a dynamic theory of collective goods programs a collective goods program such as an entitlement program distributes benefits and costs according to constituents characteristics this paper presents a dynamic theory of the legislative choice of collective goods programs based on a sequential model of proposal making and voting in a majority rule legislature where the status quo in a session is given by the program last enacted a stationary markov perfect equilibrium is characterized for a unidimensional collective goods program and yields a generalized median voter theorem comparative statics on preferences and legislative procedures and a characterization of the dynamics of such programs equilibrium programs can expand or contract over time but they ultimately converge to the median on the path to that point legislators may act strategically to address the durability problem that a future legislature can undo the actions of the present legislature by strategically positioning the status quo to limit the changes that future legislatures can make

two party competition with persistent policies abstract when campaigning for reelection incumbent parties promises to voters are constrained by their records in office while opposition parties can use their time away from power to develop new platforms in this paper i introduce incumbent policy persistence in a dynamic game of electoral competition between two policy motivated parties and characterise the long run outcomes of its markov perfect equilibria incumbents reduced policy flexibility leads to alternation in power and policy dynamics that converge to alternations at policies equally preferred by the median voter convergence of policies towards the median is a robust equilibrium outcome while convergence to the median is not while alternations far from the median are never limits of equilibrium dynamics alternations close to the median can be reached only if policy dynamics start exactly there i show that these results are robust to voters being forward looking and to limited policy commitment by parties

term limits and pork barrel politics abstract we develop a dynamic model of democratic politics in which both potential office holders and the electorate have heterogeneous ideologies voters have incomplete information about candidate ideologies so they must use information from previous positions taken in office to make informed re election decisions we characterize the effects of term limits on the evolution over time of the ideological positions taken by office holders and derive the implications for voter choice and welfare contributions of our paper include we detail how pork provision by more senior incumbents interacts with term limits to affect electoral outcomes pork provision transfers of resources from districts with junior legislators to districts with more senior legislators induces voters to be more forgiving of extreme location by incumbents especially incumbents in small or poor districts pork provision can explain why re election probabilities in congress exceed those for governors term limits reduce voter welfare when all that matters are the ideological positions taken by the office holder term limits may be advantageous when senior incumbents can extract benefits for their constituencies at the expense of districts with more junior representatives large or rich districts especially value term limits when there is substantial pork provision we characterize the welfare of all voters not just the median voter

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

electoral competition with privately informed candidates we consider a model of elections in which two office motivated candidates receive private signals about the location of the median voter s ideal point prior to taking policy positions we show that at most one pure strategy equilibrium exists and provide a sharp characterization if one exists after receiving a signal each candidate locates at the median of the distribution of the median voter s location conditional on the other candidate receiving the same signal it follows that a candidate s position conditional on his her signal is a biased estimate of the true median with candidate positions tending to the extremes of the policy space we provide sufficient conditions for the existence of a pure strategy equilibrium essentially the pure strategy equilibrium exists if for each signal the other candidate is sufficiently likely to receive a signal in the same direction that is at least as extreme though the electoral game exhibits discontinuous payoffs for the candidates we prove that mixed strategy equilibria exist generally that equilibrium expected payoffs are continuous in the parameters of the model and that mixed strategy equilibria are upper hemicontinuous we investigate the robustness of the median voter theorem to private information pure strategy equilibria may fail to exist in models close to the downsian model but mixed strategy equilibria must and they will be close to the downsian equilibrium finally we provide bounds on the support of mixed strategy equilibria and restrictions on possible atoms of equilibrium mixed strategies

trade foreign direct investment and economic growth in asian economies despite the increasing role of foreign direct investment fdi in economic development very limited research has been carried out on the causal links between trade fdi and economic growth in asian economies this study examines empirically the inter play between exports imports fdi and economic growth for nine asian economies by conducting multivariate causality tests in the vector error correction model vecm framework the results reveal two way causal connections between trade inward fdi inward merger and acquisitions m as and growth for most of the sample economies there is a unidirectional causal link running from outward m as to growth and trade these findings suggest that export expansion import liberalization fdi inflows and inward m as are integral elements of the growth process in asian economies

