sequential formation of coalitions in games with externalities and fixed payoff division this paper analyzes a sequential game of coalition formation when the division of the coalitional surplus is fixed and the payoffs are defined relative to the whole coalition structure gains from cooperation are represented by a valuation which maps coalition structures into payoff vectors i show that any core stable coalition structure can be attained as a stationary perfect equilibrium of the game if stationary perfect equilibria may fail to exist in general games a simple condition is provided under which they exist in symmetric games furthermore symmetric stationary perfect equilibria of symmetric games generate a coalition structure which is generically unique up to a permutation of the players a general method for the characterization of equilibria in symmetric games is proposed and applied to the formation of cartels in oligopolies and coalitions in symmetric majority games journal of economic literatureclassification numbers c78 c71 1996 academic press inc

the political economy of conflicts over wealth why don t the rabble expropriate the rich the most striking feature of liberal democracies is the coexistence of large inequalities of wealth with a roughly egalitarian distribution of voting power so far most attempts to explain this have asked why don t the poor form a coalition to expropriate the rich this paper argues that this is not necessarily the best way to interpret the problem and attempts to provide an alternative unified political economic model that is more consistent with standard assumptions about voting this is done by studying what would happen if every possible coalition could form in a wealth distribution game among the main findings is that if the marginal contribution of every individual to production is increasing sufficiently there is a stable distribution of the product this may include the egalitarian distribution if individuals are not so valuable there is no stable distribution

the democratic political economy of progressive income taxation why do both left and right political parties typically propose progressive income taxation schemes in political competition analysis of this problem has been hindered by the two dimensionality of the issue space to give parties a choice over a domain that contains both progressive and regressive income tax policies requires an issue space that is at least two dimensional nash equilibrium in pure strategies of the standard two party game whose players have complete preferences over a two dimensional policy space generically fails to exist i introduce a new equilibrium concept for political games based on the fact of factional conflict within parties each party is supposed to consist of reformists militants and opportunists each faction has a complete preference order on policy space but together they can only agree on a partial order nash equilibria of the two party game where the policy space consists of all quadratic income tax functions and each party is represented by its partial order exist and it is shown that in such equilibria both parties propose progressive income taxation

racism xenophobia and redistribution we model political competition as a contest between parties that represent constituents and which announce policies in a two dimensional policy space the first dimension concerns the degree of redistribution and the second the race or immigration issue given the distribution of voter preferences on this space a political equilibrium is determined we study the effect that racist or anti immigrant preferences in the polity have on equilibrium values of the redistributive policy for the united states there is a substantial reduction in distribution below what it counterfactually would have been absent racism for the uk france and denmark there are effects of the same sign but with different magnitudes jel d70 d72 d30

candidate reputations and the incumbency effect abstract a major shortcoming of the classical median voter model is that its central prediction convergence of platforms to the median voter s ideal is seldom observed one reason is that the classical model neglects the importance of voter expectations as a determinant of votes here we associate voters expectations about candidates with past as well as current candidate pronouncements and assume that incumbents whose actions are consistent with their reputations are perceived as less risky than challengers in equilibrium candidates choose distinct platforms typically neither adopts the median voter s ideal point either candidate may win depending on how well the incumbent s reputation reflects current voter tastes and how relatively risky the electorate perceives the challenger to be

wicksell lindahl and the theory of public goods wicksell s and lindahl s ideas on public goods and decisions are reviewed in light of later developments in the theoretical economics literature i begin by discussing their normative ideals in particular the notion of justness and the sources of the difficulties in reaching them wicksell s and lindahl s ideal states as well as the obstacles that they perceive are compared to more recent views on free riding and on the behavior of elected representatives their views on political bargaining are then related to later concepts in particular to the core of the economy

revealed social preferences of dutch political parties we measure the redistributive preferences of dutch political parties using unique detailed information from their election proposals by employing the inverse optimal tax method we calculate the political weights across the income distribution for each political party we find that all dutch political parties give a higher political weight to middle incomes than to the poor moreover the political weights of the rich are close to zero furthermore we detect a strong political status quo bias as the political weights of all political parties hardly deviate from the weights implied by the pre existing tax system we argue that political economy considerations are key in understanding these results

a solution concept for majority rule in dynamic settings we define and explore the notion of a dynamic condorcet winner dcw which extends the notion of a condorcet winner to dynamic settings we show that for every dcw every member of a large class of dynamic majoritarian games has an equivalent equilibrium and that other equilibria are not similarly portable across this class of games existence of dcws is guaranteed when members of the community are sufficiently patient we characterize sustainable and unsustainable outcomes study the effects of changes in the discount factor investigate efficiency properties and explore the potential for achieving renegotiation proof outcomes we apply this solution concept to a standard one dimensional choice problem wherein agents have single peaked preferences as well as to one involving the division of a fixed aggregate payoff

political motivations and electoral competition equilibrium analysis and experimental evidence we study both theoretically and experimentally the complete set of nash equilibria of a classical one dimensional majority rule election game with two candidates who might be interested in power as well as in ideology but not necessarily in the same way apart from obtaining the well known median voter result and the two sided policy differentiation outcome the paper uncovers the existence of two new equilibrium configurations called one sided and probabilistic policy differentiation respectively our analysis shows how these equilibrium configurations depend on the relative interests in power resp ideology and the uncertainty about voters preferences the theoretical predictions are supported by the data collected from a series of laboratory experiments as we observe convergence to the nash equilibrium values at the aggregate as well as the individual levels in all treatments and the comparative statics effects across treatments are as predicted by the theory

