learning to believe in sunspots a number of authors have shown that competitive economies may possess sunspot equilibria that is rational expectations equilibria in which purely extrinsic uncertainty affects equilibrium prices and allocations 2 such results demonstrate that it does not require a lack of faith in the rationality of market participants to believe that competitive markets may be subject to purely speculative fluctuations driven solely by expectations 3 the mere existence of sunspot equilibria as solutions to a system of marketclearing conditions however might not be judged sufficient to indicate that competitive markets with rational participants could ever be subject to speculative instability the sunspot equilibria represent states of affairs in which agents act differently in the case of different realizations of the sunspot variable and it is rational for each agent to do so but it might be thought unlikely that the beliefs of all the participants in the market could ever come to be coordinated so as to bring about an equilibrium of that kind it is rational to believe that sunspots convey information about future states of affairs once the economy is in a sunspot equilibrium but why would rational agents ever begin to believe in such a thing so as to create the conditions under which the belief is rational in order to address such a question one must go beyond the mere statement of the conditions for equilibrium and discussion of what states of affairs satisfy them one must specify an explicit dynamic process according to which the beliefs of agents adjust when out of equilibrium any exercise of this kind is necessarily unsatisfactory as there is no univocal meaning for the postulate of rational behavior outside of an equilibrium it may well be the case that

life and work of john richard nicholas stone 1913 1991 sir richard stone knighted in 1978 and nobel laureate in economics in 1984 was one of the pioneering architects of national income and social accounts and one of the few economists of his generation to have faced the challenge of economics as a science by combining theory and measurement within a cohesive framework he was awarded the nobel prize in economics for his fundamental contributions to the development of national accounts but made equally significant contributions to the empirical analysis of consumer behaviour his work on the growth project was also instrumental in the development of appropriate econometric methodology for the construction and the analysis of large disaggregated macroeconometric models this paper provides an analysis of stone s many contributions

applied general equilibrium models of taxation and international trade an introduction and survey we wish to acknowledge the help of three referees and of john pencavel on several earlier drafts as well as the assistance of the modelers whose work is referred to in the paper they corrected our lack of understanding of their work and provided many other helpful comments excellent research and bibliographical assistance have been provided by debbie fretz radwan shaban and janet stotsky helpful comments have been made by charles ballard michael boskin lans bovenberg sylvester damus harvey galper glenn harrison gordon lenjosek jack mutti serena ng t n srinivasan charles stuart and eric toder the authors also acknowledgefinancial support from the national bureau of economic research the national science foundation international business machines and the social sciences and humanities research council ottawa canada

economic growth strategies the effects of ideological partisanship on interest rates and business taxation in the united states we reformulate the partisanship thesis in light of four claims leveled against it the reformulated version ideological partisanship is based upon the theory that similar rates of economic growth may follow from the different use of policy instruments owing to their role as determinants of investment and growth interest rates business taxation rates and the redistribution of the tax burden between capital gains and earned income are examined we advance models that take into account other views of politics beside the partisan one and test for political influences the united states is characterized by very pronounced partisan differences in national economic policy with democratic administrations seeking to promote growth through a consumption driven while republican administrations promote an investment driven strategy democratic administrations also seek to shift the tax burden toward corporations and owners of capital these findings are examined in light of the comparative political economy literature we conclude that the forms and institutional foundations of left partisan policies differ among democratic capitalist countries

on tax reform systems of business and personal taxation in most western economies are not efficient the paper discusses efficiency losses due to 1 tariffs and sales taxes 2 the nonneutral treatment of business durable inputs 3 differential rates of business income taxation and 4 the taxation of interest estimates of the possible magnitudes of the various efficiency losses are derived the second part of the paper outlines the elements of an efficient system of taxation a feature of the proposed system is that most workers would not have to file tax returns

the trade off between equality and efficiency this paper uses a 1976 microdata base to estimate the marginal cost of reducing income inequality with a policy that has distributional effects similar to the present tax transfer system the analysis uses a simulation methodology in which only the labor supply effects are evaluated other behavioral effects are ignored the most striking finding is that marginal cost is quite high even for modest labor supply elasticities for example in the benchmark case with a weighted average economy wide uncompensated wage elasticity of 0 2 and compensated elasticity of 0 31 the disposable money income of upper income quintiles of households is depressed by 9 51 for each dollar increase in the disposable money income of lower income quintiles when income equivalent values that take account of the value of leisure are compared the marginal cost for this case is estimated to be 3 49

a computational analysis of japan s generalized system of preferences abstract in this paper we employ a general equilibrium computational model of world trade to evaluate the generalized system of preferences gsp of japan we conclude that the japanese gsp is strongly trade creating because preferential treatment is offered primarily on products for which japan is a major world exporter however tariff concessions result in a deterioration in japan s terms of trade which lowers welfare in japan and improves the welfare of japan s major trading partners among the ldcs the gain from preferential treatment accrues primarily to the asian nics hong kong south korea singapore and taiwan

the inherent dangers of using computable general equilibrium models as a single integrated modelling framework for sustainability impact assessment a critical note on bohringer and loschel 2006 the search for methods of assessment that best evaluate and integrate the trade offs and interactions between the economic environmental and social components of development has been receiving a new impetus due to the requirement that sustainability concerns be incorporated into the policy formulation process a paper forthcoming in ecological economics bohringer c loschel a in press computable general equilibrium models for sustainability impact assessment status quo and prospects ecological economics claims that computable general equilibrium cge models may potentially represent the much needed back bone tool to carry out reliable integrated quantitative sustainability impact assessments sias while acknowledging the usefulness of cge models for some dimensions of sia this commentary questions the legitimacy of employing this particular economic modelling tool as a single integrating modelling framework for a comprehensive evaluation of the multi dimensional dynamic and complex interactions between policy and sustainability it discusses several inherent dangers associated with the advocated prospects for the cge modelling approach to contribute to comprehensive and reliable sustainability impact assessments the paper warns that this reductionist viewpoint may seriously infringe upon the basic values underpinning the sia process namely a transparent heterogeneous balanced inter disciplinary consultative and participatory take to policy evaluation and building of the evidence base

