optimal taxation with endogenously incomplete debt markets abstract empirical analyses of labor tax and public debt processes provide prima facie evidence for imperfect government insurance this paper considers a model in which the government s inability to commit to future policies or to report truthfully its spending needs renders government debt markets endogenously incomplete a method for solving for optimal fiscal policy under these constraints is developed such policy is found to be intermediate between that implied by the complete insurance ramsey model and a model with exogenously incomplete debt markets in contrast to optimal ramsey policy optimal policy in this model is consistent with a variety of stylized fiscal policy facts such as the high persistence of labor tax rates and debt levels and the positive covariance between government spending and the value of government debt sales

inflation and reputation in many macroeconomic models with rational expectations optimal policy is time inconsistent and therefore announced policy may not be credible this paper models the government s credibility explicitly using kreps and wilson s analysis time consistent optimal government policy emerges as a sequential equilibrium in a repeated game this policy is at least as good as the inconsistent optimal policy and dominates the consistent policy when reputational effects are ignored thus the analysis resolves the problem of specifying a credible optimal policy in such models the results show why attempts to disinflate may lead to recession even with perfectly flexible prices this abstract was borrowed from another version of this item

sustainable monetary policies abstract this paper uses a model with utility maximizing households monopolistically competitive firms and sticky goods prices to derive a version of barro and gordon s time consistency problem for monetary policy where the government s objectives are consistent with a representative household s preferences the paper applies the methods of chari and kehoe to characterize the entire set of time consistent or sustainable outcomes it goes on to find conditions under which the friedman rule the optimal policy under commitment can be supported when the government lacks a commitment technology

capital budgets borrowing rules and state capital spending abstract this paper compares the level and composition of government spending in u s states that maintain separate budgets for capital and operating expenditures with that in states that employ unified budgets it also investigates the effects of pay as you go financing rules for capital projects the empirical findings suggest that states with separate capital budgets spend more on public capital projects than comparable states with unified budgets there is no evidence that the presence or absence of a capital budget affects the level of non capital spending pay as you go requirements for financing capital projects are associated with lower levels of both capital and non capital spending

debt restructuring with a public good endogenous government expenditure is introduced into lucas and stokey s 1983 model of optimal wage taxation so long as the government can precommit to taxes or to expenditures a debt maturity structure that keeps the value of the debt invariant to interest rate changes will make the optimal policies time consistent in the absence of partial precommitment debt restructuring cannot enforce time consistency but it can still limit the costs of time inconsistency numerical examples show 1 average debt is smaller than under the precommitment solution 2 the debt structure is much longer than under partial precommitment and 3 restricting the government to one period debt overstates the welfare losses from time inconsistency

the theory of sovering debt and spain under philip ii this paper examines lending by a genoese led cartel to philip ii of spain 1556 98 from the perspective of theory on sovereign debt models in this literature suggest that the genoese linked specie deliveries from spain to the low countries to lending in order to create a penalty to enforce their loans the king tried to renege the genoese applied the penalty and the king ultimately repaid when the episode is used to examine theory the crown s observed debt ceiling and estimates of its cost of enduring the penalty and its ability to repay are in line with predctions of bulow and rogoff the nature of the penalty has the flavor of gole and kehoe s model its observation on the path of play is suggestive of atkeson s model

sovereign debt and consumption smoothing abstract this paper shows that whether or not a sovereign can borrow to smooth consumption depends both on how consumption smoothing is achieved whether by contingent debt issuance or by contingent debt servicing and on the penalty for debt repudiation if a sovereign that repudiated its debt could not borrow again but could continue to save and to dissave then contingent debt issuance without contingent debt servicing cannot support a positive amount of uncollateralized sovereign debt but with this same penalty for repudiation contingent debt servicing supports a positive amount of uncollateralized sovereign debt

time consistent collection of optimal seigniorage a unifying framework this paper reviews the existing literature on the time consistency problem of seigniorage collection when monetary policy is determined by optimal taxation considerations it develops a unifying accounting framework and suggests a general measure for seigniorage which encompasses the standard measures employed in the literature in addition the ex ante optimal solution to the optimal taxation problem is derived and interpreted in relation to the ramsey principle we show that the different recommendations of the public finance literature i e the friedman rule of optimal deflation moderately positive inflation and seigniorage maximizing inflation are specific solutions to the optimal taxation problem the paper continues with a formal illustration of the time consistency problem of the ex ante optimal policy and the characterization of the time consistent solution under discretion as possible solutions to the time consistency problem we consider reputational forces institutional reforms that establish central bank independence and specific ways of asset and debt management in particular it is formally shown that a modified version of the asset and debt management scheme suggested by persson persson and svensson is not only necessary but also sufficient for optimality although this did not hold in their model

