a contractual remedy to premature innovation the vertical integration of brand name specific research is there any private contractual mechanism which can reduce premature innovation vertical integration of inventors and manufacturers is shown to be an answer so is exclusive dealing between inventors and manufacturers the prospect of getting ahead of other manufacturers and the fear of being left behind would induce a manufacturer to contract for an inventor s output inventors assured of markets for their results can focus more on the quality than on the completion dates of their work the paper examines contractual remedies for premature innovation consistent with the idea of competition the analysis develops from the conventional rushing model first it is shown that self interest of consumers manufacturers and inventors contradicts the intrinsic consequences of the rushing model correction requires exclusive commitments by manufacturers to the innovating results of winning inventors second it is hypothesized that vertical integration of inventors with production facilities of manufacturers is a form of prior commitment discouraging premature innovation viewed this way an entry barrier raised by brand name advertising may not be entirely undesirable

the political economics of redistribution inequality and tax avoidance a central result in the political economy of taxation is that the degree of redistribution is positively linked to income inequality however empirical evidence supporting such a relationship turns out to be mixed this paper shows how the different empirical reactions can be rationalized within a simple model of tax avoidance and costly tax enforcement by focusing on structure induced equilibrium in which taxpayers vote over the size of the income tax and the level of tax enforcement we show that more inequality may well reduce the extent of redistribution depending on two opposing effects the standard political effect and a negative tax base effect working through increases in the average level of tax avoidance and the share of enforcement expenditures in total tax revenue

local labour control regimes uneven development and the social regulation of production jonas a e g 1996 local labour control regimes uneven development and the social regulation of production reg studies 30 323 338 the apparent demise of fordist consensus seeking institutions of labour regulation raises questions concerning which if any forms of labour market governance will dominate localities in the future without providing the answers for these questions this paper addresses at a theoretical level the social need for capital to foster reciprocities between places of production and sites of consumption and labour reproduction in local labour markets this need emerges from a contradiction between on the one hand capital s abstract interest in the global exchange of labour power and on the other hand the concrete interest of particular capitals in the local context of that exchange a local labour control regime amounts to a stable local institutional framework for accumulation and labour regulation constructed around local labour market reciprocities different factions

the bias in centrally planned prices the historical verdict must be surely in on the great central planning experiment soviet block economies are fleeing central planning philosophy in droves nonetheless the brute fact constraining movement from central planning to market economy is the necessity of vastly increasing prices kurtzman 1988 the point of this note is to look back on the central planning debate of the 1930s and 40s with the perfect wisdom of hindsight and ask why none of the participants predicted this answer by an easy process of elimination we focus on the anti central planning side of the debate after all if disinterested members of the pro central planning side of the debate after all if disinterested members of the pro central planning side had reached the correct answer surely they would have switched sides the brunt of the anti central planning position was carried by two alone von mises and hayek so we reconsider their arguments using a bit of statistical notation to sharpen the points at issue the argument is that von mises and hayek focused on the complex technical issues in involved in central planning and ignored the simple incentives facing planners a concluding speculation is offered as to why neither von mises nor hayek got it right

the transaction costs paradigm 1998 presidential address western economic association 1998 presidential address western economic association though the idea can be traced to david hume and adam smith the path breaking first economic analysis of transaction costs did not occur until 1937 when ronald coase published the nature of the firm 1 stigler and boulding perspicaciously reprinted coase s paper in the famous aea readings in price theory 1952 but for a quarter of a century it had no real impact on the profession in the 1940s two significant works were published which touched on transaction costs but these sparks did not ignite a fire 2 the transaction costs paradigm began to blossom in the early 1960s again it was coase who supplied the primum mobile his great paper on social cost was published in early 1961 though aaron director dated that issue of journal of law and economics as 1960 ronald had company this time george stigler s article on information cost came out later the same year and kenneth arrow s work on the appropriability of returns to inventions appeared in 1962 3 the combined wisdom of three brilliant men would perhaps not have been enough except that by the early 1960s science was on their side jargonistic articles on economic development flooded the journals throughout the 1950s but by 1960 economists were beginning to question the explanatory power of this kind of economics after the clarion call of friedman s work on the consumption function a few years earlier in 1957 the great methodological debate began 4 the demand for testable implications was becoming more vociferous by the day and the tendency for economists to be policy oriented was losing hold as the keynesian revolution waned 5 the tide of economic explanation was beginning to swell and the transaction costs paradigm was the beautiful goddess who emerged from the foam i began graduate work at ucla in 1961 and after my ma a year later i turned to audit the price theory lectures of jack hirshleifer and armen alchian the straight as student who knew by heart everything about market imperfections was told that this kind of knowledge did not count by 1963 graduate students at ucla s department of economics were all talking property rights and transaction costs now i knew coase and stigler by heart and could even handle the questions on pricing behavior and mergers at the end of friedman s price theory 1962 moreover i was the luckiest of the lot because in late 1963 armen gave me a copy of a manuscript by harold demsetz 6 one of the great expositors of our time harold wrote about property rights and transaction costs with such clarity and force that i decided then and there to work on these topics for my doctorate since that time my research has all been on the same track in this address i shall confine discussion of the transaction costs paradigm to my own involvement this limitation is imposed by necessity i like to sail the strange seas of thought alone and have seldom read other people s publications with the seriousness they deserve after i left chicago in 1969 from 1976 to 1982 i spent my time on contracts in the petroleum industry and from 1982 to now my research has concentrated on economic reforms in china although these works are all transaction costs oriented the former is not in print because it is proprietary while the latter has mostly been published in chinese after more than half a lifetime on the seashore however i feel it is time to share my small collection of pebbles with colleagues in the wea still you would not be wrong if you feel that i am addressing the subject as if i were a stranger returning from another planet i the nature of transaction costs transaction costs must be defined to be all the costs which do not exist in a robinson crusoe economy this broad definition is necessary because it is often impossible to separate one type of transaction cost from another the toll collector of a bridge serves not only transacting customers but also police against trespassers

