optimal interest rate rule in a dsge model with housing market spillovers this paper studies the optimal interest rate rule in a dsge model with housing market spillovers iacoviello and neri 2010 we find that the optimal rule responds to house price inflation even when the stabilization of house price is not among the objectives of the policymaker and that the strength of the response depends crucially on a few structural parameters

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

war peace and the size of countries this paper studies the relationship between international con ict and the size distribution of countries in a model in which both peaceful bargaining and non peaceful confrontations are possible we show how the size distribution of countries depends on the likelihood bene ts and costs of con ict and war we also study the role of international law and show how better de ned international property rights may lead to country breakup and more numerous local con icts

bargaining in the shadow of power abstract often a bargainer can use some form of power legal military or political to impose a settlement how does the outside option of being able to impose a settlement albeit at some cost affect the bargaining and how does the probability that the bargaining will break down vary with the distribution of power between the bargainers these questions are examined by adding the option of imposing a settlement to rubinstein s game of dividing a pie each actor can accept an offer make a counteroffer or try to impose a solution imposing a settlement is however costly and each bargainer has private information about its cost journal of economic literatureclassification number c72

all pay war we study a model of conflicts and wars in which the outcome is uncertain not because of luck on the battlefield as in standard models but because countries lack information about their opponent in this model expected resource levels and production and military technologies are common knowledge but realized resource levels are private information each country decides how to allocate its resources to production and warfare the country with the stronger military wins and receives aggregate production in equilibrium both comparative and absolute advantages matter a larger resource share is allocated to warfare by the country with a comparative advantage in warfare at relatively low realized resource levels and by the country with an absolute disadvantage in warfare at relatively high realized resource levels from an ex ante perspective the country with a comparative advantage in warfare is more likely to win the war unless its military potential is much lower

noncooperation by popular vote expectations foreign intervention and the vote in the 2015 greek bailout referendum when popular referendums fail to ratify new international agreements or succeed in reversing existing ones it not only affects domestic voters but also creates negative spillovers for the other parties to such agreements we explore how voters respond to this strategic environment we use original survey data from a poll fielded just one day before the 2015 greek bailout referendum a referendum in which the stakes for other countries were particularly high to investigate how expectations about the likely foreign response to a noncooperative referendum outcome influence voting behavior and to what extent foreign policymakers can influence those expectations our analysis of the greek referendum shows that such expectations had a powerful effect on voting behavior voters expecting that a noncooperative referendum outcome would force greece to leave the eurozone were substantially more likely to vote cooperatively than those believing that it would result in renewed negotiations with the country s creditors leveraging the bank closure that took place right before the vote we also show that costly signals by foreign actors made voters more pessimistic about the consequences of a noncooperative vote and substantially increased the share of cooperative votes

the armed peace a punctuated equilibrium theory of war according to a leading rationalist explanation war can break out when a large rapid shift of power renders unbelievable a rising state s promise to compensate its declin ing opponent causing the latter to attack preventively this mechanism does not provide a complete and coherent explanation of war because it does not specify how inefficient fighting resolves this commitment problem we present a complete information model of war as a sequence of battles and show that although opportunities for a negotiated settle ment arise throughout the very desirability of peace creates a commitment problem that undermines its likelihood because players have incentives to settle as soon as possible they cannot credibly threaten to fight long enough if an opponent launches a surprise at tack this decreases the expected duration and costs of war and causes mutual deterrence to fail fighting s sheer destruction improves the credibility of these threats by decreasing the benefits from continuing the war equilibrium fighting may involve escalating costs that exceed the value of the stakes by the time peace is negotiated and that leave both players worse off than when the war began

on the salience of ethnic conflict ray acknowledges support from the national science foundation under grants 0421852 and 0617827 esteban is a member of barcelona economics xrea and is grateful for support from the generalitat de catalunya and the cicyt sej 2006 00369 this research is part of the polarization and conflict research project cit2 ct 2004 506084 funded by the european commission dg research sixth framework program

comment on e j driffill macroeconomic stabilization policy and trade union behavior as a repeated game driffill s paper is motivated by the notion that government concern over the level of unemployment enables unions to obtain higher real wages than they otherwise would with the paradoxical result that stabilization policy raises the average unemployment rate a closely related problem has been studied by barro gordon 1983 in the context of the inflation unemployment tradeoff in that case government attempts to reduce the unemployment rate end up creating higher inflation the process reaching equilibrium when the marginal cost of inflation to the government is equal to the putative gain that would be obtained from lower though unattainable unemployment

how forward looking is optimal monetary policy we calculate optimal monetary policy rules for several variants of a simple optimizing model of the monetary transmission mechanism with sticky prices and or wages we show that robustly optimal rules can be represented by interest rate feedback rules that generalize the celebrated proposal of taylor 1993 optimal rules however require that the current interest rate operating target depend positively on the recent past level of the operating target and its recent rate of increase in a way that is characteristic of estimated central bank reaction functions but not of taylor s proposal we furthermore find that a robustly optimal policy rule is almost inevitably an implicit rule that requires the central bank to use a structural model to project the economy s evolution under the contemplated policy action however calibrated examples suggest that optimal rules place less weight on projections of inflation or output many quarters in the future than do rules often discussed in the literature on inflation targeting or in the current practice of inflation forecast targeting central banks

