future directions for domestic food policy the u s food programs have gone through considerable changes over the last fifty years originally the food stamp program and the school lunch program which began in the 1930s were intended to dispose of farm surplus paarlberg p 101 however starting in the 1960s a series of events significantly changed the nature and scope of the u s food programs in the late 1960s the hunger lobby rallying various organizations motivated to help the poor came into existence resulting in an expansion of the domestic food assistance programs annual federal expenditures on u s department of agriculture usda food programs rose over ninefold to over 10 billion in the decade 1969 79 and reached 16 billion in 1981 longen about 60 of these expenditures were for the food stamp program the largest of the domestic food programs other current u s food programs include the school lunch program the school breakfast program the supplemental food program for women infants and children wic and the food distribution programs 1 each has its own eligibility criteria which target it toward a particular group of the population for example while the food stamp program s eligibility is based on general grounds such as income and family size and is not restricted to certain categories of the poor the wic program is precisely targeted toward those people determined by local health professionals to be at nutritional risk pregnant women infants etc the food assistance programs are now aimed at improving the nutritional status of low income people and school children for example emphasis is given to providing balanced meals in many of the child nutrition programs other changes include the greatly expanded food stamp program which through the use of vouchers or stamps has become the national approach to general food assistance finally as national standards replaced state and local regulations uniform eligibility standards and benefits gave the food programs a national scope however the spiraling costs of the domestic food programs have led some to question their effectiveness for example paarlberg p 109 has argued that the food stamp program has been expanded beyond its optimal point of providing food for those who are truly in need a growing federal deficit the new federalism and the current mood for fiscal restraint certainly indicate that the period of fast growth of the food programs is over after the escalation of the 1970s the 1980s likely will see a plateau in the total funding for domestic food programs in this context the issues of this decade will be to improve the effectiveness of the current food assistance programs it will require a better assessment of what is the appropriate safety net and what are the most efficient ways for society to provide such a safety net for domestic food policy this indicates a careful evaluation of the kind and amount of assistance provided e g in kind versus cash transfers it also raises the question of the proper target group and eligibility criteria for each food program in this paper some of the desirable characteristics of the food programs are examined for example it is argued that as far as food policy is concerned in kind transfers to households are superior to cash transfers implying that the food programs should not evolve toward direct cash assistance also any program that has rather general eligibility the author is an associate professor department of agricultural economics university of wisconsin the author wishes to acknowledge the comments and suggestions of peter helmberger and richard bishop i see longen and allen for a more detailed description of each program and senauer for a discussion of some food policy issues for example senauer has argued that modifications of the food program over the last twenty years have significantly weakened its ability to expand food consumption

inflationary bias of the federal reserve system the creation of the federal reserve system coincides with a turning point in the inflationary history of the united states before 1914 there was no overall trend in the price level generally during war time periods the consumer price index increased significantly but during the intervening periods prices gradually declined to approximately their former levels however since the creation of the fed there has been an unmistakable and almost continuous upward trend in prices l

investors in need of social ethical and environmental information in this contribution we will briefly discuss the shareholders need for social ethical and environmental information and the efforts of corporations to address this need looking at three cases we will raise some doubt with regard to the adequacy of corporate see reporting to meet the needs of shareholders we will discuss the following three cases bp s investments in azerbaijan nike s management of its labour conditions of child labour and security issues and monsanto s production of genetically modified seeds

bureaucratic theory and the choice of central bank goals economists have frequently asserted that central bank priorities among economic goals have not been appropriate to the public s desires for example one interpretation of the results of reuber s pioneering study of central bank preferences was that the bank of canada s reactions reflect the placing of a very heavy implicit weight on price stability compared with higher employment presumably based on a judgement about the relative economic costs of more unemployment and more price inflation the evidence examined on the relative economic costs of price inflation and unemployment suggests that the economic costs of inflation are not as high relative to the costs of unemployment as the reactions and statements of the authorities have implied reuber p 132 1

life cycle consumption and hyperbolic discount functions abstract studies of animal and human behavior suggest that discount functions are approximately hyperbolic ainslie picoeconomics 1992 hyperbolic models explain a wide range of empirical anomalies including 1 missing precautionary savings effects 2 incongruence between the elasticity of intertemporal substitution and the inverse of the coefficient of relative risk aversion 3 consumption discontinuities at retirement 4 variation in patience over the life cycle 5 consumer self reports of undersaving 6 disproportionate retirement accumulation in illiquid assets 7 asset specific marginal propensities to consume and 8 declining national savings rates in developed countries hyperbolic models also provide a new framework for analyzing the welfare gains that come from pro saving policies like social security and tax deferred retirement accounts

the federal reserve as a bureaucracy an examination of expense preference behavior in this paper the federal reserve system is viewed as a bureaucracy with a bureau s incentive to increase expenses beyond the profit maximizing point moreover the bureau consists of divisions the district banks that exhibit their own expense prefer ence behavior an empirical investigation of labor demand by the boar d and district banks reported in this paper demonstrates that the fed eral reserve has engaged in expense preference behavior and that the centralization of the monetary authority amplified this type of behav ior copyright 1988 by ohio state university press

cash by any other name evidence on labelling from the uk winter fuel payment standard economic theory implies that the labelling of cash transfers or cash equivalents e g child benefits food stamps should have no effect on spending patterns the empirical literature to date does not contradict this proposition we study the uk winter fuel payment wfp a cash transfer to older households exploiting sharp eligibility criteria in a regression discontinuity design we find robust evidence of a behavioural effect of the labelling on average households spend 41 of the wfp on fuel if the payment was treated as cash we would expect households to spend approximately 3 of the payment on fuel

optimal seigniorage the gold standard and central bank financing this paper extends the theory of optimal seigniorage to allow for money production costs an important implication is tha t high money production costs along with a requirement that the monet ary branch of government self finance its operation severs the connecti on between the tax rate on output and the tax rate on money using u s data the authors find that tax rates on output and money move together only during periods when the government controls both tax rates and there is a close correspondence between revenue produced b y the monetary authority and revenue transferred to the treasury copyright 1993 by ohio state university press

research activities and budget allocations among federal reserve banks this paper applies the theory of bureaucracy to the internal operation of the federal reserve system according to the bureaucratic model the board of governors will use budget allocations to the individual reserve banks as a means of controlling their provision of information by examining the research publications of reserve banks we find two banks which began providing adverse publicity for the system in recent years the empirical analysis reveals that the budgets of these banks have decreased following the changes in research agendas

