rationality in international relations a game theoretic and empirical study of the u s china case this paper develops a model of rational behavior that is found to be compatible with the evolution of china u s relations from the early 1970s to the late 1980s the authors introduce countervailing strategies that broaden our understanding of what is rational in a game theoretic context countervailing behavior accommodates inertia and delay as well as reactivity and is shown to be involved in every equilibrium strategy the terms of the interaction between the united states and china are identified in light of a countervailing model and the payoff structure that supports the observed dynamic interaction is inferred prior to 1979 which marks the inception of china s open door policy the payoff structure found conforms to a little known mixed motive game whereas the 1980s are characterized by a prisoner s dilemma in the 1980s rational play involves positive reactivity on the part of each country while prior to 1979 rational behavior on the part of the u s takes the form of an inverse response to chinese initiatives a behavior that draws its rationality from its ability to move china to a more cooperative stance despite a deadlock type payoff structure

nonrenewable resource scarcity nonrenewable resource theory often is summarized by hotelling s rule this paper reviews theoretical extensions and empirical investigations of resource extraction models observed data are often inconsistent with the hotelling rule suggesting that other characteristics of nonrenewable resource supply including exploration heterogeneous ore quality technological progress and capital investment are important determinants of the dynamic behavior of resource prices given the persistent recurrence of concern about nonrenewable resource scarcity measures of nonrenewable resource scarcity and the empirical evidence for the time trends of those measures are reviewed finally the implications of nonrenewable resource scarcity for economic growth are examined

capacity choice and the theory of the mine when extraction from mineral deposits is constrained byfixed capacity an r per cent rule holds this deposit specific rule however is more partial than hotelling s rule in that it is followed byprice takers and does not require price to adjust to produce equilibrium toobtain the resource rent to which the rule applies the shadow value ofcapacity must be subtracted from the usual net price i e price lessshort run marginal cost but the shadow value of capacity cannot becalculated from common depreciation formulas an alternative method ofcalculating the shadow values is derived the shadow value of reserves maybe increasing in the level of initial reserves if there are increasingreturns to installing capacity the value of the resource is not equal tothe discounted resource rent

the political economy of opec abstract we develop a conceptual model that captures opec pricing behavior and apply it to explain the large gap observed between domestic fuel prices in opec countries and prices in the rest of the world we model opec as a cartel of nations not firms and assume that politicians use two instruments production quotas and domestic fuel consumption subsidies the cartel of nations model suggests that introduction of alternatives to petroleum products may lead opec to reduce exports and increase domestic fuel consumption the empirical analysis suggests that when opec sets production quotas it places similar weights on consumer and producer surplus but when opec countries set domestic fuel subsidies on average 6 more weight is given to consumer surplus with some of the opec countries pursuing very aggressive domestic cheap fuel policies

political cleavages and changing exposure to trade combining the classical theorem of stolper and samuelson with a model of politics derived from becker leads to the conclusion that exogenous changes in the risks or costs of countries external trade will stimulate domestic conflict between owners of locally scarce and locally abundant factors a traditional three factor model then predicts quite specific coalitions and cleavages among owners of land labor and capital depending only on the given country s level of economic development and its land labor ratio a preliminary survey of historical periods of expanding and contracting trade and of such specific cases as the german marriage of iron and rye u s and latin american populism and asian socialism suggests the accuracy of this hypothesis while the importance of such other factors as cultural divisions and political inheritance cannot be denied the role of exogenous changes in the risks and costs of trade deserves further investigation

capital investments and resource extraction from non identical deposits abstract taking account of necessary investments in physical capital we characterize the optimal investment and extraction program for exploiting several non identical deposits of an exhaustible resource under the given technology assumptions capital investments will be concentrated up front if deposits are identical in the case of non identical deposits it may be optimal to have investments spread out over time moreover the smallest deposit is depleted first

paradoxical consumption behavior when economic activity has environmental effects in a model where enhanced economic activity accumulation of produced capital leads to environmental eects depletion of natural capital competitive steady states corresponding to dierent discount rates are compared for positive discount rates the steady state stock of produced capital may exceed the size maximizing sustainable consumption this implies paradoxical consumption behavior that is a lower discount rate may be associated with lower steady state consumption the theoretical significance of this phenomenon for intergenerational equity is discussed and examples indicating the empirical relevance of the underlying assumptions are presented

