distinguishing between equilibrium and integration in spatial price analysis this article introduces a new spatial price analysis methodology based on maximum likelihood estimation of a mixture distribution model incorporating price transfer cost and trade flow data this method permits differentiation between market integration and competitive market equilibrium and derivation of intuitive measures of intermarket tradability competitive market equilibrium perfect integration segmented equilibrium and segmented disequilibrium one can also use these estimates to derive semiparametric measures of time varying regime probabilities to track changing market conditions an application to trade in soybean meal among pacific rim economies demonstrates the usefulness of the method copyright 2002 oxford university press

are consumption taxes really better than income taxes abstract we use political equilibrium theory and the neoclassical growth model to compare consumption and income tax systems if government outlays are used for redistribution through transfers then steady state equilibria in societies that use income taxes are not necessarily worse in welfare terms and may even be better income taxes are attractive precisely because they are more distortionary since this implies low equilibrium transfer levels we also find that switching tax systems typically does not benefit the median voter moreover a change from income to consumption taxes may make everybody worse off

dynamic political choice in macroeconomics we analyze positive theories of redistribution social insurance and public good provision in a dynamic macroeconomic framework political outcomes are determined via repeated voting and driven by a conflict of interests between agents voters and politicians rationally forecast the impact of current political choices on future political and economic outcomes the theory is consistent with large differences in the size of governments across societies these need not rely on intrinsic differences in preferences or technology but may be driven by self fulfilling

a positive theory of social security based on reputation we construct a general equilibrium model in which a pay as you go social security system can be adopted and sustained as a political and economic equilibrium we alalyze the welfare implictions of this system and compare general equilibrium welfare measure to the commonly used notion of actuarial fairness

a median voter model of social security this paper presents a theoretical median voter analysis of the determination of the level of social security the framework for the analysis is a continuous time overlapping generations model with nonaltruistic households facing borrowing constraints in the capital market a majority voting equilibrium is shown to exist in which the median voter is liquidity constrained the desired level of social security for each voter is a declining function of the preexisting level of social security as a consequence in a sequence of votes on social security beginning with a zero level the program initially overshoots its steady state value copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

raising children to work hard altruism work norms and social insurance children who can count on support from altruistic parents may not try hard to succeed in the labor market moreover parental altruism makes withdrawal of such support non credible to promote work

semiparametric garch via bayesian model averaging abstractas the dynamic structure of financial markets is subject to dramatic change a model capable of providing consistently accurate volatility estimates should not make rigid assumptions on how

intergenerational redistribution with short lived governments we study the politics of intergenerational redistribution in an overlapping generations model with short lived governments the successive governments who care about the welfare of the currently living generations and possibly about campaign contributions are unable to pre commit the future course of redistributive taxation in a stationary politico economic equilibrium the intergenerational transfer in each period depends on the current value of the state variable and all expectations about future political outcomes are fulfilled we find that there exist multiple stationary equilibria in many political settings steady state welfare is often lower than it would be in the absence of redistributive politics

the statistical properties of daily foreign exchange rates 1974 1983 abstract this paper examines the statistical properties of daily rates of change of five foreign currencies from 1974 to 1983 the main purpose is to discriminate between two competing explanations for the observed heavy tails of the distribution that the data are independently drawn from a heavy tail distribution which remains fixed over time and that the data come from distributions which vary over time evidence point to the rejection of the first hypothesis further investigations show that the rejection can be attributed to changing means and variances in the data which can be described by a simple statistical model

markov perfect equilibria in altruistic growth economies with production uncertainty this paper concerns the existence of markov perfect equilibria in altruistic growth economies previous work on deterministic models has established existence only under extremely restrictive conditions we show that the introduction of production uncertainly yields an existence theorem for aggregative infinite horizon models with very general forms of altruism journal of economic literature classification numbers

duration of firms in an infant industry the case of indian computer hardware abstract this study analyses survival of firms in an infant industry in a developing economy it is found that a entry size and the probability of exit are positively related which is the opposite of the result in most previous studies b similar to previous studies post entry size is negatively related to the hazard c firms with longer duration have a more volatile time path of size d the hazard declines with age at an increasing rate suggesting increasing returns to learning and e diversification of firms and public ownership have little effect on duration

