unemployment rates and political outcomes an incentive for manufacturing a political business cycle in recent years the interdependence of politics and economics has received an increasing amount of attention by both economists and political scientists the explanation for this interest lies in the rediscovery of political economy and may be at least partly due to the recent experiences that governmental advisors have had with simultaneously increasing inflation and unemployment conventional macroeconomic approaches have failed to pin point causes for the stagflation and to provide methods for solving the problem the traditional economic policies may have failed in part because these traditional solutions were simply not plausible in the political environments in which they were proposed it is the intent of a growing body of work to develop macromodels with endogenous political sectors the inference made in this literature is that 1 the economy can be manipulated or affected by a political sector and that 2 there is an incentive for the political sector to manipulate the economy this literature has however just begun to formalize the interaction of the political and economic sectors and empirical work is virtually nonexistent the purpose of this paper is to present some evidence on these two inferences in section 1 the first inference is examined in section ii literature on which the first inference is based is reviewed and evidence on the possible incentive to create such a cycle is presented in section iii concluding remarks are offered

the electoral impact of economic conditions who is held responsible a variety of recent research has dealt with the impact of economic conditions on congressional elections the underlying assumption of this research has been that the effects of economic fluctuations are distributed evenly across members of the president s party by focusing on subgroups of congressional candidates we demonstrate that the importance of economic conditions varies widely specifically we show that the aggregate electoral margins of incumbents are far more responsive to economic conditions than are those for nonincumbents and that among in party incumbents the relationship is stronger among those with higher levels of tenure further we demonstrate that the previous lack of individual level confirmation of the aggregate relationship has been due to a failure to control for the contextual effects implied by our conditional aggregate analysis with controls for district incumbency we find a relationship between retrospective personal financial condition and vote choice that mirrors the aggregate relationship between retrospective performance of the national economy and congressional vote totals

macroeconomic policy in a two party system as a repeated game this paper considers the interaction of two parties with different objectives concerning inflation and unemployment and rational and forward looking wage setters if discretionary policies are followed an economic cycle related to the political cycle results in equilibrium this cycle is significantly different from the traditional political business cycle reputational mechanisms due to the repeated interaction of the two parties and the public or commitments to a common policy rule can improve upon the discretionary outcome by reducing or eliminating the magnitude of the economic fluctuations

an equilibrium politico economic model an equilibrium politico economic model i introduction recent empirical studies by alesina and sachs 1986 and haynes and stone 1987 have found that political elections have significant implications for the time paths of employment and inflation explnations of this phenomenon fall into two general categories political business cycle theories and partisan theories in political business cycle models it is assumed that the government has both the ability and desire to manipulate the economy for electoral purposes partisan theories suggest that if competing parties follow different policies it is the surprise of an election result that causes a response from the economy however partisan theories can only explain why different parties experience different levels of employment and output early in an electoral term here a partisan model is developed in which economic and political shocks before an election have asymmetric effects on inflation employment and voting behavior depending on which party is in power and which economic variables effect voting ii political structure and voting two political parties compete periodically for control of the government the parties are distinguished by their expected monetary growth rates denoted mu sup h high and mu sup l low the electorate consists of a continuum of voters distributed uniformly on the interval p p individuals located closer to p are more favorably pre disposed to party h let x sub t be an index of the relative popularity of the parties at time t if x sub t 0 party h has a plurality of support if x sub t in nonelection years the expected monetary growth rate will be the incumbents trend rate while in election years it will be the probabilistically weighted average of the two parties expected monetary growth rates iii economic structure the economy is described by a rational expectations macro model unemployment is determined by the surprise phillips curve u sub t eta sub 0 eta sub 1 sub t 1 pi sup e sub t pi sub t epsilon sub t where sub t 1 pi sup e sub t denotes expected inflation and epsilon sub t a real shock distributed epsilon sub t is approx n 0 sigma sup 2 sub epsilon independent over time eta sub 0 is greater than 0 and eta sub 1 is greater than 0 are constants eta sub 0 is the natural rate the rate of inflation is given by pi sub t mu sup s sub t mu sup d sub t where mu sup s sub t and mu sup d sub t are respectively the growth rates of the nominal money supply and demand for real beginning of period cash balances

