on the efficiency of law a public choice perspective economists have not yet developed a comprehensive theoretical framework incorporating transaction cost economics within a public choice perspective for predicting when there will be an efficiency problem with the law transaction cost reasoning and the rent seeking insight have not been applied systematically in a dynamic institutional context to evaluate when the law will be used to increase or not minimize problems of bounded rationality and opportunism this paper takes a first step at identifying and remedying this deficiency the paper first provides a critical review of relevant theoretical contributions made by becker 1983 1985 posner 1977 priest 1977 rubin 1977 1982 williamson 1975 1985 and others we then show how analysis of the efficiency of law can be synthesized into a broader whole by incorporating transaction cost economics more fully into existing understanding of rentseeking in the political realm thus within the public choice paradigm this paper develops a deeper transaction cost analysis of the efficiency of law building on prior research by the authors crew and rowley 1988a 1988b twight 1983 1988 the paper identifies variables that position legal rules on a spectrum that ranges from those that are predominantly transaction cost

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

campaign contributions and congressional voting a simultaneous probit tobit model m any citizens and scholars have been troubled by the influence that special interest groups appear to exert over policymaking as a result of their roles in the financing of political campaigns these concerns inspired the enactment of a number of election law reforms in the 1970s and have led to increasing popular support for public financing of electoral campaigns despite the public attention these issues have attracted few social scientists have attempted to analyze the financial relationships between interest groups and policymakers empirically 1 one such study was reported by durden and silberman 1976 who included contributions from the afl cio political action committee as an independent variable in an equation explaining congressional voting on minimum wage legislation their results indicated that campaign contributions significantly affected voting on that issue the work i have done differs substantially from that of durden and silberman in two ways first i have chosen to examine issues which were of considerably narrower concern than the minimum wage issue in the interest of simplicity i examine issues of concern to just one or a few groups i have also used a different econometric technique if campaign contributions are actually endogenous as seems plausible the single equation estimation technique employed by durden and silberman is subject to a possible simultaneous equations bias for each issue studied i have therefore jointly estimated a two equation system explaining both votes on the bill and contributions from an associated interest group the simultaneous probit tobit model which i use takes into account the dichotomous nature of the variable indicating a congressman s vote the non negativity constraint imposed on the contribution variable and the possibility of correlation between the error terms for the equations explaining these two variables 2 full information maximum likelihood fiml estimates for the model are consistent and asymptotically efficient

voter preferences and state regulation of smoking i introduction tobacco taxation and smoking restrictions are two areas of regulation for which states have maintained a high level of control relative to the federal government 1 given this flexibility states have established a wide range of restrictions on smoking in areas such as government workplaces restaurants bars shopping malls indoor arenas and hospitals 2 although most states restrict smoking in hospitals there is considerable variation among states in restrictions in other areas in the 1998 99 period of this study about two thirds of states restricted smoking in restaurants whereas only four states restricted smoking in bars what has led to variation in smoking restrictions across states in a democratic society one would expect voter preferences to play an instrumental role in determining which policies are enacted and which are not this article provides the first empirical exploration of whether state level smoking restrictions are consistent with preferences of the citizenry taking into account both voting behavior and the role of smoking status in influencing whether an individual votes specifically we examine whether voters preferences for smoking restrictions in restaurants bars malls indoor sporting events and hospitals are consistent with state level restrictions on smoking in each of these public areas 3 our research draws on public choice models of policy making by state and local governments voters preferences typically play a central role because voting affects legislators incentives to support regulations 4 public choice research also finds that nonvoter factors may influence state and local policy making 5 in the case of smoking regulations public health advocates or tobacco industry lobbyists might influence regulatory policies the specific building block of our analysis of state restrictions on smoking is information on individuals voting behavior which we link to their smoking status and preferences over smoking restrictions our analysis uses measures of political pressure that account for individual preferences as well as their voting behavior to examine the possible role of interest group pressures we also control for nonvoter influences on smoking regulation including the proportion of the state population who smoke measures of state ideology and size of the tobacco industry with the exception of smoking in bars there is majority support for smoking restrictions unsurprisingly smokers are less supportive of restrictions than are nonsmokers nonetheless even smokers demonstrate a high level of support for many restrictions smokers are also less likely to vote than are nonsmokers even after controlling for other demographic factors the lower voting rate diminishes voter opposition to antismoking regulation but is usually not critical in view of the substantial support that most smoking restrictions have among smokers the political pressure indices for restrictions on smoking in each public area are generally significantly related to the probability that a state restricts smoking in that public area the nonvoter factors such as the smoking rate in the state and tobacco s role in the state economy are rarely influential policy debates over the desirability of smoking restrictions emphasize possible health risks due to exposure to environmental tobacco smoke ets and effects on business profitability the primary argument for expanding smoking restrictions is to protect workers and customers from exposure to ets 6 as our results show voters are generally supportive of smoking restrictions in public areas which would thereby protect workers as well as themselves and other customers however there is a substantial controversy over the extent of health risks associated with exposure to ets the basis for the push by the u s occupational and safety health administration osha for increased smoking restrictions to protect workers is the highly controversial u

strategic extremism why republicans and democrats divide on religious values party platforms differ sharply from one another especially on issues with religious content such as abortion or gay marriage given the high return to attracting the median voter why do vote maximizing politicians take extreme positions in this paper we find that strategic extremism depends on an intensive margin where politicians want to induce their core constituents to vote or make donations and the ability to target political messages toward those core constituents our model predicts that the political relevance of religious issues is highest when around one half of the voting population attends church regularly using data from across the world and within the united states we indeed find a nonmonotonic relationship between religious extremism and religious attendance

