are household portfolios efficient an analysis conditional on housing in this paper we argue that standard tests of portfolio efficiency are biased towards rejection because they neglect the existence of illiquid wealth in the case of household portfolios the most important illiquid asset is housing if housing stock adjustments are costly and therefore infrequent we show how the dynamic optimization problem produces optimal portfolios in periods of no adjustment that are affected by housing price risk through a hedge term when the housing stock is not adjusted we argue that tests for portfolio efficiency of financial asset must then be run conditionally upon housing wealth in our application we use italian household portfolio data from shiw 1998 and time series data on financial asset and housing stock returns to assess whether actual portfolios are efficient we first consider purely financial portfolios and portfolios that also treat the housing stock as another asset we then consider the consequences of treating the housing stock as given and test for efficiency in this framework our empirical results support the view that the presence of illiquid wealth can explain portfolio choice by home owners

macroeconomic equilibrium and reform in a transitional economy we build a general equilibrium macro model of a transitional economy to reflect four stylized facts among these are that central planning has left a legacy of highly concentrated industry and a residue of price controls and rationing an almost classical dichotomy obtains in the model monetary expansion leaves output and employment unchanged despite the existence of unemployment though leisure time declines however the economy displays a high degree of complementarity between the state controlled and private sectors giving rise to keynesian multiplier effects we also analyse the effects of price liberalization and privatization on the properties of the economy

are legislative tv and campaign finance regulations complementary entry barriers evidence from the usa the present study examines the political use of legislative television and campaign finance restrictions as either complementary or substitutable forms of entry barriers using data from the 50 states for 1976 results from a simultaneous probit procedure indicate that where campaign finance regulations are relaxed demand for televised house sessions is increased results also suggest that the presence of televised proceedings increases the restrictiveness of a state s campaign finance rules thus supporting the hypothesis that legislative television and campaign finance restrictions serve incumbent legislators as complementary institutional entry barriers mixon 2002 supports this view by providing examples of outlets for voters to scrutinize elected legislators at the federal level in the united states for instance legislative positions for members of congress are often described in detail by nationally circulated periodicals such as time and newsweek and in widely circulated newspapers such as th

campaign spending and senate elections 1978 84 this paper uses a sample of recent senate election results and estimates vote equations that show challenger spending hurts and incumbent spending helps incumbent re election while both types of spending have diminishing returns the effects are asymmetrical challenger spending is more productive at lower levels of spending but incumbents can spend greater amounts more profitably than can challengers these results can explain why senate incumbents spend money why they typically outspend their challenger and why incumbents who can outspend their challenger would tend to be against spending limits or public financing

wage and price control policies in transition economies abstract this paper studies the structural impact of wage and price control policies in transition economies using a two sector three factor small open economy model it illustrates the results quantitatively via simulation exercises at the earlier stage of the transition when labor is immobile a strict control on the price of the nontradables and the wage rate minimizes the fall in employment and output also a more severe control on the price of the nontradables than on the wage rate alleviates the fall in the real wage at negligible costs in lost employment and output at the later stage of the transition when labor becomes mobile the liberalization of the price of the nontradables can proceed faster than that of the wage rate this policy combination increases employment and output and reduces the shortage for the nontradables but lowers the real wage

the specification of models of campaign finance simultaneous models exist in the literature with specifications preferable to those used in either of these papers the more complete models are of course still subject to improvement the measure of ideology used by poole and romer would probably be such an improvement identification of a variable which would remove the anomalous result discussed by jacobson would also greatly improve our understanding of the political process it may be that a radically new approach to estimation will supplant these models however as long as scholars continue to perform estimations of equations such as those presented in 1a 1c above it is incumbent upon them to use the most complete specification available in the literature using less complete specifications may sometimes enable us to answer specific relatively narrow questions but such specifications will not advance our fundamental understanding of the political process

mass privatization state capacity and economic growth in post communist countries why did the transition from socialism to capitalism result in improved growth in some countries and significant economic decline in others scholars have advanced three main arguments 1 successful countries rapidly implemented neoliberal policies 2 failures were not due to poli cies but to poor institutional environments and 3 policies were counterproductive because they damaged the state we present a state centered theory and empirically demonstrate for the first time one of several possible mechanisms linking neoliberal policies to poor economic performance mass privatization programs where implemented created a massive fiscal shock for post communist governments thereby undermining the development of private sector gover nance institutions and severely exacerbating the transformational recession we performed cross national panel regressions for a sample of 25 post communist countries between 1990 and 2000 and found that mass privatization programs negatively affected economic growth state capacity and property rights protection we further tested these findings with firm level data from a rep resentative survey of managers in 3 550 companies operating in 24 post communist countries within countries that implemented mass privatized programs newly privatized firms were sub stantially less likely to engage in industrial restructuring but considerably more likely to use bar ter and accumulate tax arrears than their state owned counterparts

entry barriers in politics and uncontested elections abstract lott 1986 1987a argues that brand names can be barriers to entry in political markets because political brand names cannot be sold our empirical model examines the effect of inalienability of political capital on entry into nineteenth century british political markets we test the hypothesis that since county races were more expensive than borough races owing to greater costs of information the level of non transferable investment produced by a given number of past campaigns was greater in the rural districts and produced more significant entry barriers

a further look at household portfolio choice and health status abstract this paper investigates the effect of changes in health status on household financial wealth and financial portfolio choice it is shown that the impact of health events on household financial and non financial wealth is asymmetric a diagnosis of a new disease leads to a larger decrease in financial wealth than in non financial wealth moreover we find that the puzzle pertaining to the relationship between health status and portfolio choice discussed in the extant literature generally disappears after controlling for differences in the amount of financial assets held by healthy and sick people the results suggest that the effect of changes in health status on household financial portfolios is indirect a health shock significantly reduces household total financial wealth in turn leading households to restructure the composition of their financial assets

