booming sector economic activity in paraguay 1973 86 a case of dutch disease the primary purpose of this study is to investigate the applicability of the dutch disease model as a means of explaining the changing sectoral composition of output for paraguay in the period 1973 86 the consequences of booming sector activity for 1 the distribution of income as it affects wages and 2 the in stability of export earnings for paraguay are examined the dutch disease model predicts that the consequences of booming activity will include a contraction of non booming sector activity as well as a real appreciation of the exchange rate these outcomes are tested in several single and multiple equation estimable models for the case of paraguay

the efficiency of equity in organizational decision processes it is now widely accepted that rent seeking anne krueger 1974 or directly unproductive profit seeking jagdish bhagwati 1982 may cause inefficiencies in the context of public sector decisions the possibility that government decisions for example about taxes quotas franchises or standards may create or redistribute rents induces private parties to spend valuable resources to influence that distribution even when such expenditures carry no social benefit moreover the social cost of rent seeking can exceed the value of the resources spent trying to gain and protect rents for example because the fear of losing wealth through redistribution reduces the incentives for wealth creation treating rent seeking activities as characteristic of public sector decision processes ignores the fact that similar phenomena are to be found in firms unions and other private sector organizations our recent work milgrom 1988 our 1988 1990 papers attempts to identify the advantages of decision processes private or public that permit rent seeking and to incorporate these into a cost benefit analysis of optimal decision processes our work begins with an analysis of why rents and quasi rents arise in organizations and of the forms that the rent seeking they engender may take some measures to insulate the decision process from rent seeking such as limits on the provision of information by interested parties or restrictions on the range of options considered may degrade the quality of decisions especially by blocking the flow of valuable information optimal decision processes balance the costs of rent seeking against the value of information obtained several aspects of the rules affect the opportunities that members have to spend resources trying to alter the distribution of rents to ascertain the possibilities for rent seeking the analyst must ask questions like can the parties propose new initiatives at any time can they give volumes of testimony in a form of their own choosing can they appeal adverse decisions are decision makers obliged to respond to the parties initiatives is the range of actions that they can take in response relatively broad rather than being tightly constrained by property rights or other formal rules more affirmative answers to these questions lead to more opportunities or greater incentives for costly rent seeking as a kind of shorthand we call decision processes that have more of these elements more open processes the very elements that make a process open to rent seeking may also add flexibility and responsiveness helping to ensure that important ideas and proposals are fully considered from this perspective the benefits of openness can in principle be measured by a value of information calculation in the usual manner of statistical decision theory weighing the costs and benefits it follows that a more open process is more desirable when the rents available for redistribution are low and the value of the information that might be acquired is high conversely when the potential for redistribution is high and the value of information is low the optimal decision process is less open this kind of reasoning helps to illuminate the variations in the decision processes that are found in many organizations we have discussed a number of examples in our earlier work including the characteristics of personnel departments the contrasting patterns of decision making employment and compensation in u s and japanese firms professor of economics stanford university and jonathan b lovelace professor of economics graduate school of business stanford university stanford ca 94305 respectively this work was supported by the national science foundation

looking for evidence of speculative stockholding in commodity markets abstract the theory of commodity price with speculative storage predicts that prices are a two regime process depending on whether or not inventories are held the price process is nonlinear in that it is nondifferentiable at some p which separates the data into a history independent regime and an autoregressive process this paper looks for evidence of nonlinearity in the price data and tests the theory in the context of threshold autoregressive models under the assumption that shocks to harvest are i i d while we find evidence for regime specific behavior we also find the degree of persistence in the stockout regime to be much stronger than that predicted by theory

an economic approach to influence activities in organizations members of organizations spend considerable time effort and ingenuity attempting to influence decision makers such influence activities may bring benefits to the organization but they also involve real costs this essay offers an economic rationale for such influence activity as representing rational self interested behavior in the presence of informational asymmetries and an analysis of how the design of the organization s structure and policies should respond to the incentives for attempting influence it is posited that information valuable for the organization s decision making is directly available only to members of the organization who have some personal stake in the decisions these individuals may then have an incentive to try to manipulate the information they develop and provide in order to influence the resulting decisions to their benefits this can be costly both in degrading the quality of decision making and in diverting the attention and effort of the organization s members from more productive activities the organization has three different methods it can employ to discourage excessive influence activities and to encourage more directly productive uses of time and effort it can limit access to decision makers and participation in decision making it can alter its decision making criteria to favor those performing well in productive activities and it can provide direct financial incentives to encourage the desired allocation of effort it is shown that an efficiently designed organization will use such financial incentives only as a last resort instead it will always first alter its decision participation policies and decisionmaking criteria

