guarding the guardians good government requires some restraints on the powerful but how can those be impose if there is no one above them this paper studies the equilibrium allocation of power and resources established by self interested incumbents under the threat of rebellions from inside and outside the group in power commitment to uphold individuals rights can only be achieved if power is not as concentrated as incumbents would like it to be ex post power sharing endogenously enables incumbents to commit to otherwise time inconsistent laws by ensuring more people receive rents under the status quo and thus want to defend it

two party competition with persistent policies abstract when campaigning for reelection incumbent parties promises to voters are constrained by their records in office while opposition parties can use their time away from power to develop new platforms in this paper i introduce incumbent policy persistence in a dynamic game of electoral competition between two policy motivated parties and characterise the long run outcomes of its markov perfect equilibria incumbents reduced policy flexibility leads to alternation in power and policy dynamics that converge to alternations at policies equally preferred by the median voter convergence of policies towards the median is a robust equilibrium outcome while convergence to the median is not while alternations far from the median are never limits of equilibrium dynamics alternations close to the median can be reached only if policy dynamics start exactly there i show that these results are robust to voters being forward looking and to limited policy commitment by parties

answering the skeptics yes standard volatility models do provide accurate forecasts a voluminous literature has emerged for modeling the temporal dependencies in financial market volatility using arch and stochastic volatility models while most of these studies have documented highly significant in sample parameter estimates and pronounced intertemporal volatility persistence traditional ex post forecast evaluation criteria suggest that the models provide seemingly poor volatility forecasts contrary to this contention we show that volatility models produce strikingly accurate interdaily forecasts for the latent volatility factor that would be of interest in most financial applications new methods for improved ex post interdaily volatility measurements based on high frequency intradaily data are also discussed

detecting multiple breaks in financial market volatility dynamics the paper evaluates the performance of several recently proposed tests for structural breaks in the conditional variance dynamics of asset returns the tests apply to the class of arch and sv type processes as well as data driven volatility estimators using high frequency data in addition to testing for the presence of breaks the statistics identify the number and location of multiple breaks we study the size and power of the new tests for detecting breaks in the conditional variance under various realistic univariate heteroscedastic models change point hypotheses and sampling schemes the paper concludes with an empirical analysis using data from the stock and fx markets for which we find multiple breaks associated with the asian and russian financial crises these events resulted in changes in the dynamics of volatility of asset returns in the samples prior and post the breaks copyright 2002 john wiley sons ltd

asymmetric effects of oil price uncertainty on corporate investment abstract using a comprehensive data set of a large panel of us firms over 1984 2017 we show that the negative effect of crude oil price return uncertainty on investments is asymmetric in particular we show that investment is more significantly reduced following the volatility of positive oil price changes than that of negative changes and this asymmetric effect is more pronounced in small firms in addition we find that the asymmetric effect is stronger in the crude oil and gas producing companies where the effect of the volatility of negative oil price changes is greater than that of positive oil price changes we also find that the impact of positive or negative oil price change uncertainty on investments substantially differs across different industries the results are quite robust to the way in which we measure the investment and oil price uncertainty and to alternative regression methods

evaluating interval forecasts a complete theory for evaluating interval forecasts has not been worked out to date most of the literature implicitly assumes homoskedastic errors even when this is clearly violated and proceed by merely testing for correct unconditional coverage consequently i set out to build a consistent framework for conditional interval forecast evaluation which is crucial when higher order moment dynamics are present the new methodology is demonstrated in an application to the exchange rate forecasting procedures advocated in risk management

structural breaks and garch models of exchange rate volatility we investigate the empirical relevance of structural breaks for garch models of exchange rate volatility using both in sample and out of sample tests we find significant evidence of structural breaks in the unconditional variance of seven of eight us dollar exchange rate return series over the 1980 2005 period implying unstable garch processes for these exchange rates and garch 1 1 parameter estimates often vary substantially across the subsamples defined by the structural breaks we also find that it almost always pays to allow for structural breaks when forecasting exchange rate return volatility in real time combining forecasts from different models that accommodate structural breaks in volatility in various ways appears to offer a reliable method for improving volatility forecast accuracy given the uncertainty surrounding the timing and size of the structural breaks copyright 2008 john wiley sons ltd

coalition and party formation in a legislative voting game we examine a legislative voting game where decisions are being made over both ideological and distributive dimensions and legislators preferences are separable over the two dimensions in equilibrium legislators prefer to make proposals for the two dimensions together rather than offering sequential proposals on the two dimensions separately the equilibria exhibit interaction between the ideological and distributive dimensions and in any equilibrium there is a positive probability that a proposal is made and approved which excludes the median legislator as defined over the ideological dimension in contrast with a game where no distributive decision is being made moreover in any stationary equilibrium there is more than one ideological decision that has a positive probability of being proposed and approved we show that legislators can gain from forming political parties and consider examples where predictions can be made about the composition of parties we discuss the impact of political parties on the outcome