bubbles and self enforcing debt we characterize equilibria with endogenous debt constraints for a general equilibrium economy with limited commitment in which the only consequence of default is losing the ability to borrow in future periods first we show that equilibrium debt limits must satisfy a simple condition that allows agents to exactly roll over existing debt period by period second we provide an equivalence result whereby the resulting set of equilibrium allocations with self enforcing private debt is equivalent to the allocations that are sustained with unbacked public debt or rational bubbles in contrast to the classic result by bulow and rogoff 1989a positive levels of debt are sustainable in our environment because the interest rate is sufficiently low to provide repayment incentives

discretionary monetary and fiscal policy with endogenous sovereign risk abstract how does the presence of sovereign risk affect the conduct of public policy to answer this question this paper studies optimal monetary and fiscal policy without commitment for a model economy with nominal public debt and strategic sovereign default compared to an economy without the possibility of default economies with sovereign risk experience more volatile interest rates which impedes the government s ability to smooth tax rates across states risk of default also limits public debt accumulation reducing the government s incentive to use surprise inflation on average when calibrated to the united states the model predicts that a counterfactual increase in the average annual default probability from 0 to 1 lowers average inflation by 33 raises the standard deviation of inflation by 18 and increases the standard deviation of the labor income tax by 73 the transmission of exogenous shocks to real aggregate quantities is however almost unaffected by the possibility of default for example the presence of sovereign risk would increase the standard deviation of log real gdp by less than 1 in the experiment above similarly the welfare consequences of sovereign risk are found to be of negligible size as well

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

future rent seeking and current public savings abstract the conventional wisdom is that politicians rent seeking motives increase public debt and deficits this is because myopic politicians face political risk and prefer to extract political rents as early as possible in this paper we study the determination of government debt and deficits in a dynamic political economy model we show that this conventional wisdom relies on economic volatility being low relative to political uncertainty if economic volatility is high relative to political uncertainty then a rent seeking government actually over saves and over taxes along the equilibrium path relative to a benevolent government this result emerges because of the option value of rent seeking a rent seeking government over values future funds because of the possibility of using them for future rents instead of cutting taxes in the event of a future boom when marginal utility of private consumption is low this over saving bias is temporary since in the long run the rent seeking government over borrows relative to the benevolent government as it eventually squanders the funds it has accumulated we find that both the under saving and over saving bias of the government can be solved by a rule of capping deficits

labour productivity in spain 1977 2002 this study examines the evolution of labour productivity across spanish regions during the period from 1977 to 2002 applying the kernel technique we estimate the effects of the transition process on labour productivity and its main sources we find that spanish regions experienced a major convergence process in labour productivity mostly driven by human capital in the 1977 1993 period conversely the dynamics of investment in physical capital appear to be neutral with respect to the transition dynamics of labour productivity finally from 1995 to 2002 no dynamic processes seemed to have taken place spanish regions exhibit a persistent relative position with established convergence clubs the human capital effect is less important and the investment in physical capital seems not to have a triggering effect on labour productivity growth

the determinants of work related training in britain in 1995 and the implications of employer size this study uses a familiar set of variables to characterize the determinants of training based around individual characteristics qualifications and workplace characteristics however it goes further by using data drawn from a recent quarter of the uk labour force survey and thus contains an up to date and extensive set of core variables the dependent variable used covers three subgroups those who have never been offered training by their current employer those who have been offered but did not receive training in the last three months and those workers who received training within the last three months the hypothesis that large employers not only provide more work related training but that they are also more willing to train workers with characteristics that indicate a lower probability of obtaining a return on any investment outlay is tested this was confirmed especially for male workers along with a range of results that mostly accord with previous studies into the determinants of uk em

optimal capital taxation revisited abstract we revisit the question of how capital should be taxed we allow for a rich set of tax instruments that consists of taxes widely used in practice including consumption dividend capital and labor income taxes we restrict policies to those that respect pre existing promises regarding the current value of wealth we show that capital should not be taxed i e there should be no intertemporal distortions if households have preferences that are standard in the macroeconomics literature we show that ramsey outcomes that must respect such promises are time consistent we show that the presumption in the literature that capital should be taxed for some length of time arises because the tax system is restricted