structure and performance the task of economic history jhe cliometric revolution in ecoknomic history wedded neoclassical economics and quantitative methods in order to describe and explain the performance of economies in the past economic history gained in rigor and scientific pretension but at the expense of exploring a much more fundamental set of questions about the evolving structure of economies that underlies performance 2 cliometricians have turned their backs on a long tradition stretching back from joseph schumpeter to karl marx to adam smith these scholars regarded economic history as essential because it added a dimension to economics its purpose was to analyze the parameters held constant by the economist if economics is a theory of choice subject to specified constraints a task of economic history was to theorize about those evolving constraints the failure of economic historians to provide their colleagues with a historical dimension to their perspective has reduced the effectiveness of economists in dealing with contemporary problems failure of economists to appreciate the transitory character of the assumed constraints and to understand the source and direction of these changing constraints is a fundamental handicap to further development of economic theory the challenge to the economic historian which has equally compelling implications for the economic theorist is to explain the transformation of the structure of the american economy in the past century 3 in the rest of this essay i shall explore this issue in order to specify some of the dimensions of the economic historian s task

line item veto where is thy sting roponents of giving the president the authority to use a line item veto argue that the institutional change is needed to limit special interest legislation and restrain spending opponents respond that it would grant too much added power to the president thereby upsetting the delicate balance wisely crafted by the founding fathers this article focuses on the presumption evidently shared by both sides in the debate that adoption of item veto authority will have significant consequences in terms of budget outcomes and the distribution of power 1 curiously there presently exists little empirical support for the presumption that item veto authority is important most studies comparing states with various types of veto authority have failed to detect significant effects associated with item veto additional tests of our own are consistent with these results after reviewing the empirical evidence we reconsider the alleged effects of item veto authority by seating the popular depiction in an explicit model of the budgetary process formal modeling exposes logical inconsistencies contained in popular veto discourse further the model makes clear that the predicted consequences of item veto commonly projected as ubiquitous in fact arise only in select settings

bicameralism and its consequences for the internal organization of legislatures theories of organization of legislatures have mainly focused on the u s congress explaining why committee systems emerge there but not explaining variance in organization across legislatures of different countries to analyze the effects of different constitutional features on the internal organization of legislatures we adopt a vote buying model and consider the incentives to delegate decision rights in a game among legislative chambers we show how presidential veto power and bicameral separation can encourage a legislative chamber to create internal veto players or supermajority rules while a unicameral structure can encourage legislators to delegate power to a leader

antebellum tariff politics regional coalitions and shifting economic interests abstract throughout u s history import tariffs have been put on a sustained downward path in only two instances from the early 1830s until the civil war and from the mid 1930s to the present this paper analyzes the political economy of tariff reductions in the antebellum period tariff politics was highly sectional the north supported high tariffs the south favored low tariffs and the west was a swing region in the 1820s a coalition between the north and west raised tariffs by exchanging votes on import duties for spending on internal improvements president andrew jackson delinked these issues by vetoing several internal improvements bills the nullification crisis led to the compromise tariff of 1833 which phased out tariffs above 20 percent over a 9 year period by this time transportation improvements gave the west access to foreign markets giving the region a stake with the south in maintaining a low tariff equilibrium thus the west s changing position on trade policy helps explain the

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

some observations on power and property rights in the inland fisheries of bangladesh abstract this paper examines the causes behind the failure of the fishermen to establish property rights over fishing grounds in the inland fisheries of bangladesh property rights are eventually transferred to socially powerful agents called the lessees who are not part of the fishing community differential costs of establishing and maintaining property rights have been observed as the key element behind the transfer of rights this differential cost stems from power asymmetries and consequently more rent is generally realizable by the lessees differential capacity to realize rent creates the potential for an exchange of rights between them 1997 elsevier science ltd all rights reserved

an empirical example of the condorcet paradox of voting in a large electorate social choice theory suggests that the occurrence of cyclical collective preferences should be a widespread phenomenon especially in large groups of decision makers however empirical research has so far failed to produce evidence of the existence of many real world examples of such and none in large electorates this paper demonstrates the existence of a real cyclical majority in a poll of danish voters preferred prime minister using pair wise comparisons this result is compared with those of a similar poll but by using different voting methods each resulting in different choices the example demonstrates the empirical reality of cyclical collective preferences and the importance of the choice of institutions

the power of the proposal maker in a model of endogenous agenda formation in a distributive setting this study examines a voting procedure for which agenda formation is endogenous it is found not surprisingly that agenda formation is another avenue for strategic manipulation of the voting process and provides the member to first take the floor an asymmetric advantage what is surprising is the degree of this advantage we find that the initial proposal maker earns a share of the fixed resource exceeding 1 for an majority rule and this is regardless of the number of members the voting rule is found to be an effective instrument in at least partially offsetting the power of the proposal maker while maintaining the stability of the voting process

a coasian perspective on informal rights assignment among waste pickers in the philippines this paper examines in light of the coase theorem how delineation of a degree of enforceable rights for a previously open access dumpsite in the philippines would affect market transactions of waste pickers it shows that a simplistic exclusion solution was not enough to constrain rent dissipation of recyclables in the primeval land fill some intervention of non government organisations backed by some initial government assistance were found helpful in reducing transaction costs to sustain operations and promote innovations and initiatives from the scavengers themselves despite obvious external economic difficulties

