explaining the striking similarity in macroeconomic policy responses to the great recession the institutional power of macroeconomic governance this article offers an institutional explanation for the strikingly similar configuration of macroeconomic policy responses of advanced capitalist economies to the great recession in recent decades advanced economies have adopted a common structure of macroeconomic governance which organizes macroeconomic policymaking around monetary policy operated by autonomous central banks and sets limits on politicians policymaking discretion during the great recession this macroeconomic governance allowed central banks to enact unconstrained monetary expansion and governments to enact constrained fiscal expansion the argument here is empirically substantiated by focusing at how macroeconomic policies in response to the great recession have evolved in australia and sweden as well as by looking at parallel developments in the united kingdom and the united states

the form of incentive contracts agency with moral hazard risk neutrality and limited liability the analysis obtains a complete characterization of the optimal agency contract with moral hazard risk neutrality and limited liability we introduce a critical ratio that indicates the returns to providing the agent with incentives for effort in each random state the form of the contract is debt a capped bonus when the critical ratio is increasing decreasing in the state an increasing critical ratio in the state space setting corresponds to the hazard rate order for the reduced form distribution of output which we term the decreasing hazard rate in effort property dhrep the critical ratio also yields insights into agency with adverse selection

international economic structures government interests and international coordination of macroeconomic adjustment policies analysts have commonly argued that there has been a decline in international coordination of the kinds of policies that governments can use to manage the international payments imbalances that emerge when different governments pursue different macroeconomic policies the decline typically has been attributed to a posited decline in american hegemony in contrast this article argues that international coordination of macroeconomic adjustment policies trade and capital controls exchange rate policies balance of payments financing and monetary and fiscal policies was at least as extensive for much of the 1980s as it had been in the 1960s there was however a shift away from coordination of balance of payments financing and other policies that have limited direct consequences for domestic economic and political conditions and a concurrent shift toward coordination of monetary and fiscal policies that are critically important for domestic politics and economics this change is best explained as a consequence of changes in the structure of the international economy most important international capital market integration encouraged governments to coordinate monetary and fiscal policies because balance of payments financing and exchange rate coordination alone are insufficient to manage the enormous payments imbalances that emerge when capital is able to flow internationally in search of higher interest rates and appreciating currencies

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

explaining party ideological stances we apply the iterative algorithm by merrill and adams political analysis 9 347 361 2001 to compute the optimal positions of vote maximizing parties along a one dimensional space for a large number of elections this allows us to systematically evaluate factors that push parties toward more centrifugal locations in equilibrium our findings largely corroborate expectations suggested by the theoretical literature albeit with one notable exception the relative size of a partisan constituency reduces rather than enhances the likelihood of a party having an extreme optimal position we then compare derived equilibrium positions with actual party positions with the aim of understanding the nature of electoral incentives and offering insights about party system competition in particular we show that the age of a party the party family to which it belongs post election expectations and internal rules for candidate and leader selection are all factors that increase the probability of a party approaching the position predicted by pure vote maximizing considerations

can agents be better off with pay caps a popular way to discipline the managers of companies or banks that got into trouble during the recent financial crisis has been to impose caps on managers pay using a small extension of the standard principal agent model we argue that pay caps might serve the opposite purpose because the agent might be better off with a pay cap specifically we show that given a fixed effort level to be implemented the agent s expected utility can be decreasing in an upper bound for the agent s reward the effect of pay caps on the general structure of optimal incentive contracts is also characterized while an improvement of contracting information always helps the principal it might increase or decrease the marginal cost of imposing pay caps

strategic extremism why republicans and democrats divide on religious values party platforms differ sharply from one another especially on issues with religious content such as abortion or gay marriage given the high return to attracting the median voter why do vote maximizing politicians take extreme positions in this paper we find that strategic extremism depends on an intensive margin where politicians want to induce their core constituents to vote or make donations and the ability to target political messages toward those core constituents our model predicts that the political relevance of religious issues is highest when around one half of the voting population attends church regularly using data from across the world and within the united states we indeed find a nonmonotonic relationship between religious extremism and religious attendance

existence and non existence in the moral hazard problem abstract we provide a new class of counter examples to existence in a simple moral hazard problem in which the first order approach is valid in contrast to the mirrlees example unbounded likelihood ratios on the signal technology are not central rather our examples center around the behavior of the utility function as utility diverges to negative infinity for any utility function such as ln w in which utility diverges to negative infinity at a finite wealth level existence will fail for some specifications of the agent s cost of effort when utility diverges to negative infinity only as wealth does as well existence holds for all specifications of the agent s cost of effort if and only if the agent continues to dislike risk as wealth diverges to negative infinity when there is a finite lower bound on utility existence is assured for those cases where existence fails we characterize the limit of near optimal contracts

limited liability and incentive contracting with ex ante action choices abstract this article examines a principal agent model of financial contracting in which a risk neutral entrepreneur agent makes an unobservable ex ante effort choice while employing the investment funds of a risk neutral investor principal the key innovation is that the investment contract is subject to statutory liability limits given these liability limits two settings are considered one in which the investor payoff function is also constrained to be monotonically nondecreasing in firm profit and another in which no such monotonic contract constraint is imposed in the former case a standard debt contract is shown to emerge and a first best effort choice is not achieved in the latter setting the optimum is characterized by a live or die payoff function and a first best effort level may or may not be realized

moral hazard in strategic decision making abstract this paper develops a theory of moral hazard in which the agent takes the role of strategic decision maker career concerns give rise to preferences over risk which in turn create an incentive for the agent to manipulate the project s risk return tradeoff to the disadvantage of the principal the resultant moral hazard can be ameliorated by an incentive contract the optimal non decreasing wage involves granting in the money options in the context of academic tenure the optimal tenure standard requires the agent to exceed expectations and lies within one standard deviation of the expected outcome