ethical influences on the evolution of the us tradable permit approach to air pollution control abstract in 1975 a novel approach to air pollution control was implemented in the usa from this rather humble beginning this approach has now been expanded rather dramatically in several different directions this paper describes this evolution shows how the design of the system has been adapted to accommodate ethical concerns and describes how the latest versions of this approach have transformed the regulatory process which spawned the approach in the first place

emission trading vs rigid regulations in the control of vehicle emissions this paper presents the results of an empirical study of the cost savings associated with a marketable permit system for light duty vehicles relative to the current system of uniform standards the sensitivity of cost savings estimates to model specification are examined including estimation approaches for obtaining cost functions issues of the functional form of emission control cost functions and choice of pollution variables included in the estimated cost functions additionally the precision of point estimates of cost savings are explored using a simulation method for obtaining estimates of the standard errors of cost savings

general economic conditions and national elections the fact that economic conditions influence voters is a leading commonplace of conversation in election years the question is is this fact in fact a fact despite the overwhelming popularity of the fact it has received neither an explicit theoretical analysis presumably because it is so obvious that economic adversity should create political adversaries nor until recently a satisfactory statistical analysis gerald h kramer has presented a multivariate analysis of congressional elections which would strongly suggest that fluctuations in the rate of unemployment have no appreciable effect upon elections but that fluctuations in per capita real income are influential in the following pages i propose to 1 reaffirm his finding on the electoral unimportance of ordinary fluctuations in unemployment 2 argue that contrary to kramer fluctuations in real income also do not have important electoral effects and 3 present an argument based upon rational voter behavior for the unimportance of general economic conditions in national elections

medical interventions among pregnant women in fee for service and managed care insurance a propensity score analysis this paper extends earlier research on the effect of managed care on the receipt of four medical interventions for pregnant women ultrasound induction stimulation of birth electronic fetal monitor and caesarean delivery propensity score methods are used to account for sample selection issues regarding insurance choice managed care enrollees are more likely to receive an ultrasound which may be indicative of receiving better prenatal care managed care plans reduce the rate of caesarean deliveries but such limitations may be beneficial given the substantial medical evidence that caesarean deliveries are over utilized the results indicate that insurance coverage does influence treatment intensity but that utilization controls and provider financial incentives do not adversely affect care for pregnant women

does there exist a political business cycle a box tiao analysis theories of the political business cycle are by now common they range from the elegant theoretical work of nordhaus 1975 to the essentially empirical work of tufte 1978 they all assume that politicians manipulate the economy to aid their reelection efforts in particular politicians manipulate macroeconomic policy to create a boom just before election day golden and poterba 1980 provide an excellent review of this literature both tufte and nordhaus provide casual evidence for the existence of a political business cycle using inflation and unemployment rates as indicators of macroeconomic outcomes tufte and nordhaus predict at a minimum that unemployment should be decreasing before election day if presidents are really manipulating the economy very well then unemployment should be at a minimum in the october before the election and hence should be rising after the election in the nordhaus version the economy pays for the pre election boom with a post election surge in the inflation rate nordhaus also suggests that the president should engineer a recession early in his term to reduce inflationary expectations tufte 1978 20 presents graphs of the unemployment series and claims that visual examination shows them to be generally consistent with the hypothesis however he provides no statistical tests of the hypothesis nor does he estimate the quantitative impact of elections on unemployment tufte does not examine the inflation series nordhaus restricts himself to comparing unemployment rates in the two years preceeding and following an election with a simple nonparametric test supporting the hypothesis the literature provides several good empirical tests of the political business cycle hypothesis both paldam 1979 and mccallum 1978 test for the existence of four year cycles and find none however they do not test for discontinuous changes in the series around election day golden and poterba examine whether the use of policy instruments changes near election day and