compliance with mandatory environmental reporting in financial statements the case of spain 2001 2003 corporate social ethical and environmental reporting seer should ideally discharge the accountability of an organisation to its stakeholders voluntary reporting has been characterised by a dearth of neutral and objective information such that the advocates of seer recommend that it be made compulsory their underlying rationale is that legally specified disclosure requirements and enforcement mechanisms will enhance the quality of such reporting this paper sets out to explore how realistic this scenario actually is in view of the conflicting interpretations in the literature on this subject to that end a survey of the reporting patterns of 78 of the largest spanish companies between 2001 and 2003 examines the extent of their compliance with the icac 2002 standard which obliged them to make environmental disclosures in their financial statements the results suggest that progressive and improved regulation could increase the volume and quality of seer disclosures they also suggest however that persistent non compliance means that the problems associated with voluntary disclosure still exist finally through an impression management perspective the study reveals the diverse strategies ranging from dismissal to concealment that are employed by companies to avoid transparency as regulation improves and enforcement expectations rise it becomes more difficult to dismiss compulsory reporting norms as a result some firms engage in more complex concealment strategies to attain corporate legitimacy depriving stakeholders of regulatory information the latter point serves to reconcile apparently contradictory explanations in the literature as to whether legitimacy theory might explain partial compliance with seer regulation

federal reserve independence abstract the federal reserve is always called an independent agency the term independent is rarely defined the only attempt in the literature and internal records is based on chairman martin s statement that the federal reserve is independent with the government not independent of the government martin explained several times that independence within government meant that the federal reserve helped to finance government budget because they were approved by congress and signed by the president financing budget deficits is the very opposite of the principle adopted when congress approved the federal reserve act in 1913 in fact the federal reserve has supported treasury operations many times i conclude that it is far more important to have an enforceable policy rule such as the taylor rule but any rule must have a provision that permits the rule to be set aside

child allowances and allocative decisions in romanian households in this paper it is tested whether increasing child allowances will affect the intra household allocation of consumption measured by child and adult goods holding total household resources constant the analysis is based on household survey data collected in romania where cash payments are made to families according to the number and age of children selectivity is controled for since there is the potential for self selection bias in terms of the level of child allowances received the findings suggest that holding total household resources constant child allowances increase demand for child goods and calories and reduce demand for adult goods

inflationary bias of the federal reserve system a bureaucratic perspective abstract the federal reserve system does not receive a budget from congress but instead finances its operation from interest payments on its government security portfolio this peculiar financing arrangement provides the foundation for a bureaucratic model of federal reserve official behavior the empirical section tests the bureaucratic model by analysing the fed s expenditure record since 1947 and its policy actions during periods of constitutional revision

a public choice theory of the great contraction further evidence in recent issues of this journal perhaps no other paper has inspired as intense interest as our anderson shughart and tollison 1988 challenge to the friedman schwartz 1963 mistake theory of the great contraction in that article we advanced an hypothesis of fed behavior grounded in the political self interests of the banking system s regulators and their overseers in congress specifically we argued that the fed obtained two important benefits from the massive contraction in the money supply over which it presided between late 1929 and the middle of 1930 first because of the differentially higher failure rates of nonmember banks during this period the proportion of the commercial banking industry under the fed s control increased dramatically the second benefit came in the form of a change in the fed s method of finance which freed the board of governors from the normal congressional budgetary process putting the great contraction in interest group terms we suggested that during 1929 1933 the fed was acting rationally as the agent of congressmen serving on important oversight committees who in turn were representing the interests of the member banks in their states and districts we tested this hypothesis using bank failure rate data across states and found that holding other things equal the failure rates of nonmember banks in the early 1930s were significantly higher in states with representation on the house banking

rent seeking over time the continuity of capture recently in this journal skaggs and wasserkrug 1983 presented a model of bureau monitoring and related it to federal reserve behavior central to their argument was that bureau constituencies may pressure congressmen in maintaining the monitoring status quo if competition is to be expected between self interested parties for the property rights associated with regulation and regulatory commissions then bureau monitoring or lack of it should have value the capture of a commission by others is made more costly when information on a bureau s activities is restricted in general the issues surrounding bureau monitoring bring out the dynamic nature of the capture theory of regulation once captured commissions must remain captured if benefits are to accrue to rent seekers over time empirical support for the capture perspective however only relates personal characteristics of the appointed regulators commissioners to characteristics preferred by the regulated to reveal the dynamic nature of capture one must also account for the continuity of commission membership a captured regulatory body can only remain captured if there is a continuity of desirable characteristics by compiling characteristics of appointed members previous studies have examined the output of the appointment process that resulted from competition for positions on regulatory boards however the lack of synchronization between appointments to federal regulatory commissions and presidential elections suggests that the distribution of influence among self interested groups in the selection process may vary over time thus continuous successful capture is more easily achieved if appointees remain on boards for full terms and if possible land reappointments but the process is complicated further because regulators

central bankers bureaucratic incentives and monetary policy 1 central bankers bureaucratic incentives and monetary policy an introduction i structure of central bank financing and bureaucratic rents 2 monetary policy theory and practice 3 inflationary bias of the federal reserve system a bureaucratic perspective 4 preliminary evidence on the use of inputs in the federal reserve system 5 human capital and bureaucratic inertia the use of inputs by the federal reserve ii the organization of central bank bureaus and the problems of control 6 the choice of monetary instruments and the theory of bureaucracy 7 bureaucratic theory and the choice of central bank goals 8 research activities and budget allocations among federal reserve banks 9 banking sector influence on the relationship of congress to the federal reserve system iii political pressures bureaucratic incentives and monetary policy 10 politics and fed policymaking 11 central bank independence an international comparison 12 a private central bank some olde english lessons iv conclusion 13 central bankers and the issue of independence contributors

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

fed behavior in periods of price and wage controls there is a literature which addresses the bureaucratic behavior and incentives of the federal reserve system some of the papers along these lines include acheson and chant 1973 kane 1980 levy 1981 toma 1981 friedman 1982 shughart and tollison 1983 and allen 1986 this paper brings to bear some additional evidence on the behavior and the incentives of the fed in particular we examine the behavior of the fed during periods of price and wage controls the public interest approach to fed behavior suggests that the fed should pursue a monetary policy that is consistent with price and wage controls in order to control inflationary forces the private interest approach suggests that price and wage controls make seigniorage operations more profitable for the fed and make it more difficult for fed overseers to monitor fed performance in both cases leading the fed to pursue monetary expansion in its own self interest during a period of price and wage controls the setting of price and wage controls therefore provides a test of public versus private interest hypotheses about fed behavior the paper proceeds as follows section 2 develops the competing explanations of federal reserve behavior section 3 presents the estimates of a structural money supply reaction function and an arima transfer function model of fed behavior in each case controlling for ceteris paribus conditions and periods of wage and price controls the results of both models indicate a falsification of the public interest explanation of fed policy section 4 offers some concluding remarks