optimal monitoring design this paper considers a principal agent model with hidden action in which the principal can monitor the agent by acquiring independent signals conditional on effort at a constant marginal cost the principal aims to implement a target effort level at minimal cost the main result of the paper is that the optimal information acquisition strategy is a two threshold policy and consequently the equilibrium contract specifies two possible wages for the agent this result provides a rationale for the frequently observed single bonus wage contracts

rhetoric on the economy have european parties changed their economic messages abstractthis study analyses the determinants of dispersion of economic issue mentions in european party manifestos we examined three main economic domains governmental control of the economy free market capitalism and support for the welfare state as consequences of globalization forces economic conditions partisanship and electoral turnout employing aggregate level comparative manifesto project cmp data from legislative elections in 15 european countries from 1970 to 2010 we confirm that parties hold a common view of the salience of economic control of the state as a consequence of globalization pressure and economic growth levels partisanship of the cabinets regardless of the political orientation counteracted issue salience concentration in the welfare domain government size favoured dispersion in the free market realm our results do not indicate clear homogenization of parties economic messages in elections over the last 40 years

the second face of hegemony britain s repeal of the corn laws and the american walker tariff of 1846 one challenge facing hegemonic stability theory is to specify the processes by which hegemonic countries construct and maintain a liberal international economic order earlier studies have focused on direct coercion or ideological manipulation by the hegemon as a principal technique for manipulating the trade policies of other countries this article explores a different face of hegemony specifically we contend that by altering relative prices through the exercise of their international market power hegemonic leaders influence the trade policy preferences of their foreign trading partners we examine this argument in the case of the american walker tariff of 1846 american tariff liberalization was intimately related to britain s repeal of its corn laws in the antebellum united states northern protectionist and southern free trade proclivities were fixed western grain growers held the balance of power by allowing access to its lucrative grain market britain altered the economic and political incentives of western agriculturalists and facilitated the emergence of the free trade coalition essential to the passage of the walker tariff

the new theory of optimum currency areas highbrow opinion is like a hunted hare if you stand long enough it will come back to the place it started from dennis robertson

policy and the dynamics of political competition informed discussions of political competition by journalists pundits novelists country specialists or indeed practicing politicians usually describe a system in perpetual motion perpetual motion is seen as a normal state of affairs not a manifestation of chaotic instability and it is usually seen as having an endogenous dynamic what the actors do at cycle c of the political process feeds back to affect the entire process at cycle c 1 these informed discussions thus see politics as a complex dynamic system evolving under its own steam a system unlikely to reach steady state in stark contrast mainstream models of political competition are usually static with key model parameters and rules of interaction fixed exogenously although static models do not necessarily imply equilibrium almost invariably the core intellectual approach is to specify a model and solve for equilibrium authors of such models are typically driven by what cederman describes as a metaphysical conviction that equilibria are always out there waiting to be discovered a conviction that can blind the analyst to the possibility of adjustments never settling cederman 1997 34 35 but if common sense tells us party competition is a complex dynamic process then it also tells us party competition may never achieve equilibrium this paper addresses the striking disjuncture between the static nature of most formal models of party competition and the dynamic way in which informed observers who hardly ever talk about politics in terms of equilibrium think about the political process while many theorists would willingly concede in general terms that real political competition is a complex dynamic process the hard question concerns how to model this in a way that is both theoretically tractable and substantively plausible in what follows i set out

elections coalitions and legislative outcomes predictions of electoral behavior in a multiparty setting should be a function of the voters beliefs about how parties will perform following an election similarly party behavior in a legislature should be a function of electoral promises and rewards we develop a multistage game theoretic model of three party competition under proportional representation the final policy outcome of the game is generated by a noncooperative bargaining game between the parties in the elected legislature this game is essentially defined by the vote shares each party receives in the general election and the parties electoral policy positions at the electoral stage parties and voters are strategic in that they take account of the legislative implications of any electoral outcome we solve for equilibrium electoral positions by the parties and final policy outcomes

financial interdependence and the state international monetary relations at century s end as the twentieth century draws to a close one can find sharply contrasting views among leading scholars on almost every key issue in positive international political economy how strong are international as opposed to domestic influences on policy how important are issues of national security high politics versus economic considerations low politics what role do institutions international and domestic play in influencing and constraining the behavior of governments why is international cooperation rare but not unheard of the list goes on and on

information risk sharing and incentives in agency problems this paper studies the use of information for incentives and risk sharing in agency problems when the principal is risk neutral or the outcome is contractible risk sharing is unnecessary or dealt with by a contract on the outcome in this case information systems are ranked only according to their informativeness about the agent s action when the outcome is noncontractible however the principal has to rely on imperfect information not only for incentives but also for risk sharing under the rst order approach this paper characterizes a problem independent ranking of information systems relaxing gjesdal s 1982 criterion we also nd sucient conditions justifying the rst order approach when output is noncontractible

what moves parties the role of public opinion and global economic conditions in western europe do western european political parties adjust their ideological positions in response to shifts in public opinion and to changing global economic conditions based on a time series cross sectional analysis of parties ideological dynamics in eight western european democracies from 1976 1998 the authors conclude that both factors influence parties ideological positions but that this relationship is mediated by the type of party specifically they find that parties of the center and right react to both public opinion and the global economy whereas parties of the left display no discernible tendency to respond to public opinion and also appear less responsive to global economic conditions the findings on leftist parties distinctiveness support arguments about these parties long term policy orientations as well as about their organizational structures the authors also find little support for neoliberal convergence arguments

measuring research benefits in an imperfect market in this paper an imperfect market model is developed for evaluating agricultural research benefits the main finding is that the increases in societal gain and the producer s share of this gain are larger with a monopoly than with a competitive market the paper argues that if the market for an agricultural input or for a commodity is not competitive then use of a competitive model for assessing research benefits could lead to understatements of both producer and total benefits