rent seeking behaviour and its economic costs in urban land transactions in accra ghana the existing body of knowledge attributes to informal land transactions in sub saharan african cities observed problems in city neighbourhoods substantial resources often backed by donor agencies are therefore being spent in revamping bureaux and governmental bodies in a bid to solve the problems this paper examines the economic impacts of this aspect of market intervention employing insights from rent seeking theory it estimates costs brought to bear on agents by government agencies involvement in the urban land market of accra ghana the sum of these wasteful diversions of resources is found to explain a great deal of the haphazard developments that have come to characterise many neighbourhoods in the city market led regulation emerges as the needed focus of future land policy and management strategy towards this the paper calls for the removal of existing unwarranted market interventions and the reorganisation of responsible bureaux in ways that would induce them to operate efficiently

circumventing formal structure through commitment presidential influence and agenda control although the formal institutional structure that defines the temporal order of play in a policy game between the congress and president ought to provide congress with agenda power the president is traditionally treated as the dominant player in this relationship we show that if the president can make clear cut commitments presidential commitment can counter the dominance hierarchy and the complexion of equilibrium outcomes thus the details of political interactions in particular the possibilities for commitment may be as important as the formal specification of institutional structure

a model of political competition in the underlying space of ideology this study makes use of the concept of ideology to answerimportant questions of political competition i develop amulticandidate model in which voters use ideology as asimplifying device that helps them to choose a candidate in anoisy environment three important results arise for thehomogeneous polity case first the candidate with moreresources is the one more likely to win the election second a merger between two parties might yield to a higher expectedplurality for the candidate of the newly formed party third political convulsion yields to a decrease in the expectedplurality for the incumbent candidate

households willingness to pay for public housing in the presence of price controls nonmarket housing allocation mechanisms such as queueing prevent households from revealing their marginal willingness to pay for housing through market prices we derive the households marginal willingness to pay using the intuitive idea that the length of the queue for a specific house reflects the households willingness to pay for housing characteristics we apply our methodology to public housing in the amsterdam metropolitan area and show that on average the households marginal willingness to pay for a unit of public housing is close to its marginal costs this suggests that the welfare loss of public housing through distortions in housing supply is rather limited and is mainly through distortions in housing demand we provide indirect evidence of the latter by showing that queueing induces inefficient matching of households and housing

implicit taxes collected by state liquor monopolies state monopolization or taxation aresupposedly justified because of negativeexternalities from alcohol consumption butrecent research questions the efficacy ofsuch policies suggesting that their actualgoals may be revenue generation consideration of this hypothesis isfacilitated by estimates of the implicittaxes charged in monopoly states whichgenerally are substantially higher thantaxes in non monopoly states evidencethat monopolization and high taxes do notaffect the level of externalities is alsoexplained by adjustments that rationalindividuals make to avoid the consequencesof such policies thus providing furthersupport for the revenue maximizationhypothesis

the effectiveness of policies to transform a gas exporting country into a gas transit country the case of the netherlands the netherlands has been a major european natural gas producer and exporter for many decades but now faces the challenge to deal with diminishing resources in response the dutch government initiated a gas hub strategy which is the policy to transform the gas industry from an export oriented business into a transit oriented business this policy included a number of investments in the gas infrastructure as well as institutional reforms to enhance the liquidity of the gas market we study the effects of this gas hub policy using hourly data on the dutch gas balance over the period 2006 2013 we find that gas storage and trading have become more important but that the level of gas in transit in the netherlands remained fairly constant consequently the dutch gas industry is still mainly oriented on domestic production and export of gas while the dutch gas hub ttf has become a key virtual trading place the policy lesson from the dutch experience is that implementing a gas hub strategy requires significant investments in the gas infrastructure while their effects do not necessarily become visible in the short run

rules and games this paper reconsiders the relationship between the rules of a game and its outcomes we develop a notion of rule reform that leads to the selection of pareto improved equilibria points we then apply this notion to a series of naturally occurring fishing rules including examples from malaysia india brazil turkey and canada we show that reforming a game is conceptually akin to reforming an economy

the impact of rent control on rents in the free sector in most cases rent control covers only a part of the housing stock this note provides a simple analysis of the impact which rent control and non price rationing exert on the rent in the free sector it is shown that depending on the rationing mechanism rents in the free sector can be higher or lower than in the absence of rent controls

why democracies may actually be less reliable allies recent research builds on the observation that democracies have more durable alliances to argue that democracies make more reliable allies this need not be the case alliances serve as commitment devices adding ex ante credibility to states claims about ex post behavior variation in alliance durability must reflect differences in the desirability of formalizing alignments put simply democracies are most improved by formal commitments we offer two related explanations for why democracies might actually be less reliable alliance partners information costs for participating in policymaking and the advantages of organized interest groups combined with distributional incentives generated by the periodic turnover of governments may conspire to make informal commitments on the part of democracies problematic determining the net effect of democratic virtue and vice is best done empirically we test alliance reliability by focusing on intervention rather than on the duration or the number of commitments our results suggest that democracies make less reliable allies

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

the role of gas infrastructure in promoting uk energy security abstract this paper considers whether commercially driven investment in gas infrastructure is sufficient to provide security of gas supply or whether strategic investment encouraged by government is desirable the paper focuses on the uk in the wider eu context a modelling analysis of the impact of disruptions lasting from days to months at the uk s largest piece of gas infrastructure is at the heart of the paper the disruptions are hypothesised to take place in the mid 2020s after the current wave of commercial investments in storage and lng import facilities has worked its way through the paper also analyses the current role of gas in energy markets reviews past disruptions to gas supplies highlights current patterns of commercial investment in gas infrastructure in the uk and assesses the implications of recent eu legislation on security of gas supply the paper concludes with an analysis of the desirability of strategic investment in gas infrastructure

economists and public policy chicago political economy versus conventional views both conventional welfare economics and public choice analysis suggest that economists have an important educational role to play in the public policy process in improving the decision making process in sharp contrast information and incentive problems related to voting rules the bureaucracy and the legislature do not arise in cpe because these processes are all perfect agents of interest groups consequently the political process is efficient and there is no scope for beneficial economic analysis as it relates to the sugar program or other public policies that is the polity is efficient or it would be reordered by competing interest groups to make it so but as mitchell 1989 290 stresses the important unanswered question in cpe remains if there is no scope for improvement how and why does change occur

