strikes as a result of imperfect information this paper proposes a model of the bargaining process that recognizes that negotiators have only imperfect information at their command the author argues that the probability of a strike occurring will increase if one party bases its perception of the opponent s position on the same variables employed to form its own position when the opponent s position is in fact based on different variables strike probability is therefore assumed to be related to movements in variables of interest to only one side the model is tested on a sample of fourteen bargaining relationships drawn from the series wage chronology published by the bureau of labor statistics which details settlements between particular firms and unions over a period of about thirty years estimates of strike probability are derived from the maximum likelihood logit procedure the findings suggest that although both relative and absolute wage increases in a firm have a negative effect on strike frequency relative changes are more important

strategic behavior in contests comment almost by definition contests involve strategy this is especially true in contests between unevenly matched contenders in a recent article avinash dixit 1987 explored strategic commitment in contests between a favorite and an underdog the favorite is defined as the player whose chance of victory exceeds one half at the nash equilibrium an underdog s chance is less than one half dixit concludes that if the favorite has the opportunity to move first then he will overcommit effort compared with the nash equilibrium an important implication of the favorite overcommitting effort is that strategic behavior leads to greater social costs see gordon tullock 1980 the opposite holds if the underdog has the opportunity to move first this paper demonstrates that the favorite will never overcommit effort given endogenous order of moves the favorite finds it advantageous to wait until the underdog moves surprisingly the underdog s best strategy is not to wait but to make the first move throwing the first punch the equilibrium order of play is for the underdog to move before the favorite in this equilibrium one never observes overcommitment of effort consequently extending dixit s model to allow for endogenous order of moves suggests that strategic behavior in contests will lead to undercommitment compared with nash behavior

equilibrium and government commitment abstract how should a government use the power to commit to ensure a desirable equilibrium outcome in this paper i show a misleading aspect of what has become a standard approach to this question and i propose an alternative i show that the complete description of an optimal indeed of any policy scheme requires outlining the consequences of paths that are often neglected the specification of policy along those paths is crucial in determining which schemes implement a unique equilibrium and which ones leave room for multiple equilibria that depend on the expectations of the private sector

imperfect information and strikes an analysis of canadian experience 1967 82 to test their hypothesis that the propensity to strike is affected less by the actual balance of bargaining power than by the parties uncertainty about their relative power the authors perform a probit analysis of data on 1 871 collective agreements negotiated in the canadian manufacturing sector between 1967 and 1982 they find consistent with their hypothesis that some characteristics of individual bargaining units the relevant industries and the economy as a whole that affect both the quantity and reliability of information needed to assess relative bargaining power do have significant value in predicting strike incidence across industries and over time

is protection for sale evidence on the grossman helpman theory of endogenous protection grossman and helpman 1994 present a theory of endogenous protection by explicitly modeling government industry interactions for which mere black box models previously existed they obtain a ramsey pricing type solution to the provision of protection which emphasizes the role of inverse import penetration ratios and import elasticities on the lobbying side the model makes predictions about lobbying competition and lobbying spending according to deadweight costs from protection the model not only makes for richer theory in terms of rigor and elegance but its predictions are directly testable whether the grossman helman model stands up to real world data is investigated in this paper predictions from both the protection side and lobbying side are tested using cross sectional u s nontariff barrier data we also compare the second generation grossman helpman model with a more traditional specification our results call for serious consideration of this model in the political economy literature

vote buying supermajorities and flooded coalitions in a recent paper banks 2000 adopting the framework of our model groseclose and snyder 1996 derives several new and noteworthy results in addition he provides a counterexample to our proposition 4 here we explain the error in our proposition but note that we can correct it easily if we invoke an additional assumption in equilibrium the winning vote buyer constructs a nonflooded coalition that is she does not bribe every member of her coalition we conclude with a brief discussion of the substantive implications of banks s proposition 1 we note that it provides additional support for our general claim that minimal winning coalitions should be rare in a vote buying game

sophisticated monetary policies in standard monetary policy approaches interest rate rules often produce indeterminacy a sophisticated policy approach does not sophisticated policies depend on the history of private actions government policies and exogenous events and can differ on and off the equilibrium path they can uniquely implement any desired competitive equilibrium when interest rates are used along the equilibrium path implementation requires regime switching these results are robust to imperfect information our results imply that the taylor principle is neither necessary nor sufficient for unique implementation they also provide a direction for empirical work on monetary policy rules and determinacy

caps on political lobbying the cost of political campaigns in the u s has risen substantially in recent years for example real spending on congressional election campaigns doubled between 1976 and 1992 steven d levitt 1995 there are many reasons why increased campaign spending might be socially harmful first increased spending means increased fund raising which may keep politicians from their legislative duties 1 second a lobbyist who makes a large campaign contribution may have undue influence on electoral outcomes on the shaping of legislation or on the outcome of regulatory proceedings 2 that is the socially preferred candidate or legislation may not prevail likewise a lobbyist involved in a regulatory matter or a competition for a government contract may benefit unduly from a legislator s intervention 3 third a perception that campaign contributions purchase influence may lead to increased tolerance of corruption in the private sector a desire to control campaign spending has spawned many initiatives to limit both campaign contributions and spending beginning with the passage of the federal election campaign act feca political action committees pacs can contribute at most 5 000 per election to a candidate while individuals can contribute at most 1 000 restrictions have also been put on in kind contributions making it more difficult to circumvent these limits 4 while direct restrictions on campaign spending have proven difficult to implement recent initiatives aim to impose voluntary spending limits and stricter limits on contributions 5 despite the existing legislation and the proposals to limit contributions little is known about the impact of contribution limits on aggregate expenditures while it is intuitively appealing that aggregate expenditures would drop we challenge that intuition here we study a lobbying game and show that a cap on individual lobbyists expenditures may have the perverse effect of increasing aggregate expenditures and loweri this abstract was borrowed from another version of this item