clientelism and vote buying lessons from field experiments in african elections electoral clientelism and vote buying are widely perceived as major obstacles to economic development this is because they may limit the provision of public goods in this paper we review the literature on clientelism and vote buying and propose the use of field experiments to evaluate empirically the consequences of these phenomena we provide an overview discuss implementation and interpret the main results of recent field experiments conducted by the authors in west african countries clientelism and vote buying seem to be effective and to enjoy widespread electoral support the results suggest that increased access to information and political participation by women may limit clientelism in addition voter education campaigns may undermine the effects of vote buying on voting behaviour we argue that our findings may inform the design of development aid interventions as a way effectively to increase public good political accountability we also discuss directions for fruitful future research copyright 2009 oxford university press

promotion of the agricultural sector and political power in austria in most industrialized countries farmers as a small and well orgnized group are ableto influence government decisions to get rent creating proposals enacted two different viewsare presented to explain why the chicagoan view efficient redistribution hypothesis and the virginian view inefficient outcome of political bargaining a vertically structuredempirical model of the austrian farm sector is employed to test both hypotheses quantitativeresults of the welfare transfers from consumers taxpayers to farmers and agribusiness firmsare derived and the political weights of these groups are presented

capital budgets borrowing rules and state capital spending abstract this paper compares the level and composition of government spending in u s states that maintain separate budgets for capital and operating expenditures with that in states that employ unified budgets it also investigates the effects of pay as you go financing rules for capital projects the empirical findings suggest that states with separate capital budgets spend more on public capital projects than comparable states with unified budgets there is no evidence that the presence or absence of a capital budget affects the level of non capital spending pay as you go requirements for financing capital projects are associated with lower levels of both capital and non capital spending

incentives and political contributions two implications from this research are noted first from a researcher s viewpoint our research suggests the importance of age wealth tax rates and marital status as determinants of political contributions by top u s wealth holders therefore these factors should be included in aggregated models that attempt to analyze the relations between such variables as voting campaign expenditures and the outcomes of elections second from politicians viewpoints this research suggests that individual economic variables such as marginal tax rates and wealth are major determinants of individual decisions to contribute to politicians assuming that such contributions reflect votes this research suggests the relative importance of focusing campaign promises on economic variables a strategy that low tax politicians like ronald reagan and george bush may keenly be aware of

natural amenities neighbourhood dynamics and persistence in the spatial distribution of income we present theory and evidence highlighting the role of natural amenities in neighbourhood dynamics suburbanization and variation across cities in the persistence of the spatial distribution of income our model generates three predictions that we confirm using a novel database of consistent boundary neighbourhoods in u s metropolitan areas 1880 2010 and spatial data for natural features such as coastlines and hills first persistent natural amenities anchor neighbourhoods to high incomes over time secondly naturally heterogeneous cities exhibit persistent spatial distributions of income thirdly downtown neighbourhoods in coastal cities were less susceptible to the widespread decentralization of income in the mid twentieth century and experienced an increase in income more quickly after 1980

government policy and the firm s capital structure abstract the purpose of this paper is to examine the effects of commonly observed forms of government intervention on the firm s capital structure we show that since market claims against the firm are always properly priced the firm is forced to take market claimants interests into account on the other hand since government claims are usually not adjusted for risk the firm can take advantage of the government it does so by choosing strategies that extract maximum value minimum cost from these policies in particular the firm uses its capital capital structure to maximize the value of the policy thus leading to a determinate capital strucure

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

economic development institutional change and the political economy of agricultural protection an econometric study of belgium since the 19th century this empirical study uses 100 years of annual data on 11 agricultural commodities from belgium to measure the impact of structural changes coinciding with economic development and changes in political institutions on agricultural protection the analysis shows that changes in agricultural protection are caused by a combination of factors governments have increased protection and support to farmers when world market prices for their commodities fell and vice versa offsetting market effects on producer incomes other economic determinants were the share of the commodities in total consumer expenditures negative effect and in total output of the economy positive effect with belgium a small economy there was no impact of the trade position changes in political institutions have affected agricultural protection democratic reforms which induced a significant shift in the political balance towards agricultural interests such as the introduction of the one man one vote system led to an increase in agricultural protection the integration of belgian agricultural policies in the common agricultural policy in 1968 coincided with an increase in protection ceteris paribus both institutional factors related to changes in access to and information about the decision making at the eu level and structural changes in the agricultural and food economy may explain this effect

the roles of ownership ecology and economics in public wetland conservation decisions abstract scholars have studied the problem of optimal reserve site selection however the actual conservation choices made by government decision makers may yield reserve networks that are far from optimal this paper uses data on patterns of wetland conservation in austria in order to identify patterns in government decisions regarding which wetlands to protect we find that conservation decisions are guided at least in part by variation in ecological value and economic cost however there is also a marked bias against conserving lands that happen to be privately owned this bias against protecting private land is likely to be cost ineffective driven by asymmetric information and political pressure

government growth in the twenty first century public choice explanations of government growth fall into three main categories budget maximization theories rational choice models and path dependent models like the ratchet hypothesis the strengths and weaknesses of these theories as explanations for government growth are considered along with some facts about the actual growth of government to conjecture about its trajectory in the twenty first century government size seems to have been constrained in the past primarily by its ability to raise revenue growth rates in the new century thus appear to depend on factors constraining government s ability to continue to expand the tax base