visible seeds of socialism and metamorphoses of capitalism socialism after rosdolsky roman rosdolsky suggests a method to deal with the transition towards socialism that integrates three issues 1 the identification of dynamic features of capitalism 2 the systematisation of metamorphoses of capitalism 3 the evaluation of how these metamorphoses reshape the elaboration of alternatives to capitalism this evaluation is a precondition for the visualisation within the complex dynamics of capitalism of seeds of a new society institutions born out of political struggles and of emancipatory features of key social processes these institutions reshape the nature of the metamorphoses of capitalism and the possibility of establishing socialism and democracy

environmental depletion governance and conflict t he link between natural resource dependence and internal conflict has been approached from a variety of angles in a large and growing interdisciplinary literature while there is an expanding consensus as to what matters the most for such intra state violence episodes the feasibility discontent dichotomy still appears to characterize a disciplinary divide between economists and political scientists this paper attempts to help bridge the gap by allowing for both intrinsic and extrinsic motivations of potential rebels simple non cooperative bargaining yields a nonlinear impact of regulatory quality on the likelihood of conflict and shows that corruption and resource depletion jointly affect the outcome the empirical analysis that follows looks at the effect of environmental depletion and government corruption on the emergence of civil conflicts using a large panel dataset resource depletion the quality of governance and their interaction are found to be significant determinants of civil conflict incidence results are robust to several steps taken to address potential endogeneity concerns

a theory of political transitions we develop a theory of political transitions inspired by the experiences of western europe and latin america nondemocratic societies are controlled by a rich elite the initially disenfranchised poor can contest power by threatening revolution especially when the opportunity cost is low for example during recessions the threat of revolution may force the elite to democratize democracy may not consolidate because it is redistributive and so gives the elite an incentive to mount a coup highly unequal societies are less likely to consolidate democracy and may end up oscillating between regimes and suffer substantial fiscal volatility

inequality democracy and institutions a critical review of recent research this paper surveys the theoretical and empirical literature on the effect of economic and political inequality on institutions the current understanding suggests that unequal societies develop exploitative and inefficient institutions empirical research which is scant and has mainly concentrated at cross national level supports to some extent the existence of an inverse relationship between inequality and institutions but more analysis is needed future empirical research should undertake country state and micro level analysis which are a necessary complement to aggregate level studies the effect of inequality could also take place indirectly through the influence of inequality on democratization

the new institutional economics and the theory of the firm abstract concepts of importance in the literature of the new institutional economics such as transaction costs and bounded rationality have been used to extend the standard neoclassical model of the firm but the hybrid models created have failed to provide adequate explanations of enterprise behavior an alternative neoinstitutional model of the firm is developed in the paper that differs from the pure neoclassical model and hybrid models in respect to both the nature of the solution it yields and the process by which it reaches a solution the neoinstitutional firm cannot be expected to achieve either the hypothetical allocative efficiency promised by the frictionless neoclassical model or the relatively efficient constrained pareto optimal solutions predicted by the largely frictionless hybrid models the orthodox marginal rules of neoclassicism can only be used to solve lower level problems that appear within the firm

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

capabilities perception and escalation the evolution of crises depends upon interpreting intentions under uncertainty we model crises as a game of two sided incomplete information players are uncertain about their own payoffs from war because of differences between observable and actual capabilities we derive four hypotheses testing them against crises in europe between 1815 and 1970 we show a nonmonotonic relationship between ex ante observable capabilities and the likelihood of violence in a crisis as well as the ex ante likelihood of a negotiated settlement we answer five questions 1 how do differences in observable capabilities between rivals influence the likelihood of a crisis and the escalation to violence 2 how do intangible capabilities alter the effects of observable capabilities on the likelihood of conflict and violence 3 what do national leaders learn from the responses of their adversaries in crises 4 under what conditions can deterrence succeed 5 under what conditions are the strong likely to give in to the weak or vice versa in a crisis

information power and war ultimatum bargaining models of international interactions suggest that when conflict is costly and the actors are fully informed the probability of conflict goes to zero however conflict occurs with some positive probability when the challenger is uncertain about the defender s reservation value i employ a simple ultimatum game of bargaining to evaluate two traditional power centric theories of world politics balance of power and power transition theory the formal and empirical analyses demonstrate that as states approach power parity information asymmetries are greatest thus enhancing the probability of militarized conflict uncertainty is a central cause of conflict emergence and is correlated with the distribution of observable capabilities recognizing the relationship between the distribution of power and the uncertainty offers a more sophisticated interpretation of power centric explanations of world politics

disappointment in decision making under uncertainty decision analysis requires that two equally desirable consequences should have the same utility and vice versa most analyses of financial decision making presume that two consequences with the same dollar outcome will be equally preferred however winning the top prize of 10 000 in a lottery may leave one much happier than receiving 10 000 as the lowest prize in a lottery this paper explores the implications of disappointment a psychological reaction caused by comparing the actual outcome of a lottery to one s prior expectations for decision making under uncertainty explicit recognition that decision makers may be paying a premium to avoid potential disappointment provides an interpretation for some known behavioral paradoxes and suggests that decision makers may be sensitive to the manner in which a lottery is resolved the concept of disappointment is integrated into utility theory in a prescriptive model

