political cycles in oecd economies this paper studies whether the dynamic behaviour of gnp growth unemployment and inflation is systematically affected by the timing of elections and of changes of governments the sample include the last three decades in 18 oecd economies we explicitly test the implication of several models of political cycles both of the opportunistic and of the partisan type also we confront the implication of recent rational models with more traditional approaches our results can be summarized as follows a the political business cycle hypothesis as formulated in nordhaus 1975 on output and unemployment is generally rejected by the data b inflation tends to increase immediately after elections perhaps as a result of pre electoral expansionary monetary and fiscal policies c we find evidence of temporary partisan differences in output and unemployment and of long run partisan differences in the inflation rate as implied by the rational partisan theory by alesina 1987 d we find virtually no evidence of permanent partisan differences in output growth and unemployment

europe vs america institutional hysteresis in a simple normative model we show how the differences in us and european institutions can arise in a normative model the paper focuses on the labor market and the government s decision to set unemployment benefits in response to an unemployment shock the government balances insurance considerations with the tax burden of benefits and the possibility that they introduce adverse incentive effects whereby benefits increase unemployment it is found that when an adverse shock occurs benefits should be increased most when the adverse incentive effects of benefits are largest adjustment costs of changing benefits introduce hysteresis and can help explain why post oil shock benefits remained high in europe but not in the us desirable features of the model are that we obtain an asymmetry out of a symmetric environment and that the mechanism yielding hysteresis is both simple requires the third derivative of the utility function to be non negative and self correcting empirical evidence concerning the role of corporatism is discussed

steady state price distributions in a noisy search equilibrium abstract in a model of noisy search where customers repeat purchase this paper characterises an equilibrium where each store changes its price as its stock of regular customers changes through time as stores in the market are of different size and age price dispersion is an equilibrium outcome along the equilibrium path smaller younger stores announce lower prices and grow faster than larger established stores furthermore the youngest stores set prices below marginal cost to build business up quickly each is willing to take an early operating loss to attract customers quickly in anticipation of extracting customer switching rents in the future journal of economic literature classification numbers d40 l10

climate change taxes and energy efficiency in japan in 2003 japan proposed a climate change tax to reduce its co2 emissions to the level required by the kyoto protocol if implemented the tax would be levied on fossil fuel use and the revenue distributed to encourage the purchase of energy efficient equipment analysis using the mit emissions prediction and policy analysis eppa model shows that this policy is unlikely to bring japan into compliance with its kyoto target unless the subsidy encourages improvement in energy intensity well beyond japan s recent historical experience similar demand management programs in the us where there has been extensive experience have not been nearly as effective as they would need to be to achieve energy efficiency goals of the proposal the tax proposal also calls for limits on international emission trading we find that this limit substantially affects costs of compliance the welfare loss with full emissions trading is 1 6 that when japan meets its target though domestic actions only the carbon price is lower and there is a smaller loss of energy intensive exports japan can achieve substantial savings from emissions trading even under cases where for example the full amount of the russian allowance is not available in international markets

energy conservation more effective with rebound policy this article sketches the problem of indirect energy use effects also known as rebound of energy conservation there is widespread support for energy conservation especially when it is voluntary as this seems a cheap way to realize environmental and energy climate goals however this overlooks the phenomenon of rebound the topic of energy rebound has mainly attracted attention from energy analysts but has been surprisingly neglected in environmental economics even though economists generally are concerned with indirect or economy wide impacts of technical change and policies this paper presents definitions and interpretations of energy and environmental rebound as well as four fundamental reasons for the existence of the rebound phenomenon it further offers the most complete list of rebound pathways or mechanisms available in the literature in addition it discusses empirical estimates of rebound and addresses the implications of uncertainties and difficulties in assessing rebound suggestions are offered for strategies and public policies to contain rebound it is advised that rebound evaluation is an essential part of environmental policy and project assessments as opposed to earlier studies this paper stresses the relevance of the distinction between energy conservation resulting from autonomous demand changes and from efficiency improvements in technology equipment in addition it argues that rebound is especially relevant for developing countries

beliefs about the determinants of success and employment protection abstract we show that part of the international variation in employment laws is due to different beliefs about the impact of hard work as opposed to luck and connections on success in societies where a greater proportion of people relate their life prospects to chance and connections stronger employment protection is in place the prevalence of such beliefs is likely to hamper labor market reforms

unemployment labor market reform and monetary union monetary union such as the economic and monetary union in europe emu may affect incentives for labor market reform and thus equilibrium unemployment through several mechanisms if an inflation bias exists there is usually a stronger incentive to reduce equilibrium unemployment through national reform outside rather than inside the emu absent such a bias emu membership could lead to more reform one reason is that reform may increase wage flexibility which can substitute for monetary policy in the emu another reason could be a precautionary motive for low equilibrium unemployment to reduce the utility cost of increased macroeconomic variability in the emu

