian vouchers were assigned using lotteries and were renewable as long as the students maintained satisfactory academic progress this second aspect of the program may provide incentives for low attainment students to work harder the evidence supports the hypothesis that incentives could account for the impact of the vouchers including lower repetition rate the effect of the vouchers is largest in the lower tail of the educational attainment distribution a possibility that was conjectured by others but has not yet been confirmed empirically the evidence suggests that the incentive effect of the program increases weak students test scores by at least 0 1 standard deviations roughly the score gain associated to a half year of school learning

the demand for and impact of learning hiv status this paper evaluates an experiment in which individuals in rural malawi were randomly assigned monetary incentives to learn their hiv results after being tested distance to the hiv results centers was also randomly assigned without any incentive 34 percent of the participants learned their hiv results however even the smallest incentive doubled that share using the randomly assigned incentives and distance from results centers as instruments for the knowledge of hiv status sexually active hiv positive individuals who learned their results are three times more likely to purchase condoms two months later than sexually active hiv positive individuals who did not learn their results however hiv positive individuals who learned their results purchase only two additional condoms than those who did not there is no significant effect of learning hiv negative status on the purchase of condoms

limitations of the spatial model one approach to avoiding the implications of arrow s paradox is to impose restrictions on the preferences of voters a restriction often assumed in the literature is that voters preferences can be represented by a choice among points in a space where voters preferences are convex we claim that these assumptions will often be unjustified government must often address issues of externalities or public goods which means that the possibility frontier will not be concave this in turn means that voters preferences over feasible policies will not be convex

what is the effect of unconventional monetary policy on bank performance this paper examines the relationship between unconventional monetary policy and the us banking performance unconventional monetary policy is captured through the central bank s assets and excess reserves results show that unconventional monetary policy has a negative relationship with bank performance further analysis shows that the negative association between unconventional monetary policy and performance is mitigated for banks with a high level of asset diversification and low deposit funding we also find that the negative relationship between unconventional monetary policy and performance subdues for deposit insured financial institutions finally we use dynamic panel threshold analysis which reveals that the negative association between unconventional monetary policy and bank performance is particularly pronounced above the reported threshold value

the effect of expanding medicaid eligibility on the distribution of children s health insurance coverage federal legislation passed in the late 1980s greatly expanded the medicaid program to include children in families with incomes at and above the poverty threshold regardless of family structure using march current population survey data the author evaluates how the expansions affected private and public insurance coverage levels across the income distribution estimates of the extent of take up of public coverage and substitution of private coverage are used to generate distributions of coverage under two counterfactual situations absence of expansions and absence of substitution the results indicate that the expansions had an equalizing effect on coverage levels across the lower five deciles of the income distribution between 1988 and 1995 in their absence coverage would have fallen significantly in the third through fifth income deciles also if all of the increased medicaid enrollment had come from the uninsured population inequality in coverage levels would have decreased even further

assessing the case for social experiments rs ecent academic debates pit two alternative approaches to policy evaluation against one another the first is the experimental approach based on the random assignment of accepted program applicants to a recipient or treatment group and a non recipient or control group the second is the nonexperimental or econometric approach that uses a variety of microdata sources statistical methods and behavioral models to compare the outcomes of participants in social programs with those of nonparticipants the central question addressed in this paper is whether or not randomized social experiments aid in securing answers to basic questions about the evaluation of social programs there are many distinct and complementary approaches to the study of the impact of public policy including full general equilibrium analysis of policy impacts tinbergen 1956 auerbach and kotlikoff 1987 shoven and whalley 1992 kydland and prescott 1991 and less ambitious partial equilibrium microeconomic structural research programs such as those designed to estimate the impact of taxes on labor supply both approaches offer answers to many interesting counterfactual policy questions but their credibility rests critically on the quality of the empirical input used to generate their answers

does public insurance crowd out private insurance the cost of expanding public sector health programs depends critically on the extent to which public eligibility will cover just the uninsured or will crowd out existing private insurance coverage we estimate the extent of crowd out arising from the expansions of medicaid to pregnant women and children over the 1987 1992 period we estimate that approximately 50 percent of the increase in medicaid coverage was associated with a reduction in private insurance coverage this occurred largely because employees took up employer based insurance less frequently there is also some evidence that employers contributed less for insurance and that workers dropped coverage of dependents

oil price shocks economic policy uncertainty and industry stock returns in china asymmetric effects with quantile regression abstract this paper investigates the impact of crude oil shocks and china s economic policy uncertainty on stock returns at different locations on the return distributions based on monthly data from 1995 1 to 2016 3 we address this issue by employing the quantile regression technique this approach enables a more detailed investigation in different market circumstances namely bearish normal and bullish markets empirical results indicate that the effects of oil price shocks and economic policy uncertainty are asymmetric and highly related to stock market conditions moreover both the nexus of oil and economic policy uncertainty stock are changed at the onset of a crisis specially rising oil prices have greater negative effects on stock returns when stock markets are bullish extreme higher quantiles before a crisis whereas the effects are significantly positive under different market conditions after the onset of the crisis falling oil prices lower stock returns when stock markets are bullish and normal before the crisis whereas lower stock returns under different market conditions except extreme bullish after the onset of the crisis these findings might be related to the optimistic or pessimistic investor sentiments and investors might become more frightened after the crisis

