politically feasible and equitable adjustment some alternatives for ecuador abstract how can a government beholden to agroexporting interests survive while carrying out a stabilization program inimical to other powerful interests how can it reduce the social costs of the program the authors review the ecuadorian experience with these dilemmas and build a real financial cge model to explore alternative approaches to stabilization made necessary by both a reduction in public foreign borrowing and a fall in world oil prices the approaches considered include exchange rate devaluation fiscal austerity directed at current or investment spending and reduced growth of money supply each approach is assessed for its effects on gdp growth on rural and urban poverty and for its political sustainability assessed by changes in utility for politically dominant rural and urban interests the results show that cutting current spending is best for restoring growth and protecting the rural poor but is politically untenable making this approach politically feasible requires complementary economic reforms to increase the flexibility of the economy and raise the share of public investment going to agriculture social programs allowing some leakages in antipoverty transfers toward politically essential nonpoor and political campaigns to increase the relative autonomy of the state lower the social rate of discount whereby the public assesses the outcome of policy and induce the public to compare policy outcomes against the counterfactual scenario of no intervention instead of pre crisis living standards

the optimal taxation of fiat money in search equilibrium this paper investigates the link between welfare and the taxation of money in the context of a general equilibrium search model where decentralized trading motivates the use of fiat money since buyers with money must invest effort or search intensity to contact sellers with goods a natural trading externality arises given a sufficiently productive economy search efforts will be too low relative to social efficiency this provides a welfare improving role for policies which tax money balances the nature of this role is explored and its implications for optimal monetary policy discussed copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

stabilization adjustment and the poor abstract this paper attempts to survey the recent literature on the impact of stabilization and adjustment programs upon the poor and to consider some of the key issues in the context of a particular equity oriented low income country tanzania after looking at some of the approaches of earlier studies this paper analyzes the effects of restructuring policies macroeconomic restraint and strategic policy change the author then reviews available evidence on the recent experience of tanzania with external shock efforts at stabilization and relations with the imf in conclusion the author argues that in order to better understand their impact on poverty we need more detailed analyses of specific countries experience with different kinds of macroeconomic imbalance and different short to medium term policy responses however he does indicate with some certainty that when equivalent external blows impact upon very low income countries there must be a presumption that other things being equal including the distribution of income the proportion of households and people pushed over the line into absolute poverty will be greater than in middle income countries the international community should provide external finance to aid these low income countries in limiting the negative impact on the poorest

a search theoretic model of legal and illegal currency abstract using a search theoretic model of money we explore the conditions under which two currencies domestic and foreign will co exist despite legal restrictions on the use of foreign currency for internal trade we study how changes in government policy i e its enforcement of currency laws through fines or the rate of enforcement affects the acceptability of illegal currency the equilibrium value of both currencies and the implicit exchange rate first we construct a model with indivisible goods to show conditions under which legal currency is fully acceptable but illegal currency circulates with varying acceptability we then introduce bargaining to determine prices in legal and illegal currency we show that some enforcement polices can create multiple equilibria while others will not also some methods of enforcement are capable of driving the illegal currency out of circulation while others are not

optimal healthcare decisions the importance of the covariates in cost effectiveness analysis abstract this paper deals with the decision problem of choosing an optimal medical treatment among m possible candidates when the states of nature are the net benefit of the treatments and regression models for the treatment cost and effectiveness are assumed in this setting a crucial step in the analysis is the construction of the population subgroups sharing characteristics specified by the covariates so that optimal decisions are now not for the whole population of patients but for patient population subgroups we argue that the existing formulations of population subgroups in the literature are too rigid and unrealistic for real applications and instead we formulate the population subgroups on the base of selected influential covariates the bayesian variable selector we use is an optimal one under the 0 1 loss function which means choosing the subset of covariates having the highest posterior probabilities based on the so called intrinsic priors an objective bayesian tool that exhibits an excellent performance for each population subgroup we study the optimal bayesian decisions for two different utility functions one optimal decision is that obtained maximizing the expected net benefit and the other maximizing the expected number of times that the treatment having the highest net benefit is chosen illustrations of the procedure for real data show that the subset of influential covariates may vary across treatments subgroup optimal treatments are derived and compared with those given by preceding methods

the distribution of money and prices in search equilibrium this article considers a search theoretic model of monetary exchange agents bargain over both the amount of money and the quantity of goods to be exchanged in bilateral meetings determining endogenously the distributions of money and of prices i show that money is neutral if changes in the money supply are accomplished via proportional transfers however within the class of lump sum transfers an increase of the rate of monetary expansion tends to decrease the dispersion of wealth and prices and to improve welfare when inflation is low but when inflation is high enough the opposite effects occur

budgetary policies and available actions a generalisation of decision rules for allocation and research decisions the allocation problem in health care can be characterised as a mathematical programming problem but attempts to incorporate uncertainty in costs and effect have suffered from important limitations a two stage stochastic mathematical programming formulation is developed and applied to a numerical example to explore and demonstrate the implications of this more general and comprehensive approach the solution to the allocation problem for different budgets budgetary policies and available actions are then demonstrated this analysis is used to evaluate different budgetary policies and examine the adequacy of standard decision rules in cost effectiveness analysis the research decision is then considered alongside the allocation problem this more general formulation demonstrates that the value of further research depends on i the budgetary policy in place ii the realisations revealed during the budget period iii remedial actions that may be available and iv variability in parameters values

privatization in developing countries a review of the issues abstract the theory and early experience of privatization in developing countries are reviewed privatization has been spurred by widespread dissatisfaction with the performance of public enterprises and the need to cut government expenditures unless it is accompanied by liberalization measures privatization of public enterprises is unlikely to result in significant gains in economic efficiency the sequencing of privatization and liberalization reforms will often determine their impact on efficiency but the correct order of implementation is not clear political opposition to privatization is likely to be limited to the state bureaucracy which will often be able to mobilize in order to limit the impact of reforms early implementation experiences suggest technical difficulties are as constraining as political factors

