bipolarity multipolarity and free trade recent literature typically attributes the relative scarcity of open international markets to the prisoner s dilemma structure of state preferences with respect to trade i argue that the prisoner s dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system security externalities explicit consideration of these effects suggests that a bipolar international political system has an advantage relative to its multipolar counterpart with respect to the opening of markets among states less credible exit threats and stronger incentives to engage in altruism within its alliances explain the advantage of a two power system the real income gains that motivate free trade are also the source of the security externalities that impede it their ability to internalize these effects makes military alliances the natural basis of agreements to open international markets the evolutionary prospects of alliances vary however ones that are the products of bipolar systems are more likely to evolve into free trade coalitions than are their multipolar counterparts i argue that less credible exit threats and stronger incentives to engage in alliance altruism explain the advantage of a two power system several important limits of the argument should be made clear immediately i argue at the systemic level i attempt to isolate the political and economic incentives for free trade that occur at the level of the international system i do not therefore consider the impact of unitlevel factors on the pursuit of these incentives for example neither the role of special interest groups nor the organization of domestic exchange via hierarchies instead of markets is considered doyle 1986 frieden 1988 ruggie 1982 the conditions i assume are those of standard international trade theory ethier 1983 and illustrative rather than systematic empirical referents are used these restrictions are appropriate given my purpose to demonstrate analytically the advantage of a bipolar international political system with respect to free trade

production contracts and productivity in the u s hog sector this article measures the impact of contracting on partial and total factor productivity and the production technology of u s hog operations a sample selection model accounts for the fact that unobservable variables may be correlated with both the operators decision to contract and farm productivity results indicate that the use of production contracts is associated with a substantial increase in factor productivity and represents a technological improvement over independent production results also identify determinants of farmers decisions to contract and other factors influencing farm the rapid increase in the use of production contracts is a notable feature of the structural change taking place in the us hog industry between 1992 and 1998 the portion of feeder pig to finish hog operations using production contracts increased from 11 to 34 while the share of output produced under contract increased from 22 to 63 mcbride mcbride and key production contracts offer several potential advantages over independent production that could explain their growing prevalence contracts may serve to lower transaction costs associated with search negotiation and transfer reduce asymmetric information between growers and processors about product quality improve coordination of product delivery and lower income risk for growers in addition contracting may raise farm productivity by improving the quality of managerial inputs by speeding the transfer of technical information to growers or by facilitating growers access to credit thereby permitting the adoption of newer more efficient technologies in this article we focus on identifying and measuring the farm level productivity gains if any that can be attributed to contracting the recent growth in contracting does not necessarily imply that contracts are associated with higher farm productivity the increase in the use of contracts may have been propelled

expanding the solution set organizational economics and agri environmental policy abstract the market failure paradigm dominates agri environmental research and policy organizational economics provides an alternative framework for analyzing agri environmental problems and points to alternative solutions in this paper the traditional approach of creating markets for environmental goods and services is critiqued and set aside to provide space for an organizational analysis from an organizational perspective the relationship between the state and agricultural agents is viewed as grounded in an over arching exchange relationship including elements of cooperation and trust such a collaborative exchange relationship may prove useful in supporting exchange between agricultural agents and the state leading to the provision of ecological goods and services highlighting the potential of organizational economics the analysis suggests that agri environmental research and policy go further in accounting for and investigating the unique organizational modes of exchange governing the production of food fiber and ecological goods and services

credible public policy abstract credible public policy is defined in a way that incorporates competitive equilibrium behavior for households and subgame perfect nash equilibrium behavior for the government it is shown that the set of all equilibrium outcome paths for credible policies can be constructed by using arguments analogous to those of abreu 1988 for repeated games the results are then extended to systems with state variables simple models of monetary policy and capital taxation are studied by way of example

pricing in a customer market in standard pricing models movements in demand are partially offset by price responses in a customer market however price markups may decrease with high demand thus price may magnify rather than stabilize demand movements i consider a monopolist selling a good of which first time consumers are uncertain repeat customers know that the product works the monopolist trades the objectives of exploiting past customers and attracting new ones in a period with many new potential customers the monopolist gives more weight to attracting and lowers its markup last i examine some evidence on whether expansions are periods with disproportionately many new customers

