restructuring enterprises in eastern europe eastern europe s enterprises are undergoing fundamental reform this paper evaluates alternative forms of corporate restructuring emphasizing different sequences in which reforms can be organized in some countries restructuring is undertaken by the state prior to privatization in some restructuring is delegated to private sector institutions before shares are offered to the public at large and in some public share offerings are preceding restructuring the paper develops a general framework for evaluating sequencing drawing on recent literature on corporate ownership and vertical integration it points to market failures that are particularly acute during the initial stages of transition these discourage privatization through wide share ownership and explain why privatization has in practice progressed slowly the paper examines in some detail restructuring in the one country in which reform has been rapid east germany the paper discusses the role of the government the treuhandanstalt the banks the incumbent management and western firms in the reform process it uses the theoretical framework to explain the contributions of public and private sector institutions and considers whether any lessons can be drawn for the design of institutions elsewhere

radicalism versus gradualism an analytical survey of the transition strategy debate academic debate on a transition strategy for former socialist economies continues even a quarter century after the collapse of the communism in central and eastern europe and the former soviet union in this paper through an analytical survey of 137 preceding studies we present an overall picture of the debate and examine the relationship between the debate attitudes and the literature attributes in related studies we found that the radicalists maintain a consistent debate attitude from the viewpoints of time speed and policy sequence of economic transition while the debate attitude of the gradualists is more diversified we also found that there is another group of researchers that stays within the framework of the radicalism versus gradualism debate while at the same time keeping at arm s length from both the radicalists and the gradualists in addition our regression estimation of qualitative selection models provides interesting findings on the relationship between the debate attitudes and the literature attributes

do greens drive hummers or hybrids environmental ideology as a determinant of consumer choice this paper uses several california data sets to test for differences in consumption patterns between greens and browns a person s environmentalism is rarely observed in consumer data sets in california a community s share of green party registered voters is a viable proxy for community environmentalism environmentalists are more likely to commute by public transit purchase hybrid vehicles and consume less gasoline than non environmentalists

does privatization remove restrictive working practices evidence from uk establishments this study investigates the links between privatization and changes in working practices using data from the uk 1990 workplace employees relations survey privatization raises the probability of an establishment of experiencing reduced job demarcation and or increased flexibility in the use of the workforce by managers after exploration no clear association is found between ownership and the level of restrictive working practices

law enforcement and transition abstract we present a simple model to analyze law enforcement problems in transition economies law enforcement implies coordination problems and multiplicity of equilibria due to a law abidance and a fiscal externality we analyze two institutional mechanisms for solving the coordination problem a first mechanism which we call dualism follows the scenario of chinese transition where the government keeps direct control over economic resources and where a liberalized non state sector follows market rules the second mechanism we put forward is accession to the european union we show that accession to the european union even without external borrowing provides a mechanism to eliminate the bad equilibrium provided the accessing country is small enough relative to the european union interestingly we show that accession without conditionality is better than with conditionality because conditionality creates a coordination problem of its own that partly annihilates the positive effects of expected accession

incentives and the efficiency of public sector outsourcing contracts abstract outsourcing the provision of traditionally publicly provided services has become commonplace in most industrialized nations despite its prevalence there still is no consensus in the academic literature on the magnitude and determinants of expected cost savings to the government nor the sources of those savings this article considers the arguments for and against outsourcing and then examines the empirical evidence pertaining to whether any observed savings occur and whether they persist over time in addition we examine the existing evidence for the redistribution hypothesis and the quality shading hypothesis which critics have used to argue that outsourcing lowers government expenditure by lowering wages and conditions and or lower quality services finally we consider the impact of contract design on outsourcing outcomes while the power of incentives is a strong theme in economics recent work has suggested that high powered incentives may be suboptimal for many public sector services because they may crowd out intrinsic motivation particularly in instances where agents are highly motivated we discuss the implications of this insight for the efficiency of public sector outsourcing

transition economies performance and challenges i present data and assess the first twelve years of the transition from plan to market transformations have taken place but the income gap between the transition and advanced economies has widened transition countries further east have performed worse than those further west but policies matter all countries carried out quickly type i reforms such as macroeconomic stabilization price liberalization small scale privatization and breakup of state owned enterprises they differed in type ii reforms such as large scale privatization and development of banking and legal systems countries that developed a functioning legal framework and corporate governance have performed better than others

the behaviour of state firms in eastern europe pre privatisation in this paper we explore the behaviour of state firms pre privatisation the incentives and the constraints facing managers and the nature and the power of the coalitions within the firms we show that managers on low incentive payment schemes with little formal stake in privatisation and who face possible redundancy have little incentive to embark on restructuring hardened budget constraints career concerns and potential stakes in the privatised firm however may strengthen managerial incentives to restructure we then introduce an influence function which captures how the distribution of winners and losers within the firm and size of their loss and gain affects the probability of restructuring the function illustrates how strong opposition coming from large concentrated losses is likely to dominate diffuse support from small widely distributed gains government measures such as hardening budget constraints financing of severance payments and selective debt writedowns affect the distribution of gainers and losers and may be used to overcome blocking coalitions and increase support for restructuring examination of a range of enterprise case studies vindicates our hypothesis that the structure of control and production strongly affect incentives to restructure centralised management structures the presence of non performing units and a functional division of activities have all acted as serious constraints on the unbundling restructuring process whilst the removal of state subsidies has been critical in forcing firms to rationalise production and unbundle activities

