local government structure and public expenditures the law of 1 n postulates a positive relationship betweenthe number of democratically electedrepresentative districts and governmentspending strong support for thisrelationship exists in legislatures in theunited states at both the state andnational level and across countries fewstudies have examined this relationship atthe local level despite the fact that localgovernments operate under constraintssimilar to those faced by representativelegislatures using a sample of georgiacounties we find the number of countycommissioners to be positively correlatedwith county government expenditures indicating support for the law of 1 nat the local level

an experimental investigation of the hahn noll revenue neutral auction for emissions licenses abstract this paper reports on three series of laboratory experiments designed to test the performance of the hahn noll revenue neutral auction rna an alternative institution a no rebate uniform price auction upa is also examined as a benchmark in these experiments the rna markets were little different from upa markets in terms of either prices or market efficiencies the two institutions did differ in terms of the distribution of the gains from exchange and of the propensity of bidders to engage in a certain type of overbidding

legislative district configurations and fiscal policy in american states in accordance with the median voter theorem the median legislator is decisive in representative democracy if the preferences of the median legislator differ from the preferences of the median voter in the polity fiscal policy choices will predictably diverge from those favored by the median voter this paper seeks to identify the median district and therein the preferences driving the median legislator in american state legislatures using economic characteristics of constituents we find substantial differences between the median district and the statewide median as the income of the median district rises above the median income of the polity government expenditures increase in addition the degree to which income is skewed across legislative districts affects spending for redistribution programs finally we find that direct democracy procedures which allow the statewide median voter to check legislative decisions limit the impact of differences between the district and polity medians

budget processes and commitment to fiscal discipline abstract we present a framework of investigation into the political economy of the budget process our model suggests that institutional rules governing the budget process can be found to limit the importance of fiscal illusion empirical evidence supports that proposition the choice of rules depends on the political environment as well as the dominant source of uncertainty in the budget process

the impact of divided government on legislative production it seems obvious that divided governments should produce less legislation than unified governments yet studies have consistently failed to find such an effect because almost all existing studies focus on the experience of the u s national government the data have limited analysis to a consideration of executive legislative division and ignore the impact of division between bicameral chambers the state level data set employed in this study is not so limited the results show that divided legislatures decrease the production of laws by almost 30 nonetheless consistent with previous studies using national level data executive legislative divisions have no impact of legislative production the reason for this asymmetry is theoretically motivated additional hypotheses of interest are also tested including whether republican controlled legislative chambers are more conservative than democratic chambers in the sense of producing fewer laws than their democratic counterparts

the impact of endowment framing on market prices an experimental analysis framing effects are well known in individual decision making using experimental markets we investigated whether similar effects could be found in a market environment two series of experiments showed that negative framing can give different market prices than a positively framed endowment we also found that volume may be affected by the framing of the endowment 2000 elsevier science b v all rights reserved

market behavior in bid offer and double auctions abstract this study examines the robustness of the previously observed smith 1964 differences in market behavior between double auctions both buyers and sellers may enter price quotes bid auctions only buyers may enter price quotes and offer auctions only sellers may enter price quotes based on the results of twenty one market experiments we find little support for the a priori hypothesis that bid auction prices tend to be greater than double auction prices which tend to be greater than offer auction prices

bubbles and total factor productivity evidence shows that asset price bubbles typically precede financial crises and financial crises are accompanied by the collapse of bubbles in addition stock market booms and busts are typically associated with credit market booms and busts the recent us housing and stock market bubbles and the subsequent great recession that began in late 2007 provide an example the stock market booms in the early 1990s and the subsequent asian financial crisis in 1997 provide another example there are also many other related episodes of financial crises in emerging economies motivated by these observations miao and wang 2011a propose a theory of credit driven stock price bubbles we show that a positive feedback loop mechanism generates stock price bubbles when firms borrow against the stock market value of their collateralized assets to finance investment we assume that firms face stochastic investment opportunities and bubbles improve investment efficiency we also study stochastic bubbles and policy implications in the present paper we apply the theory developed by miao and wang 2011a to an environment in which firms face idiosyncratic productivity shocks and credit constraints we show that both bubbleless and bubbly equilibria bubbles and financial crisis

surveys in public sector economics part i public sector production 2 shadow pricing in the public sector peter hammond professor of economics stanford university 3 regulation of public utilities and nationalized industries ingo vogelsang professor of economics boston university 4 economics of publicly provided goods and services paul hare professor of economics heriot watt university part ii distribution and welfare 5 the political economy of fiscal policy daniel ingberman and robert inman respectively assistant professor of public policy and management wharton school university of pennsylvania and professor of finance economics and public management university of pennsylvania 6 policy targetting in a new welfare framework with poverty john beath geoff lewis and david ulph both john beath and geoff lewis are lecturers in economics bristol university david ulph is professor of economics bristol university 7 the structure of income and commodity taxation christopher heady lecturer in economics university college london part iii estimation and computation 8 econometric issues in public sector economics richard blundell director of the institute for fiscal studies 9 general equilibrium computation applied to public sector issues john piggot professor of economics university of sydney with appendix by jon fuller

the effects of rent asymmetries in experimental auction markets abstract we report the results of twelve double auction market experiments designed to analyze the effects of asymmetric induced supply and demand configurations on the price convergence path toward a competitive equilibrium the proposition convergence bias that prices tend to approach the competitive equilibrium from above below when consumer surplus is greater less than producer surplus cannot be rejected we do however reject the proposition convergence symmetry that these convergence biases are of equal absolute magnitude excesses of producer over consumer surplus are found to have a more pronounced effect on the sequence of contract prices

