do elites benefit from democracy and foreign aid in developing countries abstract a popular argument for the absence of any beneficial effects of foreign aid is that it is skimmed by political elites in recipient countries however studies also suggest that aid may be more effective in relatively democratic developing countries by exploring data on income quintiles derived from the world income inequality database for 88 developing countries a set of results indicate that foreign aid and democracy in conjunction are associated with a higher share of income held by the upper quintile it thus appears that foreign aid contrary to popular beliefs leads to a more skewed income distribution in democratic developing countries while the effects are negligible in autocratic countries the paper closes with a discussion of potential mechanisms generating this perverse effect

spatial evolution of social norms in a common pool resource game we study the conditions for the emergence of cooperation in a spatial common pool resource cpr game we consider three types of agents cooperators defectors and enforcers the role of enforcers is to punish defectors for overharvesting the resource agents are located on a circle and they only observe the actions of their two nearest neighbors their payoffs are determined by both local and global interactions and they modify their actions by imitating the strategy in their neighborhood with the highest average payoffs on average using theoretical and numerical analysis we find a large diversity of equilibria to be the outcome of the game in particular we find conditions for the occurrence of equilibria in which the three strategies coexist we also derive the stability of these equilibria finally we show that introducing resource dynamics in the system favors the occurrence of cooperative equilibria

search costs and prices abstract this paper examines the effect of consumer search costs on the level of prices and price dispersion we show that as search costs decrease prices may increase and price dispersion may also increase

cooperation for pennies a note one equilibria abstract it is shown that in finitely repeated smooth games e equilibria are capable of supporting full cooperation up to very near the end of the horizon with very small amounts of irrationality e furthermore behavior even near the end of the horizon is highly insensitive to the amount of irrationality assumed journal of economic literature classification numbers c73 l13

the proportional solution for economies with both private and public ownership abstract we ask how should a planner whose job is to respect public ownership of some productive assets in conjunction with private ownership of some inputs allocate resources we call our proposal the proportional solution it is characterized by the requirement that the final allocation be pareto efficient and by the condition of equal returns to the use of privately owned inputs we discuss this idea in a publicly owned firm a cooperative and a common pool resource our main result is the existence of proportional solutions in general convex economies journal of economic literature classification numbers d50 d51 d62 l32 h23 h82 p13

why don t poor countries catch up a cross national test of an institutional explanation early neoclassical analyses predicted that poor countries would grow faster than wealthy countries because of technological advances and diminishing returns to capital in the latter the reverse has occurred poor countries are falling back rather than catching up we suggest here that deficient institutions underlie this divergence employing various indicators of institutional quality including the rule of law the pervasiveness of corruption and the risk of expropriation and contract repudiation we show that the ability of poor countries to catch up is determined in large part by the institutional environment in which economic activity in these countries takes place jel o00 o10

the tragedy of the commons in cote d ivoire agriculture empirical evidence and implications for evaluating trade policies expansion of cultivated land diminishes the extent of forestlands or reduces the length of fallow periods and hence reduces the amount of natural vegetation the increase in land under cultivation has a direct output increasing effect at the cost of reducing natural capital and agricultural productivity the evidence for western cote d ivoire is consistent with and provides an explanation for the declining agricultural productivity observed in sub saharan africa during the past few decades this article uses a theoretical model to determine the level of land cultivation that maximizes village income using data from cote d ivoire for 1985 87 an important part of the land is under common property usually at the village level the results show that farmers do not internalize even a small fraction of the external cost of biomass in their land allocation decisions the lack of internalization of the social cost of the biomass resource leads to large income losses at the village level as much as 14 percent of village income these losses are many times larger than the usual estimates for conventional distortions

an efficient and almost budget balanced cost sharing method for a convex technology c we characterize cost sharing games where the nash equilibrium demands maximize total surplus budget balance is possible if and only if c is polynomial of degree n 1 or less for general c the residual cost shares are balanced if at least one demand is null a characteristic property if the cost function is totally monotone a null demand receives cash and total payments may exceed actual cost the ratio of excess payment to efficient surplus is at most min 2logn 1 for power cost functions c a ap p 1 the ratio of budget imbalance to efficient surplus vanishes as 1np 1 for analytic cost functions the ratio converges to zero exponentially along a given sequence of users all asymptotic properties are lost if the cost function is not smooth