the tragedy of the commons and socialization theory and policy we revisit the tragedy of the commons in an dynamic overlapping generations economy peopled of shepherds who decide how many sheep they let graze on a common parcel of land while relying on di fferent forms of rationality nash players pure or impure kantian players we examine the dynamics of heterogeneity and land congestion when the prevalance of those di fferent forms of rationality evolves over time follow ing a vertical oblique socialization process a la bisin and verdier 2001 we study the impacts of a quota and of a tax on the congestion of land and we show that introducing a quota may in some cases reduce the proportion of kantians pure and impure and worsen the tragedy of commons with respect to the laissez faire finally we examine whether a government should promote either a pure or an impure kantian morality by comparing the relative fi tness of pure impure kantians and their interactions with the congestion of land

unemployment and the social safety net during transitions to a market economy evidence from the czech and slovak republics the authors investigate the remarkably short unemployment spells in the czech republic compared to slovakia and other central and east european economies they estimate hazard functions and find that 40 to 5o percent of the difference in unemployment durations between the two republics is accounted for by differences in demographics and demand conditions the remainder is explained by differences in coefficients proxying the behavior of firms individuals and institutions in both republics the unemployment compensation system has a moderately negative effect on the exit rate from unemployment policymakers hence have latitude in providing adequate social safety nets without jeopardizing efficiency copyright 1998 by american economic association

privatization in eastern europe irreversibility and critical mass effects abstract this paper proposes a model to shed light on two important policy features of privatization in central and eastern europe the idea of a necessary critical mass of privatization on one hand and the great difficulties encountered in the actual privatization process on the other the model incorporates a positive externality related to the size of the private sector multiple equilibria may arise for political and economic reasons policies of free distribution are analysed with the model they may eliminate the danger of policy reversals due to excess unemployment but may at the same time increase the relative cost of restructuring leading in some cases to pareto inferior outcomes

car buyers and fuel economy abstract this research is designed to help researchers and policy makers ground their work in the reality of how us consumers are thinking and behaving with respect to automotive fuel economy our data are from semi structured interviews with 57 households across nine lifestyle sectors we found no household that analyzed their fuel costs in a systematic way in their automobile or gasoline purchases almost none of these households track gasoline costs over time or consider them explicitly in household budgets these households may know the cost of their last tank of gasoline and the unit price of gasoline on that day but this accurate information is rapidly forgotten and replaced by typical information one effect of this lack of knowledge and information is that when consumers buy a vehicle they do not have the basic building blocks of knowledge assumed by the model of economically rational decision making and they make large errors estimating gasoline costs and savings over time moreover we find that consumer value for fuel economy is not only about private cost savings fuel economy can be a symbolic value as well for example among drivers who view resource conservation or thrift as important values to communicate consumers also assign non monetary meaning to fuel prices for example seeing rising prices as evidence of conspiracy this research suggests that consumer responses to fuel economy technology and changes in fuel prices are more complex than economic assumptions suggest the us department of energy and the energy foundation supported this research the authors are solely responsible for the content and conclusions presented

pay and employment determination in britain what are labour contracts really like the recent growth of unemployment in western economies has prompted new research on the workings of the labour market there has been much interest in particular in the questions what determines the level of real pay and why is it apparently so insensitive to changes in aggregate demand and unemployment european economists now find it hard to take seriously the notion still taught to many undergraduate that wages are determined by the intersection of demand and supply curves roughly half of all british employees belong to trade unions a much higher percentage have their pay fixed by some kind of collective bargain in this country it is negotiations not impersonal com petitive markets which decide what most of us will be paid the difficult problem is that of how to understand this process or to put it differently of how to think up the right model of the world

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

after state socialism the political origins of transitional recessions transitions from state socialism created a startling range of initial economic outcomes from renewed growth to deep economic crises debates about the causes have largely ignored the political dis

democracy market liberalization and political preferences abstract we estimate the impact of market development and democratization on subjective political preferences we rely on the specific situation of frontier zones and the considerable regional variations in culture and economic development in the countries of the former socialist bloc for identification using a survey conducted in 2006 we find a positive and significant effect of democracy on support for a market economy but no effect of market liberalization on support for democracy hence in contrast with the conventional wisdom concerning the sequencing of political and economic reforms democratization may become a necessary condition to obtain public support for further economic liberalization

what has 20 years of public private pay gap literature told us eastern european transitioning vs developed economies this paper surveys the literature on public private sector pay differentials based on 20 years of research in transitioning countries of eastern europe ee and compares the results with estimates obtained from developed market economies the majority of empirical studies from ee economies found evidence of public sector pay penalties during the period of economic transition from a communist to market based economy in developed economies however the average differential is usually around zero or positive the public sector pay inequality reducing effect relative to the private sector is greater in transitioning economies than in developed economies nevertheless there is evidence that the sign of the public sector pay gap as well as the relative public sector pay distribution change with the progress of economic transition towards those usually observed in developed economies different pay setting arrangements between private and public sectors and competition for workers seem to be major arguments for the existence of systematic pay differences between the two sectors

productive efficiency in public and private firms abstract this paper compares the degree of x inefficiency which emerges as a consequence of the imposition of the optimal incentive contracts in public and private firms using a straightforward principal agent model with two possible states of the world it establishes the rather surprising result that in the good state of the world public ownership always results in a higher degree of productive efficiency

reform without losers an interpretation of china s dual track approach to transition this paper develops a simple model to analyze the dual track approach to market liberalization as a mechanism for implementing efficient pareto improving economic reform that is reform achieving efficiency without creating losers the approach based on the continued enforcement of the existing plan while simultaneously liberalizing the market can be understood as a method for making implicit lump sum transfers to compensate potential losers of the reform the model highlights the critical roles of enforcement of the plan for achieving pareto improvement and full liberalization of the market track for achieving efficiency we examine how the dual track approach has worked in product and labor market liberalization in china

