what drives deregulation economics and politics of the relaxation of bank branching restrictions this paper investigates private interest public interest and political institutional theories of regulatory change to analyze state level deregulation of bank branching restrictions using a hazard model we find that interest group factors related to the relative strength of potential winners large banks and small bank dependent firms and losers small banks and the rival insurance firms can explain the timing of branching deregulation across states during the last quarter century the same factors also explain congressional voting on interstate branching deregulation while we find some support for each theory the private interest approach provides the most compelling overall explanation of our results

policy concertation in europe understanding government choice this article focuses on the european governments decision to involve unions and employers in the design and implementation of public policy based on new measures of the phenomenon the authors argue that between 1974 and 2003 no convergence on a pluralist model of policy formation is visible they then use these measures to identify and analyze the clearest cases of adoption or demise of concertation namely the contrasting responses of the british and irish governments to wage policy and of the austrian and italian governments to pension reform they argue that governments are willing to share their policy making prerogatives when they are politically weak and when unions while still representing a credible threat to policy implementation have been declining in the recent past a combination of partisanship and policy learning reinforces the push for change

the control of technology alliances an empirical analysis of the biotechnology industry we examine the determinants of control rights in biotechnology alliances through three case studies and a quantitative analysis aghion and tirole 1994 argue that control rights will be assigned so as to maximize the value of the final output as long as the r d firm has sufficient financial resources consistent with this framework the allocation of control rights to the r d firm increases with the firm s financial resources the empirical evidence regarding the relationship between control rights and the stage of the project at the time the alliance is signed is more ambiguous

the informal sector and the political economy of development this paper takes an initial step in integrating insights from two sets of literature which have focused on central aspects of development with unfortunate independence it highlights politically valuable resources which are identified in the political economy literature and shows that the informal sector literature provides ample evidence that these resources in general are i scarcely available to informal entities ii poorly valued in their possession and iii more often collectively unexploited by them overall there seems to be an important though neglected bias in how the political system in less developed countries formulates crafts and implements policy

divide and rule the economic and legal implications of the proposed ownership unbundling of distribution and supply companies in the dutch electricity sector abstract in machiavelli s theory of power the concept of divide and rule forms the main theme the ruler has absolute power and to maintain and increase such power all means are justified when viewed against the background of this theory the current debate in the netherlands on the unbundling of energy electricity gas companies can be observed as an example of divide and rule in which the dutch minister of economic affairs plays a central role yet contrary to machiavelli in his time the dutch government does in fact aim principally at the greater welfare of the dutch people it is therefore noteworthy that while important steps in the decision to unbundled have been taken there is no evidence that the dutch people will indeed benefit from the envisaged unbundling

the political economy of regulations and trade wine trade 1860 1970 dramatic changes in the 1860 1970 wine trade provide insights on the political economy of regulations and policy instrument choice and trade an invasion of phylloxera in the 1870s turned france from the world s leading exporter to a massive importer of wine and grapes when french production recovered a combination of tariffs safety regulations and quality standards were introduced to protect its french producers causing dramatic changes in global wine and grape production and trade including in spain italy turkey greece algeria tunisia and morocco changes in wine regulations were caused by relative income and loss aversion factors in political economy tariffs were the preferred policy instruments as they directly restrict imports bring in revenues have low transaction costs and are preferred political instruments when there are information imperfections safety regulations and quality standards including labelling and input prohibitions reduce asymmetric information for consumers or undesirable externalities and simultaneously protected domestic producers regulations were often targeted at imported products wine and raisins when tariffs were ineffective or constrained by institutions such as on colonial wine hence tariffs and quality regulations were jointly used in wine policy both as complements and as substitutes in policy design

when are concerted reforms feasible explaining the emergence of social pacts in western europe under what conditions do governments employers and unions enter formal policy agreements on incomes employment and social security such agreements widely known as social pacts became particularly prominent during the 1990s when european economies underwent major adjustment this article seeks to explain national variation in adjustment strategies and specifically why concerted agreements were struck in some countries but not in others a fuzzy set qualitative comparative analysis of 14 european countries is employed to assess main arguments about the emergence of pacts the analysis yields two key findings first although prevailing arguments emphasize economic and monetary unionrelated pressures or alternatively unemployment these factors were neither necessary nor in themselves sufficient for pacts to materialize rather a high economic problem load appears to be causally relevant only when combined with particular political and institutional conditions namely the prevalence of electorally weak governments and or an intermediate level of union centralization second the analysis refines existing multicausal explanations of pacts by demonstrating three distinct theoretically and empirically relevant causal pathways to concerted agreements

the lens of contract private ordering james buchanan 2001 p 29 avers that mutuality of advantage from voluntary exchange is the most fundamental of all understandings in economics he further contends that this fundamental understanding is better realized by examining economics through the lens of contract rather than the lens of choice buchanan 1975 because the latter has been the reigning paradigm in economics during the 20th century lionel robbins 1932 melvin w reder 1999 the lens of contract is understandably less fully developed interest in contractual approaches has nevertheless been building up whence the gap between these two has been closing this paper sketches some of these developments with emphasis on private ordering

contractibility and the design of research agreements we analyze how contractibility affects contract design a major concern when designing research agreements is that researchers may use their funding to subsidize other projects we show that when research activities are not contractible an option contract is optimal the financing firm obtains the option to terminate the agreement and in case of termination broad property rights the threat of termination deters researchers from cross subsidization and the cost of exercising the termination option deters the financing firm from opportunistic termination we test this prediction using 580 biotechnology research agreements contracts with termination options are more common when research is non contractible

provoking preferences unionization trade policy and the ilwu puzzle if any group of american blue collar workers has benefited from the growth of trade it is the unionized dockworkers along the us west coast nevertheless the international longshore and warehouse union ilwu representing these workers is vocally opposed to trade liberalization we examine several competing explanations for this puzzle and evaluate them by tracing the union s stance on trade over several decades we also use an original survey to compare ilwu affiliates attitudes on trade with those of nonmembers with otherwise similar characteristics consistent with a model of organizational socialization the data support the hypothesis that ilwu membership affects the members revealed political opinions the data are difficult to reconcile with standard theories of international trade our findings indicate that the political support for trade depends not just on voters structural positions in the economy but also on the organizations and networks in which they are embedded

