the logic of institutional preferences german electoral law as a social choice outcome institutions determine the results of social decision processes yet institutions are themselves endogenous products of earlier social choices this paper explores the hypothesis that participants in the choice of institutions seek alternatives that favor their desired policies the choice of institutions can be analyzed in terms of bargaining between individuals or parties where preferences derive from preferences over policy and bargaining is structured by existing institutions this approach is used to study the choice of an electoral system in germany after world war ii the hypothesis that parties choose electoral institutions to maximize their future policy influence explains both the adoption of proportional representation in 1949 and the switch to a two vote ballot in 1953

measuring the compactness of political districting plans abstract we develop a measure of compactness based on the distance between voters within the same district relative to the minimum distance achievable which we coin the relative proximity index any compactness measure that satisfies three desirable properties anonymity of voters efficient clustering and invariance to scale population density and number of districts ranks districting plans identically to our index we then calculate the relative proximity index for the 106th congress which requires us to solve for each state s maximal compactness a problem that is nondeterministic polynomial time hard np hard the correlations between our index and the commonly used measures of dispersion and perimeter are 37 and 29 respectively we conclude by estimating seat vote curves under maximally compact districts for several large states the fraction of additional seats a party obtains when its average vote increases is significantly greater under maximally compact districting plans relative to th

ex day behavior with dividend preference and limitations to short term arbitrage the case of swedish lottery bonds abstract swedish lottery bonds offer a unique opportunity to study ex day effects in an environment where cash distributions are tax advantaged relative to capital gains thus in the lottery bond market we observe a reversal of the preference for capital gains that researchers have cited as an explanation for the ex day behavior of u s equities further in this market there are barriers to short term arbitrage when prices do reflect the tax preferences of individual investors we find the bonds are priced around the ex day to reflect differential tax rates on income and capital gains consistent with the prevailing tax regimes the bonds consistently experience negative returns over the coupon payment period and in fact often sell at negative yields prior to the cash distribution as one would expect given tax motivated trading between high tax investors who buy prior to the distribution and low tax investors who buy after the distribution

the behavior of risk and market prices of risk over the nasdaq bubble period we exploit the information in the options market to study the variations of return risk and market prices of different sources of risk during the rise and fall of the nasdaq market we specify a model that accommodates fluctuations in both risk levels and market prices of different sources of risk and we estimate the model using the time series returns and option prices on the nasdaq 100 tracking stock our analysis reveals three key variations during the period from march 1999 to march 2001 first return volatility increased together with the rising nasdaq index level even though the two tend to move in opposite directions second although the market price of diffusion return risk averages around 1 82 over the whole sample the estimates reached negative territory at the end of 1999 the estimates reverted back to highly positive values after the collapse of the nasdaq market third the market price of jump risk increased with the rising nasdaq valuation and this increase in market price coincided with an increased imbalance in open interest between put and call options

consumption commitments and employment contracts we examine an economy in which the cost of consuming some goods can be reduced by making commitments that reduce exibility we show that such consumption commitments can induce consumers with risk neutral underlying utility functions to be risk averse over small variations in income but sometimes to seek risk over large variations as a result optimal employment contracts will smooth wages conditional on being employed but may incorporate a possibility of unemployment

strategic voting in the 1996 japanese general election japan s new electoral system may or may not be good for japanese democracy but it is almost ideally designed for the study of strategic voting no other existing electoral system provides political scientists with data on such neatly separated but simultaneous single member districts smd and proportional representation pr votes using candidate level aggregate data i find strong evidence for strategic voting candidates with a good chance of winning receive more smd than pr votes and those with little chance of winning receive more pr votes strategic voting explains not only the basic pattern but also several exceptions to the rule in addition i find that a realistic but relatively inaccurate ex ante prediction of a candidate s probability of victory produces a superior explanatory model than does a perfect ex post prediction calculated from the final electoral results these results support the hypothesis that voters base their strategic voting calculations on simple cues available to them befo

an irrational party of rational members the collision of legislators reelection quest with party success in the japan socialist party this study presents a new explanation to a puzzle regarding the reluctance of the japan socialist party jsp to moderate its hard liner marxist platform the author does so by focusing on the pref