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

rationing and rent dissipation in the presence of heterogeneous individuals this paper discusses the implications of rationing by waiting when consumers have different time costs and personal valuations the joint distribution function of time costs and personal valuations is used to characterize market equilibrium it is argued that under certain conditions an increase in the variance of time costs will reduce the dissipation of rent furthermore it is shown that introducing a secondary market for a rationed good does not necessarily improve welfare because total surplus under rationing by waiting depends more on the variance than on the level of time costs and personal valuations the model is also used to discuss other institutions that involve rent seeking activities such as the patent system and import quotas

the cost of governing strategic behavior of the president and legislators in brazil s budgetary process several characteristics of a political system have been identified as increasing the cost of governing such as presidentialism federalism an open list with proportional representation a multiparty system and coalition governments although brazil suffers from all of these pathologies the authors argue that other characteristics of the brazilian system have the opposite effect and allow high levels of governability at low cost in particular the authors examine the role of legislators amendments to the budget which provide the executive a low cost means of obtaining support the authors provide evidence that the brazilian president routinely uses his or her powers to reward and punish legislators for supporting or opposing his or her interests in congress although legislators have a limited role in the budgetary process that role can have important electoral consequences for their political careers

polarization politics and property rights links between inequality and growth most efforts to trace the effects of income inequality on growth have focused on redistribution however empirical investigation has not substantiated either the positive association of income inequality with redistribution or the negative association of redistribution with economic growth the authors analyze the effects of inequality in the broader context of social polarization they argue that social polarization whether rooted in income inequality or in ethnic tension makes large changes in current policies including those guaranteeing the security of contract and property rights more likely under a wide range of institutional arrangements the resulting uncertainties in the policy and contractual environment hinder growth they find strong empirical support for both parts of this argument the policy implications of their argument are quite distinct from those of arguments that inequality reduces growth by increasing pressures for redistribution if redistributive policies per se were to blame for the low growth resulting from inequality governments that seek to mitigate income inequality must inevitably confront a tradeoff between equity and growth if on the other hand the insecurity of property rights slows growth in unequal or otherwise polarized societies governments that commit over the long run to particular redistributive policies incur less risk of slowing economic growth fiscal redistribution that reduces inequality may actually increase growth by reducing the risks of political uncertainty

proposal rights and political power in a canonical model of sequential collective bargaining over a divisible good we show that equilibrium expected payoffs are not restricted by players voting rights or their impatience for all monotonic voting rules and discount factors and for all divisions of the good among players there exists a stationary proposal making rule such that this division represents players expected payoffs in a stationary subgame perfect nash equilibrium in pure strategies the result highlights the significance of proposal rights in determining political power in collective deliberations t he purpose of this article is to further our understanding of political power in a committee environment we consider the problem of a group of two or more agents who must split a fixed divisible good agents cannot use physical force to divide this good our goal is to clarify the role and relative significance of other features of the political environment such as voting rights proposal rights agents patience etc in determining political power following shapley and shubik 1954 we gauge political power in terms of expected outcomes rather than a priori equate it with individual prerogatives 1 in that spirit political power is the share of the divisible good that agents can expect to obtain when their behavior conforms to an appropriately defined equilibrium notion 2 we model committee interaction using a canonical sequential bargaining game in each period a member of the committee is recognized with some probability that is fixed across periods and proposes a division of the good committee members then vote on the proposal if the proposal is approved in accordance with the underlying voting rule the proposed division is implemented and the

electoral majorities political parties and collective representation in practice democracies privilege plurality parties theories of the democratic process challenge the democratic credentials of this practice abstract social choice theory wonders whether an elec

labour flexibility and regional development the role of labour market intermediaries b enner c 2003 labour flexibility and regional development the role of labour market intermediaries reg studies 37 621 633 as contemporary labour markets have become more complex volatile and unpredictable labour market intermediaries lmis have played an increasingly prominent role in shaping labour flexibility and regional development existing theories of regional development however do not adequately account for this prominent role using silicon valley as a case study this paper contributes to developing a theory of intermediaries and regional development by highlighting the role lmis play in three important labour market functions reducing transactions costs building networks and managing risk in doing this intermediaries play a critical role in shaping the speed and character of labour market adjustment thus contributing directly to regional development with significant implications for regional development policy b enner c 2003 la flexibilite du travail et l ame nagement

the rhetoric and reality of redistribution it is customary when giving a presidential address to begin by remarking on how happy you feel i have an even stronger reason for being happy than most presidents it will at long last permit me to break into the southern economic journal up to this point referees of that august institution have always rejected everything that i sent them finally however i am privileged to put an unrefereed paper in the journal and hence do not have to worry about this one being rejected the audience may feel that although it is nice for me it is hard on the journal but under the sacred traditions of the southern economic association the editors and referees can do nothing about it the blame if there is any has to be laid on me and not on the management of the journal in a way the fact that i will not face referees is important because in this paper i propose to violate a number of implicit taboos in the discussion of income redistribution indeed i propose to argue that most of the current discussion of income redistribution is drastically defective this will not only include rawls it will include what most members of the economic profession normally say on the subject and presumably what the potential referees of this paper would have thought let me very briefly survey the existing economic as opposed to the philosophic literature on the redistribution of income firstly a good many economists have said simply that economics can say nothing about the subject because somebody gains and somebody loses but we can t say whether this is a good or a bad thing with our apparatus hochman and rodgers 9 have started another tradition of dealing with income redistribution in which the government is seen as simply organizing what is essentially a voluntary transfer from the better off american citizens to the less well off american citizens why the government should be used as an instrumentality for this kind of transfer was interestingly enough first explained by milton friedman 6 191 92 such redistribution has the interesting characteristic that it does not actually involve redistribution because the people who make the gift are maximizing their own utility and hence are better off it is a case in which human preferences are so arranged that a given dollar of income benefits two people a full dollar s worth the donor gains a dollar from expending money at its best use to him i e making a gift to the poor and the poor gain the dollar in a somewhat metaphysical sense it can be said here

