some macroeconomic implications of alternative compensation systems a basic theme of this paper is the idea that some structural reform of employee compensation arrangements is necessary to make reasonable price stability compatible with reasonably full employment in this view even the best designed macroeconomic policies are much too aggregative to get at the heart of the stagflation problem the ultimate solution involves going inside the workings of a modern capitalist economy and correcting the underlying structural flaw directly on the level of the individual firm stagflation represents an especially intractable policy dilemma for macroeconomics without a decisive tendency of the economic system to remain near full employment there is a strong prima facie case for fighting recessions by exogenously stimulating aggregate demand but the usual keynesian expansionary policies tend to impart an inflationary inertia that is difficult to choke off and of course the basic strategy for fighting inflation is to cool down the economy by restrictive monetary and fiscal policy thereby increasing unemployment and closing the viscous circle because the practical macroeconomic policies for dealing with unemployment and inflation are so diametrically opposed stagflation is a pervasive structural problem when for whatever reason there is basically an unfavourable short run tradeoff between unemployment and inflation economic policy tends to vacillate between expansion of demand to fight unemployment and restriction of demand to fight inflation polarising the electorate and distracting society from dealing effectively with its underlying real economic problems even the difficulty of attaining external balance in foreign accounts is largely a spillover into the international payments arena of an inability to achieve an acceptable internal balance between full employment and price stability this paper takes what might be called a comparative systems approach to the problem of stagflation at the heart of modern industrial capitalism is an incredibly complicated system of overlapping monopolistic competitors 2 a starting point for the paper is the realisation that the coordination difficulty which can cause some systems to suffer involuntary unemployment is not inherent in laissez faire private enterprise per se it is closely tied to one particular property of a conventional wage payment system namely compensation of each firm s employees is stuck to an outside numeraire whether money or a cost of

out of step out of office electoral accountability and house members voting does a typical house member need to worry about the electoral ramifications of his roll call decisions we investigate the relationship between incumbents electoral performance and roll call support for their party controlling for district ideology challenger quality and campaign spending among other factors through a series of tests of the 1956 1996 elections the tests produce three key findings indicating that members are indeed accountable for their legislative voting first in each election an incumbent receives a lower vote share the more he supports his party second this effect is comparable in size to that of other widely recognized electoral determinants third a member s probability of retaining office decreases as he offers increased support for his party and this relationship holds for not only marginal but also safe members

explaining party ideological stances we apply the iterative algorithm by merrill and adams political analysis 9 347 361 2001 to compute the optimal positions of vote maximizing parties along a one dimensional space for a large number of elections this allows us to systematically evaluate factors that push parties toward more centrifugal locations in equilibrium our findings largely corroborate expectations suggested by the theoretical literature albeit with one notable exception the relative size of a partisan constituency reduces rather than enhances the likelihood of a party having an extreme optimal position we then compare derived equilibrium positions with actual party positions with the aim of understanding the nature of electoral incentives and offering insights about party system competition in particular we show that the age of a party the party family to which it belongs post election expectations and internal rules for candidate and leader selection are all factors that increase the probability of a party approaching the position predicted by pure vote maximizing considerations

candidate positioning and voter choice of these criteria in the electorate we then formally derive an exhaustive set of critical tests situations in which the criteria predict different vote choices finally through survey experiments concerning health care policy we administer the tests to a nationally representative sample we find that proximity voting is about twice as common as discounting and four times as common as directional voting furthermore discounting is most prevalent among ideological centrists and nonpartisans who make sophisticated judgments that help align policy with their preferences these findings demonstrate the promise of combining formal theory and experiments to answer previously intractable questions about democracy a key characteristic of democracy dahl 1971 1 noted is the responsiveness of the government to the preferences of its citizens two mechanisms play central roles in promoting responsiveness thereby fostering congruence between the preferences of voters and the policy positions of candidates voters in a democracy can select candidates that represent their views and candidates can compete for votes by strategically taking positions that appeal to the electorate both mechanisms are important each depends on the criteria voters use to judge politicians on the issues a lively debate has focused on three theories about how voters judge the policy stances of candidates the first proximitytheory assumesthatcitizensprefercandidateswhosepositionsareclosesttotheirown forexample avoterwhofavorsa5 increaseingovernment spending on health care will be happiest with a candidate who advocates the same level of spending the more a candidate s position diverges from the voter s the less satisfied the voter will feel the presumed positive relationship between proximity and satisfaction

issue voting as a constrained choice problem prevalent models of issue voting view vote choice as a choice among party policies choice sets are implicitly assumed to be the same for all voters and their composition is left to researchers discretion this article aims to relax such assumptions by presenting a model with a varying probability of inclusion in the choice set we apply the constrained choice conditional logistic regression to survey data from the 1989 parliamentary election in norway to examine the effects of party identification of voters and electoral viability and policy extremity of parties on individual voters choice set compositions further we look into the effect of parties policy positions on their electoral fates under alternative assumptions about the composition of voters choice sets we find that voters choice set composition conditions both the effects of their policy considerations on vote choice and those of parties policy offerings on their electoral fates