academic earmarks and the returns to lobbying abstract in this paper we estimate the returns to lobbying by universities to motivate our empirical work we develop a simple theoretical model of university lobbying for academic earmarks our statistical analysis shows that universities represented by a house appropriations committee hac or senate appropriations committee sac member spend less money on lobbying than those that are not represented in addition using instrumental variables estimations we show that universities without hac or sac representation may receive some benefit to lobbying for earmarks although in many estimations this benefit is not statistically different from zero however for universities with hac or sac representation a 10 percent increase in lobbying yields an additional 2 8 percent or 3 5 percent increase in earmarks respectively this suggests that there are large returns to lobbying for academic earmarks if a university is represented by a member of one the hac or sac but little or no return if not

a general model of rent seeking for public goods this paper generalizes the model of collective rent seeking over a public good expanding the rent seeker s consumption bundle to include preferences over the public good and a private good our results suggest collective rent seeking is positively related to group size although free riding exists within a group there is not a one for one tradeoff in addition rent seeking increases with wealth finally total effort expended by both groups increases if either group increases in membership size except in the case of an extremely lopsided contest the key condition underlying these results is that the marginal utility of the public good is not inversely related to the private good

lobbying as legislative subsidy professional lobbyists are among the most experienced knowledgeable and strategic actors one can find in the everyday practice of politics nonetheless their behavioral patterns often appear anomalous when viewed in the light of existing theories we revisit these anomalies in search of an alternative theory we model lobbying not as exchange vote buying or persuasion informative signaling but as a form of legislative subsidy a matching grant of policy information political intelligence and legislative labor to the enterprises of strategically selected legislators the proximate political objective of this strategy is not to change legislators minds but to assist natural allies in achieving their own coincident objectives the theory is simple in form realistic in its principal assumptions and counterintuitive in its main implications empirically the model renders otherwise anomalous regularities comprehensible and predictable in a later section we briefly bring preferences back in examining the important but relatively uncommon conditions under which preference centered lobbying should occur

information exchange and transnational environmental problems this paper analyzes information exchange in a model of transnational pollution control in which countries use private information in independently determining their domestic environmental policies we show that countries may not always have an incentive to exchange their private information however for a sufficiently high degree of predictability of domestic environmental policy processes the expected welfare from sharing information is greater than the expected welfare from keeping it private the minimum degree of policy predictability for which information sharing occurs increases with the level of environmental risk intuitively information exchange can help mitigate the perception of global uncertainty both political and scientific that surrounds transnational environmental problems and potentially improve welfare if policymaking processes are sufficiently aligned with evidence based approaches predictable

determinacy and identification with taylor rules the new keynesian taylor rule theory of inflation determination relies on explosive dynamics by raising interest rates in response to inflation the fed induces ever larger inflation unless inflation jumps to one particular value on each date however economics does not rule out explosive inflation so inflation remains indeterminate attempts to fix this problem assume that the government will choose to blow up the economy if alternative equilibria emerge by following policies we usually consider impossible the taylor rule is not identified without unrealistic assumptions thus taylor rule regressions do not show that the fed moved from passive to active policy in 1980

the macroeconomic strike model a study of seventeen countries 1948 1975 this paper reports the results of an analysis of data on industrial conflict strikes and lockouts in seventeen oecd countries during the period 1948 75 a number of models are tested on this broad data set including the major elements of the ashenfelter and johnson model contrary to ashenfelter and johnson s results for the united states this study finds for most countries a positive relationship between the number of conflicts and the rate of increase in real wages in manufacturing further the increase in nominal wages produces stronger results in all models tested than the increase in real wages the effect of unemployment is unstable across countries and only one of two political variables yields even modest results the authors suggest that an explanation of their findings might be found in the relationship between changes in the wage structure and changes in the level of conflict

is quantity theory still alive this paper investigates whether the quantity theory of money is still alive we argue that it is but that the slippage is not negligible for countries with low inflation the relationship between average inflation and the growth rate of money is tenuous at best a correction for variation in output growth and the opportunity cost of money using theory implied elasticities helps explain the slippage for the period since 1990 inflation targeting at low rates of inflation makes it harder to establish the long run relationship between monetary growth and inflation

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

managing expectations instruments vs targets should policymakers offer forward guidance in terms of a path for an instrument such as interest rates or a target for an outcome such as unemployment we study how the optimal approach depends on a departure from rational expectations people have a limited understanding of the behavior of others and of the general equilibrium ge effects of policy the bite of such bounded rationality on implementability and welfare is minimized by target based guidance if and only if ge feedbacks are strong enough this offers a rationale for why central banks should shine the spotlight on unemployment when faced with a prolonged liquidity trap a steep keynesian cross or a large financial accelerator

the economic and organizational basis of early united states strikes 1900 1948 this paper examines the question of whether economic factors played an important role in determining strike activity in the united states in the first half of the twentieth century a review of recent research shows one author david snyder concluding that economic factors mattered little during that period and that union organization and political variables explained much more and another p k edwards concluding the opposite a retest of these authors analyses employing ordinary least squares regression and a variety of measures suggests that snyder s position is more sound this author argues however that edwards was correct in claiming that economic factors are major determinants of the extent of unionism as well as of strike activity and thus one needs to apply a two stage least squares test of the snyder hypothesis when that is done the results show that economic variables are highly significant determinants of strike activity throughout the pre 1949 period but for the subperiod 1921 29

