tax collection with agency costs private contracting or government bureaucrats historically governments contracted with private agents known as tax farmers to collect taxes this paper develops a theoretical framework for determining when a welfare maximizing government should choose tax farmers over bureaucratic tax collectors while bureaucratic collectors have an incentive to shirk and raise collection costs above least costs profit maximizing private collectors tend to reduce tax evasion below the optimal level generally the choice of collection methods depends on a comparison of the welfare loss associated with monitoring in the bureaucratic setting and the welfare loss associated with overdetection of evasion in the private setting copyright 1992 by the london school of economics and political science

fragmentation and multinational production abstract this paper examines the consequences of falling transport costs for intermediate goods and shows how this leads to the spatial fragmentation of production as firms divide their production between countries they become either vertical multinationals if upstream activities are labour intensive or horizontal multinationals if downstream activities are labour intensive in the former case the volume of world trade increases and in the latter it falls fragmentation need not narrow international factor price differences which depend on the factor intensity of the activities that relocate

the role of wages and auditing during a crackdown on corruption in the city of buenos aires abstract we study the prices paid for basic inputs during a crackdown on corruption in the public hospitals of the city of buenos aires argentina during 1996 97 we find a well defined negative effect on the measures used to capture corruption prices paid by hospitals for basic homogeneous inputs decrease by 15 percent during the first 9 months of the crackdown after this period prices increase but they are still 10 percent lower than those prevailing before the crackdown relative to the precrackdown period higher wages play no role in inducing lower input prices when audit intensity can be expected to be maximal during the first phase of the crackdown but have a negative and well defined effect when audit intensity takes intermediate levels the last phase of the crackdown controlling for fixed effects we find that the wage elasticity of input prices exceeds 20 these results are consistent with the standard model of bribes of gary becker and george stigler

street level political controls over federal bureaucracy local partisan activities of legislators and their electoral coalitions systematically influence field office activities of federal bureaucracies in their electoral districts this alternative to centralized democratic controls over bureaucracy occurs because discretionary policy decisions made at the field office level are influenced by local resources generated through partisan activities our study of county level occupational safety and health administration enforcement in new york 1976 85 finds that county state and federal elected officials influence local enforcement activities with liberal democratic legislators associated with more active enforcement the county political parties are most influential for activities with the most local discretion while members of congress are more influential for local activities more readily controlled by the national office

savings and loan and finance industry pac contributions to incumbent members of the house banking committee this paper examines the relationship between campaign contributions from savings and loan and finance industry pacs and membership on the house banking committee the distinguishing features of this paper are that we focus on campaign contributions at an industry level and we use regression analysis to determine whether membership on the house banking committee the committee with oversight responsibility for the savings and loan industry influences the level of contributions received by an individual legislator we find that members of the house banking committee do receive significantly greater contributions from the savings and loan and finance pacs than do other members of congress and that being chairman of the house banking committee also pays a dividend

adapting the knowledge capital model of the multinational enterprise to trade and investment in business services at some conceptual level trade in goods and services are not that much different however the speed at which trade and foreign investment in services is growing along with the fact that the barriers to these activities are quite different from those for trade in goods prompts us to take a more careful look the paper begins with a general discussion about the various policies and technological constraints that impact foreign trade and the establishment of foreign commercial presence in intermediate business services we then discuss which characteristics an accurate modelling approach must capture following that we develop a model that allows for different regimes of trade and or foreign affiliate production in services using markusen s knowledge capital model simulations show that the pattern of service firm headquarters and office locations can differ considerably depending on whether it is trade investment or both that are either liberalised or become technologically feasible our results find that the welfare and factor price consequences are quite similar across the different scenarios

a comparison of event study methodologies using daily stock returns a simulation approach accounting research studies commonly use measures of abnormal security returns to test hypotheses about accounting information and policies alternative methods are used in these studies to detect abnormal performance and thereby examine the information content of identified events the ability of these methods to detect abnormal returns using simulation techniques is examined by brown and warner 1980 1984 morse 1984 addresses this issue analytically the analytical approach presumes that the event study data is generated by the process modeled while the simulation approach uses the security return data generated by the market simulation provides a tractable means of dealing with situations where an analytical approach may yield results suggesting direction but not magnitude or where such techniques are unusually cumbersome both limitations face us in this study brown and warner 1980 use monthly data to examine the comparative abilities of several combinations of return generating models and