the new political economy of taxation in advanced capitalist democracies earlier versions of this paper were presented at the 1999 annual meeting of the american political science association september 1 5 atlanta ga and the 2000 annual meeting of the midwest political science association april 27 30 chicago il the authors thank steffen ganghof philip genschel mark hallerberg alex hicks william keech dennis quinn and the anonymous reviewers and editor of this journal for many helpful comments and dennis quinn for generously sharing data duane swank thanks the german marshal fund of the united states and marquette university for support of work incorporated in this paper data utilized in this paper are available from duane swank marquette edu

the principle of convergence in wartime negotiations if war results from disagreement about relative strength then it ends when opponents learn enough about each other learning occurs when information is revealed by strategically manipulable negotiation behavior and nonmanipulable battlefield outcomes i present a model of simultaneous bargaining and fighting where both players can make offers and asymmetric information exists about the distribution of power in the markov perfect sequential equilibrium making and rejecting offers has informational value that outweighs the one provided by the battlefield however states use both sources of information to learn and settle before military victory the principle of convergence posits that warfare ceases to be useful when it loses its informational content and that belief in defeat victory is not necessary to terminate initiate hostilities thus the standard puzzle in international relations that seeks to account for prewar optimism on both sides may not be that relevant

classical unemployment accommodation policies and the adjustment of real wages a model of wage formation and stabilization policy in economies with strong trade unions is developed the analysis provides a theoretical underpinning for the assertion that accommodation policies may cause wage inflation and ultimately reduce employment various methods of accomplishing a real wage adjustment are discussed i a policy of complete nonaccommodation 2 continued accommodation policies but with lower employment targets 3 social contracts and 4 tax based incomes policies tip

endogenous destruction in conflict theory and extensions this article develops a general equilibrium model of conflict to characterize the implications of endogenous destruction for bargaining and fighting specifically we consider the scenario where two contending parties engage in bargaining to avoid fighting when there are direct costs e g arms buildups and indirect costs e g destruction to consumable resources of conflict without imposing specific functional form restrictions on conflict production and destruction technologies we show their interactions in determining an optimal decision between fighting and bargaining we find that under the shadow of conflict bargaining is costly as the contending parties always allocate more resources to arming for guarding settlement through bargaining than in the event of fighting in contrast to conventional thinking that bargaining is pareto superior over fighting we show conditions under which fighting dominates bargaining as the nash equilibrium choice the positive analysis may help explain the general causes of fighting without resorting to the assumption of incomplete information or misperceptions jel d74 h56 c7

deterrence in contests this paper explores the role of deterrence in contests as a general rule we show that for a deterrence strategy to be played by rational agents it is necessary that the contest be destructive we show for a very general class of functions that pure strategy deterrence equilibria where contestants deter one another do not exist a corollary of this finding is that under fairly general conditions agents should always be expected to engage in contests applied to international relations our results imply that war is always a potential outcome despite deterrence attempts

war is in the error term at least since thucydides students of international relations have sought rational explanations for the advent of war rationalist explanations assume purposive action states are said to make reasoned decisions about the use of force although rationalist explanations have proven persuasive durable and offer the basis for cumulative theorizing they also imply substantial limits on what we can know about war i show that the most general rationalist explanation for war also dictates that the onset of war is theoretically indeterminate we cannot predict in individual cases whether states will go to war because war is typically the consequence of variables that are unobservable ex ante both to us as researchers and to the participants thinking probabilistically continues to offer the opportunity to assess international conflict empirically however the realization that uncertainty is necessary theoretically to motivate war is much different from recognizing that the empirical world contains a stochastic element accepting uncertainty as a necessary condition of war implies that all other variables however detailed the explanation serve to eliminate gradations of irrelevant alternatives we can progressively refine our ability to distinguish states that may use force from those that are likely to remain at peace but anticipating wars from a pool of states that appear willing to fight will remain problematic for example we may achieve considerable success in anticipating crises but our ability to predict which crises will become wars will probably prove little better than the naive predictions of random chance the need for uncertainty to account for war means that the same conditions thought to account for war must also exist among states not destined to fight otherwise states themselves will differentiate between opponents in a way that either removes the motives for war or restores uncertainty it has long been accepted that social processes possess an element of uncertainty but the centrality of uncertainty to rationalist explanations for war means that the advent of war is itself stochastic war is literally in the error term

oil and resource backed aggression a common misperception about oil politics is that it has a uniform monolithic effect on policy development this paper argues that in fact the net political effect of oil varies dramatically depending on the nature of the petrostate it shows that oil income when combined with revolutionary governments in petrostates generates strong incentives for foreign policy aggression and international conflict the aggressiveness of petro revolutionary states is shown to have consequences in both military and economic spheres of international relations militarily the aggressiveness of this type of state leads to a high rate of armed conflicts economically the aggressiveness of petro revolutionary states shapes global oil markets and international economic relations the argument is tested using statistical analysis of international conflicts and economic sanctions the policy implications are then considered focusing on the negative global impacts of dependence on oil consumption

peace war and the balance of power every possible relation between the distribution of power and the likelihood of war has been defended somewhere in the literature on international politics war is least likely if power is distributed equally war is least likely if power is distributed unequally and the distribution of power has no effect on the likelihood of war i try to settle this dispute by examining the effect of expectations about the outcome of war on the choice between war and negotiation i argue that each of these mutually contradictory propositions can be derived from some plausible set of premises and thus that which one is correct depends on which set of premises best describes a situation the most important factors affecting the relation between the distribution of power and the likelihood of war are 1 whether the terms of a compromise agreement that might be accepted in lieu of war affect the distribution of power between the antagonists and therefore the probability that the agreement will be enforced and 2 how many states interests will be affected by the outcome

