legislative district configurations and fiscal policy in american states in accordance with the median voter theorem the median legislator is decisive in representative democracy if the preferences of the median legislator differ from the preferences of the median voter in the polity fiscal policy choices will predictably diverge from those favored by the median voter this paper seeks to identify the median district and therein the preferences driving the median legislator in american state legislatures using economic characteristics of constituents we find substantial differences between the median district and the statewide median as the income of the median district rises above the median income of the polity government expenditures increase in addition the degree to which income is skewed across legislative districts affects spending for redistribution programs finally we find that direct democracy procedures which allow the statewide median voter to check legislative decisions limit the impact of differences between the district and polity medians

time consistent public policy in this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure we characterize and solve for markov perfect equilibria of the dynamic game between successive governments the characterization consists of an inter temporal first order condition a generalized euler equation for the government and we use it both to gain insight into the nature of the equilibrium and as a basis for computations for a calibrated economy we find that when the only tax base available to the government is capital income an inelastic source of funds at any point in time the government still refrains from taxing at confiscatory rates we also find that when the only tax base is labour income the markov equilibrium features less public expenditure and lower tax rates than the ramsey equilibrium

optimal dynamic pricing of inventories with stochastic demand over finite horizons in many industries managers face the problem of selling a given stock of items by a deadline we investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm s objective is to maximize expected revenues examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry which markets space such as seats on airline flights cabins on vacation cruises and rooms in hotels that become worthless if not sold by a specific time we formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp price as a function of the stock level and the length of the horizon for a particular exponential family of demand functions we find the optimal pricing policy in closed form for general demand functions we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity finally we extend our results to the case where demand is compound poisson only a finite number of prices is allowed the demand rate is time varying holding costs are incurred and cash flows are discounted the initial stock is a decision variable and reordering overbooking and random cancellations are allowed

the determinants of efficiency and productivity in the swiss insurance industry abstract using state of the art frontier efficiency methodologies we study the efficiency and productivity of swiss insurance companies in the life property casualty and reinsurance sectors from 1997 2013 in this context we provide the first empirical analysis of internationalization strategies of insurance companies a topic of high interest in the business and economics literature but one that has to date not been the focus of efficiency studies in the insurance sector we find that productivity and efficiency have improved with regard to property casualty and reinsurance in the case of life insurance productivity and efficiency diminished however life insurance firms with higher levels of international business exhibit superior efficiency levels we observe that diversification strategies directed to the european market are more beneficial compared to those targeting markets outside of europe

aggregation and aggregation we discuss economic aggregation and political aggregation in the context of a simple dynamic version of the canonical political economy model the meltzer richard model consumers differ both in labor productivity and initial asset wealth and there is no physical capital under commitment over future tax policy and for economic preferences that imply aggregation in assets and productivity the induced policy preferences for individuals do not depend on any distributional characteristics other than means they imply time inconsistency with taxes changing between the first and the second periods and staying constant thereafter political aggregation in the form of a median voter theorem applies only in special cases jel d72 d78 e61 h23

intergenerational redistribution with short lived governments we study the politics of intergenerational redistribution in an overlapping generations model with short lived governments the successive governments who care about the welfare of the currently living generations and possibly about campaign contributions are unable to pre commit the future course of redistributive taxation in a stationary politico economic equilibrium the intergenerational transfer in each period depends on the current value of the state variable and all expectations about future political outcomes are fulfilled we find that there exist multiple stationary equilibria in many political settings steady state welfare is often lower than it would be in the absence of redistributive politics

immigration quotas and skill upgrading a reason why immigration policy is such a contended issue is that often immigrants end up obtaining the right to vote and hence may affect future policies this paper offers a dynamic general equilibrium model of immigration policy in each period a heterogeneously skilled population chooses an immigration policy by majority vote voters anticipate that immigration affects the skill premium and the skill composition of the electorate the main insight is the existence of a trade off between skill complementary immigration and the resulting shift in political power i argue that a reasonably parameterized version of the model is consistent with the main features of us immigration

optimal production purchasing and pricing a differential game approach abstract this paper deals with a problem of determining optimal production and pricing policies of a manufacturing firm which is supplying a retailer the latter faces a price dependent demand function towards the final consumers and wishes to determine optimal purchasing and pricing policies both firms carry inventories and backlogging is permitted the problem is modelled as a two player nonzero sum differential game with the inventory levels as the state variables the controls are the rates of production and purchasing as well as the prices assuming linear production costs but convex ordering and holding costs open loop nash controls are characterized by using switching point analysis as well as phase diagrams

future rent seeking and current public savings abstract the conventional wisdom is that politicians rent seeking motives increase public debt and deficits this is because myopic politicians face political risk and prefer to extract political rents as early as possible in this paper we study the determination of government debt and deficits in a dynamic political economy model we show that this conventional wisdom relies on economic volatility being low relative to political uncertainty if economic volatility is high relative to political uncertainty then a rent seeking government actually over saves and over taxes along the equilibrium path relative to a benevolent government this result emerges because of the option value of rent seeking a rent seeking government over values future funds because of the possibility of using them for future rents instead of cutting taxes in the event of a future boom when marginal utility of private consumption is low this over saving bias is temporary since in the long run the rent seeking government over borrows relative to the benevolent government as it eventually squanders the funds it has accumulated we find that both the under saving and over saving bias of the government can be solved by a rule of capping deficits

structure induced equilibria and perfect foresight expectations this paper extends the work on structure induced equilibria by explicitly considering voters expectations the standard assumption of myopic expectations is contrasted with the alternative assumption of perfect foresight expectations in the institutional setting examined perfect foresight means voters know how the outcome on the first issue in a sequence of two issues conditions majority rule outcomes on the second issue if voters act on this knowledge when voting on the first issue then several important results follow first voters may possess multipeaked preferences defined over the first issue with a majority cycle resulting so that there is no equilibrium to the whole sequence of elections second even if cycling does not result the exact location of the equilibrium involves a broader conspiracy than previously thought a conspiracy of not only preferences and institutional structure but also voters expectations as conditioned by that structure