history path dependence and development evidence from colonial railroads settlers and cities in kenya little is known about the extent and forces of path dependence in developing countries colonial era railroad construction in kenya provides a natural experiment to study the emergence and persistence of spatial equilibrium data spanning over one century shows that railroads determined the location of european settlers asian traders and the main cities at independence europeans then left asians departed and railroads declined in the immediate post independence period constituting local shocks to physical and human capital yet the colonial cities persisted we test four explanations for path dependence based on institutional persistence technological change sunk investments and spatial coordination failures

fairness self interest and the politics of the progressive income tax all advanced democracies have adopted income taxes with considerable progression in marginal tax rates to explain this we examine the nature of individual and collective preferences over alternative tax schedules in the context of a simple two sector model we first consider the case of altruistic or sociotropic citizens who view the income tax as a means of achieving a fairer or more egalitarian distribution of income we show that greater marginal rate progressivity may well be less fair that a fairest tax however defined is always a linear or flat rate schedule in which all incomes are taxed at the same marginal rate and that with a purely sociotropic electorate there exists a flat rate schedule which is a majority equilibrium we then show that with self interested voters who seek to minimize their own tax burdens greater marginal rate progression may well be preferred by middle and upper income voters that for middle income citizens the optimal schedule is a sharply progressive one and that within the set of individually optimal schedules there exists a majority equilibrium which is a progressive schedule which minimizes the burden on median income or middle class citizens at the expense of lower and upper income taxpayers

representative democracy and marginal rate progressive income taxation abstract this paper develops a political economy model that is consistent with the fact that democracies have a preference for increasing marginal tax rates on income we present a model in which there is an exogenous set of political parties with preferences over the set of admissible tax schedules this set contains virtually any increasing and piecewise linear continuous function each party decides whether or not to present a candidate for election there is a fixed cost of running the elected candidate implements one of her preferred tax policies our main results provide conditions under which a strong nash equilibrium exists and a tax schedule with increasing marginal tax rates is implemented in some nash equilibria and in any strong nash equilibrium

production and conflict models versus rent seeking models a production and conflict p c model and a rent seeking rs model are compared for one group two groups and k groups adding a new agent enlarges the pie in the p c model but causes the fixed size pie to be allocated on one more rent seeker in the rs model the total production or rent is distributed within and between groups according to the within group and between group decisiveness productive and fighting efficiencies and group sizes play a role the collective action problem is more severe for the rs model as group size increases the ratio of within group to between group fighting increases marginally toward a constant for the p c model while it increases convexly for the rs model adding an additional agent to each of two groups is more detrimental to the utilities in rs groups than in p c groups while adding a second group of agents when there is already one group of agents gives the reverse result the severe between group fighting in the p c model for many groups causes the p c model to be preferable for few groups while the rs model is preferable for many groups applications are considered to intergroup migration inside versus outside ownership divestitures mergers and acquisitions multidivisional versus single tier firms and u form versus m form of economic organization

is there a demand for income tax progressivity recently marhuenda and ortuno ortin economics letters 48 1995 319 have provided a popular support for progressivity theorem that says that a marginal progressive tax always defeats a marginal regressive tax as long as individuals vote for the tax scheme minimizing their tax liabilities and the median income is less than the mean income in this paper we provide under similar circumstances a popular support for regressivity theorem according to which for any existing tax scheme there is always a majority support for a regressive reform reducing marginal progressivity or increasing marginal regressivity this regressive reform is supported by both extremes of the income distribution combining this result with marhuenda and ortuno ortin s result implies that vote cycling between regressive and progressive tax reform is inevitable and thus that the demand for progressivity cannot be established in the standard downsian framework with self interested voters

party polarization in legislatures with office motivated candidates we develop a theory of legislative competition in which voters care about local candidate valence and national party positions that are determined by the parties median legislators as long as election outcomes are sufficiently predictable the only stable equilibria exhibit policy divergence between the parties if the degree of uncertainty about election outcomes decreases and if voters place less weight on local candidates valence polarization between the parties increases furthermore a systematic electoral shock makes the party favored by the shock more moderate while the disadvantaged party becomes more extreme finally we examine data on state elections and the ideological positions of state legislatures and find patterns that are consistent with key predictions of our model

factions and political competition this paper presents a new model of political competition in which candidates belong to factions before elections factions compete to direct local public goods to their local constituencies the model of factional competition delivers a rich set of implications relating the internal organization of the party to the allocation of resources in doing so the model provides a unified explanation of two prominent features of public resource allocations the persistence of possibly inefficient policies and the tendency of public spending to favor incumbent party strongholds over swing constituencies

fractionalization and the size of government i study the effect of voters with a group based social conscience voters care more about the well being of those belonging to their own group than the rest of the population within a model of political tax determination both fractionalization and group antagonism reduce the support for redistribution whereas within group inequality increases support for redistribution inequality between groups has the opposite effect these results hold even if a poor group forms a majority using a panel constructed from us micro data i find support for the hypothesis that within race inequality increases redistribution while between race inequality decreases redistribution

a theory of endogenous coalition structures consider an environment with widespread externalities and suppose that bind ing agreements can be written we study coalition formation in such a setting our analysis proceeds by defining on a partition function an extensive form bargaining game we establish the existence of a stationary subgame perfect equilibrium for such a game our main results are concerned with the characterization of equilib rium coalition structures we develop an algorithm that generates under certain conditions an equilibrium coalition structure our characterization results are especially sharp for symmetric partition functions in particular we provide a uniqueness theorem and apply our results to a cournot oligopoly journal of economic literature classification numbers c71 c72 c78 d62 q 1999 academic press