do property rights promote investment but cause deforestation quasi experimental evidence from nicaragua abstract many policymakers argue that property rights decrease deforestation some theoretical papers also make this prediction arguing that property rights decrease discount rates applied to a long term investment in forestry however the effect is theoretically ambiguous the paper takes a novel instrumental variables approach based on nicaragua s agrarian reform to test for the effect using a new dataset nicaragua s 2001 agricultural census it finds that property rights significantly increase deforestation the model supported by the data suggests a likely mechanism for this relationship property rights increase investment increasing agricultural productivity and therefore the returns to deforestation

the evolution of hyperbolic discounting implications for truly social valuation of the future abstract we explore the standard expected utility model and alternatives to it we then examine the behavioral and neurological evidence for hyperbolic discounting we discuss evidence related to the neurological and behavioral evolution of discounting in non human animals and in humans we explore new findings about the importance of sociality in human behavior and the implications for truly social time preference finally we discuss the implications of the neurological evidence on discounting for social environmental valuation in particular the implications for very long run decisions such as those involved in climate change mitigation and biodiversity preservation

expectations and arms races recent empirical studies of arms races have produced two puzzling results first for several important arms races particularly the u s ussr case there appears to be no interaction arms acquisition appears to be driven only by internal factors second in several cases nations appear to be responding to the current military expenditures of their opponent this statistical result presents interpretation problems since nations do not know the current defense expenditure of their opponent at the time that they make their own military expenditure decision a number of interpretations for these results have been provided they include inappropriate model specification inappropriate operationalization of military threat and error ridden military expenditure data nevertheless the results persist and conflict with our more substantive and intuitive understanding of arms processes a process based upon expectations of current arms expenditures of the opponent is developed to deal with this puzzle in this paper several alternative expectation mechanisms are formulated and tested for a number of contemporary arms races

a note on mining with investment in capital one of the principal predictions of the theory of the extractive firm is that its rate of output will decline steadily throughout time recently in this journal campbell 1980 presented an interesting analysis suggesting that this behaviour may be altered if one accounts for the fact that firms must invest in some level of fixed capital which is needed in combination with variable inputs to extract the resource in the campbell analysis the fixed capital places a constraint on the maximum rate of extraction it is shown that this constraint is binding and that extraction is therefore constant over some initial period of the mine when the firm behaves optimally this note demonstrates that the campbell result is due to a fixed proportions technology assumption in particular when a neoclassical technology is assumed one finds that the constraint imposed by the level of fixed capital is never binding and that the optimal extraction rate is strictly monotonically declining as a function of time i to demonstrate this an informal argument will suffice let k be the level of fixed capital chosen by the firm let lt be the amount of the variable factor employed in period t assume that the rate of extraction et is given by the production function2

traditional production communal land tenure and policies for environmental preservation in the south pacific abstract instead of maximizing the expected monetary return of land usage pacific islanders manage land so that it renders an optimal mix of cash income and non monetary cultural goods evidence from cropping patterns in fiji suggests that the production of these cultural goods is linked to traditional agriculture which produces less ecological deterioration than its commercial counterpart the capacity for village land to support traditional activities is highest under a regime of communal land tenure where decision making is centralized a regime of private land tenure lowers this capacity because decentralized decision making raises the coordination costs of preserving special areas of land for traditional purposes this means that if development planners rush to replace traditional regimes of communal land tenure with modern systems of private land ownership they might also observe a correlated increase in land degradation even if new codes of private property are perfectly enforceable a two sector growth model can be used to show that the welfare neutral bribe required from the government to increase the amount of village land preserved in the steady state is lower under a regime of communal land tenure one counterintuitive result is that a high subjective discount rate does not always imply a high level of environmental degradation observations from the south pacific have application for environmental policy in other developing countries

governance and timber harvests resource economics theory implies that risks associated with weak governance have an ambiguous impact on extraction with the net impact depending on the relative strengths of depletion and investment effects previous empirical studies have found that improved governance tends to reduce deforestation but to raise oil production here we present evidence that the marginal impact of improved governance on timber harvests in developing countries during 1984 2006 was nonmonotonic it tended to raise harvests in countries with weaker governance but to reduce harvests in countries with stronger governance this nonmonotonic impact occurred for both an index of governmental integrity corruption bureaucracy quality law and order and an index of governmental stability a simulation of hypothetical increases in these governance indices to the maximum 2006 values observed in the sample predicted that improved governance would reduce harvests in most countries but could raise harvests in some with large increases occurring in countries with the weakest governance

