occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

quantifying spatial misallocation in centrally provided public goods we use an optimization algorithm to solve a two period planner s problem of spatially allocating public goods we apply the algorithm to data on the location of post offices in south india between 1981 1991 and show that more appropriate choices could have reduced travel costs by at least 20

inequality and rules in the governance of water resources this paper considers two types of farmer with unequal land endowments who voluntarily contribute to a joint project for the maintenance of an irrigation network the collective output water is distributed according to some allocation rule and used by each farmer in combination with land to produce a final good the analysis shows that the initial degree of inequality affects the allocation rule that maximises the amount of water collectively provided specifically two forces act in opposite directions the first effort augmenting force pushes the distribution of water towards the agent with the higher return to water in the attempt to maximise the aggregate level of effort this is the prominent force when efforts are highly substitute if efforts display some degree of complementarity the effort mix alongside with aggregate effort becomes important a second effort mix force then emerges that favours more egalitarian or even progressive water allocation rules

bank monitoring and the pricing of corporate public debt1 we examine whether the existence of a bank firm relationship lowers the cost of public debt financing using a sample of first public straight debt o ers we test the crossmonitoring e ect of bank debt and diamond s 1991 journal of political economy 99 689 721 reputation building argument we find that the existence of bank debt lowers the at issue yield spreads for first public straight bond o ers by about 68 basis points on average consistent with diamond s reputation building argument we document that firm reputation is negatively related to the at issue yield spread for initial public debt o ers 1999 elsevier science s a all rights reserved

do banks provide financial slack we study the decision to choose bank debt rather than public securities in a firm s marginal financing choice using a sample of 500 firms over the 1980 to 1993 time period we find that firms are relatively more likely to choose bank loans when variables that measure asymmetric information problems are elevated the sensitivity of the likelihood of choosing bank debt to information problems is greater for firms with no public debt outstanding these results are consistent with the hypothesis that banks help alleviate asymmetric information problems and that firms weigh these information benefits against a wide range of contracting costs when choosing bank financing why do some firms borrow from public sources while others rely exclusively on private lenders the answer to this question is not well understood existing theories suggest that a firm must consider the tradeoff between the benefits and costs of bank debt financing relative to other potential financing choices the potential benefits of bank financing include low moral hazard and adverse selection costs and ease of renegotiation in financial distress 1 the potential costs of bank financing include monitoring costs suboptimal liquidation outcomes and distortions induced by information monopolies 2 the goal of this paper is to identify whether adverse selection problems influence a firm s choice between new bank debt public debt or common stock in particular we are interested in assessing the empirical validity of the hypothesis that banks have the ability to accurately price a firm s claims thus inducing a preference for firms that are undervalued by the market to

corruption investments and contributions to public goods experimental evidence from rural liberia we analyze how corruption affects incentives to invest or contribute to public goods we obtain a proxy for corruption among liberian community leaders by keeping track of a flow of inputs associated with a development intervention measuring these inputs before and after giving them in custody to the chief we then use the gap between these measurements missing inputs to explain variation in investment behavior of villagers investment behavior is gauged with two simple artefactual field experiments our main results are that corruption i undermines incentives for voluntary contributions to local public goods and ii may reduce private investments of individuals subject to rent seeking by the chief in real life we also provide weaker evidence that the impact of corruption on investments and contributions to public goods is heterogeneous this impact may be gender specific and appears to vary with accessibility of communities

heterogeneity returns to scale and collective action i analyze the effects of resource inequality and valuation heterogeneity on the provision of public goods with increasing or decreasing returns to scale in production the existing literature typically takes the agents characteristics as given and known to the researcher in contrast this paper compares collective action provision across groups of agents with resources and valuations for the public good drawn from different known joint distributions specifically i characterize the expected equilibrium public good level as function of various distributional properties and moments a resource valuation distribution that first order stochastically dominates another distribution always results in higher expected public good provision level independent of the production technology with decreasing returns to scale in the public good production higher resource inequality results in higher expected provision with increasing returns the same result holds when the mean resource level is relatively low but expected provision decreases in inequality when the mean resource level is high a parallel result holds for agents valuations l auteur analyse les effets de l inegalite des ressources et de l heterogeneite dans l evaluation de biens publics dont la production se fait avec des rendements croissants et decroissants a l echelle la litterature specialisee suggere habituellement que les caracteristiques des agents sont donnees et connues du chercheur a contrario ce memoire compare l action collective de groupes d agents dont les ressources et les evaluations du bien public sont tirees de distributions conjointes connues specifiquement le niveau d equilibre anticipe du bien public est fonction de divers moments et proprietes de ces distributions une distribution conjointe ressources evaluations qui en domine une autre au sens stochastique de premier ordre resulte toujours en un niveau de bien public anticipe plus eleve quelle que soit la technologie de production quand les rendements a l echelle sont decroissants une inegalite de ressources plus grande resulte en un niveau de bien public anticipe plus eleve quand les rendements sont croissants le meme resultat s ensuit si le niveau moyen de la ressource est relativement bas mais le niveau de bien public anticipe decroit quand le niveau moyen de la ressource est eleve des resultats paralleles sont notes pour ce qui est des evaluations du bien public par les agents

