all pay war we study a model of conflicts and wars in which the outcome is uncertain not because of luck on the battlefield as in standard models but because countries lack information about their opponent in this model expected resource levels and production and military technologies are common knowledge but realized resource levels are private information each country decides how to allocate its resources to production and warfare the country with the stronger military wins and receives aggregate production in equilibrium both comparative and absolute advantages matter a larger resource share is allocated to warfare by the country with a comparative advantage in warfare at relatively low realized resource levels and by the country with an absolute disadvantage in warfare at relatively high realized resource levels from an ex ante perspective the country with a comparative advantage in warfare is more likely to win the war unless its military potential is much lower

the tragedy of the commons in a violent world earlier research has shown that the tragedy of the commons may be resolved by folk theorems for dynamic games in this article we graft on a standard natural resource exploitation game the possibility to appropriate the resource through violent means because conflict emerges endogenously as resources get depleted the threat supporting the cooperative outcome is no longer subgame perfect and thus credible the unique equilibrium is such that players exploit noncooperatively the resource when it is abundant and they revert to conflict when it becomes scarce the players utility is shown to be lower even if conflict wastes no resources

speculation and hedging in segmented markets we analyze a model in which traders have different trading opportunities and learn information from prices the difference in trading opportunities implies that different traders may have different trading motives when trading in the same market some trade for speculation and others for hedging and thus they may respond to the same information in opposite directions this implies that adding more informed traders may reduce price informativeness and therefore provides a source for learning complementarities leading to multiple equilibria and price jumps our model is relevant to various realistic settings and helps to understand a variety of modern financial markets

towards a sustainably certifiable futures contract for biofuels abstract how are biofuels to be certified as produced in a sustainable and responsible fashion in the global debate over this issue one party to the proceedings seems rarely to be mentioned namely the commodities exchanges through which a global biofuels market is being created in this contribution i propose a solution to the problem of sustainability certification through a biofuels futures contract equipped with proof of origin documentation the proposal does not call for any radical break with current practice extending existing certification procedures with a requirement for the vendor to provide documentation probably in barcoded form of the history of the biofuel offered for sale including plantation and biorefinery where the biofuel was produced and subsequent blendings it may have undergone the proposal is thus compatible with the blending practices of large global traders whose activities are the source of the difficulties of other approaches to certification it is argued that if such a sustainable futures contract for bioethanol in the first instance were to be introduced then it would likely trade at a premium and become the primary vehicle for north south trade in biofuels

private interest government beyond market and state market liberalism and state interventionism are both challenged as modes of democratic government by this book it suggests that the development of private interest governments might be a more viable policy alternative for the future it also questions whether the state could devolve certain public policy responsibilities to interest associations in specific economic sectors the book focuses specifically on interest associations in a disaggregated rather than global approach to economics and politics ten western industrialized countries are covered subjects ranging from advertising with self regulation private accountancy regulation and the british voluntary sector to four comparative papers on the corporatist arrangements in the governance of the dairy industry

oligarchy democracy inequality and growth abstract this paper analyses the dynamics of inequality democratization and economic development in a political economy model of growth where education is both the engine of growth and a determinant of political participation in a context with imperfect capital markets we investigate the incentives for an educated oligarchy to subsidize the poor s education and to initiate a democratic transition we characterize the equilibrium patterns of political institutions income distribution and growth as a function of the initial income and inequalities in particular we identify circumstances under which the elite promotes the endogenous emergence of a middle class for purely political economy reasons a simple linear infinite horizon framework is then presented in this setting we discuss the importance of historical dependence for long run social stratification and redistribution

a model of military spending and economic growth this paper investigates a model of militaryconflict between two regimes in which eachmay initiate combat in order to confiscateresources from the other conflict or thepotential for same results in wastefulmilitary spending which lowers growth foreach regime equilibrium military spendingis determined in a one shot game analysisof the one shot game is followed by a studyof the prospects for an equilibrium inwhich regimes lower military spending anddo not engage in combat in repeated play in this latter case military spending willbe decreased to a level just sufficient todeter deviations from the no combatequilibrium this minimum level increases and growth decreases with the internalpolitical instability of each regime moreover an exogenous increase in thedefensive capability of each regime mayeither increase or decrease growth depending upon the initial level ofmilitary spending and growth

the creation of effective property rights traditionally general equilibrium models have taken effective property rights to be given and have been concerned only with analyzing the allocation of resources among productive uses and the distribution of the resulting product but this formulation of the economic problem is incomplete because it neglects that the appropriative activities by which people create the effective property rights that inform allocation and distribution are themselves an alternative use of scare resources this paper develops two canonical general equilibrium models of resource allocation and income distribution that allow for the allocation of time and effort to the creation of effective property rights to valuable resources in one model the valuable resources are initially in common pool in the other models the analysis reveals how the amount of time and effort that agents allocate to the creation of effective property rights on the technology of production and on the scale of the economy the paper also analyses the security of initial claims to valuable resources and speculates about why initial claims are perfectly secure