repeated games with long run and short run players this paper studies the set of equilibrium payoffs in repeated games with long and short run players and little discounting because the short run players are unconcerned about the future each equilibrium outcome is constrained to lie on their static reaction best response curves the natural extension of the folk theorem to games of this sort would simply include this constraint in the definitions of the feasible payoffs and minmax values in fact this extension does obtain under the assumption that each player s choice of a mixed strategy for the stage game is publicly observable but in contrast to standard repeated games the set of equilibrium payoffs is different if players can observe only their opponents realized actions

reputation and time consistency recent work has shown that reputational arguments based on trigger strategies can sometimes be used to deal with the problem of time inconsistency in government policy this idea was exploited by robert barro and david gordon 1983 in a model of inflation and by v v chari and patrick kehoe 1988 in a model of capital taxation here it is shown that reputational arguments of this sort are widely applicable 2 a general policy model is developed based on an economy that is stationary over time contains identical households and has no endogenous state variables it is shown in general that the infinite horizon version of this model has equilibria in trigger strategies that yield outcomes strictly better than those attainable as equilibria in the one period model

pricing and regulating affect environmental ethics effluent charges and tradeable permits are economically efficient but rarely used a new explanation for this discrepancy is offered pricing may crowd out environmental ethics in the pricing and via spillovers also in non pricing sectors pricing may therefore increase pollution providing a reason why decision makers tend to reject environmental pricing five propositions showing the conditions for counterproductive effects are advanced they are consistent with available empirical evidence regulation by setting standards and subsidies damage environmental ethics less than pricing because pollution is condoned damaging environmental ethics may prevent political action in favor of the environment

the optimal subsidization of baptists by bootleggers rent seeking bootleggers have an incentive to subsidize the lobbying activities of the public interest minded baptists we demonstrate that unless a certain set of conditions hold the optimal subsidy will be positive and will provide a moral smoke screen for rent seeking activities consequently it will be extremely difficult to identify the actual level of rent seeking from the public interest activities therefore current empirical estimates may well underestimate the actual level of rent seeking in the regulatory arena

the wage effects of training in portugal differences across skill groups genders sectors and training types this article investigates the determinants and wage effects of training in portugal in a first stage we show that there are considerable differences in training participation across groups of workers with elder and low educated individuals participating substantially less in a second stage we show that training has a positive and significant impact on wages the estimated wage return is about 30 for men and 38 for women discriminating between levels of education and working experience and the public and private sector reveals important differences across categories of workers we find that women low educated workers and workers with long working experience earn larger returns from training the average effect of training is similar in the private sector and the public sector however differences across experience groups are larger in the private sector while differences across education groups are larger in the public sector we use three alternative classifications of training activities and f

voting and paying for public goods an application of the theory of the core abstract let any coalition with a majority of all voters have the power to choose the quantities of public goods under rule i a majority coalition bears a cost of its decision that is proportional to its size under rule ii it must bear the whole cost of its decision thus rule i imposes costs on minorities although they have no power to choose the quantities of public goods while rule ii allows goods to have some attributes of semiprivate goods it is shown that a nonempty core under rule i implies a nonempty core under rule ii but not conversely necessary and sufficient conditions in terms of the properties of the von neumann morgenstern characteristic function are given

firm sponsored training in regulated labour markets evidence from spain using data from the 1994 european community household panel survey the author examines who receives formal firm sponsored training in spain the author finds that the distribution of firm sponsored training in the work force is uneven and concentrated among more skilled workers in the upper deciles of the wage distribution the data show that the likelihood of receiving firm sponsored training for a low education employee is much lower also the better educated employees in high wage occupations of the largest establishments have higher probabilities of receiving specific training spain has a highly regulated labour market and the labour market frictions and institutions compress and distort the structure of wages however the results suggest that the highly compressed wage structure do not provide firms with the incentive to invest in general training

politicians taxes and debt the standard analysis of the efficient management of income taxes and debt assumes a benevolent government and ignores potential distortions arising from rent seeking politicians this paper departs from this framework by assuming that a rent seeking politician chooses policies if the politician chooses extractive policies citizens throw him out of power we analyse the efficient sustainable equilibrium unlike in the standard economy temporary economic shocks generate volatile and persistent changes in taxes along the equilibrium path this serves to optimally limit rent seeking by the politician and to optimally generate support for the politician from the citizens taxes resembling those of the benevolent government are very costly since the government over saves and resources are wasted on rents political distortions thus cause the complete debt market to behave as if it were incomplete however in contrast to an incomplete market economy in the long run taxes do not converge to zero and under some conditions they resemble taxes under a benevolent government