inefficiency in legislative policymaking a dynamic analysis this paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining the policy space incorporates both productive and distributive public spending and distortionary taxation the productive spending is investing in a public good that benefits all citizens e g national defense and the distributive spending is district specific transfers e g pork barrel spending investment in the public good creates a dynamic linkage across policymaking periods the analysis explores the dynamics of legislative policy choices focusing on the efficiency of the steady state level of

efficiency in the international insurance industry a cross country comparison the purpose of this paper is to provide new empirical evidence on frontier efficiency measurement in the international insurance industry a topic of great interest in the academic literature during the last several years a broad efficiency comparison of 6462 insurers from 36 countries is conducted different methodologies countries organizational forms and company sizes are compared considering life and non life insurers we find a steady technical and cost efficiency growth in international insurance markets from 2002 to 2006 with large differences across countries denmark and japan have the highest average efficiency whereas the philippines is the least efficient regarding organizational form the results are not consistent with the expense preference hypothesis which claims that mutuals should be less efficient than stocks due to higher agency costs only minor variations are found when comparing different frontier efficiency methodologies data envelopment analysis stochastic frontier analysis

the existence of steady states in multisector capital accumulation models with recursive preferences abstract this paper proves the existence of a non trivial stationary optimal path in a multi sectoral capital accumulation model with recursive preferences the reduced form recursive preferences are represented by an aggregator funtion i introduce a new form of normality that is appropriate for use with recursive preferences under some mild conditions on the aggregator non trivial steady states exist when the technology is bounded and normal journal of economic literatureclassification numbers d90 c61 c62

sequential voting with endogenous voter forecasts we investigate a sequential voting model in which voters forecasts of outcomes on future issues are determined endogenously voters are assumed to make decisions in an environment in which future outcomes are uncertain the uncertainty arises from two possible sources voters may be uncertain of other voters preferences in addition events that occur before future issues are decided may affect voters preferences on future votes information available to voters at each point in time is characterized an equilibrium to the voting problem if one exists is one for which the outcome on the issue currently being decided and voters forecasts of outcomes on future issues are determined simultaneously we show that an equilibrium exists under a particular voting institution and characterize voters forecasts for this equilibrium

education democracy and growth abstract this note presents a model of endogenous growth where redistribution determined by a political equilibrium is in the form of public education it is shown that there need not be a negative relationship between growth and redistribution as public education increases the level of human capital in the conomy and at the same time tends to produce a more even income distribution

asset returns with transactions costs and uninsured individual risk abstract we explore whether incorporating an explicit motive for holding liquid assets within an equilibrium asset pricing model helps explain the following features of asset returns and turnover in the post war u s economy i the low risk free real interest rate ii the large spread between returns on liquid assets and stocks and iii the greater transaction velocity of liquid assets relative to stocks we introduce a demand for liquid assets by adding uninsured individual risk together with differential costs of trading securities numerical simulations attempting to match the return data generate a ratio of liquid assets to income considerably below observed levels

efficiency in the greek insurance industry this paper employs the two stage procedure of simar and wilson 2007 to analyse the effects of deregulation on the efficiency of the greek insurance industry the efficiency is estimated by means of data envelopment analysis dea the companies are ranked according to their crs efficiency score for the period 1994 2003 the first stage results indicate a decline in efficiency over the sample period while the second stage results confirm that the competition for market shares is a major driver of efficiency in the greek insurance industry

production subsidies and redistribution abstract who gains from stimulating output we explore a dynamic model with production subsidies where the population is heterogeneous in one dimension wealth there are two channels through which production subsidies redistribute resources across the population first poorer agents gain from a rise in wages since to the extent there is an operative wealth effect in labor supply they work harder second because a current output boost will raise consumption today relative to the future thus lowering real interest rates poor agents gain in relative terms since their income is based less on interest income we examine optimal redistribution from the perspective of an arbitrary consumer in the population we show that if this consumer has commitment at time zero to set all present and future subsidy rates and for a class of preferences that admits aggregation in wealth then output stimulation and hence redistribution will only occur at time zero after that subsidies are zero a byproduct of our analysis of this environment is a median voter theorem with direct voting over subsidy sequences at time zero the sequence preferred by the median wealth consumer is the unique outcome we also study lack of commitment since interest rate manipulation is associated with time inconsistency we analyze this case formally by looking at the markov perfect time consistent equilibrium in a game between successive identical decision makers e g the median agent here subsidies persist they are constant over time and are more distortionary than under commitment moreover whereas under commitment asset inequality changes initially in favor of the consumer who decides on policy it does not under lack of commitment

shrouded costs of government the political economy of state and local public pensions abstract why do public sector workers receive so much of their compensation in the form of pensions and other benefits this paper presents a political economy model in which politicians compete for taxpayers and government employees votes by promising compensation packages but some voters cannot evaluate every aspect of promised compensation if pension packages are shrouded so that public sector workers better understand their value than ordinary taxpayers then compensation will be highly back loaded in equilibrium the welfare of public sector workers could be improved holding total public sector costs constant if they received higher wages and lower pensions centralizing pension determination has two offsetting effects on generosity more state level media attention helps taxpayers better understand pension costs and that reduces pension generosity but a larger share of public sector workers will vote within the jurisdiction which increases pension generosity a short discussion of pensions in two decentralized states california and pennsylvania and two centralized states massachusetts and ohio suggests that centralization appears to have modestly reduced pensions but as the model suggests this is unlikely to be universal

organization and efficiency in the international insurance industry a cross frontier analysis abstract this paper employs cross frontier analysis an innovative tool based on data envelopment analysis to provide new insight into the relationship between organization and efficiency in international insurance markets we are the first to empirically test the expense preference hypothesis and the efficient structure hypothesis in a large cross country study for this purpose we consider 23 807 firm years for 21 countries from northern america and the european union a dataset not previously analyzed in this context we find evidence for the efficient structure hypothesis in selected market segments but we find no evidence for the expense preference hypothesis our results provide insight into the competitiveness of stock and mutual insurers from different countries at the country level the results can be used to compare different insurance markets our findings are especially interesting for the strategic management of insurance companies as well as for regulators and boards of national insurance associations

