the quantitative analytics of the basic neomonetarist model this paper constructs a dynamic macroeconomic model with less than perfect price flexibility which has a classical side consistent with real business cycle theory augmented by investment adjustment costs increasing returns to scale and a new flexible formalization of imperfect competition something akin to the classical dichotomy is justified by a mode of approximation appropriate for a model in which one state variable adjusts quickly while another state variable adjusts slowly even with investment adjustment costs monetary expansions are found to raise the real interest rate the determinants of real rigidity and the macroeconomic rate of price adjustment are investigated copyright 1995 by ohio state university press

who provides the capital for chinese growth the public or the private sector we focus on the role of the government in the provision of investment in china through the medium of a dynamic stochastic general equilibrium model of the economy in which the form of the production function reflects this governmental role using indirect inference we estimate and test for the elasticity of substitution between government and nongovernment capital in both constant elasticity of substitution ces and cobb douglas technologies the results underscore the strong substitution relationship between government and nongovernment capital from 1949 supporting ces rather than the cobb douglas technology they also show that the orientation of public investment changed after the start of the socialist market economy in 1992 government capital became more complementary to nongovernment capital as it focused more on infrastructure and withdrew from industrial production intervening only in times of crisis for stabilization purposes indirectly via the state banks

trade ins and introductory offers in a monopoly we model the commonly used marketing practices of offering discounts to either repeat buyers trade ins or new buyers introductory offers of a quasi durable good we analyze these practices in terms of their potential for intertemporal and third degree price discrimination in our two period model the monopolist sets a first period price that segments the second period market optimally into holders and nonholders of the good in the second period different prices are quoted to the two market segments we present three versions of the model with varying assumptions on consumers rationality

buying negative agenda control in the u s house we explore the foundations of the legislative party cartel as theorized by cox and mccubbins 1993 2005 to determine how majority party moderates who suffer net policy losses from the majority leadership s use of negative agenda control are kept from defecting from the cartel arrangement first we identify formally the group of majority party members who are net policy losers we find that those members occupying the initial 30 of the space within the majority party blockout zone that space closest to the floor median are hurt on a pure policy basis by the cartel arrangement second we find that members in this 30 zone are rewarded disproportionately by majority party leaders relative to members in other intervals on the same side of the floor median via side payments in the form of campaign contributions in addition majority party members within the 30 zone receive side payments commensurate with their particular policy loss

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

measuring heterogeneous reservation prices for product bundles this paper develops a model for capturing continuous heterogeneity in the joint distribution of reservation prices for products and bundles our model is derived from utility theory and captures both within and among subject variability furthermore it provides dollarmetric reservation prices and individual level estimates that allow the firm to target customers and develop customized and nonlinear pricing policies our experiments show that regardless of whether the products are durables or nondurables the model captures heterogeneity and predicts well models that assume homogeneity perform poorly especially in predicting choice of the bundle furthermore the methodology is robust even when respondents evaluate few profiles self stated reservation prices do not have any informational content beyond that contained in the basic model the direct elicitation method appears to understate overstate the variation in reservation prices across consumers for low priced high priced products and bundles hence this method yields biased demand estimates and leads to suboptimal product line pricing policy the optimization results show that the product line pricing policy depends on the degree of heterogeneity in the reservation prices of the individual products and the bundle a uniformly high price strategy for all products and bundles is optimal when heterogeneity is high otherwise a hybrid strategy is optimal

a long commodity cycle model of the world economy over a century and a half making bricks with little straw abstract this paper explores the world business cycle using unfiltered data from 1870 and looks for a theory that could account for the long wave commodity cycle in the world economy we build a simple dsge model that includes a long time to build constraint in the commodity sector we find that this model can produce long cycles in output and commodity prices as introduced by kontradieff 1925 and schumpeter 1934 our findings show that these long business cycles are produced by the long gestation of commodity capacity which causes very large swings in commodity prices

tracing the causes of the banking crisis we add the bernanke gertler gilchrist model to a modified version of the smets wouters model of the u s in order to explore the causes of the banking crisis the innovation of this article is estimating the model using unfiltered data allowing for non stationary shocks in order to replicate how the model predicts the crisis we find that traditional shocks account for most of the fluctuations in macroeconomic variables the non stationarity of the productivity shock plays a key role crises occur when there is a run of bad shocks based on this sample they occur on average once every 64 years and when they occur around 10 are accompanied by financial crisis financial shocks on their own even when extreme do not cause crises provided the government acts swiftly to counteract such a shock as happened in this sample