voting on majority rules political economy models usually take as given the rules which govern the political decision making with the simple majority rule being the most popular model in this paper we develop a simple yet powerful positive model where the majority rule governing future elections is itself chosen in an election we observe a large variety of majority rules governing elections in the real world on the one side referenda are usually decided by a simple majority at the other extreme many international organizations require unanimity in votes among the member states in the european union s council of ministers some proposals require only a simple majority some a supermajority of about 71 62 votes out of 87 and some require unanimous consent 1 explicit supermajorities 2 are required in most countries for a change of the constitution but in some u s states also for a tax raise even more important could be what we might call implicit supermajorities in parliamentary systems with a strong committee organization a legislative proposal usually needs the support of both the respective committee and the house in parliamentary systems with two chambers certain legislative proposals need the support of both chambers 3 previous rationalizations of qualified majority rules focus on the problem of condorcet cycles under simple majority rule in n dimensional elections and on commitment problems see our literature review below our model presents a new rationale for rules requiring qualified majorities in elections we analyse an overlapping generations model of voting on reform opportunities which we model as similar to investment projects at first there is a cost and then there are benefits since voters have a finite lifetime old voters will be less keen on reforms

oligarchy democracy inequality and growth abstract this paper analyses the dynamics of inequality democratization and economic development in a political economy model of growth where education is both the engine of growth and a determinant of political participation in a context with imperfect capital markets we investigate the incentives for an educated oligarchy to subsidize the poor s education and to initiate a democratic transition we characterize the equilibrium patterns of political institutions income distribution and growth as a function of the initial income and inequalities in particular we identify circumstances under which the elite promotes the endogenous emergence of a middle class for purely political economy reasons a simple linear infinite horizon framework is then presented in this setting we discuss the importance of historical dependence for long run social stratification and redistribution

dynamic processes of social and economic interactions on the persistence of inefficiencies an economy with a finite number of agents and a finite number of states is considered an exogenous institutional rule prescribes which moves from one state to another are feasible to each coalition at each time an agent is called to act with some exogenous probability and he chooses a coalition a feasible new state to move the economy to and side payments between the agents in the coalition the setup can be applied to various dynamic processes of social and economic interactions such as legislative bargaining coalition formation or exchange economies whenever agents are unable to write long term contracts but are otherwise unconstrained both in their ability to write arbitrary spot contracts and in their ability to collude there can be long run inefficiencies with cycles or inefficient steady states however when agents are sufficiently patient the initial state from which the process starts plays no role in the long run moreover when there exists an efficient state that is free of negat

a theory of endogenous coalition structures consider an environment with widespread externalities and suppose that bind ing agreements can be written we study coalition formation in such a setting our analysis proceeds by defining on a partition function an extensive form bargaining game we establish the existence of a stationary subgame perfect equilibrium for such a game our main results are concerned with the characterization of equilib rium coalition structures we develop an algorithm that generates under certain conditions an equilibrium coalition structure our characterization results are especially sharp for symmetric partition functions in particular we provide a uniqueness theorem and apply our results to a cournot oligopoly journal of economic literature classification numbers c71 c72 c78 d62 q 1999 academic press

constitutional rules of exclusion in jurisdiction formation the rules under which jurisdictions nations provinces can deny immigration or expel residents are generally governed by a constitution but there do not exist either positive or normative analyses to suggest what types of exclusion rules are best we stylize this problem by suggesting four constitutional rules of admission free mobility admission by majority vote admission by unanimous consent admission by a demand threshold for public goods in a simple model we characterize the equilibria that result from these rules and provide a positive theory for which constitutional rules will be chosen

time consistent immigration policy under economic and cultural externalities summarydiscussions of immigration policy are typically framed in the context of their economic effects in receiving countries notably labour market and fiscal effects in this paper we characterize immigration policy in a richer model where migrants are also a source of cultural externalities stemming from either preferences or the functioning of formal and informal institutions in receiving countries while in terms of pure economic effects immigrants do not generally have any more incentives than low skilled natives to allow for more immigration in the future this is not the case when accounting for cultural externalities therefore insofar as past immigrants have a voice in affecting future policies a time consistent immigration policy entails back loading as natives attempt at limiting voice of immigrants in the future the economic effects of immigration flows as well as the cultural externality they introduce furthermore natives exploit any pre commitment device to limit immigration flows e g building walls limiting immigrants political rights or accumulating fiscal surpluses