wage and price control policies in transition economies abstract this paper studies the structural impact of wage and price control policies in transition economies using a two sector three factor small open economy model it illustrates the results quantitatively via simulation exercises at the earlier stage of the transition when labor is immobile a strict control on the price of the nontradables and the wage rate minimizes the fall in employment and output also a more severe control on the price of the nontradables than on the wage rate alleviates the fall in the real wage at negligible costs in lost employment and output at the later stage of the transition when labor becomes mobile the liberalization of the price of the nontradables can proceed faster than that of the wage rate this policy combination increases employment and output and reduces the shortage for the nontradables but lowers the real wage

expectations about voter choices a comment the only essential differences in the examples analyzed above are in the assumptions that are used to derive or directly specify the choice behavior that the candidates expect from any given voter conditional on his utility function when the central behavioral assumption from the traditional models was used the equilibrium was a median outcome a conclusion directly analogous to what happens in the corresponding unidimensional traditional voting models when the central behavioral assumptions from the probabilistic voting model developed in coughlin and nitzan 1981 were used the equilibrium was at the maximum of the expected log utility function a conclusion directly analogous to what happens in the model in coughlin and nitzan 1981 indeed it was only when the corresponding assumptions from ledyard 1984 were used i e the particular assumptions that ledyard used to derive the choice behavior that the candidates expect from any given voter conditional on his utility function that the conclusions were substantially different from the conclusions derived from earlier models this reflects the important role these assumptions play in making ledyard s conclusions about candidate strategies substantially different from earlier results in the literature on spatial models of elections

effects of family background on earnings and returns to schooling evidence from brazil we investigate whether omitted family background variables are responsible for high returns to schooling estimated in brazil returns to schooling fall by about one third when parental schooling is added to wage equations surprisingly the schooling of fathers in law has larger effects on wages than the schooling of fathers on the basis of a model of assortative mating we interpret this as evidence that parental characteristics represent unobservable worker attributes rather than nepotism in the labor market we conclude that the family background bias in returns to schooling is modest and need not imply returns to family connections

favorite son specialized child laborers and students in poor ldc households abstract though prior theoretical models of child labor nominally contain households with multiple children they treat all children as identical in their returns to labor market and education activities in actuality households with identical twins are the exception and inherent heterogeneity implies different returns for children we construct a theoretical model that allows child heterogeneity and bilateral altruism our model illuminates potential inefficiencies in the time allocation of children across labor market obligations and education opportunities in poor households when intra household talent differentials across children are great an inefficient reverse specialization may arise and partial bans on child labor will increase efficiency

macroeconomic policy in a two party system as a repeated game this paper considers the interaction of two parties with different objectives concerning inflation and unemployment and rational and forward looking wage setters if discretionary policies are followed an economic cycle related to the political cycle results in equilibrium this cycle is significantly different from the traditional political business cycle reputational mechanisms due to the repeated interaction of the two parties and the public or commitments to a common policy rule can improve upon the discretionary outcome by reducing or eliminating the magnitude of the economic fluctuations

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

transfer behavior in the health and retirement study measurement and the redistribution of resources within the family recent work by a number of economists has opened a debate about the role played by intergenerational transfers using the new health and retirement study hrs we are better able to address the issues involved contrary to the current literature on bequests we do not find that parents give transfers equally to all children rather we find that in the case of inter vivos transfers respondents give greaterfinancial assistance to their less well off children than to their children with higher incomes financial transfers to elderly parents are also found to be negatively related to the potential recipient s income these results hold both for the incidence of transfers and for the amounts in addition we allow for unobserved differences across families by estimating fixed effect models and find our results to be robust to these specifications a comparison of the hrs transfer data to other survey data demonstrates that the hrs is potentially quite useful for research on transfer behavior

