spurious volatility in historical unemployment data this paper shows that the stabilization of the unemployment rate between the pre 1930 and post 1948 eras is an artifact of improvements in data collection procedures prewar methods are used to construct postwar unemployment data that are consistent with the historical data the constructed postwar series is nearly as volatile as the pre 1930 unemployment data the constructed postwar data are systematically more volatile than the actual postwar data because the cyclical behavior of the labor force and productivity are misspecified in the construction procedures the relationship between the actual and constructed postwar unemployment series is used to construct new historical data

price flexibility in developing countries evidence and implications using data for a sample of 50 developing countries the empirical investigation evaluates determinants and implications of asymmetric price flexibility price inflation is characterized by high flexibility to adjust towards full equilibrium further price inflation accelerates flexibly with unanticipated demand growth in both the upward and downward directions in most of the countries under investigation asymmetry indicates higher upward flexibility compared to downward flexibility in many countries aggregate uncertainty determines the degree of asymmetry such that price flexibility is higher with respect to expansionary demand shocks compared to contractionary shocks the higher the variability of aggregate demand across countries in contrast higher trend price inflation increases downward price flexibility across countries output variability decreases with both upward and downward price flexibility in the face of aggregate demand shocks a the views expressed in this article are those of the a

is increased nominal flexibility stabilizing some international evidence this paper studies the impact of the increased rigidity on macroeconomic fluctuations the author uses this evidence to test the validity of two major keynesian explanations the first is the conventional sticky wage sticky price explanation that suggests that the increased nominal rigidity ceteris paribus is destabilizing the second is a recently developed explanation that suggests that the increased flexibility is destabilizing the author s results are consistent with the conventional implications copyright 1991 by the london school of economics and political science

is increased price inflexibility stabilizing this paper examines a basic question the link between the degree of price flexibility and the variability of output the two standard intermediate macroeconomic textbook models are the classical and the keynesian model in the keynesian model prices are assumed to be perfectly rigid and output adjusts on the other hand in the classical model prices are completely flexible and output is perfectly stable the two models suggest that as prices become more flexible output should become less variable now since mundell 1963 pointed it out it has been well known that the price level and the expected rate of change of the price level that is the expected inflation rate exert opposing forces on the level of output in a static keynesian model since inflation is an essentially dynamic phenomenon the static mundell effect prompts a natural consideration of the link between the degree of price flexibility and the variability of output in a dynamic context tobin 1975 presents a formal model where lower prices work to move the economy toward full employment but an expectation of falling prices raises the real interest rate and moves the economy away from full employment recently delong and summers 1986a 1986b driskill and sheffrin 1986 and king 1988 have rejuvenated interest in the question of whether increased price flexibility inflexibility will stabilize or destabilize output while driskill

squatting as rent seeking and pressure group competition a south african case study a new squatting phenomenon in south africa is analysed from a rent seeking pressure group perspective while such squatting may play an expanded role in privatising publicly and even privately held land and in redistributing wealth over the near future in the longer term its expansion will tend to be limited by rent protecting and counter innovation as long as this rent seeking competition stays within the bounds set by constitutional government

delegation and the regulation of risk political principals typically use low cost fire alarm signals transmitted by the media interest groups and disaffected constituents to monitor the activities of regulatory agencies we argue that regulatory decision making is biased and inconsistent if the instruments of political oversight are simple and the information flows to the principal are coarse relative to the complexity of the regulatory environment

information aggregation rationality and the condorcet jury theorem the condorcet jury theorem states that majorities are more likely than any single individual to select the better of two alternatives when there exists uncertainty about which of the two alternatives is in fact preferred most extant proofs of this theorem implicitly make the behavioral assumption that individuals vote sincerely in the collective decision making a seemingly innocuous assumption given that individuals are taken to possess a common preference for selecting the better alternative however in the model analyzed here we find that sincere behavior by all individuals is not rational even when individuals have such a common preference in particular sincere voting does not constitute a nash equilibrium a satisfactory rational choice foundation for the claim that majorities invariably do better than individuals therefore has yet to be derived

natural resources agriculture and property rights abstract the study explores empirically forest resource and soil quality degradation under different property rights regimes in a subsistence agriculture framework the quantitative analysis is a direct test of the theoretical hypothesis of larson and bromley 1990 larson b bromley d 1990 property rights externalities and resource degradation locating the tragedy journal of development economics 33 2 that common property and private property rights may lead to similar incentives for resource protection a household model is formulated and applied empirically with data from indonesia to test rates of forest biomass and soil quality degradation under private and common property rights results show that the two regimes may equal each other by including bequest value sensitivity analysis is conducted by changing model parameters

