understanding bank runs the importance of depositor bank relationships and networks we use a unique new database to examine micro depositor level data for a bank that faced a run we use minute by minute depositor withdrawal data to understand the effectiveness of deposit insurance the role of social networks and the importance of bank depositor relationships in influencing depositor propensity to run we employ methods from the epidemiology literature which examine how diseases spread to estimate transmission probabilities of depositors running and the significant underlying factors we find that deposit insurance is only partially effective in preventing bank runs further our results suggest that social network effects are important but are mitigated by other factors in particular the length and depth of the bank depositor relationship depositors with longer relationships and those who have availed of loans from a bank are less likely to run during a crisis suggesting that cross selling acts not just as a revenue generator but also as a complementary insurance mechanism for the bank finally we find there are long term effects of a solvent bank run in that depositors who run do not return back to the bank our results help understand the underlying dynamics of bank runs and hold important policy implications

conflict cooperation and commerce the effect of international political interactions on bilateral trade flows the public choice approach to political economy is employed to gain insight into the connection between international politics and trade flows a model is constructed in which importers are assumed to be rational utility maximizers who seek to satisfy international security as well as economic welfare objectives this model of bilateral trade flows reflects contemporary theory in the field of international economics and it explicitly incorporates the general foreign policy orientation of importers among its determinants the model is tested in 16 annual crosssectional estimations 1960 75 for a complete network of 25 countries the findings show considerable support for the hypothesis that trade flows are significantly influenced by broad political relations of amity and enmity between nations the author concludes that nations adjust trade ties to satisfy security as well as economic welfare goals and that a formal political economy of trade should reflect this fact

when is foreign aid policy credible aid dependence and conditionality the author studies foreign aid policy within a principal agent framework he shows that one reason for foreign aid s poor overall record may be a moral hazard problem that shapes the aid recipient s incentive to undertake structural reform the model s basic prediction is a two way relationship disbursements of foreign aid are guided in part by the needs of the poor anticipating this recipients have little incentive to improve the welfare of the poor preliminary econometric work shows that the data support this hypothesis in principle conditionality could partly solve this problem but only if the donor can make a binding commitment to increase disbursements in good relative to bad states without such a commitment technology aid disbursements remain guided by the needs of the poor and recipient countries maintain a low effort to reduce poverty contrary to the conventional wisdom found in the aid literature the author shows that the welfare of all parties might be improved by using tied project aid or by delegating part of the aid budget to an international agency with less aversion to poverty

incentives and the efficiency of public sector outsourcing contracts abstract outsourcing the provision of traditionally publicly provided services has become commonplace in most industrialized nations despite its prevalence there still is no consensus in the academic literature on the magnitude and determinants of expected cost savings to the government nor the sources of those savings this article considers the arguments for and against outsourcing and then examines the empirical evidence pertaining to whether any observed savings occur and whether they persist over time in addition we examine the existing evidence for the redistribution hypothesis and the quality shading hypothesis which critics have used to argue that outsourcing lowers government expenditure by lowering wages and conditions and or lower quality services finally we consider the impact of contract design on outsourcing outcomes while the power of incentives is a strong theme in economics recent work has suggested that high powered incentives may be suboptimal for many public sector services because they may crowd out intrinsic motivation particularly in instances where agents are highly motivated we discuss the implications of this insight for the efficiency of public sector outsourcing

political economy of u s sugar policies this article examines political economic decision making with respect to u s sugar policies it evaluates the responsiveness of target prices and import quotas levels to changes in a the economic surpluses of market participants and b the federal budget deficit results indicate a weak linkage between sugar producer surplus and subsequent target prices levels but a strong linkage between the federal budget deficit and subsequent import quota levels the influences of sugar users corn sweetener producers and foreign countries are also examined

higher education funding the expansion of higher education throughout the oecd and beyond is both necessary and desirable but it is costly and faces competing imperatives for public spending higher education finance is therefore salient to an extent that is not yet fully appreciated in all countries and is also immensely sensitive politically this paper sets out the core lessons for financing higher education deriving from economic theory and puts them alongside lessons from country experience the uk reforms announced in 2004 are assessed against the backdrop of those two elements a concluding section briefly maps out unfinished business

a new method of estimating risk aversion i show existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model i derive a formula for the coefficient of relative risk aversion in terms of the ratio of the income elasticity of labor supply to wage elasticity and degree of complementarity between consumption and labor i bound the degree of complementarity using data on consumption choices when labor supply varies across states using labor supply elasticity estimates i find a mean estimate of 1 then show generating 2 requires that wage increases cause sharper labor supply reductions jel d81 j22