wealth inequality and collective action abstract we study the effect of inequality in the distribution of endowments of private inputs e g land wealth that are complementary in production with collective inputs e g contribution to public goods such as irrigation and extraction from common property resources on efficiency in a class of collective action problems we focus on characterizing the joint surplus maximizing level of inequality making due distinction between contributors and non contributors in a framework that allows us to consider a wide variety of collective action problems ranging from pure public goods to impure public goods to commons we show that while efficiency increases with greater equality within the groups of contributors and non contributors so long the externalities positive or negative are significant there is an optimal degree of inequality between these groups

business cycles and bank regulations what happens to bank provisioning a more comprehensive look at 49 countries numerous researchers provide evidence that many banks intend to increase their loan loss provisioning llp when the economy is in a downward trend however the answer whether banks provide sufficient provisions when the economy is in an upturn trend remains unsolved furthermore provisioning must be influenced not only by business cycles and bank earnings but also by the regulatory system nevertheless empirical research on this issue has been scarce thus this study intends to answer two questions shown above the evidence shows that with steady growth in both the economy and bank earnings the bank management will tend to increase llp whereas with a buoyant economy but negative growth in bank earnings the management will exhibit an inclination to reduce llp as regards the influence of bank regulation on provisions the evidence shows that under certain circumstances banks make more provision based on regulatory considerations this explains why bank regulations regarding llp across countries

fractionalization and the size of government i study the effect of voters with a group based social conscience voters care more about the well being of those belonging to their own group than the rest of the population within a model of political tax determination both fractionalization and group antagonism reduce the support for redistribution whereas within group inequality increases support for redistribution inequality between groups has the opposite effect these results hold even if a poor group forms a majority using a panel constructed from us micro data i find support for the hypothesis that within race inequality increases redistribution while between race inequality decreases redistribution

equity valuation under bull and bear market regimes in south east asia firms a switching regression approach a switching regression approach is used to analyse the market equity value of firms in the three south east asia countries with a comparison to japan two regimes are used to optimally sort the firms in a given country based on a switching function using profit rate net income to book equity as its variable the regimes are identified as a bear security market or a bull security market depending on the value of the profit rate two financial ratios are used in the regime regressions it was found that the optimum scaled switch point separating the bulls from the bears for the countries was a positive profit rate ranging between 6 and 24 the notion that a zero or negative profit rate identifies a bear market is not supported in general the results across countries and for the long term debt ratio were quite consistent the post asian financial crisis of 1997 had a depressing effect on firm market equity values regardless of the market type and the country the bulls and the bears are not cousins whe

dyke maintenance and other stories some neglected types of public goods the orthodox summation model of a pure nonexcludable public good assumes that each individual consumes a quantity of public good defined as the sum of all individuals contributions to that good recently hirshleifer 1983 1985 has analyzed models that do not fall within this class at one extreme is the weakestlink in which the total quantity available to each consumer equals the smallest individual contribution at the other is the best shot in which the total quantity available equals the largest individual contribution hirshleifer s example of the weakest link case concerns a circular region of which each citizen owns a pie shaped slice the perimeter is marked by a dyke floods may penetrate the weakest point of the dyke and cause damage equally throughout the region each citizen decides the height and state of repair of that section of the dyke adjoining his piece of land its maintenance constituting his contribution to the public good thus the level of protection enjoyed by all is determined by the least well maintained section of the dyke an example of the best shot case concerns a number of antimissile batteries ringing a city firing at an incoming icbm all that matters is the accuracy of the best shot bliss and nalebuff 1984 discuss dragon slaying as another example of a best shot situation section ii of this paper introduces a class of functions of which the summation weakest link and best shot are examples section iii analyzes the properties of equilibrium when consumers have identical tastes and incomes section iv analyzes the implications of income redistribution in the summation case the equilibrium is unaffected by the initial redistribution over a range and outside that range transfers help the recipient and hurt the donor within the broader class of models however the invariance property does not generally hold and there may be opportunities for paretoimproving income redistribution i give an example similar to the weakest link case in which a pareto improving redistribution is

on the empirics of social capital this paper critically examines the way in which empirical evidence is developed in support of a role for social capital in socioeconomic outcomes three leading studies of social capital are reviewed and in each case argued to suffer from various identification problems a general set of conditions under which social capital effects may be identified in linear models is given careful attention to these conditions combined with greater openmindedness as to what constitutes appropriate evidence seems the best route to improving empirical studies of social capital