reward structures and the allocation of talent as relative rewards that different professions receive are a key factor in the allocation of talent what determines the reward structure of a society is an important question this paper develops an equilibrium model of the allocation of talent between productive and unproductive activities such as rent seeking the existence of rent seeking creates a negative externality on productive agents and implies that relative rewards are endogenously determined the same externality can also lead to the existence of multiple equilibria each with different reward structures in a dynamic setting allocations of past generations as well as expectations of future allocations influence current rewards and the society may get trapped in a rent seeking steady state equilibrium the paper also discusses how the non pecuniary reward structure can be influenced by equilibrium selection and a historical example that suggests the presence of a causal link from the allocation of talent to non pecuniary rewards

a dynamic model of housing production abstract this paper derives the optimal development strategy for a housing producer with perfect foresight in a steady state environment where dwellings deteriorate as they age under the assumption of zero demolition costs the optimal strategy is an infinite sequence of identical buildings building abandonment is shown to be possible with positive demolition costs a solution highlighting the model s spatial properties is computed using cobb douglas functions

politics and the rescue of insolvent savings and loans before 1989 the results presented in this paper are consistent with those predicted by public choice economists who believe that regulatory agencies represent the interests of their controlling congressional committees membership on committees is not random congressmen seek committee assignments where they can represent the interests of their constituency congressmen from states where financial institutions are significant will seek membership on their respective banking committees once on those committees congressmen will seek to protect and promote their own constituency in the case of the savings and loan industry insolvent savings and loans received benefits from staying in operation these savings and loans gained another chance to gamble for resurrection being shut down or placed in a management consignment program did not give this option the results presented in our paper indicate that participation in one of the rescue programs is not random savings and loans in states with political power representation on the senate banking committee are less likely to be resolved

economic principles and incentives structure management and funding of agricultural research in the united states the problems faced by public agricultural research and land grant system in the us is discussed in the context of its response to public pressure and criticism several proposals are put forward to address these problems which are related to the following issues grant funding versus formula funding breakdown of organized science in agriculture privatization of the land grant system harnessing the efficiencies of competition in public agricultural research and long term social productivity modelling

credit constraints entrepreneurial talent and economic development in this paper we formalize the view that economic development requires high rates of productive entrepreneurship and this requires an efficient matching between entrepreneurial talent and production technologies we first explore the role of financial development in promoting such efficient allocation of talent which results in higher production job creation and social mobility we then show how different levels of financial development may endogenously arise in a setting in which financial constraints depend on individual incentives to misbehave these incentives depend on how many jobs are available and this in turn depends on the level of financial development such complementarity between labor market and financial market development may generate highly divergent development paths even for countries with very similar initial conditions

are private markets and filtering a viable source of low income housing estimates from a repeat income model while filtering has long been considered the primary mechanism by which markets supply low income housing direct estimates of that process have been absent this has contributed to doubts about the viability of markets and to misplaced policy i fill this gap by estimating a repeat income model using 1985 2011 panel data real annual filtering rates are faster for rental housing 2 5 percent than owner occupied 0 5 percent vary inversely with the income elasticity of demand and house price inflation and are sensitive to tenure transitions as homes age for most locations filtering is robust which lends support for housing voucher programs jel r21 r31 r38

on the political economy of guest worker programs in agriculture guest workers have provided a source of agricultural labor supply in many countries recent legislative proposals on immigration reform in the united states have renewed discussions about the role of guest worker programs and highlighted the arguments for and against such programs even within the agricultural sector there has not been strong broad based support for an expansion in the number of guest workers a model is developed that considers competing interests between commodity groups horticulture crops and grain crops to explain this lack of support and then a series of simulations are conducted to highlight the possible economic effects of an expanded guest worker program results suggest that an increase in the labor supply would have much larger economic impacts for horticultural producers and firms in the supporting input markets furthermore under some conditions simulation outcomes show how an increase in the labor supply may lead to small revenue losses for both producers and input suppliers in grain markets

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

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

pricing and regulating affect environmental ethics effluent charges and tradeable permits are economically efficient but rarely used a new explanation for this discrepancy is offered pricing may crowd out environmental ethics in the pricing and via spillovers also in non pricing sectors pricing may therefore increase pollution providing a reason why decision makers tend to reject environmental pricing five propositions showing the conditions for counterproductive effects are advanced they are consistent with available empirical evidence regulation by setting standards and subsidies damage environmental ethics less than pricing because pollution is condoned damaging environmental ethics may prevent political action in favor of the environment

ideological conviction and persuasion in the rent seeking society abstract the paper develops a model of rent seeking in a democratic political context where voting as well as rent seeking matters in this context the paper demonstrates that voter ideology is a constraint on the rent seeking game as well as a possible avenue of rent seeking in a setting where there are both rent seeking and ideological interest groups rent seekers can free ride on the efforts of ideologues which tends to reduce rent seeking effort in a setting where complementary economic and ideological interest groups coordinate their efforts both rent seeking and ideological conflict tend to increase

