sequential formation of coalitions in games with externalities and fixed payoff division this paper analyzes a sequential game of coalition formation when the division of the coalitional surplus is fixed and the payoffs are defined relative to the whole coalition structure gains from cooperation are represented by a valuation which maps coalition structures into payoff vectors i show that any core stable coalition structure can be attained as a stationary perfect equilibrium of the game if stationary perfect equilibria may fail to exist in general games a simple condition is provided under which they exist in symmetric games furthermore symmetric stationary perfect equilibria of symmetric games generate a coalition structure which is generically unique up to a permutation of the players a general method for the characterization of equilibria in symmetric games is proposed and applied to the formation of cartels in oligopolies and coalitions in symmetric majority games journal of economic literatureclassification numbers c78 c71 1996 academic press inc

is a uniform social policy better fiscal federalism and factor mobility this paper develops a two country model to study two questions how do the degrees of centralization of redistribution and of factor mobility affect the productive efficiency of the economies what degrees of centralization of redistribution and of factor mobility are likely to be chosen by majority rule the model shows that a system of centralized redistribution can lead to less efficient outcomes if labor or capital are not mobile and an inefficient outcome with incomplete or no factor mobility receives a majority of votes in both countries whenever the structure of labor markets is very different in the two countries

reassessment of the tiebout model abstract the tiebout model has been the reference point for the classical approach to fiscal federalism its emphasis on mobility benefit taxation and the advantages of fiscal competition have informed fiscal federalism since the seminal contributions of musgrave and oates this paper reviews the influence that the tiebout model has had on fiscal federalism and argues that while its insights remain relevant for local government it is far from compelling as a positive description of or a normative prescription for fiscal federalism at the state level some aspects of alternative approaches are presented which lead to different perspectives than tiebout inspired ones

the analytics of the pricing of higher education and other services in which the customers are inputs many services provide outputs that depend partially on the customers as inputs the presence of other customers often contributes to the output experienced by each purchaser higher education is the premier example others are legion we provide a simple model that addresses the questions of competitive pricing and allocative efficiency for these types of services prices that charge customers for what they get on net output minus input from the firm both are competitive and support efficient allocations these prices internalize the apparent external effects of customers on each other few examples of such prices exist in the real world

explaining regional autonomy differences in decentralized countries why do groups want to secede and where is demand for self determination most likely to arise we argue self determination demand is moderated by the projected economic costs of policy autonomy the trade off between income and sovereignty implies that other things being equal richer regions are more likely to demand more autonomy this trade off suggests that relative regional income is a key predictor of autonomy demands we show evidence of this using new data collected at the level of second tier administrative sub divisions in 48 decentralized countries consistent with a demand and supply model of self determination we find that levels of policy autonomy are positively correlated with relative regional income regional population share natural resource endowment and regional inter personal inequality ethnically distinct regions have lower sovereignty which could explain higher levels of conflict in these regions but this association is conditional on controlling for the interactive effects be

optimal international hedging in commodity and currency forward markets abstract this paper derives optimal hedging and production rules for an exporting firm which faces both commodity price and foreign exchange rate uncertainty the size of the commodity hedge is independent of the properties of the foreign exchange market however the optimal foreign exchange hedge depends on the commodity hedge and the properties of the commodity forward market the firm s production decision is independent of its objective function if both forward markets exist but depends on the consumption beta of the unhedgeable risks in the absence of one or both of the markets

on enhanced cooperation abstract we analyze the issues relative to the formation of sub unions in a federation called enhanced cooperation agreements in the european union when centralization is not politically feasible an agreement among a subset of countries may allow such countries to exploit benefits from coordination that would otherwise be lost other countries in the federation may object to the sub union because it changes the status quo if cooperation at the federal level becomes convenient in the future the change in the status quo may adversely affect the countries which remained initially outside the sub union we show that as long as the countries can commit to coordinate on a policy which takes into account the utility of the excluded countries sub union formation may be optimal the relative advantage of a sub union towards immediate centralization increases when transfers are costly on the other hand if commitment is not possible then the excluded countries may be penalized we use the results to discuss the newly introduced rules for enhanced cooperation agreements in the european union

