international coordination of trade and domestic policies the past half century has seen a dramatic multilateral reduction in tariff barriers under general agreement on tariffs and trade gatt negotiations however as tariff barriers have fallen attention has shifted to the use of domestic policies as secondary trade barriers a primary concern is that as countries sign trade agreements that constrain their ability to pursue trade goals through trade policy there will be unilateral incentives for governments to distort their domestic policies as a secondary means of protection 1 increasingly international trade disputes revolve around a country s use of internal regulations as a means of restricting trade the united states has successfully challenged the system of liquor taxes in both japan and korea as discriminating against imported liquor while venezuela and brazil have challenged american standards for reformulated and conventional gasoline as trade protection masquerading as environmentalism gatt contains several articles concerning the international regulation of domestic policies but the question of how to fully incorporate domestic policies within gatt negotiations and other international trade agreements remains contentious indeed at both the ministerial meeting in 1994 at the close of the uruguay round and the recent unsuccessful ministerial conference in seattle many gatt delegates renewed demands for the relationship between trade and various domestic policies e g environmental policy labor standards or competition policy to be examined despite the importance that has recently been placed on international cooperation over domestic policies no theoretical basis exists for considering how to cooperate over both trade and domestic policies within an international agreement previous papers on negotiation over two instruments of protection e g copeland 1989 1990 thomas l hungerford 1991 have assumed asymmetric limitations on cooperation i e they assume that one of the two instruments is either nonobservable or nonnegotiable this paper extends such work by investigating cooperation over two negotiable instruments of protection under symmetric limitations on cooperation and provides insight into the design of international trade agreements that incorporate cooperation over domestic policies i adopt the view that enforcement issues are central to the understanding of international cooperation one of the challenges of international cooperation is the absence of a central authority to enforce the terms of an agreement without access to an external enforcement mechanism international agreements are viable only as long as member countries view continued cooperation to be in their own self interest i e the benefits from cooperating outweigh the potential gains from cheating 2 while the gatt department of economics university of miami p o box 248126 coral gables fl 33124 e mail ederington miami edu i would like to thank bob staiger bob baldwin wolfgang keller phillip mccalman jenny minier seminar participants at the nber conference on trade the environment and natural resources and two anonymous referees for comments on earlier versions of this paper any remaining errors are of course my own for example brian r copeland 1990 examined negotiation over one trade barrier leaving a secondary trade barrier e g nontariff barriers domestic legislation etc to be set noncooperatively he shows that trade liberalization will induce substitution toward the less efficient nonnegotiable instrument of protection due to the unilateral incentives to maintain trade protection facing countries thus within a cooperative framework the two types of barriers serve as imperfect substitutes for each other 2 as stated by kenneth w dam in his review of the gatt institution the best guarantee that a commitment of any kind will be kept particularly in an international setting where courts are of limited importance and even more important marshals and jails are nonexistent is that the parties continue to view adherence to their agreement in their mutual interest thus the gatt system unlike most legal systems is not designed to exclude self help in the form of retaliation rather retaliation subjected to established procedures and kept within prescribed bounds is made the heart of the gatt system dam 1970 pp 80 81

history dependence in concave economies abstract this paper investigates concave intertemporal optimization problems and derives two mechanisms either growth or control state interactions e g due to endogenous preferences that allow for multiple steady states including an unstable one therefore history dependence is possible in a perfectly governed economy subject to the law of diminishing returns if one of these two mechanisms is present this result complements a large amount of literature that attributes history dependence to convexities as a consequence lock ins into undesired evolutions are possible beyond the familiar case of increasing returns

explaining the striking similarity in macroeconomic policy responses to the great recession the institutional power of macroeconomic governance this article offers an institutional explanation for the strikingly similar configuration of macroeconomic policy responses of advanced capitalist economies to the great recession in recent decades advanced economies have adopted a common structure of macroeconomic governance which organizes macroeconomic policymaking around monetary policy operated by autonomous central banks and sets limits on politicians policymaking discretion during the great recession this macroeconomic governance allowed central banks to enact unconstrained monetary expansion and governments to enact constrained fiscal expansion the argument here is empirically substantiated by focusing at how macroeconomic policies in response to the great recession have evolved in australia and sweden as well as by looking at parallel developments in the united kingdom and the united states

the real but limited influence of expert ideas a number of influential studies in political science argue that important economic policy changes in the rich democracies since the mid 1970s were caused by the introduction of new economic ideas this article claims that while experts exert strong influence over the selection of policy instruments their influence over the formulation of policy objectives is much weaker in the 1970s 1980s and 1990s the predominance of keynesianism in austria and denmark did not lead austrian and danish governments to maintain low unemployment longer than sweden where keynesianism was less strong but it did lead them to regard fiscal policy as an instrument that can be used to control the level of activity in the economy while their swedish counterparts relied instead on exchange rate and monetary policy

inflation stabilization the experience of israel argentina brazil bolivia and mexico rampant inflation is a major economic problem in many of the less developed countries two out of three attempts to stabilize these economies fail inflation stabilization provides a valuable description and a critical analysis of the disinflation programs introduced in argentina bolivia brazil and israel in 1985 86 and discusses the possibility of such a program in mexico it documents the initial steps in stabilization as well as the reasons for failure as architects of the programs several of the authors are in key positions to assess which aspects were critical in getting the programs accepted and where to look for difficulties and failures in israel inflation was halted without recession the challenge to policy makers today is in shifting from stabilization to the revival of sustained growth this experience is described fully by michael bruno and sylvia piterman who examine the critical issue of exchange rates and by alex cukierman who uses modeling to analyze the interaction of money wages prices and activity under rational expectations that take the government s policy objectives into account endemic inflation and a sudden increase in external debt burden argentina s economy raising the wider issues of high inflation economies and stabilization that are discussed in the chapter by jose luis machinea and that by guido di tella and alfredo canavese eduardo modiano and mario simonsen take up issues of wages in brazil particularly the problem of finding an equitable way to deal with a wage freeze simonsen develops an ambitious game theoretic rationalization of incomes policy as a coordinating device for imperfectly competitive economies bolivia did reach hyperinflation price increases of more than 50 percent each month before stabilizing juan antonio morales shows how stabilizing the exchange rate in an economy where all pricing was already geared to the dollar achieved stabilization without a wage or price freeze and francisco gil diaz asks whether an incomes policy based program could work to control ever increasing inflation in mexico michael bruno is governor of the bank of israel guido di tella is a fellow of st anthony s college a professor at the di tella institute in buenos aires and a member of parliament in argentina stanley fischer is vice president of development economics and chief economist at the world bank rudiger dornbusch is ford international professor of economics at mit