a test of the structure of pac contracts an analysis of house gun control votes in the 1980s enactment of the bill was a major victory for the national rifle association which had worked for years to win relaxation of the landmark gun control act of 1968 congressional quarterly almanac 1986 p 82 i introduction every election the same political action committees pacs contribute millions of dollars to candidates for office well informed participants in the political process surely must get value for their money yet empirical research fails to provide systematic evidence that campaign contributions influence congressional roll call votes 1 a mischaracterization of the exchange between pacs and politicians may produce these contradictory results empirical studies of roll call voting typically use pac contributions from only one election cycle earlier studies generally assume prepayment in the prior congress while more contemporary studies assume a spot exchange recent empirical work however suggests another possibility interest groups may buy current influence with money spent over multiple election cycles stratmann 1995 shows that contributions from both the current and the previous election cycles influence floor votes on agricultural price supports snyder 1990 1992 presents evidence that interest groups make long term investments in politicians previous studies by arbitrarily imposing a payment structure may have produced erroneous estimates of the influence of pac money on legislative votes we examine roll call votes on gun control in the u s house of representatives during the 1980s to determine whether pacs make spot market purchases prepay for votes in the prior election cycle or make long term investments we investigate whether pac contributions have a durable long term investment effect as snyder 1992 suggests we consider two types of evidence concerning the campaign contribution contract first we examine the pattern of expenditures by the two dominant interest groups concerned with gun control the national rifle association nra and hand gun control hgc their expenditures provide strong evidence against the spot market exchange hypothesis both groups made significant expenditures in sessions of congress in which no floor vote occurred nor were these expenditures purchasing services such as committee work in a spot market exchange further 1986 nra expenditures are significantly higher for first term representatives which is consistent with long term investments but contradicts a spot exchange since freshmen have the least influence to sell second we include expenditures from both the current and the five previous election cycles as separate independent variables in a model of roll call voting to date no empirical paper tests whether pac money from more than two cycles influences roll call voting and only stratmann 1995 and grenzke 1989 use a model that specifies money from more than one cycle in an equation explaining roll call votes our probit estimates indicate that nra expenditures in the three most recent election cycles and hgc expenditures in the two most recent cycles buy votes the independent effect of expenditures from different cycles suggests that contributions are neither an unqualified one session prepayment nor a spot exchange the influence of nra expenditures two sessions prior to the roll call votes is evidence of a long term investment the literature on the determinants of roll call voting assumes that pac contributions alter representatives votes interest groups might instead simply provide campaign assistance to their supporters to affect the composition of congress stratmann 1991 bronars and lott 1997 if a difficult to quantify variable and thus omitted from regressions signals a representative s true position and interest groups make campaign contributions on the basis of this variable pac contributions might appear to influence votes the pattern of contributions and votes on gun control however indicates attempts by the nra and hgc to influence votes not merely the composition of congress

institution building with limited resources establishing a supreme audit institution in rwanda summary this study examines the tensions between best practice institutional benchmarks and local operational constraints in a developing country institution building process drawing on data from document studies and key informant interviews we investigate if and how staff capacity constraints affect the achievement of the programmatic ideal of supreme audit institution sai independence and what tradeoffs this gives rise to in the development of a sai oversight function in rwanda the empirical results suggest that capacity constraints negatively affect important aspects of sai independence and point to the need for contextual institutional solutions to safeguard independence as well as to tackle capacity constraints

the dynamics of political bureaucratic adaptation through the 1980s political science research produced a more dynamic view of how bureaucracies respond to changing political conditions however much of this research ignored the complex stimulus environment within which bureaucracies operate as well as the potentially rich bureaucratic response dynamic that can exist we extend our previous work on the dynamics of political control of the bureaucracy by developing a model of political bureaucratic adaptation themodel is tested with output data from four environmental protection agency programs between 1979 and 1988 the results show that politicalbureaucratic adaptation is indeed a more complex phenomenon than suggested by earlier research stimuli to bureaucratic behavior include discrete events event progressions and tonal shifts in the policy environment bureaucratic responses can be immediate delayed or distributed through time in probabilistic fashion substantively the results offer new insights on how political institutions affect bureaucratic behavior they also suggest how why and to what bureaucracy responds

the impact of banking deregulation on inbound foreign direct investment transaction level evidence from the united states abstract we evaluate the effects of state level banking deregulation that resulted in improved access to cheaper local finance on foreign firms investing in the u s we provide direct micro level evidence from u s inbound foreign direct investment transactions showing that interstate banking but not intrastate branching deregulation increased the number of transactions reduced the average transaction value and boosted overall investment by foreign multinationals we also show that lower cost of local credit and greater local bank competition in each state following the interstate banking deregulation are potential mechanisms that stimulated fdi activity finally we demonstrate that after the adoption of the interstate banking deregulation both the number and the average value of transactions increased in industries that are more dependent on external finance relative to industries that are less dependent

first branch or root the congress the president and the federal reserve much of the literature on the power of elected officials and bureaucratic agencies argues from an empirical perspective that bureaus appears to exercise autonomy in this paper a theoretical model sets out the conditions under which the congress the president and one agency we use the u s federal reserve as an extended example can dictate policy outcomes the results of the paper include the congressional dominance theorem if more than 2 3 of house members and more than 2 3 of senate members agree on something they get it the theorem is obvious the proof is in the u s constitution but often forgotten in the substantive literature more realistic results are derived for situations where the preferences of members of congress are more diverse powers of the president to influence policy with and without appointments are also analyzed

