what drives deregulation economics and politics of the relaxation of bank branching restrictions this paper investigates private interest public interest and political institutional theories of regulatory change to analyze state level deregulation of bank branching restrictions using a hazard model we find that interest group factors related to the relative strength of potential winners large banks and small bank dependent firms and losers small banks and the rival insurance firms can explain the timing of branching deregulation across states during the last quarter century the same factors also explain congressional voting on interstate branching deregulation while we find some support for each theory the private interest approach provides the most compelling overall explanation of our results

combining cartel penalties and private damage actions the impact on cartel prices abstract in many countries antitrust enforcement by competition authorities through prosecution and the imposition of penalties is complemented in price fixing cases by private damage actions which should affect both cartel deterrence and the prices set by those cartels that do form we show that the impact of combining penalties and damages on cartel prices is not clearcut and depends on both the nature of the penalty regime and the way that damages are calculated we demonstrate this by focusing on two ways of calculating damages that have been advocated in practice and two different forms of the widely used revenue based penalty regime when the simple form of revenue based penalties is in force the standard method of calculating damages worsens its harmful pricing effects whereas the proposed alternative method of calculating damages can overturn them when a more sophisticated form of revenue based penalties is in operation imposing damages will improve its beneficial pricing effects under both methods of damage calculation but the alternative method is more effective in all cases combining penalties and damages improves deterrence

the informal sector and the political economy of development this paper takes an initial step in integrating insights from two sets of literature which have focused on central aspects of development with unfortunate independence it highlights politically valuable resources which are identified in the political economy literature and shows that the informal sector literature provides ample evidence that these resources in general are i scarcely available to informal entities ii poorly valued in their possession and iii more often collectively unexploited by them overall there seems to be an important though neglected bias in how the political system in less developed countries formulates crafts and implements policy

the constitution of economic policy one of the most exciting intellectual moments of my career was my 1984 discovery of knut wicksell s unknown and untranslated dissertation finanztheoretische untersuchungen buried in the dusty stacks of chicago s old harper library only the immediate post dissertation leisure of an academic novice allowed for the browsing that produced my own dramatic example of learning by serendipity wicksell s new principle of justice in taxation gave me a tremendous surge of self confidence wicksell who was an established figure in the history of economic ideas challenged the orthodoxy of public finance theory along lines that were congenial with my own developing stream of critical consciousness from that moment in chicago i took on the determination to make wicksell s contribution known to a wider audience and i commenced immediately a translation effort that took some time and considerable help from elizabeth henderson before final publication this abstract was borrowed from another version of this item

competitive prices as optimal cartel prices in a linear oligopoly model with antitrust enforcement the optimal cartel price converges to the competitive equilibrium price the set of sustainable cartel prices does not shrink to the competitive price we identify necessary conditions for this counter intuitive convergence result

legal principles in antitrust enforcement we study antitrust enforcement to channel price fixing incentives of cartels through setting fine schedules and detection levels fines obey legal principles punishments fit the crime proportionality bankruptcy considerations and minimum fines bankruptcy considerations limit maximum fines ensure abnormal cartel profits and impose a challenge for optimal antitrust enforcement we derive the fine schedule and detection level that are constrained optimal under legal principles and sustainability of cartel prices this fine schedule lies below the maximum fine makes collusion on lower prices more attractive than on higher prices and hence relates to marginal deterrence literature this article is protected by copyright all rights reserved

divide and rule the economic and legal implications of the proposed ownership unbundling of distribution and supply companies in the dutch electricity sector abstract in machiavelli s theory of power the concept of divide and rule forms the main theme the ruler has absolute power and to maintain and increase such power all means are justified when viewed against the background of this theory the current debate in the netherlands on the unbundling of energy electricity gas companies can be observed as an example of divide and rule in which the dutch minister of economic affairs plays a central role yet contrary to machiavelli in his time the dutch government does in fact aim principally at the greater welfare of the dutch people it is therefore noteworthy that while important steps in the decision to unbundled have been taken there is no evidence that the dutch people will indeed benefit from the envisaged unbundling

the distortive effects of antitrust fines based on revenue in most jurisdictions antitrust fines are based on affected commerce rather than on collusive profits and in some others caps on fines are introduced based on total firm sales rather than on affected commerce we uncover a number of distortions that these policies generate propose simple models to characterise their comparative static properties and quantify them with simulations based on market data we conclude by discussing the obvious need to depart from these distortive rules of thumb that appear to have the potential to substantially reduce social welfare how competition authorities cas should set fines and how they actually do so in practice is a highly debated issue among antitrust practitioners in europe where fines are often set directly by the cas appeal courts have often slashed cas decisions precisely on the grounds of how they set the fines an illuminating example is the uk competition appeal tribunal cat decision in 2011 to cut the fines set by the office of fair trading oft for members of the construction recruitment cartel substantially on the grounds that the wrong measure of affected commerce was used

the political economy of regulations and trade wine trade 1860 1970 dramatic changes in the 1860 1970 wine trade provide insights on the political economy of regulations and policy instrument choice and trade an invasion of phylloxera in the 1870s turned france from the world s leading exporter to a massive importer of wine and grapes when french production recovered a combination of tariffs safety regulations and quality standards were introduced to protect its french producers causing dramatic changes in global wine and grape production and trade including in spain italy turkey greece algeria tunisia and morocco changes in wine regulations were caused by relative income and loss aversion factors in political economy tariffs were the preferred policy instruments as they directly restrict imports bring in revenues have low transaction costs and are preferred political instruments when there are information imperfections safety regulations and quality standards including labelling and input prohibitions reduce asymmetric information for consumers or undesirable externalities and simultaneously protected domestic producers regulations were often targeted at imported products wine and raisins when tariffs were ineffective or constrained by institutions such as on colonial wine hence tariffs and quality regulations were jointly used in wine policy both as complements and as substitutes in policy design