districting and government overspending theories of government spending driven by a common pool problem in the fiscal revenues pool predict that greater districting of a political jurisdiction raises the scale of government this paper presents evidence on this and related predictions from a cross section of city governments in the united states the main finding is that when other plausible determinants of government spending are controlled for greater districting leads to a considerably greater scale of government activity the results also show that at large electoral systems do not and forms of government that concentrate powers in the office of the executive do break this relationship

legislative organization of fiscal policy in the voluminous literature on fiscal policy there is little evidence about the impact of legislative organization on shaping fiscal decisions by comparing different organizations of committee structure to control tax and spending policies this article presents such evidence regarding spending we test whether the dispersion of spending authority among multiple committees creates a problem similar to that of the common pool using american state data we find that when only one committee has the authority to spend spending is restrained relative to when spending authority is balkanized regarding taxation we hypothesize that if a single committee controls not only all spending authority but also all taxation authority that committee will have more incentive to tax than a committee that does not control spending it can obtain the benefits of increased taxation more directly again this proposition is supported by evidence at the state level

rational irrationality and the microfoundations of political failure models of inefficient political failure have been criticized forimplicitly assuming the irrationality of voters wittman 1989 1995 1999 coate and morris 1995 building on caplan s 1999a 1999b model of rational irrationality the current papermaintains that the assumption of voter irrationality is boththeoretically and empirically plausible it then examinesmicrofoundational criticisms of four classes of political failuremodels rent seeking pork barrel politics bureaucracy andeconomic reform in each of the four cases incorporating simpleforms of privately costless irrationality makes it possibleto clearly derive the models standard conclusions moreover itfollows that efforts to mitigate political failures will besocially suboptimal as most of the literature implicitlyassumes it is a mistake to discount the empirical evidence forthese models on theoretical grounds

the effects of rent asymmetries in posted offer markets abstract we report the results of six posted offer market experiments designed to analyze the effects of asymmetric supply and demand configurations on the price convergence path to competitive equilibrium the posted offer experiments are compared with twelve double auction experiments reported by smith and williams 1982 results differ markedly across trading institutions unlike trading under double auction rules we cannot reject the proposition that contract price convergence paths are unaffected by the distribution of consumer and producer surplus posted offer contract prices tend to converge to the competitive equilibrium from above regardless of the distribution of the exchange surplus

the effect of legislature size on public spending evidence from a regression discontinuity design what is the effect of legislature size on public spending an answer to this question is provided by weingast et al j polit econ 89 4 642 664 1981 whose law of 1 n posits that an increase in the number of elected representatives always leads to an increase in public spending because elected politicians regard the tax base as a common pool from which they can finance specific projects for their constituencies and these specific constituencies internalize the full benefits of the projects but only bear a fraction of the costs projects are financed from the common tax base fiscal inefficiency will increase with the number of representatives in this paper i test the validity of the law of 1 n using a dataset of 9325 german municipalities between 2008 and 2010 through the application of a regression discontinuity design many of the methodological pitfalls of previous studies can be avoided and a valid estimation of the causal effect of legislature size on public spending for german municipalities can be determined the results do not corroborate the positive findings of previous studies which generally supported the implications of the law of 1 n for the years 2008 2010 i find a negative effect of legislature size on public spending in german municipal councils

bicameralism and its consequences for the internal organization of legislatures theories of organization of legislatures have mainly focused on the u s congress explaining why committee systems emerge there but not explaining variance in organization across legislatures of different countries to analyze the effects of different constitutional features on the internal organization of legislatures we adopt a vote buying model and consider the incentives to delegate decision rights in a game among legislative chambers we show how presidential veto power and bicameral separation can encourage a legislative chamber to create internal veto players or supermajority rules while a unicameral structure can encourage legislators to delegate power to a leader

legislative organization and pollution taxation the role of political institutions in shaping public policy has been analyzed in isolation from corruption and legislative organization specifically bicameralism has received minimal attention we analyze pollution taxation when decisions are influenced by several veto players such as legislative chambers our theory predicts that an increase in the number of veto players e g moving from uni to bi cameralism pushes the pollution tax towards the social optimum with the effect being conditional on corruption as such dispersion around the optimal tax is lower under bicameralism empirical tests using data from 86 countries support the theory

supermajority rule and the law of 1 n this paper investigates the impact of a supermajority rule on the law of 1 n which posits that a larger number of districts increases the size of government our analysis suggests that supermajority rule despite the claim that it restrains excessive spending increases the 1 n effect because qualified majorities require logrolling to attract additional members using data from us states from 1970 to 2007 we find that the adoption of a supermajority rule has a robust worsening effect on the fiscal commons problem identified by the law of 1 n

regulation and the theory of legislative choice the interstate commerce act of 1887 this article concerns the economic incidence of the interstate commerce act of 1887 ica our focus is the short haul pricing constraint a provision of the ica that prohibited railroads from charging higher rates to isolated primarily agrarian shippers than it charged to intercity shippers of similar commodities utilizing the event study methodology we find that the impending passage of the ica generated a distribution of abnormal returns to railroads and shipping firms that is consistent with the theoretical implications of our analysis of the short haul pricing constraint shpc however early interpretations of the shpc by the interstate commerce commission reduced some of the abnormal returns to railroads in a manner that is inconsistent with the hypothesis that the short haul pricing constraint was an important mechanism of early railroad regulation the analysis does support a multiple interest interpretation of the interstate commerce act and has implications for the positive theory of regulation

convergence to nonstationary competitive equilibria an experimental analysis abstract this paper reports the results of 26 posted offer and double auction markets examining the effect of systematic supply and or demand nonstationarities on market performance and dynamic adjustment paths to the competitive equilibria both the trading institution and the source of the nonstationarity are found to affect the ability of markets to track the competitive equilibrium although some posted offer markets track the competitive equilibrium price as well as comparable double auctions posted offer markets consistently exhibit lower efficiency the inability of the posted offer trading institution to track demand based market shocks is particularly striking

