when in rome how non domestic companies listed in the uk may not comply with accepted norms and principles of good corporate governance does home market culture explain these corporate behaviours and attitudes to compliance non domestic companies are increasingly present on the london stock exchange such companies have specific governance requirements they may seek to access capital in a more liquid market and to diversify ownership the reputational bonding coffee northwest univ law rev 93 641 708 1999 columbia law rev 102 1757 1831 2002 to a prestigious exchange should be a statement to the market of a propensity to disclosure and a willingness to protect minority shareholders yet many non domestic companies retain tightly controlled shareholding structures and are based in emerging regions where national culture norms differ to the uk we hypothesise that non domestic companies are likely to be less compliant with the principles of the uk corporate governance code and suggest a correlation between lower levels of compliance and non domestic companies from countries that demonstrate high power distance in the hofstede culture s consequences international differences in work related values 1980a cultural value framework we find some encouraging signs of compliance with the reigning governance code principles in board structures however we find only partial compliance in leadership and board effectiveness measures in those companies from cultures high on the power distance scale further we include analysis into ownership characteristics and find companies from emerging markets are dominated by a single or controlling group of shareholders which is likely to impact on attitudes to compliance and is particularly evidenced in terms of board structures with no executive directors or led by an executive chairman much of the prior research effort into the levels of compliance with the uk s comply or explain approach to governance has produced mixed results and focused on all companies in our exploratory approach to analysing only the non domestic subsample we report some evidence linking cultural distance to lower levels of compliance with the uk standards we develop a framework to guide future research into the context and cultural underpinnings of this sub sample of companies hypothesising that frequent market capitalisation induced index changes may divert attention away from any potential compliance issues on the one hand our evidence is encouraging for governance regimes based on voluntary compliance disclosures such as the uk and similar european and international markets as we report partial compliance with the principles of the current governance code our research may however be helpful in guiding future versions of the uk governance framework and other international governance regimes adopting the comply or explain approach and in setting policy to improve disclosure it contributes to the understanding of the specific context of non domestic companies and any cultural tendencies to non compliance by demonstrating evidence of lower levels of compliance with key principles of the code by non domestic companies we present a framework enabling lawmakers to further improve corporate governance codes

structural factors in the economic reforms of china eastern europe and the former soviet union reform in china and russia jeffrey sachs and wing thye woo china s experience does not show that gradual reform is superior to the shock therapy undertaken in eastern europe and the former soviet union eefsu differing performance primarily reflects different economic structures prior to reform china was a peasant agricultural society eefsu was urban and overindustrialized in both jobs in state enterprises were so heavily subsidized that workers refused to move to new industries elsewhere even when productivity in the latter was much higher in eefsu the large state sector impeded structural adjustment curtailing subsidies would have produced many losers who used their power to resist this outcome failure to curtail subsidies then cut off the potential supply of labour and other factors to new emerging firms china s state enterprises have not performed as well as the rest of the chinese economy and do not explain its success rapid growth was possible because the large agricultural sector contained vast surplus labour and did not enjoy subsidies and soft budget constraints once constraints on migration across regions and jobs were removed this labour was available to fuel expansion in new industries unlike the distributional conflict in eefsu in china reallocation of labour allowed all groups to gain in both partial liberalization also unleashed macroeconomic pressures manageable in china because of rapid growth and adequate monetary policy but explosive in much of eefsu because of deeper structural problems and gross monetary mismanagement

public sector pay and corruption measuring bribery from micro data abstract this study provides the first systematic measure of bribery using micro level data on reported earnings household spending and asset holdings we use the compensating differential framework and the estimated sectoral gap in reported earnings and expenditures to identify the size of unobserved unofficial compensation i e bribes of public sector employees in the case of ukraine we find that public sector employees receive 24 32 less wages than their private sector counterparts the gap is particularly large at the top of the wage distribution at the same time workers in both sectors have essentially identical level of consumer expenditures and asset holdings that unambiguously indicate the presence of non reported compensation in the public sector using the conditions of labor market equilibrium we develop an aggregate measure of bribery and find that the lower bound estimate of the extent of bribery in ukraine is between 460 million and 580 million u s dollars 0 9 1 2 of ukraine s gdp in 2003

the environment and emerging development issues development economics for the most part has failed to recognize renewable environmental resources as economic goods yet the lives of the poor in developing countries are intimately tied to the fate of their local common property resources soil fuel wood water and so on ignoring the loss of common property renewable resources via degradation centralization or privatization in calculations of net national product can mask the destruction of resources available to a country s poor behind the false appearance of a growing national economy this paper describes the difference between the problem of managing local common property resources in developing countries and the problem of protecting the global commons such as the atmosphere and oceans it outlines the calculations that would include the local commons in the national income accounting of capital assets and argues that the interests of those most dependent on the increasingly scarce local commons will be best served by placing control in their hands while the central government provides infrastructure and educational support to control the pollution of the global commons on the other hand the paper sketches a plan in which most countries would have a high incentive to participate a global allocation of limited tradable permits to discharge defined pollutants