a progress report on marxian economic theory on the controversies in exploitation theory since okishio 1963 a progress report on marxian economic theory

consequences of aid volatility for macroeconomic management and aid effectiveness we conclude that individual aid sector volatility matters as well as total aid volatility easily the most important contributor to total volatility is debt aid the most volatile aid sectors per se include debt industry and humanitarian and the least include education and health in several sectors volatility appears to have peaked around 2006 within individual countries sector volatility is often corrected for in the following period there are also sometimes knock on effects on other sectors finally we examine the impact of sector aid and aid volatility on school completion rates death rates internet usage and mobile phone subscriptions

aid and growth in sub saharan africa the recent experience abstract this paper presents some quantitative evidence on the relationship between foreign aid and economic growth in the low income countries of sub saharan africa two key findings are presented first aid is positively and significantly correlated with investment and economic growth in africa second fix capital formation contributed to the rate of growth this result which emerges from analyzing time series data is somewhat surprising given the disappointing performance of african countries since the early 1970s

fair allocation of disputed properties we model problems of allocating disputed properties as generalized exchange economies in which agents have preferences and claims over multiple goods and the social endowment of each good may not be sufficient to satisfy all individual claims in this context we investigate procedural and end state principles of fairness their implications and relations to do so we explore procedural allocation rules represented by a composition of a rights assignment mechanism to assign each profile of claims individual property rights over the endowment and walrasian or other individually rational exchange rule using variants of fairness based on no envy as end state principles we provide axiomatic characterizations of the three focal egalitarian mechanisms known in the literature on rationing problems as constrained equal awards constrained equal losses and proportional mechanisms our results are connected to focal contributions in political philosophy and also provide rationale for market based environ mental policy instruments such as cap and trade schemes and personal carbon trading and moral foundation for the three proposals to allocate ghg emission rights known as the equal per capita sharing the polluter pays principle and the equal burden sharing the victims pay principle

surplus sharing with a two stage mechanism in this article we consider environments where agents jointly produce a private output good by contributing privately owned resources an efficient outcome may not be realized due to strategic behavior and conflicting interests of the agents we construct a two stage mechanism building on a varian mechanism the modified mechanism ensures an equilibrium for a large class of preferences and guarantees the feasibility of outcomes

incentive mechanism design for production economies with both private and public ownerships in this paper we dealwith the probl em of incentive mechanism design which yields efficient allocations for general mixed ownership economies when preferences individual endowments and coalition patterns among individuals are unknown to the planner we do so by doubly implementing the proportional solution for economies with any number of private sector and public sector commodities and any number of individuals as well as the coexistence of privately and publicly owned firms with general convex production possibility sets furthermore the mechanisms work not only for three or more agents but also for two agent economies journal of economic literature classification numbers c72 d61 d71 d82 2000 academic press

price dispersion and inflation evidence from israel the paper considers the question whether observed price differentials reflect perceived differences in quality service agreements or location or whether information imperfections can explain this phenomenon it sets out theoretical arguments linking inflation to reductions in the information stock held by agents and thus to greater price dispersion the hypothesis is tested using monthly price data for 13 uniquely defined goods sold in israel between 1971 and 1984 price dispersion is shown to be positively related to the rate of market price inflation since inflation is an unlikely proxy for changes in perceived characteristics the findings support price dispersion theories based on optimally imperfect decision making

retail gasoline price dynamics and local market power using monthly data from the 48 contiguous states except nevada for the 1988 2002 period it is shown that retail gasoline prices respond faster to wholesale price increases than to equivalent wholesale price decreases moreover markets with high average retail wholesale margins experience a slower adjustment and a more asymmetric response since gasoline is the only variable input average margins in a state likely reflect the degree of retail market power this suggests that sticky prices and response asymmetries in the gasoline market are at least partially a consequence of retail market power

a note on imitation based competition in common pool resources the tragedy of the commons refers to the dissipation of common ressources when several appropriators have access to it the nash equilibrium in common pool resource games describes such an overexploitation phenomena however some empirical facts and experimental results suggest that the degradation may exceed the nash equilibrium prediction rapid exhaustion of resources can then be explained by learning processes based on imitation behavior indeed when the number of players is limited the evolutionary outcome implies a higher level of dissipation than the nash equilibrium

non excludable public good experiments we conduct a two stage game experiment with a non excludable public good in the first stage two subjects choose simultaneously whether or not they commit to contributing nothing to provide a pure public good in the second stage knowing the other subject s commitment decision subjects who did not commit in the first stage choose contributions to the public good we found no support for the evolutionary stable strategy equilibrium and the ratio of subjects who did not commit to contributing nothing increased as periods advanced that is the free riding rate declined over time furthermore this behavior did not arise due to altruism or kindness among subjects but from spiteful behavior of subjects