old homes externalities and poor neighborhoods a model of urban decline and renewal abstract this paper investigates urban decline and renewal in the united states using three panels that follow neighborhoods on a geographically consistent basis over extended periods of time findings indicate that change in neighborhood economic status is common averaging roughly 13 percent per decade roughly two thirds of neighborhoods studied in 1950 were of quite different economic status fifty years later panel unit root tests for 35 msas indicate that neighborhood economic status is a stationary process consistent with long running cycles of decline and renewal in philadelphia county a complete cycle appears to last up to 100 years aging housing stocks and redevelopment contribute to these patterns as do local externalities associated with social interactions lower income neighborhoods appear to be especially sensitive to the presence of individuals that provide social capital many of the factors that drive change at the local level have large and policy relevant effects

the theory of economic regulation and public choice and the determinants of public sector bargaining legislation in this study we used the theory of economic regulation and public choice to derive a model to explain the pattern of public sector bargaining laws among the states we find this type of legislation is influenced by the following demand factors 1 the extent of public sector union membership which represents the interest group hypothesis has a positive influence on pro union legislation 2 the extent of employer opposition to unions as measured by unfair labor practice charges against employers in representation elections has a negative effect on bargaining laws 3 two taste variables the salaries of public employees and the percent of nonwhite employment in the state have a positive influence on these laws a result which will be surprising to many people is that the extent of private sector union membership has no significant influence on the passage of public sector bargaining legislation

voting and paying for public goods an application of the theory of the core abstract let any coalition with a majority of all voters have the power to choose the quantities of public goods under rule i a majority coalition bears a cost of its decision that is proportional to its size under rule ii it must bear the whole cost of its decision thus rule i imposes costs on minorities although they have no power to choose the quantities of public goods while rule ii allows goods to have some attributes of semiprivate goods it is shown that a nonempty core under rule i implies a nonempty core under rule ii but not conversely necessary and sufficient conditions in terms of the properties of the von neumann morgenstern characteristic function are given

what is challenging renewable energy entrepreneurs in developing countries this paper cumulates the findings from a review of the challenges faced by renewable energy entrepreneurs in developing countries to date research that could facilitate the success of renewable energy entrepreneurs in the world s developing regions has been fragmented across two main bodies of literature management specifically entrepreneurship and renewable energy by conducting a qualitative review of the extant literature i propose that the findings from both bodies of research may be distilled to six 6 key challenges inadequate access to institutional finance the price of renewable energy technologies rets the lack of skilled labour underdeveloped physical infrastructure and logistics power dominance of incumbents inadequate government or policy support through this research i not only advance a unified conceptualisation of the challenges faced by renewable energy entrepreneurs in developing countries but also highlight a number of the revealed opportunities for future research

tipping and the dynamics of segregation schelling dynamic models of segregation journal of mathematical sociology 1 1971 143 186 showed that extreme segregation can arise from social interactions in white preferences once the minority share in a neighborhood exceeds a tipping point all the whites leave we use regression discontinuity methods and census tract data from 1970 through 2000 to test for discontinuities in the dynamics of neighborhood racial composition we find strong evidence that white population flows exhibit tipping like behavior in most cities with a distribution of tipping points ranging from 5 to 20 minority share tipping is prevalent both in the suburbs and near existing minority enclaves in contrast to white population flows there is little evidence of nonlinearities in rents or housing prices around the tipping point tipping points are higher in cities where whites have more tolerant racial attitudes

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

demographic structure and the political economy of education subsidies this paper investigates the politico economic impact of a society s age structure on the extent of public funding of education education subsidies serve to internalize positive spillovers of human capital investment but redistribute resources from the working old to the non working young thus creating a conflict of interest between the two generations the political process is characterized by a representative democracy

the bias in favor of pro tariff lobbies abstract we show that the probability of success of the pro tariff lobby defined as a decreasing function of the ratio of consumer loss to producer gain rent generated by the tariff rises with the tariff under very general conditions this appears as an exception to becker s view that less distortionary measures tend to be adopted over their more distortionary counterparts we then provide a micro foundation for our probability definition using the imperfectly discriminating lobbying framework

a tale of two cities the political economy of local investment climates in indonesia abstract there is little doubt that protecting property rights reducing corruption and improving public services are desirable long term objectives for all countries but are such institutional prescriptions sufficient or even necessary to achieve investment and growth by exploring the political economy of the cities of solo and manado in indonesia this article shows that relationship based rather than rule based cooperation between government leaders and local firms can provide an effective mechanism to boost investment and improve local investment climates our findings challenge the conventional wisdom that impartial rule based economic governance is a precondition for investment although it suggests that the creation of such institutions may make growth more sustainable and equitable in the medium and long term

random errors dirty information and politics rational voters assessments of candidates and policy proposals are unbiased but affected by random errors clean information decreases these errors while dirty information increases them in politics most voting procedures weigh random individual errors asymmetrically thus such errors do not counterbalance one another in the aggregate they systematically affect politics this illuminates the roles of political propaganda and interest groups it helps to explain various puzzles in public choice e g the frequent use of inefficient policy instruments institutional conditions are identified that shape the aggregate impact of individual errors and the politicians incentives to produce dirty information

enterprise inequality and economic development we characterize an equilibrium development process driven by the interaction of the distribution of wealth with credit constraints and the distribution of entrepreneurial skills when efficient entrepreneurs are relatively abundant a traditional development process emerges in which the evolution of macroeconomic variables accord with empirical regularities and income inequality traces out a kuznets curve if instead efficient entrepreneurs are relatively scarce the model generates long run distributional cycles driven by the endogenous interaction between credit constraints entrepreneurial efficiency and equilibrium wages

