median voters or budget maximizers evidence from school expenditure referenda some readers may have found these results of greater interest were we able to confirm the directional hypotheses of the certainty setter model in addition to finding that spending is related to the reversion the much weaker prediction of the uncertainty model yet the failure of the certainty when base elections were optional their infrequent occurrence might be expected under either a median voter or a setter model for those districts that did hold base elections the observations appear consistent with a setter model but are either inexplicable by or inconsistent with a median voter model finally both a the relationship between the number of budget elections and the presence of base elections and b the outcome of mandatory base elections in 1978 provide a set of observations that are challenging to either model a similar challenge was posed by our investigation of budget elections when we called attention to the inadequacy of static full information models rather than resolving the question of the simple setter model against the simple median voter model our results indicate that both may be inappropriate and that endeavors dealing with complexities omitted here are warranted

governmental behavior in representative democracy a synthesis of the theoretical literature what is the impact of bureaucratic behaviors on tax rates what is preferable a bureaucrat or a partisan politician does a flypaper effect occur when lobby groups influence public policies this article tries to answer these questions by analyzing and comparing six different models of public choice 1 the median voter model 2 the leviathan model 3 the slack maximizing model 4 a general model of bureaucracy 5 the partisan politicians model and 6 a general model of lobbying among several results it is shown that the median voter s income and tax share almost always play a significant role in the design of the public good tax package even if the government does not explicitly try to maximize the median voter s utility the article also provides a synthesis of the positive analysis of the flypaper effect

effects of indirect taxation in a mixed oligopoly abstract in a mixed oligopoly an increase in tax ad valorem or specific does not change total output but increases the output of the public firm and the tax revenue also privatization may increase both tax revenue and welfare

efficiency considerations and the exemption of food from sales and value added taxes we evaluate efficiency considerations underlying the widespread exemption of food from sales and value added taxes and the implications for tax policy household and restau rant meals and both constant and increasing returns cases are examined higher taxes on food offset the non taxation of time inputs into household production even under constant returns to scale with increasing returns gains from taxing food are higher and amplified by subsidizing restaurant food and all marginal cost components of restaurant meals on effi ciency grounds exemption of food from sales and value added taxes emerges as socially costly policy especially under increasing returns

biased tax price or grant expenditure elasticities abstract minor differences in logarithmic government expenditure function specifications lead to wide swings in elasticity estimates the median voter model is use to identify the biases as well as the appropriate adjustments to bring the elasticities into conformity across model specifications

the median voter according to garp this paper adapts the generalized axiom of revealed preference garp empirical method to the public goods problem to test whether observed municipal public spending can be explained as if the city governments maximize the utility of the median income voter it applies the test procedure for medium size municipal governments in five midwest states the data are consistent with garp and reveal that the local governments in the sample behave as if they maximize median voter utility once we control for the state specific effects government management structure and population density the median voter hypothesis is the proposition that local governments behave as if they maximize the utility of the median income voter in the jurisdiction although an important tool in public economic analysis there has been no conclusive direct test of the maximization hypothesis to date revealed preference theory shows that any finite set of price and quantity observations satisfying the generalized axiom of revealed preference garp can be rationalized by the constrained maximization of an increasing continuous concave utility function afriat 1967 1973 varian 1982 this paper adapts the revealed preference method to the public goods problem in order to test municipal spending data for consistency under garp thereby providing the first direct test of whether or not the local governments behave as if they maximize median voter utility the median voter hypothesis represents a simple tool that is the most widely used characterization of local government behavior given its prominence in the literature it is not surprising that the hypothesis itself has become the subject of scrutiny the framework assumes direct or representative democracy without strategic behavior in which competition among politicians ensures that the public sector bureaucracy responds efficiently to voters desires public sector decision making reduces to an as if constrained maximization problem a simplified picture of the outcome of collective action still much of the empirical testing literature is motivated by concerns over whether the model is too simplistic nonetheless it can be argued that given its depiction as an as if outcome the median voter hypothesis should be judged not by its descriptive accuracy of the public sector decision process but instead by how well it explains observed local fiscal choices on this basis the existing empirical evidence although mixed reveals a surprising amount of indirect support for the framework one approach taken in the literature is to evaluate the median voter hypothesis by testing the predictive power of regression equations with median income and tax price terms for explaining state or local fiscal behavior in this line of the