optimal capital structure and bankruptcy choice dynamic bargaining versus liquidation abstract we model a firm s optimal capital structure decision in a framework in which it may later choose to enter either chapter 11 reorganization or chapter 7 liquidation creditors anticipate equityholders ex post reorganization incentives and price them into the ex ante credit spreads using a realistic dynamic bargaining model of reorganization we show that the off equilibrium threat of costly renegotiation can lead to lower leverage even with liquidation in equilibrium if reorganization is less efficient than liquidation the added option of reorganization can actually make equityholders worse off ex ante even when they liquidate on the equilibrium path

the statistical distribution of exchange rates empirical evidence and economic implications the abundant evidence that changes in exchange rates have distributions with fatter tails than the normal distribution has led researchers to consider non normal distributions including the student the stable paretian and mixtures of distributions this paper compares the empirical fits of three non normal candidates and the normal distribution for daily changes in the logarithms of exchange rates using maximum likelihood estimation of the parameters and chi square goodness of fit tests the student and mixture of two normals provide the best fits but there is evidence that the distribution parameters may vary over time

inherited trust and growth this paper develops a new method to uncover the causal effect of trust on economic growth by focusing on the inherited component of trust and its time variation we show that inherited trust of descendants of us immigrants is sig nificantly influenced by the country of origin and the timing of arrival of their forebears we thus use the inherited trust of descendants of us immigrants as a time varying measure of inherited trust in their country of origin this strategy allows to identify the sizeable causal impact of inherited trust on worldwide growth during the twentieth century by controlling for country fixed effects jel n11 n12 n31 n32 o47 z13

a note on the use of industry relative ratios in bankruptcy prediction abstract the potential for industry relative financial ratios to improve the prediction of firms in financial distress motivated this comparison of model specifications based on either unadjusted or industry relative ratios both specifications yielded stable parameter estimates over the time periods examined however the industry relative specification appeared to add incremental information not contained in the model based on the unadjusted financial ratios the converse case did not hold in addition with the industry relative specification ex post forecast accuracy was slightly improved relative to the ex ante forecast while with the unadjusted model specification ex post forecast accuracy declined from that obtained ex ante

occupational choice and the spirit of capitalism the british industrial revolution triggered a socioeconomic transformation whereby the landowning aristocracy was replaced by industrial capitalists rising from the middle classes as the economically dominant group we propose a theory of preference formation under financial market imperfections that can account for this pattern parents shape their children s preferences in response to economic incentives middle class families in occupations requiring effort skill and experience develop patience and a work ethic whereas upper class families relying on rental income cultivate a refined taste for leisure these class specific attitudes which are rooted in the nature of preindustrial professions become key determinants of success once industrialization transforms the economic landscape i introduction the industrial revolution was more than capital accumulation and growth it also set off a social and political transformation that redefined hierarchies in society and reshaped the distribution of income and wealth before the onset of industrialization in eighteenth century britain wealth and political power were associated with the possession of land over the course of the nineteenth century a new class of entrepreneurs and businessmen emerged as the economic elite for the most part the members of this class rose from humble beginnings and had their social origins in the urban middle classes the landed elite was left behind and eventually lost its political and economic predominance many observers of the time linked this reversal in economic fortunes to differences in values attitudes and ultimately preferences across social classes there are countless examples both in scholarly and in fictional writing of portrayals of members of the landowning class as averse to work unwilling to save ill disposed tocommercialactivity andunabletoconsidermoneyassomething

hedge funds risk and return from a database that is relatively free of bias this article provides measures of the returns of hedge funds and of the distinctly nonnormal characteristics of the data the results include risk adjusted measures of performance and tests of the degree to which hedge funds live up to their claim of market neutrality the substantial attrition of hedge funds is examined the determinants of hedge fund demise are analyzed and results of tests of return persistence are presented the conclusion is that hedge funds are riskier and provide lower returns than is commonly supposed

technology policy interaction in frictional labour markets does capital embodied technological change play an important role in shaping labour market outcomes to address this question we develop a model with vintage capital and search matching frictions where irreversible investment in new vintages of capital creates heterogeneity in productivity among firms matched as well as vacant we demonstrate that capital embodied technological change reduces labour demand and raises equilibrium unemployment and unemployment durations in addition the presence of labour market regulations unemployment benefits payroll taxes and firing costs exacerbates these effects thus the model is qualitatively consistent with some key features of the european labour market experience relative to that of the u s it features a sharper rise in unemployment and a sharper fall in the vacancy rate and the labour share a calibrated version of our model suggests that this technology policy interaction could explain a sizeable fraction of the observed differences between the u s and europe copyright 2007 wiley blackwell