explaining economic liberalization in india state and society perspectives abstract the economic reforms of 1991 carried out by the indian government were remarkable given the prevailing attitude among researchers that such reforms would be impossible to implement this article discusses the possible explanations for the initiation and consolidation of the reform process contrary to the prevailing explanations that focus on the state elite or pressures from the international economy this paper argues that the impetus came from a new breed of indian entrepreneurs

politics and markets dual transformations the articles published in this issue of the journal help advance the debate on market reform in former socialist states in our comment besides dealing with data analysis issues we suggest several ways to improve the level of debate about substantive issues these suggestions include more attention to politics including path dependence and more attention to middle level generalizations from other developing market societies

the politics of liberalizing zambia s maize markets abstract this paper discusses the process of agricultural liberalization in zambia the central argument is that maize markets have been more quickly and fully liberalized than maize input markets because the perceived political risks of liberalizing input markets are greater than those of liberalizing maize markets and because economic interest groups benefited from maize liberalization while similar interests benefited from continued government interventions in input markets these finding imply that in order to understand the prospects for economic liberalization in new democracies we must disaggregate both civil society and markets

stochastic models for strategic resource allocation in nonprofit foreclosed housing acquisitions abstract increased rates of mortgage foreclosures in the u s have had devastating social and economic impacts during and after the 2008 financial crisis as part of the response to this problem nonprofit organizations such as community development corporations cdcs have been trying to mitigate the negative impacts of mortgage foreclosures by acquiring and redeveloping foreclosed properties we consider the strategic resource allocation decisions for these organizations which involve budget allocations to different neighborhoods under cost and return uncertainty based on interactions with a cdc we develop stochastic integer programming based frameworks for this decision problem and assess the practical value of the models by using real world data both policy related and computational analyses are performed and several insights such as the trade offs between different objectives and the efficiency of different solution approaches are presented

a rudimentary random matching model with divisible money and prices abstract we consider a version of kiyotaki and wright s monetary search model in which agents can hold arbitrary amounts of divisible money a continuum of stationary equilibria indexed by the aggregate real money stock exists with all trading occurring at a single price there is always a maximum level of the real money stock consistent with existence of such an equilibrium in the limit as trading becomes faster relative to discounting any real money stock becomes feasible in such an equilibrium in contrast to the original kiyotaki wright model higher equilibrium real money stocks unambiguously correspond to higher welfare in this costless production environment journal of economic literature classification numbers d51 e40

political strength economic structure and the debt servicing potential of developing countries the developing countries need to reschedule their external debts is as much a consequence of the political weakness of their governments vis a vis their own societies and the international environment as it is a consequence of unfavorable structural changes in the international financial system this study s original contribution is to treat the differentials in the political strengths of debtor governments as explicit variables in analyzing the probability of ldcs having to reschedule their external debt rather than to treat political factors as residuals to an economic explanation a measure of a government s political strength relative political capacity rpc is used to evaluate the impact of a government s political strength on the probability of debt rescheduling controlling for the size of a country s debt service burden the impact of external shocks from the global system the structure of its domestic economy and whether its principal exports are agricultural raw materials minerals or man

family structure institutions and growth the origins and implications of western corporations siders the importance of the family as an institution little attention however has been given to the impact of the family structure and its dynamics on institutions this limits our ability to understand distinct institutional developments and hence growth in the past and present this paper supports this argument by highlighting the importance of the european family structure in one of the most fundamental institutional changes in history and reflects on its growth related implications what constituted this change was the emergence of the economic and political corporations in late medieval europe corporations are defined as consistent with their historical meaning intentionally created voluntary interest based and self governed permanent associations guilds fraternities universities communes and city states are some of the corporations that have historically dominated europe businesses and professional associations business corporations universities consumer groups counties republics and democracies are examples of corporations in modern societies the provision of corporation based institutions to mitigate problems of cooperation and conflict constituted a break from the ways in which institutions had been provided in the past historically large kinship groups such as clans lineages and tribes often secured the

the irrelevance of inference a decision making approach to the stochastic evaluation of health care technologies the literature which considers the statistical properties of cost effectiveness analysis has focused on estimating the sampling distribution of either an incremental cost effectiveness ratio or incremental net benefit for classical inference however it is argued here that rules of inference are arbitrary and entirely irrelevant to the decisions which clinical and economic evaluations claim to inform decisions should be based only on the mean net benefits irrespective of whether differences are statistically significant or fall outside a bayesian range of equivalence failure to make decisions in this way by accepting the arbitrary rules of inference will impose costs which can be measured in terms of resources or health benefits forgone the distribution of net benefit is only relevant to deciding whether more information is required a framework for decision making and establishing the value of additional information is presented which is consistent with the decision rules in cea this framework can distinguish the simultaneous but conceptually separate steps of deciding which alternatives should be chosen given existing information from the question of whether more information should be acquired it also ensures that the type of information acquired is driven by the objectives of the health care system is consistent with the budget constraint on service provision and that research is designed efficiently

one or two monies abstract the set of incentive feasible allocations is examined in a dynamic quasi linear environment where agents lack commitment and have private information over their idiosyncratic characteristics when record keeping is available the first best allocation is implementable in a set of sufficiently patient economies when record keeping is limited to one money this set is strictly smaller except when private information is absent when record keeping is expanded but limited to two monies the set of economies for which the first best is implementable corresponds to that of record keeping even when private information is present we further demonstrate that two monies are a perfect substitute for record keeping