insuring banks against liquidity shocks the role of deposit insurance and lending of last resort it has long been recognized that banks simultaneous provision of monitoring and liquidity services is advantageous but leaves them susceptible to liquidity shocks that may culminate in a system failure because a system failure is costly this provides a rationale for adopting arrangements including a lender of last resort and deposit insurance di to insure banks against liquidity shocks these arrangements have proven themselves very successful but they have also been the source of problems researchers have identified some of the main sources of these problems and have suggested ways to improve the design of these arrangements but there are still many issues that remain unaddressed this paper reviews the literature on the two arrangements that most countries have adopted to insure banks against liquidity shocks a lender of last resort and di and compares the design of these arrangements across countries the paper ends with a brief summary of the key lessons learned about the design of these arrangements and the issues related to them that remain unaddressed copyright blackwell publishers ltd 2006

a critical review of contagion risk in banking the recent financial crisis has focused the attention of scholars and policymakers on how to improve financial stability through better macro prudential regulation and supervision in this paper we compare the existing theoretical and empirical literature on contagion through the banking system it is argued that the structure of the interbank market the size of banks the linkages among them the level of correlation of their investments and the transparency of the regulator are key factors in determining the possibility of contagion we discuss the different findings and present avenues for future research

collective moral hazard maturity mismatch and systemic bailouts the paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy when everyone engages in maturity transformation authorities haver little choice but facilitating refinancing in turn refusing to adopt a risky balance sheet lowers the return on equity the key ingredient is that monetary policy is non targeted the ex post benefits from a monetary bailout accrue in proportion to the number amount of leverage while the distortion costs are to a large extent fixed this insight has important consequences first banks choose to correlate their risk exposures second private borrowers may deliberately choose to increase their interest rate sensitivity following bad news about future needs for liquidity third optimal monetary policy is time inconsistent fourth macro prudential supervision is called for we characterize the optimal regulation which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets we establish the robustness of our insights when the set of

catastrophic natural disasters and economic growth this paper examines the short and long run average causal impact of catastrophic natural disasters on economic growth by combining information from comparative case studies the counterfactual of the cases studied is assessed by constructing synthetic control groups taking advantage of the fact that the timing of large sudden natural disasters is an exogenous event it is found that only extremely large disasters have a negative effect on output both in the short and long run however this result appears in two events where radical political revolutions followed the natural disasters once these political changes are controlled for even extremely large disasters do not display any significant effect on economic growth it is also found that smaller but still very large natural disasters have no discernible effect on output

the effects of eu corn cotton and sugar beet policies on greek producers a multimarket analysis this article examines the welfare effects of the european union s common agricultural policy cap corn cotton and sugar beet regimes practiced in greece after its 1981 entry into the european union since greek farmers produce corn cotton and sugar beets on the same land in different years we model these markets as horizontally linked by incorporating the demand for corn in our model we take into account that corn is used as feed in livestock production we use line integral theory to properly deal with the complications of welfare measurement in a multimarket setting we estimate producer welfare effects of greek corn cotton and sugar beet policy and use bootstrapping techniques to obtain confidence intervals for the welfare measurements our analysis indicates that the income transfers to greek farmers corn cotton and sugar beet growers as well as livestock producers considered as a total rose between 1981 and 1992 the 1992 cap reform led to a stabilization of income transfers to crop farmers and lessened the negative impact on livestock producers

normal inputs and joint production with allocatable fixed factors when jointness is caused by allocatable fixed factors in the normal case the marginal cost of any output increases as any other output increases the supply of any output decreases as any other output price increases and an input price increase may cause the supply of some outputs to increase

a model of production with supply management for the canadian agricultural sector the production structure of the canadian agricultural sector is modeled by an output constrained multiproduct profit function to account for the existence of supply management policies the le chatelier effects of supply constraints are illustrated and the comparative statics of supply management is shown to depend under input normality on the type of jointness convexity is tested and accepted and nonjointness is rejected by the estimated normalized quadratic profit function the results support the hypothesis of nonjointness due to allocatable fixed factors decreasing the supply of managed commodities will increase the supply of unrestricted commodities while total input use is reduced

the theory and measurement of producer response under quotas tobin and houthakker s work on consumer behavior under quantity rationing has been extended by many authors especial ly through the use of duality theory this paper uses duality theory to extend the work on demand theory under rationing to the case of producer behavior under quotas these results permit estimation of otherwise unobservable market supply and demand structures the structure of the farm economy operating under a tobacco quota system is estimated and the theory is utilized to infer that the supply elasticity of tobacco would be about 7 0 if the quotas were removed estimates such as this are not normally attainable without the theor y outlined here even though they are essential for the evaluation of policy changes copyright 1993 by mit press

retail price controls in the dairy industry a political coalition argument the purpose of this paper is to offer a rationale for dairy farmers support of retail price controls on bottled milk because of essentially fixed proportions in production it can be anticipated that the imposition of a binding minimum retail price constraint on bottled milk will have a negative impact on the derived demand for raw milk at the farm level yet dairy farmers in several states have sought to establish retail price controls on milk and have often resisted attempts to repeal controls in the states where they exist 1 the point that producers or manufacturers will support retail price controls is not new telser for example has offered a general explanation for support of fair trade laws 2 the analysis offered here however does not depend on his service enhancement argument rather my arguments are more in line with peltzman s view of vote maximizing regulators 3 peltzman has argued that vote maximizing legislators will not act as perfect brokers for a single interest group in his model however if opposition to a regulatory program can be reduced legislators will be more

