the rotten kid theorem meets the samaritan s dilemma a familiar result in the economic theory of the family is becker s rotten kid theorem this theorem states that altruism by a family member will lead other selfish members to act efficiently from the family viewpoint we extend becker s one period model to two periods and show that parental altruism can result in an inefficiency known in other contexts as the samaritan s dilemma implications of this for transfer arrangements within the family and for the ricardian equivalence theorem are drawn

cycles in politics wavelet analysis of political time series spectral analysis and arma models have been the most common weapons of choice for the detection of cycles in political time series controversies about cycles however tend to revolve around an issue that both techniques are badly equipped to address the possibility of irregular cycles without fixed periodicity throughout the entire time series this has led to two main consequences on the one hand proponents of cyclical theories have often dismissed established statistical techniques on the other hand proponents of established techniques have dismissed the possibility of cycles without fixed periodicity wavelets allow the detection of transient and coexisting cycles and structural breaks in periodicity in this article we present the tools of wavelet analysis and apply them to the study of two lingering puzzles in the political science literature the existence of cycles in election returns in the united states and in the severity of major power wars

cycles in american national electoral politics 1854 2006 statistical evidence and an explanatory model are there cycles in american politics in particular does the proportion of the democratic republican vote share for president and or seat share in congress rise and fall over extended periods of time if so are the cycles regular and what are the cycling periods moreover if there are regular cycles can we construct an integrated model such as a negative feedback loop that identifies political forces that could generate the observed patterns first we use spectral analysis to test for the presence and length of cycles and show that regular cycles do in fact exist with periods that conform to those predicted by the schlesingers for swings between liberalism and conservatism but with durations much shorter than those most commonly claimed by burnham and others in characterizing american political realignments second we offer a voter party interaction model that depends on the tensions between parties policy and office motivations and between voters tendency to sustain incumbents while reacting against extreme policies we find a plausible fit between the regular cycling that this model projects and the time series of two party politics in america over the past century and a half

a survey of agency models of organizations abstract in recent years neoclassical economists have begun to turn their attention to issues of firm organization stimulated in large part by methodological advances in the economics of incentives and incomplete information the paradigm on which much of this work is based views an organization as an agency relationship agency models incorporate two basic features of organizations incomplete information and goal conflict among members of the organization this essay characterizes and critiques the existing research on agency models of organizations in order to broaden the set of consumers of such models and to stimulate the production of new research

welfare improving asymmetric information in dynamic insurance markets this article presents a two period asymmetric learning model of insurance markets when information about past accidents is not shared by insurers asymmetries of information develop through time equilibrium contracts exist are payoff unique and display a realistic bonus malus pattern eliminating asymmetries through information sharing is welfare decreasing in contrast with past contributions on insurance and adverse selection when second period contract offers cannot be contingent on initial contract choice a strict increase in welfare is obtained through menus of contracts although initial contract choice is in itself worthless information

regime cycles democracy autocracy and revolution in post soviet eurasia research on regime change has often wound up chasing events in the post soviet world because it has frequently assumed that regime change if not simple instability implies a trajectory toward a regime type endpoint like democracy or autocracy a supplemental approach recognizes that regime change can be cyclic not just progressive regressive or random in fact regime cycles are much of what we see in the postcommunist world where some states have oscillated from autocracy toward greater democracy then back toward more autocracy and with recent colored revolutions toward greater democracy again an institutional logic of elite collective action focusing on the effects of patronalpresidentialism is shown to be useful in understanding such cyclic dynamics explaining why revolutions occurred between 2003 and 2005 in ukraine georgia and kyrgyzstan but not in countries like russia azerbaijan and uzbekistan

unilateral altruism may be beneficial a game theoretic illustration abstract this paper examines when unilateral altruism may be beneficial the example of two person 2 2 noncooperative games is used to develop an intuitive criterion namely that a role reversal would result in the two persons behavior changing in a similar direction

the public as thermostat dynamics of preferences for spending theory democratic accountability requires that the public be reasonably well informed about what policymakers actually do such a public would adjust its preferences for more or less policy in response to policy outputs themselves in effect the public would behave like a thermostat when the actual policy temperature differs from the preferred policy temperature the public would send a signal to adjust policy accordingly and once sufficiently adjusted the signal would stop hypotheses in domains where policy is clearly defined and salient to the public changes in the public s preferences for more policy activity are negatively related to changes in policy methods a thermostatic model of american public preferences for spending on defense and a set of five social programs is developed and then tested using time series regression analysis results changes in public preferences for more spending reflect changes in both the preferred levels of spending and spending decisions themselves most importantly changes in preferences are negatively related to spending decisions whereby the public adjusts its preferences for more spending downward upward when appropriations increase decrease thus consistent with the eastonian model policy outputs do feed back on public inputs at least in the defense spending domain and across a set of social spending domains

