the effect of imf lending on the probability of sovereign debt crises abstract this paper explores empirically how the adoption of imf programs affects sovereign risk over the medium term we find that imf programs significantly increase the probability of subsequent sovereign defaults by approximately 1 5 2 percentage points these results cannot be attributed to endogeneity bias as they are supported by specifications that explain sovereign defaults and program participation simultaneously furthermore imf programs turn out to be especially detrimental to fiscal solvency when the fund distributes its resources to countries whose economic fundamentals are already weak our evidence is therefore consistent with the hypothesis that debtor moral hazard is most likely to occur in these circumstances other explanations that point to the effects of debt dilution and the possibility of imf triggered debt runs however are also possible

intrinsic motivation in public service theory and evidence from state supreme courts abstractthis paper provides a theoretical and empirical analysis of the intrinsic preferences of state appellate court judges we construct a panel data set using published decisions from all state supreme courts from 1947 to 1994 we estimate the effects of changes in judges employment conditions on a number of measures of judicial performance the results are consistent with the hypothesis that judges are intrinsically motivated to provide high quality decisions and that at the margin they prefer quality over quantity when judges face less time pressure whether from the introduction of an intermediate appellate court the weakening of electoral demands or an increased salary they write more well researched opinions that are cited more often by other judges these effects are strongest when judges have more discretion to select their portfolios of cases

to elect or to appoint bias information and responsiveness of bureaucrats and politicians in this paper we address empirically the trade offs involved in choosing between bureaucrats and politicians in order to do this we map institutions of selection and retention of public officials to the type of public officials they induce we do this by specifying a collective decision making model and exploiting its equilibrium information to obtain estimates of the unobservable types we focus on criminal decisions across us states supreme courts we find that justices that are shielded from voters influence bureaucrats on average i have better information ii are more likely to change their preconceived opinions about a case and iii are more effective make less mistakes than their elected counterparts politicians we evaluate how performance would change if the courts replaced majority rule with unanimity rule

the imf a bird s eye view of its role and operations the international monetary fund imf is the world s premier international financial institution with 184 member countries and active programmes in a significant number of them at any one time the fund attracts a great deal of attention much of it critical but the discussion is often polemic in style strongly held but frequently opposing views are expressed this survey attempts to examine in an objective way the theory and evidence relating to the fund s operations many aspects of the empirical research are relatively recent and a universal consensus is yet to emerge as a consequence there is scope for disagreement to persist however the research is also gradually clarifying many important issues the format for the survey is to examine the life cycle of imf arrangements what makes a country turn to the fund for assistance should the imf be lending what influences the outcome of negotiations and the design of programmes are imf programmes effective and why do some countries make prolonged use of imf resources for completeness there is also some discussion of the history of the imf the extent to which fund policies have been influenced by advances in economic theory and the fund s systemic role important organisational and governance issues are also covered briefly although primarily adopting an economist s perspective the survey reflects the growing recognition that in order to understand the imf s operations economics has to be combined with politics examining the imf is an exercise in applied political economy copyright 2007 the author journal compilation 2007 blackwell publishing ltd

favoring domestic firms in procurement contracts abstract this paper studies the rationale for giving preference to domestic firms in the award of government contracts when the regulator is interested in maximizing domestic welfare it is seen that in the absence of comparative advantages the regulator should discriminate in favor of the domestic firms because foreign firms profits do not enter in domestic welfare furthermore i show that the form of the discrimination function depends on the mechanism being used in order to simplify the implementation of an optimal policy the regulator should choose mechanisms based on second price auctions

the imf as a biased global insurance mechanism asymmetrical moral hazard reserve accumulation and financial crises a large literature has established that the international monetary fund imf is heavily politicized we argue that this politicization has important consequences for international reserve accumulation and financial crises the imf generates moral hazard asymmetrically reducing the expected costs of risky lending and policies for states that are politically influential vis a vis the institution using a panel data set covering 1980 to 2010 we show that proxies for political influence over the imf are associated with outcomes indicative of moral hazard lower international reserves and more frequent financial crises we support our causal claims by applying the synthetic control method to taiwan which was expelled from the imf in 1980 consistent with our predictions taiwan s expulsion led to a sharp increase in precautionary international reserves and exceptionally conservative financial policies

