war and natural resource exploitation abstract we build a theoretical framework that allows for endogenous conflict behaviour i e fighting efforts and for endogenous natural resource exploitation i e speed ownership and investments while depletion is spread in a balanced hotelling fashion during peace the presence of conflict creates incentives for rapacious extraction as this lowers the stakes of future contest this voracious extraction depresses total oil revenue especially if world oil demand is relatively elastic and the government s weapon advantage is weak some of these political distortions can be overcome by bribing rebels or by government investment in weapons the shadow of conflict can also make less efficient nationalized oil extraction more attractive than private extraction as insecure property rights create a holdup problem for the private firm and lead to a lower license fee furthermore the government fights less intensely than the rebels under private exploitation which leads to more government turnover without credible commitment to future fighting efforts private oil depletion is only lucrative if the government s non oil office rents are large and weaponry powerful which guarantees the government a stronger grip on office and makes the holdup problem less severe

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

the output inflation tradeoff and central bank reform evidence from new zealand the 1989 reserve bank of new zealand act provides a natural experiment in which the effects of institutional change on economic relationships can be studied the act set price stability as the single objective of monetary policy and gave the bank great independence reforms of this nature may lead to a greater short run output inflation tradeoff by altering optimal stabilisation policy and wage indexation allowing for environments where learning about the new regime is assumed to be rapid as well as slow we find that a large rise in the new zealand tradeoff has occurre d since implementation of the act

inequality democracy and the protection of property rights motivated by the observed relevance of institutional quality such as strong property rights for economic performance this research considers the emergence of property rights protection as a political outcome it argues that the support for such protection is greater the more equal income distribution and the smaller political bias when these conditions initially hold the politically influential rich elite may prefer to relinquish its power through democratisation in order to commit future policy makers to the enforcement of property rights thus ensuring larger investment and faster growth along the transition path in a very unequal economy however such democratisation will not take place

duopoly delivered pricing and horizontal mergers federal merger guidelines recognize that when sellers are spatially dispersed the closeness of competitors can be crucial in evaluating the welfare consequences of a merger 1 this recognition makes it surprising that more research has not focused on the issue of horizontal mergers in spatial models the spatial setting is particularly interesting since the fact that a merger might occur in the future can alter the location decision made by firms we analyze a spatial duopoly with price discrimination in the first stage firms choose locations noncooperatively along a linear market with the foresight that a merger may occur in a later stage in the second stage firms decide whether to merge delivered price schedules are announced in stage three within this structure we study the effects of simultaneous and sequential entry and conclude that the possibility of merger generally leads to inefficient location choices and higher transport costs levy and reitzes examine the anticompetitive effects of mergers in salop s circular model 9 12 in this model firms are evenly spread around a circle and then a bertrand nash game is played in prices they conclude that if two adjoining firms merge the merged firm will increase prices at both its locations and prices will rise although to a lesser extent at all other locations in related work mcafee simons and williams study a cournot nash model of horizontal mergers between firms that engage in spatial price discrimination 10 their work also yields an estimate of the increases in equilibrium post merger delivered price yet both of these studies treat firm locations as fixed this rules out any influence of future possible merger on the location choices of firms we will show that this influence can be substantial

monetary mystique secrecy and central banking abstract the paper contains a discussion of the role of secrecy in the implementation of monetary policy it documents the federal reserve s defense of secrecy as argued in a recent freedom of information act suit the federal reserve s arguments are evaluated on the basis of economic theory theoretical papers related to the secrecy issue are reviewed the discussion highlights a number of potential benefits and costs of central bank secrecy and identifies some conditions under which secrecy could be socially beneficial