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

ethnic heterogeneity and public goods provision in zambia evidence of a subnational diversity dividend the diversity debit hypothesis that ethnic diversity has a negative impact on social economic and political outcomes has been widely accepted in the literature indeed with respect to public goods provision the focus of this article the conventional wisdom holds that a negative relationship between ethnic heterogeneity and public goods provision is so well established empirically that future research should abandon examination of whether such a relationship exists and focus instead on why it exists that is on the mechanisms underlying a negative relationship this article challenges the conventional wisdom on empirical grounds it demonstrates at the sub national level strong evidence for a diversity dividend that is a positive relationship between ethnic heterogeneity and some measures of public goods provision in particular welfare outcomes related to publicly provided goods and services building on the literature the article draws on new analysis at district level for zambia using a new dataset compiled by the authors from administrative budget and survey data which cover a broader range of public goods outcomes than previous work including information on both budgetary and welfare outcomes the article explores why relationships may differ for sub national budgetary and welfare outcomes considering separate models for each analysis shows results to be robust across a variety of alternative specifications and models given the more nuanced relationship between ethnic diversity and public goods provision documented the article argues that the key task for future work is not to address why the relationship is negative but to study under what conditions such direction holds true and the mechanisms that underlie a diversity dividend it concludes by considering key explanatory hypotheses against the zambian data to identify promising areas for such theory development more broadly while the diversity debit hypothesis highlights the costs of diversity and could be interpreted as providing support for polices that minimize it the findings in this article are consistent with a view that diversity can be good for communities not only for normative reasons but also because under some conditions it can support concrete welfare gains

consequences opportunities and generalized consequentialism and non consequentialism abstract in a recent paper published in journal of economic theory 101 2001 423 436 by suzumura and xu an analytical framework was developed which allowed us to characterize the concept of consequentialism and non consequentialism to simplify matters however the treatment in that paper was confined only to the cases where no trade off exists between consequential considerations which reflect the individual s preferences over alternatives and non consequential considerations which reflect the individual s concern over richness of opportunities from which alternatives are chosen the present paper represents a generalization of our previous framework which can now accommodate the situations where consequential considerations and non consequential considerations actively interact the analysis covers both the cases of finite and infinite number of alternatives

did higher inequality impede growth in rural china this paper estimates the relationship between initial village inequality and subsequent household income growth for a large sample of households in rural china using a rich longitudinal survey spanning the years 1987 2002 and controlling for an array of household and village characteristics the paper finds that households located in higher inequality villages experienced significantly lower income growth through the 1990s however local inequality s predictive power and effects are significantly diminished by the end of the sample the paper exploits several advantages of the household level data to explore hypotheses that shed light on the channels by which inequality affects growth biases due to aggregation and heterogeneity of returns to own resources previously suggested as candidate explanations for the relationship are both ruled out instead the evidence points to unobserved village institutions at the time of economic reforms that were associated with household access to higher income activities as the source of the link between inequality and growth the empirical analysis addresses a number of pertinent econometric issues including measurement error and attrition but underscores others that are likely to be intractable for all investigations of the inequality growth relationship

history social divisions and public goods in rural india we examine the influence of three historically important sources of social divisions on the availability of public goods in rural india colonial power landowner peasant relations as determined by the land tenure system and social fragmentation based on the hindu caste system and the presence of sizable religious minorities using data on public goods from 1991 we find that regions that were under british colonial power in the pre independence period and those where agrarian power was concentrated in the hands of landlords have lower access to these goods as do areas with high levels of social fragmentation jel h41 p16

an economic approach to social capital a standard optimal investment model can be used to analyse an individual s decision to accumulate social capital we analyse six facts that support the predictions of this individual based approach 1 social capital first rises and then falls with age 2 social capital declines with expected mobility 3 social capital rises in occupations with greater returns to social skills 4 social capital is higher among homeowners 5 social connections fall sharply with physical distance 6 people who invest in human capital also invest in social capital we fail to find robust evidence that social capital investments fall with the value of time or that geographic religious groups generate social capital complementarities

