on the demise of pigovian economics much has been written on the emergence of the keynesian and hicksian research programs in the 1930s yet the demise of the marshallian research program to the extent that it was preserved extended and or amended by pigou has attracted little attention as a result arthur cecil pigou who contributed extensively to the theories of welfare economics 58 54 and unemployment 57 56 53 48 47 is seldom credited with more than discovering the divergence between social and private costs and developing such concepts as the pigovian tax or the pigou effect a broader more encompassing view of pigovian economics deserves our attention on at least two grounds first recent literature argues that modern welfare economics is no more scientific than the pigovian analysis it meant to replace 59 16 on methodological grounds therefore the advantages of modern welfare economics over its pigovian counterpart are not obvious pigovian welfare analysis however does possess a nontrivial welfare criterion2 which deals with issues concerning both equity and efficiency 3 pigou s welfare economics therefore can be found relevant to the growing literature on social choice inequality and income distribution 70 the second basis for continued interest in pigou s economic analysis is his extensive treatment of unemployment which has received much less attention than his welfare writings perhaps because it is befogged by many undeserving myths this work however is important for macro

the money supply announcements puzzle comment in a recent paper in this review 1983 bradford cornell presented a survey of existing literature on the empirical relationship between weekly money supply announcements made by the federal reserve and changes in the spot prices of several financial instruments at the time of the announcement cornell sought to unify and extend the work done in this area by estimating a number of relationships which bear directly on this issue among his main conclusions are that asset markets are efficient with re spect to money supply announcements since only the unexpected component of the announcement is correlated with price changes and that the unexpected compo nent of money supply announcements has a highly significant positive correlation with short term interest rates but only after the october 6 1979 change in fed policy p 651 both of these conclusions are at vari ance with results reported in similar studies by jacob grossman 1981 v vance roley 1982 and thomas urich and paul wachtel 1981 all three find that unanticipated announcements matter in periods before october 6 1979 and roley and urich wachtel find that anticipated announcements matter in at least some of their regressions this abstract was borrowed from another version of this item

endogenous quality differentiation in congested markets firms selling a product with congestion externalities to a heterogeneous population of customers have an incentive to offer differentiated levels of quality in a price competitive market differentiation arises endogenously through the prices chosen by firms in equilibrium firms offer a range of prices which induce an efficiency improving range of quality levels and allow customers to self select their preferred price quality combinations additional results suggest that with many firms in the market the choice of prices dominates the choice of service capacities in determining congestion levels copyright 1991 by blackwell publishing ltd

an equilibrium queuing model of bribery it is sometimes argued that bribery is inefficient because bureaucrats may cause delays for attracting more bribes this hypothesis is examined in the context of a queue where customers having different values of time are ranked by their bribe payments to the queue s server the nash equilibrium strategies of the customers are derived it is shown that the server is unlikely to slow down the allocation process when bribery is allowed the model does not have stringent informational requirements and the equilibrium outcome minimizes the average value of time costs of the queue it also suggests a useful auctioning procedure

corruption is bad for growth even in the united states we estimate the impact of corruption on growth of output per worker in u s states we improve on existing studies of the cost of corruption by using a better specified empirical model focusing on a study population that is less likely to be affected by parameter heterogeneity and controlling for endogeneity using political variables to instrument for corruption we find that corruption plays a significant and causal role in lowering growth and investment across the states

is corruption grease grit or a gamble corruption increases variance of productivity across countries the effect of corruption on economic growth has attracted interest in empirical development economics the conventional view of corruption as impediment for growth has been challenged by the grease on the wheels hypothesis we take a new perspective on the issue and suggest corruption as macro risk referred to as a gamble hypothesis using cross country data and two alternative indicators of corruption we find corruption to be a significant driver of heteroscedasticity in total productivity this supports the new gamble hypothesis we also note some misleading interpretations in the previously published frontier applications to avoid these shortcomings we apply a flexible semi nonparametric estimator