reverse contamination burning and building bridges in mixed member systems why would a candidate in a mixed member electoral system willingly forego the chance to be dual listed in the party list tier along with the single member district tier mixed member systems create a reverse contamination effect through which list rankings provide important information to voters and thus influence behavior in the nominal tier rankings signal importance of the candidate within the party and also constitute information about the likelihood that the candidate will be elected off the list tier mixed member majoritarian mmm and mixed member proportional mmp systems create different incentives for parties and candidates to send voters different signals candidates in japan s mmm burned their bridges successfully and gained more votes in new zealand s mmp sys tem parties instead built bridges between the proportional representation and nominal tiers by sending different signals to voters through list rankings

spatial equilibrium with entry this paper examines spatial equilibrium in political competition when established parties choose their platforms competitively while rationally anticipating entry of a vote maximizing third party the resulting equilibrium is substantially different from the hotelling median equilibrium established parties are spatially separated and third parties will generally lose the election this provides one theoretical explanation for the stability of two party systems namely that non cooperative behavior between established parties can effectively prevent third parties from winning

electoral origins of japanese socialists stagnation why did the japan socialist party jsp cling to its original leftist policies for so long traditionally the jsp s failure to become a credible alternative to the liberal democratic party ldp has been explained in terms of either the legacy of its disastrous coalition experience in the early postwar years the party s organizational reliance on unionized labor or its nervousness about the reactionary element in the ldp none of these existing explanations is convincing given that the adherence to its leftist policies had self defeating electoral consequences for the jsp this article explores an alternative explanation and provides empirical evidence which illustrates the link between the jsp s misfortune and the japanese electoral system existing from 1947 to 1994

estimating the demand for a new technology bt cotton and insecticide policies this article examines the potential demand for bt cotton in the southeast from information gathered in the first year of commercialization we combine revealed preference rp data on adoption of bt cotton varieties with stated preference sp data on willingness to adopt to estimate demand using a double bounded maximum likelihood procedure using estimated demand equations we simulate the costs of reducing conventional insecticide applications through subsidization of bt cotton results indicate that reducing cotton insecticide applications by 40 in the southeast would require a 21 acre subsidy with total annual program costs between 53 million and 60 million

a time series analysis of representative agent models of consumption andleisure choice under uncertainty this paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime separable the nonseparability of preferences accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked these cross relations are examined empirically using postwar monthly u s data on quantities real wages and the real return on the one month treasury bill the estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models several possible explanations of these discrepancies are discussed

a statistical model for multiparty electoral data we propose an internally consistent and comprehensive statistical model for analyzing multiparty district level aggregate election data this model can be used to explain or predict how the geographic distribution of electoral results depends upon economic conditions neighborhood ethnic compositions campaign spending and other features of the election campaign or characteristics of the aggregate areas we also provide several new graphical representations for help in data exploration model evaluation and substantive interpretation although the model applies more generally we use it to help resolve an important controversy over the size of and trend in the electoral advantage of incumbency in great britain contrary to previous analyses which are all based on measures now known to be biased we demonstrate that the incumbency advantage is small but politically meaningful we also find that it differs substantially across the parties about half a percent for the conservatives 1 for the labor party and 3 for the liberal party and its successors also contrary to previous research we show that these effects have not grown in recent years finally we are able to estimate from which party each party s incumbency advantage is predominantly drawn

testing for risk aversion a stochastic dominance approach we conduct an experiment based on the stochastic dominance framework in order to investigate risk aversion in isolation of other effects such as subjective probability distortion the certainty effect and framing effects the result is striking most individuals are not risk averse 2001 elsevier science b v all rights reserved

ideological extremism and electoral design multimember versus single member districts relying on a formal theoretical model gary cox demonstrates that single member districts induce candidates toward policy positions at their constituency median while multimember districts encourage dispersion we test this theoretical implication in the context of the arizona state legislature in which each legislative district chooses one senator and two representatives in single member and multimember contests respectively to do so we generate w nominate estimates of scores based on roll call data from the arizona state legislature that are comparable across chambers senate and house our results are substantially less supportive of the formal theory than are those of prior studies

macroeconomic implications of conspicuous consumption a sombartian dynamic model this chapter presents a dynamic general equilibrium model in which consumers have status preference i investigate the manner in which capital accumulation is impeded by conspicuous consumption a la corneo and jeanne j public econ 66 55 71 1997a following the literature social norms are given as either bandwagon type or snob type i then show that when the economy is characterized by a bandwagon type social norm capital accumulation exhibits interesting patterns those patterns include for example an oscillating convergence path the rise of the economy feeds its decay through conspicuous consumption and that decay suppresses conspicuous consumption and engenders prosperity as predicted by sombart liebe luxus und kapitalismus reprinted 1967 deutscher taschenbuch verlag munchen 1912