farsighted coalitional stability abstract i define the largest consistent set a solution concept which applies to situations in which coalitions freely form but cannot make binding contracts act publicly and are fully farsighted in that a coalition considers the possibility that once it acts another coalition might react a third coalition might in turn react and so on without limit i establish weak nonemptiness conditions and apply it to strategic and coalitional form games and majority rule voting i argue that it improves on the von neumann morgenstern stable set as it is usually defined but is consistent with a generalization of the stable set as in the theory of social situations journal of economic literature classification numbers c70 c71

non stationarities in financial time series the long range dependence and the igarch effects we give the theoretical basis of a possible explanation for two stylized facts observed in long log return series the long range dependence lrd in volatility and the integrated garch igarch both these effects can be explained theoretically if one assumes that the data are nonstationary

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

political selection and persistence of bad governments we study dynamic selection of governments under different political institutions with a special focus on institutional flexibility a government consists of a subset of the individuals in the society the competence level of the government in office determines collective utilities e g by determining the amount and quality of public goods and each individual derives additional utility from being part of the government e g rents from holding office we characterize the dynamic evolution of governments and determine the structure of stable governments which arise and persist in equilibrium in our model perfect democracy where current members of the government do not have veto power over changes in governments always leads to the emergence of the most competent government however any deviation from perfect democracy to any regime with incumbency veto power destroys this result there is always at least one other less competent government that is also stable and can persist forever and even the least competent government can persist forever in office we also show that there is a nonmonotonic relationship between the degree of incumbency veto power and the quality of government in contrast in the presence of stochastic shocks or changes in the environment a regime with less incumbency veto power has greater flexibility and greater probability that high competence governments will come to power this result suggests that a particular advantage of democratic regimes with a limited number of veto players may be their greater adaptability to changes rather than their performance under given conditions finally we show that royalty like dictatorships may be more successful than junta like dictatorships because in these regimes veto players are less afraid of change

on enhanced cooperation abstract we analyze the issues relative to the formation of sub unions in a federation called enhanced cooperation agreements in the european union when centralization is not politically feasible an agreement among a subset of countries may allow such countries to exploit benefits from coordination that would otherwise be lost other countries in the federation may object to the sub union because it changes the status quo if cooperation at the federal level becomes convenient in the future the change in the status quo may adversely affect the countries which remained initially outside the sub union we show that as long as the countries can commit to coordinate on a policy which takes into account the utility of the excluded countries sub union formation may be optimal the relative advantage of a sub union towards immediate centralization increases when transfers are costly on the other hand if commitment is not possible then the excluded countries may be penalized we use the results to discuss the newly introduced rules for enhanced cooperation agreements in the european union

why did the elites extend the suffrage democracy and the scope of government with an application to britain s age of reform a new rationale is presented for why an elite may want to expand the franchise even in the absence of threats to the established order expanding the franchise can turn politicians away from particularistic politics based on ad personam redistribution within the elite and foster competition based on programs with diffuse benefits if these programs are valuable a majority of the elite votes in favor of an extension of the franchise despite the absence of a threat from the disenfranchised we argue that the evolution of public spending and of political competition in nineteenth century britain is consistent with our model i introduction at the beginning of the nineteenth century in most countries narrow elites had a disproportionate influence on public affairs even in england where parliament was an influential institution suffrage was mostly the privilege of the wealthy and some members of parliament were elected in boroughs with as few as 100 voters while cities such as manchester did not have any representative a century later most western countries had universal male suffrage with female suffrage to arrive shortly thereafter what brought about this democratic revolution in many cases the elites were forced out of power after violent revolutions however there are important examples such as england where democratization took the form of gradual extensions of the suffrage and these were accompanied by little overt violence it is the peculiar pride of england that the record of social and political reform is to be found on the statute book not in the annals of revolution cheyney 1931 p vii such peaceful democratizations are difficult to rationalize within the benchmark political economic models in those models extending the franchise dilutes the elite s power to influence policy and results

dynamic legislative policy making abstract we prove existence of stationary markov perfect equilibria in an infinite horizon model of legislative policy making in which the policy outcome in one period determines the status quo for the next we allow for a multidimensional policy space and arbitrary smooth stage utilities and we assume preferences and the status quo are subject to arbitrarily small shocks we prove that equilibrium continuation values are differentiable and that proposal strategies are continuous almost everywhere we establish upper hemicontinuity of the equilibrium correspondence and we provide weak conditions under which each equilibrium of our model determines an aperiodic transition probability over policies we establish a convergence theorem giving conditions under which the invariant distributions generated by stationary equilibria must be close to the core in a canonical spatial model finally we extend the analysis to sequential move stochastic games and to a version of the model in which the proposer and voting rule are determined by play of a finite perfect information game

