inefficient credit booms this paper studies the welfare properties of competitive equilibria in an economy with financial frictions hit by aggregate shocks in particular it shows that competitive financial contracts can result in excessive borrowing ex ante and excessive volatility ex post even though from a first best perspective the equilibrium always displays under borrowing from a second best point of view excessive borrowing can arise the inefficiency is due to the combination of limited commitment in financial contracts and the fact that asset prices are determined in a spot market this generates a pecuniary externality that is not internalized in private contracts the model provides a framework to evaluate preventive policies which can be used during a credit boom to reduce the expected costs of a financial crisis copyright 2008 wiley blackwell

indirect effects of an aid program how do cash transfers affect ineligibles consumption cash transfers to eligible households indirectly increase the consumption of ineligible households living in the same villages this effect operates through insurance and credit markets ineligible households benefit from the transfers by receiving more gifts and loans and by reducing their savings thus the transfers benefit the local economy at large looking only at the effect on the treated underestimates the impact one should analyze the effects of this class of programs on the entire local economy rather than on the treated only and use a village level randomization rather than selecting treatment and control subjects from the same community

how do budget deficits and economic growth affect reelection prospects evidence from a large panel of countries conventional wisdom is that good economic conditions and expansionary fiscal policy help incumbents get reelected but this has not been tested in a large cross section of countries we test these arguments in a sample of 74 countries over the period 1960 2003 we find no evidence that deficits help reelection in any group of countries developed and less developed new and old democracies countries with different government or electoral systems and countries with different levels of democracy in developed countries and in old democracies election year deficits actually reduce the probability that a leader is reelected with similar although smaller negative electoral effects of deficits in the earlier years of an incumbent s term in office higher growth rates of real gdp per capita raise the probability of reelection only in the less developed countries and in new democracies but voters are affected by growth over the leader s term in office rather than in the election year itself and apparently only by growth not attributed to global growth low inflation is rewarded by voters only in the developed countries the effects we find are not only statistically significant but also quite substantial quantitatively we also suggest how the absence of a positive electoral effect of deficits can be consistent with the political deficit cycle found in new democracies

conditional cash transfers civil conflict and insurgent influence experimental evidence from the philippines abstract conditional cash transfer cct programs are an increasingly popular tool for reducing poverty in conflict affected areas despite their growing popularity there is limited evidence on how cct programs affect conflict and theoretical predictions are ambiguous we estimate the effect of conditional cash transfers on civil conflict in the philippines by exploiting an experiment that randomly assigned eligibility for a cct program at the village level we find that cash transfers caused a substantial decrease in conflict related incidents in treatment villages relative to control villages in the first 9 months of the program using unique data on local insurgent influence we also find that the program reduced insurgent influence in treated villages an analysis of possible spillovers yields inconclusive results while we find no statistical evidence of spillovers we also cannot rule out that the village level effect was due to displacement of insurgent activity from treatment to control villages

the outlook for us oil dependence abstract oil dependence is defined as a dynamic problem of short and long run market power the potential monopoly power of an oil cartel depends on its market share and the elasticities of oil supply and demand while the economic vulnerability of oil consuming states depends most directly on the quantity of oil imported and the oil cost share of gross domestic product gdp of these factors only the market share of the organization of petroleum exporting countries opec cartel and the rate of growth of world oil demand are clearly different than they were 25 years ago opec still holds the majority of world oil and in the future will regain market share a hypothetical 2 year supply reduction in 2005 2006 similar in size to those of 1973 1974 or 1979 1980 illustrates the potential benefits to opec and harm to the us economy of a future oil price shock opec s revenues are estimated to increase by roughly 0 7 trillion while the us economy loses about 0 5 trillion strategic petroleum reserves seem ineffective against a determined multi year supply curtailment increasing the market s price responsiveness by improving the technologies of oil supply and oil demand can greatly reduce the costs of oil dependence each element of this interpretation of the oil dependence problem is well supported by previous studies this paper s contribution is to unite these elements into a coherent explanation and to point out the enormously important implications for energy policy

ex ante randomization in agency models we consider how a principal can use randomized strategies in designing optimal contracts in agency settings we distinguish between ex post randomization overfee schedulesfollowing act selection by the agent and ex ante randomization overfee schedules before act selection we show that ex ante randomization may be efficient in both full information and private information settings under certain assumptions regarding preferences and the production technology it is particularly significant that additive separability and concavity ofthe agent s utility function as well as concavity of the production function do not rule out efficient ex ante randomized contracts in private information settings although as is known they rule out ex post randomization