inequality and inefficiency in joint projects a group of agents voluntarily participates in a joint project in which efforts are not perfectly substitutable the output is divided according to some given vector of shares a share vector is unimprovable if no other share vector yields a higher sum of payoffs when the elasticity of substitution across efforts is two or lower only the perfectly equal share vector is unimprovable and all other vectors can be improved via lorenz domination for higher elasticities of substitution perfect equality is no longer unimprovable our results throw light on the connections between inequality and collective action

network economics and the environment insights and perspectives local interactions and network structures appear to be a prominent feature of many environmental problems this paper discusses a wide range of issues and potential areas of application including the role of relational networks in the pattern of adoption of green technologies common pool resource problems characterized by a multiplicity of sources the role of social networks in multi level environmental governance infrastructural networks in the access to and use of natural resources such as oil and natural gas the use of networks to describe the internal structure of inter country relations in international agreements and the formation of bilateral links in the process of building up an environmental coalition for each of these areas we examine why and how network economics would be an effective conceptual and analytical tool and discuss the main insights that we can foresee

traditional governance citizen engagement and local public goods evidence from mexico summary we study the governance of public good provision in poor communities in oaxaca mexico we estimate the effect of usos y costumbres a form of participatory democracy prevalent in indigenous communities on the provision of local public goods because governance is endogenous we address selection effects by matching on municipal characteristics and long term settlement patterns using a first differences design we show that these municipalities increase access to electricity sewerage and education faster than communities ruled by political parties we also show they are places of vibrant political participation not authoritarian enclaves protecting the political monopoly of local bosses 2013 elsevier ltd all rights reserved

ethnic segregation and public goods evidence from indonesia this article contributes to the study of ethnic diversity and public goods provision by assessing the role of the spatial distribution of ethnic groups through a new theory that we call spatial interdependence we argue that the segregation of ethnic groups can reduce or even neutralize the diversity penalty in public goods provision that results from ethnic fractionalization this is because local segregation allows communities to use disparities in the level of public goods compared with other communities as leverage when advocating for more public goods for themselves thereby ratcheting up the level of public goods across communities we test this prediction on highly disaggregated data from indonesia and find strong support that controlling for ethnic fractionalization segregated communities have higher levels of public goods this has an important and underexplored implication decentralization disadvantages integrated communities vis a vis their more segregated counterparts

pure public goods versus commons benefit cost duality sandler and arce 1 pure public goods versus commons benefit cost duality by todd sandler school of international relations university of southern california von kleinsmid center 330 los angeles ca 90089 0043 tsandler usc edu 213 740 9695 213 742 0281 fax and daniel g arce m department of economics rhodes college 2000 n parkway memphis tn 38112 1690 arce rhodes edu 901 843 3121 901 843 3736 fax final revision november 2002 sandler is the robert r and katheryn a dockson professor of international relations economics university of southern california and arce is the robert d mccallum distinguished professor of economics business rhodes college sandler s and arce s research was funded through the dockson and mccallum endowments respectively we have profited from the helpful comments of two anonymous referees

imperfect competition risk taking and regulation in banking abstract we asses the welfare implications of banking competition under various deposit insurance regimes in a model of imperfect competition with social failure costs and where banks are subject to limited liability we study the links between competition for deposits and risk taking incentives and conclude that the welfare performance of the market and the appropriateness of alternative regulatory measures depend on the degree of rivalry and the deposit insurance regime specifically when competition is intense and the social failure costs high deposit rates are excessive both in a free market and with risk based insurance if insurance premiums are insensitive to risk then the same is true even if there is no social cost of failure we find also that in an uninsured market with nonobservable portfolio risk or with flat premium deposit insurance deposit regulation rate regulation or deposit limits and direct asset restrictions are complementary tools to improve welfare in an uninsured market with observable portfolio risk or with risk based insurance deposit regulation may be a sufficient instrument to improve welfare

good countries or good projects macro and micro correlates of world bank project performance abstract this paper investigates macro and micro correlates of aid financed development project outcomes using data from over 6000 world bank projects evaluated between 1983 and 2011 country level macro measures of the quality of policies and institutions are strongly correlated with project outcomes consistent with the view that country level performance matters for aid effectiveness however a striking feature of the data is that the success of individual development projects varies much more within countries than it does between countries a large set of project level micro variables including project size project length the effort devoted to project preparation and supervision and early warning indicators that flag problematic projects during the implementation stage accounts for some of this within country variation in project outcomes measures of world bank project manager quality also matter significantly for the ultimate project outcomes we discuss the implications of these findings for donor policies aimed at aid effectiveness