endogenous federal grants and crowd out of state government spending theory and evidence from the federal highway aid program contrary to simple theoretical predictions existing evidence suggests that federal grants do not crowd out state government spending a legislative bargaining model with endogenous grants documents a positive correlation between grant receipts and preferences for public goods this correlation has likely biased existing work against measuring crowd out to correct for such endogeneity the model motivates instruments based on the political power of state congressional delegations exploiting this exogenous variation in grants the instrumental variables estimator reports crowd out that is statistically and economically significant this endogeneity may explain the flypaper effect a nonequivalence between grant receipts and private income jel d70 h40 h77

bundling of substitutes or complements abstract the adams yellen two good bundling framework is generalized to allow the goods to be substitutes or complements general theorems on price change effects are given a monopolist may find it most profitable to offer the goods only as a bundle even if they are imperfect substitutes or to not bundle the goods even if they are complements if one good is competitively sold a monopoly producer of the other good can never increase profits by offering his good only as part of a bundle however such a monopolist might profitably offer his good in both bundled and unbundled form to price discriminate even if the two goods are substitutes

a bayesian approach to optimal monetary policy with parameter and model uncertainty abstract this paper undertakes a bayesian analysis of optimal monetary policy for the u k we estimate a suite of monetary policy models that include both forward and backward looking representations as well as large and small scale models we find an optimal simple taylor type rule that accounts for both model and parameter uncertainty for the most part backward looking models are highly fault tolerant with respect to policies optimized for forward looking representations while forward looking models have low fault tolerance with respect to policies optimized for backward looking representations in addition backward looking models often have lower posterior probabilities than forward looking models bayesian policies therefore have characteristics suitable for inflation and output stabilization in forward looking models

communication in federal politics universalism policy uniformity and the optimal allocation of fiscal authority the paper presents a positive model of policy formation in federal legislatures when delegates engage in the strategic exchange of policy relevant information depending on the type of policy under consideration communication between delegates generally suffers from a bias that makes truthful communication difficult and sometimes impossible this generates inefficient federal policy choices that are often endogenously characterized by overspending universalism and uniformity building on these findings i develop a theory of fiscal de centralization which revisits the work of oates in a world of incomplete information and strategic communication empirical results from a cross section of us municipalities are consistent with the predicted pattern of spending

limited information estimation and evaluation of dsge models we advance the proposition that dynamic stochastic general equilibrium dsge models should not only be estimated and evaluated with full information methods these require that the complete system of equations be specified properly some limited information analysis which focuses upon specific equations is therefore likely to be a useful complement to full system analysis two major problems occur when implementing limited information methods these are the presence of forward looking expectations in the system as well as unobservable non stationary variables we present methods for dealing with both of these difficulties and illustrate the interaction between full and limited information methods using a well known model copyright 2009 john wiley sons ltd

is housing collateral important to the business cycle evidence from china abstract this paper investigates whether housing collateral is important to the business cycle in china we develop two models one without housing collateral as benchmark and one variant allowing for it indirect inference procedure tests these two models compatibility with the data we find that the benchmark model passes the test while the collateral model is strongly rejected according to the benchmark model shocks from the housing market have limited impact on the chinese business cycle by contrast the exogenous spending shock from government and net exports the monetary policy shock and the goods sector cost productivity shock all in turn most likely connected to world business cycle shocks especially the global financial crisis are found to be the main drivers

party government and the cohesive power of public plunder we argue that party government in the u s house of representatives rests on two pillars the pursuit of policy goals and the disbursement of particularistic benefits existing theories of party government argue that the majority party in the house is often successful in biasing policy outcomes in its favor in the process it creates policy losers among its own members who nevertheless support their party on procedural votes we posit that the majority party creates an incentive for even the policy losers to support a procedural coalition through judicious distribution of particularistic benefits that compensates policy losers at a rate commensurate with the policy losses that they suffer we evaluate our theory empirically using the concept of roll rates in conjunction with federal domestic outlays data for the period 1983 96 we find that within the majority party policy losers are favored in the distribution of pork barrel spending throughout this period

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

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

political preferences for the pork barrel a generalization this paper provides a rational explanation for the observation of oversized coalitions often approaching unanimous size in the realm of distributive policies distributive policies are those which concentrate benefits in specific geographic areas states congressional districts while spreading costs through general taxation the explanation offered here that legislators may rationally prefer universalism to hard ball coalition politics generalizes earlier work of weingast and fiorina in particular it extends their results to pork barrel politics i e projects that are economically inefficient and demonstrates how packages of economically inefficient projects can nevertheless be politically popular the main theoretical feature that induces preferences for universalism is uncertainty over the composition of winning coalitions and consequently the desire for the political insurance that universalism provides

how much nominal rigidity is there in the us economy testing a new keynesian dsge model using indirect inference we evaluate the smets wouters new keynesian model of the us postwar period using indirect inference the bootstrap and a var representation of the data we find that the model is strongly rejected while an alternative new classical version of the model fares no better adding limited nominal rigidity to it produces a weighted model version closest to the data but on data from 1984 onwards the great moderation the best model version is one with a high degree of nominal rigidity close to new keynesian our results are robust to a variety of methodological and numerical issues