dodging the grabbing hand the determinants of unofficial activity in 69 countries across 69 countries higher tax rates are associated with less unofficial activity as a percent of gdp but corruption is associated with more unofficial activity entrepreneurs go underground not to avoid official taxes but to reduce the burden of bureaucracy and corruption dodging the grabbing hand in this way reduces tax revenues as a percent of both official and total gdp as a result corrupt governments become small governments and only relatively uncorrupt governments can sustain high tax rates 2000 elsevier science s a all rights reserved

domestic versus international capital mobility some empirical evidence this paper develops an empirical test to determine whether on average capital moves more easily between industries within a country or between coun tries within an industry the test is applied using cross section dat a on accounting rates of return to capital of u s multinational corp orations in 1966 and 1977 it is found that international capital mob ility was greater in the earlier period but domestic capital mobilit y tended to dominate in the later period these findings are of parti cular importance to the field of international economics since compe ting trade models use opposite assumptions as regards which type of c apital mobility is greater

political economy of public policies insights from distortions to agricultural and food markets the agricultural and food sector is an ideal case for investigating the political economy of public policies many of the policy developments in this sector since the 1950s have been sudden and transformational while others have been gradual but persistent this paper reviews and synthesizes the literature on trends and fluctuations in market distortions and the political economy explanations that have been advanced based on a rich global data set covering a half century of evidence on commodities countries and policy instruments the paper identifies hypotheses that have been explored in the literature on the extent of market distortions and the conditions under which reform may be feasible

an evolutionary approach to norms iorms provide a powerful mechanism for regulating conflict in groups even when there are more than two people and no central authority this paper investigates the emergence and stability of behavioral norms in the context of a game played by people of limited rationality the dynamics of this new norms game are analyzed with a computer simulation based upon the evolutionary principle that strategies shown to be relatively effective will be used more in the future than less effective strategies the results show the conditions under which norms can evolve and prove stable one interesting possibility is the employment of metanorms the willingness to punish someone who did not enforce a norm many historical examples of domestic and international norms are used to illustrate the wide variety of mechanisms that can support norms including metanorms dominance internalization deterrence social proof membership in groups law and reputation

transition and integration in europe implications for agricultural and food markets policy and trade agreements several central and eastern european countries are on their way to becoming members of the european union agriculture and agricultural policy is an important issue in eu enlargement this paper reviews the changes that have occurred in the agricultural and food sector of the ceecs and draws implications for the impact of eu enlargement on agri food markets and policy first those countries which have reformed most rapidly and most thoroughly are now doing best and their reform efforts have resulted in significant recovery and efficiency improvements second the impact of eastern enlargement will be less dramatic than initially feared although some uncertainty remains the possibility that the accession of the ceecs into the cap will cause a conflict with wto commitments has been reduced but cannot be excluded for some specific commodities depending on the ceec supply evolution however the likelihood of a wto conflict and the impact on the cap will depend more on the outcome of the negotiations in the wto millennium round than on enlargement similarly the impact of enlargement on the eu budget depends mostly on the political decision on the allocation of direct payments to ceec farmers and or of the extent of structural funds for ceecs

explaining differences in public sector efficiency evidence from russia s regions summary using the case of russia s regions this paper extends the literature on public sector efficiency in three directions an attempt to better understand differences in public sector efficiency through the study of subnational governments in one country the first examination of public sector efficiency of subnational governments in emerging markets and the first study of public sector efficiency in russia three types of scores of public sector performance and efficiency indicate substantial differences across regions an econometric examination suggests that they are largely explained by per capita income the share of federal transfers in subnational government revenue quality of governance and democratic control and the level of spending

why do firms hide bribes and unofficial activity after communism abstract our survey of private manufacturing firms finds the size of hidden unofficial activity to be much larger in russia and ukraine than in poland slovakia and romania a comparison of cross country averages shows that managers in russia and ukraine face higher effective tax rates worse bureaucratic corruption greater incidence of mafia protection and have less faith in the court system our firm level regressions for the three eastern european countries find that bureaucratic corruption is significantly associated with hiding output

patterns of transition from plan to market patterns of transition from plan to market martha de melo cevdet denizer and alan gelb hungary s bankruptcy experience 1992 1993 cheryl w gray sabine schlorke and miklos szanyi why and when do governments initiate public enterprise reform jose edgardo campos and hadi salehi esfahani roads land use and deforestation a spatial model applied to belize kenneth m chomitz and david a gray industrial centralization in indonesia j vernon henderson and ari kuncoro guidlines on searching for a dalton improving tax reform an illustration with data from indonesia shlomo yitzhaki and jeffrey d lewis a new data set measuring income inequality klaus deininger and lyn squire