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

legal restrictions and international currencies an experimental approach abstract this paper integrates theory and experiments to explore how policy rules related to government interventions can affect economic allocations and the international status of a currency using a two country two currency search model we study two types of government interventions 1 legal restrictions impacting a seller s ability to accept a foreign currency and 2 reductions to the cost a seller must pay to accept a foreign currency the first intervention can be viewed as a way to capture a decrease in capital controls while the second can be viewed as a way to explore the impact of reducing information costs associated with using a foreign currency our results indicate that abolishing legal restrictions that impact a seller s ability to accept a foreign currency can increase both quantities traded and the number of trades involving two types of currencies additionally the international status of currencies is significantly enhanced when sellers face very low foreign currency acceptance costs

dollarization and currency exchange abstract we use a dual currency money search model to study dollarization agents hold portfolios consisting of two currencies one of which is risky we use numerical methods to solve for the steady state distributions of currency portfolios transaction patterns and value functions as risk increases agents increasingly use the safe currency as a medium of exchange dollarization occurs furthermore the safe currency trades for multiple units of the risky currency this type of currency exchange and the corresponding nominal exchange rate are often observed in black market or unofficial currency exchange markets in developing countries due to decentralized trading a distribution of exchange rates arises whose mean and variance change in predictable ways when currency risk increases

the compatibility of market liberalization and local economic development strategies cook p and hulme d 1988 the compatibility of market liberalization and local economic development strategies reg studies 22 221 231 the last decade has witnessed a growing emphasis on economic liberalization this new orthodoxy has come at a time when there is an increasing atmosphere of disillusionment surrounding conventional approaches to regional policy calls have been made for the creation of a new regional paradigm of development from below but most proposals are inappropriate for the majority of third world nations as they assume that planning occurs within a socialist framework this paper outlines the concepts that underpin policies of macroeconomic liberalization and the local economic development approach and examines the compatability of these policies it is argued that the local economic development approach could provide the basis for a development from below regional policy that complements a market oriented macroeconomic philosophy the conclusion notes the lack of empirica

the political economy of stabilization commitment capacity and public response abstract political pressures are generally recognized as important in determining success or failure of economic stabilization and adjustment programs but there has been little comparative analysis of the politics of stabilization this study examines the factors affecting i political leaders commitment to stabilization measures often called political will ii governmental ability to implement stabilization measures and iii the responses of key interest groups and the public at large to those measures the study also discusses political implications of the design of programs and the attempted speed of stabilization and sketches the tactics available to governments to manage political risk including partial compensation persuasion diversion or obfuscation and containment of protest the discussion is based on case studies of stabilization efforts in five fairly poor small highly trade dependent countries ghana in the late 1960s and early 1970s and zambia kenya sri lanka and jamaica in the late 1970s and early 1980s a subsidiary theme within the broader discussion is the ways in which the political economy of stabilization may differ in such countries as compared to larger semi industrialized economies

secondary currency an empirical analysis abstract many cases exist of multiple currency usage throughout history as two leading examples secondary currencies were widespread during both the great depression in the united states and the 2002 recession in argentina what are the determinants of multiple currency usage and what is the effect on economic activity both issues are empirically addressed using individual level surveys collected by the authors in argentina during 2002 and 2003 the evidence supports the theoretically predicted determinants of secondary currency acceptability put forth in monetary theory in particular findings show that the acceptability of the secondary currency increases when the supply of national currency is low the relative transaction cost of the secondary currency is low and the individual trading technologies are less effective moreover the acceptability of the secondary currency has real effects on economic activity among those who use the secondary currency the monthly income gain is more than 15 of the average argentine s monthly income excluding trades of used goods this amounts to a 0 6 increase in gdp

existence of a monetary steady state in a matching model indivisible money abstract existence of a monetary steady state is established for a random matching model with divisible goods indivisible money an arbitrary bound on individual money holdings and take it or leave it offers by consumers the background environment is that in papers by shi and by trejos and wright the monetary steady state shown to exist has nice properties the value function defined on money holdings is strictly increasing and strictly concave and the measure over money holdings has full support

a divisible search model of fiat money this paper extends the kiyotaki wright search model of fiat money to allow for divisible money and goods the extension allows me to examine the standard issues in monetary economics such as the neutrality and superneutrality of money by severing the artificial link in the kiyotaki wright model between the money supply and the number of money holders it is shown that money is neutral but not superneutral money growth generates a trading opportunity effect it changes the fraction of different agents in the economy and hence changes the probability with which agents have a successful match in addition money growth has a negative effect on the real money balance that is familiar in walrasian monetary models the balance of the two effects can imply a positive optimal money growth rate

implementing economic policy reforms policies and opportunities for donors abstract african countries trying to cope with crippling economic problems by liberalizing their economies are facing major problems in implementing the reforms international organizations are responding by offering technical assistance typically however the assistance is based on limited and technocratic models that overlook the fact that many of the reforms are unimplementable reforms are complex and uncertain they impose significant political costs their values are generally incompatible with the prevailing political philosophy they involve changing roles they alter power relations within the government and they are identified with outsiders the dominant approaches to implementation privatization training and enhanced control by central ministries underestimate the extent to which the reforms undermine traditional practices the study recommends a fourth approach to address these challenges it relies on designing reforms in collaboration with those who will be in charge of implementing them

search bargaining money and prices the goal of this paper is to extend existing search theoretic models of fiat money which until now have assumed that the price level is exogenous by explicitly incorporating bilateral bargaining this allows us to determine the price level endogenously and leads to additional insights concerning the role of money for example we find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planner s problem although the difference can become small as the discount rate or search friction vanishes we also find that there exist nonstationary inflationary equilibria