information constrained optima with retrading an externality and its market based solution this paper studies the efficiency of competitive equilibria in environments with a moral hazard problem and unobserved states both with retrading in ex post spot markets the interaction between private information problems and the possibility of retrade creates an externality unless preferences have special restrictive properties the externality is internalized by allowing agents to contract ex ante on market fundamentals determining the spot price or interest rate over and above contracting on actions and outputs then competitive equilibria are equivalent with the appropriate notion of constrained pareto optimality examples show that it is possible to have multiple market fundamentals or price islands created endogenously in equilibrium

instruments randomization and learning about development there is currently much debate about the effectiveness of foreign aid and about what kind of projects can engender economic development there is skepticism about the ability of econometric analysis to resolve these issues or of development agencies to learn from their own experience in response there is increasing use in development economics of randomized controlled trials rcts to accumulate credible knowledge of what works without overreliance on questionable theory or statistical methods when rcts are not possible the proponents of these methods advocate quasirandomization through instrumental variable iv techniques or natural experiments i argue that many of these applications are unlikely to recover quantities that are useful for policy or understanding two key issues are the misunderstanding of exogeneity and the handling of heterogeneity i illustrate from the literature on aid and growth actual randomization faces similar problems as does quasi randomization notwithstanding rhetoric to the contrary i argue that experiments have no special ability to produce more credible knowledge than other methods and that actual experiments are frequently subject to practical problems that undermine any claims to statistical or epistemic superiority i illustrate using prominent experiments in development and elsewhere as with iv methods rct based evaluation of projects without guidance from an understanding of underlying mechanisms is unlikely to lead to scientific progress in the understanding of economic development i welcome recent trends in development experimentation away from the evaluation of projects and toward the evaluation of theoretical mechanisms jel c21 f35 o19

voters as fiscal conservatives voters penalize federal and state spending growth this is the central result of my analysis of voting behavior in presidential senatorial and gubernatorial elections from 1950 1988 the composition of federal spending growth seems irrelevant the vote loss to the president s party from an extra dollar of defense or nondefense spending is the same however in gubernatorial elections expansion of state welfare spending exacts a disproportionate political price deficit financing of federal or state spending does not appear to matter politically i conclude by discussing the obvious question of why government budgets have grown in the face of this voter hostility

the effect of fiscal performance on local government election results in israel 1989 1998 abstract we discuss the circumstances under which voters in local elections will reward fiscal responsibility and suggest that such circumstances evolved in israel in the mid 1990s we present empirical evidence that indeed fiscal performance of mayors substantially affected their reelection probability in the 1998 campaign but not in the 1989 and 1993 campaigns changes in the political environment enforcement of audit and financial reporting requirements tougher imposition of hard budget constraints and the development of local media are proposed as explanations the hypotheses that the fiscal variables reflect the income level at the locality or the mayor s success in extracting resources from the central government are tested and rejected

tantalus on the road to asymptopia my first reaction to the credibility revolution in empirical economics authored by joshua d angrist and jorn steffen pischke was wow this paper makes a stunningly good case for relying on purposefully randomized or accidentally randomized experiments to relieve the doubts that afflict inferences from nonexperimental data on further reflection i realized that i may have been overcome with irrational exuberance moreover with this great honor bestowed on my con article i couldn t easily throw this child of mine overboard as angrist and pischke persuasively argue either purposefully randomized experiments or accidentally randomized natural experiments can be extremely helpful but angrist and pischke seem to me to overstate the potential benefits of the approach i begin with some thoughts about the inevitable limits of randomization and the need for sensitivity analysis in this area as in all areas of applied empirical work i argue that the recent financial catastrophe is a powerful illustration of the fact that extrapolating from natural experiments will inevitably be hazardous i discuss how the difficulties of applied econometric work cannot be evaded with econometric innovations offering as examples some under recognized difficulties with instrumental variables and robust standard errors i conclude with comments about the shortcomings of an experimentalist paradigm as applied to macroeconomics and some warnings about the willingness of applied economists to apply push button methodologies without sufficient hard thought regarding their applicability and shortcomings