the incidence and persistence of corruption in economic development abstract economic development and bureaucratic corruption are determined jointly in a dynamic general equilibrium model of growth bribery and tax evasion corruption arises from the incentives of public and private agents to conspire in the concealment of information from the government these incentives depend on aggregate economic activity which in turn depends on the incidence of corruption the model produces multiple development regimes transition between which may or may not occur in accordance with recent empirical evidence the relationship between corruption and development is predicted to be negative

balance of trade announcements and movements in exchange rates there is a growing literature on the effect of economic news on foreign exchange rates the effects of weekly money supply announcements on exchange rates have been empirically investigated by a number of researchers over a variety of periods 1 2 3 4 7 11 12 13 the response of foreign exchange rates to other types of economic information has also been studied for example dornbusch 5 uses innovations in the current account cyclical factors and interest rates frenkel 10 uses innovations in interest rate differentials edwards 6 uses innovations in money real output and real interest rates most recently hardouvelis 14 studies the market response of three interest rates and seven exchange rates to economic news on fifteen economic aggregates including monetary announcements inflation rate announcements and announcements reflecting the stage of the business cycle this paper studies short run movements in foreign exchange rates to the commerce department s monthly announcements of the u s balance of merchandise trade it extends previous studies of foreign exchange response to economic news in three ways first by studying the response to the trade announcement which occurs two months after the month to which the announcement refers the paper provides a more precise measure of the response to the news content of trade related announcements than earlier studies this for instance is an improvement over dornbusch s 5 definition of current account news as the innovation in the actual oecd organization for economic co operation and development biannual current account estimates second the paper studies not only movements in spot rates to the announcement but calculates the movements in forward premiums to this information by studying the response in forward premiums to the merchandise trade announcements the paper examines whether the information in the announcements implies effects that operate through capital flows and interest rates in addition to responses that operate through the flow of merchandise trade

priority auctions and queue disciplines that depend on processing time we analyze the allocation of priority in queues via simple bidding mechanisms in our model the stochastically arriving customers are privately informed about their own processing time they make bids upon arrival at a queue whose length is unobservable we consider two bidding schemes that differ in the definition of bids these may reflect either total payments or payments per unit of time and in the timing of payments before or after service in both schemes a customer obtains priority over all customers waiting in the queue or arriving while he is waiting who make lower bids our main results show how the convexity concavity of the function expressing the costs of delay determines the queue discipline i e shortest processing time first spt longest processing time first lpt arising in a bidding equilibrium

waiting line auctions if prizes are to be awarded simultaneously at a specified time on a first come first served basis then individuals who queue for them will choose different waiting times through their arrivals at the queue this choice of arrival time at a queue is similar to the choice of a sealed tender in an auction an equilibrium for this waiting line auction is obtained here using methods for analyzing sealed tender auctions when individuals are risk neutral it is shown that several alternative waiting line allocation procedures result in the same transactions cost associated with waiting in line

an efficiency and welfare classification of rationing by waiting in the presence of bribery abstract governments often allocate commodities at low prices and on a first come first served basis rationing by waiting while bureaucrats who distribute the commodities usually take bribes a model is developed to classify the efficiency implications of bribery and socially optimal pricing schemes in rationing by waiting if the rationed good and individual income spent on other goods other income are complements then bribery may enhance allocative efficiency and a dual pricing scheme can augment social welfare however if the rationed commodity and other income are substitutes then bribery may not improve allocative efficiency and distributing the rationed commodity free is socially optimal

corruption and development a review of issues in this paper we start with a discussion of some of the different denotations of the problem of corruption we then consider the ways in which the damaging consequences of corruption operate in a developing economy while not ignoring its possible redeeming features in some cases we pursue the question of why corruption is perceptibly so different in different societies and also persistent finally we examine the feasible policy issues that arise in this context

state governance evolution in resource rich transition economies an application to russia and kazakhstan following a decade of transition in the former soviet union fsu governance of the oil and gas sectors has evolved to economic nationalism in the newly independent states this has manifested itself through greater direct state ownership or participation in oil and gas production at the expense of both domestic in the case of russia and international oil companies as well as legislative developments that increase the flow of oil and gas value to the state here we analyse some of the dynamics giving rise to economic nationalism within a model of a state capacity and the ability to implement policy and extract value our analysis is based on the institutional and economic functioning of the oil and gas sector we analyse a vector of institutions and examine production sharing agreements and national oil companies