tenure security private time preference and use of natural resources among lowland bolivian amerindians abstract to estimate the effect of tenure security and private time preference on the use of different types of natural resources such as old growth and fallow forests fish and game we did a survey and a psychological experiment with 443 households in 42 villages of yuracare mojeno tsimane and chiquitano indians in the bolivian lowlands results of multivariate tobit regressions suggest that 1 among the yuracare tsimane and mojeno rates of private time preference had a small economic and statistical effect on the use of natural resources and 2 tenure security proxied by residence duration in the village and by conflict with abutters only affected the consumption of wildlife principally of game results suggest that public policies to improve property rights over natural resources among indigenous people might have greater immediate impact on the conservation of wildlife than on the conservation of forest cover

extraction capacity and the optimal order of extraction the least cost first extraction rule for deposits with different extraction costs previously has been shown to be invalid in general equilibrium this paper demonstrates that this rule also does not hold in partial equilibrium when extraction capacity is limited necessary and sufficient conditions for several surprising extraction orders are presented if extraction from a high cost resource is constrained it may be optimal to begin extraction from a high cost deposit or backstop strictly before extracting from a lower cost deposit if extraction from a low cost resource is limited it may be optimal to exhaust a high cost deposit strictly before the low cost deposit is exhausted or to abandon extraction temporarily from a high cost deposit and then to exhaust it later the analysis demonstrates how extraction constraints affect the order of extraction and shows that certain cost reversals are caused by limited extraction capacity rather than by the general equilibrium definition of extraction costs

strategic interaction and the statistical analysis of international conflict although strategic interaction is at the heart of most international relations theory it has largely been missing from much empirical analysis in the field typical applications of logit and probit to theories of international conflict generally do not capture the structure of the strategic interdependence implied by those theories i demonstrate how to derive statistical discrete choice models of international conflict that directly incorporate the theorized strategic interaction i show this for a simple crisis interaction model and then use monte carlo analysis to show that logit provides estimates with incorrect substantive interpretations as well as fitted values that can be far from the true values finally i reanalyze a well known game theoretic model of war bueno de mesquita and lalman s 1992 international interaction game my results indicate that there is at best modest empirical support for their model

a neo austrian five process model with resource extraction and pollution abatement abstract this paper describes a neo austrian approach to analyse long run economy environment interactions the modelling framework incorporates resource use and pollution as integral components of production processes we start our study by reviewing the neo austrian capital theoretic approach a neo austrian model is developed and presented in input output form and the corresponding accounting prices are derived by using this representation an intertemporal simulation approach is embodied by establishing the optimization of an intertemporal social welfare function results from the optimization approach are discussed and also discount rate variations are assessed in terms of their effects on the model economy

world economic expansion and national security in pre world war i europe profound and rapid changes in the costs and risks of international trade are now widely acknowledged to be a potent source of domestic political conflict by altering the relative prices of goods available from world markets these changes alter the rewards that flow to different factors of production from different economic activities these distributional consequences of changing levels of trade in turn alter the configuration of interests in the domestic political economy strain existing political alignments and enable the construction of new political coalitions thus global changes in the economy such as the transportation and telecommunications revolutions in the nineteenth and mid twentieth centuries or the collapse of international trade and finance during the interwar years will have global consequences as they reverberate within and through the domestic politics of all countries that trade on world markets

international trade and domestic politics improving on rogowski s model of political alignments ronald rogowski s work offers valuable insight into the impact of changing trade exposure on domestic politics exploring the political implications of the well known factor endowments model of international trade theory rogowski argues that owners of relatively abundant productive factors will form a free trading coalition against owners of relatively scarce productive factors who will align in favor of protection rogowski s parsimonious three factor version of the factor endowments theory although offering valuable insight into the politics of less developed economies including today s developed economies in earlier centuries produces significant anomalies when applied to advanced economies intuitive logic and empirical research especially the leontief paradox suggest that the highly complex division of labor found in developed countries will confound the simplicity of the three factor model edward learner s multifactor model suggests solutions to the anomalies that afflict rogowski s simpler model when applied to recent politics in the united states and europe