interacting factor endowments and trade costs a multi country multi good approach to trade theory abstract we provide a synthetic analysis of the different ways in which countries participate in the world economy classic trade questions are reconsidered by generalizing a factor proportions model to multiple countries multiple goods or multi stage production and country specific trade costs each country s production specialization trade and welfare is determined by the interaction between its relative endowment and its trade costs we consider the effects of allowing one good to fragment into component and assembly production the volume of trade and welfare levels are higher with fragmentation for most countries although for many countries these variables fall with fragmentation

politics and the rescue of insolvent savings and loans before 1989 the results presented in this paper are consistent with those predicted by public choice economists who believe that regulatory agencies represent the interests of their controlling congressional committees membership on committees is not random congressmen seek committee assignments where they can represent the interests of their constituency congressmen from states where financial institutions are significant will seek membership on their respective banking committees once on those committees congressmen will seek to protect and promote their own constituency in the case of the savings and loan industry insolvent savings and loans received benefits from staying in operation these savings and loans gained another chance to gamble for resurrection being shut down or placed in a management consignment program did not give this option the results presented in our paper indicate that participation in one of the rescue programs is not random savings and loans in states with political power representation on the senate banking committee are less likely to be resolved

trade costs and current accounts are trade cost reductions a plausible explanation for growing global current account imbalances i advocate that changes in trade costs affect trade and production structures which is likely to affect national savings and investment explicitly adding trade costs a la markusen and venables into jin s framework this augmented model predicts that trade cost reductions affect the current account through changes in the industrial structure empirical evidence confirms that the interaction of trade costs and capital intensity drives current account balances i also provide evidence that the response of current accounts to changes in trade costs depends on the capital intensity of production and on the depth of regional agreements on trade and factor mobility aside from the direct effect generally emphasised in standard macro level analysis changes in production patterns could therefore be an additional channel of impact of regional integration on current accounts

will bounty hunting revenue agents increase enforcement while the final version of the 1986 tax reform act retained budget funding of the irs the senate proposal to finance spending from audit revenues represented a seriously debated alternative that continues to receive attention as a method for increasing enforcement at one level the ultimate failure of the proposal is puzzling given congress s unwillingness to raise tax rates to cover spending the budget deficits of the 1980s must be financed from some other source inflation borrowing or increased enforcement turning the irs into a bounty hunting agency would seem to be a straightforward way of producing extra revenue

rethinking trade preferences how africa can diversify its exports this paper argues that the contribution of trade preferences to economic development needs to be reappraised in light of the growth of globalised trade in manufactures trade preferences may be able to act as a catalyst for manufacturing exports leading to rapid growth in exports and employment to do so preferences need to be designed to be consistent with international trade in fragmented tasks as opposed to complete products and need to be open to countries with sufficient levels of complementary inputs such as skills and infrastructure recent experience with the african growth and opportunities act shows that in the right conditions sub saharan african countries have had large manufacturing export supply response to trade preferences

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

capital rules the domestic politics of international regulatory harmonization in the past fifteen years financial regulators from the developed world have attempted to create international regulatory standards in a variety of financial issue areas their negotiations are notable for the stark variation in the preferences of regulators toward international regulatory harmonization certain regulators actively resist any attempts at regulatory harmonization while others are vocal in their advocacy for an international agreement when will regulators seek to harmonize their rules with their foreign counterparts i propose a principal agent framework for analyzing regulator behavior that views international harmonization as a means of satisfying domestic political pressures the framework predicts that regulators are more likely to seek international regulatory harmonization when confidence in the stability of financial institutions is declining and when competitive pressures are increasing from foreign firms facing less stringent regulations i explore the consistency of the framework with two important cases in the history of international financial regulation the negotiations among bank regulators leading up to the 1988 basel accord on bank capital adequacy and the negotiations among securities regulators over capital adequacy for securities firms between 1988 and 1992 i thank gabe aguilera david bach ethan bueno de mesquita dan carpenter bill clark mark copelovitch jeff frieden dan gingerich dan ho devesh kapur joseph n r sanberg ross schaap allan stam matt stephenson two anonymous reviewers and the editors of io for helpful comments discussions and feedback i am also indebted to the thirty current and former regulators and financial industry executives who participated in interviews to advance this project finally i thank the weatherhead center for international affairs and the center for european studies for research funding