how and when should companies retain their human capital contracts incentives and human resource implications the increasing competition in the labor market for human capital pushes firms to create better incentives to manage talented individuals in this article we model the optimal employment contract when two features of human capital are present i private information of the employee about his skills and ii the inability to contract on the output of the employment activity our model shows how firms can use delegation i e the employee s job autonomy to provide the incentives to a privately informed employee the model novelty resides in turning a classic source of potential inefficiency like asymmetric information into a factor that firms can use to design incentives our model provides a new explanation of why in technologically dynamic environments one observes more intense formations of start ups and a greater inter firm mobility of human capital our setting also suggests how established companies can use their complementary assets to provide better incentives to their skilled employees copyright 2010 the author 2009 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

party politics and the reemergence of social pacts in western europe conventional accounts of the reemergence of social pacts in western europe argue they are a governmental response to economic pressures in particular the requirements for joining the european monetary union emu the authors analyze three case studies the netherlands ireland and austria to illustrate the usefulness of an alternative explanation centering on electoral calculations by political parties in choosing pacts parties forge social pacts not only to deal with economic problems but also when they perceive them to be helpful in reducing the potential electoral costs of economic adjustment and wage policies alternatively parties may forgo negotiations with social partners for electoral gain the authors extend the analysis to seven additional countries to apply the analysis more broadly by combining the separate literatures on political economy and party politics they are able to shed new light on the dynamics of social pacts in western europe

union power policy making and unemployment in western europe 1972 1993 most recent research on the relationship between trade unions and unemployment focuses on the size and structure of trade union movements and argues either that strong unions are bad for unemployment due to their effect on wages or that encompassing unions are good for unemployment because their wage setting behavior takes economic externalities into account this article reports the results of testing the more political hypothesis that trade union influence on government economic policy is important in leading to lower unemployment via the implementation by governments of more vigorous anti unemployment policies than would otherwise be used a pooled time series analysis provides support for this theory in revealing that union influence as indicated by a newly developed measure of union participation in economic policy making was consistently associated with lower unemployment over a range of 13 west european countries during the period 1972 to 1993

negotiating the italian pension reform with the unions lessons for corporatist theory using field research at both the national and the local levels the author reconstructs the process that led to pension reform in italy this reconstruction becomes the basis for a critical re examination of corporatist theory which has recently been challenged by the emergence of social pacts in a host of unlikely countries including italy the author argues that the theory s traditional emphasis on hierarchical and internally undemocratic interest groups is fundamentally at odds with the particular organizational mechanisms through which consensus was mobilized among both middle level union structures and rank and file workers in italy in contrast with standard neo corporatist theory the italian pension reform shows that organizational democracy far from weakening the hands of reformist union leaders may actually strengthen them

sharing the national cake in post reform new zealand income inequality trends in terms of income sources abstract using household economic survey hes data in unit record form this paper examines the trends of household income inequality in new zealand over the period 1984 96 a period that saw new zealand implement a wide range of economic and social policy reform the observed changes in the overall income inequality are then decomposed by income components to measure the contributions of the different sources of personal income to the overall inequality to our knowledge this is the first time that the methodology for disaggregating the gini co efficient including its more recent extensions by lerman and yitzhaki review of economics and statistics 63 1985 151 podder review of income and wealth 39 1993 51 and mookherjee and shorrocks economic journal 92 1982 886 has been applied to micro level new zealand data for computing income inequality and other related indices and measures reported in this study the findings which indicate a steady upward trend in income inequality are examined in the light of the reform policies used at the time their implications for policy are also addressed

international trade agreements and international migration despite large potential economic gains bilateral and multilateral negotiations focusing on liberalisation of migration have not shared the high profile of international trade negotiations and agreements migration and trade have been traditionally viewed rather separately and the relevance of the many and complex interdependencies has been given remarkably little attention in the literature to date in this article we focus on the two way interaction between international migration and agreements designed to enhance cross border trade and investment liberalisation of international trade in services and in the movement of people potentially offers much greater economic gains than liberalisation of remaining barriers to goods trade however progress within multilateral frameworks is fraught with difficulty the world trade organization s general agreement on trade in services gats has yielded little real progress so far and negotiations within more flexible unilateral and bilateral frameworks are likely to be more successful in liberalising the movement of labour we discuss a range of specific examples focusing particularly on the interesting case of new zealand we find that trade agreements are increasingly including agreements on migration though typically favouring temporary migration and involving numerically modest quotas we conclude that migration regulatory frameworks are likely to be further and more strongly linked to trade and investment agreements in the future particularly given changing economic and demographic forces the primary focus of migration policies may nonetheless remain different from that of trade policies while further migration liberalisation is likely to be through bilateral and regional agreements it will be important to try to lock in the gains of such agreements while simultaneously working to consolidating these in a way that will help to facilitate future multilateral agreement

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

internationalization institutions and political change many analysts associate internationalization of markets with wide ranging changes in domestic politics an open polity approach shows how extant domestic institutions mediate in this relationship between internationally induced changes in domestic actors policy preferences on the one hand and national policy and institutional outcomes on the other the nature of labor unions and formal political institutions often results in political outcomes that differ significantly from those that would ensue if outcomes simply mirrored preference changes in addition while existing institutions may sometimes constrain governments from pursuing policies that would improve long term economic performance governments will often fail to change these institutions because of short term political considerations

separation of regulators against collusive behavior we show that the separation of powers in regulation may act as a commitment against the threat of regulatory capture splitting regulatory tasks and monitoring technologies among several nonbenevolent regulators may reduce their discretion in engaging in socially wasteful activities when regulators make collusive offers that are accepted by the agent whatever his characteristics competition between regulators relaxes collusion proofness constraints and improves social welfare this result is robust to different specifications of the agent s preferences and to the timing of the game as long as one insists on safe side contracting offers we also discuss how separation affects both allocative efficiency and the distribution of rents in the economy

an analysis of the housing redevelopment process in korea through the lens of the transaction cost framework this paper applies the transaction cost framework to the analysis of the housing redevelopment process in korea the housing redevelopment process involves various identifiable transactions and cos