interim third party selection in bargaining abstract third party intervention can reduce the risk of conflict in situations where the bargaining failure is due to asymmetric information in this paper i consider the selection of a third party in a two person bargaining problem where each disputant has private information about its relative strength or weakness for a class of problems i find that the disputants choose the third party that is best for the strong type but worst for the weak type due to the incentive of each disputant to avoid seeming weak to their adversary the selected third party s intervention entails a higher ex ante chance of conflict than intervention by any other alternative this paper shows how the process of interim third party selection can have important consequences for the outcome of a third party intervention in bargaining

learning about monetary policy rules abstract we study macroeconomic systems with forward looking private sector agents and a monetary authority that is trying to control the economy through the use of a linear policy feedback rule we use stability under recursive learning a la evans and honkapohja learning and expectations in macroeconomics princeton university press princeton new jersey 2001 as a criterion for evaluating monetary policy rules in this context we find that considering learning can alter the evaluation of alternative policy rules

bargaining enforcement and international cooperation neoliberals and their neorealist critics have debated the relative importance of two main obstacles to international cooperation problems of cheating and enforcement and problems of relative gains by contrast i argue that problems of international cooperation have a common strategic structure in which a third distinct obstacle plays a crucial role almost regardless of the issue area states must first resolve the bargaining problem of agreeing on terms before they can implement and begin to enforce an agreement furthermore the bargaining and enforcement problems interact using a game model i show that if states must bargain to determine the deal to be enforced the shadow of the future cuts two ways a high expectation of continued interactions may make enforcing the agreement easier but it can also give states an incentive to bargain harder delaying agreement in hopes of getting a better deal empirical evidence from trade and arms control negotiations suggests that this mechanism may help to explain the costly standoffs that are often observed in international politics and are problematic for received neoliberal theories

political consequences of military strategy expanding and refining the spiral and deterrence models analyses of military strategy often overlook its political consequences its effect on the adversary s basic goals and understanding of the defender s resolve as a result they prescribe the wrong type of military policy and reduce states security this article explores how a variety of factors interact to produce political consequences these factors include the type of adversary specifically its motives for expansion the type of military strategy the defender adopts offensive or defensive and unilateral or bilateral the source of the adversary s misperceptions and the process through which political consequences are generated the article reformulates jervis s spiral and deterrence models and argues that they overlook types of adversaries including most importantly insecure greedy states that shifts in the adversary s balance of domestic power offer an alternative to individual learning as the basic way in which political consequences are generated that national level failures of evaluation provide an alternative source of exaggerated insecurity and that these differences can require the defender to follow different policies final sections explore military options for managing political consequences and implications for u s security policy

secessionism and minority protection in an uncertain world abstract with the changing political and economic circumstances confronting their countries regionally concentrated minorities have been facing a strategic problem important aspects of which can be stylized as a situation in which a minority leader is uncertain about the costs of secession for her community this paper shows that this uncertainty is a central cause of secession using a model which incorporates both policies to appease secessionist aspirations and informational asymmetries in a situation of asymmetric information in which the policy maker is better informed about the consequences of separation than the minority leader signaling incentives make secession the unique equilibrium outcome whether mutually advantageous compromises exist or not we also show that the ruling majority may seek to maintain political unity by pre committing to minority protection rules which prevent bluffing by the informed policy maker additionally the model generates comparative statics results on the question of which states are most likely to adopt constitutional rules protecting the minorities living within their borders

dynamics of pro market institutions and firm performance we analyze how pro market institutions affect firm performance in emerging markets integrating transaction costs and signaling theory we advance three arguments first we separate four dynamic components of pro market institutions intensifying and fading pro market reforms and intensifying and fading pro market reversals second we propose an asymmetric dynamic view whereby not only intensifying reforms but also fading reversals improve firm performance while not only fading reforms but also intensifying reversals reduce performance finally we argue that more efficient firms perform better under each of the dynamics we test these arguments on a sample of 1092 firms from 34 emerging markets during 1998 2011

civil war and u s foreign influence we study how foreign interventions affect civil war around the world in an infinitely repeated game we combine a gambling for resurrection mechanism for the influencing country with the canonical bargaining model of war in the influenced country to micro found sudden shifts in power among the domestic bargaining partners which are known to lead to war due to commitment problems we test two of our model predictions that allow us to identify the influence of foreign intervention on civil war incidence i civil wars around the world are more likely under republican governments and ii the probability of civil wars decreases with the u s presidential approval rates these results withstand several robustness checks and overall suggest that foreign influence is a sizable driver of domestic conflict