environmental benefits from marketable discharge permits or an ecological vs economical perspective on marketable permits abstract economists typically extol the virtues of marketable discharge permits based on their ability to obtain a given environmental standard at least cost previous empirical studies of marketable permits have quantified the benefits from the use of permits relative to a command and control system in terms of cost savings occasionally the benefits of a permit system are described by noting that the efficiency of such systems would allow improved environmental quality relative to a command and control system for the same cost that is the increased efficiency resulting from a permit system would allow environmental regulators to tighten emission standards resulting in less pollution while still holding costs at their initial level this paper presents a simple conceptual model that examines the potential emission savings from a marketable permit system the conceptual model is empirically implemented with data on abatement costs for light duty vehicles in california the emission saving potential is directly compared with the cost saving potential although cost savings from a marketable permit system in this context are found to be relatively modest on the order of 1 to 10 the emission savings potential is found to be much larger estimates of the emission savings possibilities range from about 7 to 65

a new view of political accountability for economic performance most political support models imply that in evaluating economic performance voters use a standard that would provide poor predictions of the future and leave the economy vulnerable to manipulation by vote hungry politicians drawing on macroeconomic theory we develop a simple standard of evaluation which encompasses a concern not only for current economic outcomes but also for accurately assessed future consequences of current policies we find that political support for the president can be explained as well by models that assume that voters use this sophisticated standard as by models that assume voter naivete our analysis questions the wisdom of measures typically used to assess voter evaluation of economic performance in a variety of theoretical contexts the results also help to explain the absence of convincing evidence that governments exploit voter ignorance in manipulating the economy

presidential popularity and macroeconomic performance are voters really so naive f ollowing the pioneering work of kramer 1971 numerous studies have analyzed the relationships between the macroeconomic performance of political administrations and their popularity or vote getting ability kramer s work showed that the aggregate congressional vote for an incumbent party can be explained rather well by variables indicating recent economic performance subsequent works have extended kramer s research by explaining presidential vote or gallup poll popularity data with similar models on one point almost all of these studies agree 2 votes and popularity can be explained well by models which suppose that voters judge policymakers on the basis of retrospective evaluation of past macroeconomic outcomes most authors interpret their results as being supportive of the hypothesis of rational voters since the evidence indicates that voting decisions are not based purely upon personalities party affiliation or chance kramer argued that if voters regard past macroeconomic performance of an administration to be indicative of future performance then a concern with past performance indicates a concern for future performance voters who simply extrapolate from the past to predict the future are rather naive however a sophisticated voter who has an understanding of the important intertemporal constraints embodied in the structure of the economy would be able to forecast future consequences of current policy choices more accurately than one who simply extrapolates if votes and popularity are simply functions of past outcomes then voters must either be ignorant of the basic structure of the economy or unconcerned with the future the supposition that voters are so naive might run counter to the intuition of most economists who generally assume individual rationality as a central behavioral postulate nevertheless the empirical results noted above have been accepted by many as evidence that voters do misperceive their own long run interest the implications of the naive voter hypothesis for macroeconomic policymaking are disturbing nordhaus 1975 has developed a model which shows that voter naivete can encourage vote maximizing politicians to induce political business cycles and an inflationary bias there is some but not unanimous empirical support for the existence of politically motivated business cycles and casual empiricism also suggests that politicians themselves believe in the naive voter 3 while studies show that empirical evidence is consistent with the notion that voters are concerned with the recent past the results do not reject a sophisticated voter hypothesis none of the aforementioned studies has tested a model consistent with a sophisticated voter hypothesis i e a model in which voters understand what outcomes are feasible in the long and short runs and are concerned with future as well as current and past economic performance in this paper we develop such a model and estimate it using gallup poll data on presidential popularity results of this model are compared to results from a naive voter model similar to those employed in previous research received for publication february 4 1982 revision accepted for publication july 30 1982 university of south carolina i am grateful for helpful comments provided by ray fair douglas hibbs william keech daniel richards abel l da costa fernandes and an anonymous referee i also wish to thank william keech for providing me with the gallup poll data on presidential approval rates aurel schubert provided excellent research assistance fair 1978a bloom and price 1975 arcelus and meltzer 1975 and pollard 1981 a 1981 b have all estimated models to explain voting while frey and schneider 1978 and hibbs i 982a 1982b have developed models to explain presidential popularity 2 an exception is provided by arcelus and meltzer 1975 3nordhaus 1975 and tufte 1978 have provided evidence of political business cycles for a number of western democracies and frey and schneider 1978 and maloney and smirlock 1981 have estimated policy reaction functions suggesting that the timing of elections affects policymaking see tufte for a discussion of casual empirical evidence indicating that politicians believe that current economic conditions affect electoral outcomes