debt ownership structure and legal system an international analysis this paper is concerned with the ownership structure of corporate debt from an institutional perspective an attempt is made to identify the factors affecting bank debt use from an international sample of companies from austria germany japan belgium france italy holland spain portugal finland sweden and the usa the results show that bank debt depends both on factors specific to each company and on institutional features of each country more exactly it is found that bank loans are related to firm size to the quality and risk of the projects and to the collateral it is also found that a number of legal institutional factors are impacting on the source of firms debt such as creditor protection firm disclosure requirements and law enforcement

an empirical analysis of the determinants of corporate debt ownership structure i examine the relation between corporate debt ownership structure and several firm characteristics suggested by recent theory the results demonstrate the importance of monitoring and information costs the likelihood and costs of inefficient liquidation and borrowers incentives in affecting firms debt source preferences several theoretical predictions receive support while others do not the results also suggest important differences between bank and private non bank debt which contrasts with most theoretical models additionally i find evidence of systematic use of bank debt by firms with access to public debt suggesting the benefits attributed to bank debt in theoretical models remain important after firms gain access to public debt markets although different lenders appear to have different maturity preferences the results also suggest debt maturity and debt ownership decisions may be separable

the legal environment banks and long run economic growth this paper examines the relationship between the legal system and banlding development and traces this connection through to long run rates of per capita gdp growth capital stock growth and productivity growth the data indicate that countries where the legal system 1 emphasizes creditor rights and 2 rigorously enforces contracts have better developed banks than countries where laws do not give a high priority to creditors and where enforcement is lax furtherrnore the exogenous component of banking development the component defined by the legal environment is positively and robustly associated with per capita growth physical capital accumulation and productivity growth this paper addresses two questions first do crosscountry differences in the legal rights of creditors the efficiency of contract enforcement and the origin of the legal system explain cross country differences in the level of banking development second do better developed banks cause faster economic development that is is the component of banking development defined by the legal environment positively associated with long run rates of economic growth capital accumulation and productivity growth examining the relationship between the legal system and banking development is valuable irrespective of issues associated with long run growth first banks may influence the level of income per capita and the magnitude of cyclical fluctuations bernanke and gertler 1989 1990 second many economists stress that understanding the evolution of legal and financial systems is essential for understanding economic development north 1981 engerman and sokoloff 1996 consequently quantitative information on the relationship between the legal environment and banks will improve our understanding of business cycles and the process of economic development furthermore examining the causal links between banks and economic growth has both conceptual and policy implications on the conceptual front a long literature debates the importance of banks in economic development starting as early as bagehot 1873 economists have argued that better banks banks that are better at identifying creditworthy firms mobilizing savings pooling risks and facilitating transactions

heterogeneity and collective management evidence from common forests in himachal pradesh india summary this paper conducts a statistical investigation into the impact of differences in economic benefits wealth and social classes within the community on collective management of forests there are two key results first social parochialism is not a pre requisite for collective management of forests moderate levels of social diversity are associated with low collective management but at high levels of social diversity collective management is high second moderate wealth heterogeneity is beneficial however at high levels and in the presence of benefit heterogeneity it decreases collective management similarly benefit heterogeneity reduces collective management if wealth heterogeneity also exists these results run counter to the dominant understanding of heterogeneity but may be seen as alternate explanations under a specific socioeconomic context