monopolistic competition in the spirit of chamberlin a general model this paper develops a model of large group chamberlinian monopolistic competition in which 1 there are many firms producing differentiated commodities 2 each firm is negligible in that it can ignore its impact on and hence reactions from other firms 3 free entry leads to zero profit of operating firms but 4 each firm faces a downward sloping demand curve the existence of a monopolistically competitive equilibrium is established in a companion paper more particular questions such as whether the market provides too many or too few products are addressed for a special case of the model

forms of trust and conditions for their stability of the three principal approaches to trust we decided to investigate in greater detail the one in which trust is regarded as a belief that the individuals involved hold about a relationship trust was defined as a delegatory relationship based on anticipation of the delegatee s behaviour we reached four main conclusions first the solution to the problem posed by the indeterminacy of trust lies in the differentiation and hierarchisation of the various forms of trust contractual organisational and tacit on the basis of their degree of irreversibility and stability second contractual trust is unstable because it comes up against the problem of guarantees of individual intentions this leads to the third conclusion rational evaluation by individuals cannot by itself establish trust which is based on collective beliefs practices and rules fourth we identified two conditions for the stability of trust the creation of irreversibilities through adherence to a rule and the creation of a confidence interval within which different interpretations of contradictory individual strategies are tolerated thus the viability of the various forms of trust depends on the ability of institutions and organisations to create rules that are likely when applied to produce an interval in which tolerance of mutual intentions is the norm these analyses of trust hence highlight the role of time and period of time in the notion of trust

government versus opposition at the polls how governing status affects the impact of policy positions we argue that governing status affects how voters react to extreme versus moderate policy positions being in government forces parties to compromise and to accept ideologically unappealing choices as the best among available alternatives steady exposure to government parties in this role and frequent policy compromise by governing parties lead voters to discount the positions of parties when they are in government hence government parties do better in elections when they offset this discounting by taking relatively extreme positions the relative absence of this discounting dynamic for opposition parties on the other hand means that they perform better by taking more moderate positions as the standard downsian model would predict we present evidence from national elections in germany the netherlands norway sweden and the united kingdom 1971 2005 to support this claim

ranking alternative share contracts under rational expectations abstract this paper analyzes the price level and output stabilization properties of share contracts in a log linear rational expectations model profit sharing product wage and wage fund share contracts are compared to flexible and downwardly rigid nominal wage schemes we find that when the disturbances to the economy are nominal labor compensation schemes which reduce real variability exacerbate nominal variability when the disturbances are real compensation schemes which reduce real variability can also reduce nominal variability

u s presidential elections 1968 80 a spatial analysis a methodology is presented for empirical estimation of spatial models of voting in mass elections the basic choice model posits utility functions that depend on spatial distance and a random error term the parameters of the utility functions are estimated by a polytomous logit model which is applied to spatial maps of voters and candidates for all presidential elections since 1968 these maps indicate that presidential candidates take positions at the periphery of the distribution of voters results based on these maps support the hypothesis of sincere spatial voting in two candidate elections in three candidate elections the coefficients of the voter utility function adjust to proxy for the lesser viability of the minor party candidate in contrast to choice turnout shows only weak spatial effects the data are inconsistent with the proposition that turnout is low because voters are not offered distinct alternatives while the utility function used by voters appears stable through time and candidate and voter positions appear stable in the last few months prior to an election voter and candidate positions exhibit substantial change over longer time periods

labor market share contracts when the firm has two variable inputs this paper extends weitzman s analysis of share contracts firstly a second variable input is introduced into a firm s production technology some share contracts give the firm an incentive to reduce worker compensation by manipulating the second variable input this implies that contracts which possess this property cannot support the same long run equilibrium as would be achieved with a wage contract secondly a positively sloped labor supply curve is introduced it is shown that while share contracts reduce involuntary unemployment they may not reduce total unemployment vis a vis wage contracts the paper identifies the factors which determine relative employment variability

power resources and employer centered approaches in explanations of welfare states and varieties of capitalism protagonists consenters and antagonists the power resources approach underlining the relevance of socioeconomic class and partisan politics in distributive conflict within capitalist economies is challenged by employer centered approaches claiming employers and cross class alliances to have been crucial in advancing the development of welfare states and varieties of capitalism theoretically and empirically these claims are problematic in welfare state expansion employers have often been antagonists under specific conditions consenters but very rarely protagonists well developed welfare states and coordinated market economies have emerged in countries with strong left parties in long term cabinet participation or in countries with state corporatist institutional traditions and confessional parties in intensive competition with left parties

managing unanchored heterogeneous expectations and liquidity traps abstract we study the possibility of almost self fulfilling waves of optimism and pessimism and self fulfilling liquidity traps in a new keynesian model with a continuum of heterogeneous expectations in particular all agents choose based on past forecasting performance expectation values out of a distribution around the targets of the central bank this framework allows us to explicitly model the anchoring of expectations as the variance of this distribution of possible expectation values we find that when the zero lower bound on the nominal interest rate is not binding adequate monetary policy can prevent waves of optimism and pessimism and exclude near unit root dynamics even when expectations are unanchored however as shocks bring the economy to a situation with a binding zero lower bound there is a danger of a long lasting self fulfilling liquidity trap that can take the form of a deflationary spiral this can be prevented if expectations are strongly enough anchored to the targets or if the inflation target is high enough