pay for locally monitored performance a welfare analysis for teacher attendance in ugandan primary schools public sector organizations often rely on reports by local monitors that are costly to verify and that serve twin objectives to incentivize agent performance and to provide information for planning purposes received wisdom has it that pay for locally monitored performance p4lmp will result in collusion and undermine both objectives but simple coasian logic suggests the reverse p4lmp puts transferable money on the table and may enable interested parties to bargain to a more efficient outcome this paper develops a theoretical model that shows why and for which parameters the welfare enhancing coasian scenario exists focusing on education we model how the preferences of a teacher agent and headteacher local monitor affect actual and reported teacher attendance and how these equilibrium outcomes depend on the financial stakes attached to reports to capture the value of information we also consider the welfare of a bureaucracy that makes a costly policy mistake when holding the wrong belief about teacher performance we test the model and estimate the predicted effects using data from a field experiment in ugandan primary schools randomly varying whether head teachers reports of teacher attendance are tied to bonus payments or not consistent with coasian logic p4lmp increased actual and reported teacher attendance by 9 and 15 percentage points respectively and reduced policy mistakes by 7 percentage points relative to unincentivized local monitoring we use these experimental impacts to undertake a detailed cost benefit analysis and conclude even under conservative assumptions that welfare improved when paying for locally monitored performance

contribution to productivity or pork barrel the two faces of infrastructure investment abstract this paper proposes a simultaneous equation approach to the estimation of the contribution of transport infrastructure accumulation to regional growth we model explicitly the political economy process driving infrastructure investments in doing so we eliminate a potential source of bias in production function estimates and generate testable hypotheses on the forces that shape infrastructure policy our empirical findings on a panel of france s regions over 1985 92 suggest that electoral concerns and influence activities were indeed significant determinants of the cross regional allocation of transportation infrastructure investments by contrast we find little evidence of concern for the maximization of economic returns to infrastructure spending even after controlling for pork barrel

the gains from differentiated policies to control stock pollution when producers are heterogeneous we derive optimal input taxes to control stock pollution problems generated by heterogeneous agents the taxes vary over time and in response to differences of asset quality and technology choice we also derive second best policies and compare them to the efficient policy and also among themselves different policies will affect the timing for when and the extent to which conservation technologies are adopted a numerical example based on the california drainage problem shows significant efficiency gains from the optimal policy compared to no intervention but much of the gains are lost with second best interventions the gains from optimal policies do not always increase with the degree of heterogeneity copyright 2008 oxford university press

the old theory of economic policy and the new institutionalism abstract in economics recent emphasis on institutions suggests new policy dimensions for the traditional theory of economic policy which originated with tinbergen and others at the time of the keynesian revolution the paper presents elements of the traditional view instruments targets and policy models and then considers new aspects of policy especially policy for structural change the discussion emphasizes the implications for institutional design of incomplete knowledge and endogenous politics both public and private actors rely on incomplete policy models and the models themselves can become intermediate targets of policy

budgetary policy with unified and decentralized appropriations authority the divestiture of the house appropriations committee in the1880 s has received considerable attention of an empiricalnature this paper presents a formal model of legislativedecisionmaking using a common agency formulation to representinterest group lobbying of legislators this framework is usedto analyze the effects of decentralizing appropriationsauthority the conditions under which decentralization leadsto higher spending are characterized it is argued that theconventional view that divestiture caused higher levels ofspending only holds if decentralization created barriers tolobbying and political bargaining across different committees in addition the role of specialized committee knowledge isexamined

the snakes and ladders of twenty first century trade unionism trade unions in the advanced countries face a difficult future their core membership bases in manufacturing industry and public services have become declining sectors of employment keynesian demand management on which they depended for tight labour markets has collapsed most industrial relations activity has shifted to the enterprise level which they often find difficult to penetrate precarious employment which makes union membership difficult is growing on the other hand certain advantages offset these weaknesses for a number of different recent economic and political elites often need the support of trade unions for national social pacts also employment conditions continue to create new social problems for working people which only unions can express unions in different countries encounter these combinations of favourable and unfavourable prospects in very different ways which is likely to produce increasing diversity among the emerging national patterns copyright 2000 by oxford university press

information and control in ventures and alliances this paper develops a theory of control as a signal of congruence of objectives and applies it to nancial contracting between an investor and a privately informed entrepreneur we show that formal investor control is i increasing in the information asymmetries ex ante ii increasing in the uncertainty surrounding the venture ex post iii decreasing in the entrepreneur s resources and iv increasing in the entrepreneur s incentive consict in contrast real investor control that is actual investor interference is decreasing in information asymmetries control rights are further such that control shifts to the investor in bad states of nature

economic reform in new zealand 1984 95 the pursuit of efficiency between 1984 and 1995 new zealand changed from a closed and centrally controlled economy to one of the most open countries in the oecd the reforms liberalizing the economy were notable for their very comprehensive coverage and innovations that included performance contracts for senior civil servants and the central bank legislated constraints on fiscal expenditure decisions backed by accrual accounting tax neutrality subsidy free agriculture and no industry specific regulation of competition modern microeconomics contributed much to policy design economic growth has been vigorous since 1991 but a different sequencing of reforms may have enhanced outcomes

power in a theory of the firm transactions take place in the firm rather than in the market because the firm offers power to agents who make specific investments past literature emphasizes the allocation of ownership as the primary mechanism by which the firm does this within the contractibility assumptions of this literature we identify a potentially superior mechanism the regulation of access to critical resources access can be better than ownership because i the power agents get from access is more contingent on their making the right investment and ii ownership has adverse effects on the incentive to specialize the theory explains the importance of internal organization and third party ownership

paying politicians theory and evidence this paper looks at the theory behind the idea that paying politicians better will improve their performance the paper lays out a political agency model with adverse selection and moral hazard where politicians are subject to two period term limits this model provides a number of predictions about how the pay of politicians affects agency problems we also consider what happens when the pool of politicians is endogenous the main ideas in the model are confronted with data on u s governors jel d72 j33

credit and economic activity credit regimes and nonlinear propagation of shocks in this paper we examine empirically whether credit plays a role as a nonlinear propagator of shocks this propagation takes the form of a threshold vector autoregression in which a regime change occurs if credit conditions cross a critical threshold using nonlinear impulseresponse functions we evaluate the dynamics implied by the threshold model these suggest that shocks have a larger effect on output in the tight credit regime than is normally the case and that contractionary monetary shocks typically have a larger effect than expansionary shocks finally using a nonlinear version of historical decompositions we attempt to determine the relative contribution to output growth of shocks and the nonlinear structure