a theory of political transitions we develop a theory of political transitions inspired by the experiences of western europe and latin america nondemocratic societies are controlled by a rich elite the initially disenfranchised poor can contest power by threatening revolution especially when the opportunity cost is low for example during recessions the threat of revolution may force the elite to democratize democracy may not consolidate because it is redistributive and so gives the elite an incentive to mount a coup highly unequal societies are less likely to consolidate democracy and may end up oscillating between regimes and suffer substantial fiscal volatility

cross hedging with currency options and futures this paper develops an expected utility model of a multinational firm facing exchange rate risk exposure to a foreign currency cash flow currency derivative markets do not exist between the domestic and foreign currencies there are however currency futures and options markets between the domestic currency and a third currency to which the firm has access since a triangular parity condition holds among these three currencies the available yet incomplete currency futures and options markets still provide a useful avenue for the firm to indirectly hedge against its foreign exchange risk exposure this paper offers analytical insights into the optimal cross hedging strategies of the firm in particular the results show the optimality of using options in conjunction with futures in the case of currency mismatching even though cash flows appear to be linear

multiplicative background risk although there has been much attention in recent years on the effects of additive background risks the same is not true for its multiplicative counterpart we consider random wealth of the multiplicative form xy where x and y are statistically independent random variables we assume that x is endogenous to the economic agent but that y is an exogenous and nontradable background risk that represents a type of market incompleteness our main focus is on how the presence of the multiplicative background risk y affects risk taking behavior for decisions on the choice of x we extend the results of gollier and pratt 1996 to characterize conditions on preferences that lead to more cautious behavior

local public goods risk sharing and private information in federal systems abstract we examine the implications of information asymmetries for the optimal design of interregional insurance schemes and the allocation of local public goods we have good and bad news the good news is that the presence of informational asymmetries is not in itself sufficient to deny federations the attainment of either efficiency or egalitarian goals the bad news is that not only the first best may not be incentive compatible but also the incentive compatible optimum may violate participation constraints federations may have to content themselves with fourth best allocations as a result of strategic manipulation of information by privately informed jurisdictions

how firms should hedge substantial academic research explains why firms should hedge but little work has addressed how firms should hedge we assume that firms can experience costly states of nature and derive optimal hedging strategies using vanilla derivatives e g forwards and options and custom exotic derivative contracts for a value maximizing firm facing both hedgable price and unhedgable quantity risks customized exotic derivatives are typically better than vanilla contracts when correlations between prices and quantities are large in magnitude and when quantity risks are substantially greater than price risks finally we discuss how our model may be applied in practice copyright 2002 oxford university press

transition costs in secessions with a brief application to scotland this article demonstrates that the costs incurred in the process of a region becoming a sovereign state can be large enough to outweigh the long term material benefits of independence transition costs consist of transaction costs fiscal costs and the cost of uncertainty their size depends crucially on whether the politics of the transition are cooperative game theory however shows that there are incentives for threats of non cooperation and for the exercise of such threats these considerations are applied briefly to the debate about scottish independence this includes a short analysis of how transition costs can be reduced a final section inquires about possible transition benefits which can consist of solidarity

optimal regional redistribution under asymmetric information this paper studies optimal redistribution among two different regions in a federal state regional governments supply local public goods financed with distorting local taxes they have better information on their tax bases than the federal government we model this both as an adverse selection problem on the size of local tax bases and or as moral hazard problem on local tax enforcement moral hazard alone does not affect the first best redistribution rule which is a lump sum transfer from the rich to the poor region in all other cases the optimal transfer rule involves a lump sum tax on the rich regions and a premium for fiscal effort by the poor regions with the transfer falling short of the first best level in the equilibrium with moral hazard and adverse selection tax evasion occurs only in the poor region even though the possibility of lax tax enforcement benefits the rich and harms the poor region because it reduces equilibrium redistribution this abstract was borrowed from another version of this item