a new approach to the spatial theory of electoral competition in his unidimensional model of electoral competition downs argues that voters use party ideology as an informational short cut for forecasting the policies that a party will pursue if elected parties are perceived by voters as points on an ideological axis in the davis hinich multidimensional model on the other hand the axes are real issues and the principal actors are politicians who are modeled as points in the multi issue space this paper reformulates spatial voting theory in terms of a model that connects what we call predictive dimensions with political issues that are salient during a given election campaign this model is both a synthesis and an extension of the downs and davis hinich spatial models we obtain a median voter result for one predictive dimension that is similar to the downs result but with important differences we also obtain results showing the electoral advantage of incumbency and the tendency for incremental change when there is a great deal of heterogeneity in voter perceptions about the candidates

nash equilibrium strategies in directional models of two candidate spatial competition the standard approach to two party political competition in a multi dimensional issue space models voters as voting for the alternative that is located closest to their own most preferred location another approach to understanding voter choice is based on preferred direction of change with respect to some specified neutral point e g an origin or status quo point

animal spirits risk premia and monetary policy at the zero lower bound abstract in this paper we investigate the risk related effects of monetary policy in normal times as well as in periods where the zero lower bound zlb binds in a stylized macroeconomic model with boundedly rational beliefs in our model financial market participants use heuristics to assess the risk premium over the policy rate in accordance to an implicit taylor rule that measures the stance of conventional monetary policy and which serves as an informative instrument during times when the funds rate is constrained by the zlb in such a case conventional monetary policy is exhausted so that the central bank is forced to use unconventional types of policy we propose alternative monetary policy measures to help the economy out of the liquidity trap which take into account this assumed form of bounded rationality

the power of forward guidance revisited in recent years central banks have increasingly turned to forward guidance as a central tool of monetary policy especially as interest rates around the world have hit the zero lower bound standard monetary models imply that far future forward guidance is extremely powerful promises about far future interest rates have huge effects on current economic outcomes and these effects grow with the horizon of the forward guidance we show that the power of forward guidance is highly sensitive to the assumption of complete markets if agents face uninsurable income risk and borrowing constraints a precautionary savings effect tempers their responses to changes in future interest rates as a consequence forward guidance has substantially less power to stimulate the economy in addition we show that the business cycle dynamics of our incomplete markets model differ substantially from its complete market counterpart this contrasts with the well known results of krusell and smith 1998 we present approximate representations that can easily be incorporated into standard business cycle models

a directional theory of issue voting from stokes s 1963 early critique on it has been clear to empirical researchers that the traditional spatial theory of elections is seriously flawed yet fully a quarter century later that theory remains the dominant paradigm for understanding mass elite linkage in politics we present an alternative spatial theory of elections that we argue has greater empirical verisimilitude based on the ideas of symbolic politics the directional theory assumes that most people have a diffuse preference for a certain direction of policy making and that people vary in the intensity with which they hold those preferences we test the two competing theories at the individual level with national election study data and find the directional theory more strongly supported than the traditional spatial theory we then develop the implications of the directional theory for candidate behavior and assess the predictions in light of evidence from the u s congress

the new keynesian liquidity trap abstract many new keynesian models produce a deep recession with deflation at the zero bound these models also make unusual policy predictions useless government spending technical regress capital destruction and forward guidance can raise output moreover these predictions are larger as prices become less sticky and as changes are expected further in the future i show that these predictions are strongly affected by equilibrium selection for the same interest rate path equilibria that bound initial jumps predict mild inflation small output variation negative multipliers small effects of far off expectations and a smooth frictionless limit fiscal policy considerations suggest the latter equilibria

new players in an old game party strategy in multiparty systems this article compares two spatial models of party competition a the traditional proximity model and b the directional model of voter choice the article first lays out the differences between the two models in multiparty systems the traditional proximity model makes no clear prediction about the spatial structure of political parties the directional model predicts that optimal placement for parties will be along the circumference of a circle at a moderate distance from the center both theories have implications for overtime strategy and the success of new political parties traditional proximity theory emphasizes movement toward a location with high density of voters while directional theory emphasizes the importance of a distinct directional strategy the authors examine the norwegian political system from 1969 1985 and the swedish system from 1979 1982 and find the directional theory more strongly supported

distance versus direction the illusory defeat of the proximity theory of electoral choice in an extensive series of articles rabinowitz macdonald and listhaug have launched a new directional theory of electoral choice according to their claims the new theory is superior to the classical downsian proximity model such a conclusion however is not tenable first it fails to take proper account of the lower falsifiability of the directional model second it rests on empirical analyses that do not test the two theories on the predictions they actually make both are theories of individual choice which implies intrapersonal comparisons of utility prior tests however have predominantly taken the form of interpersonal comparisons a reanalysis based on the proper type of comparison yields an outcome diametrically opposed to that previously obtained it also reveals an eccentricity effect that largely accounts for the apparent success of the directional model