bureaucracy altruism and monetary policy it has recently been argued that the fiscal relationship between the federal reserve and the treasury by which the fed keeps a portion of its earnings imparts an inflationary bias to monetary policy because that relationship gives the fed an incentive to increase its earnings by increasing the monetary base this hypothesis is tested within the framework of a federal reserve objective function incorporating bureaucratic and social goals and no evidence is found to support it

politics and the rescue of insolvent savings and loans before 1989 the results presented in this paper are consistent with those predicted by public choice economists who believe that regulatory agencies represent the interests of their controlling congressional committees membership on committees is not random congressmen seek committee assignments where they can represent the interests of their constituency congressmen from states where financial institutions are significant will seek membership on their respective banking committees once on those committees congressmen will seek to protect and promote their own constituency in the case of the savings and loan industry insolvent savings and loans received benefits from staying in operation these savings and loans gained another chance to gamble for resurrection being shut down or placed in a management consignment program did not give this option the results presented in our paper indicate that participation in one of the rescue programs is not random savings and loans in states with political power representation on the senate banking committee are less likely to be resolved

a decade of dissent explaining the dissent voting behavior of bank of england mpc members we examine the dissent voting record of the bank of england monetary policy committee contrary to findings in the fomc literature for example havrilesky and schweitzer in the political economy of american monetary policy pp 197 210 1990 chappell et al in q j econ 108 1 185 218 1993 the effects of members career backgrounds and the political channel of appointment on voting behavior are negligible reflecting the distinct institutional constraints and incentives associated with uk monetary policy our findings also suggest that literature which characterizes voting behavior as being predominantly determined by members internal or external status is overly simplistic this view is supported by econometric results appertaining to the introduction of member specific fixed effects which account for possible unobserved heterogeneity

monetary policy theory and practice in respect of the theory of monetary policy i am reminded of the comment that jacob viner made many years ago at a meeting of the american economic association about alfred marshall s economics what is new is highly unlikely at this late date also to be true and significant 1 consequently i shall restrict my remarks on theory to trying to summarize what i regard as the present intellectual position

nutrient availability food costs and food stamps nutrient consumption patterns of low income households were analyzed using data from the special low income component of the 1977 78 nationwide food consumption survey a system of simultaneous equations for estimating food cost and diet component availability levels in home food supply was applied the derived reduced form showed that food stamp program participation had a positive impact on diet component availability levels impacts of other socioeconomic variables examined for diet component availability were generally larger than those for program participation and income diet component availability levels were relatively constant across households with different income and food stamp program bonus levels

investment with a conscience examining the impact of pro social attitudes and perceived financial performance on socially responsible investment behavior this article addresses the growing industry of retail socially responsible investment sri profiled mutual funds very few previous studies have examined the final consumer of sri profiled mutual funds therefore the purpose of this study was to in an exploratory manner examine the impact of a number of pro social financial performance and socio demographic variables on sri behavior in order to explain why investors choose to invest different proportions of their investment portfolio in sri profiled funds an ordinal logistic regression analysis on 528 private investors revealed that two of the three pro social variables had a positive impact on how much the consumer invested in sri profiled funds moreover there was proof of a non altruistic motive for investing in sri as consumers who perceive that financial return of sri is equal or better than regular mutual funds invested a greater proportion of their portfolio in sri profiled mutual funds furthermore the results showed that women and better educated investors were more likely to invest a greater proportion of their investment portfolio in sri overall the findings indicate that both financial perceptions and pro social attitudes are connected to consumer investment in sri

a theoretical and empirical evaluation of the functional forms used to estimate the food expenditure equation of food stamp recipients the food expenditure equation of food stamp recipients is obtained as a generalization of roy s identity this equation rationalizes a larger marginal propensity to spend on food out of food stamps than out of income and is an alternative to the traditional southworth formulation the only previously estimated functional form found to be flexible is due to senauer and young estimates of this specification using data from the san diego cash out demonstration illustrates that flexibility is important an example of welfare reform demonstrates that substantial errors can occur if flexibility is ignored

bureaucracy altruisme and monetary policy a note from a forecasting perspective sets over the period 1916 1987 their structured critique is consistent with the earlier work of strong 1984 boyd 1984 allen mccrickard cartwright and delorme 1988 mester 1994 and others in general all question the findings of toma 1982 shughart and tollison 1983 boyes mounts and sowell 1988 and others that bureaucratic effects and institutional incentives have had a significant impact on the development and conduct of monetary policy an underlying issue in this debate is whether variables proxying bureaucratic or institutional effects emanating from the incentives contained in the structure

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

do intra household effects generate the food stamp cash out puzzle previous empirical studies have noted the higher marginal propensity to consume food out of food stamps in the united states compared to that out of cash income analyzing data from u s food stamp program participants we find evidence that this discrepancy may be driven primarily by the behavior of multiple adult households single adult households show no evidence of any discrepancy thus our results suggest that food stamp and cash income welfare or market may have very different impact on the intra household allocation process and that this is reflected empirically in the cash out puzzle

endogenous changes in the exchange rate regime a bureaucratic incentive model public choice submits that legal changes can be endogenous in such a way that they are manipulated by bureaucrats who want to maximize rents from transactions with various interest groups this paper takes the change in exchange rate regimes to empirically examine the premise it offers a two stage method in which we first show that the exchange rate is influenced by interest group pressures and subsequently that the 1990 market average regime mar as a phase in policy in korea was introduced mainly to serve bureaucratic incentives this method is expected to be useful to a host of countries for various studies attempting to test a possible existence of bureaucratic or other hidden motivations behind any isolated event of policy change

expenditure response to increases in in kind transfers evidence from the supplemental nutrition assistance program recent studies on food stamp participant households marginal propensity to spend out of food stamps versus income have had contradictory results experimental studies have found household behavior aligns with standard economic theory where households marginal propensity to spend on food out of food stamps is equivalent to cash income observational studies nd that households have a larger marginal propensity to spend out of food stamps than cash income in this study we re examine this question by estimating how an unprecedentedly large increase in food stamp benets due to the implementation of the american recovery and reinvestment act aects food at home expenditure we nd that the policy change caused households to increase food at home expenditure as well as increase households share of total expenditure allocated toward food at home expenditure we compare these results to a time period without a meaningful food stamp policy change and nd our results are unique to the arra implementation time period

congressional influence on u s monetary policy abstract congressional influence is generally discounted or ignored in political models of federal reserve behavior here i show that changes in the leadership of the senate banking committee are significantly correlated with monetary base growth more liberal committee leaders are associated with significantly higher base growth other factors held constant the result is shown to hold across several econometric specifications and different definitions of the congressional preference variable

