a dynamic tiebout theory of voluntary vs involuntary provision of public goods this paper considers a dynamic model of tiebout like migration between communities that utilize distinct allocation procedures for public goods at issue is whether voluntary or compulsory procedures are more likely to prevail over time we model infinitely lived individuals who make repeated sequential location decisions over one of two communities each community uses a distinct mechanism for allocating public goods the first is one in which contributions are given voluntarily by the citizenry of the community the second is a compulsory scheme by which individuals are taxed proportionately to wealth with the tax determined by a majority vote opportunities to accumulate wealth exist via accumulation of public capital the markov perfect equilibria of the dynamic game are studied our main result shows that when accumulated wealth converges to a steady state individuals locational choices eventually select the involuntary provision mechanism this holds despite the fact that unanimous location in the voluntary provision community may in many cases remain as a nash equilibrium of the static game each period we also describe conditions under which voluntary provision survives these conditions require that accumulation of capital fails to decrease wealth dispersion over time the results are shown to be consistent with findings relating inequality to school choice

what big teeth you have identifying the motivations for exclusionary zoning this paper considers whether a number of the motivations for exclusionary zoning usually examined by economists are distinguishable from one another in a general theoretical model the four motivations identified are fiscal zoning public goods zoning consumption zoning and political economic zoning it is demonstrated in a general setting that the motivations are observationally equivalent if the only available information is community composition the most important implication of this finding is that a policy directed at alleviating one motive for zoning inevitably affects other motives the existence of exclusionary zoning does not constitute a prima facie case for any particular intervention rather the true motivations behind the observed pattern of land use and land use controls must be identified

using the decentralized and liberalized electricity market microworld lemm as an educational tool abstract decentralized and liberalized electricity market involves a great deal of interdisciplinary concepts including economic commercial environmental and technological issues consequently the system is complicated accordingly nowadays introductory courses focusing on the electricity market dynamics have been added to the curriculum at many universities however as the electricity market dynamics are complicated it is not straightforward for students to understand a teaching tool to assist students to better understand strategic behaviors in the market is thus in high demand due to these reasons liberalized electricity market microworld lemm incorporating a system dynamics based simulation model is developed the lemm s contribution to the students learning and understanding of the decentralized and liberalized electricity market dynamics have been explored by organizing game sessions with the lemm for totally 49 students who participated in energy policy and planning course in bogazici university the findings obtained from the exploratory study reveal that the students improved their understanding of the liberalized and decentralized electricity market through the game session with the lemm in this paper the general characteristics of the lemm and the underlying model are presented the microworlds particularly the lemm s potential contribution to learning and teaching is discussed

tastes skills and local public goods abstract this paper analyzes optimal club configurations in an economy where different types of labor are complementary in the production of private goods extending the work of berglas journal of public economics 6 409 423 1976 the analysis shows that when labor types are nonessential in production a homogeneous club configuration may be optimal despite the presence of labor complementarity the assumption that inputs are essential precluded this outcome in berglas model it is shown that homogeneous clubs are optimal when complementarity is weak or when preferences are substantially different

heterogeneity within communities a stochastic model with tenure choice standard explanations for the income heterogeneity within neighborhoods rely on differences of preferences across households and heterogeneity of the housing stock we propose an alternative and complementary explanation we construct a stochastic equilibrium sorting model where 1 income is the sole dimension of household heterogeneity 2 households form state contingent housing location plans that may involve moves over their lifetimes 3 households choose whether to own or rent depending on the housing expenditure risk associated with each tenure mode and 4 there is a probability that newcomer households move in and compete for homes with native households income mixing within neighborhood arises for two reasons first allowing natives to form state contingent housing location plans breaks the indivisibility of housing consumption implicit in the literature where households choose their location once and for all second natives can insure themselves against rent fluctuations by buying their home prior to the realization of the population shock newcomers cannot as a result poorer natives stay in the more desirable communities and only richer newcomers move in these communities evidence from u s metropolitan areas supports the effects predicted by the model

interpreting econometric evidence the behaviour of consumers expenditure in the uk abstract the dynamic models of consumers expenditure proposed by davidson et al 1978 and hendry and von ungern sternberg 1979 are re appraised in the light of hall s 1978 analysis of the empirical implications of the life cycle permanent income hypothesis in particular that the series for consumption should obey a random walk apart from trend in an attempt to reconcile the conflicting findings monte carlo experiments are used to demonstrate that if the davidson et al model were actually correct the hall model would appear to give a good description of the data and would probably not be rejected all the models are re estimated with new data for the uk and these data do reject a modified random walk specification in conclusion we discuss the issue of income exogeneity and comment on questions of model selection and interpretation

on price taking equilibria in club economies with nonanonymous crowding abstract competitive equilibrium in a coalition production economy or a club economy typically does not exist when there is free entry for two reasons first there may be an integer problem as is familiar from club theory with anonymous crowding second optimal groups may have different compositions from the population and then even if there is no integer problem it may be impossible to partition the population into optimal groups i define a notion of approximate equilibrium and show that such an equilibrium always exists in a sufficiently large economy i focus on the optimal size of the economy rather than of clubs

mixed markets and crime abstract this paper specifies and solves a two stage game theoretic model of a mixed market for crime control in the first stage of the model private targets and the government choose levels of policing in the second stage criminals choose targets and the severity of the crimes that they commit the paper s key results are as follows first private policing can both divert crime to targets that lack private protection and also increase the severity of the crime that these less protected targets suffer second an increase in private policing reduces the aggregate expenditure on traditional policing this is an instance of a political incentive externality where private policing affects the objective function of the government specifically it reduces the level of traditional policing that is consistent with the samuelson condition for efficient provision of a public good third the substitution of private for public policing carries with it a change in the technology of policing in effect private policing leads to a shift from enforcement and punishment towards monitoring and target hardening this in turn may lead to an increase in the severity of crime fourth the mixed policing equilibrium is inefficient and in some situations mixing may reduce the utility of all targets