allocable fixed inputs as a cause of joint production an empirical investigation leathers 1991 shows that while the existence of allocable fixed inputs can cause joint production as in shumway pope and nash 1984 it will not necessarily lead to joint production the extent to which allocable fixed inputs cause joint production in agriculture is an empirical question this paper offers an empirical answer by estimating a short run joint cost function it is possible to identify levels of outputs for which joint production may be optimal in the short run but not in the long run only in these output regions will there be jointness caused by allocable fixed inputs for the data in this paper 160 wisconsin farms these output regions are very small thus allocable fixed inputs do not appear to be an important cause of jointness for these farms technical causes of jointness appear to be a significant cause of joint production

a dynamic analysis of marketing orders voting and welfare this paper presents a dynamic model of how profit maximizing farmers would vote on marketing order rules given that new firms will enter based on rational expectations perfect foresight about the path profits follow early entrants make large short run gains while in the long run marginal firms break even welfare analyses under a dynamic model differ substantially from the static analyses normally reported an evaluation of the profit and welfate effects of marketing orders requires explicit recognition of the gains to be made during the transition from a competitive equilibrium to a regulated equilibrium this paper presents a dynamic model of how profit maximizing farmers would vote on marketing order rules given that new firms will enter based on rational expectations perfect foresight about the path profits follow most previous studies are static and have contrasted the competitive long run equilibrium with the regulated long run equilibrium virtually all of the studies on fruit and vegeta

estimating ex ante cost functions for stochastic technologies this paper revisits the problem of estimating ex ante cost functions previously studied by pope and just in 1996 as well as moschini in 2001 an ex ante cost function that generalizes their ex ante cost functions is introduced and an econometric procedure for estimating a flexible approximation to it is developed that generalized cost function is economically relevant not only for the pope and just 1996 choice setting but for general producer risk preferences general stochastic technologies and general forms of price uncertainty an econometric strategy for estimating the resulting cost structure that adapts moschini s 2001 full information approach is developed followed by an econometric application to u s agriculture

correction to the political determinants of international trade efforts to replicate our study of the effects of politics on trade flows between the major powers have revealed that the computer program written to calculate the estimates produced errors in both the coefficients and the standard errors furthermore these errors have some consequences for the results in this brief corrigendum we present corrected tables for our research note and a slightly modified interpretation of the results our study examined evidence to assess three arguments about how politics may affect trade the first contends that positive political relations in a dyad result in higher levels of trade this argument leads to two hypotheses states in conflict will have a lower level of trade than those not in conflict and trade will increase with the degree of common interests between a pair of states the second argument concludes that democratic dyads will have a higher level of trade than other dyads the third argument focuses on the security concerns of states and leads to the hypotheses that alliances will increase trade in a bipolar system but will have no effect in a multipolar system we refer readers to the original article for a fuller statement of the logic of these arguments their respective hypotheses and a complete statement of our research design and operationalization of the variables morrow siverson and tabares 1998

voting on pensions a survey abstract the paper presents a nonexhaustive survey of the literature designed to explain emergence size and political sustainability of pay as you go pension systems it proposes a simple framework of analysis a small open two overlapping generation economy model around which some variants are displayed dictatorship of the median voter is assumed the text is organized to answer the following questions i do political equilibria with payg pension schemes exist ii why do they emerge iii what are the conditions for the participation constraint of the pension game to be verified and finally iv what is the size of the pension system chosen by the median voter and how is this size influenced by an exogenous e g demographic shock

consistent estimation of general equilibrium welfare effects a general equilibrium demand curve is appropriate for measuring the surplus changes in several markets induced by a policy intervention in one market guidelines for the identification and consistent estimation of such a demand curve are discussed specifically conditions are stated under which the dropping of prices of related goods yields a consistent estimate of the slope of the general equilibrium demand curve also a method similar to leamer s is proposed to provide consistent bounds for the general equilibrium demand slope when the slope is underidentified

modeling supply response in a multiproduct framework the paper models multiproduct supply response in agriculture and tests key assumptions traditionally maintained in supply response studies the technology is approximated by a restricted profit function the properties of the restricted profit function are imposed during estimation the hypothesis that maintains the existence of output price and quantity indexes that satisfy the adding up property is rejected the existence of individual production functions for each output is also rejected unless joint production is permitted the estimates of responsiveness of a particular commodity to changes in own price or prices of competing outputs are likely to be considerably understated