anarchy efficiency and redistribution this paper develops a contractarian theory of the state and the existence of redistribution the existence of rules of redistribution is explained without any recourse to the risk aversion of agents no veil of ignorance is needed this avoids obligational problems inherent in most other contractarian theories of justice hence this paper departs from the standard legitimization of redistribution as fundamental insurance and interprets it as stemming from a principle of reciprocity in trade since this paper deals with an anarchic society the implementation of redistributional rules is constrained by the assumption of self enforcement we show that this assumption changes the interpretation of the state the state is characterized by a particular design of equilibrium strategies not by the existence of enforcement agencies

default premiums in commodity markets theory and evidence we model the effect of nonperformance risk on forward and futures pricing and look for evidence of nonperformance risk in precious metals futures prices from the hunt brothers episode changes in default premiums are measured and related to the sequence of events in the metals markets during this period results suggest first that ex ante costs of nonperformance can be a significant priced factor in commodity markets and second that the arrival of new information is often associated with changes in these costs the evidence has implications for both theoretical and empirical research on commodity markets organized commodity markets offer traders an efficient medium in which to execute their hedging and speculative strategies in particular the markets have developed mechanisms that reduce the costs of nonperformance which would be substantial in the absence of an organized exchange devices such as margin requirements position limits daily marking to market price limit moves and the clearinghouse reduce the expected costs of distress and default in commodity markets while organized exchanges greatly reduce expected costs of nonperformance they do not eliminate such costs throughout the history of organized futures trading there have been many instances of markets collapsing or coming to the brink of collapse after a period of unusual trading activity the most prominent example in recent times is the near collapse of the new

a dynamic model of conflict and appropriation abstract this paper presents an extension of a static model of economic conflict analyzed by hirshleifer 1991 1995 and skaperdas 1992 to an infinite horizon differential game our aim is to highlight the strategic role of appropriation among a smaller group of agents in an intertemporal context the model yields the conclusion that there exists a unique linear nonlinear markov perfect equilibrium strategy even when strategies are defined over the entire state space we demonstrate that partial cooperation can be seen as a long run response to conflict moreover a decrease in the effectiveness of appropriation the depreciation rate of a common pool stock the rate of time preferences or an increase in the degree of noise improves the degree of partial cooperation and thus welfare in an anarchic society

the arms trade and the stability of regional arms races abstract arms sales to countries involved in regional conflicts raise a range of pressing policy issues this paper models the interaction between two potentially hostile countries who spend their national income on arms imports and consumption goods their welfare depends on consumption and military security military security is a function of relative arms stocks and depends on the relative advantages of aggressive and defensive strategies we examine the dynamic game for noncooperative and regional arms control regimes an innovation of the paper is the inclusion of the price of arms which proves to have a major effect on the stability of arms races

arming as a strategic investment in a cooperative equilibrium to develop a positive economic theory of military spending this analysis focuses on a game theoretic general equilibrium model of international conflict in which consumption peaceful investment and military spending are endogenously determined the analysis illustrates that when there is repeated interaction between nations a game of threats and punishments generally will not support a disarmament outcome and that fluctuations in military spending can be an endogenous result of fluctuations in aggregate economic activity furthermore the analysis shows how the relation between aggregate economic activity and military spending qualitatively depends on whether governments are acting opportunistically or cooperatively copyright 1990 by american economic association

political leadership and regime formation on the development of institutions in international society leadership plays a critical but poorly understood role in determining the success or failure of the processes of institutional bargaining that dominate efforts to form international regimes or more generally institutional arrangements in international society an examination of the nature of institutional bargaining serves as a springboard both for pinpointing the role of leadership in regime formation and for differentiating three forms of leadership that regularly come into play in efforts to establish international institutions structural leadership entrepreneurial leadership and intellectual leadership because much of the real work of regime formation occurs in the interplay of different types of leadership the study of interactions among individual leaders is a high priority for those seeking to illuminate the processes involved in the creation of international institutions not only does such a study help to explain the conditions under which regimes form or fail to form but it also provides an opportunity to bring the individual back in to an important area of international affairs