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

money growth dynamic efficiency and asset bubbles in a perpetual youth model we consider a perpetual youth model in which real balances are an argument of the utility function we show that dynamic efficiency is compatible with a positive inflation rate and that the higher inflation the larger is the size of the bubble required to remove the inefficiency

bicameral legislatures and fiscal policy john stuart mill s observation in the mid 19th century is clearly outdated the two chamber question receives scant attention in modern political economy the absence of continued debate might simply reflect a general satisfaction with the dual chambered structure as a desirable democratic institution most developed democracies and all but one of the american states have adopted a bicameral legislative structure in this paper we stress the many variations in bicameralism even among the american states and the effects these variations have on policy making and fiscal outcomes put simply bicameralism is not an all or none institution instead bicameralism is a variable institution that alters the identity of the median legislator within each chamber and determines the similarity of the dominant coalitions between the two chambers in this perspective the impact of bicameralism on policy comes principally from the different bases of representation across the two chambers moreover the analysis stresses that the degree of bicameralism changes regularly as a consequence of the redistricting process the remainder of the paper is organized as follows section 2 reviews the main conceptual arguments underlying the function of a bicameral organization section 3 examines implications for fiscal policy using data from the american states we develop several measures of bicameralism using detailed constituency data on economic and demographic characteristics at the level of state legislative districts we then use these measures to examine the effect of interdistrict constituent homogeneity on total state government spending as well as on the major com

supermajority rule the law of 1 n and government spending a synthesis i develop models in which a minimum winning coalition decides on the level of government spending where the coase theorem holds amongst members of the winning coalition an increase in the supermajority requirement has potentially conflicting effects on spending a higher requirement increases the tax price internalized by the minimum winning coalition but also increases the number of districts included in this coalition i develop separate models in which the spending in question consists of i a nonexcludable good ii a distributive consumption good iii infrastructure spending and iv a transfer payment a supermajority rule has no effect on spending for nonexcludable goods and ambiguous effects on spending for distributive projects and infrastructure spending an increased supermajority requirement does unambiguously reduce transfer spending i also relate the supermajority rule to the law of 1 n if the coase theorem holds and a minimum winning coalition forms an increase in the number of districts n has precisely the same effect on overall expenditure as a decrease in the supermajority requirement thus the ambiguous spending effects stemming from supermajority rule carry over into this version of the law of 1 n

the exercise of market power in laboratory experiments douglas d davis and charles a holt march 1998 introduction many aspects of antitrust policy are influenced by the possibility that sellers in concentrated markets may have the power to raise prices above competitive levels of course anyone can raise price so the issue is whether a change in structure e g a merger will allow one or more sellers to raise price profitably a price increase by one seller diverts sales to others so a firm is more likely to have market power when its competitors have limited capacity to expand their sales thus a merger that reduces competitors capacity may create market power in laboratory experiments any treatment that reassigns units of capacity from one seller to another may create or destroy market power even if the aggregate supply curve is unchanged for example giving one seller a relatively large endowment of infra marginal low cost units may make it less risky for this seller to raise price and forego the sale of high cost units thus it is not surprising that experiments with apparently similar supply and demand structures may yield different price outcomes as discussed below there are a number of other ways in which structural changes can affect the degree of power that sellers enjoy market power can also be sensitive to the trading institution and this is the context that power issues first arose in experimental economics for example the public posting of uniform prices in a posted offer auction eliminates the incentive to offer discounts on marginal units that arises in a double auction in fact smith 1981 found that even monopolists are sometimes unable to maintain prices above competitive levels in double auctions whereas supra competitive prices are the norm in postedoffer monopolies similarly holt langan and villamil 1986 found that sellers in concentrated double auctions were sometimes able to raise prices but that prices fell to competitive levels in about half of the sessions despite the high concentration of seller capacity davis and williams 1991 replicated the holt langan and villamil results for double auctions and then used the same market

local intergovernmental competition and the law of 1 n this article proposes an empirical framework based on a synthesis of the seminal law of 1 n and leviathan theories which models the relationship between government spending and the number of jurisdictions in a federal system as determined by the interplay of the costs related to centralized government which fall as the number of jurisdictions increases and the costs of distributive politics which rise as the number of jurisdictions increases using a panel of u s state and local government spending data empirical tests based on this combined framework show that the effect of intergovernmental competition predicted by the leviathan model is partially offset by the law of 1 n this result helps explain the inconsistent findings in the previous empirical literature

asset bubble and endogenous labor supply a clarification abstract this paper analyzes the link between asset bubbles endogenous labor and capital first we explicitly and theoretically derive the conditions to have a crowding in effect of the bubble i e higher levels of capital and labor second the utility function we consider shows that this result does not require an arbitrarily high elasticity of intertemporal substitution in consumption

budget institutions and fiscal policy in the u s states this paper summarizes state balanced budget requirements and the available empirical evidence on the effect of these rules on state fiscal policies existing state rules differ from many current proposals at the federal level they are typically restricted to part of the state budget they frequently permit short term borrowing and they lack formal enforcement mechanisms the paper also surveys previous research on how anti deficit provisions affect state fiscal policy the available evidence indicates that stringent anti deficit provisions lead to more rapid adjustment of state taxes and expenditures when fiscal deficits emerge this suggests that changing the federal budget process has the potential to affect federal fiscal policy this abstract was borrowed from another version of this item