the tragedy of the commons and economic growth why does capital flow from poor to rich countries we analyze a differential game in which all interest groups have access to a common capital stock we show that the introduction of a technology that has inferior productivity but enjoys private access may ameliorate the tragedy of the commons we use this model to analyze capital flight in many poor countries property rights are not well defined since safe bank accounts in rich countries the inferior technology are available to citizens of these countries they engage in capital flight we show that the occurrence of capital flight does not imply that opening the capital account reduces growth and welfare

product quality consumption externalities and the role of national treatment abstract article iii of the wto national treatment limits domestic policy in an effort to curtail protectionist discrimination against foreign products in this paper we examine the role of national treatment and prominent article xx exceptions when goods are vertically differentiated and generate consumption externalities we study the domestic policy choices of two countries first stage problem and quantity and price equilibria in two product markets second stage problem under a strict application of article iii and compare them to the policy choices and product market equilibria prevailing when countries can misrepresent external damages and discriminate while one may expect that high externalities would lead to a greater need for exceptions to equal treatment we show that this is often not the case and furthermore that non discrimination can lead to a cleaner world environment

voracious transformation of a common natural resource into productive capital i analyze a power struggle where competing factions have private financial assets and deplete a common stock of natural resources with no private property rights i obtain a feedback nash equilibrium to the dynamic common pool problem and obtain political variants of the hotelling depletion rule and the hartwick saving rule resource prices and depletion occur too fast so substitution away from resources to capital occurs too fast and the saving rate is too high the power struggle boosts output but depresses sustainable consumption genuine saving is nevertheless zero in a fractionalized society world bank estimates may be too optimistic

is the wto passe the wto has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements ptas should economists see this as an efficient institutional hand off where the wto has carried trade liberalization as far as it can manage and is now passing the baton to ptas to finish the job this paper surveys a growing economics literature on international trade agreements and argues on this basis that the wto is not passe rather and subject to some caveats this survey of research to date suggests that the wto warrants strong support while a more cautious view of ptas seems appropriate

voracity vs scale effect in a growing economy without secure property rights abstract this paper extends the standard model of growth with insecure property rights by introducing variable labor supply and increasing returns to scale it is assumed that capital stock is jointly owned by multiple interest groups and that each group participates in production activities by supplying its labor force in this setting there are two opposing factors that affect growth over consumption in the absence of secure property rights and the scale effect due to the presence of increasing returns the growth performance of the economy thus depends on which factor dominates

rent seeking and market competition this paper emphasizes that political behavior of interest groups is a result of economic calculation and therefore is affected by the market conditions under which they operate we develop a two stage game to link political and market decision making we find that if unproductive rent seekingdirectly contributes to rent seekers market operations then their lobbying efforts will be excessive if the number of outsiders is relatively large restrained if it is relatively small if rent seekingdirectly impairs rent seekers market operations the above described behavior will be reversed the analysis also reveals that as wasteful rent seeking may increase rent seeker s production cost market competition shifts production from now less efficient rent seekers to their non rent seeking rivals welfare gains from this shift may overshadow the direct waste of influence activities

international pollution control cooperative versus noncooperative strategies abstract international pollution control involving two neighboring countries is modeled as a simple two player dynamic game each country produces a good that is consumed by domestic households production of each consumption good results in emissions of pollutants households in each country derive utility from the consumption of the domestically produced good but incur costs through the total stock of pollution stock externality in this setting we characterize cooperative as well as noncooperative pollution control strategies of the governments of the two countries that maximize the discounted stream of net benefits of a representative consumer it turns out that when the governments are restricted to use linear strategies noncooperative behavior results in overall losses for both countries if on the contrary governments use nonlinear markov perfect strategies and the discount rate is small enough a pareto efficient steady state pollution stock can be supported as a differentiable subgame perfect equilibrium thus the emergence of first best solutions cooperative outcomes does not require any institutional arrangements threats retaliation etc but can be brought about through the use of nonlinear markov perfect equilibrium strategies

the burden of proof in trade disputes and the environment the wto leaves discretion over environmental policies to its members but requests that a fundamental non discrimination principle is respected national treatment nt the provision seeks to prevent protectionist use of domestic policy instruments requesting that when an imported product is sufficiently similar to a domestic product they are treated identically wto adjudicators will often face severe informational problems in environmental disputes important for the practical implementation of nt is therefore the allocation of the burden of proof bop this paper highlights basic implications of the bop for the occurrence of judicial errors for the environment and for welfare using a setting where nt serves its intended role of supporting negotiated tariff liberalization the paper suggests that nt may indeed constrain environmental policies but that this may be desirable from an efficiency point of view also bop rules that benefit the environment may not benefit global welfare and conversely