coexistence of money and interest bearing securities abstract a random matching model with money is used to study the nominal yield on small denomination bearer safe discount securities issued by the government there is always one steady state with matured securities circulating at par and for some parameters another with them circulating at a discount in the former a necessary and sufficient condition for a positive nominal yield on not yet matured securities is exogenous discriminatory treatment of them by the government in the latter the post maturity discount on securities induces a deeper pre maturity discount even without such discriminatory treatment

medieval universities legal institutions and the commercial revolution we present new data documenting medieval europe s commercial revolution using information on the establishment of markets in germany we use these data to test whether medieval universities played a causal role in expanding economic activity examining the foundation of germany s first universities after 1386 following the papal schism we find that the trend rate of market establishment breaks upward in 1386 and that this break is greatest where the distance to a university shrank most there is no differential pre 1386 trend associated with the reduction in distance to a university and there is no break in trend in 1386 where university proximity did not change these results are robust to estimating a variety of specifications that address concerns about the endogeneity of university location universities provided training in newly rediscovered roman and canon law students with legal training served in positions that reduced the uncertainty of trade in the middle ages we argue that training in the law and the consequent development of legal and administrative institutions was an important channel linking universities and greater economic activity in medieval germany

an information based theory of international currency abstract this paper develops an information based theory of international currency based on search frictions private trading histories and imperfect recognizability of assets using an open economy search model with multiple competing currencies the value of each currency is determined without requiring agents to use a particular currency to purchase a country s goods strategic complementarities in portfolio choices and information acquisition decisions generate multiple equilibria with different types of payment arrangements while some inflation can benefit the country issuing an international currency the threat of losing international status puts an inflation discipline on the issuing country when monetary authorities interact in a simple policy game the temptation to inflate can lead optimal policy to deviate from the friedman rule the calibrated model can produce a welfare cost of losing international status for the issuing country larger than previous findings though estimates depend critically on inflation rates and information costs

mathematical programming for the efficient allocation of health care resources previous discussions of methods for the efficient allocation of health care resources subject to a budget constraint have relied on unnecessarily restrictive assumptions this paper makes use of established optimization techniques to demonstrate that a general mathematical programming framework can accommodate much more complex information regarding returns to scale partial and complete indivisibility and program interdependence methods are also presented for incorporating ethical constraints into the resource allocation process including explicit identification of the cost of equity

central banks at war war is expensive troops must be equipped and weapons must be procured when the enormous borrowing requirements of war make the sovereigns credibility problem more difficult central banks enhance a government s ability to borrow by being the sole direct purchaser of government debt the central bank increases the effective punishment that can be imposed on the government for defaulting on the marginal lender this increases lenders confidence that the government will be punished in case of default making lenders willing to purchase the debt at a lower rate of interest the sovereign dependent on the low borrowing costs offered by the central bank has an incentive to retain the bank data covering the nineteenth and early twentieth centuries reveal that possessing a central bank lowers the sovereign s borrowing costs particularly during times of war

the rational design of international institutions international institutions are central features of modern international relations this is true of trade international debt and financial restructuring and even national security once the exclusive realm of pure state action it was certainly true of the two major military engagements of the 1990s the wars in kosovo and the persian gulf as international institutions have gained prominence in the political landscape they have increasingly become prominent topics for study the sharpest debate among researchers has been theoretical do international institutions really matter missing from this debate is a sustained inquiry into how these institutions actually work we shift the focus by posing researchable questions about how they operate and how they relate to the problems states face we begin with a simple observation major institutions are organized in radically different ways some are global essentially open to all states others are regional with restricted memberships some institutions give each state an equal vote whereas others have weighted voting and sometimes require supermajorities institutions may have relatively strong central authorities and significant operating responsibilities or be little more than forums for consultation some arrangements for example most bilateral treaties have no formal organizational structure these are plentiful because states have a striking tendency to codify their relationships in formal legal arrangements why do these differences exist do they really matter both for members and for international politics more generally do they affect what the institutions themselves can do we focus on these large questions of institutional design

currency exchange in a random search model this paper investigates foreign exchange trading a phenomenon that typically accompanies international trade a search theoretic general equilibrium approach is adopted to study a two country two currency model for some parameter values of the model there exist some pure strategy equilibria in which commodity currency trade is conducted primarily through local currency and in which there is active currency currency exchange the coexistence of valued foreign currency and its local non acceptability conforms largely with the country specific cash in advance constraint that is often assumed exogenously in international finance literature

toward a theory of international currency we use the framework of random matching games and develop a two country model of the world economy in which two national currencies compete and may be circulated as media of exchange there are multiple equilibria which differ in the areas of circulation of the two currencies in one equilibrium the two national currencies are circulated only locally in another one currency is circulated as an international currency there is also an equilibrium in which both currencies are accepted internationally we also find an equilibrium in which the two currencies are directly exchanged we first characterize the existence conditions of these equilibria in terms of the relative country size and the degree of economic integration and then use an evolutionary approach to equilibrium selection to explain the evolution of the international currency as the two economies become more integrated some welfare implications are also discussed for example a country can improve its national welfare by letting its own currency circulate internationally provided the domestic circulation is controlled for when the total supply is fixed however a resulting currency shortage may reduce the national welfare

money and price dispersion we relax restrictions on the storage technology in a prototypical monetary search model to study price dispersion in this case buyers and sellers enter matches with potentially different willingness to trade across the distribution of possible bilateral matches prices generally will differ even though agents have identical preferences and technologies we provide existence conditions for a particularly simple equilibrium pattern of exchange we prove that in the limiting case where search frictions are eliminated equilibrium prices are uniform we also show that a higher initial money stock can raise the average price level and increase price dispersion

the hysteresis of currency substitution currency risk vs network externalities abstract it is widely documented that currency substitution using foreign money in transactions increases in periods of high inflation but does not decline once inflation is reduced the paper uses survey data from bulgaria which experienced this phenomenon to investigate the origins of this ratchet effect we find that expected devaluation of the domestic currency while relatively high does not play a major role in sustaining the dollarization of transactions conversely preferences for the use of foreign money are strongly influenced by people s perception that foreign money is already widely used in the economy