the size and composition of government expenditure abstract this paper tests several leading hypotheses on determinants of government expenditure the purpose is to avoid omitted variables bias by testing the prominent theories in a comprehensive specification to identify persistent puzzles for the current set of theories and to explore those puzzles in greater depth by looking at the composition of government expenditure and the level of government at which it takes place as well as its magnitude using government financial statistics data from the imf covering over 100 countries from 1970 2000 i look at cross sectional and inter temporal variation in government expenditure and both individual categories of expenditure such as defense education health care and different levels of government central and local among other results i find a new explanation for wagner s law widespread evidence that preference heterogeneity leads to decentralization rather than outright decreases in expenditures that a great deal of the expenditure associated with increased trade openness is not in categories that explicitly insure for risk and evidence that both political access and income inequality affect the extent of social insurance

vested interests in a positive theory of stagnation and growth we study a positive theory of stagnation and growth aimed at understanding the large variations in growth outcomes across actual economies the theory points to the fundamental role played by vested interests in determining policies which are key to the growth process some agents seek to prevent the adoption of new technologies we develop a model of technology adoption and show how technological innovation may sow the seeds of its own destruction in particular we find that the equilibrium is characterized by a long cycle of stagnation and growth over this cycle incumbents are phased out of the economy will new innovation occur in formalizing our theory we make a methodological contribution by characterizing dynamic voting equilibria when voters must forecast the effects of different current policies on future prices and policy outcomes

x efficiency in the us life insurance industry abstract using six years of data 1985 1990 we estimate hybrid translog cost functions for 561 life insurers we examine the resulting residuals to determine the relative efficiency of insurers in the sample we then test the residuals to see if they are related to so called x efficiencies because of internal and external monitoring or to other factors related to rent seeking results show a large degree of persistent inefficiency seems to exist among sample firms the inefficiencies relate to some internal or external monitoring and rent seeking may be occurring

the risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

life cycle economies and aggregate fluctuations do the implications for business cycle issues change when we switch from studying infinitely lived representative agent models to more sophisticated demographic structures with finitely lived agents this article addresses that question by using a large overlapping generations model that is calibrated to u s demographic properties microeconomic evidence and national income and product accounts the finding is that the answers obtained are basically the same for the two kinds of models the article also explores the relative volatility of hours across age groups an issue that cannot be addressed by using the infinitely lived representative agent abstraction

political economy of mechanisms we study the optimal mirrlees taxation problem in a dynamic economy in contrast to the standard approach where the taxation mechanism is operated by a benevolent planner with full commitment power we focus on economies in which policy decisions are made by self interested politicians who cannot commit to policies the society controls politicians using elections we show that the provision of incentives to politicians can be partly separated from redistribution across agents and that political economy constraints can be modeled as introducing additional aggregate distortions in the dynamic mirrlees problem we provide conditions under which the political economy distortions persist or disappear in the long run if the politicians are as patient as the agents the best sustainable mechanism leads to an asymptotic allocation where the aggregate distortions arising from political economy disappear in contrast when politicians are less patient than the citizens positive aggregate labor and capital taxes remain even asymptotically we conclude by providing a brief comparison of centralized

economic lot sizing and dynamic quantity competition abstract we study a problem of dynamic quantity competition in continuous time with two competing retailers facing different replenishment cost structures retailer 1 faces fixed ordering costs and variable procurement costs and all inventory kept in stock is subject to holding costs retailer 2 only faces variable procurement costs both retailers are allowed to change their sales quantities dynamically over time following the structure of the economic order quantity eoq model retailer 1 places replenishment orders in batches and retailer 2 follows a just in time jit policy the objective of both retailers is to maximize their individual average profit anticipating the competitor s replenishment and output decisions the problem is solved by a two stage hierarchical optimization approach using backwards induction the second stage model is a differential game in output quantities between the two retailers for a given cycle length at the first stage the replenishment policy is determined we prove the existence of a unique optimal solution and derive an open loop nash equilibrium we show that both retailers follow contrary output strategies over the order cycle the eoq retailer driven by inventory holding costs decreases his market share whereas the output of the jit retailer increases moreover depending on the cost structure the eoq retailer might partially be a monopolist at the first stage the eoq retailer determines the cycle length anticipating the optimal output trajectories at the second stage

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

inventories stock outs and production smoothing if stock outs are ignored and if demand shocks are additive then optimal behaviour requires that the marginal cost of production mc be equated with the expected marginal revenue of increasing expected sales by one unit emr however with more general demand shocks and still ignoring stock outs the excess of mc over emr has the same sign as the covariance of the slope of the demand curve and the marginal valuation of inventory the equality of emr and mc is also broken by taking account of stock outs even if demand shocks are additive if there is a production lag then taking account of stock outs implies that optimal behaviour will be characterized by production smoothing even if the cost of production is linear two alternative definitions of production smoothing are presented and optimal behaviour in the presence of stock outs displays each type of smoothing it is a well known proposition that a firm producing a storable good under conditions of increasing marginal cost will tend to smooth the time profile of its production relative to the time profile of its sales the incentive to smooth production arises from the fact that the cost function is a convex function of the level of production for a given average level of production average costs can be reduced by reducing the variation in production of course if the cost function is linear in the level of production then this incentive to smooth production disappears however we will demonstrate in this paper that if the possibility of stock outs is explicitly incorporated into the firm s dynamic optimization problem i e if we impose a non negativity constraint on inventories and if there is a lag in production then optimal behaviour can be characterized by production smoothing even if the cost function is linear

evaluating solvency versus efficiency performance and different forms of organization and marketing in us property liability insurance companies abstract solvency is a primary concern for regulators of insurance companies claims paying ability is a primary concern for policyholders and return on investment is a primary concern for investors these interests potentially conflict and the decision makers for the firm must trade off one concern versus another here we examine the efficiency of insurance companies via data envelopment analysis using solvency claims paying ability and return on investment as outputs and using a financial intermediary model for the insurance company the effect of solvency on efficiency is then examined these efficiency evaluations are further examined to study stock versus mutual form of organizational structure and agency versus direct marketing arrangements which are examined separately and in combination