opportunistic and partisan election cycles in brazil new evidence at the municipal level this article tests the hypothesis of opportunistic and partisan cycle models using a new large data set of brazilian municipalities over the 1989 2005 period the results show an increase in total and current expenditures and a decrease in municipal investments local tax revenues and budget surplus in election years they also show that partisan ideology exerts a relative influence on the performance of the local public accounts these results confirm that both opportunistic and partisan cycles have occurred in the management of the budgets of brazilian municipalities after the end of the military government

cash transfers clientelism and political enfranchisement evidence from brazil abstract this paper uses brazil s bolsa familia to show that redistributive policies that are shielded from the influence of political intermediaries can reduce incumbency advantage for mayors increase both electoral competition and candidate quality reduce support for clientelistic parties and lead incumbents to increase redistributive spending the paper exploits a nonparametric multivariate regression discontinuity design and employs a novel identification strategy for the variation in program coverage the theory proposes that cash transfers by reducing the vulnerability of poor voters make clientelism a less attractive strategy to incumbent mayors consequently incumbents reallocate effort away from the practice into public good distribution

do voters demand responsive governments evidence from indian disaster relief abstract using rainfall public relief and election data from india we examine how governments respond to adverse shocks and how voters react to these responses the data show that voters punish the incumbent party for weather events beyond its control however fewer voters punish the ruling party when its government responds vigorously to the crisis indicating that voters reward the government for responding to disasters we also find evidence suggesting that voters only respond to rainfall and government relief efforts during the year immediately preceding the election in accordance with these electoral incentives governments appear to be more generous with disaster relief in election years these results describe how failures in electoral accountability can lead to suboptimal policy outcomes

do conditional cash transfers affect electoral behavior evidence from a randomized experiment in mexico this article reexamines the argument that targeted programs increase pro incumbent voting by persuading beneficiaries to cast ballots against their first partisan choice the evidence comes from the randomized component of progresa the pioneering mexican conditional cash transfer cct program experimental data show that early enrollment in the program led to substantive increases in voter turnout and in the incumbent s vote share in the 2000 presidential election the experiment also reveals that opposition parties vote shares were unaffected by the program thus the electoral bonus generated by ccts may be best explained by a mobilizing rather than persuasive mechanism these findings are difficult to reconcile with the notion that the electoral effects of ccts are a result of prospective concerns triggered by threats of program discontinuation or endogenous program enrollment instead the evidence in this article suggests that ccts mobilizing effects are compatible with programmatic politics

why do oil prices jump or fall this paper discusses theories that can explain the zig zags of oil prices in general and in particular the recent jump more precisely the following explanations are discussed homo oeconomicus pure profit maximization if demand is dynamic and convex price reaction function price increases and respectively declines depend on capacity utilization cartelization contingent on output or revenues of which the latter can lead to backward bending supply segments and multiple equilibria statistical descriptions mean reversion homo politicus i e arguments for price hikes that are rational public choice despite the long run economic loss finally two approaches are presented that emphasize demand uncertainty one extending the above mentioned dynamic demand framework and the other considers a dynamic game of non competitive suppliers with lumpy investments summing up a demand shock seems to be the most suitable explanation of today s high prices indeed a shock given that international energy agency iea and department of energy doe were promising just a couple of years ago that we are going to have lots of oil at low prices while others and in particular politics have surprisingly little or no explanatory power

estimating the value of an in kind transfer the case of food stamps the value of one in kind transfer food stamps is estimated by evaluating the experience of an actual conversion from stamps to cash in puerto rico in 1982 the evidence indicates that the cashout of the stamps had no detectable influence on food expenditures the explanation partly lies in the distribution of expenditures for the stamps were inframarginal for most recipients however some evidence indicates that trafficking in stamps was widespread as well including indirect evidence from estimation of the piecewise linear constraint model copyright 1989 by the econometric society

does a target capacity utilization rule fulfill opec s economic objectives abstract this paper uses the us energy information administration s oil market simulation model to evaluate the ability of a target capacity rule to satisfy opec s economic objectives we show that when demand and supply lags exist opec s optimal price path may consist of periods of low prices followed by a one or two period price shock the tcu rule does not display periodic price shocks and thus generates less discounted revenue over the planning period the tcu rule comes closest to the optimum either when there are no lags or when opec optimizes subject to a minimum revenue constraint

