a dynamic tiebout theory of voluntary vs involuntary provision of public goods this paper considers a dynamic model of tiebout like migration between communities that utilize distinct allocation procedures for public goods at issue is whether voluntary or compulsory procedures are more likely to prevail over time we model infinitely lived individuals who make repeated sequential location decisions over one of two communities each community uses a distinct mechanism for allocating public goods the first is one in which contributions are given voluntarily by the citizenry of the community the second is a compulsory scheme by which individuals are taxed proportionately to wealth with the tax determined by a majority vote opportunities to accumulate wealth exist via accumulation of public capital the markov perfect equilibria of the dynamic game are studied our main result shows that when accumulated wealth converges to a steady state individuals locational choices eventually select the involuntary provision mechanism this holds despite the fact that unanimous location in the voluntary provision community may in many cases remain as a nash equilibrium of the static game each period we also describe conditions under which voluntary provision survives these conditions require that accumulation of capital fails to decrease wealth dispersion over time the results are shown to be consistent with findings relating inequality to school choice

monetary policy regime changes and the risk premium in the foreign exchange markets abstract this paper reports an empirical relationship between conduct of monetary policy and the foreign exchange risk premium using garch 1 1 the time variation of the risk premium is shown to depend significantly on the changes in the monetary policy regime

is diversity good or bad evidence from esports teams analysis we use esports data to construct an empirical model to measure the effect of diversity on team performance different kinds of diversities are considered diversity of culture diversity of languag

measuring noise in exchange rate models abstract this paper conducts a race between models in terms of their ability to explain observed violations of uncovered interest parity this is done by comparing the empirical performance of the simple efficiency hypothesis and the models which assume the existence of risk premiums my analysis uses noise ratios which complement specification tests by showing the relative degree to which each model reconciles with the data the empirical results imply that the risk premiums introduced by the latent variable model could significantly explain the deviation of forward exhange rates from the expected future spot rates

anonymous lindahl pricing in a tiebout economy with crowding types the crowding types model of a local public goods economy makes a distinction between crowding effects and tastes of agents decentralization of the core is possible both with anonymous admission prices that depend only on publicly observable information and when technology is linear with lindahl per unit prices lindahl price systems are superior to admission prices since they can be specified with only a finite number of prices here we show that the core is equivalent to the set of non anonymous lindahl equilibria even with non linear technology the core is generally larger however than the set of anonymous lindahl equilibria

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

is there a leviathan in your neighborhood this paper measures effects of decentralization in local government hierarchies on local public sector size this sector shrinks if decentralization encourages competition among governments it expands if decentralization sacrifices scale economies in a sample of 3 022 counties larger county governments reduce competition and increase aggregate local public sector size relative to aggregate county income more cities and towns increase competition and reduce its size more special and school districts sacrifice scale economies and increase it two recent articles have attempted to identify the effects of decentralization in state and local government on the size of the state and local public sector wallace oates 1985 finds no important effects michael nelson 1987 finds modest evidence that increased competition among government units reduces the size of the public sector this article demonstrates that the effects of decentralization are important and complex decentralization which encourages competition reduces the size of the local public sector decentralization which discourages scale economies increases it

multiple equilibria and persistence in aggregate fluctuations this paper explores the impact of incomplete markets and strong complementarities on the time series properties of aggregate activity we consider an economy which consists of a large number of industries whose production functions both are nonconvex and exhibit localized technological complementarities the productivity of each industry at t is determined by the production decisions of technologically similar industries at t 1 no markets exist to coordinate production decisions this feature implies that aggregate output dynamics for the model are quite different from those predicted by the associated arrow debreu economy first multiple stochastic equilibria exist in aggregate activity these equilibria are distinguished by differences in the mean and the variance of output second output movements are persistent as aggregate productivity shocks indefinitely affect real activity by shifting the economy across equilibria as a result the model can exhibit periods of boom and depression this abstract was borrowed from another version of this item

tastes skills and local public goods abstract this paper analyzes optimal club configurations in an economy where different types of labor are complementary in the production of private goods extending the work of berglas journal of public economics 6 409 423 1976 the analysis shows that when labor types are nonessential in production a homogeneous club configuration may be optimal despite the presence of labor complementarity the assumption that inputs are essential precluded this outcome in berglas model it is shown that homogeneous clubs are optimal when complementarity is weak or when preferences are substantially different