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

cross hedging under multiplicative basis risk cross hedging price risk in an incomplete financial market creates basis risk we propose a new way of modeling basis risk where price risk and basis risk are combined in a multiplicative way under this specification positive prudence is a necessary and sufficient condition for underhedging in an unbiased market using the example of cross hedging jet fuel price risk with crude oil futures we show that the new specification is superior in describing the price series and that optimal cross hedges differ significantly from those derived under the traditional additive cross hedging model

currency hedging with options and futures abstract this paper examines the optimal hedging decision of a competitive exporting firm which faces concurrently hedgeable exchange rate risk and non hedgeable price risk we show that the hedging role of currency options is due to two distinct sources of non linearity i the multiplicative nature of the price and exchange rate risk and ii the marginal utility function of the firm in particular we show that a long put option position is optimal when the price risk is negatively correlated with the exchange rate risk and or the firm is prudent

institutions of higher education as multi product firms economies of scale and scope a multiple output cost function is estimated for institutions of higher education in the united states employing data for 1981 82 the authors flexible fixed cost quadratic function includes three outputs undergraduate teaching graduate teaching and research grants and one input price average faculty salaries results indicate the existence of scope economies at least up to a point for both public and private institutions of higher education ray economies of scale are more pronounced in the private sector and product specific economies of scale are observed only in the public sector for research and graduate teaching copyright 1989 by mit press

optimal secession rules abstract should the constitution of a federation allow for peaceful secession constitutionally defined secession rules are optimal ex post if the federation breaks down however they may be suboptimal ex ante if the member countries receive a benefit from the perceived long term stability of the federation and constitutionally defined secession rules increase the probability of a break up the optimal social contract trades off ex ante benefits and ex post losses and it may avoid explicit secession rules if transfers are costly the trade off is present even if ex post renegotiation is allowed finally we show that under asymmetric information it is more difficult to keep the federation together and that a secession war may occur

economic theories of the break up and integration of nations abstract this paper surveys the recent political economy literature on the size distribution of nations the main themes of this literature are 1 a the spread of democracy leads to the creation of too many sovereign states 2 b the extent of factor mobility plays a key role in determining the incentives towards separation or integration 3 c economic integration through the development of international trade may require greater political integration to create and effectively maintain a level playing field in international trade at the same time economic integration by reducing the economic costs of separation increases the incentives towards political separation

secessionism and minority protection in an uncertain world abstract with the changing political and economic circumstances confronting their countries regionally concentrated minorities have been facing a strategic problem important aspects of which can be stylized as a situation in which a minority leader is uncertain about the costs of secession for her community this paper shows that this uncertainty is a central cause of secession using a model which incorporates both policies to appease secessionist aspirations and informational asymmetries in a situation of asymmetric information in which the policy maker is better informed about the consequences of separation than the minority leader signaling incentives make secession the unique equilibrium outcome whether mutually advantageous compromises exist or not we also show that the ruling majority may seek to maintain political unity by pre committing to minority protection rules which prevent bluffing by the informed policy maker additionally the model generates comparative statics results on the question of which states are most likely to adopt constitutional rules protecting the minorities living within their borders

market structure in the production of economics ph d s a century ago economics began to develop as a separate and significant part of the curriculum in american colleges and universities along with increased popularity and enrollment came the need for faculty specifically trained in economics a number of american scholars turned to europe germany in particular for their training and brought the german ph d back as a model for graduate education the first economics ph d s earned in this country were awarded by harvard 1875 yale 1877 and johns hopkins 1878 1 these first ph d s were two year degrees by 1900 economists had generally upgraded the ph d to three years beyond the baccalaureate degree consisting of two years of course work and another year for the dissertation graduate classes were taught in seminar format with considerable interaction between professors and students as the production process matured dissertations became longer more sophisticated and more specialized i e they were no longer the mark of a cultured gentleman but the demonstration of a professional skill 15 11 the newly formed american economic association began to keep track of doctoral candidates in economics in 1904 6 in 1904 there were 8 institutions which reported having men working on ph d s and by 1928 that number had increased to 27 2 while the american economic association did not tabulate the output of completed ph d s the national research council has compiled a database containing the number of ph d s by institution by year since 1920 their survey of earned doctorates indicates that 22 ph d s were awarded in economics by 6 different universities in 1920 by 1992 that number had grown to 910 ph d s from 123 different institutions