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

sustainable monetary policies abstract this paper uses a model with utility maximizing households monopolistically competitive firms and sticky goods prices to derive a version of barro and gordon s time consistency problem for monetary policy where the government s objectives are consistent with a representative household s preferences the paper applies the methods of chari and kehoe to characterize the entire set of time consistent or sustainable outcomes it goes on to find conditions under which the friedman rule the optimal policy under commitment can be supported when the government lacks a commitment technology

private fiat money with many suppliers a dynamic rational expectations model of money is used to investigate whether a nash equilibrium of many firms each supplying its own brand name currency will optimally deflate their currencies in friedman s 1969 sense the optimal deflation does arise under an open loop dynamic structure but the equilibrium breaks down under a more realistic feedback control structure

democratic states and international disputes a growing literature in international relations concludes that democratic states pursue distinctive foreign policies specifically democracies do not engage each other in war and only rarely engage each other in serious disputes short of war scholars have offered three basic explanations to support these findings each of the three invokes a different explanatory variable norms checks and balances and trade none of the three however provides a convincing explanation of the peace that is said to prevail between democratic polities the distinction between norms and interests is unclear substitutes for checks and balances exists in nondemocracies and trade can deter conflict only under restrictive conditions

political bias and war we examine the incentives for countries to go to war as they depend on the comparison between how much their pivotal decision makers have at risk and how much they stand to gain from a war how this ratio compares to the country at large is what we term political bias if there is no political bias then there are always payments that one country would like to make to the other that will avoid a war in the presence of commitment or enforceability of peace treaties if there is a bias on the part of one or both countries then war can result and in some cases cannot be prevented by any transfer payments we examine how war technology and relative wealth levels interact with political bias in determining whether countries make transfers go to war and form alliances our results shed some new light on the uneven contender paradox and the interpretation of the democratic peace

on the economics of private money abstract the application of laissez faire to the monetary system is a key ingredient of important proposals for monetary reform both new and old that seek to discipline government creation of money through competition this paper provides an overview of issues to be encountered in the construction of theoretical models of private monetary economies including consideration of market imperfections that have been hypothesized to arise in these systems further some descriptive history of the less regulated monetary systems of 19th century new york is undertaken with an emphasis on discussing the nature of market generated banking and monetary institutions in light of these critiques

political regimes and international trade the democratic difference revisited how do domestic political institutions affect the outcomes of international trade negotiations specifically are the aggregate trade barriers agreed upon by a democratic pair lower than those by a pair composed of a democracy and an autocracy i revisit these important questions by highlighting some problematic aspect of the analysis by mansfield milner and rosendorff 2000 contrary to their central conclusion i find that whether the aggregate trade barriers are lower for a democratic pair than those for a mixed pair depends on the preferences of the decision makers involved thus although domestic political institutions are important they alone are insufficient to predict a higher level of cooperation among democracies

money is an experience good competition and trust in the private provision of money the interplay between competition and trust as efficiency enhancing mechanisms in the private provision of money is studied with commitment trust is automatically achieved and competition ensures efficiency without commitment competition plays no role trust does play a role but requires a bound on efficiency stationary inflation must be non negative and therefore the friedman rule cannot be achieved the quality of money can be observed only after its purchasing capacity is realized in this sense money is an experience good

power politics and international trade r recent literature attributes the relative scarcity of open international markets to the prisoner s dilemma structure of state preferences with respect to trade we argue that the prisoner s dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system namely their security externalities we consider these external effects explicitly doing so leads us to two conclusions 1 free trade is more likely within rather than across political military alliances and 2 alliances are more likely to evolve into free trade coalitions if they are embedded in bipolar systems than in multipolar systems using data drawn from an 80 year period beginning in 1905 we test these hypotheses the results of the analysis make it clear that alliances do have a direct statistically significant and large impact on bilateral trade flows and that this relationship is stronger in bipolar rather than in multipolar systems in the early 1970s students of international relations began what would become a long and heated debate about the political correlates of open international markets recently however an important element of consensus has begun to emerge most contributors to this debate now seem to agree that the prisoner s dilemma structure of state preferences with respect to trade explains the relative dearth of open international markets here we argue that what has become the standard prisoner s dilemma representation neglects the most critical aspect of free trade agreements in the anarchic international system namely their security externalities we consider these external effects explicitly in order to do so we construct and analyze a simple game theoretic model the results of this analysis demonstrate that tariff games between allies differ systematically from those played between actual or potential adversaries these differences imply that free trade is more likely within rather than across political military alliances however our analysis also suggests that the evolutionary prospects of alliances vary those that are the products of bipolar systems are more likely to evolve into free trade coalitions than are their multipolar counterparts less credible exit threats and clearer responsibilities for alliance stability explain the advantage of a bipolar system we test this argument using data drawn from an 80 year period beginning in 1905 the empirical analysis supports our argument it demonstrates that alliances have a direct statistically significant and large effect upon bilateral trade moreover it shows that on average alliances have a much stronger effect on trade in a bipolar than in a multipolar world 2

inside outside money competition we study how competition from privately supplied currency substitutes affects monetary equilibria whenever currency is inefficiently provided inside money competition plays a disciplinary role by providing an upper bound on equilibrium inflation rates furthermore if inside monies can be produced at a sufficiently low cost outside money is driven out of circulation whenever a benevolent government can commit to its fiscal policy sequential monetary policy is efficient and inside money competition plays no role r 2003 elsevier b v all rights reserved jel classification e40 e50 e58 e60