wealth effects and agency costs abstract we analyze how the agent s initial wealth affects the principal s expected profits in the standard principal agent model with moral hazard we show that if the principal prefers a poorer agent for all specifications of action sets probability distributions and disutility of effort then the agent s utility of income must exhibit a coefficient of absolute prudence less than three times the coefficient of absolute risk aversion for all levels of income thus strengthening the sufficiency result of thiele and wambach 1999 also we prove that there is no condition on the agent s utility of income alone that will make the principal prefer richer agents moreover we show that for an interesting class of problems the principal prefers a relatively poorer agent if agent s wealth is sufficiently large finally we discuss how alternative ways of modeling the agent s outside option affects the principal s preferences for agent s wealth

international capital mobility amongst the major industrialised countries too little or too much this paper examines capital flows among the major industrialized countries with a view to assessing m feldstein and c horioka s 1980 claim that international capital mobility is limited it argues that saving investment correlation tests are inherently flawed and proposes an alternative methodology for testing the degree of international capital mobility it finds that capital flows have been excessive in the sense that they are driven by speculative forces rather than by economic fundamentals copyright 1995 by royal economic society

a downsian spatial model with party activism a unidimensional spatial model is proposed in this article although its formal structure parallels the spatial model of electoral competition this model examines the decisions of individuals as they choose whether or not to become activists in one of two political parties an individual calculus of participation is developed that is similar to the spatial interpretation of the calculus of voting this calculus is then generalized by examining conditions that may hold for aggregate activism probabilities and the relationship between the two forms is investigated some results are then presented which concern the distributions of activists in the two parties these results in general conform to the existence of party cleavages in which there are two stable equilibrium distributions of activists such that the two parties activists are relatively cohesive internally and relatively distinctive externally finally some suggestions are offered about how this model can be combined with the spatial model of candidate competition to provide a more complete model of elections

democratic institutions and exchange rate commitments since the collapse of the bretton woods system countries have been able to choose from a variety of exchange rate arrangements we argue that politicians incentives condition the choice of an exchange rate arrangement these incentives reflect the configuration of domestic political institutions particularly electoral and legislative institutions in systems where the cost of electoral defeat is high and electoral timing is exogenous politicians will be less willing to forgo their discretion over monetary policy with a fixed exchange rate in systems where the costs of electoral defeat are low and electoral timing is endogenous politicians are more likely to adopt a fixed exchange rate regime consequently differences in domestic political systems can help account for variations in the choice of exchange rate arrangements we test this argument using constrained multinomial logit and binomial logit on a sample of twenty democracies over the period 1974 95 domestic political institutions have a significant effect on exchange rate regime choice even after controlling for systemic macroeconomic and other political variables

measuring research benefits in an imperfect market second comment this note generalizes a finding about the necessary and sufficient conditions for research to generate greater benefits in the presence of distortions and highlights a significant source of bias in conventional cost benefit calculations

agency models with frequent actions the paper analyzes dynamic principal agent models with short period lengths the two main contributions are i an analytic characterization of the values of optimal contracts in the limit as the period length goes to 0 and ii the construction of relatively simple almost optimal contracts for fixed period lengths our setting is flexible and includes the pure hidden action or pure hidden information models as special cases we show how such details of the underlying information structure affect the optimal provision of incentives and the value of the contracts the dependence is very tractable and we obtain sharp comparative statics results the results are derived with a novel method that uses a quadratic approximation of the pareto boundary of the equilibrium value set

optimal compensation and pay performance sensitivity in a continuous time principal agent model this paper studies the optimal contract between risk neutral shareholders and a constant relative risk aversion manager in a continuous time model several interesting results are obtained first the optimal compensation is increasing but concave in output value if the manager is more risk averse than a log utility manager second when the manager has a log utility a linear contract is optimal when there is no explicit lower bound on the compensation and an option contract is optimal when there is an explicit lower bound third optimal effort is stochastic state dependent fourth consistent with empirical findings and contrary to standard agency theory predictions the relationship between pay performance sensitivity and firm performance and that between pay performance sensitivity and firm risk can be nonmonotonic this paper was accepted by wei xiong finance

electoral equilibrium in double member districts the median voter result and the issue of stability in electoral competition generally have been examined from a number of different perspectives out of all these examinations however only a few focus on institutional variables this essay demonstrates that the median voter result is robust under a significant institutional change that entails altering the basic assumption of single member districts after developing a model of electoral competition in a two member first two past the post district i show that if there are three candidates the set of nash equilibria is the set of strategy triples x1 x2 x3 with x1 x2 x3 x and such that x lies between the quantiles of order 1 3 and 2 3 if there are four candidates i show that a unique nash equilibrium exists with all candidates adopting a position at the medianvoter s ideal point

architecture of equity markets the abidjan regional bourse literature on financial market liberalization focuses heavily on state activity in allocating preferential credit i consider state activity in promoting nascent equity markets by asking why a state would create and promote a market in which the transaction costs are high the potential rate of return is low and firms are reluctant to list shares i examine the case of the west african regional stock exchange and propose that the central bank for the west african monetary union created it to mediate the relationship between this region and the world economy i propose that states and domestic markets act as complements rather than as rivals in some instances of bourse creation moreover bourses in developing economies present a different set of relationships among states public and private lending authorities and market participants than their counterparts in more developed financial environments this illuminates a need for further research in this area

covering dominance and institution free properties of social change this paper shows that different institutional structures for aggregation of preferences under majority rule may generate social choices that are quite similar so that the actual social choice may be rather insensitive to the choice of institutional rules specifically in a multidimensional setting where all voters have strictly quasi concave preferences it is shown that the uncovered set contains the outcomes that would arise from equilibrium behavior under three different institutional settings the three institutional settings are two candidate competition in a large electorate cooperative behavior in small committees and sophisticated voting behavior in a legislative environment where the agenda is determined endogenously because of its apparent institution free properties the uncovered set may provide a useful generalization of the core when a core does not exist a general existence theorem for the uncovered set is proven and for the downsian case bounds for the uncovered set are computed these bounds show that the uncovered set is centered around a generalized median set whose size is a measure of the degree of symmetry of the voter ideal points