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

foreign aid and domestic savings in less developed countries some tests for causality abstract the negative correlation between foreign aid and domestic savings rates in less developed countries is an accepted fact in the existing literature the direction of causality however remains a subject of dispute in this paper we use time series data to investigate causal relationships we conclude that causal relationships are not universal and it is suggested that in those countries where they do hold the direction of causality may depend upon the proportions of aid from bilateral and multilateral sources

price reactions to rivals local channel exits in this paper we study the effect of a firm s local channel exits on prices charged by incumbents remaining in the marketplace exits could result in higher prices due to tempered competition or lower prices due to reduced colocation or agglomeration benefits the net effect of these two countervailing forces remains unknown in addition little is known about how this effect could change depending on incumbents geographic locations we address this research gap by examining new car price reactions by incumbent multiproduct automobile dealerships who experience the exit of a chrysler dealership in their local markets we find evidence that the competition effect exceeds the colocation effect prices increase by about 1 318 following an exit relative to the price change in the absence of an exit more important we find that the price increase is lower at dealerships more proximate to the exiting dealership than dealerships farther away for the same set of cars available across these locations this

the tragedy of the commons in international fisheries an empirical examination abstract historically all capture fisheries have proven hard to manage internationally shared stocks face an additional impediment to effective management previous fisheries studies estimate gains from cooperation for particular species or locations but evidence is lacking on the wider effect that international sharing has in relation to other variables that affect stock status this paper is an attempt to shed a broader light on the effect of sharing by identifying whether shared fish stocks are systematically more exploited i compile exploitation status biological and economic data into a unique two period panel of more than 200 fish stocks from around the globe with which i test the theoretical implications of sharing the empirical results from ordered category estimation suggest that shared stocks are indeed more prone to overexploitation

the tragedy of the commons revisited identifying behavioral principles abstract the theme of hardin s renowned the tragedy of the commons is that the common pool resource is dissipated to the level where the average value of extraction equals the wage rate in the long run when the number of appropriators is unlimited yet experimental results and rapid deforestation in tropical countries follow a contrasting pattern even though the number of appropriators is limited the common pool resource is dissipated more than the nash equilibrium predicts first given these market or experimental observations we identify two behavioral principles share maximization and difference maximization second we characterize these principles at nash equilibrium

equilibrium price distributions equilibrium price distributions for a homogeneous product consistent with individual incentives are investigated they arise in informationally imperfect markets in which the only primitive datum is the distribution of search costs it is shown that single multi and continuous price distributions are all viable long run phenomena depending on the nature of search costs a method for computing equilibrium price distributions is also provided jevons law of one price has long been an accepted dictum in economic theory in a classroom presentation it still serves sometimes implicitly as a major premise in many micro models of market interaction much of the descriptive theory as well as welfare analysis hinges on this assumption yet one s day to day experience reveals that price differentials are a viable phenomenon and that looking for lower prices may very well be a rewarding activity the prospects of eventually hitting a bargain and the resulting price reduction would more than compensate for the cost incurred during the search process moreover the existence of price dispersions appear to be an empirically stable phenomenon snapshots of markets for relatively homogeneous products reveal substantial and recurring price differentials stigler 1961 and pratt wise and zeckhauser 1979 for example report some evidence supporting this claim an important article by stigler 1961 focused economists attention on the crucial role played by the informational structure of markets it gave rise to the study of the

characterizations of the pivotal mechanism the pivotal mechanism is strategyproof demand revealing in public decision problems where preferences are quasi linear moreover no agent has an incentive to free ride by withdrawing from the committee and consuming whatever decision is taken by the remaining agents strategyproofness plus no free ride characterize the pivotal mechanism this mechanism is anonymous and neutral yet together strategyproofness anonymity and neutrality do not characterize it they will however if reasonable lower or upper bounds on final utilities are imposed our last characterization of the pivotal mechanism uses the no free ride axiom and two mild monotonicity properties but not strategyproofness

