pillage and property this paper introduces a class of coalitional games called pillage games as a model of hobbesian anarchy any coalition can pillage costlessly and with certainty any less powerful coalition power is endogenous so a pillage game does not have a characteristic function but pillage provides a domination concept that defines a stable set which represents an endogenous balance of power every stable set contains only finitely many allocations and can be represented as a farsighted core additional results are obtained for particular games including the game in which the power of each coalition is determined by its total wealth

the role of wages and auditing during a crackdown on corruption in the city of buenos aires abstract we study the prices paid for basic inputs during a crackdown on corruption in the public hospitals of the city of buenos aires argentina during 1996 97 we find a well defined negative effect on the measures used to capture corruption prices paid by hospitals for basic homogeneous inputs decrease by 15 percent during the first 9 months of the crackdown after this period prices increase but they are still 10 percent lower than those prevailing before the crackdown relative to the precrackdown period higher wages play no role in inducing lower input prices when audit intensity can be expected to be maximal during the first phase of the crackdown but have a negative and well defined effect when audit intensity takes intermediate levels the last phase of the crackdown controlling for fixed effects we find that the wage elasticity of input prices exceeds 20 these results are consistent with the standard model of bribes of gary becker and george stigler

regulatory discretion and the unofficial economy johnson kaufmann and shleifer 1997 find that the share of the unofficial economy in gdp is determined by the extent of control rights held by politicians and bureaucrats in post communist economies exploring in more detail the role of bribes and using a broader data set from the oecd latin america and transition economies we find that the unofficial economy accounts for a larger share of gdp when there is more corruption and when the rule of law is weaker while these findings are consistent with the earlier results for transition economies in the larger country sample we find it is not necessarily the case that more regulation or higher taxes directly increases the size of the unofficial economy the problem appears to be not regulation or taxation per se but whether the state administrative system can operate without corruption a high level of regulatory discretion helps create the potential for corruption and drive firms into the unofficial economy

the culture of corruption tax evasion and economic growth this study uses a dynamic general equilibrium model to quantify the effects of corruption and tax evasion on fiscal policy and economic growth the model is calibrated to match estimates of tax evasion in developing countries the calibrated model is able to generate reasonable predictions for net tax rates the corruption associated with public investment projects and the negative correlation between corruption and tax revenue the presence of corruption and evasion is shown to have significant but not large negative effects on economic growth the relatively moderate effects help explain the absence of a robust negative correlation between growth and corruption in cross country data the model also implies that cracking down on tax evasion before addressing corruption can be a bad idea and that higher wages for public officials can improve welfare jel h3 o4

political bias and war we examine the incentives for countries to go to war as they depend on the comparison between how much their pivotal decision makers have at risk and how much they stand to gain from a war how this ratio compares to the country at large is what we term political bias if there is no political bias then there are always payments that one country would like to make to the other that will avoid a war in the presence of commitment or enforceability of peace treaties if there is a bias on the part of one or both countries then war can result and in some cases cannot be prevented by any transfer payments we examine how war technology and relative wealth levels interact with political bias in determining whether countries make transfers go to war and form alliances our results shed some new light on the uneven contender paradox and the interpretation of the democratic peace

arms races and negotiations two players simultaneously decide whether or not to acquire new weapons in an arms race game each player s type determines his propensity to arm types are private information and are independently drawn from a continuous distribution with probability close to one the best outcome for each player is for neither to acquire new weapons although each prefers to acquire new weapons if he thinks the opponent will there is a small probability that a player is a dominant strategy type who always prefers to acquire new weapons we find conditions under which the unique bayesian nash equilibrium involves an arms race with probability one however if the probability that a player is a dominant strategy type is sufficiently small then there is an equilibrium of the cheap talk extension of the game where the probability of an arms race is close to zero copyright 2004 wiley blackwell

endogenous corruption in a neoclassical growth model abstract the following paper presents a simple neoclassical growth model where corruption is an endogenous result of competition between a public agent and a private agent the model provides a simple theoretical framework in which the level of corruption as well as the effects of corruption on income consumption and growth are identifiable bureaucratic red tape is then added to the model the results suggest that a priori corruption is neither efficiency enhancing nor efficiency detracting with respect to growth but always results in some income redistribution