competition between private and public schools vouchers and peer group effects a theoretical and computational model with tax financed tuition free public schools and competitive tuition financed private schools is developed students differ by ability and income achievement depends on own ability and on peers abilities equilibrium has a strict hierarchy of school qualities and two dimensional student sorting with stratification by ability and income in private schools high ability low income students receive tuition discounts while low ability high income students pay tuition premia tuition vouchers increase the relative size of the private sector and the extent of student sorting and benefit high ability students relative to low ability students

an exploration of the forward premium puzzle in currency markets a standard empirical finding is that expected changes in exchange rates and interest rate differentials across countries are negatively related implying that uncovered interest rate parity is violated in the data this article provides new empirical evidence that suggests that violations of uncovered interest rate parity and its economic implications depend on the sign of the interest rate differentially a framework related to term structure models is developed to account for the puzzling relationship between expected changes in exchange rates and interest rate differentials estimation results suggest that a particular term structure model can account for the puzzling empirical evidence article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

theoretical relations between risk premiums and conditional variances many statistical models of time varying risk premiums including the autoregressive conditional heteroscedasticity arch in mean attempt to exploit a relation between risk premiums and conditional variances or covariances of asset returns we examine this relation in numerical versions of a dynamic asset pricing theory and show that it can be increasing decreasing flat or nonmonotonic its shape depends on both the preferences of the representative agent and the stochastic structure of the economy without additional structure the theory does not provide either a general foundation for arch in mean specifications or a simple interpretation of their parameters

productivity gains from geographic concentration of human capital evidence from the cities abstract based on recent theoretical developments the argument is made that the average level of human capital is a local public good cities with higher average levels of human capital should therefore have higher wages and higher land rents after conditioning on the characteristics of individual workers and dwellings this prediction is supported by data for standard metropolitan statistical areas smsas in the united states where the smsa average levels of formal education and work experience are used as proxies for the average level of human capital the alternative explanations of omitted smsa variables and self selection are evaluated an estimate of the effect of an additional year of average education on total factor productivity is computed

game theoretic methods in general equilibrium analysis list of figures list of authors introduction j f mertens a the core and the bargaining set i general equilibrium and cooperative games basic results e allen s sorin ii core convergence in perfectly competitive economies r m anderson iii economies with atoms j f mertens iv bargaining sets r vohra b the value v the shapley value r j aumann vi value of games with a continuum of players a neyman vii the tu value the non differentiable case j f mertens addendum the shapley value of a perfectly competitive market may not exist f lefevre viii the harsanyi value s hart ix value equivalence theorems the tu and ntu cases s hart x economic applications of the shapley value r j aumann c the cooperative approach to large markets and games xi an axiomatic approach to the equivalence phenomenon p dubey a neyman xii large games and economies with effective small groups m h wooders d the non cooperative approach xiii strategic market games a survey of some results p dubey xiv from nash to walras equilibrium e allen h polemarchakis xv correlated and communication equilibria j f mertens xvi notes on correlated equilibrium and sunspot equilibrium j peck xvii implementation with plain conversation s sorin

modelling risk premia in international asset markets abstract the intertemporal capital asset pricing model icapm has been widely used as a vehicle to explain the predictability of excess returns in forward foreign exchange markets this approach ignores the heterogeneity in the assets actually traded in international asset markets in this paper it is shown that the latent variable risk premium model is not rejected by the data when tested on a portfolio including equity and bonds in four currencies however application of a more general test rejects parameter stability suggesting that the latent variable model is not as successful as the previous tests would imply

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

time varying risk premia volatility and technical trading rule profits evidence from foreign currency futures markets abstract this paper re examines the efficiency of foreign currency futures markets by evaluating the role of time varying risk premia and volatility in explaining technical trading rule profits the results show that large parts of the technical rule profits can be explained by the time varying risk premia estimated from a general model for the conditional capm the bootstrap distributions for the profits under the null model average one third to one half of the actual profits and enclose the actual profits well within the 90 confidence intervals time varying conditional volatility explains an additional 10 of the profits

tax competition and income redistribution an empirical analysis for switzerland tax competition is supposed to lead to thecollapse of the welfare state because first it willbecome difficult for a single jurisdiction to levy aredistribution tax upon the rich and mobile andsecond such a policy if undertaken in onejurisdiction will attract poor individuals from otherjurisdictions and erode internal redistributionpolicies in this paper the impact of personal incometaxes and transfers on residence decisions oftaxpayers is analyzed with swiss subfederal data therelationship of tax competition and the erosion of theswiss welfare state is tested with aggregate data onincome redistribution