aid volatility and donor recipient characteristics in difficult partnership countries one factor limiting aid effectiveness is its volatility we examine aid volatility in 66 countries over 1975 2004 paying particular attention to the characteristics of difficult partnership countries and making a distinction between sector aid and total aid we explore whether weak recipient institutions and policies are associated with greater volatility allowing for differences in donor characteristics institutional quality and macroeconomic stability affect the stability of all kinds of aid as does reliance on a small number of donors however the relative importance of these effects varies across different aid types

coping with the tragedy of the commons game structure and design of rules the paper provides an assessment of some recent results of the large amount of new institutional economics analyses investigating a common pool resource setting with a specific focus on game theory models most of the studies have used a non cooperative approach in order to explain how under provision for the resource or its over use the so called tragedy of the commons can be avoided within given management rules they show how the characteristics of the game payoff matrix repetition or of the users group size wealth heterogeneity and moral norms may give incentives for the latter to play in a way that benefits all users by contrast much fewer articles have used a formalized approach to assess the possibility for players to design new rules to overcome the initial tragedy of the commons the article ends with some proposals of directions for future research

the effectiveness of aid on savings and investment in sub saharan africa do volatility and institutional quality matter abstractthe effectiveness of aid is somewhat subject to its volatility this study investigates the impact of aid volatility especially on savings and investment with a particular focus on the role of institutional quality in 45 sub saharan african ssa countries over the period from 1990 to 2013 we used the generalized method of moments gmm technique combined with a measure of volatility namely an averaged data method involving six 4 year sub periods our results suggest that while aid is positively associated with savings and investment its volatility is harmful to savings and investment however when higher quality institutions exist the volatility of aid has a less negative impact on savings and investment the policy implications are diverse first donors and ssa aid dependent countries need to take into account the diversity of shocks to which aid can respond in mitigating its unpredictability secondly ssa countries should be encouraged to establish the conditions for better quality inst

aid the public sector and the market in less developed countries a reply the article in this journal by mosley et al i987 concludes its analysis of aid effectiveness as demonstrating inability of development aid over more than twenty years to provide a net increment to overall growth in the third world p 636 this note purports to show that this conclusion which is ostensibly distressing as the authors claim is not warranted the section of the study which is the basis of the conclusion cited and the subject of this note is a cross section regression analysis full details of which are shown in mosley et al table 3 the note is concerned with the relation between the dependent variable specified as the growth rate of real gdp per cent per annum hereafter gdp and aid specified as a percentage of gdp hereafter aid the aid results with only two significant positive coefficients in one subsample certainly give no basis for claiming aid effectiveness in terms of gdp growth the intention in this note is to interpret the results which are assumed to be valid this is made possible by the fact that the authors have helpfully provided the full input set of mean values derived from the raw data from this it is possible to calculate the gdp aid relationship for each country for the second and third period the procedure for deriving these relationships is as follows for each country the mean values of the time series of gdp and aid are extracted from the data for i 960 70 and for i 970 80 using i 960 70 as the base the signs of the change in the levels of the gdp and aid mean values between periods are recorded this is repeated for i980 4 with i970 80 mean values as the base the relationship between the two signs is an indication of the effect of aid on gdp in the period in which the change in levels is effected thus in the case of an increase in aid being combined with a decrease in gdp the latter must have fallen relatively to the former and aid effectiveness is negative mutatis mutandis for the other three sign combinations thus generating the appropriate gdp aid relationship for each country in each period a frequency distribution of the four sign combinations relating to the full sample is presented in table i since the signs of the changes in the levels of gdp and aid are derived by making explicit the arithmetic relationship implicit in the data they form a valid base from which to draw conclusions without requiring any test of

implementation of balanced linear cost share equilibrium solution in nash and strong nash equilibria abstract this paper considers the incentive aspect of the balanced linear cost share equilibrium blcse which yields an endogenous theory of profit distribution for public goods economies with convex production technologies we do so by presenting an incentive compatible mechanism which doubly implements the blcse solution in nash and strong nash equilibria so that nash allocations and strong nash allocations coincide with blcse allocations the mechanism presented here allows not only preferences and initial endowments but also coalition patterns to be privately observed in addition it works not only for three or more agents but also for two agent economies

the evolution of walrasian behavior consider an evolutionary context where a given number of quantity setting oligopolists tend to mimic successful behavior occasionally experimenting with some small probability in this context it is shown that the unique long run outcome of the process has all firms playing walrasian i e choosing an output that maximizes profits when taking the market clearing price as given