social preferences inflation unemployment and political business cycles econometric evidence for the reagan presidency it is now common for theoretical analyses of macroeconomic policy to assume that the public s social preferences between inflation and unemployment may be represented by an indifference map that is concave to the origin and most assume that the functional form is quadratic we estimate such a quadratic social preference function we proxy public satisfaction by the public s rating of presidential performance using gallup poll data 2 such data have been widely used by both economists and political scientists in analyses of the economic and non economic determinants of presidential popularity 3 as we have found 33 that over the period 1953 to 1988 there have been structural shifts in the relationship between presidential popularity and inflation and unemployment we limit our analysis to only one presidency the reagan administration

is the political business cycle really dead a decade ago in this journal mccallum 26 proclaimed the theory of the political business cycle 30 25 17 to be dominated by the emergence of the rational expectations literature 23 24 34 clearly the two theories are inconsistent when a strong view of rational expectations sees governments unable to manipulate real variables to create booms in election years since then new developments in macroeconomics have occasioned serious doubts as to whether the strong version of rational expectations is supported by the data 28 2 1 31 12 furthermore new advances in the political business cycle literature 36 4 have attempted to reconciliate the two theories by emphasizing that expectation errors may result from the presence of party dependent policy reaction functions and uncertainty about election outcomes the purpose of this paper is to step back and reconsider whether or not the empirical evidence presented by mccallum favoring rational expectations for the u s was really that strong and could be generalized to other countries here the u k given that the rational expectations hypothesis has been rejected at least in the strong mccallum and sargent version 26 34 it

business cycles and the political process the interrelationship between the political sector and the macroeconomy in democratic societies has been examined extensively in recent years research in this area has generally been concerned with two issues first following the lead of kramer 16 various authors have examined the impact of economic conditions on congressional 1 13 21 24 and presidential elections 4 5 the results at the congressional level have been mixed but it is reasonably safe to conclude that economic conditions do affect presidential elections the second issue and the one of primary concern in this study has dealt with the development of models of politico economic interaction the basic concept in these models is that an administration s popularity and therefore the probability of staying in power depends critically on economic conditions knowing this the administration seeks to manipulate the economy in order to maintain power the use of economic tools for political goals by governments is well established in the literature theoretical contributions by nordhaus 20 and macrae 18 have demonstrated the potential for a politically motivated business cycle in a world of politico economic interaction empirical support for the existence of such a cycle is provided by the work of frey and schneider 7 8 9 the main purpose of this paper is to develop a theoretical model of the political business cycle that generates empirically testable proposition the goal is to integrate the theoretical conclusions of a formal model similar to the nordhaus 20 and macrae 18 framework with the empirical support provided by frey and schneider 7 8 9 the possibility of a political business cycle is important for several reasons in macroeconometric models government policy that is endogenous to the system is usually treated as if it were exogenous this may cause serious misspecification errors further forecasts of the future course of economic events which depend heavily on government action will be inaccurate unless the political motivations of governments are considered