might makes rights a theory of the formation and initial distribution of property rights this paper is a theoretical and empirical investigation into the formation and initial distribution of property rights violence is singled out as a major constraint on this formation process its role is explicitly modeled in a choice theoretic framework and some of the implications are tested using data collected from contracts written during the california gold rush of 1848

institutions and economic growth an historical introduction abstract in this essay the interdependence of political and economic institutions is examined against premises in neoclassical theories of economies which maintain that population and savings are the principal determinants of economic growth that institutions matter in the development of economies is the difference in assumptions i examine i look at the institutional frameworks that preceded adoption of the united states constitution and the northwest ordinance in early america i then trace the precedents of these american institutions to the evolution of common law in england where interests unconcerned with the crown coalesced to form competing political units i then contrast england s institutional development with the comparatively centralized enforcement mechanisms of spain to examine the hypothesis that institutional differences produce economic consequences

the median voter setters and non repeated construction bond issues the median voter model pervades the literature concerning the estimation of demands for collective expenditures but with some unanswered criticism the general issue addressed in this paper is whether observed collective expenditure levels and the characteristics of observed majorities are more adequately described by the median voter model or the romer and rosenthal setter model on a sample of non repeated hospital construction referenda bond issues the median voter model and the romer and rosenthal setter model are compared in both full information and uncertainty contexts little empirical support of the setter model is found indeed the evidence supports the absence of expenditure maximizing behavior the specific conclusions are 1 the standard median voter model explains quite well for this sample of non repeated bond issues 2 the explanatory power of the median voter model appears to vary across both voting arrangements and types of reversion threats 3 the explanation of hospital expenditures which have been judged too large may be due to how benefits and costs are distributed among voters and 4 the preponderance of large majorities for hospital construction in the face of evidence that such facilities typically become a burden on the general tax fund is consistent with setters offering the median ideal in the presence of a reversion below the ideal

institutionalizing majority rule a social choice theory with policy implications recent results in the theory of pure majority rule demonstrate the genericity of majority rule cycles as established by richard mckelvey 1979 l cohen 1979 and n schofield 1978 majority rule nearly always breaks down and when it does the breakdown is complete the theorems given below may be summed up in the following three assertions 1 for any policy or alternative there exists a set of alternatives that command a majority of votes against it 2 this situation is not an abberation but rather is the general case and 3 it is almost always possible in multidimensional choice settings to find a sequence of votes that begins at any point and ends at any other point majority rule may wander anywhere yet when these theoretical assertions are applied to legislatures based upon majority rule they contain no obvious policy content or predictions the key insight which we elaborate in this paper is that majority rule is not self implementing there is no majority rule machine into which we feed preferences and out of which come outcomes rather there is a complex series of institutional arrangements underpinning the operation of majority rule legislatures arrangements from which theorists have mistakenly abstracted in fact majority rule theorists have not focused at all on institutional details instead they have restricted themselves to the majority rule dominance relation operating under the implicit assumption that what may be proved true about this relation is true of all legislative institutions based upon it in this paper we show that this assumption is misleading and that the the results based upon it must be reinterpreted in order to be useful for understanding real world committees and legislatures

a direct test of direct democracy new england town meetings representative democracies govern most locales in the us making it difficult to compare performance relative to direct democracy new england states however provide an opportunity to test both direct and representative democracy at the local level this article uses revealed preference axioms to compare spending patterns in new england towns and cities against median voter hypothesis benchmarks contrary to previous evidence we find no differences between direct and representative democracy the results suggest that horizontal competition arising from local fragmentation minimize differences between direct and representative local government providing support for wider applicability of median voter based empirical models of local government behaviour in the us

recontracting trustworthiness and the stability of vote exchanges tullock 1981 has recently restated a discrepancy between theory and observation that exists in collective decisions and made a start toward explaining the discrepancy the discrepancy stated simply is this the theory of rational action in collective decisions implies that any outcome which requires vote exchanges to be achieved is unstable in that it can be overturned by a coalition all of whom find it their interest to do so yet a high degree of stability is observed in legislation despite the fact that much of this legislation required vote exchanges in order to be passed tullock accounts for this stability in part by pointing out that defections necessary to create the instability e g a defector induced to become an aristocrat in an inegalitarian coalition create an exposed position for the defector and the possible instability is likely to inhibit the defection in the first place tullock looks at two extreme forms that a winning coalition could take given a set of bills each of which has a special interest for one legislator a logrolling form which encompasses all of nearly all the legislature and a minimal winning coalition although the latter dominates the former in a game theoretic sense tullock argues that the latter will be unstable because of the power of enticement held by the excluded minority logrolling which includes nearly all the legislature is although formally dominated stable because of the absence of this potential enticement thus for tullock if i understand correctly his argument the potential instability of minimal winning coalitions leads any one of them to be succeeded not by another minimal winning coalition but by a non minimal winning coalition that it formally dominates shepsle and weingast in a subsequent paper argue that the institutional structure of actual legislatures restricts the richness of logrolling and coalition possibilities that under pure majority rule without such institutions could overturn a proto coalition or reverse an outcome shepsle and weingast 1981 511 thus they explain stability by stability inducing institutions

continuity and evolution in an old industrial region the labour market dynamics of the rise and fall of northern rock dawley s marshall n pike a pollard j and tomaney j continuity and evolution in an old industrial region the labour market dynamics of the rise and fall of northern rock regional studies the northern rock mortgage bank was a high profile casualty of the credit crunch in 2007 an evolutionary geographical political economy approach demonstrates that northern rock s growth and decline was shaped by its location in an old industrial region and echoes the historical position of the peripheral region in the spatial division of labour a longitudinal investigation focuses on the labour market dynamics of northern rock s rapid growth and decline on the north east of england the northern rock case highlights the enduring occupational structure of the region s labour market and shows how older industrial regions suffer from a process of occupational disadvantage that restricts their ability to adapt to economic change