the local electoral impacts of conditional cash transfers evidence from a field experiment abstract i assess the impacts of targeted government transfers on a local incumbent s electoral performance i use the randomized roll out of a cct program in the philippines although the program was usually implemented in all villages in a municipality a subset of beneficiary municipalities were randomly selected to receive the program in a randomly selected subset of villages a number of municipalities are tightly controlled by political dynasties and thus i can test whether the effects are dependent upon the political environment in a competitive political environment incumbent vote share is 26 percentage points higher in municipalities where the program was implemented in all villages than in municipalities where the program was implemented in half of them the program had no impact in municipalities with low levels of political competition further there is evidence consistent with the argument that incumbents compensated households in control villages by redistributing their own budget there

civil conflict and conditional cash transfers effects on demobilization summary cash transfer programs have been successful in helping millions of people afford better livelihoods while this is well known little research has yet been conducted to examine the power of such programs to influence outcomes in times of conflict especially in countries where anti poverty programs are implemented amidst disputes against illegal armed groups this paper focuses on the implementation of familias en accion a flagship anti poverty cash transfer program in colombia during the early 2000s when the country was still experiencing its long lasting internal conflict impact evaluations have already shown the important effects of this program on household poverty levels and children s time allocation including a higher incidence of school attendance and a lower incidence of child labor our hypothesis here is that such outcomes imply changes in the dynamics of the civil conflict since 50 of the demobilised combatants are children mostly eligible for the transfers we take advantage of a natural experiment that occurred during the first stage of implementation of the program in the period 2001 04 when the transfers were gradually rolled out across eligible municipalities by setting out a difference in differences approach our results indicate that the program had positive effects on the demobilisation of combatants these findings are observed for a length of three years since the program started

building social capital conditional cash transfers and cooperation abstract many conditional cash transfer cct programs have important social components and therefore can have an effect on social capital in 2007 we conducted a field experiment with 1451 subjects in cartagena colombia we interpret the behavior in the game as a measure of what in the literature has been called social capital we played the game in two similar and adjacent neighborhoods the treatment neighborhood pozon had been targeted for over 2 years by a cct program familias en accion the control neighborhood cienaga had not in 2008 with the program being implemented in both neighborhoods we played the same public goods game and were therefore able to implement a difference in differences strategy to estimate the impact of the cct on our measure of social capital in 2007 the level of cooperation we observed in the treatment neighborhood was considerably higher than that in the control one although similar in many dimensions the two groups turned out to be significantly different in some observable variables the positive result was robust to controls for these differences in 2008 we found that the level of cooperation was statistically identical across the two neighborhoods and similar to the levels observed in 2007 in the treatment one we conclude that the cct program did improve cooperation in analyzing the effect of the cct on cooperation we also look at other individual and group determinants of individual behavior in the game and we compare our measure based on behavior in the game to more traditional measures of social capital used in the literature that we collected in a context specific survey

externalities in economies with imperfect information and incomplete markets this paper presents a simple general framework for analyzing externalities in economies with incomplete markets and imperfect infonnation by identifying the pecuniary effects of these externalities that net out the paper simplifies the problem of determining when tax interventions are pareto improving the approach indicates that such tax interventions almost always exist and that equilibria in situations of imperfect information are rarely constrained pareto optima it can also lead to simple tests based on readily observable indicators of the efficacy of particular tax policies in situations involving adverse selection signaling moral hazard incomplete contingent claims markets and queue rationing equilibria traditional discussions of externalities have emphasized the distinction between technological externalities in which the action of one individual or firm directly affects the utility or profit ofanother and pecuniary externalities in which one individual s or firm s actions affect another only through effects on prices while the presence of technological externalities imply in general that a competitive equilibrium may not be pareto efficient pecuniary externalities hy themselves are not a source of inefficiency the fact that prices change has of course important consequences there are both distributional and allocational effects but the distribution effects net out gains for example hy firms whose prices increase are precisely offset by losses e g to individuals who must pay higher prices and there are no welfare losses from the allocation effects as long as the price changes involved are small if firms are maximizing profits and individuals are maximizing utility both facing prices that correctly refiect opportunity costs then standard envelope theorem arguments imply that changes in profits or utility induced by changes in allocations resulting from any small change in prices are negligible