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

a theory of collective reputations with applications to the persistence of corruption and to firm quality the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by his past behaviour and because his track record is observed only with noise by the group s past behaviour as well the paper thus studies the joint dynamics of individual and collective reputations and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality 1 collective reputations collective reputations play an important role in economics and the social sciences countries ethnic racial or religious groups are known to be hard working honest corrupt hospitable or belligerent some firms enjoy substantial rents from their reputations for producing high quality products some departments are reported to treat their faculty or students fairly the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by her past behaviour and because her track record is observed only with noise by the group s past behaviour as well the paper studies the joint dynamics of individual and collective reputations in a model in which current generations are progressively replaced by new ones and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature see section 2 for a detailed comparison with the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality let us spell out the building blocks of our theory in more detail a a group s reputation is only as good as that of its members each member is characterized by individual traits such as talent diligence or honesty past individual behaviour conveys information about these traits and generates individual reputations

the evolution of a free banking system the institutional features of models of unregulated monetary systems have often been arbitrarily and implausibly assumed this paper instead provides realistic grounding for important features by constructing a logical evolutionary account of free banking sophisticated and orderly arrangements are shown to emerge from competition and the pursuit of less costly methods of payment the emergence of standardized commodity money is followed by the development in turn of basic money transfer banking easily transferable bank liubilities and clearinghouses the features of an evolved free banking system differ from those assumed in recent models of competitive payments systems

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

why democracies may actually be less reliable allies recent research builds on the observation that democracies have more durable alliances to argue that democracies make more reliable allies this need not be the case alliances serve as commitment devices adding ex ante credibility to states claims about ex post behavior variation in alliance durability must reflect differences in the desirability of formalizing alignments put simply democracies are most improved by formal commitments we offer two related explanations for why democracies might actually be less reliable alliance partners information costs for participating in policymaking and the advantages of organized interest groups combined with distributional incentives generated by the periodic turnover of governments may conspire to make informal commitments on the part of democracies problematic determining the net effect of democratic virtue and vice is best done empirically we test alliance reliability by focusing on intervention rather than on the duration or the number of commitments our results suggest that democracies make less reliable allies

credible monetary policy in an infinite horizon model recursive approaches abstract this paper develops recursive methods to study optimal and time consistent policy in dynamic models we analyze a version of calvo s 1978 monetary model and show that its time consistent outcomes can be completely characterized as the largest fixed point of either of two operators recursive application of these operators provides a computing algorithm which always converges to the set of time consistent outcomes finally we obtain valuable information about the nature of time consistent outcomes it is discovered in particular that all such outcomes are markovian the methods obtained are intuitive and should be useful for many applications journal of economic literatureclassification numbers e61 e52 c61

the democratic advantage institutional foundations of financial power in international competition despite their presumed liabilities institutions associated with democracy serve as a source of power in prolonged international competition by increasing the financial resources that states can bring to bear the theory of sovereign debt suggests that a state s ability to raise money through public borrowing is enhanced when debtholders have mechanisms for sanctioning state leaders in the event of default institutions associated with liberal government provide such mechanisms all other things being equal states that possess these institutions enjoy superior access to credit and lower interest rates than do states in which the sovereign has more discretion to default unilaterally liberal states can not only raise more money from a given economic base but can also pursue tax smoothing policies that minimize economic distortions the ability to finance competition in a manner that is consistent with long term economic growth generates a significant advantage in prolonged rivalries these claims are explored by analyzing the anglo french rivalry 1688 1815 and the cold war