atheoretical macroeconometrics a critique abstract the spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the cowles commission this development which we call atheoretical macroeconometrics is summarized and evaluated in the current paper it is contrasted with an updated version of the cowles commission approach we conclude that while some of the exercises of atheoretical macroeconometrics are valid those that have attracted the most attention and appear the most innovative exogeneity testing impulse response analysis and policy analysis using estimated vector autoregressions are based on incorrect analysis

mathematical models of the u s military expenditure decision making process mathematical models of the u s military expenditure decision making process are constructed estimated and analyzed each model contains four interdependent policymaking groups each group is assumed to have different goals and objectives these objectives are formalized and are assumed to be a function of actions of other policymakirg groups relevant fiscal and economic constraints expectations of actions of other policymaking groups and the perceived external threat given posited objectives and a decision calculus by which expectations are formed adaptively and partial adjustments made by the groups to their goals decision rules describing behavior are derived and estimated results suggest that policymakers do employ expectations and do make partial adjustments to operational goals

granger causality and the time series analysis of political relationships political scientists have employed causal modeling techniques for quite some time in most cases however they have relied on methods of a static cross sectional variety time series methods have been disseminated and applied but these have not been expressly causal the problem of assessing the causal character or direction of political relationships over time has not been addressed granger 1969 has suggested a notion of causality that is applicable in longitudinal analysis the study and application of granger s idea of causation now is widespread in economics and business this discussion evaluates the usefulness of applying granger causality in the study of political relationships granger s definition of causality is introduced several popular procedures for assessing granger causality are reviewed and certain problems surrounding interpretation of those empirical tests are elucidated the virtues and pitfalls of granger causal analysis then are illustrated in an analysis of an important topic in international political economy and also in a reanalysis of a recent granger causal investigation of arms races

deforestation and seigniorage in developing countries a tradeoff abstract most of countries covered by natural forests are developing countries with limited ability to levy taxes and restrained access to international credit markets consequently they are amenable to draw heavily on two sources of government financing namely seigniorage and deforestation revenues first we develop a theoretical model emphasizing a substitution effect between seigniorage and deforestation revenues second a panel data econometric analysis over the 1990 2010 period confirms our findings consequently a tighter monetary policy hastens deforestation third we extend the theoretical model and show that international transfers dedicated to forest protection can upturn the positive link between tighter monetary policies and deforestation and then discuss the relevance of this finding with respect to recent institutional arrangements

optimal pricing of environmental and natural resource use with stock externalities abstract underlying some of the most pressing environmental problems are the interlinked resource and environmental stock externalities with threshold effects using a simple dynamic model it is shown how in the face of such externalities the static market based policy instruments such as pigouvian taxes should be modified it is shown that even if for an initial period there is going to be no pollution stock damage the optimal policy still requires that abatement begins immediately and at increasing rates simulation of the model for the case of fossil fuel burning and the consequent global warming shows that the optimal carbon tax and therefore the optimal control strategy is particularly sensitive to changes in the marginal abatement cost and the level of fossil fuel demand policy simulations contrast the optimal control policy with and estimate the welfare losses from alternative policies deriving from arbitrary tax paths the latter include i a no tax policy ii a constant carbon tax rate iii the european community s proposed carbon tax path and iv a delayed optimal tax path

a qualitative characterization of the competitive nonrenewable resource extracting firm abstract using variational differential equations a systematic qualitative analysis is carried out for the competitive nonrenewable resource extracting firm the parameters of interest are the output price variable input price discount rate lease length initial resource stock and various tax rates the effects of changes in these parameters on the entire optimal time paths of the current shadow value of the stock the resource stock and the extraction rate are characterized in the perturbed phase plane

discount rate choice and efficiency in exhaustible resource allocation employing a simple continuous time model j rowse 1990 finds small percentage social welfare losses when using the wrong discount rate to allocate an exhaustible resource this study finds the same result using a discrete time model incorporating several important complexities including rising unit supply costs and demand functions that distinguish among short term medium term and long term price responses certain non efficiency performance measures are found to vary much more in percentage terms than social welfare as the improper rate diverages from the social rate it is argued that these results are general and their implications are briefly discussed

change and stability in superpower rivalry we investigate the dynamics of superpower rivalry participants in policy debates within each state use information about expected future threats and economic costs to influence other policy actors and this process of sophisticated reaction links the security policies of these two states into a single rivalry system analysis of vector autoregression models of u s and soviet military expenditures and diplomatic hostility and u s gross national product supports the hypothesis that these policies approximate the behavior of unitary rational states capable of forming rational expectations of each other s future behavior the dynamic response of this system to a wide range of exogenous shocks or innovations reveals the underlying stability of this rivalry system the military expenditures of both states exhibit a cyclical response to innovations with a shorter u s cycle this lack of synchronization creates several problems for analysis and for policy change

