transfers in a polarized country bridging the gap between efficiency and stability we consider a political economy model of country whose citizens have heterogeneous preferences for a national policy and some regions may contemplate a threat of secession the country is efficient if its break up into smaller countries leads to aggregate utility loss we show that in an efficient country whose citizens preferences exhibit a high degree of polarization a threat of secession cannot be eliminated without interregional transfers we also demonstrate that if majority voting is used to determine the redistribution schemes within the country then a high degree of polarization yields the full compensation scheme as the unique political equilibrium

household saving micro theories and micro facts in this survey we review the recent theoretical and empirical literature on household saving and consumption the discussion is structured around a list of motives for saving and how well the standard theory captures these motives we show that almost all of the motives for saving that have been suggested in the informal saving literature can be captured in the standard optimizing model particular attention is given to recent work on the precautionary motive and its implications for saving and consumption behavior we also discuss the behavioral or psychological approach that eschews the use of standard optimization techniques and focuses instead on direct consideration on saving we provide a section on facts who save and how much we then discuss informally the recent decline in the u s saving rate and whether the theory is of much use in understanding this and other changes in aggregate saving rates over time we do not find any convincing explanation for the change in saving rates we also discuss some analyses of saving behavior over the life cycle addressing such questions as whether households save enough for retirement and whether the consumption patterns of older households can be rationalized within a simple life cycle model we also review a great number of studies of the consumption euler equations based on our analysis of the studies cited we conclude that there is still mixed evidence that consumption is excessively sensitive to income we also examine in depth the recent empirical literature on the precautionary motive we conclude that although some households do seem to have a significant precautionary motive at some points in their life cycle this motive is not so strong empirically as some investigators suggest

marry your like assortative mating and income inequality has there been an increase in positive assortative mating does assortative mating contribute to household income inequality data from the united states census bureau suggests there has been a rise in assortative mating additionally assortative mating aects household income inequality in particular if matching in 2005 between husbands and wives had been random instead of the pattern observed in the data then the gini coe cient would have fallen from the observed 0 43 to 0 34 so that income inequality would be smaller thus assortative mating is important for income inequality the high level of married female labor force participation in 2005 is important for this

are there cultural effects on saving some cross sectional evidence why are there such large differences in saving rates across countries conventional economic analyses have not been successful in explaining international saving differences so economists have sometimes suggested that national saving differences may be explained by cultural differences this paper tests the hypothesis that cultural factors influence saving by comparing saving patterns of immigrants to canada from different cultures using data from the canadian survey of family expenditures we find no evidence of cultural effects on saving

a general equilibrium model of two group conflict with endogenous intra group sharing rules this paper explores the interactions among intra group sharing rules the competition between two groups over the common pool of output and the allocation of resources between productive and appropriate activities in the interior solution the use of egalitarian method for the distribution of group income among members plays no distributional role but only affects the allocation of resources it releases resources into the productive sector from the group that adopts the egalitarian rule by making the internal conflict among the members less intense the sequential choice of intra group sharing rules and resource allocations produce the adoption of fully egalitarian intra group sharing rules in both groups these rules minimize the amount of resources allocated to appropriate activities and maximize the welfare level of all individuals in the economy this result suggests that inter group competition with the use of egalitarian principle in the distribution of group income among group members which is not available to the hobbesian state of nature is one of the cheaper social devices in restraining individuals from engaging in costly appropriative activities

anarchy and its breakdown anarchy defined as a system in which participants can seize and defend resources without regulation from above is not chaos but rather a spontaneous order however anarchy is fragile and may dissolve either into formless amorphy or into a more organized system such as hierarchy under anarchy each contestant balances between productive exploitation of the current resource base and fighting to acquire or defend resources anarchy is sustainable only when there are strongly diminishing returns to fighting effort the decisiveness parameter is sufficiently low and incomes exceed the viability minimum these considerations explain many features of animal and human conflict

a comparison of national saving rates in the uk us and italy abstract we develop the approach of gokhale kotlikoff and sabelhaus 1996 understanding the postwar decline in us saving a cohort analysis brookings papers on economic activity 0 315 390 based on the life cycle model of savings to decompose the differences in the national saving rates between the uk us and italy our work suggests that the us saving rate is lower principally because americans on average retire later in contrast the italian saving rate is higher predominantly because italians are credit constrained particularly when young we also found that demography and the different tax and benefit systems are able to explain little of the cross sectional differences in saving rates the study accounts for the possible importance of inter generational private transfers in determining saving rates