fiscal stimulus in times of high debt reconsidering multipliers and twin deficits we investigate the impact of fiscal stimuli at different levels of the government debt to gdp ratio for a sample of 17 european countries from 1970 to 2010 this is implemented in an interacted panel var framework in which all coefficient parameters are allowed to change continuously with the debt to gdp ratio we find that responses to government spending shocks exhibit strong nonlinear behavior while the overall cumulative effect of a spending shock on real gdp is positive and significant at moderate debt to gdp ratios this effect turns negative as the ratio increases the total cumulative effect on the trade balance as a share of gdp is negative at first but switches sign at higher levels of debt consequently depending on the degree of public indebtedness our results accommodate long run fiscal multipliers that are greater and smaller than one or even negative as well as twin deficit and twin divergence behavior within one sample and time period from a policy perspective these results lend additional support to increased prudence at high public debt ratios because the effectiveness of fiscal stimuli to boost economic activity or resolve external imbalances may not be guaranteed

war is in the error term at least since thucydides students of international relations have sought rational explanations for the advent of war rationalist explanations assume purposive action states are said to make reasoned decisions about the use of force although rationalist explanations have proven persuasive durable and offer the basis for cumulative theorizing they also imply substantial limits on what we can know about war i show that the most general rationalist explanation for war also dictates that the onset of war is theoretically indeterminate we cannot predict in individual cases whether states will go to war because war is typically the consequence of variables that are unobservable ex ante both to us as researchers and to the participants thinking probabilistically continues to offer the opportunity to assess international conflict empirically however the realization that uncertainty is necessary theoretically to motivate war is much different from recognizing that the empirical world contains a stochastic element accepting uncertainty as a necessary condition of war implies that all other variables however detailed the explanation serve to eliminate gradations of irrelevant alternatives we can progressively refine our ability to distinguish states that may use force from those that are likely to remain at peace but anticipating wars from a pool of states that appear willing to fight will remain problematic for example we may achieve considerable success in anticipating crises but our ability to predict which crises will become wars will probably prove little better than the naive predictions of random chance the need for uncertainty to account for war means that the same conditions thought to account for war must also exist among states not destined to fight otherwise states themselves will differentiate between opponents in a way that either removes the motives for war or restores uncertainty it has long been accepted that social processes possess an element of uncertainty but the centrality of uncertainty to rationalist explanations for war means that the advent of war is itself stochastic war is literally in the error term

trade conflict and political integration explaining the heterogeneity of regional trade agreements many historians argue that the main goal of european trade integration was the preservation of peace this paper investigates whether this reasoning is relevant for the eu and other regional trade agreements rtas i provide empirical evidence that customs unions and common markets deep rtas do reduce the probability of war between members partial scope and free trade agreements shallow rtas however have no effect on war probabilities accordingly international insecurity has a differential impact on incentives to create rtas deep rtas are signed between countries that are involved in many interstate disputes and that have low trade costs with the rest of the world whereas the opposite is true for shallow rtas

inefficiency in legislative policymaking a dynamic analysis this paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining the policy space incorporates both productive and distributive public spending and distortionary taxation the productive spending is investing in a public good that benefits all citizens e g national defense and the distributive spending is district specific transfers e g pork barrel spending investment in the public good creates a dynamic linkage across policymaking periods the analysis explores the dynamics of legislative policy choices focusing on the efficiency of the steady state level of

powerful pacifists democratic states and war democracies are less likely to fight wars with each other they are also more likely to prevail in wars with autocratic states i offer an explanation of this syndrome of powerful pacifism drawn from the microeconomic theory of the state state rent seeking creates an imperialist bias in a country s foreign policy this bias is smallest in democracies where the costs to society of controlling the state are relatively low and greatest in autocracies where the costs are higher as a result of this bias autocracies will be more expansionist and in turn war prone in their relations with each other where the absence of this imperialist bias is manifest the relative pacifism of democracies appears in addition democracies constrained by their societies from earning rents will devote greater absolute resources to security enjoy greater societal support for their policies and tend to form overwhelming countercoalitions against expansionist autocracies it follows that democracies will be more likely to win wars

ethnic diversity civil war and redistribution in a game theoretic framework we analyse the circumstances under which self enforcing redistribution and power sharing coalitions can be used to peacefully resolve ethnic conflict the existence of a pacific equilibrium depends crucially on ethnic diversity the number of ethnic groups the risk of civil war is comparatively high at intermediate levels of ethnic diversity the risk is low if a society is either very homogeneous or very diverse predictions of the model are consistent with evidence on the incidence of civil war