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

belief in a just world and redistributive politics international surveys reveal wide differences between the views held in different countries concerning the causes of wealth or poverty and the extent to which people are responsible for their own fate at the same time social ethnographies and experiments by psychologists demonstrate individuals recurrent struggle with cognitive dissonance as they seek to maintain and pass on to their children a view of the world where effort ultimately pays off and everyone gets their just deserts this paper offers a model that helps explain i why most people feel such a need to believe in a just world ii why this need and therefore the prevalence of the belief varies considerably across countries iii the implications of this phenomenon for international differences in political ideology levels of redistribution labor supply aggregate income and popular perceptions of the poor the model shows in particular how complementarities arise endogenously between individuals desired beliefs or ideological choices resulting in two equilibria a first american equilibrium is characterized by a high prevalence of just world beliefs among the population and relatively laissez faire policies the other european equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state more generally the paper develops a theory of collective beliefs and motivated cognitions including those concerning money consumption and happiness as well as religion

disappointment and dynamic consistency in choice under uncertainty the central proposition of disappointment theory is that an individual forms expectations about uncertain prospects and that if the actual consequence turns out to be worse than or better than that expectation the individual experiences a sensation of disappointment or elation generating a decrement or increment of utility which modifies the basic utility derived from the consequence by incorporating a simple disappointment elation function into a model of individual choice many observed violations of conventional expected utility axioms including violations of savage s sure thing principle and the isolation effect can be predicted and defended as rational and dynamically consistent behaviour

the security dilemma revisited robert jervis s article cooperation under the security dilemma is among the most important works in international relations of the past few decades in it jervis develops two essential arguments first he explains that the security dilemma is the key to understanding how in an anarchic international system states with fundamentally compatible goals still end up in competition and at war the security dilemma exists when many of the means by which a state tries 1 to increase its security decrease the security of others it provides the rational foundation for what jervis termed the spiral model which describes how the interaction between states that are seeking only security can fuel competition and strain political relations 2 second jervis explains that the magnitude and nature of the security dilemma depend on two variables the offense defense balance and offense defense differentiation 3 as a result the security dilemma can vary across space and time although states exist in a condition of international anarchy that does not vary there can be significant variation in the attractiveness of cooperative or competitive means the prospects for achieving a high level of security and the probability of war

a dynamic theory of resource wars we develop a dynamic theory of resource wars and study the conditions under which such wars can be prevented our focus is on the interaction between the scarcity of resources and the incentives for war in the presence of limited commitment we show that a key parameter determining the incentives for war is the elasticity of demand our first result identifies a novel externality that can precipitate war price taking firms fail to internalize the impact of their extraction on military action in the case of inelastic resource demand war incentives increase over time and war may become inevitable our second result shows that in some situations regulation of prices and quantities by the resource rich country can prevent war and when this is the case there will also be slower resource extraction than the hotelling benchmark with inelastic demand our third result is that because of limited commitment and its implications for armament incentives regulation of prices and quantities might actually precipitate war even in some circumstances where wars would not have arisen under competitive markets copyright 2012 oxford university press

stochastic monotonicity in intergenerational mobility tables summary the aim of this paper is to test for stochastic monotonicity in intergenerational socio economic mobility tables in other words we question whether having a parent from a high socio economic status is never worse than having one with a lower status using existing inferential procedures for testing unconditional stochastic monotonicity we first test a set of 149 intergenerational mobility tables in 35 different countries and find that monotonicity cannot be rejected in hardly any table in addition we propose new testing procedures for testing conditional stochastic monotonicity and investigate whether monotonicity still holds after conditioning on a number of covariates such as education cognitive and non cognitive skills based on the ncds cohort data from the uk our results provide evidence that monotonicity holds even conditionally moreover we do not find large differences in our results when comparing social class and wage class mobility copyright 2010 john wiley sons ltd

absolute and relative gains in international relations theory the problem of absolute and relative gains divides neoliberal institutionalism and structural realism the former assumes states focus primarily on their absolute gains and emphasizes the prospects for cooperation the latter supposes states are largely concerned with relative gains and emphasizes the prospects for conflict existing work in international relations theory generally traces the differences between these two theories to different assumptions about states preferences using a simple game theoretic model this essay offers a reformulation of the problem of absolute and relative gains that links changes in the states behavior the feasibility of cooperation and especially the states concern for relative versus absolute gains explicitly to changes in the constraints facing the states many of the differences between neoliberal institutionalism and structural realism appear as special cases of the model

social mobility and the demand for redistribution the poum hypothesis this paper examines the often stated idea that the poor do not support high levels of redistribution because of the hope that they or their offspring may make it up the income ladder this prospect of upward mobility poum hypothesis is shown to be fully compatible with rational expectations and fundamentally linked to concavity in the mobility process a steady state majority could even be simultaneously poorer than average in terms of current income and richer than average in terms of expected future incomes a e rst empirical assessment suggests on the other hand that in recent u s data the poum effect is probably dominated by the demand for social insurance in the future everyone will be world famous for e fteen minutes andy warhol 1968

inequality social insurance and redistribution is the political support for welfare policy higher or lower in less egalitarian societies we answer the question using a model of welfare policy as publicly financed insurance that pays benefits in a redistributive manner when voters have both redistributive and insurance motives for supporting welfare spending the effect of inequality depends on how benefits are targeted greater inequality increases support for welfare expenditures when benefits are targeted to the employed but decreases support when benefits are targeted to those without earnings with endogenous targeting support for benefits to those without earnings declines as inequality increases whereas support for aggregate spending is a v shaped function of inequality statistical analysis of welfare expenditures in advanced industrial societies provides support for key empirical implications of the model