political institutions and sorting in a tiebout model we construct a computational model of tiebout competition and show that political institutions differ in their ability to sort citizens effectively in particular we find that certain types of institutions those that become more politically unstable as citizen heterogeneity increases perform relatively poorly given a single jurisdiction yet these same institutions perform relatively well when there are multiple jurisdictions we provide an explanation for this phenomenon which draws upon simulated annealing a discrete nonlinear search algorithm jel

equivalence of games and markets the author proves an equivalence between large games with effective small groups of players and games generated by markets small groups are effective if all or almost all gains to collective activities can be achieved by groups bounded in size a market is an exchange economy where all participants have concave quasi linear payoff functions the market approximating a game is socially homogeneous all participants have the same monotonic nondecreasing and 1 homogeneous payoff function our results imply that any market more generally any economy with effective small groups can be approximated by a socially homogeneous market

behavioral conformity in games with many players in the literature of psychology and economics it is frequently observed that individuals tend to conform in their behavior to that of similar individuals a fundamental question is whether the outcome of such conformity can be consistent with self interest we propose that this consistency requires the existence of a nash or approximate nash equilibrium that induces a partition of the player set into relatively few societies each consisting of similar individuals playing similar strategies in this paper we characterize a family of games admitting the existence of such equilibrium we also introduce the concept of crowding types into our description of players and distinguish between the crowding type of a player those characteristics of a player that have direct effects on others and his tastes with assumptions of within crowding type anonymity and linearity of taste types we show that the number of societies can be uniformly bounded

cities and cultures we investigate whether cultural diversity across us cities measured as the variety of native languages spoken by city residents is associated with any effect on their productivity diversity of cultures may imply diversity of production skills of abilities and of occupations that enhances the productive performance of a city on the other hand transaction costs and frictions across groups may hurt productivity similarly diversity in available goods and services can increase utility but distaste for or hostility to different cultural groups may decrease it using census data from 1970 to 1990 we find that wages and employment density of us born workers were systematically higher ceteris paribus in cities with richer linguistic diversity these positive correlations reveal a net positive effect of diversity on productivity that survives robustness checks and instrumental variable estimation this effect is found to be stronger for highly educated workers and for white workers we also show that better assimilated non native speakers i e those who speak english well and have been in the us for more than five years are most beneficial to the productivity of us born workers

time varying betas and risk premia in the pricing of forward foreign exchange contracts abstract this paper specifies the single beta capital asset pricing model for the pricing of forward foreign exchange contracts from the point of view of a u s investor parametric specification of the betas as arch like processes explicitly allows for time variation as well as sign variation of the risk premium in the forward foreign exchange market i estimate the model jointly for four currencies using a generalized method of moments procedure the results show significant time variation for the betas and tests of the overidentifying restrictions are generally favorable to the model

the time variation of risk and return in the foreign exchange and stock markets this paper attempts to determine whether the fluctuations of conditional first and second moments which are observed for many assets are consistent with the sharpelintner mossin capital asset pricing model we test the mean variance model under several different assumptions about the time variation of conditional second moments of returns using weekly data from july 1974 to december 1986 that include returns on a portfolio composed of dollar deutsche mark sterling and swiss franc assets together with the u s stock market the results indicate that estimated conditional variances cannot explain the observed time variation of risk premia rates of return on international financial assets are characterized by statistical properties that are quite common to all financial markets they are highly volatile and largely unpredictable these properties make it very difficult to extract statistically reliable estimates of systematic exchange rate and assetprice movements and are at the root of the generally poor empirical performance of international asset pricing models nevertheless two important results have been uncovered by empirical researchers and can be considered a fair characterization of the data a expected returns on foreign assets vary over time cumby and obstfeld 1981 and the numerous articles that followed recently surveyed by frankel and meese 1987 b the volatility of returns of foreign assets also changes over time cumby and obstfeld 1984 hodrick and srivastava 1984 and hsieh 1988 among others as giovannini and jorion 1987 suggest the

voting with ballots and feet existence of equilibrium in a local public good economy abstract this paper proves a general existence theorem for equilibrium in a local public good economy with free mobility by extending greenberg and shitovitz s j econ theory46 1988 223 236 approach each jurisdiction s collective choice rule is the d majority voting rule proposed by greenberg econometrica47 1979 627 636 spillover effects of local public goods externalities due to the population distribution and snob effects are all allowed we need transitivity and completeness of preferences these assumptions are not used by greenberg and shitovitz because they do not permit consumers to move free mobility of consumers causes disconnections in consumption sets a problem addressed here journal of economic literatureclassification numbers c62 d72 h72 r13