risk futures pricing and the organization of production in commodity markets this paper examines equilibrium in a spot and futures market with both primary producers growers and intermediate producers processors for a commodity that is subject to output shocks processors tend to hedge long in contrast with hick s theory of futures hedging nevertheless if transaction costs are low the two stage production process brings about a downward futures price bias consistent with hick s pricing prediction but if costs of trading futures are high growers tend to be differentially driven from the futures market reversing the direction of the bias futures trading may also affect the organization of industry when demand is inelastic futures trading can serve as a substitute for vertical integration as a means of diversifying risk because the risk positions of growers are complementary with those of processors

the determination of spot and futures prices with storable commodities this paper analyzes the effects of futures trading in a market for a storable commodity in which producers and speculators are assumed to be risk averse and specifications of the aggregate supply and inventory demand functions are derived from explicit optimization a critical aspect is how the parameters of these functions change with the introduction of the future market as it is through these induced parameter changes that the futures market exerts its influence on the spot price the effects of the futures market on both the long run average spot price and its variance are analyzed while we are unable to draw any definitive conclusions on this issue we find that in all cases considered the futures market stabilizes the spot price as well as lowering its long run mean for many years now the question of the effects of futures trading on the stability of spot prices has been extensively debated this topic has been discussed at various levels for example farmers and agricultural interest groups have claimed that futures trading destabilizes spot prices thereby imposing welfare losses on the economy in the united states congress has decided that futures trading can cause price destabilization and has subjected futures trading to the regulation of the commodity futures trading commission at a more analytical level economists have been investigating the issue both empirically and more recently theoretically as well

endogenous destruction in conflict theory and extensions this article develops a general equilibrium model of conflict to characterize the implications of endogenous destruction for bargaining and fighting specifically we consider the scenario where two contending parties engage in bargaining to avoid fighting when there are direct costs e g arms buildups and indirect costs e g destruction to consumable resources of conflict without imposing specific functional form restrictions on conflict production and destruction technologies we show their interactions in determining an optimal decision between fighting and bargaining we find that under the shadow of conflict bargaining is costly as the contending parties always allocate more resources to arming for guarding settlement through bargaining than in the event of fighting in contrast to conventional thinking that bargaining is pareto superior over fighting we show conditions under which fighting dominates bargaining as the nash equilibrium choice the positive analysis may help explain the general causes of fighting without resorting to the assumption of incomplete information or misperceptions jel d74 h56 c7

deterrence in contests this paper explores the role of deterrence in contests as a general rule we show that for a deterrence strategy to be played by rational agents it is necessary that the contest be destructive we show for a very general class of functions that pure strategy deterrence equilibria where contestants deter one another do not exist a corollary of this finding is that under fairly general conditions agents should always be expected to engage in contests applied to international relations our results imply that war is always a potential outcome despite deterrence attempts

public choice and the economic analysis of anarchy a survey public choice economists began studying anarchy in the 1970s since then the amount of research on anarchy has burgeoned this article surveys the important public choice contributions to the economics of anarchy following early public choice economists many economists are researching how individuals interact without government from non public interested explanations of the creation of government to historical studies of internalizing externalities under anarchy public choice scholars are arriving at a more realistic perspective of human interaction with and without government although the economics of politics receives more attention the economics of anarchy is an important area of research in public choice

the community trap liberal norms rhetorical action and the eastern enlargement of the european union discipline 3 i begin my search for an explanation with liberal intergovernmentalism the most prominent and promising rationalist account of the major turning points in the history of european integration this perspective accounts plausibly for most of the enlargement preferences of the member states and explains why the association of central and eastern european countries to the european community ec was the initial outcome of the bargaining process among them it fails however to account for the community s decision to go beyond association and offer these countries full membership this puzzle is solved through a sociological perspective in which enlargement is understood as the expansion of international community if the eu is conceived of

the distribution of income in the presence of appropriative activities we examine the distribution of income when agents allocate their initial endowments between production and appropriation arms investments influence or rent seeking activities final output depends on the productive contributions of the agents but is divided between them according to their relative contributions in appropriation various possible improvements in an agent s useful productivity reduce the agent s equilibrium share of income but increases in initial endowments increase an agent s share we contrast our results to those that would obtain in the competitive counterpart to our model and discuss its relevance both for history and for the present the results extend to a class of models where distribution is determined between two groups of agents with agents within each group behaving non cooperatively but without exhibiting the free rider problem

bargaining enforcement and international cooperation neoliberals and their neorealist critics have debated the relative importance of two main obstacles to international cooperation problems of cheating and enforcement and problems of relative gains by contrast i argue that problems of international cooperation have a common strategic structure in which a third distinct obstacle plays a crucial role almost regardless of the issue area states must first resolve the bargaining problem of agreeing on terms before they can implement and begin to enforce an agreement furthermore the bargaining and enforcement problems interact using a game model i show that if states must bargain to determine the deal to be enforced the shadow of the future cuts two ways a high expectation of continued interactions may make enforcing the agreement easier but it can also give states an incentive to bargain harder delaying agreement in hopes of getting a better deal empirical evidence from trade and arms control negotiations suggests that this mechanism may help to explain the costly standoffs that are often observed in international politics and are problematic for received neoliberal theories