a hybrid fiat commodity monetary system in this paper i describe a monetary system in which backing is provided for the government s liabilities by way of contingent resort to taxes the system is studied within the context of a one good pure exchange model of two period lived overlapping generations in which aside from various uniform boundedness assumptions considerable diversity is allowed both within and across generations two results are established i the existence of at least one perfect foresight competitive equilibrium and ii the pareto optimality of any such equilibrium the monetary system studied has some of the features of a commodity money system with a large seignorage spread between bid and ask prices one crucial feature of the system is that the government by taxing stands ready at any time to convert its outstanding liabilities into the commodity at an announced price in an important sense the hybrid scheme is a mixture of a fixed supply fiat scheme and a pure tax transfer scheme a social security scheme it makes some use of market pricing of net government indebtedness and some use of taxes and transfers its one advantage vis a vis the fixed supply fiat scheme is that any equilibrium under the hybrid scheme is pareto optimal for the fixed supply fiat scheme one can at best demonstrate that there exists an optimal equilibrium it is well known that there can exist nonoptimal equilibria under that scheme the presumed advantage of the hybrid scheme vis a vis the pure tax transfer scheme is its lesser use of taxes and transfers i say presumed because the framework i set out is not rich enough to imply that less use of taxes and transfers is preferable to more use of taxes and transfers

uncertain preassigned non contestable and contestable rents abstract potential beneficiaries of government commitments often face the problem of guaranteeing that the commitments are carried out for example funds can be allocated via the budget but not disbursed the disbursement may be subject to the ambiguities of non specified timing or non specified appropriate conditions potential beneficiaries then have incentives to undertake activities that affect the timing of disbursement of the prespecified funds this paper studies the ensuing rent seeking game against the uncertain behavior or discredibility of the government we show that the resources expended by potential beneficiaries of government rents can be substantial but they cannot exceed 30 of the preassigned rents the extent of rent dissipation is incomplete and approaches unity for the critical value of government discredibility that still induces the individual to engage in rent seeking contestability of the allocated funds now referred to as contestable rents increases the extent of rent seeking outlays nevertheless delayed uncertain contestable rents cannot be overdissipated

revolving door lobbyists we study how ex government ocials benet from the personal connections acquired during public service lobbyists with experience in the oce of a us senator suer a 24 drop in generated revenue when that senator leaves oce the eect is immediate discontinuous around the exit period and long lasting consistent with the notion that lobbyists sell access to powerful politicians the drop in revenue is increasing in the committee assignments power held by the exiting politician

wealth and volatility we document that in the us over the course of the past century there has been a systematic negative relation between household wealth and business cycle volatility we develop a microfounded dynamic equilibrium model that contains elements of a traditional keynesian framework in which economic uctuations can be driven by sunspot type uctuations in household optimism or pessimism the novel feature is that the scope for equilibrium uctuations due to sunspots depends on the exogenously given value of household wealth when wealth is high consumers demand is not sensitive to unemployment expectations and the economy is robust to condence crisis when wealth is low consumers demand is sensitive to unemployment expectations the economy becomes vulnerable to condence driven uctuations and is in general more volatile in this case there is a potential role for public policies to stabilize demand we conclude by providing micro economic evidence on the importance of wealth in aecting the sensitivity of demand to aggregate conditions we show that during the great recession consumers with low

short and long interest rate targets can both short and long term interest rates be targeted independently can the target of the term structure help solve the problem of multiplicity of equilibria that occurs when only the short rate is targeted both questions are addressed and the answer is yes to both

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

comparative economic voting britain france germany italy likelihood of a vote for the incumbent coalition in contrast personal economic circumstances no matter how measured demonstrate nonexistent to weak effects on vote choice overall economic conditions emerge as a relatively important vote determinant when a more properly specified general multi equation model of the vote is estimated economics shows itself to be as powerful as traditional factors used to explain the western european vote in particular economic variables exceed the impact of partisan identification in britain and roughly equal it in germany moreover the economic variables exercise more influence than the social cleavages of class and religion everywhere except italy

wall street capitol hill and k street political influence and financial regulation abstractthis paper explores the link between the political influence of the financial industry and financial regulation in the run up to the global financial crisis we construct a detailed database documenting the lobbying activities campaign contributions and political connections of the financial industry from 1999 to 2006 in the united states we find evidence that spending on lobbying by the financial industry and network connections between lobbyists and legislators were positively associated with the probability of a legislator changing positions in favor of deregulation the evidence also suggests that hiring lobbyists who had worked for legislators in the past enhanced this link

lobbying competition over trade policy competition between opposing lobbies is an important factor in the endogenous determination of trade policy this article investigates the consequences of lobbying competition between upstream and downstream producers the theoretical structure underlying the empirical analysis is the well known grossman helpman model of trade policy determination modified to account for the cross sectoral use of inputs itself a quantitatively significant phenomenon with around 50 of manufacturing output being used by other sectors rather than in final consumption our empirical results validate the theoretical predictions importantly accounting for lobbying competition also alters substantially estimates of the welfare mindedness of governments in setting trade policy