brand names and barriers to entry in political markets the most obvious implication of this discussion is that barriers to entry in politics will raise the costs of governments transferring wealth more generally it will raise the cost of public provision of goods and services in the case of transfers the inefficiency created by barriers depends on whether one values government transfers the total transfer the transfer to the beneficiaries plus the politician s commission is maximized by the politician who can create support the most efficiently for other governmental services which are viewed as efficiency creating e g national defense these barriers reduce the amount of a valuable output we desire to purchase this result also supplies a possible efficiency explanation for the limitation on the number of terms imposed on the presidency and many governorships brand names are not really the barriers information costs are what cause brand name to be used and are the more fundamental barrier to entry what we are arguing is that private and not public organizations can in certain respects better overcome these information costs

innovation and bureaucracy under soft and hard budget constraints because of the inherent uncertainty promotion of innovation critically depends on screening mechanisms to select projects this paper studies the relationship between bureaucracy and financial constraints as two such mechanisms the lack of commitment to hard financial constraints interferes with its ex post screening capability ex ante bureaucratic screening is optimally chosen as a substitute however bureaucracy makes mistakes by rejecting promising projects and delays innovation and the efficiency loss due to soft financial constraints increases as prior knowledge becomes worse and as research stage investment requirements become lower in a centralized economy bureaucracy may reduce the number of parallel projects particularly for projects with higher uncertainties and less research stage requirements this theory fits much of the evidence and in particular it explains why the computer industry but not the nuclear or aerospace industries has fared so poorly in centralized economies the fundamental importance of innovation to the survival and evolution of economic systems and organizations has long been recognized marx 1978 schumpeter 1950 innovation is characterized by its inherent uncertainty because it is a process whose every element takes considerable time in revealing its true features and ultimate effects schumpeter 1950 p 83 and people are unable to anticipate the future impact of successful innovations even after their technical feasibility has been established rosenberg 1994 an understanding of how different systems and organizations deal with the uncertainties associated with innovation and the resultant consequences is crucial for understanding alternative economic systems and organizations in this paper we provide a theory to analyse how different systems screen uncertain innovative projects and the impact of the various screening mechanisms on those systems we distinguish two alternative screening mechanisms the bureaucratic screening mechanism vs the market screening mechanism the latter is directly linked to financial constraints with this perspective our theory explains why centralized economies did well in certain areas of innovation but fared poorly in others for instance in the early 1960s the west was frightened by the ussr s great success in launching the first unmanned satellite and the first manned space capsule while in the 1980s in contrast the centralized system

financial institutions and the financial crisis in east asia abstract this paper investigates institutional reasons for the soft budget constraint problem and how the soft budget constraint problem creates conditions which may result in a financial crisis as a consequence of soft budget constraints bad projects do not stop bad loans accumulate and banks and depositors do not receive bad news on time poorly informed depositors are then likely to herd to overinvest when there is no bankruptcy frenzy and they are likely to herd to panic when bankruptcy occurs crash which may be the result of excessive bad loans that are also a consequence of soft budget constraints in contrast under hard budget constraints information is disclosed quickly regarding liquidation better informed investors are then less likely to herd wrongly

do esops enhance firm performance evidence from china s reform experiment abstract china introduced employee stock ownership plans esops in 1992 purely as an employee incentive scheme the government initiated the policy experiment on esops as part of china s reform of its state owned enterprises and it was abruptly terminated 2 years after initiation this policy experiment resulted in an exogenous sample of esops that allows us to provide the first evidence from chinese firms on the performance esop relation after examining a variety of performance measures including roa roe tobin s q and productivity we find little difference in performance between esop firms and non esop firms

federalism chinese style the political basis for economic success in china china s remarkable economic success rests on a foundation of political reform providing a considerable degree of credible commitment to markets this reform reflects a special type of institutionalized decentralization that the authors call federalism chinese style this form of decentralization has three consequences first it fosters competition not only in product markets but also among local governments for labor and foreign capital this competition in turn encourages local government experimentation and learning with new forms of enterprises regulation and economic relationships second it provides incentives for local governments to promote local economic prosperity finally it provides a significant amount of protection to local governments and their enterprises from political intrusion by the central government

a general equilibrium model of congressional voting in this paper we specify a model in which congressmen constituents and campaign contributors simultaneously decide on behavior constituents and contributors desire to influence the voting behavior of congressmen congressmen on the other hand want to be elected and vote accordingly we empirically test this model using roll call voting on eight bills dealing with economic regulation and find support for the model our results indicate that part of the voting behavior of congressmen may be explained by noneconomic factors we also find that unions and businesses as campaign contributors are sometimes influential unions are more often influential than is business ideological factors are also important in explaining voting

income distribution and price controls targeting a social safety net during economic transition abstract during the ongoing post communist economic transitions the relative well being of many people is changing rapidly and governments are not well positioned to accurately measure individual living standards under such circumstances continued price controls over basic consumer goods within the state sector and the associated queuing can form a serviceable device for targeting poor people for subsidies with a fixed price state sector and free price parallel markets rich people might choose to avoid queues and shop in the free markets while poor people would prefer to pay low nominal prices and queue in the state sector the targeting of subsidies through queues therefore can be accomplished even if the government has no information concerning individual income or living standards when the alternative to price controls is a poorly targeted explicit social safety net the resource cost of queues might be more than offset by an improvement in the targeting of subsidies

the influence of black markets on a queue rationed centrally planned economy abstract in centrally planned economies in which prices are fixed and the rationing mechanism is waiting line queues we show that an equilibrium of waiting times exists we then introduce a black market in which individuals can trade commodities that they have acquired through the official economy an equilibrium of black market prices and waiting times is shown to exist further the economy with a black market is queue efficient however the introduction of black markets is not necessarily a pareto improvement over an economy without black markets even when we allow winners to compensate losers

an explanation for why senators from the same state vote differently so frequently abstract this paper explains why rational well informed voters elect politicians with divergent platforms given well defined constituencies and the costliness of any individual politician creating transfers across all interest groups we show that different politicians from the same district can successfully represent vastly different constituencies and still have each politician producing the support maximizing level of transfers our explanation focuses on how obtaining wealth transfers reduces successful constituencies returns to obtaining additional transfers the evidence strongly rejects alternative explanations based upon the median voter and polarized policy preference approaches