the benefits of central bank s political independence abstract we consider a two tier model of monetary policy where the central banker is both subject to the explicit influence of elected political principals through contracts and the implicit influence of interest groups willing to capture monetary policy we analyze the impact of granting independence to the central banker on the scope for capture and the agency costs of delegating the monetary policy to a central banker political independence increases those agency costs but significantly stabilizes the politically induced fluctuations of inflation and improves ex ante social welfare

the effects of benefit timing and income fungibility on food purchasing decisions among supplemental nutrition assistance program households the supplemental nutrition assistance program snap is the largest nutritional safety net in the united states prior research has found that participants have higher consumption shortly after receiving their benefits followed by lower consumption towards the end of the benefit month known as the snap benefit cycle this consumption pattern has been found to have negative effects on beneficiaries we hypothesize two behavioral responses of snap participants may work in tandem to drive much of the cycle 1 short run impatience a higher preference to consume today and 2 fungibility of income the degree of substitutability between a snap dollar and a cash dollar using data from the national food acquisition and purchase survey foodaps a newly developed nationally representative survey of daily food acquisitions by snap households we find evidence of both behavioral responses however the degree of short run impatience and fungibility of income is found to differ significantly across poverty levels and use of grocery lists to plan food purchases snap households could gain from food purchase planning education

preliminary evidence on the determinants of federal reserve open market operations in the absence of a fixed policy rule the federal reserve bank fed has significant discretion in setting monetary policy the existence of professional fedwatchers attests to the fact that fed policy actions are difficult to interpret recent literature has focused on the motivations behind fed policy making and the need for secrecy and ambiguity we investigate one aspect of fed behavior the propensity of the fed to buy and sell government securities beyond that required to implement stated policies milton friedman 1982 26 called attention to this issue when he wrote

estimating the value of an in kind transfer the case of food stamps the value of one in kind transfer food stamps is estimated by evaluating the experience of an actual conversion from stamps to cash in puerto rico in 1982 the evidence indicates that the cashout of the stamps had no detectable influence on food expenditures the explanation partly lies in the distribution of expenditures for the stamps were inframarginal for most recipients however some evidence indicates that trafficking in stamps was widespread as well including indirect evidence from estimation of the piecewise linear constraint model copyright 1989 by the econometric society

what good does doing good do the effect of bond rating analysts corporate bias on investor reactions to changes in social responsibility in this study we explore how investors reconcile information on firms social responsibility with analysts assessments of future firm risk in the pricing of long term bonds we ask whether investors pay attention to small strides toward and or small slips away from socially responsible behavior arguing that analysts corporate bias toward gains and against losses influences investor reactions to corporate social responsibility we hypothesize that analysts notice and reward improvements in social responsibility yet excuse lapses we find support for this hypothesis using a unique dataset of long term bonds that combines lagged measures of firm level financial and social performance with bond specific data pertaining to risk of default and pricing the empirically robust asymmetry in investor responses to small but often cumulative increases versus decreases in corporate social responsibility reveals an under examined root cause of longer term larger scale distortions in financial market returns regarding corporate social performance our findings elaborate earlier behavioral research on how corporate bias influences analysts short term assessments of economic risk by theorizing why this corporate bias may influence long term assessments of social risk our work also motivates more critical scrutiny of the role analysts play in revising the future risk of today s social action versus inaction

federal reserve transparency the more things change the more they stay the same the calculus of electoral politics and the central bank s bureaucratic objectives can explain the recent trend toward greater federal reserve transparency and can shed light on the likelihood that this trend will continue if incumbent politicians see no electoral advantage in pressuring the fed to become still more transparent and if the fed sees no benefit to greater transparancy then further changes in current practice are unlikely private sector agents will continue to face a significant degree of uncertainty about the fed s policy objectives and about the information that policymakers consider in the monetary policy decision process

historical considerations property rights and budgets a comment on the use of inputs by the federal reserve when considered in an alternative historical setting with a property right perspective the extended public choice model found in amcd offers strong confirmation for the s t view of monetary authority behavior

the new deal and modern memory summary economists and other social scientists may never be able to explain fully why the greatdepression happened when it did or why it initially was so severe numerous hypotheses havebeen advanced as we have seen and each of them contributes important insights into thecauses of the macroeconomic calamity in which most of the world was mired in 1929 1933 if however one is forced to adopt a monocausal theory it must center on the actions of america scentral bank which presided over an extraordinary expansion in bank credit in the mid to late1920s and then took the punch bowl off the table for the purposes of this article though the key question is why did the great depressionlast longer in the united states than it did in any other nation the answer as laid out in thenext section is presidential politics 23 there will come seven years of great plenty throughout all the land of egypt but after them will arise seven years offamine and all the plenty will be forgotten in the land of egypt the famine will consume the land genesis 41 29 30 nkjv

the chaning composition of income transfer programmes a public choice analysis this paper investigates the role of the interaction between the aid to families with dependent children afdc and food stamp programmes as an explanation for the decline in real income transfers experienced in the united states in the 1970s a public choice model is developed that focuses on the negative income tax features of the food stamp programme and its impact on the marginal cost of income redistribution the hypothesis developed from the theoretical model is investigated with a panel data set the econometric results suggests that the introduction of the food stamp programme did lead to a decline in real afdc transfers but that combined transfers afdc plus food stamps rose after the introduction of the food stamp programme it is further found that a flypaper effect is present which explains the strong stimulative effect from the food stamp grant on the level of income redistribution

who benefits from child benefit governments over much of the developed world make significant financial transfers to parents with dependent children for example in the united states the recently introduced child tax credit ctc which goes to almost all children costs almost 1 billion each week or about 0 4 of gnp the united kingdom has even more generous transfers and spends an average of about 30 a week on each of about 8 million children about 1 of gnp the typical rationale given for these transfers is that they are good for our children and here we investigate the effect of such transfers on household spending patterns in the united kingdom such transfers known as child benefit cb have been simple lump sum universal payments for a continuous period of more than 20 years we do indeed find that cb is spent differently from other income paradoxically it appears to be spent disproportionately on adult assignable goods in fact we estimate that as much as half of a marginal dollar of cb is spent on alcohol we resolve this puzzle by showing that the effect is confined to unanticipated variation in cb so we infer that parents are sufficiently altruistic toward their children that they completely insure them against shocks

an alternative to a public choice theory of the great contraction in the october 1988 edition of this journal anderson shughart and tollison 1988 4 argued that restrictive monetary policy of the fed in the 1929 1933 period was rational self interested behavior they contend that what friedman and schwartz wrongly interpreted as inept monetary policy was actually the calculated campaign of a bureaucracy bent on consolidating its power base they imply that the federal reserve board of governors in order to purge nonmember banks purposely disregarded policy options that would have greatly reduced bank failures increased the money supply and hastened economic recovery anderson et al hereafter ast their regressions a meaningless mathematical exercise and their public choice interpretation of fed intentions a mirage although the percentage of commercial banks belonging to the fed steadily increased during the great contraction as t s 5 to 1 failure rate ratio is seriously misleading it is based upon a severely limited historical context and misinterpretations of both hazard rates and rates of change

