efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

bilateral trading with naive traders we introduce naive traders in bilateral trading these traders report their true types in direct mechanisms and bid ask their values costs in auctions we show that by expropriating naive traders in direct mechanisms the mechanism designer can subsidize additional trades by strategic traders and improve efficiency in fact complete expropriation of naive traders is a necessary condition for constrained efficiency a significant implication is that in the presence of naive traders ex post individually rational mechanisms are not constrained efficient in contrast if the traders must use a given mechanism then the introduction of naive traders has an ambiguous effect on efficiency

partial fiscal decentralization and demand responsiveness of the local public sector theory and evidence from norway this paper provides an empirical test of a principal tenet of fiscal federalism that spending discretion when granted to localities allows public good levels to adjust to suit local demands the test is based on a simple model of partial fiscal decentralization under which earmarking of central transfers for particular uses is eliminated allowing funds to be spent according to local tastes the greater role of local demand determinants following partial decentralization is confirmed by the paper s empirical results which show the effects of the 1986 norwegian reform

economists as the subject of economic inquiry friedman s argument is a point of departure he offers a standard view of invention among economists in effect creativity whether in economics or elsewhere in the economy is pushed outside the domain of economics it is a black box about which we know little and which is not subject to explanation by conventional economic analysis we observe such activities as entrepreneurship and creative insight but we balk at attempting to explain them

partial fiscal decentralization and sub national government fiscal discipline empirical evidence from oecd countries recent theoretical research suggests that financing sub national governments expenditure out of own revenue sources is linked to more responsible budgeting because the financial implications of spending decisions then are internalized within a jurisdiction we test this proposition empirically on a sample of 23 oecd countries over the 1975 2000 period and find evidence in line with the hypothesis that greater revenue decentralization measured as sub national governments share of own source tax revenues in general government tax revenue is associated with improved sub national government budget deficits surpluses this finding is cross validated with a novel independent dataset consisting of all 34 oecd member states from 2002 to 2008

an economic analysis of the protestant reformation this paper seeks to explain the initial successes and failures of protestantism on economic grounds it argues that the medieval roman catholic church through doctrinal manipulation the exclusion of rivals and various forms of price discrimination ultimately placed members seeking the z good spiritual services on the margin of defection these monopolistic practices encouraged entry by rival firms some of which were aligned with civil governments the paper hypothesizes that protestant entry was facilitated in emergent entrepreneurial societies characterized by the decline of feudalism and relatively unstable distribution of wealth and repressed in more homogeneous rent seeking societies that were mostly dissipating rather than creating wealth in these societies the roman church was more able to continue the practice of price discrimination informal tests of this proposition are conducted by considering primogeniture and urban growth as proxies for wealth stability

an economic theory of economic analysis the case of the school of salamanca the school of salamanca often is identified as the first economic tradition in the history of the dismal science its members anticipated principles later developed by the likes of adam smith and carl menger this paper provides an economic theory of the production of economic analysis by the doctors of salamanca beginning from the observation that producers of economic analysis respond to incentives the same way producers of meat beer or bread do historically the demand for economic analysis arises from two sources governments and interest groups i argue that the changes in international trade associated with the emergence of new transatlantic markets in the sixteenth century led to an increase in the demand for economic analysis by spanish merchants and that the contribution of the school of salamanca was grounded in the predictable supply response to those fresh incentives

princes and merchants european city growth before the industrial revolution as measured by the pace of city growth in western europe from 1000 to 1800 absolutist monarchs stunted the growth of commerce and industry a region ruled by an absolutist prince saw its total urban population shrink by one hundred thousand people per century relative to a region without absolutist government this might be explained by higher rates of taxation under revenue maximizing absolutist governments than under nonabsolutist governments which care more about general economic prosperity and less about state revenue

bargaining under incomplete information this paper presents and analyzes a bargaining model of bilateral monopoly under uncertainty under the bargaining rule proposed the buyer and the seller each submit sealed offers that determine whether the good in question is sold and the transfer price the nash equilibrium solution of this bargaining game implies an offer strategy of each party that is monotonic in its own reservation price and depends on its assessment of the opponent s reservation price issues of relative bargaining advantage and efficiency are examined for a number of special cases finally we discuss the appropriateness of the nash solution concept

a positive model of tax structure the model of tax structure developed in this paper is one in which the composition of revenues and the structure of specific taxes arise naturally as the result of self interested political behavior it is assumed that political agents choose tax structure so as to minimize the political costs or expected net loss in votes associated with raising a budget of given size several hypotheses concerning the nature of political cost functions are developed and applied to an explanation of the differences among u s states in their reliance on income taxation the empirical application emphasizes differences in political constraints across jurisdictions in the belief that much can be learned about the choice of policy instruments by studying structural adjustments in response to varying constraints the paper discusses how the proposed approach differs from or is consistent with that adopted by other authors and how the estimating equation relates to other empirical research in the literature

the economists and the problem of monopoly for much too long a time students of the history of the american antitrust policy have been at least mildly perplexed by the coolness with which american economists greeted the sherman act was not the nineteenth century the period in which the benevolent effects of competition were most widely extolled should not a profession praise a congress which seeks to legislate its textbook assumptions into universal practice and with even modest foresight should not the economists have seen that the sherman act would put more into economists purses than perhaps any other law ever passed of course there were partial explanations the coolness of the economists sometimes rested more on disbelief in the efficacy of the sherman act than on hostility to its purpose the route of regulation was preferred although this preference hardly restores the reputations of those economists as prophets one might even point out that there were not many good american economists at the time although an undeniable giant such as irving fisher shared the common view i intend on this occasion to review the attitudes of economists toward monopoly as a problem in public policy my subject however is a good deal broader than the sherman act and its reception the last two centuries of the economic writings on monopoly policy particularly in england and the united states will be surveyed thereafter i shall examine the reciprocal effects of economics and antitrust policy