the breakup of nations a political economy analysis this paper develops a model of the breakup or unification of nations in each nation the decision to separate is taken by majority voting a basic trade off between the efficiency gains of unification and the costs in terms of loss of control on political decisions is highlighted the model emphasizes political conflicts over redistribution policies the main results of the paper are i when income distributions vary across regions and the efficiency gains from unification are small separation occurs in equilibrium and ii when all factors of production are perfectly mobile all incentives for separation disappear i introduction following the demise of communism the entire map of europe from the atlantic coast to the urals is being redrawn and issues of separation unification and the redrawing of borders are yet again at the forefront of european concerns many of the issues raised by this process are primarily of a political cultural or linguistic nature however there are also economic considerations that bear on this problem the objective of this paper is to analyze some important economic and political determinants of the process of unification and separation of democratic nations the starting point of our analysis is to suppose that from an economic efficiency point of view separation of nations is never desirable a unified nation is always more efficient since free trade among regions is guaranteed duplication costs in defense and law enforcement are avoided and local public goods provision such as transportation and communication networks or common standards can be coordinated furthermore any benefits of decentralization that might be obtained in a world with several nations may also be achieved within a unified nation by replicating the administrative structure of the world with several

federal fiscal constitutions risk sharing and redistribution the paper studies the political and economic determinants of regional public transfers specifically it focuses on how such transfers are shaped by alternative fiscal constitutions where a constitution is an allocation of fiscal instruments across different levels of governments plus a procedure for the collective choice of these instruments realistic restrictions on fiscal instruments introduce a tradeoff between risk sharing and redistribution different constitutions produce very different results in particular a federal social insurance scheme chosen by voting provides overinsurance whereas an intergovernmental transfer scheme chosen by bargaining provides underinsurance

coordination in heterogeneous federal systems abstract we compare centralized and decentralized policy making in a federation in which policy heterogeneity is inherently costly and preferences vary across jurisdictions all jurisdictions agree that some harmonization is desirable but no one agrees on the direction of harmonization this type of collective choice problem arises when members of a federal system have to coordinate nonbudgetary policies such as laws regulations standards or diplomatic policies contrary to the common wisdom decentralization becomes optimal when coordination becomes very important when coordination costs are symmetric decentralization dominates centralization irrespective of the magnitude of externalities and the heterogeneity of preferences in the case of discontinuous network effects standardization never pareto dominates decentralization

the awarding of phds in the united states and canada war the draft and other economic determinants this article is concerned with the awarding of phds in the usa and canada in the post ww ii period overall by gender and major academic discipline the effects of the explanatory variables lagged by 6 years to allow for time to degree completion are consistent with the model military conscription with educational exemptions and the vietnam war increased male phds in the usa but as expected had no effect for us females or in canada this suggests that the war and draft effect for us males were not reflecting other unmeasured north american effects government expenditures on research and development enhanced the phd production especially for males and in the physical sciences the cyclical indicator the adult male unemployment rate has a weak positive effect for males in both the usa and canada suggesting that during the post ww ii period the positive effect on graduate level education of the reduced opportunity cost of time due to a recession was stronger than the negative wealth effect of th

flexible integration mandatory and minimum participation rules should a subset of the eu members be allowed to form inner clubs and enhance cooperation or should integration proceed at the same speed for all while flexible cooperation allows members to participate if and only if they benefit it also generates a free rider problem if potential members choose to opt out the analysis shows that flexible cooperation is better only if the heterogeneity is large and the externality small but rigid cooperation will be the political equilibrium too often flexibility and rigidity can be combined by i mandatory participation rules where participation is voluntary unless a super majority requires everyone to participate and ii minimum participation rules where inner clubs must be sufficiently large the combination of mandatory and minimum participation rules may implement the best possible mechanism

secession and value abstract a model with random proposals where secession of coalitions is the only threat yields exploitative allocations if proposals for coalition s involve randomization the responders pay off vector consists of shapley values for coalition sizes ranging from 1 to s 1

the dynamics of political compromise we characterize efficient self enforcing divisions of political or economic surplus between two parties that interact repeatedly the party in power can decide the allocation and the parties political strength changes according to a markov process we find that the share of the party currently in power depends not only on its current strength but also on whether it had previously been even stronger since it last came to power we find that the constitutional supermajority requirements that attempt to constrain the use of power can counterproductively create less compromise

