the effectiveness of keynes tobin transaction taxes when heterogeneous agents can trade in different markets a behavioral finance approach abstract we develop a model in which boundedly rational agents apply technical and fundamental analysis to identify trading signals in two different speculative markets whether an agent trades and if so in which market with which strategy depends on profit considerations as it turns out an ongoing evolutionary competition between the trading strategies causes complex price dynamics which closely resembles the behavior of actual speculative prices moreover we find that if the agents have to pay a transaction tax in one market price variability decreases in this market but increases in the other market however the imposition of a uniform tax on all transactions stabilizes both markets our results suggest that if regulators of a market introduce a transaction tax other markets are likely to follow

economic shocks wealth and welfare the immediate effects of the asian crisis on the well being of indonesians are examined using the indonesia family life survey an on going longitudinal household survey there is tremendous diversity in the effect of the shock for some households it was devastating for others it brought new opportunities a wide array of mechanisms were adopted in response to the crisis households combined to more fully exploit benefits of scale economies in consumption labor supply increased even as real wages collapsed households reduced spending on semi durables while maintaining expenditures on foods rural households used wealth particularly gold to smooth consumption

on measures of excess burden and their application abstract new measures of the additional excess burden of a tax reform are proposed and are shown to be useful in three key policy applications these new measures induce a unique measure of marginal excess burden meb among its interesting properties meb is uniformly zero for a proportional tax on inelastically supplied labor problems in applying the standard measures of total excess burden are demonstrated it is concluded that the induced measure of the marginal cost of funds mcf should be regarded as the most useful concept in applied tax analysis

sustainability of power sector reform in india what does recent experience suggest abstract india has been flirting with the idea of power sector reform for more than a decade however despite the enactment of a comprehensive legal framework for governing the electricity industry limited progress has been made in terms of achieving widespread sector liberalisation and privatisation this paper presents a systematic approach to analysing the sustainability of the reform model and the experience in implementing it it argues that the reforms to date have not produced desirable political economic financial social or environmental outcomes political instability and opportunistic behaviour of political parties in india have reduced the acceptability of reforms while the poor financial performance of utilities and subsidy burden show little signs of improvement reform has not succeeded in rationalising tariffs or balancing supply and demand electricity market reform has not increased access levels and the rise of captive power generation is likely to have an adverse impact upon the natural environment in conclusion there are doubts about the sustainability of reform measures highlighting a need to find policy alternatives

conflict cooperation and commerce the effect of international political interactions on bilateral trade flows the public choice approach to political economy is employed to gain insight into the connection between international politics and trade flows a model is constructed in which importers are assumed to be rational utility maximizers who seek to satisfy international security as well as economic welfare objectives this model of bilateral trade flows reflects contemporary theory in the field of international economics and it explicitly incorporates the general foreign policy orientation of importers among its determinants the model is tested in 16 annual crosssectional estimations 1960 75 for a complete network of 25 countries the findings show considerable support for the hypothesis that trade flows are significantly influenced by broad political relations of amity and enmity between nations the author concludes that nations adjust trade ties to satisfy security as well as economic welfare goals and that a formal political economy of trade should reflect this fact

contracts as a barrier to entry it is shown that an incumbent seller who faces a threat of entry into his or her market will sign long term contracts that prevent the entry of some lower cost producers even though they do not preclude entry completely moreover when a seller possesses superior information about the likelihood of entry it is shown that the length of the contract may act as a signal of the true probability of entry

free to trade democracies autocracies and international trade trade relations we address this issue by analyzing the relationship between regime type and trade policy in a formal model of commercial policy we establish that the ratification responsibility of the legislature in democratic states leads pairs of democracies to set trade barriers at a lower level than mixed country pairs composed of an autocracy and a democracy we test this hypothesis by analyzing the effects of regime type on trade during the period from 1960 to 1990 the results of this analysis accord with our argument democratic pairs have had much more open trade relations than mixed pairs t he effects of domestic political institutions on trade policy have long been a source of controversy among social scientists despite the widespread interest that this debate has prompted however remarkably few studies have addressed the links between political regime type and commercial policy 1 most work on the political economy of trade policy that examines institutional factors focuses only on variations in policy among democracies and avoids comparing democracies with other types of regimes moreover many analyses of trade barriers especially those by economists ignore the effects of domestic political

optimal pricing in electrical networks over space and time an electrical system is modelled with a transmission network customers central generators and independent generators the system is subject to stochastic failures and stochastic demand parameters optimal spot prices are derived for the system they vary stochastically with space and time and depend on electrical load flow patterns the price difference between two locations or two voltage levels and the wheeling charge between them will change magnitude and sometimes sign over time as a function of events throughout the network current spatial pricing methods are significantly different from the spot price based methods derived here

world bank directives domestic interests and the politics of human capital investment in latin america recent studies underscore the importance of international organizations in transmitting norms ideas and values to developing countries but has this diffusion influenced government policy in less developed countries during the past two decades the world bank has emphasized the need for third world governments to increase the stock of human capital by investing in education and health specifically it has encouraged developing countries to shift an increasing share of their resources toward primary education the authors examine 13 latin american countries between 1980 and 1992 to establish the relationship between world bank project lending and government investment in human capital they combine time series cross sectional analysis with field research to evaluate the world bank s influence on government spending on education and health although the world bank may be successful in convincing developing country technocrats to invest in people this research suggests that it is less successful in co

price reforms in the power sector the world bank s role this paper discusses whether the world bank s bank s policy has been successful in promoting economic efficiency in the power sector the conclusion is that the bank s presence has improved the situation as four countries receiving a disproportionate share of bank assistance have witnessed a more positive development since the late 1980s than developing countries as a whole loans provided through periods of non compliance may have eased the urgency of reform in a longer perspective the financing of such over investment may have been justified on grounds of maintaining the bank s presence in these countries and laying the foundation for the more recent sector reforms co ordination with broader sector reforms is also found to yield positive results