on controlling crime with corrupt officials abstract this paper attempts to synthesize the recently developed strategic approach towards modeling corruption and the classical views the following propositions are sought to be proved a if reward schemes are introduced the classical and the strategic approaches yield similar results so far as controlling crime is concerned b with probability of detection being dependent on the effort of a corrupt official crime cannot be controlled and c in the context of an infinitely repeated game of crime the corrupt law enforcing agent might choose less bribes and lower effort level than the myopic optimal and hence would strategically pamper crime

market response to the weekly money supply announcements in the 1970s the hypothesis that the weekly announcement of the money supply affects interest rates is examined the announcement effect is interpreted as a policy anticipation effect that is an unanticipated increase in the money supply leads to an increase in interest rates in anticipation of future tightening by the federal reserve estimates of this effect with proxies for the unanticipated change constructed from a survey of money supply forecasts and an arima model indicate that a financial markets respond very quickly to the announcement and b the response was largest when policymakers emphasized the importance of the monetary aggregates financial market participants are careful observers of the weekly money supply announcement and generally agree that the announcement often leads to changes in interest rates this occurs because the announcement leads market participants to revise their expectations both of future federal reserve policy actions and of future economic conditions in this paper we examine the response of yields on treasury bills to the announcement of the money supply and the extent to which that response has varied in the last ten years money supply announcements may affect market interest rates in three ways first actual expansion of the money supply leads to lower interest rates through a liquidity effect however rapid monetary growth which is not anticipated leads market participants to expect the federal reserve to counteract such growth in the future as a consequence there may be a policy anticipation effect which causes higher interest rates in anticipation of future tightening furthermore prolonged rapid monetary growth also creates inflation and inflationary expectations which lead to higher interest rates thus there may exist a third effect the inflationary expectations effect which also leads to higher interest rates our interest in this paper is in the immediate market response to the weekly announcement of the money supply which as we argue below is most likely to be a policy anticipation effect the policy anticipation effect is best described by example suppose that the announced change in the money supply exceeds that which was expected by

clientelism corruption and the allocation of resources corruption has been shown to have more serious effects upon allocation than simply drawing resources into rent seeking activities if politicians anticipate gains from corruption in the policy making process sub optimal policies will be the result typical examples include excessive nationalization of industry excessive regulation of the private sector through practices such as licensing and quotas with a view to extract the rent created by these measures in addition further misallocation will result at the execution state it has been shown that the revisionists were wrong in assuming that licenses and contracts will be allocated to the most efficient producers that rent will be eliminated in government employment and that corruption increases the efficiency of the bureaucracy moreover differential access to government services leads to additional allocative losses

incentive compatible pricing for a service facility with joint production and congestion externalities this paper considers the pricing problem of a service facility when services are jointly produced by the customers and the facility building on the work of mendelson 1985 we model the facility as a gi gi 1 queue with customer chosen service rates and linear delay costs we show that the service rates chosen by the customers based on their self interest are always suboptimal for the facility due to congestion externalities we derive optimal incentive compatible pricing schemes that can achieve optimal arrival rates and induce customers to choose optimal service rates for the case of systemwide net value maximization we show that the optimal incentive compatible pricing scheme consists of a variable fee that is proportional to the actual service time and a fixed rebate that is equal to a customer1s expected delay cost in the queue for the case of profit maximization of the facility we show that the optimal pricing scheme again consists of a fixed fee and a variable fee one insight from our analysis is that it may be appropriate for a service facility to reimburse each customer for his actual delay cost in the queue