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

an evolutionary model of bertrand oligopoly we analyze the long run outcome of markets in which boundedly rational firms with a decreasing returns to scale technology compete in prices the behavior of these firms is based on limitation of success and experimentation in this framework we introduce a new approach to model boundedly rational behavior based on the idea of behavioral principles i e formal descriptions even with the simplest ones the result is that the prices announced are a strict refinement of the set of nash equilibria with more sophisticated behavioral principles the long run outcome corresponds to the concept of central prices wich are also nash equilibria introduced here this is a robust and clear cut prediction wich under quadratic costs and arbitrary demand essentially coincides with the walrasian equilibrium

efficient climate policy with internationally mobile firms a major concern in the design of an incomplete climate agreement is thatfirms that use fossil fuels intensively may respond to emission regulationsby relocating their plants from cooperating to non cooperating countries this paper analyses how the cooperating countries might deal with the issueof firm delocation through emission taxes trade provisions and alocalisation subsidy to mobile firms it is shown that firms should not beinduced to stay in the cooperating countries by lowering emission taxesbelow the pigouvian tax rate incentives to stay should be given partlythrough trade provisions and partly through a localisation subsidy a secondbest solution without localisation subsidies is also discussed in thatcase the efficient emission tax is lower than the pigouvian tax rate finally the paper discusses the implications of the first best and thesecond best policy regimes for the pattern of firm localisation

market organisation and trading relationships in this paper we give a theoretical model of buyers behaviour on a market for a perishable good where no prices are posted we show that if buyers learn from their own previous experience there is a sharp division between those who learn to be loyal to certain sellers and those who continue to shop around this feature remains in more general models which are simulated and is consistent with empirical data from the marseille fish market

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

a positive theory of the earnings relationship of unemployment benefits in a wage bargaining model a stronger earnings relationship of unemployment benefits may reduce wages therefore the benefit structure significantly influences profits and trade union utility raising the question as to how the benefit structure is determined in the political process we consider a government that chooses the earnings relationship in order to maximize its political support our model predicts a strong earnings relationship under right wing governments and a weak relationship when unions are influential using panel data for 19 oecd countries we find support for these theoretical predictions moreover we show that the earnings relationship varies negatively with openness

the learning curve market dominance and predatory pricing sufficient conditions for id and iid are given in the case of two step learning in which a firm reaches the bottom of its learning curve after just two sales however examples are also constructed for the two step learning case in which neither id nor iid holds it is also shown that in equilibrium iid implies that learning is privately disadvantageous although it is socially advantageous finally introducing avoidable fixed costs and possible exit into the model yields a new theory of predatory pricing based on the learning curve hypothesis

evolution and market competition abstract profit maximization is the usual prerequisite for achievement of a perfectly competitive equilibrium however for a long time it has been though that this principle of profit maximization can be replaced by natural selection in an evolutionary model of an industry where firms outputs are chosen randomly where entry occurs with no motivation and where exit occurs when a firm s wealth becomes negative this paper shows that the industry converges in probability to a perfectly competitive equilibrium as each firm gets infinitesimally small relative to the market as the entry cost gets sufficiently small and as time gets sufficiently large journal of economic literature classification numbers d21 d41 l10

border carbon adjustments addressing emissions embodied in trade approximately one fourth of global emissions are embodied in international trade and a significant portion flows from non carbon priced to carbon priced economies border carbon adjustments bcas figure prominently as instruments to address concerns arising from unilateral climate policy estimating the volume of emissions that could be potentially taxed under a bca scheme has received little attention until now this paper examines how a number of issues involved in the implementation of bcas can affect their ability to cover emissions embodied in trade and thus address carbon leakage these issues range from ensuring compliance with trade provisions and assumptions on the carbon intensity of imports to determining which countries are included and whether intermediate and final demand are considered here we show that the volume of co2 captured by a scheme that involved all annex b countries could be significantly reduced due to these issues particularly by trade provisions such as the principle of best available technology bat as a consequence the tariff burdens faced by non annex b parties could dwindle considerably these findings have important policy implications as they question the effectiveness and practicalities of bcas to reduce carbon leakage and alleviate competitiveness concerns adding further arguments against their implementation

