investment and coordination in oligopolistic industries we examine investment by firms in 24 chemical product industries to determine whether firms invest preemptively to achieve persistent increases in market share or whether there is evidence of behavior to maintain market share the data indicate that investment reduces the probability that rival firms will expand capacity but the effect is temporary large firms tend to maintain market share while smaller firms tend to invest simultaneously with rivals the role of preemptive investment is limited to that of permitting a firm to invest with a lower probability of redundant investment by rivals preemption does not allow a persistent increase in market share but instead acts as a means by which firms may coordinate capacity investment to help avoid episodes of industry overcapacity

moral hazard discipline and the management of terrorist organizations terrorist groups repeatedly include operatives of varying commitment and often rely on a common set of security reducing bureaucratic tools to manage these individuals this is puzzling in that covert organizations are commonly thought to screen their operatives very carefully and pay a particularly heavy price for record keeping the authors use terrorist memoirs and the internal correspondence of one particularly prominent group to highlight the organizational challenges terrorist groups face and use a game theoretic model of moral hazard in a finitely sized organization to explain why record keeping and bureaucracy emerge in these groups the model provides two novel results first in small heterogeneous organizations longer institutional memory can enhance organizational efficiency second such organizations will use worse agents in equilibrium under certain conditions the core logic is that in small organizations the punishment strategies that allow leaders to extract greater effort are credible only when operatives can identify and react to deviations from the leaders equilibrium strategy this dynamic creates incentives for record keeping and means that small organizations will periodically use problematic agents in equilibrium as part of a strategy that optimally motivates their best operatives

media scrutiny and the quality of public officials i investigate whether attempts by the media to determine a candidate s fitness for office lowers the average quality of public officials what i call the media scrutiny paradox media scrutiny imperfectly signals heterogeneous candidates type but imposes privacy costs and reputational costs on politicians the quality of office holders falls if the selection effect is adverse and outweighs the screening effect a low quality information signal which could result if the media focus on irrelevant aspects of behavior makes the screening effect small and the media paradox more likely to hold individuals of good character might invest more in their reputation and have more at stake from being falsely identified as a rapscallion the actual malice standard established in new york times v sullivan likely increased relatively the cost of candidacy for good people and lowered the quality of officials

strikes and political activism of trade unions theory and application to bangladesh the behavior of bangladeshi trade unions is characterized bypolitical activism and momentous strikes called hartalsthere have played a crucial part in most political changes inthis country we offer a theoretical framework for discussingthis fact and we test empirically its main prediction bybringing out the political cycle that characterizes theoccurrence of strikes in bangladesh

does competition for capital discipline governments decentralization globalization and public policy competition among countries or regions within them to attract mobile capital is often thought to discipline their governments motivating them to invest more in infrastructure reduce waste and corruption and spend less on non productive public goods the result should be convergence on business friendly policies we argue that this requires an assumption units start out very similar that is often unrealistic if units are heterogeneous in natural resources geographical location inherited human capital or infrastructure capital mobility often weakens discipline on the poorlyendowed units this may help explain disappointing results of liberalizing capital flows within russia and sub saharan africa jel f36 h73 h87

on the role of demand and strategic uncertainty in capacity investment and disinvestment dynamics abstract even mature industries seldom settle down into a long run steady state fluctuations in demand disrupt the status quo and call for firms to adjust their capacities on an ongoing basis we construct a fully dynamic model of an oligopolistic industry with lumpy capacity and lumpy investment disinvestment decisions in addition to uncertainty about the evolution of demand a firm faces strategic uncertainty concerning the decisions of its rivals we numerically solve the model for its markov perfect equilibria for one set of parameter values three equilibria exist and while all of them have simple intuitive structures they exhibit widely varying patterns of response to demand shocks at one extreme one firm dominates the industry almost as a monopolist and changes its capacity to accommodate demand at the other extreme the larger firm keeps its capacity nearly constant while the smaller firm acts as the swing producer

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

blame game politics in a coalition government abstract delays in the adoption of reforms is an important question in political economics this paper explores this issue in the context of a representative democracy where the government is a coalition and citizens observe neither the decision making process nor politicians preferences for a reform we show that a coalition member who favors a reform may nonetheless choose to veto its adoption thus delaying it until after the next election and let his coalition partners share the blame for the non adoption we refer to this strategy as blame game politics we then identify three reasons for a politician to play the blame game one is to make an issue salient in the next election a second reason is to avoid a split in his electorate which is accomplished by hiding his stance on an issue a third reason is to enhance bargaining power during the formation of the next government

good types in authoritarian elections the selectoral connection in chinese local congresses a new electoral design for subnational congress elections in china allows me to investigate the informational utility of authoritarian elections authoritarian regimes are notoriously bad at solving the moral hazard problem in the voter s agency relationship with politicians borrowing from the literature on political selection i theorize that authoritarian elections can nonetheless solve the adverse selection problem chinese voters can use their electoral power to select good types with personal qualities that signal they will reliably represent local interests i analyze original data from a survey of 4 071 chinese local congressmen and women including voter nominees and communist party nominees i find that voters do in fact overcome coordination difficulties to nominate and elect good types in contacting politicians about local problems after the elections however voters hedge their bets by contacting regime insiders too at these very local levels congressional representation by means of

the logic of insurgent electoral violence competitive elections are essential to establishing the political legitimacy of democratizing regimes we argue that insurgents undermine the state s mandate through electoral violence we study insurgent violence during elections using newly declassified microdata on the conflict in afghanistan our data track insurgent activity by hour to within meters of attack locations our results suggest that insurgents carefully calibrate their production of violence during elections to avoid harming civilians leveraging a novel instrumental variables approach we find that violence depresses voting collectively the results suggest insurgents try to depress turnout while avoiding backlash from harming civilians counterfactual exercises provide potentially actionable insights for safeguarding at risk elections and enhancing electoral legitimacy in emerging democracies