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

business cycle convergence in emu a first look at the second moment we analyse the dynamics of the standard deviation of demand and supply shocks as well as of the demand component of gdp across countries in the european monetary union emu this analysis allows us to evaluate the patterns of cyclical comovement in emu and compare them the cyclical performance of the new members of the eu and other oecd countries we make use of sigma convergence methods to identify synchronization patterns in business cycles the eurozone has converged to a stable lower level of dispersion across business cycles during the end of the 80s and the beginning of the 90s the new eu members have also experienced a strong pattern of convergence from 1998 to 2005 when a strong divergence trend appears an enlargement of the emu to 22 members would not significantly decrease its optimality as a currency area there is evidence for some europe specific characteristics as compared to global comovements in business cycles authors abstract

social insurance and transition the authors study the general equilibrium effects of social insurance on transition in a model in which the process of moving workers from matches in the state sector to new matches in the private sector takes time and involves uncertainty as might be expected adding social insurance to an economy without any improves welfare contrary to standard intuition however adding social insurance may slow transition the authors show that this result depends crucially on general equilibrium interactions of interest rates and savings under alternative market structures copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

endogenous firm efficiency in a cournot principal agent model abstract in a market of cournot firms managed by agents the degree of firm efficiency is inversely related o the number of firms in the market journal of economic literature classification numbers l22 d23 d43

how to reform a planned economy lessons from china the countries of eastern europe and the former soviet union have been flooded with advice from the west on how to liberalize their planned econo mies this advice is unfortunately offered in an empirical vacuum no one knows how these econo mies will react to the proposed liberalization meas ures there exists however a neglected source of information china offers a long time series of data over a decade s worth on the effects of reforms on a planned economy china s reforms were gradual but their cumulative effect has been large and they have been remarkably successful china s experiments provide some practical les sons on what kinds of reforms can work elsewhere the dominant school of thought among economists favours the big bang policy of reforming quickly and according to a comprehensive plan partial reforms in this view are useless they will be negated by the remnants of the planning system the proponents of big bang reform have been influential with poland czechoslovakia and rus sia announcing plans for a rapid transition to capi talism

the virtues of gradualism and legitimacy in the transition to a market economy this paper presents a simplified model of sectoral restructuring in eastern europe a move towards allocative efficiency is desired by the reform minded government but the shift to higher productivity which such efficiency requires would lead to massive layoffs and labour reallocation in the transition period we look at the impact of political constraints unanimity and or majority worker approval on reform proposals when the government faces a heterogeneous workforce holding private information on relative outside opportunities when the budgetary consequences of exit compensations are so important as to make partial reforms preferable to full reforms gradualism emerges as the optimum in a dynamic context without government commitment it is also shown that under democratic majority rule a government in control of the agenda of reforms can win majority approval for plans which end up hurting majority interests intertemporally by threatening to switch majorities in future reform proposals this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

eliminating price supports a political economy perspective abstract this paper characterizes information and politically constrained government programs for eliminating price supports the issues which we examine in this model include i to what extent is it possible to reduce the size of oversubscribed industries in light of the information and political constraints that exist is a complete decoupling of a worker s compensation from her output possible or desirable ii which type of workers as characterized by their skill levels and outside employment opportunities remain in the industry iii which type of worker is harmed by the relocation program which coalitions of workers will oppose the reorganization

work rules featherbedding and pareto optimal union management bargaining this article examines a model of semiefficient bargaining in which the union and the firm bargain over wages and various types of work rules the results are compared to the outcomes that are associated with fully efficient bargaining i e over wages and the level of employment and bargaining solely over wages

wage arrears and economic voting in russia this paper revisits the issue of economic voting in the context of the 1996 presidential election in russia the election was branded as a fundamental choice between capitalism and communism yet voters were also grappling with a large crisis of personal finances about one in two workers experienced nonpayments of wages at the time of the elections the analysis exploits a rich nationally representative household panel dataset to identify the impact of wage arrears on the second round election outcome wage arrears reduced the vote for the incumbent president yeltsin among workers from around 65 to 49 which amounts to a drop of 4 in the yeltsin vote in the second round support for yeltsin vote declined with the amount of wage arrears at the time of the vote and with wage arrears in 1995 wage arrears led more voters to believe the government to be noncaring and to favor income restrictions for the rich political attitudes of working men changed more than those of working women