politico economic equilibrium and economic growth abstract we propose a notion of dynamic politico economic equilibrium which builds on two key assumptions policies are determined sequentially and agents are fully rational in their roles as both consumers and voters we examine a simple model of endogenous growth and infinitely lived agents where taxes on income are endogenous and where growth critically depends on the initial distribution of asset holdings we relate our equilibrium definition and results to existing literature on time consistency and on political economy and growth we show that our equilibria are time consistent and we argue that the choice of equilibrium concept might have important quantitative implications

social mobility and redistributive politics just like economists voters have conflicting views about redistributive taxation because they estimate its incentive costs differently we model rational agents as trying to learn from their dynastic income mobility experience the relative importance of effort and predetermined factors in the generation of income inequality and therefore the magnitude of these incentive costs in the long run left wing dynasties believing less in individual effort and voting for more redistribution coexist with right wing dynasties this allows us to explain why individual mobility experience and not only current income matters for political attiitudes and how persistent differences in perceptions about social mobility can generate persistent differences in redistribution across countries

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

pareto optimality of policy proposals with probabilistic voting this paper studies the pareto optimality properties of policy proposals and electoral outcomes when there is probabilistic voting theorem 1 proves that when the position of one candidate is taken as fixed the other candidate will propose a pareto optimal alternative this implies that whenever there is an electoral equilibrium in pure strategies the electoral outcome is pareto optimal it also implies that even if there is no such equilibrium the electoral outcomes from a sequence of elections will be pareto optimal except possibly for an initial status quo

supply side hysteresis the case of the canadian unemployment insurance system abstract this paper presents results from a 1971 natural experiment carried out by the canadian government on the unemployment insurance system at that time the generosity of the ui system was increased dramatically we find some evidence that the propensity to collect ui increases with a first time exposure to the new ui system hence as more individuals experience unemployment their lifetime use of the system increases this supply side hysteresis effect may explain why unemployment has steadily increased over the 1972 1992 period even though the generosity of unemployment insurance did not

unemployment vs mismatch of talents reconsidering unemployment benefits we develop an equilibrium search matching model with risk neutral agents and two sided ex ante heterogeneity unemployment insurance has the standard effect of reducing employment but also helps workers to get a suitable job we show through calibrations how the mere difference on unemployment insurance when countries experience a common skilled biased technological shock may result in differences in unemployment productivity growth and wage inequality these results are consistent with the contrasting performance of the labour market in europe and the united states in the last twenty five years the model is used to address some political economy issues

belief in a just world and redistributive politics international surveys reveal wide differences between the views held in different countries concerning the causes of wealth or poverty and the extent to which people are responsible for their own fate at the same time social ethnographies and experiments by psychologists demonstrate individuals recurrent struggle with cognitive dissonance as they seek to maintain and pass on to their children a view of the world where effort ultimately pays off and everyone gets their just deserts this paper offers a model that helps explain i why most people feel such a need to believe in a just world ii why this need and therefore the prevalence of the belief varies considerably across countries iii the implications of this phenomenon for international differences in political ideology levels of redistribution labor supply aggregate income and popular perceptions of the poor the model shows in particular how complementarities arise endogenously between individuals desired beliefs or ideological choices resulting in two equilibria a first american equilibrium is characterized by a high prevalence of just world beliefs among the population and relatively laissez faire policies the other european equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state more generally the paper develops a theory of collective beliefs and motivated cognitions including those concerning money consumption and happiness as well as religion

human capital technical change and the welfare state i study the interactions between the distribution of human capital technological choice and redistributive institutions i first ask what makes alternative social contracts such as a european style welfare state and u s style laissez faire sustainable and in particular how each is affected by skill biased technical change i then endogenize technological or organizational choice and show that firms respond to greater human capital heterogeneity with more flexible technologies that further exacerbate wage equality i then analyze the simultaneous determination of technology income distribution and redistributive institutions and as well as spillovers between the social contracts of different countries jel d31 o33 j3 h10