bureaucratic behavior in the local public sector a revealed preference approach public sector bureaucratic utility is typically assumed to be a function ofbudget size or government employment although intuitively appealing thereare no definitive direct tests of the assumption to fill this gap thispaper exploits data that isolate resource allocation decisions made by localpublic sector bureaucrats we use revealed preference theory to find thatthe bureaucracy behaves as if bureaucratic utility is an increasingfunction of employment across government functions and public spending providing direct evidence justifying the popular assumption in theoreticalmodels of government behavior

u s bilateral trade flows and exchange risk during the floating period abstract this paper tests for real exchange rate risk effects on u s bilateral trade flows during the floating period using several new as well as previously used risk measures significant negative effects occur in five of six u s import flows and in two of six u s export flows with one export flow showing a significant positive effect these results are consistent with several previous findings for aggregate u s trade two risk measures using the forward exchange rate and assuming a time varying risk premium provide marginally more significant results than the others

futures and actual markets how they are related in order to explore how futures markets affect the market for the commodity or asset underlying the futures contract this study takes as its central theme the analogy between futures and money the relation between monetary and real phenomena is isomorphic to the relation between a futures contract and the underlying asset success in establishing the validity of this isomorphism will have several advantages first it will throw new light on some important aspects of futures trading by pointing out the analogies with the corresponding monetary phenomena which are better understood this enables students of futures to learn from the lessons of the monetary branch of economics second students of money also can learn from that knowledge about futures which has been more thoroughly analyzed than the corresponding monetary phenomena by demonstrating that there is an isomorphism between money and futures these two branches of economics can illuminate each other this ap

micro estimates of public spending demand functions and tests of the tiebout and median voter hypotheses responses to questions given to a random sample of michigan households are used to estimate public spending demand functions while income and price elasticities are similar to those obtained from aggregate data positive income elasticities appear to arise because public services are distributed in a prorich manner a relatively small variance in spending demands among urban and suburban communities in metropolitan areas with substantial public service variety suggests that the tiebout mechanism works this interpretation is supported by the fact that actual spending conforms substantially to desired levels in urban areas but less so in rural areas with little public sector choice

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

excise taxes on a non uniform pricing monopoly ad valorem and unit taxes compared in this paper ad valorem and unit taxation are compared on a model that allows for various monopolistic pricing policies including uniform pricing and all three types of pigouvian price discrimination it shows that for any given unit tax on a non uniform pricing monopoly 1 there exists an output neutral ad valorem tax rate that gives rise to a higher tax yield than the unit tax and 2 there exists an ad valorem tax rate that welfare dominates the unit tax not only in the aggregate sense but also in the pareto sense taxes d accise dans le cas d un monopole qui n a pas une tarification unique comparaison des taxes ad valorem et unitaire ce memoire compare la taxe ad valorem et la taxe par

local government internal structure external constraints and the median voter this paper examines how internal structure and external constraints affect local government ability to meet voters demands it applies the revealed preference method to us counties to identify those that fail to satisfy the pure democracy outcome of the median voter hypothesis mvh probit analysis identifies the factors associated with counties that satisfy the mvh internal government structure does not matter but restricting home rule increases the likelihood of satisfying the mvh equilibrium the latter result consistent with the leviathan model the systematic differences found for urban and rural county governments reinforce this conclusion

price and income distortions under separate spending and taxing decisions abstract this paper analyzes the extent to which intergovernmental grants create a discrepancy between the local voter s actual and perceived budget constraints the model is innovative in that it introduces grant illusion due to income misperceptions theoretically distinguishes illusion caused by income distortions from illusion caused by price distortions and separately tests for the magnitude of each empirical analysis identifies both price and income misperceptions as significant determinants of voter behavior these unbiased estimates reveal that previous research has misspecified the budget constraint resulting in overestimation of the stimulative effects of intergovernmental grants on local expenditure

fiscal illusion uncertainty and the flypaper effect abstract the flypaper effect is the empirical observation that increases in intergovernmental aid stimulate greater local government expenditure than do increases in voter income fiscal illusion provides a widely accepted explanation for this asymmetry models of voter behavior under fiscal illusion typically assume that taxpayers consistently misperceive nonstochastic average for marginal tax prices this paper develops an alternative framework in which rational voters recognize marginal tax prices but must make tax and expenditure plans under imperfect information or uncertainty various sources of uncertainty are analyzed and related to the flypaper effect and implications for public expenditure demand theory are discussed