testing war in the error term researchers interested in the causes of war should note that the proof in war isin the error term contains a mistake correcting the logic appears to reduce theadvantage of large samples in testing rational explanations for war the proof presented by erik gartzke in the summer 1999 issue of international organiza tion uses a numerical example a special case of james fearon s con ict modelthat demonstrated how incomplete information with incentives to misrepresent canlead rational states to war despite the existence of a peaceful settlement both sidesprefer to war

rationalist explanations for war realist and other scholars commonly hold that rationally led states can and sometimes do fight when no peaceful bargains exist that both would prefer to war against this view i show that under very broad conditions there will exist negotiated settlements that genuinely rational states would mutually prefer to a risky and costly fight popular rationalist and realist explanations for war fail either to address or to explain adequately what would prevent leaders from locating a less costly bargain essentially just two mechanisms can resolve this puzzle on strictly rationalist terms the first turns on the fact that states have both private information about capabilities and resolve and the incentive to misrepresent it the second turns on the fact that in specific strategic contexts states may be unable credibly to commit to uphold a mutually preferable bargain historical examples suggest that both mechanisms are empirically plausible

investing in the peace economic interdependence and international conflict research appears to substantiate the liberal conviction that trade fosters global peace still existing understanding of linkages between cone ict and international economics is limited in at least two ways first cross border economic relationships are far broader than just trade global capital markets dwarf the exchange of goods and services and states engage in varying degrees of monetary policy coordination second the manner in which economics is said to inhibit cone ict behavior is implausible in light of new analytical insights about the causes of war we discuss and then demonstrate formally how interdependence can ine uence states recourse to military violence the risk of disrupting economic linkages particularly access to capital may occasionally deter minor contests between interdependent states but such opportunity costs will typically fail to preclude militarized disputes instead interdependence offers nonmilitarized avenues for communicating resolve through costly signaling our quantitative results show that capital interdependence contributes to peace independent of the effects of trade democracy interest and other variables students of world politics have long argued that peace is a positive externality of global commerce theorists like montesquieu and kant and practitioners like woodrow wilson asserted that economic relations between states pacify political interaction mounting evidence in recent years appears to substantiate these claims multiple studies many identie ed with the democratic peace link interstate trade with reductions in militarized disputes or wars 1 while we concur with the evolving

psychological expected utility theory and anticipatory feelings we extend expected utility theory to situations in which agents experience feelings of anticipation prior to the resolution of uncertainty we show how these anticipatory feelings may result in time inconsistency we provide an example from portfolio theory to illustrate the potential impact of anticipation on asset prices

modeling the forms of international cooperation distribution versus information the problems of distribution and information impede international cooperation they arise when actors select how they will cooperate an exploration of the interaction between these problems using a limited information model of cooperation leads to six conclusions first leadership solutions to coordination problems always exist but leadership here is very different from hegemonic provision of public goods second actors can cooperate in the face of anarchy even without a shadow of the future third diffuse reciprocal strategies arise naturally in coordination problems fourth norms and institutions are intertwined within successful cooperation fifth the form of cooperation on an issue varies with the relative importance of distribution and information finally and most important distributional and informational problems interfere with each other arrangements to cooperate can successfully address one but not both of these problems

homo diplomaticus mixed method evidence of variation in strategic rationality psychology is traditionally used in political science to explain deviations from rationality lost in the debate between rationalists and their critics however is a sense of whether the kinds of strategic self interested behavior predicted by these models has psychological microfoundations what would homo economicus look like in the real world we argue that strategic rationality varies across individuals and is characterized by a pro self social value orientation and a high level of epistemic motivation testing our argument in the context of international relations we employ a laboratory bargaining game and integrate it with archival research on german foreign policy making in the 1920s we find in both contexts that even among those interested in maximizing only their own egoistic gains those with greater epistemic motivation are better able to adapt to the strategic situation particularly the distribution of power our results build a bridge between two approaches often considered to be antithetical to one another

mediation and peace this article applies mechanism design to the study of international conflict resolution standard mechanisms in which an arbitrator can enforce her decisions are usually not feasible because disputants are sovereign entities nevertheless we find that this limitation is inconsequential despite only being capable of making unenforceable recommendations mediators can be equally effective as arbitrators by using recommendation strategies that do not reveal that one player is weak to a strong opponent a mediator can effectively circumvent the unenforceability constraint this is because these strategies make the strong player agree to recommendations that yield the same payoff as arbitration in expectation this result relies on the capability of mediators to collect confidential information from the disputants before making their recommendations simple protocols of unmediated communication cannot achieve the same level of ex ante welfare as they preclude confidentiality

balance of power and the propensity of conflict we study the role of an imbalance in fighting strengths when players bargain in the shadow of conflict our experimental results suggest in a simple bargaining game with an exogenous mediation proposal the likelihood of conflict is independent of the balance of power if bargaining involves endogenous demand choices however the likelihood of conflict is higher if power is more imbalanced even though endogenous bargaining outcomes reflect the players unequal fighting strengths strategic uncertainty causes outcomes to be most efficient when power is balanced in turn the importance of exogenous mediation proposals depends on the balance of power