ski lift pricing with applications to labor and other markets the market for ski runs or amusement rides often features admission tickets with no explicit price per ride therefore the equilibrium i nvolves queues which are systematically longer during peak periods s uch as weekends moreover the prices of admission tickets are much l ess responsive than the length of queues to variations in demand eve n when these variations are predictable despite the queues and stick y prices the authors show that the outcomes are nearly efficient und er plausible conditions they then show that similar results obtain f or some familiar congestion problems and for profit sharing schemes i n the labor market copyright 1987 by american economic association

fiscal policy and monetary integration in europe fiscal policy economists policy makers and the media often argue that the maastricht treaty and the stability and growth pact make it difficult for governments of emu countries to stabilize their economies with appropriate fiscal policy and to provide adequate public investment our empirical analysis offers little support to this view discretionary budget deficits have actually become more counter cyclical in emu countries after the maastricht treaty as well as in the other eu and non eu industrialized countries we study and while public investment has declined recently in emu countries a similar tendency is apparent in other countries and started well before the maastricht treaty was signed jordi gali and roberto perotti

conceptualizing voter choice for directional and discounting models of two candidate spatial competition in terms of shadow candidates in contrast to the traditional modeling of voter choice based on proximity under directional models selection of candidates is based on the direction and or intensity of change from a status quo or neutral point voter choice can also be modeled as representing both approaches e g as a directional model with proximity restraint or alternatively in terms of proximity to discounted positions

the problem of polarization this paper offers a unified political economy explanation of political extremism and moderation regarding income redistribution unlike the standard spatial voting model the explanation herein recognizes that extremists are distinguished not only by their political positions but also by the intensity with which they hold them the paper uses an extension of aumann and kurz s econometrica 45 5 1137 1161 1977 bargaining model to endogenize moderation and extremism in the context of democratic voting the extension shows that low income voters tend to be bolder in their redistributive demands and high income voters tend to be more tenacious in defending them these hypotheses are evaluated empirically using the political action panel study

rent shifting and rent sharing a re examination of the strategic industrial policy problem this paper reexamines the market structure problem in the strategic trade policy literature it is shown that rent sharing between the home union and the home firms raises total home industry rents regardless of whether the international duopoly is cournot or bertrand furthermore home welfare also rises with cooperation if the international industry consists of more than two firms if the industry is faced with entry and if there is domestic consumption this paper shows that rent sharing can be a robust strategic industrial policy and can be interpreted as a solution to the market structure dilemma

oligopoly profit sharing contracts and the firm s systematic risk abstract this article examines the properties of wage and profit sharing contracts in a model of oligopoly with capital market equilibrium while profit sharing contracts dominate market wage contracts profit sharing also reduces the firm s cost of equity capital under fairly broad conditions of oligopoly by enforcing lower costs in exchange for a pre determined share of cash flows to workers this form of operational leverage both reinforces the classical effect of market power on systematic risk and the impact of profit sharing on the corporate finance of the firm as previously suggested by ichino 1994 european economic review 38 1411 1422

inflation targeting and liquidity traps under endogenous credibility abstract policy implications are derived for an inflation targeting central bank whose credibility is endogenous and depends on its past ability to achieve its targets this is done in a new keynesian framework with heterogeneous and boundedly rational expectations we find that the region of allowed policy parameters is strictly larger than under rational expectations however when the zero lower bound on the nominal interest rate is accounted for self fulfilling deflationary spirals can occur depending on the credibility of the central bank deflationary spirals can be prevented with a high inflation target and aggressive monetary easing

electoral majorities political parties and collective representation in practice democracies privilege plurality parties theories of the democratic process challenge the democratic credentials of this practice abstract social choice theory wonders whether an elec

the sources of valence judgments the role of policy distance and the structure of the left right spectrum although the concept of valence figures in many studies of voting behavior very few have investigated its sources in this article we address this deficiency by assessing the extent to which individual valence assessments are affected by the left right policy distance between parties and respondents as well as by their locations relative to the center of the left right spectrum using data from the comparative study of electoral systems we find very widespread support for both hypotheses correcting for differential item functioning dif reveals that although respondents tend to over estimate the distance to opposite side parties these misperceptions do not account for our findings indeed with dif corrected most surveys reveal tendencies not only for opposite side parties to be given lower valence scores in general but also for policy distance to be counted more heavily against them the article concludes with a discussion of possible sources of this bilateral structuring of valence assessments

issues the spatial theory of voting and british general elections a comparison of proximity and directional models competing spatial models of voter choiceare compared in the context ofparliamentary representatives selectedthrough single member district pluralityelections where party platforms areemphasized over individual candidates respondents of the 1987 1992 and 1997british general election surveys ratepolitical parties on a series of issuescales ordered logistic regressions ofparty evaluations under proximity directional and mixed models reveal thatthe classic spatial model and thedirectional model perform equally well differences center on perceptions of thestatus quo as voters appear to evaluatethe incumbent party here theconservatives slightly differently thanminority parties labour and the liberaldemocrats the proximity model worksbetter for voter evaluations of governingparties while the directional model workswell for opposition parties