do merging local governments free ride on their counterparts when facing boundary reform the western world exhibited a significant trend towards larger local governments in the twentieth century which was driven to a large extent by boundary reforms boundary reforms can provide economic benefits but may also give rise to costs driven by opportunistic political behavior this study uses a swedish compulsory reform to test for such behavior the reform gives a local government the incentive to accumulate debt before a merger takes place since the taxpayers in the new locality will share the cost the strength of the incentive to free ride is determined by the population size of the initial locality relative to that of the new locality i find an economically large and statistically significant free riding effect

parochial interests and the centralized provision of local public goods evidence from congressional voting on transportation projects abstract local public goods financed from a national tax base provide concentrated benefits to recipient jurisdictions but disperse costs creating incentives for legislators to increase own district spending but to restrain aggregate spending due to the associated tax costs while these common pool incentives underpin a variety of theoretical analyses which tend to predict inefficiencies in the allocation of public goods there is little direct evidence that individual legislators respond to such incentives to test for reactions to such incentives this paper analyzes 1998 congressional votes over transportation project funding the empirical results provide evidence that legislators respond to common pool incentives the probability of supporting the projects is increasing in own district spending and decreasing in the tax burden associated with aggregate spending having found that legislators do respond to such incentives i use the parameter estimates to calculate the efficient level of public goods which suggest over spending in aggregate especially in politically powerful districts and large associated deadweight loss

communication in federal politics universalism policy uniformity and the optimal allocation of fiscal authority the paper presents a positive model of policy formation in federal legislatures when delegates engage in the strategic exchange of policy relevant information depending on the type of policy under consideration communication between delegates generally suffers from a bias that makes truthful communication difficult and sometimes impossible this generates inefficient federal policy choices that are often endogenously characterized by overspending universalism and uniformity building on these findings i develop a theory of fiscal de centralization which revisits the work of oates in a world of incomplete information and strategic communication empirical results from a cross section of us municipalities are consistent with the predicted pattern of spending

the law of 1 n revisited distributive politics legislature size and the costs of collective action the foundational model of distributive politics predicts a positive relationship between the number of legislative districts and the level of inefficiency of projects approved by the legislature weingast shepsle and johnsen s law of 1 n this relationship has been tested extensively in the empirical literature with mixed results this article presents a model wherein passing the omnibus legislation typical of distributive politics is a costly process the model predicts a nonlinear relationship between legislature size and spending as increasing the size of the legislature also increases the costs of collective action results from an empirical exercise based on u s state legislatures 1962 2014 are consistent with the proposed model showing a 1 n effect which diminishes at the margin as the legislature s size increases especially in the lower chamber

price controls and the behavior of auction markets an experimental examination price ceilings and price floors are common in all market systems the ancient greeks and hellenistic era egyptians are known to have utilized price controls see h michele p 272 and j p levy p 41 and numerous public policy questions today involve them apparently for as long as price controls have existed their effects have been debated for example diocletion s favorable view of his price ceilings was disputed by the religious philosopher lactantius who charged that the policy led to scarcity and low grade articles p 145

instability of collective decisions testing for cyclical majorities the issues of cyclical majorities and instability of collective choices have been in the fore front in the discussion of social choice mechanisms cycling lack of equilibria and so called chaos theorems have been prevalent in the public choice literature whether cycling actually occurs in processes that are decided by majority rule has been a long standing question however cycling has not been made quantifiable nor has it been clear how one would determine empirically whether majorities are cyclical in this paper cycling has been given an empirical meaning this paper provides a method to test for cyclical majorities and applies it to decisions made in the us congress the test results indicate stability and the presence of persistent winners and losers in congress

the law of k n the effect of chamber size on government spending in bicameral legislatures recent work in political economics has examined the positive relationship between legislative size and spending which weingast et al 1981 formalized as the law of 1 n however empirical tests of this theory have produced a pattern of divergent findings the positive relationship between seats and spending appears to hold consistently for unicameral legislatures and for upper chambers in bicameral legislatures but not for lower chambers we bridge this gap between theory and empirics by extending weingast et al s model to account for bicameralism in the context of a baron ferejohn bargaining game our comparative statics predict and empirical data from u s state legislatures corroborate that the size of the upper chamber n is a positive predictor of expenditure whereas the ratio of lower to upper chamber seats k exhibits a negative effect we refer to these relationships as the law of k n as the two variables influence spending in opposite directions

price controls and banking in emissions trading an experimental evaluation we present results from laboratory emissions markets designed to investigate the effects of price controls and permit banking on limiting permit price risk while both instruments reduce between period price volatility and within period price dispersion combining price controls and permit banking yields important benefits banking alone produces high permit prices in earlier periods that fall over time but the combined policy produces lower initial prices and lower volatility however banking price controls and the combination all produce higher between period emissions volatility hence for emissions markets that seek to control flow pollutants with strictly convex damages efforts to limit permit price risk can result in higher expected damage