the politician and his banker should the european union grant state aid through an institution like the european investment bank this paper evaluates the efficiency of different measures for granting state aid we use a theoretical model with firms that differ in their creditworthiness and compare different types of subsidies with indirect subsidization through public banks we find that in a large parameter range the politician prefers public banks to direct subsidies because they avoid windfall gains to entrepreneurs and they economize on screening costs for similar reasons they may increase social welfare relative to subsidies one important prerequisite for this result is that public banks must not be allowed to fully compete with private banks however from a welfare perspective a politician uses public banks inefficiently often

why trading speed matters a tale of queue rationing under price controls we show that queue rationing under price controls is one driver of high frequency trading uniform tick sizes constrain price competition and create rents for liquidity provision particularly for securities with lower prices the time priority rule allocates rents to high frequency traders hfts because of their speed advantage an increase in relative tick size defined as uniform tick sizes divided by security prices increases the fraction of liquidity provided by hfts but harms liquidity we find that the message to trade ratio is a poor cross sectional proxy for hfts liquidity provision stocks with more liquidity provided by hfts have lower message to trade ratios received september 15 2015 editorial decision october 7 2017 by editor robin greenwood

corruption is bad for growth even in the united states we estimate the impact of corruption on growth of output per worker in u s states we improve on existing studies of the cost of corruption by using a better specified empirical model focusing on a study population that is less likely to be affected by parameter heterogeneity and controlling for endogeneity using political variables to instrument for corruption we find that corruption plays a significant and causal role in lowering growth and investment across the states

infrastructure and public utilities privatization in developing countries should governments in developing countries promote private ownership and deregulated prices in noncompetitive sectors or should they run publicly owned firms and regulate prices at the expense of rents to insiders a theoretical model is used to answer these normative questions the analysis focuses on the tradeoff between fiscal benefits and consumer surplus during privatization of noncompetitive sectors privatization transfers control rights to private interests and eliminates public subsidies yielding benefits to taxpayers at the cost of increased prices for consumers in developing countries where budget constraints are tight privatization and price liberalization may be optimal for low profitability industries but suboptimal for more profitable industries and once a market has room for more than one firm governments may prefer to regulate the industry without a credible regulatory agency regulation is achieved through public ownership

on the persistence of rationing following liberalization a theory for economies in transition abstract many economic theorists and policy makers argue that a rapid liberalization in which prices are allowed to equilibrate supply and demand is critical for a successful transition in the formerly socialist economies yet despite the advantages of market clearing prices many local governments in these economies have kept their prices for basic goods low and induced rationing in the state sector this paper develops a theory explaining why a local government chooses either a low state price that induces rationing or a higher price that clears the market the theory predicts that a necessary condition for a local government representing its constituents interests to set a market clearing price is that the private sector is monopolistic while a market clearing price in the state sector curtails private monopoly power it also implies that the state price is higher than in the rationing regime it is shown that a local government s marginal benefit of restraining private monopoly power is higher than the marginal costs of higher state prices when there is an increase in either state sector costs or private capacity this implies that a local government is more prone to set a market clearing price as its costs increase and as private capacity grows furthermore when there are at least two private firms and the private sector is monopolistic a local government that sets a market clearing price also stabilizes private sector pricing

money and votes reconsidered congressional elections 1972 1982 the evolution of congressional campaign finance over the past decade is characterized by steady growth in campaign spending and other notable changes in campaign finance practices the main purpose of the research reported here was to determine whether these changes have altered the effects of campaign spending on election outcomes this required reexamination of auxiliary questions concerning how sending effects operate and can be measured it also required facing the limits of what analysis of aggregate campaign spending data can tell us about money in elections replication of ols and 2sls analyses of campaign spending effects produced solidly consistent results over the six congressional elections held between 1972 and 1982 taken at face value the evidence is overwhelming that the challenger s level of spending has a strong impact on the vote whereas that of the incumbent has virtually no impact at all but the evidence remains open to doubt on two grounds one is the probable inadequacy of the 2sls model or perhaps any possible model leaving the issue of simultaneity bias unsettled if bias remains the estimates exaggerate the electoral effects of the challenger s campaign expenditures the issue cannot be resolved with more of the same data but rather requires data of a different sort surveys taken over the course of a sample of campaigns would do the trick meanwhile i think it would be foolish to make policy on the assumption that bias is in fact substantial the greatest likelihood remains that restrictions on campaign money will have the general effect of hurting challengers jacobson 1979 the other doubtful albeit equally stable finding is that incumbents do not gain votes by spending in campaigns no incumbent seems to believe it and there is at least circumstantial evidence from for example the 1982 elections that their skepticism is quite justified if so the problem lies in the limits of what aggregate data of the kind analyzed here can tell us few incumbents do not spend heavily when they are strongly challenged if both candidates spend beyond the point needed to become thoroughly familiar to voters then the substance of the campaigns the contents of campaign messages become the dominant factors incumbents may need to spend money in order to change the message as new circumstances arise to frame new issues that would help them most or damage them least to win the battle of establishing the real issues like nonincumbents sitting members may sometimes need to spend beyond a certain threshold to remain competitive but nearly all of them do so when the necessity arises so aggregate spending data are largely uninformative how the money is spent rather than how much is what matters the two most notable developments in congressional campaign finance have opposing implications national party organizations particularly the republican have assumed an increasingly important role in financing campaigns greater central control leads to a more efficient distribution of the party s collective campaign resources which among other things promises to raise the overall level of electoral competition it also leads to more coordinated campaigning with greater emphasis on national themes and programs thus it should foster more cooperation and loyalty among fellow partisans in congress but pacs have also grown in numbers and in financial importance because most concentrate on gaining access to incumbents they do little to make elections more competitive because they usually pursue narrowly defined interests their influence fragments the congress and weakens party coalitions in this and other ways parties and pacs are natural rivals the most consequential decisions taken in the next round in campaign finance policy will be those which affect the relative importance of parties and pacs see u s congress 1984 for comments on this and other current campaign finance issues