explaining bureaucratic optimism theory and evidence from u s executive agency macroeconomic forecasts we offer a theory of intertemporal bureaucratic decision making which proposes that an agency s forecast optimism is related to the extent to which it discounts future reputation costs associated with bureaucratic incompetence agency forecasts of the distant future are more likely to be optimistic than short term forecasts we claim that unstable organizations will discount reputation costs at a steeper rate than stable organizations and therefore will produce more optimistic forecasts we test our theory using macroeconomic forecasts produced by the office of management and budget omb and the social security administration ssa across six forecast horizons from 1979 to 2003 the statistical results are generally consistent with our theory omb generates more optimistic long term forecasts than ssa further differences in forecast optimism between these executive branch agencies widen as the forecast horizon increases our evidence suggests that more stable agencies place a premium on minimizing reputation costs conversely less stable agencies are more likely to accommodate political pressures for forecast optimism these findings underscore the importance of institutional design for understanding how executive agencies balance the conflicting goals of political responsiveness and bureaucratic competence within the administrative state

on using current information to value hard rock mineral properties we reformulate the hotelling valuation principle to take into account the special production characteristics of hard rock minerals the data requirements of the revised model are still parsimonious but the resultant valuations are some 40 below those produced by the hotelling valuation principle our valuation equations are also user friendly allowing the valuer to specify price and cost expectations that need not comply with the hotelling rule empirically our model provides estimates of market value for producing mineral properties that are more accurate than those produced by the hotelling valuation principle

both guns and butter or neither class interests in the political economy of rearmament astate that is confronted with a grave external threat has three basic options of response each of which involves certain trade offs first it can strengthen its military rearmament or internal balancing allows it to maintain its diplomatic freedom of action but its economy may suffer from the strain of accelerating the production of weapons of war second it can join forces with another power alliances may obviate the need for an arms buildup but they carry the risk that the state will be abandoned by its partners or drawn into undesired conflicts finally it can attempt to reconcile with its adversaries by conceding to some of their demands appeasement may be the least troublesome way to eliminate a threat but it is also the most risky because it transfers valued resources to a potential opponent after weighing these options the state should choose the policy or combination of policies that will provide an acceptable level of security at the lowest overall cost 1 the foregoing account is appealingly parsimonious but it captures only part of the story states are frequently racked by bitter internal debates over how to deal with international pressures and changes in their political leadership sometimes bring about sudden shifts in their behavior of the three strategies described above rearmament is often the most acutely divisive it requires a sharp increase in the extraction and mobilization of resources from society so it can become highly politicized some groups will inevitably bear a heavier burden than others and their discontent may eventually endanger the regime s hold on power or its ability to prepare for war to ensure domestic

the conservationist s dilemma it is typically thought that conservation of natural resources is encouraged by low interest rates however when capital goods are used to extract the resource low interest rates may discourage rather than encourage conservation using a model of a capacity constrained extractive industry in competitive equilibrium i find the relationship between the initial rate of exploitation and the interest rate if capital is so important that for sufficiently high interest rates the industry is nonviable the graph of initial quantity versus the interest rate is u shaped the traditional result holds at small interest rates but not at large ones copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

returns to scale adjustment costs and the optimal investment of the mining firm abstract this paper analyses the optimal investment programme of a competitive mining firm for two different technologies and capital adjustment costs in the first part the case of a variable proportions technology with decreasing returns to scale is studied and it is concluded that under the assumption of a constant mineral price a first stage in the exploitation period of the deposit will occur in which capital stock is increasing in the second part the optimal investment programme is determined when there are constant returns to scale and hotelling s rule governs the dynamics of the mineral price