make trade not war this paper analyses theoretically and empirically the relationship between military conflicts and trade we show that the conventional wisdom that trade promotes peace is only partially true even in a model where trade is economically beneficial military conflicts reduce trade and leaders are rational when war can occur because of the presence of asymmetric information the probability of escalation is lower for countries that trade more bilaterally because of the opportunity cost associated with the loss of trade gains however countries more open to global trade have a higher probability of war because multilateral trade openness decreases bilateral dependence to any given country and the cost of a bilateral conflict we test our predictions on a large data set of military conflicts on the 1950 2000 period using different strategies to solve the endogeneity issues including instrumental variables we find robust evidence for the contrasting effects of bilateral and multilateral trade openness for proximate countries we find that trade has had a surprisingly large effect on their probability of military conflict

capabilities uncertainty and resolve a limited information model of crisis bargaining this paper presents and solves a crisis bargaining game under limited information the sides alternate offers from three possible offers with war and its costs starting if the target s counteroffer is rejected the equilibrium of the model falls into four different cases these four cases are analyzed to determine how the sides communicate through their offers and how the costs of war initial beliefs misperceptions and distribution of capabilities drive the probabilities of a crisis and war the model demonstrates a joint selection bias misspecification problem in empirical studies of crises arising from the unobservable nature of beliefs several empirical studies of crisis bargaining are discussed in the light of this methodological problem new patterns of evidence are found that support the presence of the selection problem and their conclusions are reexamined

cheap talk can matter in bargaining this paper describes an intuitive way in which cheap talk can matter in a twostage bargaining game in which talk may be followed by serious negotiation the intuition that all buyers would claim to have low reservation prices is incorrect in our model instead if good faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation our cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in the absence of talk

why did drug cartels go to war in mexico subnational party alternation the breakdown of criminal protection and the onset of large scale violence this article explains why mexican drug cartels went to war in the 1990s when the federal government was not pursuing a major antidrug campaign we argue that political alternation and the rotation

preferences for redistribution in the land of opportunities this paper explores how individual preferences for redistribution depend on future income prospects in addition to estimating the impact of individuals socioeconomic background and of their subjective perceptions of future mobility we employ panel data to construct dobjectivet measures of expected gains and losses from redistribution for different categories of individuals we find that such measures have considerable explanatory power and perform better than dgeneral mobilityt indexes we also find that preferences for redistribution respond to individual beliefs on what determines one s position in the social ladder ceteris paribus people who believe that the american society offers equal opportunities are more averse to redistribution d 2004 published by elsevier b v

moral hazard and renegotiation with multiple agents we investigate the effects of contract renegotiation in multi agent situations where risk averse agents negotiate a contract offer to the principal after the agents observe a common unverifiable perfect signal about their actions we show that renegotiation with multiple agents reduces the cost of implementing any implementable action profile down to the first best level even though the principal cannot observe the agents actions moreover it is sufficient for the principal to use a simple initial contract in the sense that it consists of no more than a single sharing scheme for each agent and the total payments to the agents are the same regardless of the realised state an important implication is that decentralization in the sense of delegated negotiation and proposals from the agents can be as effective as centralized schemes that utilize revelation mechanisms in unrestricted ways

anticipation and the valuation of delayed consumption this paper presents a model of intertemporal choice that incorporates savoring and dread i e utility from anticipat ion of delayed consumption the model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly contrary to the prediction of convent ional formulations of intertemporal choice implications of savoring and dread for savings behavior empirical estimation of discount rate s and public policy efforts to combat myopic behavior are explored the model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice copyright 1987 by royal economic society

survey of economic implications of maritime and territorial disputes drawing on studies on the economics of conflict this paper reviews the literature on maritime and territorial disputes and it examines an array of economic implications associated with territorial and maritime disputes these include adverse effects on certain economic and development outcomes arising from possible armed confrontation with some of these possibly lingering in the aftermath of conflict there are also various economic disruptions and costs associated with these disputes emphasizing how they also affect the livelihoods of resource users in the disputed areas a clearer understanding of these economic links could help inform and motivate policymakers on mitigating the risks of conflict based on the review of evidence herein the economic implications of conflict in terms of foregone average trade among the country pairs considered in the west philippine sea south china sea in 1985 dollars which differ in important ways but hint at some common channels of impact could range from us 909 3 million to us 98 8 billion more broadly the impacts on a disrupted global production chain can easily amplify these results even further affecting global growth prospects for many decades according to experience

regionalism and conflict peace creation and peace diversion abstract we investigate the implications of preferential trade agreements ptas for interstate conflict we set up a two stage game with three competing importers where first two of the countries decide on whether to initiate war against each other and subsequently all three countries select their import tariffs we show that ptas produce both a peace creation effect and a peace diversion effect whereby they reduce the likelihood of conflict between member countries peace creation but render the eruption of war between member and non member countries more likely peace diversion this paper is the first to identify and explicitly model the peace diversion effect of ptas and is also the only one in this literature to endogenize countries terms of trade we use data from the correlates of war project to empirically test these predictions and after controlling for endogeneity we find robust evidence of both peace creation and peace diversion in relation to pta establishment

crisis stability in the nuclear age in the logic of crisis stability first strike advantages may still be destabilizing although even a successful first strike cannot protect a state from a terribly costly retaliatory second strike if there is an advantage to striking first and if war seems sufficiently likely launching a preemptive first strike may seem to be the least of evils i reconsider the logic of crisis stability by studying games that are completely stable although there are first strike advantages four general conditions ensure stability identifying these conditions refines our understanding of crisis stability by also identifying the potential sources of instability and this more refined understanding shows that the logic of crisis stability focuses attention too narrowly on first strike advantages stability results from a more subtle interaction of several factors of which a first strike advantage is only one