power politics and international trade r recent literature attributes the relative scarcity of open international markets to the prisoner s dilemma structure of state preferences with respect to trade we argue that the prisoner s dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system namely their security externalities we consider these external effects explicitly doing so leads us to two conclusions 1 free trade is more likely within rather than across political military alliances and 2 alliances are more likely to evolve into free trade coalitions if they are embedded in bipolar systems than in multipolar systems using data drawn from an 80 year period beginning in 1905 we test these hypotheses the results of the analysis make it clear that alliances do have a direct statistically significant and large impact on bilateral trade flows and that this relationship is stronger in bipolar rather than in multipolar systems in the early 1970s students of international relations began what would become a long and heated debate about the political correlates of open international markets recently however an important element of consensus has begun to emerge most contributors to this debate now seem to agree that the prisoner s dilemma structure of state preferences with respect to trade explains the relative dearth of open international markets here we argue that what has become the standard prisoner s dilemma representation neglects the most critical aspect of free trade agreements in the anarchic international system namely their security externalities we consider these external effects explicitly in order to do so we construct and analyze a simple game theoretic model the results of this analysis demonstrate that tariff games between allies differ systematically from those played between actual or potential adversaries these differences imply that free trade is more likely within rather than across political military alliances however our analysis also suggests that the evolutionary prospects of alliances vary those that are the products of bipolar systems are more likely to evolve into free trade coalitions than are their multipolar counterparts less credible exit threats and clearer responsibilities for alliance stability explain the advantage of a bipolar system we test this argument using data drawn from an 80 year period beginning in 1905 the empirical analysis supports our argument it demonstrates that alliances have a direct statistically significant and large effect upon bilateral trade moreover it shows that on average alliances have a much stronger effect on trade in a bipolar than in a multipolar world 2

power sector reform in india current issues and prospects power sector reforms in india were initiated at a juncture when the sector was plagued with commercial losses and burgeoning subsidy burden investment in the sector was not able to keep pace with growing demand for electricity this paper takes stock of pre reform situation in indian power sector and identifies key concerns that led to initiation of the process of reform the paper discusses major policy and regulatory changes undertaken since the early 1990s the paper also illustrates changes in the market structure as we move along the reform process we also discuss some of the major provisions of the recently enacted electricity act 2003 that aims to replace the prevailing acts which govern the functioning of the power sector in the country in this context we discuss two issues arising out of it namely open access and multi year tariff that we think would have a significant bearing on the performance of the sector in the near future the paper also evaluates the reform process in the light of some of the regulatory changes undertaken finally the paper briefly discusses the issues involved in introduction of competition in the power sector primarily through development of a market for bulk power

risk sharing networks and insurance against illness most risk sharing tests on developing country data are conducted at the level of the village generally the full risk sharing hypothesis is rejected this paper uses detailed data on all insurance networks within a village in tanzania networks are not clustered but largely overlapping we test whether full risk sharing occurs within these networks while village level full insurance cannot be rejected for food consumption we find evidence consistent with at least partial insurance of non food consumption via networks

theories of policy diffusion lessons from latin american pension reform what accounts for the waves of policy diffusion that increasingly sweep across regions of the world why do many diverse countries adopt similar changes focusing on the spread of chilean style pension privatization in latin america this article assesses the relative merit of four theoretical explanations that scholars of diffusion have proposed as the principal mechanism driving innovations spread these approaches emphasize external pressures emanating especially from international financial institutions the quest for symbolic or normative legitimacy rational learning and cost benefit calculation and cognitive heuristics respectively the article assesses which one of these frameworks can best account for the three distinctive features of diffusion namely its wavelike temporal pattern its geographical clustering and the spread of similarity amid diversity while several approaches contribute to understanding policy diffusion the analysis suggests that the cognitive psychological framework offers a particularly persuasive account of the spread of pension reform

sectoral conflict and foreign economic policy 1914 1940 the period from 1914 to 1940 is one of the most crucial and enigmatic in modern world history and in the history of modern u s foreign policy world war i catapulted the united states into international economic and political leadership yet in the aftermath of the war despite grandiose wilsonian plans the united states quickly lapsed into relative disregard for events abroad it did not join the league of nations disavowed responsibility for european reconstruction would not participate openly in many international economic conferences and restored high levels of tariff protection for the domestic market only in the late 1930s and 1940s after twenty years of bitter battles over foreign policy did the united states move to center stage of world politics and economics it built the united nations and a string of regional alliances underwrote the rebuilding of western europe almost single handedly constructed a global monetary and financial system and led the world in commercial liberalization

measurement and mismeasurement of social indicators measurement of social indicators is not without its pitfalls however and drawing conclusions based on comparisons of national aggregates is fraught with difficulties especially when data sources are sketchy the paper in that issue make a compelling argument for investing in improving the quality and frequency of data collection efforts however even when good survey data do exist serious and often quite subtle issues of comparability and measurmenet still abound this abstract was borrowed from another version of this item

contract duration and relationship specific investments empirical evidence from coal markets this paper examines the importance of specific relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities data for 277 coal contracts are used to perform the analysis the results provide strong support for the view that buyers and sellers make longer commitments to the terms of future trade at the contract execution stage and rely less on repeated bargaining when relationship specific investments are more important

the effect of prime age adult mortality on household composition and consumption in rural ethiopia abstract using panel data from ethiopia covering 1994 1997 we estimate the impact of prime age adult mortality on household composition household expenditures and dietary diversity we employed propensity score matching with a difference in difference estimator to control for endogeneity of mortality to the outcomes of interest households losing a productive adult did not replenish the lost labor regardless of economic status sex or status of the deceased adult with the exception of non poor households adult mortality resulted in increased dependency ratios but did not adversely affect households expenditure patterns total food and non food expenditures regardless of the sex and position of the deceased and the economic status of the households although food expenditures were protected a decline in dietary diversity especially among the poorest households reflected increased nutrition insecurity associated with adult mortality