how to pay for the peace a theoretical framework with references to african countries this paper analyses a simple game theoretic model to highlight the choice of the government between raising its defence expenditures or giving away some gifts to his opponents as a means to defend his position in power if the government is a cournot nash player then there is no gift in equilibrium and any increase in the budget will lead to more inefficient defence expenditures however if the government is a stackelberg leader then he will use the gift as a tool in his policy for staying in power

conflict and distribution abstract we develop a behavioral model that links the level and pattern of social conflict to the societywide distribution of individual characteristics the model can be applied to groups that differ in characteristics such as wealth ethnicity religion and political ideology we settle questions of existence and uniqueness of conflict equilibrium conflict is seen to be closely connected with the bimodality of the underlying distribution of characteristics however in general the conflict distribution relationship is nonlinear and surprisingly complex our results on conflict patterns also throw light on the phenomena of extremism and moderation journal of economic literature classification numbers d63 d72 d74

not by the sword alone soft power mass media and the production of state sovereignty scholars of civil conflict have long recognized the importance of state strength in the suppression of nascent insurgencies however previous empirical investigations have generally focused on the material and coercive dimensions of state power obscuring the critical role played by the generation of widespread voluntary compliance through processes of political communication that is the production of soft power in contrast in this article i focus on a factor mass communication technology that can enhance state capacity only by strengthening the state s ability to broadly and publicly disseminate political messages i argue that the enhanced capacities for large scale normative influence generated by mass communication technologies can be expected to produce substantial barriers to the mobilization of militarized challenges to state rule by strengthening economies of scale in the marketplace of ideas utilizing newly compiled cross national data on mass media accessibility in the post world war ii period i show that densely constituted mass media systems dramatically reduce the probability of large scale civil violence thereby providing new evidence for the fundamental importance of nonmaterial state capacities in the suppression of internal armed conflicts

a comparison of saving rates microdata evidence from seventeen latin american and caribbean countries using microdata on expenditure and income for seventeen latin american and caribbean countries this paper presents stylized facts on saving behavior by age education income and place of residence counterfactual saving rates are computed by imposing the saving behavior the population distribution or the income distribution of two benchmark economies the united states and korea the results suggest that the difference in national saving rates between latin america and caribbean and the benchmark economies can mainly be attributed to differences in saving behavior of the population and to a lesser extent to differences in the distribution of the population by education levels other demographic or income distribution differences are not quantitatively important as explanations of saving rates

does compulsory school attendance affect schooling and earnings we establish that season of birth is related to educational attainment because of school start age policy and compulsory school attendance laws individuals born in the beginning of the year start school at an older age and can therefore drop out after completing less schooling than individuals born near the end of the year roughly 25 percent of potential dropouts remain in school because of compulsory schooling laws we estimate the impact of compulsory schooling on earnings by using quarter of birth as an instrument for education the instrumental variables estimate of the return to education is close to the ordinary least squares estimate suggesting that there is little bias in conventional estimates every developed country in the world has a compulsory schooling requirement yet little is known about the effect these laws have on educational attainment and earnings 1 this paper exploits an unusual natural experiment to estimate the impact of compulsory schooling laws in the united states the experiment stems from the fact that children born in different months of the year start school at different ages while compulsory schooling laws generally require students to remain in school until their sixteenth or seventeenth birthday in effect the interaction of school entry requirements and compulsory schooling laws compel students born

the charitable activities of terrorist organizations violent groups sometimes invest significant resources in social work notably in the form of charities and ngos the present paper models a terrorist group s charities as a means to advertise its cause in order to raise popular support the analysis explains how different types of organizations arise in equilibrium depending on government policies then the interaction between a purely terrorist group and an independent local ngo is examined it is shown that a purely terrorist group always invests in more attacks than an integrated terrorist charity organization furthermore the latter may have more ngo activity than a separate local ngo