nosy preferences benevolence and efficiency author affiliation chetan dave cdave nyu edustefan dodds sdodds uwinnipeg ca acknowledgment we would like to thank ingela alger sheryl ball nathan berg tarek coury rachel croson frances woolley participants at the 2008 canadian economics association meetings seminar participants at queen s university and two anonymous referees for valuable comments all errors are those of the authors 1 introductionthe pareto principle declares that if everyone in a society prefers some social state of the world x to another state y then the aggregated social ranking should reflect this as well minimal liberalism requires that no individual s preference relation between social states say z and w be violated in the social choice provided that the position of other individuals is unaffected across states z and w both of these principles can be appealing to economists as they evaluate the normative features of various policies however the liberal paradox of sen 1970 demonstrates that the pareto principle and minimal liberalism are potentially at odds with one another the paradox shows that if individuals possess nosy preferences that is they hold opinions about what others should do even though their own material well being is unaffected by others actions then it is in general impossible to arrive at a unique social choice that jointly satisfies these two axioms 1 as an elegant proof by contradiction the paradox adds to the list of social choice impossibilities 2sen s paradox highlights the tension between freedom of choice and efficiency with nosiness as the key ingredient in this article we re examine this tension by using recent insights from behavioral economics the idea that individuals may have concern for others namely altruism is well established in the behavioral economics literature becker 1974 however the concept of nosy preferences and what they imply for collective choice environments has not been extensively studied from a behavioral perspective here we provide such a study to do so we recast nosiness as a new form of social preference in a strategic setting this insight stems from the analysis of segal and sobel 2007 who consider a model where players in a game possess preferences over both outcomes and strategies employed by all players we embed our version of nosiness into a more general model of social preferences individuals in the model derive utility from three sources intrinsic payoffs from the outcomes of strategic choice nosy payoffs based on specific actions taken by other individuals to generate such outcomes and unconditionally altruistic or benevolent payoffs positively related to the extended utilities of other individuals this framework allows us to analyze strategic environments in which there exist interdependent preferences over utilities and actions or just one of these features we apply this particular model of preferences to two environments the first was suggested by aldrich 1977 who sought to provide a game theoretic interpretation of sen s paradox for this environment we are interested in the efficiency of equilibria and to what extent inefficiency depends on particular forms of social preferences we thus offer a new behavioral interpretation of sen s paradox following the behavioral theme we show that when individuals exhibit loss aversion over their own actions the paradox may be robust to schemes that attempt to generate efficiency by restricting action sets ex ante the second environment we consider is that of relative consumption concerns we show that applying our particular model of interdependent preferences to this environment allows us to find cases where individuals will voluntarily restrict consumption to mitigate the negative externality arising from nosy concerns about what others consume

trust in large organizations several authors suggest that trust is an important determinant of cooperation between strangers in a society and therefore of performance of social institutions we argue that trust should be particularly important for the performance of large organizations in a cross section of countries evidence on government performance participation in civic and professional societies importance of large firms and the performance of social institutions more generally supports this hypothesis moreover trust is lower in countries with dominant hierarchical religions which may have deterred networks of cooperation trust hold up remarkably well on a cross section of countries this abstract was borrowed from another version of this item

investor protection and corporate governance recent research has documented large differences among countries in ownership concentration in publicly traded firms in the breadth and depth of capital markets in dividend policies and in the access of firms to external finance a common element to the explanations of these differences is how well investors both shareholders and creditors are protected by law from expropriation by the managers and controlling shareholders of firms we describe the differences in laws and the effectiveness of their enforcement across countries discuss the possible origins of these differences summarize their consequences and assess potential strategies of corporate governance reform we argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank centered and market centered financial systems

inequality and conservation on the local commons a theoretical exercise to analyse the effect of asset inequality on co operation within a group we consider a twoplayer nonco operative model of conservation of a common pool resource overexploitation by one user affects another s payoff by reducing the next period catch we give necessary and sufficient conditions such that conservation is a nash equilibrium and show that increasing inequality does not in general favour full conservation however once inequality is sufficiently great further inequality can raise efficiency thus the relationship between inequality and economic efficiency is u shaped finally we analyse the implications for conservation if players have earning opportunities outside the commons the daily livelihood of vast masses of the rural poor in many countries depends on the success with which common pool resources cprs such as forest resources grazing lands in shore fisheries and irrigation water are managed and on the environmental consequences of their management understanding the factors that lead to success or failure of community management of these resources is thus critical to rural development cpr management is a collective action dilemma a situation in which mutual cooperation is collectively rational for the group as a whole but individual cooperation is not necessarily individually rational for each member one factor that has not always been recognised as critical to the outcome of collective action dilemmas is heterogeneity among the resource users in this paper our attention will be largely restricted to a single but potent kind of heterogeneity inequality in asset ownership olson 1965 hypothesised that inequality might favour the provision of a public good

can good projects succeed in bad communities abstract the lack of social capital is frequently given as an explanation for why communities perform poorly yet to what extent can project design compensate for these community specific constraints i address this question by examining determinants of collective success in a costly problem for developing economies the upkeep of local public goods it is often difficult to obtain reliable outcome measures for comparable collective tasks across well defined communities in order to address this i conducted detailed surveys of community maintained infrastructure projects in northern pakistan the findings show that while community specific constraints do matter their impact can be mitigated by better project design inequality social fragmentation and lack of leadership in the community do have adverse consequences but these can be overcome by changes in project complexity community participation and return distribution moreover the evidence suggests that better design matters even more for communities with poorer attributes the use of community fixed effects and instrumental variables offers a significant improvement in empirical identification over previous studies these results provide evidence that appropriate design can enable projects to succeed even in bad communities