money real interest rates and output a reinterpretation of postwar u s data this paper reexamines both monthly and quarterly u s postwar data to investigate if the observed comovements between money real interestrates prices and output are compatible with the money real interest output link suggested by existing monetary theories of output which include both keynesian and equilibrium models the major empirical findings are these 1 in both monthly and quarterly data we cannot reject the hypothesis that the ex ante real rate is exogenous or granger causally prior in the context of a four variable system which contains money prices nominal interest rates and industrial production 2 in quarterly data there is significantly more information con tained in either the levels of expected inflation or the innovationof this variable for predicting future output given current and lagged output than in any other variable examined money actualinflation nominal interest rates or ex ante real rates the effect of an inflation innovation on future output is unambiguously negative the first result casts strong doubt on the empirical importance of existing monetary theories of output which imply that money should have a causal role on the ex ante real rates the second result would appear incompatible with most demand driven models of output in light of these results we propose an alternative structural model which can account for the major dynamic interactions among the variables this model has two central features i output is unaffected by money supply and ii the money supply process is motivated by short run price stability this abstract was borrowed from another version of this item

trade and insecure resources we construct a model of conflict and trade to study the consequences of interstate disputes over contested resources land oil water or other resources for arming welfare and trade flows different trade regimes imply different costs of such disputes in terms of arming depending on world prices free trade can intensify arming to such an extent that the additional security costs it brings swamp the traditional gains from trade and thus render autarky more desirable for one or all rival states free trade though is always an equilibrium and sometimes is a dominant one with features of a prisoner s dilemma outcome furthermore contestation of resources can reverse a country s apparent comparative advantage relative to its comparative advantage in the absence of conflict and where such conflict is present comparisons of autarkic prices to world prices could be inaccurate predictors of trade patterns

ownership risk investment and the use of natural resources the effect of insecure ownership on ordinary investment and natural resource use is examined insecure ownership is postulated to depend on the type of government regime in power and the prevalence of political violence or instability the political determinants of economy wide investment are estimated from cross country data and the results are used to form an index of ownership security when introduced into empirical models of natural resource use this index has a significant and quantitatively important effect on the use of forests and petroleum contrary to conventional wisdom ownership risk slows resource use in some circumstances

adjustment costs uncertainty and the theory of investment the case of non renewable natural resources abstract this paper examines the effects of mineral price and extraction cost uncertainty on the investment program of a competitive resource extracting industry that faces convex costs of adjustment the results show that depletion of mineral reserves will slow down if the marginal adjustment cost function is concave or linear whereas the effect will be ambiguous if the function is convex

u s soviet chinese relations routine reciprocity or rational expectations international relations theorists disagree about whether great power behaviors reflect bureaucratic routine or reciprocity recently some have suggested that these behaviors result from great powers rational expectations rather than from simple routine or reciprocity the debate is flawed in several respects the quasi experimental studies of great power behavior suffer from specification and measurement errors furthermore most studies of great power behavior focus exclusively on the superpowers without adequately appreciating china s role in world politics we present an improved analysis that recognizes the potential effects of chinese behavior and ameliorates the methodological flaws in existing work the results indicate that the behaviors of the united states the soviet union and china are a relatively stable mix of bureaucratic routine and reciprocity the results also indicate complex asymmetrical connections among u s soviet u s chinese and soviet chinese relations consistent with the notion of a strategic triangle

the effect of the discount rate on depletion of exhaustible resources this paper argues that despite its widespread acceptance in the literature the basic proposition that a reduction an increase in the discount rate leads to greater conservation faster depletion of an exhaustible resource is not generally valid it shows that the effect of the discount rate on the rate of resource depletion depends on capital requirements for production of the substitute and extraction of the resource and on the size of the resource stock in fact it shows that there always exist at least two ranges of the resource stock size for which the effect is opposite to that conventionally believed

the political economy of international trade enduring puzzles and an agenda for inquiry a similar set of concepts has been central to the literatures on the formation of trade policy coalitions and the new economics of institutions the political and economic consequences of the degree to which assets are specific to a particular economic activity in this survey the authors take the necessary first step of summarizing the main findings of these two literatures and then suggest ways in which the issue might be joined in addition to providing a more coherent understanding of the findings of these two literatures and some new directions for them the authors show that many puzzles remain in the field of trade politics puzzles for which there are no appealing answers or where there are answers no strong evidence in support of them this essay then in addition to being a theoretical review of the literature puts forward an agenda for future study of international trade politics

