distributional coalitions and the politics of economic reform in latin america for much of the discipline of economics a closed economy is seen as the result of efforts of distributional coalitions and rent seekers to maintain sector specific protections accordingly economic liberalization is explained by the policy consistency of uncompromising reform elites students of the politics of economic adjustment in the developing world in turn have argued that reform programs concentrate costs in the present and disperse benefits in the future hence losers are prepared to engage in collective action whereas prospective winners facing uncertainty about payoffs remain disorganized they thus posit the cohesiveness and insularity of policymakers as the main variable for explaining successful reform both economists and political scientists therefore adopt a collective action approach that overlooks how groups organize in support of liberalization in the recent latin american experience however these reforms have preserved market reserves for firms that provided vital political support to and often colluded with policymaking elites this setting has thus reproduced incentives for rent seeking behavior even in the presence of comprehensive liberalization this evidence supports two interrelated theoretical claims first distributional coalitions may proliferate when the state withdraws from the economy not only when it intervenes second interest based variables retain explanatory power in political economy which state autonomy arguments disregard irrespective of whether the economy is closed or open which neoclassical perspectives overlook to highlight the centrality of interest groups favoring marketization therefore the article suggests modifications to the dominant theories of collective action and the literature on the politics of economic adjustment

divestment investment sanctions and disinvestment an evaluation of anti apartheid policy instruments pressure for divestment and mandatory disinvestment sanctions directed against south africa are an instance of domestic interest groups in one country seeking policy change in another the link from shareholder divestment to disinvestment by firms is tenuous however since south africa active firms do not seem to suffer as a consequence of divestment pressure and legislated sanctions are likely to have unpredictable and sometimes perverse effects on the extent of apartheid practices

smuggling and price disparity abstract this paper proposes a model of smuggling consistent with the coexistence of smuggling legal trade and price disparity defined as a domestic price which exceeds is less than the return from legal export import these phenomena have been found to characterize indonesian smuggling a framework is presented in which legal trade is used to cloak smuggling activity with the implication that the greater the volume of legal trade the less the costs of smuggling this model is then used to explain the observation noted above and to show that smuggling may be welfare increasing vis a vis the non smuggling situation and that even if the suppression of smuggling is costless tax revenue maximization may require a positive level of smuggling in addition the model is applied to coffee and rubber exports from indonesia

market power in emission permit markets theory and evidence from the eu ets a well known result about market power in emission permit markets is that efficiency can be achieved by full free allocation to the dominant firm i show that this result breaks down when taking the interaction between input and output markets into account even if the dominant firm perceives market power in the permit market alone i then examine the empirical evidence for price manipulation by the ten largest electricity firms during phase i of the eu ets i find that some firms excess allowance holdings are consistent with strategic price manipulation and that they cannot be explained by price speculation or by precautionary purchases to insure against uncertain future emissions my results suggest that market power is likely to be an empirically relevant concern during the early years of emission permit markets

market power permit allocation and efficiency in emission permit markets market power in permit markets has been examined in some detail following the seminal work of hahn q j econ 99 4 753 765 1984 but the effect of free allocation on price manipulation with market power in both product and permit market has not been fully addressed i show that in this case the threshold of free allocation above which a dominant firm will set the permit price above its marginal abatement costs is below its optimal emissions in a competitive market and that overall efficiency cannot be achieved by means of permit allocation alone in addition to being of general economic interest this issue is relevant in the context of the eu ets i find that the largest german uk and nordpool power generators received free allowances in excess of the derived threshold conditional on having price setting power in both the electricity and permit markets these firms would have found it profitable to manipulate the permit price upwards despite being net permit buyers

foreign competition immigration and structural adjustment abstract the paper uses the ricardo viner r v model to investigate the relationship in a capital abundant economy between trade competition and immigration in doing so it derives new results for the r v model especially on the welfare implications of migration with and without an initial tariff

discussion of a laboratory investigation of the moral hazard problem in an agency relationship the first question concerned the assumption of risk neutrality of both the principals and agents in the models specifically given this assumption it was not clear what element s in the modeling or experimental design precluded the principal s from simply selling or renting the firm to the agent s more important the risk neutrality assumption has a direct effect on the predictions of the models the experimental results and their interpretation finally it was suggested that new experimental techniques such as those developed by berg et al forthcoming might be used to induce specific risk preferences given a particular model to be tested and its attendant experimental design although these techniques have not been fully tested using them may reduce the need to make assumptions about subjects risk preferences and thereby overcome the kinds of questions raised on this issue a second issue dealt with why the experimental study of the moral hazard problem in the principal agent relationship was carried out in a market setting with several principals and agents rather than following

predatory versus productive government the case of u s agricultural policies this essay will argue that agricultural policy in the united states has led to both the enhancement of efficiency through productive policies and the transfer of wealth and income to special interests through redistributive or predatory policies these two activities can be labeled as pests and perts pest policies or political economic seeking transfers are meant to redistribute wealth from one social group to another and are not explicitly concerned with efficiency in contrast perts or political economic resource transactions are intended to correct market failures or to provide public goods these policies have neutral distributional effects at least in design a review of the history of public policy in agriculture reveals not only tension between the pert and pest roles of the public sector but also some coordination between these two types of activities as different interest groups pressure the political process the government trades off pests and perts in its attempts to acquire balance and secure political power at times this has led to combinations of programs that appear incoherent in such a world the challenge for economists is to design and advocate policies that are both economically productive and politically sustainable