a pareto comparison of ad valorem and unit taxes in noncompetitive environments abstract a literature that began with wicksell 1896 has shown that an ad valorem tax is welfare superior to an equal yield unit tax in both monopoly and oligopoly markets this paper proves a stronger result for any unit tax imposed on a monopoly there exists an ad valorem tax that pareto dominates it that produces larger profit tax revenue and consumer surplus the paper then considers whether this pareto result generalizes to all cournot nash oligopolies the paper shows that pareto dominance holds in such markets whenever the tax level exceeds a critical value that depends on various market parameters

is the median voter decisive evidence from referenda voting patterns abstract this paper examines whether the voter with the median income is decisive in local spending decisions previous tests have relied on cross sectional data while we make use of a pair of california referenda to estimate a first difference specification the referenda proposed to lower the required vote share for passing local educational bonding initiatives from 67 to 50 and 67 to 55 respectively we find that voters rationally consider future public service decisions when deciding how to vote on voting rules however the empirical evidence strongly suggests that an income percentile below the median is decisive for majority voting rules especially in communities that have a large share of high income voters with attributes that suggest low demand for public services based on a model that explicitly recognizes that each community contains voters with both high and low demand for public school spending we also find that an increase in the share of low demand voters is associated with a lower decisive voter income percentile for the high demand group this two type model implies that our low demand types individuals over age 45 with no children have demands that are 45 lower than other voters collectively these findings are consistent with high income voters with weak preferences for public educational services voting with the poor against increases in public spending on education

indirect taxation and cournot equilibrium we analyse a cournot model of oligopoly in an industry which is subject to indirect taxation we consider value added as well as excise taxes we allow for various types of demand and cost conditions as well as cost differences across firms as the tax is raised two types of outcomes can prevail on the one hand the net price can increase which is shown to lead to an increase in market share of high cost firms on the other hand the net price can fall in which case efficiency is rewarded in that low cost firms gain market share this latter outcome which accords with intuition will obtain in most instances it is more likely to occur i with vat rather than with an excise tax ii with concave rather than convex demand and iii with decreasing rather than increasing marginal cost finally we show that an increase in vat can lead to higher profits for low cost firms provided cost differences across firms are large enough

cross hedging foreign currency risk abstract this paper provides empirical evidence on the effectiveness of cross hedging to reduce foreign exchange risk simple cross hedges for currencies with and without futures contracts multiple cross hedges portfolio hedges and commodity cross hedges are examined cross hedges are found to be less effective than traditional similar asset hedges in some instances inter temporal instability causes hedged positions to be riskier than unhedged ones although on the whole cross hedging is shown to be a useful risk reduction technique

the comparison between ad valorem and specific taxation under imperfect competition abstract this paper compares ad valorem and specific taxation in two models of oligopoly with and without free entry predominantly ad valorem taxation implies a relatively low consumer price high tax revenue and when entry is precluded low profits ad valorem taxation dominates specific taxation from the welfare perspective the set of circumstances under which with free entry specific taxation raises welfare is a strict subset of that in which ad valorem taxation is welfare improving and in both models the maximisation of consumer welfare subject to a binding revenue constraint requires maximum reliance on ad valorem taxation

two sided uncertainty in the monopoly agenda setter model we extend the romer rosenthal model of representative democracy to a signaling environment in which i only the representatives knows the status quo outcome resulting if her take it or leave it policy proposal is rejected by the voters while ii only the voters know their true preferences over policies a separating sequential equilibrium is shown to exist and to uniquely satisfy a common equilibrium refinement furthermore this equilibrium has the property that relative to the environment where the status quo is known to the voter there is a downward bias in the setter s proposal and an associated upward bias in the probability of the proposal s acceptance by the voter

how to tax a spatial monopolist abstract this paper models the interaction of a government that maximizes tax revenue and a spatial monopolist that maximizes profit the government has two tax instruments a per unit output tax and a transport tax and the monopolist can strategically alter its location and the mode of transport if allowed only one tax instrument then the government chooses the output tax which generates inefficient strategic choices by the monopolist in order to avoid profit losses since the inefficiency is greater than with the transport tax this isolates a new tradeoff between government tax revenue and economic efficiency