why chains beget chains an ecological model of firm entry and exit and the evolution of market similarity abstract we construct and analyze a dynamic model of chain growth across multiple markets from an ecological perspective using computational and mathematical techniques our model consists of firms that possess intrinsic qualities and hedonic spatial attributes consumers purchase from firms based upon quality and hedonic distance we find that the existence of chains creates an environment favorable to additional chains in other words chains beget chains we also find that even though creating successful new firms becomes harder over time chaining successful new firms becomes easier both phenomena result from the creation of common niches across markets

tests of international capm with time varying covariances we perform maximum likelihood estimation of a model of international asset pricing based on capm we test the restrictions imposed by capm against a more general asset pricing model the betas in our capm vary over time as the supplies of assets change and as the conditional covariances or returns on those assets change we let the covariances change over time as a function of macroeconomic data and an alternative model allows the covariances to follow a multivariate arch process we also can identify a modified capm model with measurement error we find that the estimated capm performs much better when variances are not constant over time nonetheless capm is rejected in favour of the lessrestricted model of asset pricing

who wins the olympic games economic resources and medal totals this paper examines determinants of olympic success at the country level does the united states win its fair share of olympic medals why does china win only 6 of the medals even though it has one fifth of the world s population we consider the role of population and economic resources in determining medal totals from 1960 to 1996 at the margin population and income per capita have similar effects suggesting that both a large population and high per capita gdp are needed to generate high medal totals we also provide out of sample predictions for the 2000 olympics in sydney

on the complexities of complex economic dynamics complex economic nonlinear dynamics endogenously do not converge to a point a limit cycle or an explosion their study developed out of earlier studies of cybernetic catastrophic and chaotic systems complexity analysis stresses interactions among dispersed agents without a global controller tangled hierarchies adaptive learning evolution and novelty and out of equilibrium dynamics complexity methods include interacting particle systems self organized criticality and evolutionary game theory to simulate artificial stock markets and other phenomena theoretically bounded rationality replaces rational expectations complexity theory influences empirical methods and restructures policy debates

evidence of risk premiums in foreign currency futures markets benchmark portfolios for con sumption and wealth when the parameters rep resenting the prices of the covariance risks areheld constant no risk premiums are detected however when these prices are allowed to varywith the conditional expected returns and vari ances of the benchmark portfolios possibly reflect ing changing investment opportunities strong evi dence of risk premiums is obtained recent examinations of foreign currency futures datahave tested the hypothesis that today s futures priceis an unbiased predictor of tomorrow s price againstan unspecified alternative hypothesis the accumu lated evidence against the unbiasedness hypothesishas not been accompanied by evidence consistentwith a particular equilibrium risk premium model

the effects of coworker heterogeneity on firm level output assessing the impacts of cultural and language diversity in the national hockey league this paper uses data from the national hockey league nhl to consider the potential gains to firms from employing culturally diverse work teams it finds that the presence of foreign workers does increase firm level performance nhl teams that employed a higher proportion of european players performed better however the results also indicate that teams perform better when their european players come from the same country rather than being spread across many european countries when teams have players from a wide array of european countries integration costs associated with language and cultural differences may start to over ride any gains from diversity

macroeconomic sources of foreign exchange risk in new eu members abstract we address the issue of foreign exchange risk and its macroeconomic determinants in several new eu members we derive the observable macroeconomic factors consumption and inflation using the stochastic discount factor sdf approach the joint distribution of excess returns in the foreign exchange market and the factors are modeled using a multivariate garch in mean specification our findings show that both real and nominal factors play important roles in explaining the variability of the foreign exchange risk premium both types of factors should be included in monetary general equilibrium models employed to study excess returns to contribute to the further stability of domestic currencies the new eu members should strive to implement stabilization policies aimed at achieving nominal as well as real convergence with the core eu members

