commitment coordination failures and delayed reforms abstract economic reforms are often postponed even if they are clearly beneficial i argue that this may reflect a government s need to improve its reputation before it can enact a reform successfully i study a model in which the government has a commitment problem in setting taxes that pay for reform market expectations about future policy which determine investment become fundamental for the reform s success reform may be postponed as the government builds credibility with a period of low taxes depending on expectations better equilibria may exist the robustness of this explanation and its policy implications are discussed

research on the development of main policy instruments for improving building energy efficiency policy instrument is the key to drive improving energy efficiency in building sectors this paper presents the current development of bee policy instruments by examining their practices in seven selected countries and regions these policy instruments are classified into three groups the mandatory administration instrument the economic incentive instrument and the voluntary scheme instrument the developments of the three types of instruments are analyzed among the selected countries and regions from the perspectives of the number of policy instruments developed the development trend and the experiences gained in developing these instruments the study shows that different countries have made good progress in achieving better building energy efficiency through adopting different type of policy instruments the research reveals various experiences gained in the process of developing and implementing bee policy instruments from various countries

incumbent employees resistance to implementing privatization policy abstract the recent anti privatization trend in latin america france and south africa is a reminder that employees resist privatization because pre privatization firms tend to be over manned and to pay excessive wages we study the effect of employees resistance on the successful implementation of privatization in a stylized model in which the government interacts with employees of an unknown type the analysis clarifies some of the difficulties associated with the implementation process furthermore although common sense dictates that the government negotiates with the employees before finding an outside buyer we show that sometimes it is better off contacting an investor first

the case for restricting fiscal policy discretion this paper studies the effects of discretionary fiscal policy on output volatility and economic growth using data for 91 countries we isolate three empirical regularities 1 governments that use fiscal policy aggressively induce significant macroeconomic instability 2 the volatility of output caused by discretionary fiscal policy lowers economic growth by more than 0 8 percentage points for every percentage point increase in volatility 3 prudent use of fiscal policy is explained to a large extent by the presence of political constraints and other political and institutional variables the evidence in the paper supports arguments for constraining discretion by imposing institutional restrictions on governments as a way to reduce output volatility and increase the rate of economic growth

did amakudari undermine the effectiveness of regulator monitoring in japan the principal agent problem between the regulator regulated banks and taxpayers is critical to the viability of the financial system s safety net there exists the danger that the regulator will collude with regulated banks to pursue their benefits at the expense of taxpayers thereby reducing effectiveness of financial supervision this paper proposes that the human relationship prevailing between the regulatory authorities and private banks referred to as amakudari is a form of collusion between the regulator and banks that endangers the safety net mechanism in japan statistical analysis of data on regional banks shows that those banks accepting post retirement officials from the ministry of finance have reduced capital adequacy levels and increased non performing loans thus the statistical result supports the hypothesis proposed in this paper

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

the normalization of deviant organizational practices the non performing loans problem in china research on deviant organizational practices has demonstrated that normative and cognitive institutional forces contribute to making deviance acceptable data from a survey of 3 751 chinese firms were applied to test the idea that a clearly articulated alternative identity is necessary if a firm is to resist the normalization of deviance widespread acceptance of delinquency in repaying loans was shown to make it more likely that a firm adopts that practice but this normalization process is less likely for firms with a stronger anti deviance identity

on the reversibility of structural reforms abstract what are the factors that explain reversals in the implementation of structural reforms our main hypothesis is that reversals in different reforms are driven by different factors this paper presents novel evidence showing that a fdi inflows reduce the likelihood of privatization reversals b worsened terms of trade increase the probability of external liberalization reversals and c labor strikes propel reversals in price liberalization

polarization politics and property rights links between inequality and growth most efforts to trace the effects of income inequality on growth have focused on redistribution however empirical investigation has not substantiated either the positive association of income inequality with redistribution or the negative association of redistribution with economic growth the authors analyze the effects of inequality in the broader context of social polarization they argue that social polarization whether rooted in income inequality or in ethnic tension makes large changes in current policies including those guaranteeing the security of contract and property rights more likely under a wide range of institutional arrangements the resulting uncertainties in the policy and contractual environment hinder growth they find strong empirical support for both parts of this argument the policy implications of their argument are quite distinct from those of arguments that inequality reduces growth by increasing pressures for redistribution if redistributive policies per se were to blame for the low growth resulting from inequality governments that seek to mitigate income inequality must inevitably confront a tradeoff between equity and growth if on the other hand the insecurity of property rights slows growth in unequal or otherwise polarized societies governments that commit over the long run to particular redistributive policies incur less risk of slowing economic growth fiscal redistribution that reduces inequality may actually increase growth by reducing the risks of political uncertainty

a theory of exit in duopoly we develop a duopoly model in which exit occurs because of the existence of fixed costs or opportunity costs each firm enters the market knowing its own cost but not that of its opponent as times goes on each firm becomes increasingly pessimistic about the cost of its remaining rival the time of exit is the only strategic variable so that our model is a war of attrition in contrast to the classic war of attrition however we assume that with positive probability each firm s costs may be low enough that staying in forever is a dominant strategy thus our model unlike the classic one has a unique equilibrium

grand corruption instead of commitment reconsidering time inconsistency of monetary policy abstract this paper suggests that inflation may be affected differently by grand corruption compared to its positive nexus with petty corruption in an extended barro and gordon 1983a model grand corruption may serve as a quasi commitment device a cheating expropriating government may actually deter a monetary authority from cheating reneging furthermore rogoff s 1985 conservative central banker has an unambiguously beneficial effect she reduces the inflationary bias even more while also rendering fiscal policy more effective the model nests the standard fiscal monetary interaction logic with and without expropriation as well as the diametrical symbiosis result obtained by dixit and lambertini 2003a

the sunk cost fallacy in penny auctions this article theoretically and empirically analyses behaviour in penny auctions a relatively new auction mechanism as in the us dollars or war of attrition players in penny auctions commit higher non refundable costs as the auction continues and only win if all other players stop bidding i first show that in any equilibria that does not end immediately players bid probabilistically such that the expected profit from every bid is zero then using two large data sets covering 166 000 auctions i calculate that average profit margins actually exceed 50 to explain this deviation i incorporate a sunk cost fallacy into the theoretical model to generate a set of predictions about hazard rates and player behaviour which i confirm empirically while players do slowly learn to correct this bias and there are few obvious barriers to competition activity in the market is rising and concentration remains relatively high