a complete characterization of optimal growth paths in an aggregated model with a non concave production function the convexity of technology has played a crucial role in economic analyses of optimal one sector growth problems for example two of the key results on the traditional model of ramsey 1928 that have relied on the convexity of the technology are that optimal intertemporal growth involves moving monotonically towards a unique steady state as in cass 1965 koopmans 1965 and that the value function is a concave differentiable function of the initial capital stock as in benveniste and scheinkman 1979

sustainable management of renewable resources an experimental investigation in continuous time abstractthis study addresses one of the most basic questions in renewable resource management the ability of economic agents to exploit a renewable resource in an efficient and sustainable manner in a laboratory experiment subjects are presented with renewable resource extraction problems where optimal management will lead to a stable steady state a test of sustainability of the extraction practices shows that extraction behaviour results in steady states only 56 of the time the mode of the steady state distribution coincides with the optimal steady state extraction the trade off between accruing a higher payoff in the present and sustaining the resource for future exploitation leads to suboptimal behaviours such as initial overextraction of the resource compared to the optimal extraction policy costly downward adjustment of the extraction later in time and settling down for lower long run resource and extraction the suboptimal behaviours lead to 17 loss in efficiency on average in terms of th

politico economic equilibrium and economic growth abstract we propose a notion of dynamic politico economic equilibrium which builds on two key assumptions policies are determined sequentially and agents are fully rational in their roles as both consumers and voters we examine a simple model of endogenous growth and infinitely lived agents where taxes on income are endogenous and where growth critically depends on the initial distribution of asset holdings we relate our equilibrium definition and results to existing literature on time consistency and on political economy and growth we show that our equilibria are time consistent and we argue that the choice of equilibrium concept might have important quantitative implications

the closed loop effect and the profitability of horizontal mergers we study the profitability of horizontal mergers in a dynamic competition context with sticky prices it is shown that when firms use open loop strategies a merger is profitable only if the share of the market that merges is significant enough in the case where firms use closed loop strategies we provide a method to conduct analytically the study of the profitability of horizontal mergers we first prove the existence of an equilibrium of the game when a subset of firms merges when firms use feedback strategies mergers are profitable even when the share of the market that

status concern and the exploitation of common pool renewable resources we examine the impact of social status concern in a common pool renewable resource oligopoly a small number of players share access to a common pool resource and sell their production in a common market where they are oligopolists we depart from the mainstream literature on common pool resource oligopolies by considering that each player cares about her social status we allow for two channels to impact a player s welfare harvest and profits under the first channel a player has a bump in her utility when her harvest is larger than the average harvest of the rest of the players in this case we show that the presence of this channel exacerbates the tragedy of the commons under the second channel a player enjoys a bump in her utility if she manages to earn more profits than the average profits of the other players in this case we show that social status concern may temporarily alleviate the tragedy of the commons it results in a decrease of extraction over an interval of stock sizes

market structure and market access the authors examine an issue at the nexus of domestic competition policy and international trade the interaction between goods trade and market power in domestic trade and distribution sectors theory suggests a set of linkages between service sector competition and goods trade supported by econometrics involving imports of 22 oecd countries compared with 69 exporters competition in services affects the volume of goods trade additionally because of interaction between tariffs and competition the market structure of the domestic service sector becomes increasingly important as tariffs are reduced empirically service competition apparently matters most for exporters in smaller poorer countries the results also suggest that while negotiated agreements leading to cross border services liberalization may boost goods trade as well they may also lead to a fall in goods trade when such liberalization involves foreign direct investment leading to increased service sector concentration

comparative dynamics in a productive asset oligopoly abstract we build a subgame perfect nash equilibrium of a common property productive asset oligopoly and analyze separately the impact of a change in the implicit growth rate of the asset and a change in the number of firms exploiting the asset we show that the steady state level of asset can be a decreasing function of the asset s implicit growth rate this phenomenon arises when the initial stock of asset is below a certain threshold in the short run we show that firms exploitation rate can be a decreasing function of the implicit growth rate we study the impact of a change in the number of firms that share access to the asset reducing the number of firms can result in the long run in higher industry production in the short run it can result in an increase of the industry s exploitation and a decrease of the level of the asset s stock

comparative statics for oligopoly a generalized result we perform comparative statics for a general model of asymmetric oligopoly and derive a concise formula for the response of one firm to a marginal change in its rival s strategic variable taking into account the responses of all other firms we obtain the conditions under which the sign of this response coincides with that of the mixed second order partial derivative of the firm s payoff function we then propose a distinction between gross and net strategic relationships i e strategic substitute and complement

stackelberg versus cournot a differential game approach abstract we propose an infinite horizon differential oligopoly game where at each point in time m stackelberg leaders and n m stackelberg followers exploit a common pool renewable resource and sell their harvest in the marketplace at a price that depends on total harvest we derive a feedback generalized stackelberg nash cournot equilibrium a generalization of the feedback stackelberg equilibrium nesting feedback stackelberg and feedback cournot as special cases we proceed with a comparison between the feedback stackelberg and the feedback cournot equilibria and find a number of interesting results in contrast with static oligopoly theory as to the relative efficiency of the two equilibria we show that the cournot equilibrium can be more efficient than the stackelberg equilibrium this holds true in the short run at the steady state and in terms of discounted welfare

fiscal spending and economic growth some stylized facts using an event analysis this paper complements the cross country approach to the study of fiscal correlates of growth data on fiscal expenditures and growth for a database of 140 countries 118 developing countries over 1972 2005 are reorganized around turning points providing a summary but encompassing description of what is in the data for this sample the probability of occurrence of a fiscal event is about 10 and the probability of a growth event once a fiscal event had occurred is around 26 for developing countries fiscal events followed by growth events occur under situations of i significantly lesser deficit ii fewer resources devoted to non interest general public services and iii shift in primary expenditures toward transport communication after controlling for the growth inducing effects of positive terms of trade shocks and of trade liberalization reform probit estimates indicate that a growth event is more likely to occur in a developing country when surrounded by a fiscal event moreover the probability of occurrence of a growth event in the years following a fiscal event is greater the lower is the associated fiscal deficit confirming that success of a growth oriented fiscal expenditure reform is associate with a stabilized macroeconomic environment through limited primary fiscal deficit