a social coalitional equilibrium existence lemma the purpose of this paper is to construct an abstract model of a society in which each member can cooperate with others by forming a coalition but at the same time can be influenced by the members outside the coalition a new concept of equilibrium called here a social coalitional equilibrium is proposed and a sufficient condition for its existence provided the social coalitional equilibrium may be considered a synthesis of the nash equilibrium a noncooperative solution concept and the core a cooperative solution concept the paper provides a broadly applicable mathematical tool for proving existence of equilibrium for models of labor managed market economies the purpose of the present paper is to construct an abstract model of a society in which each member can cooperate with others by forming a coalition but at the same time can be influenced by the members outside the coalition a new concept of equilibrium called here a social coalitional equilibrium is proposed and a sufficient condition for its existence provided a coalition structure is endogenously determined in equilibrium when the model is suitably specified it describes noncooperative behavior of the members and the social coalitional equilibrium is reduced to the nash equilibrium given another extreme specification the model is reduced to a cooperative game without sidepayments in characteristic function form and the set of social coalitional equilibria corresponds precisely to the core the need for study of the present model arose originally out of the author s recent investigation of labor managed market economies both the socialistic version and the capitalistic version in 10 11 12 indeed the model and the concept of social coalitional equilibrium were obtained by abstracting and generalizing the formal aspect of those studies the socialistic labor managed market economy has long been the object of study of various authors see e g vanek 19 the capitalistic labor managed market economy seems to reflect the institutional aspect of the modern capitalistic society better than the economies formulated by other available general equilibrium models it differs for example from the standard private ownership economy of arrow and debreu 1 see also debreu 6 sec 5 5 in that i the ownership and control of a firm are separated ii no particular firm is given a priori but instead the list of potential firms is given as a primitive datum and iii the behavioral principle of the economic agents involves both noncooperative behavior and cooperative behavior because of the above feature ii any general equilibrium model of this economy has to formulate the economic mechanism that underlies the formation of firms in equilibrium as

farsighted coalitional stability abstract i define the largest consistent set a solution concept which applies to situations in which coalitions freely form but cannot make binding contracts act publicly and are fully farsighted in that a coalition considers the possibility that once it acts another coalition might react a third coalition might in turn react and so on without limit i establish weak nonemptiness conditions and apply it to strategic and coalitional form games and majority rule voting i argue that it improves on the von neumann morgenstern stable set as it is usually defined but is consistent with a generalization of the stable set as in the theory of social situations journal of economic literature classification numbers c70 c71

endogenous credible commitment and party competition over redistribution under alternative electoral institutions political parties competing in elections for the power to set public policy face the problem of making credible their policy promises to voters i argue that this commitment problem crucially shapes party competition over redistribution the model i develop shows that under majoritarian electoral rules parties efforts to achieve endogenous commitment to policies preferred by the middle class lead to different behavior and outcomes than suggested by existing theories which either assume commitment or rule out endogenous commitment thus left parties can have incentives to respond to rising income inequality by moving to the right in majoritarian systems but not under proportional representation the model also generates new insights about the anti left electoral bias often attributed to majoritarian electoral rules and the strategic use of parliamentary candidates as a commitment device i find evidence for key implications of this logic using panel data on party positions in 16 parliamentary democracies

creative destruction barriers to urban growth and the great boston fire of 1872 urban growth requires the replacement of outdated buildings yet growth may be restricted when landowners do not internalize positive spillover effects from their own reconstruction the boston fire of 1872 created an opportunity for widespread simultaneous reconstruction initiating a virtuous circle in which building upgrades encouraged further upgrades of nearby buildings land values increased substantially among burned plots and nearby unburned plots capitalizing economic gains comparable to the prior value of burned buildings boston had grown rapidly prior to the fire but negative spillovers from outdated durable buildings had substantially constrained its growth by dampening reconstruction incentives

voting over income taxation abstract a major problem of the positive theory of income taxation is to explain why statutory income tax schedules in practice are marginal rate progressive while it is commonly believed that this is but a simple consequence of the fact that the number of relatively poor voters exceeds that of richer voters in general putting this contention in a voting equilibrium context is not a trivial task we do this here in the context of nonlinear taxation and attempt to provide a formal argument in support of this heuristic claim we first establish the existence of mixed strategy equilibria and identify certain cases in which marginal rate progressive taxes are chosen almost surely by the political parties unfortunately we also find that if the tax policy space is not artificially constrained the support of at least one equilibrium cannot be contained within the set of marginal rate progressive taxes

high tech clusters innovation capabilities and technological entrepreneurship evidence from ireland underpinned theoretically by the capabilities perspective the purpose of this study is to identify capabilities in high technology activity within the irish economy a deeper understanding of the capabilities that underscore the economy at present is needed to determine the strengths to build on and how they can be cultivated for future economic growth in particular this study focuses on the evolution of capabilities both technological and those that are more intangible such as managerial expertise and their source of development the argument underpinning this study is that analysing industrial dynamics using aggregate data on employment trade and numbers of firms in distinct sectors provides an incomplete picture such an approach fails to capture evolving technologies that may cross sectoral boundaries therefore in this study a unique methodological approach that uses an analysis of highly specified products and services produced in the economy is employed to identify high tech capabilities more specifically the approach is applied to the case of medical technology activity in ireland the evolution and nature of capabilities is examined using an exploratory analysis of the medical technology cluster in the west of ireland in particular

electoral competition with uncertainty averse parties abstract the non existence of equilibria in models of electoral competition involving multiple issues is one of the more puzzling results in political economics in this paper we relax the standard assumption that parties act as expected utility maximizers we show that equilibria often exist when parties with limited knowledge about the electorate are modeled as uncertainty averse what is more these equilibria can be characterized as a straightforward generalization of the classical median voter result