expectations and the timing of neighborhood change abstract we study the role of expectations when agents have a preference for segregation and households face moving frictions in a fixed environment there are multiple equilibria agents expectations determine whether an ethnic transition occurs however the outcome is unique if there is a deterministic trend that gradually makes the neighborhood more appealing to the outside group it is also unique if the relative payoff from living in the neighborhood is subject to small shocks in both cases the insiders must leave at the first possible moment when the outsiders would outbid them if an immediate ethnic transition were expected

why higher takeover premia protect minority shareholders posttakeover moral hazard by the acquirer and free riding by the target shareholders lead the former to acquire as few sharcs as necessary to gain control as moral hazard is most severe under such low ownership concentration inefficiencies arise in successful takeovers moreover share supply is shown to be upward sloping rules promoting ownership concentration limit both agency costs and the occurrence of takeovers furthermore higher takeover premia induced by competition translate into higher ownership concen tration and are thus beneficial finally one share one vote and simple majority are generally not optimal and socially optimal rules need not emerge through private contracting

rent seeking market structure and growth we study the role of productive and unproductive entrepreneurship in economic growth in a setting where firms compete in both economic and political markets specifically firms compete for market share through cost reducing technological innovation and they vie for influence over government transfer policy through rent seeking activities we find that rent seeking affects growth in two ways it allows firms to ignore economic competition leading to less innovation and it alters the number of firms that are supported in equilibrium the former effect is negative while the latter is ambiguous we show how these effects depend on various characteristics of economic and political markets

appropriation violent enforcement and transaction costs a critical survey this paper focuses on the extension of transaction costs to appropriative activity and coercive power in the property rights approach it has been argued that including the costs of appropriation and violent enforcement in transaction costs is based on the assumption that coaseian bargaining can be extended to any institutional scenario i e voluntary as well as coercive exchange however voluntary transactions cannot capture the logic of coercive power this means that the assumption of an efficient political market is not valid and that the political coase theorem lacks the logical consistency to provide a cornerstone for political theory

sorting by foot travel for local public goods and equilibrium stratification we re examine tiebout s hypothesis of endogenous sorting in a competitive spatial equilibrium framework by considering both income and preference heterogeneity and by allowing agents to decide endogenously the number of visits to a travel for local public good the equilibrium configuration may be completely segregated incompletely segregated or completely integrated depending on relative market rents and income preference local tax parameters a segregated equilibrium may feature endogenous sorting purely by income or by both income and preferences while the rich need not be closer to the local public facility site multiple equilibria may arise when the equilibrium configuration is incompletely segregated jel classification d50 h41 classification par deplacement biens publics locaux accessibles par deplacement et stratification d equilibre les auteurs reexaminent l hypothese de tiebout de classification endogene dans un cadre d equilibre spatial concurrentiel en tenant compte a la fois de l heterogeneite des revenus et des preferences ainsi qu en permettant aux agents de decider de maniere endogene du nombre de visites pour se procurer un bien public local par deplacement il peut s ensuivre des equilibres de segregation complete de segregation incomplete ou d integration complete selon les rentes relatives et les parametres de revenus de preferences ou de fiscalite locale un equilibre de segregation peut entrainer une classification endogene sur la base seulement des revenus ou sur la base des revenus et des preferences alors que les riches n ont pas besoin d etre plus proches du site du bien public local des equilibres multiples peuvent surgir quand la configuration d equilibre en est une de segregation incomplete

money and votes a simultaneous equation model this paper has specified and estimated a model of the interaction between money and voting in american politics convincingly establishing the identification of a system of equations can be difficult even when theory provides a guide in the study of money in politics however no theoretical perspective has been established in the literature to make the case for identification as unambiguous as possible this paper has done two things first the specification was based in part on theory which has formally been developed elsewhere and which satisfactorily describes data at the economic interest group level welch 1980 second part of the question of identification revolves around the relationship between party strength and socioeconomic variables because there are questions as to the best measurement of party strength results based on two measures were presented for a number of reasons the presidential vote was the preferred measure this study draws four conclusions first money influenced voting in u s house elections in 1972 although its effect was small second patterns of total contributions to a u s house candidate are consistent with the hypothesis that a majority of dollars come from contributors who prefer to support likely winners third the total contributions made to a candidate are a positive function of the district s median years of schooling completed and the gini coefficient total contributions made to a democratic candidate are also a positive function of the median income finally had house campaigns been financed in the early 1970s even to the point of giving each major party candidate 150 000 in 1978 dollars few elections would have been changed it is also worth mentioning some of the things about the financing of political campaigns that we still do not know the above conclusions involve only elections to the u s house there are good reasons for suspecting that money is more influential in u s senate elections ols statistics support this belief and the greater visibility of those races help justify it although money has little effect on house elections we do not know whether contributions affect legislative voting in the house representatives apparently believe that expenditure influences their reelection chances given the complexity of the process it should be no surprise that this belief conflicts with our findings acting on this belief a representative s vote may very well be influenced by the sources of his contributions either directly or indirectly through the giving of access to contributors finally we should be reminded that the above model is static while the electoral process is dynamic the amount contributed to a candidate is affected by his probability of winning in the previous time period e g week month and in turn affects that probability in the following time period as usual what we know is overshadowed by what we do not know the above questions are both interesting in their own right and of interest to policy making