mechanisms for the control of fiscal deficits abstract this paper shows that a simple two stage voting mechanism may implement a constrained optimal state dependent decision about the size of the fiscal deficit i consider a setup with strategic fiscal deficits similar to alesina and tabellini 1990 three groups of voters are informed about the relative desirability of current public spending voters differ in their preferences for public goods and swing voters preferences may change over time the current government decides on the current spending mix and it has an incentive to strategically overspend a simple two stage mechanism under which a deficit requires the approval by a supermajority in parliament approximates a constrained optimal decision and under certain conditions increases social welfare relative to both a strict rule and a laissez faire constitution when the current majority is small political bargaining may further increase social welfare however when the current majority is large a supermajority mechanism with bargaining leads to a biased spending mix and it may reduce welfare whereas the laissez faire mechanism may yield the first best an appropriately adjusted majority threshold can avoid inefficient bargaining whenever necessary

do political variables affect fiscal policy adjustment decisions new empirical evidence we test eight hypotheses on political factors influencing the likelihood that a fiscal policy adjustment occurs we employ a panel discrete choice model for 20 oecd countries for the period 1970 2003 two different definitions of fiscal adjustments are used to capture the differences between rapid and gradual adjustments we find that these types of fiscal adjustment are primarily driven by economic factors and are hardly affected by political variables the likelihood that a rapid adjustment takes place is only influenced by upcoming elections while the likelihood that a gradual adjustment takes place increases in case of broad policy reform

reviving leviathan fiscal federalism and the growth of government this article revisits the influential leviathan hypothesis which pos its that tax competition limits the growth of government spending in decentralized countries i use panel data to examine the effect of fiscal decentralization over time within countries attempting to distinguish between decentralization that is funded by intergovernmental transfers and local taxation first i explore the logic whereby decentralization should restrict government spending if state and local governments have wide ranging authority to set the tax base and rate especially on mobile assets in countries where this is most clearly the case decentralization is associated with smaller government second consistent with theoretical arguments drawn from wel fare economics and positive political economy i show that governments grow faster as they fund a greater portion of public expenditures through intergovernmental transfers

fiscal restraint and the political economy of emu while the principle of delegation has become well established on the national level for monetary policy fiscal policies remain in the hands of policy makers depending on rent seeking interest groups we argue that the maastricht treaty provides a unique international commitment that enables governments to follow restrictive fiscal policies by attributing their negative side effects to europe and to implement austerity measures despite rising unemployment or a decline in growth hence the popularity of the european idea is instrumented to enforce fiscal discipline the paper outlines the political economy framework and presents new econometric evidence

dynamic commitment and incomplete policy rules considering the dynamics of commitment highlights some neglected features of time inconsistency problems we modify the standard rules versus discretion question in three ways 1 a government that does not commit today retains the option to do so tomorrow 2 the government s commitment capability is restricted to a class of simple rules and 3 the government s ability to make irrevocable commitments is restricted three results stand out first the option to wait makes the incumbent regime rules or discretion relatively more attractive second the option to wait means that increased uncertainty makes the incumbent regime more attlwactive third because the commitment decision takes place in real time policy choice displays hysteresis when monetary policy is subject to dynamic inconsistencies optimal policy requires some precommitment by the central bank despite a proliferation of mechanisms designed to address this problem work in this area has continued to assume a once and for all choice between rules and discretion this paper asks two closely related questions first what happens if commitment decisions are made in real time so that failure to commit today does not rule out the possibility of commitment tomorrow second if governments can make only commitments that are difficult but not impossible to reverse what determines the dynamics of commitment and reversal the assumption of once and for all choice enforces simplistic dynamics on the policy process if the standard models are interpreted literally for example the commitment problem for u s monetary policy is moot having been resolved with the founding of the federal reserve system in 1914 if not at the constitutional convention of 1789 much of the interest in dynamic inconsistency however arises pre

do crises induce reform a critical review of conception methodology and empirical evidence of the crisis hypothesis the notion that economic crises induce the adoption of reform ranks among the most widely accepted concepts in the political economics literature however the underlying mechanism of the so called crisis hypothesis has yet to be fully understood this paper provides a comprehensive survey of the relevant empirical evidence to date and scrutinizes the operationalization of the hypothesis key concepts crisis reform and the political mediation of reform during crises we argue that the social perception of both crises and the subsequent cost of reform requires consideration of how these concepts are operationalized as a product of the broader economic and institutional environment social perceptions largely determine the manner in which the political mediation of reform during crises works present day methodological approaches fail to adequately reflect social perceptions and consequently compromise the determination of what constitutes both crisis and the cost of reform in the context of the crisis hypothesis most notably the identification of crises by fixed thresholds constructed around macroeconomic variables impedes the interpretation of the hypothesis underlying mechanism a fuller treatment of social perception within the operationalization of the hypothesis key concepts can enhance our understanding of how economic crises influence political dynamics in bringing about reform

harmonization and side payments in political cooperation for two districts or countries that try to internalize externalities i analyze a bargaining game under private information i derive conditions for when it is efficient with uniform policies across regions with and without side payments and when it is efficient to prohibit side payments in the negotiations while policy differentiation and side payments allow the policy to better reflect local conditions they create conflicts between the regions and thus delay the results also describe when political centralization outperforms decentralized cooperation and they provide a theoretical foundation for the controversial uniformity assumption traditionally used by the fiscal federalism literature

energy performance of dwelling stock in iceland system dynamics approach abstract despite the significant energy use in dwellings buildings have the highest energy savings potential among all sectors one of the main analytical challenges is how to capture the impact from inertia driven by the current dwelling stock thus a dwelling stock model was established to study the impacts of physical processes e g aging as well as the effect of social processes e g household energy conservation behaviors on energy demand for space heating in the icelandic dwelling stock the model is initialized in the year 2000 and then calibrated with datasets on the icelandic dwelling stock and hot water consumption for residential space heating analysis of the base scenario confirms that the improvement in the average energy intensity of total dwelling stock with regular turnover of the dwelling stock is insignificant and gradual which relates to the inertia of the existing stock the comparison of the results from two policy scenarios with the base case illustrates that the aggressive demolition is more effective compared to the aggressive construction in reducing the total energy demand for space heating the results of this analysis can support policy makers by providing insights regarding the potential impact of building energy efficiency policies ensuring an effective policy package