an analysis of preemptive behavior in the titanium dioxide industry abstract much of the recent theoretical work on oligopoly theory focuses on preemptive capital expansion this paper continues this work by testing whether dupont s behavior in the titanium dioxide industry was consistent with the capital commitment model between 1972 and 1977 this is different from previous empirical papers analyzing preemptive capital expansion because it focuses on strategic behavior in a specific industry and because the hypothesis tests in this paper are based on a formal model of firms optimizing behavior the results lend support to the conclusion that dupont committed capital to preempt the smallest five firms in the industry between 1972 and 1977

politicians as experts electoral control and fiscal restraints we propose an argument for fiscal restraints that is based on the premise that the services of politicians are credence goods politicians are experts who specialize in observing the true state of the economy budget maximizing politicians are better informed than the electorate about the level of public spending necessary to manage public affairs voters who are able to observe the size of the budget but not the necessary level of spending affect the government s spending behavior via electoral control a fiscal restraint limits the maximum spending a government can choose we identify conditions under which such a fiscal restraint improves voter welfare and discuss the role of the political opposition as a second expert in situations in which the state of the economy requires a level of spending which exceeds the fiscal restraint

excess capacity as a barrier to entry an empirical appraisal this paper examines excess capacity barriers to entry and investment dynamics in a sample of thirty eight chemical product industries logit and log linear models of investment behavior are estimated and specific case examples are considered the results show that incumbents rarely built excess capacity pre emptively in an effort to deter entry in general entrants and incumbents exhibited similar investment behavior

rank effects in bargaining evidence from government formation theories of multilateral bargaining and coalition formation applied to legislatures predict that parties seat shares determine their bargaining power we present findings that are difficult to reconcile with this prediction but consistent with a norm prescribing that the most voted party should form the government we first present case studies from several countries and regression discontinuity design based evidence from twenty eight national european parliaments we then focus on 2 898 spanish municipal elections in which two parties tie in the number of seats we find that the party with slightly more general election votes is substantially more likely to appoint the mayor since tied parties should on average have equal bargaining power this identifies the effect of being labeled the most voted this effect is comparable to that of obtaining an additional seat and is also present when a right wing party is the most voted and the second and third most voted parties are allied left wing parties who can form a combined majority a model where elections both aggregate information and discipline incumbents can rationalize our results and yields additional predictions we take to the data such as voters punishing second most voted parties that appoint mayors

signaling through obstruction obstruction is a time honored tradition in legislative politics in many cases obstruction can be foreseen to be ultimately unsuccessful and in some of these cases purely costly even to the obstructor in this article i construct a model of obstruction in which the individual obstruction of a fait accompli policy proposal is potentially informative precisely and ironically because it is inefficient the theory based on the legislators reelection motivations offers comparative static predictions about the frequency and length of obstruction as a function of the individual characteristics of the legislator and his or her electoral setting including the legislator s value for reelection the appeal of the legislator s challenger the legislator s individual specific seniority competence and or valence and the visibility of the legislator s obstruction efforts to the voter finally the theory illustrates the potential for transparency of legislators individual actions to be strictly welfare reducing even in the absence of pandering

violence and risk preference experimental evidence from afghanistan we investigate the relationship between violence and economic risk preferences in afghanistan combining i a two part experimental procedure identifying risk preferences violations of expected utility and specific preferences for certainty ii controlled recollection of fear based on established methods from psychology and iii administrative violence data from precisely geocoded military records we document a specific preference for certainty in violation of expected utility the preference for certainty which we term a certainty premium is exacerbated by the combination of violent exposure and controlled fearful recollections the results have implications for risk taking and are potentially actionable for policymakers and marketers

electoral competition and politician turnover abstract in this paper we analyze the selection by opportunistic parties of the candidates who run for election we consider a setting with incomplete but symmetric information about the candidates abilities in which electoral campaigns provide voters with additional information about candidates parties care only about selecting an appropriate candidate to win the election while voters elect the best candidate conditional on their information we first argue that in order to defeat an established very good candidate of its rival a party may favor a new candidate with highly uncertain ability rather than an established good candidate next we establish that the discrepancy between the objective of parties and the objective of the electorate leads to inefficient conservatism in the selection of candidates i e each party keeps its incumbents too often from the voters viewpoint

the rise of europe atlantic trade institutional change and economic growth the rise of western europe after 1500 is due largely to growth in countries with access to the atlantic ocean and with substantial trade with the new world africa and asia via the atlantic this trade and the associatedcolonialism affected europe not only directly but also indirectly by inducing institutional change where initial political institutions those established before 1500 placed significant checks on the monarchy the growth of atlantic trade strengthened merchant groups by constraining the power of the monarchy and helped merchants obtain changes in institutions to protect property rights these changes were central to subsequent economic growth

the origins of state capacity property rights taxation and politics economists generally assume that the state has sufficient institutional capacity to support markets and levy taxes this paper develops a framework where policy choices in market regulation and taxation are constrained by past investments in legal and fiscal capacity it studies the economic and political determinants of such investments demonstrating that legal and fiscal capacity are typically complements the results show that among other things common interest public goods such as fighting external wars as well as political stability and inclusive political institutions are conducive to building state capacity some correlations in cross country data are consistent with the theory

an economic analysis of voting in sweden using data from the swedish election studies between 1985 and 1994 supplemented with time series on inflation and unemployment i compare the impact of macro and microeconomic variables on the individual vote the principal finding is that macroeconomic variables influence the vote a bit more than microeconomic variables do in consequence both self interest and public interest appear to be important explanations of economic voting in sweden macroeconomic variables have however been much more influential in determining election outcomes since previous studies of economic voting have used cross sectional data only it is also worth noting that panel estimates indicate a much greater impact of macroeconomic variables on the individual vote than cross sectional estimates do