a flexible parametric garch model with an application to exchange rates many asset prices including exchange rates exhibit periods of stability punctuated by infrequent substantial often one sided adjustments statistically this generates empirical distributions of exchange rate changes that exhibit high peaks long tails and skewness this paper introduces a garch model with a flexible parametric error distribution based on the exponential generalized beta egb family of distributions applied to daily us dollar exchange rate data for six major currencies evidence based on a comparison of actual and predicted higher order moments and goodness of fit tests favours the garch egb2 model over more conventional garch t and egarch t model alternatives particularly for exchange rate data characterized by skewness copyright 2001 john wiley sons ltd

job protection the macho hypothesis this paper shows that the stringency of employment protection in mediterranean countries can be partly explained by cultural values embedded in religion both the security provided by this legislation and its redistributive effects in favour of the male breadwinner insiders fit into the framework of mediterranean religions first international individual surveys allow us to document that catholics and muslims are more likely to agree with traditional gender division of work than protestants and the non religious second we develop a political economy model predicting that employment protection should be more stringent in countries where there is a larger share of insiders supportive of traditional family values we then show that this prediction is supported by empirical evidence on oecd countries over the period 1970 99 copyright 2006 oxford university press

the intergenerational transmission of risk and trust attitudes recent theories endogenize the attitude endowments of individuals assuming that they are shaped by the attitudes of parents and other role models this paper tests empirically for the relevance of three aspects of the attitude transmission process highlighted in this theoretical literature 1 transmission of attitudes from parents to children 2 an impact of prevailing attitudes in the local environment on child attitudes and 3 positive assortative mating of parents which enhances the ability of a parent to pass on his or her attitudes to the child we focus on two fundamentally important attitudes willingness to take risks and willingness to trust others we find empirical support for all three aspects providing an empirical underpinning for the literature an investigation of underlying mechanisms shows that socialization is important in the transmission process various parental characteristics and aspects of family structure are found to strengthen the socialization process with implications for modeling the socialization production function and for policies focused on affecting children s non cognitive skills the paper also provides evidence that the transmission of risk and trust attitudes affects a wide variety of child outcomes implying a potentially large total effect on children s economic situation

an estimation of the hazard rate of firms under chapter 11 protection the instantaneous probability hazard rate of a firm s exit from chapter 11 protection is examined using the weibull duration model the effect of various regressors and the effect of the time a firm spends under chapter 11 protection on this instantaneous probability is analyzed i show that the hazard increases significantly under chapter 11 among the variables chosen the interest burden of the firm and the capacity utilization of the firm s industry significantly increase the hazard other firm specific variables like the long term debt to assets ratio and the number of shares outstanding and economy wide variables like the prime interest rate and the gross national product growth rate have no significant effect on the hazard copyright 1994 by mit press

unemployment responses to skill biased technology shocks the role of labour market policy do skill biased shocks that increase the spread of labour productivities interacting with different policy regimes explain the rise in unemployment in europe relative to the united states in the 1980s and 1990s the hypothesis is an implication of a version of the mortensen and pissarides 1994 model of equilibrium unemployment which allows for worker heterogeneity a calibrated version of the model implies that a similar unemployment increase would have occurred in the united states over this period given changes in relative productivity by education implied by observed wage changes had unemployment compensation and employment protection policies been at european levels

regulation and distrust in a cross section of countries government regulation is strongly negatively correlated with social capital we document this correlation and present a model explaining it in the model distrust creates public demand for regulation while regulation in turn discourages social capital accumulation leading to multiple equilibria a key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt we test this and other implications of the model using country and individual level data on social capital and beliefs about government s role as well as on changes in beliefs and in trust during the transition from socialism

a conditional variance model for daily deviations of an exchange rate a model for the distribution of daily deviations of an exchange rate is suggested the distribution is gaussian with a variance that depends on previous deviations the model is applied to the exchange rate of the u s dollar to special drawing rights

length of time spent in chapter 11 bankruptcy a censored partial regression model this paper investigates original issuers of high yield bonds in chapter 11 bankruptcy to determine which factors affect the length of time spent in chapter 11 in order to do this analysis a flexible new duration model is proposed the censored partial regression model this model allows consideration of the effect of some variables on the duration using a nonparametric functional form it is found that the choice of prepackaged chapter 11 the length of time negotiating before filling for chapter 11 the profitability the highly leveraged transactions the participation on different disputes the role of vulture funds and some institutional changes turn out to be relevant to analyse this duration