political losers as a barrier to economic development per capita income in many sub saharan african countries such as chad and niger is less than 1 30th of that of the united states most economists and social scientists suspect that this is in part due to institutional failures that stop these societies from adopting the best technologies a particularly interesting historical example comes from the diffusion of railways in the 19th century while railways are regarded as a key technology driving the industrial revolution there were large lags in their diffusion for example in 1850 the united states had 14 518 km of track britain 9 797 km and germany 5 856 km in the russian and hapsburg empires there were just 501 km and 1 357 kim respectively all data from brian r mitchell 1993 why do societies as in this example fail to adopt the best available technologies one answer is that existing powerful interest groups block the introduction of new technologies in order to protect their economic rents and societies are able to make technological advances only if they can defeat such groups economic monopolies may be one example a monopolist might wish to block the introduction of a new technology by a rival that will capture the market this idea which we call the economic losers hypothesis was discussed by simon kuznets 1968 developed at length by joel mokyr 1990 in the context of technology adoption and formalized by per krusell and jose victor rios rull 1996 and stephen l parente and edward c prescott 1997 related ideas are widely discussed in the literature on international trade policy with many formal models e g gene m grossman and elhanan helpman 1994 there are problems with this story however first despite the intuitive appeal of the idea there are relatively few instances where major economic change was blocked by economic losers mokyr 1990 emphasizes the attempts of many skilled artisans to block the introduction of new machines the most famous example is the luddites skilled weavers who were thrown out of work by mechanization interestingly however many of these groups including the luddites were ultimately unable to block economic progress equally important the economic losers hypothesis relies on the presumption that certain groups have the political power to block innovation but if so why not use this power to simply tax the gains generated by the introduction of the new technology this might be because there are limits on the nature of fiscal instruments though it seems plausible that groups with sufficient political power to block innovation would be able subsequently to lobby effectively for redistribution a more important reason however may be that the introduction of new technology and economic change more generally may simultaneously affect the distribution of political power we argue that the effect of economic change on political power is a key factor in determining whether technological advances and beneficial economic changes will be blocked in other words we propose a political loser hypothesis we argue that it is groups whose political power not economic rents is eroded who will block technological advances if agents are economic losers but have no political power they cannot impede technological progress if they have and maintain political power i e are not political losers then they have no incentive to block progress it is therefore agents who have t discussant gene grossman princeton university

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

insecure property and technological backwardness we consider the incentive to adopt superior technologies when private property is insecure the welfare costs of insecure property can be substantially greater than those commonly associated with diversion and with the disincentive effect induced by imperfect appropriation of returns when private property is sufficiently insecure anticipation of conflict over economic distribution gives rise to technological backwardness even though 1 superior technologies are readily available at zero cost and 2 the ex post diversion of resources might be small

fiscal transparency political parties and debt in oecd countries abstract many believe and argue that fiscal or budgetary transparency has large positive effects on fiscal performance however the evidence linking transparency and fiscal policy outcomes is less compelling to analyze the effects of fiscal transparency on public debt accumulation we present a career concerns model with political parties this allows us to integrate as implications of a single model three hitherto separate results in the literature on deficit and debt accumulation that transparency decreases debt accumulation at least by reducing an electoral cycle in deficits that right wing governments at least for strategic reasons tend to have higher deficits than left wing governments and that increasing political polarization increases debt accumulation to test the predictions of the model we construct a replicable index of fiscal transparency on 19 country oecd data simultaneous estimates of debt and transparency strongly confirm that a higher degree of fiscal transparency is associated with lower public debt and deficits independent of controls for explanatory variables from other approaches