wealth inequality and asset pricing in an arrow debreu exchange economy with identical agents except for their initial endowment we examine how wealth inequality affects the equilibrium level of the equity premium and the risk free rate we first show that wealth inequality raises the equity premium if and only if the inverse of absolute risk aversion is concave in wealth we then show that the equilibrium risk free rate is reduced by wealth inequality if the inverse of the coefficient of absolute prudence is concave we also prove that the combination of a small uninsurable background risk with wealth inequality biases asset pricing towards a larger equity premium and a smaller risk free rate the model of the representative consumer a la lucas 1978 failed to explain observed security prices more specifically as first stated by mehra and prescott 1985 the model predicts an equity premium that is too low and a risk free rate that is too high given the observed low variability of consumption growth a recent strand of the literature with papers by constantinides and duffie 1996 heaton and lucas 1996 and krusell and smith 1997 for example explores whether incomplete asset markets and heterogeneity among consumers can explain these puzzles constantinides and duffie 1996 in particular conclude that it is at least in principle possible to generate larger equity premia when such ingredients are introduced the aim of this paper is not to provide another explanation of the puzzles but rather to better understand the relationship between asset prices the heterogeneity of consumers wealth and the market incompleteness when markets are complete heterogeneous consumers are able to equalize their marginal rates of substitution across states and across time as shown by constantinides 1982 this implies that the equilibrium of the heterogeneous consumer economy can be duplicated by the equilibrium in a lucas economy with a representative agent this means that taking account of the heterogeneity in the population alone cannot explain why the representative agent model is rejected hansen and singleton 1982 this does not mean however that the distribution of wealth in the population for example has no effect on asset prices in general in order to understand this consider the departure from an egalitarian distribution of wealth by introducing a mean preserving transfer of endowment under decreasing absolute risk aversion poorer agents will be more risk averse whereas wealthier people will be less risk averse there is no reason a priori for that the group s attitude towards risk be unaffected by this transfer we first show that if absolute risk tolerance i e the inverse of the arrow pratt coefficient of absolute risk aversion is concave then the risk aversion of the agent with the mean wealth will be smaller than the risk aversion of the representative agent thus if an outside observer overlooks wealth inequality he consequently underestimates the aversion to risk of society this leads to

market constraints as a rationale for the friedman savage utility function since the classic paper by friedman and savage 1948 it has generally been accepted that the observed fact that individuals or firms participate in unfair lotteries and other forms of unfair risk taking may be explained by a section in the individual s utility function in which the individual shows risk preference rather than risk aversion in their model friedman and savage specify a utility function which is in turn concave convex and concave thus allowing for simultaneous purchase of insurance risk aversion and participation in lotteries risk preference however while their specified utility function is indeed capable of explaining observed behavior it does seem to be rather unsatisfactory in that it is an ad hoc specification it is the purpose of this paper to suggest a set of circumstances which give rise to a friedmansavage type utility function in particular it is shown that when certain capital market imperfections exist the utility function defined over intermediate wealth should be distinguished from and may have different properties than the one defined on final wealth then even if we accept the common assumption made in the literature that individuals are risk averse that is that their utility function is concave over final wealth it is still possible that they participate in unfair gambling and of course may also purchase insurance

interaction effects in mixed member electoral systems theory and evidence from germany japan and italy the past decade has witnessed a surprising growth in the popularity of mixed member electoral systems under these systems voters choose representatives simultaneously under both proportional representation pr and single member district plurality smdp rules it is widely accepted that smdp rules tend to winnow competition down toward two large parties and evidence from mixed systems suggests that this duvergerian gravity reduces the number of parties surviving smdp competition under mixed systems as well nevertheless we argue simultaneous balloting under pr rules softens this winnowing effect operating as a centrifugal force that prevents duvergerian gravity from reducing competition to the degree it does under pure smdp systems thus these newsystems produce effects unanticipated by their designers to test for the presence of this centrifugal force we examine elite level electoral strategies in germany japan and italy and compare district level smdp election results from pure systems w

the mechanical and psychological effects of electoral systems a quasi experimental study having two votes for the same election or two simultaneous elections with different electoral systems provides a golden opportunity to ascertain the impact of the electoral system and to sort out t

differentiation and synergies in rural tourism estimation and simulation of the israeli market this article applies a discrete choice equilibrium model with product differentiation to study the rural tourism industry in israel and to jointly estimate the effect of lodging and farm characteristics on consumer preferences and firms costs the model accounts for heterogeneity in tastes and technologies and allows for unobservable product characteristics we find evidence for technological synergy in the joint production of agricultural goods and rural tourism services but none in the demand the differentiation in the industry is the major contributor to the price cost margin which averages 62 an additional minor cause is government regulation which restricts supply simulation results demonstrate the growth potential of the industry and show that the government can play an important role in catalyzing growth via investment subsidization deregulation of supply and information distribution