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

political business cycles democratization and economic reform the case of africa abstract this paper presents cross country evidence that political business cycles are alive and well in the nascent democracies of the developing world africa provides fertile ground for the study of political business cycles this paper uncovers systematic electorally timed interventions in five monetary and four fiscal policy variables in a panel of african countries these findings are consistent with the predictions of rational opportunistic political business cycle theory if africa s increasingly frequent elections are associated with reversals of fiscal and monetary policy reform there is a potential conflict between political and economic reform

reward patterns of fair solutions abstract the solutions proposed in the literature on fair allocations are sensitive to the preference profiles of the agents as a consequence each of them displays a specific distribution pattern which may be interpreted as rewarding certain kinds of preferences at the expense of others in the basic models with private goods and decreasing returns the equal income competitive equilibrium tends to favor the eccentric preferences whereas most egalitarian equivalent solutions tend to reward the agents who like particular resources the identification of the rewarding pattern of each mechanism sheds light on its ethical content and may help select the adequate solution in concrete applications in this analysis a preference monotonicity property turns out to be satisfied by many solutions

the dynamic implications of foreign aid and its variability abstract the paper examines the effects of aid and its volatility on consumption investment and the structure of production in the context of an intertemporal two sector general equilibrium model calibrated using data for aid dependent countries in africa a permanent flow of aid mainly finances consumption rather than investment consistent with the historical failure of aid inflows to translate into sustained growth large aid flows are associated with higher real exchange rates and smaller tradable sectors because aid is a substitute for tradable consumption aid volatility results in substantial welfare losses providing a motivation for recent discussions of aid architecture stressing the need for greater predictability of aid these results are also consistent with evidence from cross country regressions of manufactured exports presented later in the paper

the social efficiency of private decisions to enforce property rights costs must be incurred if an owner is to enforce private property rights effectively we show that in a perfectly competitive economy private decisions to enforce rights may result in either more or less enforcement than is socially efficient cases of multiple stable equilibria occur and an equilibrium may be locally but not globally efficient resources may not be employed in their socially most valuable uses and enforcement may be accompanied by inefficient investment in resource productivity

macroeconomic uncertainty and private investment abstract this paper provides empirical support for a link between macroeconomic uncertainty and private investment in developing countries cross section regressions with constructed measures of uncertainty confirm that for developing countries uncertainty is negatively correlated with private investment

individual rationality and voting in cooperative production abstract suppose that a group of individuals owns collectively a technology which produces a consumption good from an input a sharing rule associates input contributions with a vector of consumption we consider sharing rules that are a convex combination of the proportional the equal share and the equal benefit rules we characterize the subset of sharing rules that satisfy pareto efficiency and individual rationality we also study the outcome of majority voting on this subselection of sharing rules

on the endogenous determination of the degree of meritocracy in large cooperatives abstract we consider a cooperative formed by a large number of workers differentiated by their initial endowment of wealth which is both primary input labor and consumption leisure the cooperative is characterized by its wealth distribution and produces a consumption good from labor which allocates among workers according to a convex combination of the proportional and the egalitarian rule in the first stage workers decide this combination by simple majority in a second stage they choose how much labor to provide to the cooperative we find that when in the cooperative s wealth distribution the median wealth is lower higher than the average the degree of meritocracy chosen by workers is lower higher than that of the optimum and coincides with it when both statistics coincide this choice has similar consequences on the cooperative s labor output since it increases with respect to the degree of meritocracy

how should structural adjustment programs be designed abstract more than seven years have elapsed since the onset of the generalized debt crisis of 1982 yet the affected countries have still not managed to stabilize their economies these countries must now attempt structural adjustment in the midst of pervasive macroeconomic and political instability structural adjustment packages should be designed with this reality in mind this paper argues that structural adjustment programs should strive for sustainability rather than the economic liberalization that they presently stress illiberal policies which do not damage overall macro stability are preferable to liberal policies which are inherently unsustainable or engender macro instability liberalization programs that are not sustainable are likely to bring few benefits but have high costs in terms of private investment the paper discusses some of the chief implications of this opinion for the design of adjustment programs

