generalized samuelson conditions and welfare theorems for nonsmooth economies abstract we give intuitive samuelson conditions for a very general class of economies smoothness and monotonicity are not required we provide necessary and sufficient conditions for all pareto efficient allocations including those on the boundary we prove that if all agents have a cheaper point the supporting prices fully decentralize the allocation we also show first and second welfare theorems as corollaries to the characterization of efficient allocations

community based tradable permits for localized pollution this paper considers the assignment of tradable permits representing property rights of an environmental good to community members who are harmed by pollution generated by firms these community members can in turn sell permits to polluters according to their personal preferences for a special case with a sole household market transactions between the household and polluters achieve an efficient pollution level however for a group of households the decentralized market solution fails to yield social efficiency because of competitive consumption of the environmental goods we design a revenue sharing mechanism akin to unitization under which market transactions also achieve efficient resource allocation importantly in some cases efficiency can be achieved even when regulators are ignorant of the private valuation of the environmental good

world bank lending and other financial flows is there a connection at a time when there is a serious debate about reforming the international financial architecture it is important to understand how existing multilateral agencies affect financial flows to emerging and less developed countries this paper extends past research which has focused on the international monetary fund by examining the various mechanisms through which the world bank may be associated with other financial flows and by presenting new empirical evidence based on regression analysis little support is found for a positive connection the implications of this finding for effective reform of the bank and its various activities are then discussed

political economy influences within the life cycle of imf programmes increasing attention is being paid to political economy dimensions of the imf s operations however up until now the literature has lacked a systematic overview of how politics and economics interact in this context this paper sets out to fill the gap its conceptual basis is that of the life cycle of an imf programme what determines the decision to turn to the fund for financial assistance what determines the outcome of negotiations what determines whether a country will come back to the fund answers to these questions cannot be satisfactorily given by examining economics alone the paper draws on existing evidence to provide an empirically based discussion of the issues involved it also points the direction in which future research needs to go some of the policy implications of the analysis are also examined

new lending to less developed countries the effect of the imf among the institutions which determine the international financial environment the international monetary fund imf or the fund is arguably the most prominent its effect on capital flows however has not been analyzed in detail this paper examines empirically the effect of the imf on lending to less developed country ldc governments previous studies of capital flows have led to mixed results regarding the effect of the imf the overwhelming majority of early investigators concluded that the imf was able to induce new capital flows to ldcs through the use of its conditional lending agreements the problem with this complementarity hypothesis was the absence of strong theoretical support 1 and the weakness of the empirical evidence proponents of the complementarity hypothesis relied primarily on anecdotal evidence although some limited systematic support was offered by mccauley 1986 despite the limitations of the evidence the hypothesis that imf conditional arrangements induced new lending became a stylized fact since the late 1980s more sophisticated empirical evidence has arisen to challenge the complementarity hypothesis papers by hajivassiliou 1987 faini de melo senhadji semlali and stanton 1991 and ozler 1993 indicated that the presence of fund agreements may actually be viewed unfavourably by capital markets from a borrower s point of view imf agreements appeared to have an adverse effect on new lending and risk premia the most serious difficulty with accepting this new evidence is that the research was not designed to examine specifically the complementarity hypothesis of particular concern is the fact that the presence of the imf was often used explicitly as a proxy for past or present financial difficulties the empirical analysis provided in this paper is designed to overcome these difficulties