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

circumstance and choice the role of initial conditions and policies in transition economies the experience of countries in transition from a planned to a market oriented economy has varied greatly the clearest differences are between the east asian countries china and vietnam and the countries of central and eastern europe cee and the former soviet union fsu china and vietnam have contained inflation and benefited from continued high growth in gdp since the beginning of their reforms while all cee and fsu countries have experienced large declines in output and most have experienced hyperinflation but even in cee and the fsu differences are marked some countries have lost over half of their gdp and growth performance in a number of countries is still poor while others are growing strongly some are still suffering from high inflation while others have successfully reduced annual inflation what determines this divergence of outcomes across transition countries no study so far has analyzed the interaction of all factors including initial conditions political change and reforms in a unified framework including cee the fsu china and vietnam the authors examine these broader interactions but focus first on the role of initial conditions such as initial macroeconomic distortions and differences in economic structure and institutions which have been emphasized less in the literature they find that initial conditions and economic policy jointly determine the large differences in economic performance among the 28 transition economies in the sample initial conditions dominate in explaining inflation but economic liberalization is the most important factor determining differences in growth but reform policy choices are not exogenous they depend in turn on both initial conditions and political reform with political reform the most important determinant of the speed and comprehensiveness of economic liberalization other findings provide additional insight into these relationships results show that liberalization has a negative contemporaneous impact but a stronger positive effect on performance over time the results also show that macroeconomic and structural distortions are negatively related to both policy and performance regarding the former unfavorable initial conditions discourage policy reforms but do not diminish their effectiveness once they are implemented the authors find some evidence that the influence of initial conditions diminishes over time this is in part because many of the initial conditions are themselves modified in the course of transition monetary overhangs are dissipated through inflation industrial overhang is eroded as plants shut down and market memory returns through experience

the invisible hand and the grabbing hand evidence from a survey of 105 shop owners in moscow and warsaw shows that the reliance on private protection as well as the burden of regulation and corruption are much greater in moscow the evidence suggests that the invisible hand model of government better fits the warsaw local government and the grabbing hand model is more appropriate for moscow the evidence implies that the singular focus on the speed of economic reforms to understand the success of transition is misplaced and that the quality of government may be as essential this abstract was borrowed from another version of this item

incentives to provide local public goods fiscal federalism russian style abstract based on a unique data set on russian city budgets this paper shows that revenue sharing between regional and local governments provides local governments with no incentive to increase tax base or provide public goods any change in local government s own revenues is almost entirely offset by changes in shared revenues this leads to governmental over regulation of private businesses it is shown that fiscal incentives are a determinant of the formation of private business and the efficiency of public goods provision the russian federalism is compared to the chinese federalism where fiscal incentives reputedly are stronger in many provinces

clientelism and polarized voting empirical evidence one must take country specific institutional features into account when analyzing former communist countries transformation process to new political institutions we do so for post communist albania where the regional and cultural polarization that has existed for centuries has evolved to clientelism in the new democracy we show how clientelistic parties give rise to very particular voting patterns these reveal major differences across regions not only in party choice but also in voters responses to government policies these responses depend on the party in government and on the region concerned this is in sharp contrast with results obtained when applying the same model to a large number of more advanced democracies with similar electoral institutions a proper evaluation of democratization in albania thus requires looking beyond the formal institutions governing elections and taking clientelism and its effect on voter behavior into account

an investigation of the rationality of consumer valuations of multiple health risks after developing a conceptual analysis of consumer valuation of multiple risks we explore both economic and cognitive hypotheses regarding individual risk taking using a sample of over 1 500 consumers our study ascertains risk dollar tradeoffs for the risks associated with using an insecticide and a toilet bowl cleaner we observe the expected positive valuation of risk reductions and find empirical support for a diminishing in the valuation of risk reduction as the extent of the risk reduction increases we also find evidence of certainty premiums for the total elimination of one risk but no strong evidence of additional certainty premiums for the elimination of multiple risks strong reference risk effects are evident as increases in risk were valued much more greatly than were decreases

princes and merchants european city growth before the industrial revolution as measured by the pace of city growth in western europe from 1000 to 1800 absolutist monarchs stunted the growth of commerce and industry a region ruled by an absolutist prince saw its total urban population shrink by one hundred thousand people per century relative to a region without absolutist government this might be explained by higher rates of taxation under revenue maximizing absolutist governments than under nonabsolutist governments which care more about general economic prosperity and less about state revenue