discriminatory public procurement policy and cost reduction incentives abstract discriminating in favor of domestic suppliers in the award of government procurement contracts is a widespread practice in this paper we extend the previous analysis of mcafee and mcmillan 1989 government procurement and international trade journal of international economics 26 291 308 and branco 1994 favoring domestic firms in procurement contracts journal of international economics 37 65 80 by considering in the same model the bidding competition stimulation effect and the favoritism effect we prove that the optimal policy can be implemented by a modified vickrey auction or by a complex modified first price auction we also consider that firms can reduce their cost by a nonobservable effort we show that taking moral hazard into account does not modify the awarding rule but that the government must use the payment rule to require a greater level of effort from the favored firm

fiscal transparency political parties and debt in oecd countries abstract many believe and argue that fiscal or budgetary transparency has large positive effects on fiscal performance however the evidence linking transparency and fiscal policy outcomes is less compelling to analyze the effects of fiscal transparency on public debt accumulation we present a career concerns model with political parties this allows us to integrate as implications of a single model three hitherto separate results in the literature on deficit and debt accumulation that transparency decreases debt accumulation at least by reducing an electoral cycle in deficits that right wing governments at least for strategic reasons tend to have higher deficits than left wing governments and that increasing political polarization increases debt accumulation to test the predictions of the model we construct a replicable index of fiscal transparency on 19 country oecd data simultaneous estimates of debt and transparency strongly confirm that a higher degree of fiscal transparency is associated with lower public debt and deficits independent of controls for explanatory variables from other approaches

how do official bailouts affect the risk of investing in emerging markets we analyze the effects of bailout expectations on sovereign bond spreads in emerging markets the non bailout of russia in august 1998 is interpreted as an event that decreased the perceived probability of future crisis lending to emerging markets if official rescues are expected to mitigate the losses of investors in the event of a crisis such an event should raise the cross country dispersion of spreads because investors pay more attention to differences in risk characteristics across countries we find strong evidence for such an effect this is consistent with the existence of investor moral hazard at least prior to 1998

a public choice approach to international organization the purpose of this paper has been to develop a positive theory of international organization which can supplement the conventional normative theory used as a positive theory the conventional approach draws much of its plausibility from the fact that it relies on the reasons given by the decision makers and reported in the media and on the lofty objections stated in the charters of international agencies the public choice approach by its very nature is precluded from accepting such evidence in some respects it must appear dismal and perhaps cynical it is a positive theory which tries to explain but just as the conventional normative theory tends also to be used as a positive theory our positive theory is likely to have normative implications as well it does not imply that international organization is generally undesirable but it can be used to emphasize the advantages of decentralized policy making and to warn against a naive internationalism which welcomes international agreements for their own sake regardless of what is being agreed upon international organization can be and is abused and the cause is not an occasional lack of virtue among politicians but a systematic built in tendency toward collusion at the expense of the citizens such collusion is not only undesirable in itself there is also the danger that it discredits and crowds out unambiguously desirable forms of international cooperation agreements to remove non market obstacles to market interdependence in the field of international trade and capital movements

equilibria in first price auctions with participation costs this paper characterizes the equilibria of first price auctions with participation costs in the independent private values environment bidders use cutoff strategies to decide whether they will participate in the auction it is shown that when bidders are homogeneous there always exists a unique symmetric equilibrium and further there is no other equilibrium when valuation distribution functions are inelastic when distribution functions are elastic at the symmetric equilibrium there exists an asymmetric equilibrium inelasticity elasticity includes concavity convexity of distribution functions as a special case we find similar results when bidders are heterogeneous

a positive theory of fiscal deficits and government debt this paper considers an economy in which policymakers with different preferences alternate in office as a result of elections government debt is used strategically by each policymaker to influence the choices of his successors if different policymakers disagree about the desired composition of government spending between two public goods the economy exhibits a deficits bias that is debt accumulation is higher than it would be with a social planner the equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re elected

government procurement and international trade abstract we model the bidding for a government contract in which there is imperfect competition each bidder is better informed about his own costs than either his rival bidders or the government and the distribution of the domestic firms costs differs from the distribution of foreign firms costs because of comparative advantage effects we find that the government minimizes its expected procurement cost by operating a price preference policy not necessarily purchasing from the lowest bidder

civil service reform abstract civil service rules governing the selection and motivation of bureaucrats are among the defining institutions of modern democracies although this is an active area of reform in the us and elsewhere economic analyses of the issue are virtually nonexistent this paper provides a welfare evaluation of civil service reform it describes the effect of reform on the interaction of politicians voters and bureaucrats and shows that society often faces trade offs between improving the bureaucracy and improving the performance of politicians my results characterize the conditions under which merit based recruitment and civil service protections such as tenure can improve welfare