the political geography of the eurocrisis the european union provided a mixed response to the 2008 financial crisis on the one hand it refused to pursue fiscal integration through a common budget on the other it introduced significant transfers between countries that were designed to produce financial stabilization the authors analyze this response as the outcome of democratic constraints on eu leaders given the eu s current institutional structure citizens preferences pose a binding constraint on what leaders can do as these preferences limit the scope of risk pooling among members and the degree of political tolerance for different courses of action the authors show that citizens preferences reflect differences in the geography of income production regimes and institutional organization the heterogeneity of constituencies redistribution preferences combined with a diverse economic geography helps to explain why political constraints on national governments prevent them from engaging in further fiscal integration by contrast externalities among member states shift the preferences of citizens who may experience negative effects and make international redistribution politically feasible the authors analyze these two mechanisms and present novel empirical results on the determinants of preferences for fiscal integration and international redistribution in the aftermath of the eurocrisis

the internationalisation of public welfare policy with increasing globalisation of knowledge there are increased opportunities to learn from the experience of policy interventions elsewhere this paper presents evidence on the extent of international convergence in public policy with particular focus on labour welfare savings and retirement policy questions addressed in this framework include to what extent is policy diffusion or convergence a real and relevant phenomenon what role have economists played in the transfer of policy across national domains has policy transfer led to better public policy are there any practical limitations to policy convergence

co evolution of firms and consumers and the implications for market dominance consider a setting in which rms randomly discover new ideas that a ect their products or services and implement favorable ones at the same time that rms are adapting their o erings consumers are searching among rms for the best match it is shown that implicit in these dual dynamics is an increasing returns mechanism which can result in one rm dominating the market in the long run the conditions under which there is sustained market dominance are characterized

a politico economic analysis of minimum wages and wage subsidies abstract this paper constructs a political economy model in which minimum wages are determined according to majority voting using the minimum wage scheme as the status quo we show that the replacement of minimum wages by wage subsidies is not likely to receive political support unless it is supplemented by increased taxation of profits after tax profits are also likely to increase

optimal differentiation of international environmental taxes in the presence of national labor market distortions we explore the implication of the doubledividend debate for international environmentaltaxes in our scenario small open economies withdifferent labor market distortions follow a commonenvironmental policy and use national environmentaltax revenues to finance labor tax cuts since thedouble dividend hypothesis does not hold a high labortax implies a low environmental tax relative to othercountries the optimal differentiation ofinternational environmental taxes is proven to be afunction of the national labor tax rates and theuncompensated elasticities of labor supply

the determination of unemployment benefits while much empirical research exists on labor market consequences of unemployment benefits there is remarkably little evidence on the forces determining benefits we present a simple model where workers desire insurance against unemployment risk and benefits increase the unemployment rate we then conduct one of the first empirical analyses of the determinants of the parameters of the benefit system using data for developed countries for 1971 89 controlling for year and country fixed effects and the government s political color we find evidence that the level of benefits falls when the unemployment rate is high this is consistent with wright s tax effect

adaptive learning models of consumer behavior abstract in a model of dynamic duopoly optimal price policies are characterized assuming consumers learn adaptively about the relative quality of the two products a contrast is made between belief based and reinforcement learning under reinforcement learning consumers can become locked into the habit of purchasing inferior goods such lock in permits the existence of multiple history dependent asymmetric steady states in which one firm dominates in contrast belief based learning rules must lead asymptotically to correct beliefs about the relative quality of the two brands and so in this case there is a unique steady state

embodied carbon tariffs in a world where the prospects of a global agreement to control greenhouse gas emissions are bleak the idea of using trade policy as an implicit regulation of foreign emission sources has gained many supporters in countries contemplating unilateral climate policies embodied carbon tariffs tax the direct and indirect carbon emissions embodied in imported goods the appeal seems obvious as oecd countries are on average large net importers of embodied emissions from non oecd countries carbon tariffs could substantially extend the reach of oecd climate policies we investigate this claim by simulating the effects of embodied carbon tariffs with a computable general equilibrium model of global trade and energy use we find that embodied carbon tariffs do effectively reduce carbon leakage however the scope for improvements in the global cost effectiveness of unilateral climate policy is limited the main welfare effect of the tariffs is to shift the burden of oecd climate policy to the developing world