dynamic factor demand equations in u s and canadian agriculture abstract this research provides one of the first empirical estimates of a data based dynamic factor demand model for american and canadian agriculture models such as these deserve more widespread use in the empirical analysis of agriculture these models have the advantage that they do not impose inappropriate dynamics on the data rather they permit the data to select the appropriate dynamics we use a model originally developed by anderson and blundell this model is a general first order dynamic model which contains as testable hypothesis several simpler models this model permits us to estimate the long run agricultural production structure as a subset of the dynamic parameter estimates we will test this long run structure for symmetry homotheticity and neutral technical change the estimated models may be used to test for three alternative dynamic structures in the limit dynamics may not be needed and we can test for the static long run equilibrium model two intermediate cases are the autoregressive and the partial adjustment models which are simpler than the general model but still include dynamics our results suggest that the long run equilibrium model is unsatisfactory in both countries a dynamic model is needed in both countries the two more restricted dynamic models are rejected the general dynamic model is required in canada the long run equilibrium structure is homothetic with neutral technical change in the united states homotheticity is also accepted but neutral technical change is rejected

education and optimal dynamic taxation the role of income contingent student loans we study the optimal design of integrated education finance and tax systems the distribution of wages is endogenously determined by the costly education decisions of heterogeneous individuals before labor market entry consistent with empirical evidence this human capital investment decision is risky we find that an integrated education and tax system in which the government provides education loans to young individuals coupled with income contingent repayment can always be designed in a pareto optimal way we present a simple empirically driven application of the framework to us data in which individuals make a college entry decision we find the optimal repayment schemes for college loans can be well approximated by a schedule that is linearly increasing in income up to a threshold and constant afterwards so although the full optimum could lead to complicated non linear schedules in theory very simple instruments can replicate it fairly well the welfare gains from income contingent repayment are significant

deposit insurance regulation and moral hazard in the thrift industry evidence from the 1930 s this paper compares risk taking of insured and uninsured thrifts operating under strict and less strict regulatory regimes during the 1930 s analysis of balance sheet data indicates that while newly insured thrifts undertook less risk than their uninsured counterparts possibly because of screening by deposit insurance authorities moral hazard emerged gradually insured institutions operating under relatively permissive regulatory regimes were more prone to undertake risky lending activities than their more tightly regulated counterparts possibly because of screening by deposit insurance authorities moral hazard emerged gradually insured institutions operating under relatively premissive regulatory regimes were more prone to undertake risky lending activities than their more tightly regulated counterparts given the current system of deposit insurance the results suggest that effective regulation and supervision will play a key role in maintaining thrift stability in the 1990s copyright 1992 by american economic association

does deposit insurance increase banking system stability an empirical investigation based on evidence of 61 countries in 1980 97 the authors find that explicit deposit insurance tends to be detrimental to bank stability the more so where bank interest rates are deregulated and the institutional environment is weak the adverse impact of deposit insurance on bank stability tends to be stronger the more extensive is the coverage offered to depositors and where the scheme is funded and run by the government rather than the private sector

the political determinants of international trade the major powers 1907 1990 we test three arguments about the effect of international politics on trade flows the first argument states that trade flows are greater between states with similar interests than those with dissimilar interests the second that trade flows are greater in democratic dyads than nondemocratic dyads and the third that trade flows are greater between allies we examine trade flows between the major powers from 1907 to 1990 this period provides variation on all three independent variables of interest and allows us to separate the three arguments empirically we estimate a gravity model of trade with the above political variables added our results demonstrate that joint democracy and common interests increase trade in a dyad but alliances generally do not even when controlling for polarity of the system

causes of u s farm commodity programs this paper i s an attempt to explain variations by commodity in producer protection afforded by farm price support programs since the1930s particularly emphasized are theideas that these programs are essentially income redistributional measures and that given political forces the programs are attempts to redistribute efficiently variables associated with the cost to producers of generating political pressure and the social cost deadweight losses of redistribution are both found to be empirically important copyright 1987 by university of chicago press

insurance by government or against government overview of public risk management policies in what contexts is it desirable that the government rather than the private sector takes on the role of an insurer and helps people reduce risks our discussion implies that while in a number of areas individuals benefit from well designed insurance provided by their government ill designed public policies for example existing pay as you go pension systems force individuals to insure against their government it is further discussed how governments could improve their risk managing role in many areas by using income contingent loans provided the country has high quality institutions and governance such loans to artists sportspeople flood victims or collapsing financial institutions would replace the existing nonrepayable transfers grants subsidies and bailouts using a simple efficiency equity sustainability framework for comparing income contingent schemes with conventional public and private insurance policies we document that this would enable governments to extend their insurance assistance to a greater number of people and institutions in a way that is not only equitable but also efficient and fiscally sustainable

production quota in multiproduct pacific fisheries abstract assessing the individual firm s technology and costs in a multispecies fishery allows design of a more effective output quota prior to regulation by anticipating and controlling for the firm s regulation induced responses an empirical study of a pacific coast trawl fishery indicates that the firm s flexibility of product decision is tightly constrained by its technology and cost structure hence as the resource stock for the regulated species sablefish deteriorates and the trip quota progressively tightens the firm cannot sufficiently reorganize its product bundle to preclude increasingly large sablefish disposal this defeats the purpose of the production quota

contracting problems and the adoption of regulatory cartels since 1966 a usd a marketing order has governed the sales volume of domestic hop growers despite offering cartel like advantages a hop marketing order proposal was defeated in a 1965 referendum of growers using individual grower votes from this referendum this paper identifies the sources of opposition to the 1965 marketing order the analysis proceeds to examine the types of recontracting that transpired enabling the adoption of a revised proposal in 1966