endogenous insecurity and economic development abstract we explore the implications of endogenous credit market imperfections for the endogenous relationship between investment insecurity and the process of economic development in the initial stages of development the fraction of agents engaged in nonproductive diversionary activities e g rent seeking grows as the opportunities to gain from diversionary activities expand in later stages however diversion falls as capital market imperfections are overcome and productive activities become more secure and more profitable we detail the forces that determine whether the insecurity generated by an economy s early development will choke off the growth process we also compare the cost effectiveness of alternative policies designed to prevent diversion

competition and cooperation in the market for exclusionary rights salop and david scheffman 1983 show that firms profitably can gain market power by conduct that raises their competitors costs raising rivals costs is a more credible route to market power than is predatory pricing because it is not necessary to cause the rivals to exit no deep pocket is required and the additional profits are gained immediately that paper argues that vertical restraints and contracts with input suppliers can be fertile ground for raising competitors costs by contracting with one or more suppliers to exclude rivals either by dealing with them on discriminatory terms or refusing to deal with them altogether a firm sometimes can increase its rivals costs as a result it can sometimes gain the power to raise price in the market in which it sells output this type of contract often can be characterized as the purchase of an exclusionary right from the input suppliers that is in addition to the purchase of inputs the predator also purchases the right to exclude some of its rivals from access to the suppliers inputs exclusionary rights contracts can exist in a variety of forms at one extreme are agreements that involve only exclusionary rights no inputs are exchanged at all for example it was reported in alcoa that at one time alcoa purchased exclusionary covenants from power companies from which it did not purchase electricity the contracts involved only the utilities promises not to sell electricity to other aluminum companies such naked exclusionary rights contracts are unusual of course most exclusionary rights are bundled with the sale of inputs for example stroh beer has alleged that the two major brewers purchase not only advertising time on network sports programs but also the right to exclude remaining brewers from advertising on those same programs even though the networks have other advertising time available it might be argued that such exclusionary conduct would always fail for two reasons the excluded rivals would have available effective counterstrategies to prevent their own exclusion and input suppliers would have no incentives to reduce their sales by excluding some customers these criticisms imply that raising rivals costs by contracting with suppliers would not be credible it surely is not true that exclusionary strategies to restrict rivals input purchases will always succeed in raising their costs for example where rivals easily can substitute to other equally cost effective inputs or where entry into the production of inputs is so easy that the excluded rivals can efficiently produce the input themselves then cost raising strategies will fail moreover where competition in the output market would be sufficient to maintain low prices despite the exit or increased costs of the excluded competitors then no profit maximizing firm would spend any resources trying to exclude those rivals these conditions are discussed in detail in our earlier paper 1985 tdiscussants ronald h coase university of chicago gregory k down yale university david sappington bell communications research and university of pennsylvania

the rise and decline of general laws of capitalism economists have long been drawn to the ambitious quest of discovering the general laws of capitalism david ricardo for example predicted that capital accumulation would terminate in economic stagnation and inequality as a greater and greater share of national income accrued to landowners karl marx followed him by forecasting the inevitable immiseration of the proletariat thomas piketty s 2014 tome capital in the twenty first century emulates marx in his title his style of exposition and his critique of the capitalist system piketty is after general laws that will demystify our modern economy and elucidate the inherent problems of the system and point to solutions but the quest for general laws of capitalism is misguided because it ignores the key forces shaping how an economy functions the endogenous evolution of technology and of the institutions and the political equilibrium that influence not only technology but also how markets function and how the gains from various different economic arrangements are distributed despite his erudition ambition and creativity marx was led astray because of his disregard of these forces the same is true of piketty s sweeping account of inequality in capitalist economies in the next section we review marx s conceptualization of capitalism and some of his general laws we then turn to piketty s approach to capitalism and his general laws we will point to various problems in piketty s interpretation of the economic relationships underpinning inequality but the most important shortcoming is that

on trust as a commodity and on the grammar of trust abstract i look at trust in the light of two constructions taken from economic science general competitive analysis and the theory of games i draw on baier s anti contractarian perspective as well as on one informed by wittgenstein s writings the former focuses on relations between inherently unequal and asymmetrical individuals while the latter draws on and revolves around the imperative in the philosophical investigations let the use teach you the meaning p 212 also p 220 i try to spell out how the choice of language has epistemological implications for an analysis of trust for the trustworthiness of the scientific constructions i use for analyzing trust and thereby more generally for defining ourselves and our form of life

the decline of discrimination against colored people in south africa 1970 to 1980 abstract the paper analyses the gap in earnings between white and colored people in south africa in 1970 and 1980 the gap is decomposed into its explained and discrimination components and from a model of occupational attainment into wage and job discrimination job discrimination decreased between 1970 and 1980 colored people in younger experience cohorts experienced a significant decline in discrimination between 1970 and 1980 most of which was due to a decline in job descrimination discrimination against those in older experience cohorts appears not to have declined