earthquake fatalities the interaction of nature and political economy to say that the level of fatalities resulting from an earthquake is inversely related to a country s per capita level of income is hardly novel what makes our approach novel is that we relate fatalities to both per capita income and the level of inequality that exists within a country through their joint impact on the likelihood of collective action being taken to mitigate the destructive potential of quakes we first develop a theoretical model which offers an explanation as to why in some environments different segments of society prove incapable of arriving at what all parties perceive to be an agreeable distribution of the burden of the necessary collective action causing the relatively wealthy simply to self insure against the disaster while leaving the relatively poor to its mercy following this we test our theoretical model by evaluating 269 large earthquakes occurring worldwide between 1960 and 2002 taking into account other factors that influence a quake s destructiveness such as its magnitude depth and proximity to population centers using a negative binomial estimation strategy with both random and fixed estimators we find strong evidence of the theoretical model s predictions that is while earthquakes themselves are natural phenomena beyond the reach of humankind our collective inaction with respect to items like the creation and enforcement of building codes failure to retrofit structures and to enact quake sensitive zoning clearly plays a part in determining the actual toll that a given quake takes and it is through these and other examples of collective inaction that limited per capita income and inequality couple together with a given quake s natural destructive power in determining the actual fatalities resulting from a quake

circumstance and choice the role of initial conditions and policies in transition economies the experience of countries in transition from a planned to a market oriented economy has varied greatly the clearest differences are between the east asian countries china and vietnam and the countries of central and eastern europe cee and the former soviet union fsu china and vietnam have contained inflation and benefited from continued high growth in gdp since the beginning of their reforms while all cee and fsu countries have experienced large declines in output and most have experienced hyperinflation but even in cee and the fsu differences are marked some countries have lost over half of their gdp and growth performance in a number of countries is still poor while others are growing strongly some are still suffering from high inflation while others have successfully reduced annual inflation what determines this divergence of outcomes across transition countries no study so far has analyzed the interaction of all factors including initial conditions political change and reforms in a unified framework including cee the fsu china and vietnam the authors examine these broader interactions but focus first on the role of initial conditions such as initial macroeconomic distortions and differences in economic structure and institutions which have been emphasized less in the literature they find that initial conditions and economic policy jointly determine the large differences in economic performance among the 28 transition economies in the sample initial conditions dominate in explaining inflation but economic liberalization is the most important factor determining differences in growth but reform policy choices are not exogenous they depend in turn on both initial conditions and political reform with political reform the most important determinant of the speed and comprehensiveness of economic liberalization other findings provide additional insight into these relationships results show that liberalization has a negative contemporaneous impact but a stronger positive effect on performance over time the results also show that macroeconomic and structural distortions are negatively related to both policy and performance regarding the former unfavorable initial conditions discourage policy reforms but do not diminish their effectiveness once they are implemented the authors find some evidence that the influence of initial conditions diminishes over time this is in part because many of the initial conditions are themselves modified in the course of transition monetary overhangs are dissipated through inflation industrial overhang is eroded as plants shut down and market memory returns through experience

consequences of debt capitalization property ownership and debt versus tax choice public debts capitalize into property prices thus they are a burden to the present generation who owns the devalued property this largely neglected fact has important consequences for the tax versus debt choice property owners suffer more from the debt burden and thus have a stronger preference for tax financing of government spending than tenants as a consequence of the resulting democratic struggle between property owners and tenants higher property ownership rates in a jurisdiction lead to less debt financing we provide empirical support for this hypothesis by analyzing a cross section of the 171 communities in the swiss canton of zurich in the year 2000

divided government fiscal institutions and budget deficits evidence from the states does partisan control of american state government have systematic effects on state spending and taxing levels does divided control affect the government s ability to make hard decisions do institutional rules like legal deficit carryover restrictions matter using a formal model of fiscal policy to guide empirical analysis of data covering the american states from 1968 to 1987 we conclude that 1 aggregate state budget totals are driven by different factors under democrats and republicans the net result being that democrats target spending and taxes to higher shares of state level personal income 2 divided government is less able to react to revenue shocks that lead to budget deficits particularly where different parties control each chamber of the legislature and 3 unified party governments with restricted ability to carry deficits into the next fiscal year outside the south have sharper reactions to negative revenue shocks than those without restrictions

capital flight and political risk abstract this paper provides the first serious attempt to examine the relationship between political risk and capital flight for a large set of developing countries the outcomes of the analysis show that in most cases political risk variables do have a statistically robust relationship to capital flight once domestic and international macroeconomic circumstances are added at least when the robustness test as proposed by sala i martin is applied we conclude that on the basis of the analysis in this paper we have found support for the hypothesis that political risk leads to increased capital flight

towards an equilibrium level of market reform how politics affects the dynamics of policy change in this article we examine the dynamics of economic reforms that are implemented by incumbent policy makers interested in maintaining their political power we use a sample of 86 countries over a time period going from 1980 to 2001 and find that the achievement of an equilibrium level of market liberalization is highly costly our results are robust to endogenity and model specification

structural uncertainty and subsidy removal for economies in transition abstract economies in transition are faced with a high degree of structural uncertainty i e uncertainty about which it is possible to learn through experience we study structural uncertainty s effects on a subsidy removal program subsidy removal causes unemployment but yields fiscal benefits and facilitates private sector growth when the policymaker does not know the speed with which the private sector absorbs the unemployed he will be driven toward a more decisive and therefore more informative policy the model also rationalizes policy reversals and implies that irreversibility constraints and political instability dampen the learning effect making policy more gradualist

three paradigms for the role of capitalization requirements in insured financial institutions standard models for deposit insurance strike analogies to more familiar financial contracts and conceive of risk as exogenous the oldest model of deposit insurance likens it to passively underwriting casualty insurance a more sophisticated but still bilateral model likens deposit insurance to writing a passive put option on the enterprise whose funding is insured delays in acknowledging the wreck of the s l industry and its federal insurer fslic discredit these models as guides to managing a deposit insurance fund deposit insurance is better interpreted as a trilateral performance bond that enhances the credit of an insured institution this interpretation endogenizes risk emphasizes incentive conflict and underscores the need to optimize loss control activity the bonding model clarifies that a subset of the monitoring and disciplinary activities traditionally undertaken by government officials can usefully be privatized

why and when do governments initiate public enterprise reform initiating public enterprise reform is a complex decision influenced by economic factors as well as the ideological biases and personalities of political leaders nevertheless the use of a contracting framework yields important generalizations about what drives the decision this article argues that the decision depends fundamentally on the potential efficiency gains from the reform and its associated transactions costs costs arise because of asymmetries in information and opportunism problems that usually plague contract negotiations the article identifies observable variables that may affect either the potential gains or the transactions costs uses them to construct a simple probit decision making model and tests the model using data from fifteen developing countries over a twenty year period