inter vivos transfers and intergenerational exchange the surge of interest in intergenerational transfers in the past decade has sparked a debate over the motivation for them are transfers given out of altruism or part of an exchange while each motive is probably at work to some extent we know little about whether one motive predominates the question is relevant for issues concerning public income redistribution and inequality in the family but despite its importance empirical evidence about motives is scarce because of limited data we investigate a new data set the national survey of families and households which remedies many of the shortcomings of other data sets containing private transfer information we find that empirical patterns for inter vivos transfers i e transfers between living persons are more consistent with exchange than altruism

the determinants of fdi location choice in china a discrete choice analysis this study addresses two questions what are the determinants of foreign direct investment fdi location choice in china what are the factors that determine investors choice between economic zo

dynamic legislative policy making abstract we prove existence of stationary markov perfect equilibria in an infinite horizon model of legislative policy making in which the policy outcome in one period determines the status quo for the next we allow for a multidimensional policy space and arbitrary smooth stage utilities and we assume preferences and the status quo are subject to arbitrarily small shocks we prove that equilibrium continuation values are differentiable and that proposal strategies are continuous almost everywhere we establish upper hemicontinuity of the equilibrium correspondence and we provide weak conditions under which each equilibrium of our model determines an aperiodic transition probability over policies we establish a convergence theorem giving conditions under which the invariant distributions generated by stationary equilibria must be close to the core in a canonical spatial model finally we extend the analysis to sequential move stochastic games and to a version of the model in which the proposer and voting rule are determined by play of a finite perfect information game

policy and the dynamics of political competition informed discussions of political competition by journalists pundits novelists country specialists or indeed practicing politicians usually describe a system in perpetual motion perpetual motion is seen as a normal state of affairs not a manifestation of chaotic instability and it is usually seen as having an endogenous dynamic what the actors do at cycle c of the political process feeds back to affect the entire process at cycle c 1 these informed discussions thus see politics as a complex dynamic system evolving under its own steam a system unlikely to reach steady state in stark contrast mainstream models of political competition are usually static with key model parameters and rules of interaction fixed exogenously although static models do not necessarily imply equilibrium almost invariably the core intellectual approach is to specify a model and solve for equilibrium authors of such models are typically driven by what cederman describes as a metaphysical conviction that equilibria are always out there waiting to be discovered a conviction that can blind the analyst to the possibility of adjustments never settling cederman 1997 34 35 but if common sense tells us party competition is a complex dynamic process then it also tells us party competition may never achieve equilibrium this paper addresses the striking disjuncture between the static nature of most formal models of party competition and the dynamic way in which informed observers who hardly ever talk about politics in terms of equilibrium think about the political process while many theorists would willingly concede in general terms that real political competition is a complex dynamic process the hard question concerns how to model this in a way that is both theoretically tractable and substantively plausible in what follows i set out

an overlapping generations model of electoral competition this paper presents a dynamic model of political competition between two parties with different policy preferences a party is explicitly modeled as a sequence of overlapping generations of candidates all of whom face finite decision horizons in general there is a conflict between the interests of the individual policymakers and those of the party which includes subsequent generations of candidates we characterize this conflict and suggest a scheme of intergenerational transfers within the party which can resolve or mitigate this conflict the paper shows how the overlapping generations model can be usefully applied to the political arena this abstract was borrowed from another version of this item

on the faustian dynamics of policy and political power this paper examines the faustian dynamics of policy and power we posit a general class of dy namic games in which current policies affect the future distribution of political power resulting in the following faustian trade off if the current ruler chooses his preferred policy he then sacrifices future political power yet if he wants to preserve his future power he must sacrifice his present policy objec tives the trade off comes from the fact that the current political ruler pivotal voter cannot uncouple the direct effect of his policy from its indirect effect on future power a policy endogenous pe equilibrium describes this endogenous transfer of power and the resulting evolution of policy and political power over time we show that the faustian trade off in a pe equilibrium is decomposed into two basic rationales the political preservation effect induces more tempered policy choices than if one s policy choice did not affect one s political fortunes however the reformation effect induces more aggressive policies in order to exploit the productivity gains from policies chosen by even more aggressive successors we distinguish between political systems that give rise to monotone faustian dynamics political power that progressively evolves towards more fiscally liberal types of leaders and cyclical faustian dynamics political power that oscillates between liberal and conservative types of leaders in each case we show that the faustian trade off moderates the choices of each type of leader