the politics of flatland a version of the median voter theorem holds for two dimensional spatial models in which voters regard the two dimensions as economic goods or goodlike activities and in which the set of feasible outcomes is constrained by budget or technology although mathematically trivial this fact has widespread analytical uses after arguing that our two dimensional model with its stability property fits a number of important and general policy areas we use our analysis to address some prominent theoretical issues

international spillovers of large scale asset purchases this paper evaluates the international spillover eects of large scale asset purchases lsaps using a two country dynamic stochastic general equilibrium model with nominal and real rigidities and portfolio balance eects portfolio balance eects arise from imperfect substitution between short and long term bond portfolios in each country as well as between domestic and foreign bonds within these portfolios we show that lsaps lower both domestic and foreign long term yields and stimulate economic activity in both countries international spillover eects

is universal child care leveling the playing field abstract we assess the case for universal child care programs in the context of a norwegian reform which led to a large scale expansion of subsidized child care we use non linear difference in differences methods to estimate the quantile treatment effects of the reform we find that the effects of the child care expansion were positive in the lower and middle parts of the earnings distribution of exposed children as adults and negative in the uppermost part we complement this analysis with local linear regressions of the child care effects by family income we find that most of the gains in earnings associated with the universal child care program relate to children of low income parents whereas upper class children actually experience a loss in earnings in line with the differential effects by family income we estimate that the universal child care program substantially increased intergenerational income mobility to interpret the estimated heterogeneity in child care effects we examine the mediating role of educational attainment and cognitive test scores and show that our estimates are consistent with a simple model where parents make a tradeoff between current family consumption and investment in children taken together our findings could have important implications for the policy debate over universal child care programs suggesting that the benefits of providing subsidized child care to middle and upper class children are unlikely to exceed the costs our study also points to the importance of universal child care programs in explaining differences in earnings inequality and income mobility across countries and over time

macroeconomics and the term structure this paper provides an overview of the analysis of the term structure of interest rates with a special emphasis on recent developments at the intersection of macroeconomics and finance the topic is important to investors and also to policymakers who wish to extract macroeconomic expectations from longer term interest rates and take actions to influence those rates the simplest model of the term structure is the expectations hypothesis which posits that long term interest rates are expectations of future aver age short term rates in this paper we show that many features of the configuration of interest rates are puzzling from the perspective of the expectations hypothesis we review models that explain these anomalies using time varying risk premia although the quest for the fundamental macroeconomic explanations of these risk premia is ongoing inflation uncertainty seems to play a large role finally while modern finance theory prices bonds and other assets in a single unified framework we also consider an earlier approach based on segmented markets market segmentation seems important to understand the term structure of interest rates during the recent financial crisis jel e31 e43 e52 e58

the effect of medicaid expansions for low income children on medicaid participation and private insurance coverage evidence from the sipp abstract we examine medicaid enrollment and private coverage loss following expansions of medicaid eligibility we attempt to replicate cutler and gruber s q j econ 111 1996 391 results using the survey of income and program participation sipp and find smaller rates of take up and little evidence of crowding out we find that some of the difference in results can be attributed to different samples and recall periods in the data sets used extending the previous literature we find that take up is slightly increased if a child s siblings are eligible and with time spent eligible focusing on children whose eligibility status changes during the sample we estimate smaller take up effects we find little evidence of crowding out in any of our extensions

valence politics and equilibrium in spatial election models spatial models of two party or two candidatecompetition almost never have pure strategy nashequilibria when the issue space has more than onedimension this paper shows that the introduction ofvalence issues can create conditions where equilibriaexist even in a multidimensional setting we derivesufficient conditions for the existence of equilibria and characterize the spatial locations of twocompeting parties or candidates when such equilibriaexist the party with the advantage on the valencedimension will generally take a moderate position onthe positional issues we consider the implications ofthese results for public perceptions of the parties incumbency advantages and realigning elections

government debt management the long and the short of it standard optimal debt management dm models prescribe a dominant role for long bonds and advocate against issuing short bonds they require very large positions in order to complete markets and assume each period that governments repurchase all outstanding bonds and reissue r r new ones these features of dm are inconsistent with u s data we introduce incomplete markets via small transaction costs which serves to make optimal dm more closely resemble the data r r are negligible short bond issuance substantial and persistent and short and long bonds positively co vary intuitively long bonds help smooth taxes over states and short bonds over time solving incomplete market models with multiple assets is challenging so a further contribution of this article is introducing a novel computational method to find global solutions

political uncertainty and public financing costs evidence from u s gubernatorial elections and municipal bond markets this research investigates how political uncertainty around u s gubernatorial elections in uences the borrowing costs of public debt measured by yields of municipal bonds our evidence from both the new issuance market and the secondary market shows that yields of municipal bonds increase sharply by 6 to 8 basis points before elections and then reverse afterward elections have more pronounced impact during economic downturns when outcomes are less predictable and when states have more outstanding debt several state institutions such as gaap budgeting spending limits and tax increase limits help to mitigate the adverse impact of political uncertainty

why are excess returns on china s treasury bonds so predictable the role of the monetary system abstract it is well documented that the time varying bond excess returns can be explained by predetermined variables such as information in the term structure and macro economic variables recent studies suggest that demand and supply of bonds influence bond excess returns we extend the literature and find that monetary system attributes affect return dynamics in the bond market by introducing a theoretical model to forecast excess returns on treasury bonds in the context of china s unique monetary system this paper attributes the predicted components of bond excess returns mainly to the inflexible term structures of official interest rates set by china s central bank