the anatomy of the directive capacity of the socialist state this article discusses the problem of the directive capacity of the socialist state defined as the ability to identify opportunities available within both the domestic and international political economy and to develop and implement policies the focus is not on how the directive capacity of the socialist state is actually used by the elites but on the identification of basic mechanisms shaping it the following questions are addressed what is the relationship between politics and economics in state socialism and how does it determine directive capacity what are the underlying structures that shape the socialist state economy interaction what mechanisms have developed within the framework of state socialism that compensate for lack of pressures toward higher efficiency what are the system s limitations and what strategies are available to increase the directive capacity

the performance effect of managerial ownership evidence from china abstract by examining a sample of non listed chinese firms we provide the first evidence from china for the effect of managerial ownership on firm performance in matching sample comparisons we find that firms of significant managerial ownership outperform firms whose managers do not own equity shares our further results indicate the relation between firm performance and managerial ownership is nonlinear and the inflection point at which the relation turns negative occurs at ownership above 50 compared with previous studies our results are less likely to suffer from an endogeneity problem due to the non list nature of our sample and the unique institutional environment in china

the myth of the east asian miracle the macroeconomic implications of soft budgets gregate risk let us call the aggregate of the high risk projects the risky project and the aggregate of the other projects the low risk project it is easy to imagine that within a broad range of the parameters a rational risk averse investor would diversify her investment portfolio between the assets of these two projects reflecting the desire for a higher return and at the same time the desire to avoid excessive risks meanwhile the total investment savings of the investor should reflect the individual s balance between currenit and future consumption

the political temptations of rationing by insiders long waits for goods services and jobs to become available still exist in and to the east of europe this paper explores the political economy of what has made pervasive rationing an attractive way to cope with shocks in the past the explanation advanced lies not in the creation of shortage rents for the personal profit of corrupt insiders controlling the production and distribution process instead rationing with queuing is viewed as a populist scheme that allows a majority to keep its wages above levels that would clear the labor market while hiding the cost of such a policy increased unemployment

campaign finance reform a public choice perspective the federal election campaign act as passed in 1971 and amended in 1974represented landmark federal legislation it imposed new restrictions oncampaign contributions and contained path breaking provisions for the useof public funds to partially finance the campaigns of qualifyingpresidential candidates the nominal intent of the legislation was torestrain the skyrocketing campaign costs and the feared abuses thatgrowing dependencies on such money engendered three decades later withthe campaign spending arms race still raging congress sought toimpose further constraints on campaign spending with enactment of thebipartisan campaign reform act of 2002 bcra competing theories ofgovernment regulation are reviewed to better understand the intent andlikely consequences of the 2002 legislation in particular and campaignfinance regulation in general a simple model of the campaign spendingprocess highlights the likely causes of the rapid growth in campaignspending data and evidence are presented to test hypotheses concerningthe timing of and underlying motivations for bcra

economic adjustment and political forces poland since 1970 postwar poland has experienced relatively great economic instability and recurring political upheavals at least by east european standards recent dramatic developments include a severe economic crisis following an extended period of spectacular growth the collapse of the once popular leadership of edward gierek the creation of the first independent trade unions under a communist regime and the replacement of party with military rule bear witness to the severity of poland s political disruptions have economic or political factors caused the economic crisis which are the critical factors escalating internal political tensions and enormous external political pressures have caused poland s current economic collapse preventing the successful implementation of adjustment policies the underlying sources of these political forces namely worker disillusionment with communist practices and confrontational relations between the superpowers have not eased to date the current malaise is likely to continue for some time

tests of the chronic shortage hypothesis the case of poland in the analysis of econometric disequilibrium models it is common to test the n ull hypothesis of equilibrium against the disequilibrium alternat ive this paper tests the null hypothesis of all excess demand tha all observations correspond to positive excess demand against the alternative that permits excess demand of either sign the auth ors use a test due to rogers 1984 which their monte carlo experime nts suggest performs well in small samples as well as a quasi like lihood ratio test which is a suggestive heuristic procedure the da ta are from the aggregate consumption goods market in poland 1955 80 and the paper is thus a test of j kornai s assertion that chroni c shortage characterizes such cpes the results conclusively reject the all excess demand hypothesis for the polish case and the rogers test promises to be of considerable practical use copyright 1988 by mit press

agricultural productivity under socialism abstract this paper comprises an analysis of the causes of the disappointing development of agricultural productivity under state socialism stress is laid on the underlying theoretical explanation the inadequacies of marxist agrarian theory these are excessive stress on economies of scale exaggerated expectations concerning the gains from abolishing private ownership and failure to foresee the costs of the one nation one factory model use is made of empirical material about the ussr china and other countries

demand for grazing on public lands a disequilibrium approach a demand function for grazing on western public rangelands is estimated since the federal government sets the grazing fee and rations the quantity of animal unit months aums a disequilibrium market model is developed the estimate of own price elasticity of demand 0 178 suggests a 0 82 percent revenue gain for a 1 percent fee increase results show that most western states experienced excess supply of aums since the mid 1980s suggesting a relatively high fee the levels of demand and effective supply vary substantially across states this implies that state or region specific factors should be incorporated in setting the grazing fee

a dynamic model of trade frictions and disequilibrium in the housing market a dynamic stock flow model is developed to analyze and simulate housing markets with partial rent control trade frictions and spillovers a notion of equilibrium is suggested and related to walrasian equilibrium existence uniqueness and comparative statics properties of equilibria are analyzed in some examples of housing markets with and without price control stability properties and dynamic responses to demand and supply shocks are studied by means of computer simulations in a final simulation experiment a black market for rent controlled dwelling units is introduced

optimal diversification and risk taking a theoretical and empirical analysis among the justifications for capital property income received by private households is that it is a return to risk taking however portfolio diversification provides an obvious means toward the reduction of risk moreover it is widely believed that the wealthier the household the more diversification it practices the larger tends to be the proportion of its total portfolio allocated to publicly traded stock and the larger tends to be the number of individual stock issues included in its portfolio using a simple homogeneous securities model explicit functional forms are obtained for both the optimal proportion of the portfolio allocated to stocks and the optimal number of individual stock issues in the portfolio empirical evaluation of these theoretical results using a dataset derived from the 2004 survey of consumer finances scf lends substantial support to the model applying these empirical results it is found that as household capital wealth increases expected capital income increase