analysis of existing building energy saving policies in japan and china building sector accounts for a large percentage of the total national energy consumption in most of the countries thus it is critical to formulate and implement appropriate energy saving policies in the building sector this paper focuses on energy saving policies in the building sector by conducting a comparative study between japan and china the exiting building energy saving bes policies actual effectiveness of policy implementation and obstacles to the effective policy implementation are compared in sequence related policies are categorized into four groups control and regulatory instruments economic market based instruments fiscal instruments and information and voluntary actions policy effect analysis identifies that bes policies have promoted building energy saving in both japan and china obstacles comparison reveals that japan and china shared many obstacles including high transaction costs and lack of applicable methodology compared with japan china is suffering more obstacles such as inefficient enforcement insufficient levels of information and awareness and immature financial regulation system based on the previous findings common suggestions for overcoming these obstacles of bes policies in japan and china are presented such as the accurate methods of baseline identification and emission accountings innovative incentives and more capacity building activities distinct suggestions for japan and china are also added by considering their own situations so that both countries can further improve their bes policies

the political determinants of fiscal policies in the states of india an empirical investigation abstract using data from the 14 major states of india we investigate whether state governments fiscal policy choices are tempered by political considerations our principal findings are twofold first we show that certain fiscal policies experience electoral cycles state governments raise less commodity tax revenue spend less on the current account and incur larger capital account developmental expenditures in election years than in all other years second we show that coalition state governments raise less own non tax revenues and spend less on the current account than state governments that are more cohesive in composition in sum the dispersion of political power affects government size

technological progress and sustainable development what about the rebound effect abstract sustainability concepts that rest on the idea of resource or energy efficiency improvements due to technological progress tend to overestimate the potential saving effects because they frequently ignore the behavioral responses evoked by technological improvements efficiency improvements also affect the demand for resources and energy and often an increase in efficiency by 1 will cause a reduction in resource use that is far below 1 or sometimes it can even cause an increase in resource use this phenomenon is commonly labeled the rebound effect which is well known among energy economists but never attracted much attention in ecological economics the paper starts with the traditional neoclassical analysis of the rebound effect in a partial equilibrium framework that concentrates on the demand of one particular energy service such as mobility or room temperature it also provides an overview of some of the main empirical studies based on this model that mostly confirm the existence of the rebound effect but are controversial about its actual importance however we have to go beyond the neoclassical single service model in order to take care of the variety of possible feedback affecting energy use the paper presents two important expansions of the single service model in order to show the potential relevance of the rebound effect to ecological economics first it is shown that in a multi services model it proves to be difficult to make general statements about the relevance of the rebound effect in this case the overall effect of an increase in energy efficiency on total energy use depends on the on the assumptions about the substitutability between the services considered and the direction of the income effect second the paper also tries to take care of the fact that changes in resource use or energy use are frequently just side effects of other forms of technological progress especially technological change of a time saving nature can have a large influence on energy use as many time saving devices for example faster modes of transport require an increase in energy consumption that is frequently reinforced by a rebound effect with respect to time this effect will be especially strong when wages are high and at the same time energy prices are low as is currently the case in most industrialized countries consequently the paper also provides a strong argument for the introduction of energy taxes

political self serving bias and redistribution we explore the impact of the self serving bias on the supply and demand for redistribution we present results from an experiment in which participants decide on redistribution after performing a real effort task dependent on individual performance participants are divided into two groups successful and unsuccessful participants success is exogenously determined because they are randomly assigned to either a hard or easy task however because participants are not told which task they were assigned to there is ambiguity as to whether success or failure should be attributed to internal or external factors participants take two redistribution decisions first they choose a supply of redistribution in a situation where no personal interests are at stake second they choose a redistributive system behind a veil of ignorance our results confirm and expand previous findings on the self serving bias successful participants are more likely to attribute their success to their effort rather than luck and they opt for less redistribution unsuccessful participants tend to attribute their failure to external factors and opt for more redistribution we demonstrate that the self serving bias contributes to a polarization of the views on redistribution

tax reform and the political economy of the tax base abstract this paper studies the political prospects for reform in a model where the tax base and statutory rate are separate instruments of tax policy the model suggests that large changes in the tax code may be easier to enact than marginal reforms the tax base faces a tipping point where even the beneficiaries from tax exemptions support reform at this tipping point tax reform is pareto improving politically feasible tax reform occurs when fiscal needs are large but may nonetheless involve reductions in marginal tax rates there is strategic complementarity in lobbying for tax exemptions resulting in multiple equilibria the model s main predictions are consistent with recent tax reforms in oecd countries

governance structures and the durability of economic reforms evidence from inflation stabilizations abstract this paper investigates the relationship between a country s political economic and institutional environment and its ability to implement sustainable economic reform programs the policy issue on which the study focuses is inflation stabilization it consists principally of econometric estimations of the relationship between the success of stabilizations in a large sample of countries and several political and economic explanatory variables the hypotheses tested are drawn both from the recent macroeconomic literature on policy credibility and from political science the major findings include the following 1 a despite the conventional wisdom to the contrary political repression does not appear to be an effective means for implementing sustainable stabilization policies durable economic reforms and political freedoms appear to be complementary 2 b as has been previously argued theoretically and demonstrated empirically political instability is detrimental to policy reform 3 c the political will and popular consensus for stabilization policies are enhanced during a severe economic crisis 4 d there is weak evidence that intervention by the international monetary fund rather than supporting reform programs can undermine their credibility

emergence and persistence of inefficient states we present a theory of the emergence and persistence of inefficient states based on patronage politics the society consists of rich and poor the rich are initially in power but expect to transition to democracy which will choose redistributive policies taxation requires the employment of bureaucrats by choosing an inefficient state structure the rich may be able to use patronage and capture democratic politics so reducing the amount of redistribution in democracy moreover the inefficient state creates its own constituency and tends to persist over time intuitively an inefficient state structure creates more rents for bureaucrats than would an efficient one when the poor come to power in democracy they will reform the structure of the state to make it more efficient so that higher taxes can be collected at lower cost and with lower rents for bureaucrats anticipating this when the society starts out with an inefficient organization of the state bureaucrats support the rich who set lower taxes but also provide rents to bureaucrats we obtain that the rich bureaucrats coalition may also expand the size of bureaucracy excessively so as to generate enough political support the model shows that an equilibrium with an inefficient state is more likely to arise when there is greater income inequality when bureaucratic rents take intermediate values and when individuals are sufficiently forward looking jel p16 h11 h26 h41