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

windfall profits under pollution permits and output based allocation this paper analyzes the implementation of pollution permits it focuses on the distributional impacts linked with the stringency of output based allocation when two sectors are covered by the market for permits and the total cap is held constant a new type of profit increase in sectors that are not exposed to international competition when energy intensive trade exposed eite sectors are granted output based allocations is demonstrated theoretically the paper also illustrates a profit increase in the electricity sector in a possible fourth phase of the european union emission trading scheme in which output based allocation will be granted to eite sectors compared with the case in which all permits are auctioned

the impact of corruption on investment predictability matters abstract this paper argues that it is not only level of corruption that affects investment but also the nature of corruption corruption regimes that are more predictable in the sense that those seeking favors from government do obtain those favors have less negative impact on investment than those that are less predictable using the data collected by world bank in preparing the world development report of 1997 we provide empirical support for the conjecture

apartheid cui bono abstract economic explanations of racial discrimination in south africa tend to fall either into the liberal category capitalism is not responsible or into the radical one the capitalists benefit from the system the present paper offers a radic lib analysis of apartheid radical i e basically marxist assumptions are combined with a liberal i e neoclassical analytical framework the main analytical results predictions are surveyed an extension of the analysis the apartheid bureaucracy as a directly unproductive profit seeking activity is made finally the analytical predictions are compared with the history of south africa from the mineral discoveries in the late 19th century to the present it is concluded that neither the radical nor the liberal approach can explain the entire sequence a combination of the two is needed

rockets and feathers in power futures markets evidence from the second phase of the eu ets abstract this paper examines the possibility of asymmetric transmission of co 2 prices to electricity futures prices in the second phase of the european emission trading scheme we would like to assess whether output prices tend to respond more quickly to input price increases than decreases this phenomenon is known as rockets and feathers in the literature compared to zachmann and von hirschhausen 2008 who carried out a similar analysis for germany in the first phase of the emission trading scheme with data from 2005 to 2006 our study spans a longer timeframe july 2007 june 2010 with a presumably more mature permit market and includes three additional european countries france belgium and the netherlands results do not provide empirical evidence of statistically significant differences in the response of power prices to positive and negative shocks in co 2 allowance and fuel markets

rent seeking in a market with morality solving a puzzle about corporate social responsibility rent seeking by lobbying for government favors is generally thought to be wasteful in view of this wastefulness it is puzzling that rent seeking by corporations has not been criticized as a failure to be socially responsible or even as an unethical business practice this article examines the compatibility of rent seeking with corporate social responsibility by utilizing thomas dunfee s idea of a marketplace with morality this idea is useful for solving this puzzle because in considering whether rent seeking is compatible with corporate social responsibility it is necessary first to define rent seeking which this article argues is a normative concept and second to find some principled way of identifying rent seeking behavior it also solves the puzzle about rent seeking by revealing that the concept of rent seeking itself is of little use in determining whether certain conduct is or is not socially responsible since rent seeking activity cannot be identified without first evaluating which activity is rent seeking

cost raising strategies advantage rivals by raising their costs in this paper we show that strategies designed to raise rivals costs have a number of advantages over predatory pricing they are credible do not necessarily require the victim to exit and do not necessarily require the existence of classical market power the paper sets up a general model proves a number of general results and then applies the model to specific strategies involving overbuying inputs and vertical integration

historical legacies a model linking africa s past to its current underdevelopment abstract recent studies have found evidence linking africa s current under development to colonial rule and the slave trade given that these events ended long ago why do they continue to matter today i develop a model exhibiting path dependence which provides one explanation for why these past events may have lasting impacts the model has multiple equilibria one equilibrium with secure property rights and a high level of production and others with insecure property rights and low levels of production i show that external extraction when severe enough causes a society initially in the high production equilibrium to move to a low production equilibrium because of the stability of low production equilibria the society remains trapped in this suboptimal equilibrium even after the period of external extraction ends the model provides one explanation why africa s past events continue to matter today

directly unproductive profit seeking dup activities this paper propses directly unproductive profit seeking dup activities as a general concept that embraces a wide range of recently analyzed economic activities including the subset of rent seeking activities considered by krueger it then proceeds to provide a synthesis and generalization of the welfare theoretic analysis of such activities by developing a fourfold categorization of cases depending on the levels of distortions before and after the dup activity thus a unification and overview of the subject are achieved

price drivers and structural breaks in european carbon prices 2005 2007 this article aims at characterizing the daily price fundamentals of european union allowances euas traded since 2005 as part of the emissions trading scheme ets the presence of two structural changes on april 2006 following the disclosure of 2005 verified emissions and on october 2006 following the european commission announcement of stricter phase ii allocation allows to isolate distinct fundamentals evolving overtime the results extend previous literature by showing that eua spot prices react not only to energy prices with forecast errors but also to unanticipated temperatures changes during colder events besides the sub period decomposition of the pilot phase gives a better grasp of institutional and market events that drive allowance price changes

racial discrimination dualistic labor markets and foreign investment abstract this paper presents a model of racial discrimination in a stylized two sector dual economy model with direct foreign investment racial discrimination is analyzed both in terms of preferences and in terms of regulations that favor one ethnic group at the expense of another the focus is on the gains to white labor that accrue from restrictions on employment of black labor both in a closed economy and in one open to direct foreign investment