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

the effect of nesting structure specification on welfare estimation in a random utility model of recreation demand an application to the demand for recreational fishing nested logit has become common in estimating random utility models of recreation demand because welfare analysis is often the objective of estimating these models it seems natural to ask what effect does the choice of nesting structure have on the welfare estimates generated by these models therefore we compare the results of nine nesting structures andfindthat the variation in welfare estimates across the models is not large our results are contrary to those of kling and thomson and shaw and ozog the difference appears to originate with differences in the estimated dissimilarity coefficients in the nested models

toward a context rich analysis of electoral systems the japanese example theory political parties receive a greater or lesser percent of seats than their percent of the vote in an election for a variety of reasons district magnitude the type of the electoral system and strategic errors are three inherent features of an electoral system that affect seat bonuses malapportionment and turnout differentials are features specific to a country that also affect seat bonuses hypotheses if each of the above sources of seat bonuses is isolated out and measured then we will find that neither the malapportionment of the japanese electoral system nor the strategic efficiency of the liberal democratic party in japan ldp explains entirely the ldp seat bonus methods an analysis of seat bonus components using a logistic regression model and recalculations of seat bonuses after adjusting for specific factors results the ldp receives most of its seat bonus from district magnitude and to a lesser degree from malapportionment the ldp is hurt by the net effect of strategic errors and to a small degree from the influence of turnout differentials

duverger s law is working in italy in 1993 italy adopted an electoral system based largely on single member districts smd based at least in part on the hope that smds would lead to a two party system and alternation in government that idea is known in political science as duverger s law the overwhelming consensus among specialists in italian politics would appear to be that duverger s law is not working very well in italy i will argue to the contrary that duverger s law is working exactly as should have been expected although one may see little evidence of movement toward a two party system at the national level between the 1994 and 1996 elections more than 80 of electoral districts moved closer to bipolar competition between two candidates a dynamic analysis of electoral districts confirms the powerful operation of duverger s law in italy

theoretical foundations and empirical evaluations of partisan fairness in district based democracies we clarify the theoretical foundations of partisan fairness standards for district based democratic electoral systems including essential assumptions and definitions not previously recognized formalized or in some cases even discussed we also offer extensive empirical evidence for assumptions with observable implications we cover partisan symmetry the most commonly accepted fairness standard and other perspectives throughout we follow a fundamental principle of statistical inference too often ignored in this literature defining the quantity of interest separately so its measures can be proven wrong evaluated and improved this enables us to prove which of the many newly proposed fairness measures are statistically appropriate and which are biased limited or not measures of the theoretical quantity they seek to estimate at all because real world redistricting and gerrymandering involve complicated politics with numerous participants and conflicting goals measures biased for partisan fairness sometimes still provide useful descriptions of other aspects of electoral systems

behavioral portfolio theory we develop a positive behavioral portfolio theory bpt and explore its implications for portfolio construction and security design the optimal portfolios of bpt investors resemble combinations of bonds and lottery tickets consistent with friedman and savage s 1948 observation we compare the bpt efficient frontier with the mean variance efficient frontier and show that in general the two frontiers do not coincide optimal bpt portfolios are also different from optimal capm portfolios in particular the capm twofund separation does not hold in bpt we present bpt in a single mental account version bpt sa and a multiple mental account version bpt ma bpt sa investors integrate their portfolios into a single mental account while bpt ma investors segregate their port folios into several mental accounts bpt ma portfolios resemble layered pyramids where layers are associated with aspirations we explore a two layer portfolio where the low aspiration layer is designed to avoid poverty while the high aspiration layer is designed for a shot at riches

inequality lobbying and resource allocation this paper describes how wealth inequality may distort public resource allocation a government seeks to allocate limited resources to productive sectors but sectoral productivity is privately known by agents with vested interests in those sectors they lobby the government for preferential treatment the government even if it honestly seeks to maximize economic efficiency may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies broadly speaking both poorer economies and unequal economies display greater public misallocation the paper warns against the conventional wisdom that this is so because such governments are more corrupt jel d72 d78 d82 016 in this paper we propose a particular channel through which wealth inequality distorts the resource allocation process our analysis rests on four premises