polarizing information and support for reform abstract we examine whether political polarization is an obstacle to common value reforms we conduct experiments in two ideologically polarized countries the united states and egypt subjects vote between enacting a reform which yields higher expected financial payoffs than the costs of implementation for all but has indirect differential benefits for supporters of only one group of voters versus not enacting the reform and everyone receiving lower payoffs we find that when the groups are polarized ideologically subjects are less likely to vote for reform when informed that another political group would differentially benefit and more likely to support reform should their own group benefit more when subjects are told that one group will differentially benefit from reform they are significantly more likely to explain their vote as being influenced by their own group membership in contrast we find that when subjects are organized into nonpolarized groups group membership predicts reform support less and when there are no differential benefits for a particular group the effect of membership on support is significantly reduced hence we find that the effect of polarization on support for common value reform is contingent on the existence of indirect differential benefits and the degree of ideological polarization of the groups who receive those benefits

a signaling theory of consumer boycotts abstract we present a theory that explains the prevalence of consumer boycotts in our model a firm does not know how concerned consumers are about the firm s misconduct because it is only optimal for the firm to alter its behavior if consumers are very concerned consumers have an incentive to overstate their concern by boycotting the firm we show that free riding problems do not preclude such boycotting in fact in each equilibrium boycotting occurs with positive probability and the firm always caters to the demands of those who boycott should boycotting ensue

the need for enemies we develop a model where some politicians have an edge in undertaking a task and this gives them electoral advantage creating an incentive to underperform in the task we test the empirical implications in the context of fighting against insurgents using colombian data the main prediction is that large defeats for the insurgents reduce the probability that these politicians fight them especially in electorally salient places we find that after the largest victories against farc rebels the government reduced its counterinsurgency efforts especially in politically important municipalities politicians need to keep enemies alive in order to maintain their political advantage

political and institutional determinants of fiscal policy in the european community in recent theoretical and empirical research the variation in political and institutional arrangements which may affect the process of national policy formation is examined in order to explain cross country differences with respect to fiscal policies pursued in this paper we build upon this literature and examine whether and how cross country differences in debt accumulation and public sector size of member countries of the european community during the 1980s can be explained we conclude that the growth of government debt is positively related to the frequency of government changes and negatively to sound budgetary procedures in countries with left wing governments the growth of the share of government spending in total output generally tends to be higher

high public debt the italian experience introduction is there a public debt problem in italy luigi spaventa the end of large public debts alberto alesina monetary and fiscal policy coordination with a high public debt guido tabellini the management of public debt and financial markets marco pagano capital controls and public finance the experience in italy alberto giovannini public debt and households demand for monetary assets in italy andrea bollino and nicola rossi

partisan conflict and private investment abstract american politics have been characterized by a high degree of partisan conflict in recent years combined with a divided government this has led not only to significant congressional gridlock but also to spells of high fiscal policy uncertainty the unusually slow recovery from the great recession during the same period suggests the possibility that the two phenomena may be related in this paper i investigate the hypothesis that political discord depresses private investment to this end i construct a novel high frequency indicator of partisan conflict the partisan conflict index pci uses a semantic search methodology to measure the frequency of newspaper articles reporting lawmakers disagreement about policy i find a negative relationship between the pci and aggregate investment in the us moreover the decline is persistent which may help explain the slow recovery observed since the 2007 recession ended partisan conflict is also associated with lower capital investment rates at the firm level even when economic policy uncertainty and macroeconomic conditions are controlled for i estimate that about 27 of the decline in corporate investment between 2007 2009 can be attributed to a rise in partisan conflict

fiscal conservatism as a response to the debt crisis abstract in this paper we develop a model in which social conflict and adjustment costs induce delayed inflation stabilization we show that the longer this delay is the less demanding are the conditions that some groups will accept in order to stabilize in the context of the latin american debt crisis our model gives a rationale for the time lag between the outset of the crisis and the implementation of reform programs as well as for the strongly conservative nature of those that are currently being implemented

externalities incentives and failure to achieve national objectives in decentralized economies abstract this paper studies why decentralized economies often fail to achieve national objectives we assume that the central government allocates its tax revenues among a large number of decision makers provincial authorities or ministers decision makers are facing a soft budget constraint because of limited monitoring by the central authorities spending in excess to allocations fuels inflation cooperation to limit aggregate spending occurs when no decision maker can benefit by opportunistic behavior adverse macroeconomic shocks are shown to reduce the likelihood that decentralized decision makers will cooperate in order to achieve national objectives debt relief can induce higher investment because it can promote a shift from opportunistic behavior to cooperation

seigniorage and political instability the importance of seigniorage relative to other sources of government revenue differs markedly across countries this paper tries to explain this regularity by studying a political model of tax reform the model implies that countries with a more unstable and polarized political system will have more inefficient tax structures and thus will rely more heavily on seigniorage this prediction of the model is tested on cross sectional data for seventy countries the authors find that after controlling for other variables political instability is positively associated with seigniorage copyright 1992 by american economic association

fiscal policy and the current account are microstates different this article examines the empirical link between fiscal policy and the current account focusing on microstates defined as countries with a population of less than 2 million between 1970 and 2009 this article employs panel regression and panel vector autoregression pvar on 155 countries of which 42 are microstates panel regression results show that a percentage point improvement in the fiscal balance improves the current account balance by 0 4 percentage points of gross domestic product gdp the real effective exchange rate has no significant impact on the current account in microstates but the coefficient is significant in the global sample pvar results show that an increase in government consumption results in real exchange appreciation but the effect on the current account after an initial deterioration dies out quicker in microstates than in the global sample the result implies that fiscal policy has little effect on the current account in microstates beyond its direct impact on imports overa