an experiment on cash and in kind transfers with application to food assistance programs the impact of providing food assistance in kind via food stamps or restricted debit cards vs cash has long been a subject of debate prior efforts to causally identify the effects of the two types of transfers have been hindered by concerns over non random selection into assistance programs misreporting of program benefits and identification of inframarginal households who theoretically should treat cash and in kind transfers identically this paper reports the results of an economic experiment designed to cleanly test some conceptual issues associated with in kind vs cash giving in a lunchroom meal setting given current debates about the healthiness of food assistance recipients diets we also consider the impacts of placing restrictions on in kind transfers that either prohibit soda purchases with the transfer or require the transfer be spent on fruits and vegetables overall we find that as theory predicts in kind transfers have the same effect on food expenditures as an unrestricted cash transfer for inframarginal consumers and for extramarginal consumers food expenditures are higher for in kind than cash transfers participants also respond to the fruit and vegetable restriction as theory would predict however in contrast to the theoretical prediction the soda restriction reduces soda expenditures for more than half the inframarginal consumers

deficits and money growth in the united states a comment joines 1985 argues that the federal reserve accommodates war induced deficit spending but not non war induced deficit spending using a first difference form of a reaction function to obtain a stationary time series of the monetary base we find that the federal reserve has accommodated federal government deficit spending in the post world war ii period

the influence of elections on federal reserve behavior a political business cycle is tested in a monetary reaction function positive evidence is a result of the 1930s and 1940s and not post war elections in addition there is no evidence of such a cycle in a rational expectations model

an analysis of the impact of sample attrition on the second generation of respondents in the michigan panel study of income dynamics only a few studies have tried to estimate the trend in the elasticity of children s economic status with respect to parents economic status and these studies produce conflicting results in an attempt to reconcile these findings we use the panel study

the ruthless fed a critique of the ast hypothesis this paper examines the hypothesis that the great contraction was the result of rational rent seeking by members of the federal reserve system in contrast to the ast hypothesis evidence on the share prices of member banks that survived the contraction suggests that the owners of these banks suffered an absolute decline in real wealth and a decline relative to a broad spectrum of other investment alternatives furthermore monetary surprises had no statistically discernible effect on the share prices of these banks this evidence conflicts with the notion that rational rent seeking would lead the owners of member banks and their bureaucratic conspirators in the federal reserve system to unleash a policy with the goal of contracting the money supply by 35 percent

policy rules inflationary bias and cyclical stability statutory policy rules such as a k percent rule for money growth can restrain officials from pursuing their own welfare at the expense of the public good toma 1982 and barro and gordon 1983 among others have presented theoretical models showing how macroeconomic policymakers who pursue their own interests can produce policies that are biased toward too much inflation strict rules are a possible remedy to this problem yet while strict policy rules may reduce inflationary bias they also limit the flexibility of officials to respond to random shocks researchers such as canzoneri 1985 have shown that this can be an important limitation if officials possess information advantages that permit policy to modify economic disturbances effectively if the public dislikes variations in real output this loss of flexible stabilization may offset any gain from a reduction in inflationary bias there is then a potential trade off between reducing inflationary bias and cyclical stability yet to date none of the dimensions of this trade off has been documented evidence of an inflationary bias has been scarce in part because it requires identification of the socially preferred inflation rate similarly the extensive research on electorate concerns with real output has focused on the income level rather than its variance moreover since this research has not been cast in a framework that permits voters to recognize the potential inflationary cost of stabilizing output the validity of these findings is open to question indeed recent work by lucas 1987 suggests that citizens would willingly pay very little to reduce cyclical fluctuations

the use of inputs by the federal reserve system an extended model recently it has been argued that bureaucratic incentives play an important role in the formulation of policy and the inflationary bias of the federal reserve system shughart and tollison 1983 hereafter s t 1 in particular s t maintain that the fed can retain profits denominated in amenities but not in dollars as a result of the congressional constraint that excess profits be returned to the treasury this constraint provides bureaucratic incentives for the fed to purchase more amenities than a for profit organization and ex plains s t 1983 291 in part the fed s apparent inflationary bias expansionary monetary policy then enlarges the fed s profit amenities choices and allows it to pursue its goal of bureaucratic enhancement s t assume that the dollar value of these amenities is a monotonic transformation of fed employment using this public choice framework they develop a model in which the monetary base is a function of a number of variables including employment in the federal reserve system sysemp

the use of inputs by the federal reserve system comment in a recent issue of this review 1983 william shughart and robert tollison s t hypothesize that the fed pursues a bureaucratic objective which results in an inflationary bias in monetary policy they test this hypothesis empirically and conclude that it is supported by the data this comment however shows that their statistical procedures are flawed and when corrected provide little support for the inflationary bias theory the data actually suggest a different but not very interesting or surprising interpretation

do snap participants expand non food spending when they receive more snap benefits evidence from the 2009 snap benefits increase this study examines the expenditure response to the largest increase in supplemental nutrition assistance program benefits instituted in april 2009 investigating the effects in both food and non food spending categories i find that the rise in snap benefits increased not only food at home expenditures but also housing transportation and education expenditures of snap households relative to those of non snap households specifically the snap benefit increase leads to the reduced out of pocket spending on food for infra marginal snap recipients and the freed up resources allowed households with bounded budgets to fund other essential needs such as paying mortgage rent utility fee transportation expenses as well as tuition examining non food expenditures provides a more complete picture of the impact of the snap benefit increase by shedding light on the spillover effect of the policy change the result also derives policy implication on ongoing debate about snap allotment generosity

enhancing nutrition a new tool for ex ante comparison of commodity based vouchers and food transfers summary this article presents a new analytical tool for ex ante comparison of the cost effectiveness of two transfer modalities in pursuing specific nutritional objectives it does so by introducing a metric to score the nutrient value of a food basket the nutrient value score nvs and explains how this metric can be combined with full supply chain analysis and costing to generate a new tool the omega value the use of the omega value allows policy makers who design a program with nutrition objectives to compare direct food transfers and commodity based food vouchers in terms of both cost efficiency and cost effectiveness 2013 elsevier ltd all rights reserved