a theory of bot concession contracts in this paper we discuss the choice for build operate and transfer bot concessions when governments and firm managers do not share the same information regarding the operation characteristics of a facility we show that larger shadow costs of public funds and larger information asymmetries entice governments to choose bot concessions this result stems from a trade off between the government s shadow costs of financing the construction and the operation of the facility and the excessive usage price that the consumer may face during the concession period the incentives to choose bot concessions increase as a function of informational asymmetries between governments and potential bot concession holders and with the possibility of transferring the concession project characteristics to the public authority at the termination of the concession

short and long run credit constraints in french agriculture a directional distance function framework using expenditure constrained profit functions this empirical application investigates the eventual presence of credit constraints using a panel of french farmers the credit constrained profit maximization model proposed by fare grosskopf and lee is extended in three ways first we rephrase the model in terms of directional distance functions to allow duality with the profit function second we model credit constraints in the short run and investment constraints in the long run using short and long run profit functions third we lag the expenditure constraint one year to account for the separation between planning and production we find empirical evidence of credit and investment constraints financially unconstrained farmers are larger perform better and seem to benefit from a virtuous circle where access to financial markets allows better productive choices

naive diversification strategies in defined contribution saving plans there is a worldwide trend toward defined contribution saving plans and growing interest in privatized social security plans in both environments individuals are given some responsibility to make their own asset allocation decisions raising concerns about how well they do at this task this paper investigates one aspect of the task namely diversification it is shown that some investors follow the 1 n strategy they divide their contributions evenly across the funds offered in the plan consistent with this naive notion of diversification it is found that the proportion invested in stocks depends strongly on the proportion of stock funds in the plan

stabilization and recession in a transitional economy the case of poland abstract this paper analyzes the polish experiences in 1990 of the stabilization shock therapy implemented simultaneously with the set of system transforming reforms the orthodox exchange rate based stabilization program brought about a substantial reduction in inflation and the establishment of market clearing prices but the economy fell into unexpectedly deep recession our findings suggest that the recession which has been common to all postsocialist countries was mainly caused by a system specific output decline related to the dismantling of a centrally planned system and the transition to market economy

decomposing political advertising effects on vote choices this paper studies the channels through which political television advertising influences individuals voting decisions scholars are interested to learn whether advertising primarily persuades people to change their choices of candidates or mobilizes people to vote i find that advertising does both about 60 to 70 of advertising s effect is persuasion and 30 to 40 of it is mobilization advertising s effects are stronger on those who did not plan to vote for a major party candidate to decompose the impact into its components the present paper estimates a multinomial probit model that permits analysis of decisions of turnout and candidate choice jointly in a markov chain framework in contrast to most studies that estimate the effects of aggregated exposure to advertising on voters choices on election day i study how advertising influences peoples monthly voting intentions leading up to election day in the context of the 2008 presidential election the magnitude of the advertising effect is not large enough to overcome john mccain s significant deficit but it potentially could have changed the outcomes of other close elections such as those in 2000 and 2016

goods diversion and repressed inflation notes on the political economy of price liberalization most analyses of parallel markets in centrally planned systems focus on queue rationing as the mechanism whereby state sector goods become available for second economy resale this article takes into account employee diversion of goods as a second channel through which merchandise can move to private markets diversion of goods tends to temper the adverse distributional consequences of price liberalization as repressed inflation increases more goods are diverted out of the state sector and the likelihood that an individual will be made worse off by a transition of free prices is diminished

stagflationary effects of stabilization programs in reforming socialist countries enterprise side and household side factors dismantling subsidies could give rise to serious macroeconomic difficulties in the short run this article explores a view based on the enterprise sector as a central source and main channel of the stagflation phenomenon using as an example the stagflation that followed the 1990 stabilization program in poland the stagflation phenomenon is linked to features of the financial market that are somewhat peculiar to reforming socialist economies the weak credit links between households and enterprises and the existence of large interenterprise debt the policy implications of the enterprise side view include more explicit consideration of initial conditions in the credit market implementation of privatization schemes and the development of a domestic banking

socialist economics the disequilibrium school and the shortage economy the economics literature about behavior and policy in the stylized socialist economy has passed through three main phases the first phase emanated essentially from the barone lange von mises debate before world war ii its main focus was on how a socialist economy could operate efficiently in the absence of markets and private property the second phase occurring mostly since world war ii has been concerned primarily with coming to grips with the organization institutions and planning process of economies that profess to have realized some form of the ideal socialist economy several writers have sought to generalize on the basis of these empirical features without really aiming at a rigorous formal theory of the various agents in a centrally planned economy the third phase has occurred since the mid 1970s when some began to work out propositions on and formalize models of micro and macroeconomic behavior in stylized centrally planned economies and sought to buttress their theoretical approach with macroeconometric measurements that have since been used as a platform for formulating policy recommendations there have been three main strands in this third type of inquiry ickes 1984

external ambition and economic performance realist approaches to international politics raise the possibility that external policies based on expanding military power may undermine the economic bases of that power the links between external strategy and economic performance can be classified as fiscal macroeconomic effects structural microeconomic and structural effects and protectionist effects on foreign economic policy the case of prewar japan suggests that for countries at an intermediate position in the international power hierarchy and in the international division of labor the positive effects of external ambition on economic performance may dominate other cases national socialist germany contemporary developing countries and the postwar superpowers seem to confirm that international position is a principal determinant of these effects

a note on privileges in a queue rationed cpe with black markets abstract in a centrally planned economy with fixed prices rationing by waiting in queues black markets and different waiting times for each agent existence of an equilibrium is demonstrated also welfare characteristics of equilibrium allocations are discussed non uniform waiting times decrease the allocative efficiency of black markets and may lead to pareto inferior in a compensated sense equilibria compared to a model with uniform waiting times