the effect of farm supply shifts on concentration and market power in the food processing sector in this paper we examine the marginal impact of changing farm supply on the market structure of the downstream food processing sector we develop a theoretical model that allows for cost differences among processors and endogenizes downstream entry and exit comparative statics results are consistent with several well established trends in the food processing sector in particular the analysis demonstrates that increasing concentration in the food processing sector is consistent with decreasing market power indeed we find that when the farm supply curve shifts outward an increase in concentration can only occur when there is a decrease in market power

forward market and international trade many studies on hedging currency risk and international trade 6 14 18 17 have investigated the simultaneous hedging and production decisions with the nonstochastic home and foreign earnings assumption these studies derived a separation theorem which shows that the production decision made by a multinational firm for international trade is independent of the distribution of the exchange rate and dependent only on the forward price the separation theorem has two different implications first although the production decision is shown to depend on the forward price there is still a missing link connecting the trading activity in the forward markets with international trade second exchange rate uncertainty will not have an impact on the level on trade since the forward price can be used by multinational firms as a guide for the expected future spot rate the first implication seems to contradict results by britto 8 and telser 37 demonstrating that futures price has a real impact on resource allocation and production within an economy the second implication is inconsistent with a number of other empirical studies 2 11 12 22 29 that have shown exchange rate uncertainty has an adverse effect on trade and other studies 5 13 that have found exchange rate volatility to have a positive impact on trade although some studies 7 27 do recognize stochastic foreign income in the foreign hedging they ignore the two kinds of issues discussed above thus this paper attempts to investigate the simultaneous decisions for foreign exchange hedging and production under a stochastic assumption of foreign earnings a simple model is developed here to examine a the interaction of forward markets with international trade and b the impact of exchange risk on trade by endogenizing the forward price in a variety of scenarios this paper derives several interesting results under the stochastic foreign income scenario a new foreign exchange hedging rule which incorporates the covariability of foreign earnings and exchange risk is derived further we find that the separation theorem breaks down under such a situation interestingly we are able to show a positive linkage between trading activity in forward markets and export furthermore

demand for locally provided public services within the median voter s framework the case of the brazilian municipalities in this paper we estimated the demand for local public spending for the brazilian municipalities within a median voter s framework the rationale for applying that framework came from the fact that in federal systems voters preferences are more likely to be reflected at the local level as the consumers of public services have a better knowledge of the benefits and costs of the local public expenditures results obtained are consistent with the theoretical background thus suggesting that this hypothesis might be useful to describe the demand for local public goods in brazil in particular the use of quantile regression permitted us to investigate the impacts of the conditioning variables on local public expenses across different expenditures classes thus allowing for heterogeneity across municipalities our results also suggest that the impact of the city size on the quality of club goods shows crowding effects as is between zero and one however in the estimated models marginal congestion slightly d

the median voter model across levels of government the median voter model provides a method of aggregating individual voter s demands to obtain community demand although higher level governments are often assumed to be less responsive to voters than lower level governments it remains an open question whether or not the median voter model which has been found to apply to the lowest tier of the federalist system extends to higher level governments we use the cox specification test to find that the ad hoc model dominates the median model for counties and states the county results are sensitive to the time periods budgetary structure and degree of urbanization

the effects of real exchange rate risk on international trade abstract by assuming real profit maximization and uncertain prices as well as exchange rates we conclude that it is uncertain percentage changes in the real exchange rate that are risky in international trade empirical estimation of fourteen bilateral trade flows among industrialized countries finds a significant negative effect on trade quantity from such risk in a number of these cases the expectation variable has a positive effect in a larger number of cases significant price effects from the expectation variable are fewer and from risk are negligible

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

a direct test of direct democracy new england town meetings representative democracies govern most locales in the us making it difficult to compare performance relative to direct democracy new england states however provide an opportunity to test both direct and representative democracy at the local level this article uses revealed preference axioms to compare spending patterns in new england towns and cities against median voter hypothesis benchmarks contrary to previous evidence we find no differences between direct and representative democracy the results suggest that horizontal competition arising from local fragmentation minimize differences between direct and representative local government providing support for wider applicability of median voter based empirical models of local government behaviour in the us

international trade with forward futures markets under exchange rate and price uncertainty abstract the paper examines a risk averse firm s decisions on the level of trade when the exchange rate and the commodity price are uncertain and the extent of forward exchange and commodity futures commitments first we verify the separation theorem and the full double hedging theorem second we investigate the implications of the existence of both forward foreign exchange and commodity futures markets in comparison to the case where only one or no market is available to the firm the second exercise enables us to focus on conditions under which establishing forward futures arrangements promotes international trade