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

majority voting with single crossing preferences we clarify and extend a number of sufficient conditions for the existence of a majority voting equilibrium on one dimensional choice domains these conditions variously stated in the previous literature all impose order restrictions on voter preferences for instance monotone marginal rates of substitution which we show to imply or be equivalent to a general ordinal version of the single crossing condition this simple property is economically intuitive and easily checked in applications this ease of application is demonstrated through an examination of voting models of redistributive income taxation and trade union bargaining behaviour

a problem with euclidean preferences in spatial models of politics abstract euclidean public sector preferences can not be induced from a strictly quasiconcave primitive utility function and a linear constraint

treatment effect heterogeneity in theory and practice instrumental variables iv methods identify internally valid causal effects for individuals whose treatment status is manipulable by the instrument at hand inference for other populations requires homogeneity assumptions this paper outlines a theoretical framework that nests causal homogeneity assumptions these ideas are illustrated using sibling sex composition to estimate the effect of childbearing on economic and marital outcomes the application is motivated by american welfare reform the empirical results generally support the notion of reduced labour supply and increased poverty as a consequence of childbearing but evidence on the impact of childbearing on marital stability and welfare use is more tenuous

set identification in models with multiple equilibria we propose a computationally feasible way of deriving the identified features of models with multiple equilibria in pure or mixed strategies it is shown that in the case of shapley regular normal form games the identified set is characterized by the inclusion of the true data distribution within the core of a choquet capacity which is interpreted as the generalized likelihood of the model in turn this inclusion is characterized by a finite set of inequalities and efficient and easily implementable combinatorial methods are described to check them in all normal form games the identified set is characterized in terms of the value of a submodular or convex optimization program efficient algorithms are then given and compared to check inclusion of a parameter in this identified set the latter are illustrated with family bargaining games and oligopoly entry games copyright 2011 oxford university press

the economic reward for studying economics undergraduate advisors in economics departments suggest that the study of economics is good preparation for a variety of careers including economics consulting analysis and administration and they argue that economics is a solid prelaw or pre mba major in this article we provide some empirical evidence about each of these contentions we find that among college graduates who do not earn advanced degrees economics majors generally earn more than similar individuals with other majors we show also that among individuals who pursue graduate degree programs in business and law economics majors earn more than undergraduate majors in most other academic disciplines jel j31

what is the price of prevention new evidence from a field experiment how does increasing access to treatment affect the demand for preventive testing in this paper we present results from a field experiment in nigeria in which we offered cervical cancer screening to women at randomly chosen prices to test our hypothesis we also offered women a lottery where the payoff was a subsidy towards the cost of cervical cancer treatment conditional upon a diagnosis of cervical cancer we find that women randomly selected to receive the conditional cancer treatment subsidy were about 4 percentage points more likely to take up screening than those in the control group we also show that reducing the price of screening by 10 cents increased take up by about 1 percentage point these results offer compelling evidence that the optimal set of subsidies to increase take up of preventive testing in developing countries must include subsidies towards treatment costs in addition to price subsidies

stable governments and the allocation of policy portfolios different members of coalition governments typically have responsibility for different aspects or dimensions of policy such responsibilities are allocated as portfolios to government members given a distribution of such portfolios final government policy is derived as the accumulation of individual members decisions in regard to their respective responsibilities we develop a portfolio allocation model of government formation and policy decision in multiparty legislatures in particular we focus on stable portfolio allocations where a stable allocation is one that yields a policy that no legislative coalition is willing or able to overturn several notions of stability are considered and related to the usual concept of the core among the results are that although stable allocations are not guaranteed such allocations can exist with minority governments and that final policy outcomes associated with stable governments need not be centrist

long term interest rates and public debt maturity this paper adds to the literature studying how fiscal variables affect long term interest rates using a sample of sixteen oecd countries over the period 1980 2007 we show that a one year increase in the maturity of the public debt lowers the long term interest rate by on average 20 30 basis points this negative effect is found for both static and panel vector autoregressive specifications country sample splits suggest that it is present in particular for low maturity or high inflation countries