flexible specification of mixed demand systems common flexible functional forms are not very useful for modeling mixed demand systems because derivation of mixed demands requires closed forms for both direct and indirect utility functions in this paper we study the alternative of using a direct approximation to mixed demands we develop a new approach to slutsky relations for mixed demand functions allowing formulation of a rotterdam mixed demand model the resulting mixed demand system is illustrated with an application to meat demand in canada

how did wars dampen trade in the mena region abstractthe article investigates the impact of wars on trade in the middle east and north african region using an augmented gravity model that controls for the endogeneity problem in our estimation we introduce a war variable and distinguish between different types of conflicts the results show that wars have a significantly negative impact on exports imports and trade civil conflicts hinder exports imports and trade significantly the disaggregated version of the gravity model shows that non state conflicts have a detrimental effect on bilateral trade flows in manufacturing and that none of the conflicts do affect trade in services we also find that on average a conflict is equivalent to a tariff of 5 of the value of trade

how much does violence tax trade abstract we investigate the empirical effect of violence as compared to other trade impediments on trade flows our analysis is based on a panel data set with annual observations on 177 countries from 1968 to 1999 which brings together information from the rose data set the iterate data set for terrorist events and data sets of external and internal conflict we explore these data with traditional and theoretical gravity models we calculate that for a given country year the presence of terrorism together with internal and external conflict is equivalent to as much as a 30 tariff on trade this is larger than estimated tariff equivalent costs of border and language barriers and tariff equivalent reduction through generalized systems of preference and wto participation

analysis of hospital production an output index approach in this study a new model of hospital costs is developed and estimated utilizing an output index this theoretically appropriate output index is constructed to accurately reflect the differentiated nature of hospital care by employing both patient and diagnosis characteristics in its construction using this output index we estimate a long run translog cost function with a dataset of 321 california hospitals for the year 2003 we find evidence of economies of scope across specialties within primary care and evidence of scope diseconomies within secondary and tertiary care point estimates of scale economies using the output index indicate that minimum efficient scale is reached at a larger level than when using less refined output measurement techniques that have often been used in similar studies our estimates indicate the importance of accounting for specialty specific scope economies when analyzing the production properties of firms producing differentiated products

restricting the market for quota an analysis of tobacco production rights with corroboration from congressional testimony regulatory programs that restrict output levels often impose restrictions on the transfer of rights to produce or to use particular inputs in this paper we use a unique cross section time series data set from north carolina to quantify the welfare effects of transfer restrictions for poundage quota under the u s flue cured tobacco program we find that the deadweight costs of such restrictions are small but that the distributional effects are substantial we analyze congressional testimony on quota transfer legislation and conclude that our estimates of the distributional effects are consistent with expressed views of market participants

alliances preferential trading arrangements and international trade c oncerns about the stability of the international trading system have become widespread in recent years many observers feel that the relatively liberal system forged after world war ii is being undermined by the proliferation of preferential trading arrangements these concerns have spawned a great deal of empirical research much of which has found that such arrangements exert a substantial effect on trade flows yet these studies have neglected the role political military alliances play in shaping patterns of commerce this omission is important because there is ample reason to expect that alliances guide trade flows and preferential trading arrangements often are comprised of allies as a result extant analyses risk confusing the effects of alliances and preferential trading arrangements on commerce and systematically overstating the effects of the latter in this study we analyze the effects of alliances and preferential trading arrangements on bilateral trade flows both factors are likely to promote trade among members but we argue that the interaction between them is central to explaining patterns of commerce the combination of an alliance which creates political incentives for participants to engage in trade and a commercial institution which liberalizes trade among members is expected to provide a considerable impetus to commerce among parties to both 1

the economic effects of supply controls the simple analytics of the u s peanut program a gricultural commodity programs employ a wide variety of policy tools to regulate u s agriculture price supports are the most common form of intervention but rights to sell at the supported price are allocated very differently under different commodity programs under recent feed grain programs for example the right to sell at the supported price is linked to acreage set asides agreements not to produce on certain acres in other programs sales by individual farmers are controlled under marketing orders sponsored by the u s department of agriculture usda 2 a third method is through permanent maketing quotas that directly limit output only two major commodity programs those for tobacco and peanuts currently allocate the right to sell in this way the peanut program is the subject of this article 3