from theory to practice canadian economists contributions to public finance we survey canadian economists contributions to the field of public finance from the mid 1980s to 2016 we highlight the development and extension of the models and tools of public economics and the empirical studies that have deepened our understanding of the efficiency and distributional issues over a wide range of public finance issues we also highlight contributions to the development of policies through commissioned reports and the important role that canadian institutions the canadian tax foundation the think tanks and the federal and provincial departments of finance have played in shaping tax and fiscal policies de la theorie a la pratique contributions des economistes canadiens a la finance publique on examine les contributions des economistes canadiens au domaine de la finance publique du milieu des annees 1980 a 2016 on souligne le developpement et l extension des modeles et des outils d economie publique et les etudes empiriques qui ont aide a approfondir notre comprehension des enjeux d efficacite et de distribution dans un vaste eventail de questions de finance publique on souligne aussi les contributions des rapports commandites au developpement de politiques publiques ainsi que le role important d institutions canadiennes l association canadienne d etudes fiscales les groupes d experts ainsi que les ministeres des finances du gouvernement federal et des gouvernements provinciaux dans le design des politiques fiscales

politics at the water s edge parties voters and the use of force abroad this article examines the effects of party politics and presidential election cycles on u s recourse to force abroad i analyze a game theoretic model to generate predictions about these effects in the unique time consistent equilibrium outcome of the one shot game policy varies across political parties in a subgame perfect equilibrium outcome of the repeated game the use of force is invariant to the partisan composition of government in neither case does policy respond to the electoral cycle an empirical analysis supports the predictions of the repeated game between 1870 and 1992 u s recourse to force abroad responds neither to partisan politics nor to the domestic political calendar it responds only to changes in u s power status and to the advent of general wars

developing countries and the gains from regionalism links between trade and farm policy reforms in mexico we use a multi country computable general equilibrium cge model with agricultural policy details to simulate the effects of north american free trade agreement nafta we find that mexico gains from nafta only when it also removes domestic distortions in agriculture in that case agriculture can generate allocative efficiency gains large enough to offset the terms of trade losses that arise because mexico has higher initial tariffs than its nafta partners when an rta forces a developing country to reform its domestic distortions that are linked to trade restrictions it becomes a building block toward multilateralism

equilibrium selection and bounded rationality in symmetric normal form games abstract we develop and test a model of initial play for symmetric normal form games with multiple nash equilibria first we specify an encompassing model that incorporates both equilibrium selection principles and boundedly rational behavioral models we then design experimental games that can identify a variety of equilibrium selection principles model comparisons and hypothesis tests indicate that 1 boundedly rational behavior is prevalent in initial period play 2 homogeneous population models can be strongly rejected in favor of heterogeneous population models and 3 deductive selection principles add no statistically significant contribution to explaining the data

does information matter in the commons experimental evidence abstract common pool resources cprs typically involve interaction where precise information about payoffs is absent however all experimental studies of cprs we are aware of study environments where the payoff structure is known in this paper we address the behavioral consequences of two degrees of information on the mapping between decisions and payoffs we run two treatments one with complete information on the payoff structure and one with none remarkably aggregate behavior is not significantly different between the two treatments in both cases the aggregate tendencies converge to the nash equilibrium furthermore the best reply dynamics organize individual behavior in both treatments remarkably well

on the use of ecological prices and system wide indicators derived therefrom to quantify man s impact on the ecosystem abstract ecological prices and other system wide quantitative descriptors of ecosystem functioning are derived from the assumption that ecosystems allocate available resources efficiently among their components however ecological prices are not efficiency prices only and using them does not require one to assume that the ecosystem is completely controlled by man the same prices balance flows of different biomasses in a multicomponent system as such they play the role of exchange prices in a decentralized ecosystem properly defined with the help of ecological prices the resulting ecosystem productivity is no less a significant indicator of ecosystem functioning than the national product is significant for assessing the functioning of an economy considerations of the values taken simultaneously by our proposed indicators and by their economic analogs are of much help in judging the desirability of projects with relatively mild environmental repercussions these values are obtained from an integrated model of a system in which ecological and economic activities are intertwined however for the indicators to have an analytical meaning the methodology should be applied to trace only those dynamic paths during which the system possesses unique state dependent intensive properties in other cases a more comprehensive methodology one which also pays due regard to the viability of the ecosystem must supplement the analytical approach this rather comprehensive methodology is scale dependent and probabilistic in nature while delineating relations between the structure of the system and its behavior this method implies that efficiency and viability are two complementary rather than two commensurate attributes of a single entity an outside observer may be guided by his own values in his attempts to weigh these features but no inherent property of the system exists that supports his values unequivocally nevertheless this paper proposes an approximation to overcome this difficulty and to estimate a quantitative limit to the rate of substitution between productivity and viability such a limit is also an intensive property of the simulated system and the estimation of its value is shown to be crucial for studying the vulnerability of real ecosystems to severe man made disturbances

stepping stones for biological invasion a bioeconomic model of transferable risk we investigate three sources of bias in valuation methods for ecosystem risk failure to consider substitution possibilities between goods failure to consider nonseparability of ecosystem services with market goods and failure to consider substitution possibilities between ecosystems the first two biases are known in the literature and we offer insight on the size of the bias for a specific example our work on spatially transferable risk is novel we develop the concept and show how it may undermine typical invasion prevention strategies we find three key results first partial equilibrium estimates of welfare loss are significantly overestimated relative to general equilibrium estimates if ecosystem services and market goods are substitutes the partial equilibrium bias is greater than if they are compliments second well intended policies do not necessarily reduce overall risk risk reduction actions can transfer risk to another time or location or both which may increase total risk third policies of quotas and inspections have to be extreme to improve welfare with inspections having advantages over quotas

learning dynamics for mechanism design an experimental comparison of public goods mechanisms in a repeated interaction public goods economy incomplete information and dynamic behavior may affect the realized outcomes of mechanisms known to be efficient in a complete information oneshot game an experimental test of five public goods mechanisms indicates that subjects with private information appear to best respond to recent observations this provides predictions about which mechanisms will generate convergence to their efficient equilibrium allocations these predictions match the experimental result that globally stable efficient mechanisms realize the highest efficiency in practice the simplicity of the suggested best response model makes it useful in predicting stability of mechanisms not yet tested

rents and the cost and optimal design of commodity taxes this paper numerically investigates the significance of rents for both the welfare costs and the optimal design of commodity taxes using a general equilibrium model calibrated to 1986 canadian data in the data we use ricardian rents are concentrated in agriculture and utilities with market structure rents concentrated in manufacturing different types of rents have different implications for the welfare cost of taxes and hence also for appropriate tax design ricardian rents lower the cost of taxes rents supported by imperfect competition with no free entry raise the cost of taxes rents supported by regulation generate rent seeking costs and if taxed improve resource allocation model results show a markedly nonuniform optimal tax structure and a substantial influence of the treatment of rents on the pattern of optimal tax rates by commodity