foreign aid and the question of fungibility this paper analyzes whether the foreign assistance provided for specific categories of expenditure is shifted among them contrary to the wishes of donors it also considers whether aid reduces the tax effort of recipient governments econometric results are presented for the dominican republic that show that the fungibility of aid has resulted in a thwarting of the intentions of donors an attempt is made to account for the observed differences in behavior of individual countries in altering expenditures copyright 1993 by mit press

the evolution of social norms in common property resource use the problem of extracting commonly owned renewable resources is examined within an evolutionary game theoretic framework it is shown that cooperative behavior guided by norms of restraint and punishment may be stable in a well defined sense against invasion by narrowly self interested behavior the resource stock dynamics are integrated with the evolutionary game dynamics effects of changes in prices technology and social cohesion on extraction behavior and the long run stock are analyzed when threshold values of the parameters are crossed social norms can break down leading generally to the lowering of the long run stock and possibly to its extinction copyright 1996 by american economic association

on the sustainability of common property resources abstract we provide a model where a common property resource is managed by two types of agents cooperators and non cooperators who adjust their extraction strategies in response to persistent differential payoffs in our model the social approval of cooperators works as a reward mechanism which as we show favors both the pervasiveness of cooperative behavior and the sustainable management of natural resources specifically we show that in the presence of such a reward mechanism a stable equilibrium can be reached with both strategies being practiced simultaneously and a decentralized and sustainable management of common property resources is possible

kantian optimization a microfoundation for cooperation abstract although evidence accrues in biology anthropology and experimental economics that homo sapiens is a cooperative species the reigning assumption in economic theory is that individuals optimize in an autarkic manner as in nash and walrasian equilibrium i here postulate a cooperative kind of optimizing behavior called kantian it is shown that in simple economic models when there are negative externalities such as congestion effects from use of a commonly owned resource or positive externalities such as a social ethos reflected in individuals preferences kantian equilibria dominate the nash walras equilibria in terms of efficiency while economists schooled in nash equilibrium may view the kantian behavior as utopian there is some perhaps much evidence that it exists if cultures evolve through group selection the hypothesis that kantian behavior is more prevalent than we may think is supported by the efficiency results here demonstrated

some properties of egalitarian economies abstract it is argued that in strictly egalitarian economies there is an equilibrium in which social well being is maximized and that this is so whatever the nature of returns to scale and whether or not the economy is characterized by elements of monopoly externalities of consumption or production commodity taxes or subsidies or the private provision of public goods as a corollary the implications of distortions and increasing returns can be effectively studied only in a context of inequality

two aggregate games demonstration using a production appropriation model we expand the scope of the two aggregate method by applying it to a situation where many heterogeneous players are free to contribute to both aggregates such situations naturally arise in various resource allocation problems hence our method is useful in many applications a production appropriation model is employed to illustrate how the problem of establishing the nash equilibrium can be reduced from solving n 2 best response functions in n unknowns to solving two consistency conditions in two unknowns we then conduct a comparative static exercise that the conventional approach could not handle easily if at all to demonstrate the power of our method this article is protected by copyright all rights reserved

debt crisis adjustment policies and capital formation in developing countries where do we stand abstract this paper documents the decline in investment rates observed in developing countries after 1982 and explores analytically and empirically the factors contributing to explain it the paper focuses on the impact of macroeconomic adjustment and reform measures on private investment particularly in latin america and east asia and underscores the importance of macroeconomic uncertainty policy credibility and potential coordination failures in shaping the response of investment to the changes in economic incentives brought about by structural reforms the analysis concludes with some policy recommendations to improve the design of sustainable growth oriented adjustment programs

how much do distortions affect growth abstract this paper presents a simple endogenous growth model with two types of capital which can display sizeable long run growth effects of distortionary policies the model applies to many different types of distortions of relative prices common in developing countries such as differential taxes and tariffs black market exchange rates and price controls the model shows that a subsidy to one type of capital financed by a tax on another capital good lowers growth a measure of the variance of relative prices of investment goods across sectors has a negative and statistically significant effect on growth