the coase theorem and coalitional stability it is the contention of this paper that the coase theorem has yet to be formulated and proved in a rigorous manner the problem addressed is that of strategic coalitional behaviour when more than two agents are involved in the externality it is shown that there are examples for which non efficient allocations are stable in the sense of aumann maschler bargaining sets thereby vitiating the coase theorem hence a proper formulation of the coase theorem must exclude bargaining set stability it is our contention that the coase theorem which asserts that with zero transaction costs and zero income effects the identical pareto efficient allocation of resources will emerge regardless of the initial assignment of property rights has yet to be formulated and proved in a rigorous manner the problem addressed here is that of strategic coalitional behaviour when more than two agents are involved in the externality for the coase theorem to hold in such situations two conditions are important first assuming that the maximum joint payoff can be effected only by the formation of the grand coalition e g by the merger of all parties involved in the externality the grand coalition must be stable second only the grand coalition must be stable for if some other coalition is also stable then the latter may form instead of the grand coalition so that a pareto optimal allocation need not obtain the point of this note is to show that a rigorous statement of the coase theorem must exclude bargaining set notions of coalitional stability because

the effects of imf and world bank lending on long run economic growth an empirical analysis summary the international monetary fund and the world bank frequently and often repeatedly extend loans to developing nations these loans have been blamed for generating adverse economic outcomes the growth impact of fund and bank loan programs is assessed using an empirical growth model that controls for other determinants of growth a unique feature of this study is the use of the value of loans rather than the number of programs the estimates indicate that bank lending stimulates growth in some cases primarily by increasing public investment fund lending is either neutral or detrimental to growth the channel for this effect is a negative impact of fund lending on public as well as private investment

optimal pollution permit endowments in markets with endogenous emissions abstract in a permit market with endogenous emissions both firms and citizens purchase permits presented here are static and dynamic models of pollution permit markets with endogenous emissions the optimal permit endowments are characterized when the regulator faces uncertainty about damages and uncertainty about the severity of the citizens collective action problem due to the possibility of learning over time the regulator issues a larger number of permits in the first period of the dynamic model than in the static model

pigou and coase a mathematical reconciliation abstract this paper provides a rigorous statement of the coase theorem and establishes a formal equivalence between abstract allocative mechanisms attributed to coase and pigou the model proceeds from output functions that reduce to production functions in special cases thereby capturing effects that are obscured by conventional production and cost functions the model also emphasizes fundamental differences in the characteristics of inputs particularly land that are implied in the construction of externality stories finally the model embodies a clear distinction between local e g nuisance and global e g pollution externalities the coase theorem as stated is valid only in the former case

economic determinants of imf financial arrangements abstract we analyze factors that lead to imf approval of financial arrangements we account for both economic variables that induce a country to seek an imf arrangement demand side factors and macroeconomic policy commitments that the imf considers when deciding whether to approve it supply side factors using a pooled sample of annual observations for 91 developing countries over 1973 1991 we obtain maximum likelihood bivariate and univariate probit estimates of the approval of an imf arrangement for a given country in a given year a number of demand side and supply side variables are statistically significant determinants of the approval of an imf arrangement

imf lending programs participation and impact abstract participation in imf programs has been an option that more and more developing countries have exercised in recent years in this paper a detailed analysis of such participation over the period 1976 1986 provides a number of insights into the motivations for and the macroeconomic effects of such participation participation is driven by a combination of past performance present external influences and sluggish adjustment of developing countries the ability to predict which countries will participate in the imf program is quite good with nearly 90 percent of variation in such choices accounted for by the explanatory variables employed increased participation has as contemporaneous effects a reduction in economic growth and domestic investment and an improvement in the current account lagged effects of increased participation on economic growth and domestic investment are positive and in most estimates quantitatively greater than the contemporaneous effects there is also evidence of significantly lower public investment an increased budget surplus and real depreciation of the exchange rate with increased participation results for domestic credit creation and government current expenditure although they have a sign consistent with more austere policy cannot be shown to be significantly different from those not participating

the catalytic effect of lending by the international financial institutions for many less developed countries ldcs and countries in transition cits external financing is frequently an effective constraint on economic growth and development capital inflows may be used to overcome shortages of domestic saving thereby permitting higher levels of investment as well as shortages of foreign exchange thereby permitting larger quantities of imports