small states in big trouble state reorganization in australia denmark new zealand and sweden in the 1980s in australia denmark new zealand and sweden in the 1980s coalitions of politicians fiscal bureaucrats and capital and labor in sectors exposed to international competition allied to transform the largest single nontradables sector in their society the state particularly the welfare state they exposed state personnel and agencies to market pressures and competition to reduce the cost of welfare and other state services the impetus for change came from rising foreign public and private debt rising public debt levels and expensive welfare states interacted to create a tax wedge between employers wage costs and workers received wages this undercut international competitiveness worsening current account deficits and leading to more foreign debt accumulation two factors explain variation in the degree of reorganization in each country differences in their electoral and constitutional regimes and the willingness of left parties to risk splitting their core constituencies introduction of market pressures is an effort to go beyond the liberalization of the economy common in industrial countries during the 1980s and both to institutionalize limits to welfare spending and to change the nature of statesociety relations away from corporatist forms of interest intermediation in short not just less state but a different state

the role of the business model in capturing value from innovation evidence from xerox corporation s technology spin off companies this paper explores the role of the business model in capturing value from early stage technology a successful business model creates a heuristic logic that connects technical potential with the realization of economic value the business model unlocks latent value from a technology but its logic constrains the subsequent search for new alternative models for other technologies later on an implicit cognitive dimension overlooked in most discourse on the topic we explore the intellectual roots of the concept offer a working definition and show how the xerox corporation arose by employing an effective business model to commercialize a technology rejected by other leading companies of the day we then show the long shadow that this model cast upon xerox s later management of selected spin off companies from xerox parc xerox evaluated the technical potential of these spin offs through its own business model while those spin offs that became successful did so through evolving business models that came to differ substantially from that of xerox the search and learning for an effective business model in failed ventures by contrast were quite limited

when did unsystematic monetary policy have an effect on inflation abstract an important stylized fact to emerge from var estimates is that exogenous monetary policy shocks also labelled unsystematic monetary policy have a delayed persistent hump shaped effect on inflation i argue that this empirical pattern is fragile in particular it disappears when one examines periods without large shifts in the level of inflation such as 1984 2005 an important consequence is that the hump shaped var estimated response of inflation is not appropriate to fit stylized models of the response of inflation around a stable steady state inflation level

the institutional foundations of public policy documento de trabajo 90 presidential address to the latin american and caribbean economic association lacea paris november 2005 titulo tomado de la pantalla de presentacion visto 12 de septiembre de 2011 noviembre 2005 incluye referencias bibliograficas

on the contractual governance of research collaborations allocating control and intellectual property rights in the shadow of potential termination abstract this paper investigates the governance design problem of a large company that wants to engage a small and cashless firm into a research collaboration this analysis reflects the frequently observed collaborations between pharma companies and biotechs and an actual research contract is assessed to link theory to practice the governance form refers to the allocation of control rights over the research process and property rights over research output s as determined by the initial contract yet this contract is incomplete the parties negotiate at a later stage from bargaining positions that depend on the initial choice of the governance but they also contemplate the possibility that the collaboration will be terminated by means of a simple model that captures the core aspects of the contractual environment i answer a key research question how should governance be designed in the shadow of potential termination to provide the research firm with the incentives to invest in the collaboration first it is in the company s interest to choose a governance form that eliminates the possibility of termination and stabilizes the collaboration whenever possible second if the collaboration cannot be stabilized the company faces a trade off between reducing the probability of termination and providing incentives which is ultimately resolved by making the collaboration highly unstable third property rights and control are substitutes in the governance design if the company collects more property rights it must relinquish more control rights

control and contract design in research collaborations a complete contract perspective abstract incumbent firms especially in high tech industries often contract and collaborate with small research units on single projects a delicate resulting contracting decision thus is how to allocate control this paper considers the incumbent s problem to design a research contract that specifies the allocation of control the unit s research input and its monetary compensation contracting is complicated by the unit s private information about its technological skills research outputs also are not verifiable control affects the distribution of the private benefits from research and can be shared from a complete contract perspective an allocation of control that is contingent on the unit s reported information provides the incumbent an additional instrument for designing the incentives control can generate countervailing incentives and mitigate the limitations of contracts in research environments to the point of extracting the full surplus the analysis further clarifies when control is centralized by the incumbent when it is shared between the parties and when it is delegated to the unit

navigating institutional change the accord rogernomics and the politics of adjustment in australia and new zealand this article uses a transactions approach to examine the ability of governments to develop and sustain negotiated solutions to major economic challenges where actors are embedded in long term repeated interaction have long time horizons and invest in monitoring and enforcement technologies effective political exchange is more likely in good transactions environments policy bargains will be more easily renegotiated and therefore more flexible and durable to examine the expectations the author looks to the puzzle posed by events in australia and new zealand 1983 1996 facing similar macroeconomic crises and with historically similar wage bargaining institutions and levels of union density both elect labor governments which then make opposite choices a negotiated solution emerged in australia but not in new zealand relying on the secondary literature and interviews with key actors the author finds support for the transactions approach findings here point to ways in which to broaden the study of

economic factors and traffic crashes in new zealand the aim of this study was to examine the changes in the trend and seasonal patterns of fatal crashes in new zealand in relation to changes in economic conditions between 1970 and 1994 the harvey harvey and durbin journal of the royal statistical society 149 3 187 227 1986 structural time series model stsm an unobserved components class of model was used to estimate the quarterly number of fatal traffic crashes independent variables included distance travelled the unemployment rate uer real gross domestic product per capita rgdp the proportion of motorcycles the proportion of young males in the population alcohol consumption per capita the open road speed limit and dummy variables for the 1973 and 1979 oil crises and seatbelt wearing laws distance travelled rgdp uer and alcohol consumption per capita were significant factors in explaining the short run dynamics of fatal crashes with the effect of rgdp greater than uer increases in either rgdp or uer were related with decreas

when ideas trump interests preferences world views and policy innovations the contemporary approach to political economy is built around vested interests elites lobbies and rent seeking groups which get their way at the expense of the general public the role of ideas in shaping those interests is typically ignored or downplayed yet each of the three components of the standard optimization problem in political economy preferences constraints and choice variables rely on an implicit set of ideas once the manner in which ideas enter these frameworks is made explicit a much richer and more convincing set of results can be obtained in particular new ideas about policy or policy entrepreneurship can exert an independent effect on equilibrium outcomes even in the absence of changes in the configuration of political power