the lens of contract private ordering james buchanan 2001 p 29 avers that mutuality of advantage from voluntary exchange is the most fundamental of all understandings in economics he further contends that this fundamental understanding is better realized by examining economics through the lens of contract rather than the lens of choice buchanan 1975 because the latter has been the reigning paradigm in economics during the 20th century lionel robbins 1932 melvin w reder 1999 the lens of contract is understandably less fully developed interest in contractual approaches has nevertheless been building up whence the gap between these two has been closing this paper sketches some of these developments with emphasis on private ordering

targeting rules for monetary policy abstract we develop a framework for the analysis of targeting rules for monetary policy derive the optimal money supply rule and use an explicit criterion to evaluate the relative desirability of other targeting rules governing the money supply process

comparing tax expenditures and direct subsidies the role of legislative committee structure abstract this paper analyzes the impact of legislative committee structure on policy outcomes comparing a tax committee enacting tax expenditures and a decentralized system of specialized committees undertaking direct spending an endogenous commodity taxation framework is combined with models of legislative bargaining and committee voting the main conclusion is that the tax committee structure gives rise to lower subsidy levels under a wide range of circumstances however it is only under a more restrictive set of assumptions that social welfare is higher in the tax committee regime this theoretical analysis is illustrated by two examples of institutional change in congress

exchange rate versus price level targets and output stability two alternative targets for monetary policy are considered stability of the price level or the rate of inflation and stability of the exchange rate the interest rate is the main instrument of the central bank credibility requires low output variability the advantages of the alternative policy rules from the point of view of output stability are considered in the simplest possible model conditions favoring a price level rule are high volatility of aggregate demand low volatility of aggregate supply high volatility of the foreign price level a low price elasticity of aggregate demand and a high price elasticity of aggregate supply copyright 1996 by the editors of the scandinavian journal of economics

the paradoxes of the successful state abstract three issues are discussed in this paper first i argue that it is impossible to understand the east asian growth miracle without appreciating the importtant role that government policy played in stimulating private investment second i will summarize some of my work on the determinants of policy effectiveness based on a cross country comparison of export subsidy regimes and show that the usual rules of thumb on what makes for good policy uniformity transparency non selectivity etc are quite useless in predicting which policy regimes perform better in practice third i will provide some evidence that the government s social insurance role creates a complementarity between states and markets these three sets of ideas yield a more balanced and nuanced view of the role of the state in economic development than has recently become commonplace

a transaction cost analysis of the land development process the production of our built environment involves many transaction costs we want to avoid unnecessary transaction costs nevertheless we hardly take account of transaction costs when considering different ways of organising the development process the most important reason is probably the difficulty in identifying them this paper shows why transaction costs are important and offers a method for identifying them with this method it is possible to compare the efficiency of different institutional arrangements

common interest development and the changing roles of government and market in planning world wide common interest development cid and its governance homeowners associations hoas are developing rapidly however numerous conflicts have given rise to the need to redefine govern

the power of the purse and its implications for bureaucratic policy making a dilemma of the power of the purse is thatcutting an agency s budget may make a desired policyinfeasible i examine the implications of thisdilemma with a repeated game in which a bureau choosesunobservable policies after a legislature sets itsbudget the bureau is work averse and has its ownpolicy preferences and therefore may cheat but thelegislature may perform an audit to recover slack funds a main result is that if the legislaturedesires a higher policy level than the agency then itfaces a trade off between good but wasteful policiesand bad but efficient ones

on the performance of nominal income targeting as a strategy for monetary policy in a small open economy abstract there is a great deal of support for nominal income targeting in the literature on strategies for monetary policy in a closed economy framework is nominal income targeting equally attractive in a small open economy this paper compares nominal income targeting to alternative monetary policy rules in a stochastic macro model for a small open economy we find that both the weighting in the overall price level of the exchange rate and foreign prices and the elasticity of output supplied with respect to the real exchange rate are important factors in assessing the attractiveness of nominal income targeting in a small open economy where the size of both parameters is not negligible a rule targeting the overall price level may actually be preferred to nominal income targeting

housebuilder networks and residential land markets the commercial prospects of speculative housebuilders depend crucially on successful land acquisitions this paper presents new evidence revealing the importance housebuilders attach to networks with other important actors in securing future land supplies since networks depend on trust reputation and voluntary collaboration they indicate the importance of social relations within the industry the paper argues that uk speculative housebuilders rely more on networks than markets to source land and that they structure those networks to enhance their own competitive positions reflecting granovetter s belief in the strength of weak ties the paper emphasises the breadth not depth of housebuilder networks and contends that social relations within the industry are primarily dependent on pragmatic considerations of mutual self interest

an analysis of the housing redevelopment process in korea through the lens of the transaction cost framework this paper applies the transaction cost framework to the analysis of the housing redevelopment process in korea the housing redevelopment process involves various identifiable transactions and cos

optimal cartel pricing in the presence of an antitrust authority the dynamic behavior of a price fixing cartel is explored when it is concerned about creating suspicions that a cartel has formed consistent with preceding static theories the cartel s steady state price is decreasing in the damage multiple and the probability of detection however contrary to those theories it is independent of the level of fixed fines it is also shown that the cartel prices higher when a more competitive benchmark price is used in calculating damages