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

economic and mechanical models of intergenerational transmission the author critically examines gary beckers attempt to integrate the theory of income distribution intragenerational differences with the theory of mobility intergenerational differences in an economic model of the family he assesses beckers claims of distinctiveness integration explanatory power and surprise and arrives at a rather skeptical view of the contribution that the core of microeconomics has made to this study of the family a reply by becker is included pp 514 8 excerpt

the importance of organizational structure for the adoption of innovations organizational structure affects both the overall behavior of firms and the situations of individuals and subunits within firms the effect of exogenous changes in the environment market prices costs or regulations on organizations can be partitioned into the immediate direct effect of the change and the full effect after organizational structure has had time to adjust this paper develops a computational model of the diffusion of a profitable innovation through a firm and uses numerical simulations to calculate the relative importance of the direct and structural adjustment components of changes in profitability one finding is that a failure to recognize the importance of organizational structure on the performance of firms will lead to serious bias in estimation of the costs or benefits of a change in external circumstances the type of network model developed also has implications for the individuals and divisions that make up the firm we examine some of the structural characteristics of well adapted organizations and show that asymmetries and economic inequalities emerge even when the individual agents personal characteristics are identical

a classroom exercise voting by ballots and feet this classroom experiment illustrates the efficiency enhancing property of a tiebout system in which local public goods decisions are determined by a political process students are given playing cards that induce diverse preferences for expenditures on alternative public goods and are initially assigned to specific communities then those in each community vote on the type and level of public goods provision which determine the tax cost after the provision and tax results are announced students are free to move to a location where the prior results are more consistent with their preferences this process continues for several rounds with a new vote taken at each location after moves have been made the exercise demonstrates that the combination of voting with feet and ballots tends to increase the total net benefit for all communities the voting on provision levels is structured to facilitate a discussion of the median voter theorem

sorting by foot travel for local public goods and equilibrium stratification we re examine tiebout s hypothesis of endogenous sorting in a competitive spatial equilibrium framework by considering both income and preference heterogeneity and by allowing agents to decide endogenously the number of visits to a travel for local public good the equilibrium configuration may be completely segregated incompletely segregated or completely integrated depending on relative market rents and income preference local tax parameters a segregated equilibrium may feature endogenous sorting purely by income or by both income and preferences while the rich need not be closer to the local public facility site multiple equilibria may arise when the equilibrium configuration is incompletely segregated jel classification d50 h41 classification par deplacement biens publics locaux accessibles par deplacement et stratification d equilibre les auteurs reexaminent l hypothese de tiebout de classification endogene dans un cadre d equilibre spatial concurrentiel en tenant compte a la fois de l heterogeneite des revenus et des preferences ainsi qu en permettant aux agents de decider de maniere endogene du nombre de visites pour se procurer un bien public local par deplacement il peut s ensuivre des equilibres de segregation complete de segregation incomplete ou d integration complete selon les rentes relatives et les parametres de revenus de preferences ou de fiscalite locale un equilibre de segregation peut entrainer une classification endogene sur la base seulement des revenus ou sur la base des revenus et des preferences alors que les riches n ont pas besoin d etre plus proches du site du bien public local des equilibres multiples peuvent surgir quand la configuration d equilibre en est une de segregation incomplete

landscape formation in a spatial voting model in spatial models of political competition parties select multidimensional platforms with the objective of garnering votes if parties have limited information and are constrained to move locally i e if they are adaptive then the slope of the multidimensional landscape on which they choose positions becomes important in this paper we formally derive a relationship between voters preferences and the slope of the electronal landscape

ethnic capital and intergenerational mobility this paper analyzes the extent to which ethnic skill differentials are transmitted across generations i assume that ethnicity acts as an externality in the human capital accumulation process the skills of the next generation depend on parental inputs and on the quality of the ethnic environment in which parents make their investments or ethnic capital the empirical evidence reveals that the skills of today s generation depend not only on the skills of their parents but also on the average skills of the ethnic group in the parent s generation

interest rate risk and the forward premium anomaly in foreign exchange markets this paper shows that even adjusted for the time varying risk premiums implied by the yield curves across countries uncovered interest parity is still strongly rejected by the data moreover factors that predict the excess bond returns are found not significant at all in predicting the foreign exchange returns these results reject the joint restrictions on the exchange rate and interest rates imposed by dynamic term structure models suggesting that foreign exchange markets and bond markets may not be fully integrated and we have to look beyond interest rate risk in order to understand the exchange rate anomaly