time consistent public expenditures in this paper we study the optimal choice of public expenditures when there is no way of committing to future policy and reputational mechanisms are not operative this amounts to conflning our attention to markov equilibria the environment is a neoclassical growth model where consumers derive utility from a public good this environment gives rise to a dynamic game between successive governments and the private sector and this game is made interesting by the presence of a state variable the capital stock we characterize equilibria in terms of an intertemporal flrst order condition a generalized euler equation gee for the government and we use this condition both to gain insight into the nature of the equilibrium and as a basis for computation the gee reveals how the government optimally trades ofi tax wedges over time it also allows us to discuss in what sense a current government may be strategically in uencing future governments in their taxation decisions for a calibrated economy we flnd that when the tax base available to the government is capital income an inelastic source of funds at any moment in time the government still refrains from taxing at high rates in order to smooth distortions over time as a result the economy is far from the mix of public and private goods that would be optimal in a static context in return the savings distortion is not very severe and the capital stock is quite high

organizational form and efficiency the coexistence of stock and mutual property liability insurers this article introduces a new approach cross frontier analysis for estimating the relative efficiency of alternative organizational forms in an industry the technique is illustrated by analyzing a sample of stock and mutual property liability insurers using nonparametric frontier efficiency methods cross frontier analysis measures the relative efficiency of each organizational form by computing the efficiency of each stock mutual firm relative to a reference set consisting of all mutual stock firms we test agency theoretic hypotheses about organizational form including the managerial discretion and expense preference hypotheses the results indicate that stocks and mutuals are operating on separate production and cost frontiers and thus represent distinct technologies consistent with the managerial discretion hypothesis the stock technology dominates the mutual technology for producing stock outputs and the mutual technology dominates the stock technology for producing mutual outputs however consistent with the expense preference hypothesis the stock cost frontier dominates the mutual cost frontier our findings thus suggest a richer interpretation of organizational form than provided by previous researchers

a dynamic inventory model with the right of refusal we consider a dynamic inventory production model with general convex order production costs and excess demand that can be accepted or refused by the firm excess demand that is accepted is backlogged and results in a backlog cost whereas demand that is refused results in a lost sales charge endogenizing the sales decision is appropriate in the presence of general convex order costs so that the firm is not forced to backlog a unit whose subsequent satisfaction would reduce total profits in each period the firm must determine the optimal order and sales strategy we show that the optimal policy is characterized by an optimal buy up to level that increases with the initial inventory level and an order quantity that decreases with the initial inventory level more importantly we show the optimal sales strategy is characterized by a critical threshold a backlog limit that dictates when to stop selling this threshold is independent of the initial inventory level and the amount purchased we investigate various properties of this new policy as demand stochastically increases the amount purchased increases but the amount backlogged decreases reflecting a shift in the way excess demand is managed we develop two regularity conditions one that ensures some backlogs are allowed in each period and another that ensures the amount backlogged is nondecreasing in the length of the planning horizon we illustrate the buy up to levels in our model are bounded above by buy up to levels from the pure lost sales and pure backlogging models we explore additional extensions using numerical experiments

competitive strategies for two firms with asymmetric production cost structures we model joint production marketing strategies for two firms with asymmetric production cost structures in competition the first firm called the production smoother faces a convex production cost and a linear inventory holding cost the second firm called the order taker faces a linear production cost and holds no inventory each firm is assumed to vary continuously over time both its production rate and its price in view of an unstable surge pattern of demand the underlying theoretical motivation is to investigate the temporal nature of the equilibrium policies of two competing firms one operating at or near capacity the production smoother and one operating significantly below capacity the order taker we characterize and compare the equilibrium strategies of the two competing firms among our results we show that if the duopolistic production smoother finds it optimal to hold inventory then he will begin the season by building up inventory continue by drawing down inventory until i

on the size of u s government political economy in the neoclassical growth model we study a dynamic version of meltzer and richard s median voter model of the size of government taxes are proportional to total income and they are redistributed as equal lump sum transfers voting takes place periodically over time and each consumer votes for the tax rate that maximizes his equilibrium utility we calibrate the model to u s data key elements in the calibration are the income and wealth distribution and the parameters governing the leisure and consumption choices the total size of transfers predicted by our political economy model is quite close to the size of transfers in the data

median voter equilibria in the neoclassical growth model under aggregation we study a dynamic version of meltzer and richard s median voter model where agents differ in wealth taxes are proportional to income and are redistributed as equal lump sum transfers voting occurs every period and each consumer votes for the tax that maximizes his welfare we characterize time consistent markov perfect equilibria twofold first restricting utility classes we show that the economy s aggregate state is mean and median wealth second we derive the median voter s first order condition interpreting it as a tradeoff between distortions and net wealth transfers our method for solving the steady state relies on a polynomial expansion around the steady state

barriers to investment in polarized societies i present a tractable dynamic model of political economy where disagreements about the composition of public spending result in implementation of short sighted policies the relative price of investment to consumption is excessively large in equilibrium due to over taxation investment rates are too low which slows down growth along the transition in the long run this results in output consumption and welfare being inefficiently low the larger is the degree of polarization the greater is the inefficiency political stability mitigates the effects of polarization by making the incumbent internalize the dynamic inefficiencies introduced by the choice of growth retarding policies

strategic it investments the impact of switching cost and declining it cost the declining cost of information technology it over time provides the later entrant in information intensive industries a cost advantage on the other hand the earlier entrant has the potential to build and retain its market share if consumers incur a cost in switching to the later entrant we investigate the impact of a decline in the it cost and the switching cost on it investment strategies of firms we find that a declining it cost always hurts the early entrant s profit the early entrant may assume an aggressive investment strategy or a defensive investment strategy in response to a decline in the it cost depending on whether the switching cost relative to the extent of decline in the it cost is high or low respectively a decline in it cost also hurts the later entrant s profit if the switching cost is high a surprising result is that when the decline in the it cost is higher than a critical value a higher switching cost increases consumer surplus when firms control the switching cost the early entrant increases its investment in quality and switching cost and maintains its quality and its market share leadership irrespective of the extent of decline in the it cost

an efficiency comparison of the non life insurance industry in the bric countries abstract we analyze the efficiency of non life insurance companies in four of the fastest growing markets in the world the bric brazil russia india china countries an innovative feature of this paper is its incorporation of uncontrollable variables in the efficiency analysis using multi stage data envelopment analysis dea this approach captures cross country differences such as the political and economic environment and allows distinguishing between managerial inefficiency and inefficiency due to environmental conditions we find that the environment affects the efficiency of non life insurers operating in the bric countries furthermore in a regression of firm characteristics on efficiency scores we identify four drives of efficiency size profitability solvency and ownership form the results further our understanding of the insurance industry in the bric countries in regard to its efficiency and the environment in which it operates