a quantized approach to rational inattention abstract in this paper i propose a model of rational inattention where the choice variable is a deterministic function of the exogenous variables and still only a finite amount of information is being used this holds provided the choice variable is discrete rather than continuous that is the mapping from the realization of the exogenous variables to the endogenous ones is piece wise constant thus limited information is now a source of lumpiness in behavior rather than a source of noise the approach is applied to a simple static model of price setting where individual price setters face aggregate monetary shocks and idiosyncratic productivity shocks the effect of aggregate money shocks on output and prices is studied it is shown that as the variance of idiosyncratic shocks become large the aggregate log price level converges to a linear function of the aggregate money shock with a coefficient which is strictly between 0 and 1 consequently unanticipated aggregate money shocks have real effects on output in contrast to the sticky price model of caplin and spulber 1987 but these effects are smaller than in standard rational inattention models or in the lucas 1972 misperception model

issue yield a model of party strategy in multidimensional space parties in pluralist democracies face numerous contentious issues but most models of electoral competition assume a simple often one dimensional structure we develop a new inherently multidimensional model of party strategy in which parties compete by emphasizing policy issues issue emphasis is informed by two distinct goals mobilizing the party s core voters and broadening the support base accommodating these goals dissolves the position valence dichotomy through a focus on policies that unite the party internally while also attracting support from the electorate at large we define issue yield as the capacity of an issue to reconcile these criteria and then operationalize it as a simple index results of multilevel regressions combining population survey data and party manifesto scores from the 2009 european election study demonstrate that issue yield governs party strategy across different political contexts

a new keynesian model with heterogeneous expectations abstract within a new keynesian model we incorporate bounded rationality at the individual agent level and we determine restrictions on expectations operators sufficient to imply aggregate is and as relations of the same functional form as those under rationality this result provides dual implications the strong nature of the restrictions required to achieve aggregation serve as a caution to researchers imposing heterogeneous expectations at an aggregate level may be ill advised on the other hand accepting the necessary restrictions provides for tractable analysis of expectations heterogeneity as an example we consider a case where a fraction of agents are rational and the remainder are adaptive and find specifications that are determinate under rationality may possess multiple equilibria in case of expectations heterogeneity

nominal disturbances wage flexibility and shifting resources in a two sector economy the recent behaviour of european unemployment rates has sparked considerable interest in the connection between wage flexibility and unemployment see for example bruno and sachs i985 and the papers in the i986 supplement to economica much of the empirical work finds that economies adjust more rapidly and with less inflation when wages and prices are very responsive to unemployment this finding supports the belief that greater wage and price flexibility leads to greater macroeconomic stability in fact one can view martin weitzman s i 983 i 984 and i 985 share system as an institutional change aimed at providing sufficient wage and price flexibility to avoid unemployment it is hard to imagine how wage and price flexibility could increase in all sectors of the economy simultaneously instead greater aggregate wage and price flexibility is likely to result from increased wage and price flexibility at particular firms in particular sectors as a result realistic proposals for share systems involve some time perhaps forever when share firms and wage firms would coexist during this period an increase in aggregate flexibility will be associated with an increase in the difference in wage and price flexibility between sectors this paper analyses allocational issues raised by such an uneven increase in aggregate wage and price flexibility the analysis is done explicitly in terms of a short run two sector model where the first sector is a fixed wage sector and the second sector is a share sector the model is short run because both the number of firms in each sector and the pay parameters at all firms are fixed while the explicit analysis is done in terms of share firms in the second sector the model is more general the second sector can be thought of as the flexible sector where wage and price flexibility maintain full employment an important new phenomenon occurs in the mixed system relative prices change in response to nominal disturbances in particular the relative price of the flexible sector falls in response to a decrease in nominal aggregate demand as a result of the change in relative prices both the utilisation of labour and the mix of consumption shift to the more flexible sector in addition the opposite shifting of resources and consumption occurs in response to an increase

are moderates better representatives than extremists a theory of indirect representation few if any elected representatives are capable of unilaterally implementing their platforms rather they choose between options generated by other actors and or external events we present a theory of voters preferences over representatives who will cast votes on their behalf and show that in this setting voters preferences over candidates platforms will not look like voters preferences over policies we demonstrate that these induced preferences for representation tend to favor more extreme representatives and we present two models of electoral competition in which induced preferences over representatives lead to elite polarization

comparative economic performance of conventional and profit sharing firms abstract this paper compares the various economic properties of conventional firms and profit sharing firms the properties contrasted include wage level employment output price total economic rents and industry efficiency the firms operate in an oligopolistic industry with a labor union in general profit sharing firms outperform non sharing firms however there exist counterexamples in which non sharing firms can outperform sharing firms to test the robustness of the results the analysis is conducted for a variety of oligopolistic industries quantity setting pricesetting and joint collusion