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 congressional bureaucratic system a principal agent perspective with applications to the sec this paper provides the theoretical perspective and empirical support for congressional dominance of agency decisions my thesis is twofold first because much of the previous evidence on this question is not evidence at all many scholars intuition and conclusions are based on a logically flawed foundation second i have provided here and in previous work a look at a variety of different agencies and in each case have shown how the events can plausibly be interpreted as involving congress agency problems within the congressional bureaucratic system are real and substantial just as they are within corporations however as in the latter institutional forms develop within the congressional system to partially if not wholly mitigate these problems the logical perspective together with the evidence provide a strong case against the agency dominance hypothesis as typified by the early sections of niskanen 1971 and wilson 1980

redistribution tax under non benevolent governments i analyze redistribution policies of majority governments in one kind of representative voting system i employ these assumptions members gain special benefits in the majority parties act strategically by using redistribution transfers the member s utility function is given in a quasi linear function the government s objective functions are the weighted summation of utilities and i classify governments according to the weight the four main results are a stable majority dose not support myopic government the stable redistribution policy of benevolent government is expressed by a scope of transfers the stable transfer of non benevolent governments depends on private utilities of the majority and opportunity costs of the minority and the altruistic government is not displayed by any other majority because it offers the total welfare of the majority to the minority as a subsidy

the median voter model in public choice theory the changing perception by public choice theorists about the relevance of the median voter model is a result of excessive extrapolation of the conclusions of theoretical models to the real world early in the 1970s the median voter model was often accepted as implying that the output produced in the public sector was what was most preferred by the median voter this claim is excessive because the median voter model is only a model of demand aggregation under majority rule and has little to say about the supply side of the public sector in the late 1970s many scholars identified several circumstances under which the model would not apply in theory but these critiques of the model were often viewed as reasons to abandon the median voter model altogether the model went from having excessive claims that made the model appear to be more powerful than it really is to excessive claims that made the model appear to be less powerful than it really is these latter claims were often in response to the earlier claims rather than to the model appropriately applied

the political economy of the fair labor standards act of 1938 this paper examines the congressional passage of the american minimum wage law the fair labor standards act of 1938 voting on the act is modeled as a function of the concentration of the constituencies for minimum wage legislation north south differentials and legislator ideology it is shown that the house radically altered the final content of the bill abandoning a proposed wages and hours board with discretionary powers to determine minimum wages in favor of a flat rate following the objections of several interest groups north south divisions over the bill had little influence over congressional voting and the influence of constituent groups increased relative to legislators ideology as the bill became an important election issue

a correction in elementary public choice geometry this paper corrects a long standing errorin elementary geometrical constructionsthat involve collective choices inmultidimensional settings the seeminglyinnocuous assumption of separability amongarguments in individual utility functionsdoes not imply symmetric indifferencecontours in shared goods space sharedgoods necessarily become gross substituteswhen resource or budgetary constraints areintroduced the corrected constructionsuggests that issue by issue voting is lessefficacious than is indicated in theconventional analysis

the misallocation of housing under rent control the standard analysis of price controls assumes that goods are efficiently allocated even when there are shortages but if shortages mean that goods are randomly allocated across the consumers that want them the welfare costs from misallocation may be greater than the undersupply costs we develop a framework to empirically test for misallocation the methodology compares consumption patterns for demographic subgroups in rent controlled and free market places we find that in new york city which is rent controlled an economically and statistically significant fraction of apartments appears to be misallocated across demographic subgroups jel c25 d12 d61 r20

why so much stability one of duncan black s 1958 more important contributions was a classically simple proof that with complex issues and majority voting a stable outcome is unlikely this very simple proof that there would normally be no motion which can get a majority against all others and hence that any possible outcome is dominated by another has been elaborated and made more precise by later work without most improbable conditions endless cycling would be expected this is particularly true when logrolling is present as it normally is if we look at the real world however we observe not only is there no endless cycling but acts are passed with reasonable dispatch and then remain unchanged for very long periods of time thus theory and reality seem to be not only out of contact but actually in sharp conflict it is the purpose of this article to demonstrate that our existing theory when properly looked at does indeed imply a relatively stable outcome to voting in some cases however this stability will not be a true equilibrium because a random member of a large set will be chosen and then that random outcome will be left unchanged for long periods of time it does not dominate all other outcomes but is retained merely because of its particular history there are already several possible explanations for the observed stability in the literature we will take them up as they become relevant to the general line of reasoning i should however warn the reader that my own previous work including joint work with buchanan will play a major role here this may simply reflect egotism but i think that some of the early work which is now partially forgotten can provide solutions for more modern problems much recent public choice work has involved spatial models and these models frequently ignore logrolling the reason presumably is that it is very hard to put logrolling in a two dimensional diagram we shall begin considering such special models and assume that the issues are the sort that does not lead to logrolling and then turn to more complex logrolling problems with respect to the first situation in which logrolling does not occur there is already one possible explanation for the observed stability in the literature