cost of business cycles with indivisibilities and liquidity constraints it is almost universally agreed that individuals face incomplete insurance markets and cannot perfectly insure against the idiosyncratic risk in this paper simple general equilibrium models with incomplete insurance markets are examined in order to assess the impact of imperfect insurance on the magnitude of the welfare costs of business cycles two versions of incomplete insurance markets are considered and certain statistical properties of the equilibrium stochastic processes in these environments are compared with those of a perfect insurance economy

the intergenerational conflict over the provision of public education abstract we study the intergenerational conflict over the provision of public education this conflict arises because older households without children have weaker incentives to support the provision of high quality educational services in a community than younger households with school age children we develop an overlapping generations model for households in a system of multiple jurisdictions this model captures the differences in preferred policies over the life cycle we show that the observed inequality in educational policies across communities is not only the outcome of stratification by income but is also determined by the stratification by age and a political process that is dominated by older voters in many urban communities with low quality of educational services the mobility of older households creates a positive fiscal externality since it creates a larger tax base per student this positive tax externality can dominate the negative effects that arise because older households tend to vote for lower educational expenditures as a consequence sorting by age can reduce the inequality in educational outcomes that is driven by income sorting

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

banking in computable general equilibrium economies abstract in this paper we develop a computable general equilibrium economy that models the banking sector explicitly banks intermediate between households and between the household sector and the government sector households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement banks pool households savings and they purchase interest bearing government debt and non interest bearing reserves we use this structure to answer two sets of questions one normative in nature that evaluates the welfare costs of alternative monetary and tax policies and one positive in nature that studies the real effects of following a procyclical interest rate policy rule

efficiency analysis in banking firms an international comparison abstract the intensive process of financial european integration together with the profound transformation and deregulation that has taken place in the spanish banking system justifies the evaluation of its efficiency in comparison with that of other banking systems in this context the aim of this study is to analyze the productivity efficiency and differences in technology of several banking systems using a non parametric approach together with the malmquist index we compare the efficiency productivity and differences in technology of different european and us banking systems for the year 1992

progressive taxation and income inequality in dynamic competitive equilibrium abstract this paper establishes the existence of a non degenerate distribution of income in a simple dynamic economy when agents who are heterogeneous in their rates of impatience face a progressive tax system in this dynamic setting income inequality can vary positively with the degree of tax progressivity moreover the inherent heterogeneity in agents behavior can explain why measures of inequality such as the standard deviation of income or atkinson s gini tend to be dynamically much more sluggish than aggregate measures such as total income finally the adjustment in the degree of inequality resulting from an exogenous change in tax policy may take some time before becoming effective this result also arises from agents asymmetric responses to policy changes

deregulation consolidation and efficiency evidence from the spanish insurance industry this paper provides new information on the effects of deregulation and consolidation in financial services markets by analyzing the spanish insurance industry the sample period 1989 98 spans the introduction of the european union s eu third generation insurance directives which deregulated the eu insurance market deregulation has led to dramatic changes in the spanish insurance market the number of firms declined by 35 average firm size increased by 275 and unit prices declined significantly in both life and non life insurance we analyze the causes and effects of consolidation using modern frontier efficiency analysis to estimate cost technical and allocative efficiency as well as using malmquist analysis to measure total factor productivity tfp change the results show that many small inefficient and financially underperforming firms were eliminated from the market due to insolvency or liquidation as a result the market experienced significant growth in tfp over the sample period consolidation not only reduced the number of firms operating with increasing returns to scale but also increased the number operating with decreasing returns to scale hence many large firms should focus on improving efficiency by adopting best practices rather than on further growth

supply side interventions and redistribution we evaluate the eect on welfare of shifting the burden of capi tal income taxes to labor taxes in a dynamic equilibrium model with heterogeneous agents and constant tax rates we calibrate and simu late the economy we nd that lowering capital taxes has two eects i it increases e ciency in terms of aggregate production and ii it redistributes wealth in favor of those agents with a low wage wealth ratio when the parameters of the model are calibrated to match the distribution of income in terms of the wage wealth ratio the redis tributive eect dominates and agents with a high wage wealth ratio would experience a large loss in utility if capital income taxes were eliminated

quality and competition in recent years the practitioner literature in operations management has seen a dramatic surge in articles on quality management it reflects the increased emphasis on quality by u s firms which has been attributed largely to increased competition faced by them the question of how quality is influenced by competitive intensity however has not received much attention either in the practitioner or the academic research literatures the notion of competitive intensity itself has not been defined precisely in this paper we develop formal models of oligopolistic competition to investigate whether equilibrium levels of quality increase as competition intensifies we consider three different competitive settings i asymmetric duopolistic competition where the dominant firm s intrinsic demand potential decreases ii a symmetric duopoly where the firms are precluded from cooperating in setting quality levels and iii symmetric oligopolistic competition where the number of firms increases we find that the relation between equilibrium quality and competitive intensity depends on what is understood by increased competition and in addition the relation is contingent on the values of parameters describing the cost and demand structure for the industry

the aging population and the size of the welfare state is there a puzzle abstract razin sadka and swagel razin asaf efraim sadka and phillip swagel 2002 the aging population and the size of the welfare state the journal of political economy vol 110 no 4 pp 900 918 unveil a puzzling fact the welfare state appears to be shrinking even as the dependency ratio rises while they formulate an elegant political economy model to explain the coexistence of an aging population and declining transfers the resolution of the puzzle turns out to be much simpler labor tax rates and per capita transfers are negatively correlated with the dependency ratio in advanced economies only because this measure includes children as well as retirees both labor tax rates and per capita transfers in advanced economies are in fact historically positively correlated with the ratio of retirees to the working age population and negatively correlated with the ratio of children to the working age population increasing the number of retirees shifts preferences toward higher taxes and transfers by increasing the fraction of the population that receives transfers in contrast workers with more children prefer to spend more of their lifetime income while raising dependents so they prefer smaller public pension systems these results suggest that fiscal leakage from workers to retirees is not required to explain the broad trends in the transfer policies of advanced economies