environmental management under subnational institutional constraints this study uses the institutional perspective to examine the interaction effects between the subnational institutional context and firm level parameters on corporate environmental behaviors based on a unique cross sectional data set of private firms compiled from three different sources in china our results suggest that both enforcement stringency of environmental regulations at the provincial level and private firms foreign ownership negatively affect compensation fees which are levies charged for firms emissions enforcement stringency also moderates the firm level relationship between foreign ownership and compensation fees but such a cross level moderating effect holds only for private firms with non hmt hong kong macau or taiwan investments

markovian equilibria in dynamic spatial legislative bargaining existence with three players abstract the paper proves by construction the existence of markovian equilibria in a dynamic spatial legislative bargaining model three players bargain over one dimensional policies in an infinite horizon in each period a sequential protocol of proposal making and voting with random proposer recognitions and a simple majority produces a policy that becomes the next period s status quo an equilibrium exists for any profile of proposer recognition probabilities any profile of players ideal policies and any discount factor in equilibrium policies converge to the median s ideal policy players moderate and propose policies close to the median s ideal in an attempt to constraint future proposers but the tendency to moderate is a strategic substitute as the opponent of a moderating player does not moderate

credibility and policy convergence in a two party system with rational voters the traditional approach to modeling political parties behavior based upon the contribution of anthony downs 1957 assumes that the parties unique objective is to win elections thus they maximize their popularity the crucial implication of this assumption for a two party system is that if the two parties have the same information about voters preferences full convergence of policies results from electoral competition this is the crucial implication of the median voter theorem more generally it may be argued that different parties are motivated differently because they represent different constituencies parties may not care only about winning elections per se but also about the quality of the policies resulting from an election in this case the candidates of the two parties view winning an election not only as a goal per se but also as a means of implementing a better policy for their respective constituencies this paper shows that electoral competitions imply dynamic inconsistency if the voters are modeled as rational and forwardlooking agents and parties do not care exclusively about being elected but also about which policy to implement once elected the dynamic inconsistency arises as follows the parties have an incentive to announce convergent platforms to increase their chances of election however if the elected party is not committed to its electoral platform it has an incentive to follow its most preferred policy rather than the policy announced in its platform if voters are rational they account for this incentive thus in general in a one shot electoral game the only timeconsistent equilibrium is one in which no convergence is possible the two parties follow their most preferred policies and the voters rationally expect this outcome full convergence of parties platforms results only as a limiting case when the parties are completely indifferent with respect to the quality of the policies resulting from the election thus these results differ from the existing literature on ideologically motivated politicians for instance donald wittman 1977 1983 randall calvert 1985 which implicitly assumes the possibility of binding commitments to electoral platforms complete or partial policy convergence can be the outcome of political competition if the interaction between the parties and the voters is modeled as an infinitely repeated game in fact if the candidates have concave objective functions the welfare maximizing policy rule implies a complete convergence of parties policies however this cooperative and agreed upon policy may or may not be sustainable as a subgame perfect equilibrium depending on parameter values in particular it depends on the discount rates of the two parties the degree of polarization of their preferences and the relative popu graduate school of industrial administration carnegie mellon university pittsburgh pa 15213 and national bureau of economic research cambridge ma 02138 this paper is based upon a chapter of my unpublished doctoral dissertation at harvard university i am greatly indebted to jeffrey sachs for directing my attention toward these issues and for many conversations i also wish to thank andrew abel dilip abreu olivier blanchard ramon caminal andrew caplin alex cukierman morris fiorina benjamin friedman herschel grossman howard rosenthal and the referees for very useful comments the responsibilitv af anv n mtnkieis af calrirp nfnlv mine the result of policy convergence in a two party system is more general than the median voter theorem for discussions of convergence results not at the median see john ledyard 1984 peter coughlin 1984 coughlin and shmuel nitzan 1981 melvin hinich 1977 for earlier work on spatial competition see richard mckelvey 1975 hinich ledyard and peter ordeshook 1972 1973 and the references quoted therein the present paper focuses on the result of convergence rather than on the median voter theorem per se