green tax reform in an oligopolistic industry oecd countries reduce or eliminate certain taxes when they introduce new environmental taxes the purpose of this paper is to analyze the incidence of such green tax reform in an oligopolistic industry the paper shows that a rise in taxes could result in the expansion of the aggregate pollution in the presence of a large technology gap the paper further shows that the government loses tax revenue as a result of the green tax reform if it continues to apply the same environmental standard this implies that the government needs to raise environmental standards to keep the existing level of public spending after a green tax reform

demand shifts and market structure in free entry oligopoly equilibria abstract this papers examines the structural implications of demand shifts in free entry oligopoly equilibria the model generalizes the conjectural variations framework to consider asymmetric firm conjectures allows for the possibility of cost differences across firms and endogenizes conditions of entry and exit in the industry in non competitive environments changes in incumbent output and industry profitability are inversely related to changes in the equilibrium price following a demand shift in response to rotations of demand through the equilibrium point changes in profitability are positively related to changes in industry concentration and when marginal costs are non decreasing inversely related to changes in market power

asymmetric information and agenda control the bases of monopoly power in public spending abstract a pervasive empirical finding widely known as the flypaper effect is that lump sum intergovernmental grants generate considerably greater public spending by the recipient jurisdiction than would be predicted by equivalent shifts in personal income in that jurisdiction moreover such observations are inconsistent with standard median voter models of the political process we posit a model in which it is in the interest of suppliers of a collectively provided good not to generate full information to voters about outside aid the empirical results are consistent with flypaper and suggest that voters are very poorly informed about outside grants

measuring and analysing the effects of short term volatility in real exchange rates this paper examines short term volatility in the real effective exchange rates of industrial countries and its impact on their imports it yields three conclusions first volatility has not diminished as markets have gained experience with floating exchange rates the trend appears to be in the opposite direction for some countries second exposure to short term volatility has differed among countries japan and sweden have experienced much more than most other industrial countries third volatility appears to depress the volume of international trade this third finding is consistent with results reported by cushman and by akhtar and hilton and challenges earlier findings by hooper and kohlhagen

the median voter model in public choice theory the changing perception by public choice theorists about the relevance of the median voter model is a result of excessive extrapolation of the conclusions of theoretical models to the real world early in the 1970s the median voter model was often accepted as implying that the output produced in the public sector was what was most preferred by the median voter this claim is excessive because the median voter model is only a model of demand aggregation under majority rule and has little to say about the supply side of the public sector in the late 1970s many scholars identified several circumstances under which the model would not apply in theory but these critiques of the model were often viewed as reasons to abandon the median voter model altogether the model went from having excessive claims that made the model appear to be more powerful than it really is to excessive claims that made the model appear to be less powerful than it really is these latter claims were often in response to the earlier claims rather than to the model appropriately applied

the effect of unionism on fringe benefits this study analyzes the impact of unionism on fringes paid to production workers using data on individual establishments it compares fringe expenditures in establishments having the same level of compensation per hour and finds that unionism raises the share of compensation allotted to fringes particularly to pensions vacation pay and life accident and health insurance in addition since unionism also raises the straight time wage rate itself a prime determinant of expenditures on fringes unionism has a very sizeable impact on total fringe expenditures as well as on the fringe share of compensation the union fringe effect exceeds in percentage terms the union wage effect and is sufficiently large to suggest that standard union wage studies understate the union effect on total compensation the study also compares the fringe expenditures of production and non production workers within the same establishment controlling for within establishment pay policies the findings suggest that the pres

government form and performance fiscal illusion and administrative ability in u s counties key differences in local government organizational form lie in separation of powers versus unified powers and elected versus professional chief executive officers ceos this paper studies how these features lead to differences in fiscal illusion and production cost evidence from u s counties indicates that there is less fiscal illusion under separation of powers which by itself reduces spending separation of powers however leads to greater overall spending when compared with unified governments the inelastic public demand therefore implies that separation of powers leads to services being provided at greater cost than under governments with unified powers similar conclusions hold for professional relative to elected ceos

the flypaper effect and other anomalies abstract i develop a model in which income both in its own right and as a proxy for other socioeconomic characteristics is an input in the production function for local public services the most obvious example is education though there are other applications as well the comparative statics results from this model yield the following results 1 the observed flypaper effect the tendency for local government to spend a higher fraction of unrestricted grants than income of residents may be due at least in part to the fact that own income but not grants is a substitute for purchased inputs in the technology hence the propensity to spend on purchased inputs out of own income is lower than out of grants 2 the income elasticity of demand for public sector output may be higher than the observed income elasticity of demand for purchased inputs 3 equalization of educational opportunity via wealth neutrality as suggested by feldstein requires major changes in education finance once we recognice the distinction between purchased inputs and output