macroeconomics economic stratification and partisanship a longitudinal analysis of contingent shifts in political identification this study examines the effects of unemployment and inflation on aggregate party identification since 1953 distributive explanations emphasizing partisan preferences about macroeconomic outcomes and their effects on different income groups are gauged by letting the explanatory variables have dissimilar effects when different parties hold office independents are included so multinominal logit can be used to trace movements between all three identification choices when a democrat is president increased unemployment heightens democratic identification but inflation has no effects when a republican is president increased unemployment and inflation reduce republican identification these results reveal historically contingent relationships between macroeconomic outcomes and partisan coalitions

on the possibility of an inverse relationship between tax rates and government revenues abstract when arthur laffer and other supply side advocates plot total tax revenue as a function of a particular tax rate they draw an upward sloping segment called the normal range followed by a downward sloping segment called the prohibitive range a brief literature review indicates that tax rates on the prohibitive range in theoretical and empirical models have been the result of particularly high tax rates high elasticity parameters or both the labor tax rate which maximizes total revenue for example will depend on the assumed labor supply elasticity this paper introduces a new curve which summarizes the tax rate and elasticity combinations that result in maximum revenues separating the normal area from the prohibitive area a general purpose empirical u s general equilibrium model is used to plot the laffer curve for several elasticities and to plot the newly introduced curve using the labor tax example results indicate that the u s could conceivably be operating in the prohibitive area but that the tax wedge or labor supply elasticity would have to be much higher than most estimates would suggest

an experimental examination of general equilibrium tax incidence abstract tax incidence is examined in an experimental general equilibrium production micro economy consistent with predictions the imposition of a tax on corporate capital resulted in a flow of capital out of the corporate sector decreased corporate usage of capital relative to labor and tax shifting through decreases in the relative prices of capital and non corporate output although capital owners were able to shift some of the tax burden the corporate tax resulted in a 35 drop in capital owner s share of payoffs implications for policy are discussed

an overlapping generations model of electoral competition this paper presents a dynamic model of political competition between two parties with different policy preferences a party is explicitly modeled as a sequence of overlapping generations of candidates all of whom face finite decision horizons in general there is a conflict between the interests of the individual policymakers and those of the party which includes subsequent generations of candidates we characterize this conflict and suggest a scheme of intergenerational transfers within the party which can resolve or mitigate this conflict the paper shows how the overlapping generations model can be usefully applied to the political arena this abstract was borrowed from another version of this item

reforming indirect taxes in canada some general equilibrium estimates the current indirect tax system in canada distorts economic activity in a variety of ways and has been the subject of considerable discussion as part of overall tax reform in this paper a general equilibrium model is used to analyze various changes in indirect taxes in canada focusing on possible changes to the federal and provincial sales taxes results suggest that replacing either the federal or provincial sales taxes with a broadly based sales tax yields a small but significant welfare gain the distributional effects from these changes are slightly regressive but appear to be quite small and easily offset by modest income tax credits targeted to low income households results also suggest that a broad based sales tax would be a significantly more efficient revenue source should additional sales tax revenues be required

how to measure labour market effects of immigration a review abstract this paper surveys available empirical evidence on labour market effects of immigration many different approaches have been used already to try to find out whether immigration hurts the labour market opportunities of natives no doubt new approaches will follow in the future as globalization will keep the migration issue on the agenda this literature review discusses the different approaches concentrating on both the methodology and the results at the end it tries to summarize available evidence

a directional theory of issue voting from stokes s 1963 early critique on it has been clear to empirical researchers that the traditional spatial theory of elections is seriously flawed yet fully a quarter century later that theory remains the dominant paradigm for understanding mass elite linkage in politics we present an alternative spatial theory of elections that we argue has greater empirical verisimilitude based on the ideas of symbolic politics the directional theory assumes that most people have a diffuse preference for a certain direction of policy making and that people vary in the intensity with which they hold those preferences we test the two competing theories at the individual level with national election study data and find the directional theory more strongly supported than the traditional spatial theory we then develop the implications of the directional theory for candidate behavior and assess the predictions in light of evidence from the u s congress

general equilibrium analysis of black and white markets a computational approach abstract this paper explores the inter relationship between black and white markets and presents a formulation in which equilibrium conditions hold separately for each type of market for each product with linking conditions across market types using a traditional goods and factor general equilibrium model the simultaneous operation of price controls on white markets and surveillance with penalties for those caught trading on black markets is modelled a numerical example of such an economy is presented using data for india and equilibria under coexistence are reported

the impacts of tax reform on agricultural households estimates of tax reform s impacts usually concentrate on macroeconomic impacts but attention at the industry or sectoral level is often limited our study uses a computable general equilibrium cge model to estimate the disaggregated impacts of the tax cuts and jobs act tcja of 2018 which lowered personal and corporate tax rates focusing on agriculture we use survey data to calculate how the tcja would change the tax rates faced by farmers at the sector level we use internal revenue service data to calculate tax rates for all other producers we then simulate the economy wide and sectoral effects of tcja we find that the tcja would cause a reduction in agricultural output as resources would be reallocated to other sectors using our survey data we extend the cge results to measure the impacts to farm households from changes in on and off farm income we find that most farm households would have income gains from tax reform our tax reform scenario highlights the fact that investment weighs heavily on model results that is firms that are attractive to domestic and foreign investment have gains in demand for their products while other sectors such as primary agriculture experience decreases in production a sensitivity analysis that reduces the attractiveness of the united states in foreign investment shows smaller impacts of tcja especially for macroeconomic variables

equilibrium selection in a nonlinear duopoly game with adaptive expectations abstract we analyze a nonlinear discrete time cournot duopoly game where players have adaptive expectations the evolution of expected outputs over time is generated by the iteration of a noninvertible two dimensional map the long run behavior is characterized by multistability that is the presence of coexisting stable consistent beliefs which correspond to nash equilibria in the quantity space hence a problem of equilibrium selection arises and the long run outcome strongly depends on the choice of the players initial beliefs we analyze the basins of attraction and their qualitative changes as the model parameters vary we illustrate that the basins might be nonconnected sets and reveal the mechanism which is responsible for this often neglected kind of complexity the analysis of the global bifurcations which cause qualitative changes in the topological structure of the basins is carried out by the method of critical curves

a downsian spatial model with party activism a unidimensional spatial model is proposed in this article although its formal structure parallels the spatial model of electoral competition this model examines the decisions of individuals as they choose whether or not to become activists in one of two political parties an individual calculus of participation is developed that is similar to the spatial interpretation of the calculus of voting this calculus is then generalized by examining conditions that may hold for aggregate activism probabilities and the relationship between the two forms is investigated some results are then presented which concern the distributions of activists in the two parties these results in general conform to the existence of party cleavages in which there are two stable equilibrium distributions of activists such that the two parties activists are relatively cohesive internally and relatively distinctive externally finally some suggestions are offered about how this model can be combined with the spatial model of candidate competition to provide a more complete model of elections