the politics of inequality voter mobilization and left parties in advanced industrial states why is it that some countries have witnessed significant increases in inequality since the 1960s while at the same time experiencing very little change in the way politics is conducted and why is it that in other countries where inequality has increased much less the left has become substantially more redistributive the answer the authors argue has to do with the interaction between inequality and political mobilization of low income voters the authors make two points in this article first high levels of inequality move left parties to the left second although increasing inequality pushes the core constituencies of left parties to the left it also makes some individuals less likely to be involved in politics the authors argue that left parties will respond to an increase in inequality only when low income voters are politically mobilized they explore these claims through a comparative analysis of left party programs in 10 organisation for economic cooperation and development countries over the period 1966 to 2002

measuring research benefits in an imperfect market voon 1994 recently analyzed the benefits of research in an imperfectly competitive market for an agricultural input studies of this type are important because the agricultural industries are becoming more concentrated and agricultural economists have begun to focus more attention on the implications of imperfect competition in the food and fiber sector the magnitude and distribution of research benefits under alternative market structures are important from both the perspective of agents incentives to undertake investments in research and allocating public monies to support research voon specifically compared the welfare benefit from a cost reducing innovation for an agricultural input under conditions of monopoly to perfect competition in the supply of the input the analysis was based on a framework of linear farm demand for the input and linear and rising marginal cost of supplying the input the key result based on simulations of the market equilibrium under alternative demand and cost elasticity configurations was that research benefits were greater under monopoly than under perfect competition this result is wrong specifically for

wage floors imperfect performance measures and optimal job design we analyze the effects of wage floors on optimal job design in a moral hazard model with asymmetric tasks and imperfect aggregate performance measurement due to cost advantages of specialization assigning the tasks to different agents is efficient a sufficiently high wage floor however induces the principal to dismiss one agent or to even exclude tasks from the production process imperfect performance measurement always lowers profit under multitasking but may increase profit under specialization we further show that variations in the wage floor and the agents reservation utility have significantly different effects on welfare and optimal job design

political cycles and exchange rate based stabilization fixed exchange rates implemented to increase credibility and attract foreign investment or as an alternative approach to stabilization in high inflation economies have been shown to be successful in expanding economic activity and correcting inflation in the short term but often lead to undesirable outcomes in the medium to long term although there is a wealth of literature documenting the boom bust cycles associated with the adoption of a nominal anchor no adequate explanation has been proffered as to governments repeatedly choosing policies that are self defeating the authors address this question with a political economy explanation based on the notion of a self interested government for which short term stabilization is attractive in the face of incentives posed by the electoral cycle if the election coincides with the boom phase of an exchange rate based stabilization incumbent governments increase the likelihood of gaining reelection and the bust phase will develop if at all only after the contest the authors thus suggest a modified version of the traditional political business cycle from the standpoint of a self interested office seeking government exchange rate based stabilizations can make good political sense empirical results based on an analysis of eighteen latin american countries from 1970 to 1999 support the insights of the argument movements towards a more fixed exchange rate are greater than three times more likely in a preelection period than in other stages of the electoral cycle

measuring research benefits in an imperfect market second reply in a recent comment on voon 1994 holloway 1999 has made the following conclusions under conditions that are almost identical to ones considered by voon 1994 and by sexton and sexton 1996 pivotal shifts in marginal costs generate strictly greater benefits under monopoly this paper reconsiders the above conclusion a simple geometric approach similar to alston et al 1988 and voon and edwards 1991 is used for the reassessment the analysis shows that a pivotal shift in the marginal costs generates greater benefits under perfect competition than it does under monopoly this is opposite to holloway s finding the model is depicted in fig 1 instead of a parallel shift in the mc curve as in voon 1994 a pivotal shift above the origin is assumed this implies that the supply price elasticity is greater than unity e 1 see voon and edwards 1991 under monopoly

existence of optimal mechanisms in principal agent problems we provide general conditions under which principal agent problems with either one or multiple agents admit mechanisms that are optimal for the principal our results cover as special cases pure moral hazard and pure adverse selection we allow multidimensional types actions and signals as well as both financial and non financial rewards our results extend to situations in which there are ex ante or interim restrictions on the mechanism and allow the principal to have decisions in addition to choosing the agent s contract beyond measurability we require no a priori restrictions on the space of mechanisms it is not unusual for randomization to be necessary for optimality and so it should be and is permitted randomization also plays an essential role in our proof we also provide conditions under which some forms of randomization are unnecessary

three candidate spatial competition when candidates have valence stochastic voting we study the effects of stochastic probabilistic voting on equilibrium locations equilibrium vote shares and comparative statics in a setup with three heterogeneous candidates and a single dimensional issue space comparing the equilibria with and without stochastic voting we find that under an appropriate level of uncertainty about voter behavior the model has a pure strategy nash equilibrium psne that is free from several non plausible features of the psne under deterministic voting this result is robust to extensions to asymmetric density and plurality maximization

justifying the first order approach to principal agent problems it is of interest to know when the incentive compatibility conditio n in principal agent problems can be replaced by the condition that the agent s expected utility be stationary in effort the mirrlees rogerson conditions do not work if the principal can observe more than one observable statistic also the mirrlees rogerson assumption that the distribution function of output is convex in the agent s action is unsatisfactory even in the context of the basi c model it is too restrictive the paper presents a suite of conditio ns that are applicable to the multistatistic case and replaces the objectionable convex distribution function assumption copyright 1988 by the econometric society

ex post unbalanced tournaments tournaments create strong incentives under the assumption that the competition between the agents is balanced if at the outset one agent is stronger than the other the tournament is ex ante unbalanced and incentives break down handicaps can in this case restore incentives in practice competing agents are often overall equally strong but have different sorts of strengths then competition will typically be unbalanced ex post and incentives break down but handicaps cannot be used we show how a simple means introducing the possibility of a tie can often resolve the problem we examine under what conditions incentives are maximized by ties