the financial and operating performance of newly privatized firms an international empirical analysis this study compares the pre and postprivatization financial and operating performance of 61 companies from 18 countries and 32 industries that experience full or partial privatization through public share offerings during the period 1961 to 1990 our results document strong performance improvements achieved surprisingly without sacrificing employment security specifically after being privatized firms increase real sales become more profitable increase their capital investment spending improve their operating efficiency and increase their work forces furthermore these companies significantly lower their debt levels and increase dividend payout finally we document significant changes in the size and composition of corporate boards of directors after privatization the last fifteen years have witnessed a significant global shift away from state socialism towards entrepreneurial capitalism one of the most important and visible aspects of this trend has been the enthusiasm with which governments of all political persuasions have sold their state owned enterprises soes to private investors in hopes that the generally unsatisfactory economic performance of these firms can be improved by the discipline of private ownership this denationalization process given its current title of privatization by the conservative government of margaret thatcher in

regional decentralization and fiscal incentives federalism chinese style abstract aligning the interests of local governments with market development is an important issue for developing and transition economies using a panel data set from china we investigate the relationship between provincial government s fiscal incentives and provincial market development we report three empirical findings first we find that during the period of fiscal contracting system the discrepancy between ex ante contracts and ex post implementation was relatively small suggesting that the fiscal contracts were credible second we find a much higher correlation about four times between the provincial government s budgetary revenue and its expenditure during 1980s and 1990s as compared to 1970s demonstrating that provincial governments faced much stronger ex post fiscal incentives after reform third we find that stronger ex ante fiscal incentives measured by the contractual marginal retention rate of the provincial government in its budgetary revenue are associated with faster development of the non state sector as well as more reforms in the state sector in the provincial economy this holds even when we control for the conventional measure of fiscal decentralization finally we compare federalism chinese style to federalism russian style

the transition to a market economy pitfalls of partial reform we present a theory of a partial economic reform of a planned economy similar to the one that took place in russia since 1988 and in china earlier in such a reform some markets are liberalized in the sense that producers can sell output to whomever they want including private firms at free prices but at the same time must sell to state firms at state prices we show that such a reform can result in a substantial diversion of subsidized inputs away from state firms and toward private firms even when state firms value these inputs more the result may be a reduction of total output the simple analysis sheds light on many consequences of the soviet reform such as breakdown of coordination of production increased state policing of delivery quotas prohibitions of trading cooperatives and opposition to privatization the model also explains why partial reform failed in russia but worked in china

bribery inefficiency and bureaucratic delay abstract we examine bribery in a dynamic setting with a partially honest bureaucracy the presence of honest officials lowers the bribe that a corrupt official can extract from efficient applicants consequently efficient applicants may face delays in receiving licenses or may never receive licenses as inefficient applicants are serviced ahead of them an increase in the proportion of honest officials while directly increasing the incidence of socially optimal decisions can also induce greater inefficiencies misallocation and delay from corrupt officials as a result social welfare may be non monotonic in the proportion of honest officials and small differences in monitoring costs may lead to very different levels of corruption competition between officials can hurt efficiency its desirability depends on the prevalence of applicants ability to pay bribes

market oriented institutions and policies and economic growth a critical survey this paper surveys recent evidence suggesting that market oriented institutions and policies are strongly related to economic growth focusing on studies using the economic freedom ef indicator of the fraser institute this index is critically discussed also various serious shortcomings of empirical studies using this index are identified nevertheless there are strong indications that liberalization i e an increase in the ef index stimulates economic growth this paper also reviews studies on the determinants of ef political liberalization is often found to enhance economic liberalization whereas there is less evidence for causality running in the other direction

market networks and corporate behavior data on market relations between a large population of corporations and investment banks are used to study the organization market interforce the pattern of direct market ties between a firm and its banks forms of interfaces range from a long term exclusive tie the relationship interface to many short lived episodic ties the transaction interface with hybrid forms between the two poles contrary to widespread belief the article finds that strong relationships still exist transactions interfaces are rare most firms use hybrid interfaces a firm s interface is conceptualized as the intentional result of its efforts to reduce dependence and exploit power advantages observed interfaces are shown to be related systematically to various power dependence concepts including resource intensity number of transactions and dollar amounts raised criticality the availability of resource alternatives power asymmetry between a firm and its main bank organization size standardization of exchange and

pervasive shortages under socialism we present a new theory of pervasive shortages under socialism based on the assumption that the planners are self interested because the planners meaning bureaucrats in the ministries and managers offirms cannot keep the official profits that firms earn it is in their interest to create shortages of output and to collect bribes from consumers the theory implies that 1 an increase in the official price of a good might reduce output 2 market socialism is bound to fail even without computational complexities facing the planners and 3 price liberalization will succeed only iffirms get to keep their profits