primaries the unifying force we present a formal model of intra party politics to explain candidate selection within political parties we think of parties as heterogeneous groups of individuals who aim to implement a set of policies but who differ in their priorities when party heterogeneity is too great parties are in danger of splitting into smaller yet more homogeneous political groups in this context we argue that primaries can have a unifying role if the party elite cannot commit to policy concessions our model shows how three factors interact to create incentives for the adoption of primary elections namely 1 the alignment in the preferred policies of various factions within a party 2 the relative weight of each of these factions and 3 the electoral system we discuss the existing empirical literature and demonstrate how existing studies can be improved in light of our theoretical predictions to provide a new structured perspective on the adoption of primary elections

malaria suitability urbanization and persistence evidence from china over more than 2000 years abstract we show that the climatic potential for plasmodium falciparum malaria transmission constituted a locational fundamental that influenced the spatial distribution of urbanization since the early start of the southward expansion of the han chinese around 200 bce this effect is still detectable in today s distribution of urbanization and economic activity even though the risk of malaria falciparum has been successfully eliminated we do not find any indication of convergence between high and low malaria potential regions after eradication our identification strategy relies on a climate based measure of plasmodium falciparum malaria transmission intensity which is fitted to experimental data on mosquito and parasite development from laboratory studies this measure is exogenous with respect to human population densities

redistributing income under proportional representation although majoritarian decision rules are the norm in legislatures relatively few democracies use simple majority rule at the electoral stage adopting instead some form of multiparty proportional representation moreover aggregate data suggest that average income tax rates are higher and distributions of posttax income flatter in countries with proportional representation than in those with majority rule while there are other differences between these countries this paper explores how variations in the political system per se influence equilibrium redistributive tax rates and income distributions a three party proportional representation model is developed in which taxes are determined through legislative bargaining among successful electoral parties and the economic decision for individuals is occupational choice political economic equilibria for this model and for a two party winner take all majoritarian system are derived and compared

spatial evolution of population and industry in the united states what features characterize the evolution of the u s urban system in this past century to what extent has the 500 percent increase in national urban population during 1900 1990 been accommodated by growth in numbers versus sizes of cities given the radical changes in the u s economic geography has the relative size distribution of city sizes changed significantly with say strong increases in urban concentration and primacy a popular notion as urbanization slowed after world war ii did fluctuations in city sizes and upward downward mobility of cities dampen as an arthur scale economy framework would predict brian arthur 1990 finally what natural geographic features of a city promote growth how important are climate location neighbor cities and the like an interrelated set of questions concerns the agglomeration and mobility of industrial activity within the set of cities are industries that are subject to greater scale economies both more agglomerated and less mobile for industries that are not subject to scale economies why does agglomeration occur central to answering these questions is measuring the nature and extent of scale economies this paper reports results on these two sets of issues using population census data for 1900 1990 and manufacturers census data for 1963 1992 for a selection of machinery and high tech industries

urban growth and transportation we estimate the effects of interstate highways on the growth of u s cities between 1983 and 2003 we find that a 10 increase in a city s initial stock of highways causes about a 1 5 increase in its employment over this 20 year period to estimate a structural model of urban growth and transportation we rely on an instrumental variables estimation that uses a 1947 plan of the interstate highway system an 1898 map of railroads and maps of the early explorations of the u s as instruments for 1983 highways we investigate the role of interstate highways in the growth of u s cities our investigation is in three parts in the first we develop a simple structural model describing the joint evolution of highways and employment in cities in the second we develop an instrumental variables strategy that allows us to identify key parameters of our structural model we are also able to provide out of sample evidence for the validity of our estimates and for the central assumptions of our model in the third we use our estimates to assess counterfactual transportation policies we find that a 10 increase in a city s stock of interstate highways causes about a 1 5 increase in its employment over 20 years and that an additional kilometre of highway allocated to a city at random is associated with a larger increase in employment or population than is a road assigned to a city by the prevailing political process our results also suggest that too many new highways were built between 1983 and 2003 these findings are important for three reasons first transportation generally and infrastruc ture in particular are large segments of the economy the median u s household devotes about 18 of its income to road transportation while all levels of government together spend another 200 billion dollars annually overall the value of capital stock associated with road transporta tion in the u s tops 5 trillion dollars united states bureau of transportation statistics 2007 2010 given the magnitude of transportation expenditures it is important that the impact of these expenditures on economic growth be carefully evaluated and not assessed on the basis of the claims of advocacy groups our analysis provides a basis for assessing whether these resources are well allocated our results also provide useful guidance to policy makers charged with planning cities since changes in a city s transportation infrastructure cause changes to the city s employment new transportation infrastructure causes complementary changes in the demand for public utilities and schools our results provide a basis for estimating the magnitude of such changes finally this research is important to furthering our understanding of how cities operate and grow transportation costs are among the most fundamental quantities in theoretical models

the problem of polarization this paper offers a unified political economy explanation of political extremism and moderation regarding income redistribution unlike the standard spatial voting model the explanation herein recognizes that extremists are distinguished not only by their political positions but also by the intensity with which they hold them the paper uses an extension of aumann and kurz s econometrica 45 5 1137 1161 1977 bargaining model to endogenize moderation and extremism in the context of democratic voting the extension shows that low income voters tend to be bolder in their redistributive demands and high income voters tend to be more tenacious in defending them these hypotheses are evaluated empirically using the political action panel study