distributive politics and the allocation of federal grants understanding the dynamics of policy distribution requires an appreciation of federal grant programs that have achieved a prominent place in nearly all areas of domestic policy the theoretical literature on distributive politics however focuses almost exclusively on a centralized top down view of policy distribution by examining the role of presidents legislators and bureaucrats scholars have ignored participants who have become key actors in the distribution of federal expenditures the recipient jurisdictions this analysis of the allocation patterns under six federal programs shows that local governments exert important influences on the distribution of federal grants and that the distributional patterns and their determinants vary over time the analysis also points out the importance of disaggregation by focusing on programs and recipient jurisdictions as opposed to total federal expenditures and regions states or congressional districts

the role of energy prices in the great recession a two sector model with unfiltered data we investigate the role of energy shocks during the great recession we study the behaviour of the uk energy and non energy intensive sectors firms in a real business cycle rbc model using unfiltered data the model is econometrically estimated and tested by indirect inference output contraction during the great recession was largely caused by energy price and sector specific productivity shocks all of which are non stationary and hence tend to dominate the sample variance decomposition we also found that the channel by which the energy price shock reduces output in the model is via the terms of trade these fall permanently when world energy prices increase and as substitutes for energy inputs are strictly limited there are few reactions via production channels therefore there is no other way to balance the deteriorating current account than through lower domestic absorption

a more general theory of commodity bundling this paper extends the standard model of bundling as a price discrimination device to allow products to be substitutes and for products to be supplied by separate sellers whether integrated or separate firms have an incentive to introduce a bundling discount when demand for the bundle is elastic relative to demand for stand alone products product substitutability typically gives an integrated firm a greater incentive to offer a bundle discount relative to the model with additive preferences while substitutability is often the sole reason why separate sellers wish to offer inter firm discounts when separate sellers coordinate on an inter firm discount they can use the discount to overturn product substitutability and relax competition

political and economic influences on the bureaucratic allocation of federal funds the case of urban development action grants abstract the distributive theory of politics predicts that federal budget allocations will be responsive to the committee position of congressmen and their majority minority party status but such political allocations are less likely where bureaucrats rather than legislators make the allocative decisions in such cases we must take into account bureaucratic motivations as well niskanen s bureaucratic budget maximization theory emphasizes such bureaucratic maximands and the efficient production of output or activity by the budget constrained bureau in this paper the two theories are tested using data from the urban development action grant program a capital subsidy program operated by the department of housing and urban development a set of political and bureaucratic decision criteria is employed as independent variables in a series of logit and tobit models in order to predict the likelihood of projects being funded and the amounts they will receive the political criteria are not significant in any specifications but the bureaucratic criteria suggest an investment maximizing risk avoidance strategy on the part of hud bureaucrats thus the results support the niskanen theory but do not support the distributive theory

the effects of congressional appropriation committee membership on the distribution of federal research funding to universities i introduction in 1994 members of the republican party pledged to seek legislation to impose term limits on members of congress this pledge stemmed from the popular belief that senior members of congress tend to promote personal interests or are more influenced by lobbying efforts that may not be representative of their constituents today term limits continue to be discussed but have not been enacted instead many members have focused their energies toward minimizing the time spent on any particular committee of congress believing that tenure on a committee is a more serious concern than simple tenure in congress implicit in these concerns is the issue whether as incumbent politicians plan to retire they will behave differently and if so whether tenure on a congressional committee exacerbates this behavior this article explores the role of membership on the appropriations committee on the distribution of federal research funding to universities specifically it explores whether funding is diverted to these universities because politicians use their position on a committee to promote personal or constituent interests previous research on shirking compares the voting records of politicians on certain issues with demographic and economic characteristics of the politicians constituents this article explores the issue of shirking differently i explore how membership on congressional appropriations committees affects the distribution of federal research funding to universities i look at two types of relationships between the members and the universities first i consider the relationship between members and the universities that are located in the members districts states in the case of senators second i examine the relationship between members and their undergraduate alma mater i use district representa tion to proxy favoritism that reflects a politician s constituents given that in most instances an alma mater affiliation is not the same as district representation i use alma mater affiliation to proxy favoritism that reflects the politician s personal interests federal research funding accounts for more than 60 of research funding received by research universities previous research has shown a positive impact of federal funding on research outcomes see adams and griliches 1998 arora and gambardella 1997 connolly 1997 payne and siow 2002 and payne 2001 except for payne and siow 2002 however these articles do not consider that political diversion of funds may promote or detract from research productivity as with any other federal program this article concentrates on the impact of membership on the house and senate appropriations committees because they wield the greatest power in the allocation of funding 1 using a panel data set spanning 26 years i explore how changes in the composition of the appropriations committees affects the distribution of research funding after controlling for the heterogeneity that exists across different universities the results suggest that both district representation and alma mater affiliation matter thus there is evidence of shirking for personal interests and evidence of members representing their constituents with respect to the representation of one s constituents the strongest results suggest that public universities benefit from representation on both the senate and house committees private universities however only benefit from representation in the senate with respect to alma mater affiliations the results suggest again that public universities benefit from representation on both the senate and house committees private universities also benefit from representation on both the senate and house committees the results also suggest that the tenure of the member on the committee matters as does whether the member is a part of the majority party in power in the congressional chamber