the incidence of indirect taxes on low income households in jamaica it is generally understood that the main concern of tax policy in developing countries with respect to the poor is that the poor not be made poorer the usual aim of tax reformers is thus either to avoid regressivity in tax design or to reduce regressivity through tax reform measures more positive actions to reduce poverty are it is usually argued best left to government expenditure policies in recent years however skepticism has grown as to the effectiveness of conventional public expenditure policy in reaching the very poor 2 in addition the potential scope for tax policy to affect factor prices and hence income distribution in developing countries has been stressed 3 the distributional effects of taxes thus continue to be of interest in most developing countries in the developed countries advances in modeling the effects of taxation have shed light on the complex relationships between taxation and income distribution and new approaches to incidence analysis have cast doubt on the earlier consensus as to the relative regressivity of various taxes 4 a few applications of these new ideas and techniques to developing countries are now available 5 in this article we contribute to this literature by making use of a new data set to analyze the incidence of indirect taxes on the poor in jamaica a decade ago a comprehensive review of fiscal incidence studies concluded that in only two of the 44 studies examined covering 22 developing countries was the tax system basically regressive that is in only two countries did the poor broadly defined appear to pay a larger proportion of their incomes in tax than did the rich 6 in a number of other cases however there was evidence of some regressivity to

on reforming the welfare system abstract using a simulation model for a small open economy quebec 1986 various negative income tax nit and workfare schemes are compared from the point of view of efficiency and equity the main finding is that there exist workfare schemes that are superior both to the quebec regime of 1986 and to a nit characterized by a 100 percent implicit tax rate however these workfare schemes are dominated by some nit programs this suggests that it may be necessary to have work requirements that vary across socio demographic classes for a workfare plan to be superior to any nit combining workfare with an nit could also be the prescription

a computational general equilibrium model with endogenous unemployment an analysis of the 1980 fiscal reform in mexico abstract in this paper we develop a general equilibrium model of the mexican economy in which unemployment and government deficits play important roles the unemployment rate depends on a downwardly rigid real wage in the urban sector the government runs a deficit simply by selling bonds that consumers consider perfect substitutes for physical capital as savings instruments the model is used to analyze the impact of the 1980 fiscal reform the presence of the rigid real wage and alternative specifications of government policies regarding the size of the deficit are found to have significant effects on the comparative statics results whether or not the reform improves the welfare of rural households compared to urban households for example depends on whether government policy is to keep the deficit constant or keep expenditures constant in response to changes in tax revenues

carbon pricing and energy efficiency improvement why to miss the interaction for developing economies an illustrative cge based application to the pakistan case abstract carbon energy taxes and energy efficiency improvement are studied well in the recent years for their potential adverse impacts on economy especially for lost production and international competitiveness and rebound effects however little attention has been paid to investigate them jointly which can not only prevent fall of energy services cost and thereby rebound effect but reduce the associated macroeconomic costs this study thus employs a 20 sector cge model to explore separately the impacts of carbon tax and its coordinated implementation with energy efficiency improvement on the pakistan economy the country underwent enormous pressure of energy security issues as well as climate change fallouts in the last couple of years and can be regarded as a suitable candidate for energy environmental conservation policies to be considered at a broader context with more concrete efforts the simulation results show that the impact of carbon tax on gdp is negative but resulting reductions in pollutant emissions are relatively high moreover the gdp is expected to grow comparatively positive when analyzed with improvements in energy efficiency with even higher decline in energy consumption demand and so emissions this simultaneous economic and environmental improvement would thus have positive implications regarding sustainable development of the country

partisanship theory macroeconomic outcomes and endogenous elections recently there has been a surge of interest in partisanship theories of macroeconomic political interaction unlike political business cycle theory in which economic policy is motivated only by reelection concerns partisanship theory maintains that policy is motivated along ideological lines political parties differ with respect to economic policy and consequently economic performance may differ as well indeed not only is there evidence that political parties in the united states have quite different policy priorities but that this difference in policy priorities is translated into differences in economic outcomes 2

chaos significance mechanism and economic applications imagine a bargaining model say involving diplomats negotiating tariff levels or a disarmament treaty in which each party has been instructed by higher headquarters to respond to each new offer by her opposite number with a counteroffer that is to be calculated from a simple reaction function provided in advance both negotiating parties are prohibited from revealing their own reaction functions to the other if the perfectly deterministic sequence of offers and counteroffers that must emerge from these simple rules were to begin to oscillate wildly and apparently at random the negotiations could easily break down as each party not understanding the source of the problem came to suspect the other side of duplicity and sabotage yet all that may be involved as we will see is the phenomenon referred to as chaos a case that is emphatically not pathological but in which a dynamic mechanism that is very simple and deterministic yields a time path so complicated that it will pass most standard tests of randomness chaos has become a subject of great interest to specialists and nonspecialists alike besides economics it has entered the literature of geometry physics ecology and meteorology it has been written about at length in the new york times magazine and scientific american as well as technical publications this article seeks to describe what it is how it works and what it means for economics

rationalizable strategic behavior the notion of equilibrium proposed by nash 19 has come to play a dominant role in economic applications of noncooperative games while analyses of nash equilibria have unquestionably contributed to our understanding of economic behavior it would be unreasonably optimistic to maintain that nash solved the problem of noncooperative strategic choice there is a small literature beginning with ellsberg 6 and a much larger oral tradition which argues that nash behavior is neither a necessary consequence of rationality nor a reasonable empirical proposition in this paper i take the view that although there may be various reasons why an agent might select a nash strategy the notion of an equilibrium has little intrinsic appeal within a strategic context when an agent reaches a decision in ignorance of the strategies adopted by other players rationality consists of making a choice which is justifiable by an internally consistent system of beliefs rather than one which is optimal post hoc this point of view is not original indeed most serious justifications of the nash hypothesis embrace such an approach arguing that agents will expect the game to yield a nash outcome and consequently will choose their equilibrium strategies nevertheless when we think in terms of maximizing utility subject to expectations rather than realizations it becomes clear that the nash hypothesis far from being a consequence of rationality arises from certain restrictions on agents expectations which may or may not be plausible depending upon the game being played we are then quite naturally led to ask are there any restrictions of individuals expectations and hence choices which are required by rationality alone rather than by subjective plausibility this paper is concerned with defining justifying characterizing and refining a criterion for rational strategic choice which i label rationalizability