overlapping jurisdictions substitutes or complements this paper presents a simple model of the demand relationship between the activities undertaken by overlapping governments and uses the framework to estimate the relationship between municipal and county expenditures the empirical results reveal a complementary relationship between county and city general expenditures any public sector expansion effects of monopoly power at the county level will therefore be reinforced by greater municipal spending further expanding the total size of the local public sector on the other hand changes in county police and roads expenditures appear to have no strong stable impact on municipal police and roads expenditures respectively providing no reinforcing or offsetting municipal spending responses to decisions at the county level

fiscal illusion and the grantor government empirical studies indicate that unconditional intergovernmental grants have a flypaper effect several authors have modeled recipient government spending under fiscal illusion to explain this phenomenon in short grants reduce the perceived marginal cost of recipient government output this paper develops a more general model of illusion that incorporates the grantor government thereby eliminating inconsistencies encountered in previous models the more general model implies that grant finance increases the perceived marginal cost of grantor government output thus grant induced illusion should have two effects an increase in recipient output and a decrease in grantor output the empirical work supports this hypothesis

on expenditure indices in revealed preference tests recently in this journal chalfant and alston 1988 utilized revealed preference techniques to demonstrate that changes away from consumption of red meat may not be due to changes in tastes but rather to changes in relative prices the authors stressed that previous studies that find evidence of changes in taste are based on estimation of particular functional forms the revealed preference approach is therefore appropriate since consumers with the same tastes will yield observations consistent with revealed preference regardless of the particular utility function the research is carefully done and the conclusions seem appropriately drawn the authors found some violations of revealed preference but they concluded that the violations are negligible on the basis of computation of an expenditure index without disagreeing with their conclusion i believe that the expenditure index is an inappropriate metric of the seriousness of violations of revealed preference instead i present a metric that captures differences in tastes not captured by the expenditure index the use of this superior index is particularly important when consumers face very similar prices and have similar incomes afriat 1967 1973 and varian 1982 prove that for observations to be consistent with the hypothesis of no change in taste satisfaction of the generalized axiom of revealed preference garp is a necessary and sufficient condition knoblauch 1990 proves that when only two goods are in the consumption bundle consistency with the weak axiom is necessary and sufficient for the existence of a common

the simultaneous determination of spot and futures prices in a simple model with production risk this paper deals with properties of a rational expectations equilibrium when there is futures trading a simple two good model is analyzed where one of the goods is produced subject to production risk although the futures market provides insurance against price risk to producers it is income risk that concerns them whether they hedge in equilibrium is shown to depend on the price and income elasticity of demand for their output as well as on the degree to which consumers the other party in the futures transaction are risk averse

newspaper differentiation and investments in journalism the role of tax policy many countries levy reduced rate indirect taxes on newspapers with proclaimed policy goals of stimulating investment in journalism and ensuring low newspaper prices however by taking into account the fact that the media industry operates in two sided markets we find the paradoxical result that the consequences of a low tax regime might be quite the opposite we also show that the low tax regime tends to increase newspaper differentiation if the advertising market is relatively small the newspapers might invest too little in journalism and be too differentiated from a social point of view in this case a tax increase will be welfare enhancing

on government structure and spending the effects of management form and separation of powers summary this paper contributes to the on going debate over how government form affects spending it broadens the previous focus on elected versus professional management to address the separation of legislative and executive powers the empirical results reveal spending differences between governments with separation of powers and those with unified powers only for southern counties of the us in addition for all regions and time periods professional or elected executive management does not significantly affect either municipal or county spending