the stahl alexeev paradox a note abstract we offer a simple proof of the paradox discovered by stahl and alexeev that the introduction of black markets in a fixed price economy with a rationing mechanism consisting of waiting line queues is not necessarily a pareto improvement we show that the paradoxical result arises from the fact that queue length is endogenous and illustrates the general principle that permitting an additional market may be undesirable in an economy which has other distortions

financial structure and reforms in central and eastern europe in the 1980s abstract the paper analyzes the evolution of the financial structure of the countries of central and eastern europe during the 1980s in these countries the financial system is assigned a limited and mostly passive function this needs to be seen in the context of the allocative system of centrally planned economies where the transfer of financial resources between sectors is largely performed directly by the state through the price system taxes and subsidies the analysis focuses specifically on hungary poland and czechoslovakia the development of their financial structure is assessed through a number of quantitative indicators we find that the partial economic and financial reforms introduced in hungary and poland before 1989 did not substantially modify the role and performance of the financial system whose size in relation to the real economy remained modest at the same time however the reforms exacerbated some of the distortions of the planned system and generated larger macroeconomic imbalances the effects of which tend to cloud the interpretation of financial indicators at the end of 1980 the banking systems of hungary and poland although formally decentralized continued to allocate credit mostly according to automatic criteria and had virtually no experience in assessing and monitoring borrowers and investment projects in this respect they differed little from that of czechoslovakia which remained based on the classic model of a single state bank

federalism and the soft budget constraint the government s incentives to bail out inefficient projects are determined by the trade off between political benefits and economic costs the latter depending on the decentralization of government two effects of federalism are derived first fiscal competition among local governments under factor mobility increases the opportunity costs of bailout and thus serves as a commitment device the competition effect second monetary centralization together with fiscal decentralization induces a conflict of interests and thus may harden budget constraints and reduce inflation the checks and balance effect the authors analysis is used to interpret china s recent experience of transition to a market economy copyright 1998 by american economic association

inflation or monetary overhang planners preferences in china two models based on utility maximization of economic planners are developed to explain the stock of households money holdings and rate of open inflation in china for the period 1954 85 planners preferences are found to be biased in favour of monetary overhang this bias was reinforced when the bargaining strength of planners vis a vis households was weakened and during the post mao reform period this could help to explain the increase in the value of rents and level of corruption during the reform period

a dynamic model of soft budget constraint abstract we study the soft budget constraint by dynamic models and conclude that the soft budget constraint originated in the investment activities do not match the profit function and policy burdens will intensify the soft budget constraint

economic crisis in a shortage economy it is not unusual for reforming socialist economies to relax wage controls without hardening budget constraints on enterprises or freeing consumer goods prices this policy can be dangerously destabilizing while higher wages permit workers to purchase more of some goods they also tend to exacerbate shortages and to breed waste and corruption beyond a certain level economywide wage hikes will worsen worker welfare this is true regardless of whether deficit goods are strictly rationed are sold randomly at official prices to queuing workers or are offered to workers by insiders only at black market prices however the form of allocation does influence the levels of output and welfare

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

rethinking internal labor markets new insights from a comparative perspective internal labor markets take different forms in the capitalist and the socialistfirm as the distinctive organizational problems in each economic system produce differing but comparable institutional solutions analysis of systemic uncertainties and the organizational responses of workers and managers yields a comparative model of mirrored opposition in economies in which the firm operates in a market environment systemic uncertainties regarding labor are reduced through internal bureaucratic rules operating according to a classificatory logic in the socialist economy by contrast where systemic uncertainties are produced by a bureaucratic environment the firm responds through internal market transactions based on affiliative ties the market like character of these internal mechanisms is brought into even sharper relief in an analysis of the recent establishment in hungary of semi autonomous subcontracting units inside the enterprise

additional incumbent spending really can harm at least some incumbents an analysis of vote share maximization the literature on the effects of campaign expenditures on electoral outcomes implicitly suggests that incumbent spending cannot have a negative marginal impact on the incumbent s vote share indeed that literature has spent a great deal of effort finding positive and significant effects of incumbent spending this paper shows that there are circumstances under which theory predicts zero and even negative impacts of incumbent spending estimating equations derived from the theory provide strong support for the base model though only weak support for the extensions which predict nonpositive marginal products for incumbents

introduction state structures political processes and collective choice in cmea states the similarity of state structures throughout eastern europe helps to explain why the reactions of states in that area to the international economic disturbances of the past decade resemble each other and why they differ from those of states outside the socialist bloc similar state structures however do not explain why the economic strategies of the east european states themselves in response to international economic shocks in the 1970s and 1980s diverged so noticeably the role of state structure is to define kto kovo who can do what to whom relationships in the state and economy in this way state structures define problems that political leaders must solve possibilities among which they may choose and political resources and allies upon which they may draw in the course of their decision making in contrast strategy choices what is to be done are the outcomes of political processes in which leaders mobilize resources and allies to capture positions of power from which they can pursue the purposes they advocate thus differences in foreign economic strategies among member states in the council for mutual economic assistance reflected differences in the dynamic interaction of the form and content of political processes that occurred within common state structures

long term trends in inventory investment in traditional market and post socialist economies abstract inventories form a small but important part of national wealth and constitute the most volatile component of gdp their moves are important indicators of the dynamics of the economy both at the micro and macro level in this paper the authors venture to explain long term macroeconomic inventory investment trends from new perspectives we compiled a data set of 24 oecd countries for the 1970 2011 time period and addressed three sets of questions how can inventory investment be characterised in the sample countries and what are the general tendencies does the analysis on the substantially larger data set compared to those in our previous studies verify earlier results regarding the declining global trend in inventory investment and the convergence of inventory features in different countries a quarter of a century ago a substantial change in the economic systems of certain oecd countries took place the transition of central eastern european countries from planned to market economies the difference in inventory behaviour in the two sets of countries was obtrusive before the transition the changes following the transition reveal very important consequences of systemic changes are there substantial connections between fundamental country characteristics and inventory behaviour can regression and correlation analysis reveal some decisive relationship between certain macroeconomic indicators and inventories our analysis resulted in mostly positive or at least meaningful answers to the above questions and opened up a broad field for further research