a pecuniary reason for income mixing abstract empirical studies have found a high degree of income mixing in american neighborhoods we give a new explanation of this phenomenon that is based on consumer search a low price for a given good benefits high valuation buyers more than low valuation buyers but with search the probability of obtaining a low price is increasing in the proportion of low valuation buyers this gives high valuation buyers an incentive to live near low valuation buyers with many goods a buyer has an incentive to live near neighbors whose valuations are uncorrelated with hers

the economics of special interest politics the case of the tariff this paper investigates the interaction of politicians and special interest lobbies the goal is to model the equilibrium levels of redistributive policies such as taxes subsidies tariffs and regulatory decisions the model is applied throughout to the setting of tariffs by contributing to political campaigns special interest lobbies generate economic returns higher tariffs generate revenue for import competing industries through higher product prices higher milk support prices raise dairy farm income and so forth the lobby invests to maximize these net economic returns in evaluating their chances of election politicians weigh the favorable effects of special interest money against the unfavorable association with the lobby and the social cost of the redistributive policy section i explores the lobby s problem it describes a formalization of mancur olson s discussion of the voluntary provision of public goods and optimal contributions by lobbies to political campaigns section ii describes determination of the equilibrium tariff positions of each politician in a political campaign

a policy preference function for government intervention in the u s wheat market this paper estimates a policy preference function that explains the government s choices of target prices government held wheat stocks and public wheat research funding the policy preference function depends on producers surplus consumers surplus and budget expenditures an important innovation in this paper is the inclusion of interactions between public research expenditures and other public policy variables results indicate that the government places a premium of 25 to 45 on the welfare of wheat producers of relative to budget expenditures while wheat consumers welfare is discounted as much as 50 relative to budget expenditures the purpose of this paper is to provide an explanation of government commodity programs stock accumulations and research expenditures in the u s wheat sector the explanation is based on a policy preference function ppf that depends on producers surplus consumers surplus and budget expenditures it is assumed that target prices reductions in or additions to government stocks and public research expenditures are chosen to maximize the policy preference function the central contribution of the paper is the estimation of a function that is consistent with the observed government interventions in the u s wheat market that is the paper explains the observed target prices government sales and public research expenditures as rational behavior by a government which seeks to maximize the estimated policy preference function the approach in this paper is based on the political interest group theories of peltzman and becker applications of these ideas to agriculture include rausser and freebairn s description of the beef industry gardner s 1985 analysis

transaction costs institutional design and the separation of powers abstract the internal organization of the government can be used as a constraint on the capture of political decision makers in a setting where multiple interest groups try to influence policy outcomes centralization i e the choice of a single agency dealing with all interest groups is costly because it induces a better coordination of their influences the choice of specialized agencies is better because it increases the overall transaction costs of capture making agencies more immune to capture by interest groups more generally we discuss how an institutional design relying on separation of powers among specialized agencies may improve policy outcomes

nobody s business but my own self employment and small enterprise in economic development abstract in most poor countries small firms and self employment are the dominant forms of business enterprise even in the manufacturing sector for rich countries in contrast self employed people account for very small shares of manufacturing employment and output this paper builds on lucas 1978 on the size distribution of business firms bell journal of economics 9 2 508 523 to ask whether structural changes of this kind are driven by productivity differences a model calibrated to japanese time series data is shown to mimic key features of cross country and time series data the results support the idea that changes in aggregate productivity account for much of the cross country variation in establishment size and self employment rates

self regulation taxation and public voluntary environmental agreements an increasingly popular instrument for solving environmental problems is the public voluntary agreement va in which government offers technical assistance and positive publicity to firms that reach certain environmental goals prior papers treat such agreements as a superior low cost instrument that can be used to preempt a threat of traditional inefficient regulation we present a more general model in which public vas may instead be weak tools used when political opposition makes environmental taxes infeasible we explore the conditions under which taxes public vas and unilateral industry actions are to be expected and the welfare implications of the various instruments notably we also show that welfare may be reduced by the introduction of public vas 2002 elsevier b v all rights reserved

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

interactive property valuations this paper estimates models of social interactions within residential neighborhoods using data on neighborhood clusters for standard metropolitan areas in the united states from the american housing survey for 1985 and 1989 it examines eects of social interactions in the form of reaction functions for homeowners valuation of their properties at the level of the immediate residential neighborhood with neighborhoods consisting of a randomly chosen dwelling unit and about ten nearest neighbors the paper identifies the eect of endogenous social interactions to be significant and large ranging from 0 587 to 0 770 and much more important then the dynamic autoregressive structure of the model when both variables are present and both are significant the interactive regressions that it reports improve upon commonly used hedonic regressions as well the paper provides empirical support for the notion common in the real estate world of the importance of neighboring properties in property valuations