the efficiency of self regulated payments systems learning from the suffolk system this paper analyzes the operation of the suffolk system an interbank note clearing network operating throughout new england from the 1820s through the 1850s banks made markets in each other s notes at par which allowed new england to avoid discounting of bank notes in trade privately enforced regu lations prevented free riding in the form of excessive risk taking observers of the suffolk system have been divided some emphasized the stability and effi these arrangements others argued that the arrangements were motivated by rent seeking on the part of boston banks and were primarily coervice and exploitative in the neighboring mid atlantic states regulations limited the potential for developing a regional clearing system centered in new york city on the model of the suffolk system this difference makes it possible to compare the performance of banks across regulatory regimes to judge the relative merits of the sanguine and jaundiced views of the suffolk system evidence supports the sanguine view new england s banks were able to issue more notes and these notes traded at uniform and low discount rates compared to those of other banks an examination of the balance sheets and stock returns of boston and new york city banks indicates that the stock market perceived that bank lending produced less risk for bank debt holders in boston than in new york the benefits of the system extended outside of boston peripheral new england banks displayed high propensities to issue notes and wer able to maintain low specie reserves boston banks did not show high profit rates or high ratios of market to book values of equity thus there is no evidence that boston banks extracted rents from their control of the payments system this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

powerful pacifists democratic states and war democracies are less likely to fight wars with each other they are also more likely to prevail in wars with autocratic states i offer an explanation of this syndrome of powerful pacifism drawn from the microeconomic theory of the state state rent seeking creates an imperialist bias in a country s foreign policy this bias is smallest in democracies where the costs to society of controlling the state are relatively low and greatest in autocracies where the costs are higher as a result of this bias autocracies will be more expansionist and in turn war prone in their relations with each other where the absence of this imperialist bias is manifest the relative pacifism of democracies appears in addition democracies constrained by their societies from earning rents will devote greater absolute resources to security enjoy greater societal support for their policies and tend to form overwhelming countercoalitions against expansionist autocracies it follows that democracies will be more likely to win wars

central banks at war war is expensive troops must be equipped and weapons must be procured when the enormous borrowing requirements of war make the sovereigns credibility problem more difficult central banks enhance a government s ability to borrow by being the sole direct purchaser of government debt the central bank increases the effective punishment that can be imposed on the government for defaulting on the marginal lender this increases lenders confidence that the government will be punished in case of default making lenders willing to purchase the debt at a lower rate of interest the sovereign dependent on the low borrowing costs offered by the central bank has an incentive to retain the bank data covering the nineteenth and early twentieth centuries reveal that possessing a central bank lowers the sovereign s borrowing costs particularly during times of war

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

trading human rights how preferential trade agreements influence government repression a growing number of preferential trade agreements ptas have come to play a significant role in governing state compliance with human rights when they supply hard standards that tie material benefits of integration to compliance with human rights principles ptas are more effective than softer human rights agreements hras in changing repressive behaviors ptas improve members human rights through coercion by supplying the instruments and resources to change actors incentives to promote reforms that would not otherwise be implemented i develop three hypotheses 1 state commitment to hras and 2 ptas supplying soft human rights standards not tied to market benefits do not systematically produce improvement in human rights behaviors while 3 state commitment to ptas supplying hard human rights standards does often produce better practices i draw on several cases to illustrate the processes of influence and test the argument on the experience of 177 states during the period 1972 to 2002 i would like to thank mike colaresi dan drezner david lake lisa martin walter mattli john meyer mark pollack erik voeten jim vreeland and two anonymous reviewers for their detailed and thoughtful comments on various drafts of this manuscript as well as the many other people who have helped me by asking hard questions along the way i would also like to thank michael barnett charles franklin and jon pevehouse for advice during the dissertation research that supports this article and alexander h montgomery for assistance in data management all faults are my own for generous assistance in the collection of data i thank the national science foundation ses 2cdz414 and ses 0135422 john meyer and francisco ramirez for support during the writing of the article i thank nuffield college at oxford university and most importantly lynn eden and stanford s center for international security and cooperation

the influence of political distortions on economic performance alberto alesina is the nathaniel ropes professor of political economy and chairman of the department of economics at harvard university in this interview he discusses with brian snowdon his views on several important contemporary issues including politics and the business cycle budget deficits currency unions the european union the size of nations economic growth inequality democracy foreign aid ethnic fractionalisation and the welfare state in the us and europe