the global spatial distribution of economic activity nature history and the role of trade we explore the role of natural characteristics in determining the worldwide spatial distribution of economic activity as proxied by lights at night observed across 240 000 grid cells a parsimonious set of 24 physical geography attributes explains 47 of worldwide variation and 35 of within country variation in lights we divide geographic characteristics into two groups those primarily important for agriculture and those primarily important for trade and confront a puzzle in examining within country variation in lights among countries that developed early agricultural variables incrementally explain over 6 times as much variation in lights as do trade variables while among late developing countries the ratio is only about 1 5 even though the latter group is far more dependent on agriculture correspondingly the marginal effects of agricultural variables as a group on lights are larger in absolute value and those for trade smaller for early developers than for late developers we show that this apparent puzzle is explained by persistence and the differential timing of technological shocks in the two sets of countries for early developers structural transformation due to rising agricultural productivity began when transport costs were still high so cities were localized in agricultural regions when transport costs fell these agglomerations persisted in late developing countries transport costs fell before structural transformation to exploit urban scale economies manufacturing agglomerated in relatively few often coastal locations consistent with this explanation countries that developed earlier are more spatially equal in their distribution of education and economic activity than late developers

trains trade and transaction costs how does domestic trade by rail affect market prices of malawi agricultural commodities this paper measures the impact of low cost transport by rail in malawi on the dispersion of agricultural commodities prices across markets by exploiting the quasi experimental design of the nearly total collapse of domestic transport by rail in january 2003 due to the destruction of a railway bridge at rivirivi balaka estimations are based on monthly market prices of four agricultural commodities maize groundnuts rice and beans in 27 local markets for the period 1998 2006 market pairs connected by rail when the railway line was operational are intervention observations railway transport services explain a 14 percent to 17 percent reduction in price dispersion across markets geographical reach of trade varies by crop most likely related to storability and geographical spread of production perishability appears to increase impact reflecting limited scope for arbitrage overall impacts are remarkably similar in size across commodities

a consistent bargaining set abstract both the core and the bargaining set fail to satisfy a natural requirement of consistency in excluding imputations to which there exist objections the core does not assess the credibility of such objections the bargaining set goes a step further only objections which have no counterobjections are considered justified however the credibility of counterobjections is not similarly assessed we formulate a notion of a consistent bargaining set in which each objection in a chain of objections is tested in precisely the same way as its predecessor various properties of the consistent bargaining set are also analyzed

democracy as an equilibrium observation shows that while democracy is fragile in poor countries it is impregnable in developed ones to explain this pattern i develop a model in which political parties propose redistributions of incomes observe the result of an election and decide whether to comply with the outcome or to launch a struggle for dictatorship democracy prevails in developed societies because too much is at stake in turning against it more income can be redistributed in developed than in poor countries without threatening democracy limits on redistribution arise endogenously so that constitutions are not necessary for democracy to endure a democratic culture characterizes the equilibrium

explaining the performance of contract farming in ghana the role of self efficacy and social capital abstract self efficacy is the belief of an individual to have the ability to be successful in a given domain social capital is the economic value of a person s relationships in the context of this study self efficacy is the belief of a farmer to be able to improve her income with contract farming which increases her actual ability social capital increases the ability of the farmers through social support we surveyed 400 smallholder pineapple farmers and find that both self efficacy and social capital are decisive for their successful integration into contract farming to identify causal effects we use two instruments which are also of interest on their own the historical presence of 1 cocoa cooperatives and 2 christian missionary schools during ghana s colonial period the british established cocoa cooperatives which differed in their performance as a function of biogeographic factors and thus persistently shaped the self efficacy of the farmers roughly at the same time christian missionaries established missionary schools which impacted the traditional societies so that social capital decreased the finding that self efficacy and social capital are still shaped by historic variables could indicate that these variables are only slowly changing or that they only do so in the absence of policy intervention the latter raises the possibility that effective policies could benefit from strong reinforcing feedbacks once self efficacy and social capital improve

income distribution and equilibrium multiplicity in a stigma based model of tax evasion abstract this paper incorporates continuous income distribution into the stigma based model of tax compliance the paper investigates the effect of income distribution on the existence of multiple equilibria and characterizes the conditions under which multiple equilibria emerge precisely multiple equilibria exist if taxpayer incomes are sufficiently homogeneous because the social coordination effect dominates the individual characteristics effect numerical simulations show that the main proposition is robust to allowing two step audit policies on the part of the tax agency under the presumption that the best or good equilibrium is selected whenever there are multiple equilibria as a byproduct the effect of various forms of tax reforms on the optimal two step audit policy the equilibrium compliance and fiscal revenue is analyzed

knowledge is power a theory of information income and welfare spending no voters cast their votes based on perfect information but better educated and richer voters are on average better informed than others we develop a model where the voting mistakes resulting from low political knowledge reduce the weight of poor voters and cause parties to choose political platforms that are better aligned with the preferences of rich voters in us election survey data we find that income is more important in affecting voting behavior for more informed voters than for less informed voters as predicted by the model further in a panel of us states we fi nd that when there is a strong correlation between income and political information congress representatives vote more conservatively which is also in line with our theory

political competition within and between parties an application to environmental policy this paper presents a political economy model that explains the low rate of emission taxes in the u s as well as the fact that neither democrats nor republicans propose to increase them the voters differ according to their wage and capital incomes which are assumed to have a bivariate lognormal distribution they vote over the emission tax rate and a budgetary rule that specifies how to redistribute the tax proceeds the political competition is modeled a la roemer 2001 where the two parties care for the policies they propose as well as the probability of winning the equilibrium solution concept is the party unanimity nash equilibrium pune we calibrate the model using u s data and compute the punes numerically two main results emerge all viable punes entail subsidies on emissions as opposed to taxes this indicates the importance of distributional concerns in garnering political support for environmental policies second parties always propose an interior value for the budgetary rule even though all citizens prefer extreme values this illustrates the emergence of political compromise to attract voters