public acceptance of energy technologies the effects of labeling time and heterogeneity in a discrete choice experiment public acceptance is crucial for successful implementation of energy technologies in society however studies that use the concept do so in diverse and often inconsistent ways they also often limit themselves to specific technologies and do not account for the effects of labeling time and the heterogeneity of the general public which may lead to a biased and incomplete understanding of public acceptance this study first conceptualizes three forms of public acceptance socio political acceptance market acceptance and community acceptance it then relates the concept of socio political acceptance to preference formation next it uses two discrete choice experiments that were conducted in 2010 and 2012 to investigate these concerns our results show that public preferences for energy technologies are temporally stable even in the face of exogenous shocks such as the fukushima incident using mixed logit models we further show that labeling has a profound influence on stated preferences when technology labels are revealed respondents favor renewable and natural gas technologies when labels remain unobserved nuclear energy and biomass take prominence however latent class models show that there are distinct classes of respondents tied to specific socio demographic characteristics that differ greatly in their sensitivity to labeling and in the temporal stability of their preferences it follows that changes in public acceptance are not population wide but remain limited to specific sub groups we discuss the theoretical and policy implications of our findings and conclude that future studies and policy initiatives may overlook important insights if they disregard the effects of labels time and heterogeneity

on the moral hazard problem without the first order approach abstract we study the moral hazard problem without the first order approach or other common structure we present sufficient conditions under which the shadow value of simultaneously tightening the minimum payment and individual rationality constraints has a simple and intuitive expression we then show how this expression can be used to perform comparative statics exercises in which we study i the effect of a change in the agent s wealth on the well being of the principal and ii the effects of the outside option and minimum payment on the effort level optimally implemented

globalization party positions and the median voter the authors argue that the effects of economic globalization on social democratic parties in western europe are conditional on the position of the median voter if the median is far enough to the right such parties will adopt business friendly policies because they are required to win office only when the median is relatively far to the left will globalization constrain social democratic parties forcing them to adopt policies further to the right in order to retain credibility it is on this basis the authors argue that empirical studies are misspecified unless they include an interaction between measures of globalization and the position of the median in addition to presenting formal theoretical arguments the article reports empirical findings from fifteen countries in the period from 1973 to 2002 that support the conclusion that the effects of globalization are indeed contingent on the median the authors find that the effects of globalization are significant for social democratic parties only in circumstances in which the median is relatively far to the left

participation in moral hazard problems two principals engage in hotelling competition for an agent s services under incomplete information as to her outside option location this renders the agent s participation decision probabilistic from the perspective of each principal regardless of the market structure at equilibrium the optimal contract features a trade off between participation probability and incentives rent and effort are inversely related and non monotonic in the agent s transport cost and so in market structures they increase decrease with competition uncertainty as to the agent s location may increase or decrease the rent compared to full information this correspondingly harms or benefits principals

how constraining is capital mobility the partisan hypothesis in an open economy a growing literature argues that international financial integration has eliminated the possibility for distinct partisan macroeconomic strategies i test this hypothesis by reformulating the partisan hypothesis in an open economy context and conducting pooled timeseries analysis of budget balances real interest rates and capital controls for fourteen oecd countries between 1970 and 1994 the analysis provides little evidence that financial integration has eliminated distinct partisan macroeconomic policies under fixed exchange rates leftist governments run larger deficits than rightist governments and use capital controls to reduce interest rate premia under floating exchange rates leftist governments pursue looser monetary policies than rightist governments while partisan distinctions do weaken in the 1990s in countries with fixed exchange rates this is attributed to the recession of the early 1990s and to important institutional changes in the european union international financial integration therefore does not prevent governments from pursuing distinct partisan macroeconomic policies

phoenix risen the resurrection of global finance of all the many changes of the world economy since world war ii few have been nearly so dramatic as the resurrection of global finance a review of five recent books suggests considerable diversity of opinion concerning both the causes and the consequences of financial globalization leaving much room for further research competing historical interpretations stressing the contrasting roles of market forces and government policies need to be reexamined for dynamic linkages among the variables they identify likewise impacts on state policy at both the macro and micro levels should be explored more systematically to understand not just whether constraints may be imposed on governments but also how and under what conditions and what policymakers can do about them finally questions are also raised about implications for the underlying paradigm conventionally used for the study of international political economy and international relations more generally

limited liability contracts between principal and agent abstract the optimal strategy of the principal is examined in an environment where there are ex post limitations on the maximum penalty that can be imposed on a riskneutral agent contrary to the case in which such limitations are not imposed it is in the principal s interest to deliberately forego the opportunity to induce socially efficient behavior and to instead design a contract that induces the agent to realize an efficient outcome only in the most productive state of nature and perhaps in certain very unproductive states the properties of the contract are examined in detail

international organisations in a world of regional trade agreements lessons from club theory this essay deals with the challenge that international organizations face at the turn of the millennium the basic insight from the theory of clubs and information theory is that coordination and cooperation require dominant providers cooperation becomes more difficult as players become more equal in economic size today s environment is less conducive to cooperation than the environment after world war ii by extension club theory suggests that regional trade agreements are not flukes they have proliferated because cooperation is feasible in smaller groups with a few larger players there is a significant risk however that regional blocs may replace the multilateral cooperative process to reduce this risk we propose the creation of an inter bloc international organization dedicated to reduce blocs barriers to trade and finance

minimum payments and induced effort in moral hazard problems abstract consider a moral hazard problem in which there is a constraint to pay the agent no less than some amount m this paper studies the effect of changes in m on the effort that the principal chooses to induce from the agent we present sufficient conditions on the informativeness of the signal observed by the principal and on the agent s utility under which when m increases induced effort and hence productivity falls we also study how the cost minimizing contract for any given effort level varies in m we present an efficient algorithm for numerically calculating optimal contracts for given parameters and show that induced effort falls when m is increased in many cases even when our sufficient conditions fail