imperfect hedging and export production firms engaged in international operations are highly interested in developing ways to protect themselves from exchange rate risk the incentive for risk management comes from the enormous volatility of the floating foreign exchange rates our study shows that an exporting firm can benefit from hedging exchange rate risks even when no perfect hedge is possible since in reality not every currency is traded in a futures market 7 chap 15 the exporting firm uses futures contracts with other underlying assets whose spot prices are highly correlated with the foreign exchange spot rate in the real world hedging must often be accomplished by using futures contracts on different deliverable instruments such hedging may result in imperfect hedging as shown by anderson and danthine 1 eaker and grant 11 dellas and zilberfarb 9 broll wahl and zilcha 6 it has been shown in recent publications 12 8 15 13 23 16 2 14 5 18 22 that an international firm facing exchange rate risk can eliminate this risk altogether if it can use a currency forward market another financial asset or a portfolio of assets which is perfectly correlated to the exchange rate in the absence of such markets the firm can reduce its income risk by engaging in a hedging activity of assets correlated to the foreign exchange recent studies of firm behavior under exchange rate uncertainty examine the influence of futures markets on the export and hedging decision these papers derive two major theorems one is the separation theorem which states that when futures markets exist the firm s export production decision is determined solely by technology and input output prices including the futures prices this result holds if the gain from the futures contract is perfectly correlated with export revenue the other theorem is the full hedging theorem which asserts that with unbiased futures markets the firm completely avoids exchange rate risk by entering into optimum futures contracts

a bureaucratic theory of flypaper effects abstract one well documented pattern in local public finance is that in comparison with what is spent out of residents private income a disproportionate amount of lump sum intergovernmental aid is used to increase expenditures rather than to reduce local taxes this paper shows how a bureaucratic model of the type suggested by niskanen bureaucracy and representative government aldine atherton chicago 1971 can be used to explain this behavior an empirical test of the model using 115 small governments in michigan suggests that this bureaucratic model explains capital expenditures well while operating expenditures appear to be better explained by the standard median voter model

transactions costs and covered interest arbitrage theory and evidence the extent to which deviations from covered interest parity can be attributed to transactions costs has been exaggerated in the economic literature because the swap market in foreign exchange has been ignored it is shown that such deviations should be no greater than the lowest of the transactions costs in one of three markets the swap market or either of the two relevant securities markets this reconciles the theory with the data which show spreads of no more than a few basis points however the empirical results have no direct bearing on the conventional market efficiency hypothesis

the median voter hypothesis evidence from general purpose local governments the median voter hypothesis mvh represents a much used as well as much criticized tool in the hands of public finance economists to evaluate the mvh this paper applies the cox specification test using data from general purpose municipal governments the cox test allows for possible simultaneous rejection of the mvh and all tested models thus providing stricter criteria than applied to date in empirical mvh analyses the test results reveal that the mvh is appropriate for explaining the aggregate behavior of municipal governments but not specific services further the single service and single tax base assumptions are not critical to the empirical mvh performance

political fragmentation party ideology and public expenditures in this paper we propose an original model of competition for effective political power between majority and opposition coalitions the model indicates that the electoral margin of the majority and the fragmentation of both coalitions are key variables that determine their effective political power we estimate the model in the case of the french departements our econometric results support the model and show that the per capita social expenditures in the french departements depend on the effective political power of the majority

the crowding parameter and samuelsonian publicness in a recent issue of this journal gramlich and rubinfeld 1982 introduced a distributive share parameter into a public expenditures demand function they also included a parameter linked to population size and estimated the resulting demand function since the initial median voter formulations by borcherding and deacon 1972 and bergstrom and goodman 1973 it has been standard practice to include the population parameter known as the crowding parameter in public expenditures demand functions it has also been standard practice to interpret the parameter as a samuelsonian index of the extent to which public expenditures constitute a pure public or pure private good gramlich and rubinfeld found public expenditures to be a pure private good a conclusion they share with all previous researchers who have estimated the crowding parameter 1 this comment demonstrates that the private good conclusion is

has exchange risk depressed international trade the impact of third country exchange risk abstract this paper argues that the effect of exchange risk on bilateral and aggregate trade flows should be analyzed by including the impact of third country exchange risk factors in addition to direct bilateral or multilateral risk after a theoretical examination of these effects us bilateral export flow to its six largest trading partners are analyzed empirically i find individuality and jointly significant third country risk effects in most cases in contrast to some recent bilateral efforts i find a steadily growing negative impact on trade flows from exchange risk during floating and in contrast to recent aggregate trade flow studies i conclude that there was no temporary decline in exchange risk during the late 1970s

when do futures markets destabilise spot prices futures markets allow agents to shift price risk onto speculators and encourages them to take riskier decisions historically their main impact has been to encourage the storage of commodities thus arbitraging prices over time and reducing price fluctuations this paper presents a simple model in which opening futures markets in a nonstorable commodity encourages producers to choose riskier production techniques which destabilizes supply and hence the spot price copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