blockchain and the evolution of institutional technologies implications for innovation policy abstract for the past century economists have proposed a suite of theories relating to industrial dynamics technological change and innovation there has been an implication in these models that the institutional environment is stable however a new class of institutional technologies most notably blockchain technology lower the cost of institutional entrepreneurship along these margins propelling a process of institutional evolution this presents a new type of innovation process applicable to the formation and development of institutions for economic governance and coordination this paper develops a replicator dynamic model of institutional innovation and proposes some implications of this innovation for innovation policy given the influence of public policies on transaction costs and associated institutional choices it is indicated that policy settings conductive to the adoption and use of blockchain technology would elicit entrepreneurial experiments in institutional forms harnessing new coordinative possibilities in economic exchange conceptualisation of blockchain related public policy an innovation policy in its own right has significant implications for the operation and understanding of open innovation systems in a globalised context

comparative politics and public finance we propose a model with micropolitical foundations to contrast different political regimes compared to a parliamentary regime the institutions of a presidential congressional regime produce fewer incentives for legislative cohesion but more separation of powers these differences are reflected in the size and composition of government spending a parliamentary regime has redistribution toward a majority less underprovision of public goods and more rents to politicians a presidential congressional regime has redistribution toward powerful minorities more underprovision of public goods but less rents to politicians the size of government is smaller under a presidential regime this last prediction is consistent with cross country data

the efficacy and cost of regime shifts in inflation policies evidence from new zealand and sweden in this paper a comparative study of the regime shift in inflation policies in new zealand and sweden is performed a nonparametric regression method is used to decompose the inflation time series into three components of variation a long term trend a medium term cyclical and transient variations trend and a short term shocks component this allows study of the transition process from the high inflation characterizing the end of the 1970s and the 1980s to the low inflation observed during the 1990s it is found that in new zealand although it is initially delayed the decrease in inflation happens at a faster pace than in sweden this may indicate that reforms were more efficient in new zealand a clear link is also shown between the rising unemployment and the transition from high to low inflation furthermore while in new zealand a downward adjustment of the unemployment rate happens directly after the transition period in sweden there seems to be persistence in high unemployment

revisiting legal realism the law economics and organization perspective the contrast between american legal realism which ran itself into the sand schlegel 1979 p 459 and the law and economics movement which is perhaps the most important development in legal thought in the last quarter century posner 1986 p xix is dramatic that the one foundered while the other flourished is explained in large measure by the absence of an intellectual framework for legal realism and the use by law and economics of the powerful framework of neoclassical economics

optimal central banker contracts and common agency this paper considers the contracting approach to centralbanking in a simple common agency model we suggest thatcentral banker contracts that do not consider the possibilityof more than one principal existing are incomplete contracts such incomplete contracts can be a poor form ofmonetary policy delegation under common agency we develop amodel with two principals society government and ageneric interest group whose objective conflicts withsociety s ex ante preferences by incorporating an inflationarybias we determine when the government offered orinterest group offered contract dominates the central banker sdecision the results largely depend on whether theinterest group offered contract is written in terms of outputor inflation

the politics of common knowledge ideas and institutional change in wage bargaining domestic economic institutions change through processes of conflict and bargaining why do the strongest groups in such conflicts ever change their minds about the acceptability of institutional arrangements they once opposed drawing on the cases of ireland in 1986 87 and italy in 1989 93 this article demonstrates how the process of common knowledge creation between employers and unions changed the course of negotiations over national wage bargaining institutions common knowledge creation happens when existing institutions are in crisis the institutional experimentation that follows such crises characterized by deep uncertainty places a premium on persuasive argument the ideas most likely to serve as the basis for newly common knowledge will have analytical and distributive appeal to both unions and employers and they must be ratified in public agreements which i call common knowledge events common knowledge events establish new social facts which can change the payoffs associated with different institutional outcomes this can lead even powerful actors to accept institutions they had previously opposed the author thanks marius busemeyer mary louise culpepper keith darden orfeo fioretos archon fung peter hall andrew martin cathie jo martin victoria murillo kathleen thelen and gunnar trumbull along with three anonymous reviewers and the editors of io for comments and conversations that improved this article ben ansell and vikram siddarth provided valuable research assistance financial support from the john f kennedy school of government and the weatherhead center for international affairs at harvard university is gratefully acknowledged any remaining errors are my own

the political economy of inflation labour market distortions and central bank independence using the citizen candidate model we study the government s choice of institutions for the labour market and the central bank and derive the implications for inflation and employment we derive conditions for the existence of equilibria in which the labour market is distorted and the central bank is dependent or independent under a range of conditions affecting central bank dependence the post election cycle in inflation and employment and inflation bias our results imply that average inflation and inflation variability are lower under an independent central bank whereas employment variability can be lower or higher consistent with evidence for oecd countries many democratic societies delegate key tasks to non elected and independent institutions a prominent example being independent central banks the belief in the advantage of central bank independence is nursed by the cross country evi

a theory of misgovernance this paper tries to explain why government bureaucracies are often associated with red tape corruption and lack of incentives the paper identifies two specific ingredients that together can provide an explanation the fact that governments often act precisely in situations where markets fail and the presence of agency problems within the government we show that these problems are exacerbated at low levels of development and in bureaucracies dealing with poor people we also argue that we need to posit the existence of a welfare oriented constituency within the government in order to explain red tape and corruption

constrained discretion in uk monetary and regional policy mcvittie e and swales j k 2007 constrained discretion in uk monetary and regional policy regional studies 41 h m treasury claims that the notion of constrained discretion which directs the effective operation of uk monetary policy applies equally to other delegated and devolved policies such as the use of regional development agencies in the delivery of english regional policy a transaction cost politics perspective is used to argue that the delegation of responsibility for monetary stabilization raises principal agent issues quite different to those encountered in the delegation of the responsibility for regional regeneration in particular the effectiveness and transparency that characterize present day monetary policy cannot be expected in regional policy further the institutional arrangements that accompany the operation of regional development agencies in england should be critically reviewed mcvittie e et swales j k 2007 la notion de discretion entravee dans les poli

monetary policy and exchange rate overshooting dornbusch was right after all abstract dornbusch s exchange rate overshooting hypothesis is a central building block in international macroeconomics yet empirical studies of monetary policy have typically found exchange rate effects that are inconsistent with overshooting this puzzling result has been viewed by some researchers as a stylized fact to be reckoned with in policy modelling however many of these studies in particular those using vector autoregressive vars approaches have disregarded the strong contemporaneous interaction between monetary policy and exchange rate movements by placing zero restrictions on them in contrast we achieve identification by imposing a long run neutrality restriction on the real exchange rate thereby allowing for contemporaneous interaction between the interest rate and the exchange rate in a study of four open economies we find that the puzzles disappear in particular a contractionary monetary policy shock has a strong effect on the exchange rate which appreciates on impact the maximum effect occurs within 1 2 quarters and the exchange rate thereafter gradually depreciates to baseline consistent with the dornbusch overshooting hypothesis and with few exceptions consistent with uncovered interest parity uip