the benefits of privatization evidence from mexico critics of privatization often argue that its benefits come at a high cost to society the authors test the validity of this criticism for mexico s privatization program one of the world s largest case by case programs assessing the performance of newly privatized firms in such areas as profitability and efficiency they find that these firms quickly close the gap with their peers in the private sector their findings suggest that the firms profit gains come from productivity gains 52 percent layoffs 33 percent and higher prices 15 percent

income effects and the value of health although valuations of risk should increase with income hedonic wage studies have not been well suited to assessing this relationship using survey data on consumer valuations of product safety this paper analyzes the role of income effects for several utility functions the methodology developed in this paper assesses the effect of income on the certainty equivalent value of the health effect income elasticities range from 0 18 to 0 39 and on the risk money tradeoff for small changes in risk income elasticities range from 0 17 to 0 38 health status is a normal economic good

property rights and finance which is the tighter constraint on private sector investment weak property rights or limited access to external finance from a survey of new firms in post communist countries we find that weak property rights discourage firms from reinvesting their profits even when bank loans are available where property rights are relatively strong firms reinvest their profits where they are relatively weak entrepreneurs do not want to invest from retained earnings

fiscal decentralization and economic growth abstract fiscal decentralization may indeed have a direct impact on economic growth but the theoretical underpinnings for this relationship remain largely undeveloped a fair summary of the empirical search for a direct relationship between fiscal decentralization and economic growth is that it remains an open question much less attention has been devoted in the literature to the indirect channels through which fiscal decentralization may affect economic growth we argue that much work remains to be done before policy advisors and decision makers can formulate and implement decentralization programs on the basis of improving the rate of economic growth

friends with benefits how political connections help to sustain private enterprise growth in china by analysing data from a survey of 511 chinese private enterprises we find that their owners respond to government discrimination by developing political connections with government officials a one standard deviation increase in the insecurity of property rights has the effect of increasing the number of friends in the government by a substantial 22 these friends significantly help to mitigate by half the negative effect arising from the difficulties of obtaining land and excessive regulations on enterprise growth this explains why an institutional environment of weak property rights has not stopped private enterprises in china from developing rapidly

international factor movements commodity trade and commercial policy in a specific factor model two events in the decade of the 1970s had a major impact on world trade and factor movements the collapse of the bretton woods fixed exchange rate system and opec s success in raising petroleum prices the enormous current account surplus accruing to some of the opec members was successfully recycled by the international capital markets to among others the oil importing developing countries in addition the vastly increased tempo of investment in the capital rich labour poor opec members in west asia attracted migration of labour skilled as well as unskilled to these countries from some of the oil importing developing countries the remittances from these workers in turn eased the problem of the labourexporting countries in adjusting to the increased cost of oil imports thus both borrowing from private capital markets and export of labour became very important elements in cushioning the oil shock for a number of countries the post opec movements of labour and financial capital while dramatic are only the more recent instances of a phenomenon of much greater antiquity the seventeenth and eighteenth centuries saw vast migration of people out of europe though these movements were the result of conquests and colonization rather than movements from one sovereign state into another but the nineteenth century particularly the latter half saw migration of the latter kind from europe to countries of north and south america as well as capital investment by residents of europe in these

multinational firms and the theory of international trade and investment tinational corporation in the arena of economic activity and political influence trade theorists have either ignored it or expressed unguarded skepticism at the ability of the conventional trade models to successfully capture and analyze the features of this new phenomenon the purpose of this paper is twofold first by building upon the contribution by richard caves we will show that the traditional trade models can be adapted in a way that preserves most if not all of the attributes introduced by international firms 2 second we will conduct a comparative statics analysis to explore the implications of tariffs and taxes for resource allocation and international capital movements our results here confirm what has already been well established in myriad empirical studies that maturation of the international firm has vastly increased economic interdependence among trading countries and that few nations can eschew the ripples caused by economic policies of other nations 3

background risk of food insecurity and insurance behaviour evidence from the west bank this paper explores behavioural changes resulting from the presence of a uninsurable background risk due to markets incompleteness not all risks are insurable we empirically test the theory and the intuition suggesting that people bearing an uninsurable background risk are less willing to bear other insurable risks and therefore increase their demand for insurance against insurable risks we present a case study on the palestinian territories we consider the implications of a background risk of food insecurity a major formally uninsurable risk using nationally representative household data using a bivariate probit model we find that exposure to severe food insecurity risk increases the propensity to insure against health risks and this propensity is increasing in background risk intensity our findings point to possible incentive changes towards the desirability of insurance that have implications for policy design

american taxation of multinational firms publisher summary this chapter discusses the american taxation of multinational firms it is assumed that a multinational firm starts with an existing stock of foreign and domestic investment and seeks the optimal change in its position over the next year as the earnings generated by existing investments are an important source of capital for new investment one cannot ignore the role of the past in shaping the present the chapter presents an analysis that focuses not only on the levels of foreign and domestic investment but also on the financing of that investment it is also assumed that the foreign subsidiary can deduct from its taxable income interest on intrafirm debt as well as royalties head office charges and other such payments for intrafirm services