the new economics of organization over the last ten years or so an important new approach to the study of organizations has emerged within economics it is perhaps best characterized by three elements a contractual perspective on organizational relationships a theoretical focus on hierarchical control and formal analysis via principal agent models this paper provides political scientists with an overview of the new economics of organization and explores its implications for the study of public bureaucracy so far positive political theory has not contributed much to our understanding of public bureaucracy in part this is due to the unsympathetic treatment that rational modeling and most other modes of quantitative analysis have long received from students of public administration the other side of the coin however is that positive theorists have not made much of an effort to develop theories of bureaucracy their concerns have centered around two basic mechanisms of social choice voting and markets and they have devoted little systematic attention to a third mechanism that is clearly important for understanding how societies and other aggregates make collective decisions this third and relatively unexplored mechanism is hierarchy movement toward a positive theory of hierarchies would fill a serious gap in the social choice literature while at the same time making a theoretical contribution that strikes to the essence of public bureaucracy indeed of all organizations in fact significant steps toward a positive theory of hierarchies have very recently been taken but by economists not political scientists in small numbers of course economists made contributions to the study of public bureaucracy some time ago with the pioneering works of downs 1967 tullock 1965 and niskanen 1971 but this new wave of theoretical work is different it is already a large complex body of literature that is the focus of innovation and excitement among a growing number of economists and it reflects an unusual degree of theoretical coherence and cumulative effort work in this tradition tends to receive orientation from a distinctive economic approach to the analysis of organizations an approach perhaps best characterized by three elements a contractual perspective on organizational relationships a focus on hierarchical control and formal analysis via principal agent models this approach has emerged from recent attempts to move beyond the neoclassical theory of the firm which assumes away all organizational considerations to a theory of economic organizations that can explain why firms corporations and other enterprises behave as they do propo

nonmarket strategy performance evidence from u s electric utilities this paper develops and tests a theory of the performance determinants of a firm s nonmarket strategy in shaping public policy outcomes building on the concept of political market attractiveness we argue that nonmarket performance is influenced by both the characteristics of a firm s regulatory and political environment especially rivalry among interest groups or politicians and by internal capabilities that enable a firm to mitigate political transaction costs using data on regulatory filings for rate increases made by u s electric utilities over a 13 year period we find empirical support for our approach

exposing corrupt politicians the effects of brazil s publicly released audits on electoral outcomes author s finan frederico ferraz claudio abstract this paper examines the extent to which access to information enhances political accountability based upon the results of brazil s recent anti corruption program that randomly audits municipal expenditures of federally transferred funds it estimates the effect of the disclosure of local government corruption practices upon the re election success of incumbent mayors in municipal elections comparing municipalities which were randomly audited before the elections with those audited after the analysis shows that the disclosure of audit results had a significant impact on the re election rates of mayors found to be corrupt for a one standard deviation increase in reported corruption the audit policy reduced the incumbent s likelihood of re election by 25 percent this effect is more pronounced in municipalities where radio stations are present and higher levels of corruption are identified these findings highlight the value of information and the role of the media in reducing informational asymmetries in the political process thus enabling voters to not only hold corrupt politicians accountable but also to reward non corrupt politicians

the limits of independence and the policy of the ecb it is argued that the european central bank s independence is not as secure as it seems and that as a result it has appreciable institutional incentives to protect and enhance its position it follows that its behaviour should not be understood as being solely determined by the pursuit of price stability one consequence is that certain points on which it has been criticised on the basis that its approach makes for ineffective monetary policy might be better understood as often effective attempts to protect its position another is that making a central bank or any other institution completely independent may be much harder than it seems and failed attempts which come close are not necessarily to be preferred even by the advocates of independence to less ambitious designs

spiders and snakes offshoring and agglomeration in the global economy abstract global production sharing is determined by international cost differences and frictions related to the costs of unbundling stages spatially the interaction between these forces depends on engineering details of the production process with two extremes being snakes and spiders snakes are processes whose sequencing is dictated by engineering spiders involve the assembly of parts in no particular order this paper studies spatial unbundling as frictions fall showing that outcomes are very different for snakes and spiders even if they share some features both snakes and spiders have in common a property that lower frictions produce discontinuous location changes and overshooting parts may move against their comparative costs because of proximity benefits and further reductions in frictions lead these parts to be reshored predictions for trade volumes and the number of fragmented stages are quite different in the two cases for spiders a part crosses borders at most twice the value of trade increases monotonically as frictions fall except when the assembler relocates and the direction of parts trade is reversed for snakes the volume of trade and number of endogenously determined stages is bounded only by the fragmentation of the underlying engineering process and lower frictions monotonically increase trade volumes

multinationals multi plant economies and the gains from trade a general equilibrium model of a multinational enterprise based on economies of multi plant operation is developed these economies are modelled as arising from the existence of a joint input whose productivity in each production facility is independent of the number of facilities maintained by a firm the multinational thus offers the world increased technical efficiency by eliminating the duplication of the joint input that would occur with independent national firms since this technical efficiency may come at the expense of increased market power the full determinants of home country host country and world welfare are considered

conflicts interest groups and politics in structural reforms abstract the present study is to my knowledge the first to examine the balance of power among all players influencing the adoption of structural reforms politicians regulators and interest groups special attention is devoted to the effect of conflicts between regulators professional conflicts signal to politicians that there is a high level of risk in implementing a given reform thereby weakening their confidence in it conflicts also benefit interest groups increasing their effectiveness vis a vis politicians using a unique data set on 32 attempts to reform israel s financial market i find that the greater the extent of conflicts among regulators and the greater the intensity of the opposition of interest groups the lower the probability that a reform will be approved these conflicts together with the strength of interest groups have led to repeated attempts to introduce reforms so that it takes on average 10 years for a reform to be adopted