what is middle class about the middle classes around the world we expect a lot from the middle classes jim frederick writing in time magazine in 2002 stated china s burgeoning middle class holds the key to the future of the country in a more academic vein easterly 2001 concludes based on a comparison of a large number of countries that countries that have a larger middle class tend to grow faster at least if they are not too ethnically diverse in another article birdsall graham and pettinato 2000 rue the shrinking of the middle class the backbone of both the market economy and of democracy in most advanced societies in the face of burgeoning globalization the economic historian david landes writing about the wealth and poverty of nations 1998 explains england s early ascendancy in terms of the great english middle class of the eighteenth and nineteenth centuries of course there is nothing new about this faith in the middle class it follows a long line of theorizing going back at least to max weber 1905 at least three distinct arguments are traditionally made in one new entrepreneurs armed with a capacity and a tolerance for delayed gratification emerge from the middle class and create employment and productivity growth for the rest of society for a formalization of this argument see acemoglu and zilibotti 1997 in a second perhaps more conventional view the middle class is primarily a source of vital inputs for the entrepreneurial class it is their middle class values their emphasis on the accumulation of human capital and savings that makes them central to the process of capitalist accumulation for example doepke and zilibotti 2005 2007 the third view a staple of the business press emphasizes the middle class consumer the consumer who is willing to pay a little extra for quality in this view the middle class demand for quality consumer goods feeds investment in production and marketing which in turn raises income levels for everyone murphy shleifer and vishny 1989 1 this essay asks what we should make of these arguments in the context of today s developing countries starting from data on patterns of consumption and investment by the middle class we look for what is distinct about the global middle class especially when compared to the global poor defined as those whose per capita daily consumption valued at purchasing power parity exchange rates is below 2 a day who were the subject of a previous essay in this journal banerjee and duflo 2007b in particular is there anything special about the way the middle class spend their money earn their incomes or bring up their children

explaining price policy bias in agriculture the calculus of support maximizing politicians a model is developed to explain observed patterns of policy intervention in agriculture we analyze the interaction between political support seeking politicians and supportsupplying citizens society consists of a rural and urban group we determine the effects on transfers of relative group size disparities in income endowments between groups and the deadweight loss of redistribution the framework advanced is an alternative to that of the interest group model and is used to explain for example why the export sectors in developing countries are taxed more and why the united kingdom is less adamant for higher price supports than germany

spatial mismatch in search equilibrium we construct a search equilibrium model for a city with central and suburban labor markets that is consistent with the set of empirical regularities commonly associated with the spatial mismatch hypothesis a higher rate of unemployment for central city residents than suburban residents a higher job vacancy rate for suburban firms and reverse commuting and higher suburban wages the effectiveness and welfare implications of public policy programs that might be used to remedy the underlying mismatch are examined

allocation of goods by lottery i introduction many goods such as hunting permits oil drilling leases cellular telephone licenses and rights to fishing berths as well as some buds such as the military draft jury duty and who is to be thrown overboard on a sinking life raft are or have been allocated by lotteries in neo classical welfare economics the random distribution of property rights does not affect allocative efficiency as long as transferability is allowed and the transactions costs are non prohibitive lottery allocations however are generally not transferable thus lottery allocations are inefficient since the goods are not ultimately allocated to the users who value them the most a number of authors such as aubert 1959 fienberg 1971 eckhoff 1989 and elster 1989 36 122 have argued that lotteries are chosen as the allocative instrument because it represents a fair or just means of allocating the goods rawls 1971 374 and eckhoff 1989 have noted that where it is impractical to divide the goods equally among those who desire them a lottery serves to satisfy both the requirement that the process be fair and that the allocation problem be resolved relatively costlessly elster 1989 113 however notes that lotteries are not the only fair allocation mechanism for example he points out that in jewish ethics the problem of allocating an indivisible good such as life saving resources is resolved by denying it to everyone even economists would probably prefer a lottery to this resolution the fairness hypothesis has a rich history in the old testament lotteries are deemed a fair way of allocating goods such as the inheritance of land numbers 33 54 lotteries are also used to allocate bads in perhaps the most famous biblical example of use of lots jonah was chosen by lot to be sacrificed to appease god who had brought a storm that threatened to wreck the ship the story goes that the lot selected jonah because he was shirking his duties elsewhere and should not have even been on the vessel jonah 1 6 1 notice that fair here is taken to mean just given this theological foundation it is not surprising that the lottery has seen frequent use in legal history as well one of the most interesting cases occurred in swedish and finnish trials in the 17th and 18th centuries in cases where a man was murdered by a mob lotteries were used to allocate punishment since the law required an eye for an eye no more and no less eckhoff says that if it was impossible to ascertain which of them had dealt the mortal blow the courts determined that one of the responsible parties be sentenced to death and that the person be selected by lottery 1989 19 a similar use of lotteries occurs in military history to deal with cases of mass desertion in roman armies every tenth man was executed decimated and the remainder pardoned in more modern times the lottery has been used in u s law 2 first of course is the use of a lottery to decide who shall sit on a jury a connection between fairness and lotteries however has also appeared in the common law in an 1842 case u s v holmes which has been discussed by fienberg 1971 eckhoff 1989 and elster 1989 a ship sank in a heavy storm and the lone surviving life raft was in grave danger of sinking the crew threw overboard fourteen male passengers in an effort to save the rest when back in port after being rescued a crewman named holmes the only crew member who had not disappeared upon arrival to port was brought to trial for the deaths of the passengers the court ruled that the non essential members of the crew should have been thrown overboard before any passengers and if that was not sufficient then passengers should have been selected by lot which is the fairest mode elster 1989 65 the fact that a human life presumably a large cost was at stake ex post did not affect the decision 3 the environmental economics literature contains a number of references to the social preferences for and benefits of lottery allocations

the influence on congress by the thrift industry abstract the investigation of the influential role of the thrift industry on congress as demonstrated by voting behavior on regulatory policy changes in the eighties is the focus of this study specifically we search for the degree to which the inadequately capitalized component of the thrift industry has captured the house of representatives we examine the influence on congress by the thrift industry using the votes by the house of representatives associated with three different legislative acts the garn st germain act the competitive equality banking act and the financial institutions reform recovery and enforcement act addressing the thrift crisis using a multi chotomous voting model we identify traditional public choice variables that could influence the probability of voting for legislation to capture the variation of the thrifts interests we consider a series of financial variables motivated by the thrift literature of failure prediction models these variables allow us to investigate the influences from the health of the congressional district s thrifts their asset composition characteristics and their reliance on regulatory forbearance