peer group effects and educational attainment abstract given the aims of an educational system the relationship between educational inputs and educational outputs the educational production function a frequency distribution of students by ability and a fixed educational budget how should students and educational expenditures be allocated over classrooms the paper focuses on peer group effects which capture the influence of a student s classmates on his educational attainment and the determinants of whether streaming or mixing is preferable it should be noted that peer group effects arise in other contexts notably in the workplace thus the paper casts some light on the optimal composition of teams

local characteristics and public production the case of education in a long tradition of papers beginning with borcherding and deacon 5 and bergstrom and goodman 3 local government expenditure is viewed as the outcome of a political process in which the utility of the median voter is maximized subject to an appropriate resource constraint expenditures are specified as a function of the median voter s income the tax price and a set of local characteristics representing the tastes of the jurisdiction s residents the tax price variable incorporates the median voter s tax share and unit costs of providing local public services which depend on input prices and population served local variables though included on the demand side as taste factors are assumed to have no effect on the cost of producing local public services in this paper we ask whether local variables affect production costs directly using california data in which taste factors are virtually eliminated from the demand for education expenditure we find that local variables altect the production of education achievement sign y empirical estimates from median voter models in which local variables are

on the measurement of congestion in the provision of local public goods abstract this paper contends that a measurement problem the zoo effect has led to upwardly biased estimates of the degree to which local public goods are subject to congestion the suggestion is that the observed positive correlation between public expenditure and population size reflects in large measure the wider range of services provided in more populous jurisdictions not simply a high propensity of these goods to become congested

measuring the social value of local public goods an empirical analysis within paris metropolitan area a non linear hedonic model is used to estimate the implicit marginal prices of 17 local public goods in a paris suburban area on an original data set of some 8200 housing units the results reveal a robust effect of local public school quality measured both by the fraction of junior high school students that are at least two years behind grade level and the student teacher ratio on house prices it is observed that housing owners marginal willingness to pay for reducing commuting time is roughly similar for public transportation than for car transportation another noticeable result is the complete capitalization of local taxes at a discount rate of 3 5 an illustration of the potential usefulness of the results for cost benefit analysis is also provided

is the median voter decisive evidence from referenda voting patterns abstract this paper examines whether the voter with the median income is decisive in local spending decisions previous tests have relied on cross sectional data while we make use of a pair of california referenda to estimate a first difference specification the referenda proposed to lower the required vote share for passing local educational bonding initiatives from 67 to 50 and 67 to 55 respectively we find that voters rationally consider future public service decisions when deciding how to vote on voting rules however the empirical evidence strongly suggests that an income percentile below the median is decisive for majority voting rules especially in communities that have a large share of high income voters with attributes that suggest low demand for public services based on a model that explicitly recognizes that each community contains voters with both high and low demand for public school spending we also find that an increase in the share of low demand voters is associated with a lower decisive voter income percentile for the high demand group this two type model implies that our low demand types individuals over age 45 with no children have demands that are 45 lower than other voters collectively these findings are consistent with high income voters with weak preferences for public educational services voting with the poor against increases in public spending on education

asymmetries in housing and financial market institutions and emu despite convergence pressures differences in housing and financial market institutions across the 15 member states of the european union are still enormous this paper argues that they have profound effects on the responsiveness of output and inflation in the different countries to changes in short term interest rates as well as to asset market shocks of external origin the economic reasoning behind this claim is set out and the institutional differences are described the paper assesses the sometimes conflicting empirical evidence on this issue barriers to convergence and implications for labour market flexibility are discussed the uk ireland finland and sweden tend to cluster at one extreme of the relevant institutional characteristics the paper concludes with a set of proposals for institutional reforms which would significantly reduce the tensions within emu and the potential for instability in these economies entailed by emu membership

the value of time hypothesis and the demand for money some new evidence for the uk this paper presents some results for a version of the value of time model of the demand for money using uk date the model performs quite well and the value of time hypothesis appears to be confirmed

modeling the demand for narrow money in the united kingdom and the united states abstract despite the importance of well specified empirical money demand functions for inference forecasting and policy problems in modeling have arisen concerning the economic theories of money demand the data institutional frameworks financial innovation and econometric implementation by developing constant data coherent m 1 demand equations for the u k and the u s we investigate these issues and explain such puzzles as missing money the great velocity decline and the recent explosion in m 1 the endogeneity of money the lucas critique and the non invertibility of our m 1 models are also discussed

competitive equilibrium and the core in club economies with anonymous crowding in club economies with anonymous crowding competitive equilibrium states of the economy are efficient and coincide with the core when there is only one private good anonymous admission prices permit consumers with different tastes to share facilities consumers might do so when their demands for facility size and crowding coincide in which case sharing is efficient thus similarity of demands is the relevant consideration for efficiently grouping consumers with different tastes

quantities qualities and multiple public services in the tiebout model abstract this paper introduces a new more realistic characterization of local public services this characterization fits education parks and streets none of which are a pure samuelsonian good it is shown that tiebout s hypothesis holds for this new type of services provided correct user charges are adopted introducing several local services considerably affects the results the paper emphasizes the difference in tastes with regard to quality as opposed to quantity earlier literature is shown to apply to the role of quality and ignores the role of quantity the effect of the latter makes mixed communities more efficient than segregated ones it is shown that efficient allocation with mixed communities is an equilibrium in a costless mobility tiebout type setting

productivity change in state and local governments a model is developed in this paper which allows the growth rate of public sector productivity to be estimated without an explicit measure of sectoral output in this model communities are regarded as generalized households and the goods and services provided by the community s government are interpreted as internally produced household goods the model is then fitted to quarterly data from the u s national income and product accounts and the rate of productivity change is found to average 0 50 per year for the period 1959 1979 the sources of growth approach to productivity measurement distinguishes between the growth in real output due to the growth in factor inputs capital labor materials and the growth in output due to advances in technology managerial practice and other factors related to productive efficiency the former are collectively associated with the movement along an aggregate or sectoral production function while the latter are associated with the shift in that function 2 in practice the shift in the production function is measured by the residual real output not attributed to the growth of the share weighted inputs and termed total factor productivity the sources of growth model is based on the underlying assumption that real output and real input can be measured with a reasonable degree of accuracy while this presumption is correct for many types of economic activity it is essentially incorrect for those sectors which produce services as kendrick 1982 has recently noted approximately one third of the real gross product originating in the service sector of u s private business economy is estimated using employment manhours or labor earnings such procedures systematically misstate the true growth of real output and thus systematically bias the estimated growth in total factor productivity the situation is even worse in the public sector in the u s national income and product accounts the output of general government is defined to be equal to labor input implying that the growth of total factor productivity exactly offsets the effect of nonlabor inputs a model is developed in this paper which allows the growth rate of public sector productivity to be estimated without an explicit measure of sectoral output in this model communities are regarded as generalized households and the goods and services provided by the community s government are interpreted as internally produced household goods this interpretation allows us to appropriate the analytical apparatus of the household production model and thereby permits us to estimate the key parameters of the model including a government total factor productivity parameter without first having to measure the output of the govern