slack shortage and discouraged consumers in eastern europe estimates based on smoothing by aggregation as a consequence of aggregation over markets the observed quantity may be less than the quantity demanded and less than the quantity supplied to deal with such situations a new technique is proposed for estimating demand and supply curves and the extent of shortage and slack the technique is applied to the consumption goods markets of czechoslovakia the german democratic republic hungary poland and yugoslavia it is found that shortage even corrected for a discouraged consumer effect is seldom as great as slack

incentives equality and contract renegotiations theory and evidence in the chinese banking industry renegotiation plays an important role in contract theory but the empirical study of renegotiation is almost non existent in the literature using a unique dataset from the chinese banking industry we find that the large majority of managerial incentive contracts are renegotiated after performances are realized we develop a model of contract renegotiation where supervisors and managers sign incentive contracts and then renegotiate them in the unique equilibrium of the model incentive contracts are almost always renegotiated ex post even though renegotiation is fully anticipated incentive contracts affect performance the predictions of the model find strong support from our empirical results

the effects of campaign spending on electoral outcomes a data envelopment analysis data envelopment analysis is used to analyze the efficiency of candidate campaign spending analysis of the measured efficiency scores of the incumbents and challengers shows that there are significant systematic effects of both district and candidate characteristics the incumbent s residuals from the efficiency score regressions indicate those candidates who do well because of the nature of their district and those who do well because of their own abilities incumbents are ranked according to their observed efficiency their unobserved efficiency and their vote share correlations among the rankings are significant and of the expected signs more efficient candidates receive higher vote shares

investment choice and asset allocation of italian households the discrete continuous approach financial and monetary policies are considered to be effective depending on the reaction of financial markets which are increasingly populated by households in this article from intertemporal settings i derive a financial almost ideal fai demand system and i estimate it by highlighting the determinants of both limited participation to financial markets and asset substitutability complementarity in the allocating stage finally the wealth elasticities provide some further insights on the low diffusion of the newer and more complex financial instruments across italian households

the benefits of inflation in the economies with price controls and the cash in advance black markets abstract i study the welfare implications of an accelerated growth of nominal money supply in an economy with price controls i proceed by embedding barzel s 1974 classical rationing by waiting arguments in a general equilibrium model with money in an endowment economy studied below binding price controls lead to queuing and the black market money is introduced through a cash in advance cia constraint on the black market purchases in sharp contrast to the common view i show that an increase in the growth rate of the money supply is welfare improving both on impact and in the long run this is because it reduces the steady state waiting line by inducing a substitution towards the inflation tax free leisure i discuss the robustness of this finding the results strongly support the case for a complete elimination of price controls ahead of inflation stabilization

former soviet union oil production and gdp decline granger causality and the multi cycle hubbert curve abstract this paper discusses the transition of the former soviet union fsu within the context of a 1987 1996 soviet and fsu oil production decline the conventional explanation of the break up is that economic inefficiencies and the cold war defense build up caused it another possible explanation one that is examined at length here is that declining oil production was a contributing factor the econometric analysis suggests that the fall in soviet and former soviet gdp in the 1980s and 1990s did not granger cause the decline in oil production but the decline in oil production did granger cause the fall in gdp coal and natural gas to gdp relationships show alternative granger causalities that we would expect to see with oil but do not a multi cycle hubbert trend that may be used to forecast future fsu oil production is also shown

new market socialism a case for rejuvenation or inspired alchemy the aim of this paper is to examine the relative merits and drawbacks of two recent models of market socialism proposed by bardhan and roemer this is done first by putting these models into the perspective of the history of economic thought thus after presenting the basic elements of the early lange model as well as the austrian and new information economics critiques the necessary comparisons and contrasts are made to see what new light these new models bring into this debate in addition the internal consistency and coherence of these models is checked in terms of their own proclaimed goals last a more radical methodological critique is provided copyright 2003 oxford university press

pivotal power brokers theory and evidence on political fundraising this study examines the campaign fundraising success of senate incumbents that have a unique pivotal status legislatively in the senate with regards to parliamentary procedures e g the filibuster regression estimates place the fundraising advantage in favor of certain pivotal moderates over all other senators at about 2 12 million in real terms in total contribution per 2 yr election cycle pivotal status is even more significant in explaining variations in pac contribution in the u s senate given that individuals who make contributions are not likely to be as interested as pacs in buying policy the results also suggest that krehbiel s pivotal politics krehbiel k 1988 pivotal politics a theory of u s lawmaking chicago il university of chicago press construct warrants modification given that it offers prediction about policy outcomes and gridlock intervals without fully incorporating interest group politics of the vote buying or policy buying variety

output targets the soft budget constraint and the firm under central planning abstract the paper considers the case of an expected profit maximizing firm which has an output target imposed on it by central planners and which may receive partial bailouts if its operating profit is negative the model contains several sources of uncertainty the paper compares the amounts of input use in the pure bailout case the pure output target case the bailout with output target case and the standard competitive case both theoretically and with numerical experiments