a var approach to the economics of fdi in china using a vector autoregression var approach this study re examines several hypotheses suggested by the economic literature on the economics of fdi applying quarterly time series data from china a country which has recently become the second largest host country for fdi innovation accounting variance decomposition and impulse response function analysis is applied to analyse the various interrelationships between fdi and other economic variables of interest in a var system the empirical research using this method in the case of china is limited the study therefore provides an interesting advance in the literature on the economics of fdi in china

institutional constraints and ecological processes evolution of foreign invested enterprises in the chinese construction industry 1993 2006 in the current study expansion of foreign investment in transition economies such as china is analyzed as an organizational selection process in a community ecology setting insights from organizational ecology are used to explain how institutional forces constrain ecological processes together driving the evolution of the population size of foreign invested enterprises fies privately held domestic firms and state owned domestic organizations we argue that the variation in the relative forces of ecological processes and institutional constraints across fies and their domestic rivals accounts for the expansion of fies in china on the one hand in many transition economies institutional constraints are imposed on foreign enterprises by regulation that limits fdi opportunities on the other hand after entry foreign enterprises can benefit from their competitive advantages in their ecological struggle against domestic rivals this logic produces different sets of hypotheses as to foreign enterprises density and sales growth in interaction with domestic organizations using a data set of the chinese construction industry in 29 provinces over the 1993 2006 period estimation of a partial adjustment growth model produces support for our theoretical claim

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

inefficiency in legislative policymaking a dynamic analysis this paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining the policy space incorporates both productive and distributive public spending and distortionary taxation the productive spending is investing in a public good that benefits all citizens e g national defense and the distributive spending is district specific transfers e g pork barrel spending investment in the public good creates a dynamic linkage across policymaking periods the analysis explores the dynamics of legislative policy choices focusing on the efficiency of the steady state level of

parental actions and sibling inequality this paper presents a simple model of resource allocation within the family the model is based on two main assumptions there are nonconvexities in human capital investments and parents cannot borrow to finance their children s education the model shows that poor and middle income parents will often find it optimal to channel human capital investments into a few of their children thus creating sizable inequalities among siblings the paper shows that the predictions of the model are consistent with the available evidence for three latin american countries d 2003 elsevier science b v all rights reserved

bequest behavior and the effect of heirs earnings testing the altruistic model of bequests that parents transfer resources to children because of altruistic concern is a reasonable a priori assumption however economic theories of altruistic transfers have produced many counterintuitive conclusions and consequently much debate when applied to bequests these theories predict that inheritances will compensate for earnings differences between siblings as well as between parents and children this paper tests these implications using a new data set centered on federal estate tax returns little support can be found for an altruistic theory of bequests this finding has implications for macroeconomic policy government transfer programs and inequality copyright 1996 by american economic association

relationships between economic growth foreign direct investment and trade evidence from china this study investigates the causal links between trade economic growth and inward foreign direct investment fdi in china at the aggregate level the integration and cointegration properties of quarterly data are analysed long run relationships between growth exports imports and fdi are identified in a cointegration framework in which this paper finds bi directional causality between economic growth fdi and exports economic development exports and fdi appear to be mutually reinforcing under the open door policy

competence and ideology we develop a dynamic repeated election model in which citizen candidates are distinguished by both their ideology and valence voters observe an incumbent s valence and policy choices but only know the challenger s party our model provides a rich set of novel results in contrast to existing predictions from static models we prove that dynamic considerations make higher valence incumbents more likely to compromise and win re election even though they compromise to more extreme policies consequently we find that the correlation between valence and extremist policies rises with office holder seniority this result may help explain previous empirical findings despite this result we establish that the whole electorate gains from improvements in the distribution of valences in contrast fixing average valence the greater dispersion in valence associated with a high valence political elite always benefits the median voter but can harm a majority of voters when voters are sufficiently risk averse we then consider interest groups igs or activists who search for candidates with better skills we derive a complete theoretical explanation for the intuitive conjectures that policies are more extreme when igs and activists have more extreme ideologies and that such extremism reduces the welfare of all voters