the limits of tax and expenditure limits tel implementation as a principal agent problem previous scholarship has shown that tax and expenditure limits tels often fail to constrain government growth this paper views the implementation of tels as a principal agent problem agency theory predicts that delegation is affected by the preferences of agents and the costs of monitoring those agents using panel data for the us states from 1970 through 2008 i conduct an empirical test of the validity of the principal agent model for tels i find that state spending limitations are only effective at cutting the growth of state and local spending under the direction of agents who have a preference for limited government additionally state property tax limitations are only effective when monitoring does not require costly coordinated action these findings contradict an alternative theory of tel implementation that looks towards the policy s origin my research suggests that the arrangements of delegation determine when and under what conditions tels effectively reduce government growth

doctors with borders occupational licensing as an implicit barrier to high skill migration research on the political economy of immigration overlooks the specificity of human capital in skilled occupations and its implications for immigration preferences and policymaking conclusions that skilled americans are unconcerned about labor market competition from skilled migrants build on a simple dichotomy between high and low skill migrants in this article we show that natives turn to occupational licensing regulations as occupation specific protectionist barriers to skilled migrant labor competition in practice high skill natives face labor market competition only from those high skill migrants who share their occupation specific skills licensure regulations ostensibly serve the public interest by certifying competence but they can simultaneously be formidable barriers to entry by skilled migrants from a collective action perspective skilled natives can more easily secure sub national occupation specific policies than influence national immigration policy we exploit the unique structure of the american medical profession that allows us to distinguish between public interest and protectionist motives for migrant physician licensure regulations we show that over the 1973 2010 period states with greater physician control over licensure requirements imposed more stringent requirements for migrant physician licensure and as a consequence received fewer new migrant physicians by our estimates over a third of all us states could reduce their physician shortages by at least 10 percent within 5 years just by equalizing migrant and native licensure requirements this article advances research on the political economy of immigration and highlights an overlooked dimension of international economic integration regulatory rent seeking as a barrier to the cross national mobility of human capital and the public policy implications of such barriers

the institutional dynamics of policy administration bureaucratic influence over securities regulation theory a dynamic systems model of administrative politics that 1 relaxes restrictive causal assumptions among the president congress and an administrative agency 2 emphasizes aggregate institutional behavior and 3 analyzes both anticipated and unanticipated policy behavior is set forth as a more general means to investigate agency political relationships hypotheses the main set of hypotheses focus on the aggregate institutional relationships among the president congress and administrative agency these four possible hypotheses include bureaucratic influence bureaucratic autonomy mutual influence and political influence the purpose here is to assess the relative merits of competing explanations for bureaucratic behavior securities regulation is a perfect area of inquiry to investigate these competing perspectives since the findings of existing research on this topic are disparate methods vector autoregressive time series statistical methods are used to empirically test the dynamic systems model of administrative politics by examining three empirical models of sec enforcement behavior in relation to presidential and congressional budgetary preference signals for the 1949 92 annual period results the sec sends potent signals of their own via their changes in regulatory outputs that will affect the budgetary preferences of its political principles however the sec s administrative outputs are shown to be somewhat less sensitive to political budgetary preference signals than what one would expect presidential and congressional budgetary preference signals with respect to the sec are interdependent to a sizeable extent thus raising doubts about the separate independent effect democratic institutions have over the bureaucracy the implications of this study suggest that conventional theories of agency political relations serve as an oversimplified way to study administrative behavior future research on this topic

the political economy of government responsiveness theory and evidence from india the determinants of government responsiveness to its citizens is a key issue in political economy here we develop a model based on the solution of political agency problems having a more informed an politically active electorate strengthens incentives for governments to be responsive this suggests that there is a role both for democratic institutions and the mass media in ensuring that the preferences of citizens are reflected in policy the ideas behind the model are tested on panel data from india we show that public food distribution and calamity relief expenditure are greater controlling for shocks where governments face greater electoral accountability and where newspaper circulation is highest

demand for and regulation of cardiac services centralization of cardiac services can increase hospital surgery volumes and decrease access for patients this study estimates the effects of changes in the regulation of cardiac services on treatments mortality and utility demand for surgery services by heart attack victims who form expectations of the need for and productivity of surgery in their choice of hospital and treatment is estimated the results indicate that mortality and ex ante utility are insensitive to moderate changes in policy changes in surgery volume and travel costs offset one another despite similar health outcomes the competing policies have different implications for taxpayers

determinants of the amount and type of corruption in state fiscal bureaucracies an analysis of late imperial china a principal agent model of relations between rulers and state officials is used to derive several propositions concerning the amount and type of corruption in state bureaucracies the model is appl