how important is the credit channel an empirical study of the us banking crisis we examine whether by adding a credit channel to the standard new keynesian model we can account better for the behaviour of us macroeconomic data up to and including the banking crisis we use the method of indirect inference which evaluates statistically how far a model s simulated behaviour mimics the behaviour of the data we find that the model with credit dominates the standard model by a substantial margin credit shocks are the main contributor to the variation in the output gap during the crisis

pricing of demand related products can ignoring cross category effect be a smart choice abstract this paper studies pricing strategies of competing retailers offering substitutable products in multiple product categories for such retailers in addition to accounting for within category pricing effects cross category effects can also influence consumers purchase decisions and thereby impact the retailers optimal pricing strategies we model consumers utility for purchasing substitutable products from the same category and from other categories as well we then solve a game theoretic model to identify the retailers optimal prices and profits our results show that accounting for cross category effects largely influences the retailers pricing and profitability in particular cross category effects influence the sensitivity of prices to within category substitution levels while cross category effects have an impact on retailers equilibrium strategies this effect is only relevant when within category substitution effects are present we also find that intentionally ignoring cross category effects leads to lower prices for categories that are either substitutable or highly complementary and to higher prices otherwise when not accounting for the fact that the two categories are demand related implies lower prices than when this information is accounted for then at least one retailer chooses to disregard the cross category effect at equilibrium finally we find evidence for prisoner s dilemma situations where both retailers ignore cross category effect at equilibrium while accounting for it would yield them higher profits

optimal bundling and pricing under a monopoly contrasting complements and substitutes from independently valued products we develop an analytical model of contingent valuations and address two questions of import to a monopolist i should a given pair of complements or substitutes be sold separately pure components together pure bundling or both mixed bundling and at what prices ii how do optimal bundling and pricing strategies for complements and substitutes differ from those for independently valued products we find that the combination of marginal cost levels and the degree of complementarity or substitutability determines which of the three bundling strategies is optimal complements and substitutes should typically be priced higher than independently valued products

the president and the distribution of federal spending scholarship on distributive politics focuses almost exclusively on the internal operations of congress paying particular attention to committees and majority parties this article highlights the president who has extensive opportunities both ex ante and ex post to influence the distribution of federal outlays we analyze two databases that track the geographic spending of nearly every domestic program over a 24 year period the largest and most comprehensive panels of federal spending patterns ever assembled using district and county fixed effects estimation strategies we find no evidence of committee influence and mixed evidence that majority party members receive larger shares of federal outlays we find that districts and counties receive systematically more federal outlays when legislators in the president s party represent them

political influence in the distribution of agricultural disaster payments this paper examines the impact of committee membership and electoral votes on the distribution of ad hoc agricultural disaster payments across u s counties our results show that both house oversi

gaussian demand and commodity bundling in an important and widely cited essay adams and yellen 1976 examine the use of package selling as a price discrimination device they consider a monopolist producing two goods with constant unit costs and facing buyers with diverse tastes the marginal utility of a second unit of either good is assumed to be zero for all buyers the two goods are independent in demand for all buyers so that any buyer s reservation price for the first unit of either good is independent of the market price of the other thus the maximum amount any buyer would pay for a bundle consisting of one unit of each good is the sum of the two reservation prices and buyers are completely described by the values of those two prices 2 resale markets are assumed away in order to obtain comparative results for alternative pricing strategies the distribution of reservation prices in the adams yellen framework is assumed to be bivariate normal implications of gaussian demand are explored pure bundling is shown to operate by reducing buyer diversity thus facilitating the capture of consumers surplus it generally makes buyers worse off than unbundled sales it is more profitable if average reservation prices are high enough mixed bundling combines advantages of both pure bundling and unbundled sales and it is generally strictly more profitable than either bundling which treats goods symmetrically seems most attractive under symmetric reservation price distributions i am indebted to severin borenstein for superb research assistance to the ford motor company for research support through a grant to m i t and to the harvard economics department for housing me as a visiting scholar while most of this research was performed of course only i can be held responsible for this essay s shortcomings 1 the first clear recognition of this possibility seems to have been by stigler 1968 but also see burstein 1960 2 paroush and peles 1981 relax the assumption that consumers purchase at most one unit of each good but they consider only two types of buyers both with linear demand functions they retain the assumption that demands are independent for all buyers telser 1979 and phillips 1981 use different frameworks to analyze bundling policies spence 1980 explores the relation between bundling across commodities as here and bundling multiple units of the same