fiscal increasing returns hysteresis real wages and unemployment european unemployment is widely regarded as a problem of excessive real wages this view as it is usually expressed carries the disturbing implication that there is a sharp conflict between the interests of those currently employed and the unemployed because it suggests that increases in employment will require reductions in the real wages of those currently employed the first part of this paper shows that increases in employment in europe are likely to be associated with rising real take home pay for workers because of fiscal increasing returns increases in employment and output will make possible reductions in taxes sufficiently large to offset any effects of diminishing returns to labor the second part of the paper considers alternative explanations for the failure of nominal wages to adjust so as to restore full employment and their implications for the efficacy of fiscal policies it concludes that under a variety of plausible conditions tax cuts would succeed in stimulating employment this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

differences between foreign exchange rate regimes the view from the tails abstract in the literature on the empirical unconditional distribution of foreign exchange rate returns there is indication that the type of distribution function is related to the form of exchange rate regime the analysis has been hampered by the nonnestedness of alternative distribution models the paper investigates the issue by means of extremal analysis which allows for a unified treatment in particular we try to sort out whether apparent distributional differences are due to differences in techniques or in regimes jel f31 f33

macroeconomic effects and frailties in the resolution of non performing loans resolution of non performing loans is a key determinant of bank credit default losses this paper analyzes macroeconomic and systematic frailty effects of the default resolution time for a sample of 17 395 defaulted bank loans in usa great britain and canada we find that frailties have a huge impact on the resolution times in a representative sample portfolio median resolution times more than double in a recession when compared to an expansion this leads to highly skewed distributions of losses and considerable systematic risk of the bank portfolio

the macroeconomics of child labor regulation we develop a positive theory of the adoption of child labor laws workers who compete with children in the labor market support a child labor ban unless their own working children provide a large fraction of family income fertility decisions lock agents into specific political preferences and multiple steady states can arise the introduction of child labor laws can be triggered by skill biased technological change which induces parents to choose smaller families the theory can account for the observation that in britain regulations were first introduced after a period of rising wage inequality and coincided with rapid fertility decline

the survival of the welfare state this paper provides an analytical characterization of markov perfect equilibria in a model with repeated voting where agents vote over distortionary income redistribution a key result is that the future constituency for redistributive policies depends positively on current redistribution since this affects both private investments and the future distribution of voters the model features multiple equilibria in some equilibria positive redistribution persists forever in other equilibria even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period skill biased technical change makes the survival of the welfare state less likely

the existence of perfect equilibria in a model of growth with altruism between generations an intertemporal model of consumption and bequest behaviour is specified and analysed as a game between generations the main feature of this game is that no a priori restrictions like linearity are placed on the strategy choice of generations the paper gives an existence proof for perfect nash equilibria in finite and infinite horizon versions of the model and determines characteristic properties of equilibrium strategies the main result is to demonstrate existence of stationary perfect equilibrium if the time horizon is infinite

to segregate or to integrate education politics and democracy how is the quality of public education affected by the presence of private schools for the rich theory and evidence suggest that the link depends crucially on the political system we develop a theory that integrates private education and fertility decisions with voting on public schooling expenditures we find that the presence of a large private education sector benefits public schools in a broad based democracy where politicians are responsive to low income families but crowds out public education spending in a society that is politically dominated by the rich the main predictions of the theory are consistent with state level data and micro data from the u s as well as cross country evidence from the programme for international student assessment study

unemployment and hours of work the north atlantic divide revisited i examine the dynamic evolutions of unemployment hours of work and the service share since the war in the united states and europe the theoretical model brings together all three and emphasizes technological growth computations show that the very low unemployment in europe in the 1960s was due to the high productivity growth associated with technological catch up productivity also played a role in the dynamics of hours but a full explanation for the fast rise of service employment and the big fall in aggregate hours needs further research taxation has played a role but results are mixed

modeling heteroscedasticity in daily foreign exchange rates this article estimates autoregressive conditionally heteroscedastic arch and generalized arch garch models for five foreign currencies using 10 years of daily data a variety of arch and garch specifications a number of nonnormal error densities and a comprehensive set of diagnostic checks it finds that arch and garch models can usually remove all heteroscedasticity in price changes in all five currencies goodness of fit diagnostics indicate that exponential garch with certain nonnormal distributions fits the canadian dollar extremely well and the swiss franc and the deutsche mark reasonably well only one nonnormal distribution fits the japanese yen reasonably well none fit the british pound