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

a three player dynamic majoritarian bargaining game this file contains two sets of calculations first we report the calculations of demands and continuation values of proposition 1 second the mixing probabilities of proposition 1 are shown to be well defined

fdi by firms from newly industrialised economies in emerging markets corporate governance entry mode and location previous studies emphasise that the foreign direct investment fdi strategies of firms from newly industrialised economies nies are different from the fdi strategies of firms from developed economies it has also been shown that nie firms are often controlled by founding families who make key strategic decisions and that they rely heavily on network linkages when developing their fdi strategies what is less clear however is how the corporate governance factors in nies the risk preferences of the main shareholder constituencies and the network based business culture affect the decision to undertake fdi in emerging markets this paper explores the entry mode and location choices of firms from an asian nie taiwan in an emerging market the people s republic of china it shows that the choice of equity stake in an affiliate depends upon the extent of family and institutional share ownerships in the parent company high commitment entry is found to be positively associated with the affiliate being located in areas with strong economic cultural and historic links with the parent company furthermore the entry mode and location decisions appear to be interrelated with the parent s equity stake in the affiliate depending inter alia upon the location within china and the favoured location depending inter alia upon the equity stake

a dynamic theory of public spending taxation and debt this paper presents a dynamic political economy theory of public spending taxation and debt policy choices are made by a legislature consisting of representatives elected by geographically defined districts the legislature can raise revenues via a distortionary income tax and by borrowing these revenues can be used tofinance a national public good and district specific transfers interpreted as pork barrel spending the value of the public good is stochastic reflecting shocks such as wars or natural disasters in equilibrium policy making cycles between two distinct regimes business as usual in which legislators bargain over the allocation of pork and responsible policy making in which policies maximize the collective good transitions between the two regimes are brought about by shocks in the value of the public good in the long run equilibrium tax rates are too high and too volatile public good provision is too low and debt levels are too high in some environments a balanced budget requirement can improve citizen welfare

political parties and the business cycle in the united states 1948 1984 this paper tests the existence and the extent of a politically induced business cycle in the u s in the post world war ii period the cycle described in this paper is different from the traditional political business cycle of nordhaus it is based on a systematic difference between the monetary policies of the two parties in a model with labor contracts from an explicit optimization problem we derive a system of equations for output and money growth then we successfully test the non linear restriction imposed by the theory on the parameters of the system of equations we cannot reject the hypothesis that money growth has been systematically different under the two types of administration and that this difference contributes to explain output fluctuations

principle vs pragmatism policy shifts and political competition this article investigates the electoral effect of party policy shifts i argue that whether party policy shifts are damaging or rewarding depends on whether the shift occurs in the pragmatic or principled issue domain on pragmatic issues voters value getting things done policy shifts in this domain signal responsiveness to the changing environment and are likely to be rewarded principled issues however concern core beliefs and values any policy shift in this domain is a sign of inconsistency and lack of credibility which is likely to lead to voter withdrawal these arguments are supported by evidence from 23 advanced democracies over a period of 40 years

on dynamic compromise abstract most legislatures require the consent of only a simple majority to pass a proposal so why don t legislative outcomes favor only a bare majority we show that compromise can be achieved if legislators are neither too impatient nor too patient and initial allocations are not too unequal the compromise is only sustainable if starting from the unequal allocations there is a possibility of spiraling towards a complete absence of compromise we find that the range of discount factors for which the equilibrium exists increases as the number of legislators increases in this sense compromise is easier in larger legislatures