pay for locally monitored performance a welfare analysis for teacher attendance in ugandan primary schools public sector organizations often rely on reports by local monitors that are costly to verify and that serve twin objectives to incentivize agent performance and to provide information for planning purposes received wisdom has it that pay for locally monitored performance p4lmp will result in collusion and undermine both objectives but simple coasian logic suggests the reverse p4lmp puts transferable money on the table and may enable interested parties to bargain to a more efficient outcome this paper develops a theoretical model that shows why and for which parameters the welfare enhancing coasian scenario exists focusing on education we model how the preferences of a teacher agent and headteacher local monitor affect actual and reported teacher attendance and how these equilibrium outcomes depend on the financial stakes attached to reports to capture the value of information we also consider the welfare of a bureaucracy that makes a costly policy mistake when holding the wrong belief about teacher performance we test the model and estimate the predicted effects using data from a field experiment in ugandan primary schools randomly varying whether head teachers reports of teacher attendance are tied to bonus payments or not consistent with coasian logic p4lmp increased actual and reported teacher attendance by 9 and 15 percentage points respectively and reduced policy mistakes by 7 percentage points relative to unincentivized local monitoring we use these experimental impacts to undertake a detailed cost benefit analysis and conclude even under conservative assumptions that welfare improved when paying for locally monitored performance

separation of regulators against collusive behavior we show that the separation of powers in regulation may act as a commitment against the threat of regulatory capture splitting regulatory tasks and monitoring technologies among several nonbenevolent regulators may reduce their discretion in engaging in socially wasteful activities when regulators make collusive offers that are accepted by the agent whatever his characteristics competition between regulators relaxes collusion proofness constraints and improves social welfare this result is robust to different specifications of the agent s preferences and to the timing of the game as long as one insists on safe side contracting offers we also discuss how separation affects both allocative efficiency and the distribution of rents in the economy

contribution to productivity or pork barrel the two faces of infrastructure investment abstract this paper proposes a simultaneous equation approach to the estimation of the contribution of transport infrastructure accumulation to regional growth we model explicitly the political economy process driving infrastructure investments in doing so we eliminate a potential source of bias in production function estimates and generate testable hypotheses on the forces that shape infrastructure policy our empirical findings on a panel of france s regions over 1985 92 suggest that electoral concerns and influence activities were indeed significant determinants of the cross regional allocation of transportation infrastructure investments by contrast we find little evidence of concern for the maximization of economic returns to infrastructure spending even after controlling for pork barrel

the gains from differentiated policies to control stock pollution when producers are heterogeneous we derive optimal input taxes to control stock pollution problems generated by heterogeneous agents the taxes vary over time and in response to differences of asset quality and technology choice we also derive second best policies and compare them to the efficient policy and also among themselves different policies will affect the timing for when and the extent to which conservation technologies are adopted a numerical example based on the california drainage problem shows significant efficiency gains from the optimal policy compared to no intervention but much of the gains are lost with second best interventions the gains from optimal policies do not always increase with the degree of heterogeneity copyright 2008 oxford university press

the old theory of economic policy and the new institutionalism abstract in economics recent emphasis on institutions suggests new policy dimensions for the traditional theory of economic policy which originated with tinbergen and others at the time of the keynesian revolution the paper presents elements of the traditional view instruments targets and policy models and then considers new aspects of policy especially policy for structural change the discussion emphasizes the implications for institutional design of incomplete knowledge and endogenous politics both public and private actors rely on incomplete policy models and the models themselves can become intermediate targets of policy

budgetary policy with unified and decentralized appropriations authority the divestiture of the house appropriations committee in the1880 s has received considerable attention of an empiricalnature this paper presents a formal model of legislativedecisionmaking using a common agency formulation to representinterest group lobbying of legislators this framework is usedto analyze the effects of decentralizing appropriationsauthority the conditions under which decentralization leadsto higher spending are characterized it is argued that theconventional view that divestiture caused higher levels ofspending only holds if decentralization created barriers tolobbying and political bargaining across different committees in addition the role of specialized committee knowledge isexamined

penalizing cartels the case for basing penalties on price overcharge yannis katsoulacos acknowledges that this research has been co financed by the european union european social fund esf and greek national funds through the operational program education and lifelong learning of the national strategic reference framework nsrf research funding program aristeia coleg

factors that influence transaction costs in development offsets who bears what and why abstract environmental policy instruments generate transaction costs to public and private parties there is a growing literature reporting on the size of transaction costs produced by environmental policy instruments this paper extends that literature through an analysis of the factors that influence transaction costs in environmental policy and how this influence occurs the theory based factors that influence transaction costs are categorised as 1 transaction characteristics 2 transactor characteristics 3 nature of the institutional environment and 4 nature of the institutional arrangements we examined how these factors influenced transaction costs through the analysis of two australian based development offset schemes with different policy designs we found evidence of all four theory based categories of influence in the policy case studies the degree of influence and how each factor influenced transaction costs varies across the two policies and between parties policy design as a component of the institutional environment had a particularly large bearing on transaction costs of offset buyers and the policy administrator an important contribution to transaction cost theory assumes the institutional environment as given

the deterrence of collusion by a structural remedy abstract as a penalty for illegal collusion this paper shows that a structural remedy makes collusion unprofitable when collusion is most stable and that it can be a greater deterrent than fines or damages

paying politicians theory and evidence this paper looks at the theory behind the idea that paying politicians better will improve their performance the paper lays out a political agency model with adverse selection and moral hazard where politicians are subject to two period term limits this model provides a number of predictions about how the pay of politicians affects agency problems we also consider what happens when the pool of politicians is endogenous the main ideas in the model are confronted with data on u s governors jel d72 j33

the deterrent effect of antitrust enforcement in this paper we formulate and test a model of collusive pricing in the presence of antitrust enforcement we show that a cartel s optimal price is likely to be neither the competitive price nor the price that the cartel would set in the absence of antitrust enforcement but rather an intermediate price that depends on the levels of antitrust enforcement efforts and penalties our empirical results reveal that increasing antitrust enforcement in the presence of a credible threat of large damage awards has the deterrent effect of reducing mark ups in the bread industry