the profitability of electricity generating firms and policies promoting renewable energy using a cross country firm level dataset this study empirically analyses how the implemented renewable electricity promotion systems tradable green certificates vs feed in tariffs affected the pro

a comparison of posted offer and double auction pricing institutions this paper presents an experimental study of a computerized posted offer pricing mechanism that captures many of the basic institutional features of retail exchange in the u s posted offer market performance is evaluated relative to double auction market performance using two supply and demand designs subject experience with the trading mechanism is explicitly considered as an experimental treatment variable the market data suggest that prices tend to be higher and efficiency lower under posted offer pricing relative to double auction however the institutional effect appears to interact with other design conditions when feasible the predictive power of competitive nash and limit price theoretic equilibria are empirically evaluated

sleeping quotas pre emptive quota bidding and monopoly power abstract we rationalize the puzzling existence of binding quotas that are not fully utilized our model has its roots in bhagwati 1965 in r baldwin et al eds trade growth and the balance of payments essays in honor of g haberler mit press new york on tariffs quotas equivalence and is related to the io literature on preemption we study the conditions that lead a monopolist facing a quota restricted market to buy the quota licenses itself and the conditions under which they may remain unused the divisibility of the quota is crucial for the monopolist to pre emptively buy the quota furthermore we study the implications of use it orlose it clauses commonly imposed on auctioned quotas

learning adjustment and economic development transforming firms the state and associations in chile abstract this article views learning processes as key to successful economic adjustment it discusses results of research conducted in chile focused on the agroindustry and footwear sectors it identifies specific problems that large and small firms face to upgrade production and stresses the limits of focusing exclusively on market reforms for achieving growth the article discusses how institutions reshape to facilitate learning and improve performance in chile particularly the relations between firms the reorientation of trade associations and the state s role as facilitator of collective learning processes

a note on market power in an emission permits market with banking in this paper we investigate the effect of market power on equilibrium path of an emission permits market in which firms can bank current permits for use in later periods in particular we study the market equilibrium for a large potentially dominant firm and competitive fringe with rational expectations we characterize the equilibrium solution for different permits allocations and discuss the large firm s stock holding constraints needed for credible market manipulation

economic sanctions against south africa in this paper i shall dispute the widely held belief that all effective sanctions would greatly hurt poor south african blacks rather it is likely that bans on exports of high technology to south africa and imports of south african gold and diamonds would cause labor intensive sectors to expand thereby limiting the impact of a general recession on unskilled nonwhites still several types of sanctions such as those on oil would have a severe impact on poor nonwhites in addition forced divestment would result in windfall capital gains for white south africans such gains would not be realized however if the ban were on new investments only finally i shall discuss the need for infrastructural aid to help south africa s neighbors weather the storm judicious aid to these countries is also important in inducing both western and south africanowned investments away from south africa

pollution taxes and revenue recycling abstract discussions of environmental policy and the tax system have emphasized the value of pollution tax revenues which can be used to reduce other tax distortions in the economy however by raising private marginal production costs environmental taxes also tend to reduce gdp and exacerbate the welfare costs of conventional taxes for environmental taxes in consumption goods industries the net welfare change from these two effects is negative unless this good is a relatively weak substitute for leisure an estimate for the optimal pollution tax with full revenue recycling is 63 to 78 of marginal environmental damages

allowance price drivers in the first phase of the eu ets abstract in the first phase of the eu emissions trading scheme eu ets the price per ton of co 2 initially rose to over 30 the price then collapsed to essentially zero by mid 2007 by deriving a structural model of the allowance price under the assumption of efficient markets i examine the extent to which this variation in price can be explained by marginal abatement costs i then gradually relax the model by allowing for delayed adjustment of price to fundamentals as well as by introducing lagged lhs variables the pattern of results suggests that while prices were not initially driven by marginal abatement costs this inefficiency was largely corrected after the accounting of 2005 emissions in april 2006

south african manufacturing industries catching up or falling behind this article argues that intra industry trade with developed countries is an important source of technology transfer south africa has an industrial structure that is suited to such trade but high costs and weak social capacity to assimilate new technology therefore reintegration into the world economy is likely to reinforce dependence on resource intensive industries in the short run this need not adversely affect economic growth but unless the quality and quantity of education and training are improved the prospects for rebuilding the technological capacity and catch up with oecd countries are bleak

estimating the performance effects of business groups in emerging markets business groups confederations of legally independent firms are ubiquitous in emerging economies yet very little is known about their effects on the performance of affiliated firms we conceive of business groups as responses to market failures and high transaction costs in doing so we develop hypotheses about the effects of group affiliation on firm profitability affiliation could either boost or depress firm profitability and members of a group are likely to earn rates of return similar to other members of the same group using a unique data set compiled largely from local sources we test for these effects in 14 emerging markets argentina brazil chile india indonesia israel mexico peru the philippines south africa south korea taiwan thailand and turkey we find evidence that business groups indeed affect the broad patterns of economic performance in 12 of the markets we examine group affiliation appears to have as profound an effect on profitability as does industry membership yet strategy scholars have a much clearer grasp of industries than of groups moreover membership in a group raises the profitability of the average group member in several of the markets we examine this runs contrary to the wisdom conventional in advanced economies that unrelated diversification depresses profitability overall our findings suggest that the roots of sustained differences in profitability may vary across institutional contexts conclusions drawn in one context may well not apply to another copyright 2001 john wiley sons ltd