the success and failure of reforms in transition economies this paper argues that an important reason why russia s performance and china s performance under capitalism have differed dramatically is that different arrangements governing the determination of prices and work practices evolved during the transition process in russia the arrangement which conferred monopoly rights to industry groups leftover from socialism prevented the adoption of better technology in china the arrangement that evolved contained no such monopoly elements the key factor in determining which arrangement evolved was the strength of the central government we put forth a model that implements these ideas and provide evidence in support of this theory

trust in large organizations several authors suggest that trust is an important determinant of cooperation between strangers in a society and therefore of performance of social institutions we argue that trust should be particularly important for the performance of large organizations in a cross section of countries evidence on government performance participation in civic and professional societies importance of large firms and the performance of social institutions more generally supports this hypothesis moreover trust is lower in countries with dominant hierarchical religions which may have deterred networks of cooperation trust hold up remarkably well on a cross section of countries this abstract was borrowed from another version of this item

regulation and distrust in a cross section of countries government regulation is strongly negatively correlated with social capital we document this correlation and present a model explaining it in the model distrust creates public demand for regulation while regulation in turn discourages social capital accumulation leading to multiple equilibria a key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt we test this and other implications of the model using country and individual level data on social capital and beliefs about government s role as well as on changes in beliefs and in trust during the transition from socialism

the long term costs of government surveillance insights from stasi spying in east germany we investigate the long run effects of government surveillance on civic capital and economic performance studying the case of the stasi in east germany exploiting regional variation in the number of spies and administrative features of the system we combine a border discontinuity design with an instrumental variables strategy to estimate the long term post reunification effect of government surveillance we find that a higher spying density led to persistently lower levels of interpersonal and institutional trust in post reunification germany we also find substantial and long lasting economic effects of stasi surveillance resulting in lower income higher exposure to unemployment and lower self employment

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

behind the market stage where real societies exist part i the role of public and private order institutions this two part article is an attempt to clarify the social conditions upon which the viability and efficiency of the market system rest it strives to show that the embeddedness thesis that is an explanation based upon the existence of long run personal ties involving the use of reputation mechanisms among transactors cannot fully elucidate the question as to how the problem of trust is solved in market societies as explained in part i there are difficulties of both theoretical and empirical historical kinds and these explain why the market order needs to be sustained by private and public order institutions in part ii the role of generalised morality in backing or supplementing such institutions is discussed in the light of game theory and particular emphasis is put on the ability of moral norms to sustain honest behaviour by generating the right kind of preferences and establishing trust the vexed problem of the dynamics of norm emergence and erosion is then addressed with a view to showing

institutional causes macroeconomic symptoms volatility crises and growth countries that have pursued distortionary macroeconomic policies including high inflation large budget deficits and misaligned exchange rates appear to have suffered more macroeconomic volatility and also grown more slowly during the postwar period does this reflect the causal effect of these macroeconomic policies on economic outcomes one reason to suspect that the answer may be no is that countries pursuing poor macroeconomic policies also have weak institutions including political institutions that do not constrain politicians and political elites ineffective enforcement of property rights for investors widespread corruption and a high degree of political instability this paper documents that countries that inherited more extractive institutions from their colonial past were more likely to experience high volatility and economic crises during the postwar period more specifically societies where european colonists faced high mortality rates more than 100 years ago are much more volatile and prone to crises based on our previous work we interpret this relationship as due to the causal effect of institutions on economic outcomes europeans did not settle and were more likely to set up extractive institutions in areas where they faced high mortality once we control for the effect of institutions macroeconomic policies appear to have only a minor impact on volatility and crises this suggests that distortionary macroeconomic policies are more likely to be symptoms of underlying institutional problems rather than the main causes of economic

is it really possible to build a bridge between cost benefit analysis and cost effectiveness analysis cost benefit analysis cba is a recognised as the economic evaluation technique that accords most with the underlying principles of standard welfare economic theory however due to problems associated with the technique economists evaluating resources allocation decisions in health care have most often used cost effective analysis cea in which health benefits are expressed in non monetary units as a result attempts have been made to build a welfare economic bridge between cost benefit analysis cba and cost effectiveness analysis cea in this paper we develops these attempts and finds that while assumptions can be made to facilitate a constant willingness to pay per unit of health outcome these restrictions are highly unrealistic we develop an impossibility theorem that shows it is not possible to link cba and cea if i the axioms of expected utility theory hold ii the quality adjusted life year qaly model is valid in a welfare economic sense and iii illness affects the ability to enjoy consumption we conclude that within a welfare economic framework it would be unwise to rely on a link between cba and cea in economic evaluations