should we worry about the failure of the hotelling rule abstract the continuing dependence of the global economy on fossil fuels is worrying because it imposes limits on growth due to the non renewable nature of these resources and also contributes to global climate change resource optimists believe that this is no reason to worry because the economy will always find a way to overcome these constraints their arguments however require that resource prices reflect the scarcity of non renewable resources which implies that they must obey the hotelling rule empirical analyses however show that the hotelling rule does not hold in reality which raises the question does the failure of the hotelling rule imply that social optimality is not achieved this paper argues that the answer depends on the reason for the failure if extraction and exploration costs or technological progress in these activities are the reasons for the failure a market failure is not implied and optimality may still be achieved but if the hotelling rule fails due to uncertain property rights or strategic interaction the market will surely fail to provide an optimal solution a market failure is likely to speed up resource consumption compared to the social optimum

when a high discount rate encourages biodiversity include land in a neoclassical growth model and introduce a standard biogeographic relation between species recliners biodiversity and land assume that species provide utility the optimal constant amount of land preserved for species is obtained from steady state conditions contrary to conventional wisdom a high discount rate preserves more land when the elasticity of substitution between goods and species exceeds unity or when this elasticity is less than unity and technology is such that the output effect of a change in the interest rate exceeds the substitution effect

u s defense spending and the soviet estimate there is a glaring and potentially important discontinuity surrounding discussions of u s defense expenditure policy making on the one hand a growing body of empirically based research questions whether the u s reacts in any significant fashion to the military expenditures of the soviet union on the other hand defense policy makers routinely justify defense increases as a response to similar increases by the soviet union the discontinuity is resolved in the context of a multistep model of the defense expenditure policy making process that incorporates a new estimate of soviet defense spending and mass public opinion once formulated the model provides answers to the following two questions 1 does the u s insofar as defense spending is concerned react to the military expenditures of the soviet union 2 if so what is the magnitude of the reaction the answers indicate that not only does the u s react to estimated soviet defense spending but that the reaction is directly responsible for a very substantial portion of the post 1978 increases in u s military expenditures

sophisticated reaction in the u s soviet arms race evidence of rational expectations because of the pervasive security rivalry between the united states and the soviet union information about the expected future behavior of the rival state proves useful to domestic political actors competing to influence budgetary allocations this article examines the hypothesis that in the aggregate this process of sophisticated reaction approximates the behavior of two unitary rational actors capable of forming rational expectations of each other s behavior this rational expectations arms race model implies that the military expenditure series of arms racers should be independent in the granger causal sense but that their residuals should be correlated contemporaneously the latter prediction is inconsistent with bureaucratic process models or alternative expectational formulations and empirical analysis of u s and soviet yearly military expenditures is provided that supports the predictions of the rear model finally some implications of this intimate linkage between the domestic policy processes of these two rival superpowers are briefly discussed

using the wrong discount rate to allocate an exhaustible resource what are the social welfare implications of using the wrong discount rate to allocate an exhaustible resource utilizing a simple numerical model it is found that over the real discount rate range of 6 to 9 the welfare losses of employing a rate no more than 3 different from the social rate are small and decline as the social rate rises even for stringent supply circumstances however substantial transfers of surplus between producers and consumers occur as the improper rate deviates from the social rate other issues such as income distribution immediately loom larger when a discount rate is chosen

the hotelling rule in non renewable resource economics a reassessment harold hotelling s 1931 contribution is known for providing a basic principle the hotelling rule to the economics of non renewable resources nearly ninety years later empirical tests conclude the rule lacks empirical validity requiring strong amendments to describe the long term aggregate behavior of its target object on the basis of hotelling s unpublished archival material this paper revisits the place given to the hotelling rule in non renewable resource economics our reconstruction shows that hotelling s 1931 paper has been misinterpreted from the outset the hotelling rule was not valid for mineral resources in contrast the consideration of two inherent geological constraints alongside exhaustibility offered the opportunity for an alternative basic framework capable to generate bell shaped and u shaped equilibrium trajectories for supplies and prices respectively inspired by this unknown aspect of hotelling s work brought to light by our archival investigation we sketch this alternative basic model enabling non renewable resource economics to circumvent the empirical shortfalls of the hotelling rule

the effect of decentralized governance on timber extraction in european russia good governance is often promoted for economic growth but its impact on natural resource use in developing and transitional economies is not well understood for example many scholars promote improved governance as a means to slow resource use whereas others have found that better governance increases extractive resource activities in this paper we use within country variation in russia to test the impact of governance on timber harvesting using a reduced form fixed effects model and satellite based estimates of forest cover we find a statistically significant and non linear effect of governance on the area of timber harvested for a marginal improvement in governance timber harvesting increases but this effect decreases at high levels of governance these results are robust to alternative specifications and when instrumenting for economic growth governance could impact timber harvesting in russia through ownership risk i e tenure security through the costs of doing business i e bribes or both nonparametric regressions and qualitative evidence suggest that both factors are at play in russia this analysis provides additional evidence that improving governance may increase natural resource extraction this has important implications for policy prescriptions that suggest good governance will slow resource use in developing and transitional economies