assessing competition in hospital care markets the importance of accounting for quality differentiation quality differentiation is especially important in the hospital industry where the choices of medicare patients are unaffected by prices unlike previous studies that use geographic market concentration to estimate hospital competitiveness this article emphasizes the importance of quality differentiation in this spatially differentiated market i estimate a random coefficients discrete choice model that predicts patient flow to different hospitals and find that demand responses to both distance and quality are substantial the estimates suggest that patients do not substitute toward alternative hospitals in proportion to current market shares implying that geographic market concentration is an inappropriate measure of hospital competitiveness

the impact of monetary regime changes some exchange rate evidence abstract lucas has argued that coefficient changes can be explained by changing expectations caused by the policy regime shifts this paper provides evidence consistent with the lucas critique using an efficient markets news framework kalman filter results show that surprise relative u s monetary expansion is associated both with periods of u s depreciation and appreciation i show that variables representing changes in monetary policy regimes can explain a substantial fraction of the movements in the time varying parameter

factor movements and commodity trade as complements abstract several models are presented in which factor mobility leads to an increase in the volume of world trade the models share the common characteristic that the basis for trade is something other than differences in relative factor endowments these alternative bases for trade include returns to scale imperfect competition production and factor taxes and differences in production technology taken together the models suggest a more general idea the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models

is hospital competition socially wasteful we study the consequences of hospital competition for medicare beneficiaries heart attack care from 1985 to 1994 we examine how relatively exogenous determinants of hospital choice such as travel distances influence the competitiveness of hospital markets and how hospital competition interacts with the influence of managed care organizations to affect the key determinants of social welfare expenditures on treatment and patient health outcomes in the 1980s the welfare effects of competition were ambiguous but in the 1990s competition unambiguously improves social welfare increasing hmo enrollment over the sample period partially explains the dramatic change in the impact of hospital competition

a political theory of regulation with some observations on railway abandonments one of the main themes of partisan dispute in the recent past and doubtless in the foreseeable future is whether or not the value of detailed governmental regulation of the economy exceeds the cost this is exactly the kind of dispute that might be resolved by raising it from the level of mere partisan interest to the level of economic and political science unfortunately however it has not been raised because we do not have the necessary intellectual apparatus namely a theory about the motivation for the operation of and the consequences of regulation as a result most of the discussion consists of biased ad hoc explanations of particular cases with little effort to formulate and test alternative generalizations we have therefore nothing but unresolved and unresolvable disputes about a more or less random collection of stories and some contradictory recipes about cause and effect

trade in goods and trade in tasks an integrating framework abstract we introduce a simple but flexible analytical framework in which both trade in goods and trade in tasks arise we use this framework to provide versions of the gains from trade and the famous four ho theorems heckscher ohlin factor price equalisation stolper samuelson and rybczynski that apply to this environment we extend our framework to accommodate monopolistic competition and two way offshoring and to integrate theoretical results of the early offshoring literature

a political model of monetary policy with application to the real fed funds rate abstract we construct an empirical model of u s monetary policy assuming that the federal reserve is an ordinary federal bureaucracy we use the real federal funds rate as our policy measure and show the existence of significant executive legislative and bureaucratic influence on the real rate of interest from 1961 to 1996 we find that presidential party is an adequate statistical measure of executive influence and that the voting scores of the senate banking committee leadership best represent legislative influence we argue that political changes cause systematic and predictable changes in monetary policy

checks and balances and the supply of central bank independence abstract the paper analyzes the institutional conditions under which policymakers can credibly commit to an independent central bank and thereby mitigate the well known time consistency problem in monetary policy it is shown theoretically that granting independence via a statute is only credible for legislative systems with at least two heterogeneous decision making bodies which both have veto rights for example bicameral systems this thesis is supported by empirical evidence the legal independence of central banks is significantly higher in those oecd countries whose legislative processes are characterized by extensive checks and balances furthermore the negative relation between legal independence and inflation is larger in countries with checks and balances than in countries without checks and balances

balancing environmental protection and energy production in the federal hydropower licensing process the u s federal energy regulatory commission ferc must balance environmental protection of riverine resources with the nation s growing demand for power production every time it issues a hydroelectric license this paper models the bureaucratic agency s decision making process in issuing these licenses data on nearly 500 hydro power licenses issued from 1983 to 2005 are utilized it is discovered that legislative and institutional constraints are by far the largest influences on ferc s regulatory decisions implying that if the current allocation of surface water in the united states is considered inefficient the most effective way to alter this allocation is by passing new legislation or by implementing institutional reform at ferc