tax rights in transition economies a tragedy of the commons abstract this paper develops the concept of tax rights to analyze the impact of fiscal institutions on economic development in transition economies a government s tax rights are poorly defined when it and other governments and agencies can unilaterally levy taxes on the same tax base existing evidence suggests that chinese local governments have gained more clearly defined tax rights than their russian counterparts using the big push model of industrialization murphy k shleifer a vishny r 1989 industrialization and the big push journal of political economy 95 1003 1026 within a common property resource framework we show that this difference in tax rights helps explain why china has been significantly more successful than russia

estimation of state dependent utility functions using survey data surveys of individual s risk dollar trade offs illuminate not only the local trade off rates but also can be used to address more fundamental questions about the structure of utility functions this largely unexplored empirical area is investigated by developing an econometric technique to estimate utility functions based on survey data on risk dollar trade offs for minor health effects the empirical tests indicate that for all but one of the temporary health effects considered consumers treat injuries as tantamount to a drop in income implying that the health impact does not alter the structure of the utility function in a fundamental way copyright 1991 by mit press

a theory of privatisation public enterprises around the world have proved to be highly inefficient primarily because they pursue strategies such as excess employment that satisfy the political objectives of politicians who control them privatization of public enterprises can raise the cost to politicians of influencing them since subsidies to private firms necessary to force them to remain inefficient are politically harder to sustain than wasted profits of the state firms in this way privatization leads to efficient restructuring of firms moreover privatization is more effective when combined with a tight monetary policy and when the new owners of firms are profit maximizing investors rather than their employees or even managers copyright 1996 by royal economic society

two way capital flows cross hauling in a model of foreign investment this paper presents a simple model of a small open economy which is open to both commodity trade and foreign investment of a sector specific kind and which exhibits the phenomenon of cross hauling or reverse flows of internationally mobile capital in two different sectors the model which assumes that a single domestic factor is combined with internationally mobile but sector specific capital in each of two sectors one of which produces a non traded good appears to be the simplest possible which permits cross hauling as an endogenous phenomenon

the injustice of inequality in many countries the operation of legal political and regulatory institutions is subverted by the wealthy and the politically powerful for their own benefit this subversion takes the form of corruption intimidation and other forms of influence we present a model of such institutional subversion focusing specifically on courts and of the effects of inequality in economic and political resources on the magnitude of subversion we then use the model to analyze the consequences of institutional subversion for the law and order environment in the country as well as for capital accumulation and growth we illustrate the model with historical evidence from gilded age united states and the transition economies of the 1990s we also present some cross country evidence consistent with the basic prediction of the model

can neoclassical economics underpin the reform of centrally planned economies te here s a curious symmetry between the arguments propounded over the last century in advocacy of socialism and the present popular discussion of the reform of centrally planned economies in those old discussions the vision of socialism was utopian which was contrasted with the dickensian realities of capitalism now the disasters of central planning are contrasted with the benefits flowing from perfectly functioning markets in the conventional wisdom of reform the vision of markets is utopian and that of central planning concentrates on the awful reality what is largely missing in the conventional wisdom is a satisfactory attempt to come to grips with the central question that should be answered in formulating reform plans how does one explain the differences in performance of market capitalist and centrally planned economies of course capitalism has outperformed central planning the developed west is therefore an obvious source of ideas for reforms but the institutions of capitalism come in many varieties and cannot be put in place instantaneously there are many alternative reform paths depending upon the importance attributed to each of these institutions thus there remains the problem of tracing the source of the superiority of capitalist economies to specific characteristics this point was made clear to me on hearing a vietnamese official justify single party rule by noting the economic success of taiwan and singapore reformers need a filter that interprets the experience of capitalist and socialist systems this is exactly where economic theory plays a vital role

popular attitudes toward free markets the soviet union and the united states compared random samples of the moscow and new york populations were compared in their attitudes towards free markets by administering identical telephone interviews in the two countries in may 1990 although the soviet respondents were somewhat less likely to accept exchange of money as a solution to personal problems and although their attitudes toward business were less warm the authors found that the soviet and american respondents were basically similar in some very important dimensions in their attitudes toward fairness income inequality and incentives and in their understanding of the working of markets copyright 1991 by american economic association

resources of the firm russian high technology startups and firm growth abstract russia possessed many world class technologies prior to the break up of the soviet union entrepreneurial endeavors resulted from this technological ability as market forces encouraged individuals to leave the large state enterprises that produced those technologies founding characteristics of the firm impact the resources that are available to the startup firm this study investigates the extent to which founding factors in russia help high technology firms to prosper it was found that the team establishing the business mitigated the liability of newness however in contrast to the us the culture of russia does not produce negative results if the founding team grows very large additionally it was shown that firms that pursued more technological products and enter the market later performed best