bargaining enforcement and international cooperation neoliberals and their neorealist critics have debated the relative importance of two main obstacles to international cooperation problems of cheating and enforcement and problems of relative gains by contrast i argue that problems of international cooperation have a common strategic structure in which a third distinct obstacle plays a crucial role almost regardless of the issue area states must first resolve the bargaining problem of agreeing on terms before they can implement and begin to enforce an agreement furthermore the bargaining and enforcement problems interact using a game model i show that if states must bargain to determine the deal to be enforced the shadow of the future cuts two ways a high expectation of continued interactions may make enforcing the agreement easier but it can also give states an incentive to bargain harder delaying agreement in hopes of getting a better deal empirical evidence from trade and arms control negotiations suggests that this mechanism may help to explain the costly standoffs that are often observed in international politics and are problematic for received neoliberal theories

the structural adjustment of politics in africa abstract it has long been recognized that the structural adjustment programs currently being proposed by the world bank and the international monetary fund in africa have important political consequences however there has been almost no attention devoted to what structural adjustment if implemented means for the way that politics is actually carried out in african nations the failure to examine the long term consequences of economic reform for politics is particularly surprising given that the major instruments of structural adjustment public sector reform devaluation elimination of marketing boards threaten to change not only the constituencies that african leaders look to for support but the way in which leaders relate to their supporters in the countries south of the sahara the paper examines how structural adjustment if actually implemented would affect politics in african countries the paper finds that structural adjustment makes the political climate much riskier for leaders while weakening the central apparatus of the state on which rulers have long relied to stay in power the implications of the analysis for donors are also discussed

allocation under dictatorship research in stalin s archives we survey recent research on the soviet economy in the state party and military archives of the stalin era the archives have provided rich new evidence on the economic arrangements of a command system under a powerful dictator including stalin s role in the making of the economic system and economic policy stalin s accumulation objectives and the constraints that limited his power to achieve them the limits to administrative allocation the information flows and incentives that governed the behavior of economic managers the scope and significance of corruption and market oriented behavior and the prospects for economic reform

a fundamental theory of exchange rates and direct currency trades in this paper we construct a two country search model to determine the nominal exchange rate between two fiat monies our model allows agents to use any currency to trade for goods in all countries however search frictions restrict agents opportunities for instantaneous arbitrage and hence make the nominal exchange rate determinate the nominal exchange rate depends on the two countries economic fundamentals including the stocks and growth rates of the two monies direct exchanges between currencies are essential and they imply a nominal exchange rate that is different from the relative price between the two currencies in the goods markets there are persistent violations of the law of one price and purchasing power parity in equilibrium despite the fact that prices are perfectly flexible and all goods are tradeable between countries nominal and real exchange rates can move together in the steady state in response to money growth shocks

currency areas and monetary coordination we integrate a monetary search model into open economy macro to analyze the gains from coordinating on inflation search frictions and local congestion lead to a determinate exchange rate between two currencies relative prices deviate from the law of one price because the deviations depend on the cross country differential in money growth each country is tempted to inflate to exploit the deviations policy coordination reduces inflation and improves welfare for all countries in contrast to traditional models the gains from coordination continue to exist even after each country optimally sets a direct tax on the foreign use of the country s currency

inflation price dispersion and market integration through the lens of a monetary search model monetary search theory implies that the real effects of inflation via its impact on price dispersion depend on the level of search costs and thus on the level of market integration for less integrated markets the inflation price dispersion nexus is predicted to be asymmetrically v shaped which results in an optimal inflation rate above zero for highly integrated markets with low search costs however the impact of inflation on price dispersion should only be small using price data of the european union member states this paper is the first that tests and confirms these predictions of monetary search theory

economic crisis and policy choice the politics of adjustment in the third world the acute economic pressures of the 1980s have forced virtually all of latin america and africa and some countries in asia into painful austerity programs and difficult economic reforms scholars have intensively analyzed the economics of this situation but they have given much less attention to the political forces involved in this volume a number of eminent contributors analyze the politics of adjustment in thirteen countries and nineteen governments drawing comparisons not only across the full set of cases but also within clusters selected to clarify specific issues why do some governments respond promptly to signs of economic trouble while others muddle indecisively for years why do some confine their response to temporary macroeconomic measures while others adopt broader even sweeping programs of reform what leads some countries to experiment with heterodox approaches while most however reluctantly pursue orthodox courses why confronted with intense political protest have some governments persisted while others have altered or abandoned course the answers to these questions are political not economic and they are examined here by thomas m callaghy stephan haggard miles kahler robert r kauman joan m nelson and barbara stallings

why do people save in cash distrust memories of banking crises weak institutions and dollarization abstract the paper analyzes why households hold sizeable shares of their assets in cash at home rather than at banks a phenomenon that is widespread in many economies but for which information is scarce using survey data from ten central eastern and southeastern european countries i document the relevance of this behavior and show that cash preferences cannot be fully explained by whether people are banked or unbanked the analysis reveals that a lack of trust in banks memories of past banking crises and weak tax enforcement are important factors moreover cash preferences are stronger in dollarized economies where a safe foreign currency serves as a store of value

political liberation and economic policy reform in africa abstract this paper assesses the impact of political liberalization on economic reform in sub saharan africa it argues that the emergence of more participatory politics will not necessarily make successful reform less likely although the instability of political change will exact an economic cost in the short run in the long run political liberalization provides opportunities as well as risks for economic reform it probably makes some macroeconomic reforms more difficult but it provides a window of opportunity for significant progress on governance issues the net impact will vary across states in most countries the prospects for economic reform will not be dramatically altered because political reform does not alter some of the structural characteristics of economic policy making in africa