the power of the purse and its implications for bureaucratic policy making a dilemma of the power of the purse is thatcutting an agency s budget may make a desired policyinfeasible i examine the implications of thisdilemma with a repeated game in which a bureau choosesunobservable policies after a legislature sets itsbudget the bureau is work averse and has its ownpolicy preferences and therefore may cheat but thelegislature may perform an audit to recover slack funds a main result is that if the legislaturedesires a higher policy level than the agency then itfaces a trade off between good but wasteful policiesand bad but efficient ones

agricultural expansion and deforestation modelling the impact of population market forces and property rights abstract this paper compares four different modelling approaches to agricultural expansion and deforestation and explores the implications of assumptions about the household objectives the labour market and the property rights regime a major distinction is made between population and market based explanations many of the popular policy prescriptions are based on the population approach assuming subsistence behaviour and limited market integration within a more realistic particularly for the long term effects market approach well intentioned policies such as agricultural intensification programmes may boost deforestation many forest frontier contexts are also characterized by forest clearing giving farmers land rights deforestation becomes an investment to the farmer and a title establishment strategy land titling and credit programmes may therefore increase deforestation

evolution of land tenure institutions and development of agroforestry evidence from customary land areas of sumatra it is widely believed that land tenure insecurity under a customary tenure system leads to a socially inefficient resource allocation this article demonstrates that the practice of granting secure individual ownership to tree planters spurs earlier tree planting which is inefficient from the private point of view but could be efficient from the viewpoint of the global environment regression analysis based on primary data collected in sumatra indicates that an expected increase in tenure security in fact led to early tree planting it is also found that customary land tenure institutions have been evolving towards greater tenure security responding to increasing scarcity of land

bureaucrats legislators and the size of government some recent theories have blamed the growth of government on budget maximizing bureaucrats who are assumedly capable of imposing their most preferred budget output combination on legislatures subject to cost and demand constraints however theoretical examination of the range of bargaining outcomes that might occur between bureau and legislature shows that budget maximizing behavior does not necessarily lead to super optimal levels of production nor do the suggested reforms of competition and privatization necessarily improve the situation in this bargaining model the central determinants of governmental growth are not budget maximizing bureaucrats but the legislature s decisions regarding mode of oversight and form of internal organization

anarchy self governance and legal titling scholars and policymakers prescribe legal titling to improve prospects for economic development and political order however a public choice literature exists that has long recognized that self governance often works well and that the state may not be able to improve upon local economic institutions at reasonable cost although the implication that legal titling should proceed with caution is seemingly straightforward the literature on legal titling does not take anarchy seriously as a policy option in addition there is a public choice literature that presumes the state is the most important source of property rights this essay fills this gap in the property rights literature by applying the concept of efficient anarchy to legal titling in afghanistan original fieldwork evidence from rural afghanistan suggests that anarchy of land governance is a better option than legal titling the essay concludes by opening up the black box of state building by explaining why it often makes sense to sequence improvements in political capacity and political constraints prior to investing in legal titling

the race for property rights economics literature on the evolution of property rights has increasingly emphasized the optimal timing for establishing those rights yoram barzel dale mortensen 2 and partha dasgupta and joseph stiglitz 3 for example have shown that competition among firms for the rents associated with innovative devices and ideas can lead to the dissipation of those rents in the process when property rights and the rents therefrom are up for grabs it is possible for expenditures to establish rights to fully dissipate the rents leaving the efficiency gains from privatization in question 4 before any conclusions about the welfare gains from establishing property rights can be reached attention must be paid to the evolutionary

variations in the response of real output to aggregate demand shocks a cross industry analysis using industry data this paper investigates the determinants of the response of real output to aggregate demand shocks across industries of the u s economy the purpose of this investigation is to verify the empirical validity of two competing explanations for this response a new classical explanation and a new keynesian explanation the author finds that the impact of aggregate demand shocks on industrial real output is negatively related to the mean inflation of industrial output price and positively related to the variability of the demand for this output in addition some industry specific factors are important in differentiating the cyclical behavior of real output across industries this evidence does not provide a clear support for any of the competing explanations considered in this paper the evidence however sheds some light on important factors that differentiate the response of real output to aggregate demand shocks across industries of the economy copyright 1991 by mit press