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

inflation targeting does not matter another look at oecd sacrifice ratios recently in this journal goncalves and carvalho 2009 concluded that inflation targeters were able to bring inflation down at less cost than nontargeters p 242 this comment shows that their conclusion is not robust but instead is the result of comparing a particular subset of inflation targeting it disinflations with nonsimultaneous disinflations that occurred under very different macroeconomic conditions in their sample simple extensions such as justifiably varying the treatment group of it disinflations to control for common time varying effects or to control for the maastricht treaty effects suggest that it does not matter

spatial price discrimination and merger the n firm case the consequences of merger are analyzed in an n firm model of spatial price discrimination the merger occurs with known probability after location decisions have been made the possibility of merger alters locations generates inefficiency and increases the profit of the merging firms in the case of corner mergers but never in the case of interior mergers the possibility of merger may also reduce the profit of the excluded firms

vintage human capital growth and the diffusion of new technology we develop a model of vintage human capital in which each technology requires vintage specific skills we examine the properties of a stationary equilibrium for our economy the stationary equilibrium is characterized by an endogenous distribution of skilled workers across vintages the distribution is shown to be single peaked under general conditions there is a lag between the appearance of a technology and its peak usage a phenomenon known as diffusion an increase in the rate of exogenous technological change shifts the distribution of human capital to more recent vintages thereby increasing the diffusion rate

transparency democratic accountability and the economic consequences of monetary institutions debates about the appropriate mix between autonomy and accountability of bureaucrats are relevant to numerous areas of government action i examine whether there is evidence of a tradeoff between transparency democratic accountability and the gains from monetary delegation i begin by presenting a simple theoretical model which suggests that central banks that are transparent in the sense of publishing their macroeconomic forecasts will find it easier to acquire a reputation despite making central banks more subject to outside scrutiny then monetary transparency can lead to improved economic outcomes i also consider arguments about the effect of accountability provisions involving parliamentary oversight and control over central bankers the paper then uses a new data set to examine these issues empirically focusing on a natural experiment involving disinflation costs under different central banking institutions during the 1990s results suggest that countries with more transparent central banks face lower costs of disinflation while accountability provisions have no clear effect on disinflation costs my results also concord with earlier findings that the effect of monetary institutions is conditional on other features of the political environment

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

the distribution of income in the presence of appropriative activities we examine the distribution of income when agents allocate their initial endowments between production and appropriation arms investments influence or rent seeking activities final output depends on the productive contributions of the agents but is divided between them according to their relative contributions in appropriation various possible improvements in an agent s useful productivity reduce the agent s equilibrium share of income but increases in initial endowments increase an agent s share we contrast our results to those that would obtain in the competitive counterpart to our model and discuss its relevance both for history and for the present the results extend to a class of models where distribution is determined between two groups of agents with agents within each group behaving non cooperatively but without exhibiting the free rider problem

price stability and central bank independence discipline credibility and democratic institutions despite mixed empirical evidence in the past two decades central bank independence cbi has been on the rise under the assumption that it ensures price stability using an encompassing theoretical approach and new yearly data for de jure cbi seventy eight countries 1973 2008 we reexamine this relationship distinguishing the role of printing less money discipline from the public s beliefs about the central bank s likely actions credibility democracies differ from dictatorships in the likelihood of political interference and changes to the law because of the presence of political opposition and the freedom to expose government actions cbi in democracies should be directly reflected in lower money supply growth besides being more disciplinarian it also ensures a more robust money demand by reducing inflation expectations and therefore inflation empirical results are robust and support a discipline effect conditioned by political institutions as well as a credibility effect

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

directly unproductive profit seeking dup activities this paper propses directly unproductive profit seeking dup activities as a general concept that embraces a wide range of recently analyzed economic activities including the subset of rent seeking activities considered by krueger it then proceeds to provide a synthesis and generalization of the welfare theoretic analysis of such activities by developing a fourfold categorization of cases depending on the levels of distortions before and after the dup activity thus a unification and overview of the subject are achieved

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

the political economy of monetary institutions in recent decades countries have experimented with a variety of monetary institutions including alternative exchange rate arrangements and different levels of central bank independence political economists have analyzed the choice of these institutions emphasizing their role in resolving both the time inconsistency problem and dilemmas created by an open economy this first generation work however suffers from a central limitation it studies exchange rate regimes and central bank institutions in isolation from one another without investigating how one monetary institution affects the costs and benefits of the other by contrast the contributors to this volume analyze the choice of exchange rate regime and central bank independence together and in so doing present a second generation of research on the determinants of monetary institutions the articles incorporate both economic and political factors in explaining the choice of monetary institutions investigating how political institutions democratic processes political party competition and interest group pressures affect the balance between economic and distributional policy objectives