bureaucratic agenda control imposition or bargaining niskanen s economic model of bureaucratic behavior assumes that bureaucratic agenda control allows the bureau to impose upon a passive legislature its most preferred alternative from among the set of alternatives that dominate the status quo but does a monopoly on the agenda give bureaus this degree of influence over a voting body this article reports on experiments that demonstrate that a monopoly on the agenda puts the agenda monopolist in a position to bargain with a voting body without being able to impose his or her most preferred alternative on that body this evidence supports theories of bureaucratic legislative bargaining at the expense of theories of bureaucratic imposition

why economic reforms fail in the soviet system a property rights based approach jan winiecki why do economic reforms fail in soviet type systems despite the obvious interest of ruling groups in improving the performance of their ailing economies the author applies a property rights based analysis stressing modes of rent maximization by ruling groups as a crucial explanatory variable party apparatchiks and economic bureaucrats particularly benefit from persistent interference in the economic sphere and consequently are most interested in maintaining the status quo the author surveys the impact of these motivations on the content of economic reforms outlines the strategies of counterreformers and predicts the future of reforms in soviet type economies 1 introduction in analyzing the disequilibrium characteristics of contemporary western economies mancur olson 1982 1984a 1984b agrees with the neoclassical macroeconomists in finding that given the tendencies of markets to clear and given the rational expectations of economic agents any disequilibrium indicates that all mutually advantageous transactions have not been consummated having made this point however he asks what can make agents ignore the potential gains from unconsummated transactions and turns his attention toward the structure of incentives and thus of institutions and policies olson insists and rightly so that a satisfactory static and dynamic macroeconomic theory has to explain who among key actors has the incentive to generate economic growth and equilibrate the economy and who does not furthermore no government even an authoritarian one has an incentive to generate serious recessions or disequilibria olson 1984a 637 writes that even in dictatorial systems the dictator has an incentive to make the economy of the country he controls work better since this will generate more tax receipts he can use as he pleases and usually also reduce dissent olson s arguments about incentives institutions and disequilibria offer an ideal basis for an inquiry into why reforms fail in soviet type economies stes in olson s theories of incentives the old roman principle of criminal law cui prodest who gained is applied to modem economies and the results suggest that contrary to widespread opinion it is not necessarily the small but powerful group of high and highest leaders that stands to gain most in terms of power and privilege from the preservation of the existing order a powerful political elite could satisfy its desires for both power and privilege through an alternative undemocratic system one which involves authoritarian don ts rather than totalitarian do s in that perspective the inefficient system of economic control typical in stes involving centrally planned production goals and input rationing would not be a condition sine qua non of an authoritarian solution since totalitarian command and control systems persist however one must seek groups other than the powerful and privileged few which have incentives to resist reforms and keep the economy inefficient the following sections identify the membership and motives of groups having strong incentives to keep the stes inefficient and prevent successful i e market oriented reforms we show how those groups operate and analyze their effects on the economic performance of their countries first the incentives for these groups to prevent decentralized management in the state sector are spelled out then their incentives to prevent the expansion of the more efficient private sector are outlined third having identified who benefits from the status quo and why the paper discusses when and how market oriented reforms are aborted limited or reversed by those who stand to gain from the reforms failure the last two sections consider the prospects of current attempts at economic reform in three specific countries poland the ussr and china and the prospects for economic reform in stes more generally

natural gas supply stability and foreign policy abstract this article studies factors that affect stability of supply of natural gas it examines the relative influence of political relations between the involved states on the stability of supply the article identifies the factors that affect the propensity of a state to use disruption of natural gas supply in order to promote foreign policy goals the article is based on the study of thirty five supply relations and two case studies the article claims that disruption of supplies can be initiated not only by supplier states but transit and consumer states it claims that natural gas supply relations generally take three forms neither side is dependent on the gas trade one side is dependent on the gas trade or the sides are interdependent in the gas trade cases of significant asymmetry of the degree of dependence in the gas trade are most likely to be exploited by the less dependent party for foreign policy gain the article claims that the prevailing political relations between gas trading states are only one of the factors affecting the stability of supply

a theory of price control price or rent control is but one of many forms of legislative action which interfere with private contracting in the market place to delimit the scope of my analysis i shall use the term price control to refer only to any set of regulations which satisfies the following three conditions first the control must fix the price or income terms of private contracts this categorically excludes any laws which regulate the distribution of income among the contracting parties on a share or percentage basis 2 second the control must involve no appropriation of proceeds to or from the government taxation and subsidization are thus excluded finally the fixing of price must not be associated with direct government sales purchases or manipulation of resources so as to maintain the regulated price 3 by this stipulation price support is also excluded even on such terms legal regulations to control price are still many and varied to evaluate our understanding of the class of phenomena which we seek to explain it is essential that we discover implications refutable by facts by this criterion the available body of economic theory pertaining to price control is deficient indeed the massive literature on the subject offers few such implications 4 an alternative approach to analyzing the observable effects of price control is presented here