testing for market power using a dynamic oligopoly model abstract we propose a dynamic reformulation of the oligopoly model of bresnahan 1982 and lau 1982 in an error correcting framework this reformulation addresses both statistical problems generated by short run dynamics in the data and incorporates important dynamic factors such as habit formation from the demand side and adjustment costs for the producer we also propose a test for separability of the variables involved in the identification of the market power parameter to illustrate the model the french market for fresh salmon is analysed the results suggest the salmon market to be competitive in the long run but indicate that the largest producer norway has some market power in the short run

accountability and incentives of appointed and elected public officials political agency models suggest that elected public officials choose different policies than appointed officials do this paper is the first a to apply a clean empirical design to study whether t

information and strategic political polarisation we develop a model of electoral competition in which two opportunistic candidates select their policy position and invest in quality policy positions are observed and during the campaign the press reveals some information about quality we demonstrate that when information is imperfect the blackdowns median voter theorem fails to hold for intermediate information levels the unique equilibrium is such that candidates propose policies different from the median voter s bliss point by contrast convergence to the median occurs when quality is almost always or almost never revealed we also show that a profit maximising press may collect more information than socially optimal during the 1995 electoral campaign in belgium the vld a traditionally right wing

the size and scope of government comparative politics with rational politicians we try to demonstrate how economists may engage in research on comparative politics relating the size and composition of government spending to the political system a downsian model of electoral competition and forward looking voting indicates that majoritarian as opposed to proportional elections increase competition between parties by focusing it into some key marginal districts this leads to less public goods less rents for politicians more redistribution and larger government a model of legislative bargaining and backward looking voting indicates that presidential as opposed to parliamentary regimes increase competition between both politicians and voters this leads to less public goods less rents for politicians less redistribution and smaller government we confront these predictions with cross country data from around 1990 controlling for economic and social determinants of government spending we nd strong and robust support for the prediction that the size of government is smaller under presidential regimes and weaker support for the prediction that majoritarian elections are associated with less public goods

excess capacity and entry some empirical evidence recent articles by spence i977 dixit i979 and schmalensee i98i have elaborated on wenders i97i1 proposition that excess capacity can act as a barrier to entry the intent of all of these treatments is to suggest that firms may rationally invest in excess capacity with the expectation that excess capacity will be seen by potential entrants either as a signal of aggressive intent or as a credible threat 2 when excess capacity does not lead to creation of a credible threat it may still act as a barrier to entry by shifting the risk return perceptions of potential entrants enough to divert the potential entrants investments into other industries 3 alternatively investment in excess capacity by incumbent firms may reduce the prospects of an active market for the used equipment of a defunct entrant and thereby help to convert fixed costs into sunk costs consequently raising entry barriers 4 this paper represents an exploratory effort to investigate empirically the prevalence and efficiency of excess capacity in deterring entry first a simple and traditional model of entry is presented this is followed by the description of the data used to explore the excess capacity investment concept a combined results and comments section follows the description of the data

a new view of political accountability for economic performance most political support models imply that in evaluating economic performance voters use a standard that would provide poor predictions of the future and leave the economy vulnerable to manipulation by vote hungry politicians drawing on macroeconomic theory we develop a simple standard of evaluation which encompasses a concern not only for current economic outcomes but also for accurately assessed future consequences of current policies we find that political support for the president can be explained as well by models that assume that voters use this sophisticated standard as by models that assume voter naivete our analysis questions the wisdom of measures typically used to assess voter evaluation of economic performance in a variety of theoretical contexts the results also help to explain the absence of convincing evidence that governments exploit voter ignorance in manipulating the economy

on the form of transfers to special interests an important question in political economy concerns the form of transfers to special interests the chicago view is that political competition leads politicians to make such transfers efficiently the virginia position is that lack of information on the part of voters leads politicians to favor inefficient sneaky methods of redistribution this paper analyzes the form of transfers in a model of political competition in which politicians have incentives to make transfers to special interests it shows that when voters have imperfect information about both the effects of policy and the predispositions of politicians inefficient methods of redistribution may be employed

government clubs and constitutions abstract this paper analyzes constitutional effectiveness the degree to which constitutions can be enforced in the system of government vs the system of clubs i argue that clubs have residual claimants on revenues generated through constitutional compliance operate in a highly competitive environment and permit individuals to sort themselves according to their governance needs these features make their constitutional contracts self enforcing government lacks these features so its constitutional contract is not institutional augmentations that make government more club like such as federalism democracy and limited government scope improve government s constitutional effectiveness but constitutional effectiveness remains superior in the system of clubs

institutional corruption and election fraud evidence from a field experiment in afghanistan w e investigate the relationship between political networks weak institutions and election fraud during the 2010 parliamentary election in afghanistan combining i data on political connections between candidates and election officials ii a nationwide controlled evaluation of a novel monitoring technology and iii direct measurements of aggregation fraud we find considerable evidence of aggregation fraud in favor of connected candidates and that the announcement of a new monitoring technology reduced theft of election materials by about 60 percent and vote counts for connected candidates by about 25 percent the results have implications for electoral competition and are potentially actionable for policymakers jel c93 d02 d72 k42 o17

an arrgh chy the law and economics of pirate organization this article investigates the internal governance institutions of violent criminal enterprise by examining the law economics and organization of pirates to effectively organize their banditry pirates required mechanisms to prevent internal predation minimize crew conflict and maximize piratical profit pirates devised two institutions for this purpose first i analyze the system of piratical checks and balances crews used to constrain captain predation second i examine how pirates used democratic constitutions to minimize conflict and create piratical law and order pirate governance created sufficient order and cooperation to make pirates one of the most sophisticated and successful criminal organizations in history

excess capacity as a barrier to entry in the us titanium industry abstract the purpose of this paper is to construct and empirically test a model designed to determine the impact if any of expected excess capacity on the probability of entry the analysis is conducted within the context of a single oligopoly specifically the us titanium metal industry using time series data an empirical model is developed and estimated in order to determine expected values of the components of excess capacity capacity and production by disentangling the components of excess capacity and estimating them separately it is possible to separate any incumbent actions that may preempt entry from the effects of underlying cycles in demand and production these predicted values are utilized in a logit model generating results which indicate that expected levels of capacity expansion appear to diminish the probability of firm entry into the titanium industry