understanding how land is exchanged co ordination mechanisms and transaction costs this paper seeks to increase our understanding of how land is exchanged between suppliers and demanders most current land price theories and the land use models which are derived from them assume that co ordination between suppliers and demanders is achieved through the price mechanism there are however other possible co ordination mechanisms including imposed rules and mutual trust in order to take account of these the effect of institutions has to be included in the theories transaction cost economics as one strand of institutional economics seeks to explain which co ordination mechanism is chosen in practice in this paper the application of these ideas is illustrated with findings from a detailed survey of how dutch housing associations acquire land it appears that these housing associations choose to acquire land through the mechanism of mutual trust when there is a network in place which they can use and to acquire through the market when that mechanism is not available this applicat

providing cheap land for social housing breaching the state aid regulations of the single european market tasan kok t groetelaers d a haffner m e a van der heijden h m h and korthals altes w k providing cheap land for social housing breaching the state aid regulations of the single european market regional studies european union member states are not permitted to provide aid that will distort competition by favouring certain undertakings or the production of certain goods which may then undermine trading in the european market this prohibition also affects government authorities that are willing to provide cheap land for social and affordable housing this paper reviews the ways in which land is provided for social housing in the netherlands and explores possibilities for reshaping current practices to make them compatible with the regime of the single european market tasan kok t groetelaers d a haffner m e a van der heijden h m h and korthals altes w k

penalties and the deterrence of unlawful collusion this paper investigates the size of penalties required to deter cartel formation allowing the penalty to be increasing in duration within the infinitely repeated game framework penalties do not need to be as severe as previous research would suggest

institutions in theories of land markets illustrated by the dutch market for agricultural land theories of land markets should be intellectually sound and should be able to explain and predict market outcomes such as price and volume of transactions changes in these and locations of different land uses theories based on neo classical economics which largely ignore the role of institutions are not intellectually sound because it is known that markets cannot work without institutions nor do these theories predict outcomes satisfactorily moreover they assume market mechanisms and do not investigate them critically this paper explores how institutions may be taken into account in theories of land markets and whether that leads to better theories both of market outcomes and of market processes new institutional economics provides the tools to investigate how the interactions between market actors are influenced by institutions and the old institutional economics emphasises how institutions influence the motivations and preferences of those actors the conclusion is that there cannot be a general theory of land markets only theories with a limited applicability and scope such theories can be used to explain the effects of small changes and to predict the effects of marginal changes in institutions in that latter use these theories can be used for designing land policy how institutions can be incorporated into theory is illustrated by analysing the dutch market for agricultural land this shows how institutions affect the outcomes in that market and the consequences for the transformation of land from agriculture to urban use

coalition formation in international environmental agreements and the role of institutions abstract the aim of this paper is to discuss the role played by international institutions in achieving effective international environmental agreements we emphasise the strategic nature of environmental negotiations and use a game theoretic model of coalitional bargaining to illustrate the main issues we argue that international institutions can intervene in the framing of the strategic interactions between countries i e setting the rules of the negotiation game and can influence the actual agreement reached when different outcomes of the negotiation game can be equilibria

a property rights approach to externality problems planning based on compensation rules most european countries have implemented some kind of land use planning based on exclusionary zoning principles to achieve spatial goals this paper argues that to reduce externality problems regulatory planning is not always the best planning solution therefore an alternative planning approach which makes use of compensation rules is suggested in this paper this compensatory planning approach is based on property rights theory and refers to recent applications of this theory to planning practice to illustrate the usefulness of such an approach it is applied to the planning of out of town retail development in the netherlands the paper aims to demonstrate how deficiencies in the property rights regime can be repaired to deal with externality problems achieving a more socially acceptable outcome of out of town retail development the paper concludes with a discussion of the value of spontaneous order solutions for planning practice by introducing four pragmatic rules on how to choose between di

navigating institutional change the accord rogernomics and the politics of adjustment in australia and new zealand this article uses a transactions approach to examine the ability of governments to develop and sustain negotiated solutions to major economic challenges where actors are embedded in long term repeated interaction have long time horizons and invest in monitoring and enforcement technologies effective political exchange is more likely in good transactions environments policy bargains will be more easily renegotiated and therefore more flexible and durable to examine the expectations the author looks to the puzzle posed by events in australia and new zealand 1983 1996 facing similar macroeconomic crises and with historically similar wage bargaining institutions and levels of union density both elect labor governments which then make opposite choices a negotiated solution emerged in australia but not in new zealand relying on the secondary literature and interviews with key actors the author finds support for the transactions approach findings here point to ways in which to broaden the study of

when ideas trump interests preferences world views and policy innovations the contemporary approach to political economy is built around vested interests elites lobbies and rent seeking groups which get their way at the expense of the general public the role of ideas in shaping those interests is typically ignored or downplayed yet each of the three components of the standard optimization problem in political economy preferences constraints and choice variables rely on an implicit set of ideas once the manner in which ideas enter these frameworks is made explicit a much richer and more convincing set of results can be obtained in particular new ideas about policy or policy entrepreneurship can exert an independent effect on equilibrium outcomes even in the absence of changes in the configuration of political power

blockchain and the evolution of institutional technologies implications for innovation policy abstract for the past century economists have proposed a suite of theories relating to industrial dynamics technological change and innovation there has been an implication in these models that the institutional environment is stable however a new class of institutional technologies most notably blockchain technology lower the cost of institutional entrepreneurship along these margins propelling a process of institutional evolution this presents a new type of innovation process applicable to the formation and development of institutions for economic governance and coordination this paper develops a replicator dynamic model of institutional innovation and proposes some implications of this innovation for innovation policy given the influence of public policies on transaction costs and associated institutional choices it is indicated that policy settings conductive to the adoption and use of blockchain technology would elicit entrepreneurial experiments in institutional forms harnessing new coordinative possibilities in economic exchange conceptualisation of blockchain related public policy an innovation policy in its own right has significant implications for the operation and understanding of open innovation systems in a globalised context