transaction costs and coalition stability under majority rule 1 introduction under a majority voting rule representatives of specific political districts must bargain with representatives of other districts to build a coalition for enacting legislation that benefits their narrow constituencies but the theoretical public choice literature warns of potential for unstable majorities minimum winning coalitions divide program benefits just among their members creating incentives for those left out to entice defection by offering rewards to those who leave and form a different coalition as noted in mueller 1989 new coalitions emerge undermining the old ones leading to cyclical majorities short term programs and highly skewed distributions of program benefits 1 despite these dire predictions there is a general consensus in the literature such as tullock 1981 that programs are more stable and allocations more equal than the theory suggests 2 in an effort to explain the discrepancy between prediction and observation researchers have pointed to institutional rules and practices in congress for example as stated in shepsle and weingast 1981a and weingast and marshall 1988 the committee system provides a structure induced equilibrium that limits the possible range of vote trading and thereby helps maintain coalitions further shepsle and weingast 1981b miller and oppenheimer 1982 and collie 1988 argue that universalist sharing of program benefits enlarges the winning coalition and extends its political support 3 in this article we offer additional evidence of broad stable sharing in many programs enacted by congress by describing interstate distributions from the federal highway trusts fund htf the allocation formula for the htf was initiated in 1916 but despite wide divergence across the states in growth of various economic factors over the rest of the twentieth century such as vehicle registration and population that might have led to redirection of highway funds there were comparatively limited htf allocation adjustments analysis of state receipts from the htf relative to tax payments into the fund reveals that some states collect much more than they contribute whereas others pay in more than they receive even so interstate ratios of htf apportionments to payments have remained stable across the years varying less than changes in highway use measures would suggest going beyond this specific program we examine overall federal expenditure and tax shares among the states from 1975 to 1997 and show that there has been a similar continuity in the interstate distribution of federal funds and taxes 4 as with the highway program there is broad stable sharing of federal expenditures across the states with some receiving more than they contribute in taxes to the federal government to better understand this observed stability and use of relatively egalitarian sharing rules and to go beyond existing explanations we emphasize the desire of politicians to minimize the high transaction costs of negotiating and enforcing political coalitions politicians have incentive to prevent unraveling of political agreements to avoid the costs of searching for new coalition partners reaching agreement on the nature and distribution of program benefits and costs and verifying compliance these activities detract from a legislator s ability to address other voter concerns moreover legislators seek to protect constituent benefits accruing from long term programs that would be lost if coalitions unraveled 5 accordingly we argue that politicians assemble greater than minimum sized coalitions to build broad political support for their legislative programs offering benefits to a larger constituency in exchange for additional votes considerable negotiation over the distribution of program benefits a nd costs may be required so that once agreements are reached politicians will be loath to consider a major reallocation that could undermine the coalition

political solutions to market problems for some market failures serve as a rationale for public intervention however the fact that self interested market behavior does not always produce felicitous social consequences is not sufficient reason to draw this conclusion it is necessary to assess public performance under comparable conditions and hence to analyze self interested political behavior in the institutional structures of the public sector our approach emphasizes this institutional structure warts and all and thereby provides specific cautionary warnings about optimistic reliance on political institutions to improve upon market performance

the local low skills equilibrium moving from concept to policy utility it is more than three decades since the publication of finegold and soskice s 1988 influential article the failure of training in britain analysis and prescription this widely cited publicati

public sector pricing and the real exchange rate we examine the effects of consumption subsidies public enterprise pricing and price controls on the real exchange rate under plausible assumptions we show that permanent reform in these areas leads to a permanent real exchange rate appreciation an empirical application to the 1990 fujimori plan in peru is discussed redistribution purposes sometimes even to buy votes by populist leaders since economic reform usually requires the shutting down of loans from the central bank to parastatals reducing consumption subsidies and increasing public enterprise prices price reform plays an important role in imf and world bank programmes edwards 1989a for example found that public enterprise price increases and reductions in consumption subsidies were involved in 79 and 44 per cent respectively of imf programmes between 1983 and 1985 trade reforms in contrast were present in just 35 per cent of cases to date the real exchange rate effects of public sector price policies have

are labour markets necessarily local spatiality segmentation and scale this paper draws on recent debates about scale to approach the geography of labour markets from a dynamic perspective sensitive to the spatiality and scale of labour market restructuring its explo

government manipulation of constitutional level transaction costs a general theory of transaction cost augmentation and the growth of government transaction costs are pivotal to the ongoing political choice of where to draw the line between the private sector and the public sector contrary to the dominant paradigm politically important transaction costs are actively manipulated in the public sector by those who perceive potential personal gain from such action over time transaction cost changes so created by government decision makers may fundamentally redefine the role and scope of government to analyze the role of transaction costs in the growth or decline of government it is essential to distinguish transaction costs that are unavoidable realworld constraints from those that are contrived in the sense that they are created by government officials use or extension of their existing authority once discretionary power is vested in the government its officials have both the capacity and the incentive to restructure the transaction costs constraining the revision ofgovernrnental authority this restructuring of transaction costs may take two forms 1 altering people s perceptions of the costs and benefits of governmental authority in a given sphere an information cost problem 1 2 altering the cost of acting upon one s perceptions of the costs and benefits of collectivization in order to procure revision of the scope of governmental authority 2

economic ethics and institutional change our economic system the market economy is a part of a broader system or society we frequently study the operation of the market economy as if it were autonomous even though there are many complex and mutual relationships between society the economic system and the other systems political cultural religious legal etc that form part of society in a market economy we may identify several components a frame or background in which the economic activity takes place a set of ideas and theories the values shared by this society the set of institutions norms and rules that control the economic behavior of people and the incentives or motivations of the economic agents the play of these elements defines the operation of a market economy is ethics an institution or does it belong to the set of values and ideas in this paper i will discuss the role of institutions norms and rules in society with special reference to the economic system in order to gain insight into the relationship between institutions and ethics i study first the concept and features of social institutions and norms second institutional change and third the relationship between ethics and institutions

lottery or waiting line auction abstract this paper studies the efficiencies of the two most widely used non price allocation mechanisms lotteries and waiting line auctions as our analysis suggests in addition to the fairness of the mechanism the use of lotteries in lieu of waiting line auctions can be also justified from an efficiency point of view in particular we show that the less dispersed consumers time valuations are the more efficient is a lottery relative to a waiting line auction in addition we identify four conditions under which a lottery dominates a waiting line auction in expected social surplus preserving furthermore the numerical simulations we conduct indicate that over a predominantly wide range of circumstances a lottery is more socially efficient than a waiting line auction as an allocative mechanism in the absence of a conventional price system