central banks and seigniorage a study of three economies in transition abstract the paper examines the relations between central banks and other macro sectors in the czech republic hungary romania with respect to the creation and distribution of seigniorage taking austria and germany as a reference in economies in transition transfers of seigniorage from the central bank to the government and to the banking sector may appear as a natural way to soften the financial constraints of both sectors we propose a simple framework for the analysis of central bank seigniorage based on the opportunity cost approach and measure both the amount and allocation of seigniorage for the five countries in 1993 we find central bank seigniorage to be approximately four times our benchmark value in hungary and thirty times in romania the latter due to the high level of the inflation tax in hungary and romania most seigniorage is appropriated as an interest rate subsidy by the government in romania a large part also goes as a subsidy to the financial sector in none of the five countries we find that central banks retain an excessive amount of seigniorage for reserve accumulation or for current expenditures in the last part of the paper we discuss the implications of our findings on seigniorage for the evaluation of central bank independence vis a vis the government

does competition between hospitals improve the quality of care hospital death rates and the nhs internal market payer driven competition has been widely advocated as a means of increasing efficiency in health care markets the 1990s reforms to the uk health service followed this path we examine whether competition led to better outcomes for patients as measured by death rates after treatment following heart attacks using data that until 1999 was not publicly available in any form on hospital level death rates we find that the relationship between competition and quality of care appears to be negative greater competition is associated with higher death rates controlling for patient mix and other observed characteristics of the hospital and the catchment area for its patients however the estimated impact of competition is small jel classification i1 l8 h4

the political economy of transition the overriding importance of political constraints in the transition process has led to developments of the theory of the political economy of reform what are the main insights from that theory how does it reflect the transition reality what have we learned and what do we still need to learn the present article will attempt to answer those questions

a cultural model of private provision and the environment abstract this paper analyses an overlapping generations model of environmental externalities and capital accumulation where private contributions to environmental quality are motivated by a desire to socialize others into environmental attitudes in this framework the formation of environmental preferences is the result of a cultural transmission process depending on the extent of private contributions in the short run we show that three equilibria may arise a first one where all green agents contribute to the environment a second one where nobody contributes to the environment and a third interior one we show that the capital accumulation process and the change in preferences that occur in this economy lead the interior equilibrium to be selected in which some but not all green agents contribute to the environment the model thus provides an economic rationale for the gap between the number of people who care about the environment and the number who adopt pro environmental behaviours we also show that the fraction of contributors rises with capital so that we explain the negative relationship between this gap and country income last we show that this gap is particularly detrimental for welfare and analyse the impact of a number of public policies

incentives and targets in hospital care evidence from a natural experiment performance targets are commonly used in the public sector despite their well known problems when organisations have multiple objectives and performance is difficult to measure it is possible that such targets may work where there is considerable consensus that performance needs to be improved we investigate this possibility by examining the response of the english national health service to high profile waiting time targets we exploit a natural policy experiment between two countries of the uk england and scotland to establish the global effectiveness of the targets we then use a within england hospital analysis to confirm that responses vary by treatment intensity and to control for differences in resources which may accompany targets we find that targets met their goals of reducing waiting times without diverting activity from other less well monitored aspects of health care and without decreasing patient health on exit from hospital

the role of competition for an x inefficiently organized firm abstract this paper presents a manager controlled firm which does not minimize long run costs even though the manager is the residual claimant maximizing a profit depending salary the inefficiency results because the employment contracts are not binding in the long run the manager is afraid of being replaced by a rival therefore he invests too much to strengthen his bargaining position in the contract renegotiation the inefficiency is reduced by competition in the output market

ownership versus competition efficiency in public enterprise certainly the introduction of product market competition into potentially competitive or at least contestable markets can improve performance to take just one example morrison and whinston 1986 1986 estimate that even in the imperfectly contestable u s airline industry the annual u s welfare gains from deregulation have been around 6 billion

the political economy of benefits and costs a neoclassical approach to distributive politics this essay offers a rational political explanation for the notorious inefficiency of pork barrel projects with an optimization model of legislative behavior and legislative institutions the model emphasizes the economically arbitrary from a welfare point of view importance of the geographic incidence of benefits and costs owing to the geographic basis for political representation we explore the implications of a legislator s objective function and derive conditions under which a representative legislature will select an omnibus of projects each of which exceeds the efficient scale

stakeholders relationships and product market competition abstractin this article we study the relationships between main stakeholders shareholders consumers and employees when firms are consumer oriented co in the sense of caring about consumers interests in the objective function we let these firms first bargain with labour union over their employees wages and then compete either in the quantity space cournot competition or in the price space bertrand competition our model shows that taking care of the consumers interests when determining product market strategies may reverse the traditional ranking between cournot and bertrand equilibria this implies that if shareholders in a co firm can choose either a quantity or a price strategy they will surprisingly choose the latter moreover we show that the conflicting interests between main stakeholders are attenuated under bertrand competition compared to cournot competition

the cultural transmission of environmental values a comparative approach this paper investigates the hypothesis that individual environmental attitudes are partly determined by a cultural component our analysis tackles this issue both theoretically and empirically in the theoretical section of the paper we describe a model of intergenerational transmission of cultural traits in the empirical section we use survey data from the european values study to empirically identify this cultural component in environmental attitudes we use a comparative approach that exploits variations associated with european migration flows our findings suggest that culture has a persistent and statistically significant impact on the environmental values of migrants differences in environmental attitudes among migrants can be traced back to social values that persist in their countries of origin we also show that environmental attitudes are resilient to incentives derived from the external environment environmental conditions migrants have been exposed to in their countries of origin do not have a significant impact on their preferences when living in the host country our empirical findings are robust to a number of alternative assumptions and present interesting dimensions of heterogeneity concerning the cultural transmission process these results imply that in the presence of multiple environmental problems that require collective action comprehending the driving forces behind the formation of an environmental culture is critical to effective policy formation