the hidden cost of raising voters expectations reference dependence and politicians credibility abstract two politicians compete to get elected each politician is characterized by a valence which is unobservable to the electorate and can take one of two values high or low the representative voter prefers politicians with high valence but random shocks may lead him to appoint a low valence politician politicians make statements concerning their valence if the voter is a standard expected utility maximizer politicians statements lack any credibility and no information transmission takes place by introducing reference dependence and loss aversion we show that truthful communication is possible in equilibrium and we characterize the conditions under which it can arise intuitively these behavioral biases introduce a cost of overstating one s valence as overstatements may shift the electorate s preferences toward better skilled opponents

why is fiscal policy often procyclical many countries especially developing ones follow procyclical fiscal policies namely spending goes up taxes go down in booms and spending goes down taxes go up in recessions we provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less than benevolent government to appropriate rents voters have incentives similar to the starving the leviathan classic argument and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well we test this argument against more traditional explanations based purely on borrowing constraints with a reasonable amount of success

violence bribery and fraud the political economy of elections in sub saharan africa post soviet african democratization has introduced elections into contexts that often lack restraints upon the behavior of candidates resulting in the emergence of voter intimidation vote buying and ballot fraud we propose a model of electoral competition where although some voters oppose violence it is effective in intimidating swing voters we show that in equilibrium a weak challenger will use violence which corresponds to a terrorism strategy similarly a nationally weak incumbent will use repression however a stronger incumbent facing local competition will prefer to use bribery or ballot fraud we discuss the applicability of the model to several african elections

factors underlying the employment effects of financial assistance policies this paper examines the employment creation effects of financial assistance to industry the assistance schemes covered are the regional policy instruments of regional development grant and regional selective assistance and the assistance policies of local authorities and a number of other agencies using survey data and regression techniques it is shown that there are significant variations in cost effectiveness between assistance schemes and between projects of different purpose a policy implication of this is that agencies could increase the employment creation effects of their policies by focusing assistance on particular types of project

interest groups and the electoral control of politicians abstract we develop a model of interest group influence in the presence of repeated electoral competition in each period of the game an interest group attempts to buy an incumbent s policy choice and a voter chooses whether to replace the incumbent with an unknown challenger the voter faces a tension between retaining good politician types and rewarding past performance the model predicts that above average incumbents face little discipline but others are disciplined increasingly and re elected at a higher rate as the interest group becomes more extreme extensions of the model consider term limits long lived groups and multiple groups

village elections public goods investments and pork barrel politics chinese style a key issue in political economy concerns the accountability that governance structures impose on public officials and how elections and representative democracy influence the allocation of public resources in this paper we utilise a unique set of survey data set from nearly 2450 randomly selected villages describing china s recent progress in village governance reforms and its relationship to the provision of public goods in rural china between 1998 and 2004 two sets of questions are investigated using an empirical framework based on a theoretical model in which local governments must decide to allocate fiscal resources between public goods investments and other expenditures the empirical analysis both in the descriptive and econometric analyses suggests that when the village leader is elected directly ceteris paribus the provision of public goods rises compared to when the leader is not elected directly by villagers thus in this way it is possible to conclude that democratisation at least at the village level in rural china appears to increase the quantity of public goods investment second we seek to understand the mechanism that is driving the results also based on the survey data we find that when village leaders who had been directly elected were able to implement more public projects during their terms of office they as the incumbent were more likely to be re elected in this way we argue that the link between elections and investment may be a rural china version of pork barrel politics

does terrorism work this paper examines whether terrorism is an effective tool for achieving political goals by exploiting geographic variation in terror attacks in israel from 1988 to 2006 we show that local terror attacks cause israelis to be more willing to grant territorial concessions to the palestinians these effects are stronger for demographic groups that are traditionally right wing in their political views however terror attacks beyond a certain threshold cause israelis to adopt a less accommodating position in addition terror induces israelis to vote increasingly for right wing parties as the right wing parties move to the left in response to terror hence terrorism appears to be an effective strategy in terms of shifting the entire political landscape to the left although we do not assess whether it is more effective than non violent means

the emergence of political accountability when and how do democratic institutions deliver accountable government in addressing this broad question we focus on the role played by political norms specifically the extent to which leaders abuse office for personal gain and the extent to which citizens punish such transgressions we show how qualitatively distinct political norms can coexist because of a dynamic complementarity in which citizens willingness to punish transgressions is raised when they expect such punishments to be used in the future we seek to understand the emergence of accountability by analysing transitions between norms to do so we extend the analysis to include the possibility that at certain times a segment of voters are behaviorally intolerant of transgressions our mechanism highlights the role of leaders offering an account of how their actions can instigate enduring change within a fixed set of formal institutions by disrupting prevailing political norms we show how such changes do not depend on sun spots to trigger coordination and are asymmetric in effect a series of good leaders can and eventually will improve norms whereas bad leaders cannot damage them jel codes d72 p16 c73 copyright 2013 oxford university press

the limits of tax and expenditure limits tel implementation as a principal agent problem previous scholarship has shown that tax and expenditure limits tels often fail to constrain government growth this paper views the implementation of tels as a principal agent problem agency theory predicts that delegation is affected by the preferences of agents and the costs of monitoring those agents using panel data for the us states from 1970 through 2008 i conduct an empirical test of the validity of the principal agent model for tels i find that state spending limitations are only effective at cutting the growth of state and local spending under the direction of agents who have a preference for limited government additionally state property tax limitations are only effective when monitoring does not require costly coordinated action these findings contradict an alternative theory of tel implementation that looks towards the policy s origin my research suggests that the arrangements of delegation determine when and under what conditions tels effectively reduce government growth

public protests and policy making technological advances and the development of social media have made petitions public protests and other form of spontaneous activism increasingly common tools for individuals to influence decision makers to study these phenomena in this article i present a theory of petitions and public protests that explores their limits as mechanisms to aggregate information the key assumption is that valuable information is dispersed among citizens through petitions and protests citizens can signal their private information to the policy maker who can then choose to use it or not i first show that if citizens individual signals are not sufficiently precise information aggregation is impossible no matter how large is the population of informed citizens even if the conflict with the policy maker is small i then characterize the conditions on conflict and the signal structure that guarantee information aggregation when these conditions are satisfied i show that full information aggregation is possible as the population grows to infinity when they are not satisfied i show that information aggregation may still be possible if social media are available