technology and hedging behavior a proof of hicks conjecture technical conditions give the entrepreneur a much freer hand about the acquisition of inputs which are largely needed to start a new process than about the completion of outputs whose process of production in the ordinary business sense may be already begun if forward markets consisted entirely of hedgers there would always be a tendency for a planned weakness on the demand side a smaller proportion of planned purchases than of planned sales would be covered by forward contracts 1946 p 137

optimal managerial contracts and equilibrium security prices recent developments in economic theory have focused attention on efficient methods for providing incentives within a corporation especially to top management jensen meckling 12 have examined some implications of incentive or agency problems for corporate finance in this paper we combine a simple model of security market equilibrium with that of an optimal managerial incentive contract using results of harris raviv 8 and holmstrom 9 we provide a rationale for including security prices in the managerial incentive contracts of publicly held firms in this model we also show that non systematic diversifiable risks will be considered in the capital budgeting decisions of a managerial firm operated in the interests of its stockholders this is in contrast to the implication of the arbitrage pricing theory a similar result follows from the capital asset pricing model which abstracts from incentive problems and suggests that only systematic risks ought to be considered the optimal contract model of the corporation takes the following view of the firm since decision makers within a firm are not sole owners of the business but employed agents the decisions which they make depend on the incentives which the organization provides these incentives are embodied explicitly in employment contracts and implicitly through the threat of dismissal or effect on reputation the contract whether explicit or not describes the decision maker s anticipation of the consequences to him conditional on various observable outcomes these outcomes are used to provide information useful in determining whether he did his job properly in the simplest optimal contract scenario there is a single principal and a single agent whose decision concerns the level of effort he expends the level of effort affects the level of output of the firm but not unambiguously because the output is also governed by other stochastic elements as a result some information about the agent s level of effort can be inferred

the hedging of an uncertain future foreign currency cash flow this paper derives the optimal hedge of an uncertain unknown quantity future foreign currency cash flow this more general optimal hedge includes the traditional hedge for a certain known quantity future foreign currency cash flow as a special case the optimal hedge is found to be unbounded and determined by firm specific conditions including the variance of the expected cash flow and the correlation of that future cash flow with actual exchange rate movements simulated optimal hedge values are found for u s based multinational firms possessing s dm cash flows using exchange rate data for the 1981 1987 period special cases in which the optimal hedge ratio equals zero and one also are identified and we show that cash flow uncertainty can strongly affect the effectiveness of hedging

a comparison of futures and forward prices abstract this paper uses the pricing models of cox ingersoll and ross 1981 richard and sundaresan 1981 and french 1982 to examine the relation between futures and forward prices for copper and silver there are significant differences between these prices the average differences are generally consistent with the predictions of the futures and forward price models however these models are not helpful in describing intra sample variations in the futures forward price differences this failure is apparently caused by measurement errors in both the price differences and in the explanatory variables

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

the tyranny of inequality abstract when parties are very unequally endowed agreement may be very difficult to reach even if the specific transaction is easy to contract on and fungible resources can be transferred to compensate the losing party the very fungibility of the resource transferred makes it hard to restrict its use changing the amount the parties involved spend in trying to grab future rents this spill over effect can inhibit otherwise valuable transactions as well as enable otherwise inefficient transactions agreement typically breaks down when the required transfer is large and the proposed recipient of the transfer is relatively unproductive or poorly endowed we examine the implications of this model for a theory of the optimal allocation of property rights

a simple competitive model with production and storage we study a rational expectations partial equilibrium model of a market for a single storable commodity whose output each period is a function of previous period effort on production and a realization of a shock that affects equally all producers i he final demand is non random and depends only on each period s price risk neutral producers make production and storage decisions based on forecasts of future price distributions existence of equilibrium is proved and for the case of i i d shocks several comparative statics results are established as well as the existence and stability of a unique stationary distribution and whose output at each period is a multiplicative function of previous period s planting and of the realization of a shock that affects equally all producers the final demand for this good is non random and depends only on this period s price this describes approximately markets for agricultural products which are not traded internationally and where most of the price uncertainty stems from supply shocks risk neutral producers make their decisions based on forecasts of future price distributions and of known cost functions of storage and production to maximize their discounted profits in order to close the model an assumption on how such price forecasts are made is needed we assume that agents make equilibrium forecasts i e that their forecast is common and that when producers act taking the forecasted prices as given they make decisions that yield the forecasted prices as equilibrium prices this is of course what has been sometimes called rational expectations the assumption of equilibrium expectations and the presence of risk neutral pro ducers will imply that the equilibrium variables may be obtained by considering a related market surplus maximization problem 1 this places strong restriction on the stochastic process of equilibrium prices for the case where the basic shocks are assumed to be independently and identically distributed over time one may thus show that equilibrium prices are a function of a certain state variable the total stocks kept from last period plus this period s output and this allows us to derive properties of equilibrium solutions our main results concerning this case are a storage is a non increasing function of price and expected production a non decreasing one b the elasticity of expected future prices with respect to today s prices is positive and less than one c this elasticity is non constant being zero for high enough prices d the price process follows a renewal process if prices are low