second generation fiscal federalism the implications of fiscal incentives abstract first generation fiscal federalism fgff studies the performance of decentralized systems under the assumption of benevolent social planners second generation fiscal federalism sgff studies performance based on the fiscal and political incentives facing subnational officials the paper focuses on three aspects of sgff first it considers the design of intergovernmental transfers while fgff emphasizes correcting vertical and horizontal equity sgff emphasizes the importance of fiscal incentives for producing local economic prosperity sgff extends fgff approaches by showing how non linear transfer systems can produce both equalization and high marginal fiscal incentives to produce local economic growth second the paper raises the fiscal incentive approach showing how different tax systems produce different fiscal incentives for political officials to choose policies third the paper discusses the interaction of democracy and fiscal federalism

do markets differ much this essay reports the results of a crosssection study of differences in accounting profitability that sheds light on some basic controversies in industrial economics most previous cross section studies in this field have been concerned with testing hypotheses about structural coefficients in models meant to apply to essentially all markets as we have learned more about the difficulties of constructing such general models and of performing tests on their structural parameters properly structural cross section analysis has fallen out of fashion in contrast to most of the cross section literature the analysis reported here is fundamentally descriptive it does not attempt directly to estimate or to test hypotheses about structural parameters i hope to show by example that one can perform illuminating analysis of cross section data without a host of controversial maintained hypotheses cross section data can yield interesting stylized facts to guide both general theorizing and empirical analysis of specific industries even if they cannot easily support full blown structural estimation one can view the sort of search for stylized facts conducted here as either a replacement for or an input to interindustry structural estimation depending on one s feeling about the long run potential of that research approach this study also departs from much of the cross section literature by being fundamentally concerned with the importance of various effects not just with coefficient signs and t statistics in particular this essay provides estimates of the relative importance of firm market and market share differences in the determination of business unit divisional profitability in u s manufacturing using 1975 data from the line of business program of the u s federal trade commission ftc i find support neither for the existence of firm effects nor for the importance of market share effects moreover while industry effects apparently exist and are important they appear to be negatively correlated with seller concentration in these data section i relates firm market and share effects to current issues and controversies in industrial economics and thus supplies the motivation for our empirical analysis the remainder of the essay treats the data and

economic leadership and growth abstract economies governed by former economics students grow faster than economies governed by leaders with other education backgrounds a result which is most evident for presidents faster growth average growth occurs during an economic leader s first year entire tenure primarily through investment when focusing on close elections which quasi randomize economic leadership i find a large effect that is robust controlling for a leader s advanced education investors seem to hasten their activity in anticipation of their economic leader s eventual reduction of the top personal income tax rate overall the findings suggest that economic leaders improve short term growth through the anticipation of policy changes

the unequal enforcement of liberalization evidence from russia s reform of business regulation we document the unequal enforcement of liberalization reform of business regulation across russian regions with different governance institutions which leads to unequal effects of liberalization national liberalization laws were enforced more effectively in subnational regions with more transparent government a more informed population a higher concentration of industry and stronger fiscal autonomy as a result liberalization had a substantial positive effect on the performance of small firms and the growth of the official small business sector in regions with stronger governance institutions in contrast in regions with weaker governance institutions we observe no effect of reform and in some cases even a negative effect

government in transition abstract the speed of economic reforms is not the only important determinant of the success of the transition to a market economy the transition of government from a communist state to an institution supporting a market economy is as critical survey evidence shows that russia lags significantly behind poland in the transition of its government which may account for its inferior economic performance despite adopting similar economic reforms i argue that the lack of turnover of old communist politicians and the creation of inappropriate electoral and fiscal incentives for these politicians may account for the poor performance of the russian government and suggest some strategies for improving the situation

home grown or imported initial conditions external anchors and the determinants of institutional reform in the transition economies in this article we examine the determinants of institutional change using a panel dataset comprising 25 transition economies a defining characteristic of our approach is that we treat institutional change as a multidimensional unobserved variable accounting for the fact that each of our indicators represents a noisy signal our results suggest that institutional change is significantly path dependent however policy can to some extent break this dependence through economic and political liberalisation at the start of the transition and with the help of an external anchor such as eu accession

why do entrepreneurs enter politics evidence from china this article examines the determinants of the entrepreneur s political participation by employing a unique matched firm institution data set from china we find that the likelihood of an entrepreneur s participation can be explained by the underdevelopment of markets and market supporting institutions according to our estimates the probability of entering politics decreases by 8 20 from the mean when the institutional indices improve by one standard deviation our findings support the view that the institutional environment shapes the private entrepreneur s motivation to participate in politics they also provide an example of how private entrepreneurs respond to state market failure in developing and transition countries jel g1 h00 o10 p2 p3