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

distinguished lecture on economics in government the private uses of public interests incentives and institutions as a long time student of the public sector i welcomed the opportunity to come to washington as a member of the council of economic advisers and later to become the chairman of the council partly because it gave me an opportunity to study at first hand this immensely important part of our economy and society and to test my ideas against the reality of government in action to be sure i came also as an activist if not with a fully articulated agenda at least with a view about what it was that government should and should not be doing my reference point was the fundamental theorems of welfare economics which as some describe them proved that the market left to itself would produce efficient allocations many saw in these theorems the vindication of adam smith s faith in the invisible hand leading the self interested decisions of each person to maximize the well being of the nation as a whole today many of us look at the fundamental theorem not as a description of the world but as an explication of the conditions under which a market equilibrium will be pareto efficient these conditions are quite strong the importance of some of the more explicit assumptions like the lack of externalities and the completeness of markets has long been known in the last two decades we have explored much more seriously the consequences of the informational assumptions implicit in the belief that markets are efficient in particular it has been shown that in the presence of imperfect information or incomplete markets the economy will not be pareto efficient in other words there joseph stiglitz is senior vice president and chief economist world bank washington d c stiglitz was a member of the council of economic advisers from 1993 95 and chairman

prosperity without conflict abstract social conflict and slow growth are features of many developing economies this paper considers the role institutions of property rights and conflict management can play in both achieving prosperity and mitigating conflict in these economies we study how introducing conflict over economic distribution into an otherwise standard model of growth can shape optimal second best taxation policy when diversionary activities cannot be taxed in this context we find that the maximization of economic efficiency may call for a reduction in growth in order to mitigate the problem of diversion even though the economy s growth is inefficiently slow in the absence of taxation this is so when institutional quality is sufficiently poor but not otherwise the paper warns against the conventional justification of growth promoting policies on efficiency grounds independently of institutions

delivered pricing and merger with demand constraints i introduction studies of merger activity in models of spatial price discrimination conventionally assume that pricing by firms is not constrained by demand instead the only constraints on the discriminatory prices charged are the cost structures of the adjacent rivals the issue of demand constraints has received attention by wang and yang 1999 in related literature but not in examining the consequences of a spatial merger we demonstrate that when discriminatory prices are constrained by willingness to pay demand the conclusions of existing models must be substantially modified first although introducing a demand constraint does not alter firm locations in the absence of merger it does alter firm locations in the presence of merger second the demand constraint results in equilibrium locations that depend on transport cost which is not the case in previous models transport cost plays an important role in spatial models and its absence to date from models of spatial merger is unrealistic moreover the dependence of location on transport costs invites the possibility that a tax on transport costs can change locations in an efficient fashion third introducing a demand constraint reverses previous results relating to the merger paradox in particular in the absence of a demand constraint models of spatial price discrimination provide instances in which the parties to a merger gain profit and the excluded firms lose profits there are no such instances in the presence of demand constraints in what follows the second section places our work within the literature and highlights the issue of demand constraints the third section presents the model contrasting it with earlier models the fourth section identifies the equilibrium locations that arise when there is the prospect of merger and contrasts these locations with those that arise in the absence of demand constraints the section also demonstrates that when demand is constrained the model of spatial price discrimination yields no cases that resolve the merger paradox a result contrasting with that offered by the model in which demand constraints are absent the fifth section demonstrates that a tax on transport can increase welfare indeed the optimal tax often completely eliminates spatial price competition by creating local monopolies the sixth section considers the full range of cases in which some but not all firms may face constrained demand and also proves that in the fully constrained case considered earlier the entire market will be served a seventh section considers a partially constrained case and the eighth section concludes ii spatial price discrimination and constrained demand spatial models have proven especially useful in capturing aspects of competition in horizontally differentiated markets as emphasized by tirole 1988 in particular they provide a general method for examining markets in which an ordered product characteristic differentiates output 1 among the more popular models is that of discriminatory pricing in which the price a firm is able to charge depends upon how close it is to its rivals thisse and vives 1988 show that such pricing is the preferred alternative when firms are able to adopt it lederer and hurter 1986 demonstrate that under such pricing rivals locate symmetrically along a linear market thus minimizing total transport costs early studies of merger in a model of spatial discrimination assumed that location choices do not anticipate the merger reitzes and levy 1995 show that such a merger increases the prices and profits of the participants but leaves those of all other firms unchanged gupta et al 1997 show that an anticipated horizontal merger alters the locations of spatially discriminating duopolists and increases transport cost thereby reducing efficiency rothschild et al 2000 confirm this finding in the case of two firms merging in a three firm market and also examine the effects of merger on the excluded rival