on the basing point system comment in on the basing point system bruce benson melvin greenhut and george norman 1990 1 properly correct a misunderstanding by jacques thisse and xavier vives 1988 2 concerning my 1982 paper on basing point prices but bgn then take exception with several of the conclusions i had reached or that they thought i had reached although i have insufficient space to deal with all the points they raise i will address the most important ones in 1981 most economists believed that a model of profit maximizing basing point pricing would have to assume collusion my model as bgn seem to agree showed that it need not atomistic competition at one production site accompanied by local monpolies elsewhere may lead to basing point pricing and freight absorption without collusion 3 conversely tv showed that the practice as observed empirically will not arise if all production sites contain noncooperative local monopolies bgn establish yet another important theoretical result noncooperative oligopoly at one site could generate the f o b prices or f o b plus transport that in my model led local monopolies elsewhere to adopt freight absorbing basing point prices the three models would seem to be complements i a paradox

optimal retention in agency problems this paper studies the interaction between a single long lived principal and a series of short lived agents in the presence of both moral hazard and adverse selection we assume that the principal can influence the agents behavior only through her choice of a retention rule this rule is further required to be sequentially rational i e no precommitment is allowed we provide general conditions under which equilibria exist where a the principal adopts a cut off rule under which agents are retained only when the reward they generate exceeds a critical bound and b agents separate according to type with better agents taking superior actions we show that in equilibrium a retained agent s productivity is necessarily declining over time but that retained agents are also more productive on average than untried agents due to selection effects finally we show that for each given type agents of that type are more productive in the presence of adverse selection than when there is pure moral hazard i e when that type is the sole type of agent in the model nonetheless adding uncertainty about agent types cannot benefit the principal except in uninteresting cases

property rights regimes and natural resources a conceptual analysis the term common property resource is an example of a term repeatedly used to refer to property owned by a government or by no one it is also used for property owned by a community of resource users such usage leads to confusion in scientific study and policy analysis in this paper we develop a conceptual schema for arraying property rights regimes that distinguishes among diverse bundles of rights ranging from authorized user to claimant to proprietor and to owner we apply this conceptual schema to analyze findings from a variety of empirical settings including the maine lobster industry

property rights and the evolution of a frontier as a frontier closes land goes from a state where land values are low and property rights undefined to a state where values have risen and tenure has become secure along this evolution the incentives for settlers to invest in productive activities and to expend resources to stake and enforce their claims will change this dynamic na ture of frontier settlement is modeled with special attention to the role of property rights a simulation of the optimal paths of the control and state vari ables which emerge from the model is used to analyze the phenomenon of frequent land sales by settlers jel q23

price flexibility and aggregate stability new evidence and implications i introduction is increased price flexibility stabilizing the importance of this question can be easily established by observing the number of recently published papers in which this question or a slight modification of it has appeared in their titles 1 while most economists would answer this question affirmatively a strand of macroeconomic thought that questions the wisdom of too much price flexibility has recently regained some attention 2 in the most widely discussed of this recent literature delong and summers 1986b question the wisdom of too much price flexibility their work was motivated by some of the ideas expressed by keynes 1936 and formally articulated by james tobin 1975 low prices work to move the economy to full employment but falling prices to the extent that they lead to expectations of deflation raise the real interest rate through the mundell effect and move the economy away from full employment in a version of taylor s 1979 wage setting model delong and summers show that instability is likely to occur if expectations of inflation adjust rapidly to actual inflation and the real interest rate effect is large this view presents a direct challenge to mainstream keynesian models of business cycles 3 according to these models sluggish wages and prices are generally the culprits of unemployment and business fluctuations an exogenous institutional increase in the degree of price inflexibility increases the size of quantities adjustment in response to aggregate demand shocks in the current period and over time the assumption of exogeneity is consistent with the view that wage and price rigidity are the result of an institutional structure that is relatively unresponsive to changes in the underlying economic conditions in gray and kandil 1991 we find this view unappealing considering recent efforts to rationalize nominal rigidities as the outcome of explicit optimization exercises 4 it is for this reason that we examine the relationship between price flexibility and output variability in a framework in which both are endogenously determined in the model we develop price rigidity is attributed to the length of contractual wage agreements an increase in contract length will occur if the costs of negotiating contracts rise or the amount of uncertainty impinging on the economy declines in the first case declines in wage and price flexibility will be accompanied by decreased stability of output in the latter case the opposite will occur the reduction in the size of stochastic disturbances impinging on the economic system has a direct stabilizing impact on real output concurrently the reduction in the degree of uncertainty increases agents incentives to write longer contracts the increased rigidity is destabilizing this destabilizing impact is dominated however by the direct stabilizing impact the implications of the alternative views can be contrasted in many respects in kandil 1991b i test the relation between measures of wage and price flexibility and the size of macroeconomic fluctuations across a group of ten major industrial countries the analysis of this paper extends this research in several directions first the analysis provides a formal illustration of the channels through which price flexibility may differentiate the real effects of specific shocks underlying aggregate demand and in turn aggregate variability the framework approximates the key relationships for the theoretical debate under consideration these relationships are replicated empirically to establish the validity of the hypotheses that differentiate the alternative views second the analysis provides a more formal attempt towards quantifying the structural shocks underlying aggregate demand these shocks are the driving forces of economic instability and in turn they are crucial to the debate on the stabilizing effects of price flexibility