the industrial organization of congress or why legislatures like firms are not organized as markets this paper provides a theory of legislative institutions that parallels the theory of the firm and the theory of contractual institutions like market institutions legislative institutions reflect two key components the goals or preferences of individuals here representatives seeking reelection and the relevant transactions costs we present three conclusions first we show how the legislative institutions enforce bargains among legislators second we explain why given the peculiar form of bargaining problems found in legislatures specific forms of nonmarket exchange prove superior to market exchange third our approach shows how the committee system limits the types of coalitions that may form on a particular issue

making the most out of programme evaluations and social experiments accounting for heterogeneity in programme impacts the conventional approach to social programme evaluation focuses on estimating mean impacts of programmes yet many interesting questions regarding the political economy of programmes the distribution of programme benefits and the option values conferred on programme participants require knowledge of the distribution of impacts or features of it this paper presents evidence that heterogeneity in response to programmes is empirically important and that classical probability inequalities are not very informative in producing estimates or bounds on the distribution of programme impacts we explore two methods for supplementing the information in these inequalities based on assumptions about participant decision making processes and about the strength in dependence between outcomes in the participation and non participation states dependence is produced as a consequence of rational choice by participants we test for stochastic rationality among programme participants and present and implement methods for estimating the option values of social programmes

government intervention and strategic trading in the u s treasury market we study the impact of permanent open market operations pomos by the federal reserve on u s treasury market liquidity using a parsimonious model of speculative trading we conjecture that i this form of government intervention improves market liquidity contrary to conclusions drawn by existing literature and ii the extent of this improvement depends on the market s information environment evidence from a novel sample of federal reserve pomos during the 2000s indicates that bid ask spreads of on the run treasury securities decline when pomos are executed by an amount increasing in proxies for information heterogeneity among speculators fundamental volatility and pomo policy uncertainty consistent with our model

the budget process and the size of the budget the new congressional budget process provides members of congress with a new set of institutional mechanisms for making budget decisions this article addresses the question of whether or under what conditions rigid application of the new budget process modeled as first selection of the size of the budget and second its division produces smaller budgets than a piecemeal appropriations process in which the size of the budget is determined residually the theoretical result is that the new process sometimes results in relatively large budgets a testable implication of the theory is that given a choice of how stringently the budget process is to be employed members of congress jointly consider preferences and the expected outcomes under available institutional arrangements and select the arrangement usually a rule that yields the most favorable outcome empirical results from the budget process in the house from 1980 to 1983 are generally supportive of the theoretically derived hypothesis of rational choice of institutional arrangements

is the quantity quality trade off a trade off for all none or some abstract although the theoretical trade off between the quantity and quality of children is well established empirical evidence supporting such a causal relationship particularly on child health is limited we use two measures of child health to assess the quantity quality trade off across the entire distribution using data from the indonesia family life survey and controlling for the potential endogeneity of child quantity we find modest statistically meaningful evidence of a causal trade off

asset pricing and the propagation of macroeconomic shocks this paper considers the implications of habit formation and financial frictions for the propagation of macroeconomic shocks in a model that is capable of matching asset pricing moments a short lived shock that destroys a small fraction of the economy s stock of pledgeable collateral generates a persistent recession a stock market crash and a flight to safety effect this novel mechanism creates a tight link between the asset pricing implications of macroeconomic models and their ability to propagate and amplify the effects of macroeconomic shocks

necessary and sufficient conditions for single peakedness in public economic models abstract median voter results have played a central role in public economic analyses where there is a linearly ordered set of policy alternatives that is to be voted on in these analyses the median voter results themselves have been based on voters preferences being single peaked with respect to the ordering for this set in this paper we derive conditions that are both necessary and sufficient for such single peakedness to occur whenever we have economic decision makers this leads to certain new median voter results in addition it also reveals some important limitations on median voter analyses

flow effects of central bank asset purchases on sovereign bond prices evidence from a natural experiment we estimate the response of sovereign bond prices to net supply shocks caused by purchase operations under the ecb s public sector purchase programme pspp to avoid simultaneity bias in the estimated relationship between prices and purchases we exploit a pspp feature that renders securities temporarily ineligible for reasons unrelated to their prices using these purchase restrictions as an instrument to identify exogenous variation in purchase volumes we find that pspp causes statistically significant and economically relevant upward price impacts the impacts are short lived and concentrated in securities issued by higher yield jurisdictions and characterized by higher maturity and lower liquidity

estimating heterogeneous takeup and crowd out responses to existing medicaid income limits and their nonmarginal expansions we use a switching probit model and the income limit based structure of medicaid eligibility for children to estimate treatment effects of nonmarginal medicaid expansions on medicaid takeup private insurance coverage and crowd out as well as crowd out for those eligible for medicaid under rules already in place many of these estimates are not found in existing work on public insurance and cannot be calculated with the linear probability model used by previous work in this literature we provide an estimation approach that is straightforward to implement yet yields precise treatment effects

executive veto and spending limitation positive political economy with implications for institutional choice the consequences of institutional change in the budgetary process are not generally determinate independent of the preferences of political actors nonetheless this study shows for a general class of preference configurations that the legislative branch cannot be made better off by a spending limitation unless the executive is empowered with a line item veto in the absence of executive item veto authority there is no incentive for the legislature to constrain spending