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

challenger entry and voter learning we develop a model of strategic interaction between voters and potential electoral challengers to sitting incumbents in which the very fact of a costly challenge conveys relevant information to voters given incumbent failure in office challenger entry is more likely but the threat of entry by inferior challengers creates an incentive for citizens to become more politically informed at the same time challenges to incumbents who perform well can neutralize a voter s positive assessment of incumbent qualifications how a voter becomes politically informed can in turn deter challengers of different levels of competence from running depending on the electoral environment the model permits us to sharpen our understanding of retrospective voting the incumbency advantage and the relationship between electoral competition and voter welfare while pointing to new interpretations of and future avenues for empirical research on elections

the revised regional development grant scheme a case study in cleveland county of a marginal employment subsidy wren c 1989 the revised regional development grant scheme a case study in cleveland county of a marginal employment subsidy reg studies 23 127 137 in 1984 substantial changes were made to the primary instrument of uk regional industrial policy the regional development grant in order to improve the cost effectiveness of this measure subsequently in 1988 it was decided to abandon the scheme because of the deadweight spending associated with automatic assistance schemes in this paper an examination is made of the revised rdg scheme taking the county of cleveland as a case study it is shown that the vast majority of payments under the revised scheme were in the form of a job grant and that it operated in effect as a marginal employment subsidy a survey of firms in cleveland suggests that the revised scheme was an effective job creation measure associated with relatively little deadweight spending and this calls into question the decision to abandon the scheme in 1988 wren c 1989 le p

investment flexibility as a barrier to entry abstract this paper presents a model of investment in a duopoly with firms that choose the scale and timing of investment decision making flexibility and the costs saved by investing in large steps rather than sequences of small steps determine an incumbent s ability to deter entry by a potential competitor entry occurs when these cost savings are very small or very large because the effect of increased industry capacity on the incumbent s assets in place is the same regardless of which firm invests in intermediate cases the incumbent is able to deter entry by making a smaller earlier investment than the potential entrant the smaller investment scale protects the incumbent s assets in place which offsets the incumbent s cost disadvantage from investing in smaller steps than the entrant would choose nevertheless the threat of entry constrains the incumbent s investment behavior and limits its profitability the model is solved using a combination of best response iteration and the projected successive over relaxation method

democracy the market and the logic of social choice this article compares the types of knowledge democracy and the market require to rationally allocate resources i argue that high levels of public ignorance and voters inability to compare the effects of different parties policies make it difficult for parties and elections to rationally allocate resources markets mitigate these problems because the simultaneous existence of multiple firms products facilitates comparisons that mimic the conditions of scientific experimentation the economy of knowledge involved in such comparisons indicates there are epistemic advantages to using firms and markets instead of political parties and elections to allocate scarce resources however in contrast to arguments that markets merely provide better information than political decisions i argue markets epistemic advantages are derived from the way they facilitate comparisons that minimize decision makers need for knowledge or understanding

dynamic government performance honeymoons and crises of confidence we use a formal theoretical framework to explore the interplay between a government s longevity and its performance ministers perform well when their careers are valuable this is so when the government s duration is expected to be long the government s survival depends on its popularity and finally that popularity depends on its ministers performance the feedback loop between performance and longevity means that multiple rational expectations equilibria can arise ministers work hard for a popular government but divert efforts elsewhere if they believe the government is doomed these alternatives are both self fulfilling prophecies however the presence of perhaps small random events that buffet the performance and popularity of a government is sufficient to pin down a unique equilibrium we explore the dynamics that arise a crisis of confidence involving the rapid collapse of a government s performance is sparked when a sequence of negative shocks push the popularity of the government below a unique critical threshold

war and local collective action in sierra leone abstract we study the brutal 1991 2002 sierra leone civil war using nationally representative household data on conflict experiences postwar economic outcomes local politics and collective action individuals whose households directly experienced more intense war violence are robustly more likely to attend community meetings more likely to join local political and community groups and more likely to vote tests using prewar controls and alternative samples suggest that selection into victimization is unlikely to be driving the results more speculatively the findings could help partially explain the rapid postwar political and economic recoveries observed in sierra leone and after several other recent african civil wars

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

the effects of party competition on budget outcomes empirical evidence from local governments in spain this paper investigates the link between local budget outcomes and the intensity of party competition measured as the margin of victory obtained by the incumbent in the previous local election i e the difference between the vote share and 50 two competing hypotheses are tested in the paper on the one hand the leviathan government hypothesis suggests that the lower the intensity of party competition is the greater is the increase in the size of the local public sector irrespective of the ideology of the party in power on the other hand the partisan government hypothesis suggests that the incumbent will find it easier to advance its platform when intensity of competition is low i e parties on the left right will increase decrease the size of the local public sector when the intensity of the challenge from the opposition is low these hypotheses are tested with information on spending own revenues and deficit for more than 500 spanish local governments over 8 years 1992 1999 and information on the results of two local electoral contests 1991 and 1995 the evidence favors the partisan hypothesis over the leviathan one we found that for left wing governments spending taxes and deficits increased as the electoral margin increases whereas for right wing governments a greater margin of victory led to reductions in all these variables