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

economic and political foundations of tax structure this paper derives the essential elements of tax systems as the outcome of rational behavior in a model w here government maximizes expected support and where opposition to ta xation depends on the loss in full income the analysis treats the le vel of expenditures as endogenous and integrates the influence of adm inistration costs with that of political and economic factors tax st ructure is shown to be a system of related components in equilibrium a final section compares results to two alternative approaches opti mal taxation and the leviathan model copyright 1988 by american economic association

coordination commitment and enforcement the case of the merchant guild we interpret historical evidence in light of a repeated game model to conclude that merchant guilds emerged during the late medieval period to allow rulers of trade centers to commit to the security of alien merchants the merchant guild developed the theoretically required attributes secured merchants property rights and evolved in response to crises to extend the range of its effectiveness contributing to the expansion of trade during the late medieval period we elaborate on the relations between our theory and the monopoly theory of merchant guilds and contrast it with repeated game theories that provide no role for formal organization

how naivete improves efficiency in trading with preplay communication abstract if a positive proportion of traders are naive i e honestly reveal their types and bid ask truthfully then efficiency increases in a double auction with preplay communication presence of naive traders induces strategic traders to decrease the misrepresentation of their private information

law or economics w hen aaron director and edward levi launched the journal of law and economics in 1958 director suggested the title law or economics this alternative title certainly described the world more accurately at that time the traditional attitude of each discipline toward the other had been one of indifference only gradually has that attitude been replaced by a mixture of cooperation and hostility the first systematic application in america of economics to law was the use of price theory to explain economic phenomena involved in the antitrust cases director made creative use of price theory to explain phenomena such as tie in sales and patent licensing and assisted younger colleagues such as john mcgee and lester telser in their respective studies of predatory competition and resale price maintenance in such applications professional economic analysis was replacing the amateur economics of the lawyer lawyers did not welcome this development the national committee for the study of the antitrust laws was the scene of a deep schism between the fifty three lawyers and the eight economists 2 these numbers probably represented the belief that 13 percent of antitrust policy is economics the remainder law at one point the lawyers attempted to exclude the economists completely from the formulation of the report the division was not simply one between angels and legally trained devils consider the question of price discrimination economists insisted that price discrimination could persist only under noncompetitive conditions under full competition rivals would undermine any attempt to sell part of the supply at a higher price the lawyers argued to the contrary

cheap talk can matter in bargaining this paper describes an intuitive way in which cheap talk can matter in a twostage bargaining game in which talk may be followed by serious negotiation the intuition that all buyers would claim to have low reservation prices is incorrect in our model instead if good faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation our cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in the absence of talk

fiscal decentralization and intergovernmental fiscal relations a cross country analysis abstract fiscal decentralization consists primarily of devolving revenue sources and expenditure functions to lower tiers of government by bringing the government closer to the people fiscal decentralization is expected to boost public sector efficiency as well as accountability and transparency in service delivery and policy making decentralization also entails greater complexity in intergovernmental fiscal relations and coordination failures in fiscal relations are likely to have a bearing on fiscal positions nationally and subnationally evidence provided in this paper for a sample of 30 countries suggests that coordination failures in intergovernmental fiscal relations are likely to result in a deficit bias in decentralized policy making particularly in the case of developing countries which may not meet important requirements for successful decentralization

order in the church a property rights approach this paper examines the organizational structure of christian churches and in doing treats churches as firms constrained by their theology like all firms churches must manage opportunistic behaviour the hypothesis of the paper is that the particular organizational structure of a given church is the result of transaction cost problems that arise in the production of its spiritual good an effort to test the theory is made by examining the history of the church and examining cases of church failures and successes

the spontaneous evolution of commercial law jeremy bentham contended that property and state made law are born and must die together before the state s law there was no property take away the law all property ceases 4 309 most economists have taken this argument to heart clearly some system of defining and then protecting and enforcing property rights property law and rules of exchange contract law is needed for a market system to develop but does the state have to develop and enforce property and contract law one purpose of the following presentation is to demonstrate that the commercial sector is completely capable of establishing and enforcing its own laws a second purpose is to illustrate that modern commercial law is in fact largely made by the merchant community despite governmental efforts to take over provision of such law commerce is an evolving process of interaction and reciprocity which is simultaneously facilitated by and leads to an evolving system of commercial law carl menger 17 proposed that the origin formulation and the ultimate process of all social institutions including law is essentially the same as the spontaneous order adam smith 20 described for markets markets guided by smith s invisible hand coordinate interactions and so does customary law 6 7 these systems develop because perhaps through a process of trial and error it is found that the actions they are intended to coordinate are performed more effectively under one institutional arrangement or process than under another the more effective institutions and practices replace the less effective in the case of customary commercial law traditions and practice evolve to produce the observed spontaneous order as hayek explained however while smith s and menger s insights are firmly established in economics the study of jurisprudence has been almost completely unaffected by their arguments 9 101 one reason of course is that the invisible hand explanation for the emergence of market order is highly plausible because there is an obvious mechanism the mechanics of individual but interrelated market prices which provides the necessary coordination we call the price system the mechanism of evolution for a legal order is much less obvious thus the legal positivist view which holds that law is the product of deliberate design has a strong following among economists another major purpose of this discussion of commercial law therefore is to demonstrate that the rules of property and contract necessary for a market economy which most economists and legal scholars feel must be imposed have evolved without the