social polarization fiscal instability and growth abstract we present a dynamic model of fiscal policy in a simple growth framework where social polarization of preferences plays a central role in the evolution of fiscal instability and growth collapse in a highly polarized society a deficit occurs endogenously fiscal spending path becomes more volatile output collapses and economic growth rate is reduced along the transition path to a new lower level of output one novel feature is that the size of fiscal deficit the magnitude of fiscal volatility and the size of reduction in output and growth rate are explicitly shown to be increasing functions of the degree of social polarization this is because of the positive relationship between the polarization of preferences and the incentive for policymakers or socio economic groups to overexploit the government resources in a common pool setting polarization effect thereby we offer a fiscal instability channel that negatively links social polarization and growth which is an alternative yet distinct explanation for the empirical finding that social polarization is harmful to growth moreover we fully distinguish the incentive to engage in such short term policies under political uncertainty from that under polarization polarization and political uncertainty are shown to be distinct yet critical to the dynamic coordination failure in the common pool setting

markets with untraceable goods of unknown quality beyond the small country case when importing durables and nondurables consumers often cannot discern quality prior to purchase if they cannot also identify the individual producer exporters have diminished incentives to produce high quality goods to raise the quality of traded experience goods previous international literature has proposed consolidation of export firms and the imposition of export quotas policies that may be appropriate for tiny taiwan but not a colossus like china we contribute to this literature in three ways first we explicitly model the way in which consumers of experience goods rely on the reviews of previous buyers who in turn rely on the reviews of buyers before them when deciding whether to purchase an experience good second we endogenize the price of any given quality third we assume that firms may exercise market power as we show once the small country assumption is dropped policies advocated in the literature such as the merger of exporters or the imposition of export quotas can have adverse consequences on the profits of domestic exporters and on the welfare of all consumers on the other hand the unilateral imposition of minimum quality standards will increase the profits of domestic exporters while improving the welfare of all consumers

on the profitability of production perturbations in a dynamic natural resource oligopoly abstract static oligopoly analysis predicts that if a single firm in cournot equilibrium were to be forced to marginally contract its production its profits would fall on the other hand if all the firms were simultaneously forced to reduce their production thus moving the industry towards monopoly output each firm s profit would rise we show that these very intuitive results may not hold in a dynamic oligopoly such as a nonrenewable natural resource oligopoly where the exogenous constraint would take the form of a contraction of the firm s output path over some fixed interval of time there are situations where a firm will gain from being the lone firm constrained in this way and cases where each firm will lose if all the firms in the industry are so constrained thus exactly reversing the conclusions obtained from purely static analysis

a comparative institutional analysis of agreements on product standards abstract the wto and the eu have chosen two different agreements on product standards while the wto s approach is primarily based on a national treatment nt principle the eu s approach crucially relies on a principle of mutual recognition mr this paper offers a first look at the comparative performance of these two principles we show that standards are imposed for levels of externalities that are too low under nt and too high under mr this suggests that nt should be preferred to mr when the amount of trade in goods characterized by high levels of externalities is large

dynamic duopolistic competition with sticky prices the authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially weighted function of accumulated past consumption this implies that the current price of the good does not decline by as much to accommodate any given level of current consumption our an alysis is conducted in terms of a differential game it is found that the equilibrium price corresponding to the open loop nash equilibriu m strategies approaches the static cournot equilibrium price while th e equilibrium price corresponding to the closed loop nash equilibrium strategies which are subgame perfect approaches a price below it copyright 1987 by the econometric society

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

cursed by resources or institutions natural resource abundant countries constitute both growth losers and growth winners and the main difference between the success cases and the cases of failure lays in the quality of institutions with grabber friendly institutions more natural resources push aggregate income down while with producer friendly institutions more natural resources increase income such a theory finds strong support in data a key question we also discuss is if resources in addition alter the quality of institutions when that is the case countries with bad institutions suffer a double resource curse as the deterioration of institutions strenghtens the negative effect of more natural resources

why is fiscal policy often procyclical many countries especially developing ones follow procyclical fiscal policies namely spending goes up taxes go down in booms and spending goes down taxes go up in recessions we provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less than benevolent government to appropriate rents voters have incentives similar to the starving the leviathan classic argument and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well we test this argument against more traditional explanations based purely on borrowing constraints with a reasonable amount of success

national treatment in the gatt the national treatment nt clause is the first line defense in the gatt and in most other trade agreements against opportunistic exploitation of the inevitable incompleteness of the agreement this paper examines the role of nt as it applies to internal taxation under the gatt it is shown that despite severely restricting the freedom to set internal taxes nt may improve government welfare but it will not completely solve the incomplete contract problem it is meant to remedy furthermore it requires a high degree of economic sophistication on behalf of trade negotiators in order for this beneficial effect to materialize

windfall profits and vertical relationships who gained in the japanese auto industry from vers this paper employs an event study to analyze the effect of the 1981 voluntary export restraint agreements on profits in the japanese automobile industry stock price movements of seven japanese automakers and sixty nine of their suppliers are examined the results indicate that the profits of japan s producers of passenger cars rose as a result of the voluntary export restraints while only some suppliers large ones and those producing specialized parts or services appear to have shared the benefits voluntary export restraints increased profits for some firms in the japanese auto industry but many suppliers did not share the windfall copyright 1993 by blackwell publishing ltd