timing is everything elections and trade liberalization in the postcommunist world in the wake of the soviet bloc s collapse various postcommunist countries rushed to gain greater access to foreign markets many of them have made substantial progress in liberalizing commerce but the movement toward free trade has been by no means universal one prominent view is that the establishment of democratic institutions has stimulated economic reform in thepostcommunist world the authors conduct one of the first studies on this topic and find that democracies are indeed more likely to liberalize trade than nondemocracies they also find that the electoral calendar has a potent influence on the timing of commercial reform in postcommunist democracies controlling for a range of factors politicians are most likely to reduce trade barriers immediately after voters go to the polls trade liberalization is much less likely to occur at other points in a democracy s electoral calendar and elections have no effect on commercial reform in nondemocracies

the emergence of english commercial law analysis inspired by the ottoman experience abstract thirteenth century england was a commercial backwater whose trade was dominated by foreigners to accommodate and encourage foreign merchants england modified its legal system by creating legal institutions that were available to both domestic and foreign traders among the most important of these institutions were streamlined debt collection procedures and mixed juries composed of both englishmen and foreigners by introducing institutions that treated locals and foreigners equally england created a level playing field that enabled english merchants to become increasingly prominent in the later middle ages england s ability to modernize its law was facilitated by the secular nature of english law the representation of merchants in parliament and legal pluralism medieval england contrasts sharply with the early modern ottoman empire the latter created special institutions for foreign merchants which eventually put ottoman muslims at a competitive disadvantage

the design of reform packages under uncertainty the authors present a model of large scale economic reforms modeled on the transition process in eastern europe with aggregate and individual uncertainty concerning the outcome of reforms the government is assumed to choose the speed and sequencing of reforms the authors compare big bang strategies with gradualist reform packages they show that gradualist reform packages may be easier to get started optimal sequencing of reforms should aim at creating constituencies for further reforms and gradualism may generate a higher investment response because of a lower option value of waiting than would a big bang approach copyright 1995 by american economic association

toward an economic theory of leadership leading by example this paper explores leadership within organizations leadership is distinct from authority because following a leader is a voluntary rather than coerced activity of the followers this paper considers how a leader induces rational agents to follow her in situations when the leader has incentives to mislead them copyright 1998 by american economic association

finance and inequality the case of india although theory emphasizes the role of financial market frictions in explaining income inequality there is little empirical research exploring how financial development and financial sector reforms influence the evolution of income inequality this article examines how finance impacts income inequality in india using annual time series data for over half a century the results indicate that while financial development helps reduce income inequality financial liberalization seems to exacerbate it the results are robust to the use of different measures for financial development and financial liberalization although the relationship between financial development and economic growth has been extensively studied in the literature see for example king and levine 1993 demetriades and hussein 1996 arestis and demetriades 1997 levine loayza and beck 2000 bell and rousseau 2001 ang and mckibbin 2007 little is known about how finance impacts income inequality the importance of the finance inequality relationship has recently been highlighted in an insightful survey article by claessens and perotti 2007 they indicate that while financial development can help reduce income inequality financial liberalization captured by established interests may do the opposite the theoretical predictions of the effects of finance on income inequality are controversial rajan and zingales 2003b argue that improvements in the formal financial sector primarily benefit the rich greenwood and jovanovic 1990 predict a nonlinear relationship between financial development and income inequality where it is hypothesized that income inequality first increases with the degree of sophistication in the financial systems then stabilizes and eventually declines others propose that the presence of financial market imperfections deters the poor from borrowing adequately to invest in human and physical capital implying that financial development helps alleviate income inequality banerjee and newman 1993 galor and zeira 1993 aghion and bolton 1997 mookherjee and ray 2003 2006 given that theories provide ambiguous predictions regarding the effects of finance on the distribution of income it is useful to approach the issue at the empirical level this could facilitate our understanding of the relationship between finance and inequality and help us to assess the validity of each theoretical model despite the important role of financial market frictions in the theories of poverty and income inequality researchers so far have not adequately addressed whether financial

on the cultural transmission of preferences for social status abstract we study the formation of preferences for social status as the result of intergenerational transmission of cultural traits we characterize the behavior of parents with preferences for status in terms of socialization of their children to this particular cultural trait we show that degenerate distributions of the population whereby agents have either all status preferences or all non status preferences are dynamically unstable moreover under some conditions there exists a unique stationary distribution which is non degenerate in which both status and non status preferences co exist in the population and this distribution is locally stable finally we study the dependence of the stable stationary distribution of status preferences on institutional technological and policy parameters which affect agents economic conditions

does hospital competition save lives evidence from the english nhs patient choice reforms recent substantive reforms to the english national health service expanded patient choice and encouraged hospitals to compete within a market with fixed prices this study investigates whether these reforms led to improvements in hospital quality we use a difference in difference style estimator to test whether hospital quality measured using mortality from acute myocardial infarction improved more quickly in more competitive markets after these reforms came into force in 2006 we find that after the reforms were implemented mortality fell i e quality improved for patients living in more competitive markets our results suggest that hospital competition can lead to improvements in hospital quality