household consumption smoothing through ethnic ties evidence from cote d ivoire abstract this paper investigates the hypothesis that households in cote d ivoire take part in spatially diversified risk sharing arrangements with members of their own ethnic group empirical tests are presented using several estimation methods to deal with heteroscedasticity measurement error and extreme value problems to examine whether results are robust across estimation procedures the hypothesis of complete risk sharing within ethnic groups is rejected however there appears to be some partial insurance performed by individual households with other members of the same ethnic group particularly for the households residing in the regions least likely to have access to formal financial arrangements

power sector reform in south asia why slow and limited so far although south asian developing countries had initiated some form of electric power sector reform in the 1990s often under external lending agency pressures not much progress has been made so far and there is hardly any noteworthy example of a successful reform in the region this paper provides a brief review of power sector reform efforts in five south asian countries and uses an institutional economics framework to identify the factors shaping the success of power sector reforms four factors namely instability of rule makers poor overall acceptance slow adaptation and poor transition management are identified and their effect on the reform process of south asia are analysed the paper finds that political instability has affected the power sector reform of the region making hard decisions difficult to take slow progress of reform has also affected the sector viability as signs of adverse effects on the power sector investment and performance are already visible

principal players in utility restructuring the case of orissa abstract research on reform and restructuring in the electricity supply industry does not adequately focus on the process of actual implementation using the restructuring of orissa state electricity board as a case study this paper identifies the principal players and their roles during the restructuring of an electric utility the key players in a utility restructuring exercise are the government top management lending agencies and the consultants three conceptual phases are identified in the restructuring process namely impetus phase reorganisation phase and consolidation phase as the restructuring process moves from one phase to another the roles of the principal players also undergo significant qualitative changes this paper highlights the changing role of the key players as the restructuring process moves from one phase to another

promoting policy reforms the twilight of conditionality abstract for the past 15 years the world bank often in cooperation with the international monetary fund and sometimes also with bilateral donors has tried to encourage policy reforms through conditions attached to structural or sector adjustment loans in the 1990s however such loans are a rapidly dwindling portion of the bank s disbursements this article examines major reasons for this shift including increased flows of private capital democratization the changing nature of the reform agenda itself and growing bank emphasis on ownership reduced direct conditionality is likely to be replaced in part by growing selectivity the results may well be constructive but will not ease tensions in the aid relationship

entry deterrence and the free rider problem the public good aspect of entry prevention is examined in an industry characterized by an established oligopoly facing a potential entrant although incumbent firms act noncooperatively underinvestment in entry deterrence does not occur and in fact incumbents may find themselves in a pareto dominated arrangement in terms of profits by preventing entry

pre emptive patenting joint ventures and the persistence of oligopoly abstract gilbert and newbery 1982 have examined pre emptive patenting and the persistence of monopoly the present paper considers pre emptive patenting when there are several incumbent firms rather than just one it is shown why the incumbent oligopolists behaving non cooperatively might fail to deter entry this suggests that a joint venture in r and d might be a useful entry deterring device insofar as it pools the incumbents incentives to prevent entry this is indeed the case for small innovations but for large innovations the formation of a joint venture weakens the incumbents incentive to innovate by removing the competitive stimulus between them

the british electricity experiment the privatization of the electricity supply industry esi in britain which began 1990 is in itself an unremarkable event much of the esi is privately owned in several european countries and in the united states and the u k privatization program has embraced utilities since 1984 when british telecom was privatized the thing that is remarkable about recent policy toward the industry is the radical nature of the regulatory reform accompanying privatization a vertically integrated administered generation and transmission structure was replaced overnight on march 31 1990 by one that is deintegrated and market based generation and transmission have been separated and there has been an attempt to establish competition in generation a number of countries have been moving gradually in the direction of encouraging competition but nowhere else have such dramatic changes been implemented so quickly

adult mortality and consumption growth in the age of hiv aids the authors use a 13 year panel of individuals in tanzania to assess how adult mortality shocks affect both short and long run consumption growth of surviving household members using unique data which tracks individuals from 1991 to 2004 they examine consumption growth controlling for a set of initial community household and individual characteristics the effect is identified using the sample of households in 2004 which grew out of baseline households the authors find robust evidence that an affected household will see consumption drop 7 percent within the first five years after the adult death with high growth in the sample over this time period this creates a 19 percentage point growth gap with the average household there is some evidence of persistent effects of these shocks for up to 13 years but these effects are imprecisely estimated and not significantly different from zero the impact of female adult death is found to be particularly severe

household survey data from developing countries progress and prospects assessing the adequacy of household surveys from developing countries can only be done with reference to the purpose s the data are meant to serve we assume that the objective of data collection is to support analysis of a wide range of issues concerning household welfare and behavior especially the prevalence causes and effects of poverty in its multiple dimensions analyses that address these issues can be arrayed in two dimensions methodological complexity which ranges from simple crosstabulations to sophisticated econometric techniques and specificity of the contribution to knowledge which ranges from analysis that addresses a specific policy decision in a particular country to general contributions to knowledge on economic development or research methods a few examples illustrate this typology descriptive statistics on participation in a government program by consumption quintile region or year are methodologically simple and country policy specific compilation of such work across many countries to obtain stylized facts is also methodologically simple but contributes to general knowledge of development using a specific model of household behavior to estimate the impact of charging higher prices for publicly provided services in a particular country is methodologically complex yet countryand policy specific rigorous econometric tests of alternative models of household behavior are methodologically complex and contribute to general knowledge beyond application of the method to a particular data set we discuss the adequacy of household survey data with respect to seven criteria for some criteria the threshold for adequacy varies within the two dimensional methodologyspecificity space