resource allocation to defensive marketing and manufacturing strategies abstract in this paper we investigate the coordinated use of marketing and manufacturing strategies to formulate a defensive business strategy for an incumbent firm upon market entry while defensive marketing strategies have been researched extensively little has been done on defensive manufacturing strategies and even less on coordinating these two we propose a formulation for the joint formation of a defensive strategy by the marketing and production functions under budget constraint considerations the incumbent firm may allocate its resourcesto advertising and distribution expenditures as well as to manufacturing investments to reduce the unit production cost the incumbent firm has also the option of simply allocating all of its resources purely to advertising and distribution we show that while there exist cases where the optimal reaction to entry involves investments in manufacturing improvements there are also cases where defense is in marketing strategies alone we identify the market conditions that promote such reactions to entry and also provide sensitivity analysis

market structure and the efficiency of european insurance companies a stochastic frontier analysis abstract this paper is motivated by the progressive liberalisation of the european insurance market in recent years it uses stochastic frontier analysis to estimate flexible fourier cost functions for european insurance companies separate frontiers are estimated for life non life and composite companies we adopt a maximum likelihood approach to estimation in which the variance of both one sided and two sided error terms is modelled jointly with the frontiers this approach allows us to simultaneously control for the impact of heteroskedasticity on the estimation of scale economies as well as estimating the effect of firm size and market structure on x inefficiency the study draws on standard poor s eurothesys data set of financial reports for the period 1995 to 2001 this provides technical and non technical accounts at year end for life non life and composite insurance businesses in 14 major european countries our estimates suggest that over this period most european insurers were operating under conditions of decreasing costs increasing returns to scale and that company size and domestic market share were significant factors determining x inefficiency larger firms and those with high market shares tend to have higher levels of cost inefficiency

intergenerational mobility and the political economy of immigration abstract flows of us immigrants are concentrated at the extremes of the skill distribution we develop a dynamic political economy model consistent with this observation individuals care about wages and the welfare of their children skill types are complementary in production voter support for immigration requires that the children of median voter natives and of immigrants have sufficiently dissimilar skills we estimate intergenerational transition matrices for skills as measured by education and find support for immigration at high and low skills but not in the middle in a version with guest worker programs voters prefer high skilled immigrants but low skilled guest workers

under pressure how the business environment affects productivity and efficiency of european life insurance companies deregulation and widespread economic changes have fundamentally affected the business environment of european life insurance companies over the last decades we apply multi stage data envelopment analysis to identify the impact of the changing environment on productivity and efficiency of european life insurance companies considering a sample of 970 life insurance companies from 14 european countries we show that general economic capital market and insurance market conditions are important drivers of efficiency although we find no technical change in the european life insurance sector we nonetheless observe an efficiency increase in 2002 2013 that leads to an increase in total factor productivity these trends can be explained by more challenging business conditions in the 2000s our results emphasize the need to control for the business environment in cross country efficiency studies

political economy and the social marginal cost of public funds the case of the meltzer richard economy i introduction the marginal cost of public funds mcf is defined as the full cost to the private sector of raising an additional dollar of tax revenue including deadweight loss or excess burden of taxation imposed on taxpayers much of the theoretical literature on the mcf is cast in the framework of a one consumer economy however the main reason why we have distortionary taxes in the first place is precisely because of the need for redistribution or the existence of consumers with heterogeneity in view of this inconsistency several papers including dahlby 1998 and sandmo 1998 have recently started addressing the so called social marginal cost of public funds smcf in models with heterogenous consumers 1 these papers highlight how the redistributive concern may alter the calculation of the smcf 2 in previous studies on the mcf or smcf the existing of status quo tax system has been assumed to be either arbitrary or optimal 3 it is arguable however that the existing tax system is neither arbitrary nor optimal but rather represents a political equilibrium the approach adopted by hettich and winer 1999 and persson and tabellini 2000 corroborates this argument in surveying the political economy of public finance the authors of these two books explicitly portrayed public policy as the equilibrium outcome of some specified political process in this note we study the smcf issue on the basis of the plausible premise that the existing tax system itself represents a political equilibrium the calculation of the smcf is basically a normative exercise the premise that the existing tax system is a policy outcome in political equilibrium will enable us to exploit the positive property of political equilibrium in this normative exercise as an illustration of our approach we revisit the political economy of redistributive taxation as set out in meltzer and richard 1981 hereafter m r the m r model holds a prominent position in the redistribution literature and has been elaborated and extended in many directions persson and tabellini 2000 part ii 4 section ii overviews the m r model sections iii and iv derive and discuss the smcf in the m r economy an interesting feature of our finding is that the degree of income inequality as measured by the ratio of mean to median income can play an important role in estimating the smcf and judging whether the level of redistribution is excessive or inadequate ii the m r model a economy consideran economy in which there are n 1 u sup i u c sup i l sup i i 1 n this utility function is assumed to be smooth and possess the usual properties the income tax system consists of two parameters a marginal tax rate t and a lump sum grant a the tax system pays the lump sum grant or demogrant a to each individual and finances the payment by imposing the marginal tax rate t on all earned income 5 the budget constraint facing individual i is 2 c sup i 1 t w sup i l sup i a i 1 n where l sup i denotes the labor supply with l sup i l sup i 1 from equations 1 and 2 we can derive the indirect utility function 3 v sup i v 1 t w sup i a u 1 t w sup i l sup i a 1 l sup i i 1 n it is assumed that the government budget is balanced denoting per capita pretax income by y we then have 4 ty a where y summation y sup i n with y sup i w sup i l sup i b political economy the preferences of individuals qua voters over income tax policy are represented by the indirect utility function 3