externalities and fundamental nonconvexities a reconciliation of approaches to general equilibrium externality modeling and implications for decentralization abstract starrett 1972 33 and boyd and conley 1997 7 approaches to externality modeling are unified by distinguishing between producible and nonproducible public commodities nonconvexities are associated with detrimental producible public commodities but not with nonproducible public commodities in boyd and conley 1997 7 disposability properties costly or costless imply that producible public commodities are either by products e g pollution or joint products e g national defense markets fail for both beneficial and detrimental by products nonconvexities imply that price based equilibria e g pigovian tax equilibrium may not be pareto efficient foley s 1967 1970 17 18 public competitive equilibrium combines price and quantity signals with a unanimity criterion and restores the equivalence between equilibrium and efficiency

inducing efficiency externalities missing markets and the coase theorem the capacity of side payments to induce an efficient outcome as predicted by the coase theorem is studied side payments are formally introduced in a bimatrix game involving externalities and the resulting equilibrium is called an induced equilibrium when induced equilibria exist they weakly pareto dominate a nash equilibrium of the original game without side payments when because of externalities one market is missing an induced equilibrium always exists is uniquely valued and is pareto efficient when more than one market is missing induced equilibria may not exist may be pareto inefficient and may be pareto ranked copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the persistence of early childhood maturity international evidence of long run age effects a continuum of ages exists within each starting class due to the use of a single school cut off date making the oldest children approximately twenty percent older than the youngest children at school entry we provide substantial evidence that these initial maturity differences have long lasting effects on student performance across oecd countries in particular the youngest members of each cohort score 4 12 percentiles lower than the oldest members in grade four and 2 9 percentiles lower in grade eight depending upon the country in fact data from canada and the united states shows that the youngest members of a cohort are even less likely to enroll in pre university academic track courses and high end academic universities taken together these findings point to important early relative maturity effects that propagate themselves into adulthood through the structure of education systems

kept back to get ahead kindergarten retention and academic performance abstract while most existing research concludes that grade retention generates no benefits for the retainees academic performance holding low achieving children back has been a popular practice for decades drawing on a recently collected nationally representative dataset in the us this paper estimates the causal effect of repeating kindergarten on the retained children s academic performance since we observe children being held back only when they enroll in schools that permit kindergarten retention this paper jointly models the choice of enrolling in a school that allows kindergarten retention the decision of repeating kindergarten and children s academic performance in higher grades a control function approach is developed to estimate the resulting double hurdle treatment model which accounts for unobserved heterogeneity in the retention effect a nearest neighbor matching estimator is also implemented holding children back in kindergarten is found to have positive but diminishing effects on their academic performance up to third grade

trade openness and economic growth a cross country empirical investigation abstract this paper demonstrates that trade liberalization does not have a simple and straightforward relationship with growth using a large number of openness measures for a cross section of countries over the last three decades we use two groups of trade openness measures the regression results for numerous trade intensity ratios are mostly consistent with the existing literature however contrary to the conventional view on the growth effects of trade barriers our estimation results show that trade barriers are positively and in most specifications significantly associated with growth especially for developing countries and they are consistent with the findings of theoretical growth and development literature

imf supported stabilization programs and their critics evidence from the recent experience of egypt abstract the imf supported stabilization and structural adjustment programs implemented by egypt in the 1990s were successful in meeting their objectives and when compared with earlier attempts and the experience of other developing countries the authorities undertook a sharp reduction in the government s overall deficit and its central bank financing allowing for increased credit availability to the private sector within a framework of a rapidly decelerating monetary expansion despite initiating comprehensive market reforms that significantly improved the environment for private investment the response of the private sector has been disappointing it is argued that until institutional regulatory and political constraints are removed egypt will not join the group of high investing and fast growing economies