civil war and u s foreign influence we study how foreign interventions affect civil war around the world in an infinitely repeated game we combine a gambling for resurrection mechanism for the influencing country with the canonical bargaining model of war in the influenced country to micro found sudden shifts in power among the domestic bargaining partners which are known to lead to war due to commitment problems we test two of our model predictions that allow us to identify the influence of foreign intervention on civil war incidence i civil wars around the world are more likely under republican governments and ii the probability of civil wars decreases with the u s presidential approval rates these results withstand several robustness checks and overall suggest that foreign influence is a sizable driver of domestic conflict

public economics and history a review of fiscal regimes and the political economy of premodern states edited by andrew monson and walter scheidel fiscal regimes and the political economy of premodern states greatly expands our knowledge of the history of premodern fiscal systems and raises important questions about the political economy of premodern states answering those questions can help explain how states developed the capacity to tax why tax levels and government spending patterns varied greatly in the past even though per capita incomes were similar how government debt and representative institutions arose and last but not least why some premodern states expanded and others collapsed but firm answers to those questions will have to combine the history outlined in fiscal regimes and the political economy of premodern states with systematic data and formal models of political economy

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

self enforcing voting in international organizations some international organizations are governed by unanimity rule some others by a majority system still others have moved from one system to the other over time the existing voting models have a difficult time explaining the observed variation in governance mode and in particular the widespread occurrence of the unanimity system we present a model whose main departure from standard voting models is that there is no external enforcement mechanism each country is sovereign and cannot be forced to follow the collective decision or in other words the voting system must be self enforcing the model yields unanimity as the optimal system for a wide range of parameters and delivers rich predictions on the variation in the mode of governance both across organizations and over time we thank james anderson matt jackson francois maniquet guido tabellini and jean tirole for very helpful comments arnaud costinot provided excellent research assistance we also bene

can tax evasion tame leviathan governments this paper asks to what extent institutional features that facilitate tax evasion may keep leviathan governments at bay the specific feature we look at is banking secrecy abroad the analysis draws on a 16 generation olg model in which tax rates are determined in a repeated game between voters and a rent seeking leviathan government key insights are 1 effects on any generation alive when change takes place may differ substantially from steady state effects that accrue for generations yet to be born 2 there is considerable intergenerational diversity in these effects that is not monotonic as we move from young to old combined these results suggest that the political economy of pertinent institutional change may be quite complex

eight questions about corruption this paper will discuss eight frequently asked questions about public corruption 1 what is corruption 2 which countries are the most corrupt 3 what are the common characteristics of countries with high corruption 4 what is the magnitude of corruption 5 do higher wages for bureaucrats reduce corruption 6 can competition reduce corruption 7 why have there been so few recent successful attempts to fight corruption 8 does corruption adversely affect growth

honesty and evasion in the tax compliance game conventional models of tax compliance emphasize that taxpayers make strategic tax reports underreporting income to the extent that this behavior is functionally rewarded in contrast to this view considerable empirical evidence suggests that many taxpayers are inherently honest reporting truthfully regardless of the incentive to cheat in this article we build a game theoretic model of tax compliance that includes both honest and potentially dishonest taxpayers we show that including honest taxpayers significantly alters the model leading to much improved empirical predictions and somewhat different and novel policy implications

conflict and rent seeking success functions ratio vs difference models of relative success the rent seeking competitions studied by economists fall within a much broader category of conflict interactions that also includes military combats election campaigns industrial disputes lawsuits and sibling rivalries in the rent seeking literature each party s success pi which can be interpreted either as the probability of victory or as the proportion of the prize won has usually been taken to be a function of the ratio of the respective resource commitments alternatively however pi may instead be a function of the difference between the parties commitments to the contest the contest success function csf for the difference from is a logistic curve in which as is consistent with military experience increasing returns apply up to an inflection point at equal resource commitments a crucial flaw of the traditional ratio model is that neither onesided submission nor two sided peace between the parties can ever occur as a cournot equilibrium in contrast both of these outcomes are entirely consistent with a model in which success is a function of the difference between the parties resource commitments