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

why do firms train theory and evidence this paper offers a theory of training whereby workers do not pay for the general training they receive the superior information of the current employer regarding its employees abilities relative to other firms creates ex post monopsony power and encourages this employer to provide and pay for training even if these skills are general the model can lead to multiple equlibria in one equilibrium quits are endogenously high and as a result employers have limited monopsony power and provide little training while in another equilibrium quits are low and training is high using microdata on german apprentices we show that the predictions of our model receive some support from the data

nominal sovereign debt i show that reputation alone can sustain nominal sovereign debt which is subject to both the risks of default and opportunistic devaluations nominal debt combined with a countercyclical exchange rate policy allows more hedging against shocks than real savings if markets are incomplete thus the loss of either repayment or monetary reputation severely affects the government s ability to smooth consumption the model offers a simple explanation for the bulow and rogoff critique while simultaneously helping explain the issuance of nominal sovereign bonds by emerging economies the model also helps explain why many governments borrow and save at the same time

the time consistency of optimal monetary and fiscal policies we show that optimal monetary and fiscal policies are time consistent for a class of economies often used in applied work economies appealing because they are consistent with the growth facts we establish our results in two steps we first show that for this class of economies the friedman rule of setting nominal interest rates to zero is optimal under commitment we then show that optimal policies are time consistent if the friedman rule is optimal for our benchmark economy in which the time consistency problem is most severe the converse also holds if optimal policies are time consistent then the friedman rule is optimal

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

public debt and optimal taxes without commitment abstract benhabib and rustichini optimal taxes without commitment j econ theory 77 1997 231 259 study the properties of optimal capital taxes in economies without commitment and no government debt they find that capital taxes may be different from zero at steady state this note shows that once governments have the possibility of issuing debt and smoothing taxes over time optimal steady state capital taxes turn out to be zero

time consistency of fiscal and monetary policy the problem of time inconsistency arises from two different sources first as shown by guillermo a calvo 1978 the re is an incentive for each government to engage in an initial unanti cipated inflation second as discussed by robert e lucas and nancy l stokey 1983 there is an incentive for each government to deviat e from the path of taxes announced by the preceding government in th is paper it is shown that these two sources of time inconsistency ca n be removed by a particular method of debt management involving bot h nominal and indexed government bonds of various maturities copyright 1987 by the econometric society

the economics of special interest politics the case of the tariff this paper investigates the interaction of politicians and special interest lobbies the goal is to model the equilibrium levels of redistributive policies such as taxes subsidies tariffs and regulatory decisions the model is applied throughout to the setting of tariffs by contributing to political campaigns special interest lobbies generate economic returns higher tariffs generate revenue for import competing industries through higher product prices higher milk support prices raise dairy farm income and so forth the lobby invests to maximize these net economic returns in evaluating their chances of election politicians weigh the favorable effects of special interest money against the unfavorable association with the lobby and the social cost of the redistributive policy section i explores the lobby s problem it describes a formalization of mancur olson s discussion of the voluntary provision of public goods and optimal contributions by lobbies to political campaigns section ii describes determination of the equilibrium tariff positions of each politician in a political campaign

optimal time consistent government debt maturity this paper develops a model of optimal debt maturity in which the government cannot issue statecontingent debt as the literature has established if the government can perfectly commit to fiscal policy it fully insulates the economy against government spending shocks by purchasing short term assets and issuing long term debt these positions are quantitatively very large relative to gdp and do not need to be actively managed by the government our main result is that these conclusions are not robust when lack of commitment is introduced under lack of commitment large and tilted debt positions are very expensive to finance ex ante since they ex post exacerbate the government s problem stemming from a lack of commitment in contrast a flat maturity structure minimizes the cost entailed by a lack of commitment though this structure also limits the ability to insure against shocks and increases the volatility of fiscal policy distortions we show that the optimal time consistent maturity structure is nearly flat because reducing average borrowing costs is quantitatively more important for welfare than reducing fiscal policy volatility thus under lack of commitment the government actively manages its debt positions and can approximate optimal policy by confining its debt instruments to consols

sovereign default and the sustainability risk premium effect abstract we analyze the joint determination of interest rate risk and debt sustainability for governments with fiscal imbalances because higher interest rates imply increased debt services they worsen the government s financial situation and increase the probability of sovereign default thus higher interest rates eventually lead to a decrease in the real demand for government bonds which imposes an additional constraint on government debt sustainability