endogenous games and equilibrium adoption of social norms and ethical constraints abstract we consider a situation in which games are formed endogenously in two senses 1 there is a pregame in which agents choose to learn a subset of all feasible strategies and can then employ only these strategies in subsequent play and 2 agents choose their game partners through a costly search process we show that at any subgame perfect equilibrium agents will constrain their action sets in the pregame in such a way that a single social norm prevails thus all agents in a society will abide by the same ethical standard although what standard this will be cannot be predicted we also show that these are essentially the only spe outcomes we suggest that this provides at least a partial explanation for experimental observations that agents apparently choose strategies that do not maximize their payoffs

efficient equilibrium convergence heterogeneity and growth abstract an endogenous growth model arising from task specialization is used to examine the effects of differing initial human capital distributions two macroeconomic phenomena are produced income convergence and leapfrogging of living standards income convergence occurs for all countries in the same market arising from diminishing returns to individual human capital leapfrogging occurs by comparing countries in two separate markets income leapfrogging can occur because the stationary growth rate increases with market size and human capital heterogeneity reduces growth the introduction of coordination costs of task assignment can produce gains in welfare and growth from human capital heterogeneity

equilibrium and inefficiency in a community model with peer group effects public service output depends on input expenditures on own personal characteristics and on the characteristics of the other residents in the community the peer group effect in a community model with public expenditures set by voting with migration between communities and with land price differentials capitalization it is shown that communities may become heterogeneous in composition and second best inefficient this equilibrium occurs when the peer group effect is neither too strong nor too weak the inefficiency arises because an externality is created by migration the land price differential does not play the part of the price of the better peer group but of a transfer payment

american federalism welfare policy and residential choices the relationship between welfare benefit levels and the residential choices of the poor raises two issues for federalism in the united states do state benefit levels affect the residential choices of the poor do residential choices of the poor affect the level at which a state sets its benefit levels empirical studies have seldom studied the interconnection between these two issues this research estimates simultaneously the mutual effects of welfare benefits and poverty rates while controlling for other economic and political variables when benefit levels become high the size of the poverty population increases conversely when poverty rates become high benefit levels are cut the findings are consistent with the claim that state determined benefit levels distort policy and residential choices

a critique of tiebout s theory of local public expenditures the last section of this paper presents a rigorous version of tiebout s theory of local public goods it is shown that equilibria exist and are pareto optimal this rigorous theory follows closely the more rigorous part of tiebout s work this rigorous theory makes a number of very special assumptions which make local public goods essentially private the body of this paper presents a series of examples which show that if one tries to generalize the rigorous version of tiebout s theory in a number of interesting directions then equilibria may no longer exist or may not be pareto optimal the conclusion is that tiebout s idea does not lead to a satisfactory general theory of local public goods the goal of this paper is to point out that tiebout s notion of equilibrium with local governments does not have the nice properties of general competitive equilibrium except under very restrictive assumptions tiebout 39 suggested that there are competitive forces which tend to make local governments allocate resources in a pareto optimal fashion consumers choose to live in those towns with the mix of taxes and public goods they prefer local governments choose this mix so as to attract inhabitants this idea may seem intriguing for it suggests that the invisible hand solves an important part of samuelson s perplexing public goods problem 32 tiebout in fact makes an argument which is nearly rigorous i give a rigorous version of his argument at the end of the paper however in this rigorous version so many restrictive assumptions are made that public goods become essentially private in the body of the paper i give a series of examples with which i try to convince the reader that one is forced to adopt tiebout s restrictive assumptions the idea is that if one changes any of his assumptions then either equilibria may not exist or may not be pareto optimal my examples are presented in the context of a general class of tiebout models i consider several subclasses one of which is the special case considered by tiebout in each of the subclasses except that considered by tiebout i give a counterexample either to the existence of equilibrium or to its pareto optimality the subclasses are so chosen that the difficulties they reveal would be shared by any reasonable tiebout model which differed from his special case i believe that my examples controvert tiebout s suggestion 39 last paragraph that his theory compares favorably with competitive equilibrium theory most of the examples in this paper have already appeared in the literature i cite related work as i go along what is new here is that i assemble the examples in a unified argument

assessing the importance of tiebout sorting local heterogeneity from 1850 to 1990 this paper argues that long run trends in geographic segregation are inconsistent with models where residential choice depends solely on local public goods the tiebout hypothesis we develop an extension of the tiebout model that predicts as mobility costs fall the heterogeneity across communities of individual public good preferences and of public good provision must weakly increase given the secular decline in mobility costs these predictions can be evaluated using historical data we find decreasing heterogeneity in policies and proxies for preferences across i a sample of u s municipalities 1870 1990 ii all boston area municipalities 1870 1990 and iii all u s counties 1850 1990