evaluating the effect of imf lending to low income countries the purpose of this paper is twofold to apply to a group of low income borrowers from the imf the most commonly used technique for measuring the independent effects on economic developments of imf support and to develop a minimum set of diagnostic tests for determining whether necessary conditions for using the methodology exist the modified control group methodology is used to measure the effect of imf support on three key variables output growth inflation and the external debt rservice ratio the sample comprises adjustment programs begun during 1986 1991 supported by the imf s enhanced structural adjustment facility esaf the distinguishing feature of the modified control group approach is the estimation of a policy counterfactual policies that would have been followed in the absence of imf support against which to compare actual policies and resulting outcomes using this approach for the esaf the sample reveals statistically significant beneficial effects of imf support on output growth and the debtrservice ratio but no effects on inflation diagnostic tests of these results rarely if ever reported in the literature are shown to be critical in interpreting the validity of the results of assessments of adjustment lending for this sample at least the diagnostic tests cast doubt on the reliability of estimates of the effects of imf supported programs using panel data in a modified control group model the most obvious and manageable modifications to the

differences in relative prices and international differences in growth rates the new growth literature following paul m romer 1986 and robert e lucas jr 1988 has formulated models in which growth rates can differ systematically across countries a large empirical literature has used cross sectional techniques to examine the cause of international differences in growth rates this paper examines whether this work has used data which have been constructed in such a way as to introduce inadvertently a spurious correlation between growth and income levels this effect occurs because relative prices evolve because of different rates of technological progress in different industries many of the new growth models assume single goods or goods produced by the same technology so this phenomenon has so far escaped analysis if technological progress is more rapid in some sectors than others relative prices will change during the process of development the change of relative prices has two effects on measured growth rates first the choice of base prices affects the growth rate this phenomenon is sometimes called the gerschenkron effect second using any base prices or weights introduces a spurious correlation between income and growth less developed countries would tend to have lower growth rates not because they grew more slowly but because of data construction techniques for the sake of simplicity these phenomena will be called the gerschenkron or the level effect and the spurious correlation effect 3 this paper examines the international comparison program icp and the penn world tables pwt which are based on the icp the penn world tables are the data most widely used in empirical studies of international differences in economic growth both the icp and pwt use international prices to adjust for differences in the purchasing power of currencies these prices most closely resemble hungarian prices using such prices tends to produce time series with lower growth rates than those in the national accounts for countries less developed than hungary conversely the growth rates would be higher for countries more developed than hungary however the growth rates of poorer countries are not systematically lower in the penn world tables the paper examines why the growth rates are not distorted and makes some specific recommendations for data construction and use virginia polytechnic institute and state university blacksburg va 24061 0316 part of this work was supported by a grant from the institute of international studies at brown university and by a summer internship at the division of international finance at the federal reserve board i am grateful to peter garber david weil oded galor and anonymous referees for helpful comments alan heston and robert summers have also helped me understand icp and pwt methodology of course i alone am responsible for any mistakes in this paper iexamples include steve dowrick and duc tho nguyen 1989 robert j barro 1991 j bradford de long and lawrence h summers 1991 and n gregory mankiw et al 1992 2a series of papers by christina d romer 1986a b 1989 has already emphasized the importance of data construction techniques in another context 3there is a third effect a real acceleration effect caused by shifting consumption patterns and the reallocation of resources between sectors growth accountants such as angus maddison 1987 adjust estimates of total factor productivity for this sort of shift william j baumol et al 1989 have also referred to this phenomenon for an analysis in terms of a simple multisector solow model see nuxoll 1992a

fundamental nonconvexities in arrovian markets and a coasian solution to the problem of externalities abstract d starrett j econ theory 4 1972 180 199 argues that the presence of externalities implies fundamental nonconvexities which cause arrow markets to fail while this is true we argue this failure is due to the structure of the arrovian markets that starrett uses and not to the presence of externalities as such we provide an extension of a general equilibrium public goods model in which property rights are explicitly treated nonconvexities are not fundamental in this framework we define a notion of coasian equilibrium for this economy and show first and second welfare theorems in this context the first welfare theorem is a type of coase theorem journal of economic literature classification numbers d62 h41