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

preferences and incentives of appointed and elected public officials evidence from state trial court judges we study how two selection systems for public officials appointment and election affect policy outcomes focusing on state court judges and their criminal sentencing decisions first under appointment policy congruence with voter preferences is attained through selecting judges with homogeneous preferences in contrast under election judges face strong reelection incentives while selection on preferences is weak second the effectiveness of election in attaining policy congruence critically depends on payoffs from the job which implies that the effectiveness of election may vary substantially across public offices third reelection incentives may discourage judges with significant human capital from holding office jel d72 k41 understanding systems concerning the selection and retention of public officials and their effects on policy outcomes has long been an important issue in economics e g barro 1973 and ferejohn 1986 in this paper we compare two selection systems for public officials appointment by the head of the executive branch and election by popular votes we study the influence of the selection systems on public officials behavior focusing on state court judges and their criminal sentencing decisions specifically we quantitatively assess the separate role of preference heterogeneity versus reelection incentives in determining sentencing decisions we focus on the behavior of state court judges in the state of kansas which has within state variation in the selection systems 1 we conduct three key analyses

why a stubborn conservative would run a deficit policy with time inconsistent preferences a conservative government in favor of a low level of public consumption knows that it will be replaced by a government in favor of a larger level of public consumption we show that the resulting level of public consumption is in between the levels the two governments would choose if each were in power both in the present and in the future in particular we show that if the conservative government is more stubborn in a particular sense than the succeeding government the conservative government will borrow more than it would had it remained in power in the future

bid preference programs and participation in highway procurement auctions we use data from highway procurement auctions subject to california s small business preference program to study the effect of bid preferences on auction outcomes our analysis is based on an estimated model of firms bidding and participation decisions which allows us to evaluate the effects of current and alternative policy designs we show that incorporating participation responses significantly alters the assessment of preferential treatment policies

court politics the political economy of tort awards abstract we investigate the forces that explain why trial awards differ across the united states in 23 states judges are elected and in 10 they are elected via partisan elections elections have two important effects first defendants are often out of state nonvoters while plaintiffs are typically in state voters we predict therefore that elected judges will redistribute wealth from out of state businesses to in state plaintiffs second the realities of campaign financing require judges to seek and accept campaign funding from trial lawyers who uniformly are interested in larger awards we hypothesize that these two forces cause awards to be larger in states where the judiciary is elected rather than appointed we also hypothesize that the demand for redistribution will increase as poverty increases and thus that awards will be larger in states with greater poverty using a sample of over 7 000 cases across 48 of the 50 states we find significant evidence in support of these hypotheses

the disadvantage of tying their hands on the political economy of policy commitments incumbents are more likely to be re elected if they have a comparative advantage in the eyes of voters on some central issue this paper argues that incumbents have an incentive to avoid reforms that reduce the government s role in deciding these issues in order to increase their chances of re election this point is illustrated in the context of the choice of an exchange rate regime in an economy characterized by an inflation bias a flexible exchange rate allows the government to use monetary policy as a stabilization tool while fixed exchange rates remove the inflation bias of the economy on the one hand it is shown that a more inflation averse government may refrain from choosing fixed exchange rates in order to capitalize on the inflationary reputation of its opponent this incentive is contrasted with the opposite incentive to tie the hands of the future government should be incumbent be defeated on the other hand it is shown that electoral considerations may reinforce the incentive of the more inflationary government to tie its own hands with fixed exchange rates

international bailouts moral hazard and conditionality international bailouts the imf s role the large international bailouts of the 1990s have been criticized for generating moral hazard at the expense of the global taxpayer we argue that this criticism is misleading because international bailouts create no or very few costs to the international community instead the problem is to ensure that bailouts are not used to facilitate bad domestic policies thus creating moral hazard at the expense of domestic taxpayers this may require a shift towards ex ante conditionality in the sense that the availability and size of official crisis lending need to be conditional on government policies before the crisis olivier jeanne and jeromin zettelmeyer