community composition and the provision of local public goods abstract there is considerable evidence suggesting that the composition of the community that is the characteristics of the residents themselves plays a central role in determining levels of important public outputs such as education and public safety this paper explores the normative implications of this evidence we show that optimal community composition involves a trade off between the gains from homogeneity in demands among residents and the gains from heterogeneity in the production of those goods the analysis establishes a role for equalizing intergovernmental grants on efficiency grounds such grants can provide the needed incentives for sustaining heterogeneous communities

has m2 demand in the usa become unstable evidence from an error correction model the purpose of this paper is to estimate an appropriate broad money demand function for the united states and to examine its stability after 1987 when the federal reserve system began using m2 as a policy guide special attention is paid to the model specification its dynamic structure and to its cointegration properties the results from various dynamic error correction models suggest that i the money demand relationship is stable ii most previously estimated models have undoubtedly misspecified the interest rate variable iii interest rate variability is another important determinant of real money demand and iv in contrast of previous studies the long run scale variable is real gdp whereas real consumer spending is the short run scale variable the sample period examined is 1953 1 to 1991 4

inference in cointegrating models uk m1 revisited the paper addresses the practical determination of cointegration rank this is difficult for many reasons deterministic terms play a crucial role in limiting distributions and systems may not be formulated to ensure similarity to nuisance parameters finite sample critical values may differ from asymptotic equivalents dummy variables alter critical values often greatly multiple cointegration vectors must be identified to allow inference the data may be 1 2 rather than 1 1 altering distributions and conditioning must be done with care these issues are illustrated by an empirical application of multivariate cointegration analysis to a small model of narrow money prices output and interest rates in the uk copyright 1998 by blackwell publishers ltd

analisis de la eficiencia del gasto municipal y de sus determinantes en este estudio se analizo la eficiencia del gasto local en 1686 municipalidades del pais para elano 2003 mediante la interpretacion de las actividades publicas locales como un proceso de produccion que transforma inputs en outputs bradford et al 1969 y fisher 1996 se establecieron para ello diversas fronteras de produccion construidas a partir de los mejores resultados dentro de grupos de municipalidades y luego se estimo la eficiencia relativa como la distancia a dichas fronteras se utilizaron cinco metodologias para la estimacion de las fronteras de produccion i 3 no parametricas free disposal hull fdh y data envelopment analysis dea crs ydea vrs y ii dos parametricas una deterministica y otra estocastica las cuales se estimaron a traves de las diez categorias de municipalidades cuatro provinciales y seis distritales definidas mediante una metodologia de conglomerados finalmente a partir del empleo de modelos de regresion de tipo tobit se analizaron los determinantes fiscales socioeconomicos y demograficos de los niveles de eficiencia encontrados los resultados obtenidos son diversos y varian segun la categoria del municipio analizado a pesar que fue posible identificar algunas buenas practicas municipales los resultados a nivel nacional son preocupantes puesto que indican que se podria alcanzar la misma provision de bienes y servicios municipales con 57 6 menos recursos entre los principales determinantes de este gasto ineficiente se encontraron las transferencias de los recursos del foncomun y del canon sobre todo a nivel distrital mientras que uno de los factores que permitio una provision mas eficiente de los servicios publicos locales fue la participacion ciudadana aproximada por la presencia de los consejos de coordinacion local en el marco de la promulgacion del decreto supremo 068 2006 pcm en octubre de 2006 por el cual se establece la culminacion de las transferencias de competencias y funciones inicialmente programadas para el periodo 2006 2010 hacia fines del ano 2007 los resultados obtenidos resaltan la necesidad de concentrar mayores esfuerzos para mejorar la eficiencia del gasto a nivel local in this study we analyzed the efficiency of the spending of 1686 peruvian municipalities for the year 2003 through the evaluation to the municipal public activities as a process of production which transforms inputs in outputs bradford et al 1969 and fisher 1996 in doing so we established several best practice production frontiers in order to estimate the extent of municipal spending that seems to be wasted relative to that frontier five methodologies for the production frontier estimations were used i three non parametric i free disposal hull fdh and data envelopment analysis dea crs and dea vrs and ii two parametric one deterministic and the other stochastic which were estimated through ten categories of municipalities four groups of provincial and six of district municipalities defined through a cluster methodology finally using tobit regression models we analyzed the fiscal socioeconomics and demographic determinants of the efficiency levels we found different levels of efficiency and although we identified some good practices the result at the national level is matter of concern because the same results could have been obtained with 57 6 less resources among the main determinants of this inefficiency spending the foncomun and canon transfers were found mainly at the district municipal level one of the factors that allowed for a more efficient provision of local services was the civil participation represented in the study by the local coordination council the results of the study show that there is a need to make more efforts to improve the local government spending even more so after the promulgation of the supreme decree 068 2006 pcm in october 2006 by virtue of which the culmination of the competences and function transfers process initially programmed for 2006 2010 brought forward to the end of 2007

the assessment productivity and competitiveness in british manufacturing this issue of the oxford review examines productivity and competitiveness in british manufac turing the simplest and most widely used measure of productivity is output per head from this definition sprout at once the horns of a dilemma for an economy facing unemployment on the present scale for a given rate of expansion of output the higher the rate of productivity growth the greater the decline in employment or at least the smaller its growth on the other hand in an economy open to international competition a high rate of productivity growth relative to that of other countries is the long term key to achieving the favourable international competitive po sition necessary to sustain growth and a low level of unemployment