the european monetary system list of figures list of tables preface 1 introduction niels thygesen part i the international environment 2 the european monetary system the dollar and the yen rudiger dornbusch discussion robert triffin discussion charles wyplosz part ii disinflation external adjustment and cooperation 3 monetary discipline and cooperation in the european monetary system a synthesis jacques melitz discussion jose vinals 4 the role of the exchange rate regime in a disinflation empirical evidence on the european monetary system francesco giavazzi and alberto giovannini discussion william branson 5 inflation and the european monetary system susan m collins discussion jean jacques rey 6 economic growth and exchange rates in the european monetary system their trade effects in a changing external environment stefano vona and lorenzo bini smaghi discussion david begg part iii exchange rates capital mobility and monetary coordination 7 exchange rates interest rates capital controls and the european monetary system assessing the track record michael j artis and mark p taylor discussion emil maria claassen and eric peree 8 the stability and sustainability of the european monetary system with perfect capital markets john driffill discussion daniel gros 9 competitiveness realignment and speculation the role of financial markets maurice obstfeld discussion marcus miller discussion herakles polemarchakis 10 interventions sterilisation and monetary policy in european monetary system countries 1979 87 cristina mastropasqua stefano micossi and roberto rinaldi discussion wolfgang rieke 11 monetary policy coordination within the european monetary system is there a rule massimo russo and giuseppe tullio discussion lucas papademos part iv the future of the european monetary system 12 the european monetary system a long term view tommaso padoa schioppa 13 a new phase in the european monetary system exchange rate constraint capital liberalisation and policy coordination a report of the conference panel discussion lamberto dini peter kenen rainer masera wolfgang rieke luigi spaventa and jacques waitzenegger index

room to move international financial markets and national welfare states a central research question in international political economy concerns the influence of financial markets on government policy outcomes to what extent does international capital mobility limit government policy choices i evaluate the relationship between international financial markets and government policy outcomes with a focus on the government bond market in developed democracies evidence includes interviews with financial market participants and a cross sectional time series analysis of the determinants of interest rates this evaluation suggests that governments of developed democracies face strong but narrowly defined financial market pressures financial market participants are concerned with a few macroeconomic policy indicators including inflation rates and government deficit gdp ratios but not with micropolicy indicators such as the distribution of government spending across functional categories in these areas governments retain policymaking autonomy i conclude by exploring the role of financial market influences within domestic politics and offering suggestions for further research

predicting the number of parties a quantitative model of duverger s mechanical effect iby means of a quantitative model the model predicts the range within which the effective number of parties in a district should fall for a given magnitude number of seats of the district at the national level a related model predicts the effective number of parties based on the effective magnitude and the number of seats in the national assembly the institutional variables considered magnitude and assembly size define a great portion of the structural constraints within which a given country s politics must take place the model developed provides a good fit to data in spite of its having been developed from outrageously simple starting assumptions tf one had to give a single number to characterize the politics of any country that employs competitive elections it would be the number of parties active in its national assembly this number would not tell the whole story by any means but it tells us more than any other single number or term could the number of parties directly or indirectly affects other important aspects of how a political system functions including how long its cabinets last if the system is parliamentary lijphart 1984 and how elections translate into citizen control of policymakers powell 1989 the number of parties is a most important feature in a country s politics and therefore in comparative studies also we shall discuss the ways of defining this number operationally further on what determines the number of parties history present issues and institutions all intervene but if one had to give a single major factor it would have to be the district magnitude m that is the number of seats allocated in an electoral district rae 1967 the well known duverger rule says that one seat districts tend to lead to two party systems while multiseat districts tend to go with multiparty systems duverger 1951 1954 see also riker 1982 one can be more precise since even within the multiseat category a larger m tends to go with a larger number of parties but before we can attempt to define a relationship between district magnitude and the number of parties we need to establish a means to measure the number of parties

random walk or planned excursion continuity and change in the left right positions of political parties implicit in theories of democratic elections is the idea of change or at least the potential for change elections provide the opportunity for citizens to change their party preferences and thus al

how economic integration affects party issue emphases the economic dimension has typically been considered the primary dimension of political party competition however parties often rally voters on the basis of non economic issues in this article we argue that integration into global markets and into the european union eu constrains parties abilities to credibly differentiate themselves on economic issues given these constraints and voters awareness of them parties activate other non economic issues along which to compete using data across 49 countries between 1961 and 2010 this study shows that increased economic integration is associated with increased emphasis on non economic issues during election campaigns this effect persists over time and remains robust to a number of alternative explanations and modeling strategies we also explore the proposed causal mechanisms and show that integration is indeed associated with convergence of party positions on economic issues and that all types of parties not just new and niche parties respond to int

the domestic politics of banking regulation this article seeks to ground financial regulatory choices in domestic politics based on evidence from twenty two industrialized countries we argue that electoral rules specifically the extent to which they are centrifugal or centripetal have a significant effect on whether the banks or their consumers pay for the security of the banking system moreover despite the homogenizing effects of global financial integration the political dynamics generated by these electoral rules continue to shape the nature and extent of prudential regulations that countries adopt in the place of banking cartels

electoral rule disproportionality and platform polarization despite common perception existing theoretical literature lacks a complete for mal argument regarding the relationship between the electoral rule disproportionality and platform polarization in this paper we build a model that incorporates the disproportionality of the electoral system in a standard downsian electoral competition setup with mainly but not necessarily purely policy motivated parties we first show that in equilibrium platform polarization is decreasing in the level of the electoral rule disproportionality we then argue that the number of parties has a positive effect on platform polarization when polarization is measured by the distance between the two most distant platforms this effect does not hold when polarization is measured by the widely used dalton index constructing a dataset covering more than 300 elections our main theoretical findings are empirically supported pointing towards the electoral rule disproportionality as a major determinant of polarization

delegated information acquisition with moral hazard abstract we analyze a principal agent problem with moral hazard where a principal searches for an opportunity of uncertain return and hires an agent to evaluate available options the agent s effort affects the informativeness of a signal about an option s return based on the information provided by the agent the principal decides whether to exercise the option at hand we derive properties of the optimal contract in both static and dynamic versions of the problem we show that there are intermediate values of the prior probability that the option is of high quality at which positive effort cannot be sustained we also show that if the prior is below a threshold then the agent is rewarded for delivering bad news about the option s quality we derive distortions relative to the first best on the implemented effort level and optimal stopping decision for some parameter values it is optimal for the principal to commit to an ex post suboptimal stochastic decision to exercise an option