comparative politics and public finance we propose a model with micropolitical foundations to contrast different political regimes compared to a parliamentary regime the institutions of a presidential congressional regime produce fewer incentives for legislative cohesion but more separation of powers these differences are reflected in the size and composition of government spending a parliamentary regime has redistribution toward a majority less underprovision of public goods and more rents to politicians a presidential congressional regime has redistribution toward powerful minorities more underprovision of public goods but less rents to politicians the size of government is smaller under a presidential regime this last prediction is consistent with cross country data

revisiting legal realism the law economics and organization perspective the contrast between american legal realism which ran itself into the sand schlegel 1979 p 459 and the law and economics movement which is perhaps the most important development in legal thought in the last quarter century posner 1986 p xix is dramatic that the one foundered while the other flourished is explained in large measure by the absence of an intellectual framework for legal realism and the use by law and economics of the powerful framework of neoclassical economics

two fallacies concerning central bank independence this paper takes issue with two basic conclusions prevalent in the literature on central bank behavior first the paper argues that it is inappropriate to presume that central banks will in the absence of any precommitment technology necessarily behave in a discretionary fashion that implies an inflationary bias since there is no functional connection between average rates of money creation or inflation and policy responsiveness to cyclical disturbances it is entirely feasible for the bias to be avoided in other words there is no necessary tradeoff between flexibility and commitment second to the extent that the absence of any absolute precommitment technology is nevertheless a problem it will apply to a consolidated central bank plus government entity as well as to the central bank alone thus contracts between governments and central banks do not overcome the motivation for dynamic inconsistency they merely relocate it this abstract was borrowed from another version of this item

price fixing the probability of getting caught the authors estimate the probability that a price fixing conspiracy will be indicated by federal authorities to be at most between 0 13 and 0 17 in a given year the authors estimate is based on conspiracy durations calculated from data reported for a large sample of department of justice cases and a statistical birth and death process model describing the onset and duration of conspiracies copyright 1991 by mit press

optimal central banker contracts and common agency this paper considers the contracting approach to centralbanking in a simple common agency model we suggest thatcentral banker contracts that do not consider the possibilityof more than one principal existing are incomplete contracts such incomplete contracts can be a poor form ofmonetary policy delegation under common agency we develop amodel with two principals society government and ageneric interest group whose objective conflicts withsociety s ex ante preferences by incorporating an inflationarybias we determine when the government offered orinterest group offered contract dominates the central banker sdecision the results largely depend on whether theinterest group offered contract is written in terms of outputor inflation

the political economy of inflation labour market distortions and central bank independence using the citizen candidate model we study the government s choice of institutions for the labour market and the central bank and derive the implications for inflation and employment we derive conditions for the existence of equilibria in which the labour market is distorted and the central bank is dependent or independent under a range of conditions affecting central bank dependence the post election cycle in inflation and employment and inflation bias our results imply that average inflation and inflation variability are lower under an independent central bank whereas employment variability can be lower or higher consistent with evidence for oecd countries many democratic societies delegate key tasks to non elected and independent institutions a prominent example being independent central banks the belief in the advantage of central bank independence is nursed by the cross country evi

a theory of misgovernance this paper tries to explain why government bureaucracies are often associated with red tape corruption and lack of incentives the paper identifies two specific ingredients that together can provide an explanation the fact that governments often act precisely in situations where markets fail and the presence of agency problems within the government we show that these problems are exacerbated at low levels of development and in bureaucracies dealing with poor people we also argue that we need to posit the existence of a welfare oriented constituency within the government in order to explain red tape and corruption

constrained discretion in uk monetary and regional policy mcvittie e and swales j k 2007 constrained discretion in uk monetary and regional policy regional studies 41 h m treasury claims that the notion of constrained discretion which directs the effective operation of uk monetary policy applies equally to other delegated and devolved policies such as the use of regional development agencies in the delivery of english regional policy a transaction cost politics perspective is used to argue that the delegation of responsibility for monetary stabilization raises principal agent issues quite different to those encountered in the delegation of the responsibility for regional regeneration in particular the effectiveness and transparency that characterize present day monetary policy cannot be expected in regional policy further the institutional arrangements that accompany the operation of regional development agencies in england should be critically reviewed mcvittie e et swales j k 2007 la notion de discretion entravee dans les poli

meso economic filters along the policy chain understanding the links between policy reforms and rural poverty in latin america abstract the paper clarifies the meso economy concept by defining it as comprising both the market mechanisms and administrative procedures through which policy decisions and market signals trickle down to the household level three main bodies of literature are reviewed the policy oriented literature in which the meso economy was initially considered the transaction cost approach analyzing market and policy failures and the micro economy level of agricultural household models the paper develops a synthesis of macro meso and micro economic perspectives which focuses on the roles played by three levels of filters intervening along the policy chain implications for policy and research are drawn

local government consolidations the impact of political transaction costs local government in norway comprises a large number of small municipalities cost efficiency can be improved by consolidating local authorities and central government has designed a framework to stimulate voluntary mergers existing theories suggest that political transaction costs will impede consolidations 1 generous grants compensate diseconomies of scale central government has promised small municipalities that grant levels will be maintained but policy promises may not be credible 2 property rights to local revenues are nullified when consolidations have been implemented high revenue municipalities will therefore go against merger with a poorer neighbor 3 a consolidated local council may be composed of different political parties and it may therefore pursue other policies than an existing council expected changes in party strength can lead municipalities to oppose a proposed consolidation 4 senior politicians are less likely to support mergers particularly if they come from small polities

cartel pricing dynamics in the presence of an antitrust authority cartel pricing is characterized when firms are concerned about creating suspicions that a cartel has formed balancing concerns about maintaining the stability of the cartel with those of avoiding detection the cartel may either i gradually raise price to its steady state level or ii gradually raise price and then have it decline to its steady state level antitrust laws may have a perverse effect as they make cartel stability easier and thus allow for higher cartel prices