economic development and sectoral unions in china drawing on qualitative fieldwork in china s guangdong and zhejiang provinces the author asks how post socialist unions respond to worker unrest and why the development of sectoral level bargaining has been uneven in different regions of china while zhejiang has had relative success in establishing the organizational infrastructure for sectoral bargaining guangdong has had little success despite ongoing attempts by unions the author explains variation in sectoral level bargaining through an analysis of the different models of economic development which are characterized as local entrepreneurialism and global integration for zhejiang and guangdong respectively despite having different organizational forms unions in both places suffer from a lack of credibility and capacity to enforce contracts given the acftu s ongoing focus on sectoral level bargaining however experiments will likely continue in various regions and industries throughout china

barriers to investment in polarized societies i present a tractable dynamic model of political economy where disagreements about the composition of public spending result in implementation of short sighted policies the relative price of investment to consumption is excessively large in equilibrium due to over taxation investment rates are too low which slows down growth along the transition in the long run this results in output consumption and welfare being inefficiently low the larger is the degree of polarization the greater is the inefficiency political stability mitigates the effects of polarization by making the incumbent internalize the dynamic inefficiencies introduced by the choice of growth retarding policies

the political economy of dynamic elections accountability commitment and responsiveness we survey the literature on dynamic elections in the traditional settings of spatial preferences and rent seeking under perfect and imperfect monitoring of politicians we define stationary electoral equilibrium which encompasses notions used by barro 1973 ferejohn 1986 banks and sundaram 1998 and others we show that repeated elections mitigate the commitment problems of politicians and voters and that a responsive democracy result holds under general conditions term limits however attenuate the responsiveness finding we also touch on related applied work and we point to areas for fruitful future research including the connection between dynamic models of politics and economics

signaling character in electoral competition we study a one dimensional hotelling downs model of electoral competition with the following innovation a fraction of candidates have character and are exogenously committed to a campaign platform this is unobservable to voters character is desirable and a voter s utility is a convex combination of standard policy preferences and her assessment of a candidate s character this structure induces a signaling game between strategic candidates and voters since a policy platform affects voters utilities not only directly but also indirectly through inferences about a candidate s character the model generates a number of predictions starting with a failure of the median voter theorem jel d72 d82

the disadvantaged incumbents estimating incumbency effects in indian state legislatures this paper estimates the incumbency effects using a large dataset on state legislative elections in india during 1975 2003 i use a regression discontinuity design rdd that estimates the causal effect of incumbency by comparing candidates in closely fought elections i find that there is a significant disadvantage to incumbency in indian state legislative elections and the adverse effect of incumbency has increased after 1991 also the incumbency disadvantage is higher in states that have lower availability of public goods such as health centers and lower employment poverty and per capita income

the family inheritance and the intergenerational transmission of inequality unequal inheritance of material wealth is commonly considered a major cause of inequality in consumption however theoretical models of the intergenerational transmission of inequality by becker blinder and ishikawa imply that unequal inheritance may either increase or reduce consumption inequality differences in inherited wealth resulting from unequal parental incomes increase inequality in recipients consumption however unequal bequests caused by differences among families in the endowed ability of children or the costs of producing human capital are equalizing empirical results confirm these predictions the inheritance received by children is inversely related to both children s income and parental education thus bequests are compensatory in that ceteris paribus low income children inherit more than their advantaged contemporaries

inequality within and between families between family differences in expenditures and output reflect the effect of simultaneous increases in children s ability on the willingness of parents to transfer resources to them within family differences also reflect the attitudes of parents toward disparity among children in this paper we characterize the conditions on parents preferences that determine whether between family differences exceed within family differences for additive utility within family differences in expenditures always exceed between family differences this may also be true for the max min utility function if an increase in ability reduces the marginal utility of income within family differences in output utility or income can also exceed between family differences in this case the implication for income distribution is that equality is enhanced by a higher correlation of ability between brothers

spatial models of political competition under plurality rule a survey of some explanations of the number of candidates and the positions they take this paper surveys work that uses spatial models of political competition to explain the number of candidates and the positions that they take in plurality rule elections