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

economic reform and dynamic political constraints in this paper we examine the impact of political constraints on economic reform plans with special reference to the transition from centrally planned to market economies we analyse the problem of an agenda setting reform minded government facing a bureaucracy or industrial sector for which allocative efficiency requires redundancies and an increase in work intensity the government also tries to minimize the rents conceded to its heterogeneous workforce we examine two types of political constraints unanimity rule and majority rule both in a one period and a two period horizon the main results are the following first of all we show how adverse selection and time consistency may generate the widely observed feature of gradualism as an ingredient of an optimal reform second under a majority rule it is shown to be possible for the government to obtain a majority vote for a reform scheme that intertemporally hurts majority interests indeed the government can improve rent extraction through the strategic use of the threat of future proposals the group which expects to be in the minority tomorrow may accept concessions while its votes can be used to extract rents from another group these results suggest that in a dynamic context democratic constraints should not be overestimated as an obstacle against efficiency enhancing economic reforms the results of this paper may throw some light on the political economy of current reforms in eastern europe governments and political decision makers in general always face political constraints when elaborating reform proposals they know that the need to overcome potential opposition from various groups of the population constrains proposals for change political constraints vary depending on the specific institutional structure of society and are clearly different under a military dictatorship than under a parliamentary democracy the role of political constraints seems particularly important in eastern europe today where new democratic governments face the huge task of achieving the transition to a market economy while the introduction of democracy may have removed some important obstacles to economic change namely the veto power of a powerful nomenclatura under communist one party rule fears are expressed that it could potentially jeopardize economic reforms which may during the transition period hurt a majority of the population what can economic theory tell us about optimal economic reform under political constraints this paper starts addressing this ambitious question by looking at structural reform focusing on a restructuring of economic sectors which requires massive redundancies and a significant rise in labour productivity our model illustrates the case of planning

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

the impact of tfp growth on steady state unemployment theoretical predictions of the impact of total factor productivity tfp growth on unemployment are ambiguous and depend on the extent to which new technology is embodied in new jobs we evaluate a model with embodied and disembodied technology capitalization and creative destruction effects in econometric estimates with a panel of industrial countries we find a large negative impact of tfp growth on unemployment which implies that embodied technology and creative destruction play no role in the steady state dynamics of unemployment capitalization effects explain some of the estimated impact but a part remains unexplained

cultural constraints on innovation based growth to what extent does the cultural composition of a society impose a constraint on its long run growth potential we study this question in the context of an innovation based model of growth where cultural attitudes are endogenously transmitted from one generation to the next focusing on attitudes regarding patience we analyze the two way interaction between economic growth and the intergenerational transmission of patience exploiting this interaction we compare the long run growth performance of a culturally heterogeneous society where patience is initially underrepresented in the population with a culturally homogeneous society where all agents are perfectly patient our main result is that in the absence of any intrinsic preferences of patient parents to transmit their attitudes to their children the development paths of the two societies are bound to diverge with the culturally heterogeneous society experiencing lower growth rates yet if patient parents ceteris paribus prefer their children to be patient like them we show that the two societies can in the long run grow at the same rate jel d91 e24 o30 o40 z10

aggregation of price risk over commodities an economic index number approach this article extends the economic theory of index numbers to the aggregation of price risk over commodities in production superlative indexes of aggregate price risk are related to tornqvist and fisher type output quantity indexes an application to major crops in manitoba illustrates the empirical importance of the analysis

the dynamics of government abstract we model income redistribution with dynamic distortions as determined by rational voting without commitment among individuals of different types and income realizations we find that redistribution is too persistent relative to that chosen by a planner with commitment the difference is larger the lower is the political influence of young agents the lower is the altruistic concern for future generations and the lower is risk aversion furthermore there tends to be too much redistribution in the political equilibrium finally smooth preference aggregation as under probabilistic voting produces less persistence and does not admit multiple equilibria which occur under majority voting aggregation