common agency contracting and the emergence of dqopen science dq institutions the cold war s ending has brought mounting pressures to recognize national science and technology research systems yet by comparison with what has been learned already concerning institutional arrangements and business strategies affecting corporate rd investments surprisingly little is known about the economic origins and effects of the corresponding institutional infrastructures shaping the world of academic science and the organization and conduct of publicly supported rd more generally the desirability of closing this particular lacuna in the economics and economic history literatures has been just as evident to economists concerned with extending the analysis of modern institutions as to those who have begun to approach the whole area of science and technology studies from the perspectives and methods of industrial organization economics 1 even before the new economics of science had begun to direct attention to such a program douglass north 1990 p 75 saw a significant challenge and a promising opportunity in explicit exploration of the connecting links between institutional structures and incentives to acquire pure knowledge the research reported here has accepted that challenge see also the other papers in this session timothy lenoir 1998 christophe lecuyer 1998 and marjory s blumenthal 1998 it is focused upon key episodes in the institutional evolution of public science and its complex and changing relationship to the other organizational spheres of contemporaneous scientific activity those in which research was conducted under proprietary rules for industrial profit goals and defense related science and engineering knowledge was sought under conditions of restricted access to information concerning methods findings and their actual and potential applications

credibility and reputation building in the developmental state a model with east asian applications abstract we use a game theoretic model to analyze the role of credibility reputation and investment coordination in a developmental state our model focuses on why a soft state serving narrow social groups so often obtains in less developed countries and under what conditions a hard or developmental state can emerge the model highlights the dilemma that although state and private sector alike may want economic growth both must simultaneously invest to achieve it but the equilibrium outcome analogous to the prisoner s dilemma is investment by neither even when initial conditions are favorable and a state is potentially developmental with the genuine capability to elicit private sector investment this may not materialize and an equilibrium of low or no investment will prevail to avoid this deadlock and foster growth the successful developmental state must demonstrate commitment by promoting its developmental credentials through a process of reputation building a consequent incentive to act tough together with seeming advantages of authoritarianism in implementing the developmental state may help to explain why it is often associated with an authoritarian political system

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

competition and incentives with motivated agents a unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission as opposed to profit as an organizational goal such mission oriented organizations are frequently staffed by motivated agents who subscribe to the mission this paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency matching economizes on the need for high powered incentives it can also however entrench bureaucratic conservatism and resistance to innovations the framework developed in this paper is applied to school competition incentives in the public sector and in private nonprofits and the interdependence of incentives and productivity between the private for profit sector and the mission oriented sector through occupational choice jel d23 d73 h41 l31 the late twentieth century witnessed a historic high in the march of market capitalism with unbridled optimism in the role of the profit motive in promoting welfare in the production of private goods moreover this generated a broad consensus on the optimal organization of private good production through privately owned competitive firms when it comes to the provision of collective goods no such consensus has emerged debates about the relative merits of public and private provision still dominate this paper suggests a contracting approach to the provision of collective goods it focuses on two key issues how to structure incentives and the role of competition between providers at its heart is the idea that organizations that provide collective goods cohere around a mission 2 thus production of collective goods can be viewed as mission oriented

targeting nominal income an appraisal the practice of setting target growth rates for a year or more ahead for some measure of the mofiey supply is now followed by many industrialised countries however it has been suggested by a number of authors e g meade i978 in his nobel prize lecture tobin i980 in his retrospective on stabilisation policy brittan i98i that it would be more sensible to pursue targets for nominal income rather than the money supply meade for instance argues that controlling nominal income is in any case the ultimate goal of those who favour fixed monetary targets and that an excessive concentration on the means rather than the end is confusing to private agents and can lead to undesirable fluctuations in the demand for output when velocity shifts he goes on to advocate that nominal income targets should be linked to the development of wage fixing institutions designed to mimic competitive behaviour in this paper we examine the implications of such a proposal for the performance of the economy in the context of a simple stochastic macroeconomic model under rational expectations a contracting framework is adopted in which the wage is fixed in a state of uncertainty about future levels of demand and productivity the objective of the authorities is to minimise the divergence of output from its full information equilibrium level if labour supply is inelastic then it turns out that maintaining the level of nominal income is actually the optimal policy if labour supply is elastic nominal income targetry provides an optimal response to demand is lm shocks but a suboptimal response to productivity shocks however a sufficient condition for a nominal income target to be preferable to a fixed money supply target is that the price elasticity of aggregate demand be less than unity the paper concludes by examining the implications of pursuing target growth rates rather than levels it should be conceded at the outset that there are several pertinent issues not addressed such as the greater comprehensibility of nominal income targets to private agents or the possibility that nominal income targets may leave the authorities with too much discretion e g poole i980 the issue of labour market reform is also ignored this is an enormous subject which it would be impossible to do justice to here see for instance meade s own analysis of the problem in meade i982 such reforms might be expected to affect the parameters of the model nevertheless since changes in labour market practices are neither a precondition for nor a logical consequence of nominal income targets an independent analysis of the macrceconomic implications of the latter is still highly relevant

incentive contracts and elections for politicians with multi task problems abstract we consider a model with a politician facing a multi task problem while in office the reelection mechanism distorts the allocation of effort in favor of tasks whose outcomes can be measured more precisely than others we show that a combination of elections and incentive contracts can alleviate this inefficiency the incentive contract does not require direct information about the performance of the politician and is self financing across terms

the theory of the firm as governance structure from choice to contract the propositions that organization matters and that it is susceptible to analysis were long greeted by skepticism by economists one reason why this message took a long time to register is that it is much easier to say that organization matters than it is to show how and why the prevalence of the science of choice approach to economics has also been an obstacle as developed herein the lessons of organization theory for economics are both different and more consequential when examined through the lens of contract this paper examines economic organization from a science of contract perspective with special emphasis on the theory of the firm