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

credit constraints in general equilibrium experimental results our work attempts to investigate the influence of credit tightness orexpansion on activity and relative prices in a multimarket set up we report on somedouble auction two market experiments where subjects had to satisfy an inequalityinvolving the use of credit the experiments display two regimes characterizedby high and low credit availability the critical value of credit at the commonboundary of the two regimes has a compelling interpretation as the maximal credituse at the arrow debreu equilibrium of the abstract economy naturally associatedto our experimental environment our main results are that changes in theavailability of credit a have minor and unsystematic effects on quantitiesand relative prices in the high credit regime b have substantial effects bothon quantities and relative prices in the low credit regime

asset bubbles in an overlapping generations model with endogenous labor supply this paper examines the effects of asset bubbles in an overlapping generations model with endogenous labor supply we show analytically that asset bubbles can lead to an expansion in steady state capital investment employment and output under certain conditions

changing the price of pork the impact of local cost sharing on legislators demands for distributive public goods abstract the provision of public services through national legislatures gives legislators the chance to fund locally beneficial public projects using a shared national tax base nationally financed and provided local congestible public goods will be purchased at a subsidized price below marginal cost and may be inefficiently too large as a consequence an important assumption behind this inefficiency is that national legislators in fact demand more of the locally beneficial project as the local price for projects declines this paper provides the first direct test of this important assumption using legislators project choices following the passage of the water resources development act of 1986 wrda 86 we find legislators chosen water project sizes do fall as the local cost share rises with a price elasticity of demand ranging from 0 81 for flood control and shoreline protection projects to 2 55 for large navigation projects the requirement of wrda 86 that local taxpayers contribute a greater share to the funding of local water projects reduced overall proposed project spending in our sample by 35 and the federal outlay for proposed project spending by 48

theory measurement and calibration of macroeconomic models abstract calibration has become a standard tool of macroeconomics this paper extends and refines the calibration methodology along several important dimensions first accounting for home production is important both in measuring calibration targets and in organizing the data in a model consistent fashion for this reason thinking about home production is important even if the model under consideration does not include home production second investment specific technological change is included because of its strong balanced growth parameter restrictions third the measurement strategy is laid out as transparently as possible so that others can easily replicate the underlying calculations the data and calculations used in this paper are available at http clevelandfed org research models rbc index cfm

economic growth with bubbles this paper presents a stylized model of economic growth with bubbles this model views asset price bubbles as a market generated device to moderate the effects of frictions in financial markets improving the allocation of investments and raising the capital stock and welfare the model illustrates various channels through which asset price bubbles affect the incentives for innovation and economic reforms and therefore the rate of economic growth the model also offers a new perspective on the effects of financial development on asset price bubbles and economic growth

aid effectiveness and the politics of personalism this article examines how political institutions that provide an incentive to cultivate a personal vote condition the relationship between foreign aid and economic growth in developing country democracies politicians in aid recipient countries with high levels of personalism are more likely to pursue corruption and target government spending to narrow constituencies because personalism affects these outcomes it provides incentives to use foreign aid for politically motivated spending at the expense of investing foreign aid in growth promoting public goods using panel data from 61 aid recipient democracies from 1961 to 2001 the author finds that aid increases growth in democracies with less personalist institutions but decreases growth in countries with high personalism the author also shows that personalism conditions the relationship between aid and the composition of government spending aid increases spending on public goods relative to narrow particularistic goods in countries with low person

fiscal forecasts and political systems a legislative budgeting perspective which are the institutional and constitutional settings that best reduce the tendency to manipulate fiscal forecasts this paper addresses the question by examining the quality of fiscal forecasts at different stages of the budget process in 13 european union countries by using annual forecast vintages 1999 2013 from stability and convergence programmes both the role of political structures and the balance of power between the executive and the legislature are assessed as determinants of systematic forecasting errors the findings suggest that the forecasting bias is more effectively countered in presidential and semi presidential systems in parliamentary systems with strong bicameralism and when executive legislature relations are constrained by checks and balances confirmation of these results is also provided by linking our approach to the fiscal institutionalist approach based on the form of fiscal governance and the stringency of fiscal rules in terms of institutional capacity if fiscal rules and legislative organizational and research capacity counter the executive s monopoly of fiscal forecasting strengthening the legislature s formal powers negatively influences the fiscal forecast accuracy indeed strategic considerations may induce the executive to anticipate the legislature s amendment or rejection of the tabled budget by means of more favourable economic and fiscal assumptions the crisis and its urgencies crisis seem to have weakened the effect of institutional executive legislature relations on fiscal forecast accuracy

asymmetric surplus distribution and the price convergence path in posted offer markets a note abstract we report results from five posted offer experiments with firm specific quotas the average contract price converges from below the competitive equilibrium thus the independence of the contract price convergence path from surplus distribution is questioned in our results

a comparison of posted offer and double auction pricing institutions this paper presents an experimental study of a computerized posted offer pricing mechanism that captures many of the basic institutional features of retail exchange in the u s posted offer market performance is evaluated relative to double auction market performance using two supply and demand designs subject experience with the trading mechanism is explicitly considered as an experimental treatment variable the market data suggest that prices tend to be higher and efficiency lower under posted offer pricing relative to double auction however the institutional effect appears to interact with other design conditions when feasible the predictive power of competitive nash and limit price theoretic equilibria are empirically evaluated

elected or appointed how the nomination scheme of the city manager influences the effects of government fragmentation abstract empirical research on the causal effect of government fragmentation derives diverse results one reason for this diversity might be that studies are typically settled in a variety of institutional environments to assess the extent to which the local political system might shape the effects of fragmentation this study measures the causal effect of a change in the nomination scheme of the city manager on the council size effect i combine a regression discontinuity design with a difference in differences approach in a large panel dataset of german municipalities the study finds that when the manager is appointed by council there is no significant council size effect but that there is a negative effect when the manager is elected by voters for those expenditure categories over which the manager has the most discretion these findings suggest that the nature of the political system does indeed matter