the effects of energy taxes on the kenyan economy a cge analysis abstract the paper utilizes a computable general equilibrium model to evaluate the impact of the second oil price shock and consequent energy tax policies on the kenyan economy simulations show that dramatic change in energy prices and consequent changes in domestic energy consumption generate sequential feedbacks in the production process and affect economic structures terms of trade deteriorate the balance of payments deficit increases and national income falls energy import tariffs and a sales tax are effective policy instruments in controlling energy consumption and increasing government revenue both energy policies have net negative effects on other economic activities similar to those observed under the oil price shock as long as there are no other economically feasible sources of energy supplies there are economic losses associated with less petroleum product consumption in a net oil importing developing economy with oil intensive production technology

us presidential elections and implied volatility the role of political uncertainty abstract this paper focuses on the effects of political uncertainty and the political process on implied stock market volatility during us presidential election cycles using monthly iowa electronic markets data over five elections we document that stock market uncertainty as measured by the vix volatility index increases along with positive changes in the probability of success of the eventual winner the association between implied volatility and the election probability of the eventual winner is positive even after controlling for changes in overall election uncertainty these findings indicate that the presidential election process engenders market anxiety as investors form and revise their expectations regarding future macroeconomic policy

pluralism and social choice pluralist political theory identifies certain patterns of political preferences as promoting the stability of democratic political systems and others as threatening to such stability social choice theory likewise identifies certain patterns of political preferences as leading to stability in social choice under majority rule and related collective decision rules and other patterns as leading to unstable social choice but the preference patterns identified by pluralist theory as promoting stability are essentially those identified by social choice theory as entailing instability thus the notions of stability and the implicit normative criteria associated with the two theories are very close to being logically incompatible this incompatibility suggests that the social choice ideal of collective rationality may not be one that we should endorse indeed the generic instability of the pluralist political process and its consequent collective irrationality may contribute to the stability of pluralist political systems

selection dynamics asymptotic stability and adaptive behavior selection dynamics are often used to distinguish stable and unstable equilibria this is particularly useful when multiple equilibria prevent a priori comparative static analysis this paper reports an experiment designed to compare the accuracy of the myopic best response dynamic and an inertial selection dynamic the inertial selection dynamic makes more accurate predictions about the observed mutual best response outcomes

iterative computation of cournot equilibrium abstract in a homogeneous coumot model with quasi concave profit functions the problem of determining an equilibrium can be posed as one of solving an equation in one real variable total sales if the response functions are monotone or firms are identical then a certain iterative process based on averaging converges to an equilibrium such iterations have the interpretation that every firm responds to the average of sales by other firms in brevious periods

strategy similarity and coordination in the payoff assessment model of choice sarin and vahid 1999 only the assessment of the chosen strategy is updated we extend that model to allow the agent to also update the assessments of strategies that the agent thinks are similar to the chosen strategy we use this model to explain observed behaviour in a recent experiment statistical tests cannot distinguish between the payoff distributions generated by the model and the observed payoff distributions in almost every period

the efficiency gains from dynamic tax reform this paper presents a new simulation methodology for determining the pure efficiency gains from tax reform along the general equilibrium rational expectations growth path of life cycle economies the principal findings concern the effects of switching from a proportional income tax with rates similar to those in the u s to either a proportional tax on consumption or a proportional tax on labor income a switch to consumption taxation generates a sustainable welfare gain of almost 2 percent of lifetime resources in contrast a transition to wage taxation generates a loss of greater than percent of lifetime re sources a second general result is that even a mild degree of progressivity in the income tax system imposes a very large efficiency cost this abstract was borrowed from another version of this item

us presidential elections and real gdp growth 1961 2004 in this paper i show that since 1960 an electoral cycle in us output growth can both be seen by the naked eye in the raw data and confirmed by a statistical analysis that allows for rational partisan effects as well as a wide range of control variables that is controlling for multiple lags of interest rate changes inflation money growth energy prices lagged output growth government spending or its growth and temporary partisan effects the timing of elections exerts a significant influence on quarterly real gdp growth

second best agricultural policy abstract since full economic liberalization is not generally feasible getting the prices of selected agricultural markets right involves optimal price distortions a methodology is developed for calculating the second best output price in a particular market by incorporating externalities government revenue constraints and distortions in other markets into the marginal social cost and benefit schedules for that market in the illustrative application to thailand tax friction consumption externalities and the optimal tariff argument are seen to support an export tax on rice even though import tariffs already discriminate against agricultural exports

estimating distortions in the chinese economy a general equilibrium approach a computable general equilibrium model is constructed to simulate the chinese economy under a system of free markets and is estimated using a calibration procedure coupled with econometric estimation for key parameters the equilibrium solution of the model indicates substantial distortions in prices and resource allocation in the 1983 chinese economy labour was found to be overpaid and capital underpaid in most non agricultural sectors two fifths of the agricultural labour force would have been employed by the non agricultural sectors had china been a market economy the elimination of these distortions would imply a significant improvement in allocative efficiency and a redistribution of income from labour to capital from households to the state and from urban to rural households china embarked upon its economic reform programme in the late 1970s over the period 1979 83 there were dramatic reforms in the rural agricultural sector including the dismantling of the three level ownership of communes the dis tribution of land to peasant households and the relaxation of controls over labour transfer from the agricultural sector to the rural non agricultural sector in contrast in the urban economy and especially in the state industrial sector reforms were confined to modest improvements in incentives for enterprises and workers notably through the introduction of profit retention schemes and bonus systems in 1983 much of the traditional mechanism of resource alloca tion remained essentially intact the problem of distortions in the price system and in resource allocation in centrally planned economies cpes has long been a concern of economists and there has been a considerable interest in empirical modelling of distortions in cpes thornton 1971 estimated potential efficiency gains from equalizing the return to capital for different branches of soviet industry in the early 1960s desai and martin 1983 provided similar estimates using econometrically esti mated production functions portes and winter 1980 estimated excess demand in the aggregated consumption goods market for a number of pre reform eastern european economies using the technique of econometric dis equilibrium modelling podkamine 1988 calculated free market demands and prices in the absence of rationing for consumption goods markets in poland during 1965 86 by transplanting demand systems estimated for market econ omies into the quantity constrained polish economy chow 1985 investigated the efficiency of labour allocation in chinese state industry by comparing the average wage rate with the value of the marginal product of labour all these studies however involve partial equilibrium analysis in the sense that they are concerned only with examining the distortion in a specific market and therefore have tended to ignore distortions in the rest of the economy and a

economic effects of vat reforms in germany in the tax policy debate differentiation of value added taxes is often justified by distributional concerns our quantitative analysis for germany indicates that such concerns are misplaced we find that the abolition of vat differentiation has only negligible redistributive effects instead reduced vat are found to act as industry specific subsidies whereas the overall welfare effects of pure vat reforms are very small a revenue neutral introduction of a harmonised vat combined with reductions in the marginal income tax rates or social security contributions turns out to produce substantial welfare gains for all households