risk and the national industrial recovery act an empirical evaluation this paper examines the national industrial recovery act of 1933 to see if the law helped stabilize the u s economy during the great depression the test measures sample variances of the rates of return in stock price indices for six major u s industries as well as the overall stock market and compares those variances across five time periods the statistics reveal that the nira did not reduce risks faced by these firms stocks for nira regulated industries did not significantly decline in risk during the nira period as compared with sample variance changes elsewhere during the great depression the paper then interprets the results from a public choice point of view

food stamps and the market demand for food this article compares estimates of disaggregated market food demand responses to the supplemental nutrition assistance program benefits based on exact nonlinear aggregation to responses based on linear aggregation by accounting for income inequality nonlinear aggregation implies that only the households that receive benefits contribute to market demand responses in contrast linear aggregation presumes all households receive benefits and thus contribute to the market demand response the consequence is that nonlinear market estimates are smaller than the linear estimates by roughly the fraction of households that receive benefits

a political model of monetary policy with application to the real fed funds rate abstract we construct an empirical model of u s monetary policy assuming that the federal reserve is an ordinary federal bureaucracy we use the real federal funds rate as our policy measure and show the existence of significant executive legislative and bureaucratic influence on the real rate of interest from 1961 to 1996 we find that presidential party is an adequate statistical measure of executive influence and that the voting scores of the senate banking committee leadership best represent legislative influence we argue that political changes cause systematic and predictable changes in monetary policy

bureaucratic structure and congressional control the interest group theory of government stigler 9 peltzman 7 has generated many valuable insights into the workings of the political process although subsequent contributions to this literature mccormick and tollison 6 for example have extended the theory to explain a wide variety of government behavior the discussion of the political process tends to be carried out in terms of the interests of groups within the polity that either demand or supply wealth and those of the legislators who broker the transfers little attention is normally paid to the bureaucratic organizations that enforce and indeed often set the policies that the legislature wishes to put in place exceptions are eckert 1 who discussed how the personal incentives of regulators affect policy choices as a function of the costs and rewards of serving on a commission versus being employed by a bureaucratic agency and ehrlich and posner 2 who offered a useful theoretical exposition based on legislative decision costs of why congress delegates programs and policies to bureaus in addition faith leavens and tollison 3 and weingast and moran 10 have shown that the composition of important oversight committees influences bureaucratic policymaking initiatives

opening up pandora s box the effect of gender targeting and conditionality on household spending behavior in mexico s progresa program summary this paper evaluates the behavioral impact of conditionality and gender targeting on spending behavior in the progresa conditional cash transfer cct program from rural mexico results indicate that transfer income is not spent differently from general income suggesting that transfers exert only an income effect in addition women who have increased control over their extra cash are not significantly more likely to spend it in a family friendly way than they do household earned income both features entail significant costs to beneficiaries and program budgets our results indicate that further evidence is needed to confidently advocate for their inclusion in cash transfer ct programs

the monthly food stamp cycle shooping frequency and food intake decisions in an endogenous switching regression framework mean food spending by food stamp households peaks sharply in the first three days after benefits are received for those who conduct major grocery shopping trips only once per month 42 of all food stamp households mean food energy intake drops significantly by the fourth week of the month for the remaining households intake remains steady over the course of the month these patterns motivate an empirical model that simultaneously accounts for the shopping frequency and food intake decisions over time results have implications for policies that may affect the frequency of grocery shopping by food stamp households

explaining u s federal deficits 1889 1998 i introduction seater 1993 attempted to provide a common basis for assessing empirical studies of the effects of deficit spending he concluded that evidence of the existence of appreciable effects of u s deficits on macroeconomic variables is questionable in other words the data do not allow for a confident rejection of ricardian equivalence in a world with no macroeconomic effects from deficit spending full information and no distinctions between political and economic markets fluctuations in deficits merely reflect government financing considerations of secondary importance in contrast to this view of the world deficits and surpluses are treated as an important topic in everyday affairs and discourse politicians talk about deficits and surpluses regularly when calling for higher or lower taxes more or less spending revisions in social security funding and other changes in public policy economists and political analysts continue to debate why deficits became a regular feature of federal fiscal management from the late 1960s into the 1990s these debates have spurred divergent theories and conjectures leading to different empirical hypotheses and variables of interest moreover existing empirical studies of the subject have utilized diverse econometric techniques and specifications as a result the competing hypotheses concerning deficit spending have not been tested against one another in a systematic fashion in this article our principal aim is to analyze the different explanations of u s federal deficits jointly estimating competing hypotheses about deficit fluctuations in a generalized reduced form empirical model to achieve this goal we collected and utilized a time series of data running from 1889 to 1998 the apparent paradox between the seemingly innocuous effects of deficits and the political preoccupation with them may owe its existence to one or more reasons limited and noisy information among voters differences between economic and political markets inaccuracy in the measured macroeconomic effects of deficits or other reasons we do not attempt an explanation of why deficits which seemingly exhibit no or small real effects ricardian equivalence could lead politicians and voters to treat deficits as if the ricardian hypothesis were rejected instead we treat explanations of deficits that stem from ricardian premises as one of several hypotheses to be tested ii competing hypotheses we first describe the leading explanations of deficit spending organizing them around common theoretical principles 1 tax smoothing the explanation of deficits which follows directly from a ricardian equivalence theory is the tax smoothing theory developed by barro 1979 2 if deficits generate no real macroeconomic effects and the influences of political institutions and politicians are ignored then optimal public financing considerations govern the use of deficit spending simply put fiscal authorities raise revenue to meet spending needs through income taxation but both spending and income the tax base are subject to uncertain and temporary movements minimization of the deadweight costs of raising a given amount of revenue requires keeping tax rates steady in the face of purely temporary changes in income or spending this is accomplished by running deficits when income is temporarily low or spending is temporarily high and running surpluses in the opposite case imposing a binding no ponzi game npg constraint leads to similar long term behavior of deficits as implied by optimal finance models the npg condition requires that the present value of taxes must equal the present value of spending plus the initial value of debt spending and revenue must share a long term common trend so that primary deficits will be stationary over a long time series deficits and surpluses will offset each other

shifting sands the changing case for monetizing project food aid in bangladesh abstract monetization involves local sale of food aid commodities and using the cash to finance other programs to explore the likely consequences of monetization this paper combines a stockpile of recent microeconomic evidence from food and cash for work projects in bangladesh together with a multimarket simulation model results suggest that a switch from food for work s ffw in kind deliveries of wheat to an identical wheat financed cash for work cfw program would unambiguously improve welfare of the poor