explaining price policy bias in agriculture the calculus of support maximizing politicians a model is developed to explain observed patterns of policy intervention in agriculture we analyze the interaction between political support seeking politicians and supportsupplying citizens society consists of a rural and urban group we determine the effects on transfers of relative group size disparities in income endowments between groups and the deadweight loss of redistribution the framework advanced is an alternative to that of the interest group model and is used to explain for example why the export sectors in developing countries are taxed more and why the united kingdom is less adamant for higher price supports than germany

why do low educated workers invest less in further training several studies document that low educated workers participate less often in further training than high educated workers this article investigates two possible explanations low educated workers invest less in training because of 1 the lower economic returns to these investments or 2 their lower willingness to participate in training controlling for unobserved heterogeneity we find that the economic returns to training for low educated workers are positive and not significantly different from those for high educated workers however low educated workers are significantly less willing to participate in training we show that this lesser willingness to train is driven by economic preferences and personality traits

a theory of political and economic cycles abstract we develop a theoretical framework in which political and economic cycles are jointly determined these cycles are driven by three political economy frictions policymakers are non benevolent they cannot commit to policies and they have private information about the tightness of the government budget and rents our first main result is that in the most favorable equilibrium to the households distortions to production emerge and never disappear even in the long run this result is driven by the interaction of limited commitment and private information on the side of the policymaker since in the absence of either friction there are no long run distortions to production our second result is that if the variance of private information is sufficiently large there is equilibrium turnover in the long run so that political cycles never disappear finally our model produces a long run distribution of taxes distortions and turnover where these all respond persistently to temporary economic shocks

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

sequential equilibria in a ramsey tax model this paper presents a full characterization of the equilibrium value set of a ramsey tax model more generally it develops a dynamic programming method for a class of policy games between the government and a continuum of households by selectively incorporating euler conditions into a strategic dynamic programming framework we wed two technologies that are usually considered competing alternatives resulting in a substantial simplification of the problem

reputation and equilibrium selection in games with a patient player a single long run player plays a simultaneous move stage game against a sequence of opponents who play only once but observe all previous play let the stackelberg strategy be the pure strategy to which the long run player would most like to commit himself if there is positive prior probability that the long run player will always play the stackelberg strategy then his payoff in any nash equilibrium exceeds a bound that converges to the stackelberg payoff as his discount factor approaches one when the stage game is not simultaneous move this result must be modified to account for the possibility that distinct strategies of the long run player are observationally equivalent

testing the acemoglu pischke model in spain abstract the acemoglu pischke approach to training in imperfect labor markets predicts that wage compressions should shift incentives to invest in training from workers to firms this will increase firm sponsored general training when workers are unable to invest in training by themselves spain is on the top of the ranking of regulated labor markets however the training figures for spain indicate a poor effect of highly compressed wage structure on firm sponsored training

limits of markets and limits of governments an introduction to a symposium on political economy abstract this introduces the journal of economic theory symposium on political economy journal of economic literature classification number p16

sustainable plans and debt abstract this paper presents a simple general equilibrium model of optimal fiscal policy similar to that of lucas and stokey j monet econ 12 1983 55 93 except that we let the government default on its debt we consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational we concentrate on trigger mechanisms which specify reversion to the markov equilibrium after deviations by the government and show that such mechanisms cannot support equilibria with positive debt we go on to show by way of examples that there can be more complicated trigger mechanisms which support positive debt journal of economic literature classification numbers e61 e62