policy cooperation among benevolent governments may be undesirable this paper presents a simple counterexample to the belief that policy cooperation among benevolent governments is desirable it also explains circumstances under which such counterexamples are possible and relates them to the literature on time inconsistency since the work of hamada 1976 investigating the effects of increasing policy cooperation among countries has been a major topic in international economics a standard conclusion of this work is that increasing policy cooperation among countries is desirable in a seminal paper rogoff 1985 has challenged this view using a simple monetary model rogoff shows that cooperation among policy makers can lead to a lower level of welfare than noncooperation does rogoff s result has caused much consternation among those who advocate policy cooperation and his work has been criticized along several dimensions for example some authors including canzoneri and henderson 1988 have noted that a key assumption in rogoff s model is that the objective function of each country s policy maker does not coincide with the objective function of its residents indeed if in his model policy makers maximize the welfare of their country s residents the counterexample is overturned and cooperation strictly dominates noncooperation this feature leads some to interpret rogoff s result as simply saying that if policy makers form a coalition against the private sector they may be worse off than if they do not others such as neck and dockner 1988 have claimed that rogoff s result depends on private agents acting strategically under this interpretation rogoff s result is relevant to say economies with a large trade union but not to economies with a large number of competitive private agents in a somewhat different vein persson 1988 and especially devereux 1986a b have questioned the significance of welfare comparisons across different institutional regimes in a model without a solid foundation for the behavioural relationships this paper presents a simple model in which governments are benevolent but cooperation is still undesirable the model is a two country version of fischer s 1980 optimal tax model in it private agents are competitive in that each agent takes both prices and government policies as uninfluenced by his actions and each government maximizes the welfare of its country s residents in the paper the two different regimes cooperative and noncooperative

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

a model of the international monetary system we propose a simple model of the international monetary system we study the world supply and demand for reserve assets denominated in different currencies under a variety of scenarios a hegemon vs a multipolar world abundant vs scarce reserve assets a gold exchange standard vs a floating rate system we rationalize the triffin dilemma which posits the fundamental instability of the system as well as the common prediction regarding the natural and beneficial emergence of a multipolar world the nurkse warning that a multipolar world is more unstable than a hegemon world and the keynesian argument that a scarcity of reserve assets under a gold standard or at the zero lower bound is recessionary our analysis is both positive and normative

bargaining and fighting the impact of regime type on war onset duration and outcomes recent research suggests that democracies have advantages and disadvantages in wars democracies are more likely to win the wars they initiate and the ones in which they are targeted wars initiated by democracies are also uniformly shorter and less costly than wars initiated by nondemocracies however democracies are also less likely to continue fighting and less likely to win as war drags on democracies are also particularly likely to be targeted we present a bargaining model that reconciles these divergent findings the model explains why democracies are more likely to win but are also more likely to settle and more likely to be targeted than other types of regimes the model s explanation of these facts differs in important ways from existing explanations the model also suggests several new hypotheses relating regime type to the terms of settlement and the onset of war

do democracies make inferior counterinsurgents reassessing democracy s impact on war outcomes and duration a core proposition from decades of research on internal wars asserts that democracies with their casualty averse publics accountable leaders and free media are uniquely prone to losing counterinsurgency coin wars yet one should question this finding for two reasons first existing studies overwhelmingly adopt no variance research designs that only examine democracies leaving them unable to assess their performance relative to autocracies second these studies do not control for confounding factors that bias causal estimates democracies for example typi cally fight wars of choice as external occupiers while most autocracies face home grown insurgencies a function in part of divergent levels of state capacity possessed by democratic and autocratic combatants this study corrects for both problems using a new dataset of insurgencies 1800 2005 and matching to test whether democra cies experience significantly higher rates of defeat and shorter wars no relationship between democracy and war outcomes or duration is found once regime type is var ied and inferential threats are addressed he who lasts the longest wins sadly with the impatience of democracies and their volatile voters committed to electoral contortions every four or five years the extremist generally triumphs over the moderate

democracy and financial crisis existing scholarship attributes various political and economic advantages to democratic governance these advantages may make more democratic countries prone to financial crises democracy is characterized by constraints on executive authority accountability through free and fair elections protections for civil liberties and large winning coalitions these characteristics bring important benefits but they can also have unintended consequences that increase the likelihood of financial instability and crises using data covering the past two centuries i demonstrate a strong relationship between democracy and financial crisis onset on average democracies are about twice as likely to experience a crisis as autocracies this is an empirical regularity that is robust across a wide range of model specifications and time periods

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

domestic opposition and signaling in international crises this article explores the effect of domestic political competition on the escalation of international crises it combines an incomplete information model of crisis bargaining with a simple model of two party electoral choice one state has two strategic actors a government and an opposition party both of which declare openly whether they support the use of force to alter the status quo the rival state updates its beliefs and selects its strategy in response to both signals the parties payoffs depend upon a retrospective evaluation by the domestic electorate the model shows that the inclusion of a strategic opposition party decreases the ex ante probability of war by helping to reveal information about the state s preferences this finding has important implications for research on democracy and international conflict since it suggests a mechanism through which democratic states can overcome informational asymmetries which have been identified as a central obstacle to negotiation

anarchy hierarchy and the variety of international relations security relations between states vary along a continuum from anarchic alliances to hierarchic empires this continuum in turn is defined by the parties rights of residual control the state s choice between alternatives is explained in a theory of relational contracting as a function of the expected costs of opportunism which decline with relational hierarchy and governance costs which rise with relational hierarchy a comparison of early postwar relations between the united states and western europe and the soviet union and eastern europe illustrates the theory