from planning to strategy in the electricity industry abstract as more utility markets are deregulated and competition is introduced there is an increasing need to understand how the planning methods used under monopoly have to change to take the new deregulated environment into account although this might seem relatively trivial it has been a major problem for a large number of utilities which have continued using the same planning approaches that they used when they were monopolies in this paper we first describe the environment which under monopoly conditions gave rise to the use of mainly operational research methods for planning we then argue that deregulation has changed the fundamental assumptions making the planning methods used under monopoly less useful after deregulation finally we review a number of methods that utilities should consider using when they formulate strategy in deregulated markets

monetary economic myth and econometric reality few of the main macro economic forecasting systems can produce sensible forecasts without the tender loving care of their proprietors many econometric equations in com mon use show significant deterioration in the accuracy with which they characterise data as time passes and many economists are sceptical about empirical evidence feeling it lacks credibility monetary relationships have the dubious distinction of being among the leaders in this field as witnessed by the very large mispredictions of m1 models in the usa over what is now known as the missing money period 1973 76 as well as during the recent great velocity decline 1979 82 in the uk models of m1 and m3 demand experienced large structural breaks following the competition and credit control regu lation changes and the move to floating exchange rates perhaps it is no surprise that goodhart s law should have been formulated with respect to money demand equations

heterogeneity of preferences for local public goods the case of private expenditure on public education abstract revealed preference techniques are used to investigate the degree of heterogeneity of local public good preferences by testing the hypothesis that demographic characteristics are correlated with preferences for expenditure on public education the test relies on a goodness of fit index which is on an estimation of wasted consumer expenditure we use bootstrap techniques to estimate the distribution of the test statistic preference heterogeneity is found to be common however democrat protestant households are found to have similar tastes and to a lesser extent so are households with school age children where at least one other trait is held in common republicans exhibit the greatest degree of preference heterogeneity

the search for a stable money demand function a survey of the post 1973 literature phe question of whether the demnand function for money is stable is one of the most important recurring issues in the theory and application of macroeconomic policy what is being sought in a stable demand function is a set of necessary conditions for money to exert a predictable influence on the economy so that the central bank s control of the money supply can be a useful instrument of economic policy as such the notion of a stable demand function appears to involve three key elements e g john t boorman 1976 p 317 and david e w laidler 1977 pp 34 35 first the demand for money relation should be highly predictable in a statistical sense as measured by the usual goodness of fit statistics precision of estimated coefficients and presumably its ability to forecast accurately out of sample second a stable demand function for money has relatively few arguments a relationship that requires knowledge about a large number of variables in order to pin it down is in effect not predictable finally the variables that appear as arguments in the function should represent significant links to spending and economic activity in the real sector in sum a stable demand function for money means that the quantity of money is predictably related to a small set of key variables linking money to the real sector of the economy the importance of a stable money demand function for monetary policy can be illustrated with the standard is lm model in which interest rates and gnp are the endogenous variables in this context a stable demand function for money translates into a well defined relationship between money interest rates and gnp

measuring local government spending efficiency evidence for the lisbon region afonso a and fernandes s 2006 measuring local government spending efficiency evidence for the lisbon region regional studies 40 39 53 the expenditure efficiency of portuguese local governments in 2001 was assessed using data envelopment analysis for production frontier estimation a composite municipal output indicator was constructed and input and output efficiency scores were computed for 51 portuguese municipalities in the region of lisbon and vale do tejo this allows a determination of the extent of municipal spending that seems to be wasted relative to the theoretical best practice frontier the results suggest that vale do tejo municipalities could achieve on average the same level of output allegedly using around one third fewer resources improving performance without necessarily increasing municipal spending municipal expenditure technical efficiency data envelopment analysis dea lisbon afonso a and fernandes s 2006 l efficacite de la depense de l administration locale d

change in consumer sensitivity to electricity prices in response to retail deregulation a panel empirical analysis of the residential demand for electricity in the united states abstract about ten years have passed since the deregulation of the u s retail electricity market and it is now generally accepted that the available data is adequate to quantitatively assess and compare conditions before and after deregulation this study therefore estimates the changes in price elasticity in the residential electricity market to examine the changes if any in household sensitivity as a result of retail electricity market deregulation policies to residential electricity rates specifically six types of panel data are prepared based on three cross sections all states except for alaska and hawaii and the district of columbia deregulated states and non deregulated states and two time series the period before deregulation and the period after deregulation the panel empirical analysis techniques are used to determine whether or not the variables are stationary and to estimate price elasticity we find that there is no substantial difference in the price elasticity between deregulated and non deregulated states for both periods before deregulation and after deregulation thus it can be said that the deregulation of the retail electricity market has not made consumers more sensitive to electricity rates and that retail deregulation policies are not the cause of price elasticity differences between deregulated and non deregulated states

an analysis of returns to scale in public production with an application to fire protection abstract this paper analyzes returns to scale in public production existing studies fail to differentiate among three dimensions of scale service quality the level of governmental activity and the number of people served a fourth dimension economies of scope is need for agencies that provide multiple services this paper provides a formal definition of returns to scale for each dimension this framework is applied to fire protection using a translog cost function with two services fire prevention and fire suppression the results indicate economies of scope increasing returns to quality scale and constant returns to population scale

club theory thirty years later this paper presents a self contained survey of club theory with an emphasis on the contributions of the last fifteen years club goods are contrasted with pure public goods and equilibrium and optimality notions are contrasted after presenting three basic representations of club theory we focus on recent advances and generalizations that include heterogeneous memberships transaction costs uncertain utilization asymmetric information and noncompetitive influences an agenda for research is indicated that includes further analysis of asymmetric information institutional structure and applications

fiscal and spending behavior of local governments identification of price effects when prices are not observed this paper analyzes local public fiscal andspending behavior in a setting where localgovernments represented by the dominantparty or coalition are treated as utilitymaximizing agents the econometricanalysis which is based on a modifiedversion of eles recognizes total spendingas well as total income as endogenousvariables identification of the priceeffects is achieved by utilizing data onenvironmental cost factors and localtastes the performance of the estimatedmodel is investigated by testing itsability to make out of sample predictionsof local government behavior