wage rigidity and unemployment in oecd countries real wage rigidity is often blamed for causing unemployment in the wake of adverse real shocks like changes in productivity or the terms of trade likewise nominal wage rigidity is blamed for causing unemployment in the wake of adverse nominal shocks like falls in nominal demand 1 however there has been relatively little systematic discussion of how these concepts should be defined some authors e g sachs 1979 have defined real wage rigidity as the opposite of nominal wage rigidity with the us nominally rigid and europe really rigid 2 the rigidity of european real wages has then been used to explain why europe has experienced a greater increase in unemployment since 1973 than the us but in this discussion real wage rigidity has not been measured in a way which would in fact predict how much unemployment would result from a given real shock the discussion has focused on the degree of nominal inertia in the system but the unemployment cost of real shocks does not depend primarily on the degree of nominal inertia but rather on the effect of unemployment in the phillips curve

is increased price flexibility stabilizing this paper uses john taylor s model of overlapping contracts to show that increased wage and price flexibility can easily be destabilizing because of the mundell effect while lower prices increase output the expectation of falling prices decreases output simulations based on realistic parameter values suggest that increases in price flexibility might well increase the cyclical variability of output in the united states copyright 1986 by american economic association

price flexibility and aggregate stability some evidence contrasting developing and developed countries this paper explores the empirical validity of theoretical channels through which price flexibility may have caused differences in the stability of output in developing and developed countries the relation between these two variables suggests several principles where the size of stochastic disturbances that impinge on the economic system does not play an important role in determining the degree of price flexibility the increased flexibility is clearly stabilizing developing countries generally are characterized by larger stochastic disturbances and a higher flexibility of the price level than developed countries the larger variability of disturbances is indeed destabilizing further this destabilizing effect has domi nated the stabilizing effect that is associated with the increased flexibility of the price level in developing countries and this results in a clear positive correlation between price flexibility and output variability

the asymmetric stabilizing effects of price flexibility historical evidence and implications the evidence of business cycles across a sample of industrial countries indicates asymmetry in the output and price adjustments to aggregate demand shocks in the pre and post war periods upward price flexibility is significant in moderating output fluctuations across countries in the pre and post war periods nonetheless the effect of upward price flexibility in accelerating trend price inflation is more evident across countries in the post war period compared to the pre war period the combined evidence is consistent with a steeper supply curve in the face of expansionary demand shocks that increases the stabilizing effect of upward price flexibility in contrast a flatter supply curve in the face of negative demand shocks has countered the stabilizing function of downward price flexibility which appears insignificant across countries in the pre and post war periods in addition a slower demand response to price change during recessions has further reinforced the contractionary effect on output d

is price flexibility stabilizing a broader perspective recent prewar postwar comparisons of united states macroeconomic performance have produced a number of stylized facts about differences in the cyclical behavior of real activity and prices across the two periods 1 among them are two that have attracted special attention the stability of real aggregate activity measured by the variance of its cyclical component has been greater in the postwar period than in the prewar period and wages and prices have been less flexible in the postwar period than in the prewar period 2 in the standard keynesian paradigms wage and price rigidity are the cause of output and employment fluctuations taken together then the observations of greater stability and reduced wage and price flexibility have puzzled some economists and prompted a reconsideration of the relationship between the flexibility of the price system and macroeconomic stability a series of recent papers3 reassesses the relationship between price flexibility and

a strategic theory of bureaucratic redundancy do redundant bureaucratic arrangements represent wasteful duplication or a hedge against political uncertainty previous attempts at addressing this question have treated agency actions as exogenous thus avoiding strategic issues such as collective action problems or competition i develop a game theoretic model of bureaucratic policy making in which a political principal chooses the number of agents to handle a given task importantly agents have policy preferences that may be opposed to the principal s and furthermore may choose their policy or effort levels among the results are that redundancy can help a principal achieve her policy goals when her preferences are not aligned with the agents but redundancy is less helpful if even a single agent has preferences relatively close to the principal s in this environment collective action problems may cause multiple agents to be less effective than a single agent redundancy can also be unnecessary to the principal if the agent s jurisdiction can be terminated