hybrid carbon incentive mechanisms and political acceptability this paper analyses how hybrid systems of carbon taxes and tradeable permits optimize some conflicting dimensions of political acceptability related to the design of these instruments pure systems like taxes without exemptions or auctioned tradeable permits cause problems for political acceptability in open economies due to high overall costs abatement cost plus payments on the tax or auctions for current polluters unfortunately pure systems based on grandfathering of emission rights across the board do not provide a feasible alternative because of monitoring and enforcement problems in contrast consciously designed hybrid systems employ grandfathering of emission rights together with either carbon taxes or auctioned carbon permits in order to overcome acceptability problems of pure systems while leaving incentives to reduce emissions at the margin untouched moreover monitoring and enforcement costs of the hybrid systems are less due to the lower number of participating agents compared with the pure systems while opportunities for cost or burden sharing exist as well

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

controls and the intersectoral terms of trade the indian case sectors the indian economy is substantially insulated from outside market forces and the direction of movement of the intersectoral terms of trade has therefore been regarded as having special policy importance industry is equated with the urban modern sector agriculture with the rural traditional sector while the debate on the north south terms of trade following singer i 950 and prebisch i 964 has prompted discussion of international trade arrangements between developing and developed economies the debate on the intersectoral trade seems to have played a comparable role in india 2 if growth as with singerprebisch causes a deterioration in the terms of trade of the traditional sector then policy measures to offset the associated redistributive effects are seen in india as justified these can take the form of subsidies to agriculture maintenance of the current tax free status of agriculture and other measures equally since extensive redistribution through tax transfer schemes is administratively infeasible an improvement in the agricultural industrial terms of trade in favour of agriculture is often seen as a substitute for other redistributive measures poverty is concentrated in rural areas and manipulating the terms of trade in favour of agriculture through price controls subsidies and the like is a widely supported policy stance in this paper we argue that existing statistical studies of the intersectoral terms of trade in india are misleading since they typically focus on the terms of trade at controlled prices price and other controls in india are so extensive that black market rather than controlled prices should clearly enter any assessment of changes in the intersectoral terms of trade we also argue that the problem with these studies is analytically deeper than simply whether black market or controlled drices should be used because of

import competition international factor mobility and lobbying responses the schumpeterian industry case abstract this paper analyzes the different responses of economic agents to import competition in seeking policy intervention economic agents are divided into three groups capitalists workers and the government the following output restoring policies are considered protection capital importation labour importation and technology importation the paper concentrates on capital intensive technologically progressive industries using both the heckscher ohlin samuelson and the jones neary factor specific models

exclusionary manipulation of markets for pollution rights abstract strategic price manipulation can affect the distribution of transferable pollution rights across polluters and the efficiency of pollution control efforts prior research has concentrated on market manipulation by firms seeking only to minimize the sum of pollution rights costs and pollution abatement costs in this paper we explore the potential for the exclusionary manipulation of pollution permit markets intended to drive up the costs of one s rivals and we distinguish between the resource allocation effects of exclusionary manipulation and cost minimizing manipulation we find that exclusionary manipulation can sometimes worsen and sometimes ameliorate the abatement inefficiency which occurs under cost minimizing manipulation and that an overbuying rule can obviate or at least limit damages from this form of strategic behavior

controlling preferences for lotteries on units of experimental exchange in an experimental setting when outcomes are stochastically related to actions predictions of equilibrium behavior depend not only on the participants preference orderings of outcomes but also on their orderings of lotteries on outcomes as well we introduce and test a reward structure that can be utilized in any experimental setting to allow the experimenter to decree beforehand the subjects preferences for lotteries on experimental outcomes we show analytically that the proposed reward structure can induce subjects to behave as if they have the decreed preference function defined on experimental outcomes empirical tests using two different choice settings provide evidence to support this ability to control preferences

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

a policy preference function for government intervention in the u s wheat market this paper estimates a policy preference function that explains the government s choices of target prices government held wheat stocks and public wheat research funding the policy preference function depends on producers surplus consumers surplus and budget expenditures an important innovation in this paper is the inclusion of interactions between public research expenditures and other public policy variables results indicate that the government places a premium of 25 to 45 on the welfare of wheat producers of relative to budget expenditures while wheat consumers welfare is discounted as much as 50 relative to budget expenditures the purpose of this paper is to provide an explanation of government commodity programs stock accumulations and research expenditures in the u s wheat sector the explanation is based on a policy preference function ppf that depends on producers surplus consumers surplus and budget expenditures it is assumed that target prices reductions in or additions to government stocks and public research expenditures are chosen to maximize the policy preference function the central contribution of the paper is the estimation of a function that is consistent with the observed government interventions in the u s wheat market that is the paper explains the observed target prices government sales and public research expenditures as rational behavior by a government which seeks to maximize the estimated policy preference function the approach in this paper is based on the political interest group theories of peltzman and becker applications of these ideas to agriculture include rausser and freebairn s description of the beef industry gardner s 1985 analysis