participation in gvcs and co2 emissions abstract this paper attempts to explore the determinants of co2 emissions in the context of international trade while there exist studies that examine the roles of horizontal specialization and inter industry trade transactions little previous research attention has been paid to the roles of vertical specialization and intra industry trade transactions in affecting co2 emissions to fill the knowledge gap this study uses the panel data of 62 countries and regions for the period of 1995 2011 to estimate the effect of participation in global value chains gvcs on per capita co2 emissions major findings include 1 the relationship between participation degrees in gvcs and per capita co2 emissions is found to be inversely u shaped at the aggregate economy level and for most individual industries 2 per capita gdp shows an n shaped relationship with per capita co2 emissions and 3 benign drivers of co2 emissions include r d energy conservation and population control it can be concluded that countries with low gdp or gvc participation degrees are expected to experience worsening co2 emissions in the short or even medium run this trend however can be moderated or even reversed with more r d investments

unemployment and the labour management conspiracy we study a model in which management and a union bargain sequentially first choosing a rule that will later determine the level of employment and then choosing a wage the government then chooses an output or an employment subsidy an exogenous natural turnover rate in the unionized sector creates unemployment whenever the union wage exceeds the competitive wage government intervention can increase both the equilibrium amount of unemployment and worsen the intersectoral allocation of labour because of the induced change in the endogenous wage unemployment weakens but does not eliminate the possibility of a labour management conspiracy

the evolution of walrasian behavior consider an evolutionary context where a given number of quantity setting oligopolists tend to mimic successful behavior occasionally experimenting with some small probability in this context it is shown that the unique long run outcome of the process has all firms playing walrasian i e choosing an output that maximizes profits when taking the market clearing price as given

exploring the political economy of labour market institutions labour markets how reforms took place many economists argue that the european unemployment problem relates to large labour market rigidities this paper argues that many of those inflexibilities and the underlying institutional regulations can be understood as the outcome of political influence by incumbent employees this is because many policies that increase unemployment actually benefit these insiders an empirical investigation of the determinants of labour market institutions demonstrates that the observations are consistent with this view the findings imply 1 higher exposure of the employed to unemployment facilitates a reduction in the level of employment protection 2 unemployment benefits are lower the more employment reacts to wages 3 a higher level of unemployment and the existence of a right wing government slow down the growth rate of the minimum wage giles saint paul

the political economy of public employment programs abstract what are the welfare implications of a political equilibrium where the choice of active labor market programs almps have to please the employed majority this issue is examined in an equilibrium model featuring matching frictions and worker firm wage bargaining it turns out that the welfare consequences depend on the nature of almps and the political weight attributed to firm interests if firm values carry little political weight and programs contribute to wage pressure the employed will opt for excessive program activity

social policy by popular demand why are unemployment benefits more generous in some countries this article argues that citizens trade off the redistributive and insuring effect of social insurance as a result the distribution of risk in a society has important consequences via popular demand for social policy making at the microlevel the article shows that in addition to income the risk of unemployment is a key predictor of individual level preferences for unemployment benefits based on the microlevel findings the article argues that at the macrolevel the homogeneity of the risk pool is an important determinant of benefit generosity the more equally unemployment risk is distributed the higher unemployment replacement rates are empirical testing at both levels finds support for this account of social policy by popular demand

brown backstops versus the green paradox abstract anticipated climate policies are ineffective when fossil fuel owners respond by shifting supply intertemporally the green paradox this mechanism relies crucially on the exhaustibility of fossil fuels we analyze the effect of anticipated climate policies on emissions in a simple model with two fossil fuels one scarce and dirty e g oil the other abundant and dirtier e g coal we derive conditions for a green orthodox anticipated climate policies may reduce current emissions the model can also be used to analyze spatial carbon leakage calibrations suggest that intertemporal carbon leakage from 0 to 8 is a relatively minor concern

can degrowth overcome the leakage problem of unilateral climate policy abstract unilateral climate policy suffers from carbon leakage i e the partial offset of the initial emission reduction by increases in other countries different than most typically discussed climate policies degrowth not only aims at reducing the fossil fuel use in an economy but rather besides other social and political goals at a reduction of all factor inputs which may lead to different leakage implications we conduct the first investigation of degrowth in a multi country setting in order to i compare the leakage effects of national pure emission reduction policies to degrowth scenarios ii identify underlying channels by decomposing the implied emission changes into scale composition and technique effects and iii investigate which country characteristics determine degrowth s relative effectiveness to overcome the leakage problem using a structural gravity model we find that degrowth indeed significantly reduces leakage by keeping the sectoral composition of the country more stable and reducing uncommitted countries incentives to shift towards more energy intensive production techniques the higher effectiveness of degrowth in reducing carbon emissions is most pronounced for small and trade open economies with comparatively clean production technologies