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

political influence and declarations of bank insolvency in japan this paper investigates how politics affects bank supervision by examining determinants of bank failures in japan during 1999 2002 a period during which bank regulators were called upon to resolve insolvent banks in preparation for the lifting of a blanket deposit guarantee the empirical results suggest that japan s bank regulators had tendency to delay declarations of insolvency in prefectures that supported senior politicians of the ruling liberal democratic party ldp this result which is robust to a host of bank level and prefecture level controls suggests that bank supervision is prone to political influence that delays efficient resolution of insolvency

technological change in economic models of environmental policy a survey this paper provides an overview of the treatment of technological change in economic models of environmental policy numerous economic modeling studies have confirmed the sensitivity of mid and long run climate change mitigation cost and benefit projections to assumptions about technology costs in general technical progress is considered to be a noneconomic exogenous variable in global climate change modeling however there is overwhelming evidence that technological change is not an exogenous variable but to an important degree endogenous induced by needs and pressures hence some environmenteconomy models treat technological change as endogenous responding to socio economic variables three main elements in models of technological innovation are i corporate investment in research and development ii spillovers from r d and iii technology learning especially learning by doing the incorporation of induced technological change in different types of environmental economic models tends to reduce the costs of environmental policy accelerates abatement and may lead to positive spillover and negative leakage

deregulation and governance plight of japanese banks in the 1990s the governance structure of public corporations is determined by the agency relationship between shareholders and managers and the agency theory predicts that deregulation of an industry leads to governance adaptation deregulation of the japanese banking business in the 1980s offers an interesting case study in this framework as japanese banks fell into serious solvency problems in the post deregulation 1990s this paper investigates whether ineffective governance was responsible for the plight of japanese banks the sample is 384 corporations that were listed on the tokyo stock exchange between 1983 and 1990 which includes 59 banks one of the findings is that bank shareholders allowed more diffuse ownership structure after deregulation which demonstrates that the agency theory did not hold for shareholders of japanese banks

are cash budgets a cure for excess fiscal deficits and at what cost abstract this paper investigates the effect of recent reforms of budgetary institutions in uganda and zambia we argue that cash budgeting has brought clear benefits in terms of improved expenditure control with regard to line ministries contrary to what is often suggested however adoption of a cash budget has not provided a means for top politicians in either country to tie their hands with respect to intervention in fiscal policy decisions in uganda improved fiscal policy outcomes have in fact been achieved as a result of and not in spite of discretionary interventions by top politicians in zambia a strict rule imposing a balanced budget on a monthly basis has proven partially effective due in no small part to international monetary fund imf enforcement but costly in terms of increased volatility of expenditures

hyperinflation the exchange rate and endogenous money post world war i germany revisited abstract we re examine the interaction of domestic and external factors in the german hyperinflation by extending frenkel s monetary model of the exchange rate to incorporate 1 endogeneity of the money supply with respect to government debt expected inflation and money wages 2 the direct impact of exchange rate depreciation on the domestic price level and 3 endogenous wage determination four equation estimates support each extension of the monetary model it appears that government deficit finance the collapse of the exchange rate and the monetary transmission of the wage price spiral were all crucial contributors to the price explosion

capital accumulation unemployment and self fulfilling failure of economic reform abstract i consider fiscal reform and the consequences of expectations about reform cancellation the reform implies reduced taxes and the laying off of employees in an inefficient public sector if the resulting unemployment level declines sufficiently fast the reform is completed on the other hand if high unemployment levels prevail for too long the reform is cancelled cancellation affects the return on capital negatively hence expectations about cancellation will depress capital accumulation and increase the level of unemployment as a result multiple rational expectation equilibria may arise where expectations about cancellation prove self fulfilling the modelling framework is leontief technology in combination with ramsey optimization that exhibits simple and attractive algebra

cleaner energy for sustainable future this special issue of the journal of cleaner production focuses on energy for sustainable future it is designed to mirror the increasing relevance of renewable energy sources and improved efficiency as crucial topics for practitioners in industry for governmental policy makers as well as for civic service providers researchers and educators the purpose of this special issue is to serve as a catalyst for dialogue the global warming related to co2 emissions coupled with steeply rising energy prices and the recent global financial institutional melt down are causing massive societal concerns and give rise to increasing demand for ways to improve societal and individual energy efficiency and for ways to shift increasingly to alternative low or non carbon based energy systems until recently industrial energy efficiency improvements have focused on improvements on efficiency rather than on the integration of renewable sources the aim of this special issue is the identification of policies to support the development and implementation of technologies and management approaches we can employ to make the transition to more sustainable societies the collection of papers in this special issue provide a foundation for students researchers scholars practitioners and policy makers interested in making sustainable development more than a metaphor the papers include focus upon ways for a improving industrial process to achieve improvements in energy efficiency b minimising waste disposals and reducing their impact through better management c reducing co2 emissions by making progress toward lower carbon renewable energy based systems d improving production of biofuels and hydrogen production systems facilitated by employing cleaner production and novel lca tools e improving integration of advanced materials and energy efficient equipment in different industrial sectors current and future developments in national and world economies are closely connected to sustainable efficient and safe usage of raw materials and upon energy based on cleaner production concepts and approaches that are ecologically and economically appropriate for the short and for the long term future of society these challenges have received considerable attention in the media and scientific journals over the last several years the idea of developing a specialised conference focussed upon them was put forward on various occasions focus upon them became reality on the 5th and 6th may 2008 in the historic castle of veszprem hungary the current premises of the hungarian academy of science which hosted the workshop the workshop was a stimulating event and an overwhelming success with nearly 100 contributors from africa north america asia and europe representing 28 countries after a comprehensive selection and thorough reviewing procedure 11 papers were selected for this special issue

the impacts of tourism energy consumption and political instability on economic growth in the mena countries using panel data of 24 countries in the middle east and north african mena region from 2001 to 2009 the purpose of this study is to examine the impacts of tourism energy consumption and political instability on economic growth within the neoclassical growth framework to address the objective of this study we utilise both the static panel data approach as well as the dynamic generalised method of moments gmm estimator to examine the impact of candidate variables our results show that energy consumption and tourism significantly contribute to the economic growth of countries in the mena region hence our study lends some support to the existence of the tourism led growth and energy led growth hypotheses in the region in line with our expectation our estimation results also reveal that political instability impedes the process of economic growth and development in the mena region therefore macroeconomic policies to promote expansion in tourism and energy consumption will directly stimulate economic growth additionally efforts to help the region overcome its history of political instability would attract more international tourist arrivals and further invigorate economic growth

trade reforms credibility and development abstract this paper analyzes the implications of uncertainty regarding the future course of trade liberalization on investment and policies uncertainty concerning the future tariff rate is shown to depress saving and to operate as a subsidy tax on inward outward investment we identify the need to tax subsidize private investment in the importable exportable sector the elimination of sectorial private investment policies calls for a rise drop in the public private capital ratio in the outward oriented inward oriented activities in the presence of an external credit ceiling a higher degree of risk aversion increases the magnitude without changing the nature of the policies