presidential popularity and the economy abstract this study tests the hypothesis that the sensitivity of the president s popularity to economic events differs across distinct demographic groups assuming that presidental popularity is negatively related to both the unemployment rate and the inflation rate the electorate is disaggregated according to sex age race education income and political affiliation and separate regressions are estimated for the individual subgroups using quarterly data covering 1976 through 1988 statistically significant differences in the marginal effects of unemployment and inflation on presidential approval are discovered for the various subgroupings

monopoly monopsony and contestability in health insurance a study of blue cross plans i introduction blue cross and blue shield plans the plans have historically occupied a unique niche in health care pauly 1987 notes that the plans serve both as sellers of health insurance and as buyers of health services marmor 1991 described the plans development of health insurance concepts in the 1930s their role as innovators permitted them to occupy a dominant market share position in most geographic areas as a result blair ginsburg and vogel 1975 believe they have traditionally received favorable regulatory treatment including non profit organization status and exemption from taxation potentially the plans have dual market power 1 monopoly power in the market for health insurance and monopsony power in the market for health services this may result in operating inefficiencies and may produce adverse welfare consequences monopsony theory posits that the plans will reduce payments to providers and may stifle innovation in the market for health services this occurs as the result of the plans dominant market shares generated from the fact that they were often the first in the market for insurance and from their ability to enforce a credible threat to reduce providers business should providers refuse to provide reduced cost services the plans dominant market share and their advantage in the market for health services permit them to maintain a competitive advantage in the market for health insurance 2 monopoly theory suggests that the plans advantage in the market for medical services due to regulatory and tax advantages will cause them to i raise premium prices ii sell only a limited range of health insurance policies iii offer policies with more complete coverage than consumers demand 3 iv reduce innovation in the health insurance market and v demonstrate unduly high administrative costs in the 1970s empirical work supported these predictions however the 1980s has been an era of growth of competition and the potential for even more competition in the market for health insurance baumol panzar and willig 1982a noted that a credible threat of entry can produce competitive market conditions in a concentrated market resulting in reduced prices increased quantity and more efficient administrative cost structures if pauly is correct that there are no inherent scale economies in the health insurance market and if the market for health insurance is contestable the plans will pass advantages along to subscribers as reduced premiums and will tolerate fewer administrative cost inefficiencies accordingly the plans present an opportunity to study market structure and its impact in both the market for health care and the market for health care insurance to date no study has evaluated this interplay greater understanding of these interactions is important not only to deal with the phenomena of the plans for instance more appropriate regulatory policies but also to refine the single payer debate and to consider operating standards for health alliances and health plans included in the administration s health care reform package outlined by the white house domestic policy council 1993 section ii of this paper evaluates prior studies of the plans section iii motivates the model for plan behavior section iv describes the results of our empirical study of the plans premium pricing provider payment and administrative costs section v contains our conclusions ii prior studies of plan behavior a number of prior studies have evaluated the plans unique position in the market for health insurance and in the market for health care most focus on the plans monopsony power and payments to providers most important they evaluate markets that have gone through substantial change as health maintenance organizations and preferred provider organizations hmos and ppos have replaced fee for service plans several assess market power and administrative costs

demand reduction in multi unit auctions with varying numbers of bidders theory and evidence from a field experiment recent auction theory and experimental results document strategic demand reduction by bidders in uniform price auctions the present article extends this area of research to consider the effects of varying the number of bidders our theoretical model predicts that demand reduction should decrease with an increase in the number of bidders considerable demand reduction remains even in the asymptotic limit although truthful bidding yields profits very close to those of equilibrium play we experimentally confirm several of our predictions by examining bidding behavior of subjects in an actual marketplace auctioning dozens of sportscards using both uniform price and vickrey auction formats