some recent developments in futures hedging the use of futures contracts as a hedging instrument has been the focus of much research at the theoretical level an optimal hedge strategy is traditionally based on the expected utility maximization paradigm a simplification of this paradigm leads to the minimum variance criterion although this paradigm is quite well accepted alternative approaches have been sought at the empirical level research on futures hedging has benefited from the recent developments in the econometrics literature much research has been done on improving the estimation of the optimal hedge ratio as more is known about the statistical properties of financial time series more sophisticated estimation methods are proposed in this survey we review some recent developments in futures hedging we delineate the theoretical underpinning of various methods and discuss the econometric implementation of the methods

indirect hedging of exchange rate risk abstract the purpose of this study is to investigate the impact of exchange rate risk upon export production when the firm cannot engage in a direct forward hedge in the exchange rate however there exists a forward market for a domestic financial asset correlated with the exchange rate in question exporting firms using such an indirect hedging device to reduce foreign exchange risk do not necessarily increase their output when such unbiased hedging market becomes available this contrasts with the well known result in the case of direct hedging

inter regional insurance this paper considers the problem facing a central government which can insure regional governments by use of intergovernmental grants against region specific and privately observed shocks either to income or demand for or cost of the public good notable results are i depending on the source of the shock the grant may induce over or undersupply of the public good relative to the samuelson rule ii with public good spillovers between regions there is two way distortion of public good supply that is qualitatively different distortions relative to the samuelson rule for different values of the shock iii the solution to the central government s problem may depend qualitatively on whether regional taxation is lump sum or distortionary 1999 elsevier science s a all rights reserved

rational insurance purchasing consideration of contract nonperformance much of the analysis of rational insurance purchasing and hedging strategies has been undertaken on the basis of the expected utility hypothesis this decision framework has been used to reformulate the bernoulli principle that a risk averter rationally would fully insure at a fair premium other applications include the analysis of insurance at unfair premiums mossin 1968 and smith 1968 the effects of state dependent utility on the rational insurance purchase cook and graham 1977 the effects of risky background wealth doherty and schlesinger 1983 and mayers and smith 1983 and the design of the optimal insurance policy raviv 1979 such analyses have been conducted on the assumption that insurance policies are free of insolvency default risk this assumption stands in sharp contrast to the actuarial literature in which the insolvency risk or probability of ruin is a central focus of attention

optimal hedging in a futures market with background noise and basis risk abstract this paper examines hedging behavior in an incomplete market in which there exists an unhedgeable and uninsurable independent background risk in the case of a basis risk that satisfies the regressibility property the background risk might be partly endogenous background risk generally has an ambiguous effect on the optimal hedge ratio however if preferences exhibit standard risk aversion and the background risk is fully exogenous the qualitative effect of the added background risk is determinate and depends on the direction of any bias in the futures market in all cases the speculative component of the hedge ratio is reduced in the presence of background risk when the background risk is a basis risk and futures prices exhibit normal backwardation this qualitative effect need not hold and it depends in part on the direction of regressability for spot and futures prices

tax incentives to hedge for corporations facing tax function convexity hedging lowers expected tax liabilities thereby providing an incentive to hedge we use simulation methods to investigate convexity induced by tax code provisions on average the tax function is convex although in approximately 25 percent of cases it is concave carrybacks and carryforwards increase the range of income with incentives to hedge other tax code provisions have minor impacts among firms facing convex tax functions average tax savings from a five percent reduction in the volatility of taxable income are about 5 4 percent of expected tax liabilities in extreme cases these savings exceed 40 percent if a firm faces a convex tax function then hedging that reduces the volatility of taxable income reduces the firm s expected tax liability for a firm facing some form of tax progressivity when taxable income is low its effective marginal tax rate will be low but when income is high its tax rate will be high if such a firm hedges the tax increase in circumstances where income would have been low is smaller than the tax reduction in circumstances where income would have been high thus lowering expected taxes in examining the importance of various motives to hedge researchers have employed two general methods survey and regression analysis there are potential problems with each for example some managers might view the information requested in a survey as proprietary or might hesitate to admit that they employ derivatives to speculate rather than hedge to employ regression methods researchers must generate proxies for tax status in addition to other firm characteristics to the extent that a tax variable e g whether the firm has a net operating loss carryforward proxies for factors such as financial distress as well as tax circumstances analysts face an identification problem in interpreting the results