bargaining in standing committees with an endogenous default committee voting has mostly been investigated from the perspective of the standard baron ferejohn model of bargaining over the division of a pie in which bargaining ends as soon as the committee reaches an agreement in standing committees however existing agreements can be amended this article studies an extension of the baron ferejohn framework to a model with an evolving default that reflects this important feature of policymaking in standing committees in each of an infinite number of periods the ongoing default can be amended to a new policy which is in turn the default for the next period the model provides a number of quite different predictions i from a positive perspective the key distinction turns on whether the quota is less than unanimity in that case patient enough players waste substantial shares of the pie each period and the size principle fails in some pure strategy markov perfect equilibria in contrast the unique markov perfect equilibrium payoffs in a unanimity committee coincide with those in the corresponding baron ferejohn framework ii if players have heterogeneous discount factors then a large class of subgame perfect equilibria including all markov perfect equilibria are inefficient

the rise and decline of general laws of capitalism economists have long been drawn to the ambitious quest of discovering the general laws of capitalism david ricardo for example predicted that capital accumulation would terminate in economic stagnation and inequality as a greater and greater share of national income accrued to landowners karl marx followed him by forecasting the inevitable immiseration of the proletariat thomas piketty s 2014 tome capital in the twenty first century emulates marx in his title his style of exposition and his critique of the capitalist system piketty is after general laws that will demystify our modern economy and elucidate the inherent problems of the system and point to solutions but the quest for general laws of capitalism is misguided because it ignores the key forces shaping how an economy functions the endogenous evolution of technology and of the institutions and the political equilibrium that influence not only technology but also how markets function and how the gains from various different economic arrangements are distributed despite his erudition ambition and creativity marx was led astray because of his disregard of these forces the same is true of piketty s sweeping account of inequality in capitalist economies in the next section we review marx s conceptualization of capitalism and some of his general laws we then turn to piketty s approach to capitalism and his general laws we will point to various problems in piketty s interpretation of the economic relationships underpinning inequality but the most important shortcoming is that

nonstationarities in stock returns the paper outlines a methodology for analyzing daily stock returns that relinquishes the assumption of global stationarity giving up this common working hypothesis reflects our belief that fundamental features of the financial markets are continuously and significantly changing our approach approximates the nonstationary data locally by stationary models the methodology is applied to the s p 500 series of returns covering a period of over seventy years of market activity we find most of the dynamics of this time series to be concentrated in shifts of the unconditional variance the forecasts based on our nonstationary unconditional modeling were found to be superior to those obtained in a stationary long memory framework and to those based on a stationary garch 1 1 data generating process

forecasting volatility in the petroleum futures markets a re examination and extension abstract this paper examines the volatility models and their forecasting abilities for four types of petroleum futures contracts traded on the new york mercantile exchange the aim of this paper is twofold firstly it replicates and carries out the robustness checks using the rigorous model confidence set test on the out of sample volatility forecast analysis undertaken by sadorsky energy economics 2006 28 467 488 through the same statistical models but with the extended data on daily prices of petroleum futures our test results largely confirm the findings obtained in the replicated paper secondly our paper also explores the relevance of some statistical complexities e g model optimality regime switches and alternative distribution functions in volatility forecasting through a large number of moving windows our results in general show that accounting for the model optimality structural breaks and using the asymmetric heavy tailed distribution functions in the estimations lead to significant forecasting accuracy gains

voting for voters a model of electoral evolution we model the decision problems faced by the members of societies whose new members are determined by vote we adopt a number of simplifying assumptions the founders and the candidates are fixed the society operates for k periods and holds elections at the beginning of each period one vote is sufficient for admission and voters can support as many candidates as they wish voters assess the value of the streams of agents with whom they share the society while they belong to it in spite of these simplifications we show that interesting strategic behavior is implied by the dynamic structure of the problem the vote for friends may be postponed and it may be advantageous to vote for enemies we discuss the existence of different types of equilibria in pure strategies and point out interesting equilibria in mixed strategies

equilibrium binding agreements abstract we study equilibrium binding agreements the coalition structures that form under such agreements and the efficiency of the outcomes that result we analyze such agreements in a context where the payoff to each player depends on the actions of all other players thus a game in strategic form is a natural starting point unlike the device of a characteristic function explicit attention is paid to the behavior of the complementary set of players when a coalition blocks a proposed agreement a solution concept and its applications are discussed journal of economic literature classification numbers c70 c71