tradable quota taxation and market power abstract we investigate how corrective taxation can improve the efficiency properties of tradable quota systems affected by market power indeed we show that when there is a dominant firm in the tradable quota market the regulator can set an ad hoc taxation on firms traded quotas that restores cost effectiveness without driving the dominant firm s net demand to zero achieving cost effectiveness with market power and quota taxation implies some costs in terms of tax revenue that however can be justified by the corresponding reduction of compliance costs moreover we see that there may be cases where all firms result to be better off after the implementation of corrective taxation

corruption and microenterprises in russia abstract in russia compliance with the rules and regulations that govern almost all aspects of economic life has created a hostile environment for microenterprises more serious than the regulations per se however is the potential niche they create for opportunistic behavior by regulatory authorities in russia the regulatory state has created a corrupt cadre of government bureaucrats who frequently engage in rent seeking behavior while enforcing regulations firms are not uniformly affected by corruption however this paper shows empirical evidence of differential incidence of extortion based on firm and entrepreneurial characteristics corruption in russia is similar to a regressive tax and acts as a disincentive to innovation and growth it may induce technologically inefficient production decisions and can dilute economies of scale and scope

marketable permits market power and cheating abstract in this paper we present a model of a noncompliant firm operating in a marketable pollution permit market in the main result of the paper we show how compliance is related to the initial distribution of permits a firm with market power will cheat less the larger its endowment of permits is from a fixed stock of permits the competitive fringe however will cheat more as its endowment of permits is reduced generating an ambiguous global impact on cheating

optimal environmental taxation in the presence of other taxes general equilibrium analyses this paper examines the optimal setting of environmental taxes in economies where other distortionary taxes are present we employ analytical and numerical models to explore the degree to which in a second best economy optimal environmental tax rates differ from the rates implied by the pigovian principle according to which the optimal tax rate equals the marginal environmental damages both models indicate contrary to what several analysts have suggested that the optimal tax rate on emissions of a given pollutant is generally less than the rate supported by the pigovian principle moreover the optimal rate is lower the larger are the distortions posed by ordinary taxes numerical results indicate that previous studies may have seriously overstated the size of the optimal carbon tax by disregarding pre existing taxes this abstract was borrowed from another version of this item

market power and transferable property rights the appeal of using markets as a means of allocating scarce resources stems in large part from the assumption that a market will approximate the competitive ideal when competition is not a foregone conclusion the question naturally arises as to how a firm might manipulate the market to its own advantage this paper analyzes the issue of market power in the context of markets for transferable property rights first a model is developed that explains how a single firm with market power might exercise its influence this is followed by an examination of the model in the context of a particular policy problem the control of particulate sulfates in the los angeles region

tradable emission rights and strategic interaction the use of tradable emission rights as environmental policy instruments may affect the conditions for strategic interaction between regulated firms and thus have implications for competition policy this paper presents an analysis of how and under what conditions emission rights can be used strategically by oligopolistic firms for predatory and exclusionary purposes

x efficiency and technical efficiency efficiency measurement has become a very popular field in applied economics in recent years and with this interest there has been a large intellectual investment in refining the empirical methods available to researchers in the area in this paper we relate these developments to harvey leibenstein s original 1966 insight into the psychological ideas underlying the notion that economic agents may not achieve maximal efficiency in their productive decisions and behaviour of course it is always possible to argue that apparent inefficiency only arises from a failure of the observer to realise what it is that is being maximized however we evade this easy escape route into non falsifiable hypothesizing and instead take at face value the fact that too many empirical studies have come up with substantial measures of inefficiency for us to ignore its importance for normative economics

the welfare consequences of directly unproductive profit seeking dup lobbying activities price versus quantity distortions abstract this paper is a contribution to the growing literature on the theory of what bhagwati 1982 has christened the theory of dup activities these are activities that use up real resources in making profits i e income without producing directly or indirectly a good they result therefore in the contraction of the availability set defined on goods for one generic subset of such dup activities namely distortion triggered lobbying activities the paper establishes asymmetrical propositions on the possibility of such dup lobbying resulting in a paradoxical improvement of welfare

the gains from agricultural groundwater trade and the potential for market power theory and application this article models and estimates the efficiency gains from using market based instruments relative to command and control to manage groundwater a theoretical model of an imperfectly competitive groundwater market is developed to show how the magnitude and distribution of the gains from trade change as market structure varies market structure is a key consideration because future groundwater markets will likely feature geographic limitations to trade large agricultural players and a legal environment that is conducive to forming cartel like coalitions application of the model to a groundwater dependent agricultural region in southern california shows the existence of large gains from trade despite the potential for market power with benefits up to 36 greater than that under command and control distributional impacts however can be sizable even for small degrees of market power simulations that vary market conditions show that results likely generalize to other groundwater basins