the social efficiency of private decisions to enforce property rights costs must be incurred if an owner is to enforce private property rights effectively we show that in a perfectly competitive economy private decisions to enforce rights may result in either more or less enforcement than is socially efficient cases of multiple stable equilibria occur and an equilibrium may be locally but not globally efficient resources may not be employed in their socially most valuable uses and enforcement may be accompanied by inefficient investment in resource productivity

effective property rights conflict and growth abstract this paper shows how the interaction between conflict and growth can give rise to a nonmonotone relationship between property rights and social welfare this interaction is illustrated in a model of endogenous growth in which equilibrium diversion of resources is the cost of securing effective property rights a symmetric equilibrium allocation associated with more secure property rights and faster growth can be pareto dominated by one associated with poorer property rights and slower growth faster growth can exacerbate the problem of diversion whenever property rights are sufficiently poor these results call for caution before a society decides to pursue economic growth independently of the institutional structure of property rights furthermore if this structure is inappropriate piecemeal reform might not be in the interest of society and a substantial reform might be necessary if it is to be welfare improving

partially independent central banks politically responsive governments and inflation theories of central bank independence have more exact implications regarding inflation in different political economic environments than generally understood or empirically examined they imply that inflation in any given country time will be a weighted average of what it would be if the central bank completely controlled monetary policy and what it would be if the government completely controlled it with the degree of central bank independence weighting the former an equation embodying this theoretical expectation is estimated by constrained least squares from a time series cross section of inflation rates in developed democracies since the bretton woods era the results confirm that the antiinflationary benefit of central bank independence is not constant but rather depends on every variable in the broader politicaleconomic environment to which wholly autonomous central banks and governments would respond differently conversely the inflationary impacts of all such political economic variables depend on the degree of central bank independence

inflation targeting matters evidence from oecd economies sacrifice ratios using data from oecd economies we show that inflation targeters suffered smaller output losses during disinflations when compared to nontargeters we also study why some countries choose to inflation target while others do not and find that higher average inflation and smaller debt levels render the adoption of the regime more likely applying heckman s procedure to control for selection bias does not alter the link between inflation targeting and less costly disinflations

conflicts over property rights and natural resource exploitation at the frontier abstract competition for land at the frontier is analyzed by considering a game between a first settler and a contestant although the first settler is the legitimate owner of a plot of land his remoteness from the government s administrative center makes it difficult to prove it this creates incentives for a contestant to dispute his claims both contenders will expend resources in order to secure ownership due to transport costs the more remote a plot of land is the lower its output value this tends to discourage appropriative activities land degradation is sometimes used as a substitute to appropriative activities a lower discount rate may encourage land degradation