exchange rate management and macroeconomic policy a national perspective this paper reviews the literature on alternative exchange rate arrangements for a small economy it discusses exchange rate management for short run stabilization purposes and the choice of exchange rate regimes to foster policy discipline recent research has emphasized that the appropriate degree of exchange rate flexibility depends on the nature of disturbances exchange rate movements provide information about shocks and can serve as a basis for intervention rules empirically operational guidelines have not yet been provided floating rates are said to be desirable because they allow policy makers greater autonomy recent research has questioned the implicit assumption that autonomy is always useful rules that prevent discretionary policy may be preferable what role if any the exchange rate should play in such rules has not yet been resolved

antitrust penalties and the implications of empirical evidence on cartel overcharges research for this paper was supported by a grant from the economic and social research council res 062 23 2211

an endogenous policy model of hierarchical government endogenous policy models usually neglect that government policies are frequently the result of decisions taken at different tiers by different agents each enjoying some degree of autonomy in this paper policies are the outcome of the choices made by two agents within a hierarchy a legislator decides on the budget to be successively spent by a bureaucrat both agents are lobbied by one or two interest groups the combination of sequential decisionmaking and lobbying implies that the interaction between the agent at one tier and the interest group s depends on the exchange between the same interest group s and the agent at the other tier our results concerning multi tier lobbying and legislatorial oversight substantially qualify the conventional wisdom related to one tier lobbying in particular the reaction of the legislator to lobbying at the bureaucratic tier may make lobbying wasteful even when there is no competition from other lobbies moreover the legislator benefits from lobbying only when there is competition between interest groups at the upper tier it is also shown that competition for influence at the bureaucratic tier may work as a perfect substitute for legislatorial oversight extensions of the model indicate its usefulness for the analysis of decisionmaking in other multilevel governance structures like federations or firms

the making of economic policy a transaction cost politics perspective economic policymaking as a political process the normative approach to policy analysis the positive view of political economy a synthesis the policy process in real time a theme transaction costs the transaction cost politics framework political outcomes and economic efficiency transaction cost analysis in politics mechanisms to cope with transaction costs in politics national differences two case studies to illustrate transaction cost politics tax and expenditure reform in the united states the gatt and national trade politics some reflections and suggestions some lessons for the policy process the role of the economist concluding comments appendix multiprincipal multitask agencies

a theory of jurisdictional assignments in bureaucracies 1 what determines the allocation of tasks among government agencies this paper develops a formal model of task allocation that argues that jurisdictions are strategically designed to achieve legislative goals in the model agencies choose unobservable policies and political outcomes are a noisy indicator of these choices the legislature therefore faces a compliance issue when the agencies policy preferences are different from its own the legislature exerts control by defining agency jurisdictions setting ex ante budgets and choosing ex post contractual inducements the principal result is that tasks will be consolidated under a single roof when that agency prefers lower levels of policy than the legislature in other cases separating tasks prevents resources from being allocated in a manner undesirable for the legislature

price fixing policy abstract the prohibition against price fixing is competition law s most important and least controversial provision yet there is far less consensus than meets the eye on what constitutes price fixing and prevalent understandings cannot be reconciled with principles of oligopoly theory this article 1 presents a fundamental reconceptualization of our understanding of horizontal agreements 2 develops a systematic analysis of price fixing policy that focuses on its deterrence benefits and chilling costs and 3 compares this direct approach to commentators favored formulations that typically involve some sort of formalistic communications based prohibition by targeting a subset of means rather than the illicit ends conventional formulations tend to impose liability in cases with lower deterrence benefits and greater chilling costs than those reached under a direct approach and to incur greater administrative costs as well

incentives choice and accountability in the provision of public services this paper discusses a theoretical framework to study the issues of competition and incentives without relying on the standard profitoriented market model in the context of the debates about public service reform in the u k it uses the idea that the production of public services coheres around a mission and discusses how decentralized service provision can raise productivity by matching motivated workers to their preferred missions our focus on competition and incentives cuts across traditional debates about public versus private ownership and allows for the possibility of involving private non profits we also address concerns about the consequences of allowing more flexibility in mission design and competition on inequality

information sharing in common agency when is transparency good when should principals dealing with a common agent share their individual performance measures about the agent s unobservable effort for producing a public good in a model with two principals who offer linear incentive schemes we show that information sharing always increases total expected welfare if the principal who is less informed about the agent s effort also cares more about the agent s output if the less informed principal cares somewhat but not too much less than the other principal about the agent s output information sharing reduces total expected welfare in our model the efficient information regime emerges as an equilibrium outcome

conflict resolution and social protection in an era of globalisation external dimensions to europe s social policy globalisation has marginalised many nations in the south there are systematic mechanisms via which this occurs it has also raised inequality between nations and polarised the world into rich and poor nations accompanying international economic marginalisation a simultaneous growth in violent internal conflict has taken place in developing countries from both the standpoint of common humanity and security considerations the marginalising and unequalising effects of globalisation need to be abated via measures to protect the vulnerable this will also help to stem the tide of internal conflict in the developing world in this connection europe along with its policies and interventions can be of value

does enforcement deter cartels a tale of two tails this paper investigates the deterrent impact of anti cartel enforcement it is shown theoretically that if enforcement is effective in deterring and constraining cartels then there will be fewer cartels with low overcharges and fewer with high overcharges this prediction provides an indirect method for testing whether the enforcement of competition law is effective using historical data on legal cartels to generate the counterfactual we find significantly less mass in the tails of the overcharge distribution compared to illegal cartels this result is robust to controlling for confounding factors and we interpret this as the first tentative confirmation of effective deterrence