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

market power in laboratory emission permit markets many proposals suggesting the use of markets tocontrol pollution assume markets will becompetitive when markets do not exhibitcompetitive characteristics however shouldthey still be expected to result in efficiencyimprovement relative to traditional approaches this paper employs experimental economicmethods to examine the effect of marketstructure on the use of marketable emissionspermits results indicate that in a market withone dominant firm and a number of fringe firms strategic manipulation occurs repeatedly in thelaboratory as predicted by market power models undermining the allocative and dynamicefficiency benefits such markets offer whenfirms compete in a downstream product marketdominated by the same single firm marketefficiency can actually be reduced with theimplementation of permit markets final marketefficiencies reflect initial endowments and areinfluenced by competitive conditions elsewherein the economy indicating that policy makersshould carefully consider whether markets areappropriate in such circumstances

the theory of international economic sanctions a public choice approach comment william kaempfer and anton lowenberg in this review september 1988 have developed an engaging model of the sanctions process grounded in public choice they identify potentially influential private forces that might affect the nature of a sanctions package while the spirit of their effort is laudable the model fails to incorporate some absolutely essential information about the legal institutional and strategic framework in which sanctions decisions are made as a consequence they reach a conclusion that flies in the face of existing facts contrary to what is suggested by kaempfer and lowenberg kl and contrary to the implications of their model the evidence clearly indicates there is an unequivocal bias against the use of import restrictions in favor of export controls the recent history of economic sanctions shows that only somewhat more than one third of sanction episodes involved both export and import controls further gary hufbauer and jeffrey schott 1985 observe that in instances where only one or the other is invoked export controls are almost always preferred to restrictions on imports 2 an almost exclusive reliance on export controls in economic foreign policy measures is particularly evident in the actions of the united states in the 1970s 3 the purpose of this comment is to explore the causes of this asymmetry there are at least three reasons why export controls have been favored over import controls reasons that play no part in the kl model first the general agreement on tariffs and trade gatt has institutionalized a bias against import barriers in favor of export controls second in the united states domestic legal constraints favor export controls and discourage import controls third as will be argued export controls are more easily reversed than import controls and reversibility is a desirable component in any foreign policy based trade intervention consider these points in turn in the 1946 1948 period during which time the gatt was first negotiated trade barriers were identified most often with those artificial impediments to trade that restrict foreign access to domestic markets especially tariffs for this reason gatt rules and actions have sought primarily to dismantle import barriers john jackson 1969 p 502 notes that despite the fact that extensive export controls do exist there has been only one complaint with respect to such controls reflected in gatt documents this is the czechoslovakian complaint against the united states in 1949 for the imposition of discriminatory export controls 4 jackson p 502 observes that there is very little if any effective gatt policing of export control policy and he comments later p 539 that insofar as any gatt obligations can be avoided without consequences this avoidance operates in effect as an exception this suggests that those foreign policy export controls that are pro department of economics university of arizona tucson az 85721 i thank alan deardorff bernard hoekman and robert stem for helpful discussions on work related to this note my thanks also to two anonymous referees for their constructive comments see p 28 and tables 4 1 4 5 pp 70 77 hufbauer and schott 1985 2ibid p 28 3see for example richard cooper 1987 pp 301 302 and p 305 and kenneth abbott 1981 p 741 4this is confirmed more recently by barry carter 1988 p 97 the only other event involving export restrictions challenged before the gatt was the u s embargo against nicaragua in 1985 which involved both import and export restrictions

auctioning vs grandfathering in cap and trade systems with market power and incomplete information we compare auctioning and grandfathering as allocation mechanisms of emission permits when there is a secondary market with market power and firms have private information on their own abatement technologies based on real life cases such as the eu ets we consider a multi unit multi bid uniform auction at the auction each firm anticipates its role in the secondary market either as a leader or a follower this role affects each firms valuation of the permits which are not common across firms as well as their bidding strategies and it precludes the auction from generating a cost effective allocation of permits as it occurs in simpler auction models auctioning tends to be more cost effective than grandfathering when the firms abatement cost functions are sufficiently different from one another especially if the follower has lower abatement costs than the leader and the dispersion of the marginal costs is large enough

anti lobbying gains from international agreements abstract i argue that an important potential benefit of international agreements is to reduce wasteful rent seeking activities by domestic and foreign special interest groups through a reduction in policy discretion the presence of foreign lobbying generates a novel type of international externality by inviting wasteful rent seeking by foreign lobbies the presence of policy discretion itself generates a negative international externality i examine the potential anti lobbying effects of three salient types of international rules exact policy commitments policy bounds and non discrimination rules unlike exact policy commitments which remove policy discretion and hence shut down ex post lobbying policy bounds may invite ex post lobbying and hence may forego part or all of the potential anti lobbying gains i also find that policy bounds may lead to mixed strategy equilibria of the rent seeking game a non discrimination rule can reduce rent seeking by foreign lobbies by injecting a free rider problem in the strategic interaction between these lobbies and under some conditions can achieve all the potential anti foreign lobbying gains