gatt and environmental policy reform discussion agricultural protectionism in developed countries such as the united states and those in the european community ec involves subsidized production which has led to excess global supply and to low farm output prices in response the purported goal of the uruguay round of the gatt negotiations is to increase global efficiency in agricultural production and trade by eliminating distortionary subsidy programs additionally gatt opens the door for more general policy reform with an explicit focus on the environment papers by abler and shortle and by just and rausser address how agricultural interests and environmental resources may be affected by these reforms just and rausser argue that the key to policy reform is the political feasibility of the policy change a policy reform altering the current distribution of wealth will be contested by those currently empowered thus reforms will fail unless empowered interests are eased out and bought off compensated to take early retirement from the rent seeking game a golden parachute is necessary to ease the current patriarchs into the front porch rocking chair the relevant task becomes estimating the compensation package necessary to make environmental policy reform feasible to the agricultural community although both papers address the costs of political feasibility in gatt as well as environmental policy reform at least four issues remain unresolved first both papers address policy reform in a deterministic framework but target prices may be useful to stabilize returns of production the decoupling of program benefits could involve an increase in output price instability such that producer risk preferences come into play in addition even if we assume risk neutrality a nonlinear production risk could induce significant shifts in behavior the implication of adding a stochastic element moves us into the world of ex ante choice a world that buchanan and helms argue is less restrictive than the world of ex post choice inasmuch as the ex ante approach incorporates risk preference in a world of incomplete markets for environmental assets ex ante expenditures rather than ex post realized outcomes explain choice and welfare second whereas the empirical models are developed in a dynamic context the analytics of policy reform are static it could be useful to tie the empirical to the analytical by exploring policy reform in a dynamic setting that accounts for either repeated play or asymmetric information between players but this is a potential problem in that a multitude of potential nash or sequential equilibria likely exist see fudenberg and maskin the folk theorems for repeated games suggest that any feasible self interested payoff can be an equilibrium provided that the players are sufficiently patient the range of equilibrium compensation may be quite wide requiring explicit recognition of how expectations are formed for signaling games cho and kreps p 180 argue that what constitutes an equilibrium is powerfully affected by the interpretations that would be given by player b to messages that player a might have sent but in equilibrium does not send restrictions of out of equilibrium beliefs can reduce the number of acceptable equilibria but may require data that are impossible or extremely costly to acquire regardless stronger links between the dynamic processes associated with policy reform will provide a more rigorous framework for empirical estimation although the first two issues may be dismissed as technical nitpicking the third and fourth cannot the third involves the potential production and yield impacts of alternative policies the impact on the agricultural sector in both papers is large abler and shortle argue that implementation of a stylized version of the ec s macsharry plan of a two thirds decoupling jason f shogren is an associate professor in the department of economics iowa state university stan johnson lilyan fulginiti and pat westhoff provided useful comments journal paper no j 14795 of the iowa agriculture and home economics experiment station ames iowa project no 2872

international lending with moral hazard and risk of repudiation in this paper i examine the constrained optimal pattern of capital flows between a lender and a borrower in an environment in which there are two impediments to forming contracts the first impediment to contracting arises from the assumption that lenders cannot observe whether borrowers invest or consume borrowed funds this assumption leads to a moral hazard problem in investment the second impediment arises from the assumption that the borrower as a sovereign nation may choose to repudiate his debts the optimal contract is shown to specify that the borrowing country experience a capital outflow when the worst realizations of national output occur this seemingly perverse capital outflow forms a necessary part of the optimal solution to the moral hazard problem in investment

debts and deficits with fragmented fiscal policymaking abstract this paper develops a political economic model of fiscal policy one in which government resources are a common property out of which interest groups can finance expenditures on their preferred items this setup has striking macroeconomic implications transfers are higher than a benevolent planner would choose them to be fiscal deficits emerge even when there are no reasons for intertemporal smoothing and in the long run government debt tends to be excessively high peculiar time profiles for transfers can emerge with high net transfers early on giving rise to high taxes later on

regulating exclusion from financial markets we study optimal enforcement in credit markets in which the only threat facing a defaulting borrower is restricted access to financial markets we solve for the optimal level of exclusion and link it to observed institutional arrangements regulation in this environment must accomplish two objectives first it must prevent borrowers from defaulting on one bank and transferring their resources to another bank second and less obviously it must give banks the incentive to make sizeable loans and to honor their promises of future credit we establish that the optimal regulation resembles observed laws governing default on debt moreover if debtors have the right to a fresh start after bankruptcy then this must be balanced by enforceable provisions against fraudulent conveyance our optimal regulation is robust in that it can be implemented in a way that does not require the regulator to have information about either the borrower or lender our results isolate the way in which specific institutions surrounding bankruptcy namely rules governing asset garnishment and fraudulent conveyances support loan markets in which borrowers have no collateral

the political economy of farmland ownership regulations and land prices one of the most ubiquitous forms of agricultural regulation is a restriction on farmland ownership one canadian example of a farmland ownership restriction is the saskatchewan farm security act fsa passed in 1974 the purpose of this article is to explain using a political economy framework why the fsa was implemented and to estimate the effect of the fsa on saskatchewan farmland values a present value pv model is used to estimate the relationship between land values rents and the regulation the hausman endogeneity test reveals that the regulation variable is endogenous with the land price the sign of the regulation variable is negative which fits with the theory i e the more stringent the regulation the lower the land value we estimate that the regulation lowered saskatchewan farmland prices by an average of 4 to 34 us acre depending on whether ordinary least squares ols or two stage least squares tsls is employed in the estimation over the period of 1974 2001