what will take the con out of econometrics the paper begins with the question of whether leamer s extreme bounds analysis eba really does take the con out of econometrics by analytically demonstrating that the extreme bounds are simply functions of the f statistic for the deletion of variables from a regression we conclude that the information provided by eba represents no advance over that available from traditional methods furthermore there is a degree of arbitrariness in eba which exactly parallels the selective reporting of regressions it was designed to supplant the last part of the paper attempts a positive response to its title by following a well defined series of modelling steps we maintain that cooley and le roy s eba derived conclusions concerning the interest elasticity of money demand owe more to a faulty methodology than to the data this abstract was borrowed from another version of this item

sensitivity of reserve margin to factors influencing investment behaviour in the electricity market of england and wales abstract the electricity generation and distribution industries of england and wales have recently undergone major re structuring as part of the privatization process of taking them out of the public sector on the generation side three major companies have been created which compete both with each other and with the new independent companies who are expected to enter the market trading between generators and distributors is controlled centrally by a pool system which attempts to ensure the optimal operation of the system in the short term and gives a pricing signal for longer term investment this pricing signal depends upon an a priori loss of load probability this paper is intended to provide insights into how the investment in capacity for generation could evolve according to various regulatory conditions economic assumptions degrees of competition and the strategic behaviour of the separate companies using a system dynamics approach a simulation model of investment is developed to generate insights into the volatility of the reserve margin variations in the loss of load probability and the various market share scenarios the degree of uncertainty in the demand the amount of information exchange between competitors and the degree of foresight in planning are considered as well as different financial or market share objectives for companies

elections and aggregation interpreting econometric analyses of local governments this paper analyzes the provision of local government service under the assumption that fiscal policy is set by local officials in order to maximize the expected number of votes in the next election the model includes both the widely used median voter model and the average voter model as special cases further it is a convenient framework for empirical analyses numerical simulations indicate that the vote maximization model is capable of producing levels of government spending either greater or less than those predicted by the median voter model while exhibiting similar responses to changes in incomes grants prices etc thus the model captures the advantages of the median voter model without its objectionable features many avenues for further work remain i will mention briefly only a few of the most obvious the first is to make housing prices endogenously determined within the model in this way one could examine the role of both fiscal incentives capitalization and political incentives votes in the determination of optimal policies a second extension is to introduce explicitly the possibility of a mobile population and examine in the spirit of tiebout 1956 the effects of voting with your feet within the vote maximization framework the possibilities include both setting policies that de facto concede exit of some fraction of the current residents and or setting policies to attract new residents with particular characteristics another extension is to look at decisions over time despite widespread agreement upon the usefulness of the life cycle model of private consumption the median voter is essentially static it seems a minimal extension to include both government and private consumption in an intertemporal framework unfortunately the median voter may change over time making implementation of the median voter model problematic at best in practice intertemporal issues are important emphasizing the absence of an acceptable framework it is often suggested that elected officials will choose inappropriate intertemporal fiscal policies in response to the short run focus of the electoral process for example it appears plausible that officials will borrow in order to finance higher levels of spending and or lower taxes in the present because future residents are not present to vote against these policies the electoral process produces incorrect incentives in the same way this line of reasoning suggests that officials will undertake too little infrastructure investments because the benefits accrue to future residents one countervailing force is the effects of property capitalization to the extent that the local housing market correctly capitalizes future taxes and services into housing values current residents will be affected by inefficient policies and may use the electoral process to provide correct signals to officials there is another possibility as well to the extent that current officials recognize that inefficient current policies reduce the probability of future re election they have an incentive even in the absence of perfect capitalization to adopt intertemporally appropriate tax and spending policies intuitively the official must care about re election what if the particular individual chooses not to run for office again then to the extent that political parties or machines cause the individual to value the election of his successor i e to the extent that political legacies are important the adopted policies may satisfy the conditions for intertemporal efficiency the vote maximization approach provides a framework in which to analyze these issues lastly one could extend the model to situations in which officials care not only about election but also about the policies themselves this provides not only a different tradeoff between the tastes of the public and private sector but also a natural incentive for officials to seek re election

sorting by foot travel for local public goods and equilibrium stratification we re examine tiebout s hypothesis of endogenous sorting in a competitive spatial equilibrium framework by considering both income and preference heterogeneity and by allowing agents to decide endogenously the number of visits to a travel for local public good the equilibrium configuration may be completely segregated incompletely segregated or completely integrated depending on relative market rents and income preference local tax parameters a segregated equilibrium may feature endogenous sorting purely by income or by both income and preferences while the rich need not be closer to the local public facility site multiple equilibria may arise when the equilibrium configuration is incompletely segregated jel classification d50 h41 classification par deplacement biens publics locaux accessibles par deplacement et stratification d equilibre les auteurs reexaminent l hypothese de tiebout de classification endogene dans un cadre d equilibre spatial concurrentiel en tenant compte a la fois de l heterogeneite des revenus et des preferences ainsi qu en permettant aux agents de decider de maniere endogene du nombre de visites pour se procurer un bien public local par deplacement il peut s ensuivre des equilibres de segregation complete de segregation incomplete ou d integration complete selon les rentes relatives et les parametres de revenus de preferences ou de fiscalite locale un equilibre de segregation peut entrainer une classification endogene sur la base seulement des revenus ou sur la base des revenus et des preferences alors que les riches n ont pas besoin d etre plus proches du site du bien public local des equilibres multiples peuvent surgir quand la configuration d equilibre en est une de segregation incomplete

equity and efficiency in human capital investment the local connection a general model of community formation and human capital accumulation with social spillovers and decentralized school funding is used to analyse the causes of economic segregation and its consequences for equity and efficiency significant polarization arises from minor differences in endowments preferences or access to capital markets this makes income inequality more persistent across generations but the same need not be true for wealth equilibrium stratification tends to be excessive resulting in low aggregate surplus whether state equalization of school resources can remedy these problems hinges on how purchased social and family inputs interact in education and in mobility decisions

revisiting the techno economic analysis process for building mounted grid connected solar photovoltaic systems part two application part one in this two part paper identified monte carlo analysis as an improved approach over traditional deterministic techno economic methods for solar pv prosumers in deregulated markets in this