government organization and power i introduction economists have systematically examined the economics of government finance and long ago established that the means of financing government creates inefficiencies in the market for instance see baumol and bradford 1970 and diamond and mirrlees 1971a 1971b what may be less well examined and understood is that apart from the distortions that arise from the means of government finance government officials can have an incentive to provide a combination of services and taxes that are nonoptimal as in niskanen 1997 the ability of government to exercise coercive and pricing power creates these incentives a growing number of articles explore the effect of government power on its size for example anderson and tollison 1988 and rogers and rogers 1995 examine the implications of pricing power for government size in his work on bureaucracy niskanen 1971 considered the implications of coercive power for government size olson 1991 mcguire and olson 1996 niskanen 1997 and mcguire 2001 examine the implications of the joint exercise of coercive and pricing powers by an autocratic government to our knowledge however no previous work explicitly distinguishes between the coercive and pricing powers of government and none systematically examines all the possible combinations of coercive and pricing powers in the present analysis we develop a simple theoretical framework that allows us to examine on an integrated basis the exercise of government power the framework abstracts from any distortions in the means of government finance and separates government power into two dimensions pure coercive power and pure pricing power pure coercive power is the ability of a government to compel consumers to accept more of the public good than they desire at each tax price through fiat coercive power typically arises when citizens are unable to exit a jurisdiction costlessly and the government is able to push citizens beyond what they would accept in a voluntary relationship pure pricing power is the government s ability to restrict output along a given demand curve and earn rents by doing so pricing power typically arises when the government has limited competition and faces a downward sloping demand curve for its services we consider four polar combinations of coercive and pricing power in comparison to the social optimum lindahl democracy monopoly niskanen bureaucracy and autocracy as shown in figure 1 the government in lindahl democracy exercises neither coercive nor pricing power a monopoly government is able to restrict its output and exercise pricing power to earn rents in a traditional monopolistic fashion but it cannot engage price discrimination or expropriation to obtain any remaining consumer surplus from its citizens a niskanen bureaucracy can exact all of the surplus that consumers obtain from the public goods it provides but it must use the surplus in the production of public goods it cannot exercise pricing power and restrict output to obtain rents as a monopoly would an autocracy exercises both coercive and pricing power in practice democratic governments are likely to have both coercive and pricing powers rather than to conform to the lindahl ideal our analytical framework allows us to clarify and reconcile the differences between some of the previous contributions to the literature on government power and size in democracy a government can simultaneously use its coercive power to grow too large and its pricing power to restrict its output and earn rents furthermore government size or rents alone may be poor indicators of the extent to which government fails to achieve optimality in its provision of services government power may be used to generate rents provide too much government service or a combination of both ii social optimum consider a jurisdiction or economy with n identical individuals and two goods a purely public good and a purely private good

a public choice theory of the great contraction the conventional chicago wisdom about the great contraction is that it was the result of a massive policy failure according to this view the collapse of the economy was brought about mostly by the fact that the monetary policymakers of the day were more concerned with internal power struggles than with supplying reserves to member banks an explanation which with apologies to professor stigler must have elicited uproarious laughter at the bankers club it has been our purpose in this paper to suggest an alternative theory briefly stated the restrictive monetary policy pursued by the fed from 1929 to 1933 was motivated by the economic interests of member banks the fed s policy produced a massive differential failure rate between member and nonmember banks in which the latter were eliminated at a rate at least five times higher than the former fed member banks faced substantially less competition in the banking market after the house cleaning than before although all banks suffered net losses in the short run in the long run member bank profitability was enhanced by the reduction in the number of nonmember competitors at the same time the fed itself benefitted from a substantial increase in the proportion of the total banking system within its bureaucratic jurisdiction and from a change in its method of finance putting the great contraction in interest group terms we suggested that the fed was acting as the agent of congressmen serving on important oversight committees who in turn were representing the interests of the member banks in their states due to interstate branching restrictions the state is the relevant geographic market within which banks compete we tested this hypothesis using bank failure rate data across states and found that holding other things equal the failure rates of nonmember banks in the early 1930s were significantly higher in states with representation on the house banking and currency committee of course not even friedman and schwartz 1963 299 301 argue that fed policy was the sole direct cause of the great contraction but instead maintain that the fed acted in such a way as to take a relatively severe contraction and turn it into by far the most severe business cycle contraction in the whole of u s history but to the extent that the great contraction was worsened by fed policy and this in turn led to the succession of events called the great depression the latter was a side effect of economically rational interests of federal reserve member banks to say the least this would appear to have been an enormously inefficient method of obtaining the postulated benefits certainly there were other less costly methods available by which member banks could have reduced the number of their nonmember rivals this is perhaps the most difficult problem our theory of the great contraction confronts we can offer two responses first although the literature on the great depression tends to focus on fluctuations in national macroeconomic aggregates e g the money supply unemployment and so on it is clear that the severity of the depression differed radically across states states with relatively large agricultural sectors tended to be especially hard hit suffering the highest rates of unemployment and the most significant numbers of bank failures by contrast states in some other areas most notably new england and the southeast seemed to be less seriously affected we note that in some of our regressions the number of nonmember bank failures was negatively and significantly related to state unemployment rates in 1934 this is certainly not conclusive evidence but it does suggest a pattern of differential costs associated with the great contraction that is the costs of providing benefits to federal reserve member banks in states with representation on the relevant oversight committees may have fallen more heavily on the economies of states not so represented if so this would cast a very different light on the actual costs of these policies to the relevant political decision makers second the potential dilemma in this case is no worse than that encountered in the application of the economic theory of politics to many other kinds of government behavior economists since adam smith have ascribed protectionist trade policies to the influence of special interest groups who benefit modestly at the cost of relatively huge economic inefficiencies many other government actions that might be plausibly explained from an interest group perspective would similarly seem to involve costs to the economy which grossly outweigh the benefits special interests might reasonably expect presumably even in such seemingly extreme cases marginal benefits equal marginal costs to the relevant actors some writers have suggested that the political marketplace in modern democracies is characterized by much larger transactions costs than are normally encountered in ordinary markets see demsetz 1982 this might help explain the seemingly huge discrepancies we observe between apparent concentrated benefits and diffused costs in depression era monetary policy in any event this problem is not peculiar to our theory but is shared by many applications of the interest group model of government it is worth emphasizing that the events we have described do fall into the interest group model s stylized depiction of concentrated benefits versus diffuse costs moreover without having a complete picture of all of the options available to the monetary policymakers we cannot be sure that any of the alternatives was in fact more efficient we do know the path that was chosen and that contrary to the conventional wisdom this path had a rationally motivated interest group basis