majority voting with single crossing preferences we clarify and extend a number of sufficient conditions for the existence of a majority voting equilibrium on one dimensional choice domains these conditions variously stated in the previous literature all impose order restrictions on voter preferences for instance monotone marginal rates of substitution which we show to imply or be equivalent to a general ordinal version of the single crossing condition this simple property is economically intuitive and easily checked in applications this ease of application is demonstrated through an examination of voting models of redistributive income taxation and trade union bargaining behaviour

income convergence within an economic union the role of factor mobility and coordination abstract in the context of a human capital based growth model we show the essential role of labor mobility in equalizing income levels for countries that start off from different initial income positions human capital externalities cum labor mobility are the driving forces behind the income level equalization process in a non cooperative equilibrium labor mobility will be limited and income level equality will not be achieved coordination will allow free mobility of labor within an economic union leading to income convergence coordination of educational policies will also help internalize the inter regional human capital externalities to ensure efficient growth for members of the union

economic policy uncertainty and dollar pound exchange rate return volatility abstract the extent to which economic policy uncertainty epu amplifies exchange rate volatility has been an important research question for at least a decade previous research has investigated this relationship using monthly data concluding that epu imparts an effect on exchange rate volatility either contemporaneously or with a one month lag the use of monthly frequency however may not provide an accurate causal interpretation and may even compromise the accuracy of the estimates if the natural cycles of epu are shorter than a month to address this econometric concern i construct uncertainty measures at a daily frequency and estimate a garch model using daily usd british pound returns the evidence indicates that epu contributes to exchange rate volatility much more quickly than monthly data can detect using a regression technique for separating epu from non policy economic uncertainty i find that non policy market uncertainty increases volatility more than epu does

endogenous institutions and political extremism abstract the election of extreme political leaders is often associated with changes in political institutions this paper studies these phenomena through a model in which the median voter elects a leader anticipating that he will impose institutional constraints such as constitutional amendments judicial appointments or the implicit threat of a coup that influence the behavior of future political challengers it is typically optimal for the median voter to elect an extreme incumbent when democracy is less fully consolidated when the costs of imposing institutional constraints are intermediate and when the distribution of potential challengers is asymmetric the median voter typically elects a more right wing incumbent when the distribution of potential challengers shifts to the left implications of the model for the consolidation of democracy and institutional constraints are discussed as are several related mechanisms through which politicians ability to affect institutions may lead voters to optimally elect extremists

a model of agreements in strategic form games abstract because in a strategic form game all the possibilities of communication available to the players must be explicitly listed in the strategy spaces coalitions and coalitional behaviour are not very often taken into account in noncooperative games however it may be desirable especially in applications to separate the basic strategic features of a situation from those strategic features added as a consequence of the possibility of coalitional behaviour we define an equilibrium for the bargaining procedure called by greenberg the theory of solid situations an alternative game theoretic approach cambridge university press cambridge uk 1990 coalitional contingent threat situation we argue that the crucial problem of expectations on the counterdeviations following a deviation can be addressed by defining coalitional strategies and studying the equilibrium of the extended game journal of economic literatureclassification numbers c70 c71

common persistence in conditional variances since the introduction of the autoregressive conditional heteroskedastic arch model in engle 1982 numerous applications of this modeling strategy have already appeared a common finding in many of these studies with high frequency financial or monetary data concerns the presence of an approximate unit root in the autoregressive polynomial in the univariate time series representation for the conditional second order moments of the process as in the so called integrated generalized arch igarch class of models proposed in engle and bollerslev 1986 in the igarch models shocks to the conditional variance are persistent in the sense that they remain important for forecasts of all horizons this idea is readily extended to a multivariate framework even though many time series may exhibit persistence in variance it is likely that several different variables share the same common long run component in that situation the variables are naturally defined to be co persistent in variance and the co persistent linear combination is interpretable as a long run relationship conditions for co persistence to occur in the multivariate linear garch model are presented these conditions parallel the conditions for linear co integration in the mean as developed by engle and granger 1987 the presence of co persistence has important implications for asset pricing relationships and in optimal portfolio allocation decisions an empirical example relating to the time series properties of nominal u s dollar exchange rates for the deutschemark and the british pound provides a simple illustration of the ideas

why do parties use primaries political selection versus candidate incentives this paper contrasts empirically two possible explanations for the party decision to use primaries desire to improve political selection selection effect or desire to increase political competition and incentives among candidates incentive effect using a simple model of endogenous primaries i show that each explanation implies a different relation between primary adoption and the strength of partisan support i estimate this relation using the case of latin american presidential primaries and find robust evidence that the incentive effect dominates the selection effect