what explains the risk premium in foreign exchange returns abstract we decompose excess returns to holding foreign exchange into components associated with deviations from real interest rate parity and purchasing power parity respectively we find that deviations from purchasing power parity account for over 80 percent of the predictable variation in excess returns to holding foreign exchange in the period 1974 1989 and that deviations from real interest rate parity play a relatively minor role jel f31 g12 g15

globalisation and the market for team mates the globalisation of firms is explored at theoretical and empirical levels the idea is that a global firm is a multi cultural team the existence of a global firm is somewhat puzzling combining workers who have different cultures legal systems and languages imposes costs on the firm that would not be present were all workers to conform to one standard in order to offset the costs of cross cultural dealing there must be complementarities between the workers that are sufficiently important to overcome the costs the search for the best practice is analysed and empirical support from an examination of trading patterns is provided

recent estimates of time variation in the conditional variance and in the exchange risk premium abstract the optimal diversification model of investors portfolio behavior can give a linear relationship between the exchange risk premium and the conditional exchange rate variance this note surveys recent empirical work that allows the conditional variance itself and therefore the risk premium to vary over time in particular it examines the implications of recent empirical estimates for earlier arguments based on the assumption that the conditional variance was constant over time that the exchange risk premium had to be small in magnitude and variability

team effects on compensation an application to salary determination in the national hockey league leo h kahane studies of salary determination largely model pay as a function of the attributes of the individual and the workplace i e employer size job characteristics and so forth this article empirically investigates an additional factor that may influence individual pay specifically coworker productivity data from professional sports are used to evaluate this question because both salary and teammate performance measures are readily available we find that team attributes have both direct effects on an individual s pay and indirect effects through altering the rates at which individual player productive characteristics are valued jel j31 l83 i introduction when complementary exists between labor inputs individual productivity may be poorly measured by treating the individual worker separately from the character of the organization or team within which he works namely individual productivity may vary when working in different settings to the extent that coworkers offer different degrees of assistance 1 if such complementary between human capital inputs is present say a team dynamic it suggests the possible existence of both team and individual effects on productivity and hence compensation empirical analysis of team effects has been hindered by the lack of data on individuals and their coworkers including managers one source though that contains much of this requisite information is data on professional sports teams in this article we exploit this unique attribute of professional sports data in order to empirically assess the effect of complementarities between labor inputs on individual compensation specifically we use a team sport setting to situate the worker in an organizational environment where we can observe the impact of coworkers on individual productivity thereby allowing us to examine the separate effects of individual and team productivity on salary determination the general question asked is whether individual attributes are valued or rewarded differently in different work environments or in our specific case on different teams this study will investigate these questions by empirically assessing the effects of coworker productivity that is the effects of the qual ity productivity of teammates on individual compensation although a number of different highly team oriented sports would serve our purpose such as basketball this particular study uses data from professional hockey to investigate team effects on compensation 2 the remainder of the article is organized as follows section ii outlines the empirical framework used to analyze the posited team effects and discusses some of the theoretical issues relating to team effects on compensation section iii describes the data used in the analysis section iv reports the empirical results and section v reports our conclusions and directions for further work ii team and coworker effects as noted above the goal of this study is to evaluate empirically whether average coworker attributes 1 affect individual salaries 2 affect the rate at which individual attributes are valued by the firm and 3 are complementary inputs to the attributes of individual team members the question arises though as to why we might expect on theoretical grounds that individual players would earn any part of the team s contribution the classic model of alchian and demsetz 1972 suggests that the capitalist manager will reap the returns from any incremental team output as the primary function of the manager is to discover complementarities between inputs and enhance organizational output by optimally combining resources and to monitor effort so as to reduce shirking as a result the manager will capture all of the returns that are not specific to the inputs in which case we would not expect to observe team effects on individual compensation yet although a manager acting as the residual claimant is one solution to the problem of reducing shirking in the context of complementary inputs whose effort is difficult to monitor other models suggest that it may be desirable to compensate team members based on the value of team output in order to provide optimal incentives for effort for example see akerlof 1982

should a team be homogeneous abstract should an organization hire people with similar backgrounds or with different backgrounds we formulate this question within the framework of team theory the team is formed by n agents the type of each agent is endogenous and determines his information structure and his cost for the team we show that the sign of complementarity between jobs determines workforce homogeneity with positive complementarities the team should be composed of agents of the same type while with negative complementarities workforce heterogeneity is optimal these results do not rely on the restrictions on the way uncertainty is modeled or on the feasible set of agent types they can be explained in terms of correlation between errors committed by different agents