the administrative costs of non profit health insurers interest in the efficiency or inefficiency of non profit firms has spawned research on the administrative costs of blue cross and blue shield plans relying on plausible implications of the property rights theory of the firm both blair ginsburg and vogel 1975 and vogel 1977 noted some evidence of inefficiency in these firms our analysis however utilizing their models and more recent data reveals little convincing evidence for the view that blue shield plans are inefficient

contestability vs competition analyzes the ultra free entry as normative contribution to industrial organization ultra free entry in context of the evolving field of industrial organization assessment of the conceptual validity of william baumol elizabeth bailey john panzar and robert willig s analysis in representing the nature of competition empirical issues in measuring and testing ultra free entry ebsco

competition between non profit and for profit health insurers this study investigates the effects of tax regulatory and reimbursement policies and other factors exogenous to the health insurance market on the relative price to commercial insurers paid by blue cross plans for hospital care their administrative expense and accounting profits premiums and ultimately blue cross market share we specify and estimate a simultaneous equation model to assess interrelationships among these variables we conclude that premium tax advantages enjoyed by the blues have virtually no effect on the blues premiums or their market shares a blue cross plan s market share has a positive effect on the discount it obtains from hospitals as does coverage of blue shield charges by a state mandated rate setting plan an upper bound on the effect on the blue cross market share of covering blue cross under rate setting but excluding the commercials from such coverage is seven percentage points tests for administrative slack in the operation of blue cross plans yield mixed results

it s the economy and then some modeling the presidential vote with state panel data using data for the 50 us states for presidential elections from 1972 to 2004 two theories for determining state voting outcomes are considered jointly the economy matters and home grown ness theories fixed effects regressions show that measures of the economy matters real income unemployment and a proxy for inflation have the predicted effects on state voting patterns for presidential elections the home grown theory receives mixed support there is weak evidence that incumbent party candidates garner greater support in their home states there is strong support however for the proposition that incumbent party candidates fare worse in the home state of rival party candidates

revisions to us labor market data and the public s perception of the economy using the monthly employment situation reports for 1994 2013 this paper studies the revisions to us employment data the paper shows that the first press release underestimates net job creation in expansions and overestimates it in downturns the errors in reporting the data on the labor market can distort the public s perception about the stance of the labor market and have some political consequences this is well reflected by the finding that the job approval rating of president obama the index of consumer confidence and the economic conditions index of gallup have all been responding to the initial news on the us labor market as they were published in the employment situation reports

economic voting and the symbolic politics argument a reinterpretation and synthesis economic voting is generally regarded as a straightforward political demand for the amelioration of economic grievances this assumption about motives underlies the implicit theories of politicians and the imputations of interests to voters in aggregate time series models several recent articles have argued that voting is not self interested but a manifestation of symbolic preferences at the level of the collectivity this article places the dispute between personal and collective decision referents into the broader perspective of a multi stage model of information processing and decision making personal and collective decision referents are shown to define the poles of a continuum and several hypotheses are derived to predict the relative weights assigned to each in the voter s calculus the model is used in analyses of both the public s evaluations of incumbent economic management and economic voting in different electoral arenas by varying issue publics designed to maximize comparability with aggregate studies this research includes both objective and subjective measures of economic conditions and indexes changes in personal conditions over time from panel data

market share and the illusion of power can blue cross force hospitals to discount researchers in health care financing have claimed that large private insurers like blue cross frequently exercise monopsony power to obtain discounts from normal hospital charges they claim that the monopsony power derives from a large blue cross share of a given hospital cost shifting whereby hospitals offset the discount by raising charges to less powerful customers this paper re examines both theoretically and empirically the conditions necessary for a private insurer to extract discounts from a hospital we demonstrate that the theoretical conditions necessary for blue cross to force a discount do not exist in the indiana market using revenue data from 110 indiana hospitals we reject the traditional claim that blue cross pays less than other insurers as a function of market share