dynamic stability and reform of political institutions abstract this paper examines endogenous institutional change in a class of dynamic political games the political aggregation rules used at date t 1 are instrumental choices under rules at date t effectively rules are players who can strategically delegate future policy making authority to different rules a political rule is stable if it selects itself a reform occurs when an alternative rule is selected the stability of a political rule is shown to depend on whether its choices are dynamically consistent for instance simple majority rules can be shown to be dynamically consistent in many common environments where wealth weighted voting rules are not the result extends to political rules that incorporate private activities such as extra legal protests threats or private investment the approach is one way of understanding various explanations of institutional change proposed in the literature a parametric model of public goods provision gives an illustration

choosing how to choose self stable majority rules and constitutions constitutional arrangements affect the decisions made by a society we study how this effect leads to preferences of citizens over constitutions and ultimately how this has a feedback that determines which constitutions can survive in a given society constitutions are stylized here to consist of a voting rule for ordinary business and possibly a different voting rule for making changes to the constitution we define an equilibrium notion for constitutions called self stability whereby under the rules of a self stable constitution the society would not vote to change the constitution we argue that only self stable constitutions will endure we prove that self stable constitutions always exist but that most constitutions even very prominent ones may not be self stable for some societies we show that constitutions where the voting rule used to amend the constitution is the same as the voting rule used for ordinary business are dangerously simplistic and there are many societies for which no such constitution is self stable we conclude with a characterization of the set of self stable constitutions that use majority rule for ordinary business

social mobility and stability of democracy re evaluating de tocqueville an influential thesis often associated with de tocqueville views social mobility as a bulwark of democracy when members of a social group expect to join the ranks of other social groups in the near future they should have less reason to exclude these other groups from the political process in this article we investigate this hypothesis using a dynamic model of political economy as well as formalizing this argument our model demonstrates its limits elucidating a robust theoretical force making democracy less stable in societies with high social mobility when the median voter expects to move up respectively down she would prefer to give less voice to poorer respectively richer social groups our theoretical analysis shows that in the presence of social mobility the political preferences of an individual depend on the potentially conflicting preferences of her future selves and that the evolution of institutions is determined through the implicit interaction between occupants of the same social niche at different points in time

coalition formation as a dynamic process abstract we study coalition formation as an ongoing dynamic process with payoffs generated as coalitions form disintegrate or regroup a process of coalition formation pcf is an equilibrium if a coalitional move to some other state can be justified by the expectation of higher future value compared to inaction this future value in turn is endogenous it depends on coalitional movements at each node we study existence of equilibrium pcfs we connect deterministic equilibrium pcfs with unique absorbing state to the core and equilibrium pcfs with multiple absorbing states to the largest consistent set in addition we study cyclical as well as stochastic equilibrium pcfs

theory general equilibrium and political economy in development economics i discuss the role of economic theory in empirical work in development economics with special emphasis on general equilibrium and political economy considerations i argue that economic theory plays should play a central role in formulating models estimates of which can be used for counterfactual and policy analysis i discuss why counterfactual analysis based on microdata that ignores general equilibrium and political economy issues may lead to misleading conclusions i illustrate the main arguments using examples from recent work in development economics and political economy

a quantitative theory of political transitions we develop a quantitative theory of repeated political transitions driven by revolts and reforms in the model the beliefs of disenfranchised citizens play a key role in determining revolutionary pressure which in interaction with preemptive reforms determine regime dynamics we study the quantitative implications of the model by fitting it to data on the universe of political regimes existing between 1946 and 2010 the estimated model generates a process of political transitions that looks remarkably close to the data replicating the empirical shape of transition hazards the frequency of revolts relative to reforms the distribution of newly established regime types after revolts and reforms and the unconditional distribution over regime types

coalition formation in non democracies we study the formation of a ruling coalition in non democratic societies where institutions do not enable political commitments each individual is endowed with a level of political power the ruling coalition consists of a subset of the individuals in the society and decides the distribution of resources a ruling coalition needs to contain enough powerful members to win against any alternative coalition that may challenge it and it needs to be self enforcing in the sense that none of its subcoalitions should be able to secede and become the new ruling coalition we present both an axiomatic approach that captures these notions and determines a generically unique ruling coalition and the analysis of a dynamic game of coalition formation that encompasses these ideas we establish that the subgame perfect equilibria of the coalition formation game coincide with the set of ruling coalitions resulting from the axiomatic approach a key insight of our analysis is that a coalition is made self enforcing by the failure of its winning subcoalitions to be self enforcing this is most simply illustrated by the following example with majority rule two person coalitions are generically not self enforcing and consequently three person coalitions are self enforcing unless one player is disproportionately powerful we also characterize the structure of ruling coalitions for example we determine the conditions under which ruling coalitions are robust to small changes in the distribution of power and when they are fragile we also show that when the distribution of power across individuals is relatively equal and there is majoritarian voting only certain sizes of coalitions e g with majority rule coalitions of size 1 3 7 15 etc can be the ruling coalition copyright 2008 wiley blackwell