dispersed communication by central bank committees and the predictability of monetary policy decisions the paper asks whether members of central bank decision making committees should communicate with the public in a collegial manner by conveying the consensus or majority view of the committee or in an individualistic way by providing the diversity of views among the committee members it finds that more active as well as more consistent communication by committee members improves the predictability of monetary policy decisions significantly this effect is sizeable as communication dispersion across committee members accounts on average for one third to one half of the market s prediction errors of fomc policy decisions moreover more active and more consistent communication are found to also reduce the degree of uncertainty about the future path of interest rates these findings suggest that a collegial communication which stresses the consensus view on policy inclinations can enhance the effectiveness of central bank communication

food stamps and food spending an engel function approach estimation of food stamp program fsp effects has been complicated by self selection and by a contradiction between observed spending patterns and the economic theory of consumer choice we developed a modified version of the traditional theory in which participant households may be partly extramarginal even if they have some cash spending on at home food using current population survey cps data for 2001 2005 we estimated engel functions for at home and away from home food spending for fsp participants and nonparticipants compared to nonparticipants with the same level of total income participants had higher at home food spending and lower away from home food spending copyright 2007 oxford university press

it s a matter of principle the role of personal values in investment decisions we investigate the role of personal values in an investment decision in a controlled experimental setting participants were asked to choose an investment in a bond issued by a tobacco company or a bond issued by a non tobacco company that offered an equal or sometimes lower yield we then surveyed the participants regarding their feelings toward tobacco use to determine whether these values influenced their investment decision using factor analysis we identified investment and tobacco related dimensions on which participants responses tended to load two of these factors relating to the societal impact of investment decisions and the health effects of tobacco were highly significant in determining whether participants selected a tobacco or non tobacco related investment more importantly we found that when the rate of return on a tobacco related investment exceeds the rate of return on an investment not involving tobacco by 1 the intensity of participant concerns about the societal effects of their investment decisions was especially important in determining investment choices this finding indicates that traditional wealth maximization approaches which do not consider the personal values of the investor omit an important factor that affects investment decisions

a duopoly theory of government money production the 1930s and 1940s abstract during the 1930s and 1940s the treasury and fed possessed significant monetary powers to explain the interaction of these agencies during this period i develop a theory of money production which assumes each party is interested in increasing the seigniorage associated with their production the theory implies that the two agencies will engage in specific forms of cooperation an examination of monetary policy procedures in the 1930s and 1940s indicates that the cooperation view of the fed and treasury relationship has more explanatory power than traditional views

presidential elections and federal reserve policy an empirical test traditional macro economic models of federal reserve fed behavior typically assume that the fed enjoys a well defined objective function based on social welfare and generally predict counter cyclical monetary policy the increasing observation of procyclical monetary policy has led many researchers to investigate new models of fed behavior several recent papers imply that procyclical fed behavior is due to a lack of political accountability friedman 7 toma 23 and shughart and tollison 21 all attribute considerable bureaucratic discretion to the fed and seek to explain monetary policy by examining typical bureaucratic objectives other papers such as pierce 19 20 weintraub 26 and kane 10 11 argue that the fed operates in an arena filled with political constraints that cause sub optimal monetary policy but these constraints are not modeled explicitly one possible political constraint on fed behavior is the incumbent president s desire for re election in the political business cycle pbc literature presidential re election opportunities are enhanced by the production of a precise set of inflation and unemployment outcomes leading up to the election thus to the extent that presidents desire cyclical macro economic outcomes there will be executive pressure on the fed to create or accommodate such outcomes the effect this pressure will have on fed policy is ultimately an empirical question but most models deal with it by assumption traditional macro modeling assumes a zero effect while the pbc models implicitly assume that a favorable election cycle is a primary goal of all economic policymakers this paper examines presidential influence on the federal reserve by testing for an election cycle in money growth the major result is the identification of a regular 16 quarter cycle in money growth corresponding with presidential elections this cyclical effect is found to be stable over time and significant under a wide range of model specifications further when the cyclical component of money growth is used to simulate a simple macro model it produces a classic political business cycle in inflation and real output growth

broad and narrow bracketing in gift certificate spending abstract we survey 1050 consumers who have just redeemed one or more open loop gift certificates to learn whether they view gift certificate income cash gifts and non gift income as substitutes we find that the majority 83 of recipients spend the certificates in the same way as cash the other respondents 17 bought an item they would not have bought otherwise but adjustments in their shopping pattern do not seem to result from constraints in redeeming the certificates 80 of all respondents in this group says they have used the certificate to buy an item they really love to have while inconsistent with standard microeconomic demand theory this behavior can be explained by narrow bracketing in spending gift certificates these consumers consider a limited choice set of nice personal items our data show that females are more likely to narrow bracket gift certificate income and that positive reciprocity towards the giver induces narrow bracketing in case the giver is a household member who suggests to buy a particular item using the certificate previous studies have found that both giving in kind gifts waldfogel 1993 as giving gift cards offenberg 2007 entail a welfare loss of 10 30 when compared to giving cash we find that the welfare effects of open loop gift certificates among users are limited the consumption of broad bracketing consumers is unaffected and narrow bracketing consumers seem to value the possibility to separate gift certificate income from other income sources

the effect of food stamp cashout on food expenditures an assessment of the findings from four demonstrations using findings from four demonstrations we examine estimates of the effect on household food expenditures of converting food stamps into a cash transfer we provide arguments for why the estimate produced by one of the demonstrations should be regarded as an outlier the disparity in the difference in means estimates from the remaining three demonstrations is reduced when each is normalized by dividing by the average value of benefits in the respective demonstration site the normalized estimates imply a reduction in food expenditures of between 18 and 28 cents for each dollar of food stamps cashed out at the aggregate level these estimates imply that nationwide cashout would result in a reduction in household food spending of between 4 2 and 6 5 billion dollars whereas the associated reduction in the cost of administering the food stamp program would be about 0 3 billion dollars