the long term effects of africa s slave trades can part of africa s current underdevelopment be explained by its slave trades to explore this question i use data from shipping records and historical documents reporting slave ethnicities to construct estimates of the number of slaves exported from each country during africa s slave trades i find a robust negative relationship between the number of slaves exported from a country and current economic performance to better understand if the relationship is causal i examine the historical evidence on selection into the slave trades and use instrumental variables together the evidence suggests that the slave trades have had an adverse effect on economic development

anarchy and its breakdown anarchy defined as a system in which participants can seize and defend resources without regulation from above is not chaos but rather a spontaneous order however anarchy is fragile and may dissolve either into formless amorphy or into a more organized system such as hierarchy under anarchy each contestant balances between productive exploitation of the current resource base and fighting to acquire or defend resources anarchy is sustainable only when there are strongly diminishing returns to fighting effort the decisiveness parameter is sufficiently low and incomes exceed the viability minimum these considerations explain many features of animal and human conflict

understanding preferences for income redistribution abstract recent research suggests that income redistribution preferences vary across identity groups we employ statistical learning methods that emphasize pattern recognition classification and regression trees cart and random forests randomforests to uncover what these groups are using data from the general social survey we find that out of a large set of identity markers only race gender age and socioeconomic class are important classifiers for income redistribution preferences further the uncovered identity groupings are characterized by complex patterns of interaction amongst these salient classifiers we explore the extent to which existing theories of income redistribution can explain our results but conclude that current approaches do not fully explain the findings

the permanent effects of transportation revolutions in poor countries evidence from africa we exploit the construction and eventual demise of the colonial railroads in africa to study the impact of transportation investments in poor countries using ghana and sub saharan africa as a whole we assembled new data on railroads and cities spanning over one century to show that i railroads had large effects on the spatial distribution and aggregate level of economic activity during the colonial period as they constituted a transportation revolution in a context where no modern transportation technology previously existed ii these effects have persisted to date although railroads collapsed and road networks expanded considerably in the post independence period the analysis contributes to our understanding of the heterogeneous impact of transportation investments it shows that initial investments may have a large effect in poor countries with basic infrastructure as the countries develop increasing returns may then solidify their spatial distribution and subsequent investments may have a smaller effect on local economic development

majority support for progressive income taxation with corner preferences this paper studies voting over quadratic taxation when incomeis fixed and taxation non distortionary the set of feasibletaxes is compact and self interested voters have cornerpreferences we first show that if a majority winning taxpolicy exists it involves maximum progressivity we then givea necessary and sufficient condition on the incomedistribution for a majority winner to exist this conditionappears to be satisfied for a large class of distributionfunctions

why the poor do not expropriate the rich an old argument in new garb we consider a political economy with two partisan parties each party represents a given constituency of voters if one party labour represents poor voters and the other christian democrats rich voters if a redistributive tax policy is the only issue and if there are no incentive considerations then in equilibrium the party representing the poor will propose a tax rate of unity if however there are two issues tax policy and religion for instance then this is not generally the case the analysis shows that if a simple condition on the distribution of voter preferences holds then as the salience of the non economic issue increases the tax rate proposed by labour in equilibrium will fall possibly even to zero even though a majority of the population may have an ideal tax rate of unity 1998 elsevier science s a all rights reserved

inequality social insurance and redistribution is the political support for welfare policy higher or lower in less egalitarian societies we answer the question using a model of welfare policy as publicly financed insurance that pays benefits in a redistributive manner when voters have both redistributive and insurance motives for supporting welfare spending the effect of inequality depends on how benefits are targeted greater inequality increases support for welfare expenditures when benefits are targeted to the employed but decreases support when benefits are targeted to those without earnings with endogenous targeting support for benefits to those without earnings declines as inequality increases whereas support for aggregate spending is a v shaped function of inequality statistical analysis of welfare expenditures in advanced industrial societies provides support for key empirical implications of the model

the politics of progressive income taxation with incentive effects this paper studies majority voting over quadratic taxation and investigates under which conditions marginal progressivity emerges as a voting outcome in our model with endogenous income there is no majority condorcet winning tax schedule we then investigate less demanding political equilibrium concepts in order to see under which conditions the set of equilibria is composed only of progressive tax functions we follow three strategies i reduction of the policy space to the tax functions that are ideal for some voter ii elimination of weakly dominated strategies and the use of mixed strategies in a standard downsian two party competition game iii assumption that political parties interact repeatedly and care about the size of their majority although each approach captures a different aspect of political behavior they point to the same simulation based conclusion that progressivity is more likely to emerge for most distributions of abilities and that it is actually the only possible voting outcome if the distribution is sufficiently concentrated at the middle

endogenous formation of coalitions the formation of coalitions is a fundamental problem in game theory by a coalition is meant a group of players e g economic or political agents which decide to act together as one unit relative to the rest of the players this includes the instances of syndicates unions cartels blocks political parties parliamentary coalitions etc we would like to emphasize that forming a coalition does not eliminate the individual players as decision makers in all interactions with the other players coalition members act as one unit it may be useful to think of a representative agent taking their place 2 however this arrangement will continue only as long as each player finds it desirable to act this way further bargaining occurs among the members of each coalition on how to divide what they obtained together thus the existence of coalitions implies that the interactions among the players will be conducted on two levels first among the coalitions and second within each coalition most of the existing models in economics and game theory assume that the coalition structure is given exogenously instead we try here to obtain it as an endogenous outcome of our model namely we want to be able to predict which coalitions will in fact form in each given situation 3 our theory combines two kinds of game theoretic concepts value and stability the basic idea is first to evaluate the players prospects in the various coalition structures and then based on these values to find which ones are stable we will call this value coalition structure value or cs value for short the reason we are considering coalition structures i e partitions of the set of players into disjoint coalitions rather than just coalitions is that in general players may find it to their advantage to join forces in some situations and to act separately in others all depending on the way the other participants are organized this implies that both the value and the stability concepts should depend on the entire coalition structure the cs value we analyze in this paper was first developed by owen 7