double auction dynamics structural effects of non binding price controls in competitive equilibrium non binding price controls that is price floors below and ceilings above the equilibrium should not affect market outcomes but in laboratory experiments they do we build a simple dynamic model of double auction markets with zero intelligence zi computer traders that accounts for many though not all of the discrepancies between the data and the walrasian tatonnement predictions the success of the model in organizing the data and in isolating various consequences of price controls shows that the simple zi model is a powerful tool to gain insights into the dynamics of market institutions

public choice principles of redistricting this paper uses fundamental principles of public choice mainly the median voter theorem to develop a simple theory of redistricting the focus is on how closely policy outcomes correspond to majority rule the main results are 1 potential policy bias in favor of nonmajority groups is structurally linked to the number of legislative seats and the population and the structure of most states puts them very close to the theoretically maximum bias 2 random districting which might seem like the essence of neutrality does not eliminate policy bias on average 3 traditional principles of compact contiguous districts that respect existing political boundaries stressed in the supreme court s shaw v reno decision minimize the chance of nonmajoritarian outcomes our analysis also offers a gerrymandering explanation for the positive relation between seats and spending that is usually taken as support for the law of 1 n

existence uniqueness and stability of equilibrium in an overlapping generations model with productive capital abstract this paper analyzes the existence uniqueness and stability of a steady state equilibrium in an overlapping generations model with productive capital it is shown that for any feasible set of well behaved preferences there exists a production function that satisfies the inada conditions under which the economy experiences global contraction and the steady state equilibrium is characterized by the absence of production and consumption the study establishes a strengthened inada condition which is necessary to preclude global contraction and sufficient conditions for the existence of a unique and globally stable non trivial steady state equilibrium

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

stability of equilibria in the overlapping generations model with endogenous labor supply abstract this paper looks at the issue of existence and stability of steady state equilibria in an overlapping generations model with productive capital a la diamond augmented to include endogenous labor supply the paper derives some necessary and sufficient conditions under which a steady state equilibrium is a sink a saddle point or a source under a simple condition on the labor supply elasticity it is also shown that the local stability condition of the standard diamond model can be generalized in order to become a necessary and sufficient condition for the saddle point property of the steady state equilibrium

does the size of the legislature affect the size of government evidence from two natural experiments this paper makes use of regression discontinuity designs to estimate the effect of the number of legislators on the size of government the results indicate a negative effect i e the larger the size of the legislature the smaller is the size of government this runs counter to conventional wisdom one potential explanation is that more legislators can better control a budget maximizing bureaucracy i present evidence that is consistent with the proposed mechanism

confidence and the real value of money in an overlapping generations economy we demonstrate that stochastic bubbles which have a constant exogenous probability of collapsing may exist in general equilibrium on an intrinsically useless and unbacked asset money this may happen provided that the probability q that the bubble will persist next period is large enough and exceeds a threshold level q which we call the minimum rate of confidence this condition is always violated when the economy without bubble is dynamically efficient it is more likely to be satisfied in dynamically inefficient economies the larger the size of the inefficiency as measured by the excess of the growth rate over the no bubble interest rate we study both exchange and production economies

deviations from constituent interests the role of legislative structure and political parties in the states this paper investigates the determinants of state spending over 1960 1990 recent empirical studies suggest that state government expenditure is greater than the electorate desires our main finding is that expenditure was positively related to the number of seats in a state s legislature this is consistent with the hypothesis that logrolling leads representatives to spend more than their constituents would like we also find that political parties do not have a pronounced effect on overall levels of expenditure but do influence the composition of spending in particular democratic control of state government is associated with higher levels of welfare spending

legislative representation bargaining power and the distribution of federal funds evidence from the us congress this article investigates the relationship between representation in legislatures and the geographic distribution of federal funds in a legislative bargaining model we demonstrate that funds are concentrated in high representation areas and two channels underlie this result the proposal power channel reflects the role of representation in committee assignments and the vote cost channel reflects the role of representation in coalition formation in our empirical analysis we find that small states relative to large states receive more funding in the us senate relative to the house we also find empirical support for the two channels underlying this relationship throughout the history of federations and international organisations a key consti tutional design question involves how jurisdictions of different sizes are represented in legislative bodies and how their votes will ultimately be weighted large jurisdictions typically argue for delegation sizes or voting weights that are roughly proportional to population whereas small jurisdictions typically argue for an equal number of delegates or votes for each jurisdiction this conflict over representation is presumably driven at least in part by a belief that increased representation strengthens bargaining power in the battle over the geographic distribution of funds authorised by these legislative bodies in this article i analyse the relationship between legislative representation bar gaining power and the geographic distribution of federal funds from both a theoretical and empirical perspective in addition to investigating the existence of a relationship between representation and federal funds i also explore the underlying mechanisms that is i ask which political institutions such as agenda control provided to commit tees and the formation of coalitions under majority rule shape the bargaining power of jurisdictions in central legislatures and thus facilitate the relationship between repre sentation and the distribution of federal spending to provide a framework for analysing these issues i begin by developing a simple theoretical model of a central legislature that determines the crossjurisdiction distri bution of local public goods which are financed by a national tax base both delegation sizes and population are variable allowing me to consider a variety of institutional arrangements for jurisdictional representation legislators represent local interests and given the common pool problem associated with concentrated benefits and dis persed tax costs attempt to increase ownjurisdiction spending but to restrain spending elsewhere the model follows a recent literature on legislative bargaining in which a proposer must secure a majority of votes in order to pass legislation and due to the