an economic theory of apartheid an economic theory of apartheid apartheid is a regulatory system designed to effect redistributions in favor of white workers and farmers at the expense of black workers and white capitalists this paper uses a competitive interest group theory of the apartheid state to formalize a collective choice analysis of apartheid as endogenous policy the level of apartheid is conceived as a continuous variable that is determined by the relative influence of competing interest groups within the white polity and by the costs of maintaining and defending apartheid institutions some empirical implications of this approach are explored i introduction since south african apartheid embodies essentially a complex web of politically determined restrictions affecting the level of employment and mobility of the black labor force it is not surprising that most economic analyses of apartheid institutions have focused on their evident allocative inefficiency and distributional inequity see nattrass 1981 31 32 some economists have hinted at the possibility of formally modeling the economic social and political institutions of apartheid as endogenous products of a process of collective choice in other words the question has been raised of the existence of an economic rationale for apartheid thus richard porter 1978 and subsequently mats lundahl 1982 have initiated rigorous analysis of what porter terms a south african type economy a competitive market system the operation of which is constrained by state imposed apartheid regulation while the porter lundahl characterization of the south african type economy is an invaluable starting point for an economic analysis of apartheid it falls short of providing a satisfactory explanation for the existence and extent of south african discriminatory policies the inevitable contradiction between economic efficiency and the political requirements of apartheid leads both porter and lundahl to treat the goals of apartheid as exogenously determined by political considerations 1 the purpose of this paper is to show how it is possible to provide an explicitly economic explanation of apartheid institutions apartheid is viewed here as a vector of policies which can be varied in intensity along a continuum thus the level of apartheid regulation is treated as a continuous endogenous variable responsive to the relative influences of interest groups which receive benefits or incur costs associated with apartheid the intention is not to claim originality in recognizing the economic motives for apartheid policy which have been well documented in the literature as indicated in section ii but rather to formalize this approach in section iii and to suggest some methods of testing its implications in section iv the effort to formalize an analysis of apartheid in terms of a competitive interest group model of social choice should be of interest not only to students of south african but also to economists more generally concerned with endogenous public policy the south african case provides a laboratory for this type of analysis because the boundaries which delineate interest groups are very clearly drawn ii a brief political economy of apartheid it has long been recognized by economists and scholars of south africa that the apartheid system representing a comprehensive set of regulations affecting all aspects of economic social and political life arose essentially as a response on the part of the white working class to the threat of black labor market competition 2 although apartheid itself is phenomenon of the post 1948 era of national party rule it is really only the most recent phase of a long history of white labor elitism and black exclusion brought about through the medium of an interventionist statist polity characterized by a racially limited franchise the harnessing of the instruments of state power to further the interests of the white labor force at the expense not only of blacks but also of white capitalists dates from the earliest period of industrialization in south africa which followed the discovery of precious minerals in the 1860s and 1870s

pricing emission permits in the absence of abatement abstract if emissions are stochastic and firms are unable to control them through abatement the cap in a permit market may be exceeded or not be reached i derive a binary options pricing formula that expresses the permit price as a function of the penalty for noncompliance and the probability of an exceeded cap under the assumption of no abatement i apply my model to the eu ets where the rapid introduction of the market made it difficult for firms to adjust their production technology in time for the first phase the model fits the data well implying that the permit price may have been driven by firms hedging against stochastic emissions

tradeable emission permits regulations in the presence of imperfectly competitive product markets welfare implications in the present paper we analyse the interaction of a competitive market for emission permits with an oligopolistic product market it is well known that a competitive permits market achieves the cost minimizing distribution of abatement effort among the polluting firms for a given reduction in emissions however when the product market is oligopolistic it may redistribute production inefficiently among firms it has been suggested that this inefficiency can outweigh the gains obtained from using emission permits instead of command and control although this argument is clearly correct under full information it is shown in the present paper that it reverses under incomplete information in particular it is shown that when tradeable emission permits are specified according to the standard textbook example they yield higher social welfare than the command and control regulation

privatization and economic growth an empirical investigation from a sample of developing market economies this paper explores the economic determinants of privatization programmes and the macroeconomic impact of this institutional reform on the growth rate of the gdp a sample of thirty five developing market economies is considered over the 1988 92 period probit and tobit models are used to identify the determinants of successful privatization programmes then regressions are run where probabilities probit and expected values tobit are successively included as additional regressors beside the potential influence of other economic policy variables a significant positive effect is highlighted giving evidence of the importance of divestiture the economic effect is found to be stronger when this institutional reform took place in industry or infrastructure

distortion triggered lobbying and welfare a contribution to the theory of directly unproductive profit seeking activities abstract the paper considers the normative implications of lobbying for non exclusive income generated by an exogenously specified policy intervention such lobbying activities are a subset of what bhagwati has termed directly unproductive profit seeking dup activities it is demonstrated that the welfare effects of lobbying triggered by a policy distortion depend critically on whether the direct impact of the policy constraint is on price or an quantity it is also shown that several standard comparative static welfare analyses of alternative policy distorted states are significantly affected once the policy intervention is assumed to be continuously accompanied by lobbying for the associated non exclusive income

racism as rent seeking rules governing social and economic interactions among ethnic groups are modeled as public goods the publicness of social rules can explain why race has been so consistently politicized the potential gains from public provision attract political entrepreneurs into the field in the absence of some constitutional restraints upon such rent seeking race is bound to be politicized in addition the model can explain the existence of many government policies concerning race that are not apparently motivated by economic gain finally government enforcement of ethnic economic cartels can explain some of the persistent differences in earnings across ethnic groups

a cost function analysis of import demand and growth in south africa abstract this study investigates the substitutability relationships among capital labor and imported inputs for south africa utilizing the estimates obtained from an aggregate cost function our results are consistent with the hypothesis that capital is a substitute for both domestic labor and imports but that labor and imports are complementary inputs this latter result suggests that relaxing south african trade restrictions may have a positive impact in both the long and the short run on the demand for domestic labor other results suggest that the reduction of market impediments may also positively impact the production of investment goods and economic growth