the economic effects of windfall gains in export earnings 1975 1978 abstract this paper reviews the effects of recent dramatic increases in beverage prices 1975 1978 on a sample of countries that are highly dependent on these commodities in most countries the increase in producer prices was restricted allowing substantial sums to accrue to the central government and the commodity organizations the countercyclical impact of fiscal policy was often limited by the rise in development spending this policy stance and the lack of monetary restraint contributed to a substantial rise in imports consequently in many of the sample countries the external reserve position in 1978 was little better than before the windfall gain

peasant supply response in rationed economies abstract when peasants do not have reliable access to goods on the black market government price controls may result in rationing of peasants demand for consumer goods we show that supply response is then perverse and that the economy may collapse as exports fall and rural shortages intensify such a crisis may initially be disguised as peasants sell export goods to build up money stocks we consider the policy options for governments facing such problems

efficient influence activities with endogenous rent this paper analyzes the effects of influenceactivities on organizational efficiency ina principal agent framework with endogenousrent it shows that with endogenousrent influence activities canimprove efficiency even if theirinformative value is low effects on thedissipation rate of rent are alsoconsidered in particular it is shownthat with endogenous rent more powerfulincentives on influence activities only increasethe dissipation rate when the sum ofthe elasticities of the influence costsfunction and of the production function isgreater than one

an empirical dependent economy model for pakistan abstract pakistan s recent macroeconomic experience has been characterized by rapid growth relatively low inflation and the absence of severe balance of payments crises in spite of very large fiscal deficits this paper addresses the possible role that external inflows in the form of workers remittances and concessional lending may have played in generating these outcomes by conducting counterfactual simulations using an empirically estimated dependent economy macroeconomic model

the olson ratio and indirectly endogenous rent we consider an economy where the rent value depends indirectly on value adding investment of agents thus indirectly endogenous and the win probability is a function of rent seeking spending we introduce the olson ratio characterize it at symmetric cournot nash equilibrium of a perfectly discriminating contest and relate it to the tullock dissipation rate we investigate the possibility of black holes

liberalization and the terms of trade in turkey a causal analysis there has been extensive trade liberalization in developing countries in recent decades several liberalization episodes have been completed in turkey in this paper we evaluate the relationship between trade liberalization in turkey and the terms of trade has liberalization preceded changes in the terms of trade or vice versa using causality analysis we investigate several hypotheses and conclude that in this case trade liberalization follows a terms of trade change a finding which is consistent with the trade shocks hypothesis

the macroeconomic impact of development aid a critical survey the early literature explained aid s macroeconomic impact in the context of the dual gap model showing a clear link between aid and growth many now believe that the empirical evidence shows there to be no such relationship this paper critically reviews the different theoretical perspectives the dual gap model the savings debate recipient fiscal response and aid as dutch disease and the empirical debates on aid savings and growth the basis for denying a relationship between aid and growth is shown to be weak though more recent areas of research offer promising directions for future work

the imf the world bank and commodity prices a case of shifting sands abstract this paper examines some recent developments in the thinking of both the international monetary fund and the world bank regarding the macroeconomic determinants of commodity prices and the relative importance of secular and cyclical factors in explaining their recent behavior

fiscal response to a temporary trade shock the aftermath of the kenyan coffee boom the appropriate fiscal response to a temporary terms of trade windfall is difficult to determine even in an unregulated economy but controls such as those in force during the 1976 79 coffee boom in kenya introduce special problems for example foreign exchange controls make the private investment of boom income inefficient by causing it to be undertaken too rapidly in kenya the boom induced a massive increase in public expenditure far in excess of the increase in public revenue the net effect on capital formation was negative because the fiscal response exacerbated the rise in the relative price of nontraded capital goods and because resources were preempted for government consumption

tariffs terms of trade unemployment and the real exchange rate the less developed countries ldcs have been subjected to major exogenous shocks and drastic domestic policy changes in recent years these shocks include changes in the terms of trade and or a policy shift away from the pervasive protectionism of the previous decades the implementation of trade liberalization programs is likely to follow in many more developing countries a large body of theoretical and empirical literature has developed which attempts to analyze the consequences of these changes utilizing models which explicitly incorporate the main structural and institutional characteristics of the ldc economies the behavior of the real exchange rate defined in various ways but most commonly as the relative price of tradeables to non tradeables has been identified as being of central analytical and policy importance while the literature on this subject recognizes the key link between the real exchange rate and domestic wages the analytical models used generally suffer from serious limitations in terms of their characterization of the labor markets the models used in the literature can be categorized into two groups a flex price models that give rise to full employment and b models that assume full or partial wage rigidity thereby generating some form of unemployment conventional wisdom suggests that a rise in import tariffs or an improvement in the terms of trade would always lead to an appreciation of the real exchange rate however it is shown by clague 3 and edwards and van wijnbergen 11 that the above result does not necessarily hold in more general models however these analyses were restricted to models with flexible wages wage rigidity is often ascribed to the existence of some form of wage indexation or other forms of government inter