the political economy of benefits and costs a neoclassical approach to distributive politics this essay offers a rational political explanation for the notorious inefficiency of pork barrel projects with an optimization model of legislative behavior and legislative institutions the model emphasizes the economically arbitrary from a welfare point of view importance of the geographic incidence of benefits and costs owing to the geographic basis for political representation we explore the implications of a legislator s objective function and derive conditions under which a representative legislature will select an omnibus of projects each of which exceeds the efficient scale

large scale bond purchases in a currency union with segmentation in the market for government debt abstract the literature on large scale purchases of government debt emphasises the importance of bond market segmentation along the maturity dimension for their transmission this study investigates how another form of segmentation that we observe the segmentation of government bond markets across countries can be exploited by the central bank of a currency union in which fiscal coordination is not attainable it is shown first that under general conditions government bond purchases which lower bond yields have first order effects on demand and hence inflation through a fiscal channel even in the absence of heterogeneity in investment opportunities the total effect on aggregate demand can be broken down into an income from debt issuance effect and a primary surplus effect as a result the central bank is able to use government bond purchases to control the terms of trade and achieve asymmetric degrees of stimulus across the members of the currency union without a transfer of resources if there is cross country segmentation in bond markets and home bias in government spending the paper characterises the welfare optimising mix of conventional interest rate policy and bond purchases in this scenario and gives an upper bound on the welfare benefits from using the additional tool

network effects and welfare cultures we empirically examine the role of social networks in welfare participation using data on language spoken at home to better infer networks within an area our empirical strategy asks whether being surrounded by others who speak the same language increases welfare use more for those from high welfare using language groups this methodology allows us to include local area and language group fixed effects and to control for the direct effect of being surrounded by one s language group these controls eliminate many of the problems in previous studies the results strongly confirm the importance of networks in welfare participation

a model of candidate location when one candidate has a valence advantage that under some fairly weak assumptions for all levels of the valence advantage the advantaged candidate chooses a more moderate position than the disadvantaged candidate empirical studies of congressional elections by fiorina 1973 and ansolabehere snyder and stewart 2001 support this result d owns 1957 seminal work presents a puzzle for scholars of u s elections why do candidates not converge to the median voter one of the best explanations is that the candidates themselves have ideological preferences as calvert 1985 and wittman 1977 1983 have shown when candidates have such preferences and they are sufficiently uncertain about the preferences of the median voter then they do not converge although they may moderate their positions from their ideal point the basic version of the calvert wittman model however does not account for another basic fact of u s elections often one of the candidates has an advantage due to a nonpolicy factor such as incumbency greater campaign funds better name recognition superior charisma superior intelligence and so on stokes has dubbed such factors valence factors and he has noted their importance in u s elections stokes 1963 1992 1 in this article i extend the basic calvert wittman model by giving one candidate a valence advantage over the other i show that if the valence characteristics of the candidates are approximately equal then when a candidate s valence advantage increases this causes her to move toward the

capital inflows and euro area long term interest rates abstract capital flows into the euro area were particularly large in the mid 2000s and the share of foreign holdings of euro area securities increased substantially between the introduction of the euro and the outbreak of the global financial crisis we show that the increase in foreign holdings of euro area bonds in this period is associated with a reduction of euro area long term interest rates by about 1 55 percentage points which is in line with previous studies that document a similar impact of foreign bond buying on us treasury yields these results are relevant both from a euro area and a global perspective as they show that the phenomenon of lower long term interest rates due to foreign bond buying is not exclusive to the united states and foreign inflows into euro area debt securities may have added to increased risk appetite and hunt for yield at the global level

bond market clienteles the yield curve and the optimal maturity structure of government debt we propose a clientele based model of the yield curve and optimal maturity structure of government debt clienteles are generations of agents at different life cycle stages in an overlappinggenerations economy an optimal maturity structure exists in the absence of distortionary taxes and induces efficient intergenerational risksharing if agents are more risk averse than log then an increase in the long horizon clientele raises the price and optimal supply of long term bonds but while a welfare maximizing government caters to clienteles it does not accommodate fully their demand and limits issuance of long term bonds to a level where these earn negative expected excess returns

unconventional monetary policy the assessment the uncon ventional monetary policy measures adopted by the major central banks in the period since 2008 are discussed in this paper we highlight some important differences between quan titative easing and conventional monetary policy and then evaluate the mechanisms through which quantitative easing may propagate to financial markets and the real economy drawing on perspec tives from monetarist and new keynesian theory additional measures intended to supplement or strengthen the effects of pure quantitative easing often termed unconventional unconventional monet ary policy are also assessed in our discussion we relate the various articles in this issue to some of the key research questions posed in relation to unconventional monetary policy

the variety of maturities offered by firms and institutional investment in corporate bonds we study how a firm s decision to offer bonds of various maturities affects the portfolio allocations of institutional investors we argue that because of lower information collection costs institutional investors tilt their portfolios towards firms that offer bonds of various maturities we show that this translates into lower bond yields both in the primary and in the secondary bond markets