testing theories of agency behavior evidence from hydropower project relicensing decisions of the federal energy regulatory commission theories of agency behavior are examined via an application to hydropower project relicensing by the federal energy regulatory commission ferc in the relicensing of each project fish and wildlife agencies submit recommendations to ferc ferc then enters a twostage deliberation process for each recommendation econometric analysis of these decisions covers 933 recommendations made for 72 projects relicensed during 1980 96 a new law the electric consumers protection act substantially altered ferc s decisions while a new administration the clinton administration exerted a mixed effect both events influenced the number of recommendations per project made by the fish and wildlife agencies

geographical disadvantage a heckscher ohlin von thunen model of international specialization abstract we analyse the trade and production patterns of countries located at varying distances from an economic centre exports and imports of final and intermediate goods bear transport costs which increase with distance we show how production and trade depend on factor endowments and factor intensities and also on countries locations and the transport intensities of different goods countries divide into zones with different trade patterns some export oriented and others import substituting we study the implications of distance for factor prices and real incomes the effects of changes in transport costs and the locational choice of new activities

competing for global capital or local voters the politics of business location incentives the competition for global capital has led to interjurisdictional competition between countries states and cities as to who can offer the most attractive incentives to firms in this study we examine the domestic politics of this competition by focusing on incentive use in the united states from 1999 to 2012 we define incentives as the targeted tax deductions or exemptions that are used to lure businesses into a locality drawing on data from municipal incentive programs we examine how electoral competition shapes the use and oversight of targeted incentives we find evidence that cities with elected mayors provide larger incentives than non elected city managers by taking advantage of exogeneity in the assignment of city government institutions and a database of over 2000 investment incentives from 2010 to 2012 we also find that elected mayors enjoy more lax oversight of incentive projects than their appointed counterparts our results have important implications for the study of interjurisdictional competition and the role of electoral institutions in shaping economic policy

how social security and medicare affect retirement behavior in a world of incomplete markets this paper provides an empirical analysis of how the u s social security and medicare insurance system affect the labor supply of older males in the presence of incomplete markets for loans annuities and health insurance we estimate a detailed dynamic programming dp model of the joint labor supply and social security acceptance decision focusing on a sample of males in the low to middle income brackets whose only pension is social security the dp model delivers a rich set of predictions about the dynamics of retirement behavior and comparisons of actual vs predicted behavior show that the dp model is able to account for wide variety of phenomena observed in the data including the pronounced peaks in the distribution of retirement ages at 62 and 65 the ages of early and normal eligibility for social security benefits respectively we identify a significant fraction of health insurance constrained individuals who have no form of retiree health insurance other than medicare and who can only obtain fairly priced private health insurance via their employer s group health plan the combination of significant individual risk aversion and a long tailed pareto distribution of health care expenditures implies that there is a significant security value for these individuals to remain employed until they are eligible for medicare coverage at age 65 overall our model suggests that a number of heretofore puzzling aspects of retirement behavior can be viewed as artifacts of particular details of the social security rules whose incentive effects are especially strong for lower income individuals and those who do not have access to fairly priced loans annuities and health insurance

measuring international trade costs the costs of international trade have become an increasingly important item in trade negotiations under the heading trade facilitation and element of trade theory but definition and measurement of trade costs remain in their infancy this paper argues that the most conceptually appropriate measure is the gap between cost insurance freight cif and free on board fob values of traded goods but that this must be measured on a consistent volume of trade such data are only available for a few countries we calculate cif fob gap values for the three largest trading nations that report such data australia brazil and the usa these values provide plausible estimates of ad valorem trade costs for the three importing countries and for all countries exports the estimates indicate that although trade costs have fallen over the last two decades average trade costs now exceed the average tariff rate on imports into the usa and australia country rankings by the cif fob gap values differ significantly from those by commonly used proxies for trade costs such as the indicators of time and cost in the world bank s doing business database and analysis based on such proxies is likely to produce misleading results