how does corruption affect public debt an empirical analysis summary this paper investigates the relationship between corruption the shadow economy and public debt it additionally examines whether the shadow economy increases the adverse effects of corruption on public debt the model is empirically tested for 126 countries over 1996 2012 using ordinary least squares ols fixed effects system generalized method of moments gmm and instrumental variable estimation and two measures of corruption the transparency international corruption perceptions index and the kaufmann et al corruption index results confirm that increased corruption and a larger shadow economy lead to an increase in public debt results additionally indicate that the shadow economy magnifies the effect of corruption on public debt suggesting that they act as complements results also suggest that a larger shadow economy reduces tax revenues and thus increases public debt similarly higher government expenditure enhances the effects of corruption on government debt hence reducing corruption should be a primary policy goal of governments given the complementarity detected between corruption and the shadow economy reducing corruption would also lead to a fall in the size of the shadow economy and public debt reducing corruption will also minimize the adverse effects of corruption on government debt through government expenditure

news driven business cycles insights and challenges there is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations the news view of business cycles offers a formalization of this perspective in this paper we discuss mechanisms by which changes in agents information due to the arrival of news can cause business cycle fluctuations driven by expectational change and we review the empirical evidence aimed at evaluating their relevance in particular we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations while at the same time we emphasize the many challenges that must be addressed before a proper assessment of the role of news in business cycles can be established jel d83 d84 e13 e32 o33

ownership risk investment and the use of natural resources the effect of insecure ownership on ordinary investment and natural resource use is examined insecure ownership is postulated to depend on the type of government regime in power and the prevalence of political violence or instability the political determinants of economy wide investment are estimated from cross country data and the results are used to form an index of ownership security when introduced into empirical models of natural resource use this index has a significant and quantitatively important effect on the use of forests and petroleum contrary to conventional wisdom ownership risk slows resource use in some circumstances

a dynamic model of corruption deterrence abstract this paper presents a model of corruption deterrence with a simple overlapping generations structure built into it a crucial assumption is that when corruption becomes more prevalent in the economy it is harder to audit a corrupt official effectively it is shown that this assumption may give rise to several stationary equilibrium levels of corruption this possibility has been exploited to explain why sometimes a government may temporarily resort to an extremely severe deterrence policy and why the same deterrence scheme may imply quite different levels of corruption a case study is provided to give empirical support to the model

distribution and development in a model of misgovernance abstract this paper presents an analysis of bureaucratic corruption income inequality and economic development the analysis is based on a dynamic general equilibrium model in which bureaucrats are appointed by the government to implement a redistributive programme of taxes and subsidies designed to benefit the poor corruption is reflected in bribery and tax evasion as bureaucrats conspire with the rich in providing false information to the government in accordance with empirical evidence the model predicts a positive relationship between corruption and inequality and a negative relationship between corruption and development

corruption types of corruption and firm financial performance new evidence from a transitional economy using a nationwide survey of provincial institutional quality and a sample of private manufacturing small and medium scale enterprises the smes this paper contributes to the literature by considering for the first time the effects of corruption on the financial performance of vietnamese private smes interestingly contrary to previous findings we find that corruption when measured by a dummy variable does not affect firms financial performance after controlling for heterogeneity simultaneity and dynamic endogeneity however the intensity of bribery and the majority of the forms of corruption were found to have negative impacts on firms financial performance hence a typical approach using only a dummy variable for bribery might not adequately evaluate the impact of bribe intensity or even ignores the negative impacts of some types of bribes on firms financial performance the findings suggest that anti corruption measures are vital for the development of the vietnamese private smes