budget institutions and political insulation why states adopt the item veto abstract forty three of the fifty states of the united states have granted item veto authority to their governors as part of state constitutions in this paper i test explanations of why and when a legislature would cede institutional power using data from 1865 to 1994 i show that these measures are most likely proposed by fiscal conservatives who fear the loss of power in the future in order to protect their interests for those periods when they will be in the minority they implement institutions such as the item veto which will limit future liberal legislatures the results therefore shed light on two important substantive areas first by showing how the choice of budgetary institutions is endogenous to the political process it clarifies that political factors must be considered in addition to social efficiency to understand the adoption of budget institutions second it provides evidence in support of theories that have posited that electorally weak groups will heavily insulate policies in periods in which they momentarily hold power e g moe 1989 de figueiredo 2002

bicameralism and majoritarian equilibrium recent papers have established that bicameralism can support a non empty core in majority voting games in two dimensional policy spaces we generalise this result to the n dimensional case and provide a discussion of multi cameralism bicameralism generates a core of potentially stable equilibria by institutionalising opposition between mutually oriented median voters this provides a clear link with the standard median voter model and with more traditional analyses of bicameralism

legislative term limits and state spending supporters of legislative term limits often claim that they will lower state spending levels using fiscal data from 48 states from 1977 to 2001 this paper finds little support for this assertion instead this analysis finds that states with term limits have higher spending levels than states without term limits these results suggest that term limits give legislators greater incentives to deviate from socially optimal fiscal policy by altering the legislative environment in which such policy is formulated

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

fiscal discipline and the budget process the critical economic policy issue for many oecd countries developing countries and transition economies currently is fiscal consolidation and the maintenance of long run fiscal balance two related components underlie this general goal first several countries face the issue of deficit reduction particularly those countries with high debt gdp ratios second it is becoming increasingly apparent that major reforms of the welfare system and specifically of social security systems are critical ingredients of a long lasting fiscal consolidation see alesina and perotti 1995a in the case of monetary policy a constructive discussion has generated a widespread consensus about the benefits of different monetary institutions relatively few economists dispute the benefits of a certain amount of central bank independence even though different commentators and policymakers may disagree on the optimal degree of independence also a contracting approach has highlighted the benefit of inflation targeting and of certain institutional relationships contracts between the executive and the central bank a similar theoretical and empirical discussion on the role of budget procedures and budget institutions is just beginning in this paper we ask the following two questions i do budget procedures matter for the determination of the budget balance and its composition ii are there certain institutional reforms that one should feel comfortable in recommending based on the relatively scarce empirical evidence available we tentatively answer yes to the first question budget procedures matter on the second question we suggest that the two critical areas of reform are first more transparency second a strengthening of the roles of the executive branch vis a vis the legislature and of the treasury minister vis a vis the rest of the executive branch in order to achieve a centralized and top bottom approach to the budget process

legislative organization and government spending cross country evidence abstract the law of 1 n posits that an increase in the number of elected representatives fuels excessive government spending despite its wide acceptance as a stylized fact the law of 1 n has received only limited empirical scrutiny and the existing evidence for the american states provides mixed support for the thesis this paper examines the law of 1 n in bicameral and unicameral legislative structures using a cross section of democratic countries the results indicate that legislative size matters under both legislature structures but bicameralism dampens the 1 n effect relative to unicameralism

political fragmentation party ideology and public expenditures in this paper we propose an original model of competition for effective political power between majority and opposition coalitions the model indicates that the electoral margin of the majority and the fragmentation of both coalitions are key variables that determine their effective political power we estimate the model in the case of the french departements our econometric results support the model and show that the per capita social expenditures in the french departements depend on the effective political power of the majority

supermajority rule and bicameral bargaining this paper revisits the claim that supermajority rules and bicameral legislative structures restrain excessive government spending and taxation our analysis suggests that the extension effect of a supermajority rule that requires logrolling across additional members increases with the ratio of seats in the house relative to seats in the senate using a panel of us states 1970 2008 we find that the ratio of house to senate seats has a robust positive impact on the tendency of a supermajority rule to inflate the budget our finding implies that a supermajority rule can have a perverse effect on budget outcomes in bicameral legislatures owing to two factors the geographic overlap between chambers and the low price elasticity of demand for public goods

legislature size and government spending in italian regions forecasting the effects of a reform we analyze the effect of different legislature size on per capita regional expenditure in italy according to the theory legislature size has an indefinite effect on government spending because logrolling and transaction costs may have canceling effects we find a large and significantly positive effect of the number of legislators we use these findings to forecast the effects of the increase in the number of legislators that is taking place in some regions a 10 increase in legislature size commands on average a 12 increase in per capita regional expenditure

do large cabinets favor large governments evidence on the fiscal commons problem for swiss cantons abstract the fiscal commons problem is one of the most prominent explanations of excessive spending in political economics for a panel of the 26 swiss cantons over the 1980 1998 periods this paper explores the role of fragmented governments on fiscal policy outcomes we distinguish between two variants of fragmented governments cabinet size and coalition size in addition we analyze whether constitutional rules for executive and legislature as well as formal fiscal restraints shape the size of government and how different rules interact with fragmentation the results indicate that the number of ministers in the cabinet is positively associated with the size of government while fiscal referendums effectively restrict the size of government there is also evidence that fiscal referendums relax the fiscal commons problem to some extent