two questions about european unemployment a general equilibrium search model makes layoff costs affect the aggregate unemployment rate in ways that depend on equilibrium proportions of frictional and structural unemployment that in turn depend on the generosity of government unemployment benefits and skill losses among newly displaced workers the model explains how before the 1970s lower flows into unemployment gave europe lower unemployment rates than the united states and also how after 1980 higher durations have kept unemployment rates in europe persistently higher than in the united states these outcomes arise from the way europe s higher firing costs and more generous unemployment compensation make its unemployment rate respond to bigger skill losses among newly displaced workers those bigger skill losses also explain why u s workers have experienced more earnings volatility since 1980 and why especially among older workers hazard rates of gaining employment in europe now fall sharply with increases in the duration of unemployment

vested interests in a positive theory of stagnation and growth we study a positive theory of stagnation and growth aimed at understanding the large variations in growth outcomes across actual economies the theory points to the fundamental role played by vested interests in determining policies which are key to the growth process some agents seek to prevent the adoption of new technologies we develop a model of technology adoption and show how technological innovation may sow the seeds of its own destruction in particular we find that the equilibrium is characterized by a long cycle of stagnation and growth over this cycle incumbents are phased out of the economy will new innovation occur in formalizing our theory we make a methodological contribution by characterizing dynamic voting equilibria when voters must forecast the effects of different current policies on future prices and policy outcomes

factor shares and savings in endogenous growth in models of steady investment driven growth an individual s propensity to save depends on how much of his income is drawn from accumulated factors of production capital rather than from nonaccumulated factors when agents are heterogeneous in this respect growth oriented policies have distributional consequences and in the absence of lump sum redistribution their implementation faces political constraints if the median voter is capital poor relative to the economy s representative agent political interactions tend to slow down growth when policy acts on capital s income share and tend to accelerate it when investment subsidies are the policy instrument of choice copyright 1993 by american economic association

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

unemployment insurance and cultural transmission theory and application to european unemployment this paper emphasizes the two way causality between the provision of unemployment insurance and the cultural transmission of work ethic values affect the size of the moral hazard problem and hence the policy to be implemented conversely when parents rationally choose how much effort to exert to raise their children to work hard they form expectations on the policy that will be implemented by the next generation in this context we show that the different cultural traits are complementary and that there is some cultural heterogeneity in all steady state equilibria the model could generate a lag between the introduction of unemployment insurance and a deterioration of the work ethic relying on a calibration we argue that it can account for a substantial fraction of the history of european unemployment since world war ii as our explanation is compatible with the co existence of generous unemployment insurance and low unemployment in the 1950s and 1960s it could be seen as an alternative to the dominant story that relies on the occurrence of large shocks since the 1970s supportive empirical evidence is provided

presidential address institutions and culture how and why does distant political and economic history shape the functioning of current institutions this paper argues that individual values and convictions about the scope of application of norms of good conduct provide the missing link evidence from a variety of sources points to two main findings first individual values consistent with generalized as opposed to limited morality are widespread in societies that were ruled by non despotic political institutions in the distant past second well functioning institutions are often observed in countries or regions where individual values are consistent with generalized morality and under different identifying assumptions this suggests a causal effect from values to institutional outcomes the paper ends with a discussion of the implications for future research jel a10 d7 e00

electoral competition with informed and uninformed voters i present a model of electoral competition in which candidates raise campaign contributions by choosing policies that benefit interest groups and then expend those contributions to influence voters who are uninformed about the policies informed voters however vote based on those policies so candidates face a trade off between choosing a policy to generate funds to attract the uninformed vote and choosing a policy to attract the informed vote electoral equilibria are characterized for two categories of policies particularistic and collective in the case of particularistic policies the equilibrium policies of the candidates are separated if the proportion of uninformed voters is sufficiently high and the degree of separation is an increasing function of that proportion the model is extended to include the public financing of elections and incumbency advantages for the case of collective policies the candidates locate at the median of the ideal points of the informed voters and contributions are zero

dormancy risk and expected profits of consumer loans abstract a bank that lends money to a household faces two types of risk frequently mentioned is the risk of default seldom referred to is the risk of an early redemption of the loan leading to dormancy in this paper we model the transition of consumer loans from an active to a dormant state to this end we use data on 4786 individuals who were granted credit by a swedish lending institution between september 1993 and august 1995 and estimate a semi parametric duration model we analyze the factors that determine the time to maturity on consumer loans and investigate the ability of the model to match the maturities observed in the data moreover we derive the distribution of conditional expected durations of loans and show how a loan application can be evaluated by calculating its expected profit