investing in the peace economic interdependence and international conflict research appears to substantiate the liberal conviction that trade fosters global peace still existing understanding of linkages between cone ict and international economics is limited in at least two ways first cross border economic relationships are far broader than just trade global capital markets dwarf the exchange of goods and services and states engage in varying degrees of monetary policy coordination second the manner in which economics is said to inhibit cone ict behavior is implausible in light of new analytical insights about the causes of war we discuss and then demonstrate formally how interdependence can ine uence states recourse to military violence the risk of disrupting economic linkages particularly access to capital may occasionally deter minor contests between interdependent states but such opportunity costs will typically fail to preclude militarized disputes instead interdependence offers nonmilitarized avenues for communicating resolve through costly signaling our quantitative results show that capital interdependence contributes to peace independent of the effects of trade democracy interest and other variables students of world politics have long argued that peace is a positive externality of global commerce theorists like montesquieu and kant and practitioners like woodrow wilson asserted that economic relations between states pacify political interaction mounting evidence in recent years appears to substantiate these claims multiple studies many identie ed with the democratic peace link interstate trade with reductions in militarized disputes or wars 1 while we concur with the evolving

determining market power exertion between buyers and sellers empirical techniques commonly used in industrial organization to measure market power exertion typically assume imperfectly competitive behaviour by firms on only one side of the market firms on the other side are assumed to be perfectly competitive in this paper we extend traditional neio methods by developing a method to estimate market power exertion when firms on both sides have potential market power using monte carlo simulations we find that the model correctly estimates market power exercised by firms on either or both sides of a market and also correctly estimates firms technology parameters when applied to the us leaf tobacco market findings indicate that cigarette manufacturers exert some monopsony power in purchasing leaf tobacco while producers organized as a cartel exhibit no countervailing monopoly market power copyright 2000 john wiley sons ltd

does trade still follow the flag t he economic ties between any two nations are frequently affected by a warming or cooling of bilateral diplomatic relations but there is little to be found in modern economics or political science that helps us understand the connections between international politics and commerce the notion that international economics could be studied in isolation from its political underpinnings or consequences would have been quite alien to mercantilist thinkers in the eighteenth century or to the critics or advocates of imperialism in the nineteenth that economics and politics were inextricably intertwined was taken as a matter of course indeed trade follows the flag was central to these people s understanding of world politics and international economics intellectual trends over the past century radically changed this worldview the ascendancy of liberalism in economic thought brought with it a compartmentalization of disciplines that may now be eroding but we are left with theories of international politics and economics that are very weakly bridged the objective of this study is to map one of the many connections between international politics and commercial ties specifically i seek to identify and measure the effect of changes in state to state diplomatic relations on trade flows between those nations theoretical underpinnings of my effort are in the tradition of public choice political economy frey 1984 because i treat importers as rational utility maximizers and their behavior as determined by preferences pursued within a context of specified constraints the model i put forward is wholly consistent with contemporary neoclassical trade theory but i extend the economists notion of welfare and contend that importers take account not only of the price and quantity of goods and services but of the place of origin of these products and the political relationship between the importing and the exporting nation they do so essentially for traditional security reasons that is importers are motivated to manage their trade relations in ways that minimize risks of disruption in supply or the possibility of hurting friends or

efficient redistribution through commodity markets efficiency in redistribution is measured in terms of deadweight loss generated per dollar of economic surplus transferred between consumers and producers of a commodity by means of market intervention the implications of supply and demand elasticities for efficiency in redistribution are examined with special attention to the comparison of production control and deficiency payment programs the results may be used to aid in the evaluation of commodity programs and as a basis for consideration of the hypothesis that observed policies are efficient given the political power of interest groups

private investment in higher education comparing alternative funding schemes this paper uses an overlapping generations framework to analyse the implications of different financing regimes in the education sector for human capital formation and economic welfare agents privately invest in education after they have received a noisy information signal about their abilities the incentives of individuals to invest in education are determined by the financing regime under which the economy operates we analyse and compare three financing regimes under each regime the payback obligation of an educational loan is contingent to some extent on an individual s future income

a model of production with supply management for the canadian agricultural sector comment in a recent paper moschini 1988 claims to prove that cost complementarities between outputs do not exist when outputs are joint because of fixed allocatable factors which are normal inputs this comment demonstrates that moschini s proposition is incorrect shows where the proof of the proposition is faulty and identifies the additional condition that must hold in order for moschini s proposition to be true correct derivation of this proposition is important because technology with fixed allocatable factors and multiple outputs is common in agriculture and standard analyses of multiple output cost functions such as sakai s or lau s do not apply directly to this technology consider the multiple output cost function used in moschini 1988 to characterize production which is joint in outputs because of constraints on allocatable fixed factors jointness is not present in the primal representation of this technology the production possibility set can be represented with individual production functions for each output but outputs are joint in the dual cost and profit functions because they must compete for a constrained quantity of some allocatable input the joint cost function is defined by moschini s equation 15 which is reproduced here as equation 1

production economics worthwhile investment abstract agricultural production economics research is examined within a broad framework of scientific development and utilization recent findings in selected areas of the subdiscipline are examined and opportunities for further fruitful inquiry are identified a few stylized facts emerge from recent work and suggest the need for much careful hypothesis testing model exploration and empirical sensitivity analysis in the future

numeraire choice in agricultural supply analysis should the choice of numeraire price for modelling profit functions be arbitrary or is more careful study needed here the choice of numeraire is examined using tests for models specification and out of sample predictive accuracy based on the crop and livestock data obtained from iowa the results of this study indicate that for this data set and functional form it does indeed make a difference which numeraire you choose this is in contrast to previous studies which in general indicated that the choice of numeraire equation is arbitrary or more commonly offered no justification for the netput chosen