social capital conflict and welfare abstract this paper analyzes the role of external conflict as a force that can create social capital hostile inter group interactions can help to resolve intra group social dilemmas but these potential gains must be weighed against the insecurity of hostile relations with an out group our central result is that the presence of an outside threat can induce higher levels of social capital either because a protective aspect of social capital comes into play and or as a reallocation of investments from private to social capital given that social capital is potentially subject to free riding the threat by promoting a greater level of social capital can be welfare improving when the threat is severe social capital and welfare are more likely to fall this effect of an external threat on social capital is stronger in poor economies these results can shed light on the sometimes contradicting empirical evidence on the relationship between conflict and social capital

exchange rate regimes and independent central banks a correlated choice of imperfectly credible institutions theory and empirical evidence show that low inflation is a precondition for economic growth independent central banks and fixed exchange rates are institutional mechanisms that help keep inflation low by lending monetary policy credibility to governments however the two institutions are commonly analyzed as substitutes that tie the hands of inflation prone governments thus the literature has difficulties describing why governments would adopt both institutions and the interaction between them this paper presents a model that allows policymakers the simultaneous choice of monetary institutions and shows that imperfectly credible institutions will overlap when exchange rates are fixed but adjustable and central bank independence is not fully ascertainable governments choose both institutions more generally the paper generates hypotheses about the conditions that make fixed exchange rates and independent central banks complements or substitutes thus contributing to an explanation of the diversity of global monetary institutions in the post bretton woods period

partial collusion fosters minimum product differentiation we investigate a spatial duopoly in which the firms simultaneously select locations at the beginning of time once chosen the locations are fixed forever but the firms will choose prices in each of a countably infinite succession of time periods we are interested in equilibrium behavior when the firms will collusively arrange a trigger strategy equilibrium in prices and will select their locations knowing that a particular such trigger strategy price equilibrium will ensue specifically we restrict our attention to prices that support an outcome on the profit possibility frontier at which the ratio of firm 1 s profits to those of firm 2 is positively related to the similar ratio of profits at the single shot noncooperative equilibrium for these profit sharing rules the resulting location equilibrium is unique and involves the pairing of firms at the market center

exchange rate proclamations and inflation fighting credibility if governments choose economic policies that often run counter to their public commitments are those commitments meaningless we argue that govern ment proclamations can be critical in signaling economic policy intentions we focus on the realm of exchange rate policy in which countries frequently implement an exchange rate regime that differs from the officially declared regime we argue that the official exchange rate regime is one of the most important signals of a government s economic policy preferences when a government makes a de jure public commit ment to a fixed exchange rate it sends a signal to domestic and international markets of its strict monetary policy priorities in contrast a government that proclaims a floating exchange rate signals a desire to retain discretion over monetary policy even if it has implemented a de facto fixed rate we use data on 110 developed and devel oping countries from 1974 to 2004 to test two hypotheses first that governments that adopt de facto fixed exchange rates will experience less inflation when they back up their actions with official declarations and second that governments that abide by their commitments as demonstrated by a history of following through on their public declarations of a fixed exchange rate regime will establish greater inflation fighting credibility within developing countries democratic institutions enhance this credibility results from fixed effects econometric models provide strong support for our hypotheses

political and economic inequities and the shaping of institutions and redistribution this article studies the joint effect of political and economic inequalities on redistributive taxation and institutional quality the theoretical model suggests that income inequality coupled with political bias in favor of the rich decreases redistribution and lowers institutional quality the effect of the former is to increase productive investment and the effect of the latter is to decrease it with resulting ambiguous implications for economic growth testing these predictions empirically in a panel of countries we find that inequality has a negative effect on both institutional quality and redistribution