rationalist explanations for war realist and other scholars commonly hold that rationally led states can and sometimes do fight when no peaceful bargains exist that both would prefer to war against this view i show that under very broad conditions there will exist negotiated settlements that genuinely rational states would mutually prefer to a risky and costly fight popular rationalist and realist explanations for war fail either to address or to explain adequately what would prevent leaders from locating a less costly bargain essentially just two mechanisms can resolve this puzzle on strictly rationalist terms the first turns on the fact that states have both private information about capabilities and resolve and the incentive to misrepresent it the second turns on the fact that in specific strategic contexts states may be unable credibly to commit to uphold a mutually preferable bargain historical examples suggest that both mechanisms are empirically plausible

corruption as an occupational choice endogenous corruption and tax policy corruption is endemic in many countries and empirical studies have demonstrated how it impacts on macroeconomic indicators theoretical studies have generally assumed an exogenously given proportion of the population are corrupt or that the public sector is fixed in size far fewer explore how corruption emerges endogenously we endogenize corruption as an occupational choice workers choose private or public employment public employees can be honest or corrupt corruption is subject to a social sanction that results in a loss of self esteem those who care little about the social sanction choose to be corrupt when a firm meets a corrupt public employee it pays a bribe to secure a reduction in the tax rate the economy has two self sustaining equilibria with different levels of corruption corruption reduces tax revenue and the tax rate that maximizes revenue an increase in the social sanction reduces corruption but also reduces tax revenues if the economy is in a high corruption equilibrium paying a wage premium to public sector workers can result in all public sector workers being corrupt public sector audits to detect corrupt workers always reduce corruption but can only increase welfare when they are cheap to conduct and the economy is in a low corruption equilibrium

local capture evidence from a central government transfer program in uganda according to official statistics 20 percent of uganda s total public expenditure was spent on education in the mid 1990s most of it on primary education one of the large public programs was a capitation grant to cover schools nonwage expenditures using panel data from a unique survey of primary schools we assess the extent to which the grant actually reached the intended end user schools the survey data reveal that during 1991 1995 the schools on average received only 13 percent of the grants most schools received nothing the bulk of the school grant was captured by local officials and politicians the data also reveal considerable variation in grants received across schools suggesting that rather than being passive recipients of flows from the government schools use their bargaining power to secure greater shares of funding we find that schools in better off communities managed to claim a higher share of their entitlements as a result actual education spending in contrast to budget allocations is regressive similar surveys in other african countries confirm that uganda is not a special case

mediation and peace this article applies mechanism design to the study of international conflict resolution standard mechanisms in which an arbitrator can enforce her decisions are usually not feasible because disputants are sovereign entities nevertheless we find that this limitation is inconsequential despite only being capable of making unenforceable recommendations mediators can be equally effective as arbitrators by using recommendation strategies that do not reveal that one player is weak to a strong opponent a mediator can effectively circumvent the unenforceability constraint this is because these strategies make the strong player agree to recommendations that yield the same payoff as arbitration in expectation this result relies on the capability of mediators to collect confidential information from the disputants before making their recommendations simple protocols of unmediated communication cannot achieve the same level of ex ante welfare as they preclude confidentiality

state capacity and military conflict powerful centralized states controlling a large share of national income only begin to appear in europe after 1500 we build a model that explains their emergence in response to the increasing importance of money for military success when fiscal resources are not crucial for winning wars the threat of external conflict stifles state building as finance becomes critical internally cohesive states invest in state capacity while divided states rationally drop out of the competition causing divergence we emphasize the role of the military revolution a sequence of technological innovations that transformed armed conflict using data from 374 battles we investigate empirically both the importance of money for military success and patterns of state building in early modern europe the evidence is consistent with the predictions of our model

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

domestic political survival and international conflict is democracy good for peace we build a game theoretic model where aggression can be triggered by domestic political concerns as well as the fear of being attacked in the model leaders of full and limited democracies risk losing power if they do not stand up to threats from abroad in addition the leader of a fully democratic country loses the support of the median voter if he attacks a non hostile country the result is a non monotonic relationship between democracy and peace using polity data we classify countries as full democracies limited democracies and dictatorships for the period 1816 2000 correlates of war data suggest that limited democracies are more aggressive than other regime types including dictatorships and not only during periods when the political regime is changing in particular a dyad of limited democracies is more likely to be involved in a militarized dispute than any other dyad including mixed dyads where the two countries have different regime types thus while full democratization might advance the cause of peace limited democratization might advance the cause of war we also find that as the environment becomes more hostile fully democratic countries become more aggressive faster than other regime types