property tax classification and welfare in urban areas a general equilibrium computational approach abstract this paper examines some of the structural and welfare effects of a change from a tax system in an urban area that classifies property by use for tax assessment to one that does not discriminate in its treatment of property a long run general equilibrium model of intraurban spatial location is developed due to analytical intractability the tax policy changes are simulated by use of a fixed point algorithm the model is stylized to the boston metropolitan area to the extent possible general equilibrium versions of compensating and equivalent variations in income are used as measures of welfare change the qualitative welfare results obtained from sensitivity analysis are fairly robust in a substantial majority of the cases considered there is a welfare gain in moving from the particular tax classification structure posited to a system in which all property is taxed at the same effective rate

an evolutionary cournot model with limited market knowledge abstract in this paper we analyze a dynamic game of cournot competition with heterogeneous firms choosing between two different adaptive behavioral rules in deciding output strategies the underlying oligopoly structure is standard using a constant return to scale technology n firms produce homogeneous goods which are sold in a market characterized by constant price elasticity in this setup we assume that a fraction of firms employs a quite rough rule of thumb the so called local monopolistic approximation lma whereas the complementary fraction plays best reply br a more demanding strategy in terms of information and computation requirements the model is first considered with exogenously fixed fractions of firms in the two complementary groups then it is generalized by considering an endogenous evolutionary switching process between the two behavioral strategies based on profit driven replicator dynamics the role of the number of firms information costs and inertia or anchoring attitude in production decisions is analyzed as well as the influence in the evolutionary process of random noise in the demand function and memory of past profits global properties of the oligopoly with evolutionary pressure between behavioral rules are discussed with particular regard to cases in which the nash equilibrium is unstable

the impact of monetary regime changes some exchange rate evidence abstract lucas has argued that coefficient changes can be explained by changing expectations caused by the policy regime shifts this paper provides evidence consistent with the lucas critique using an efficient markets news framework kalman filter results show that surprise relative u s monetary expansion is associated both with periods of u s depreciation and appreciation i show that variables representing changes in monetary policy regimes can explain a substantial fraction of the movements in the time varying parameter

the political manipulation of macroeconomic policy conventional wisdom and some research indicate that macroeconomic policies follow cycles corresponding to political as well as economic forces using vector autoregression analysis i test three models of monetary policy determination for the united states 1953 1984 the electoral cycle model that reelection motivations on the part of presidents create a policy cycle the party differences model that policy changes reflect revolving presidential party administrations and the referendum model that changes in presidential approval create in effect a continuing referendum allowing presidents to monitor their success and change macroeconomic policies when necessary analysis shows that monetary policies as measured by the monetary base and short term interest rates respond to the election cycle and presidential approval although the effect on macroeconomic outcomes is ambiguous party differences are found in real income but are not very significant in other variables

fiscal constraints and electoral manipulation in american social welfare a merican social welfare policy involves a politically significant fiscal interaction between short run pay as you go constraints and long run equilibrium constraints motivated by the contributory principle and the concept of actuarial soundness the fiscal constraints induce conflict between benefit recipients and payroll tax payers to support small election year reductions in payroll taxes means tested program benefits are slightly reduced in election years compared to non election year levels under similar economic conditions the existence of the constraints and of the election year changes is tested using a multivariate time series regression model of monthly transfer payments and contributions for social insurance during years 1948 87 short run dynamics arefound to be weakly incrementalist but otherwise the results support the argument extraordinary manipulations are identified during 1972 special technical features of the econometric analysis are a nonlinear dynamic specification robust generalized method of moments estimation and near cointegration

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

learning to believe in simple equilibria in a complex olg economy evidence from the lab abstract we set up a laboratory experiment to empirically investigate equilibrium selection in a complex economic environment we use the overlapping generation model of grandmont 1985 which displays multiple perfect foresight equilibria including periodic and chaotic dynamics the equilibrium selection problem is not solved under learning as each outcome is predicted by at least one existing learning theory we find that subjects in the lab systematically coordinate on an equilibrium despite the complexity of the environment coordination only happens on simple equilibria in this case the steady state or the period two cycle a result which is predicted only if the subjects follow simple learning rules this suggests that relevant perfect foresight equilibria should be robust to the use of simple rules

the unemployment rate consequences of partisan monetary policies economists and political scientists have identified several ways in which political motivations and institutional arrangements can affect macroeconomic policymaking one way is described by the political business cycle model 42 37 in which vote seeking politicians manipulate the path of the economy to secure unsustainably favorable conditions at election times variants of this model have been widely tested with limited success a second channel for political impacts comes through partisan policy changes brought about by electoral turnover the pathbreaking work in this literature includes the contributions of hibbs 30 31 32 33 and beck 11 these works have focused on the empirical issue of how unemployment rates vary under democratic and republican presidents in the u s and have found strong support for the proposition that unemployment rates decline under democratic administrations a third phenomenon has been studied primarily by economists and concerns the credibility problem faced by a central bank selecting money growth rates models of the credibility problem 8 21 describe a setting in which the central bank and the public interact by respectively choosing actual and expected money growth rates in a variant of the prisoners dilemma this interaction can result in excessive inflation

adaptive behavior and economic theory the relationship between psychological and economic views of behavior once a subject of heavy dispute is now understood in a very similar way by practitioners of both these disciplines and of our sister social sciences in general terms we view or model an individual as a collection of decision rules rules that dictate the action to be taken in given situations and a set of preferences used to evaluate the outcomes arising from particular situation action combinations these decision rules are continuously under review and revision new decision rules are tried and tested against experience and rules that produce desirable outcomes supplant those that do not i use the term adaptive to refer to this trial anderror process through which our modes of behavior are determined if one is interested in modeling particular decisions in any very explicit way it is obviously necessary to think about rather narrow aspects of an individual s entire set of decision rules his or her personality experimental psychology has traditionally focused on the adaptive process by which decision rules are replaced by others in this tradition the influence of the subject s or as an economist says the agent s preferences this essay uses a series of examples to illustrate the use of rationality and adaptation in economic theory it is argued that these hypotheses are complementary and that stability theories based on adaptive behavior may help to narrow the class of empirically interesting equilibria in certain economic models an experiment is proposed to test this idea

a political model of monetary policy with application to the real fed funds rate abstract we construct an empirical model of u s monetary policy assuming that the federal reserve is an ordinary federal bureaucracy we use the real federal funds rate as our policy measure and show the existence of significant executive legislative and bureaucratic influence on the real rate of interest from 1961 to 1996 we find that presidential party is an adequate statistical measure of executive influence and that the voting scores of the senate banking committee leadership best represent legislative influence we argue that political changes cause systematic and predictable changes in monetary policy