policy influence and private returns from lobbying in the energy sector in this article i quantify the extent to which lobbying expenditures by firms affect policy enactment to achieve this end i construct a novel dataset containing all federal energy legislation and lobbying activities by the energy sector during the 110th congress i then develop and estimate a game theoretic model where heterogeneous players choose lobbying expenditures to affect the probability that a policy is enacted i find that the effect of lobbying expenditures on a policy s equilibrium enactment probability to be statistically significant but very small nonetheless the average returns from lobbying expenditures are estimated to be over 130

estimating strike effects in a general model of prices and quantities estimates of the effect of strikes on the production price and purchases of north american automobiles are provided over the period 1966 79 the estimates are based on a model that reflects the decisions of both consumers and producers and that captures important intertemporal adjustments before during and after the strike to allow for inventory buildup in anticipation of the strike as well as inventory depletion during the strike and replacement afterward the results generally indicated that both consumers and producers rationally responded to the expected and the actual event of the strike through a variety of related intertemporal adjustments and while the initial effects are in some instances quite pronounced the long run effects are usually minimal

monetary policy and price responsiveness to aggregate shocks under rational inattention this paper presents a general equilibrium model that is consistent with recent empirical evidence showing that the u s price level and inflation are much more responsive to aggregate technology shocks than to monetary policy shocks the model of this paper builds on recent work by mackowiak and wiederholt 2009 who show that models of endogenous attention allocation deliver prices to be more responsive to more volatile shocks as everything else being equal firms pay relatively more attention to more volatile shocks in fact according to the u s data aggregate technology shocks are more volatile than monetary policy shocks inducing in this paper firms to pay more attention to the former than to the latter however most important this work adds to the literature by showing that the ability of the model of this paper to account for observed price dynamics crucially depends on monetary policy in particular this paper shows how interest rate feedback rules affect the incentives faced by firms in allocating attention a policy rate responding more actively to expected inflation and output fluctuations induces firms to pay relatively more attention to more volatile shocks this new mechanism of transmission of monetary policy helps rationalizing the observed behavior of prices in response to technology and monetary policy shocks and implies novel predictions about the impact of changes in taylor rules coefficients on economic fluctuations

the industrial organization of congress or why legislatures like firms are not organized as markets this paper provides a theory of legislative institutions that parallels the theory of the firm and the theory of contractual institutions like market institutions legislative institutions reflect two key components the goals or preferences of individuals here representatives seeking reelection and the relevant transactions costs we present three conclusions first we show how the legislative institutions enforce bargains among legislators second we explain why given the peculiar form of bargaining problems found in legislatures specific forms of nonmarket exchange prove superior to market exchange third our approach shows how the committee system limits the types of coalitions that may form on a particular issue

collective rent dissipation the theory of rent seeking was initiated by tullock 1967 1980 followed by krueger 1974 and posner 1975 and more recently extended in various directions by allard 1988 appelbaum and katz 1986a b c gradstein and nitzan 1989 hillman and katz 1984 1987 hillman and samet 1987 hillman and riley 1989 katz et al 1990 long and vousden 1987 ursprung 1990 and varian 1989 the purpose of this paper is to extend this theory by introducing the possibility of collective group rent seeking with voluntary individual decisions regarding their extent of participation in the collective rent seeking efforts

bayesian inference for comparative research rv egression analysis in comparative research suffers from two distinct problems of statistical inference first because the data constitute all the available observations from a population conventional inference based on the long run behavior of a repeatable data mechanism is not appropriate second the small and collinear data sets of comparative research yield imprecise estimates of the effects of explanatory variables we describe a bayesian approach to statistical inference that provides a unified solution to these two problems this approach is illustrated in a comparative analysis of unionization a widely used tool in quantitative comparative politics is the linear regression model estimating relationships between institutional and economic variables observed for a set of countries constituting some population of interest a brief survey of recent comparative research finds no shortage of work of this type for instance remmer 1991 identifies economic crisis as a source of electoral volatility in latin american countries in the 1980s robertson 1990 presents evidence that institutions moderating the transaction costs of negotiations between capital and labor reduce industrial conflict and golden 1993 finds that union wage moderation in industrialized democracies results from coordinated collective bargaining although the methodological advantages are well documented jackman 1985 we identify two distinct problems of statistical inference endemic to this type of quantitative comparative research first because the data constitute all the available observations from a population conventional inference based on the long run behavior of some repeatable data mechanism is not appropriate second because data sets tend to be small and collinear the effects of explanatory variables are estimated imprecisely in most applications the first problem is generally ignored and the second is solved by imposing restrictions on the regression model to obtain sensible results the bayesian model of statistical inference provides a unified solution to these two distinct problems of quantitative comparative research two features of bayesian inference are important in this context first probability is conceived subjectively as characterizing a researcher s uncertainty about the parameters of a statistical model this subjective probability concept seems particularly useful in comparative settings where the data are typically convenience samples not generated by a known probability mechanism such as random sampling second bayesian inference allows the inclusion of other information in addition to the quantitative sample information again this seems useful in the comparative context where rich historical material is commonly available sparking ideas for researchers but formally discarded in the final analysis in the bayesian approach this historical material can be formally incorporated into the analysis we begin by detailing why the nonstochastic and weak data typical of comparative research are problematic for conventional linear regression analysis we next introduce some ideas about bayesian inference and describe bayesian regression analysis these ideas are applied to a comparative analysis of unionization the subject of a recent exchange in the american political science review between michael wallerstein and john stephens stephens and wallerstein 1991 wallerstein 1989 the bayesian regressions we present are supplemented with a sensitivity analysis that investigates how our conclusions depend upon the sample data and our prior beliefs although we survey some ideas in bayesian statistics a full introduction to the bayesian approach to statistical inference is beyond our scope here good book length treatments are pollard 1986 lee 1989 and at a slightly higher level press 1989 our intention here is to spotlight problematic but ignored issues of statistical inference in a common area of application the bayesian alternative that we present represents just one way forward to address these inferential problems