why economic reforms fail in the soviet system a property rights based approach jan winiecki why do economic reforms fail in soviet type systems despite the obvious interest of ruling groups in improving the performance of their ailing economies the author applies a property rights based analysis stressing modes of rent maximization by ruling groups as a crucial explanatory variable party apparatchiks and economic bureaucrats particularly benefit from persistent interference in the economic sphere and consequently are most interested in maintaining the status quo the author surveys the impact of these motivations on the content of economic reforms outlines the strategies of counterreformers and predicts the future of reforms in soviet type economies 1 introduction in analyzing the disequilibrium characteristics of contemporary western economies mancur olson 1982 1984a 1984b agrees with the neoclassical macroeconomists in finding that given the tendencies of markets to clear and given the rational expectations of economic agents any disequilibrium indicates that all mutually advantageous transactions have not been consummated having made this point however he asks what can make agents ignore the potential gains from unconsummated transactions and turns his attention toward the structure of incentives and thus of institutions and policies olson insists and rightly so that a satisfactory static and dynamic macroeconomic theory has to explain who among key actors has the incentive to generate economic growth and equilibrate the economy and who does not furthermore no government even an authoritarian one has an incentive to generate serious recessions or disequilibria olson 1984a 637 writes that even in dictatorial systems the dictator has an incentive to make the economy of the country he controls work better since this will generate more tax receipts he can use as he pleases and usually also reduce dissent olson s arguments about incentives institutions and disequilibria offer an ideal basis for an inquiry into why reforms fail in soviet type economies stes in olson s theories of incentives the old roman principle of criminal law cui prodest who gained is applied to modem economies and the results suggest that contrary to widespread opinion it is not necessarily the small but powerful group of high and highest leaders that stands to gain most in terms of power and privilege from the preservation of the existing order a powerful political elite could satisfy its desires for both power and privilege through an alternative undemocratic system one which involves authoritarian don ts rather than totalitarian do s in that perspective the inefficient system of economic control typical in stes involving centrally planned production goals and input rationing would not be a condition sine qua non of an authoritarian solution since totalitarian command and control systems persist however one must seek groups other than the powerful and privileged few which have incentives to resist reforms and keep the economy inefficient the following sections identify the membership and motives of groups having strong incentives to keep the stes inefficient and prevent successful i e market oriented reforms we show how those groups operate and analyze their effects on the economic performance of their countries first the incentives for these groups to prevent decentralized management in the state sector are spelled out then their incentives to prevent the expansion of the more efficient private sector are outlined third having identified who benefits from the status quo and why the paper discusses when and how market oriented reforms are aborted limited or reversed by those who stand to gain from the reforms failure the last two sections consider the prospects of current attempts at economic reform in three specific countries poland the ussr and china and the prospects for economic reform in stes more generally

a model of bureaucracy and corruption we analyze bureaucracy and corruption in a market with decentralized exchange and lemons exchange is modeled as a sequence of bilateral random matches agents have private information about the quality of goods they produce and can supplement trade with socially inefficient bribes bureaucracy is modeled as a group of agents who enjoy centralized production and consumption transaction patterns between the bureaucracy and the private sector are fully endogenous centralized production and consumption in the bureaucracy give rise to low power incentives for the individual bureaucrats as a result private agents might bribe bureaucrats whereas they do not bribe each other an equilibrium with corruption and an equilibrium without corruption can coexist we discuss some welfare implications of the model

moonlighting public service and private practice we study job incentives in moonlighting when public service physicians may refer patients to their private practices some doctors in the public system are dedicated and behave sincerely but others the moonlighters are utility maximizers allowing moonlighting always enhances aggregate consumer welfare but equilibrium public care quality may increase or decrease if quality increases moonlighting improves each consumer s expected utility unregulated moonlighting may reduce consumer welfare as a result of adverse behavioral reactions such as moonlighters shirking more and dedicated doctors abandoning their sincere behavior price regulation in the private market limits such adverse behaviors in the public system and improves consumer welfare

the signalling role of base and money announcements and their effects on interest rates abstract this paper demonstrates that unexpected changes in the announced monetary base have an impact on interest rates above and beyond the impact of unexpected changes in the announced money supply in addition both money supply and monetary base announcements are shown to have a significant signalling role for subsequent changes in monetary aggregates however in contrast to several leading hypotheses it appears that the observed link between monetary announcements and interest rates is not attributable to the signals that announcements provide about the subsequent behavior of money and the base

the russian oil industry between public and private governance obstacles to international oil companies investment strategies the low level of involvement by international oil companies in russia seems difficult to explain given what development of its resources and production has to offer there are still many restrictions and contradictions born of the particular institutional and political environment of the russian oil industry at the end of 15 years of transition that act as a bar to international integration three factors currently define the establishment of relations with foreign investors first because of the many different levels of negotiation with russian companies the state and the regions the decisions are based on complex relations between the various forces second the reforms and especially privatisation and the allocation of rights of ownership to deposits are considered by sizeable sections of public opinion and many political classes to be illegitimate thus making the issue of international investment and foreign presence still more complicated finally the state s wish to take back the oil industry in order to use it to fulfil its economic and foreign policies is creating further uncertainty these three elements seriously restrict the entry of international oil companies to the russian market