electoral vulnerability and size of local governments evidence from voting on municipal mergers abstract we analyze how anticipated changes in the electoral vulnerability of municipal councilors affect their voting behavior over municipal mergers the electoral vulnerability changes due to a merger because it changes the composition of political competitors and the number of available seats in the next election we use this variation for identification and find that the smaller the increase in the electoral vulnerability of a councilor the more likely he is to vote for the merger the documented effect is not driven by the behavioral response of the voters or by party line considerations the councilors desire to avoid personal electoral competition may lead to sub optimally small municipalities from the local citizens point of view

downside loss aversion and portfolio management downside loss averse preferences have seen a resurgence in the portfolio management literature this is due to the increasing use of derivatives in managing equity portfolios and the increased use of quantitative techniques for bond portfolio management we employ the lower partial moment as a risk measure for downside loss aversion and compare mean variance m v and mean lower partial moment m lpm optimal portfolios under nonnormal asset return distributions when asset returns are nearly normally distributed there is little difference between the optimal m v and m lpm portfolios when asset returns are nonnormal with large left tails we document significant differences in m v and m lpm optimal portfolios this observation is consistent with industry usage of m v theory for equity portfolios but not for fixed income portfolios

the spirit of capitalism and optimal capital taxation abstract the paper reexamines the famous chamley judd zero capital tax theorem in model economies where the agents are endowed with the spirit of capitalism it is shown that the limiting capital income tax is not zero in general and depends on the utility specifications rather than the production technology the similar formulas of optimal capital taxes are derived in more general settings with multiple physical capitals or heterogeneous agents capitalists and workers

optimal districting with endogenous party platforms representation is one of the most important criteria by which to judge electoral systems in this paper i focus on one aspect of representative democracy the formation of electoral district boundaries it is well known that majoritarian systems give rise to highly biased seat vote curves causing representation to be less than ideal what should therefore be the optimal constituency design when the objective is to maximize voters welfare i show that when parties take account of districting while setting platforms then the district design problem reduces to a very simple rule do nothing when voters are risk neutral and when voters are risk averse choose a bias that is against the largest partisan group calibrating the model on data of the u s state legislative elections during the 1990s i show that the welfare gain due to optimal districting is very small

daily momentum and contrarian behavior of index fund investors we use a two year panel of individual accounts in an s p 500 index mutual fund to examine the trading and investment behavior of more than 91 000 investors who have chosen a low cost passively managed vehicle for savings we identify classes of momentum investors and contrarian investors we use these classes to build up behavioral factors based on contrarian and momentum flows and we show that they are relevant for pricing they perform well against a benchmark of loadings on latent factors extracted from returns

family farm dynamics in canada and israel the case of farm exits abstract canada is one of the few countries for which data exist on individual family farms over time using these data researchers have been able to show that much of the microdynamics of family farms in canada e g changes in size distribution can be attributed to farmer entry and exit however the behavioral aspects of the exit decision received little attention in the literature a comparison of canadian and israeli data could help us understand these behavioral aspects because of the vast institutional differences between the farm sectors in the two countries and the possible effect of the institutional setup on exit decisions comparison of exit patterns may enable us to identify the dependence of farmers mobility on the institutional setup this may also have policy relevance in both canada and israel exit probability decreases with the extent of off farm work we conclude that off farm work is complementary rather than a substitute for farm work perhaps due to its less volatile nature both canadian and israeli farmers over a certain age are more likely to exit as they become older which is a natural result but exit probability in canada rises much faster with age than in israel the major difference between canadian and israeli farm exit patterns lies in the farm size farm size decreases exit probability in canada but increases it in israel perhaps this is because israeli farm exits are less planned in advance than canadian exits institutional constraints on land transactions in israel may also play a role

strategic voting equilibria under the single nontransferable vote previous investigations of strategic voting equilibria in mass electorates have looked only at single member districts i shall investigate such equilibria in multimember districts operating under the single nontransferable vote system what appear to be the most natural equilibria conform to the m 1 rule according to which strategic voting in m seat districts produces exactly m 1 vote getting candidates in equilibrium any others having their support totally undercut this result provides the beginnings of a formal underpinning for reed s recent extension of duverger s law to the japanese case the model also generates specific and empirically testable hypotheses concerning the exceptions to the m 1 rule that one ought to expect in equilibrium i test these hypotheses with japanese data finally the model also reveals a type of strategic voting that is specific to multimember districts i use japanese data again to explore the empirical importance of this kind of strategic voting