microfoundations and the demand for money the reader should note that i write this piece in a style that aims to be accessible to that much neglected representative agent the woman on the eurostar train hence unlike the man on the clapham omnibus i assume my intrepid traveller has reasonable knowledge of monetary economics and econometrics but not of the details of the demand for money space constraints force me to indulge in a certain amount of poetic licence but i hope this results in poetic justice there have been many wars fought on this particular battlefield some with almost religious zeal on the theoretical side of the debate we sometimes have the equivalent of religious fundamentalists be they muslims jews christians etc who would dismiss almost any evidence unless it were associated with a strong microtheoretic basis as laid down in the koran talmud or bible the empirical side encompasses agnostics atheists as well as born again econometricians pure theorists inhabit the sunlit uplands while applied economists and policymakers flounder in the muddy plain below occasionally gaining solace from their copy of zen and the art of motorcycle maintenance in general in economics we do not have the luxury of controlled experiments as is the case in the natural sciences what distinguishes good microfoundations from bad and how to weight priors and statistical evidence is subject to much dispute leamer i983 hendry et al i990 as in religion sometimes there is the occasional miracle proclaimed after a suitable interval a new saint may be declared and disciples flock to the new shrine later doubts may arise as to whether a miracle really did occur human behaviour is difficult to explain let alone predict so the search for the equivalent of the holy grail ark of the covenant etc is bound to be arduous in scholarly journals we generally read of the success of the demand for money like diplomats who are sent abroad to lie for the good of their country publication may require applied economists to be somewhat economical with the actualite lovell i983 leamer i983 in this article i want to be as honest as possible about our success and failures in this area the prior information an armchair economist would consider when thinking about the demand for money over the past 40 years in western industrialised countries which have experienced moderate inflation might

money demand instability expectations and policy regimes a note on the case of italy 1964 1986 abstract this paper compares the stability performance of feedback and feedforward specifications of the demand for m2 in italy over the period 1962 1986 a clear change in the monetary policy regime occurred in 1969 1970 together with marked breaks in the processes generating several relevant variables in the mid 70s making this period particularly appropriate for the investigation of the potential role of expectations our main results show that the feedback specification suffers from instability at both relevant dates whereas the feedforward specification is remarkably stable during the policy regime change but displays signs of instability during the mid 70s

cointegration real exchange rate and modelling the demand for broad money in japan the literature on the demand for the japan s broad money addresses two controversial issues the form log level or log difference in which variables enter the money demand function and the question of whether financial innovation and deregulation caused shift s in the money demand relationship log level specifications of the money demand function have been shown to exhibit large shifts whereas log first differences and error correction specifications do not our paper demonstrates that the appropriate specification for the japanese money demand function is that which uses cointegration and error correction procedures

political markets property tax referenda and local school spending for better or worse fiscal decisions made through property tax referenda allow local political markets to work demand supply and voting process components of such markets are estimated for those oregon k 12 school districts that held referenda between 1981 and 1986 various attributes of the median voter were related to school spending but supply decisions by school boards and administrators were also important large districts used state aid to substitute for local property tax revenues on nearly a one for one basis while relying on reversion budgets inadequate property tax bases and implicit threats of school closures to extract greater than desired spending levels from the median voter

disentangling the demand function from the production function for local public services the case of public safety abstract in this paper we develop a theoretical framework and an econometric model which allow us to separate the effect of income and other socioeconomic variables on the demand for publicly provided goods from their effect on the price of those goods we apply our approach in a study of expenditures for police protection in a cross section of 73 u s cities and counties our results suggest that studies of public expenditures which fail to incorporate community characteristics in production and cost functions can yield very misleading results

the flypaper effect and other anomalies abstract i develop a model in which income both in its own right and as a proxy for other socioeconomic characteristics is an input in the production function for local public services the most obvious example is education though there are other applications as well the comparative statics results from this model yield the following results 1 the observed flypaper effect the tendency for local government to spend a higher fraction of unrestricted grants than income of residents may be due at least in part to the fact that own income but not grants is a substitute for purchased inputs in the technology hence the propensity to spend on purchased inputs out of own income is lower than out of grants 2 the income elasticity of demand for public sector output may be higher than the observed income elasticity of demand for purchased inputs 3 equalization of educational opportunity via wealth neutrality as suggested by feldstein requires major changes in education finance once we recognice the distinction between purchased inputs and output

equilibrium and inefficiency in a community model with peer group effects public service output depends on input expenditures on own personal characteristics and on the characteristics of the other residents in the community the peer group effect in a community model with public expenditures set by voting with migration between communities and with land price differentials capitalization it is shown that communities may become heterogeneous in composition and second best inefficient this equilibrium occurs when the peer group effect is neither too strong nor too weak the inefficiency arises because an externality is created by migration the land price differential does not play the part of the price of the better peer group but of a transfer payment

dynamic analysis of various investment incentives and regional capacity assignment in iranian electricity market this paper develops a system dynamics model to analyze the impacts of different kinds of capacity payment as investment incentive mechanisms in iranian electricity market since it is aimed that the incurred capital and operating costs of generation technologies be recovered in iranian electricity pool the noncompetitive capacity payment mechanism has been introduced for this purpose in order to encourage new investments in electric power generation system in the current mechanism the capacity payments are designated to the generating units in the whole country electricity market an annual base value of capacity payment is proposed based on recovering the capital cost of a benchmark generation technology this value is altered according to the operational reserve in the day ahead electricity market this supporting policy is simulated and analyzed in the proposed dynamic framework in order to track the trend of new investments in the iranian electricity market the feasibility study of implementing the regional capacity assignment is the main focus of this paper different possible regulating policies such as floating rates for capacity payment and electricity price cap the multiple capacity payments to various technologies and the regional electricity market with territorial capacity allocation are examined in order to investigate the consequences and performances of different decisions and policies in the capacity investment of iranian electricity market

subsidies as sorting devices abstract the divergence between tax payments and the cost of providing public services that arise from financing local public services provides an incentive for higher income communities to deter the entry of lower income households into their community here we demonstrate that higher income households to insure that low income households do not enter their community or reduce the number that do enter subsidize goods consumed by higher income households more than by lower income households this strategy will make the rich community less attractive to the poor deterring their entry to the community