does income inequality raise aggregate saving this paper reviews analytically and empirically the links between income distribution and aggregate saving consumption theory brings out a number of direct channels through which income inequality can affect overall household saving positively in most cases however recent political economy theory points toward indirect negative effects of inequality through firm investment and public saving on aggregate saving on theoretical grounds the sign of the saving inequality link is therefore ambiguous this paper presents new empirical evidence on the relationship between income distribution and aggregate saving based on a new and improved income distribution database for both industrial and developing countries the empirical results using alternative inequality and saving measures and various econometric specifications on both cross section and panel data provide no support for the notion that income inequality has any systematic effect on aggregate saving these findings are consistent with the theoretical ambiguity q 2000 elsevier science b v all rights reserved

why did the west extend the franchise democracy inequality and growth in historical perspective during the nineteenth century most western societies extended voting rights a decision that led to unprecedented redistributive programs we argue that these political reforms can be viewed as strategic decisions by the political elite to prevent widespread social unrest and revolution political transition rather than redistribution under existing political institutions occurs because current transfers do not ensure future transfers while the extension of the franchise changes future political equilibria and acts as a commitment to redistribution our theory also offers a novel explanation for the kuznets curve in many western economies during this period with the fall in inequality following redistribution due to democratization i introduction the nineteenth century was a period of fundamental political reform and unprecedented changes in taxation and redistribution britain for example was transformed from an oligarchy run by an elite to a democracy the franchise was extended in 1832 and then again in 1867 and 1884 transferring voting rights to portions of the society with no previous political representation the decades after the political reforms witnessed radical social reforms increased taxation and the extension of education to the masses moreover as noted by kuznets inequality which was previously increasing started to decline during this period the gini coefficient for income inequality in england and wales had risen from 0 400 in 1823 to 0 627 in 1871 but fell to 0 443 in 1901 two key factors in the reduction in inequality were the increase in the proportion of skilled workers williamson 1985 and the redistribution of income toward the poorer segments of the society for example taxes rose from 8 12 percent of national product in 1867 to 18 8 percent by 1927 and the progressivity of the tax system increased substantially see lindert 1989

gone fishing reported sickness absenteeism and the weather i introduction the principal agent problem of contracting employee work effort that is imperfectly monitored arises in a number of areas of economic theory including models of remuneration by seniority lazear 1979 involuntary unemployment e g shapiro and stiglitz 1984 performance based pay macleod and malcomson 1998 and labor hoarding depken redmount and snow 2001 given the importance of this mechanism in the theoretical work the empirical research on the agency problem is remarkably scant in part this reflects the limited availability of personnel data as baker and holmstrom argue in their review article internal labour markets too many theories too few facts 1995 but more fundamentally it reflects the inherent difficulty of empirically capturing the employee effort levels that underlie the models using direct measures of employee or firm level productivity is unquestionably the preferred approach but these measures are notoriously problematic and the studies that use them tend to be case studies introducing external validity issues it is also unlikely to isolate the type of malfeasant shirking behavior that concerns variants of the models where the employee effort decision entails disciplinary risk to inform employee incentives to engage in malfeasant behavior economists have relied on two measures employee disciplinary rates e g cappelli and chauvin 1991 ichino and maggi 2000 and absenteeism rates e g arai and thoursie 2005 bradley green and leeves 2007 ichino and riphahn 2005 the difficulty is that disciplinary rates capture only shirking activity that is identified by employers not that which goes undetected while reported absenteeism particularly sickness absenteeism rates may be entirely legitimate one can therefore never be sure whether differences in these rates across workers facing different shirking costs reflect actual shirking activity as opposed to differences in employers willingness or ability to detect and punish shirkers or differences in employee health that may be correlated with these costs in this paper we identify a different type of shirking activity that potentially addresses both of these shortcomings employees misreporting health in order to exploit weather conditions favorable to high utility outdoor recreation 1 we begin by considering a shirking model of sickness absenteeism in which employees marginal utility of outdoor leisure is increasing in the interaction of two state dependent parameters health and outdoor weather quality the intuition being that ideal weather conditions for engaging in outdoor recreation are valued more when one is physically and perhaps also mentally healthy this assumption leads to two main propositions first increases in sickness absenteeism associated with marginal improvements in weather quality reflect the decisions of the inframarginal workers those workers who in the absence of the weather improvement would be present at work who are the healthiest implying an increase in absenteeism that is unambiguously illegitimate second comparing across workers marginal weather improvements should have the largest impact on sickness absenteeism where shirking costs are highest the reason is that where existing incentives to misreport health are the weakest such as where sick pay is not offered or job protection is weak existing sickness absenteeism levels will be lowest and the inframarginal workers will be the healthiest thereby benefitting most from the weather improvement we examine the empirical relevance of these propositions using a two step approach first we construct an index of weather preferences by linking temperature relative humidity precipitation wind speed and cloud cover data to time use data identifying the weekend and weekday evening outdoor recreational activities of employees with regular daytime work schedules we then examine the empirical relation between the resulting index of the recreational quality of the weather hereafter referred to simply as weather quality and the incidence of short term spells of sickness absenteeism reported in survey data comparing the magnitude of this relation across workers facing different levels of sick pay job protection and job finding rates