income smoothing and consumption smoothing one way that risk averse households protect consumption levels is to borrow and use insurance mechanisms another way common in low income economies is to diversify economic activities and make conservative production and employment choices households thus tend toward limiting exposure only to shocks that can be handled with available credit and insurance typically both types of mechanisms are studied independently but much more can be learned by studying them together first we obtain a more complete picture of risks costs and insurance possibilities second it opens the way to considering biases in standard tests of credit and insurance

consumption insurance an evaluation of risk bearing systems in low income economies the hypothesis of full risk sharing can be taken to data from low income countries and evaluate formal and informal financial systems in many contexts idiosyncratic risks are high so credit insurance arrangements could be beneficial statistical tests reveal that households in southern india take advantage of these possibilities villages in cote d ivoire and countries in thailand do not do as well the paper includes an empirical description of the devices used to smooth consumption and a theoretical discussion of private information and incentives on ideal operating systems the full information and mechanism design frameworks provide benchmarks for policy analysis

determinants of bilateral trade flows what factors influence the level of trade flows that occur between nations past studies have answered this question primarily in terms of distance and economic size the present study considers additional variables as potential determinants of trade relations between nations also trade flows are analyzed by the type of products being exported and imported the findings show that several additional variables are significant determinants of the level of bilateral trade relations between nations in addition it is found that models of trade flows are more appropriate for manufactured goods than they are for basic commodities

policy diffusion of emission standards is there a race to the top in a dramatic example of policy diffusion the past three decades have witnessed the spread of automobile emission standards throughout the world contrary to fears that global competition would produce a race to the bottom there appears to be a race to the top not only among rich countries but also among poor ones using econometric analysis of the adoption of automobile emission standards over the past twenty years for 129 countries the author argues that this global diffusion results from countries efforts to stay competitive in the international market due to the pressure from importing countries that have adopted stringent emission standards even developing countries have rapidly moved to adopt rich country standards the evidence shows that adoption of automobile emission standards correlates with an increase in the total value of automobile exports under some conditions economic incentives in a global market can be a complement to environmental protection

how did wars dampen trade in the mena region abstractthe article investigates the impact of wars on trade in the middle east and north african region using an augmented gravity model that controls for the endogeneity problem in our estimation we introduce a war variable and distinguish between different types of conflicts the results show that wars have a significantly negative impact on exports imports and trade civil conflicts hinder exports imports and trade significantly the disaggregated version of the gravity model shows that non state conflicts have a detrimental effect on bilateral trade flows in manufacturing and that none of the conflicts do affect trade in services we also find that on average a conflict is equivalent to a tariff of 5 of the value of trade

barriers to political analysis in aid bureaucracies from principle to practice in dfid and the world bank summary politics has become a central concern in development discourse and yet the use of political analysis as a means for greater aid effectiveness remains limited and contested within development agencies this article uses qualitative data from two governance leaders the united kingdom department for international development and the world bank to analyze the administrative hurdles facing the institutionalization of political analysis in aid bureaucracies we find that programing management and training practices across headquarters and country offices remain largely untouched by a political analysis agenda which suffers from its identification with a small cross national network of governance professionals

does prime age mortality reduce per capita household income evidence from rural zambia summary this paper evaluates the impact of prime age mortality on per adult equivalent incomes of surviving household members in rural zambia the analysis uses difference in difference matching techniques and controls for spillover effects by excluding households from the control group if members departed or joined for reasons related to prime age mortality the latter is required because per adult equivalent incomes of non afflicted households may be indirectly affected e g by hosting orphans we find evidence of negative spillover effects on non afflicted households however the death of a prime age member has no significant short run effect on per adult equivalent income of afflicted households

the nature and importance of economic competence this chapter takes on three tasks 1 to survey the study of economic competence as it appears in economic literature 2 to give a meaningful and operational definition of economic competence as one of the factors contributing to macroeconomic growth and 3 to suggest a methodology pursued in greater depth elsewhere to generalize and link economic competence as defined at the micro firm individual level to macroeconomic growth through simulation on the micro based macroeconomic model of the swedish economic system moses by introducing knowledge in the micro setting of firm organizational competence we arrive at a very different interpretation measured at the macro industry level from that of standard neoclassical theory

alliances preferential trading arrangements and international trade c oncerns about the stability of the international trading system have become widespread in recent years many observers feel that the relatively liberal system forged after world war ii is being undermined by the proliferation of preferential trading arrangements these concerns have spawned a great deal of empirical research much of which has found that such arrangements exert a substantial effect on trade flows yet these studies have neglected the role political military alliances play in shaping patterns of commerce this omission is important because there is ample reason to expect that alliances guide trade flows and preferential trading arrangements often are comprised of allies as a result extant analyses risk confusing the effects of alliances and preferential trading arrangements on commerce and systematically overstating the effects of the latter in this study we analyze the effects of alliances and preferential trading arrangements on bilateral trade flows both factors are likely to promote trade among members but we argue that the interaction between them is central to explaining patterns of commerce the combination of an alliance which creates political incentives for participants to engage in trade and a commercial institution which liberalizes trade among members is expected to provide a considerable impetus to commerce among parties to both 1

investing in the peace economic interdependence and international conflict research appears to substantiate the liberal conviction that trade fosters global peace still existing understanding of linkages between cone ict and international economics is limited in at least two ways first cross border economic relationships are far broader than just trade global capital markets dwarf the exchange of goods and services and states engage in varying degrees of monetary policy coordination second the manner in which economics is said to inhibit cone ict behavior is implausible in light of new analytical insights about the causes of war we discuss and then demonstrate formally how interdependence can ine uence states recourse to military violence the risk of disrupting economic linkages particularly access to capital may occasionally deter minor contests between interdependent states but such opportunity costs will typically fail to preclude militarized disputes instead interdependence offers nonmilitarized avenues for communicating resolve through costly signaling our quantitative results show that capital interdependence contributes to peace independent of the effects of trade democracy interest and other variables students of world politics have long argued that peace is a positive externality of global commerce theorists like montesquieu and kant and practitioners like woodrow wilson asserted that economic relations between states pacify political interaction mounting evidence in recent years appears to substantiate these claims multiple studies many identie ed with the democratic peace link interstate trade with reductions in militarized disputes or wars 1 while we concur with the evolving