a correction in elementary public choice geometry this paper corrects a long standing errorin elementary geometrical constructionsthat involve collective choices inmultidimensional settings the seeminglyinnocuous assumption of separability amongarguments in individual utility functionsdoes not imply symmetric indifferencecontours in shared goods space sharedgoods necessarily become gross substituteswhen resource or budgetary constraints areintroduced the corrected constructionsuggests that issue by issue voting is lessefficacious than is indicated in theconventional analysis

why so much stability one of duncan black s 1958 more important contributions was a classically simple proof that with complex issues and majority voting a stable outcome is unlikely this very simple proof that there would normally be no motion which can get a majority against all others and hence that any possible outcome is dominated by another has been elaborated and made more precise by later work without most improbable conditions endless cycling would be expected this is particularly true when logrolling is present as it normally is if we look at the real world however we observe not only is there no endless cycling but acts are passed with reasonable dispatch and then remain unchanged for very long periods of time thus theory and reality seem to be not only out of contact but actually in sharp conflict it is the purpose of this article to demonstrate that our existing theory when properly looked at does indeed imply a relatively stable outcome to voting in some cases however this stability will not be a true equilibrium because a random member of a large set will be chosen and then that random outcome will be left unchanged for long periods of time it does not dominate all other outcomes but is retained merely because of its particular history there are already several possible explanations for the observed stability in the literature we will take them up as they become relevant to the general line of reasoning i should however warn the reader that my own previous work including joint work with buchanan will play a major role here this may simply reflect egotism but i think that some of the early work which is now partially forgotten can provide solutions for more modern problems much recent public choice work has involved spatial models and these models frequently ignore logrolling the reason presumably is that it is very hard to put logrolling in a two dimensional diagram we shall begin considering such special models and assume that the issues are the sort that does not lead to logrolling and then turn to more complex logrolling problems with respect to the first situation in which logrolling does not occur there is already one possible explanation for the observed stability in the literature

semiparametric estimation of regression models for panel data linear models with error components are widely used to analyse panel data some applications of these models require knowledge of the probability densities of the error components existing methods handle this requirement by assuming that the densities belong to known parametric families of distributions typically the normal distribution this paper shows how to carry out nonparametric estimation of the densities of the error components thereby avoiding the assumption that the densities belong to known parametric families the nonparametric estimators are applied to an earnings model using data from the current population survey the model s transitory error component is not normally distributed use of the nonparametric density estimators yields estimates of the probability that individuals with low earnings will become high earners in the future that are much lower than the estimates obtained under the assumption of normally distributed error components

limits of arbitrage theory and evidence from the mortgage backed securities market limits of arbitrage theories hypothesize that the marginal investor in a particular asset market is a specialized arbitrageur rather than a diversified representative investor we examine the mortgage backed securities mbs market in this light we show that the risk of homeowner prepayment which is a wash in the aggregate is priced in the mbs market the covariance of prepayment risk with aggregate wealth implies the wrong sign to match the observed prices of prepayment risk the price of risk is better explained by a kernel based on mbs market wide specific risk consistent with the specialized arbitrageur hypothesis a number of recent limits of arbitrage theories predict that the distressed liquidation of assets by hedge funds results in a large drop in asset prices see for example shleifer and vishny 1997 kyle and xiong 2001 gromb and vayanos 2002 geanakoplos 2003 or he and krishnamurthy 2006 these theories are often referenced in explaining episodes of market illiquidity and falling asset prices such as the events during the fall of 1998 in traditional asset pricing theory the marginal investor in every asset market is the same broadly diversified representative investor thus a hedge fund liquidating 200 billion of mortgage backed securities finds a large pool of ready buyers comparable to the entire capital market and the liquidation does not affect expected returns because the representative investor acts quickly to eliminate excess returns according to the limits of arbitrage theory on the other hand the marginal investor in a particular asset market is an investor who specializes in that market in this case liquidations can have large effects on prices given that the relevant set of buyers is a smaller specialized pool of investors

the core and the stability of group choice in spatial voting games the core of a voting game is the set of undominated outcomes that is those that once in place cannot be overturned for spatial voting games a core is structurally stable if it remains in existence even if there are small perturbations in the location of voter ideal points while for simple majority rule a core will exist in games with more than one dimension only under extremely restrictive symmetry conditions we show that for certain supramajorities a core must exist we also provide conditions under which it is possible to construct a structurally stable core if there are only a few dimensions our results demonstrate the stability properties of such frequently used rules as two thirds and three fourths we further explore the implications of our results for the nature of political stability by looking at outcomes in experimental spatial voting games and at belgian cabinet formation in the late 1970s

why so much stability another opinion in this paper i have suggested three important factors that render majority rule stable in real world settings small numbers of alternatives constraints on agenda setters and a meaningful weakening of the single peakedness condition these simple points along with shepsle s complementary notion of structure induced equilibria and an extension thereof incorporating strategic behavior krehbiel 1983 go a long way toward explaining the existence of stable outcomes in the real world