credible commitment and success with public enterprise reform abstract this paper studies why some efforts at public enterprise reform fail and why others succeed economic reforms are intended to increase efficiency and thus help sustain long term growth yet many governments have had difficulty sustaining the reforms they initiated and have reintroduced rigid controls over markets and enterprises this is because either in the process of implementation the government discovers that the costs of carrying the reform further are greater than the expected efficiency gains or the public is skeptical that the new policies can be sustained and does not take the actions necessary for the gains to be realized this paper develops a new institutionalist framework and employs various measures of policy commitment and net gain from continued reform to analyze these issues the paper suggests ways in which the potential success or failure of a reform can be assessed with implications for the steps that reformers might take to increase the chances of success

bargaining over reform abstract this paper models the delay in a macroeconomic stabilization as the outcome of a bargaining game between two parties who must reach an agreement over how the stabilization cost is to be shared the paper modifies alesina and drazen s 1991 american economic review 81 1170 1189 war of attrition model by endogenizing the distribution of the stabilization costs through a bargaining game using this bargaining framework the paper analyzes the role of crises and foreign assistance in bringing about a settlement to the distributional conflict in the bargaining game a crisis that increases the welfare loss from not stabilizing the economy will lower the probability of delay in contrast foreign aid that is used to reduce the stabilization costs will further increase the delay in reaching an agreement between the two parties

inward versus outward growth orientation in the presence of country risk the purpose of this paper is to model the role of trade dependency in determining the access of a developing economy to the international credit market and its desirable growth strategy with full integration of capital markets the choice with respect to the inwardness of a technology is irrelevant investment will be channeled to the more productive sectors independently of their trade inwardness with limited capital market integration a given investment will generate two effects the first is the standard direct productivity effect that is associated with the change in future output the second is the trade dependency externality generated by the change in future bargaining outcomes due to the change in the trade dependency of the nation with partial integration investment that increases trade dependency is desirable if the credit markets are disjoint due to partial defaults higher trade dependency is disadvantageous thus higher trade dependency generates a positive externality with partial integration of capital markets and a negative externality with disjoint credit markets we show that credit market integration is determined by the size of the indebtedness relative to the trade dependency as reflected by the repayment burden that is supported by the bargaining outcome the repayment bargaining outcome is determined by the sectoral composition of the economy and by the effective size of the developing and the developed economies this abstract was borrowed from another version of this item

the political economy of the euro crisis this article introduces the special issue on the political economy of the euro crisis which aims to improve our understanding of the causes consequences and implications of the highly unusual nature of this crisis a financial crisis among developed countries within a supranational monetary union the article provides a brief chronology of the crisis discusses its underlying causes and reviews the ways in which comparative and international political economy can help us understand the crisis the article then discusses the individual and collective contributions of the articles in the special issue and discusses possible future research paths on the political economy of the euro crisis we conclude with a brief discussion of how a political economy perspective informs our understanding of the long term prospects for the eurozone and european integration

foreign aid and market liberalizing reform market oriented economic policies reflected in limited economic activity by government protection of private property rights sound monetary policy outward orientation regarding trade and efficient tax and regulatory policy have been strongly linked to faster rates of economic growth foreign aid is often provided in the belief that it encourages liberalizing reforms in these areas this paper analyzes the impact of aid on market liberalizing policy reform correcting for the possible endogeneity of aid results indicate that higher aid slowed reform over the 1980 2000 period as measured by a broad index of policies disaggregating policy into five areas aid is significantly linked to slower reform in some policy areas but not in others disaggregating by decade aid s adverse impact on policy reform is much more pronounced for the 1980s than for the 1990s

public debt accumulation and fiscal consolidation in this study we analyse the relationship between interest rates on government bonds gb and the fiscal consolidation rule by using an overlapping generation model with endogenous and stochastic growth settings our key findings are summarized as follows first contrary to conventional view we find that interest rates on gb may decline as public debt accumulates relative to private capital second the simulation reveals that the economy may exhibit discrete changes with divergent interest rates implying that the observed trend of relatively low interest rates on gb with public debt accumulation may not continue indefinitely in the future third fiscal consolidation rule plays a key role in determining equilibrium interest rates

who recovers first banking crises resolution in developing countries this article evaluates conditions that facilitate banking crises resolution using data from 67 developing countries from 1980 to 1995 in particular the author examines explanatory variables under three categories external macroeconomic constraints the role of the international monetary fund imf and domestic political conditions the principal results of the analyses are twofold first imf credits decrease the probability of resolving banking crises this result holds controlling for potentially confounding variables and in a test for endogeneity second the decisiveness of a political regime significantly influences the probability of emerging from systemic distress specifically in cases of moderate banking distress decisiveness facilitates resolution of crisis but during periods of severe crises less decisive governments i e governments constrained by accountability groups are likely to recover more quickly than are those with less constrained executives

energy efficiency services for residential buildings market situation and existing potentials in the european union although a substantial economic energy saving potential exists in the residential sector of the european union the energy efficiency service ees market is much less developed in this market segment than in other demand sectors e g the industry or the public service sector this paper presents an analysis of the current situation and existing potentials for future expansion a specific analysis methodology has been developed and applied by a research consortium in 18 eu countries this methodology has mostly built upon an extensive review of the existing literature and on interviews of a large number of acknowledged experts its application has allowed identifying encouraging development trends in specific market segments where the possibility of aggregating the ees demand or of exploiting good relationships with customers have created interesting investment opportunities these trends have been observed in particular in germany denmark france flanders be hungary romania and uk the assessment performed has also allowed discussing a series of strategies and policy measures that can be adopted to overcome existing barriers to market development the general conclusion drawn in the paper is that energy efficiency policies supporting ees markets in the residential sector are highly needed although eu policies have typically a limited direct impact they can increase trust into eess and ees providers at the national level a stronger collaboration of governments or local administrations with banks to finance eess is still very necessary in many eu countries

the benefit of crises for economic reforms when expenditures consistently outrun revenue the resulting inflation may have the effect of convincing the public and government that taxes must be raised to finance public investment in the advanced industrial countries income taxation and big spurts in taxation generally have become possible only under the impact of major emergency and crisis mostly in wartime in a number of developing countries in

the dilemma of cheap food and self sufficiency the case of wheat in iran self sufficiency in wheat has been one of the major goals of iranian agricultural policies since the revolution of 1979 even so the country failed to achieve this goal by the early 2000s despite a satisfactory growth in wheat production this paper addresses this failure and the political difficulties in introducing reforms that would reduce the need for import first the production and consumption of wheat are examined the conclusion is that the cheap bread policy has mainly been responsible for the imbalances between domestic supply and demand and the continued reliance on wheat imports moreover the paper argues that the subsidy program is an expensive safety net for the needy and shows that the iranian government has intended to reform the program since the early 1990s however subsidy reforms are politically sensitive especially in developing countries where subsidies are considered very important both for supporting the poor and for political stability an analysis of the iranian attempts at subsidy reform suggests that they have not yet succeeded mainly due to such political considerations