optimal monetary policy with countercyclical credit spreads we study optimal monetary policy in a new keynesian dynamic stochastic general equilibrium dsge model with a credit channel and relationship lending in banking we show that borrowers bank specific deep habits give rise to countercyclical credit spreads which in turn make optimal monetary policy depart substantially from price stability under both discretion and commitment our analysis shows that the welfare costs of setting monetary policy under discretion with respect to the optimal ramsey plan and of using simpler suboptimal policy rules are strictly increasing in the magnitude of deep habits in credit markets and market power in banking

democracy development and the international system as noted by seymour m lipset over 50 years ago development and democracy have been strongly correlated in the contemporary world today even after the prolonged democratization wave that started in the 1970s and accelerated in the 1990s the distribution of democracies remains highly skewed by level of per capita income whereas 94 of the countries with a per capita income above 10 000 in constant of 1996 held free and competitive elections in 1999 only 18 with a per capita income below 2 000 did so this empirical relationship between income and democracy was even tighter earlier in history just looking at per capita income we can successfully predict 76 of the annual observations of political regimes in sovereign countries after world war two the proportion of cases that are predicted correctly is 85 for the interwar period and 91 before world war one 1

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

democracy war initiation and victory a study was conducted to examine the effects of nation states political institutions on state relations war fighting and selection effects explanation were compared to explain why democracies were more likely to win wars an analysis of all interstate wars between 1816 and 1982 revealed that democracies that initiate wars often win them results also suggest that domestic political structure is one factor that should not be omitted from the study of international relations copyright 1998 american political science associationrecent empirical scholarship has noted that democracies are significantly more likely to win the wars they fight than are other types of regimes though this finding refutes the general realist claim that regime type is unrelated to foreign policy behavior it also begs the important theoretical question of why democracies are more likely to win wars since different theories of foreign policy behavior provide different answers to this question discerning the real reasons would advance our theoretical understanding of foreign policy behavior scholars offer two different general arguments to explain democracies winning ways first they are perceived as intrinsically more effective at waging war than are nondemocracies hereafter termed the warfighting explanation primarily because it is easier for them to rally their society behind a war effort second as derived from several theories democracies win more often because they are more careful about deciding to initiate war hereafter termed the selection effects explanation significantly the theoretical assumptions of the latter argument are consistent with the structural explanation of the tendency for democracies not to fight one another popularly known as the democratic peace this article explores in detail why democracies are more likely to win wars specifically comparing the war fighting and selection effects explanations our empirical tests discriminate between these explanations by exploring whether democracies are more likely to win all wars in which they participate predicted by the war fighting explanation or just those they initiate predicted by the selection effects explanation our examination of all interstate wars from 1816 to 1982 finds that initiating democracies are significantly more likely to win wars than any other kind of belligerent we also find limited support for the proposition that democracies which are attacked are more likely to win wars than are other kinds of targets these results are in noteworthy contrast to previous empirical studies for three reasons we use a more complete sample account for possible interactions between democracy and initiation and include a more complete set of control variables the article has four parts the first presents the theoretical arguments relating domestic regime type to conflict behavior the second discusses hypotheses operationalization and the data set the third presents empirical results the fourth offers conclusions regime type and conflict behaviorare democracies more likely to win wars mainstream thinking during the twentieth century has occasionally doubted the ability of democracies to defend themselves especially during the 1930s and the cold war recently however scholars have examined the entirety of the post napoleonic historical record with quantitative tests and have found that when democracies fight they tend to win and their wars are of shorter duration bennett and stam 1996 lake 1992 stam 1996 what we call the war fighting and selection effects arguments have been advanced to explain this phenomenon the war fighting explanation argues that democracies simply fight wars more effectively than do other kinds of states lake 1992 developed a model of the state as rent seeker and posited three reasons for democracies superior war fighting abilities democracies extract fewer rents from society hence are wealthier and devote more resources to security they form overwhelming countercoalitions against aggressors democratic governments can extract higher levels of support from society for a war effort we discuss each of these arguments in turn we believe the last is the most persuasive the rent seeking argument has logical shortcomings the model assumes that democracies are wealthier because they extract fewer rents from their society than do autocratic states leading to greater wealth which in turn means more american political science review june 1998 v92 n2 p377 13 page 1 reprinted with permission additional copying is prohibited