modeling opec behavior theories of risk aversion for oil producer decisions abstract theories of opec such as price leadership cartel or game theoretic models suggest an incentive for opec members to expand their production capacity well above current levels in order to maximize revenues yet individual opec members consistently explore for and develop oil fields at a level well below their potential the cause of low oil exploration and development efforts among opec members and even some non opec members may have to do with risk aversion this paper describes an alternative theory for opec behavior based on risk aversion using a two piece non neumann morgenstern utility function similar to fishburn and kochenberger 1979 decision science 10 503 518 and friedman and savage 1948 journal of political economy 56 the model shows possible low oil production behavior

the economics of governance the economics of governance is an effort to implement the study of good order and workable arrangements where good order includes both spontaneous order in the market which is a venerated tradition in economics adam smith 1776 friedrich hayek 1945 kenneth a arrow and gerard debreu 1954 and intentional order of a conscious deliberate purposeful kind chester irving barnard 1938 p 9 also i interpret workable arrangements to mean feasible modes of organization all of which are flawed in comparison with a hypothetical ideal avinash dixit 1996 pp 4 9 the object is to work out the efficiency logic for managing transactions by alternative modes of governance principally spot markets various long term contracts hybrids and hierarchies interest among social scientists economists included in the study and practice of good order and workable arrangements has been steadily growing in contrast with the orthodox lens of choice prices and output supply and demand the economics of governance is a lens of contract construction broadly in the spirit of james buchanan s 2001 p 29 observation that mutuality of advantage from voluntary exchange is the most fundamental of all understandings in economics the economics of governance as herein described is principally an exercise in bilateral private ordering by which i mean that the immediate parties to an exchange are actively involved in the provision of good order and workable arrangements to be sure the need for private ordering varies with the rules of the game as provided by the state distinctions between lawlessness where the state provides limited or unreliable protection for property and contract dixit 2004 and lawfulness where the state undertakes to protect property and enforce contracts in a principled way are pertinent the first of these applies mainly to primitive and transition economies the second is commonly associated with western democracies recourse to private ordering under conditions of lawlessness is altogether understandable given the absence of state support the walter a haas school of business university of california berkeley ca 94720 1900 the paper has benefited from workshop presentations at the university of california berkeley the university of valencia insead fountainebleau and the 2004 annual conference of the international society for new institutional economics an abbreviated version was also given as the horst claus recktenwald lecture at nuremburg on 4 november 2004 comments and suggestions from fred balderston ernesto dalbo avinash dixit robert gibbons witold henisz ian larkin steven tadelis and dean williamson are especially acknowledged 1 lon fuller s 1954 p 477 definition of eunomics as the science theory or study of good order and workable arrangements is very much in the spirit of what i refer to as governance 2 one of the immediate ramifications of insistently comparing feasible alternatives all of which are flawed is that the purported inefficiencies that are ascribed to failures to achieve first best optimality are not dispositive but invite the query as compared with what i return to this issue in section iv 3 excluding corporate governance the numbers of articles that used the word governance during the period 1998 2000 as compared with the period 1977 1979 in selected economics business management sociology organization and political science journals were 60 vs 1 76 vs 4 79 vs 18 and 60 vs 25 where the journals surveyed were the american economic review journal of political economy quarterly journal of economics rand journal of economics and journal of economic perspectives in economics strategic management journal management science academy of management journal and academy of management review in business management administrative science quarterly organization science american journal of sociology american sociological review and annual review of sociology in sociology organization and american political science review political science quarterly journal of politics and political research quarterly in political science combining these four categories articles using the word governance increased from 48 to 275 over this 20 year interval dixit 2004 pp 149 50 reports that the number of web pages that turn up under the search for governance is huge

renegotiation design with multiple regulators abstract one striking feature of the internal organization of governments is the existence of multiple regulators this paper explains this organizational choice as coming from the government s limited ability to commit the separation of powers between two regulators is modeled as a stackelberg common agency game with respect to the case of a single regulator the allocative efficiency and the regulated firm s informational rent are both reduced in the unique equilibrium of this game however when regulators have a limited ability to commit this static cost of regulators separation becomes a dynamic benefit separation makes renegotiation harder and improves commitment journal of economic literature classification numbers d82 l51

what should central banks do what should be their macroeconomic objectives and operations before turning to the normative question of what central banks hereafter cbs should do we need to deal with the contentious issue of what cbs actually can do in the field of monetary control one might think that this should be a relatively straightforward matter of fact instead there is a yawning chasm of mutual misunderstanding which has persisted for decades between economists and those working in cbs which has bedevilled the subject virtually every monetary economist believes that the cb can control the monetary base hereafter mo and subject to errors in predicting the monetary multiplier the broader monetary aggregates as well after all mo apart from some relatively unimportant qualifications about coins from the mint represents the liabilities of the cb and the cb should be able to control its own liabilities by open market operations hence the normal assumption is that mo is controllable within a narrow margin if the central bank should fail to do so it must be because it has chosen some alternative operational guide for its open market operations e g holding interest rates constant at some level which operational rule is frequently decried as sub optimal assuming that cbs can almost perfectly control mo economists have constructed several simulated schemes of how an optimal rule for so doing might be set up mccallum i993a b provides good recent examples almost all those who have worked in a cb believe that this view is totally mistaken in particular it ignores the implications of several of the crucial institutional features of a modern commercial banking system notably the need for unchallengeable convertibility at par between currency and deposits and secondly that commercial bank reserves at the cb receive a zero or belowmarket rate of interest the first means that fluctuations in the public s demand for cash which are both strongly seasonal and somewhat unpredictable must be accommodated the second means that commercial banks will not willingly hold free reserves at the end of each day assuming for this purpose that a stated reserve ratio has to be held on each day rather than averaged over say a couple of weeks beyond that needed to meet late fluctuations in the demand for cash after the money market has closed or become thin only if interest rates fall to the very low levels of the i930s and or risks of interest rate variability or late in the day cash runs increase would commercial banks increase their desired free reserves thus given the