pareto optima and competitive equilibria with adverse selection and moral hazard this paper explores the extent to which standard general equilibrium analysis of pareto optima and of competitive equilibria can be applied to environments with moral hazard and adverse selection problems allowing for lotteries contracts with random components we first establish that an adverse selection insurance economy a moral hazard insurance economy a signaling economy and a private information labor market economy are all special cases of a simple general structure we then show that techniques for characterizing pareto optimal contracts as solutions to concave programming problems are useful and nice and appear to be broadly applicable allowing for lotteries we show how to characterize the optimal allocations for the adverse selection insurance and labor market economies we then show that standard existence and optimality theorems for competitive equilibria apply in the linear space containing lotteries if agents with characteristics which are distinct and privately observed at the time of initial trading enter the economy wide resource constraints in a homogeneous way other kinds of diversity are not critical for economies with moral hazard which satisfy the homogeneity condition competitive contract markets single out a subset of the optima and thus can be consistent with apparent unemployment and with a random allocation of labor supplied though all households are averse to risk the adverse selection insurance and signaling economies however do not satisfy the homogeneity condition and are difficult to decentralize efficiently with a price system

international and domestic collateral constraints in a model of emerging market crises abstract we build a model of emerging markets crises which features two types of collateral constraints firms in a domestic economy have limited borrowing capacity from international investors they also have limited borrowing capacity with respect to each other we study how the presence and changes in these collateral constraints affect financial and real variables a binding international constraint in the aggregate leads to a sharp rise in interest rates and fire sales of domestic assets while limited domestic collateral can lead to wasted international collateral these two collateral constraints can interact in important ways the first is disintermediation a fire sale of domestic assets causes banks to fail in their function of reallocating resources across the economy leading to wasted international collateral the second is a dynamic effect we show that firms in an economy with limited domestic collateral and a binding international collateral constraint will not adequately precaution against adverse shocks increasing the severity of these shocks

opec s kinked demand curve abstract asymmetric effects of oil prices on the macroeconomy imply multiple equilibrium prices for opec i estimate world demand for crude oil non opec supply and the effects of changes in price on world gdp using quarterly data covering 1973 to 2010 if opec s marginal cost is 20 bbl in 2014 iii and its discount rate is zero estimated equilibrium prices are 44 88 bbl multiple equilibria incent opec to tolerate unstable prices which because of the asymmetry lower world gdp both policies that increase responsiveness to price and policies that lower net demand to opec narrow and lower the range of equilibrium prices but the former are more effective at doing so opec responds to changes in the discount rate in the opposite way from competitive producers so policies that secure oil related property rights in opec countries and other policies that lower opec s discount rate narrow and lower the range of equilibrium prices monetary policy is more effective at accelerating or slowing macroeconomic activity the larger is opec s market share

bertrand and walras equilibria under moral hazard we consider a simple model of competition under moral hazard with constant return technologies we consider preferences that are not separable in effort marginal utility of income is assumed to increase with leisure especially for high income levels we show that in this context bertrand competition may result in positive equilibrium profit this result holds for purely idiosyncratic shocks when only deterministic contracts are considered and extends to unrestricted contract spaces in the presence of aggregate uncertainty finally these findings have important consequences on the definition of an equilibrium we show that in this context a walrasian general equilibrium a la prescott townsend may fail to exist any equilibrium must involve rationing

opportunistic political cycles test in a young democracy setting this paper tests the theory of opportunistic cycles in a decade old democracy russia finds strong evidence of cycles and provides an explanation for why previous literature often found weaker evidence using regional monthly panel data we find that 1 the budget cycle is sizable and short lived public spending shifts toward direct monetary transfers to voters 2 the magnitude of the cycle decreases with democracy government transparency media freedom voter awareness and over time and 3 preelectoral manipulation increases incumbents chances for reelection the short length of the cycle explains underestimation of its size by previous literature because of low frequency data used in previous studies

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

are land reforms granting complete property rights politically risky electoral outcomes of mexico s certification program abstract what is the impact on voting behavior of strengthening property rights over agricultural land to answer this question we use the 14 year nationwide rollout of mexico s land certification program procede and match affected communities ejidos before and after the change in property rights with voting outcomes in corresponding electoral sections across six federal election cycles we find that in accordance with the investor class theory granting complete property rights induced a conservative shift toward the pro market party equal to 6 8 percent of its average share of votes over the period this shift was strongest where vested interests created larger expected benefits from market oriented policies as opposed to public transfer policies we also find that beneficiaries failed to reciprocate through votes for the benefactor party we conclude that in the mexican experience engaging in a land reform that strengthened individual property rights over agricultural land was politically advantageous for the right wing party