the origins of central banking solutions to the free rider problem certain domestic institutions are sources of international power by way of their abilities to encourage investment and to mobilize social resources in wartime for example states with democratic institutions almost always win the wars they e ght a regularity known as the democratic advantage 1 this result is intriguing since it rests on intuition about the effects of military competition on domestic institutions rivalry among states may put pressure on sovereigns to provide the political foundations for secure markets in order to enlarge future military capabilities in this article i address the role of war in inducing domestic institutions that allowed governments to credibly commit to promises to pay their debts a probable source of democracies edge in war rather than investigate the entire range of protections affected by democratic institutions a life s endeavor as the work of douglass north attests i focus on a single e nancial element of the reforms the innovation of central banking britain s superior e nancial economic and military performance after 1689 rested in large part on the establishment of the bank of england 2 the central bank provided a commitment technology that improved the government s ability to borrow a need impelled by intense military competition 3 my motivation derives from puzzles concerning the origins and the diffusion of credibility enhancing institutions like central banks institutions resolve collective action problems but institutions themselves are public goods meaning that their origins are subject to the same dilemmas they are meant to resolve 4 what then explains the incentives of self interested and free riding individuals to contribute to

introduction unipolarity state behavior and systemic consequences the united states emerged from the 1990s as an unrivaled global unipolar state this extraordinary imbalance has triggered global debate governments and peoples around the world are struggling to understand to how an american centered unipolar system operates and to respond to it what is the character of domination in a unipolar distribution to what extent can a unipolar state translate its formidable capabilities into meaningful influence will a unipolar world be built around rules and institutions or be based more on the unilateral exercise of unipolar power scholars too are asking these basic questions about unipolarity and international relations theory the individual contributions develop hypotheses and explore the impact of unipolarity on the behavior of the dominant state on the reactions of other states and on the properties of the international system collectively they find that unipolarity does have a profound impact on international politics international relations under conditions of unipolarity force a rethinking of conventional and received understandings about the operation of the balance of power the meaning of alliance partnerships the logic of international economic cooperation the relationship between power and legitimacy and the behavior of satisfied and revisionist states

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

the kantian peace the pacific benefits of democracy interdependence and international organizations 1885 1992 the authors test kantian and realist theories of interstate conflict using data extending over more than a century treating those theories as complementary rather than competing as the classical liberals believed democracy economic interdependence and international organizations have strong and statistically significant effects on reducing the probability that states will be involved in militarized disputes moreover the benefits are not limited to the cold war era some realist influences notably distance and power predominance also reduce the likelihood of interstate conflict the character of the international system too affects the probability of dyadic disputes the consequences of having a strong hegemonic power vary but high levels of democracy and interdependence in the international system reduce the probability of conflict for all dyads not just for those that are democratic or dependent on trade

do intergovernmental organizations promote peace a basic debate in world politics involves the impact of intergovernmental organizations igos on international conflict liberals functionalists and others see igos as capable of transforming global anarchy while realists emphasize the essential irrelevance of igos in managing such fundamental processes as war and peace recent quantitative studies also yield disparate conclusions depending on particular econometric assumptions implying variously that igos foster pacific relations among states have no impact on dispute behavior or even increase dispute propensity at least part of the problem is a lack of theoretical and empirical specificity the authors apply bargaining theory to develop a middle path between the realist and liberal perspectives only some igos those with security mandates and the most sophisticated institutional structures are likely to influence dispute behavior the authors combine the theory with two improvements in research design first igos vary in capability mandate and cohesion the authors construct a dataset of igo institutional heterogeneity and member cohesiveness second states join igos for reasons that are not unrelated to why states fight the authors control for the level of international involvement among countries and find support for their arguments in initial tests

the impact of leadership turnover on trading relations between states we test how domestic political institutions moderate the effect of lead ership turnover on relations between states deriving hypotheses from recent theo retical work bueno de mesquita et al and mcgillivray and smith we examine how leader change affects trading relations between states using dyadic trade data con sistent with hypotheses we find that large winning coalition systems such as democ racies are relatively immune from the vagaries of leadership change in such systems trade remains relatively constant whether leader change occurs or not in contrast when winning coalition size is small as in autocratic states leadership change pro foundly alters relations causing a decline in trade finally we examine instances of poor relations measured by a significant decline in trade compared to historical lev els as predicted instances of poor relations are less common between pairs of democ racies than other dyadic pairings further leadership turnover in autocratic systems restores trading relations between states the effect of leadership change in democ racies is much less pronounced since first drafting this article the united states has invaded iraq and deposed its leader saddam hussein for more than a decade iraq experienced harsh economic sanctions with hussein s removal these sanctions have been lifted and iraq is in the processes of being reinstated into the international community although it was the iraqi people who bore the costs of the sanctions the sanctions were aimed at hussein s regime with hussein removed the prospects for improved relations between iraq and western states look strong while iraq offers an extreme example this article assesses how the turnover of leaders affects relations between states as measured by trade flows in partic ular drawing on recent theoretical developments we examine how domestic insti tutions and leadership turnover affect dyadic trade flows consistent with the theoretical arguments we find that trade flows between states depend on the inter action of institutions and leader turnover