the allocation of publicly provided goods to rural households in india on some consequences of caste religion and democracy abstract what determines the allocation of publicly provided goods to rural households in india although empirically driven this paper draws on the characteristics of india s institutional structure and the implications of existing literature for framing the answer to this question we confront the main empirical implications drawn from this framework with a unique data set which brings together widely used district data with a recently constructed data set on political participation we identify three robust determinants of this allocation process formal and informal characteristics of each state allocation mechanism selectivity in the allocations against muslims and scheduled castes and bureaucratic rules and behavior

risk premia carry trade dynamics and economic value of currency speculation in this paper we derive the dynamics and assess the economic value of currency speculation by formalizing the concept of a trader inaction range we show that exchange rate returns comprise a time varying risk premium and that uncovered interest parity uip holds in a speculative sense the often cited forward bias puzzle originates from the omission of the risk premium in standard uip tests consistent with its popularity among market professionals the carry trade strategy can be rationalized as it systematically collects risk premia and generates economic value when applied in multi currency portfolios

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

tiebout economies with differential genetic types and endogenously chosen crowding characteristics abstract we consider a tiebout economy with differential crowding and public projects in which agents are distinguished by their tastes and genetic endowments agents choose which crowding characteristic for example a skill they wish to express and this affects their value to other members of their jurisdiction club firm etc an agent s choice is influenced both by his genetic endowment which affects his cost of acquiring crowding characteristics and by his preferences over which crowding characteristic he expresses we show that if small groups are strictly effective the core is equivalent to the set of anonymous competitive equilibrium outcomes but that the core generally contains taste homogeneous jurisdictions journal of economic literature classification numbers h41 h72

local government inefficiency and the tiebout hypothesis does competition among municipalities limit local government inefficiency the tiebout hypothesis has in the past thirty years come to refer to a number of different propositions about local public service provision first there is the point initially stressed by tiebout 15 that the mobility of consumer voters results in a market type of solution to public service provision in which people s demands for public services are revealed as they sort themselves among localities according to their tastes for public services second also discussed by tiebout is the proposition that local public services will tend toward efficient provision finally there is the claim that the mobility of consumers and the competition among the localities for these consumers make politics relatively unimportant in determining local public service provision the bulk of the empirical work on the tiebout hypothesis has attempted to determine if as tiebout suggested local public services are efficiently provided the most common approach has been to estimate the effects of public service provision and tax policy on property values and determine if a balanced budget change in the tax rate changes property values if not then property values are being maximized with respect to public services and public services therefore are efficiently provided studies using this technique include those by oates brueckner and sonstelie and portney 11 1 2 13 these empirical studies while providing evidence about whether or not public services are provided efficiently do not suggest the reasons why local public services are or are not efficiently provided are the limits on inefficiency in the local public sector attributable to local politics or are they the result of the constraints imposed on local governments because of the mobility of residents and capital evidence that local public services are efficiently provided cannot be considered support for the contention that the mobility of people and capital are the factors responsible for this efficiency romer and rosenthal 12 for example provides evidence from

equivalence of the core and competitive equilibrium in a tiebout economy with crowding types abstract we propose a new model of a local public goods economy with differentiated crowding the new feature is that taste and crowding characteristics of agents are distinguished from one another we prove that if the economy satisfies strict small group effectiveness then the core is equivalent to the set of tiebout equilibrium outcomes equilibrium prices are defined to depend solely on crowding characteristics this implies that only publicly observable information and not private information such as preferences is needed to induce agents to sort themselves into efficient jurisdictions thus our model allows us to satisfy bewley s 6 anonymity requirement on taxes in his well known criticism of the tiebout hypothesis

heterogeneity stratification and growth macroeconomic implications of community structure and school finance this paper examines how socioeconomic stratification and alternative systems of education finance affect inequality and growth agents interact through local public goods or externalities school funding neighborhood effects and economywide linkages complementary skills knowledge spillovers sorting families into homogeneous communities often minimizes the costs of existing heterogeneity but mixing reduces heterogeneity faster integration therefore tends to slow down growth in the short run yet raise it in the long run a move to state funding of education presents society with a similar intertemporal trade off local and global complementarities play major roles in determining the efficient social and educational structures copyright 1996 by american economic association