consequences of a commodity boom in a controlled economy accumulation and redistribution in kenya 1975 83 the economic theory of dutch disease is extended and applied to the 1976 79 coffee boom in kenya in this article when a commodity boom is perceived as temporary a large fraction will tend to be saved out of transient income the spending effect of the boom is supplemented by relative price changes resulting from capital stock increases in the presence of foreign exchange and import controls the benefits of a sudden export price increase may be transferred intersectorally using a general equilibrium model it is estimated that in kenya the benefits of the boom were largely transferred from coffee growers to urban groups

terms of trade fluctuations and stabilization of producer prices by compensatory taxation abstract a small general equilibrium model is presented which highlights the role of the real exchange rate in the south in determining the terms of trade between the south and the north the dynamics of the model may generate terms of trade instability for some values of the parameters of the system compensatory taxation of export earnings by a stabilization fund in the south is shown to increase the likelihood of instability

self assessed health reference levels and mortality the paper studies the relationship between self assessed health and subsequent mortality in the german socio economic panel specifically i examine whether socio economic characteristics of respondents have an effect on mortality conditional on self assessed health such conditional effects are shown to exist for various covariates including age income and wealth these findings question the comparability of self assessed health across different socio economic groups

the management of risk in developing country finance the commencement of the international debt cri sis is normally linked to the mexican statement of non payment in august 1982 over the seven years of the crisis the costs have been well documented cornia et al 1987 however after numerous plans and proposals little consensus has emeiged amongst creditors on the appropriate solution strat egy let alone between the creditor and debtor countries indeed the discussions following the latest debt proposals of the us treasury secretary nicholas brady have highlighted the many areas of controversy rather than provided a coherent solu tion to a better functioning financing system 1

saving in developing countries theory and review in the literature on economic development much of the interest in saving has been focused on the relation between saving and growth but saving is not only about accumulation it is about smoothing consumption in the face of volatile and unpredictable income and helping to ensure the living standards of poor people whose lives are difficult and uncertain this paper develops a model of households which cannot borrow but which accumulate assets as a buffer stock to protect consumption when incomes are low such households dissave as often as they save do not accumulate assets over the long term and have on average very small asset holdings but their consumption is markedly smoother than their income much of the evidence is as consistent with this view of saving as it is incosistent with standard views of smoothing over the life cycle and with explanations of the link between saving and growth in terms of life cycle saving behavior consumption smoothing is also a useful way of thinking about government policy where volatility in the world prices of taxed commodities can generate sharp fluctuations in government revenues as well as reallocations of revenue between the private and public sectors many important policy issues in developing countries hinge on issues of consumption and smoothing and research on these issues is currently likely to be more productive than work on the relation between saving and growth

funds from non renewable energy resources policy lessons from alaska and alberta abstract we document the use of energy natural resource funds in alaska and alberta and analyze theirs characteristics for further implementation in resource rich countries such funds allow dealing theoretically with intergenerational equity issues corruption and more general institutional problems the performance of both funds is very different depending on the management and composition choices but some policy lessons can be drawn from these two examples importantly the role of a public dividend policy is highlighted as a way to bypass corrupted institutions and to enhance quality of life for poorest people we also emphasize the need to deal with inflation to make the fund sustainable

tax revenue instability with particular reference to sub saharan africa this article examines the temporal instability of tax revenues across a sample of developed and less developed countries it is shown that instability is especially high in ldcs and is highest in open economies with low per capita income high output variance and inflationary problems even allowing for these factors revenue instability appears to be particularly high in sub saharan africa revenue instability can be expected via the government budget constraint to be associated with expenditure instability and or instability in the sources of deficit finance cross section evidence for ldcs confirms that countries with high tax revenue instability tend also to have high expenditure instability time series evidence for six african countries however suggests that revenues and expenditures do not move together in a uniform manner and the direction of causality is generally ambiguous there is some evidence however that foreign borrowing is used more to finance expenditure increases than to counteract

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

booms and slumps in world commodity prices abstract this paper examines the duration and magnitude of cycles in world commodity prices cycles are a dominant feature of commodity prices and dealing with the economic consequences of booms and slumps in prices continues to be one of the most challenging issues facing policymakers in commodity exporting developing countries we find that there is an asymmetry in commodity price cycles as price slumps last longer than price booms how far prices fall in a slump is found to be slightly larger than how far they tend to rebound in a subsequent boom in addition for most commodities the probability of an end to a slump boom in prices is independent of the time already spent in the slump boom