consumption smoothing and hiv aids the case of two communities in south africa abstract hiv aids threatens to overstretch the already frail informal safety nets in countries heavily affected by the epidemic potentially making it difficult for households with hiv positive members to keep up appropriate consumption levels when experiencing shocks these households may in addition face exclusion from informal insurance networks because of widespread stigmatization surprisingly the resilience of informal networks to hiv related shocks and their uncertain worth for afflicted households in particular have not been empirically tested to date using 3 years of a novel panel data set from two poor south african communities experiencing hiv related illnesses and deaths we investigate the ability of households to insure their consumption we find little evidence that affected households show an extra propensity to consume out of income changes which indicates that these households can rely on informal insurance to the same degree as their nonaffected peers however on the basis of the

risk and insurance in village india comment the protection of poor households in high risk agrarian economies from shocks to their incomes has often been seen as a compelling motive for various forms of policy intervention including transfers of cash or food credit subsidies and public employment schemes for a survey see lipton and ravallion 1995 the desirability of such safety net policies clearly depends on how well pre existing risk sharing arrangements work while it is commonly thought that without effective policy intervention rural households are vulnerable to village wide shocks such as adverse prices or poor rains it is less clear to what extent risk sharing institutions within the village mitigate the effects of idiosyncratic income risk stemming for instance from ill health or localized crop damage 2 several recent papers have used household level data to implement tests of risk sharing that might inform such concerns 3 these tests are based on the proposition that with perfect risk sharing consumption at the household level should be insured against idiosyncratic risks and thus depend solely on the realization of the aggregate risk wilson 1968 diamond 1967 townsend 1994 tests this implication of perfect intra village risk sharing using longitudinal household data on consumptions and incomes for three villages in india he reports that the full insurance hypothesis provides a surprisingly good benchmark in that household consumptions co move and do not appear to be much influenced by contemporaneous own income our aim here is to examine the robustness of this potentially important finding we have two main concerns the first is that the specification townsend adopts potentially biases his test towards the null hypothesis of full insurance because it yields inconsistent estimates of the key test parameter under a plausible alternative we therefore estimate a different specification that generates consistent estimates under both the null and the alternative our second concern is that a particular form of measurement error in the consumption data townsend uses may have further biased his results toward the null hypothesis of full insurance to address this concern we use an instrumental variables procedure when we implement the test of consumption insurance with townsend s consumption data we also re estimate the test equations with a measure of consumption derived from the same underlying primary data by an alternate method finally townsend reports 1discussions with robert townsend stimulated our interest in this investigation the staff of the

is consumption insured against illness evidence on vulnerability of households to health shocks in rural ethiopia abstract low and volatile incomes and absence of well developed financial markets make consumption smoothing an important issue in low income countries based on the theory of full insurance and using 2 years of panel data this study examines the impact of illness on the consumption of rural households and the capacity of existing risk sharing mechanisms in insuring consumption against health shocks in the rural areas of ethiopia the results show that illness has a statistically significant negative impact on the stability of consumption and the capacity of households or existing intra and interhousehold risk sharing arrangements in insuring consumption against illness varies across different consumption items the regression results show that the hypothesis of consumption insurance cannot be rejected in the case of total food consumption implying that basic items that come from own production and from external sources gifts are better insured and insensitive to the illness of the head however the

does trade still follow the flag t he economic ties between any two nations are frequently affected by a warming or cooling of bilateral diplomatic relations but there is little to be found in modern economics or political science that helps us understand the connections between international politics and commerce the notion that international economics could be studied in isolation from its political underpinnings or consequences would have been quite alien to mercantilist thinkers in the eighteenth century or to the critics or advocates of imperialism in the nineteenth that economics and politics were inextricably intertwined was taken as a matter of course indeed trade follows the flag was central to these people s understanding of world politics and international economics intellectual trends over the past century radically changed this worldview the ascendancy of liberalism in economic thought brought with it a compartmentalization of disciplines that may now be eroding but we are left with theories of international politics and economics that are very weakly bridged the objective of this study is to map one of the many connections between international politics and commercial ties specifically i seek to identify and measure the effect of changes in state to state diplomatic relations on trade flows between those nations theoretical underpinnings of my effort are in the tradition of public choice political economy frey 1984 because i treat importers as rational utility maximizers and their behavior as determined by preferences pursued within a context of specified constraints the model i put forward is wholly consistent with contemporary neoclassical trade theory but i extend the economists notion of welfare and contend that importers take account not only of the price and quantity of goods and services but of the place of origin of these products and the political relationship between the importing and the exporting nation they do so essentially for traditional security reasons that is importers are motivated to manage their trade relations in ways that minimize risks of disruption in supply or the possibility of hurting friends or

energy efficiency in world bank power sector policy and lending new opportunities abstract this paper examines the role of and opportunities for energy efficiency in the world bank s electric power sector policy and lending it finds that the dynamic environment in which the bank operates provides substantial opportunity for the bank to more effectively fulfill its mandate through an aggressive effort to develop the energy efficiency market opportunities in its client countries the paper finds a variety of market conditions that indicate both an opportunity for the bank in efficiency markets and a need for bank influence in the development of these markets in assessing the bank s current policy and lending practices the paper finds that the bank continues to be fundamentally oriented towards the traditional supply side measures that have long defined the bank s focus between 1992 and 1996 less than one half of one percent of the bank s power sector loans financed demand side efficiency improvements by neglecting the significant potential for demand side efficiency improvements the bank is missing major opportunities to fulfill its mandate in developing countries and capitalize on the investment opportunities in this business in new markets as the flow of private sector financing to developing country power sectors grows the bank s continued focus on traditional supply side investments is increasingly inconsistent with its mandate to be a lender of last resort yet more importantly in neglecting the emerging energy efficiency market the bank is missing a strategic opportunity to foster environmentally sound development in developing countries and establish a vital new role for itself in the dynamic power sector the paper recommends that the bank take advantage of this opportunity by adopting a new approach to the power sector one that combines continued pricing reforms with institutional reforms and capital investments in both demand side efficiency and supply side expansion towards this end it identifies ways in which the bank could finance large scale investments in demand side efficiency in developing countries finally the paper suggests that only by considering such energy efficiency investments early in the project identification process rather than as an add on to projects fundamentally conceived as supply side projects will the full potential for such investments be realized