how do electoral systems affect fiscal policy evidence from cantonal parliaments 1890 2000 using a new data set on swiss cantons since 1890 we analyze how the adoption of proportional representation affects fiscal policy in line with economic theory we show that proportional systems shift spending toward broad goods like education and welfare benefits but decrease spending on geographically targetable goods like roads we find little evidence that proportional representation increases the overall size of government an analysis of the underlying theoretical mechanisms reveals that proportional representation increases electoral turnout left wing representation and political fragmentation these changes in political representation explain a substantial share of the rise in education spending but a small share of the rise in welfare spending or the decline in road expenditures jel h4 h11 i38

papers in experimental economics on nonbinding price controls in a competitive market interest in the effect of nonbinding price controls on double auction markets stems from two primary considerations the double auction institution converges to a competitive allocation more rapidly and with fewer participating agents than any other institution with which it has been compared see smith et al one way to improve our understanding of this important property is to determine what conditions if any can interfere with or retard this convergence process nonbinding price controls represent a condition that may affect this convergence process hence if such effects can be documented they will provide a body of data that any future proposed model of the double auction process should be able to explain a second reason for studying the effect of nonbinding controls on the double auction is practical the organized commodity exchanges often set limits on price fluctuations during any single day when prices at any point during a day rise above qr fall below the closing prices of the preceding day by more than the amount of the limit no further trading for that day is permitted walter labys p 162 consequently commodity trading frequently occurs at prices near the level of nonbinding price floors or ceilings mark issac and charles plott report the results of twelve exploratory experiments in which various price control constraints are imposed on double auction markets their two principal conclusions can be summarized as follows 1 the hypothesis is rejected that nonbinding price controls that is price ceilings above or price floors below the competitive equilibrium ce will serve as a focal point or signalling price on which sellers and buyers will key their contracts 2 inconclusive evidence is presented in support of the hypothesis that nonbinding controls near the ce will bias prices below ce when there is a price ceiling and above ce when there is a price floor support for this second hypothesis is not conclusive because some experimental markets show a tendency to converge from below and others from above depending upon the relative bargaining strength of buyers as against sellers thus sampling variation among subjects can yield a group in which buyers sellers are able to make contracts at an average price below above ce for several periods of trading consequently in an experiment in which there is a price ceiling floor five cents above below ce and in which contract prices are observed to occur below above ce one cannot determine conclusively whether the observed effect was due to the nonbinding price control or to the bargaining characteristics of the market participants we report below an experimental design developed for the purpose of separating these confounding factors and allowing the effect of nonbinding controls to be isolated the results of sixteen experiments strongly support the hypothesis that markets with a nonbinding price ceiling floor near ce will converge from below above relative to any otherwise identifiable tendency to converge from below above an analysis of the effect of a nonbinding price ceiling floor on the distributions of bids and offers reveals the cause of this bias ceilings limit the bargaining strategies of sellers especially but also that of buyers while floors have the opposite effect thus in the absence of price controls double auction trading is characterized by a process in which sellers typically make concessions from offer prices well above ce while buyers most often concede from bid prices well below ce a price ceiling truncates seller offer prices at the ceiling requir university of arizona and indiana university respectively research support by the national science foundation is gratefully acknowledged

sugar co operatives in maharashtra a political economy perspective abstract the origins of the powerful sugar lobby in maharashtra date back to the 1950s post independence cooperatives formed an integral part of the congress vision of rural development with local initiative a special status was accorded to the sugar cooperatives and the government assumed the role of a mentor by acting as a stakeholder guarantor and regulator persistence of the maze of regulations instituted five decades ago despite its stated rationale being thwarted suggests that it is maintained by entrenched vested interests this paper calls for a fresh start with minimal regulations the teething problems and initial market failures that may occur cannot be worse than the continuing saga of government failure

the impact of government structure on local public expenditures though the relationship between local government structure and expenditure has received considerable attention there is little consensus as to how the features of representative government affect local expenditure an exception is city council size which has consistently been found to be positively related to spending previous results rely on cross sectional estimation which may be subject to omitted variable bias this paper analyzes three components of municipal governments the form of government the size of the city council and the election method of city councilors once fixed effects estimation is employed the positive relationship between city council size and expenditure disappears

do supermajority rules limit or enhance majority tyranny evidence from the us states 1960 1997 buchanan and tullock 1962 demonstrates that supermajority rules can reduce tyranny of majority problems in a democracy however recent theoretical work by dixit grossman and gul 2000 postulates that this static analysis of supermajority rules may be inadequate to explain political decisions in a dynamic setting in fact supermajority rules may increase the incidence of majority tyranny because of rotating political representation using data from us state legislatures we examine the effect of supermajority rules on different categories of government expenditures and tax revenues during the latter half of the 20th century we find supermajority rules have little effect on general government expenditures and tax revenues however supermajority rules are associated with lower public welfare transfers which supports the traditional analysis of the fiscal effects of supermajority rules

firm specific output limits in a posted offer market distributive and efficiency effects abstract in this paper we look at the effect of the removal of firm specific binding and non binding quotas in experimental posted offer markets in the experiments we see that the effect of both binding and non binding quotas is carried over to the deregulated regime the effect of non binding quotas while being in effect on the number of contracts is statistically significant we also see that distribution of surplus may actually affect the convergence path of prices that is with binding quotas price convergence is observed from below the competitive equilibrium

growth enhancing bubbles this article challenges the conventional wisdom that speculation in financial markets reduces long run growth it shows that the real impact of a rational deterministic speculative bubble depends on the type of asset that is being speculated on speculative bubbles on equity raise the market value of firms thus encouraging entrepreneurship firm creation investment and growth on the other hand speculation on other types of assets is shown to be unambiguously growth impairing the model can explain some stylized facts about financial development and growth finally regulatory implications are discussed briefly