trade in used equipment with heterogeneous firms this paper examines the pattern of trade in used asset markets where firms have differing factor prices and utilization rates of capital goods depreciation is modeled as an increase in down time as machines age and a measure of comparative advantage is derived that will explain the pattern of trade when there are two types of firms it is shown that with heterogeneous firms the price of used machines will reflect the characteristics of firms as well as the productivity of used machines and the implications of this result for the study of depreciation are discussed finally the relationship between firm characteristics and choice between purchasing new and used truck tractors is presented as an illustration of the predictions of the model

balancing environmental protection and energy production in the federal hydropower licensing process the u s federal energy regulatory commission ferc must balance environmental protection of riverine resources with the nation s growing demand for power production every time it issues a hydroelectric license this paper models the bureaucratic agency s decision making process in issuing these licenses data on nearly 500 hydro power licenses issued from 1983 to 2005 are utilized it is discovered that legislative and institutional constraints are by far the largest influences on ferc s regulatory decisions implying that if the current allocation of surface water in the united states is considered inefficient the most effective way to alter this allocation is by passing new legislation or by implementing institutional reform at ferc

interest group politics under majority rule abstract we develop a model of interest group politics in which the groups and coalitions that arise and the form of redistributive policies sought are jointly determined the model generates three key results first programs intended to reduce income inequality are more likely to involve direct payments than are programs that redistribute wealth across groups with similar incomes second nonequalizing redistribution is unlikely unless the various participants in the political process face significantly different political and economic costs of obtaining transfers third many policies that induce asymmetries among interest groups also impose significant deadweight costs stable nonequalizing redistribution will therefore tend to involve indirect and economically inefficient methods of transferring income

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

studying the role of political competition in the evolution of government size over long horizons here we argue for the use of cointegration and error correction analysis to combine economic factors that are nonstationary with political factors that are stationary into an empirical model of the evolution of public policy over long periods the approach is applied to disentangle the contributions of economics and politics to the evolution of public expenditure by the government of canada over 130 years political competition emerges as the primary political factor affecting government size

donors and domestic policy makers two worlds in agricultural policy making in recent decades many developing countries have moved from taxing their agricultural sector to subsidizing it a phenomenon referred to as overshooting using ghana and uganda as case study countries this study aims to contribute to explaining this phenomenon by examining the role of policy beliefs the study is based on the advocacy coalition framework and relies on discourse analysis as analytical method in depth interviews with policy actors in both countries served as empirical basis a quantitative analysis of the transcripts was used to identify different discourse coalitions and a qualitative analysis was conducted to examine the discourses and identify their underlying policy beliefs the paper identified far reaching differences in the agricultural policy beliefs between domestic policy makers and donors regarding the question what does it actually take to develop small holder agriculture the evidence from this analysis highlights the role that divergent policy beliefs can play in influencing agricultural policy choices

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

understanding business improvement district formation an analysis of neighborhoods and boundaries abstract business improvement districts bids provide supplemental services to urban commercial corridors using funds from member assessments they have become a very popular urban revitalization tool but their formation is still largely unexplained theory implies that bids will form if they add to aggregate welfare and if the marginal net benefit of membership is positive i test this for the neighborhood overall and at the bid boundary using unique micro level and longitudinal data from new york city i employ survival analysis methods to estimate the likelihood of a neighborhood forming a bid i then estimate the likelihood of the marginal property s bid membership by comparing the characteristics of properties located immediately inside and outside of the bid boundaries i find that bids are more likely to form when there is more commercial space over which the bid benefits can be capitalized and when there is homogeneity in service and spending preferences across properties bids also tend to form in neighborhoods that possess signs of appreciation and growth generally bids are more likely to form in neighborhoods with higher valued properties with the exception of very wealthy areas the bid boundary however is comprised of relatively less valuable properties

separating economic from political influences on government decisions abstract the public interest theory is a poor predictor of government decisions relative to interest group theories but a sophisticated public interest theory is a more serious alternative to the former testing the sophisticated theory s predictions is problematic however when public interest is coincident with an interest group s interests a four step method is developed that disentangles public interest and interest group interests by separating economic from political incentives applying the method to the national forest service decisions about wilderness designations indicates whether interest groups were successful in influencing allocation decisions and whether allocation decisions were in the public interest

the political economy of farmland ownership regulations and land prices one of the most ubiquitous forms of agricultural regulation is a restriction on farmland ownership one canadian example of a farmland ownership restriction is the saskatchewan farm security act fsa passed in 1974 the purpose of this article is to explain using a political economy framework why the fsa was implemented and to estimate the effect of the fsa on saskatchewan farmland values a present value pv model is used to estimate the relationship between land values rents and the regulation the hausman endogeneity test reveals that the regulation variable is endogenous with the land price the sign of the regulation variable is negative which fits with the theory i e the more stringent the regulation the lower the land value we estimate that the regulation lowered saskatchewan farmland prices by an average of 4 to 34 us acre depending on whether ordinary least squares ols or two stage least squares tsls is employed in the estimation over the period of 1974 2001