meso economic filters along the policy chain understanding the links between policy reforms and rural poverty in latin america abstract the paper clarifies the meso economy concept by defining it as comprising both the market mechanisms and administrative procedures through which policy decisions and market signals trickle down to the household level three main bodies of literature are reviewed the policy oriented literature in which the meso economy was initially considered the transaction cost approach analyzing market and policy failures and the micro economy level of agricultural household models the paper develops a synthesis of macro meso and micro economic perspectives which focuses on the roles played by three levels of filters intervening along the policy chain implications for policy and research are drawn

local government consolidations the impact of political transaction costs local government in norway comprises a large number of small municipalities cost efficiency can be improved by consolidating local authorities and central government has designed a framework to stimulate voluntary mergers existing theories suggest that political transaction costs will impede consolidations 1 generous grants compensate diseconomies of scale central government has promised small municipalities that grant levels will be maintained but policy promises may not be credible 2 property rights to local revenues are nullified when consolidations have been implemented high revenue municipalities will therefore go against merger with a poorer neighbor 3 a consolidated local council may be composed of different political parties and it may therefore pursue other policies than an existing council expected changes in party strength can lead municipalities to oppose a proposed consolidation 4 senior politicians are less likely to support mergers particularly if they come from small polities

the nonneutrality of monetary policy with large price or wage setters monetary rules matter for the equilibrium rate of employment when the number of price wage setters is small even when assuming rational expectations complete information central bank precommitment and absence of nominal rigidities if the central bank is nonaccommodating sufficiently large unions bargaining independently have an incentive to moderate sectoral money wages and thereby expected real wages the result is an increase in the real money supply and hence higher demand and employment this does not hold with accommodating monetary policy since unions wage decisions cannot then affect the real money supply a similar argument holds for large monopolistically competitive price setters

common agency contracting and the emergence of dqopen science dq institutions the cold war s ending has brought mounting pressures to recognize national science and technology research systems yet by comparison with what has been learned already concerning institutional arrangements and business strategies affecting corporate rd investments surprisingly little is known about the economic origins and effects of the corresponding institutional infrastructures shaping the world of academic science and the organization and conduct of publicly supported rd more generally the desirability of closing this particular lacuna in the economics and economic history literatures has been just as evident to economists concerned with extending the analysis of modern institutions as to those who have begun to approach the whole area of science and technology studies from the perspectives and methods of industrial organization economics 1 even before the new economics of science had begun to direct attention to such a program douglass north 1990 p 75 saw a significant challenge and a promising opportunity in explicit exploration of the connecting links between institutional structures and incentives to acquire pure knowledge the research reported here has accepted that challenge see also the other papers in this session timothy lenoir 1998 christophe lecuyer 1998 and marjory s blumenthal 1998 it is focused upon key episodes in the institutional evolution of public science and its complex and changing relationship to the other organizational spheres of contemporaneous scientific activity those in which research was conducted under proprietary rules for industrial profit goals and defense related science and engineering knowledge was sought under conditions of restricted access to information concerning methods findings and their actual and potential applications

the rise of segmented neo corporatism in south america wage coordination in argentina and uruguay 2005 2015 argentina and uruguay are the only democracies in latin america among few in the world that have developed sustained state oriented national and sectoral wage bargaining between employers and un

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

inflation regime dependent effects of monetary policy shocks evidence from threshold vector autoregressions this paper studies regime dependence in the effects of monetary policy shocks for the u s using a threshold vector autoregressive model in a high inflation regime the standard results from the literature obtain in a low inflation regime output shows no significant response to monetary policy while the inflation response is negative the paper endogenously determines two distinct regimes while the literature thus far only considers alternative subsamples

competition and incentives with motivated agents a unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission as opposed to profit as an organizational goal such mission oriented organizations are frequently staffed by motivated agents who subscribe to the mission this paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency matching economizes on the need for high powered incentives it can also however entrench bureaucratic conservatism and resistance to innovations the framework developed in this paper is applied to school competition incentives in the public sector and in private nonprofits and the interdependence of incentives and productivity between the private for profit sector and the mission oriented sector through occupational choice jel d23 d73 h41 l31 the late twentieth century witnessed a historic high in the march of market capitalism with unbridled optimism in the role of the profit motive in promoting welfare in the production of private goods moreover this generated a broad consensus on the optimal organization of private good production through privately owned competitive firms when it comes to the provision of collective goods no such consensus has emerged debates about the relative merits of public and private provision still dominate this paper suggests a contracting approach to the provision of collective goods it focuses on two key issues how to structure incentives and the role of competition between providers at its heart is the idea that organizations that provide collective goods cohere around a mission 2 thus production of collective goods can be viewed as mission oriented

the left and organized labor in low inflation times this article presents fresh empirical data showing that policy alignment between center left governments and trade unions was a sustained feature of european politics between 1974 and 2005 this contradicts expectations of a wide delinkage between the electoral left and labor as a consequence of globalization deindustrialization and unionization decline however structural economic change has altered the policy field so that sustained policy alignment can no longer be explained by existing theoretical frameworks based on a theoretical argument and a multivariate empirical test the article contends that policy alignment is likelier to occur if labor plays an important role in economic management at the microlevel and the industry level and if unions are politically cohesive agents thanks to powerful confederation leadership supported by democratic decision making practices in making its case the article bridges the literatures on comparative capitalism and party politics in order to account for change and continuity in policy making processes

incentive contracts and elections for politicians with multi task problems abstract we consider a model with a politician facing a multi task problem while in office the reelection mechanism distorts the allocation of effort in favor of tasks whose outcomes can be measured more precisely than others we show that a combination of elections and incentive contracts can alleviate this inefficiency the incentive contract does not require direct information about the performance of the politician and is self financing across terms