managing the evolution of multilateralism author s downs george w rocke david barsoom peter n abstract in the past five years a relatively extensive literature has emerged that explores the demand for multilateral cooperation that is those factors that motivate states to develop or resist developing formal institutions that operate to increase interstate economic military or environmental cooperation 1 these factors include the transaction costs associated with ad hoc and multiple bilateral arrangements increased interstate trade the diffusion of liberal trade theory information about the costs of environmental degradation and trends in elite ideology to date however our understanding of the supply side of multilateralism the standards that are set for admission the order and speed with which candidate states are admitted and the impact of expansion on cooperation and future evolution has been relatively undeveloped 2 partly as a result theorists have had little to say about how multilateral institutions are likely to evolve or what the policy consequences of their expansion will be 3 supply side issues are important because multilateral organizations usually do not spring forth full blown they grow instead of forming an inclusive agreement that is one that covers nearly all of the states that its designers eventually hope to include many multilateral organizations start out with substantially smaller memberships and generally expand over time we argue that among the many possible explanations for the choice of this design strategy there is a rational choice argument

competition and the incentive to produce high quality previous literature indicates that when quality is a choice variable firms have an incentive to produce high quality to maintain their reputations with consumers the strategic interaction among firms and competition for market share is not considered this paper finds that when firms compete for market share perfect equilibria in which firms produce high quality goods need not exist competition for customers can eliminate the price premium needed to induce firms to maintain a reputation for high quality production in this case economists and policy analysts should pay greater attention to the interaction among firms and the institutions such as professional associations that structure interfirm relations when considering whether firms have an incentive to produce high quality goods

changes in the living standards of the poor in sri lanka during a period of macroeconomic restructuring abstract beginning in 1977 sri lanka moved away from its welfare oriented economy characterized by extensive government intervention in controlling prices and expensive consumer subsidies toward a more market oriented outward looking liberalized economy investment increased due largely to dramatic increases in the inflow of foreign capital combined with greater deficit financing unemployment declined and the rate of growth of gdp increased the major increase in foreign assistance coupled with deficit spending enabled the government to undertake the ambitious infrastructure projects that stimulated demand however this policy change had deleterious consequences for the poor rapid inflation which resulted in a decline of real wages coupled with dramatic decreases in the value of the food stamp scheme brought about a decline in calorie consumption for lower expenditure groups in addition levels of malnutrition as measured by acute wasting were higher after the policy change

does leadership matter in the economic reform process liberalization and governance in sri lanka 1989 1993 abstract governance assumptions of the east asian miracle may not be a sufficient or a necessary condition for effective economic reform or for solid growth to emerge in other asian economies this paper argues that in sri lanka where the state is not strong where it is not well coordinated and is neither cohesive nor disciplined in organizational terms strong political leadership proved critical in the second wave of reform from 1989 1993 even if it was essentially illiberal in the process of implementation technical and political imperatives are seen to be interrelated and parts of a single reform package

structural adjustment as a policy process the case of tanzania abstract analyses of structural adjustment in developing countries have increasingly come to emphasize the importance of grounding reforms in the political realities of the countries concerned while this approach is a step forward from the more economistic and prescriptive analyses that prevailed in the first part of the 1980s we believe that the dynamics of structural adjustment is only fully captured by an approach that treats the policy context as an explicit and independent variable on the basis of a case study of tanzania this article uses a policy process approach in which the notions of ambiguity and conflict in policy situations help us better understand the opportunities and constraints for action on structural adjustment issues

political explanations of macroeconomic management a survey abstract this paper surveys eight overlapping types of political explanation for patterns of macroeconomic management in the third world 1 historical traditions 2 socio structural determinants 3 the self interest of politically powerful sectors 4 entrenched characteristics of the political system 5 formal properties of the political institutions 6 the influence of economic ideologies 7 vicious virtuous circles and 8 a residual category of conjunctural factors it then considers the scope and limitations of such explanations and reassesses the notion of political constraints on economic optimization

how should structural adjustment programs be designed abstract more than seven years have elapsed since the onset of the generalized debt crisis of 1982 yet the affected countries have still not managed to stabilize their economies these countries must now attempt structural adjustment in the midst of pervasive macroeconomic and political instability structural adjustment packages should be designed with this reality in mind this paper argues that structural adjustment programs should strive for sustainability rather than the economic liberalization that they presently stress illiberal policies which do not damage overall macro stability are preferable to liberal policies which are inherently unsustainable or engender macro instability liberalization programs that are not sustainable are likely to bring few benefits but have high costs in terms of private investment the paper discusses some of the chief implications of this opinion for the design of adjustment programs

coordination commitment and enforcement the case of the merchant guild we interpret historical evidence in light of a repeated game model to conclude that merchant guilds emerged during the late medieval period to allow rulers of trade centers to commit to the security of alien merchants the merchant guild developed the theoretically required attributes secured merchants property rights and evolved in response to crises to extend the range of its effectiveness contributing to the expansion of trade during the late medieval period we elaborate on the relations between our theory and the monopoly theory of merchant guilds and contrast it with repeated game theories that provide no role for formal organization

optimal cartel equilibria with imperfect monitoring abstract there exist optimal symmetric equilibria in the green porter model 4 8 having an elementary intertemporal structure such an equilibrium is described entirely by two subsets of price space and two quantities the only production levels used by firms in any contingency the central technique employed in the analysis is the reduction of the repeated game to a family of static games

on the political economy of stabilization abstract joan nelson 1984 includes sri lanka in the period 1977 1982 in a series of case studies of the factors affecting the political acceptability of stabilization and adjustment programs this is misleading because unlike the other countries dealt with sri lanka was not faced with an economic crisis when it accepted large multilateral loans under policy conditionality in fact the economic policies pursued in sri lanka after 1977 reflect the interests and political program of the domestic capitalist class the existence of such a class introduces dimensions to the analysis of the politics of adjustment not dealt with in nelson s framework