volatility of development aid from the frying pan into the fire summary the paper building on the authors previous analysis examines the relative volatility of aid flows into developing countries and their domestic revenue using new data and three alternative measures of aid instability relative volatility vis a vis fiscal revenue unpredictability of aid disbursement relative to commitments and failure of aid to smooth fluctuations in aggregate income it finds that the volatility of aid flows is still much greater than that of domestic revenue and that this difference is not decreasing especially in very poor aid dependent countries this high volatility of inflows makes the macroeconomy hard to manage further the influence of aid has been procyclical and not countercyclical aid has failed to act either as a stabilizing force or as an insurance mechanism we argue that to counter these unwelcome trends donors need to be able to respond more speedily and effectively to large adverse shocks and their conditionalities need to become more flexible possibilities explicitly discussed elsewhere in this special section

decentralized management of common property resources experiments with a centuries old institution for centuries villages in the alps employed a special system for managing their common properties individual users could inspect other users at their own cost and impose a predetermined sanction a fine when a free rider was discovered the fine was paid to the user who found a violator experiments with the institutions demonstrate that this mechanism considerably improves efficiency of resource use the classical model of identical selfish agents does not capture the data as well as a model with heterogeneous and linear other regarding preferences altruism and especially potentially dysfunctional behavior such as spite and mistake play important positive roles

a general equilibrium model of crime and punishment abstract a model of crime and punishment is developed where individuals who differ in their earnings abilities choose between work and crime taking the probability and consequences of punishment into account an aggregate relationship between the probability of punishment and the level of crime is derived there is also a relationship between enforcement spending the number of criminals and the number punished in such an economy the possibility of multiple equilibria and the effects of changes in enforcement spending and in inequality on the levels of crime and punishment are discussed there is also discussion of social welfare and voting behavior

on the welfare cost of economic fluctuations in developing countries macroeconomic fluctuations are much stronger in developing countries than in the united states yet while a large literature debates the welfare cost of economic fluctuations in the united states it remains an open question how large that cost is in developing countries using several models we provide such a measure we find that the welfare cost of consumption volatility per se is far from trivial and averages a substantial multiple of the corresponding u s estimate moreover in many poor countries the welfare gain from eliminating volatility may in fact exceed the welfare gain from an additional percentage point of growth forever

aid instability as a measure of uncertainty and the positive impact of aid on growth this article contributes to the literature on aid and economic growth we posit that uncertainty measured as the instability of aid receipts will influence the relationship between aid and investment how recipient governments respond to aid and will capture the fact that some countries are especially vulnerable to shocks when we account for uncertainty which is negative and significant we find that aid has a significant positive effect on growth largely due to its effect on the volume of investment the finding that uncertainty of aid receipts reduces the effectiveness of aid is robust when the regression is estimated for the sub sample of african countries these findings hold although the effectiveness of aid appears weaker than for the full sample

politics and the effectiveness of foreign aid abstract critics of foreign aid programs have long argued that poverty reflects government failure in this paper i test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes i find that aid does not significantly increase investment nor benefit the poor as measured by improvements in human development indicators but it does increase the size of government the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive but liberal political regimes and democracies ceteris paribus have on average 30 lower infant mortality than the least free regimes this may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs an implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs

business cycles in developing countries are they different abstract this paper demonstrates that developing countries differ considerably from their developed counterparts when focus is on the nature and characteristics of short run macroeconomic fluctuations cycles are generally shorter and the stylized facts of business cycles across countries are more diverse than those of the rather uniform industrialized countries supply side models are generally superior in explaining changes in output but a one size fits all approach in formulating policy is inappropriate our results also illustrate the critical importance of understanding business regularities as a stepping stone in the process of designing appropriate stabilization policy and macroeconomic management in developing countries

a ricardian model of the tragedy of the commons abstract this paper revisits the tragedy of the commons when agents have different capabilities in both production and encroachment activities and can allocate their time between them under fairly general assumptions on production and encroachment technologies an individual s expected income is convex with respect to his actions so that individuals specialize consequently in equilibrium the economy is divided into at most two homogenous groups encroachers and producers the partition obeys a relative advantage criterion several equilibria may exist the tragedy of the commons equilibrium without production always does the pareto optimal allocation of activities may not be an equilibrium we show that minute changes in property right enforcement may lead to drastic improvements for society we argue that in convex games such as this paper s role choice game bounded rationality is a natural assumption and the concept of local nash equilibrium is the natural analytical tool to handle it