candidates credibility and re election incentives i study elections between citizen candidates who cannot make binding policy commitments before taking office but who are accountable to voters due to the possibility of re election in each period a representative voter chooses among heterogeneous candidates with known policy preferences the elected candidate chooses the policy to implement and how much rent seeking to engage in when in office as the voter decides both which candidate to elect and subsequently whether the candidate is retained this framework integrates elements of electoral competition and electoral accountability i show that in the best stationary equilibrium when utility functions are concave over policy non median candidates are elected over candidates with policy preferences more closely aligned with the voter in this equilibrium there are two candidates who are elected at some history and the policies these candidates implement in office do not converge this divergence incentivizes candidates to engage in less rent seeking increasing voter welfare copyright 2013 oxford university press

dynamics and stability of constitutions coalitions and clubs a central feature of dynamic collective decision making is that the rules that govern the procedures for future decision making and the distribution of political power across players are determined by current decisions for example current constitutional change must take into account how the new constitution may pave the way for further changes in laws and regulations we develop a general framework for the analysis of this class of dynamic problems under relatively natural acyclicity assumptions we provide a complete characterization of dynamically stable states as functions of the initial state and determine conditions for their uniqueness we show how this framework can be applied in political economy coalition formation and the analysis of the dynamics of clubs the explicit characterization we provide highlights two intuitive features of dynamic collective decision making 1 a social arrangement is made stable by the instability of alternative arrangements that are preferred by sufficiently many members of the society 2 efficiency enhancing changes are often resisted because of further social changes that they will engender

the distribution of foreign direct investment in china foreign direct investment fdi has played a major role in china s push toward a market oriented economy recent inflows account for 40 percent of combined flows of fdi to all developing countries making china the biggest developing country fdi recipient this record is impressive but certain problems must be overcome if fdi is to continue to help sustain the country s record growth rate and further its economic development for one thing fdi in china is highly concentrated geographically and its sector distribution is highly uneven the authors empirically analyze the geographic determinants of fdi in china they find that fdi s geographical distribution in china is determined mostly by gnp infrastructure development level of general education and coastal location although the sectoral distribution of fdi is coming into line with the rest of the world in the past fdi has been biased toward speculative types of investment especially in the real estate sector

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

regional characteristics and the location of foreign firms within poland this article investigates the location determinants of firms with foreign capital participation within poland using the regional data set from 1993 to 1998 it is found that the concentration of foreign economic activity is positively related to industry and service agglomeration and the road network and negatively to the unemployment rate traditional regional characteristics such as gdp wage rate and education often regarded as important location determinants are not robust with respect to the specification of the estimating equation the special economic zone variable is not found to be statistically significant in any specification estimated geographic location dummies confirm that foreign firms prefer central and south western regions over eastern parts of poland having controlled for their characteristics

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

returns to investment in education a global update the author updates compilations of rate of return estimates to investment in education published since 1985 and discusses methodological issues surrounding those estimates some key patterns among the three main levels of education primary education continues to exhibit the highest social profitability in all world regions private returns are considerably higher than social returns because of the public subsidization of education the degree of public subsidy increases with the level of education which is regressive social and private returns at all levels generally decline by the level of a country s per capita income overall the returns to female education are higher than those to male education but at individual levels of education the pattern is more mixed the returns to the academic secondary school track are higher than the vocational track since unit cost of vocational education is much higher and the returns for those who work in the private competitive sector of the economy are higher than in the public noncompetitive sector and the returns in the self employment unregulated sector of the economy are higher than in the dependent employment sector controversies in the literature are discussed in the light of the new evidence the undisputable and universal positive correlation between education and earnings can be interpreted in many ways the causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education given the fact that moral and pragmatic considerations prevent the generation of such pure data researchers have to make do with indirect inferences or natural experiments some have been attempted the author looks at the research on overeducation or surplus schooling the conclusions reinforce earlier patterns they confirm that primary education continues to be the number one investment priority in developing countries they also show that educating females is marginally more profitable than educating males that the academic secondary school curriculum is a better investment than the technical vocational tract and that the returns to education obey the same rules as investment in conventional capital that is they decline as investment is expanded