collateral damage trade disruption and the economic impact of war abstract conventional wisdom in economic history suggests that conflict between countries can be enormously disruptive of economic activity especially international trade we study the effects of war on bilateral trade with available data extending back to 1870 using the gravity model we estimate the contemporaneous and lagged effects of wars on the trade of belligerent nations and neutrals controlling for other determinants of trade as well as the possible effects of reverse causality we find large and persistent impacts of wars on trade national income and global economic welfare we also conduct a general equilibrium comparative statics exercise that indicates costs associated with lost trade might be at least as large as the conventionally measured direct costs of war such as lost human capital as illustrated by case studies of world wars i and ii

full insurance in the presence of aggregate uncertainty this paper tests implications of full consumption insurance the object is to determine how much mileage can be obtained from a model with complete markets with such features as private information or liquidity constraints omitted the implication exploited is that individual consumption responds to aggregate risk but not to idiosyncratic risk the test involves regressing the change in household consumption onto the change in aggregate consumption and other right hand side variables such as the change in household income and change in employment status all variables other than the change in aggregate consumption are predicted to be insignificant in explaining the change in household consumption with observations on consumption and income for 10 695 households from the consumer expenditure survey the results are mixed the results for one specification exponential utility are mostly consistent with full consumption insurance the results for the other specification power utility are not

measurement error in recall surveys and the relationship between household size and food demand variation in household survey design and implementation is used to obtain evidence of nonrandom measurement error in recall surveys of household expenditure these surveys which are used especially in developing countries appear to have measurement errors in food expenditures and in food budget shares that are correlated with household size these correlated errors may be part of the explanation for a puzzling pattern of falling food demand with rising household size in poorer countries

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

deregulation and restructuring of the global electricity supply industry and its impact upon power plant suppliers abstract this paper analyses the deregulation and restructuring of the global electricity supply industry and its impact upon fuel usage generation technologies and suppliers of power plant deregulation encouraged the growth of new independent power producers whose business requirements transformed the power plant industry the plant suppliers had to develop new capabilities and services to compete in the global market economies of scale and scope became crucial given the cost of developing the new technologies and providing the services required by the operators this led to the global consolidation of the power plant industry because only large integrated power engineering companies had the necessary resources and capabilities to compete in the new global environment

trade and thy neighbor s war abstract this paper is the first to examine the spillover effects of regional conflicts defined as internal or external armed conflicts in contiguous states on international trade our empirical findings based on different measures of regional conflict constructed using alternate definitions of contiguity and types of conflict for 145 countries over 1948 2006 reveal a significant negative effect of both intrastate and international conflicts on the bilateral trade of neighboring countries that may not be directly involved in any conflict the impact increases with conflict duration and is persistent on average it takes bilateral trade 3 5 years to recover after the end of a regional conflict

a simple test of consumption insurance are consumers effectively insured against idiosyncratic shocks to income or wealth either by formal institutions such as charities private insurance and government programs or by informal mechanisms such as gifts and loans from relatives friends and neighbors under full insurance consumption growth should be cross sectionally independent of idiosyncratic variables that are exogenous to consumers this proposition is tested by cross sectional regressions of consumption growth on a variety of exogenous variables full insurance is rejected for long illness and involuntary job loss but not for spells of unemployment loss of work due to strike and an involuntary move

dyadic military conflict security alliances and bilateral fdi flows although multinationals operate under cross border jurisdictions the relevance of interstate security relations to international business has received little attention despite the impressive accumulation of knowledge in international business and international relations the two intellectual communities have largely ignored the insights from each other in this article we seek to bridge this gap we argue that interstate military conflict and security alliances as two central features of interstate security relations often change both government policies toward international business and investor expectations of political risk from the perspectives of both states and investors military conflict should reduce bilateral investment whereas security alliances increase it our empirical analysis applies the system gmm estimator to a gravity model of bilateral investment flows for 1117 directed dyads among 58 countries from 1980 to 2000 among 18 countries whose per capita real incomes remain consistently above 12 000 constant dollars the security factors do not affect bilateral investment in the high income low income dyads interstate military conflict and security alliances significantly influence bilateral investment as expected the findings depict two separate realms in which international politics does and does not interfere with international business helping us improve political risk assessments and understand the interactions between states and firms

ex tridenti mercatus sea power and maritime trade in the age of globalization this paper tests an implication of the hypothesis that hegemons provide increased global stability and thus promote international commerce specifically we measure the influence of naval power projections on global trade during the latter 19th and early 20th centuries a time of relative peace and robust commercial activity we use archival data on the navies of britain france the united states and germany capturing longitudinal measures of ship deployment tonnage and ship personnel first we develop an empirical naval arms race model and demonstrate that the navies of britain and france in particular responded rigorously to each other we then use our estimates of naval power projected around the world by britain and france to measure their effects on bilateral trade in a panel data gravity model results indicate that while navies had some positive impact on their own nation s trade other nations trade suffered our results show that rather than bolster globalization the first global arms race damaged commercial interests and lowered trade potential around the world