forward contracts and futures contracts abstract this paper provides a detailed discussion of the similarities and differences between forward contracts and futures contracts under frictionless markets and continuous trading simple arbitrage arguments are invoked to value forward contracts to relate forward prices and spot prices and to relate forward prices and futures prices we also argue that forward prices need not equal futures prices unless default free interest rates are deterministic

risk aversion and technology mix in an electricity market this article analyzes the eff ect of risk and risk aversion on the long term equilibrium technology mix in an electricity market it develops a model where fi rms can invest in baseload plants with a fi xed variable cost and peak plants with a random variable cost and demand for electricity varies over time but is perfectly predictable at equilibrium the electricity price is partly determined by the random variable cost and the returns from the two kinds of plants are negatively correlated when the variable cost of the peak technology is high the return of peak plants is low but the return to baseload plants is high risk averse fi rms reduce the capacity of the riskiest technology and develop the capacity of the other compared to risk neutral fi rms in the particular case where a risk neutral fi rm invests heavily in baseload technology and only sparely in peak capacity a risk averse fi rm would invest less in baseload increase peak capacity and increase total installed capacity

a note on futures markets with small price and production risks when the spot price and production risk are jointly normally distributed the mean variance approach has little theoretical justification the authors use taylor approximations instead and show the three results one farmers hedge less than expected production when the futures price is less than or equal to the expected spot price two when the futures price equals the expected spot price farmers facing production risk produce less than those without production risk three normal backwardation contango prevails in the markets when correlation between the spot price and production risk is smaller greater in absolute value than the ratio of coefficients of variation of these variables copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

self interest and national security the inner mechanism of global competition remains much as adam smith defined it two centuries ago nations interact while seeking to win by gaining higher wealth self interest in gaining wealth drives the process although wars and other deviations often occur in this setting economic concepts of competition benefit cost criteria and risk can help in defining efficient choices among policy tools including military activities from research using those concepts my study with theodora shepherd 1986 1 will discuss several tentative conclusions about the u s ussr rivalry 1 the global competitive process let us call it process 1 has properties which appear to make it stable 2 the united states and ussr appear to possess inherent security from conquest by each other 3 each country s efficient limit on military spending can be analyzed as an analog of payments for insurance to raise national security in that context inherent security reduces the u s and ussr s efficient levels of armaments 4 military entropy occurs global wealth is subject to a general process process 2 which subtracts it into military forms and warfare

constructing the international foundations of e commerce the eu u s safe harbor arrangement much recent international relations scholarship has argued that states are unable to control e commerce so that private actors are coming to play a dominant role however this body of literature fails to account for emerging hybrid institutions in which states create general frameworks of rules which are then implemented by private actors this article examines a prominent example of such an institution the eu u s safe harbor arrangement in the field of privacy and sets out an alternative explanation of state private actor relations in the sphere of e commerce it shows how safe harbor had its origins in efforts by the european union eu and united states to mitigate problems of interdependence that threatened to undermine the principles of order on which their regulatory systems were based safe harbor reflects neither the eu nor u s approach but rather a novel blend of state and private regulation the article demonstrates the vital role of argument and persuasion in identifying safe harbor as a solution and in negotiating its particulars it finds that conventional game theoretic accounts of bargaining are unable to explain the negotiation of safe harbor and argues that constructivist approaches should pay more attention to how argument can disclose new possibilities of action