differentiating mixed member electoral systems mixed member majoritarian and mixed member proportional systems and government expenditures the increasing use of mixed member electoral systems has led to an explosion of research attempting to specify their effects yet there has been no work on the economic policy effects of such systems even though this has been a significant subject of debate for scholars analyzing other electoral systems an analysis of mixed member system policy effects is problematic given the wide variation in institutional rules among different systems this article attempts to determine whether the institutional differences between mixed member majoritarian mmm and mixed member proportional mmp systems lead to differences in policy outputs the political economy literature finds that government expenditures are positively correlated with electoral system proportionality our statistical analysis of government expenditures in 17 mixed member systems between 1990 and 2000 shows that mmp systems which are more proportional than mmm systems are correlated with higher levels of government spending thus the mmm mmp

prospect theory much ado about nothing prospect theory is a paradigm challenging the expected utility paradigm one of the fundamental components of prospect theory is the s shaped value function the value function is mainly justified by experimental investigation of the certainty equivalents of prospects confined either to the negative or to the positive domain but not of mixed prospects which characterize most actual investments we conduct an experimental study withmixed prospects using for the first time recently developed investment criteria called prospect stochastic dominance psd and markowitz stochastic dominance msd we reject the s shaped value function showing thatat least 62 76 of the subjects cannot be characterized by such preferences we find support for the markowitz utility function which is a reversed s shaped function exactly the opposite of the prospect theory value function it is possible that the previous results supporting the s shaped value function are distorted because the prospects had only positive or only negative outcomes presenting hypothetical situations which individuals do not usually face and which are certainly not common in financial markets

dynamic asset allocation with relative wealth concerns in incomplete markets abstract in dynamic portfolio choice problems stochastic state variables such as stochastic volatility lead to adjustments of the optimal stock demand referred to as hedge terms or merton breeden terms by deriving an explicit solution in a two agent framework with a stochastic opportunity set we show that relative wealth concerns give rise to new hedge terms beyond the ordinary ones this is because the agents hedge against both exogenous changes in the state variable and endogenous decisions of the other agent depending on the parametrization of the model these new terms can significantly change the investors hedging demands we also show that both heterogeneity in risk aversion or relative wealth concerns can have similar effects on the heterogeneity in portfolio decisions formally we study a non cooperative non zero sum stochastic differential game for which we prove a verification theorem in a setting with an unspanned state variable

incentives in mixed member electoral systems general election laws candidate selection procedures and cameral rules mixed member systems have been characterized as encouraging politicians to balance the activities that enhance their personal reputations and those of their parties another literature challenges t

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

going it alone strategic entry under mixed electoral rules recent studies on strategic voting and entry in elections that combine plurality or majority and proportional representation pr have found candidate placement in single member district smd races to improve a party s pr performance the primary implication of the existence of contamination effects is that parties have an incentive to nominate candidates in as many single member districts as possible pre electoral coordination in the majoritarian component of mixed electoral systems however is far from uncommon in this article we identify a number of institutional incentives that induce political parties to form pre electoral alliances in spite of contamination effects by identifying institutions that favor and hamper coordination we seek to advance the understanding of pr smd interactions and to assess their implications for the design classification and empirical analysis of mixed electoral rules our statistical tests evaluate strategic entry in a diverse sample of countries

centripetal and centrifugal incentives in electoral systems this paper investigates how electoral laws affect the position taking incentives of parties and candidates it seeks to extend the finding presented in the classical median voter theorem to a wide class of electoral systems or to show the limits of such extension the factors examined are the district magnitude the electoral formula the number of votes each voter is allowed to cast whether voters can cumulate their votes and whether voters can partially abstain i suggest a crude division of electoral systems into those producing predominantly centripetal incentives and those producing predominantly centrifugal incentives among the factors found to produce centripetal incentives at least in noncumulative systems are the following increases in the number of votes per voter outlawry of partial abstention and decreases in the district magnitude in systems allowing the cumulation of votes matters are a bit different

the valuation of nonsystematic risks and the pricing of swedish lottery bonds swedish government lottery bonds have coupon payments determined by lottery they offer a unique opportunity to study a security with uncertain payoffs having a known observable distribution the risk associated with the lotteries is idiosyncratic by construction and should not command a risk premium in equilibrium the bonds are traded in two forms allowing us to evaluate the rewards to bearing extra lottery risk despite its idiosyncratic nature we find prices appear to reflect aversion to this risk we evaluate the empirical determinants of this differential pricing and possible explanations for it article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