political pricing of electricity can it go with universal service provision abstract political parties in india are known to use electricity prices as a tool to secure a win in the democratic election process this article examines the setting of electricity prices from a political economy perspective citizens differ in their willingness to pay for electricity and the consumer surplus and electoral uncertainty seem to influence their choices while exercising their franchise to win political parties must receive a majority of votes and a party in power may try to achieve this by choosing to ignore a consumer group either by charging a price higher than their willingness to pay or by choosing to satisfy them by charging a lower price two theoretical models are proposed the first model computes the possible prices when common perfectly correlated electoral shocks are anticipated while the second model computes the possible prices for independent and identically distributed electoral shocks we test these models with available data on willingness to pay and electricity price for agricultural domestic and industrial consumers in an indian state by generating prices that would be charged to each of these types of consumers to maximize the chances of re election actual prices seem to confirm the second model more than the first

the political economy of international trade enduring puzzles and an agenda for inquiry a similar set of concepts has been central to the literatures on the formation of trade policy coalitions and the new economics of institutions the political and economic consequences of the degree to which assets are specific to a particular economic activity in this survey the authors take the necessary first step of summarizing the main findings of these two literatures and then suggest ways in which the issue might be joined in addition to providing a more coherent understanding of the findings of these two literatures and some new directions for them the authors show that many puzzles remain in the field of trade politics puzzles for which there are no appealing answers or where there are answers no strong evidence in support of them this essay then in addition to being a theoretical review of the literature puts forward an agenda for future study of international trade politics

an analysis of sample attrition in panel data the michigan panel study of income dynamics by 1989 the michigan panel study on income dynamics psid had experienced approximately 50 percent sample loss from cumulative attrition from its initial 1968 membership we study the effect of this attrition on the unconditional distributions of several socioeconomic variables and on the estimates of several sets of regression coefficients we provide a statistical framework for conducting tests for attrition bias that draws a sharp distinction between selection on unobservables and on observables and that shows that weighted least squares can generate consistent parameter estimates when selection is based on observables even when they are endogenous our empirical analysis shows that attrition is highly selective and is concentrated among lower socioeconomic status individuals we also show that attrition is concentrated among those with more unstable earnings marriage and migration histories nevertheless we find that these variables explain very little of the attrition in the sample and that the selection that occurs is moderated by regression to the mean effects from selection on transitory components that fade over time consequently despite the large amount of attrition we find no strong evidence that attrition has seriously distorted the representativeness of the psid through 1989 and considerable evidence that its cross sectional representativeness has remained roughly intact

vulnerability seasonality and poverty in ethiopia most studies examining the dynamics of welfare have found large fluctuations in consumption over relatively short periods suggesting substantial short run movements in and out of poverty the consequence is that cross section poverty research may not be able to identify the poor in this study we explore this short run variability further we use a data set on a panel of 1450 households in different communities in rural ethiopia surveyed thrice over 18 months on average year to year poverty is very similar however we find high variability in consumption and poverty over the seasons and year by year econometric analysis suggests that consumption is affected by idiosyncratic and common shocks including rainfall and household specific crop failure while households respond to seasonal incentives related to changing labour demand and prices the results imply that a larger number of households are vulnerable to shocks than implied by the standard poverty statistics while some of the non poor in the

growth dynamics in the biomedical biotechnology system this article aims to understand the dynamics of growth in the biomedical biotechnology system that consists of a variety of actors ranging from universities medical supplies firms and drug research firms to clinical service suppliers based on a comparative study made in ohio and in sweden we have analyzed three main factors technology competencies technology transfer and networking capabilities our findings show a set of differences that can be grouped into two categories viz management and agglomeration externalities differences in management appear at three points the resources allocated to technological competence development managerial skills in the technology transfer phase and the use of technology councils ohio seems to offer a better environment for starting up new firms and enabling these firms to successfully commercialize their technological assets the agglomeration externalities that make a difference between the two regions might be grouped into two categories increasing returns arising from network externalities and the advantages of networking with a variety of supporting organizations in the system

regional integration as diplomacy regional integration agreements rias are examples of second best and have an ambiguous impact on welfare contend the authors they build a model in which rias unambiguously raise welfare by correcting for externalities it assumes that trade between neighboring countries increases trust between them and reduces the likelihood of conflict the optimum intervention in that case is a subsidy on imports from the neighbor the authors show that an equivalent solution is for the neighboring countries to tax imports from the rest of the world that is to form an ria together with imposing some domestic taxes in fact security threats have moved neighboring countries to form rias examples include the creation of the european coal and steel community 1951 and the european economic community 1957 to reduce the threat of war in europe as well as various rias among developing countries the authors show among other things that 1 the optimum tariffs on imports from the rest of the world are likely to decline over time 2 deep integration implies lower optimum external tariffs if it is exogenous 3 but if deep integration is endogenous it implies higher optimum external tariffs before it occurs and lower ones thereafter and 4 enlargement of a bloc in terms of symmetric countries has an ambiguous impact on external tariffs but improves welfare and some form of domino effect exists in the sense that enlargement increases the incentive for nonmembers to seek accession although externalities associated with security matters imply that an ria may maximize welfare this model suggests that the ria is a transitory arrangement in the sense that optimum trade preferences are highest at the time the ria is formed when security is low and tend to decline over time in other words the ria s external trade policy becomes increasingly open over time as well as following deep integration

are the poor less well insured evidence on vulnerability to income risk in rural china the authors test how well consumption is insured against income risk in a panel of sampled households in rural china they estimate the risk insurance models by generalized method of moments treating income and household size as endogenous insurance exists for all wealth groups although the hypothesis of perfect insurance is universally rejected those in the poorest wealth decile are the least well insured with 40 percent of an income shock being passed on to current consumption by contrast consumption by the richest third of households is protected from almost 90 percent of an income shock the extent of insurance in a given wealth stratum varies little between poor and nonpoor areas