the development effects of the extractive colonial economy the dutch cultivation system in java colonial powers typically organized economic activity in the colonies to maximize their economic returns while the literature has emphasized long run negative economic impacts via institutional quality the changes in economic organization implemented to spur production historically could also directly influence economic organization in the long run exerting countervailing effects we examine these in the context of the dutch cultivation system the integrated industrial and agricultural system for producing sugar that formed the core of the dutch colonial enterprise in 19th century java we show that areas close to where the dutch established sugar factories in the mid 19th century are today more industrialized have better infrastructure are more educated and are richer than nearby counterfactual locations that would have been similarly suitable for colonial sugar factories we also show using a spatial regression discontinuity design on the catchment areas around each factory that villages forced to grow sugar cane have more village owned land and also have more schools and substantially higher education levels both historically and today the results suggest that the economic structures implemented by colonizers to facilitate production can continue to promote economic activity in the long run and we discuss the contexts where such effects are most likely to be important

indifference or indecisiveness choice theoretic foundations of incomplete preferences abstract a commonly held belief in economics is that an individual s preferences that are revealed by her choices must be complete this paper takes issue with this position by showing that one may be able to distinguish between indifference and indecisiveness of an agent upon observing her choice behavior we relax the standard weak axiom of revealed preferences warp and show that a potent theory of individual choice with and without risk can be founded on this weaker axiom when it is coupled with some other standard postulates the most notable features here are that an agent is allowed to be indifferent between certain alternatives and indecisive about others moreover an outside observer can identify which of these actually occur upon examining the observable choice behavior of the decision maker as an application we also show how our theory may be able to cope with the classical preference reversal phenomenon

creating a cluster while building a firm entrepreneurs and the formation of industrial clusters feldman m p francis j and bercovitz j 2005 creating a cluster while building a firm entrepreneurs and the formation of industrial clusters regional studies39 129 141 the objective of the paper is to provide a theoretical model of cluster development that is informed by an appreciative interpretation of case studies it argues that entrepreneurs are a critical element in the formation of clusters entrepreneurs are important actors in the development of clusters as complex adaptive systems where the external resources associated with clusters are developed over time entrepreneurs who adapt to both constructive crises and new opportunities create the factors and conditions that facilitate their business interests and in turn contribute to the development of external resources the paper examines the initial factors that influence the decision to become an entrepreneur and examine how external factors influence the formation and location of high technology clusters feldman m p francis j

the political economy of redistribution under asymmetric information abstract this paper examines the political economy of redistribution when voters have asymmetric information about the redistributive preferences of politicians and the latter cannot make credible policy commitments the candidates in each party are endogenously selected by a process of nash bargaining between the competing factions in equilibrium there is partial convergence of redistributive policies support for director s law the possibility of policy reversals across the parties and inter term tax variability political budget cycles during the tenure of a politician the effect of inequality on the magnitude of the redistributive activity depends in important ways on the incentives and constraints facing politicians

signaling character in electoral competition we study a one dimensional hotelling downs model of electoral competition with the following innovation a fraction of candidates have character and are exogenously committed to a campaign platform this is unobservable to voters character is desirable and a voter s utility is a convex combination of standard policy preferences and her assessment of a candidate s character this structure induces a signaling game between strategic candidates and voters since a policy platform affects voters utilities not only directly but also indirectly through inferences about a candidate s character the model generates a number of predictions starting with a failure of the median voter theorem jel d72 d82

characteristics of foreign subsidiaries in industry clusters this paper examines the characteristics of foreign owned subsidiaries in export intensive leading edge industry clusters as defined by porter 1990 using a sample of 229 subsidiaries from three countries we show that subsidiaries in such clusters are more embedded more autonomous and more internationally oriented than subsidiaries in other industry sectors we also show that there are significant differences in the roles of foreign owned subsidiaries from one leading edge cluster to the next that are associated with the dynamism of the cluster and the overall level of foreign ownership the results indicate 1 that typologies of subsidiary roles should give increased consideration to environmental factors and 2 that thinking on industry clusters instead of treating them identically should recognize that they have heterogeneous characteristics

on the political and fiscal determinants of income redistribution under federalism and democracy evidence from germany several recent studies suggest that transfers from central to regional governments are motivated by political considerations in this paper we examine if this is also the case for transfers from regional to central governments in the context of the german fiscal equalization system we examine the factors that contribute to differences in tax revenues across german states the evidence indicates that both fiscal incentives and political factors can explain these differences although in germany the former are more important moreover accounting for fiscal institutions has important consequences for the empirical assessment of political influences on taxation overall we find that the political affiliation of the state governor is an important factor in explaining differences in state tax revenues thus the right wing party cdu csu is effective in relaxing the tax burden at the state level in contrast partisan alignment between the state government and the federal government loses its importance once fiscal conditions enter the empirical model