booms and busts in economic activity a behavioral explanation booms and busts in economic activity are a regular occurrence they lead to a strong empirical regularity i e that output gaps and output growth are non normally distributed mainstream macroeconomic models explain this phenomenon by invoking exogenous shocks that are non normally distributed this is not a very satisfactory explanation as it shifts our ignorance one step further i propose an explanation based on a behavioral macroeconomic model in which agents are assumed to have limited cognitive abilities and thus develop different beliefs this model produces waves of optimism and pessimism in an endogenous way animal spirits and provides for a better endogenous explanation of the observed non normality in output movements i also analyze the implications for monetary policy

the optimal inflation rate in new keynesian models should central banks raise their inflation targets in light of the zero lower bound we study the effects of positive steady state inflation in new keynesian models subject to the zero bound on interest rates we derive the utility based welfare loss function taking into account the effects of positive steady state inflation and solve for the optimal level of inflation in the model for plausible calibrations with costly but infrequent episodes at the zero lower bound the optimal inflation rate is low typically less than two percent even after considering a variety of extensions including optimal stabilization policy price indexation endogenous and statedependent price stickiness capital formation model uncertainty and downward nominal wage rigidities on the normative side price level targeting delivers large welfare gains and a very low optimal inflation rate consistent with price stability these results suggest that raising the inflation target is too blunt an instrument to efficiently reduce the severe costs of zero bound episodes

heterogeneous preferences and in kind redistribution theory and evidence abstract this paper examines the impact of social heterogeneity on in kind redistribution we contribute to the previous literature in two ways we consider i the provision of several public goods and ii agents different not only in income but also in their preferences over the various goods provided by the public sector in this setting both the distribution and size of goods provision depend on the heterogeneity of preferences our main result is that preference heterogeneity tends to decrease in kind redistribution while income inequality tends to increase it an empirical investigation based on united states census bureau data confirms these theoretical findings

monetary and fiscal policy interactions in a micro founded model of a monetary union abstract this paper analyzes in detail the mechanisms behind fiscal stabilization policy and the role of policy commitment in a micro founded new keynesian model of a two country monetary union which is hit by supply shocks we also explore the determinants of the gains from fiscal stabilization while monetary policy with identical union members is concerned with stabilizing the union wide economy fiscal policy aims at stabilizing inflation differences and the terms of trade besides exploring optimal policies we also consider monetary and fiscal rules we study these rules both under coordination and non coordination by the fiscal authorities

voting behavior under the directional spatial model of electoral competition this paper contrasts voting behavior in multicandidate elections between the proximity and the directional spatial models of electoral competition under the traditionalproximity spatial model a voter s utility for a candidate is a declining function of distance between their respective positions under thedirectional spatial model introduced by rabinowitz and macdonald utility is specified as the scalar product of the vectors representing voter and candidate the present paper specifies and compares regions of candidate support for the two models and for several voting procedures the degree to which each model and voting system favors extremist versus centrist candidates is assessed it is shown that a pure directional model implies that candidates lying in the interior of the convex hull of the other candidates receive no support under the single vote plurality procedure a one parameter family of mixed proximity and directional models may provide more plausible descriptions of voter behavior than either pure model

the simple macroeconomics of profit sharing this paper is in the spirit of the temporary equilibrium approach to macroeconomics it basically extends that framework to cover a profit sharing system and then compares the macroeconomic characteristics with those of the more familiar wage system a first preliminary step is to demonstrate how a microeconomic model of monopolistic competition can be built up into a junior member of the keynesian macro family the methodology is to create from first principles including a careful formulation of a monopolistically competitive product market structurea natural underpinning for the standard aggregate demand specification the primary goal of the paper is to apply the integrated monopolistic competitionkeynesian type apparatus described above to investigate the macroeconomic properties of a profit sharing economy the existence of a consistent general framework covering both cases invites meaningful comparisons that indicate clearly why an economy based on profit sharing principles possesses natural immunity to stagflation by contrast the wage economya system we have largely accepted without critically examining its macroeconomic consequences is more prone to suffer from unemployment and inflation the policy implications for aggregate demand management in wage and share systems are analyzed and contrasted in writing this paper my philosophy has been to not shirk from using those reasonable parameterizations and functional forms which yield nice crisp results and permit me to focus sharply on the essential logic of basic issues it is certainly possible to present the main results in a somewhat more general formulation as the astute reader will appreciate but i fear only at some cost of distracting attention from those central features i wish to highlight

heterogeneous expectations in monetary dsge models this paper derives a general new keynesian framework with heterogeneous expectations by explicitly solving the micro foundations underpinning the model the resulting reduced form is analytically tractable and encompasses the representative rational agent benchmark as a special case we specify a setup in which some agents as a result of cognitive limitations make mistakes when forecasting future macroeconomic variables and update their beliefs as new information becomes available while other agents have rational expectations we then address determinacy issues related to the use of different interest rate rules and derive policy implications for a monetary authority aiming at stabilizing the economy in a dynamic feedback system in which macroeconomic variables and heterogeneous expectations co evolve over time