is foreign aid fungible the case of indonesia this paper considers whether foreign aid given for specific categories of expenditure is fungible among them and whether aid reduces tax effort by the recipient government models developed to analyze the fiscal relations among different levels of government in the united states are applied to analysis of the impact of foreign aid econometric analysis of data for indonesia reveals that aid is largely spent as the donors intended that aid does not lead to a reduction in tax effort and that aid is not diverted to nondevelopment current expenditures copyright 1990 by royal economic society

reasonable expectations and the first millennium development goal how much can aid achieve summary using a calibrated neoclassical growth model we address three questions i how much growth should aid flows have produced in sub saharan africa over the last three decades ii how much aid would be needed to attain the first millennium development goal mdg 1 of cutting poverty in half by 2015 iii taking proposed aid flows as given how much would structural characteristics such as domestic savings rates and productivity have to change in order to reach the mdg 1 our analysis indicates that past and future expectations for aid in fostering growth and poverty reduction have been too high

the small blessing of foreign aid further evidence on aid s impact on democracy in an empirical contribution to the literature of foreign aid we estimate the impact of foreign aid on democracy in a panel of 93 developing economies during 1971 2010 we find that foreign aid promotes democracy with the result robust to different estimation methodologies and control variables and to instrumenting for foreign aid

aid and growth regressions this paper examines the relationship between foreign aid and growth in real gdp per capita as it emerges from simple augmentations of popular cross country growth specifications it is shown that aid in all likelihood increases the growth rate and this result is not conditional on good policy there are however decreasing returns to aid and the estimated effectiveness of aid is highly sensitive to the choice of estimator and the set of control variables when investment and human capital are controlled for no positive effect of aid is found yet aid continues to impact on growth via investment we conclude by stressing the need for more theoretical work before this kind of cross country regressions are used for policy purposes

a progress report on marxian economic theory on the controversies in exploitation theory since okishio 1963 this report explores the development of exploitation theory in mathematical marxian economics by reviewing the main controversies surrounding the proper definition of exploitation since the contribution of okishio the report first examines the debates on the fundamental marxian theorem and class exploitation correspondence principle developed mainly in the 1970s and 1980s followed by the property relation theory of exploitation by roemer then the more recent exploitation theory proposed by vrousalis and wright is introduced finally the report introduces and comments on recent axiomatic studies of exploitation by focusing on the work of veneziani and yoshihara

the dynamics of inequalities and unequal exchange of labor in intertemporal linear economies abstract introducing a concept of fairness of economic allocations namely exploitation as the unequal exchange of labor henceforth ue exploitation by generalizing roemer s 1981 1982a seminal models this paper aims to answer the following two questions in the context of an intertemporal economy with linear technology how is income and wealth inequality related or unrelated to the existence and persistence of ue exploitation what are the mechanisms driving the persistent existence of ue exploitation in growing economies agents are ue exploited resp exploiters if the amount of labor that they contribute to the economy is bigger resp smaller than the amount of labor received by them via their income it is proved first that ue exploitation is monotonically correlated to functional income inequality second it is shown that unless agents discount the future asset inequalities are necessary but not sufficient for the persistence of ue exploitation and capital accumulation leading to the disappearance of ue exploitation cannot be ruled out in equilibrium third it is shown that regardless of whether agents discount the future labor saving technical progress may yield sustained growth with persistent ue exploitation by keeping labor abundant relative to capital which restrains wages from rising unlike in models with differentiable production functions this mechanism does not rely on changes in the marginal productivity of inputs and it is entirely driven by the interaction between innovation and labor markets

a proposal to unify some concepts in the theory of fairness so far the theory of distributive justice has tried to single out a unique criterion of justice in our opinion we live in a world in which different people hold conflicting ideas about justice we propose a procedure for representing these individual opinions by means of what we call aspiration functions and we present in this paper three different ways of aggregating such opposing opinions into a socially acceptable judgement furthermore we show that many well known concepts are special cases of our approach we study under a restriction on the form of the aspiration functions the conditions that are necessary and sufficient for a social choice correspondence to be generated from any of our concepts