valence characteristics costly policy and the median crossing property a diagrammatic exposition voters value valence characteristics such as honesty and competence in this paper we consider the situation where candidates may have more than one valence characteristic of importance to the voters at the same time we introduce a new concept the median crossing property which differs from single peakedness and is less restrictive than the single crossing property if indifference curves satisfy the median crossing property then voting is transitive and the majority s preference rankings coincide with those of the median voter if the indifference curves violate the median crossing property then intransitivity may arise the framework also allows us to consider elections with costly policy

price pressure in the government bond market what determines the term structure of interest rates standard economic theory links the interest rate for maturity t to the willingness of a representative agent to substitute consumption between times 0 and t the standard model contrasts sharply with a more informal view based on investors preferred habitat proposed by john culbertson 1957 and franco modigliani and richard sutch 1966 according to the preferred habitat view there are investor clienteles with preferences for specific maturities and the interest rate for a given maturity is influenced by the demand of the corresponding clientele and the supply of bonds with that maturity for example the typical clientele for long term bonds are pension funds an increase in their demand would be expected to raise prices of long term bonds and thus lower long term interest rates in short preferred habitat implies that there is price pressure in the bond market while the preferred habitat view has intuitive appeal it has not entered into the academic mainstream typically being relegated to a paragraph in mba level textbooks one reason for this is the mixed findings in early empirical studies of the term structure specifically between 1962 and 1964 the us treasury and federal reserve raised the supply of short term government debt while simultaneously lowering the supply of long term debt this program known as operation twist aimed to raise shortterm interest rates and so improve the balance of payments while also lowering long term rates to stimulate private investment a number of papers evaluated operation twist and while they reached different conclusions none found strong evidence that the operation was effective in flattening the term structure e g modigliani price pressure in the government bond market

a hybrid spline based parametric model for the yield curve empirical evidence indicates that both nominal and real yield curves in important markets have segmentation between their short end and their longer maturity segments this segmentation might affect term structure estimation introducing distortions in longer maturity yields especially in parametric models in order to deal with such segmentation we propose a new model that combines the flexibility of spline functions with the parsimoniousness of a parametric four factor exponential model the short end of the yield curve is fitted using a b spline function while longer segments are captured by the parametric model we illustrate the benefits of the proposed model for pricing and risk management purposes using two examples the real yield curve in the brazilian government index linked bond market and the us treasury nominal yield curve we show that in both markets our model is simultaneously able to fit the yield curve well and to provide unbiased value at risk estimates for all tested portfolios of bonds outperforming an important parametric benchmark model frequently adopted by central banks

perspectives on positive political economy this volume serves as an introduction to the field of positive political economy and the economic and political processes with which it is concerned this new research tradition is distinct from both normative and historical approaches to political economy grounded in the rational actor methodology of microeconomics positive political economy is the study of rational decisions in a context of political and economic institutions more analytical than traditional approaches it is concerned with the derivation of principles and propositions against which real world experience may be compared its focus is on empirical regularities and its goal is theoretical explanation the field has focused on three main areas of research models of collective action constraints on competitive market processes and the analysis of transaction costs developments in all of these areas are covered in the book the first part of the volume surveys the field while the second part displays positive political economy at work examining a variety of subjects the final part contains essays by leading political economists on the theoretical foundations of the field

political solutions to market problems for some market failures serve as a rationale for public intervention however the fact that self interested market behavior does not always produce felicitous social consequences is not sufficient reason to draw this conclusion it is necessary to assess public performance under comparable conditions and hence to analyze self interested political behavior in the institutional structures of the public sector our approach emphasizes this institutional structure warts and all and thereby provides specific cautionary warnings about optimistic reliance on political institutions to improve upon market performance

campaign advertising and voter welfare this paper investigates the role of campaign advertising and the opportunity of legal restrictions on it an electoral race is modeled as a signalling game with three classes of players many voters two candidates and one interest group the group has non verifiable insider information on the candidates quality and on the basis of this information offers a contribution to each candidate in exchange for a favorable policy position candidates spend the contributions they receive on non directly informative advertising this paper shows that 1 a separating equilibrium exists in which the group contributes to a candidate only if the insider information about that candidate is positive 2 although voters are fully rational a ban on campaign advertising can be welfare improving and 3 split contributions may arise in equilibrium and if they arise too often they are detrimental to voters

fiscal policy and asset prices with incomplete markets we study the simultaneous impact of fiscal policy decisions on macroeconomic activity wealth distribution and asset prices we consider a general equilibrium overlapping generations model with incomplete markets and heterogeneous agents where government debt and capital are imperfect substitutes increases in public debt lead to significant increases in the riskless rate and to a reduction in the equity premium while higher capital income tax rates lead to a higher equity premium the crowding out effects on capital and output are much higher than in models where government debt and capital are perfect substitutes which thus ignore households portfolio reallocation decisions the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