equilibrium in a futures market normal backwardation the hypothesis that futures prices normally lie below expected future spot prices was justified by keynes 6 and hicks 2 by the contention that speculators while risk averse are less so than hedgers consequently hedgers pay speculators to bear that hedgers risk houthakker 5 supported this view arguing that according to all available data short hedging and conversely long speculation is the more common type working 9 favored the view that futures prices are unbiased predictors of future spot prices if this is true hedgers are not on average paying to reduce their risk nor are speculators on average earning a premium for assuming risk risk averse speculators will participate in such a market only if there are nonhomogeneous beliefs regarding the expected spot price the level of futures prices is important not only because it determines the cost of hedging but also because it influences production decisions in light of the competing views in the literature of both the level of futures prices and the factors which determine them we will analyze these issues in this paper to do so we employ a model based on incomplete markets in certainty claims in this and other respects identified later the model parallels existing futures markets in agricultural commodities the analysis shows in the absence of speculators that the relative magnitudes of the futures price pf and the expected future spot price e p are determined by the business transactions of and markets available to those economic units with a commercial or production interest in the commodity this defines the conditions under which there is a role for speculators even if they have the same degree of risk aversion and share the expectations of other market participants thus neither differences in degrees of risk

making rules for global finance transatlantic regulatory cooperation at the turn of the millennium this article explains a shift in the way transatlantic authorities managed conflicts over the cross border regulation of securities markets from cooperation skewed heavily toward the preferences of u s officials and accepted grudgingly by european counterparts to a euro american regulatory condominium characterized by close interactions among decision makers and mutual accommodation in the final decades of the twentieth century the asymmetric influence wielded by u s securities market authorities had few parallels in other regulatory areas why then did u s officials become more accommodating and european authorities more influential and why did the turning point occur in 2002 and 2003 an unlikely moment for intensified transatlantic sovereignty sharing my study shows that institutional change inside the eu recast the north atlantic balance of regulatory leverage and thereby was the primary factor behind the reshaping of transatlantic cooperation internal eu regulatory centralization changed the expectations of u s and european firms and authorities and generated new incentives in washington d c for accommodation and closer transatlantic coordination my explanation differs from models that accepting u s financial pre eminence as a given attribute variance in cross border regulatory cooperation to factors such as incentives derived from the particularities of issue areas or preferences rooted in domestic politics while resonating with a well established theme from the realist branch of ipe my findings have broad theoretical significance and open new avenues for dialogue between realists and constructivists about the social political and institutional foundations of power in global economic affairs the transatlantic political process set off by financial transformation in europe reveals contemporary sources of systemic change and raises questions about what the eu s ascendance as a global financial regulator will mean in the aftermath of the late 2000s crisis

the simultaneous determination of spot and futures prices in a simple model with production risk this paper deals with properties of a rational expectations equilibrium when there is futures trading a simple two good model is analyzed where one of the goods is produced subject to production risk although the futures market provides insurance against price risk to producers it is income risk that concerns them whether they hedge in equilibrium is shown to depend on the price and income elasticity of demand for their output as well as on the degree to which consumers the other party in the futures transaction are risk averse

politics and society political diversity and uniformity in households as a theoretical puzzle the authors resolve a theoretical puzzle that characterizes the political preferences of members of social groups by a demonstrating that political homogeneity is a variable to be explained b

can the shadow of the future harm cooperation abstract it is generally thought that in long term relationships high valuations of the future are conducive to cooperation in an intertemporal model of conflict however we demonstrate the possibility of the opposite effect a longer shadow of the future may harm cooperation in particular we show that the degree of inefficiency is positively related to i the agents valuation of the future ii potential growth rates in resources iii the size of initial resource endowments and iv the effectiveness of conflict

why did the west extend the franchise democracy inequality and growth in historical perspective during the nineteenth century most western societies extended voting rights a decision that led to unprecedented redistributive programs we argue that these political reforms can be viewed as strategic decisions by the political elite to prevent widespread social unrest and revolution political transition rather than redistribution under existing political institutions occurs because current transfers do not ensure future transfers while the extension of the franchise changes future political equilibria and acts as a commitment to redistribution our theory also offers a novel explanation for the kuznets curve in many western economies during this period with the fall in inequality following redistribution due to democratization i introduction the nineteenth century was a period of fundamental political reform and unprecedented changes in taxation and redistribution britain for example was transformed from an oligarchy run by an elite to a democracy the franchise was extended in 1832 and then again in 1867 and 1884 transferring voting rights to portions of the society with no previous political representation the decades after the political reforms witnessed radical social reforms increased taxation and the extension of education to the masses moreover as noted by kuznets inequality which was previously increasing started to decline during this period the gini coefficient for income inequality in england and wales had risen from 0 400 in 1823 to 0 627 in 1871 but fell to 0 443 in 1901 two key factors in the reduction in inequality were the increase in the proportion of skilled workers williamson 1985 and the redistribution of income toward the poorer segments of the society for example taxes rose from 8 12 percent of national product in 1867 to 18 8 percent by 1927 and the progressivity of the tax system increased substantially see lindert 1989