corruption tax evasion and the laffer curve in a corrupt tax administration a rise in tax ratesets off complicated strategic moves by both taxpayersand administrators it is shown that in somecircumstances this may bring about laffer likebehavior of overall tax revenue i e a higher taxrate results in smaller net revenue for thegovernment further a more intense tax effort byincreasing the number of returns audited may alsoreduce net revenues finally if tax and fine ratespositively influence the level of corruption in theadministration these outcomes become more likely

equilibrium in the jungle in the jungle power and coercion govern the exchange of resources we study a simple stylized model of the jungle that mirrors an exchange economy we de ne the notion of jungle equilibrium and demonstrate that a number of standard results of competitive markets hold in the jungle jel classi cation c7 d4 s477 b201

taxes and bribery the role of wage incentives this paper presents a simple model to evaluate alternative payment schemes for tax inspectors in the presence of corruption we consider problems of both moral hazard which arises because taking bribes cannot be observed without costly monitoring and adverse selection since not all potential tax inspectors can be identified as being honest or dishonest we identify three wage regimes first one could pay the same wage that a tax inspector could earn elsewhere his reservation wage second one could pay a wage which solves the moral hazard problem i e deters bribery this we call an efficiency wage by analogy with recent models examined i n macro economics third the government could pay a wage below the reservation wage at which only the dishonest become tax inspectors the capitulation wage we make precise the conditions under which each yields the greatest amount o f tax revenues net o f administrative costs many countries in the developing world are undergoing structural adjustment programmes which require fundamental fiscal changes outside agencies advise restoration of budget balance a task which involves expenditure cuts and tax increases the treatment of public employee pay scales often poses a particular dilemma i n this process wages and salaries are a significant component of government expenditures and one important question concerns the extent to which wages rather than employment cuts should be used to save money there is sometimes a reluctance to advocate wage cuts stemming in part from a feeling that this might impair the performance of the public sector hence tanzi 1990 argues that a policy of wage cutting is likely to increase the inefficiency of public sector employees especially at a time when the public sector is expected to play a larger role in restructuring the economy p 16 in the context of tax collection the issue is particularly pressing given the need to raise more tax revenues a reduction in efficiency in this branch of the government i s likely t o mean that fewer returns are processed and when individuals living standards are squeezed their incentive to accept bribes in lieu o f collecting taxes i s increased o n this count i t i s even sometimes suggested that wages of tax inspectors should be increased to aid the effort to the comments of henry bienen john hey and two anonymous referees have been helpful in revising this paper the authors are also grateful t o the john m olin program for the study o f economic organization and public policy at princeton university and the pew charitable trusts for financial support mclaren also acknowledges support from the international finance section of princeton university none of the above should be implicated in any way see for example goode 1984 chapter 1 3 and gould and amaro reyes 1983

corruption and culture an experimental analysis article i nfo article history why do some people choose corruption over honesty and others not do the social norms and values prevailing in the societies in which they grew up affect their decisions in 2005 we conducted a bribery experiment and found that among undergraduates we could predict who would act corruptly with reference to the level of corruption in their home country among graduate students we could not in 2007 we replicated our result and also found that time spent in the uk was associated with a decline in the propensity to bribe although this does not explain our inability to predict graduate behaviour we conclude that while corruption may in part be a cultural phenomenon individuals should not be prejudged with reference to their country of origin

the computational experiment an econometric tool an economic experiment consists of the act of placing people in an environment desired by the experimenter who then records the time paths of their economic behavior performing experiments that use actual people at the level of national economies is obviously not practical but constructing a model economy and computing the economic behavior of the model s people is such experiments are termed computational this essay specifies the steps in designing a computational experiment to address some well posed quantitative question the authors emphasize that the computational experiment is an econometric tool used in the task of deriving the quantitative implications of theory

bureaucratic corruption and endogenous economic growth there appears to be significant diversity in the incidence of bureaucratic corruption across countries at different stages of economic development and under different political and economic regimes little theoretical or empirical analysis has been offered however on the link between corruption government and growth the paper attempts to fill the void through equilibrium models of endogenous growth balanced growth is derived as a balancing act between accumulating human capital which engenders growth and accumulating political capital which mainly assures bureaucratic power the analysis focuses on the interplay between investment in these two types of capital and its implications for long term growth under alternative political regimes some propositions are tested and confirmed empirically