cross border spillover effects of unconventional monetary policies on swiss asset prices abstract unconventional monetary policies umps announced by the federal reserve the european central bank the bank of england and the bank of japan exert important spillover effects on asset prices in switzerland using a broad ump event set and a long term bond futures based measure of market anticipation we show that surprisingly expansionary umps lower swiss government and corporate bond yields induce the swiss franc to appreciate and dampen swiss equity prices four extensions provide further insights first the estimated effects are strongest for announcements by the ecb second the impact on government bonds is largest for bonds with residual maturities of 7 10 years third the impact of foreign ump shocks on exchange rates and swiss bond yields is less pronounced after the introduction of the minimum rate of 1 20 swiss franc per euro by the swiss national bank on september 6 2011 indicating that domestic monetary policy action partially affects the impact of external monetary shocks on domestic financial markets fourth the sign of spillover effects differs for positive and negative ump surprises but their strength does not

logical deficiencies in spatial models a constructive critique a fundamental property of any good theoryis logical consistency however two commonassumptions in the rational choice approach topolitical analysis that induced preferences overpolicy are separable and that such preferences areindependent of changes in exogenous factors are notconsistent with the archetypal assumptions ofindividual utility maximization these particularpathologies of spatial models of politics have notbeen well recognized in the political scienceliterature

substitution and dropout bias in social experiments a study of an influential social experiment this paper considers the interpretation of evidence from social experiments when persons randomized out of a program being evaluated have good substitutes for it and when persons randomized into a program drop out to pursue better alternatives using data from an experimental evaluation of a classroom training program we document the empirical importance of control group substitution and treatment group dropping out evidence that one program is ineffective relative to close substitutes is not evidence that the type of service provided by all of the programs is ineffective although that is the way experimental evidence is often interpreted

money and majorities in the federal republic of germany evidence for a veto players model of government spending i formulate a veto players model of policy making by coalition government in the federal republic of germany the model gives testable predictions about how patterns of federal spending respond to changes in government some of the predictions are consistent with conventional wisdom namely that the spd fdp government decreased spending on right wing items when it came to power in 1969 and the return of cdu fdp coalition in 1982 produced a decline in leftwing spending other predictions are less intuitive for example there is no predicted increase in left wing spending associated with the spdfdp coalition and no increase in right wing spending with the cdu fdp government these predictions and those of competing models are tested using disaggregated budget data from fiscal years 1961 1989 controlling for category specific effects and economic conditions the data support the veto players model and this support is robust to a wide variety of plausible assumptions about the parties spending preferences

using experiments to evaluate performance standards what do welfare to work demonstrations reveal to welfare reformers this paper examines how experimental demonstrations can be used to inform planners about the efficacy of social programs in light of a performance standard the problem is illustrated by considering the situation faced by state governments attempting to design programs to meet the new federal welfare to work standards data from experimental evaluations alone allow only limited inferences about the labor market outcomes of welfare recipients combined with prior information on the selection process however these data are informative suggesting either that the long run federal requirements cannot be met or that these standards will only be met under special circumstances

when do women use aid to families with dependent children and food stamps the dynamics of eligibility versus participation this paper investigates dynamic patterns in the relationship between eligibility and participation in the aid to families with dependent children afdc and food stamp programs using monthly longitudinal data from the survey of income and program participation the results indicate that there are many relatively short eligibility spells that do not result in program participation and end with increases in income participation is most likely to occur among women with lower current and future earnings opportunities and is affected by locational and policy parameters those who elect to participate in these programs tend to start receiving benefits almost immediately upon becoming eligible a substantial number of women exit these programs before their eligibility ends among at least some of these women it is likely that unreported changes in income are occurring in 1989 if all eligible single parent families had participated in afdc and food stamps benefit payments in these programs would have been 13 5 billion higher

health insurance eligibility utilization of medical care and child health two economists applied data from the current population survey and the national health interview survey and state level data on child mortality to a simulation model of utilization of medical care that varies only with the states legislative environment to examine the utilization of medical care and health effects of medicaid eligibility on low income children the models took into consideration the recent expansions of medicaid to low income children 38 of those ineligible for medicaid in 1984 who became eligible due to changes during 1984 1992 were uninsured between 1984 and 1992 expansions of the medicaid program increased the proportion of children eligible for medicaid almost two fold 16 1 vs 31 2 yet coverage rates were always lower than eligibility rates 13 2 vs 16 1 in 1984 and 20 3 vs 31 2 in 1992 and the increase in coverage rates was only about 50 of the increase in eligibility rates during 1984 1992 the probability that a child was eligible for medicaid increased the probability of health insurance coverage by 29 77 when the model considered bias in variables e g a recession in a state the take up rate was only 22 73 nevertheless medicaid markedly increased use of medical care for example eligibility for medicaid increased the likelihood of making a visit to a physicians office in the last two weeks by about 50 it also increased the probability of a child visiting the hospital suggesting inefficiency in the way that providers deliver care to medicaid enrollees medicaid eligibility had a significant effect on reducing child mortality the 15 1 percentage point increase in eligibility during 1984 1992 reduced child mortality by 4 5 when the researchers examined parent assessed subjective health measures medicaid eligibility had no effect on child health medicaid eligibility reduced race and education based disparities in the number of visits and racial differences in mortality yet it may actually intensify current disparities in health care delivery site