gavel to gavel congressional television coverage as political advertising the impact of c span on legislative sessions kamal p upadhyaya this article examines the effect of television on the length of legislative sessions at the federal level in the united states data from the u s congress during the period 1972 96 are employed during part of which time each house of congress received significant television coverage by c span and c span2 evidence from a parks regression suggests that the presence of c span has increased house sessions by 88 250 hours and the presence of c span2 has increased senate sessions by a striking 252 431 hours other things constant additional estimates suggest that house sessions are about two minutes longer per bill introduced under the eye of c span and senate sessions are about four minutes longer per bill introduced in the presence of c span2 longer sessions which represent low cost forms of advertising for incumbents are not without costs to taxpayers we estimate that these costs lie somewhere between 16 million and 392 million in real terms per session of congress jel d72 h11 i introduction as grain and goff 1988 point out the number of political watchers c span junkies seems to be on the rise from a 1986 estimate of 40 million since 1986 the grain and goff 1988 study has been the only significant empirical study of the impact of television on representative democracy despite the potential availability of relevant data and statistical techniques the purpose of the present article is to partially fill the void concerning the impact of television on the democratic process by concentrating on the effect of television on the length of legislative sessions in the u s congress this study makes use of a voter shopping construct that analyzes political services as search experience goods and employs data from the u s house of representatives and the u s senate during the period 1972 96 during some of which time each branch of congress received significant television coverage by c span or c span2 ii product classifications and the provision of political services as grain and goff 1988 point out the theory of product advertising parallels the theory of information as in stigler 1961 and nelson 1970 1974 these articles define search goods as goods for which consumer judgments about quality or performance can be made prior to purchase and experience goods as those for which consumer judgments about product quality performance can be made only after purchase nelson points out that information regarding experience good search good quality can be obtained by consumers at high cost low cost for experience goods ads contain cues indirect on the reputation of the seller which is verifiable at low cost and from which the buyer can make inferences regarding product quality 1 crain and goff 1988 point out that one point of view in the literature holds that political services are like search goods because candidates records are available to voters for verification and evaluation at low cost on the other hand it might be costly for voters to gather information on candidates prior to an election and or difficult for voters to draw inferences about the future behavior of politicians which suggests that political services are experience goods crain and goff 1988 11 in this regard any technological advancement that changes the costs of information gathering by voters will alter the nature of political services as in crain and goff 1988 19 because televising legislative proceedings lowers the cost of evaluating a politician s advertised qualities against his or her actual qualities political services would be more like search goods it is within this framework that we analyze the impact of television on the length of legislative sessions however we argue that there are differences in this regard with state level legislatures which were analyzed by crain and goff 1988 and the u

does additional campaign spending really hurt incumbents the theoretical importance of past investments in political brand name the existing literature ignores the fact that the marginal return to current campaign expenditures depends on the candidate s stock of brand name this simple observation is then used to provide a possible explanation for the negative empirical relationship observed between an incumbent s campaign spending and how well he does

technological progress and factor utilization in eastern european economic growth frontier production functions are estimated for the industrial sector of four east european countries czechoslovakia the german democratic republic hungary and poland the estimates reveal that the slowdown in industrial growth in these countries is due to a decline in the efficiency or intensity of factor utilization rather than to declining rates of growth of technological progress in all countries changes in the efficiency of resource utilization are found to be more responsive to changes in macroeconomic policies than to economic reforms finally the amount of labor that could be displaced during cyclical downturns is estimated and found to imply potentially high levels of disguised unemployment copyright 1989 by the london school of economics and political science

payment system reform in formerly centrally planned economics abstract the payment system is a linchpin of a functioning market economy but existing payment systems in many formerly centrally planned economies are in a primitive state reflecting the legacy of the monobank system the wholesale payment system can play a fundamental role in facilitating the efficient exchange of goods services and assets and is particularly important in fostering the development of a money market which in turn is a precondition for market based implementation of monetary policy in reforming the payment system some important policy issues especially the allocation of settlement risk need to be addressed

campaign war chests as a barrier to entry in congressional races i introduction issues surrounding the nature and degree of competition in political races have been examined extensively in both the economic and political science literature with most attention focused on the interplay between incumbent and challenger expenditures and electoral success this study extends our understanding of political competition by investigating the impact of an incumbent s war chest on a challenger s decision to mount a campaign 1 for this purpose a war chest is defined as a pool of unencumbered funds accumulated prior to the start of a campaign for elective office 2 sorauf 1988 182 has observed that early receipts even without early spending discourage competition in the primary and attractive challengers in the general election jacobson 1985 26 has argued the most effective strategy for keeping a seat in congress is to avoid serious opposition contemporary critics and reformers of campaign financing practices use such words as frighten intimidate and overpower to describe the role of an incumbent s war chest 3 despite this kind of attention little is actually known about the degree to which war chests diminish entry or reduce the quality of a challenge we present three alternative mechanisms to explain how an incumbent s war chest might deter entry each is based upon a war chest serving as a credible commitment to spend heavily if challenged specifically war chests may either represent excess capacity in financing a campaign or serve as a signal of non observable incumbent characteristics that define a formidable opponent aside from determining whether an incumbent is challenged a war chest might also affect the quality of the challenger for example potential candidates with prior political experience may be unwilling to risk their political capital on a long shot proposition to test for these effects on entry into house races a trichotomous logit model is estimated the choices are uncontested race contested by an ordinary challenger and contested by an experienced challenger although the empirical model is not sufficiently rich to fully distinguish among competing mechanisms the regression results are robust incumbent war chests negatively affect the likelihood of a contested race and the quality of the challenger ii war chests as a barrier to entry becker 1958 106 in comparing economic and political competition observed i n an ideal political democracy competition is free in the sense that no appreciable costs or artificial barriers prevent an individual from running for office in the theory of the firm entry occurs when the expected postentry stream of profits minus the cost of entry is positive analogously an individual will enter a political race when the expected gain from holding office is positive expected gain as defined by baron 1989 is a function of campaign costs the probability of winning and the personal valuation placed by the candidate on the office the first two determinants are partly endogenous depending upon the strategic interplay of the candidates the third aside from its direct effects indirectly affects the first two for example persons hungry for office may be committed to expending greater effort and funds on their campaigns thus increasing their probability of winning similarly as lott has emphasized nontransferable brand name capital would be another factor creating a commitment to aggressively pursue office thereby affecting campaign costs and the probability of winning 4 that some challengers are deterred however need not imply the existence of a political market failure in a contestability sense the lack of a viable challenger on the ballot does not imply a lack of competition good representation will discourage entry similarly the fact that some incumbents will aggressively seek re election frightening away potential challengers is not a sign that competition is lacking

the timing of elections in federations a disciplining device against soft budget constraints we introduce political economics into the soft budget constraint problem by asking if the timing of elections has the potential to harden budget constraints specifically we ask under which circumstances the soft budget constraint problem is worse with synchronized elections i e simultaneous central and regional office terms or with staggered elections i e terms of office that do not coincide we find that staggered elections clearly improve fiscal discipline at the local level as well as welfare