income inequality and the quality of public services a developing country perspective abstract that the high growth rising inequality phenomenon experienced by many high growth developing economies in the recent past may lead to discontent among the poor is a well discussed issue this paper argues that as the demand for higher quality of the public services rises with income the rising income in the hands of the rich leads to their dissatisfaction about the quality of available public services thereby inducing them to form their own club for self provision of the public services whenever possible this however results in a lowering of quality available to the others outside the club despite less crowding at the publicly provided facilities

free riding and ethnic heterogeneity abstract this paper provides a new explanation for lower levels of public good provision in heterogeneous societies compared to their homogeneous counterparts social sharing norms force rich individuals to share part of their income with their poor relatives but do not apply across different ethnic groups because there is a more extensive redistribution in more homogeneous societies the cost of contributing to the public good is lower the model predicts the level of public goods provision and welfare monotonically decreases with the number of different ethnic groups

green consumerism and pollution control abstract in this paper we show that collective action by environmentally aware green consumers who derive benefits from consuming environmentally cleaner products can reduce pollution and improve social welfare in the same manner as pollution taxes or subsidies for reducing pollution can we construct a model with two competing firms each producing a good of different environmental quality and two types of consumers with high and low preferences for environmental quality and characterize a benchmark equilibrium in which each consumer acts individually and disregards that his decision to buy a good may affect the level of pollution we then show that compared to the benchmark equilibrium collective action by consumers with high preference who take into account the impact of their combined decision to buy a good on pollution will result in an equilibrium with not only lower pollution and higher social welfare but also higher prices and profits for the firms

rights welfarism and social choice the purpose of this paper is to outline a formal analytical framework that can accommodate considerations of individual rights as well as the more familiar ethical concerns of conventional welfare economics the failure to accommodate such fundamental values as rights has been at the heart of amartya k sen s 1979 criticism of welfarism which is inherent in much of welfare economics and social choice theory however the roots of the problem seem to lie quite deep even if one discards neutrality and similar properties which are regarded as capturing the essence of welfarism the very concept of a social decision function itself so widely used in socialchoice theory turns out to be too restrictive a vehicle for articulating our intuition about rights we propose an extension of the standard framework of social choice theory which can overcome some of these difficulties and enables us to discuss individual rights and other social values in one integrated framework

choosing rules to govern the commons a model with evidence from mexico abstract i develop a model to assess distributive rules observed in field data on 48 mexican farmer managed irrigation systems households decide whether to contribute maintenance effort the aggregate amount of which affects the level of output distributive rules with congruence between the sharing of collective costs and benefits elicit the highest level of effort empirically however incongruent rules dominate the surveyed systems i argue that transaction costs offset some efficiency benefits of congruent rules i estimate a model of rule choice inequality and the age of the water users association strongly increase the likelihood that a system chooses proportional water allocation

the demand for insurance against common shocks abstract in recent years index based insurance has been offered to smallholder farmers in the developing world to protect against common shocks such as weather shocks despite their attractive properties these products have met with low demand we consider the frequent situation where farmers are members of groups with common interests we show that this creates strategic interactions among group members in deciding to insure that reduce the demand for insurance for two reasons one is free riding due to positive externalities on other group members when a member chooses to insure the other is potential coordination failure because it may not be profitable for a risk averse member to insure if the other members do not as a consequence we argue that the demand for insurance against common shocks could increase if the insurance policy were sold to groups rather than to individuals

characterizations of consequentialism and nonconsequentialism abstract by allowing for the possibility that individuals recognize the intrinsic value of choice along with the instrumental value thereof we suppose that individuals express extended preference orderings of the following type choosing an alternative x from an opportunity set a is better than choosing an alternative y from an opportunity set b within this framework we identify a consequentialist and a nonconsequentialist who show contrasting attiduces toward alternatives vis a vis opportunities this paper characterizes these attitudes in terms of some axioms whereas the companion paper explores the implication of these concepts in the context of social choice theory a la arrow journal of economic literature classification numbers d00 d60 d63 d71

multiple versus single banking relationships theory and evidence a theory of the optimal number of banking relationships is developed and tested using matched bank firm data according to the theory relationship banks may be unable to continue funding profitable projects owing to internal problems and a firm may thus have to refinance from nonrelationship banks the latter however face an adverse selection problem as they do not know the quality of the project and may refuse to lend in these circumstances multiple banking can reduce the probability of an early liquidation of the project the empirical evidence supports the predictions of the model