guns butter and openness on the relationship between security and trade sovereign states arm to defend real or hypothetical interests presumably because they cannot engage in complete long term contracting that would prevent such arming international trade therefore takes place within an essentially anarchic context and we can expect trade regimes and security policies to be related indeed many embargoes sanctions and various other forms of trade restrictions that have been used throughout history and continue to be used today can be considered extensions of security policies whereas some security policies can be attributed to trade policy the relationship between trade and security however has been barely explored within economics we could fairly characterize the prevailing view within the discipline as the classical liberal view according to which the expansion of international trade does not just increase the welfare of the trading partners but can also patch up any differences they might have over other contentious issues solomon polachek 1980 represents a rare articulation of this widely held perspective more boldly it could be argued that the expansion of trade always alleviates conflict by forcing the adoption of measures that manage conflict nevertheless one does not need to dig much into history to show that while trade and economic interdependence can contribute to the peaceful resolution of disputes they are not sufficient by themselves to guarantee the absence of war and the reduction of arming many observers before world war i for example considered that the hitherto unprecedented expansion of trade and interdependence between britain and germany made war unthinkable and impossible yet war occurred and with much ferocity and destruction furthermore as donald kagan 1995 pp 373 80 has argued the british policy of appeasement toward germany during the 1930 s was based on similar arguments about the use of economic caltots to avoid war what can inter

the demand for hedging and the value of hedging opportunities hedging strategies typically assume that hedging is costless and that only one futures market exists when these assumptions are dropped the demand for hedging is shown to depend on basis risk price risk and the hedger s risk preference the marginal and incremental value of hedging opportunities are computed for the general cases of one and two markets and applied to the specific case of pennsylvania dairy input hedging copyright 2000 oxford university press

on the market consistent valuation of fish farms using the real option approach and salmon futures we consider the optimal harvesting problem for a fish farmer in a model which accounts for stochastic prices featuring schwartz 1997 two factor price dynamics unlike any other literature in this context we take account of the existence of a newly established market in salmon futures which determines risk premia and other relevant variables that influence risk averse fish farmers in their harvesting decision we consider the cases of single and infinite rotations the value function of the harvesting problem determined in our arbitrage free setup constitutes the fair values of lease and ownership of the fish farm when correctly accounting for price risk the data set used for this analysis contains a large set of futures contracts with different maturities traded at the fish pool market between 12 06 2006 and 22 03 2012 we assess the optimal strategy harvesting time and value against two alternative setups the first alternative involves simple strategies which lack managerial flexibility the second alternative allows for managerial flexibility and risk aversion as modeled by a constant relative risk aversion utility function but without access to the salmon futures market in both cases the loss in project value can be very significant and in the second case is only negligible for extremely low levels of risk aversion in consequence for a risk averse fish farmer the presence of a salmon futures market as well as managerial flexibility are highly important

the new politics of interdependence cross national layering in trans atlantic regulatory disputes how are regulatory disputes between the major powers resolved existing literature generally characterizes such regulatory disagreements as system clash in which national systems of regulation com

conflict war and redistribution this article analyzes the circumstances under which conflict leads to the outbreak of war using a formal model which incorporates both the redistribution of resources as an alternative to war and imperfect information countries act as rational agents concerned with both consumption and the public bad of a war in the first period both countries can either consume or build arms whereas in the second period there can be either the threat or the use of force to reallocate resources if both countries are fully informed then there will be no war but rather a voluntary redistribution of resources in a situation of asymmetric information however in which one country is fully informed and the other is not a war can occur if the uninformed country uses a separating equilibrium strategy precommitting itself to a positive probability of war in order to prevent bluffing by the informed country

the relation between forward prices and futures prices abstract this paper consolidates the results of some recent work on the relation between forward prices and futures prices it develops a number of propositions characterizing the two prices these propositions contain several testable implications about the difference between forward and futures prices many of the propositions show that equilibrium forward and futures prices are equal to the values of particular assets even though they are not in themselves asset prices the paper then illustrates these results in the context of two valuation models and discusses the effects of taxes and other institutional factors

a european defence union a european defence union jacques fontanel and ron smith the end of the cold war the unification of germany and the removal of us troops has rekindled interest in european defence cooperation the ec has common security policies on its agenda the military role of the weu is being enhanced and the new nato strategy emphasizes multilateral european forces a european defence union offers large potential efficiency gains power like any natural monopoly is generated more effectively and more cheaply by joint forces than by the sum of fragmented individual forces there are also large economies of scale in weapons production trends in budgets costs and threats are making national provision problematic and national arms industries non viable an edu may appear more attractive than either spending vast sums to attain minimum efficient scale or relying on forces that are so small and ill equipped as to require either dependence on the us or acceptance of effective neutrality however an edu reduces national sovereignty poses problems of command control and organization risks free riding and adverse reactions by the us and ussr and is vulnerable to exploitation and rent seeking by military industrial interests this paper examines the economics of these issues and suggests a route towards effective cooperation