do public ownership and lack of competition matter for wages and employment evidence from personnel records of a privatized firm do public sector firm ownership and lack of competition matter for wages and employment to address this question we consider a large public sector company that is privatized using personnel records we find employment contract liberalization to generate relative wage losses for older high tenure low skilled part time workers permanent residents and women employment reductions mostly affect the same groups experiencing a wage decline overall wage liberalization leads to an increase in wage inequality of between 6 and 9 which if applied to the whole public sector would lead to a 52 to 76 closure of the inequality gap between the private and public sectors in europe our results suggest that differences between public and private sector wage structures found in descriptive studies are to a large extent causal rather than the result of selection into these sectors and that public sector employment and career path regulations limit a firm s ability to maintain a competitive workforce

growth technological change and ict diffusion recent evidence from oecd countries in this paper we present an overview of gdp and productivity growth patterns in oecd countries over the past decade on the basis of harmonized data our evidence suggests that fast growing countries generally shared three characteristics improvements in labour utilization a generalized enhancement in human capital and rapid shifts in the composition of physical capital towards information and communication technology ict equipment particularly we show that technological change embodied in new ict capital goods has been a primary source of output and productivity growth in ict using sectors the international comparison allows relating growth patterns to institutional and policy indicators thereby offering some preliminary insights into the potential sources of growth disparities cross country evidence yields some tentative support to the idea that institutional factors affecting competition in the product market are likely to affect productivity patterns especially in a period of rapid diffusion of a general purpose technology such as ict copyright 2002 oxford university press

the optimal speed of transition a general equilibrium analysis we present a benchmark model for the optimal speed of transition from a state owned to a private market economy based on the consumption savings decision in a closed economy we abstract from frictions to focus on the macroeconomic conditions for accumulation of private capital and closure or restructuring of state owned enterprises it is shown that hard budget constraints compensate for too slow speed of enterprise closure but that an excess speed of closure may slow down transition because of output contraction effects this will especially be the case if such a deviation occurs at early stages of transition

when order affects performance culture behavioral spillovers and institutional path dependence evidence suggests that the cultural context influences the performance of laws policies and political institutions descriptive accounts reveal that outcomes and behaviors often depend on the array of historical institutions this article presents a multi institutional framework that can account for those findings through path dependent behavioral spillovers individuals learn equilibrium behaviors when interacting in a new institutional setting initially some individuals choose behaviors that align with their behaviors in similar extant institutions creating a cultural context that can lead to inefficient outcomes the article shows how avoiding path dependence requires sequencing or designing institutions to maintain behavioral diversity optimal sequencing thus requires positioning institutions with clear incentives early in the sequence as well as avoiding strong punishments that can stifle attempts to break established behavioral patterns

privatisation and x inefficiency a bargaining approach the usual analysis of privatization and x inefficiency uses agency theory to model managerial effort the authors model worker effort as determined by a bargain between firms and workers workers dislike effort because it lowers utility firms prefer high effort because it raises productivity public sector firms are assumed to be social welfare maximizers and therefore compared to private sector firms they bargain lower effort levels since they have the interests of consumers and workers at heart the authors model predicts that under certain conditions privatization should raise effort and so lower x inefficiency and that wages may increase or decrease copyright 1995 by blackwell publishing ltd

do the vietnamese support the economic doi moi abstract each reform implies social and economic changes after experiencing war and reunification today vietnam is implementing a comprehensive and deep process of renovation doi moi but a revolution needs the support of the population to be successful this article investigates whether the vietnamese are supportive of some of the main features of a market economy in particular the preferences for competition ownership of firms either private or public and income inequality as an incentive to productivity are studied here the data allow us to conclude that the doi moi is not at risk but the population tend to contrast income inequality

the economic record of the 1997 2010 labour government an assessment we consider the economic record of the 1997 2010 labour government in the uk following a brief review of the government s inheritance from its predecessor we review the assessments made in the other papers in this issue of the oxford review of economic policy the change in the macroeconomic policy framework which apparently worked well for a decade but was then struck by the global financial crisis labour market social security and education policies and inequality public investment and public service delivery especially health and corporate taxation we discuss the constraints under which the government operated how much it broke with the past and the new frameworks it introduced we identify strengths and weaknesses and draw lessons from the government s record about the need to remain receptive to other and critical ideas on the one hand and the need for labour to spell out the kind of economy and society it wants to see develop on the other copyright 2013 oxford university press

political support for reforms economics of voting in transition countries i analyze the relationship between economics and politics across eight parliamentary elections in four transition countries the czech republic hungary poland and slovakia i argue that support for reform reflects the balance between positive and negative effects of the reform accordingly i identify economic groups that support or oppose the reform the former are private entrepreneurs white collar workers and university educated voters the latter are the unemployed retirees and blue collar and agricultural workers this general pattern holds both within countries and across countries and across tenures of different governments in contrast with the responsibility hypothesis voters in the transition countries are found to be forward looking not retrospective