a spatial analysis of candidate competition in dual member districts the 1989 chilean senatorial elections this study uses empirical spatial theory to evaluate candidate and voter behavior in senate elections contested during the 1989 chilean general election the study evaluates whether senatorial candidates competing in dual member districts under chilean d hondt locate near the periphery or interior of the electoral space spatial analyses demonstrate the chilean senatorial electoral system is characterized by centrifugal forces in particular candidates of the right locate on the periphery of the space and face few incentives to pursue moderate electoral strategies the study also characterizes bases of party and candidate support and the underlying dimensions of political competition spatial analysis reveals both change and continuity in the pre and post authoritarian electoral universes

the un predictability of primaries with many candidates simulation evidence it is common to describe the dynamic processes that generateoutcomes in u s primaries as unstable or unpredictable in fact the way we choose candidates may amount to alottery this paper uses a simulation approach assuming10 000 voters who vote according to a naive deterministicproximity rule but who choose party affiliationprobabilistically the voters of each party then must choose between twosets of ten randomly chosen candidates in closed primaries finally the winners of the two nominations compete in thegeneral election in which independent voters also participate the key result of the simulations reported here isthe complete unpredictability of the outcomes of a sequence ofprimaries the winner of the primary or the party s nominee varied as much as two standard deviations from the medianpartisan voter the reason is that the median or any othermeasure of the center of the distribution of voters isof little value in predicting the outcome of multicandidateelections these results suggest that who runs may havemore to do with who wins than any other consideration if more than two parties or candidates are expected then thevote maximizing position is not close to your opponents butwell away from them tullock 1967 55

unpacking logm toward a more general theory of party system density the standard model of political party system density combines two traditions to explain why some countries have more political parties than others one tradition that emphasizes social cleavages and another that emphasizes electoral institutions especially district magnitude despite its considerable success there are several reasons to be less than fully satisfied with the standard model we examine two of these problems associated with the scope of strategic voting and the functional form of the specification used to test the model in doing so we contrast the standard interpretation with an organizational ecology model that accounts for what the standard model did so well but also accounts for important anomalies it ignores we reexamine some of the key analyses that have been used to test the standard model to assess the severity of its limitations and the utility of the rival organizational ecology account

policy responsiveness and incumbent reelection in state legislatures does policy responsiveness on the part of incumbent legislators affect their prospects for reelection recent studies of congressional campaigns demonstrate that incumbents who support policies that are more congruent with their constituents preferences face fewer reelection obstacles the present analysis considers this question in state legislative elections where voter knowledge of legislator activities is generally quite low the findings demonstrate that incumbents positioned farther from the average citizen and toward their party s base are only slightly more likely to be challenged than other incumbents however more partisan voting incumbents do attract challengers capable of raising and spending larger amounts of money interestingly incumbents positioned closer to their party s base actually receive a greater share of the vote in most contested elections only when challengers spend significant amounts of money do we see the positive effects of partisan voting by incumbents diminished overall these findings demonstrate the mechanisms by which policy positions of incumbents in a low information environment affect the challengers that emerge and the level of voter support received

issue entrepreneurship and multiparty competition how do issues enter the political arena and come to affect party competition this study extends the literature on issue evolution from the u s context to multiparty systems while traditional models assume opposition parties to be the agents of issue evolution this study argues that within multiparty competition not all parties in opposition have an incentive to change the issue basis of political competition the central propositions of our issue entrepreneurship model are twofold first political parties are more likely to become issue entrepreneurs when they are losers on the dominant dimension of contestation we focus on three components of political loss in multiparty systems relating to the office seeking voting seeking and policy seeking objectives of parties second parties will choose which issue to promote on the basis of their internal cohesion and proximity to the mean voter on that same issue we test these propositions by examining the evolution of the issue of european integration i

unsuccessful success failed no confidence motions competence signals and electoral support if no confidence motions are primarily motivated by bringing down governments why do only approximately 5 of no confidence motions in advanced parliamentary democracies from 1960 result in the termination of government in this project the author addresses this puzzle by developing a formal model of the electoral benefits of no confidence motions and tests these hypotheses with the use of an original data set no confidence motions represent highly visible opportunities for opposition parties to highlight their strength or ability compared to the government in the hopes of improving their vote shares the author finds support for the signal based theory on a sample of 20 advanced parliamentary democracies from 1960 to 2008 although no confidence motions result in decreases for the government parties the opposition parties that propose the motion experience boosts in vote share this relationship is even stronger when the proposing party is an alternative governing possibility illustrated by the condit