property taxation and local public spending the renter effect the point of departure for this study is the pervasive finding that other things equal local jurisdictions tend to spend more on local services the larger the fraction of renters among their residents this paper seeks to determine the approximate magnitude of this renter effect by posing the question how much smaller would local public budgets be if all residents were home owners making use of two quite different approaches the paper finds a typical renter effect on local public expenditure on the order of ten percent this finding suggests that we might do well to reform the administration of the property tax so that changes in property tax liabilities on rental dwellings are directly and visibly transformed into changes of monthly rental payments

a re examination of the demand for money in small developing economies this paper re examines the money demand function in three small open economies of asia korea pakistan and singapore in addition to using the relatively new procedure of error correction modelling the roles of variables such as a the expected change in the exchange rate b foregin interest rates and c foreign exchange risks on money demand are examined in testing the importance of these variables in the money demand function special attention is paid to testing the assumptions of the classical linear regression model the sample period for each country spans from 1973 1 through 1990 1 the empirical results suggest that the error correction specification performs very well in addition to the traditional variables the results suggest that at least some measure of foreign monetary developments appear to have some significant effect on money demand behaviour in these small developing economies

local government structure and urban residential location the large research literature on the tiebout model has developed with little attention paid to the urban economic structure in which local government functions this paper attempts to examine the theoretical consequences of local jurisdictions functioning within a conventional monocentric urban model it also discusses a mathematical formulation of a two jurisdiction linear city in which the local service level and local property tax rate might be used as strategic variables in a game theory sense it is concluded that for this to happen the local service level has to have more than one element which is intuitively appealing some references are developed to current british local government and possible changes

disequilibrium buffer stock models a survey abstract this paper surveys the growing literature on buffer stock models of the monetary transmission process the first part indicates the basic issue of how assumed exogenous changes in the money supply work their way through the economic system via disequilibrium in the money market after a brief historical development buffer stock models are divided into four types depending upon whether the disequilibrium arises in stocks and or flows and to whether changes in the money stock are purely exogenous the empirical implications including how buffer stock models explain the recent behaviour of money demand functions are given theoretical and empirical criticisms of the models are presented in terms of the classification system the survey concludes that whilst the buffer stock notion is an interesting idea the current models do not lend themselves to empirical testing and those models which do have performed poorly

rational expectations and price behavior abstract this paper evaluates the role of rational expectations in price setting behavior in india india has a large informal sector where prices are generally flexible since most economic transactions do not take place under formal and fixed contracts empirical tests suggest that prices respond fully to anticipated changes in demand while unanticipated changes affect output furthermore the price equation was found to be consistent with the money demand and output equation in the past the monetary authority in india have not systematically responded to negative output shocks such as those arising from droughts or famines by introducing unanticipated reductions in money growth this policy has been helpful in minimizing output losses and thereby stabilizing prices

homogeneity tests of tiebout sorting a case study at the interface of city and suburb the tiebout hypothesis has stimulated 50 years of research into the relationship between residential location and local taxes and services one line of research has focused on socioeconomic homogeneity as an indicator of tiebout sorting i argue that spatial dependence of socioeconomic variables confounds attempts to attribute sorting to tiebout processes socioeconomic sorting is investigated in queens and nassau counties ny one a jurisdictionally unified central city the other a jurisdictionally fragmented suburban county socioeconomic differences between neighbouring census tracts are quantified throughout the study area and regressed on variables representing general purpose local governments and school districts there is strong evidence of income sorting across small suburban municipalities while the evidence of income sorting across school districts is ambiguous i conclude that income sorting may not be as important at the school district level as generally believed and previous research may have misattributed the political scale of household choice

regional differences in personal savings regional data on consumers expenditure and disposable income are analysed using a conventional error correction specification in an attempt to explain regional disparities in the average propensity to save pooling time series and cross section data the model is quite successful though some degree of remaining ignorance is reflected in a few significant regional dummy variables arising out of the covariance model among the important determinants of saving and consumption are regional unemployment and housing wealth the latter gives limited support to the proposition that burgeoning house prices in the south east may be fuelling a consumption and import boom

efficiency equilibrium and exclusion when the poor chase the rich using a simple adverse selection model we characterize equilibrium when the rich chase the poor if communities are established by competitive entrepreneurs the equilibrium exists is unique and is efficient it involves either complete separation or complete pooling different income groups may rank these qualitative outcomes differently we show how restrictions imposed by a central government may alter the nature of equilibrium such restrictions may be explained as the choice of a low income majority altering the equilibrium to the pooling outcome which they prefer

a decision support tool for the analysis of pricing investment and regulatory processes in a decentralized electricity market abstract after the liberalization of the electricity generation industry capacity expansion decisions are made by multiple self oriented power companies unlike the centralized environment decision making of market participants is now guided by price signal feedbacks and by an imperfect foresight of the future market conditions and competitor actions that they will face in such an environment decision makers need to better understand long term dynamics of the supply and demand sides of the power market in this study a system dynamics model is developed to better understand and analyze the decentralized and competitive electricity market dynamics in the long run the developed simulation model oversees a 20 year planning horizon it includes a demand module a capacity expansion module a power generation module an accounting and finance module various competitors a regulatory body and a bidding mechanism many features singularities and tools of decentralized markets such as capacity withholding enforced divestment long term contracts price elastic demands incentives disincentives are also incorporated into the model public regulators and power companies are potential users of the model for learning and decision support in policy design and strategic planning results of scenario analysis are presented to illustrate potential use of the model

modelling relative price variability and aggregate inflation in the united kingdom the relationship between relative price variability and aggregate inflation in the uk is used to illustrate a number of issues in econometric modelling methodology the rigorous evaluation of models especially testing for congruence and encompassing is emphasized the valuable role of recursive estimation methods in assessing model adequacy is demonstrated attention is drawn to the potential limitations of single equation and univariate analysis of time series data and a recently proposed modelling strategy for analyzing nonstationary variables with cointegrating relationships based on sequential reductions of a congruent var is applied to a small system involving inflation and relative price variability