the effect of supply management on herd size in alberta dairy a supply management program limits the aggregate supply of a commodity often through the use of marketable quota licenses the static aggregate welfare effects of supply controls are well known but the farm level dynamic effects on dairy investment are not a theoretical cost of adjustment model is used to show that supply management reduces the rate of quasi fixed input adjustment at the farm level in fact when a quasi fixed input is complementary to quota licenses investment or disinvestment can be impaired to such an extent that the input moves away from the long run equilibrium as a result overinvestment in this input can significantly reduce productivity growth

explaining differences in milk quota values the role of economic efficiency this paper explores the relationship between milk quota values and economic efficiency in order to analyze current government interventions in quota allocations among producers for this purpose we estimate a short run variable cost function using a panel of spanish dairy farms quota values are then decomposed into economic efficiency price and scale effects in order to assess the relative influence of these factors on quota values we find that efficiency is important in explaining quota values but is uncorrelated with observable farm characteristics this casts doubts on the government s ability to allocate quotas to efficient farms in the way a well functioning quota market does

make trade not war this paper analyses theoretically and empirically the relationship between military conflicts and trade we show that the conventional wisdom that trade promotes peace is only partially true even in a model where trade is economically beneficial military conflicts reduce trade and leaders are rational when war can occur because of the presence of asymmetric information the probability of escalation is lower for countries that trade more bilaterally because of the opportunity cost associated with the loss of trade gains however countries more open to global trade have a higher probability of war because multilateral trade openness decreases bilateral dependence to any given country and the cost of a bilateral conflict we test our predictions on a large data set of military conflicts on the 1950 2000 period using different strategies to solve the endogeneity issues including instrumental variables we find robust evidence for the contrasting effects of bilateral and multilateral trade openness for proximate countries we find that trade has had a surprisingly large effect on their probability of military conflict

effects of subsidies in russian dairy farming this study develops a microeconometric model of specialized dairy farms in the moscow region using panel data over the period 1995 2001 the model is used to analyze the role of subsidies on profit as well as input and output allocation theoretical conditions for short term profit maximization are not rejected by the data differences between farms allow for a fixed effect specification the dairy producers in the region demonstrate a low responsiveness to market signals but technology change becomes important labor land and livestock had low shadow prices although subsidies have a distorting effect on the input output mix this study shows they relieve the credit constraints on dairy farms and have an important positive influence on farm profit

supply response of u k milk producers short run own price response elasticities are estimated from two samples of panel data for specialist dairy farms in the northwest and southwest of england although these farms are subject to milk marketing quotas the free tradability of quotas enables them individually to adjust the output quite rapidly model specifications have been chosen to test the ability of panel data to directly reveal behavioral responses without the imposition of theoretical restrictions significantly the two independent samples generate quite similar results especially in terms of supply response measures stable and promising estimates are obtained with simultaneous models giving higher elasticities than single equation models

the effect of education on crime evidence from prison inmates arrests and self reports we estimate the effect of high school graduation on participation in criminal activity accounting for endogeneity of schooling we begin by analyzing the effect of high school graduation on incarceration using census data instrumental variable estimates using changes in state compulsory attendance laws as an instrument for high school graduation uncover a significant reduction in incarceration for both blacks and whites when estimating the impact of high school graduation only ols and iv estimators estimate different weighted sums of the impact of each schooling progression on the probability of incarceration we clarify the relationship between ols and iv estimates and show that the weights placed on the impact of each schooling progression can explain differences in the estimates overall the estimates suggest that completing high school reduces the probability of incarceration by about 76 percentage points for whites and 3 4 percentage points for blacks we corroborate these findings using fbi data on arrests that distinguish among different types of crimes the biggest impacts of graduation are associated with murder assault and motor vehicle theft we also examine the effect of drop out on self reported crime in the nlsy and find that our estimates for imprisonment and arrest are caused by changes in criminal behavior and not educational differences in the probability of arrest or incarceration conditional on crime we estimate that the externality of education is about 14 26 of the private return to schooling suggesting that a significant part of the social return to education comes in the form of externalities from crime reduction

the environment as a factor of production the authors develop a model of environmental resource use in production with an empirical analysis of how electric power companies consume and bank sulfur dioxide pollution permits the model considers emissions fuels and labor as variable inputs with quasi fixed inputs of permits and capital incorporating information from permit markets allows the authors to distinguish between user costs and asset shadow values their findings indicate that firms are holding stocks of pollution permits for reasons other than short term cost savings the results also reveal substantial substitution possibilities between emissions permits stocks and other factors of production the authors speculate that anticipated secondary markets for carbon offset inventories related to the flexibility mechanisms of the kyoto protocol will have similar effects for greenhouse gas emitting firms