lame ducks and local fiscal policy quasi experimental evidence from portugal i use the introduction of mayoral term limits in portugal to identify how an exogenous variation in eligibility for office affects policy decisions relying on a quasi experimental difference in differences approach i find that term limited incumbents pursue more conservative fiscal policies than those who are eligible for re election heterogeneous effects show that the treatment effects primarily reflect the behaviour of right leaning term limited incumbents results are in line with a model in which right leaning officeholders try to maintain a good reputation by pleasing an electorate prone to redistribution while they are eligible but adopt policies closer to their true preferences when term limited

lumpy capacity investment and disinvestment dynamics capacity addition and withdrawal decisions are among the most important strategic decisions made by firms in oligopolistic industries in this paper we develop and analyze a fully dynamic model of an oligopolistic industry with lumpy capacity and lumpy investment disinvestment we use our model to suggest answers to two questions first what economic factors facilitate preemption races second what economic factors facilitate capacity coordination with a series of examples we show that low product differentiation low investment sunkness and high depreciation tend to promote preemption races the same examples also show that low product differentiation and low investment sunkness tend to promote capacity coordination although depreciation removes capacity it might impede capacity coordination finally our examples show that multiple equilibria arise over at least some range of parameter values the distinct structures of these equilibria suggest that firms expectations play a key role in determining whether or not industry dynamics are characterized by preemption races and capacity coordination taken together our results suggest that preemption races and excess capacity in the short run often go hand in hand with capacity coordination in the long run

political careers or career politicians two main career paths are prevalent among politicians in modern democracies there are career politicians i e politicians who work in the political sector until retirement and political careers i e there are politicians who leave politics before retirement and work in the private sector in this paper we propose a dynamic equilibrium model of the careers of politicians in a political economy with a private sector and a political sector where individuals are heterogeneous with respect to their market ability as well as their political skills we characterize the conditions under which the two career paths emerge in equilibrium and establish a number of comparative statics results with respect to the quality of politicians and their careers

trafficking networks and the mexican drug war abstract drug trade related violence has escalated dramatically in mexico since 2007 and recent years have also witnessed large scale efforts to combat trafficking spearheaded by mexico s conservative pan party this study examines the direct and spillover effects of mexican policy toward the drug trade regression discontinuity estimates show that drug related violence increases substantially after close elections of pan mayors empirical evidence suggests that the violence reflects rival traffickers attempts to usurp territories after crackdowns have weakened incumbent criminals moreover the study uses a network model of trafficking routes to show that pan victories divert drug traffic increasing violence along alternative drug routes jel d72 d85 k42 o17 z13

credible communication in dynastic government abstract this paper studies information disclosure in a model of dynastic government when information about past policy choices comes exclusively from the reports of previous administrations each administration has an incentive to choose its suboptimal one shot expenditure policy and then misrepresent its choice to its successor consequently it has been suggested that horizontal accountability i e a system of governance where auditing functions lie outside the executive branch can ensure credible disclosure of a government s activities this paper suggests a cautious approach to that view the baseline model examines the reporting incentives of an external auditor who can independently verify the information each period even with auditing credible disclosure is shown to be problematic various extensions to this baseline model are examined in one extension liberal i e those prefering larger government expenditures and conservative those prefering smaller expenditures regimes and auditors evolve over time it is shown that conservative liberal auditors are not credible when the current regime is also conservative liberal moreover because information transmission stops when the auditor s and the regime s biases coincide effective deterrents even in the good periods when the auditor s and the administration s biases differ are difficult to construct in all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for efficient policy choices these constraints are shown to bind away from optimal policies in standard constructions of equilibrium various ways in which auditing protocols can overcome these problems are discussed

a structural model of electoral accountability this paper proposes a structural approach to measuring the eects of electoral ac countability we estimate a political agency model with imperfect information in order to identify and quantify discipline and selection eects using data on u s governors for 1982 2012 we nd that the possibility of reelection provides a signi cant incentive for incumbents to exert eort we also nd a selection eect although it is weaker in terms of its eect on average governor performance according to our model the widely used two term regime improves voter welfare by 4 2 compared to a one term regime and nd that a three term regime may improve voter welfare even further

legislator voting and shirking a critical review of the literature we set out to critically review the progress in answering two related questions what determines how legislators vote and how can shirking by legislators be measured in the first category the hypothesis that legislators shirk in order to indulge their personal ideological preferences has led researchers astray the theoretical underpinning is shaky on two counts first legislators who indulge their preferences at the expense of their constituents preferences put themselves at a competitive electoral disadvantage second the original two stage procedure used to measure ideological shirking is severely flawed among many other problems the residual measure of shirking implicitly assumes that the median voter is the relevant constituent principal for the legislator agent

excess capacity and limit pricing an empirical test entry may be inhibited by expectations that incumbents have lower marginal costs incumbents may be able to use limit pricing or excess capacity to further this expectation we construct an empirical model of oligopoly capacity and pricing decisions and of entrant responses the results support the hypothesis that both lower prices and greater excess capacity inhibit entry they further support limit pricing but provide no evidence that oligopolies deliberately install excess capacity to deter entry the results suggest however that limit pricing firms may exploit the entry inhibiting effects of unintended excess capacity by raising their limit prices

economic policy economic performance and elections this paper explores the role of reelection pressures in determining economic policy by assuming that voters are uncertai n as to the efficacy of different policies a reelection process is derived that depends on both a politician s past policies and the level of economic activity during his time in office it is shown th at the less uncertain are voters as to which policy is best the more likely is a politician to manipulate policy for reelection purposes manipulation entails implementing the policy that is more likely to be well received rather than the one that maximizes income copyright 1993 by american economic association