fiscal consistency and federal district spending in congressional elections theory conventional wisdom holds that legislators win votes by acquiring federal spending for constituents scholars have struggled however to support this belief empirically this paper links federal district spending and pork with an explanation based on consistency electoral performance hinges on legislators fiscal consistency i e whether their votes on federal spending are consistent with their credit claiming for pork flowing to their districts hypotheses in districts receiving substantial pork fiscally liberal incumbents perform better electorally than fiscal conservatives in low pork districts fiscal conservatives perform better methods these hypotheses are tested using aggregate level data from the 198490 united states house elections and individual level data from the 1988 senate election study results the hypotheses are supported on the aggregate and individual levels fiscally consistent legislators receive more votes than fiscally inconsistent legislators

optimal bundling strategies under heavy tailed valuations we develop a framework for the optimal bundling problem of a multiproduct monopolist who provides goods to consumers with private valuations that are random draws from a distribution with heavy tails we show that in the vickrey auction setting the buyers prefer separate provision of the goods to any bundles we also provide a complete characterization of the optimal bundling strategies for a monopolist producer who provides goods for profit maximizing prices for products with low marginal costs the seller s optimal strategy is to provide goods separately when consumers valuations are heavy tailed and in a single bundle when valuations are thin tailed these conclusions are reversed for goods with high marginal costs for simplicity we use a specific class of independent and identically distributed random variables but our results can be generalized to include dependence skewness and the case of nonidentical one dimensional distributions

the political economy of benefits and costs a neoclassical approach to distributive politics this essay offers a rational political explanation for the notorious inefficiency of pork barrel projects with an optimization model of legislative behavior and legislative institutions the model emphasizes the economically arbitrary from a welfare point of view importance of the geographic incidence of benefits and costs owing to the geographic basis for political representation we explore the implications of a legislator s objective function and derive conditions under which a representative legislature will select an omnibus of projects each of which exceeds the efficient scale

a combined monopoly and optimal packaging this paper specifies the conditions under which a profit maximizing monopoly will market a package of two different commodities even when the demands for and the cost of production of each commodity are entirely independent of the other packaging is here a useful way of implicitly discriminating by price especially when explicit price discrimination is not possible some of the welfare applications are discussed

determinants of the distribution of congressional earmarks across states abstract this paper examines pork barrel spending within states and finds that per capita earmarked funding is correlated with the inverse of a state s population the presence of a republican congressional delegation and the tenure of a state s senior senator

bundling subscription tv channels abstract i analyze a market such as a subscription tv market where multiple varieties of an excludable public good are traded in bundles here bundling is not due to a producer s desire to extract consumers surplus but due to economies of scope in distribution technology the paper studies the pricing and production decisions of a supplier as well as the impacts of certain regulations such as pure bundling or pure components pricing restrictions findings of interest are as follows a profit constrained welfare maximizer would use a pure bundling price system when costs are low and a mixed bundling price system when costs are high a private monopolist produces too few varieties a pure bundling restriction on a private monopolist may increase welfare and consumer surplus but a pure components restriction never increases them

bringing home the bacon an empirical analysis of the extent and effects of pork barreling in australian politics which electorates receive targeted funding and does targeted funding swing votes to answer these questions i analyze four discretionary programs funded by the australian federal government during the 2001 2004 election cycle controlling for relevant demographic characteristics of the electorate those electorates held by the governing coalition received a larger share of discretionary funding and a larger number of program grants among government seats funding does not appear to have been directed towards those that were more marginal more discretionary funding particularly on road building was associated with a larger swing towards the government in the 2004 election

resolving the public sector wage premium puzzle by indirect inference this paper investigates the public sector wage premium pswp in the uk using a microfounded economic model and indirect inference ii to answer the question whether there is public sector wage p

macroeconomic conditions and committee re election rates the traditional literature on the link between the macro economy and house elections follows kramer 1971 and assumes all members of the president s party are equally vulnerable to voter wrath caused by economic changes using presidential party return rates from 10 house committees over the time period 1916 1996 i find the impact of economic conditions at the polls varies by committee generally committees that manage money or provide a public good are the most sensitive to economic fluctuations contrastingly members of the public works committee and the rules committee are more insulated from electoral culpability due to economic fluctuations