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

the demise of the mutual organizational form an investigation of the life insurance industry we investigate the role of organizational structure in financial services markets by examining the u s life insurance industry traditionally stock and mutual life insurers were equally represented but now the industry is mainly composed of stock firms we find operational efficiency access to capital and tax savings are important determinants for this shift the incentive to demutualize differs by the type of conversion full demutualization is chosen for efficiency and access to capital reasons and partial conversion using a mutual holding company is chosen for tax savings firm operational efficiency improves after conversion we also find the efficiency of the stock organizational form dominates that of the mutual structure during our sample period 1995 to 2004

politico economic consequences of rising wage inequality abstract this paper uses a dynamic political economy model to evaluate whether the observed rise in wage inequality and decrease in median to mean wages can explain some portion of the relative increase in transfers to low earnings quintiles and relative increase in effective tax rates for high earnings quintiles in the u s over the past several decades specifically we assume that households have uninsurable idiosyncratic labor efficiency shocks and consider policy choices by a median voter which are required to be consistent with a sequential equilibrium we choose the transition matrix to match observed mobility in wages between 1978 and 1979 in the panel study of income dynamics psid data set and then evaluate the response of social insurance policies to a new transition matrix that matches the observed mobility in wages between 1995 and 1996 and is consistent with the rise in wage inequality and the decrease in median to mean wages between 1979 and 1996 we deal with the problem that policy outcomes affect the evolution of the wealth distribution and hence prices by approximating the distribution by a small set of moments we contrast these numbers with those from a sequential utilitarian mechanism as well as mechanisms with commitment

capital taxation under political constraints this paper studies optimal dynamic tax policy under the threat of political reform a policy will be reformed ex post if a large enough coalition of citizens supports reform thus sustainable policies are those that will continue to attract enough political support in the future we find that optimal marginal capital taxes are either progressive or u shaped so that savings are subsidized for the poor and or the middle class but are taxed for the rich u shaped capital taxes always emerge when individuals political behavior is purely determined by economic motives

indeterminacy and fiscal policies in a growing economy this paper studies the dynamic properties of a standard one sector model of endogenous growth with inelastic labor supply in which capital taxes are used to nance public production and consumption services the government is benevolent and chooses its tax policy by taking into account the decentralized competitive equilibrium within this second best setup we establish conditions for multiple balanced growth paths in conjunction with indeterminacy of transitional dynamics the mechanism for global and local indeterminacy is a simple combination of public production services that provide production externalities to private rms and hence cause a wedge between private and social returns public consumption services that provide direct utility to households and endogenously chosen distorting taxes

marketing production coordination in channels of distribution abstract in this paper we analyze the effects of functional horizontal decentralization by a channel member on the performance of an industrial channel of distribution we use the model of eliashberg j steinberg r 1987 management science 33 981 1000 which describes a channel of distribution consisting of a manufacturer and a value adding distributor we allow the distributor to decentralize decision making between his marketing and production functions our results show that functional decentralization at the distributor level increases the price sensitivity of the distributor concerning the price he faces from the manufacturer causes a shift in the distributor s demand curve increases the distributor s inventory activities in terms of both quantity and time frame and under certain conditions increases the manufacturer s inventory as expected the decentralized distributor has a less coordinated pricing policy vis a vis the production policy using numerical means we show that functional decentralization can improve the overall channel profitability i e for both manufacturer and distributor this counter intuitive result suggests that in our non repeated perfect information game setting functional decentralization can yield a pareto dominant equilibrium outcome where both the distributor and manufacturer are better off even though it is only the distributor who is changing his organizational decision making

factor shares and savings in endogenous growth in models of steady investment driven growth an individual s propensity to save depends on how much of his income is drawn from accumulated factors of production capital rather than from nonaccumulated factors when agents are heterogeneous in this respect growth oriented policies have distributional consequences and in the absence of lump sum redistribution their implementation faces political constraints if the median voter is capital poor relative to the economy s representative agent political interactions tend to slow down growth when policy acts on capital s income share and tend to accelerate it when investment subsidies are the policy instrument of choice copyright 1993 by american economic association

distortionary taxes and public investment when government promises are not enforceable abstract we characterize the optimal financing of productive public capital and compute the welfare loss from being unable to commit to the ramsey policy because this calculation ultimately relies on numerical approximations we contrast alternative approaches while perturbation and linear quadratic methods deliver accurate steady states the latter can yield misleading policy implications during transitions we find that moving from a regime with commitment to one with discretion implies only a small welfare loss although markov perfect consumption falls noticeably short of its ramsey counterpart in steady state consumption under discretion is higher in the short run which largely offsets this long run loss

on the political economy of immigration and income redistribution in this article we analyze an economy in which agents vote over immigration policy and redistributive tax policy we show that natives preferences over immigration are influenced by the prospect that immigrants will be voting over future tax policy we also show that changes in the degree of international capital mobility the distribution of initial capital among natives the wealth or poverty of the immigrant pool and the future voting rights and entitlements of immigrants can have dramatic effects on equilibrium immigration and tax policies finally we provide some empirical support for the model s predictions

dynamic political choice in macroeconomics we analyze positive theories of redistribution social insurance and public good provision in a dynamic macroeconomic framework political outcomes are determined via repeated voting and driven by a conflict of interests between agents voters and politicians rationally forecast the impact of current political choices on future political and economic outcomes the theory is consistent with large differences in the size of governments across societies these need not rely on intrinsic differences in preferences or technology but may be driven by self fulfilling

transitional dynamics and the distribution of wealth in a neoclassical growth model abstract the evolution of the personal distribution of wealth in a standard neoclassical growth model is studied if the economy is growing toward the steady state and preferences are such that marginal utility from consumption is infinite finite at some all positive non negative consumption level s then the average saving propensity of agents is positively negatively related to their wealth if the economy is decaying toward the steady state these relationships are reversed if wealth and average saving propensity are positively negatively related the distribution of current period wealth lorenz dominates is lorenz dominated by next period s distribution of wealth

on the faustian dynamics of policy and political power this paper examines the faustian dynamics of policy and power we posit a general class of dy namic games in which current policies affect the future distribution of political power resulting in the following faustian trade off if the current ruler chooses his preferred policy he then sacrifices future political power yet if he wants to preserve his future power he must sacrifice his present policy objec tives the trade off comes from the fact that the current political ruler pivotal voter cannot uncouple the direct effect of his policy from its indirect effect on future power a policy endogenous pe equilibrium describes this endogenous transfer of power and the resulting evolution of policy and political power over time we show that the faustian trade off in a pe equilibrium is decomposed into two basic rationales the political preservation effect induces more tempered policy choices than if one s policy choice did not affect one s political fortunes however the reformation effect induces more aggressive policies in order to exploit the productivity gains from policies chosen by even more aggressive successors we distinguish between political systems that give rise to monotone faustian dynamics political power that progressively evolves towards more fiscally liberal types of leaders and cyclical faustian dynamics political power that oscillates between liberal and conservative types of leaders in each case we show that the faustian trade off moderates the choices of each type of leader