combining micro and macro data in microeconometric models or panel samples to improve accuracy of estimation in this paper we show how to do this efficiently we show that the gains from use of marginal information can be substantial we also discuss how to test the compatibility of sample and marginal information

the new economics of organization over the last ten years or so an important new approach to the study of organizations has emerged within economics it is perhaps best characterized by three elements a contractual perspective on organizational relationships a theoretical focus on hierarchical control and formal analysis via principal agent models this paper provides political scientists with an overview of the new economics of organization and explores its implications for the study of public bureaucracy so far positive political theory has not contributed much to our understanding of public bureaucracy in part this is due to the unsympathetic treatment that rational modeling and most other modes of quantitative analysis have long received from students of public administration the other side of the coin however is that positive theorists have not made much of an effort to develop theories of bureaucracy their concerns have centered around two basic mechanisms of social choice voting and markets and they have devoted little systematic attention to a third mechanism that is clearly important for understanding how societies and other aggregates make collective decisions this third and relatively unexplored mechanism is hierarchy movement toward a positive theory of hierarchies would fill a serious gap in the social choice literature while at the same time making a theoretical contribution that strikes to the essence of public bureaucracy indeed of all organizations in fact significant steps toward a positive theory of hierarchies have very recently been taken but by economists not political scientists in small numbers of course economists made contributions to the study of public bureaucracy some time ago with the pioneering works of downs 1967 tullock 1965 and niskanen 1971 but this new wave of theoretical work is different it is already a large complex body of literature that is the focus of innovation and excitement among a growing number of economists and it reflects an unusual degree of theoretical coherence and cumulative effort work in this tradition tends to receive orientation from a distinctive economic approach to the analysis of organizations an approach perhaps best characterized by three elements a contractual perspective on organizational relationships a focus on hierarchical control and formal analysis via principal agent models this approach has emerged from recent attempts to move beyond the neoclassical theory of the firm which assumes away all organizational considerations to a theory of economic organizations that can explain why firms corporations and other enterprises behave as they do propo

optimal fiscal and monetary policy equivalence results in this article we analyze the implications of price setting restrictions for the conduct of cyclical fiscal and monetary policy we consider standard monetary economies that differ in the price setting restrictions imposed on the firms we show that independently of the degree or type of price stickiness it is possible to implement the same efficient set of allocations and that each allocation in that set is implemented with policies that are also independent of the price stickiness in this sense environments with different price setting restrictions are equivalent

fiscal policy in an expectations driven liquidity trap we study the effects of fiscal policy interventions in a liquidity trap in a model with nominal rigidities and an interest rate rule in a liquidity trap caused by a self fulfilling state of low confidence higher government spending has deflationary effects that reduce the spending multiplier when the zero lower bound is binding instead cuts in marginal labor tax rates are inflationary and become more expansionary when the zero lower bound is binding these findings contradict popular views about the effects of fiscal policy in a liquidity trap

between group contests over group specific public goods with within group fragmentation we model a contest between two groups of equal sized populations over the division of a group specific public good each group is fragmented into subgroups each subgroup allocates effort between production and contestation perfect coordination is assumed within subgroups but subgroups cannot coordinate with one another all subgroups choose effort allocations simultaneously we find that the group that is more internally fragmented receives the smaller share of the public good aggregate rent seeking increases when the dominant subgroups within both communities have larger population shares any unilateral increase in fragmentation within a group reduces conflict and increases the total income of its opponent strikingly the fragmenting community itself may however increase its total income as well even though its share of the public good declines hence a smaller share of public good provisioning cannot be used to infer a negative income effect on the losing community

rent seeking incentives in share contests abstract this article investigates share contests in our framework we allow contestants to have more general preferences than have been used in the literature previous approaches have the unfortunate characteristic that contestants marginal rates of substitution between the rent share allocated by the contest and their effort is constant regardless of the size of the rent share this results in a conventional wisdom larger rents command more effort by providing a more general framework we show the reverse may also be true and we derive the conditions under which this is the case our approach then allows us to rationalize within a standard contest framework observations that rents might be more hotly contested when they become scarcer as has evidently been the case with the recent global contraction of public funds available for public policy

rigging the lobbying process an application of the all pay auction textabstractin a world where a politician can explicitly auction off a prize to the high bidder the standard auction literature can be used to analyse political behavior the justice system however precludes politicians from explicitly selling the prize to the highest bidder thus politicians cannot let it become public knowledge that they are in the business of selling political favors an institution has emerged in political markets to overcome this constraint which are termed as lobbying lobbyists make implicit payments to the politician through campaign contributions if these up front payments were rebated to those failing to receive the prize it would be clear that the politician was selling favors this article has examined an interesting principle arising in all pay auctions this principle states that a politician wishing to maximize political rents may find it in his best interest to exclude certain lobbyists from participating in the lobbying process particularly lobbyists valuing most the political prize

why is there so little money in u s politics in this paper we argue that campaign contributions are not a form of policy buying but are rather a form of political participation and consumption we summarize the data on campaign spending and show through our descriptive statistics and our econometric analysis that individuals not special interests are the main source of campaign contributions moreover we demonstrate that campaign giving is a normal good dependent upon income and campaign contributions as a percent of gdp have not risen appreciably in over 100 years if anything they have probably fallen we then show that only one in four studies from the previous literature support the popular notion that contributions buy legislators votes finally we illustrate that when one controls for unobserved constituent and legislator effects there is little relationship between money and legislator votes thus the question is not why there is so little money politics but rather why organized interests give at all we conclude by offering potential answers to this question this abstract was borrowed from another version of this item