multiproduct pricing in oligopoly abstract this paper proposes a two good model of price competition where some consumers visit all shops and others visit only one we find that information frictions lead to price dispersion when the two goods are complements their prices will tend to be negatively correlated so if one is priced high the other will be discounted this finding is supported by some empirical evidence which suggests that simultaneous price discounts of complements are infrequent if the goods are substitutes their prices will be uncorrelated potentially rationalizing the lack of evidence on their co pricing when selling complements retailers earn higher profits than in the one good model through taxing captive consumers with a high overall price tag and attracting shoppers by pricing one of the goods aggressively bundling practices are thus shown to be detrimental to retailers profits

legislative term limits and state spending supporters of legislative term limits often claim that they will lower state spending levels using fiscal data from 48 states from 1977 to 2001 this paper finds little support for this assertion instead this analysis finds that states with term limits have higher spending levels than states without term limits these results suggest that term limits give legislators greater incentives to deviate from socially optimal fiscal policy by altering the legislative environment in which such policy is formulated

electoral goals and center state transfers a theoretical model and empirical evidence from india we construct a model of redistributive politics where the central government is opportunistic and uses its discretion to make transfers to state governments on the basis of political considerations these considerations are the alignment between the incumbent parties at the central and state levels and whether a state is a swing state or not a testable prediction from the model is that a state that is both swing and aligned with the central government is especially likely to receive higher transfers we test this prediction using indian data for 14 states from 1974 75 to 1996 97 we find that a state which is both aligned and swing in the last state election is estimated to receive 16 higher transfers than a state which is unaligned and non swing

profitability of product bundling using copulas to model the stochastic dependence of values this article establishes new general conditions for the profitability of product bundling a multiproduct monopolist generally achieves higher profit from mixed bundling than from separate selling if consumer values for two of its products are negatively dependent are independent or have sufficiently limited positive dependence the profitability of monopoly bundling also extends to situations where a multiproduct firm competes with a single product rival

giving the people what they want the distribution of earmarks in the u s house of representatives the common wisdom in journalistic accounts of earmarking is that congress distributes earmarks on a purely political basis without any consideration for the demand for federal spending academic accounts similarly argue that factors internal to congress are preeminent in determining where earmarks go even more than for other types of pork barrel spending using earmarks appearing in the fiscal year 2008 appropriations bills i search for both chamber based and demand side determinants of the distribution of earmarks i find that both types of factors are significantly related to the number of earmarks that a house member receives this result indicates that even while earmarking members of congress are at least minimally responsive to voter preferences and calls into question whether earmarks should be treated as an outlier within the universe of spending allocation mechanisms

congressional committees and the political economy of federal outlays the literature on the organization of the united states congress has been dominated by distributive and informational theory one important source of disagreement between these two theories is their characterization of whether individual legislators can engage in pork barrel activities here we provide evidence which indicates that the pork barrel is alive and well in the contemporary united states congress we focus on whether members of power and constituency committees can direct disproportionate federal expenditures to their districts finding strong and systematic evidence of pork barrel activities by committee members provides empirical support for distributive theories of legislative organization

why firms may prefer not to price discriminate via mixed bundling abstract we analyze a simple model of joint purchase discounts using a discrete choice framework to characterize consumer choices the model suggests that mixed bundling is more likely to be associated with monopoly this is due to the benefits reaped via price discrimination in a duopoly environment however only pure components pricing may be offered in equilibrium since firms fear the extra degree of competition inherent in mixed bundling

the committee assignment process and the conditional nature of committee bias the view that congressional committees tend to be biased subsets of their parent chambers provides the foundations for a substantial body of theoretical literature on distributive politics and legislative structure more recent revisionist work suggests that committees composed of preference outliers are in fact rare we reject the categorical account of preference outliers a priori and elaborate conditions under which committees should be unrepresentative of their parent chambers we argue that the most widely available and frequently used data floor roll call votes are inappropriate to the task of assessing outlier predictions in any form finally we conduct a differentiated set of hypothesis tests within one policy jurisdiction to illustrate the characteristics of evidence and analysis necessary to evaluate alternative theoretical accounts of legislative organization the appearance of policy relevant biases in congressional work groups we conclude is not so much rare as it is conditional and we suggest several conditions on which future models of legislative organization should build

can public spending boost private consumption this paper analyses the effects on private consumption from an increase in productive and unproductive public spending a new keynesian model incorporating price and wage rigidities monetary policy and various fiscal rules is developed and estimated using bayesian techniques to capture the key cyclical characteristics of the us economy we find that price and wage rigidities along with a positive shock to the part of public spending that is productive are suficient to boost private consumption moreover we show that this initial positive reaction of private consumption is adequate to create a positive present value consumption multiplier for more than five years finally we show that our main results remain robust to changes in the monetary rule and the various methods of deficit financing