party policy diffusion do parties learn from or emulate parties in other political systems this research develops the argument that parties are more likely to employ the heuristic of learning from and emulating foreign successful incumbent parties spatial econometric analyses of parties election policies from several established democracies robustly confirm that political parties respond to left right policy positions of foreign political parties that have recently governed by showing that parties respond to these foreign incumbent parties this work has significant implications for our understanding of party competition furthermore we contribute to the literature on public policy diffusion as we suggest that political parties are important vehicles through which public policies diffuse

binary payment schemes moral hazard and loss aversion we modify the principal agent model with moral hazard by assuming that the agent is expectation based loss averse according to k o szegi and rabin 2006 2007 the optimal contract is a binary payment scheme even for a rich performance measure where standard preferences predict a fully contingent contract the logic is that due to the stochastic reference point increasing the number of different wages reduces the agent s expected utility without providing strong additional incentives moreover for diminutive occurrence probabilities for all signals the agent is rewarded with the fixed bonus if his performance exceeds a certain threshold

continuity and change in the chilean party system on the transformational effects of electoral reform the party system consequences of chile s binomial two member district legislative electoral formula have been the subject of much debate for some analysts the binomial system limits party system fractionalization and encourages centripetal competition enhancing the prospects for democratic stability others emphasize elements of continuity within the country s historic multiparty system and contend that the electoral formula may prove destabilizing this article arguing that limited electoral reform has limited party system consequences provides comparative empirical measures showing that neither the degree of party system fractionalization nor the competitive dynamic of the party system has been substantially transformed however the binomial formula does increase the incentives for coalition formation and maintenance the article concludes that the ultimate consequences of electoral reform depend on whether these new incentives for coalition formation can overcome the elements of continuity wi

the end of an era in international financial regulation a postcrisis research agenda the global financial crisis that erupted in the summer of 2007 has made the reform of international prudential financial regulation one of the top priorities of global public policy past scholarship has usefully explained the creation and strengthening of international financial standards with reference to three policy arenas inter state domestic and transnational despite the accomplishments of this specialist literature the recent crisis has revealed a number of limitations in the ways scholars have understood inter state power relations the influence of domestic politics and the significance of transnational actors within international financial regulatory politics taken together developments in each of these three arenas suggest that researchers may also need to be prepared to shift from explaining the strengthening of official international standards to analyzing their weakening in the post crisis world the latter task will require scholars to devote more analytical attention to a wider set of international regulatory outcomes including informal regulatory convergence regulatory fragmentation and especially cooperative regulatory decentralization

voters commitment problem and reforms in welfare programs when will a vote seeking government pursue unpopular welfare reforms that are likely to cost it votes using a game theoretical model we show that a government enacts reforms that are unpopular with the median voter during bad economic times but not during good ones the key reason is that voters cannot commit to re elect a government that does not reform during bad times this voters commitment problem stems from economic voting i e voters tendency to punish the government for a poorly performing economy the voter commitment problem provides an explanation for the empirical puzzle that governments sometimes enact reforms that voters oppose

centripetal and centrifugal incentives in electoral systems this paper investigates how electoral laws affect the position taking incentives of parties and candidates it seeks to extend the finding presented in the classical median voter theorem to a wide class of electoral systems or to show the limits of such extension the factors examined are the district magnitude the electoral formula the number of votes each voter is allowed to cast whether voters can cumulate their votes and whether voters can partially abstain i suggest a crude division of electoral systems into those producing predominantly centripetal incentives and those producing predominantly centrifugal incentives among the factors found to produce centripetal incentives at least in noncumulative systems are the following increases in the number of votes per voter outlawry of partial abstention and decreases in the district magnitude in systems allowing the cumulation of votes matters are a bit different

capital mobility and the origins of stock markets i illustrate the accepted though hardly researched idea that political institutions play a role in locking in factor specificity across sectors space and borders i use the emergence of modern capital markets in the nineteenth century a process that threatened to redeploy financial resources away from land and traditional sectors to heavy industry as a test case to ascertain the degree of domestic financial capital mobility in nine advanced industrialized countries the main finding is that cross national variations in financial capital mobility holding constant the level of economic development reflect the degree of state centralization

the theory of moral hazard and unobservable behaviour part i principal agent models are studied in which outcomes conditional on the agent s action are uncertain and the agent s behaviour therefore unobservable for a model with bounded agent s utility conditions are given under which the first best equilibrium can be approximated arbitrarily closely by contracts relating payment to observable outcomes for general models it is shown that the solution may not always be obtained by using the agent s first order conditions as constraint general conditions of lagrangean type are given for problems in which contracts are finite dimensional 1 the moral hazard situation

grappling with globalisation challenges for economic governance this paper examines the key domestic institutional challenges posed by globalisation in terms of the following questions how does economic globalisation differ from other types of economic integration what is its impact on the extant national institutions of economic governance what institutional innovations are required to cope with the challenges and how can institutional change be made politically feasible it identifies three perspectives on how national governments may respond retreat hold fort or rearticulate it concludes that though governments need to devise policies to attract mnes indulging in races to the bottom is not the only route perhaps not even a desirable route second to attract fdi governments must afford labor flexibility how they actually implement it will vary within and across countries depending on the capacities and the willingness of governments to undertake institutional reform labour flexibility can be made politically feasible by increasing the levels of social insurance to protect displaced labour and by instituting programmes that increase their skills and employability

unpacking logm toward a more general theory of party system density the standard model of political party system density combines two traditions to explain why some countries have more political parties than others one tradition that emphasizes social cleavages and another that emphasizes electoral institutions especially district magnitude despite its considerable success there are several reasons to be less than fully satisfied with the standard model we examine two of these problems associated with the scope of strategic voting and the functional form of the specification used to test the model in doing so we contrast the standard interpretation with an organizational ecology model that accounts for what the standard model did so well but also accounts for important anomalies it ignores we reexamine some of the key analyses that have been used to test the standard model to assess the severity of its limitations and the utility of the rival organizational ecology account