population and conflict medical innovations during the 1940s quickly resulted in significant health improvements around the world countries with initially higher mortality from infectious diseases experienced larger increases in life expectancy population and subsequent social conflict this cross country result is robust across alternative measures of conflict and is not driven by differential trends between countries with varying baseline characteristics a similar effect is also present within mexico initial suitability conditions for malaria varied across municipalities and anti malaria campaigns had differential effects on population growth and social conflict both across countries and within mexico increased conflict over scarce resources predominates and this effect is more pronounced during times of economic hardship specifically in countries with a poor growth record and in drought stricken areas in mexico at least during this time period a larger increase in population made social conflict more likely

power monotonicity in detecting volatility levels change we show that the cusum and lm tests for structural change in the volatility process enjoy monotonic power the framework is general including many recently proposed non stationary garch type models the result is in contrast to the well known issue of non monotonic power for the cusum based tests for changing mean simulations and an empirical example provide further support

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

clubs and the market this paper defines a general equilibrium model with exchange and club formation agents trade multiple private goods widely in the market can belong to several clubs and care about the characteristics of the other members of their clubs the space of agents is a continuum but clubs are finite it is shown that i competitive equilibria exist and ii the core coincides with the set of equilibrium states the central subtlety is in modeling club memberships and expressing the notion that membership choices are consistent across the population

legislative bargaining with reconsideration we present a dynamic model of legislative bargaining with an endogenously evolving default policy and a persistent agenda setter policy making proceeds until the agenda setter can no longer pass a new policy to replace an approved bill we prove existence and necessary conditions of pure strategy stationary equilibria for any finite policy space any number of players and any preference profile in equilibrium the value of proposal power is limited compared to the case that disallows reconsideration as voters are induced to protect each other s benefits to maintain their future bargaining positions the agenda setter in turn would prefer to limit his ability to reconsider the lack of commitment due to the possibility of reconsideration however enhances policy efficiency

economic backwardness in political perspective government policies and institutions shape economic incentives and via this channel have a first order impact on economic development why then do many societies adopt policies that discourage investment and maintain institutions that cause economic backwardness perhaps politically powerful groups elites are not in favor of economic growth but why it would appear that economic growth would provide more resources for these groups to take over or tax increasing their economic returns so why don t powerful groups always support economic development in this paper we develop a theory of inefficient government policies and institutions all else equal politically powerful groups would welcome superior institutions and technologies but in practice all else is not equal because superior institutions and technologies may reduce their political power and make it more likely that they will be replaced at the center of our theory is therefore the idea that changes in institutions or the introduction of new technologies often create turbulence eroding the political advantages and future economic rents of incumbent elites alternatively new technologies may enrich competing groups increasing their threat to incumbents these considerations make politically powerful groups fear losing power and oppose economic and political change even when such change will benefit society as a whole to understand the mechanism at work and its potential applications consider a concrete example industrialization in the nineteenth century bairoch 1982 estimates that between 1830 and 1913 world manufacturing output increased by a factor of 5 see table 1 panel a nevertheless this process was highly uneven across regions and countries bairoch also calculates that over the same period manufacturing output in developed countries europe and north america increasedbyafactorofover10 whereasitdeclinedinthe third world among developed countries there were

legislative bargaining and coalition formation abstract the finite horizon version of d p baron and j ferejohn s 1989 amer polit sci rev 83 1181 1206 legislative bargaining model is investigated with three or more periods a continuum of divisions is supportable as subgame perfect equilib ria there exist equilibria where coalitions larger than a minimal winning coalition receive strictly positive shares with sufficiently patient players and a sufficiently long horizon any interior distribution is supportable as an equilibrium in contrast a generic uniqueness result applies when introducing heterogenous time preferences the unique backwards induction equilibrium in the perturbed game is nonstationary and neither the original symmetric nor the perturbed game provides guidance for equilibrium selection in the infinite game journal of economic literature classification numbers c73 c78 d72 d78 h49

dynamics and stability of constitutions coalitions and clubs a central feature of dynamic collective decision making is that the rules that govern the procedures for future decision making and the distribution of political power across players are determined by current decisions for example current constitutional change must take into account how the new constitution may pave the way for further changes in laws and regulations we develop a general framework for the analysis of this class of dynamic problems under relatively natural acyclicity assumptions we provide a complete characterization of dynamically stable states as functions of the initial state and determine conditions for their uniqueness we show how this framework can be applied in political economy coalition formation and the analysis of the dynamics of clubs the explicit characterization we provide highlights two intuitive features of dynamic collective decision making 1 a social arrangement is made stable by the instability of alternative arrangements that are preferred by sufficiently many members of the society 2 efficiency enhancing changes are often resisted because of further social changes that they will engender