the origins of democracy a model with application to ancient greece abstract this paper seeks to provide an improved understanding of the origins of democracy it begins by developing a theoretical model to demonstrate how exogenous economic conditions can influence the incentives to establish democratic institutions the model predicts that democratic institutions will expand where they mitigate important time inconsistency problems and therefore encourage investment exogenous conditions determine the magnitude of those time inconsistency problems and hence the likelihood of democracy a comparison of ancient greek city states suggests that the conditions under which democracy first emerged support the model other potential applications are discussed

electoral competition in the american states electoral competition is a concept that has played a central role in much of the state politics literature one commonly used indicator of competition in the states is the ranney index we offer an alternative indicator of competition one based on district level outcomes of state legislative elections after evaluating both indicators in terms of validity and reliability the analysis suggests that the district level indicator is both empirically and intuitively superior as a measure of electoral competition the implications of this finding are discussed

coordination in auctions with entry abstract we examine self enforcing bidder coordination in auctions in which bidding is costly conditions on the distribution of valuations are identified that guarantee multiple equilibria under slightly stronger conditions within the set of sunspot payoffs only those that are convex combinations of payoffs of extreme asymmetric equilibria are interim efficient for the bidders if preplay communication is possible every no communication equilibrium payoff is interim pareto dominated for the bidders by some cheap talk equilibrium payoff when the number of auctions is large communication equilibria exist that yield ex post efficient payoffs for the bidders almost surely journal of economic literatureclassification numbers d44 d82

is there a politically optimal level of judicial independence independent courts render current policy more durable by raising the cost of future policy changes but may also engage in policy making of their own this paper asks is there an optimal level of judicial independence from the perspective of incumbent officials in the other branches to answer that question the paper develops a model of strategic institutional choice and tests it on the judicial institutions of the american states consistent with the model s predictions the most independenceenhancing institutions are found where political competition between rival parties is tightest and differences between party platforms are largest

participation costs and efficient auctions abstract suppose that risk neutral agents have independently and perhaps asymmetrically distributed private valuations for an indivisible object a mechanism assigns the object but it is costly to send messages to the coordinator in these circumstances the second price auction has an equilibrium that is classicallyex anteefficient given general opportunities to invest in information about or enhancements of own valuations in contrast the first price sealed bid auction may have no efficient equilibrium even if buyers are symmetric other properties of the first price auction are proved a semirevelation principle is established for mechanisms with participation costs journal of economic literatureclassification numbers d44 d82

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

voting on the budget deficit this paper analyzes a model in which a group of rational individuals votes over the composition and time profile of public spending all voters agree that a balanced budget is ex ante optimal however if there is disagreement between current and future majorities a balanced budget is not a political equilibrium under majority rule under certain conditions a majority of the voters favors a budget deficit and the equilibrium deficit is larger the greater is the polarization among voters copyright 1990 by american economic association

equilibria in second price auctions with participation costs abstract we investigate equilibria of sealed bid second price auctions with bidder participation costs in the independent private values environment we focus on equilibria in cutoff strategies participate and bid the valuation iff it is greater than the cutoff since if a bidder finds it optimal to participate she cannot do better than bidding her valuation when bidders are symmetric concavity strict convexity of the cumulative distribution function from which the valuations are drawn is a sufficient condition for uniqueness multiplicity within this class we also study a special case with asymmetric bidders and show that concavity convexity plays a similar role

imf conditionality government partisanship and the progress of economic reforms the international monetary fund imf often seeks to influence countries domestic public policy via varying levels of conditionality linking financial support to borrowing governments commitment to policy reforms when does extensive conditionality encourage domestic economic reforms and when does it impede them we argue that rather than universally benefiting or harming reforms the effects of stricter imf conditionality depend on domestic partisan politics more imf conditions can pressure left wing governments into undertaking more ambitious reforms with little resistance from partisan rivals on the right under right governments however more conditions hinder reform implementation by heightening resistance from the left while simultaneously reducing leaders ability to win their support through concessions or compromise using data on post communist imf programs for the period 1994 2010 we find robust evidence supporting these claims even after addressing the endogeneity of imf programs via instrumental variables analysis