information systems in treaty regimes one of the most influential arguments in international relations is that international institutions influence states behavior by monitoring their compliance with treaties which in turn facilitates reciprocity empirically however many treaty organizations are not mandated to monitor compliance the article develops a parsimonious theoretical framework to address the empirical diversity of monitoring arrangements by mapping strategic environments onto monitoring arrangements it accounts for who detects noncompliance and who brings it to light in particular two factors the interest alignment between noncompliance victims and their states and the availability of noncompliance victims as low cost monitors largely shape the organizational forms of information systems this simple theory sheds light on a wide range of substantively important treaty regimes

governance structures and the durability of economic reforms evidence from inflation stabilizations abstract this paper investigates the relationship between a country s political economic and institutional environment and its ability to implement sustainable economic reform programs the policy issue on which the study focuses is inflation stabilization it consists principally of econometric estimations of the relationship between the success of stabilizations in a large sample of countries and several political and economic explanatory variables the hypotheses tested are drawn both from the recent macroeconomic literature on policy credibility and from political science the major findings include the following 1 a despite the conventional wisdom to the contrary political repression does not appear to be an effective means for implementing sustainable stabilization policies durable economic reforms and political freedoms appear to be complementary 2 b as has been previously argued theoretically and demonstrated empirically political instability is detrimental to policy reform 3 c the political will and popular consensus for stabilization policies are enhanced during a severe economic crisis 4 d there is weak evidence that intervention by the international monetary fund rather than supporting reform programs can undermine their credibility

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

coordination versus prisoners dilemma implications for international cooperation and regimes the study of political institutions in general and international cooperation in particular has been beneficially influenced by the prisoners dilemma pd game model but there is a mistaken tendency to treat pd as representing the singular problem of collective action and cooperation by relaxing the assumptions of 2 2 games and developing an alternate model of the coordination game i show how some cooperation problems have very different properties from those found in pd the analytical results of the two games are compared across several important dimensions number of strategies available number of iterations of the game numbers of players and the distribution of power among them the discussion is illustrated with specific problems of international cooperation and the implications of alternative cooperation problems for the formation and performance of international regimes are explored the basic solutions for pd and coordination have divergent ramifications for the institutionalization stability and adaptability of regimes and for the role of hegemony in the international system however the coordination model does not replace the pd model but complements and supplements it as a way to understand the diversity of political institutions these results are widely applicable to areas of politics beyond international relations

the euroization of bank deposits in eastern europe in central eastern and southeastern europe a substantial share of bank deposits are denominated in foreign currency deposit euroization poses key challenges for monetary policy and financial sector supervision on the one hand it limits the effectiveness of monetary policy interventions on the other hand it increases financial sector fragility by exposing banks to currency risk or currency induced credit risk policymakers disagree on whether countries in the region should tackle deposit euroization with dedollarization policies or should rather strive to adopt the euro as their legal tender assessing the potential effectiveness of dedollarization policies requires a clear understanding of which households hold foreign currency deposits and why they do so on the basis of survey data covering 16 375 households in ten countries in 2011 and 2012 we provide a comprehensive household level analysis of deposit euroization in central eastern and southeastern europe we examine how households preferences for and holding of foreign currency deposits are related to individual expectations about monetary conditions and network effects we also examine to what extent monetary expectations and deposit euroization are the legacy of past financial crises or the outflow of current policies and institutions in the region our findings suggest that deposit euroization in central eastern and southeastern europe can be partly tackled by prudent monetary and economic decisions by today s policymakers the preferences of households for euro deposits are partly driven by their distrust in the stability of their domestic currency which in turn is related to their assessment of current policies and institutions however our findings also suggest that a stable monetary policy may not be sufficient to deal with the hysteresis of deposit euroization across the region first we confirm that the holding of foreign currency deposits has become a habit in the region second we find that deposit euroization is still strongly influenced by households experiences of financial crises in the 1990s our findings question the effectiveness of supply side interventions e g bank regulation or demand side interventions e g local currency capital market development in de euroizing household savings first we show that deposit euroization is largely demand driven second we show that households already have access to a broad range of savings products in local currency

the institutional environment for infrastructure investment the empirical evidence that links political institutions to economic outcomes has grown dramatically in recent years however virtually all of this analysis is undertaken using data from the past three decades this paper extends this empirical framework by performing a two century long historical analysis of the determinants of infrastructure investment in a panel of over 100 countries the results demonstrate that political environments that limit the feasibility of policy change are an important determinant of investment in infrastructure copyright 2002 oxford university press

money and prices a model of search and bargaining abstract this paper makes commodities divisible and incorporates bargaining into the search theoretic model of money to determine the purchasing power of money or price it is shown that two monetary equilibria always coexist where fiat money is universally accepted the two equilibria differ in price output welfare and the velocity of money sunspot monetary equilibria exist in which money is universally accepted in all states of the economy multiplicity has novel implications on the effectiveness of currency substitution and exchange market intervention journal of economic literature classification numbers c78 e40

policy reform and reform myopia abstract recent decades witnessed major efforts on the part of many developingcountry government to alter existing economic policies and undo constraints on agricultural growth this article compares the dynamics of agricultural policy reform initiatives of the 1970s with those of the 1980s the authors argue that when the definition of what is needed in terms of policy to get agriculture moving changes the political economy of policy making and implementation also shifts such shifts are often accompanied by a myopic focus on new crisis definitions and new policy solutions to the detriment of more integrated approaches to agricultural development