how corruption influences foreign direct investment a panel data study abstract this article analyzes the sign and development of the effect of corruption on foreign direct investment fdi economic theory distinguishes grabbing hand corruption from helping hand corruption the former suggests a negative impact of corruption on fdi the latter one a positive effect empirically we apply a data set of 21 home and 59 developed and less developed host countries covering between 1983 and 1999 to investigate the corruption impact we employ a panel data model that particularly refers to the knowledge capital model of multinational activity we find a negative relationship between corruption and fdi this in turn suggests that the helping hand effects of corruption are outweighed by the grabbing hand effects further we observe that corruption is an important impediment of fdi in developed economies but not in less developed ones finally we demonstrate that the importance of corruption has decreased over the years

pigou on expectations and the cycle 3 asymmetrical errors due to psychological causes could be a separate source of fluctuations and what is mqre could be set up in response to the monetary factors in 2 in order to establish these points it will be necessary to quote from pigou s more substantial works on macro economics industrial fluctuations if the theory of unemployment tu and employrn nt and equilibrium ee his treatment of expectations was by no means incidental for

resource nationalism and credit growth in fsu countries this paper analyses the connection between resource nationalism and financial sector intervention in the fsu countries we consider recent financial development in the fsu and the special features of energy rich emerging economies russia and kazakhstan in particular which are influencing recent credit expansions we find that the hydrocarbon sector has boosted boosting domestic credits through a number of direct and indirect routes recent decline in oil prices may change government attitudes to a continued resource nationalist strategy sovereign wealth funds that were established in a majority of energy rich emerging economies may to the extent that they enable the selection of winners in specific economic sectors create path dependency or exacerbate longer term allocative inefficiency arising from the governance structure associated with resource nationalism

deals and delays firm level evidence on corruption and policy implementation times whether demands for bribes for particular government services are associated with expedited or delayed policy implementation underlies debates around the role of corruption in private sector development the grease the wheels hypothesis which contends that bribes act as speed money implies three testable predictions first on average bribe requests should be negatively correlated with wait times second this relationship should vary across firms with those with the highest opportunity cost of waiting being more likely to pay and facing shorter delays third the role of grease should vary across countries with benefits larger where regulatory burdens are greatest the data are inconsistent with all three predictions according to the preferred specifications ceteris paribus firms confronted with demands for bribes take approximately 1 5 times longer to get a construction permit operating license or electrical connection than firms that did not have to pay bribes and respectively 1 2 and 1 4

good and bad institutions is the debate over cross country firm level evidence from the textile industry using firm level data from nine developing countries we demonstrate that certain institutions like restrictive labour market regulations that are considered bad for economic growth might be beneficial for production efficiency whereas good business environment which is considered beneficial for economic growth might have an adverse impact on production efficiency we argue that our results suggest that there might be significant difference in the macro and micro impacts of institutional quality such that the classification of institutions into good and bad might be premature

social security payments money supply announcements and interest rates abstract a monthly cycle existed in initially announced changes in seasonally adjusted m1 for a period extending at least from september 1977 to february 1984 this cycle was the source of systematic errors in the widely used money market services forecast of m1 such errors can induce a spurious relation between interest rates and expected changes in the money supply when the survey forecasts are corrected to eliminate systematic errors the apparent negative relation between interest rates and expected money supply changes disappears interest rates were not systematically related to either anticipated or unanticipated money supply changes during the period february 1984 to december 1986

bureaucratic corruption and endogenous economic growth there appears to be significant diversity in the incidence of bureaucratic corruption across countries at different stages of economic development and under different political and economic regimes little theoretical or empirical analysis has been offered however on the link between corruption government and growth the paper attempts to fill the void through equilibrium models of endogenous growth balanced growth is derived as a balancing act between accumulating human capital which engenders growth and accumulating political capital which mainly assures bureaucratic power the analysis focuses on the interplay between investment in these two types of capital and its implications for long term growth under alternative political regimes some propositions are tested and confirmed empirically