holding idle capacity to deter entry in this journal dixit i980 carefully analysed the extent to which an established firm facing a prospective entrant might make an investment in capacity beyond that which is optimal for its pre entry output in his model both the established firm and prospective entrants understand that a quantity setting nash equilibrium would be established in any post entry game dixit showed that spence i977 had studied an imperfect equilibrium that is an equilibrium that depended upon a threat that was not credible to obtain his result that firms might hold excess capacity to deter entry in a perfect equilibrium a firm would not wish to install capacity that would be left idle if entry did not occur dixit s conclusion however depends on his assumption that each firm s marginal revenue is always decreasing in the other s output this is quite a restrictive assumption for example it is never satisfied in the relevant range for economists second favourite demand curve constant elasticity demand the basic point is unchanged if the firms anticipate price competition with differentiated products rather thanquantity competition in any post entry game under quite plausible conditions rational firms facing rational potential entrants may install capacity that will certainly be left idle we are thus able to rehabilitate spence s original proposition in a perfect equilibrium setting

incentive contracts and elections for politicians with multi task problems abstract we consider a model with a politician facing a multi task problem while in office the reelection mechanism distorts the allocation of effort in favor of tasks whose outcomes can be measured more precisely than others we show that a combination of elections and incentive contracts can alleviate this inefficiency the incentive contract does not require direct information about the performance of the politician and is self financing across terms

panic on the streets of london police crime and the july 2005 terror attacks in this paper we study the causal impact of police on crime by looking at what happened to crime before and after the terror attacks that hit central london in july 2005 the attacks resulted in a large redeployment of police officers to central london boroughs as compared to outer london in fact police deployment in central london increased by over 30 percent in the six weeks following the july 7 bombings during this time crime fell significantly in central relative to outer london study of the timing of the crime reductions and their magnitude the types of crime which were more likely to be affected and a series of robustness tests looking at possible biases all make us confident that our research approach identifies a causal impact of police on crime implementing an instrumental variable approach shows an elasticity of crime with respect to police of approximately 0 3 so that a 10 percent increase in police activity reduces crime by around 3 percent

self enforcing democracy author s fearon james abstract if democracy is to have any of the good effects said to justify it it must be self enforcing those who control the government must want to hold regular competitive elections for the highest offices and all parties must be willing to comply with the results i consider a model in which citizens can always protest or rebel against the current ruler but can unseat the ruler only if enough people rebel when individuals privately observe a signal of the government s performance e g their own welfare they face a difficult problem of how to coordinate to pose a credible threat of rebellion necessary to keep the ruler from stealing further if the signals are noisy inefficient rebellions must occur in equilibrium to keep the ruler honest allowing for the possibility of elections makes for equilibria that eliminate both problems the convention of holding elections at particular times provides a public signal for coordinating rebellion in the event that elections are suspended of blatantly rigged the electoral results themselves aggregate private information about the ruler s performance providing the ruler an incentive to stick to the terms int he case of noisy signals of government performance the electoral results act as a cheap talk signal that allows the public to commit to rebel if a losing ruler does not step down avoiding the need for costly rebellions these arguments pose an explanation for self enforcing democracy whereas the several models in the literature do not because they do not explain why anyone would want to use elections to allocate power

spatial models of delegation canonical assumptions this approach may be justified on grounds of tractability but the failure to grasp the significance of different assumptions and push beyond specific models has limited our understanding of the incentives for delegation consequently the justifications for delegation that have received recent scrutiny and testing differ from some of the more plausible justifications offered by informal studies of delegation we show that surprisingly few results in the literature hinge on risk aversion and surprisingly many turn on the ignored though equally canonical technological assumption that uncertainty is fixed relative to policies relaxing the key assumptions about dimensionality and functional forms provides a clearer intuition about delegation one that is closer to classical treatments the theory allows us to relate different institutional features commitment specialization costs monitoring multiple principals to delegation s observable properties lthough the practice of delegation dates back to antiquity the book of exodus refers to itonly in the last century has much scholarship examined its causes and effects and only recently has research focused on developing and testing formal theories that explore the logic of delegation 1 despite this recent surge in formal work on delegation scholars have failed to generalize several important properties of the early pathbreaking models instead of revisiting assumptions that were initially imposed for the sake of convenience recent papers tend to maintain and reinforce the cannonical assumptions applying these limited models to ever richer institutional settings although the breadth of understanding about delegation across various settings is impressive this approach has come at a price it has produced an understanding that only partly captures delegation s informational rationale in even the simplest contexts the literature is rich in predictions about delegation in complicated institutional settings when stylized foundational assumptions are satisfied but poor in explanations for and intuitions about why a poorly informed boss chooses to delegate to subordinates with different preferences moreover we lack an understanding of what basic features drive the boss s choice of which agent is given control of policy for example scholars have provided detailed explanations about how separation of power systems affect delegation by legislatures to agencies but the basic question does the informational rationale for delegation hinge on the boss s risk preferences has been ignored despite the analysis of complicated signaling and screening games between bosses with ex post controls and their subordinates we do not yet understand when or why the ally principle the boss picks the most ideologically similar agent as delegatee fails in simple settings we try to put models of delegation on more solid footing by examining a larger more general set of environments we eschew the canonical assumptions of quadratic utility or even risk aversion unidimensional outcome spaces and additive and homogeneous random shocks to policy our analysis focuses first on two basic questions when does delegation occur and to whom does the boss delegate we then consider richer institutionally driven extensions e g the role of commitment and monitoring devices the impact of multiple bosses and the institution in which their preferences are aggregated through a sequence of nested models with varying levels of abstraction the analysis isolates the relations between various assumptions and different findings

electoral control in new democracies the perverse incentives of fluid party systems how do fiuid party systems that exist in many new democracies affect democratic accountability to address this question the authors analyze a new database of all legislative incumbents and all competitive elections that took place in poland since 1991 they find that when district level economic outcomes are bad voters in that country punish legislators from a governing party and reward legislators from an opposition party as a result electoral control in poland works through political parties just as it does in mature democracies however the authors also find that in contrast to mature democracies legislators from a governing party tend to switch to an opposition party when the economy in their district deteriorates when they do so their chances of reelection are better than those of politicians who remained loyal to governing parties and are no worse than those of incumbents who ran as opposition party loyalists these empirical results suggest that while elections in new democracies function as a mechanism of political control fiuid party systems undermine the extent to which elections promote democratic accountability