the role of investment in multiple deposit extraction some results and remaining puzzles abstract papers by olsen and by cairns and lasserre analyze equilibrium in a resource industry where deposit quality varies and where extraction requires capital investment the papers substantially qualify the conventional understanding of such matters as the form of hotelling s rule the role of deposit size the simultaneous extraction from deposits of different quality and the price path the argumentation however a intricate and the crucial role of investment as such a not easily distinguishable we clarify the intuition behind the results bring out the role of the various assumptions and raise important remaining issues

energy backstop endogeneity and the optimal use of groundwater to meet the growing demand for freshwater many regions have increased groundwater pumping in recent years resulting in declining groundwater levels worldwide a promising development to address these declines is technical change regarding groundwater substitutes such as desalination and wastewater recycling however because these technologies are energy intensive optimal implementation also depends on future energy price trends we provide an operational model for the case of reverse osmosis seawater desalination in an application to the pearl harbor aquifer in hawaii we find that allowing the cost of desalination to increase at an average annual rate of 2 4 over the next century results in a substantially steeper efficiency price path for water the higher prices decrease optimal groundwater extraction and induce a slower head drawdown over a longer period of time thereby delaying the transition to desalination by over 30 years because the rise in energy costs exacerbates efficiency losses from under pricing any delay in implementing efficiency pricing will cause either a greater future increase in prices or the need for rationing reforming prices sooner rather than later may be more politically feasible given that consumers may be more amenable to a gradual rise in prices today than a sudden doubling or tripling of prices ten years from now using this as a foundation we outline a research agenda for extending the framework to other groundwater substitutes and for adapting to climate change

when patience leads to destruction the curious case of individual time preferences and the adoption of destructive fishing gears abstract the use of destructive fishing methods is a serious problem especially for tropical and developing countries due to inter temporal nature of fisheries extraction activities standard economic theory suggests that an individual s time preference can play a major role in determining the gear choice decision based on earlier theoretical work we identify two ways in which individual time preferences can impact the adoption of destructive extraction methods i the conservation effect which posits that patient individuals as indicated by relatively high discount factor are less likely to use destructive extraction methods since they are more likely to account for the loss of future income that is accompanied by using these methods ii the disinvestment effect which argues that patient individuals are more likely to use destructive extraction methods since they have greater investment capability using an agent based model we clarify the conditions under which one of these effects is more dominant than the other one our model suggests that the nature of destructive gear along with the level of social dilemma determines whether patient or impatient individuals relatively lower discount factor are more likely to adopt such a gear additionally agent s beliefs regarding future resource condition and other agent s extraction level can have a major influence in some cases

equilibrium transitions from non renewable energy to renewable energy under capacity constraints abstract we study the transition between non renewable and renewable energy sources with adjustment costs over the production capacity of renewable energy assuming constant variable marginal costs for both energy sources convex adjustment costs and a more expensive renewable energy we show the following with sufficiently abundant non renewable energy endowments the dynamic equilibrium path is composed of a first time phase of only non renewable energy use followed by a transition phase substituting progressively renewable energy to non renewable energy before a last time phase of only renewable energy use the investment into renewable energy may either begin before actual production of renewable energy or be delayed until the energy price achieves a sufficient gap with respect to the renewable energy cost with an initially abundant non renewable resource the features of the transition between non renewable and renewable energy do not depend upon the initial resource stock

optimal saving policy for exhaustible resource economies abstract the paper examines the optimal saving policy for a small exhaustible resource exporting economy ere that has an exhaustible asset and a reproducible capital stock it shows that both in magnitude and time profile the optimal saving policy for an ere sharply differs from a that of a nonextractive economy and b that derived from the conventional models of growth with exhaustible resources these differences arise from the specific economic features that distinguish the small resource exporting developing economies both from other developing economies and from mature industrial ones for a wide range of plausible parameter values comparisons of computed optimal saving paths with actual savings rates of selected eres suggest substantial deficiencies in their savings rates