determinants of collective action on the local commons a model with evidence from mexico i develop a model of cooperation in small irrigation systems i give conditions under which an equalizing redistribution of wealth increases the level of equilibrium cooperation but also show that some redistributions that increase inequality can also increase cooperation the distributive rule a combination of arrangements for maintenance cost sharing and water allocation also affects the cooperation level i estimate statistical models of cooperation for three maintenance indicators using field data from a study of mexican irrigation societies social heterogeneity and landholding inequality are significantly associated with lower maintenance distributive rules that allocate water proportionally to landholding size likewise reduce maintenance

task divisions in teams with complementary tasks abstract a team leader and a team follower non cooperatively produce a team specific public good out of two complementary tasks both team members are identically productive and can contribute to both tasks by moving first the team leader effectively determines the division of the tasks in the team we show that the existence of multiple but finitely many types of task divisions is associated with a non convex leader s budget constraint non convexity generates discontinuities and non monotonicities in the equilibrium provision of the good and also in the follower s utility if incomes are redistributed within the team non monotonicity of the follower s utility motivates the follower to give a cash transfer to the leader having received the cash transfer the leader adopts a task division that compensates the contributions of the follower hence we observe a non cooperative gift exchange with a monetary gift to the leader and a subsequent non monetary reward to the follower through a lighter task allocation these gift exchanges disappear in the presence of infinitely many types of task divisions generated by a continuum of complementary tasks

the determinants of contract terms in bank revolving credit agreements the paper examines the determinants of contract terms on bank revolving credit agree ments revolvers of medium large publicly traded companies we model the duration maturity secured status and pricing decisions within a simultaneous decision frame work thereby overcoming the biased and inconsistent estimates in prior single equation studies of debt contract terms we find strong interrelationships between contract terms with significant bi directional relationships between duration and secured status and be tween the all in spread and commitment fees and a unidirectional relationship from both duration and secured status to all in spread we also illustrate how several single equa tion studies of contract terms draw incorrect conclusions because of their inappropriate assumption that other contract terms and leverage were exogenous finally our results sup port the hypothesis that the setting of contract terms plays an important role in alleviating contracting problems

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

economic versus cultural differences forms of ethnic diversity and public goods provision groups between group inequality bgi we show that elf cultural fractionalization cf and bgi measure different things and that the choice between them has an important impact on our understanding of which countries are most ethnically diverse furthermore empirical tests reveal that bgi has a large robust and negative relationship with public goods provision whereas cf elf and overall inequality do not diversity is widely held to make governance more difficult such diversity is associated with low production of public goods poor economic growth and high levels of corruption violence and civil conflict but diversity hardly sentences a country to poor political and economic outcomes latvia for example has better governance indicators than brazil and zambia has better governance indicators than nigeria even though these pairs of countries have similar levels of ethnolinguistic fractionalization elf why then do some countries cope more successfully with ethnic diversity than others this article addresses this question by focusing on the

empowerment and efficiency tenancy reform in west bengal the paper analyzes the effect of agricultural tenancy laws offering security of tenure to tenants and regulating the share of output that is paid as rent on farm productivity theoretically the net impact of tenancy reform is shown to be a combination of two effects a bargaining power effect and a security of tenure effect analysis of evidence on how contracts and productivity changed after a tenancy reform program was implemented in the indian state of west bengal in the late 1970s suggests that tenancy reform had a positive effect on agricultural productivity there

public goods provision and redistributive taxation abstract this paper studies the relationship between redistributive taxation and tax deductible charitable contributions redistribution has two opposite effects on voluntary giving the price of charitable giving decreases with the degree of redistribution and this has a positive effect on the total amount of giving substitution effect however redistribution leads to lower consumption for the contributors and therefore has a negative effect on contributions to the charity income effect the theoretical model developed in this paper demonstrates that under a general class of utility functions the substitution effect dominates the income effect hence charitable giving increases with the tax rate in purely egalitarian societies the public good is provided efficiently and the total welfare is maximized independent of the ex ante income inequality however the positive impact of taxation on charitable giving and welfare may disappear if individuals generate their income levels in anticipation of taxation and redistribution does not take into account the cost of effort

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research

in praise of inequality public good provision and income distribution abstract it is shown that if all individuals contribute towards the provision of a public good their utilities are equalised even if the income distribution is unequal it may seem that there is then no role for redistributive policy but it is proved that social welfare can be raised by creating sufficient income inequality that only the rich provide public goods