evaluation of external market effects and government intervention in malaysia s agricultural sector a computable general equilibrium framework the purpose of this study is to evaluate the effects of changes in the external trade environment and domestic economic policies on the agricultural development of malaysia the scope of this research also includes providing further insights into the strengths and weaknesses of the computable general equilibrium cge methodology for agricultural policy analysis the first analysis focuses on the export agriculture sector which encompasses malaysia s two primary agricultural commodities rubber and palm oil heavily dependent on exports of rubber in the 1950s and 1960s malaysia has since built a more diversified economy with strong emphasis on manufacturing export agriculture however is still an important component of the national economy the second objective examines the influence of domestic policy on agricultural development the simulation results demonstrate the growing resiliency of the malaysian economy to external shocks also they point to the domestic economy s ability to buffer internal policy induced distortions

a new look at indirect taxation in developing countries abstract this paper reconsiders some of the traditional arguments made against indirect taxes on consumption such taxes despite the extensive criticism to which they have been subjected in the academic literature remain the mainstay of public finance in most developing countries and are likely to continue to do so brief discussions of the design of excise taxes and the incidence of indirect taxes on the poor illustrate the sorts of issues where more detailed tax specific and country specific research is needed to replace conventional generalizations about the effects of indirect taxes

the information content of elections and varieties of the partisan political business cycle this event study uses economic forecasts and opinion polls to measure the response of expectations to election surprise use of forecast data complements older work on partisan cycles by allowing a tighter link between election and response thereby mitigating concerns of endogeneity and omitted variables i find that forecasters respond swiftly and significantly to election surprise i further argue that the response ought to vary across countries with different institutional foundations in support i find that there exist three distinct patterns in forecasters responses to partisan surprise corresponding to hall and soskice s three varieties of capitalism

campaign advertising and political ambiguity this paper develops a model to explain candidates strategic decisions to provide or withhold information about policy positions in the course of an election campaign the analysis treats this problem as a game of imperfect information attention is focused on modeling voter suspicion of candidates whose positions are ambiguous specific numerical examples illustrate that candidate decisions about providing information via informative advertising depend upon candidate policy preferences campaign fund endowments partisan reputations and incumbency status the model also provides theoretical underpinnings for empirical findings regarding the effects of campaign advertising

indeterminacy of equilibria in a hyperinflationary world experimental evidence the authors design and study an olg experimental economy where the government finances a fixed real deficit through seigniorage the economy has continua of nonstationary rational expectations equilibria and two stationary rational expectations equilibria the authors do not observe nonstationary rational expectations paths observed paths tend to converge close to or somewhat below the low inflation stationary state the adaptive learning hypothesis is consistent with the data in selecting the low inflation stationary state rational expectations equilibrium as a long run stationary equilibrium nevertheless simple adaptive learning models do not capture the market uncertainty or the biases observed in the data copyright 1993 by the econometric society

exogenous shocks contagion and bank soundness a macroeconomic framework abstract in a model where all banks are initially solvent an exogenous shock affects confidence causing a flight from deposits into domestic and foreign currency real interest rates increase unexpectedly affecting firms and raising the share of the banks nonperforming assets this contagion causes a bank run simulations show that compensatory monetary policy mitigates the bank run but causes macroeconomic imbalances combining compensatory monetary policy with tight fiscal policies slows the bank run and mitigates insolvency a devaluation combined with compensatory monetary policy reduces insolvencies and increases the growth of real income but at the cost of increased inflation

the parallel market of illegal aliens a computational approach abstract this paper develops the notion of illegal aliens as a parallel market in coexistence with the regular market of legal labor in the presence of both price controls on legal labor by minimum wage legislation and quantity controls on illegal aliens by immigration laws illegal aliens involve not only rural urban migration but also tax evasion and deportation costs we develop an analytical equilibrium structure which links markets for legal labor and illegal aliens illustrate how much an equilibrium can be computed and explore some implications of the linkage using united states data

applied general equilibrium models for energy studies a survey the importance of energy in any economy developed or underdeveloped became clear after the first oil shock in 1973 since then different studies were carried out to formulate energy policies and to study their impact on the economies since energy policy issues are related to various aspects of the economy such as price formation output determination income generation and distribution consumption behaviour government operation etc a coherent and systematic mechanism is required for such analysis by offering such a framework of analysis age models gained popularity among energy modellers in the 1980s the environmental issues have gained importance and the focus shifted towards curbing and containing emissions of environmentally unfriendly gases resulting from the use of energy age models because of their capability to capture the complexities of the economy have found relevance in analysing the economic impacts of controlling pollution and greenhouse gases this paper surveys the literature on such general equilibrium models as applied to energy studies and reports their special features evolution through time as well as their limitations

external sector closing rules in applied general equilibrium models abstract this paper examines formulations of external sector behavior adopted in some of the recent applied general equilibrium models in many cases these models are constructed for single economies and the model builder attempts to use a convenient external sector specification to close the model issues and difficulties with export demand and import supply functions for foreigners which satisfy trade balance and the modeling of small economy price taking behavior are explored

the displacement and multiplier effects of regional selective assistance a computable general equilibrium analysis this paper uses a hybrid approach to simulate the effects of regional selective assistance rsa for scotland this combines industrial survey estimation of the direct impacts and computable general equilibrium cge modelling of the system wide effects the results are compared to those derived using the method currently adopted in official evaluation studies of rsa and other regional regeneration policy instruments the cge approach captures capacity labour market displacement and migration effects ignored in existing studies simulation identifies the conditions under which these effects are likely to be quantitatively important a partir d une facon hybride cet article cherche a simuler pour l ecosse l impact des primes regionales une estimation des effets directs a partir d une enquete aupres de l industrie se voit allier a la modelisation des effets generalises par une analyse d equilibre general sur ordinateur on compare les resultats a ceux qui proviennent des methodes employees actuellement

voting competitions with interested politicians platforms do not converge to the preferences of the median voter we examine equilibrium voting strategies for elections with interested politicians facing uncertainty about voter preferences if politicians utilities are defined over the set of strategies that voters select instead of being dependent only on the probability of winning an election equilibrium strategies will diverge instead of converging to the median voter s preferences as long as politicians have different preferences we present conditions i for political compromise and ii for politicians with different utility functions to merge into parties with complete strategic agreement