keeping one step ahead of the joneses status the distribution of wealth and long run growth assuming that the utility of each agent depends on its relative wealth position in the society this chapter constructs an endogenous growth model it is shown that even if the subjective discount rates differ across agents there exists a unique balanced growth equilibrium in which each agent owns a positive share of the world wealth it is also shown that if the agents are identical then an increase in savings incentives always raises the long run growth rate but if they are heterogeneous then an increase in savings incentives may lower the long run growth rate

rational expectations equilibrium with conditioning on past prices a mean variance example abstract the paper uses an intertemporal mean variance model of the market for a dividend paying risky asset to analyse rational expectations equilibria when all agents condition their expectations on past rather than current prices the main result shows that if the time span between successive market periods is short the market will approximate full informational efficiency arbitrarily closely yet the returns to being informed are bounded away from zero this contrasts with the grossman stiglitz proposition that markets cannot come close to informational efficiency if the acquisition of information is costly

allocative efficiency of markets with zero intelligence traders market as a partial substitute for individual rationality we report market experiments in which human traders are replaced by zero intelligence programs that submit random bids and offers imposing a budget constraint i e not permitting traders to sell below their costs or buy above their values is sufficient to raise the allocative efficiency of these auctions close to 100 percent allocative efficiency of a double auction derives largely from its structure independent of traders motivation intelligence or learning adam smith s invisible hand may be more powerful than some may have thought it can generate aggregate rationality not only from individual rationality but also from individual irrationality

on the theory of strategic voting many analyses of plurality rule elections predict the complete coor dination of strategic voting and hence support for only two candidates here i suggest that stable multi candidate support will arise in equilibrium a group of voters must partially coordinate behind one of two challenging candidates in order to dislodge a disliked incumbent in a departure from existing models the popular support for each challenger is uncertain this support must be inferred from the private observation of informative signals such as the social communication of pref erences throughout the electorate or the imperfect observation of opinion polls the uniquely stable voting equilibrium entails only limited strategic voting and hence incomplete coordination this is due to the surprising presence of negative feed back an increase in the degree of strategic voting by others reduces the incentives for an individual to vote strategically the incentive to vote strategically is lower in relatively marginal elections after controlling for the distance from contention of a trailing preferred challenger a calibration of the model applied to the uk general election of 1997 is consistent with the impact of strategic voting and the reported accuracy of voters understanding of the electoral situation it suggests that nearly 50 seats may have been lost by the conservative party due to strategic voting 1 plurality rule elections and strategic voting 1 1 strategic voting and duverger s law plurality rule elections where the winner is the candidate who receives the largest number of votes are vulnerable to strategic voting a voter might well switch away from her preferred candidate and toward a perceived leader in the hope of exerting a greater influence over the outcome of the election this phenomenon has long been the focus of both economic and political scientific study in an influential essay riker 1982b cited droop s 1871 eloquent exposition of the strategic voting problem 1 i oer my grateful thanks to the many friends colleagues seminar participants referees and editors who have oered insightful comments during the long gestation of this paper its antecedents and companion work special thanks go to steve fisher whose empirical analysis of strategic voting raised many of the questions that i seek to answer in this paper and to chris wallace this particular paper brings together much of the analysis previously circulated in the papers a new theory of strategic voting strategic voting under the qualified majority rule and idiosyncrasy information and the impact of strategic voting

electoral bias and policy choice theory and evidence this paper develops an approach to studying how bias in favor of one party due to the pattern of electoral districting affects policy choice we tie a commonly used measure of electoral bias to the theory of party competition and show how this affects party strategy in theory the usefulness of the approach is illustrated using data on local government in england the results suggest that reducing electoral bias leads parties to moderate their policies

a unified method of evaluating electoral systems and redistricting plans we derive a unified statistical method with which one can produce substantially improved definitions and estimates of almost any feature of two party electoral systems that can be defined based on district vote shares our single method enables one to calculate more efficient estimates with more trustworthy assessments of their uncertainty than each of the separate multifarious existing measures of partisan bias electoral responsiveness seats votes curves expected or predicted vote in each district in a legislature the probability that a given party will win the seat in each district the proportion of incumbents or others who will lose their seats the proportion of women or minority candidates to be elected the incumbency advantage and other causal effects the likely effects on the electoral system and district votes of proposed electoral reforms such as term limitations campaign spending limits and drawing majority minority districts and numerous others to illustrate we estimate the partisan bias and electoral responsiveness of the u s house of representatives since 1900 and evaluate the fairness of competing redistricting plans for the 1992 ohio state legislature