collective action and the group size paradox according to the olson paradox larger groups may be less successful than smaller groups in furthering their interests we address the issue in a model with three distinctive features explicit intergroup interaction collective prizes with a varying mix of public and private characteristics and nonlinear lobbying costs the interplay of these features leads to new results when the cost of lobbying has the elasticity of a quadratic function or higher larger groups are more effective no matter how private the prize with smaller elasticities a threshold degree of publicness is enough to overturn the olson argument and this threshold tends to zero as the elasticity approaches the value for a quadratic function we also demonstrate that these results are true irrespective of whether we examine group sizes over the cross section in some given equilibrium or changes in the size of a given group over different equilibria

the determinants of strike incidence and severity a micro level study this paper investigates the determinants of strike incidence and severity during labor contract negotiations the author develops a model that considers the forces influencing both unions willingness to strike and employers willingness to take a strike and estimates it using data describing 1 050 negotiations in u s manufacturing during the 1971 80 period the results indicate that strike incidence is influenced by the gender composition of the labor force demand fluctuations in the product market location in a right to work state the number of workers in the bargaining unit union density in the industry and the extent to which wages kept pace with inflation over the prior contract period on the other hand neither the local unemployment rate when negotiations began nor the inflation rate over the term of the expiring contract influenced strike incidence or severity in this sample

lobbying competition over trade policy counterlobbying over trade policy competition between opposing lobbies is an important factor in the endogenous determination of trade policy this paper investigates empirically the consequences of lobbying competition between upstream and downstream producers for trade policy the theoretical structure underlying the empirical analysis is the well known grossman helpman model of trade policy determination modified suitably to account for the cross sectoral use of inputs in production itself a quantitatively significant phenomenon with around 50 percent of manufacturing output being used by other sectors rather than in final consumption data from more than 40 countries are used in our analysis our empirical results validate the predictions of the theoretical model with lobbying competition importantly accounting for lobbying competition also alters substantially estimates of the welfare mindedness of governments in setting trade policy

war and conflict in economics theories applications and recent trends we review the main economic models of war and conflict these models vary in details but their implications are qualitatively consistent highlighting key commonalities across a variety of conflict settings recent empirical literature employing both laboratory and field data in many cases confirms the basic implications of conflict theory however this literature also presents important challenges to the way economists traditionally model conflict we finish our review by suggesting ways to address these challenges

rent seeking for pure public goods in this paper we present a formal analysis of rent seeking for public goods by two or more groups with different numbers of individuals we begin by considering equally wealthy groups under risk neutrality a case which constitutes our basic model several surprising and interesting results emerge from the analysis of this basic case the problem is then extended to deal with a groups with different wealth levels and b risk aversion this last extension brings about a further crop of interesting and useful results

bargaining theory inflation and cyclical strike activity in manufacturing this paper presents a theoretical and empirical analysis of cyclical movements in strike activity the first part of the paper develops a bargaining model that demonstrates the crucial role of limi

transaction cost economics and cross national patterns of industrial conflict a comparative institutional analysis at the core of a capitalist system is an implied coalition between labor and capital built upon a system of exchange and compromise without capital the material condition upon which labor s interests are realized would be impossible likewise without labor s consent to exchange wages for future investment capital could not procure the profits and savings necessary for its reproduction and transformation organizing stable and cost efficient class coalitions has long been recognized as not merely an economic priority but a political challenge yet some democracies have met this challenge more successfully than others for the student of comparative political economy an enduring question remains why the present study is an attempt to provide an answer that complements and integrates the more common macroand microanalytic studies of industrial conflict it is argued here that a useful approach is to explicate some of the major microeconomic dynamics that condition exchanges between labor and capital and to demonstrate how institutional devices designed to accommodate political representation and conflict resolution facilitate or impede the process of class compromise by employing the logic of transaction cost economics the analysis highlights the comparative institutional elements fundamental to economizing on the costs of exchange shaping consensus within a political economy s industrial relations system the resulting transaction cost efficiency model of industrial conflict specifies the ex ante cost factors price margin of transaction and the institutional control of bounded rationality and the ex post cost factors legislative polarized pluralism executive hegemony and the frequency of general elections central to the process of building and sustaining class coalitions the model is tested on data drawn from 19 democracies covering the years 1965 83 use of simulation models reveals the relative trade offs associated with different patterns of ex ante and ex post cost structures

the structure of class conflict in democratic capitalist societies the article presents a theory of class conflict between workers and capitalists who pursue their material interests under a form of societal organization that combines private ownership of instruments of production with representative political institutions there exist economic and political conditions under which both classes would simultaneously choose courses of action that constitute a class compromise workers consent to the institution of profit and capitalists to democratic institutions through which workers can effectively press claims for material gains when these conditions hold and a compromise is in force the role of the state consists in institutionalizing coordinating and enforcing the terms of a compromise that represents the preferences of workers as well as capitalists the combination of private ownership of the instruments of production with representative political institutions based on widespread suffrage constitutes a compromise between workers who consent to the private appropriation of profit by owners of capital and capitalists who accept the democratic institutions through which workers can make effective claims for an improvement of their material conditions this form of societal organization was con