politico economic equilibrium and economic growth abstract we propose a notion of dynamic politico economic equilibrium which builds on two key assumptions policies are determined sequentially and agents are fully rational in their roles as both consumers and voters we examine a simple model of endogenous growth and infinitely lived agents where taxes on income are endogenous and where growth critically depends on the initial distribution of asset holdings we relate our equilibrium definition and results to existing literature on time consistency and on political economy and growth we show that our equilibria are time consistent and we argue that the choice of equilibrium concept might have important quantitative implications

dynamic pricing and ordering decisions by a monopolist this paper considers the relationship between pricing and ordering decisions for a monopolistic retailer facing a known demand function where over the inventory cycle the product may exhibit i physical decay or deterioration of inventory called wastage and ii decrease in market value called value drop associated with each unit of inventory on hand the retailer is allowed to continuously vary the selling price of the product over the cycle we introduce a notion of instantaneous margin and use it to derive profit maximizing conditions for the retailer the model explains the markdown of retail goods subject to decay it also provides guidance in determining when price changes during the cycle are worthwhile due to product aging how often such changes should be made and how such changes affect ordering intervals and quantities

fiscal policy over the real business cycle a positive theory this paper presents a political economy theory of the behavior of fiscal policy over the business cycle the theory predicts that in both booms and recessions fiscal policies are set so that the marginal cost of public funds obeys a submartingale in the short run fiscal policy can be pro cyclical with government debt spiking up upon entering a boom however in the long run fiscal policy is counter cyclical with debt increasing in recessions and decreasing in booms government spending increases in booms and decreases during recessions while tax rates decrease during booms and increase in recessions data on tax rates from the g7 countries supports the submartingale prediction and the correlations between fiscal policy variables and national income implied by the theory are consistent with much of the existing evidence from the u s and other countries

the effect of organizational structure on efficiency evidence from the spanish insurance industry this paper provides new information on the effects of organizational structure on efficiency by analyzing spanish stock and mutual insurers over the period 1989 1997 we test the efficient structure hypothesis which predicts that the market will sort organizational forms into market segments where they have comparative advantages and the expense preference hypothesis which predicts that mutuals will be less efficient than stocks technical cost and revenue frontiers are estimated using data envelopment analysis the results indicate that stocks and mutuals are operating on separate production cost and revenue frontiers and thus represent distinct technologies in cost and revenue efficiency stocks of all sizes dominate mutuals in the production of stock output vectors and smaller mutuals dominate stocks in the production of mutual output vectors larger mutuals are neither dominated by nor dominant over stocks in the cost and revenue comparisons thus large mutuals appear to be vulnerable to competition from stock insurers in spain overall the results are consistent with the efficient structure hypothesis but are generally not consistent with the expense preference hypothesis

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

the measurement of efficiency in life insurance estimates of a mixed normal gamma error model abstract this paper make three contributions to the literature on efficiency in financial services first it presents estimates of a mixed error cost frontier in which the variances of both the normal and gamma distributions can vary with firm size second it extends the literature on life insurance scale and product mix economies by incorporating and measuring x inefficiency estimates of x inefficiency range from 35 to 50 ray scale economies exist up to 15 billion in assets third comparisons of normal gamma estimates with other methods 3 thick frontier weighted least squares half normal distributions 3 demonstrate some of their pitfalls

the political economy of fiscal policy we describe a theory of the collective choice of fiscal policy in dynamic economies that are subject to aggregate shocks the theory incorporates realistically complex policy spaces rational forward looking agents and a rich political decision process we argue that it provides a tractable framework to study a variety of important questions in macroeconomics and public finance jel e62 h63 d79

on the political economy of immigration the authors study how immigration policies that impose capital and skill requirements would be determined under majority voting when native agents differ in their wealth holdings and vote to maximize their income the results of the model calculations indicate that the native population will be polarized between those who would like an immigration policy to maximize the domestic capital labor ratio and those who would like an immigration policy that would minimize it

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

teachers growth and convergence this paper examines the role of individual instruction and teacher quality in determining economic growth and convergence across school districts the model shows that if teacher quality is more important for human capital accumulation than individual instruction human capital convergence will occur between two school districts this convergence arises because a poor school district hires relatively better teachers but uses them in larger classes in comparison with a rich school district the model is estimated on panel data of the states of the united states from 1882 to 1990 the estimates indicate that teacher quality is relatively more important for human capital accumulation than individual instruction the model accounts for all the mean growth in state per capita incomes and between 80 and 100 percent of convergence in state per capita incomes

optimal pricing and lot sizing under conditions of perishability and partial backordering we formulate a generalized model of dynamic pricing and lot sizing by a reseller who sells a perishable good we assume that when it is economic to backlog demand the reseller can plan for periods of shortage during which demand can be partially backordered when the good is highly perishable the reseller may need to backlog demand in order to market the good at a reasonable price we present a simple solution procedure for solving the optimization problem the procedure entails solving first a single nonlinear equation and then if required two nonlinear equations

bicameral legislatures and fiscal policy john stuart mill s observation in the mid 19th century is clearly outdated the two chamber question receives scant attention in modern political economy the absence of continued debate might simply reflect a general satisfaction with the dual chambered structure as a desirable democratic institution most developed democracies and all but one of the american states have adopted a bicameral legislative structure in this paper we stress the many variations in bicameralism even among the american states and the effects these variations have on policy making and fiscal outcomes put simply bicameralism is not an all or none institution instead bicameralism is a variable institution that alters the identity of the median legislator within each chamber and determines the similarity of the dominant coalitions between the two chambers in this perspective the impact of bicameralism on policy comes principally from the different bases of representation across the two chambers moreover the analysis stresses that the degree of bicameralism changes regularly as a consequence of the redistricting process the remainder of the paper is organized as follows section 2 reviews the main conceptual arguments underlying the function of a bicameral organization section 3 examines implications for fiscal policy using data from the american states we develop several measures of bicameralism using detailed constituency data on economic and demographic characteristics at the level of state legislative districts we then use these measures to examine the effect of interdistrict constituent homogeneity on total state government spending as well as on the major com