hungary s transition to the market the case against a big bang hungary paul hare and tamas revesz among eastern european countries hungary s great advantage is that it began economic reforms in 1968 and slowly introduced the institutions of a market economy during the 1980s these measures laid the foundation for a gradual transition to the market without the need for any sharp break with the past policy mistakes were of course made the most serious extending over several years was the 1970s investment boom funded by foreign capital which contributed to hungary s large debt burden despite this the government accounts are not now in substantial deficit and the balance of payments on current account is in modest surplus nevertheless managing the external debt is now the most difficult of hungary s problems it is important that hungarian joint ventures and privatization are now attracting significant quantities of foreign capital given the quite rapid pace of liberalization since the late 1980s the government s commitment to further changes and a reasonably satisfactory macroeconomic balance though inflation is worrying there is no case for a big bang approach in hungary such a shock could only disrupt established market relationships and expectations with little benefit the most valuable forms of aid for hungary would be debt relief and unrestricted access for hungary s products to ec markets

pareto improving economic reforms through dual track liberalization abstract pareto improving economic reforms that also simultaneously achieve efficiency can be implemented through a strategy of dual track liberalization its success requires the feasibility of the original plan and its continued enforcement by the state the chinese experience demonstrates that such a strategy works

inequality transfers and growth new evidence from the economic transition in poland this paper analyzes the evolution of inequality in poland during the economic transition that began in 1989 1990 using microdata from the household budget surveys we find that after a brief spik

economic reform and dynamic political constraints in this paper we examine the impact of political constraints on economic reform plans with special reference to the transition from centrally planned to market economies we analyse the problem of an agenda setting reform minded government facing a bureaucracy or industrial sector for which allocative efficiency requires redundancies and an increase in work intensity the government also tries to minimize the rents conceded to its heterogeneous workforce we examine two types of political constraints unanimity rule and majority rule both in a one period and a two period horizon the main results are the following first of all we show how adverse selection and time consistency may generate the widely observed feature of gradualism as an ingredient of an optimal reform second under a majority rule it is shown to be possible for the government to obtain a majority vote for a reform scheme that intertemporally hurts majority interests indeed the government can improve rent extraction through the strategic use of the threat of future proposals the group which expects to be in the minority tomorrow may accept concessions while its votes can be used to extract rents from another group these results suggest that in a dynamic context democratic constraints should not be overestimated as an obstacle against efficiency enhancing economic reforms the results of this paper may throw some light on the political economy of current reforms in eastern europe governments and political decision makers in general always face political constraints when elaborating reform proposals they know that the need to overcome potential opposition from various groups of the population constrains proposals for change political constraints vary depending on the specific institutional structure of society and are clearly different under a military dictatorship than under a parliamentary democracy the role of political constraints seems particularly important in eastern europe today where new democratic governments face the huge task of achieving the transition to a market economy while the introduction of democracy may have removed some important obstacles to economic change namely the veto power of a powerful nomenclatura under communist one party rule fears are expressed that it could potentially jeopardize economic reforms which may during the transition period hurt a majority of the population what can economic theory tell us about optimal economic reform under political constraints this paper starts addressing this ambitious question by looking at structural reform focusing on a restructuring of economic sectors which requires massive redundancies and a significant rise in labour productivity our model illustrates the case of planning

why did the west extend the franchise democracy inequality and growth in historical perspective during the nineteenth century most western societies extended voting rights a decision that led to unprecedented redistributive programs we argue that these political reforms can be viewed as strategic decisions by the political elite to prevent widespread social unrest and revolution political transition rather than redistribution under existing political institutions occurs because current transfers do not ensure future transfers while the extension of the franchise changes future political equilibria and acts as a commitment to redistribution our theory also offers a novel explanation for the kuznets curve in many western economies during this period with the fall in inequality following redistribution due to democratization i introduction the nineteenth century was a period of fundamental political reform and unprecedented changes in taxation and redistribution britain for example was transformed from an oligarchy run by an elite to a democracy the franchise was extended in 1832 and then again in 1867 and 1884 transferring voting rights to portions of the society with no previous political representation the decades after the political reforms witnessed radical social reforms increased taxation and the extension of education to the masses moreover as noted by kuznets inequality which was previously increasing started to decline during this period the gini coefficient for income inequality in england and wales had risen from 0 400 in 1823 to 0 627 in 1871 but fell to 0 443 in 1901 two key factors in the reduction in inequality were the increase in the proportion of skilled workers williamson 1985 and the redistribution of income toward the poorer segments of the society for example taxes rose from 8 12 percent of national product in 1867 to 18 8 percent by 1927 and the progressivity of the tax system increased substantially see lindert 1989

a bargaining model of farrell inefficiency abstract an enormous number of empirical papers have estimated technical efficiency the distance of firms inside a frontier following the model of farrell farrell 1957 the measurement of productive efficiency journal of the royal statistical society series a 120 3 253 290 we propose a theory that explains the distance these empirical papers seek to measure the theory is based on the idea that workers can bargain low effort high crew sizes etc if they and the firm have some monopoly power we provide simple theoretical expressions for the empirical measures of technical and allocative efficiency and compare them to those in the statistical literature we also consider the relation between competition and efficiency

using propensity matching estimators to evaluate the impact of privatization on wages whether the transfer of ownership rights to the private sector leads to a decline or increase in wage growth is theoretically ambiguous given that the outcome depends on the uncertain interaction between firms and workers using propensity matching techniques this article investigates the effects of privatization on wages in the portuguese banking industry the empirical results obtained from quadros de pessoal for the period between 1989 and 1997 generally show a negative positive short run long run effect of privatization on relative wage growth for both men and women retained in the privatized firms moreover the results show that the most educated and experienced oldest workers as well as those in the high skill occupational categories were more likely to experience a negative wage effect