cointegration and dynamic time series models abstract this paper provides a survey of some of the recent developments in the field of econometric modelling with cointegrated time series in particular we describe the testing and estimation procedures which have become increasingly popular in the recent applied literature in addition to the two stage procedure proposed by engle and granger we consider extensions to the modelling of dynamic models with cointegrated variables such as the estimation of models with multiple cointegration vectors simultaneous systems models with seasonally integrated and cointegrated variables furthermore we illustrate the practical application of the techniques describes in the paper by means of a tutorial data set

the uk economy analysis and prospects world trade and output expanded rapidly in 1984 led by a high rate of growth in the united states however the recovery which started in 1983 has not been evenly spread across countries in the us fiscal policies have been lax and domestic demand has expanded at a breakneck pace japan benefited significantly from rapid growth in the us but europe has done less well partly because fiscal policies remain very tight and domestic demand restrained high real interest rates and the strength of the dollar held down commodity prices and thus stopped the pick up in activity feeding through into inflation rates however unemployment has continued to rise in most countries and in total 30 million people are now out of work in the oecd area

explaining differences in productive efficiency an application to belgian municipalities the purpose of this paper is to measure and explain variations in productive efficiency of municipal governments in belgium technical efficiency is evaluated using a non parametric method based on the free disposal hull fdh reference technology we first calculate input output and graph farrell efficiency measures for a cross section of all 589 belgian municipalities in a second stage of the analysis we explain the calculated differences in efficiency in terms of variables related to the structural characteristics of municipalities and to the institutional environment

equivalence of the core and competitive equilibrium in a tiebout economy with crowding types abstract we propose a new model of a local public goods economy with differentiated crowding the new feature is that taste and crowding characteristics of agents are distinguished from one another we prove that if the economy satisfies strict small group effectiveness then the core is equivalent to the set of tiebout equilibrium outcomes equilibrium prices are defined to depend solely on crowding characteristics this implies that only publicly observable information and not private information such as preferences is needed to induce agents to sort themselves into efficient jurisdictions thus our model allows us to satisfy bewley s 6 anonymity requirement on taxes in his well known criticism of the tiebout hypothesis

the empirical analysis of fiscal illusion this paper examines the empirical analysis of the five main hypotheses subsumed under the generic term fiscal illusion after placing these hypotheses within a common theoretical framework the paper attempts to evaluate empirical research into the revenue complexity hypothesis the revenue elasticity hypothesis the flypaper effect renter illusion and debt illusion

trade in a tiebout economy the purpose of this paper is to explore both the positive and normative aspects of commodity trade in a tiebout economy by tiebout economy i mean an economy with a large number of small regions for example communities or states and no impediments to the mobility of individuals between these regions this type of economy has received widespread attention since the appearance of charles tiebout s classic 1956 article on local public goods in part because it bears a close relation to the standard competitive model this relation suggests that tiebout economies may serve as an

identification and estimation of money demand in most natural sciences physics chemistry biology theories are validated by controlled experiment however in other natural sciences astronomy meteorology and in most social sciences including economics the data are characteristically generated not by experiment but by measurement of uncontrolled systems in economics theories take the form of restrictions on the models assumed to generate the data and statistical methods replace experimental controls in testing these restrictions and here is the difficulty in economics particularly macroeconomics the theory used to derive tests ordinarily does not generate a complete specification of which variables are to be held constant when statistical tests are performed on the relation between the dependent variable and the independent variables of primary interest accordingly in such cases there will be a set of often very different candidate regression based tests each of which has equal status with the others since each is based on a different projection of the same underlying multivariate model except in the unlikely event that the explanatory variables are mutually orthogonal the conditional regression coefficients which generally form the basis for the test statistic will depend on the conditioning set we conclude from this that if a theory which does not generate a complete specification of the regression test is nonetheless to have testable implications these implications must be robust over the permissible alternative specifications if the restrictions indicated by the theory are satisfied in some projections but not in others that have an equal claim to represent implications of the theory one cannot conclude that the theory has been confirmed the fact that the observable implications of valid theories must obtain over a broad but usually incompletely specified set of regressions rather than for a single regression introduces a large and unavoidable element of imprecision into hypothesis testing in macroeconomics generally it appears to be appropriate to weaken the statistical criterion for rejecting theories consider for example the theory of money demand which will engage our attention in this paper the tobin baumol square root formula implies that the elasticity of money demand with respect to the interest rate is exactly one half but which interest rate should wealth be held constant inflation in view of such uncertainties it would be inappropriate to insist in a literal minded fashion on rejecting the tobin baumol model if in some regression the measured interest elasticity differed from one half by more than two standard deviations and only then obviously a more flexible approach is called for the practice has been to conclude that the statistical evidence is consistent with the tobin baumol model as long as the interest rate coefficient is negative if it is negative and significant or negative and insignificantly different from minus one half that would provide somewhat stronger confirmation but a positive coefficient particularly a significantly positive coefficient would be viewed as raising questions about the validity of the theory in macroeconomics generally as in the money demand application the typical response to specification uncertainty has been to regard a theory as supported if the signs of the estimated coefficients agree with those expected from theory and as disconfirmed otherwise there is no theoretical justification for this procedure but it seems to be a reasonable course to follow the point that economic theory ordinarily generates incompletely specified statistical university of california santa barbara we have received helpful comments from andrew abel robert clower michael darby robert engle stephen goldfeld david laidler edward leamer robert lucas frederic mishkin and edward prescott thomas hall provided able research assistance

a political economic analysis of labor migration and income redistribution we present a two country political economic model of income redistribution with internationally mobile labor migration can be exogenous and or endogenous i e determined by labor income differentials political influence is determined by the size and homogeneity of the groups where the latter can be affected by immigration we show that immigration can increase the transfers to and the income of the mobile group we also investigate the possibility of migration regulation tax transfer policy competition and coordination and finally coordination of regulation policies it is shown that the selection of any of those regimes will depend on the particular distribution of political influence among the relevant social groups in the two countries

a specification test for choosing the right public good price this article compares statistically three popular public good price definitions the bias of parameter estimates under the wrong definition is derived and calculated one definition is found to be clearly inferior whereas bias estimates indicate little difference between the two remaining definitions public good demand elasticities and their variances are calculated to demonstrate the importance of choosing the right price definition