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

the returns to education macroeconomics we offer an extensive summary and a critical discussion of the empirical literature on the impact of human capital on macro economic performance with a particular focus on uk policy we also highlight methodological issues and make recommendations for future research priorities taking the studies as a whole the evidence that human capital increases productivity is compelling though still largely divided on whether the stock of education affects the long run level or growth rate of gdp a one year increase in average education is found to raise the level of output per capita by between three and six percent according to augmented neo classical specifications while leading to an over one percentage point faster growth according to estimates from the new growth theories still over the short run planning horizon four years the empirical estimates of the change in gdp are of similar orders of magnitude in the two approaches the impact of increases at different levels of education appear to depend on the level of a country s development with tertiary education being the most important for growth in oecd countries education is found to yield additional indirect benefits to growth more preliminary evidence seems to indicate that type quality and efficiency of education matter for growth too

the interaction of public and private insurance medicaid and the long term care insurance market a long tradition in public finance examines how public programs can crowd out private activ ity in areas as diverse as education savings and insurance among others these studies typi cally focus on aggregate economic implications particularly for government expenditures and national savings in this paper we demonstrate that crowd out can also have an important effect on individual welfare specifically we show that the provision of even very incomplete public insurance can crowd out more comprehensive private policies by imposing a large implicit tax on private insurance benefits thus potentially increasing overall risk exposure for individuals we examine the interaction of public and private insurance for one of the largest uninsured financial risks facing the elderly in the united states long term care expenditures at 135 bil lion in 2004 long term care expenditures represented over 8 5 percent of total health expendi tures or all ages or roughly 1 2 percent of gdp moreover real long term care expenditures are projected to triple over the next 35 years due to rising medical costs and the aging of the baby boomers only 10 percent of the elderly however have any private long term care insurance and one third of expenditures are paid for out of pocket congressional budget office cbo 1999 cbo 2004 brown and finkelstein 2007 one potential explanation for the small size of the private market is that the public insurance provided by medicaid may crowd out demand for private insurance medicaid was designed to provide long term care insurance for the poor elderly mark v pauly 1989 1990 has established the qualitative result that as an incomplete but publicly funded source of long term care insur ance medicaid has the potential to reduce substantially demand for private long term care insur ance even among the nonpoor our work builds on this insight by quantifying the magnitude of medicaid s crowd out effect and the incomplete nature of medicaid coverage we also illustrate the mechanism behind medicaid s crowd out effect and are therefore able to assess the likely impact of alternative policies on private insurance demand we develop a utility based model of a 65 year old risk averse individual who chooses an opti mal intertemporal consumption path in the presence of uncertainty about long term care expen ditures we calibrate the model using data on the distribution of long term care expenditure risk common state medicaid rules and the prices and coverage of typical private long term care insurance policies

economic rents under supply controls with marketable quota we analyze the distribution of economic rent between owners and renters of marketable production quotas and examine how this distribution changes with increases in marginal costs while quota owners unambiguously lose because of a marginal cost increase quota renters may gain depending on whether the marginal cost shift is divergent parallel or convergent using output and input prices county production quotas and quota rental rate data we estimate a marginal cost function for north carolina flue cured tobacco to demonstrate how wage increases affect owners and renters welfare

trade blocs trade flows and international conflict the relationship between foreign trade and political conflict has been a persistent source of controversy among scholars of international relations existing empirical studies of this topic have focused on the effects of trade flows on conflict but they have largely ignored the institutional context in which trade is conducted in this article we present some initial quantitative results pertaining to the influence on military disputes of preferential trading arrangements ptas a broad class of commercial institutions that includes free trade areas common markets and customs unions we argue that parties to the same pta are less prone to disputes than other states and that hostilities between pta members are less likely to occur as trade flows rise between them moreover we maintain that heightened commerce is more likely to inhibit conflict between states that belong to the same preferential grouping than between states that do not our results accord with this argument based on an analysis of the period since world war ii we find that trade flows have relatively little effect on the likelihood of disputes between states that do not participate in the same pta within ptas however there is a strong inverse relationship between commerce and conflict parties to such an arrangement are less likely to engage in hostilities than other states and the likelihood of a military dispute dips markedly as trade increases between them

impact of domestic content requirement on the us tobacco and cigarette industries abstract using a log linear equilibrium displacement model we quantify the impact of the recent domestic tobacco content requirement on us cigarette manufacturing we investigate effects on us growers and manufacturers and competing tobacco imports the policy increased domestic use of us grown tobacco but induced a small negative output effect tobacco imports decreased substantially the paper also discusses the political economic incentives for us manufacturers to comply with such policies the political cooperation between us growers and manufacturers decreases the opposition of the latter to protectionist policies championed by the former

the effects of pension funds on markets performance a review the worldwide reforming process of pension systems triggered by the demographic transition and globalization has led several countries to implement multi pillar pension systems and enhance pension funds for this reason the studies on the effects that pension funds exert on markets performance have been flourishing in the last decades in this paper we provide an updated review of the empirical advances in this field of study with particular focus on the effects that pension funds produce on labour markets financial markets and economic growth