bundling decisions by a multiproduct monopolist with incomplete information this paper analyzes bundling decisions of a rnultiproduct monopolist facing uncertain demand the monopolist sells his products using an auction mechanism and the market is analyzed as a game with incomplete information in which the buyers as well as the seller are strategic agents with a small number of buyers a profit maximizing seller will bundle all his output this makes buyers uniformly worse off compared to the case where the same monopolist does not bundle in the sense that any buyer is worse off regardless of his demand for the monopolist s outputs with a larger number of buyers the seller will have a tendency to unbundle his output and high demand buyers are worse off than they would be if the monopolist bundled his output low demand buyers on the other hand are always better off when the monopolist unbundles his output regardless of the number of competing buyers despite the fact that high demand buyers are the typical purchasers of the monopolist s output the net effect of increasing the number of buyers is greater market efficiency since bundling creates market inefficiencies both ex post and ex ante

priors from general equilibrium models for vars abstract this paper uses a simple new keynesian dynamic stochastic general equilibrium model as a prior for a vector autoregression shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis jel classification c11 c32 c53 key words bayesian analysis dsge models forecasting vector autoregressions 1 introduction dynamic stochastic general equilibrium dsge models are popular nowadays in macroeconomics they are taught in virtually every economics ph d program and represent a predominant share of publications in the field yet when it comes to policy making these models are scarcely used at least from a quantitative point of view the main quantitative workhorse for policy making at the federal reserve system is frb us a macro econometric model built in the cowles foundation tradition a style of macroeconomics that is no longer taught in many ph d programs 1 in their decision process fed policy makers rely heavily on forecasting they want to know the expected path of inflation in the next few quarters and by how much a 50 basis point increase in the federal funds rate would affect that path frb us offers answers to these questions answers that many macroeconomists would regard with suspicion given both the lucas 1976 critique and the fact that in general the restrictions imposed by cowles foundation models are at odds with dynamic general equilibrium macroeconomics sims 1980 general equilibrium models on the other hand have a hard time providing alternative answers the fact that these models are perceived to do badly in terms of forecasting as they are scarcely parameterized is perhaps one of the reasons why they are not at the forefront of policy making while progress is being made in the development of dsge models that deliver acceptable forecasts e g smets and wouters 2003 this paper proposes an approach that combines a stylized general equilibrium model with a vector autoregression var to obtain a specification that both forecasts well and is usable for policy analysis specifically the approach involves using prior information coming from a dsge model in the estimation of a vector autoregression loosely speaking this prior can be thought of as the result of the following exercise i simulate time series data from the dsge model ii fit a var to these data in practice we replace the sample moments of the simulated data by population moments computed from the dsge model solution since the dsge model depends on unknown structural parameters we use a hierarchical prior in our analysis by placing a distribution on the dsge model parameters a tightness parameter controls the weight of the dsge model prior relative to the weight of the actual sample markov chain monte carlo methods are used to generate draws from the joint posterior distribution of the var and dsge model parameters the paper shows that the approach makes even a fairly stylized new keynesian dsge model competitive with standard benchmarks in terms of forecasting real output growth inflation and the nominal interest rate the three variables that are of most interest to policy makers 2 up to this point our procedure borrows from the work of dejong ingram and whiteman 1993 and ingram and whiteman 1994 who are the first to use priors from dsge models for vars ingram and whiteman showed that prior information from the bare bones stochastic growth model of king plosser and rebelo 1988 is helpful in forecasting real economic activity such as output consumption investment and hours worked in addition to documenting the forecasting performance of a trivariate var with a prior derived from a monetary dsge model this paper makes two contributions that significantly extend the earlier work first we show formally how posterior inference for the var parameters can be translated into posterior inference for dsge model parameters

on the fit of new keynesian models this article provides new tools for the evaluation of dynamic stochastic general equilibrium dsge models and applies them to a large scale new keynesian model we approximate the dsge model by a vector autoregression and then systematically relax the implied cross equation restrictions and document how the model fit changes we also compare the dsge model s impulse responses to structural shocks with those obtained after relaxing its restrictions we find that the degree of misspecification in this large scale dsge model is no longer so large as to prevent its use in day to day policy analysis yet is not small enough to be ignored

how important are the international financial market imperfections for the foreign exchange rate dynamics a study of the sterling exchange rate the uk has been a net debtor over the past two decades and the sterling exchange rates are sensitive to any chaos that might occur in the financial market this paper examines the importance of the international financial imperfections in the sterling exchange rate dynamics we build a small open economy dsge model with the constrained international financial institutions that intermediate capital flows and derive tractable analytical solutions the constraint works to introduce a wedge between lending and borrowing rates which compensates financiers for their currency risk taking the model has been estimated by using a simulation based indirect inference approach which provides a natural framework for testing the hypothesis implied by the model we find that the model cannot be rejected by the uk data shocks to financial forces are the main driving forces behind the large and sudden depreciation of the sterling exchange rates in the aftermath of the collapse of lehman brothers and the brexit vote furthermore the optimal policy rules have been proposed