idiosyncratic shocks in an asymmetric cournot oligopoly abstract several authors have studied the impact of a marginal cost variation in the cournot model on consumers surplus firms profits and social welfare we unify and extend the results when all marginal costs change simultaneously hence we bring together two strands of literature respectively on mean preserving and subgroup common shocks the effect of any shock is decomposed into two parts an average impact ai and a heterogeneity effect he the former improves welfare if the inverse demand function is concave enough and the market is concentrated enough the latter when the diffusion of the shock is negatively correlated with the market share distribution finally we apply our decomposition to various special cases

power and the ascendance of new economic policy ideas lessons from the 1980s crisis in israel recent explanations of transformations of macroeconomic policy under crisis conditions spotlight the intrinsic properties of ideas and the persuasiveness with which they are marketed bridging the divide between power and discourse approaches this article reveals the causal role played by the power resources of expert ideational entrepreneurs conditional on the political conjuncture in which they operate the authors exploit a fortuitous natural experiment from the early 1980s when the israeli economy spiraled into hyperinflation two similar proposals for economic stabilization and reform were offered by different teams of economists less than two years apart while the government rejected the dollarization plan its authorization of the stabilization plan inaugurated a new political economic regime this case in which similar programs were advocated by different ideational entrepreneurs in a largely stable institutional and economic context makes it possible to pinpoint why radically new ideas succeed or fail previously underutilized analytical tools are employed to conceptualize the power of idea carriers at both the individual and the group level

green tax reform in an oligopolistic industry oecd countries reduce or eliminate certain taxes when they introduce new environmental taxes the purpose of this paper is to analyze the incidence of such green tax reform in an oligopolistic industry the paper shows that a rise in taxes could result in the expansion of the aggregate pollution in the presence of a large technology gap the paper further shows that the government loses tax revenue as a result of the green tax reform if it continues to apply the same environmental standard this implies that the government needs to raise environmental standards to keep the existing level of public spending after a green tax reform

rent seeking market structure and growth we study the role of productive and unproductive entrepreneurship in economic growth in a setting where firms compete in both economic and political markets specifically firms compete for market share through cost reducing technological innovation and they vie for influence over government transfer policy through rent seeking activities we find that rent seeking affects growth in two ways it allows firms to ignore economic competition leading to less innovation and it alters the number of firms that are supported in equilibrium the former effect is negative while the latter is ambiguous we show how these effects depend on various characteristics of economic and political markets

domestic policies national sovereignty and international economic institutions to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world this question is at the center of the debate over the future role of the wto formerly gatt in the realm of labor and environmental standards in this paper we establish that the market access focus of current wto rules is well equipped to handle the problems associated with choices over labor and environmental standards in principle with relatively modest changes that grant governments more sovereignty not less these rules can deliver globally efe cient outcomes i introduction to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world at a broad level this question probes the limits of any international economic institution whether geared toward real or e nancial concerns that is designed to promote global efe ciency while respecting national sovereignty naturally the answer depends upon the particular problem that the institution is meant to solve in other words the answer depends upon the inefe ciency that would arise under unilateral policy choices at a more specie c level this question is at the center of the debate concerning the appropriate scope of the world trade organization wto formerly gatt recently member countries have considered ways to broaden the wto s orientation beyond conventional trade policy measures to include labor and environmental standards there are now initiatives to introduce the issue of labor standards directly onto the negotiating agenda of the wto with the purpose of creating a wto social clause the social clause would specify a set of minimum international labor standards and then permit restrictions to be placed against imports from countries not complying with these minimum standards with regard to environmental policies a wto committee on trade and environment has been established to identify the relationships between trade and environmental measures and to

appropriation violent enforcement and transaction costs a critical survey this paper focuses on the extension of transaction costs to appropriative activity and coercive power in the property rights approach it has been argued that including the costs of appropriation and violent enforcement in transaction costs is based on the assumption that coaseian bargaining can be extended to any institutional scenario i e voluntary as well as coercive exchange however voluntary transactions cannot capture the logic of coercive power this means that the assumption of an efficient political market is not valid and that the political coase theorem lacks the logical consistency to provide a cornerstone for political theory

the cyclical behaviour of fiscal policy evidence from the oecd this paper addresses the topic of cyclicality in scal policy in particular we show that the level of cyclicality varies across spending categories and across oecd countries in line with leading theories of scal cyclicality we show that countries with volatile output and dispersed political power are the most likely to run procyclical scal policies wage government consumption is highlighted as the most important channel by which these variables affect scal cyclicality

strategic interaction among nations negotiable and non negotiable trade barriers trade policy is modelled as a two stage game between governments governments choose a negotiable trade barrier in the first stage of the game which is co operative the level of this barrier is treated as a binding commitment in the second stage of the game where the non negotiable trade barrier is chosen non co operatively hence governments choose trade barriers during negotiations with a view to influencing the equilibrium of the non co operative game to follow this proves to be a convenient framework in which to analyse the idea that trade agreements contain loopholes which can be exploited by protectionist governments trade negotiations induce substitution toward less efficient instruments of protection but are nevertheless welfare improving as long as the negotiations are relevant i e the negotiable barrier is actually in use and the two instruments are not perfect substitutes

national treatment at the wto the roles of product and country heterogeneity this paper analyzes the world trade organization s wto s national treatment nt clause in a two country model where quality of goods and or market size are heterogenous across countries when market size is symmetric across countries a reciprocal nt agreement i benefits the high quality country ii hurts the low quality country and iii delivers higher aggregate world welfare however such an agreement can arise in equilibrium if the high quality country s market is relatively bigger and the quality gap between goods is small i e goods are sufficiently alike the qualitative nature of these results does not change when quality is endogenously determined