civil war and the social contract in this contract theoretic modelthe government promises a transfer to itspotential opponent in return for notengaging in a civil war two causes ofcivil war are identified i imperfectcredibility increases the cost of therequired transfer and may make itunfeasible ii asymmetric informationfaces the government with the classicefficiency rent extraction trade off andcivil war is used as a screening device this problem can be solved by creating amixed army the model determines whether amilitary regime or a redistributive stateprevails in a peaceful equilibrium astatistical illustration is presented using african data

happy birthday you re insured gender differences in work ethics this study investigates the potential existence of cheating within the sickness insurance program results indicate that young male workers have strong preferences for leisure linked to birthday celebrations other workers appear to consider the costs of reporting in sick around birthdays as relatively large

a comparison of rent seeking models and economic models of conflict this paper provides a comparative analysis of the basic rent seeking model and a simple economic model of conflict each model is concerned with a game in which players invest resources in pursuit of a prize the purpose of the analysis is to elucidate structural differences between the two models and to analyse the consequent behavioral differences and equilibrium outcomes in the two cases a key finding is that where such comparisons are possible the conflict model tends to involve greater relative expenditure on wealth redistribution activities than does the rent seeking model

swords or plowshares a theory of the security of claims to property this paper develops a general equilibrium model of the allocation of resources among appropriative and productive activities the model emphasizes the distinction between offensive weapons which are the instruments of predation and fortifications which provide defense against predation the analysis of this model shows how the equilibrium security of claims to property is determined the analysis focuses on the possibility of a nonaggressive equilibrium in which no resources are allocated to offensive weapons and claims to property are fully secure we also analyze the complex relation between economic welfare and the security of claims to property we find for example that a relatively poor agent could be better off in an equilibrium with less secure claims to property

why are latin america s savings rates so low an international comparative analysis abstract this paper presents a theoretical and empirical assessment of the determinants of savings rates with special emphasis on latin american savings rates the study is based on international comparisons using data from 36 countries for 1970 1992 a distinction is made between private and public savings the later are endogenously determined by economic and political variables per capita income growth is the most important determinant of private and public savings public savings are lower in countries with higher political instability public savings crowd out private savings but less than proportionately low latin american savings are due to the magnitudes of their determinants rather than structural differences

what drives private saving around the world the authors investigate the policy and non policy factors behind saving disparities using a large panel data set and an encompassing approach including several relevant determinants of private saving they extend the literature in several dimensions by 1 using the largest data set on aggregate saving assembled to date 2 using panel instrumental variable techniques to correct for endogeneity and heterogeneity 3 performing robustness checks on changes in estimation procedures data samples and model specification their main empirical findings a private saving rates show considerable inertia are highly serially correlated even after controlling for other relevant factors b private sector rates rise with the level and growth rate of real per capita income so policies that spur development are in indirect but effective way to raise private saving rates c predictions of the life cycle hypothesis are supported in that dependency ratios generally have a negative effect on private saving rates d the precautionary motive for saving is supported by the finding that inflation conventionally taken as a summary measure of macroeconomic volatility has a positive impact on private saving holding other facts constant e fiscal policy is a moderately effective tool for raising national saving f the direct effect of financial liberalization are largely detrimental to private saving rates greater availability of credit reduces the private saving rate financial depth and higher real interest rates do not increase saving