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

policy motivation and party differences in a dynamic spatial model of party competition we present a model of party competition that produces more realistic patterns of results than those often emphasized in the literature reversing downs 1957 we assume that parties win elections in order to formulate policies rather than formulate policies in order to win elections voters are modeled first as having perfect information about candidate positions and then under conditions of uncertainty in simulation experiments we show that policy motivation and voter uncertainty can bring about persistent and predictable party differences in sequential majority rule elections as the degree of voter certainty decreases parties diverge towards their optima whereas increases in voter certainty draw parties towards cycles in which party positions vary but predictable issue stances are maintained on the average

don t stand so close to me spatial contagion effects and party competition in this article we bring together elements from the literatures on economic voting and spatial voting to gain theoretical leverage on the combined role of clarity of responsibility party policy positions and economic performance in elections building on evidence of voter knowledge we develop a theory of spatial contagion effects to explain how factors drawn from both of these literatures combine to shape changes in support for political parties we test this theory with a spatial autoregressive model of party competition in 23 nations from 1951 to 2005 as expected we find evidence of strong spatial contagion effects in elections with low clarity of responsibility

distribution and growth in an economy with limited needs variable markups and the end of work this article studies a model of the distribution of income under bounded needs utility derived from any given is bounded from above and demand is therefore not isoelastic on the other hand introducing new varieties always increases utility it is assumed that each variety is owned by a monopoly workers can specialise in material goods production or in the knowledge sector which designs new varieties as productivity increases the economy moves from a solovian zone where wages increase with productivity to a marxian zone where they paradoxically decline with productivity

ideology and candidate evaluation how does the expressed political ideology of voters influence their evaluation of presidential candidates the classic answer to this question is provided by the spatial theory of electoral choice in which utility for a candidate is a function of the proximity between the voter and candidate positions on the liberal conservative continuum we have argued elsewhere that spatial theory while intellectually appealing is inadequate as an empirical model of mass behavior we have developed a directional theory of issue voting that we believe provides a more realistic accounting of how specific policy issues influence utility for a candidate directional theory is based on the view that for most voters issues are understood as a dichotomous choice between two alternative positions while ideology is widely understood as a continuum of positions the directional model can be applied to the relationship between ideology and candidate evaluation in this paper we compare the two theories using national election study data from 1972 to 1988 the results tend to favor the directional model over the traditional proximity model we conclude by briefly tracing out the implications of this finding

shifting wage norms and their implications at least since the early 1970 s it has been apparent that the cyclical variations in inflation summarized by the short run phillips curve are only one part of the inflation problem that confronts modern industrial economies another part is the relative persistence of an established rate of inflation there is a good deal that we do not understand about this persistence but i find the most useful way to model it is to start with the concept of a relatively stable wage norm by which i mean a norm for the rate of wage increase the model distinguishes sharply between the cycle and the trend in inflation with the wage norm determining the trend the variations in inflation of the typical business cycle take place around the existing wage norm and generate the empirical short run phillips curve the wage norm itself is affected little if at all by the typical business cycle historically the wage norm has been shifted by prolonged departures from typical business cycles or by other extreme economic developments figuring out more precisely what it takes to shift wage norms or what might keep them from shifting is a central challenge for understanding inflation better before turning to its implications let me sketch the behavioral underpinnings of the wage norm model and the empirical evidence about wage norms the norm rate of wage increase has no allocational significance and describes the trend of nominal wages independent of real aggregate demand or relative demand effects in this respect it is like the anticipated rate of inflation in many familiar models wages are not determined in an auction like labor market that clears over any reasonable interval of time rather they are established by wage setting firms with a profit maximizing interest in their long run relation with their employees in some cases in a bargaining situation with unions under both the implicit and explicit contracts that thus dominate wage setting keeping up with the norm is the neutral standard for firms an individual firm that raises wages in line with the norm neither improves nor worsens its relative position as an employer a firm that wants to expand employment will typically offer a higher wage than would be required just to keep up with the norm relative wages and relative employment levels are thus codetermined in this process when most firms want to expand employment as in a cyclical upturn the same behavior is part of the process producing the modest cyclical rise in inflation that we observe as the short run phillips curve thus the onset of cyclical inflation is not a sign that capital and labor resources are being overutilized nor is it a sign that inflation is on an accelerating path or even that wage norms are shifting up in analyzing u s postwar data i have found the wage norm shifted up substantially by the end of the 1960 s and down again though not by as much by the end of the 1980 82 recession see my 1983 paper the first episode was a period with a historic expansion that ended with several years of very low unemployment rates the second was a recession of unusual length and severity that ended with the highest unemployment rates since the 1930 s there is also evidence of a small shift down in the wage norm after the weak economic performance of 1957 61 which featured two recessions with only an aborted recovery in between i also found evidence for germany the united kingdom and japan of upward shifts in wage norms in manufacturing industries after the 1960 s and downward shifts in the early 1980 s see my 1986 paper all these episodes suggest the kinds of extreme cyclical developments that have shifted wage norms in the postwar period the brookings institution 1775 massachusetts avenue nw washington d c 20036 in preparing this paper i benefited from discussions with charles schnl t7 e

have we underestimated the likelihood and severity of zero lower bound events prior to the financial crisis most economists probably did not view the zero lower bound zlb as a major problem for central banks using a range of structural and statistical models we find that previous research understated the zlb threat by ignoring uncertainty about model parameters and latent variables focusing too much on the great moderation experience and relying on structural models whose dynamics cannot generate sustained zlb episodes our analysis also suggests that the federal reserve s asset purchases while materially improving macroeconomic conditions did not prevent the zlb constraint from having first order adverse effects on real activity and inflation