the varieties of resource experience natural resource export structures and the political economy of economic growth many oil mineral and plantation crop based economies experienced a substantial deceleration in growth following the commodity boom and bust of the 1970s and early 1980s this article illustrates how countries dependent on point source natural resources those extracted from a narrow geographic or economic base such as oil and minerals and plantation crops are predisposed to heightened economic and social divisions and weakened institutional capacity this in turn impedes their ability to respond effectively to shocks which previous studies have shown to be essential for sustaining rising levels of prosperity analysis of data on classifications of export structure controlling for a wide array of other potential determinants of governance shows that point source and coffee and cocoa exporting countries do relatively poorly across an array of governance indicators these governance effects are not associated simply with being a natural resource exporter countries with natural resource exports that are diffuse relying primarily on livestock and agricultural produce from small family farms do not show the same strong effects and have had more robust growth recoveries

duopoly can be more anti competitive than monopoly abstract we prove two results on feedback equilibria under dynamic renewable resource duopoly the linear feedback output is smallest which sharply contrasts to the existing literature where it is largest moreover prices in two feedback equilibria are higher than under monopoly

is there a case for non discrimination in the international protection of intellectual property abstract we evaluate the case for non discrimination in international patent protection when trade is not subject to any frictions barriers requiring national treatment nt does not affect the rate of innovation and welfare since unfavorable discrimination suffered abroad by innovators in the absence of nt is fully offset by favorable discrimination enjoyed by them at home when trade barriers exist however such international offsetting in patent protection is incomplete and innovation incentives are actually lower under nt by lumping domestic and foreign patent protection together nt blunts the overall effectiveness of patent protection in incentivizing innovation in the presence of trade barriers

owners incentives during the 2004 05 national hockey league lockout this study shows that firm owners can indirectly benefit from work stoppages if they own other firms in substitute industries and gain market power for those other firms the incentives of the owners are examined with a model of cross ownership cartels and data from professional sports assuming that various professional sport events are substitutes owners may increase profits by eliminating competition even if they own the competition this study shows that the recent national hockey league nhl lockout caused a statistically significant increase in attendance for the national basketball association and junior hockey leagues given that many nhl owners own teams in these substitutable leagues this could be construed as anti competitive behaviour and may have prolonged the nhl lockout and helped nhl owners in collective bargaining given the public investment in sports facilities and market power in professional sports this analysis calls for cross ownership across professional sports to be questioned

divisionalization franchising and divestiture incentives in oligopoly a two stage game is used to model firms strategic incentives to divide production among autonomous competing units through divisionalization franchising or divestiture firms simultaneously choose their number of competing units which then engage in cournot competition while it is costly to form autonomous units each firm does so in equilibrium thus reducing firm profits and increasing social welfare relative to the case where firms cannot form competing units with linear demand and costs duopolists choose the socially optimal number of competing units oligopolies with larger numbers of firms choose too many the case of nonlinear demand is also examined copyright 1996 by american economic association

how many franchises in a market abstract this paper studies how firms use their number of franchises as a strategic tool firms can commit to high output by creating many franchises however signing a single franchise contract with a low wholesale price is an equally effective way to generate output the value of granting many franchises is undercut when firms can sign contracts afterwards so firms place only a single franchise in a market this finding reverses previous results which did not model contracts the same issues arise in international competition policy where countries use anti trust policy to affect their number of exporters and use subsidies to affect the choices of exporters

a characterization for the negative welfare effects of cost reduction in cournot oligopoly abstract this paper characterizes the welfare effects of cost reductions in a cournot model with linear costs under linear demand a small reduction in a firm s marginal cost reduces welfare if and only if its market share is less than 1 2n 2 or equivalently its marginal cost exceeds a critical level determined by the market a large cost reduction by the firm increases welfare if and only if its magnitude is at least twice the difference between the current marginal cost and its critical value the paper also extends the results to non linear demand but the characterizations become less tractable

national treatment and the optimal regulation of environmental externalities we analyze the role of national treatment in the regulation of environmental product standards for an open economy a social planner uses product standards to control emissions from the consumption of a traded good we show that whether national treatment of standards interferes with welfare maximizing policy depends on the instruments available to the policy maker consumption or emissions tax and differences in the cost of complying with the standard we also highlight the asymmetric incidence of the domestic and import product standard when taxes are suboptimal this asymmetric incidence can also cause welfare maximizing policy to violate national treatment on analyse le role du principe de traitement identique des entites domestiques ou importees dans la reglementation des normes environnementales dans une economie ouverte un gouvernement utilise des normes pour controler les emissions decoulant de la consommation d un produit transige internationalement on montre que le fait que le traitement identique des normes va ou non interferer avec l objectif poursuivi qui est de maximiser le niveau de bien etre va dependre de l ensemble des instruments disponibles pour l architecte des politiques une taxe sur la consommation ou sur les emissions et des differences dans les couts a encourir pour se conformer aux normes on souligne aussi l incidence asymetrique des normes sur les produits domestiques et importes quand les taxes sont sous optimales cette incidence asymetrique peut faire que la politique qui vise la maximisation du bien etre soit en violation du principe de traitement identique

feedback equilibria in a dynamic renewable resource oligopoly pre emption voracity and exhaustion abstract we revisit a recent literature on productive asset exploitation describing a differential oligopoly game of resource extraction under static linear feedback and nonlinear feedback strategies where we explicitly allow for the possibility of resource exhaustion we show that i feedback rules entail resource exhaustion for a finite number of firms and ii feedback strategies are more aggressive than static ones as long as the resource stock is large enough in accordance with the acquired view based on the traditional pre emption argument associated with feedback information

to invest or insure how authoritarian time horizons impact foreign aid effectiveness in this article the author argues that the time horizon a dictator faces affects his incentives over the use of aid in three ways first dictators have a greater incentive to invest in public goods when they have a long time horizon second dictators with short time horizons often face the threat of challengers to the regime this leads them to forgo investment and instead consume state resources in two forms that harm growth repression and private pay offs to political opponents third dictators with short time horizons have a strong incentive to secure personal wealth as a form of insurance in case the regime falls using panel data on dictatorships in 71 developing countries from 1961 to 2001 the author finds that time horizons have a positive impact on aid effectiveness foreign aid is associated with positive growth when dictators face long time horizons and negative growth when time horizons are short