the allocation of federal aid monies the synthesis of demand side and supply side explanations previous research on the distribution offederal aid monies has been dominated by the donor s perspective different distribution formulas political influence of congressional representatives bureaucrats and individual aid recipients have been studied as the sole determinants of aid allocations each explanation however fails to examine the question of aid allocations from a demand side perspective this omission assumes that all governmental units are equally desirous of federal assistance and that any bias in the distribution of federal aid is a function of supply side conditions identifying a linkage between demand side and supply side determinants of aid allocations this article proposes and tests hypotheses derived from an integrated model of federal aid allocations

stabilisation policy rational expectations and price level versus inflation targeting a survey we survey literature comparing inflation targeting it and price level targeting pt as macroeconomic stabilisation policies our focus is on new keynesian models and areas that have seen significant developments since ambler s 2009 price level targeting and stabilisation policy a survey journal of economic surveys 23 5 974 997 survey optimal monetary policy the zero lower bound financial frictions and transition costs of adopting a pt regime ambler s conclusion that pt improves social welfare in new keynesian models is fairly robust but we note an interesting split in the literature pt consistently outperforms it in models where policymakers commit to simple taylor type rules but results in favour of pt when policymakers minimise loss functions are overturned with small deviations from the baseline model since the beneficial effects of pt appear to hang on the joint assumption that agents are rational and the economy new keynesian we discuss survey and experimental evidence on rational expectations and the applied macro literature on the empirical performance of new keynesian models overall the evidence is not clear cut but we note that new keynesian models can pass formal statistical tests against macro data and that models with rational expectations outperform those with behavioural expectations i e heuristics in direct statistical tests we therefore argue that policymakers should continue to pay attention to pt

commodity bundling by single product monopolies consider two products that have independent demands in the sense that all individual buyers consider them neither substitutes nor complements then if the two products are priced separately the demand for either is independent of the price of the other in his classic analysis of block booking of feature films george stigler shows that it may be profitable for a monopoly seller of two such products to bundle them by requiring a buyer to take both in order to get either his work provides a rationale for tying arrangements that does not depend on technological or other dependencies among the products involved 2 adams and yellen extend the analysis of multiproduct monopoly with independent demands 3 they discuss two different bundling strategies pure bundling in which the seller only offers the products in fixed proportions and mixed bundling in which buyers may either buy the products separately or purchase a bundle with fixed proportions of each in this note i consider a single product monopoly and investigate the profit and welfare implications of bundling its product for some other

the efficient estimation of econometric models with rational expectations the efficient estimation of econometric models with rational expectations by the substitution method usually entails the use of a non linear simultaneous equations estimator and hence is not very attractive computationally it is shown that for a wide class of problems efficient estimates can also be obtained with standard estimation methods if instead an errors in variables approach is used for many other problems although not providing fully efficient estimates because rationality is not imposed the errors in variables method will still have a strong appeal because otherwise it uses all of the structural information in the model unlike the substitution method when an incomplete information set is used it guarantees consistent estimates and it is easy to compute

estrutura politica como determinante dos gastos federais this paper analyses federal expending distribution between brazilian states the hypothesis is that there are variables other than social and geographic ones that explain federal expending decisions country s political structure is also important to determine these choices positive theories of budget allocation such as congressional partisan and electoral are used to ascertain the role performed by political arrangements on the allocation of federal budget a set of political and electoral variables was used to test the importance of these theories the test of the hypothesis utilized a panel data of 27 brazilian states from 1999 to 2003 and the dependent variables used were states voluntary federal transferences and federal investment on states the results confirm the hypothesis indicating that representatives party alignment and voter s behavior on past elections influence resources distribution among states

the political economy of the essential air service program we find that congressional influences affect the amount of airport subsidies that a congressional district receives through the essential air service eas program the eas program was passed with the goal of helping to continue commercial air service to rural communities following deregulation in the 1970s using data from 1998 2014 we find strong and consistent evidence that subsidies are higher in districts having congressional representation on the house transportation and ways and means committees our empirical results when combined with news reports of members claiming credit for securing eas funding are consistent with the eas serving private and public interests

the price of pork the seniority trap in the u s house abstract using data on federal outlays and u s house elections i estimate the effect of the pork barrel on the quality of officeholders taking into account the fact that seniority creates a dynamic linkage across periods after estimating the parameters governing the influence of seniority on federal outlays and the parameters governing the distributions of candidate quality i conduct several policy experiments to uncover the size of the welfare loss created by the seniority system i find that the seniority system negatively impacts the quality of representatives but has little effect on the outcomes of elections furthermore the most commonly proposed solution to the distortion term limits may have a significant negative effect on the quality of sitting representatives instead of a quantity constraint term limits i propose a change in the relative price of seniority by way of a pigouvian tax on seniority such a policy achieves the first best outcome