the theory of the firm as governance structure from choice to contract the propositions that organization matters and that it is susceptible to analysis were long greeted by skepticism by economists one reason why this message took a long time to register is that it is much easier to say that organization matters than it is to show how and why the prevalence of the science of choice approach to economics has also been an obstacle as developed herein the lessons of organization theory for economics are both different and more consequential when examined through the lens of contract this paper examines economic organization from a science of contract perspective with special emphasis on the theory of the firm

credibility and reputation building in the developmental state a model with east asian applications abstract we use a game theoretic model to analyze the role of credibility reputation and investment coordination in a developmental state our model focuses on why a soft state serving narrow social groups so often obtains in less developed countries and under what conditions a hard or developmental state can emerge the model highlights the dilemma that although state and private sector alike may want economic growth both must simultaneously invest to achieve it but the equilibrium outcome analogous to the prisoner s dilemma is investment by neither even when initial conditions are favorable and a state is potentially developmental with the genuine capability to elicit private sector investment this may not materialize and an equilibrium of low or no investment will prevail to avoid this deadlock and foster growth the successful developmental state must demonstrate commitment by promoting its developmental credentials through a process of reputation building a consequent incentive to act tough together with seeming advantages of authoritarianism in implementing the developmental state may help to explain why it is often associated with an authoritarian political system

on the management of open innovation abstract in an open innovation relationship the party that owns a key asset enjoys bargaining power that discourages the investments of the other party in the collaboration we show that these incentives can be restored by conferring on the weak party the power to take decisions during the research process e g a pharmaceutical firm with manufacturing and commercialization assets offers the direction of a joint research project to a biotech partner however on many occasions the strong party still captures more value from the collaboration by retaining the power to take decisions during research even if it produces less innovation value and fewer aggregate profits we conclude that the potential of open innovation is underexploited in particular owners may not release enough power to take decisions on the use of their assets

social democracy and market reform in australia and new zealand social democratic governments in australia and new zealand adopted policies of radical free market reform including financial deregulation privatisation and public sector reform in the 1980s because of the absence of institutional obstacles to government action reform was faster and more comprehensive in new zealand than in australia the new zealand reforms were associated with increasing inequality and generally poor economic outcomes there is nothing in the new zealand experience to support the view that radical free market economic policies are consistent with social democratic welfare policies or with social democratic values of concern for the disadvantaged the australian reforms were less radical and were accompanied by some refurbishment of the welfare state economic performance did not improve as anticipated by advocates of reform but was considerably better than that of new zealand

an endogenous policy model of hierarchical government endogenous policy models usually neglect that government policies are frequently the result of decisions taken at different tiers by different agents each enjoying some degree of autonomy in this paper policies are the outcome of the choices made by two agents within a hierarchy a legislator decides on the budget to be successively spent by a bureaucrat both agents are lobbied by one or two interest groups the combination of sequential decisionmaking and lobbying implies that the interaction between the agent at one tier and the interest group s depends on the exchange between the same interest group s and the agent at the other tier our results concerning multi tier lobbying and legislatorial oversight substantially qualify the conventional wisdom related to one tier lobbying in particular the reaction of the legislator to lobbying at the bureaucratic tier may make lobbying wasteful even when there is no competition from other lobbies moreover the legislator benefits from lobbying only when there is competition between interest groups at the upper tier it is also shown that competition for influence at the bureaucratic tier may work as a perfect substitute for legislatorial oversight extensions of the model indicate its usefulness for the analysis of decisionmaking in other multilevel governance structures like federations or firms

the making of economic policy a transaction cost politics perspective economic policymaking as a political process the normative approach to policy analysis the positive view of political economy a synthesis the policy process in real time a theme transaction costs the transaction cost politics framework political outcomes and economic efficiency transaction cost analysis in politics mechanisms to cope with transaction costs in politics national differences two case studies to illustrate transaction cost politics tax and expenditure reform in the united states the gatt and national trade politics some reflections and suggestions some lessons for the policy process the role of the economist concluding comments appendix multiprincipal multitask agencies

a theory of jurisdictional assignments in bureaucracies 1 what determines the allocation of tasks among government agencies this paper develops a formal model of task allocation that argues that jurisdictions are strategically designed to achieve legislative goals in the model agencies choose unobservable policies and political outcomes are a noisy indicator of these choices the legislature therefore faces a compliance issue when the agencies policy preferences are different from its own the legislature exerts control by defining agency jurisdictions setting ex ante budgets and choosing ex post contractual inducements the principal result is that tasks will be consolidated under a single roof when that agency prefers lower levels of policy than the legislature in other cases separating tasks prevents resources from being allocated in a manner undesirable for the legislature

understanding the role of leadership in economic policy reform abstract a demand for coherent policy leadership characterized by its commitment to advance a consistent set of policy principles arises from the various sources of governance failure that account for the observed unevenness in implementing the washington consensus this paper examines how a conspiratorial network established itself as a collective source of such leadership in new zealand by interacting in a way which developed a high level of mutual trust and by penetrating and reconstituting a fragmented structure of insulated policy networks

incentives choice and accountability in the provision of public services this paper discusses a theoretical framework to study the issues of competition and incentives without relying on the standard profitoriented market model in the context of the debates about public service reform in the u k it uses the idea that the production of public services coheres around a mission and discusses how decentralized service provision can raise productivity by matching motivated workers to their preferred missions our focus on competition and incentives cuts across traditional debates about public versus private ownership and allows for the possibility of involving private non profits we also address concerns about the consequences of allowing more flexibility in mission design and competition on inequality

creative corporatism the politics of high technology competition in nordic europe this article documents and explains the surprising capacity of several continental european countries to adapt to rapid innovation based competition critics and proponents alike suggest that thes

information sharing in common agency when is transparency good when should principals dealing with a common agent share their individual performance measures about the agent s unobservable effort for producing a public good in a model with two principals who offer linear incentive schemes we show that information sharing always increases total expected welfare if the principal who is less informed about the agent s effort also cares more about the agent s output if the less informed principal cares somewhat but not too much less than the other principal about the agent s output information sharing reduces total expected welfare in our model the efficient information regime emerges as an equilibrium outcome

conflict resolution and social protection in an era of globalisation external dimensions to europe s social policy globalisation has marginalised many nations in the south there are systematic mechanisms via which this occurs it has also raised inequality between nations and polarised the world into rich and poor nations accompanying international economic marginalisation a simultaneous growth in violent internal conflict has taken place in developing countries from both the standpoint of common humanity and security considerations the marginalising and unequalising effects of globalisation need to be abated via measures to protect the vulnerable this will also help to stem the tide of internal conflict in the developing world in this connection europe along with its policies and interventions can be of value