policy mis representation and the cost of ruling u s presidential elections in comparative perspective the cost of ruling effect on electoral support is well established that is governing parties tend to lose vote share the longer they are in power although we know this to be true we do not know why it happens this research examines whether the cost of ruling results at least in part from the tendency for governing parties to shift policy further away from the average voter it first considers differences in political institutions and how they might influence cost of ruling owing to policy drift and then tests the hypothesis focusing on u s presidential elections which is an unfavorable case to find such an effect results confirm a clear cost of ruling effect in these elections and demonstrate that policy misrepresentation is an important mechanism that is the policy liberalism of presidents from different parties diverges over time as their tenure in the white house increases and the degree to which it does matters for the presidential vote policy is not the only thing that matters and other

political responses to interdependence what s left for the left heightened economic interdependence in recent years is commonly argued to have generated great pressures for convergence in economic policies across the advanced industrial democracies interdependence has clearly had a great impact on the types of economic policies that governments can pursue they have been unable to pursue independent fiscal and monetary policies since the mid 1970s furthermore all governments have been forced to attempt to promote the competitiveness of national goods and services in world markets and to increase the speed and efficiency with which national producers adjust to changes in global markets there are however different policies consistent with these goals statistical analyses of economic policies since the mid 1970s show that governments of the left and the right continue to be able to enact distinctive supply side policies that promote competitiveness and flexible adjustment and simultaneously further their partisan objectives

moral hazard with bounded payments we study the moral hazard problem with general constraints on how little or much the agent can be paid as a function of output we provide a characterization and existence result using only very simple methods in the dual problem of minimizing costs for a given effort level a constraint that harms the principal will always result in a contract that pays according to the constraint on some range of outcomes for the case of a simple fixed minimum feasible payment the resultant contract will be option like we show how the strike price and intensity of incentives once the strike price is exceeded vary in the minimum payment and the outside option of the agent when the principal can also choose the effort to induce then even if the constraint harms the principal he may optimally choose a contract that never pays the minimum or maximum we show that this can only occur if the problem without the payment constraints fails a form of concavity

the origins of financial openness a study of current and capital account liberalization theory we assess the determinants of the national regulation of international finance or the comparative degree of national financial openness or closure hypotheses partisanship interacts with a nation s factor endowments to account in part for different international financial policies by governments of the same partisan hue methods we offer a quantitative measure of international financial openness or current and capital account regulation for 21 member countries of the organization for economic cooperation and development for 1950 88 we use regression analysis employing panel corrected standard errors to discover the determinants of financial openness results our main finding is that political partisanship substantially explains openness but does so in complex ways differences in both political institutional arrangements and types of political economy also account for part of the differences in international financial regulation

moral hazard and capital structure dynamics we base a contracting theory for a start up firm on an agency model with observable but nonverifiable effort and renegotiable contracts two essential restrictions on simple contracts are imposed the entrepreneur must be given limited liability and the investor s earnings must not decrease in the realized profi to f thefirm all message game contracts with pure strategy equilibria and no third parties are considered within this class of contracts equilibria and regardless of who has the renegotiating bargaining power debt and convertible debt maximize the entrepreneur s incentives to exert effort these contracts are optimal if the entrepreneur has the bargaining power in renegotiation if the investor has the bargaining power the same is true unless debt induces excessive effort in the latter case a non debt simple contract achieves efficiency the non contractibility of effort does not lower welfare thus when the non contractibility of effort matters our results mirror typical capital structure dynamics an early use of debt claims followed by a switch to equity like claims

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

renegotiating moral hazard contracts under limited liability and monotonicity in a principal agent model with unobservable effort and possible renegotiation contracts are assumed to satisfy two natural restrictions limited liability for the agent and monotonicity of payments for the principal the main result is that if the agent has the renegotiation bargaining power any contract is weakly pareto dominated by a debt contract journal of economic literature classification numbers d820 l140 o261

the effects of information voids on capital flows in emerging markets information voids reflect a lack of publicly available information about a country s investment climate and represent the information problems associated with institutional voids we argue that foreign investors differ in their sensitivity to information voids based on their own private information and their flexibility in responding rapidly to change we predict that foreign banks will be least hampered by information voids due to their privileged access to private information about local conditions and ability to adapt quickly to new information portfolio investors while impeded by information voids due to their severely limited access to local private information are able to quickly respond to new information foreign direct investors have moderate access to local private information yet their inability to adapt quickly creates problems dealing with information voids using time series cross sectional data on local public information and capital flows to the thirty largest emerging markets from 1994 to 2012 we find preliminary support for our hypotheses regarding the sensitivity of different investors to information voids we find that direct investors are most sensitive to information voids and banks are least sensitive while portfolio investors are moderately sensitive

invested interests the politics of national economic policies in a world of global finance capital moves more rapidly across national borders now than it has in at least fifty years and perhaps in history this article examines the effects of capital mobility on different groups in national societies and on the politics of economic policymaking it begins by emphasizing that while financial markets are highly integrated within the developed world many investments are still quite specific with respect to firm sector or location it then argues that contemporary levels of international capital mobility have a differential impact on socioeconomic groups over the long run increased capital mobility tends to favor owners of capital over other groups in the shorter run owners and workers in specific sectors in capital exporting countries bear much of the burden of adjusting to increased capital mobility these patterns can be expected to lead to political divisions about whether or not to encourage or increase international capital market integration the article then demonstrates that capital mobility also affects the politics of other economic policies most centrally it shifts debate toward the exchange rate as an intermediate or ultimate policy instrument in this context it tends to pit groups that favor exchange rate stability against groups that are more concerned about national monetary policy autonomy and therefore less concerned about exchange rate stability similarly it tends to drive a wedge between groups that favor an appreciated exchange rate and groups that favor a depreciated one these divisions have important implications for such economic policies as european monetary and currency union the dollar yen exchange rate and international macroeconomic policy coordination