the fiscal theory of the price level a critique abstract this paper argues that the fiscal theory of the price level ftpl has feet of clay the source of the problem is a fundamental economic misspecification the ftplconfuses two key building blocks of a model of a market economy budgetconstraints which must be satisfied identically and market clearing or equilibriumconditions the ftpl asssumes that the government s intertemporal budgetconstraint needs to be satisfied only in equilibrium this economic misspecification has far reaching implications for the mathematicalproperties of the equilibria supported by models that impose the structure of theftpl it produces a rash of contradictions and anomalies jel classifications e31 e41 e51 e52 e62 e63 key words fiscal theory of the price level ricardian fiscal financial monetaryprogrammes government budget constraint price level indeterminacy author willem h buiter european bank for reconstruction and development oneexchange square london ec2a 2jn uktel 44 20 73386805fax 44 20 73386110 6111e mail buiterw ebrd comweb page http www nber org wbuiter index htm

the political model of strikes a new twist the political model of strikes in which work stoppages are viewed as the result of worker intransigence has occupied an influential position in the strikes literature since its empirical specification by ashenfelter and johnson 1 there are two basic reasons for the popularity of the model first it is an eminently accessible treatment in a literature of highly abstract bargaining models most of which do not have a direct bearing on strikes second until the ashenfelter johnson study little progress had been made in applying models of union behavior drawing on ross s 6 insight that the union was essentially a political institution operating in an economic environment ashenfelter and johnson sought to examine the implications for strikes of the divergent goals of the union leadership and the rank and file membership the basic idea is that strikes are caused by the unrealistically high wage aspirations of the latter which are nonetheless processed by the better informed union leadership so as to deflect any incipient challenge to its authority and continued tenure in office the function of a strike is an equilibrating mechanism to square up the membership s wage expectations with what the firm may be prepared to pay strikes are attributed exclusively to the union side the difficulty with the model lies precisely in its assumption that it is the union side which bargains badly and hence precipitates strikes for example one can construct a model employing the opposite assumption after eaton 2 and rabinovitch and swary 4 indeed the assumption that it is the employer side which bargains badly forms the basis of our revisionist model conceptual issues apart the twist is that our model is applied to the very same data set used by farber 3 in his re estimation of the ashenfelter johnson model using data on eighty contract negotiations for ten large manufacturing firms on which more below we show that the two very differently assumptioned models both yield reasonable results using the same data set the implications of this finding are then discussed

market structure and multiple equilibria in airline markets we provide a practical method to estimate the payoff functions of players in complete information static discrete games with respect to the empirical literature on entry games originated by bresnahan and reiss 1990 and berry 1992 the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions we allow the effects that the entry of each individual airline has on the profits of its competitors its competitive effects to differ across airlines the identified features of the model are sets of parameters partial identification such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data we apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the u s airline industry we find evidence of heterogeneity across airlines in their profit functions the competitive effects of large airlines american delta united are different from those of low cost carriers and southwest also the competitive effect of an airline is increasing in its airport presence which is an important measure of observable heterogeneity in the airline industry then we develop a policy experiment to estimate the effect of repealing the wright amendment on competition in markets out of the dallas airports we find that repealing thewright amendment would increase the number of markets served out of dallas love

optimality of the friedman rule in economies with distorting taxes abstract we find conditions for the friedman rule to be optimal in three standard monetary models our main contribution is to shed light on two issues in the literature first the conventional view maintains that when money is a final good its services should be taxed moreover if money demand is interest inelastic its services should be taxed heavily we show that this view is incorrect second there is an ongoing controversy about whether the optimality of the friedman rule is connected to the intermediate goods result from public finance we resolve this controversy by showing a deep connection between these results

tax exempt lobbying corporate philanthropy as a tool for political influence we explore the role of charitable giving as a means of political influence a channel that has been heretofore unexplored in the political economy literature for philanthropic foundations associated with fortune 500 and s p500 corporations we show that grants given to charitable organizations located in a congressional district increase when its representative obtains seats on committees that are of policy relevance to the firm associated with the foundation this pattern parallels that of publicly disclosed political action committee pac spending as further evidence on firms political motivations for charitable giving we show that a member of congress s departure leads to a short term decline in charitable giving to his district and we again observe similar patterns in pac spending charities directly linked to politicians through personal financial disclosure forms filed in accordance to ethics in government act requirements exhibit similar patterns of political dependence our analysis suggests that firms deploy their charitable foundations as a form of tax exempt influence seeking based on a straightforward model of political influence our estimates imply that 7 1 percent of total u s corporate charitable giving is politically motivated an amount that is economically significant it is 280 percent larger than annual pac contributions and about 40 percent of total federal lobbying expenditures given the lack of formal electoral or regulatory disclosure requirements charitable giving may be a form of political influence that goes mostly undetected by voters and shareholders and which is directly subsidized by taxpayers

is it whom you know or what you know an empirical assessment of the lobbying process abstract do lobbyists provide issue specific information to members of congress or do they provide special interests access to politicians we present evidence to assess the role of issue expertis

managing beliefs about monetary policy under discretion in models of monetary policy discretionary policymaking is typically constrained in its ability to manage public beliefs however when a policymaker possesses private information policy actions serve as signals to the public about unobserved economic conditions and belief management becomes an integral part of optimal discretion policies this article derives the optimal time consistent policy for a general linear quadratic setting the optimal policy is illustrated in a simple new keynesian model where analytical solutions can be derived as well in this model imperfect information about the policymaker s output target leads to lower policy losses