swords or plowshares a theory of the security of claims to property this paper develops a general equilibrium model of the allocation of resources among appropriative and productive activities the model emphasizes the distinction between offensive weapons which are the instruments of predation and fortifications which provide defense against predation the analysis of this model shows how the equilibrium security of claims to property is determined the analysis focuses on the possibility of a nonaggressive equilibrium in which no resources are allocated to offensive weapons and claims to property are fully secure we also analyze the complex relation between economic welfare and the security of claims to property we find for example that a relatively poor agent could be better off in an equilibrium with less secure claims to property

forward and futures prices evidence from the foreign exchange markets empirical studies of the treasury bill markets have revealed substantial differences between the futures price and the implied forward price these differences have been attributed to taxes transaction costs and the settling up procedure employed in the futures market this paper examines the forward and futures prices in foreign exchange in an attempt to distinguish between the competing explanations empirical studies of the treasury bill market have revealed differences between the futures price or rate and the implicit forward price derived from the term structure of interest rates 1 these differences have generally been attributed to market imperfections such as taxes and transaction costs see for example arak 1 capozza and cornell 2 and rendelman and carabini 6 recently however cox ingersoll and ross 3 henceforth cir derived a model in which forward and futures prices need not be equal even in perfect markets without taxes as long as interest rates are stochastic the significance of the cir effect may be hard to investigate using only data from the bill market because of the potentially complicating effects of taxes and transaction costs unique to this market by using data from the foreign exchange market we are able to eliminate the tax effect and reduce the impact of transaction costs the question we address is whether the discrepancies observed in the treasury bill market are also observed in the foreign exchange market if they are then we have evidence that the differences are due to a combination of the cir effect and the transaction costs common to both markets if they are not then either the magnitude of the cir effect is much less in the foreign exchange market or the treasury bill results are due to the unique tax treatment and transaction costs of that market this paper is organized as follows in section i the trading mechanics of the forward and futures markets in foreign exchange are discussed section ii reviews the explanations for the discrepancies between the forward and futures prices for treasury bills the institutional differences between the foreign exchange and bill markets are also summarized to show which of these explanations cannot apply to the foreign exchange market in section iii the data are decribed and the empirical results are presented the conclusions are summarized in the final section

modeling the forms of international cooperation distribution versus information the problems of distribution and information impede international cooperation they arise when actors select how they will cooperate an exploration of the interaction between these problems using a limited information model of cooperation leads to six conclusions first leadership solutions to coordination problems always exist but leadership here is very different from hegemonic provision of public goods second actors can cooperate in the face of anarchy even without a shadow of the future third diffuse reciprocal strategies arise naturally in coordination problems fourth norms and institutions are intertwined within successful cooperation fifth the form of cooperation on an issue varies with the relative importance of distribution and information finally and most important distributional and informational problems interfere with each other arrangements to cooperate can successfully address one but not both of these problems

global communications and national power life on the pareto frontier regime analysis has focused on issues of market failure the resolution of which depends upon knowledge and institution building global communications regimes however have been concerned either with issues of pure coordination or with coordination problems with distributional consequences outcomes have been decided by the underlying distribution of national power in those areas where power was asymmetrically distributed and there was no agreement on basic principles and norms radio broadcasting and remote sensing no regime was formed in those areas where distributional issues could not be unilaterally resolved allocation of the radio spectrum and telecommunications regimes were created although both principles and rules changed with alterations in national power capabilities

production flexibility stochastic separation hedging and futures prices we study a dynamic model where uncertainty about interim output adjustments causes producers to face price cost and output uncertainty stochastically separable production decisions are independent of the producer s risk preferences and expectations and are based on the prevailing futures price as a certain output price conditions under which futures contracts achieve stochastic separation are established optimal hedging and maturity structure of futures contracts equilibrium futures prices and the effects of futures trading on output are studied the systematic risk premium depends on the product of the futures beta and the covariance of the market return with production revenues article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

determinants of hedging and risk premia in commodity futures markets this paper examines the determinants of commodity futures hedging and of risk premia arising from covariation of the futures price with stock market returns and with the reve nues of producers owing to supply shocks that stochastically redistribute real wealth surplus between producers and consumers and to limited participation in the futures market the total risk premium in the model is not proportional to the contract s covariance with aggregate consumption stock market variability interacts with the incentive to hedge causing the producer hedging component of the risk premium to increase de crease with income elasticity for a normal inferior good production costs that depend on output raise the premium we argue that output and demand shocks will typically be positively correlated raising the premium high supply elasticity reduces the absolute heding premium by reducing the variability of spot price and revenue