the choice of insurance in the labor market employment protection and unemployment benefits are considered the most prominent insurance devices for workers to protect themselves against the risk of unemployment it occurs that societies either choose a high level of employment protection relative to unemployment benefits or vice versa this paper explains where countries locate on this trade off it is argued that higher coverage of voters out of the labor force with intra household transfers yields a politico economic equilibrium with relatively high employment protection and relatively low unemployment benefits cross country data and survey data on voters preferences are presented that corroborate the outcomes of the model

unilateral co2 reductions and carbon leakage the consequences of international trade in oil and basic materials a recursively dynamic general equilibrium model featuring six world regions with trade in energy and non energy goods is used to simulate the period from 1990 through 2100 in 10 year intervals the simulations explore the effect of unilateral action by the oecd to curb global co2 emissions unilateral cuts create incentives for free riding by non participating regions so that global emissions are reduced by less than the amount that the oecd cuts back its regional emissions carbon leakage occurs through two channels first basic materials production increases in unconstrained regions resulting in increased carbon intensity of gdp second reductions in oecd oil imports cause the world oil price to fall leading to an increased energy intensity in the non participant regions in this paper we use a general equilibrium model to assess the extent to which these two mechanisms reduce the effectiveness of oecd reductions in curbing global co2 concentrations

international trade in carbon emission rights and basic materials general equilibrium calculations for 2020 restrictions on co emissions affect international trade and the pattern of comparative advantage this paper based on calculations with a static general equilibrium model suggests that international trade in carbon rights is a substitute for trade in energy intensive goods and thus international trading in carbon rights reduces sectoral effects of emission reductions in our model we surprisingly find that free riding by non signatory countries may not render unilateral action ineffective if the oecd unilaterally cuts global emissions by 5 per cent from 1990 levels by the year 2020 emissions by non oecd regions increase but offset less than 15 per cent of this cutback moreover carbon taxes depress international oil prices and create incentives for increased tradc in natural gas

labor market reforms and the monetary policy environment abstract do labor market reforms initiated in periods of loose monetary policy yield different outcomes from those that were introduced in periods when monetary tightening prevailed the answer to this question is a firm yes we document the vital role of accommodative monetary policy for an increase in unemployment benefits spending on active labor market policies and labor market deregulation to boost growth and reduce unemployment it was found that if interest rates cannot be reduced then unemployment benefits should be lowered a more rigid labor market it was further found can deliver expansionary effects especially during the crisis period

the use of regression statistics to analyze imperfect pricing policies corrective taxes can solve many market failures but actual policies frequently deviate from the theoretical ideal because of administrative or political constraints we present a method to quantif

market diffusion with two sided learning we analyze the diffusion of a new product of uncertain value in a duopolistic market both sides of the market buyers and sellers learn the true value of the new product from experiments with it buyers have heterogeneous preferences over the products and sellers compete in prices the pricing policies and market shares in the unique markov perfect equilibrium are obtained explicitly the dynamics of the equilibrium market shares display excessive sales of the new product relative to the social optimum in early stages and too low sales later on the diffusion path of a successful product is s shaped

unemployment insurance in theory and practice a hallmark of modern labor economics is the close interplay between the development of theory data sources and econometric testing the evolution of the economic analysis of unemployment insurance provides a good illustration new theoretical approaches in particular job search theory have inspired a large amount of empirical research some of it methodologically innovative and most of it highly relevant for economic policy the paper presents a broad survey and an assessment of the economic analysis of unemployment insurance as it has evolved since the 1970s

the rise in unemployment a multi country study one of the most remarkable features of recent economic history has been the remorseless rise in unemployment throughout the industrialized countries however while the trend to higher unemployment is universal the experience of individual countries also differs widely the increase is especially marked within the european community where unemployment rates rival those reached in the interwar years by contrast in the scandinavian countries and japan unemployment is lower and has risen very much less experience in the united states lies somewhere between these extremes and in the last few years unemployment there has fallen sharply