the tiebout model bring back the entrepreneurs several recent papers in the literature have reformulltlated the nature of equilibrium in ifiebout mo lels by alssliuim ing an exogenous number of communities inflexible commullity l ou alaries anti in pirticular inactive lantlowners and developers ihis paper argues that these assumptions are unwarranted and resul1t iin in eterminate solutions and incorrect analyses determinate lon1g run1 solutions require equilibrium in intercommui land markets which in turn require giving lantlowners and or entrepreneurial leveloelers an active role in the models the role of politics in these models and its juxtaposition with entrepreneurial activities are also analyzed

political bargaining in a federation buchanan meets coase abstract in recent decades the issues of federalism and political integration have gained prominence in public debate as well as in the academic realm a frequently made point is that allowing free secession may protect the minority s interests thus providing it with an incentive to enter the federation this paper explicitly considers the political process in the federation arguing that the option to secede may distort the political choices made by the individual regions to improve their bargaining positions as a result the allocation of resources in the federation could well end up being inefficient and unattractive for the minority region in contrast limiting the secession possibilities by requiring the consent of a majority of voters through a regional referendum rather than leaving it to the discretion of the legislature restores efficiency

togetheror separately issues on the costs and benefits of political and fiscal unions abstract around the world one observes a tendency toward political separatism the economic literature generally but not always emphasizes several benefits of large fiscal and therefore political jurisdictions in this paper we discuss several politico economic arguments which reconcile this tension between normative economic models and empirical observations

pricing of forward and futures contracts there has long been substantial interest in understanding the relative pricing of forward and futures contracts this has led to the development of two standard theories of forward and futures pricing namely the cost of carry and the risk premium or unbiased expectations hypotheses these studies have modelled the relationship between spot and forward futures prices either through a no arbitrage condition or a general equilibrium setting relatively few studies in this area have considered the impact of stochastic trends in the data with the emergence of non stationarity and cointegration in recent years more sophisticated models of futures forward prices have been specified this paper surveys the significant contributions made to the literature on the pricing of forward futures contracts and examines recent empirical studies pertaining to the estimation and testing of univariate and systems models of futures pricing

do firms hedge in response to tax incentives there are two tax incentives for corporations to hedge to increase debt capacity and interest tax deductions and to reduce expected tax liability if the tax function is convex we test whether these incentives affect the extent of corporate hedging with derivatives using an explicit measure of tax function convexity we find no evidence that firms hedge in response to tax convexity our analysis does however indicate that firms hedge to increase debt capacity with increased tax benefits averaging 1 1 percent of firm value our results also indicate that firms hedge because of expected financial distress costs and firm size an increasing number of corporations use financial derivatives each year the international swaps and derivatives association reports that the notional value of outstanding otc swap contracts increased from 11 3 trillion in 1994 to more than 60 trillion by mid 2000 http 00www isda org this is interesting because financial theory tells us that corporate risk management enhances value only in the presence of costly market imperfections a number of empirical studies examine derivative holdings to identify which of the proposed theoretical incentives and imperfections lead to corporate hedging our paper adds to the hedging literature by testing whether corporations respond to two tax related incentives to hedge the incentive to reduce volatility thereby increasing debt capacity and the tax benefits of debt and the incentive to reduce expected tax liabilities by reducing the volatility of taxable income we also use a refined dependent variable to measure net

on the number and size of nations this paper studies the equilibrium determination of the number of countries in different political regimes and in different economic environments with more or less economic integration we focus on the trade off between the benefits of large jurisdictions and the costs of heterogeneity of large and diverse populations our model implies that i democratization leads to secessions ii in equilibrium one generally observes an inefficiently large number of countries iii the equilibrium number of countries is increasing in the amount of economic integration

optimal hedging in the futures market under price uncertainty abstract we show that there exists a simple optimal hedging rule in the futures markets for all risk averse decision makers given that a futures price today is an unbiased predictor of the futures price next period b basis is independent of the spot price