irreversibility and uncertainty cause an intergenerational equity efficiency trade off abstract two important policy goals in intergenerational problems are pareto efficiency and sustainability i e intergenerational equity we demonstrate that the pursuit of these goals is subject to an intergenerational equity efficiency trade off our analysis highlights two salient characteristics of intergenerational problems and policy i temporal irreversibility i e the inability to revise one s past actions and ii uncertainty of future consequences of present actions in human environment systems we employ a two non overlapping generations model that combines an intragenerational production decision on the use of circulating capital and a non renewable resource with a negative intergenerational externality as an unforeseen contingency if initially unknown problems become apparent and policy is enacted after irreversible actions were taken policy making faces a fundamental trade off between ex post pareto efficiency and sustainability that is one can achieve either one of these two goals but not both

goliath s curse coercive threats and asymmetric power states typically issue compellent threats against considerably weaker adversaries yet their threats often fail why expanding on a standard model of inter national crisis bargaining i argue that a theory of reputation building can help shed light on this puzzle the model casts reputation as a strategic problem showing that challengers issuing compellent threats have incentives to anticipate the reputation costs that target states incur when appeasing aggressors if challengers can recognize these costs and offset them with side payments or smaller demands then even reputation conscious targets will acquiesce i argue however that military strength contributes to information problems that make challengers more likely to underesti mate their targets reputation costs and insufficiently compensate them in this way military power can undermine the effectiveness of compellent threats the logic is illustrated by the 1939 russo finnish crisis and the argument s implications for the study of coercive diplomacy are explored

endogenous beliefs in models of politics in the standard rational choice model actors have exogenously given beliefs that perfectly match objective probabilities as such these beliefs cannot be optimistic or motivated by preferences even though substantial empirical evidence indicates that human beliefs routinely satisfy neither of these criteria i present a tractable endogenous beliefs model and apply it to three different political environments from across the subfields of political science in the model players form beliefs that maximize a utility function that represents preferences over outcomes and the anticipatory experience of uncertainty applications include voter turnout taxation and collective choice and crisis bargaining the model captures the empirical evidence about belief formation much better than the standard model moreover these applications show how rigidly insisting on the standard rational choice model rejects otherwise reasonable explanations by fiat precisely because of its implausible assumptions about beliefs

the political economy of indirect control this paper characterizes the efficient sequential equilibrium when a government uses indirect control to exert its authority we develop a dynamic principal agent model in which a principal a government delegates the prevention of a disturbance such as riots protests terrorism crime or tax evasion to an agent who has an advantage in accomplishing this task our setting is a standard dynamic principal agent model with two additional features first the principal is allowed to exert direct control by intervening with an endogenously determined intensity of force which is costly to both players second the principal suffers from limited commitment using recursive methods we derive a fully analytical characterization of the likelihood intensity and duration of intervention the first main insight from our model is that repeated and costly interventions are a feature of the efficient equilibrium this is because they serve as a punishment to induce the agent into desired behavior the second main insight is a detailed analysis of a fundamental tradeoff between the intensity and duration of intervention which is driven by the principal s inability to commit finally we derive sharp predictions regarding the impact of various factors on likelihood intensity and duration of intervention we discuss these results in the context of some historical episodes

terrorism democratization and us foreign policy members of the american foreign policy establishment argue that the united states should combat transnational terrorism by encouraging democratization yet empirical studies indicate that democratization may increase political violence thereby raising the question why would american policymakers favor democratization when the empirical record shows that this course of action is so dangerous this study develops a game theoretic model to analyze the effect of democratization on terrorism the model demonstrates that the united states uses the commitment problems created by democratization to solve the moral hazard problem created by supporting autocratic hosts these empirical implications are tested using a combination of two datasets

rational deterrence in an imperfect world this chapter applies recent economic research on games with incomplete information to the calculus of deterrence 1 we do not attempt to provide a complete theory of rational deterrence the focus is on the role of reputation and signaling in establishing deterrence we show how strategic players signal a reputation for strength from the perspective of an internally consistent equilibrium model

does egalitarianism have a future the fall of communism the reassessment of nordic social democracy belt tightening in other advanced welfare states and the worldwide privatization wave have led many to conclude that egalitarianism is a merely utopian ideal the possibility of whose realization is laid to rest by the failure of a series of twentieth century social experiments we survey the evidence both empirical and theoretical and conclude that obituaries are premature key theoretical errors in the design of egalitarian experiments and in some critiques of pro egalitarian policies concern the role of information asymmetries and we argue that their proper understanding re opens possibilities for increasing equality without unacceptable sacrifices in efficiency

judicial power in domestic and international politics although scholars have made considerable progress on a number of important research questions by relaxing assumptions commonly used to divide polit ical science into subfields rigid boundaries remain in some contexts in this essay we suggest that the assumption that international politics is characterized by anarchy whereas domestic politics is characterized by hierarchy continues to divide research on the conditions under which governments are constrained by courts international or domestic we contend that we will learn more about the process by which courts constrain governments and do so more quickly if we relax the assumption and rec ognize the substantial similarities between domestic and international research on this topic we review four recent books that highlight contemporary theories of the extent to which domestic and international law binds states and discuss whether a rigid boundary between international and domestic scholarship can be sustained on either theoretical or empirical grounds