modeling opec behavior theories of risk aversion for oil producer decisions abstract theories of opec such as price leadership cartel or game theoretic models suggest an incentive for opec members to expand their production capacity well above current levels in order to maximize revenues yet individual opec members consistently explore for and develop oil fields at a level well below their potential the cause of low oil exploration and development efforts among opec members and even some non opec members may have to do with risk aversion this paper describes an alternative theory for opec behavior based on risk aversion using a two piece non neumann morgenstern utility function similar to fishburn and kochenberger 1979 decision science 10 503 518 and friedman and savage 1948 journal of political economy 56 the model shows possible low oil production behavior

the economics of governance the economics of governance is an effort to implement the study of good order and workable arrangements where good order includes both spontaneous order in the market which is a venerated tradition in economics adam smith 1776 friedrich hayek 1945 kenneth a arrow and gerard debreu 1954 and intentional order of a conscious deliberate purposeful kind chester irving barnard 1938 p 9 also i interpret workable arrangements to mean feasible modes of organization all of which are flawed in comparison with a hypothetical ideal avinash dixit 1996 pp 4 9 the object is to work out the efficiency logic for managing transactions by alternative modes of governance principally spot markets various long term contracts hybrids and hierarchies interest among social scientists economists included in the study and practice of good order and workable arrangements has been steadily growing in contrast with the orthodox lens of choice prices and output supply and demand the economics of governance is a lens of contract construction broadly in the spirit of james buchanan s 2001 p 29 observation that mutuality of advantage from voluntary exchange is the most fundamental of all understandings in economics the economics of governance as herein described is principally an exercise in bilateral private ordering by which i mean that the immediate parties to an exchange are actively involved in the provision of good order and workable arrangements to be sure the need for private ordering varies with the rules of the game as provided by the state distinctions between lawlessness where the state provides limited or unreliable protection for property and contract dixit 2004 and lawfulness where the state undertakes to protect property and enforce contracts in a principled way are pertinent the first of these applies mainly to primitive and transition economies the second is commonly associated with western democracies recourse to private ordering under conditions of lawlessness is altogether understandable given the absence of state support the walter a haas school of business university of california berkeley ca 94720 1900 the paper has benefited from workshop presentations at the university of california berkeley the university of valencia insead fountainebleau and the 2004 annual conference of the international society for new institutional economics an abbreviated version was also given as the horst claus recktenwald lecture at nuremburg on 4 november 2004 comments and suggestions from fred balderston ernesto dalbo avinash dixit robert gibbons witold henisz ian larkin steven tadelis and dean williamson are especially acknowledged 1 lon fuller s 1954 p 477 definition of eunomics as the science theory or study of good order and workable arrangements is very much in the spirit of what i refer to as governance 2 one of the immediate ramifications of insistently comparing feasible alternatives all of which are flawed is that the purported inefficiencies that are ascribed to failures to achieve first best optimality are not dispositive but invite the query as compared with what i return to this issue in section iv 3 excluding corporate governance the numbers of articles that used the word governance during the period 1998 2000 as compared with the period 1977 1979 in selected economics business management sociology organization and political science journals were 60 vs 1 76 vs 4 79 vs 18 and 60 vs 25 where the journals surveyed were the american economic review journal of political economy quarterly journal of economics rand journal of economics and journal of economic perspectives in economics strategic management journal management science academy of management journal and academy of management review in business management administrative science quarterly organization science american journal of sociology american sociological review and annual review of sociology in sociology organization and american political science review political science quarterly journal of politics and political research quarterly in political science combining these four categories articles using the word governance increased from 48 to 275 over this 20 year interval dixit 2004 pp 149 50 reports that the number of web pages that turn up under the search for governance is huge

detrending and the money output link international evidence 1 introduction and background the question of whether there exists an empirical link between nominal money and real output has been subjected to a variety of modern econometric techniques producing conflicting results for example stock and watson 1989 use a vector autoregressive var model that accounts for several important economic variables and find that money exerts a statistically significant effect on real economic activity friedman and kuttner 1992 1993 on the other hand show that using the same specification as stock and watson but extending their sample through the 1980s obviates the money income link friedman and kuttner s results indicate that interest rates are relatively more useful in explaining movements in output thoma 1994 also reports that changes in money do not have a statistically significant impact on output in the united states more recent studies both theoretical and empirical also have shown money to have little or no direct effect on economic cycles rudebusch and svensson 1999 2002 for example conclude that the behavior of money real or nominal has no marginally significant impact on deviations of real output from potential the output gap once past movements in the gap and real rates of interest are accounted for such findings on the basis of what meyer 2001 refers to as the consensus macro model have achieved an influential position among macroeconomists and policymakers 2 other studies challenge the argument that money does not affect real output an early study by christiano and ljungqvist 1988 using a bivariate var model reports the existence of a statistically significant money to output relation in u s data davis and tanner 1997 using monthly u s data extending back to the mid 1800s find that even after interest rate effects are allowed for money remains statistically significant in explaining short run movements in real output using a rolling regression approach swanson 1998 reports a statistically significant relation between money measured as simple sum aggregates and as divisia measures and output even after an interest rate spread variable is added to the model hafer and kutan 1997 considered whether different stationarity properties of the data have influenced reported outcomes since most prior studies assume difference stationarity hafer and kutan demonstrate that estimating var models that include money and interest rate variables under the existence of trend stationarity can dramatically affect the conclusion indeed they find that using a trend stationarity assumption yields the finding that money significantly affects real output movements in the united states a common characteristic of this literature is its focus on the united states there are a few exceptions for example krol and ohanian 1990 apply the stock watson specification to data for canada germany japan and the uk although money actual and detrended significantly affects output in the uk krol and ohanian find no such affect in japan canada and germany they conclude that although detrending the growth rate of u s money affects conclusions about the role of money little is gained from this approach when applied to the other countries another exception to the u s focus is a recent study by hayo 1999 using data from 14 european union eu countries plus canada japan and the united states hayo shows that money output test results are not sensitive to the use of data in levels versus data in differences an obvious question to ask then is whether nominal money is relatively more useful than interest rates in explaining movements in real output across a wider variety of countries that includes industrial and developing economies although the studies of krol and ohanian and hayo represent a broader analysis they too focus on the money output relation in relatively industrialized financially developed countries