a theory of gradual coalition formation we study noncooperative multilateral bargaining games based on underlying tu games in which coalitions can renegotiate their agreements we distinguish between models in which players continue to bargain after implementing agreements reversible actions and models in which players who implement agreements must leave the game irreversible actions we show that renegotiation always results in formation of the grand coalition if actions are reversible but that the process may otherwise end with smaller coalitions on the other hand we show that the grand coalition cannot form in one step if the core of the game is empty irrespective of the reversibility of actions agreements between players form the basis of much that game theory seeks to explain there are obviously many useful ways to categorize such agreements in multilateral negotiations that is with more than two participants it seems natural to distinguish between cases in which the coalition forms in one step and those in which the coalition grows to its eventual size by attracting new members thus recipients of marshall aid collectively agreed to american terms at the ceec in 1947 whereas a strict subset of these countries agreed to the schuman plan in 1950 with the other current members joining the eu over time similarly negotiations on climate change culminated in universal agreement at rio in 1992 whereas india and china only agreed to reduce cfc emissions in london in 1990 after other countries had signed up to the montreal protocol finally un security council resolution 242 urged that a multilateral conference be set up to establish a comprehensive settlement in the middle east whereas the process initiated by the oslo agreements and arguably camp david has consisted of a sequence of agreements between israel and its neighbours we will refer to cases in which the grand coalition forms in one step as involving immediate coalition formation or icf for short and cases in which a coalition grows as involving gradual coalition formation

persistence in variance structural change and the garch model this article examines the persistence of the variance as measured by the generalized autoregressive conditional heteroskedasticity garch model in stock return data in particular we investigate the extent to which persistence in variance may be overstated because of the existence of and failure to take account of deterministic structural shifts in the model both an analysis of daily stock return data and a monte carlo simulation experiment confirm the hypothesis that garch measures of persistence in variance are sensitive to this type of model misspecification

intra day and inter market volatility in foreign exchange rates four foreign exchange spot rate series recorded on an hourly basis for a six month period in 1986 are examined a seasonal garch model is developed to describe the time dependent volatility apparent in the percentage nominal return of each currency hourly patterns in volatility are found to be remarkably similar across currencies and appear to be related to the opening and closing of the worlds major markets robust lm tests designed to deal with the extreme leptokurtosis in the data fails to uncover any evidence of misspecification or the presence of volatility spillover effects between the currencies or across markets

dynamic collective choice with endogenous status quo we analyze a bargaining situation in which preferences evolve over time and the previous agreement becomes the next status quo the endogeneity of the status quo exacerbates the players conflict of interest players disagree more often than under exogenous status quo this leads to inefficiencies and status quo inertia under certain conditions the negotiations can come to a complete gridlock players never reach an agreement gridlock can occur between players with arbitrarily similar preferences provided they are sufficiently patient in legislative settings our model predicts polarization and explains why legislators may fail to react promptly to economic shocks

order independent equilibria we study a noncooperative game of coalition formation based on an underlying game in coalitional form we introduce order independent equilibria oie a strategy profile is an oie if for any specification of first movers in the sequential game it remains an equilibrium and leads to the same payoff our results are 1 payoffs in oie that use pure stationary strategies must be in the core of the underlying game in coalitional form 2 if the underlying game has the property that all its subgames have nonempty cores then for each payoff vector there exists an oie with the same payoff journal of economic literature classification numbers c70 c71 c72 c78

social norms and the enforcement of laws we examine the interplay between social norms and the enforcement of laws agents choose a behavior e g tax evasion production of low quality products corruption harassing behavior substance abuse etc and then are randomly matched with another agent there are complementarities in behaviors so that an agent s payoff decreases with the mismatch between her behavior and her partner s and with overall negative externalities created by the behavior of others a law is an upper bound cap on behavior a law breaker when detected pays a fine and has her behavior forced down to the level of the law equilibrium law breaking depends on social norms because detection relies at least in part on whistle blowing law abiding agents have an incentive to whistle blow on a law breaking partner because this reduces the mismatch with their partners behaviors as well as the negative externalities when laws are in conflict with norms and many agents are breaking the law each agent anticipates little whistle blowing and is more likely to also break the law tighter laws banning more behaviors greater fines and better public enforcement all have counteracting effects reducing behavior among law abiding individuals but increasing it among law breakers we show that laws that are in strong conflict with prevailing social norms may backfire whereas gradual tightening of laws can be more effective in influencing social norms and behavior