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

a theory of gradual coalition formation we study noncooperative multilateral bargaining games based on underlying tu games in which coalitions can renegotiate their agreements we distinguish between models in which players continue to bargain after implementing agreements reversible actions and models in which players who implement agreements must leave the game irreversible actions we show that renegotiation always results in formation of the grand coalition if actions are reversible but that the process may otherwise end with smaller coalitions on the other hand we show that the grand coalition cannot form in one step if the core of the game is empty irrespective of the reversibility of actions agreements between players form the basis of much that game theory seeks to explain there are obviously many useful ways to categorize such agreements in multilateral negotiations that is with more than two participants it seems natural to distinguish between cases in which the coalition forms in one step and those in which the coalition grows to its eventual size by attracting new members thus recipients of marshall aid collectively agreed to american terms at the ceec in 1947 whereas a strict subset of these countries agreed to the schuman plan in 1950 with the other current members joining the eu over time similarly negotiations on climate change culminated in universal agreement at rio in 1992 whereas india and china only agreed to reduce cfc emissions in london in 1990 after other countries had signed up to the montreal protocol finally un security council resolution 242 urged that a multilateral conference be set up to establish a comprehensive settlement in the middle east whereas the process initiated by the oslo agreements and arguably camp david has consisted of a sequence of agreements between israel and its neighbours we will refer to cases in which the grand coalition forms in one step as involving immediate coalition formation or icf for short and cases in which a coalition grows as involving gradual coalition formation

incentives for secession in the presence of mobile ethnic groups abstract this paper presents a model on secessions and nationalism with special emphasis on the role of imperfectly mobile ethnic minorities individuals trade off political benefits of homogeneity against economic costs from increasing returns to scale in production the main findings are i mobility decreases the political motivation for independence because increased competition for labour forces the ethnic majorities in the separating countries to accommodate their policy ii the impact of mobility depends on whether separation is politically or economically motivated iii increased mobility leads to a less accommodated policy in case of no separation

a coalition formation approach to equilibrium federations the authors develop a model in which states may choose to form coalitions to capture efficiency gains from policy coordination joining a coalition entails setting the policy variable to maximize the coalition s aggregate payoff at a nash equilibrium against nonmembers and to commit to a transfer scheme to share the gains with two states the unique equilibrium structure is complete federation with more than two states incomplete federation can be the unique equilibrium interpreting this result in terms of custom unions the trend to trading bloc formation may be equilibrium behavior even with cooperation and transfers within customs unions copyright 1997 by american economic association

research in economic education five new initiatives research is essential for improvement in teaching and learning economics william e becker et al 1991 called for new research on the relative merits of multiple choice and essay tests on the lasting effects of course work in economics and on the effects of instructors instructional techniques and new technologies on student learning to respond to the call the committee on economic education cee of the american economic association recruited robin bartlett william becker w lee hansen peter kennedy and the authors to organize a conference that would jump start new research projects the organizers chose three conference goals identifying research priorities recruiting new economists to economic education research and building teams to undertake identified priorities they recruited 21 economists to participate 1 provided them with a list of potential research questions and asked them which questions were most important and which they were willing to work on with survey results in hand the organizers divided participants into five teams corresponding to the following five topics teaching methods and incentives for collegelevel economics instruction ph d education in economics in the united states improving the assessment of student learning in college economics courses long term effects of learning economics and efficiency in the use of technology in economic education at the conference participants discussed briefing papers prepared for each topic worked on project design and funding issues and began writing proposals herein we describe our research priorities and our progress in developing research plans and securing financial support

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

survive then thrive determinants of success in the economics ph d program this study investigates the completion of the ph d in economics we use ex ante information based upon reviewing individual applications from former doctoral students students need different skills to succeed at each distinct stage of the doctoral program significant determinants for passing the comprehensive exams include graduate record exam gre verbal and quantitative scores a masters degree and prior focus on economics by contrast research motivation and math preparation play significant roles in completing the dissertation gre scores become insignificant for completion in the generalized ordered logit estimates which emphasize the sequential nature of the economics ph d program jel i210 i introduction every spring admission committees review a pile of applications to select candidates for their ph d programs beyond normal attrition economics departments clearly have a stake in seeing a significant proportion of students finish the program aside from whatever resources may accrue todepartmentswith high completion rates they receive prestige from the placement and success of their completed ph d students in academic institutions or private sector jobs obtaining a ph d in economics requires clearing a series of distinct hurdles and constitutes a riskier venture than attending medical school an mba program