the labeling effect of a child benefit system child benefit systems exist in many countries while they show a lot of differences in terms of eligibility rules amounts involved and implementation tax deduction tax credit or direct benefit the common motivation for their existence is to increase children s welfare in the dutch child benefit system the case i focus on in this paperone of the parents usually the mother is entitled to an untaxed child benefit amount which only depends on the child s age and the number of children in the household thus child support does not depend on household income marital status or labor market status as a result child benefit is exogenous to the household given the presence of children this is in contrast with the situation in many other countries including germany france the united kingdom and the united states where government provided child support is partly means tested see jonathan bradshaw et al 1993 in the netherlands child benefit is generally a nonnegligible addition to the household income the median share of child benefit in the total net income of households with children is 8 percent on the national level expenditures on child benefits amount to 1 2 percent of gnp the use of the child benefit is completely at the discretion of the parent there are no legal requirements that a certain amount be spent on particular goods or services nor does the government provide any guidelines regarding expenditure on children a policy question that arises is to what extent children benefit from child benefits standard microeconomic demand theory allows no role for effects of the composition of income given the fungibility of income sources it is only the sum of income components that is relevant in explaining expenditure patterns thus within that framework the answer would be that the marginal propensity to consume child goods from one guilder of child benefits is no different than from one guilder of any other income source in the more general class of gametheoretic models of household behavior however the composition of household income will generally affect expenditure patterns see e g shelly j lundberg and robert a pollak 1993 and martin browning et al 1994 if fathers and mothers have different preferences and mothers have control over child benefits the effect of child benefits on expenditures will differ from the effect of other income sources lundberg et al 1997 provide empirical evidence showing that a transfer of control over child benefits from fathers to mothers in the united kingdom due to a change in legislation resulted in a significant increase in expenditures on child clothing daniela del boca and christopher j flinn 1994 have analyzed the effect of income composition on expenditure decisions of divorced mothers they find that the coefficients associated with child support and alimony income differ from those for other income in engel curves for expenditures on childspecific goods their results can be explained in terms of a noncooperative nash model in which the child support transfer decisions of the noncustodial father and the expenditure decisions of the mother are determined simultaneously in contrast to del boca and flinn s analysis in which child support is a decision variable the present paper focuses on the possible differential effect of government provided child support which is truly exogenous in this paper i analyze the effects of child benefits on expenditures by running regressions in which child benefit enters as a separate explanatory variable the enipirical analysis is based on a time series of 17 cross section consumer expenditure surveys in the netherlands covering the period 1978 through 1994 it is important to note that in a single cross section it department of economics university of groningen p o b 800 9700 av groningen the netherlands e mail p kooreman eco rug nl i am indebted to two anonymous referees for constructive comments helpful comments were also provided by rob alessie maarten allers chris bojke werner de bondt bert schoonbeek and tom wansbeek i thank vincent linderhof for organizing the data financial support was provided by the dutch organization for scientific research nwo homes project grant

a public choice theory of the great contraction the conventional chicago wisdom about the great contraction is that it was the result of a massive policy failure according to this view the collapse of the economy was brought about mostly by the fact that the monetary policymakers of the day were more concerned with internal power struggles than with supplying reserves to member banks an explanation which with apologies to professor stigler must have elicited uproarious laughter at the bankers club it has been our purpose in this paper to suggest an alternative theory briefly stated the restrictive monetary policy pursued by the fed from 1929 to 1933 was motivated by the economic interests of member banks the fed s policy produced a massive differential failure rate between member and nonmember banks in which the latter were eliminated at a rate at least five times higher than the former fed member banks faced substantially less competition in the banking market after the house cleaning than before although all banks suffered net losses in the short run in the long run member bank profitability was enhanced by the reduction in the number of nonmember competitors at the same time the fed itself benefitted from a substantial increase in the proportion of the total banking system within its bureaucratic jurisdiction and from a change in its method of finance putting the great contraction in interest group terms we suggested that the fed was acting as the agent of congressmen serving on important oversight committees who in turn were representing the interests of the member banks in their states due to interstate branching restrictions the state is the relevant geographic market within which banks compete we tested this hypothesis using bank failure rate data across states and found that holding other things equal the failure rates of nonmember banks in the early 1930s were significantly higher in states with representation on the house banking and currency committee of course not even friedman and schwartz 1963 299 301 argue that fed policy was the sole direct cause of the great contraction but instead maintain that the fed acted in such a way as to take a relatively severe contraction and turn it into by far the most severe business cycle contraction in the whole of u s history but to the extent that the great contraction was worsened by fed policy and this in turn led to the succession of events called the great depression the latter was a side effect of economically rational interests of federal reserve member banks to say the least this would appear to have been an enormously inefficient method of obtaining the postulated benefits certainly there were other less costly methods available by which member banks could have reduced the number of their nonmember rivals this is perhaps the most difficult problem our theory of the great contraction confronts we can offer two responses first although the literature on the great depression tends to focus on fluctuations in national macroeconomic aggregates e g the money supply unemployment and so on it is clear that the severity of the depression differed radically across states states with relatively large agricultural sectors tended to be especially hard hit suffering the highest rates of unemployment and the most significant numbers of bank failures by contrast states in some other areas most notably new england and the southeast seemed to be less seriously affected we note that in some of our regressions the number of nonmember bank failures was negatively and significantly related to state unemployment rates in 1934 this is certainly not conclusive evidence but it does suggest a pattern of differential costs associated with the great contraction that is the costs of providing benefits to federal reserve member banks in states with representation on the relevant oversight committees may have fallen more heavily on the economies of states not so represented if so this would cast a very different light on the actual costs of these policies to the relevant political decision makers second the potential dilemma in this case is no worse than that encountered in the application of the economic theory of politics to many other kinds of government behavior economists since adam smith have ascribed protectionist trade policies to the influence of special interest groups who benefit modestly at the cost of relatively huge economic inefficiencies many other government actions that might be plausibly explained from an interest group perspective would similarly seem to involve costs to the economy which grossly outweigh the benefits special interests might reasonably expect presumably even in such seemingly extreme cases marginal benefits equal marginal costs to the relevant actors some writers have suggested that the political marketplace in modern democracies is characterized by much larger transactions costs than are normally encountered in ordinary markets see demsetz 1982 this might help explain the seemingly huge discrepancies we observe between apparent concentrated benefits and diffused costs in depression era monetary policy in any event this problem is not peculiar to our theory but is shared by many applications of the interest group model of government it is worth emphasizing that the events we have described do fall into the interest group model s stylized depiction of concentrated benefits versus diffuse costs moreover without having a complete picture of all of the options available to the monetary policymakers we cannot be sure that any of the alternatives was in fact more efficient we do know the path that was chosen and that contrary to the conventional wisdom this path had a rationally motivated interest group basis

the impact of food stamps on food expenditures rejection of the traditional model for food stamp recipients whose normal food purchases exceed their coupon allotment the traditional economic model predicts that the impact of food stamps on food spending will be the same as for an equal cash transfer the tobit analysis in this study indicates that for these recipients food stamps have a substantially greater impact on at home food expenditures than an equal amount of cash income these results reject the traditional model several possible explanations of this behavior are discussed

dietary effects of the food stamp program based on data from the 1979 80 survey of food consumption in low income households this paper estimates the effects of changes in cash income and the food stamp benefit on household nutrient availability while controlling for two potential sources of selection bias the major finding of the empirical analysis is that the estimated dietary effects of changes in food stamp benefits are considerably larger than those resulting from changes in cash income with estimates of the ratios of the mpc for the food stamp benefit to the cash income mpc ranging from three to seven across nutrients no significant evidence of selection bias was found and the estimated dietary effects of food stamp benefits from the selection bias models are similar to those from the basic model estimated by ordinary least squares regression