experimentation imitation and stochastic stability abstract do boundedly rational agents repeatedly playing a symmetric game with a unique symmetric equilibrium learn over time to play it in this paper we model the dynamic interaction of two types of such agents experimenters and imitators whose behavior is characterized by simple rules of thumb we find that the stochastic process describing their play isstable in the large it converges globally and with probability one to a compact neighborhood of the equilibrium however its local behavior near the equilibrium depends in interesting ways on the details of the model journal of economic literatureclassification number d83

the redistributive roles of unemployment insurance and the dynamics of voting abstract public unemployment insurance is analyzed as the majority voting equilibrium policy of a dynamic stochastic economy abstracting from incentive effects we focus on redistribution some results are because of the distribution of heterogeneous employment opportunities public insurance may be democratically chosen even if complete private markets exist and because of the dynamics even when agents are intrinsically homogeneous the equilibrium benefit level or duration benefit schedule deviates from what has been described as optimal in the literature the effects of differences in the average frequency or duration of unemployment on equilibrium taxes and benefits are investigated with some unanticipated results

dynamic retail price and investment competition we develop a model of retail competition in which retailers select prices and investments in cost reduction an equilibrium is constructed in which several identical firms enter and then engage in a phase of vigorous price competition this phase is concluded with a shakeout as a low price low cost firm comes to dominate the market a central feature of the equilibrium is that low prices are complementary with large investments in cost reduction even though the dominant firm s price rises through time and initially may be below marginal cost we argue that an interpretation of predatory pricing may be inappropriate

crossing the river a comparative perspective on italian employment dynamics crossing the river a comparative perspective on italian employment dynamics this paper studies the unprecedented job destruction which occurred throughout europe during the recession of the early 1990s it raises the question whether changes in the institutional structure of various countries labour markets may have deepened the normal effects of the recession institutional legal and sociopolitical safety nets were used to protect many european employees from technological and demand shocks throughout the 1970s and early 1980s important steps have since been taken to deregulate industrial relations european labour markets may currently be in the middle of the river they already experience the negative employment aspects of an american labour market without yet enjoying its benefits based on a study of several countries the article concludes that the social costs of deregulation will be smallest if the intended destination of the transition is reached credibly and without hesitation policy makers must point decisively towards a well defined riverbank rather than leaving the labour market in the middle of the stream giuseppe bertola and andrea ichino

downstream regulation of co2 emissions in california s electricity sector this paper examines the implications of alternative forms of cap and trade regulations on the california electricity market specific focus is given to the implementation of a downstream form of regulation known as the first deliverer policy under this policy importers i e first deliverers of electricity into california are responsible for the emissions associated with the power plants from which the power originated even if those plants are physically located outside of california we find that absent strict non economic barriers to changing import patterns such policies are extremely vulnerable to reshuffling of import resources the net impact implies that the first deliverer policies will be only marginally more effective than a conventional source based regulation

emergence and persistence of inefficient states we present a theory of the emergence and persistence of inefficient states based on patronage politics the society consists of rich and poor the rich are initially in power but expect to transition to democracy which will choose redistributive policies taxation requires the employment of bureaucrats by choosing an inefficient state structure the rich may be able to use patronage and capture democratic politics so reducing the amount of redistribution in democracy moreover the inefficient state creates its own constituency and tends to persist over time intuitively an inefficient state structure creates more rents for bureaucrats than would an efficient one when the poor come to power in democracy they will reform the structure of the state to make it more efficient so that higher taxes can be collected at lower cost and with lower rents for bureaucrats anticipating this when the society starts out with an inefficient organization of the state bureaucrats support the rich who set lower taxes but also provide rents to bureaucrats we obtain that the rich bureaucrats coalition may also expand the size of bureaucracy excessively so as to generate enough political support the model shows that an equilibrium with an inefficient state is more likely to arise when there is greater income inequality when bureaucratic rents take intermediate values and when individuals are sufficiently forward looking jel p16 h11 h26 h41

fiscal adjustments do labor and product market institutions matter this paper investigates the role played by labor and product market institutions in determining the likelihood of initiating and of successfully concluding a fiscal adjustment using data for 16 oecd countries over the period 1970 to 2000 we find that a less generous unemployment benefit system rather than temporary caps on spending e g wage freezes contributes to the success of fiscal consolidation weaker forms of bargaining coordination and centralization facilitate the fiscal adjustment effort on the other hand product market deregulation and more flexible employment protection legislation do not contribute positively to fiscal consolidation