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

automobile insurance ratemaking in the presence of asymmetrical information automobile insurance is an example of a market where multi period contracts are observed this form of contract can be justified by asymmetrical information between the insurer and the insured insurers use risk classification together with bonus malus systems in this paper we show that the actual methodology for the integration of these two approaches can lead to inconsistencies we develop a statistical model that adequately integrates risk classification and experience rating for this purpose we present poisson and negative binomial models with regression component in order to use all available information in the estimation of accident distribution a bonus malus system which integrates a priori and a posteriori information on an individual basis is proposed and insurance premium tables are derived as a function of time past accidents and the significant variables in the regression statistical results were obtained from a sample of 19 013 drivers

the inefficiency of refinancing why prepayment penalties are good for risky borrowers abstract this paper provides a theoretical analysis of the efficiency of prepayment penalties in a dynamic competitive lending model with risky borrowers and costly default when considering improvements in the borrower s creditworthiness as one of the reasons for refinancing mortgages we show that refinancing penalties can be welfare improving and that they can be particularly beneficial to riskier borrowers in the form of lower mortgage rates reduced defaults and increased availability of credit thus a high concentration of prepayment penalties among the riskiest borrowers can be an outcome of efficient equilibrium in a mortgage market we also provide empirical evidence that is consistent with the key predictions of our model

repeated insurance contracts and learning this article considers a repeated insurance model with incomplete information in which the insurer and the consumer both learn over time about the unknown risk category of the consumer care choices by young consumers affect the informational value of the accident history under an optimal scheme of long term insurance contracts young consumers will always be subsidized by old consumers and consumers who are reassessed as low risk types are always subsidizers i e reverse experience ratings we compare this optimal scheme with the set of contracts that would emerge in a competitive market if only short term contracting were possible these sequentially competitive contracts can lead to over investment in care by both young and old consumers relative to the optimum in contrast to the underinvestment problem associated with moral hazard in insurance

competitive equilibrium with type convergence in an asymmetrically informed market this article studies an asymmetric information game with type convergence in which under some realizations of a common uncertainity inducing informed agents to reveal their types through self selection by contract choice is either costly or impossible under other realizations self selection permits costless distinctions between informed agents i obtain sufficient conditions under which contracting with options prior to the realization of the common uncertainity leads to the existence of a perfectly separating costless nash equilibrium applications to variable rate loan commitments and life insurance contracting are discussed article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

change and stability in superpower rivalry we investigate the dynamics of superpower rivalry participants in policy debates within each state use information about expected future threats and economic costs to influence other policy actors and this process of sophisticated reaction links the security policies of these two states into a single rivalry system analysis of vector autoregression models of u s and soviet military expenditures and diplomatic hostility and u s gross national product supports the hypothesis that these policies approximate the behavior of unitary rational states capable of forming rational expectations of each other s future behavior the dynamic response of this system to a wide range of exogenous shocks or innovations reveals the underlying stability of this rivalry system the military expenditures of both states exhibit a cyclical response to innovations with a shorter u s cycle this lack of synchronization creates several problems for analysis and for policy change

a fresh look at the rotten kid theorem and other household mysteries gary becker s rotten kid theorem asserts that if all family members receive gifts of money income from a benevolent household member then even if the household head does not precommit to an incentive plan for family members it will be in the interest of selfish family members to maximize total family income i show by examples that the rotten kid theorem is not true without assuming transferable utility i find a simple condition on utility functions that is necessary and sufficient for there to be the kind of transferable utility needed for a rotten kid theorem while restrictive these conditions still allow one to apply the strong conclusions of the rotten kid theorem in an interesting class of examples