consumer surplus enhancing cooperation in a natural resource oligopoly abstract in this study we use a differential game to illustrate that cooperation among oligopolists selling a common pool renewable resource may lead not only to higher industrial output consumer surplus and resource stock in the stationary equilibrium but also a greater discounted sum of consumer surplus a priori this finding is not straightforward an increase in the coefficient of cooperation causes industry output to first decrease and then increase over time thus making consumers worse off in the short run and better off in the long run this study establishes the conditions under which the long run effects outweigh the short run effects of cooperation leading to an increase in the discounted sum of consumer surplus our analysis suggests that in some cases conservation cartels should be promoted on the basis of not only resource conservation but also efficiency

trade disputes and settlement we develop a model of trade agreements with renegotiation and imperfectly verifiable information in equilibrium trade disputes can occur and can be resolved in a variety of ways governments may settle early or trigger a court ruling and in the latter case they may implement the ruling or reach a post ruling settlement the model yields predictions on how the dispute outcome depends on the contracting environment and how it correlates with the optimal contract form we find support for a key prediction of our model using data on the outcomes of actual trade disputes in the general agreement on tariffs and trade world trade organization

the curse of the haven the impact of multinational enterprise on environmental regulation abstract we analyze the behavior of multinational enterprises in the context of resource rich and poor countries and regarding high and low income countries we depart from the pollution haven hypothesis and the resource curse the pollution haven hypothesis states that multinational enterprises move their dirty operations to countries with weak environmental regulation the resource curse holds that economic growth in countries abundant in natural resources is reduced we find that more polluting firms are relatively more often located in countries with weak environmental regulation however multinational enterprises do not have a significant impact on environmental regulation in the host country it appears that it is mainly the quality of institutions that drives both the pollution haven and the resource curse

political foundations of the resource curse in this paper we argue that the political incentives that resource endowments generate are the key to understanding whether or not they are a curse we show 1 politicians tend to over extract natural resources relative to the efficient extraction path because they discount the future too much and 2 resource booms improve the efficiency of the extraction path however 3 resource booms by raising the value of being in power and by providing politicians with more resources which they can use to influence the outcome of elections increase resource misallocation in the rest of the economy 4 the overall impact of resource booms on the economy depends critically on institutions since these determine the extent to which political incentives map into policy outcomes countries with institutions that promote accountability and state competence will tend to benefit from resource booms since these institutions ameliorate the perverse political incentives that such booms create countries without such institutions however may suffer from a resource curse

the competitive externalities and the optimal seignorage this study analyzes the inflation tax in an economy with several competing decisionmakers who can effectively print more money via the central bank the author derives the sequential rational expectation equilibrium and shows that the presence of competing decisionmakers increases the inflation rate and may put the economy on the wrong side of the inflation tax laffer curve the analysis is interpreted for a country consisting of several states or provinces where the centralized government system is weak similar results apply to the case of competing ministers in an economy where the central bank is weak copyright 1992 by ohio state university press

the social construction of an imperative why welfare reform happened in denmark and the netherlands but not in germany this article seeks to explain why denmark and the netherlands made dramatic progress reforming their welfare systems in the 1990s and why germany had a relatively slow start some possible explanations found to be incomplete are institutional differences in welfare programs the uniqueness of circumstances for example german unification and the balance of political power in governing institutions an important part of the puzzle is an increasing perception of the need to reform that was more widespread in denmark and the netherlands the social construction of an imperative to reform in these countries generated a political consensus that was elusive in germany but that may be developing under gerhard schroder s government

increasing the profits of a subset of firms in oligopoly models with strategic substitutes consider an industry composed of n firms in a symmetric equilibrium designate a subset of s n firms and marginally reduce the strategic variables of the firms in the subset if the remaining firms simultaneously make the best reply to this exogenous displacement under what circumstances will profits of the firms in the designated subset increase we show that in the case of cournot competition among producers of perfect substitutes a marginal contraction is strictly beneficial strictly harmful if and only if the number of firms in the designated subset exceeds the adjusted number of firms outside it by strictly more strictly less than one the adjustment factor is unity when cost and demand functions are linear but more generally depends on the convexity of the cost and demand curves thus a marginal contraction of two firms in a triopoly has no effect on the profits of firms in the subset if cost and demand functions are linear if instead cost is linear but the inverse demand function is strictly concave strictly convex a marginal contraction will strictly decrease strictly increase profits the analysis is extended to the effects of nonmarginal exogenous changes in the outputs of the constrained firms this extension has implications for the relationship of stackelberg sequential move and nash simultaneous move equilibria our analysis has broad application to illustrate we show that it unifies results in the literature on export subsidies horizontal mergers and strikes the paper is organized as follows in section i our comparative static result is derived in section ii we present a wide range of applications in the conclusion and the appendix we generalize our analysis to other situations involving strategic substitutes

existence and properties of equilibria for a dynamic game on productive assets abstract we consider a model in which two agents share access to the same stock of a productive asset and study the implications of non cooperative consumption behavior over time under standard assumptions on the production function we construct infinitely many nash equilibria all of which consist of stationary markovian strategies these equilibria result in overconsumption so that the uniquely determined long run asset stock is too low as compared to the cooperative solution however in the limit as the discount rate becomes sufficiently small the stead states generated by the markovian nash equilibria converge to the efficient steady state journal of economic literatureclassification numbers c73 o41 q22