searching for leviathan an empirical study in several papers and a recent book geoffrey brennan and james buchanan 1977 1978 1980 have put forth a striking and controversial view of the public sector drawing by analogy on the conventional theory of monopoly in the private sector they envision a monolithic government that systematically seeks to exploit its citizenry through the maximization of the tax revenues that it extracts from the economy from this perspective they develop a fiscal constitution whose central purpose is to constrain leviathan by limiting in various ways its access to tax and other fiscal instruments while the leviathan hypothesis has been the source of lively debate and a wide range of policy proposals it has not been the subject of much systematic empirical work or testing this is a matter of some importance since the policy implications of the leviathan view are disturbing to put it mildly in particular brennan and buchanan virtually stand on their heads many of the basic theorems in public finance for an efficient and equitable tax system if in fact the leviathan view is an inaccurate depiction of the functioning of the public sector the introduction of their policy proposals is likely to make a sorry mess of the fiscal system the leviathan model does however have some straightforward implications for observable fiscal behavior it is the purpose of this paper to examine one of these testable implications brennan and buchanan stress that fiscal decentralization is itself a powerful constraint on leviathan competition among governments in the context of the interjurisdictional mobility of persons in pursuit of fiscal gains can offer partial or possibly complete substitutes for explicit fiscal constraints on the taxing power 1980 p 184 such competition among governments in a federal system that places heavy reliance on local fiscal decisions will greatly limit the capacity of leviathan to channel resources into the public sector in short as indicated by the epigraph to this paper the leviathan model implies that other things equal the size of the public sector should vary inversely with the extent of fiscal decentralization 2

discriminating monopoly forward markets and international trade recent empirical studies see e g kravis and lipsev 1977 1978 isard 1977 aspe and giavazi 1982 demonstrate that there are notable divergencies between domestic and export prices this empirical evidence suggests that the law of one price is systematically violated kravis and lipsey 1977 p 155 argue that many firms involved in international trade particularly manufacturers are in the position of a discriminating monopolist faced with separate markets each characterized by a different demand elasticity a model which explicitly allows for price discrimination has been used by several authors see for example aspe and giavazi 1982 ethier 1982 katz paroush and kahana 1982 and tarr 1979 katz paroush and kahana 1982 hereafter kpk used a model of a price discriminating firm which operates under price uncertainty to investigate its optimal level of output and sales in the two markets the main assumption made in kpk 1982 is that the firm determines its level of output and the allocation of sales between the two markets before the resolution of uncertainty furthermore no forward markets were available to this firm in this paper we analyze a price discriminating firm which sells its produce both in the domestic and on world markets under either exchange rate uncertainty or foreign price uncertainty this firm is a monopoly in the domestic market but a price taker on the world market our model differs substantially from the kpk model and in some cases conforms better with reality due to the following two assumptions first the firm determines its level of output before the resolution of uncertainty but decides about the optimal allocation of sales only after it observes the foreign price denominated in domestic currency secondly forward markets to share the exchange rate risk or the uncertain foreign commodity price are available and their impact on the firm s policy is analyzed hence this work integrates two strands of literature it combines studies on price discriminating firms some were mentioned above and studies on firm behavior when forward markets are available danthine 1978 holthausen 1979 katz and paroush 1979 feder just and schmitz 1980 in this paper we are mainly concerned with a firm which always exports this includes large

per capita public expenditures and population size a non parametric analysis using french data based on the median voter model we specify a flexible general framework of the effect of municipality size on per capita public expenditures previous literature has recognized that municipality size should have a non linear effect on the quality of public goods provision and to this end different papers have applied a range of alternative parametric specifications using a very large sample of french communes we are able to estimate the effect of municipality size semi parametrically in contrast with the parametric specifications we find evidence of the u shaped relationship between per capita public expenditures and population which is predicted by theory

on the existence of cournot equilibrium this paper examines the existence of n firm cournot equilibrium in a market for a single homogeneous commodity it proves that if each firm s marginal revenue declines as the aggregate output of other firms increases which is implied by concave inverse demand then a cournot equilibrium exists without assuming that firms have nondecreasing marginal cost or identical technologies also if the marginal revenue condition fails at a potential optimal point there is a set of firms such that no cournot equilibrium exists the paper also contains an example of nonexistence with two nonidentical firms each with constant returns to scale production