the importance of the electoral rule evidence from italy abstract we test the effect of an important electoral reform implemented in italy from 1993 to 2001 that moved the system for electing the parliament from purely proportional to a plurality rule for 75 of the seats we do not find any effect on either the number of parties or the stability of governments the two main objectives of the reform that remained unchanged at their pre reform level

building support for taxation in developing countries experimental evidence from mexico abstract drawing on insights from the literature on institutional design how rules shape behavior to achieve desired outcomes this article examines how certain design features of taxes such as allowing for civil society oversight earmark mechanisms that direct tax revenue for a specific purpose and sunset provisions that make the duration of taxes finite affect political support for tax reforms it also evaluates how three important aspects of the fiscal exchange trust in government perceptions of the public good and level of income shape the effect of these design features based on an original survey experiment focusing on the provision of public safety in mexico i find that these design features increase political support for taxation especially among those with low trust in government and low income these findings have important implications not just for mexico but also a number of other countries across latin america that have both low levels of extraction and increased public spending imperatives

the political economy of food subsidy reform the case of egypt abstract this paper examines the political economy of food subsidy reform efforts in egypt egypt provides a case of a country with a large food subsidy program that has been relatively effective as a social safety net but a program that is also expensive and poorly targeted to the needy policy discussions about strategies to improve the system s performance run into the extreme political sensitivity of the issue of food subsidies in egypt food subsidies are perceived to be important in promoting political stability and providing some legitimacy to a political system where civil liberties are limited egypt therefore illustrates the dilemmas facing policymakers and others contemplating food subsidy reform in developing countries where there are concerns that reform may spark political unrest this paper argues that even in cases where food subsidy reform is a highly politicized issue there are still a number of pragmatic policy steps that can be taken that meet the twin goals of reforming the system in ways that better target the poor while functioning more efficiently

money debt and deficits in a dynamic game this paper analyzes a dynamic linear quadratic game between the fiscal and monetary authorities the equilibrium outcome of the game determines the time path of money creation fiscal deficits and public debt the game is solved for different equilibrium concepts the equilibria are then compared and interpreted with reference to alternative institutional arrangements the main results are i coordination increases the speed of adjustment towards the steady state and takes the steady state value of public debt closer to the desired target ii precommitments take the non cooperative equilibrium closer to the coordinated outcome iii increasing the weight that each policymaker assigns to his own private objectives slows down the adjustment process places more burden on the opponent but has ambiguous effects on the steady state value of public debt

modelling socio economic and energy data to generate business as usual scenarios for carbon emissions abstract the uk government is legally committed to achieving an 80 reduction in carbon dioxide emissions compared with 1990 by 2050 the use of scenarios is wide ranging to inform policy development and forming a business as usual scenario helps to understand possible effects of different policy interventions however the term business as usual is frequently misused we show how econo physical business as usual scenarios can be developed by examining the historical behaviour of coefficients which manifest the relationship between components of an economy we endogenise economic growth by mimicking national level policies that focus on a target level of unemployment our case study demonstrates the trendability of coefficients which for one example coefficient is replicated for australia colombia taiwan and the usa we manifest a gross domestic product growth of 2 falling to 1 which contrasts with an exogenous growth of 2 3 of a comparator business as usual scenario we suggest that it may be possible to achieve a greater reduction in the business as usual carbon dioxide emissions in the uk fifth carbon budget than currently projected

the competitive externalities and the optimal seignorage this study analyzes the inflation tax in an economy with several competing decisionmakers who can effectively print more money via the central bank the author derives the sequential rational expectation equilibrium and shows that the presence of competing decisionmakers increases the inflation rate and may put the economy on the wrong side of the inflation tax laffer curve the analysis is interpreted for a country consisting of several states or provinces where the centralized government system is weak similar results apply to the case of competing ministers in an economy where the central bank is weak copyright 1992 by ohio state university press

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

loss aversion in politics we study how loss aversion affects the political equilibrium in a simple majority voting model first we show a status quo bias which leads to path dependence second loss aversion implies a moderating effect on the most extreme voters third in a dynamic setting the effect of loss aversion diminishes with the length of the planning horizon of voters however in the presence of a projection bias majorities are partially unable to understand how fast they will adapt to a new policy this makes changes less likely and induces time inconsistency policy changes are timid at the beginning while in later periods they are made progressively more radical fourth in a stochastic environment loss aversion yields a significant distaste for risk but also a smaller attachment to the status quo the application of these results to a model of redistribution leads to empirically plausible implications

the political economy of price ceilings for necessities abstract developing countries and countries in eastern europe frequently institute price ceilings for necessities such as food or gasoline which implies these goods are provided at prices fixed below market prices to finance the provision of these goods countries often resort to monetary finance which may lead to an accelerating inflation this paper analyses these phenomena in a model where voters decide periodically on stabilizations that amount to adjustments in the price ceilings of the subsidized good recurrent subsidization of necessities through price ceilings occurs if it benefits the median voter the paper also considers the timing of a once and for all elimination of price ceilings

revolving doors and the optimal tolerance for agency collusion in this article i study how the presence of a revolving door and potential collusion between a regulator and a regulated firm affect the regulator s performance incentives contrary to the conventional wisdom these seemingly undesirable features of the regulatory system may serve the interests of the government because i the regulator s efforts to enhance her industry qualifications may have a complementary effect on her regulatory performance and ii the regulator may become more aggressive in regulation so as to signal her industry qualifications to the firm collusion between a regulator and a firm also can be beneficial because a regulator may increase her monitoring effort in order to increase the chance of achieving a profitable side contract with the firm and side contracting may not always succeed

sustainable development modelling for the energy sector sustainable residential energy consumption involves a complex socially embedded and socially constructed market a system dynamics approach has been used to explore the short medium and long term impact of different national consumer oriented energy efficiency policies in the residential building sector in this paper the system dynamics model has been validated by a case study using historical data from a subsidy scheme and accompanying policy measures in latvia results obtained by the validity tests showed that the model generated behaviour is consistent with available data and is capable of generating the right behaviour for the right reasons simulation results show that national energy efficiency goals cannot be met by 2016 and the absence of major consumer oriented policy tools slows down the diffusion process of energy efficiency projects it also highlights that system dynamics has a high potential to be used for sustainable end use energy policy planning at both national and sub sectoral levels