dynamic conditional correlations in political science time varying relationships and volatility are two methodological challenges that are particular to the field of time series in the case of the former more comprehensive understanding can emerge when we ask under what circumstances relationships may change the impact of context such as the political environment the state of the economy the international situation etc is often missing in dynamic analyses that estimate time invariant parameters in addition time varying volatility presents a number of challenges including threats to inference if left unchecked among time varying parameter models the dynamic conditional correlation dcc model is a creative and useful approach that deals effectively with over time variation in both the mean and variance of time series the dcc model allows us to study the evolution of relationships over time in a multivariate setting by relaxing model assumptions and offers researchers a chance to reinvigorate understandings that are tested using time series data we demonstrate the method s potential in the first example by showing how the importance of subjective evaluations of the economy are not constant but vary considerably over time as predictors of presidential approval a second example using international dyadic time series data shows that the story of movement and comovement is incomplete without an understanding of the dynamics of their variance as well as their means

a guide to wavelets for economists abstract wavelet analysis although used extensively in disciplines such as signal processing engineering medical sciences physics and astronomy has not fully entered the economics discipline yet in this survey article wavelet analysis is introduced in an intuitive manner and the existing economics and finance literature that utilizes wavelets is surveyed and explored extensive examples of exploratory wavelet analysis are given most using canadian us and finnish industrial production data finally potential and possible future applications for wavelet analysis in economics are discussed

the yield curve and the macro economy across time and frequencies this paper assesses the relation between the yield curve and the main macroeconomic variables in the u s between early 1960s and 2009 across time and frequencies using wavelet analyses the shape of the yield curve is modelled by latent factors corresponding to its level slope and curvature estimated by maximum likelihood with the kalman filter the macroeconomic variables measure economic activity unemployment inflation and the fed funds rate the cross wavelet tools employed coherency and phase difference the set of variables and the length of the sample allow for a thorough appraisal of the timevariation and structural breaks in the direction intensity synchronization and periodicity of the relation between the yield curve and the macro economy our evidence establishes a number of new stylized facts on the yield curve macro relation and sheds light on several results found in the literature which could not have been achieved with analyses conducted strictly in the time domain as most of the literature or purely in the frequency domain

repeated insurance contracts and moral hazard abstract an attempt is made to account for the frequently observed phenomenon of insurance companies offering discounts to clients who possess a favorable record of past claims we argue that such discounts provide a mechanism which enables both insurer and insured to counteract the inefficiency which arises from moral hazard

estimating incumbency advantage without bias in this paper we prove theoretically and demonstrate empirically that all existing measures of incumbency advantage in the congressional elections literature are biased or inconsistent we then provide an unbiased estimator based on a very simple linear regression model we apply this new method to congressional elections since 1900 providing the first evidence of a positive incumbency advantage in the first half of the century incumbency advantage is the most frequently studied factor in the last 15 years of congressional elections research discovery of the increase in incum bency advantage has sparked controversy over its origins historical pattern cur rent magnitude and electoral democratic and policy consequences even the most basic descriptive information about incumbency advantage is flawed be cause every previous measure based on aggregate data in this literature is plagued by selection bias inconsistencies and inefficiencies we prove this result and also propose a new unbiased and statistically efficient measure that is very easy to calculate congressional elections from 1900 to the present fit our theoretical model our empirical reanalyses do not challenge the existing scholarly consen sus that incumbency advantage is much larger than it once was however we do challenge the prevailing belief that incumbency advantage was nonexistent and the evidence that it was negative in house elections during the first half of this century alford and brady 1988 we show instead that the average advantage of incumbency in these elections was about two percentage points in section 1 of this paper we define incumbency advantage and section 2 gives an intuitive sense of the problems identifying it even in ideal electoral sys tems section 3 formally proves that sophomore surge and retirement slump are biased estimates of incumbency advantage and section 4 briefly reveals the flaws

consumer lock in with asymmetric information abstract a two period version of the rothschild and stiglitz 1976 model of competitive screening in an insurance market is presented its features include repeat purchase of insurance among consumers no commitment among insurers or consumers asymmetric information among insurers about a consumer s accident history and state contingent contracts an equilibrium may exist in this model with full pooling in period one and consumer lock in in period two in such an equilibrium high risk consumers are experience rated and firms earn negative profits in period one and positive profits in period two