clear and clean the fixed effects of the liberal peace in their article in this issue donald p green soo yeon kim and david h yoon claim contrary to liberal theory and extensive evidence that neither joint democracy nor economic interdependence significantly reduces the frequency of militarized interstate disputes in pooled time series analyses when dyadic fixed effects are taken into account similarly their fixed effects analyses contradict theory and previous evidence that democracies have higher levels of trade with one another than do other types of states our reexamination however refutes both claims and reinforces previous findings their fixed effects analyses of disputes produces distorted results because they consider a relatively short time period 1951 92 in which variation in the binary dependent variable and the key independent variables democracy and trade is limited when we analyze a longer period 1886 1992 the results confirm liberal theory the differences between our analyses of bilateral trade and those of green kim and yoon primarily arise from a seemingly minor methodological decision a more reasonable method confirms that democracies do have higher levels of trade than expected on purely economic grounds though we do not advocate a fixed effects model for analyzing these data and have serious reservations about its general usefulness our findings provide additional confirmation of liberal theories of international relations

organizational economics in agriculture policy analysis the ongoing industrialization of u s agriculture encompasses important changes in farm production practices in the organization of farm input and output markets and in the mix of activities carried out by farm operators these shifts raise important issues for the role of government in the sector and for the design of research and data programs to support public policy analysis basic frameworks of organizational economics in particular concepts from principal agent models organizational design and transaction costs have direct applications in addressing these issues 1 while organizational economics has been used in some areas of policy analysis the concepts are underutilized in other areas industrialization encompasses four important organizational shifts to more differentiated food products to more explicitly coordinated production and marketing channels such as contracts to expanded use by farmers of leasing arrangements alliances and service purchases and to increased farm sizes these shifts are the most prominent organizational responses to an underlying collection of causal forces at play including the mechanical chemical and biological innovations that drove twentieth century advances in agricultural productivity as well as more recent information and biotechnology advances the forces underlying agricultural industrialization affect the design and impact of and support for various public policies in agriculture policy has long encompassed commodity programs designed to support farm household incomes and manage supplies market

the democratic peace and a sequential reciprocal causal arrow hypothesis one of the democratic peace puzzles is the question of whether and to what extent the democracy peace relationship underestimates the possibility that peace precedes democracy the reversed causal arrow hypothesis from a war making state making perspective democratization needs to be viewed as a partial function of external threat and domestic power concentration all three variables are found to be interrelated as predicted and related in turn to the external conflict behavior of major powers from 1816 to 1992 these monadic findings however do not appear to negate the dyadic relationship between democratization and selectively reduced conflict behavior in sum there is substantial support for the reversed causal arrow hypothesis but it does not render the regime type conflict behavior relationships spurious rather it enriches the understanding of the context in which democratization has emerged to have some effect on international politics

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

the foreign imposition of domestic institutions international relations research has paid little attention to why states often spend precious resources building and maintaining domestic institutions in other states i identify 198 cases of forcible domestic institutional promotion the most costly form of such interventions between 1555 and 2000 i note several patterns in the data these interventions come in three historical clusters they are carried out by states of several regime types states engage in the practice repeatedly target states tend to be undergoing internal instability states tend to promote their own institutions and targets tend to be of strategic importance the most intensive periods of promotion coincide with high transnational ideological tension and high international insecurity i argue that these two conditions interact forcible promotion is most likely when great powers 1 need to expand their power and 2 find that by imposing on in smaller states those institutions most likely to keep their ideological confreres in power they can bring those states under their influence although in periods of high insecurity domestic variables alone may account for institutional impositions such impositions may nonetheless extend the promoting states influence and thereby alter the balance of international power

incentives for secession in the presence of mobile ethnic groups abstract this paper presents a model on secessions and nationalism with special emphasis on the role of imperfectly mobile ethnic minorities individuals trade off political benefits of homogeneity against economic costs from increasing returns to scale in production the main findings are i mobility decreases the political motivation for independence because increased competition for labour forces the ethnic majorities in the separating countries to accommodate their policy ii the impact of mobility depends on whether separation is politically or economically motivated iii increased mobility leads to a less accommodated policy in case of no separation