structural dependence of the state on capital a central claim of both marxist and neoclassical political theory is that under capitalism all governments must respect and protect the essential claims of those who own the productive wealth of society this is the theory of structural dependence of the state on capital using a formal model the internal logic and the robustness of the theory is examined we conclude that in a static sense the theory is false virtually any distribution of consumption between wage earners and owners of capital is compatible with continual private investment once an appropriate set of taxes and transfers is in place yet the state may be structurally dependent in a dynamic sense policies that once in place redistribute income without reducing investment do reduce investment during the period in which they are anticipated but not yet implemented

the political economy of the us mortgage default crisis we examine the effects of constituents special interests and ideology on congressional voting on two of the most significant pieces of legislation in us economic history representatives whose constituents experience a sharp increase in mortgage defaults are more likely to support the foreclosure prevention act especially in competitive districts interestingly representatives are more sensitive to defaults of their own party constituents special interests in the form ofhigher campaign contributions from the financial industry increase the likelihood of supporting the emergency economic stabilization act however ideologically conservative representatives are less responsive to both constituent and special interests jel d72 g21 g28

speculative runs on interest rate pegs abstract we analyze a new class of equilibria that emerges when a central bank conducts monetary policy by setting an interest rate as an arbitrary function of its available information and letting the private sector set the quantity traded these equilibria involve a run on the central bank s interest target whereby money grows fast private agents borrow as much as possible against the central bank and the shadow interest rate is different from the policy target we argue that these equilibria represent a particular danger when banks hold large excess reserves such as is the case following periods of quantitative easing our analysis suggests that successfully managing the exit strategy requires additional tools beyond setting interest rate targets and paying interest on reserves in particular freezing excess reserves or fiscal policy intervention may be needed to fend off adverse expectations

optimal fiscal and monetary policy under sticky prices this paper studies optimal fiscal and monetary policy under sticky product prices the theoretical framework is a stochastic production economy without capital the government finances an exogenous stream of purchases by levying distortionary income taxes printing money and issuing one period nominally risk free bonds the main findings of the paper are first for a miniscule degree of price stickiness i e many times below available empirical estimates the optimal volatility of inflation is near zero this result stands in stark contrast with the high volatility of inflation implied by the ramsey allocation when prices are flexible the finding is in line with a recent body of work on optimal monetary policy under nominal rigidities that ignores the role of optimal fiscal policy second even small deviations from full price flexibility induce near random walk behavior in government debt and tax rates third sluggish price adjustment raises the average nominal interest rate above the one called for by the friedman rule finally an interest rate feedback rule whereby the nominal interest rate depends on inflation and output fits well the data emanating from the ramsey economy however the fitted rule is not of the taylor type for the implied inflation coefficient is less than one and close to zero and the output coefficient is negative jel classification e52 e61 e63

optimal fiscal and monetary policy with sticky prices in this paper i consider the role of state contingent inflation as a fiscal shock absorber in an economy with nominal rigidities i study the ramsey equilibrium in a monetary model with distortionary taxation nominal non state contingent debt and sticky prices with sticky prices the ramsey planner must balance the shock absorbing benefits of state contingent inflation against the associated resource misallocation costs for government spending processes resembling post war experience introducing sticky prices generates striking departures in optimal policy from the case with flexible prices for even small degrees of price rigidity optimal policy displays very little volatility in inflation tax rates display greater volatility compared to the model with flexible prices with sticky prices tax rates and real government debt exhibit behavior similar to a random walk for government spending processes resembling periods of intermittent war and peace optimal policy displays extreme inflation volatility even when the degree of price rigidity is large as the variability in government spending increases smoothing tax distortions across states of nature becomes increasingly important and the shock absorber role of inflation is accentuated

should we tax or cap political contributions a lobbying model with policy favors and access abstract this paper develops a model of political contributions in which a politician can either sell policy favors or sell access access allows interest groups to share hard information with the politician in support of their preferred policy here selling access maximizes policy utility while selling policy favors maximizes total contributions imposing a binding contribution limit makes it more likely that the politician sells access which can improve expected constituent welfare however a contribution limit distorts the signals associated with the contributions which tends to result in worse policy alternatively a tax on political contributions can ensure that the politician sells access without distorting his information therefore from the viewpoint of a representative constituent a tax on contributions is strictly preferred to a contribution limit or no reform the politician however may prefer regulation in the form of a contribution limit even when a tax is better for the constituent

the government spending multiplier in a mis managed liquidity trap i study the impact of a government spending shock in a new keynesian model when monetary policy is set optimally in this framework the economy is at the zero lower bound but expectations are well managed by the central bank as such the multiplier effect of government spending increases on expected inflation is small while the one on output can be larger than one this is consistent with recent empirical evidence on the effects of the 2009 arra

group specific public goods orchestration of interest groups with free riding we consider a situation in which two groups contest group specific public goods each member of the group may have a different valuation of the prize our model can be interpreted as the contestants cost of lobbying efforts being non linear or the returns to their efforts being decreasing we show that the level of free riding depends on the return of the investment we consider the situation under which one group initiates a contest to which different individuals and or groups can be added the question we pose is what is the optimal structure of additional groups

strategic groups and rent dissipation we consider a rent seeking contest in which players can form strategic groups before expending their outlays we examine the profitability of endogenous group formation and the effect of such group formation on rent dissipation we show the following when just one strategic group is formed in equilibrium group formation is beneficial both to the group members and to the nonmembers and rent dissipation is smaller than with usual individual rent seeking however when more than two strategic groups are formed in equilibrium group formation is never profitable to any players and rent dissipation is greater than with individual rent seeking jel