individual vs aggregate preferences the case of a small fish in a big pond we study the relationship between the risk preferences of individuals and the risk preferences of the aggregate economy to emphasize the vast differences that can occur between individual and market preferences brought about through aggregation we assume an economy consisting entirely of risk seekers we show that such individuals can lead to an aggregate economy that is risk averse the converse is also true an aggregate economy that exhibits risk aversion does not imply an economy of individual risk averters an economy demanding a risk premium can be formed from individuals who do not demand such compensation understanding the relationship between the preferences of individuals and the preferences of the aggregate economy is crucial for understanding the connection between the behavioral finance literature which focuses on individual preferences and the asset pricing literature which focuses on aggregate prices we discuss empirical implications of these results this paper was accepted by wei xiong finance

the spirit of capitalism and stock market prices in existing theory wealth is no more valuable than its implied consumption rewards in reality investors acquire wealth not just for its implied consumption but for the resulting social status max m weber 1958 refers to this desire for wealth as the spirit of capitalism the authors examine both analytically and empirically implications of weber s hypothesis for consumption savings and stock prices when investors care about relative social status propensity to consume and risk taking behavior will depend on social standards and stock prices will be volatile the spirit of capitalism seems to be a driving force behind stock market volatility and economic growth copyright 1996 by american economic association

status the distribution of wealth private and social attitudes to risk this paper supposes an individual cares about his her own wealth not only directly but also via the relative standing that this wealth induces the implications for risk taking are investigated in particular such a model provides a natural explanation of the concave convex concave utility described by friedman and savage however there are a number of key differences between the present model and any model based on own wealth alone for example an equilibrium wealth distribution here may have a middle class further the status interaction involves an externality and an equilibrium wealth distribution may be pareto inefficient but also about the implied relative standing in the distribution of wealth has a long but checkered history an early exponent of such ideas was of course veblen 1899 it is indeed a notion which most economists reject albeit usually without explicit comment a notable and articulate exception however is frank 1985 for example see also the references frank cites on pp 33 34 it is however a notion with substantial intuitive appeal and it seems useful to ascertain its consequences before coming to a final judgement as to its merits the present paper is concerned with deriving the consequences of such valuation of status for risk taking what seems to be the sharpest possible model is adopted here this assumes that what is essentially ordinal rank in the wealth distribution enters von neumann morgenstern utility as an argument in addi tion to wealth itself thus higher wealth increases utility not only directly but also indirectly via higher status in the interests of both simplicity and drama it is typically assumed here that all individuals have identical utility functions which are concave in wealth but convex in status section 2 discusses how the model provides a natural explanation of the fundamental phenomenon addressed by friedman and savage 1948 that individuals may simultaneously purchase insurance and participate in lotteries although each individual here has a utility function which is concave in wealth itself utility can nevertheless be convex in wealth over some range when the indirect effect via status is included this effect is enhanced by the convexity of utility in status but will follow in any case if increasing wealth entails moving up in status much more rapidly than losing wealth entails moving down it is shown

estimating the effect of tax reform in differentiated product oligopolistic markets abstract the incidence of taxation has been extensively discussed in the public finance literature but mainly within a competitive market setting or within a homogenous good cournot type oligopoly in a differentiated product oligopoly the effect of taxation can be more complex as the rate of taxation may affect not only the prices but also the profile and quality of products that are sold in the market in this paper we examine the effects of changing tax regimes in a differentiated product oligopoly in order to illustrate our approach we employ data from one such market the automobile market in israel

electoral systems and the number of parties in postcommunist states scholars studying electoral systems have consistently found that single member plurality elections tend to constrain the number of parties operating in a polity to a much greater extent than multimember proportional representation systems this article tests this hypothesis in the postcommunist context by examining the effects of proportional representation and single member district elections on the number of parties in five postcommunist states it is shown that some postcommunist states most notably poland and hungary have followed the standard pattern of party consolidation over time in reaction to incentives of electoral systems while others most notably russia and ukraine have not the author argues that the different effects of electoral systems can be attributed to different levels of party institutionalization found in postcommunist states these findings have policy implications under conditions of extreme party underdevelopment the electoral system that promotes the use of party labels proportional representation may be more effective than the plurality system in constraining the number of parties provided a legal threshold is used this runs counter to the conventional wisdom that plurality elections offer the greatest constraint on the number of parties