some calculations of lifetime tax incidence this paper reports a set of lifetime tax incidence calculations using a life cycle simulation model for canada due to davies 1979a 1982 a repeatedly stated qualification to annual calculations in the empirical tax incidence literature is that it would be more satisfactory to make calculations on a lifetime basis even though it is acknowledged that lifetime tax incidence could well differ from annual it is widely believed that data and other difficulties make such calculations next to impossible indeed the widespread acceptance of the data problems of lifetime calculations seems also to have inhibited speculation about how lifetime tax incidence might differ from annual as a result redistributive tax policy judgments continue to be based on annual incidence calculations in spite of the reservations many have about their usefulness our paper is intended to reorient discussion towards lifetime tax incidence by providing some initial null hypotheses about the shape of lifetime tax profiles our main finding is that under the standard competitive assumptions common in the incidence literature lifetime and annual incidence calculations both produce mild progression in tax rates across household deciles ignoring the bottom decile in the annual calculation while the income tax is less progressive in lifetime than in annual calculations other taxes are for the most part less regressive also lifetime incidence calculations are much more robust to alternative shifting assumptions than annual calculations in the lifetime context key distributions such as earnings transfer payments and consumption are less heavily concentrated in particular percentiles of the population than is true in annual data as a result changing the allocative series for any particular tax does not have the large effect on incidence results found in annual calculations each component of the tax system is allocated to households grouped by lifetime income using particular distributive series following a procedure similar to that employed in annual incidence calculations for example richard musgrave et al 1974 joseph pechman and benjamin okner 1974 edgar browning and william johnson 1979 w irwin gillespie 1980 in the process we are able to compare lifetime and annual incidence calculations using the same data set in both lifetime and annual calculations we allocate five groups of taxes among households using distributive series which come partly from the 1971 statistics canada survey of consumer finances scf and partly from our life cycle simulation model the scf data are used to construct synthetic longitudinal lifetime profiles of earnings and transfer payments for a sample of 500 households the latter are assigned inheritances by simulating patterns of mortality and bequest these data are then used in the life cycle model to generate lifetime consumption profiles and bequests the earnings transfer and inheritance data plus the model output provide the distributive series on which alternative incidence calculations are based while the incidence calculations presented in this paper use canadian data results would likely be similar for the united states

policy motivation and party differences in a dynamic spatial model of party competition we present a model of party competition that produces more realistic patterns of results than those often emphasized in the literature reversing downs 1957 we assume that parties win elections in order to formulate policies rather than formulate policies in order to win elections voters are modeled first as having perfect information about candidate positions and then under conditions of uncertainty in simulation experiments we show that policy motivation and voter uncertainty can bring about persistent and predictable party differences in sequential majority rule elections as the degree of voter certainty decreases parties diverge towards their optima whereas increases in voter certainty draw parties towards cycles in which party positions vary but predictable issue stances are maintained on the average

bank failures and fiscal austerity policy prescriptions for a developing country abstract this work employs a dynamic general equilibrium model to evaluate the causes and implications of bank insolvencies we apply the model to stylized data from bangladesh a country whose banking system is currently suffering from large stocks of non performing assets the model is used to derive positive conclusions about alternative policy instruments designed to alleviate the impact of these insolvencies a benchmark case is simulated using historical exogenous parameters we then generate a bank failure by assuming that firms cannot service their debt if their interest obligations rise above their anticipated return on capital the public withdraws deposits from the banking system in reaction to worries about defaulting bank assets if banks optimize by restricting credit to risky borrowers these failures can be partially avoided such bank behavior is often prohibited in developing countries so we investigate an active monetary policy that compensates banks for withdrawn deposits the resulting outcome indicates that such a policy can slow the pace of bank failures although at the cost of certain macro imbalances our final simulation imposes a reduction in public spending in order to tighten fiscal policy and thereby reduce budgetary pressure the resulting decline in interest rates eliminates all investor defaults and bank failures we conclude that the combination of compensating monetary policy and restrictive fiscal policy may offer the best way of responding to a bank crisis

trade preferences for developing countries a survey of results empirical studies of the trade and development effects of the major preferential trading schemes between the industrialised countries and the developing countries are surveyed most studies find the agreements to be trade creating improving welfare for the donor though general equilibrium analysis indicates that terms of trade deterioration offsets efficiency gains there is some evidence that trade preferences stimulate ldc exports of preferred products but total exports are not significantly affected due to limited product coverage the existing literature does not provide evidence on the degree of infant industry protection or on economic diversification of the beneficiaries

when do elections encourage ideological rigidity elected officials are commonly accused of being ideologically rigid or failing to alter their positions in response to relevant policy information we examine this phenomenon with a theory in which politicians have private information about their ideological leanings and expected policy consequences the theory shows that in many circumstances the informational differences create a context in which elections induce ideological rigidity correspondingly elections often fail to provide incentives for information based moderation in which both left and right leaning politicians become more likely to use policy information these seemingly perverse incentives occur because politicians wish to signal that they share voters leanings indeed the motivation to signal preference similarity can induce rigidity even when voters want politicians to be responsive to new information we show that such incentives for rigidity are greater when voters have less information about policy and politicians preferences and discuss possible tests of these predictions

the interface between environmental and trade policies last march i gave the frank paish lecture to the society under the title economic life in a greenhouse in my lecture i tried both to survey professional opinion as to some of the possible climatic implications of the greenhouse effect and also to draw out the economic consequences which might follow towards the end of my talk i made reference to some preliminary joint work with randy wigle 2 a colleague at wilfrid laurier university in canada on the global consequences of carbon tax schemes designed to limit and or reduce the build up of co2 emissions a key element underlying the greenhouse effect the written version of the lecture consciously does not reproduce the survey material which made up the first part of the lecture instead it elaborates on the issues raised towards the end it incorporates the work by randy wigle and myself and offers some thoughts on what seems to be a growing issue for the iggos namely the consequences for the international trading system of interactions between trade issues and both future global and current national environmental policies what follows emphasises that if they occur in the next few decades global policy responses3 carbon taxes tradeable permit schemes to environmental concerns will almost certainly have large economic effects among these are likely to be significant effects on trade patterns and trade volumes large interregional effects will also accompany such policies depending upon how such policies are implemented also the i99os may see a growing use of trade measures to achieve objectives set for environmental policies environmental policies towards such countries as brazil the philippines and others where deforestation is a concern may increasingly take the form of threatened trade sanctions unless compliance with global environmental policy objectives occurs 4

taxing tourism and subsidizing non tourism a welfare enhancing solution to dutch disease abstract using a combined analysis of a general equilibrium and a partial equilibrium this study models the impacts of a combined policy tool based on taxing tourism and subsidizing non tourism in a tourism dependent destination the results suggest that such a policy tool while widely discussed in economics literature may not be suitable for a tourism destination as it might have adverse effects on local welfare