insuring consumption against illness one of the most sizable and least predictable shocks to economic opportunities in developing countries is major illness we investigate the extent to which families are able to insure consumption against major illness using a unique panel data set from indonesia that combines excellent measures of health status with consumption information we find that there are significant economic costs associated with major illness and that there is very imperfect insurance of consumption over illness episodes these estimates suggest that public disability insurance or subsidies for medical care may improve welfare by providing consumption insurance

the intergovernmental network of world trade igo connectedness governance and embeddedness membership in certain intergovernmental organizations igos such as the world trade organization has long been argued to stimulate trade yet evidence linking igos to trade is mixed the authors argue that identifying the influence of igos requires attention not only to the institutions igos enact but also to the network through which they enact them this approach allows them to demonstrate that trade between two countries increases by an average of 58 with every doubling of the strength of igo connection between the countries they also contribute to debates regarding the mechanisms through which structural relationships influence economic behavior by showing that substantial trade benefits occur not only through economic igos but also through igos that were formed for social and cultural purposes and that connections through igos that are organizationally strong have more impact than those through minimalist igos

trade blocs trade flows and international conflict the relationship between foreign trade and political conflict has been a persistent source of controversy among scholars of international relations existing empirical studies of this topic have focused on the effects of trade flows on conflict but they have largely ignored the institutional context in which trade is conducted in this article we present some initial quantitative results pertaining to the influence on military disputes of preferential trading arrangements ptas a broad class of commercial institutions that includes free trade areas common markets and customs unions we argue that parties to the same pta are less prone to disputes than other states and that hostilities between pta members are less likely to occur as trade flows rise between them moreover we maintain that heightened commerce is more likely to inhibit conflict between states that belong to the same preferential grouping than between states that do not our results accord with this argument based on an analysis of the period since world war ii we find that trade flows have relatively little effect on the likelihood of disputes between states that do not participate in the same pta within ptas however there is a strong inverse relationship between commerce and conflict parties to such an arrangement are less likely to engage in hostilities than other states and the likelihood of a military dispute dips markedly as trade increases between them

costs and potentials of energy conservation in china s coal fired power industry a bottom up approach considering price uncertainties abstract energy conservation technologies in the coal fired power sector are important solutions for the environmental pollution and climate change issues however a unified framework for estimating their costs and potentials is still needed due to the wide technology choices especially considering their economic feasibility under fuel and carbon price uncertainties therefore this study has employed a bottom up approach to analyze the costs and potentials of 32 key technologies new promotions during the 13th five year plan period 2016 2020 which combines the conservation supply curve csc approach and break even analysis findings show that 1 these 32 technologies have a total coal conservation potential of 275 77 mt with a cost of 238 82 billion yuan and their break even coal price is 866 yuan ton 2 steam water circulation system has the largest energy conservation potential in the coal fired power industry 3 considering the co benefits will facilitate these technologies promotions because their break even coal prices will decrease by 2 35 yuan ton when the carbon prices increase by 1 yuan ton 4 discount rates have the largest impacts on the technologies cost effectiveness while the future generation level affect their energy conservation potentials most

a political economic model of u s bilateral trade a bstract interrelationships between economics and politics have long been recognized by scholars in the field of international relations this paper attempts to identify and quantify the factors aflecting bilateral trade flows between the united states and other countries by developing a gravity type model the model includes economic and political variables and is tested using data for sixty six u s trading partners results indicate that pure economic variables which reflect market forces are not the only factors affecting u s bilateral trade semi cconomic and international political factors are also important

alliances in international governmental organizations regional trade agreement formation and multinational enterprise regionalization strategy abstract drawing from political science alliance theories we explain why countries are likely to enter regional trade agreements we argue that the probability that this will happen is higher if the countries are allies in the same international governmental organizations igos as such alliances can help build trust and reduce political risk our results show that igo scope and also partner reliability and influence in the igo network play important roles our findings provide guidance to multinational enterprises in formulating regionalization strategies

power sector reform in orissa an ex post analysis of the causal factors abstract from the early 1990s dramatic changes have been taking place in the structure of electricity supply industry esi worldwide the primary reasons for electricity sector reform has however been different for industrialised and developing countries the objective of this paper is to study and identify various factors leading to power sector reform in developing countries the restructuring of orissa state electricity board in india was used as a case study in identifying the various factors the factors that result in implementation of restructuring are a contextual factors they are the primary drivers for initiating reform the performance of the utility and the conditionalities of the lending agencies are contextual factors b trigger factor it is the determining factor that creates a compelling necessity to undergo restructuring the inability of the government to continue to support the utility acts as the trigger factor c facilitating factors they act as facilitators for initiating reform support of the government absence of a powerful lobby and the support of the top management are facilitating factors

reinventing strategies for emerging markets beyond the transnational model with established markets becoming saturated multinational corporations mncs have turned increasingly to emerging markets ems in the developing world such em strategies have been targeted almost exclusively at the wealthy elite at the top of the economic pyramid recently however a number of mncs have launched new initiatives that explore the untapped market potential at the base of the economic pyramid the largest and fastest growing segment of the world s population reaching the four billion people in these markets poses both tremendous opportunities and unique challenges to mncs as conventional wisdom about mnc global capabilities and subsidiary strategy in ems may not be appropriate how mncs can successfully enter these low income markets has not been effectively addressed in the literatures on global and em strategies an exploratory analysis involving interviews with mnc managers original case studies and archival material indicates that the transnational model of national responsiveness global efficiency and worldwide learning may not be sufficient results suggest that the success of initiatives targeting low income markets is enhanced by recognizing that western style patterns of economic development may not occur in these business environments business strategies that rely on leveraging the strengths of the existing market environment outperform those that focus on overcoming weaknesses these strategies include developing relationships with non traditional partners co inventing custom solutions and building local capacity together these successful strategies suggest the importance of mncs developing a global capability in social embeddedness