policies for promoting regional agricultural trade abstract this paper deals with the political issues of trade liberalization after giving a brief account of the potential and barriers to intraregional trade in southern africa the position in malawi zambia and zimbabwe supports the view that there is a significant potential for trade barriers to trade are due to the external trading regime internal policies and external factors notably food aid the liberalization of the internal food economy is expected to give rise to additional trade flows among the countries regional integration schemes may further contribute to trade expansion however only if they are used as a step to worldwide integration and if an effective institutional framework is secured

the politics of trade liberalization in africa have urged a wide range of policy reforms on african countries including correcting overvalued exchange rates reforming the public sector and trade liberalization in this article i explore the prospect that external trade liberalization reforms will be undertaken and sustained in africa many african countries have undertaken stabilization policies including devaluation of their currencies some have embarked on fundamental public sector reform programs few have liberalized their trade extensively this suggests after the fact that the political constraints may be greater for changing trade policies than for devaluing currencies or for restricting credit however while analyses have been undertaken that examine the politics of stabilization and the components of adjustment programs such as lowering consumer subsidies and some work is in process on privatization and public sector reform relatively little has been done on the politics of trade liberalization in africa by trade liberalization i mean the relaxation or elimination of tariffs and removal of duties and or quotas on exports alteration in nontariff barriers such as import quotas and quantitative restrictions changes in licensing and direct allocation of foreign exchange and in specific regulations for products and removal or relaxation of export subsidies 2 many african countries have used tariff and nontariff barriers to further import substitution strategies kenya for example in the 1970s placed increasing reliance on import controls and quantitative restrictions to save foreign exchange and to encourage domestic manufacturing production in the 1980s ghana and nigeria were at the high end of the scale of countries in terms of the number of goods covered by quantitative restrictions 3 the sudan has made extensive use of quotas

government transaction policy media of exchange and prices abstract we study government transaction policies in search theoretic models of money we model government as a subset of agents who are subject to the same random matching technology and other constraints as private agents but who behave in an exogenous way regarding which objects they accept in trade and at what price the objective is to see how these policies affect private agents strategies and hence the set of equilibria we analyze how the effects depend on factors like the size of government the intrinsic properties of money and the availability and efficacy of substitutes like barter or foreign currency journal of economic literature classification numbers c78 e31 e42

taxation by auction fund raising by 19th century indian guilds abstract we describe a unique institution used by 19th century indian guilds to raise funds on certain holidays only one shop was allowed to operate an auction would be held to sell this right and the winning bid would go to the guild fund we compare this taxation by auction mechanism with more conventional tax schemes and show that under certain conditions not only will a majority of guild members prefer to be taxed via an auction but that this form of taxation will be more equitable

a matching model with bounded holdings of indivisible money recent versions of pairwise random matching models of money with divisible and perishable goods are amended to allow individuals to hold more than one unit of an indivisible asset the asset resembles a fiat asset except that nominal holdings of it yield a small amount of utility there is a general upper bound on the number of units of the asset that individuals can hold a steady state with trade is shown to exist the model is applied to study numerically the effect on welfare of the degree to which the asset is divisible

after the decision implementing policy reforms in developing countries abstract implicit in many reform proposals is a model of the policy process that is roughly linear a proposed reform gets on the agenda for government action a decision is made on the proposal and the new policy or institutional arangement is implemented either successfully or unsuccessfully this article presents an alternative interactive model of implementation that focuses on the conflict and reactions that are evoked by efforts to bring about changed policy or institutional contexts for development and the resources that policy makers and managers are likely to require to sustain a reform in the face of such reactions central to the analysis is the assertion that characteristics of the reform being implemented will largely determine the kind of conflict it engenders where such reaction is likely to become manifest and what resources are needed for sustainability the analysis suggests a framework for the strategic management of reform initiatives

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

modeling the forms of international cooperation distribution versus information the problems of distribution and information impede international cooperation they arise when actors select how they will cooperate an exploration of the interaction between these problems using a limited information model of cooperation leads to six conclusions first leadership solutions to coordination problems always exist but leadership here is very different from hegemonic provision of public goods second actors can cooperate in the face of anarchy even without a shadow of the future third diffuse reciprocal strategies arise naturally in coordination problems fourth norms and institutions are intertwined within successful cooperation fifth the form of cooperation on an issue varies with the relative importance of distribution and information finally and most important distributional and informational problems interfere with each other arrangements to cooperate can successfully address one but not both of these problems

uncertainty and value of information when allocating resources within and between healthcare programmes a two stage stochastic mathematical programming formulation has been developed to optimally allocate resources within and between healthcare programmes when there is an exogenous budget and the parameters of the healthcare models are variable and uncertain this formulation solves the optimal resource allocation problem and calculates the expected value of acquiring additional information to resolve the uncertainties within the allocation it is shown that the proposed formulation has several advantages over the chance constrained and robust mathematical programming methods

regulation with growth the political economy of palm oil in malaysia abstract the study of the palm oil industry in malaysia demonstrates that with a proper mix of public regulation and investment a state may achieve national control over an industry and promote the interests of poorer citizens while promoting overall growth and international competitiveness of the industry the introduction summarizes the literature on public interventions in agricultural markets section 2 describes the palm oil industry and its growth in malaysia sections 3 and 4 discuss policies in investment and in regulation and marketing respectively the conclusion further articulates the thesis

indivisibilities lotteries and monetary exchange we introduce lotteries randomized trading into search theoretic models of money in a model with indivisible goods and fiat money we show goods trade with probability 1 and money trades with probability where 1 iff buyers have sufficient bargaining power with divisible goods a nonrandom quantity q trades with probability 1 and again money trades with probability where 1 iff buyers have sufficient bargaining power moreover q never exceeds the efficient quantity not true without lotteries we consider several extensions designed to get commodities as well as money to trade with probability less than 1 and to illuminate the efficiency role of lotteries