politics and the suboptimal provision of counterterror i present a model of interactions between voters a government and a terrorist organization the model focuses on a previously unexplored conceptualization of counterterrorism as divided into tactic specific observable and general unobservable tactics when there is divergence between voters and government preferences strategic substitution among different modes of attack by terrorists and agency problems between the voters and government create a situation in which the politically optimal counterterrorism strategy pursued by the government in response to electoral and institutional incentives is quite different from the security maximizing counterterrorism strategy in particular in response to electoral pressure the government allocates resources to observable counterterror in excess of the social optimum this problem is particularly severe when governments put great weight on rent seeking or care less about counterterror than do voters and when terrorists have a large set of tactics from which to choose voters can decrease the magnitude of the agency problem by increasing the benefits of reelection by for example slackening requirements for nonsecurity related public goods i have received valuable comments and advice from bruce bueno de mesquita randy calvert martin cripps james fearon amanda friedenberg robert powell matthew stephenson and barbara walter i thank the weidenbaum center on the economy government and public policy at washington university for financial support

the political resource curse this paper studies the effect of additional government revenues on political corruption and on the quality of politicians both with theory and data the theory is based on a political agency model with career concerns and endogenous entry of candidates the data refer to brazil where federal transfers to municipal governments change exogenously at given population thresholds allowing us to implement a regression discontinuity design the empirical evidence shows that larger transfers increase observed corruption and reduce the average education of candidates for mayor these and other more specific empirical results are in line with the predictions of the theory jel d72 d73 h77 o17 o18

candidates credibility and re election incentives i study elections between citizen candidates who cannot make binding policy commitments before taking office but who are accountable to voters due to the possibility of re election in each period a representative voter chooses among heterogeneous candidates with known policy preferences the elected candidate chooses the policy to implement and how much rent seeking to engage in when in office as the voter decides both which candidate to elect and subsequently whether the candidate is retained this framework integrates elements of electoral competition and electoral accountability i show that in the best stationary equilibrium when utility functions are concave over policy non median candidates are elected over candidates with policy preferences more closely aligned with the voter in this equilibrium there are two candidates who are elected at some history and the policies these candidates implement in office do not converge this divergence incentivizes candidates to engage in less rent seeking increasing voter welfare copyright 2013 oxford university press

transitional politics emerging incentive based instruments in environmental regulation abstract this paper proposes a positive theory of environmental instrument choice we study a democratic society that seeks to lower the level of pollution from industrial sources to a pre specified target the target can be implemented by one of three instruments s uniform emission standards p tradeable permits and t emission taxes the conflict of interest between special interests representing polluters and the electorate is resolved by an elected politician we characterize when each of the three policy instruments is chosen in political equilibrium and show that the transition observed in many countries from s to either p or t can be understood as a natural consequence of increasingly ambitious environmental targets

electoral accountability and corruption evidence from the audits of local governments we show that political institutions affect corruption levels we use audit reports in brazil to construct new measures of political cor ruption in local governments and test whether electoral account ability affects the corruption practices of incumbent politicians we find significantly less corruption in municipalities where mayors can get reelected mayors with reelection incentives misappropriate 27 percent fewer resources than mayors without reelection incentives these effects are more pronounced among municipalities with less access to information and where the likelihood of judicial punish ment is lower overall our findings suggest that electoral rules that enhance political accountability play a crucial role in constraining politician s corrupt behavior jel d72 k42 017

political competition and mirrleesian income taxation a first pass we study downsian competition in a mirrleesian model of income taxation the competing politicians may dier in competence if politicians engage in vote share maximization the less competent politician s policy proposals are attractive to the minority of rich agents whereas those of the competent politician are attractive to the majority of poor agents the less competent politician wins with positive probability which gives rise to a political failure in the sense of besley and coate 1998 political failures are avoided if politicians maximize winning probabilities nevertheless the two equilibria cannot be pareto ranked the minority may be better o under vote share maximization

political economy of mechanisms we study the optimal mirrlees taxation problem in a dynamic economy in contrast to the standard approach where the taxation mechanism is operated by a benevolent planner with full commitment power we focus on economies in which policy decisions are made by self interested politicians who cannot commit to policies the society controls politicians using elections we show that the provision of incentives to politicians can be partly separated from redistribution across agents and that political economy constraints can be modeled as introducing additional aggregate distortions in the dynamic mirrlees problem we provide conditions under which the political economy distortions persist or disappear in the long run if the politicians are as patient as the agents the best sustainable mechanism leads to an asymptotic allocation where the aggregate distortions arising from political economy disappear in contrast when politicians are less patient than the citizens positive aggregate labor and capital taxes remain even asymptotically we conclude by providing a brief comparison of centralized

capacity dynamics and endogenous asymmetries in firm size empirical evidence suggests that there are substantial and persistent differences in the sizes of firms in most industries we propose a dynamic model of capacity accumulation that is consistent with the observed facts the model highlights the mode of product market competition and the extent of investment reversibility as key determinants of the size distribution of firms in an industry in particular if firms compete in prices and the rate of depreciation is large then the industry moves toward an outcome with one dominant firm and one small firm industry dynamics in this case resemble a preemption race contrary to the usual intuition this preemption race becomes more brutal as investment becomes more reversible

bailout for sale the vote to save wall street this paper provides a public choice analysis of the 2008 banking bailout in the united states the paper introduces heterogeneity of congressional districts into the common agency problem in special interest politics district heterogeneity implies district specific electoral constraints on legislators ability to collect rents from and cast dissonant votes in support of special interests an empirical analysis examines legislative voting on the initial bailout proposal using campaign contributions to legislators from special interest groups and the importance of financial services for employment within congressional districts as the main explanatory variables the empirical analysis corrects for possible endogeneity bias using valid instruments and considers several intuitive sub sample estimations as alternative methods for addressing the endogeneity issue the paper provides empirical evidence that campaign contributions from the financial services sector influenced legislative voting on the banking bailout