mixed oligopoly equilibria when firms objectives are endogenous abstract we study a vertically differentiated market where two firms simultaneously choose the quality and price of the good they sell and where consumers may also care for the average quality of the goods supplied firms are composed of two factions whose objectives differ one is maximizing profit while the other maximizes revenues the equilibrium concept we model called firm unanimity nash equilibrium fune corresponds to the nash equilibrium between firms when there is efficient bargaining between the two factions inside both firms we first show that such equilibria are inefficient with both firms underproviding quality we then assume that the government takes a participation in one firm which introduces a third faction bent on welfare maximization in that firm we study the characteristics of equilibria as a function of the bargaining weight of the welfare maximizing faction we show that equilibrium welfare increases with this bargaining weight especially if consumers care a lot for the average quality of the goods provided

partisan impacts on the economy evidence from prediction markets and close elections analyses of the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections we sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during election day analyzing high frequency financial fluctuations following the release of flawed exit poll data on election day 2004 and then during the vote count we find that markets anticipated higher equity prices interest rates and oil prices and a stronger dollar under a george w bush presidency than under john kerry a similar republican democrat differential was also observed for the 2000 bush gore contest prediction market based analyses of all presidential elections since 1880 also reveal a similar pattern of partisan impacts suggesting that electing a republican president raises equity valuations by 2 3 percent and that since ronald reagan republican presidents have tended to raise bond yields

the conscription of wealth mass warfare and the demand for progressive taxation the dominant narrative of the politics of redistribution in political sci ence and economics highlights the signature role of the rise of electoral democracy and the development of political parties that mobilize working class groups we argue in this article that this narrative ignores the critical role played by mass warfare in the development of redistributive public policies focusing attention on the determi nants of progressive taxation we argue that mobilization for mass warfare led to demands for increased taxation of the wealthy to more fairly distribute the burden for the war effort we then show empirically that during the past century mass mobi lization for war has been associated with a notable increase in tax progressivity in the absence of war neither the establishment of universal suffrage nor the arrival of political control by parties of the left is systematically associated with large increases in tax progressivity in making these arguments we devote particular attention to a difference in differences comparison of participants and nonparticipants in world war i those who have made fortunes out of the war must pay for the war and labour will insist upon heavily graduated direct taxation with a raising of the exemption limit that is what labour means by the conscription of wealth

the political economics of not paying taxes this paper considers redistributive as well as political consequences of tax avoidance when tax avoidance is possible the official tax rate does not necessarily correspond to what individuals actually pay this affects both redistributive outcomes as well as political attitudes towards taxation depending on the avoidance technology different political equilibria emerge when the avoidance possibilities are limited the classical conflict between rich and poor is sustained if the tax avoidance technology is more effective however the equilibrium outcome can change to a situation where a coalition of poor and the very richest favor a higher tax rate comparing the model predictions with data on income inequality and evidence of avoidance activity it comes surprisingly close to actual observations

efficiency welfare and political competition we study political competition in an environment in which voters have private information about their preferences our framework covers models of income taxation public goods provision or publicly provided private goods politicians are vote share maximizers they can propose any policy that is resource feasible and incentive compatible they can also offer special favors to subsets of the electorate we prove two main results first the unique symmetric equilibrium is such that policies are surplus maximizing and hence first best pareto efficient second there is a surplus maximizing policy that wins a majority against any welfare maximizing policy thus in our model policies that trade off equity and efficiency considerations are politically infeasible jel codes c72 d72 d82 h21 h41 h42

parties as political intermediaries this paper argues that parties regulate competition among like minded factions so as to enhance reputation building by and voter trust in the politicians standing for a given cause while intra and interparty competition contributes to keeping politicians on their toes unbridled competition may encourage politicians to challenge good platforms and to wage competition along socially suboptimal dimensions for example by privileging form over content the paper builds a simple model of intraparty competition and studies whether various hierarchical or democratic party institutions constitute an efe cient form of party governance the paper shows that intraparty disagreements when they occur hurt the party s position in the general election but that their possibility enhances party image and that parties must be able to avoid behind the scene allocations of portfolios and spoils in order to be credible last it analyzes the impact of political polarization and interparty competition on the choice of party governance

diversity and redistribution abstract in this paper we analyze the interaction of income and preference heterogeneity in a political economy framework we ask whether the presence of preference heterogeneity arising for example from different ethnic groups or geographic locations affects the ability of the poor to extract resources from the rich we study the equilibrium of a game in which coalitions of individuals form parties parties propose platforms and all individuals vote with the winning policy chosen by plurality political parties are restricted to offering platforms that are credible in that they belong to the pareto set of their members the platforms specify the values of two policy tools a general redistributive tax which is lump sum rebated or used to fund a general public good and a series of taxes whose revenue is used to fund specific targeted goods tailored to particular preferences or localities our analysis demonstrates that taste conflict first dilutes but later reinforces class interests when the degree of taste diversity is low the equilibrium policy is characterized by some amount of general income redistribution and some targeted transfers as taste diversity increases in society the set of equilibrium policies becomes more and more tilted towards special interest groups and against general redistribution as diversity increases further however the only policy that can emerge supports exclusively general redistribution

political competition and mirrleesian income taxation a first pass we study downsian competition in a mirrleesian model of income taxation the competing politicians may dier in competence if politicians engage in vote share maximization the less competent politician s policy proposals are attractive to the minority of rich agents whereas those of the competent politician are attractive to the majority of poor agents the less competent politician wins with positive probability which gives rise to a political failure in the sense of besley and coate 1998 political failures are avoided if politicians maximize winning probabilities nevertheless the two equilibria cannot be pareto ranked the minority may be better o under vote share maximization

history and the sizes of cities abstract we contrast evidence of urban path dependence with efforts to analyze calibrated models of city sizes recent evidence of persistent city sizes following the obsolescence of historical adv