privatization policies in central and eastern europe privatization in central and eastern europe patrick bolton and gerard roland this paper assesses policies of mass privatization in germany czechoslovakia hungary and poland a central concern stemming from the analysis is that in view of the fiscal crisis facing economies in transition it is crucial for governments to try to maximize the proceeds from the sale of state assets because of the low initial level of private wealth it is important in this respect to let potential buyers borrow from the government or issue claims on future revenues obtained with the privatized assets to the government in order to pay for the privatized firms allowing for such non cash bids removes the government s incentive to delay privatization for fiscal reasons reduces its ability to squander immediately the proceeds from privatization and improves the decentralization of control by allowing less wealthy but more able bidders to buy the firms they are best suited to run

gradualism versus big bang speed and sustainability of reforms a beneficial reform may be blocked by a majority if it is implemented by a big bang but the same reform may succeed with an optimally designed gradualist approach a gradualist approach can sometimes split opposition force and is in this sense more politically sustainable on the other hand if both approaches are politically preferred to no reform a big bang is often preferred to gradualism in terms of both political support as well as economic efficiency

learning dynamics and support for economic reforms why good news can be bad support for economic reforms has often shown puzzling dynamics many reforms that began successfully lost public support this paper shows that learning dynamics can rationalize this paradox because the process of revealing reform outcomes is an example of sampling without replacement this concept challenges the conventional wisdom that one should begin by revealing reform winners it may also lead to situations in which reforms that enjoy both ex ante and ex post majority support will still not come to completion the framework can be used to explain why gradual reforms worked well in china where successes in special economic zones facilitated further reform whereas this was much less the case for latin american and central and eastern european countries

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

an overlapping generations model of growth and the environment this article analyzes the potential conflict between economic growth and the maintenance of environmental quality in an overlapping generations model short lived individuals make decisions which have long lasting effects on both factor productivity and the environment the model provides a theoretical explanation of observed correlations between environmental quality and income whereby economic growth is associated first with declines then improvements in environmental quality it suggests circumstances in which multiple pareto ranked steady state equilibria may arise and in which sustained growth of both capital and environmental quality may occur overmaintenance of the environment analogous to dynamically inefficient overaccumulation of capital may emerge copyright 1994 by royal economic society

an assessment of labour s record on health and healthcare this paper examines the record of the 1997 2010 labour administration on health and healthcare it begins by outlining the policies adopted by the administration with respect to the delivery of healthcare services and population health it then presents a two part assessment in the first part we examine the performance of the administration with respect to improvements in healthcare and population health in the second part we examine the healthcare policy record copyright 2013 oxford university press

the economics of green consumption cultural transmission and sustainable technological change abstract a model which formalizes the interplay between green consumer culture and sustainable technology is used to revisit the trade off between economic growth and environmental preservation the theory includes i green preferences formed through cultural transmission which involves rational socialization actions ii innovation endogenously directed to sustainable or unsustainable sectors depending on culture through market size effects the model captures an important feature of sustainable innovation processes which is the existence of path dependency the approach allows to examine implications for both market based instruments i e environmental taxes and non monetary interventions i e environmental education the two types of policies are either complements or substitutes depending on the substitutability between clean and dirty goods finally an important disregarded issue is examined the political sustainability of environmental taxes

imf conditionality government partisanship and the progress of economic reforms the international monetary fund imf often seeks to influence countries domestic public policy via varying levels of conditionality linking financial support to borrowing governments commitment to policy reforms when does extensive conditionality encourage domestic economic reforms and when does it impede them we argue that rather than universally benefiting or harming reforms the effects of stricter imf conditionality depend on domestic partisan politics more imf conditions can pressure left wing governments into undertaking more ambitious reforms with little resistance from partisan rivals on the right under right governments however more conditions hinder reform implementation by heightening resistance from the left while simultaneously reducing leaders ability to win their support through concessions or compromise using data on post communist imf programs for the period 1994 2010 we find robust evidence supporting these claims even after addressing the endogeneity of imf programs via instrumental variables analysis

mixed oligopoly and spatial agglomeration abstract we investigate a mixed market where a state owned welfare maximizing public firm competes against profit maximizing private firms we use a circular city model with quantity setting competition in contrast to a pure market case discussed by pal 1998a spatial agglomeration of private firms always appears in equilibrium all private firms locate at the same point and the public firm locates at the opposite side we also find that this equilibrium pattern of the location is second best provided that output of each private firm cannot be controlled by the social planner jel classification h42 l13 oligopole mixte et agglomeration spatiale les auteurs examinent un marche mixte ou une entreprise publique possedee par l etat et cherchant a maximiser le niveau de bien etre est en concurrence avec des entreprises privees qui cherchent a maximiser leurs profits on utilise un modele de cite circulaire ou la concurrence se fait en choisissant la quantite produite en contraste avec le cas du marche parfait discute par pal 1998a l agglomeration spatiale des entreprises privees parait etre en equilibre toutes les entreprises privees se localisent au meme point et l entreprise publique se localise du cote oppose il appert que ce pattern d equilibre de localisation est un equilibre de second ordre compte tenu du fait que la production de chaque entreprise privee ne peut etre controlee par le planificateur social