on the effects of entry in cournot markets in the framework of symmetric cournot oligopoly this paper provides two minimal sets of assumptions on the demand and cost functions that imply respectively that as the number of firms increases the minimal and maximal equilibria lead to i decreasing industry price and increasing or decreasing per firm output and ii increasing industry price and decreasing per firm output in both cases per firm profits are decreasing the analysis relies crucially on lattice theoretic methods and yields general unambiguous and easily interpretable conclusions of a global nature as a byproduct of independent interest new insight into existence of cournot equilibrium is developed

politics and the effectiveness of foreign aid abstract critics of foreign aid programs have long argued that poverty reflects government failure in this paper i test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes i find that aid does not significantly increase investment nor benefit the poor as measured by improvements in human development indicators but it does increase the size of government the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive but liberal political regimes and democracies ceteris paribus have on average 30 lower infant mortality than the least free regimes this may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs an implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs

on the markovian efficiency of bertrand and cournot equilibria we characterize and compare closed loop feedback price and quantity strategies within a full fledged dynamic model of oligopolistic competition in which production requires exploitation of a renewable productive asset unlike previous papers on the strategic exploitation of productive assets we allow for imperfect product substitutability which enables us to deal with price competition we show that the traditional result that the bertrand equilibrium is more efficient than the cournot equilibrium does not necessarily hold in a markovian environment either in the short run or at the stationary equilibrium or using the discounted sum of welfare as a criterion for relative efficiency

the transformation of the swedish model economic ideas distributional conflict and institutional change this article examines the transformation of the swedish model of economic regulation from an ideational perspective while the majority of arguments about the decline of the swedish model have focused on the role of structural factors this article looks to illuminate the ideational factors that made possible both the emergence and the transformation of the swedish model the article details how during the 1930s and 1940s economic ideas provided the swedish state and its trade union allies with the means to construct the institutions of the swedish model by the 1970s however swedish business suffered diminishing returns to continued participation within these institutions and responded to labor s challenges by adopting a two pronged strategy of withdrawal from and ideological contestation of labor s supporting institutions the politics of ideas was key in this regard during the 1980s swedish business marshaled alternative economic ideas to contest and thus delegitimate existing institutions and the patterns of distribution they made possible swedish business thus began the process of overturning the swedish model long before capital mobility or domestic inflation was ever a problem by highlighting these factors the article offers an explanation of the transformation of the swedish model that stresses the centrality of ideational contestation for understanding institutional change in general

strategic alliances as stackelberg cartels concept and equilibrium alliance structure abstract this paper analyzes incentives of oligopolistic firms to form strategic alliances and the effects of the endogenously derived alliance structure on product market competition a three stage game is considered in the first stage firms decide about forming strategic alliances in the second stage each alliance designs a strategic contract and in the third stage alliance members and outsiders compete in the product market it is shown how contractual terms about transfer prices and profit sharing in a production joint venture for an intermediate product may serve as an appropriate commitment device profits of alliance members and outsiders under different alliance structures are then determined based on this profit structure the alliance formation process is analyzed in a linear cournot oligopoly with at most five firms only one alliance forms and industry output is reduced with more than five firms an alliance structure with at least two alliances results if an equilibrium of the alliance formation game exists and in this case competition is enhanced

corruption and the political economy of resource based development a comparison of asia and sub saharan africa we model how the supply and demand for bribes affects resource use by an economy and the reinvestment of resource rents in other assets this requires adjusting the world bank s measure adjusted net savings for any rent dissipation due to corruption the impacts of corruption on long run changes and periodic growth in the adjusted net savings rate are estimated across african and asian economies from 1970 to 2003 corruption rather than resource dependency per se affects negatively the ability of african countries to reinvest resource rents in the short term but for asian countries corruption is less important than point resources corruption influences long run growth in adjusted net savings rates in all countries and is also the pathway through which this growth is affected by patterns of resource use trade and abundance

do corrupt governments receive less foreign aid critics of foreign aid programs argue that these funds often support corrupt governments and inefficient bureaucracies supporters argue that foreign aid can be used to reward good governments this paper documents that there is no evidence that less corrupt governments receive more foreign aid on the contrary according to some measures of corruption more corrupt governments receive more aid also we could not find any evidence that an increase in foreign aid reduces corruption in summary the answer to the question posed in the title is no

unilateral production restrictions in a dynamic duopoly abstract this paper examines a dynamic game of exploitation of a productive asset by a duopoly a closed loop nash equilibrium of the game is constructed and used to analyze the effects of a unilateral production restriction surprisingly such unilateral action may result in a decrease of the long run asset s stock we also exhibit production restrictions that can result simultaneously in an increase of the asset s stock and the long run profits of the firm that is being imposed the production restriction moreover a unilateral decrease of the production of one firm can induce its rival to also decrease its production

oligopoly exploitation of a private property productive asset abstract in this paper we build a closed loop nash equilibrium of a private property productive asset oligopoly we compare and contrast private with common property in terms of exploitation rates and social welfare and provide a comparative dynamic analysis with respect to the number of firms in the industry contrary to previous studies on oligopolistic exploitation of productive assets before exploitation begins the resource is parcelled out each firm privately owns and manages the assigned parcel over the entire planning horizon compared with the common property regime we find a new set of results both in the short and in the long run as for social welfare we provide conditions on the implicit growth rate and the initial asset stock under which the socially optimal allocation of the resource implies a natural monopoly

voluntary export restraints profits and quality adjustment this paper develops a model of vertical differentiation to assess the impact of output constraints on the profits and quality choices of firms subject to them a competitive environment is developed with the automobile industry in mind multiproduct oligopolists producing differentiated goods who behave as coumot competitors the results show that an output constraint will not induce constrained firms to upgrade their product line when their unconstrained competitors produce higher quality models it is also shown that an output constraint can raise the profits of constrained firms despite output increases by unconstrained firms