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

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

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

maintaining a reputation when strategies are imperfectly observed this paper studies reputation effects in games with a single long run player whose choice of stage game strategy is imperfectly observed by his opponents we obtain lower and upper bounds on the long run player s payoff in any nash equilibrium of the game if the long run player s stage game strategy is statistically identified by the observed outcomes then for generic payoffs the upper and lower bounds both converge as the discount factor tends to 1 to the long run player s stackelberg payoff which is the most he could obtain by publicly committing himself to any strategy

entry deterrence by non horizontal merger we study when and how pure non horizontal mergers whether cross product or vertical can deter new entry organizational mergers implicitly commit firms to more aggressive price competition because heightened competition deters entry mergers can occur in equilibrium even when absent entry considerations they do not we show that in order to prevent a flood of entrants mergers arise even when a marginal merger costs incumbent firms more than does a marginal entrant

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

competition of firms discriminatory pricing and location1 two costlessly mobile firms are to be located in a market region a subset of the plane the firms compete by setting locations and delivered price schedules to study this competitive stiuation an appropriate extensive form game is defined along with an appropri ate noncooperative solution concept existence and general properties of the equilibrium are demonstrated among the results are each firm increases its profit by locating so as to decrease total cost to both firms of serving the market firms will never locate coinciden tally if they have identical production costs and transport cost rates or if these are different and the firms are located in a circular market region having a uniform demand distribution this paper studies competition between two profit maximizing firms in space who are costlessly mobile and may discriminate in price we will allow the firms to set locations and delivered price schedules and we will be concerned with the existence and properties of equilibria in location and price starting with hotelling 9 the spatial competition literature has focused on location on bounded linear markets by two or more firms hotelling assumed identical firms that produced a single good with constant cost of production and considered consumers to be uniformly distributed and to have inelastic demand he also assumed that the consumers pay transport cost and purchase the good from the cheapest source hotelling claimed that a nash equilibrium in locations for the two firm market existed and yielded back to back locations at the center of the market many authors most recently d aspremont gabszewicz and thisse 2 have noted that an equilbrium in prices and location does not exist for hotelling s model however if the firms employ identical exogeneously specified prices hotelling s conclusions hold subsequent work by smithies 14 hartwick and hartwick 7 and eaton 3 claimed to show that a nash equi librium in f o b prices and locations can exist in markets with a uniform distribu tion of consumers each of whom have identical elastic demand functions for the two and three firm problems the work of d aspremont et al casts doubt on these conclusions without the adoption of restrictive conditions our work contrasts with these works and related research which has dealt with linear markets with uniform distributions of customers and with identical firms our work will involve markets that are subsets of the plane having nonuniform distributions of customers our firms will be allowed to be different that is have differences in production and transport costs however the fundamental difference in our approach is that our firms will set discriminatory prices and not price f o b in many ways our work will represent the discriminatory pricing

equilibrium structure in an economic model of conflict four different types of equilibrium are possible within a two player model of society where only armed self enforcement of property rights is possible the main underlying parameters are the total resource endowment and the initial distribution of this endowment between the players the parameter space is partitioned into regions in which the respective types of equilibrium occur the equilibrium types involve positive arms expenditure by respectively neither player the richer player and both players the latter case involves a sub type in which the poorer player s entire endowment is expended on arms jel d30 d72 d74

competing commitments technocracy and democracy in the design of monetary institutions in this article i refine and expand the agenda for research on monetary institutions first i evaluate the analyses and research designs presented in this special issue of international organization out of this evaluation several ideas about how to produce a third generation of research on this topic emerge specific ideas include how to create a better synthesis with certain branches of economics such as information economics broaden the welfare criteria on which institutional choices are made deepen the analyses of coalitional and other political processes on which the choice of institutions are based and strengthen the tests that are offered in support of these choices in the second part of this article i explore questions of how popular sovereignty over economic policy and institutional choice are achieved i show that the institutional regimes proposed in the special issue are in a sense democratic as long as the public s perceived consensus about economic policies and macroeconomic outcomes is real however if as new work suggests there is genuine dissensus about policy and macroeconomic objectives it is no longer clear that the regimes proposed in the special issue are democratic in the conclusion i briefly discuss a possible crisis of imagination in institutional design