The political economy of secession: The case of Quebec

In the absence of oppression, citizens of a sub-unit who contemplate secession carefully weigh the benefits and costs of different outcomes. Here these costs are shown to be highly variable: they depend on the strategic behavior of each state and on whether cooperative relations would be re-established after secession. Using Quebec as a case, it is shown that threats of non-cooperation by the predecessor state may be discounted as not credible. Elementary game theory, however, shows that, with repeat play, retaliatory non-cooperation could be a rational strategy. Moreover, it is shown that reaching a compromise solution requires a credible threat on the part of the potential secessor to accept a sovereignty where there would be no economic cooperation. In modern welfare states, these risks are severe enough to make secession rare, and incremental constitutional change the norm. For comments on earlier drafts of this paper I am grateful to Gordon Tullock, Isidoro Massa, other participants at meetings of the Public Choice Society and the European Public Choice Society, Ignatius Horstmann, Douglas Brown, the editors, and two anonymous referees. Errors are mine.     

The lexicographic composition of abstract games

The lexicographic composition of reflexive and complete binary relations (which are often called abstract games) is studied. The necessary and sufficient conditions are obtained for a lexicographic composition of quasi transitive relations to be quasi transitive.The case of acyclicity of lexicographic composition of two relations is also investigated. Received: September 25, 2000; revised version: November 28, 2000     

Congestion allocation for distributed networks: an experimental study

This paper reports an experimental study of two prominent congestion and cost allocation mechanisms for distributed networks. We study the fair queuing (or serial) and the FIFO (or average cost pricing) mechanisms under two different treatments: a complete information treatment and a limited information treatment designed to simulate distributed networks. Experimental results show that the fair queuing mechanism performs significantly better than FIFO in all treatments in terms of efficiency, predictability measured as frequency of equilibrium play, and the speed of convergence to equilibrium. We thank Simon Anderson, Narine Badasyan, Catherine Eckel, Peter Katuscak, Edna Lohman, seminar participants at Caltech, Michigan, Vanderbilt, Virginia, Virginia Tech, ESA 2001 (Tucson, AZ) and Public Choice Society meetings (2002) for helpful comments. We are grateful to David Cooper and an anonymous referee for their constructive and insightful suggestions which significantly improved the paper. We thank Jing Deng, Belal Sabki, Pragya Sen, Brian Chan and Lisa Robinson for excellent research assistance, and Jim Leady for programming for the experiment. The research support provided by NSF grant SES-0079001 to Chen, SES-9973731 to Razzolini, and a grant from the Office of Naval Research to Razzolini are gratefully acknowledged.     

Unsettling aspects of voting theory

Summary. Voting procedures are known to be plagued with a variety of difficulties such as strategic voting, or where a voter is rewarded with a better election outcome by not voting, or where a winning candidate can lose by receiving more support. Once we know that these problems can occur, the next objective should be to completely understand how, why, and where they arise. Namely, for each election procedure, the new goal is to determine when such problems can occur, all voter types who can cause these difficulties, and the actions they must take. This paper develops an easily used approach to handle all of these issues for standard voting methods. New intuitive explanations for these various oddities follow from this approach. Received: August 14, 2002 ; revised version: September 4, 2002 RID="*" ID="*"My thanks to Richard Barrett and, in particular, to Hannu Nurmi for corrections, several useful comments, and suggestions they made about earlier versions. Also, my thanks to a referee for calling some excellent references to my attention. An earlier draft was presented at the 2002 Public Choice Society meeting. This research was supported by an NSF grant.     

The Powers of The Central Governments and the Problems of Enlarging and Deepening the European Union: An Essay of Constitutional Political Economy

In this paper we present an adaptation of Buchanan and Tullock’s model in order to apply it to the constitutional choices regarding the assigning of powers to a supranational authority. The outcome of the economic-political model developed in this paper demonstrates that there are constraints in the supply of integration, suggesting that the enlargement and deepening of the European Union will have to be based on federalist conceptions. The authors should like to thanks seminar participants at European Public Choice conference (Belgirate 2002) and ECSA-C conference (Toronto 2002) where earlier versions of the paper have benefited from constructive suggestions. The authors assume the sole responsibility for any errors remaining in this version.     

Sunspot cycles

Summary. This paper shows new properties about the equilibria of a stationary OG economy by establishing a connection between its stationary equilibria and those of a finite economy, with and without extrinsic uncertainty. Specifically, it shows the countability and local uniqueness with respect to the sup metric of the so-called sunspot cycles introduced here, that encompass both the deterministic cycles and the usual finite Markovian stationary sunspot equilibria. These sunspot cycles are, moreover, able to generate, at a lower cost in terms of assumptions than other sunspot equilibria, time series with the recurrent but irregular fluctuations typical of economic time series. Received: July 26, 2001; revised version: March 5, 2002 RID="*" ID="*" I want to thank an anonymous referee for comments that have helped greatly to improve this paper, as well as the comments about its contents received from several audiences in different seminars and conferences (the Economic Theory seminar of the University of Pennsylvania, the 2001 Meeting of the Econometric Society held at New Orleans, the 2000 Econometric Society World Congress, the 2000 Society for Economic Design Conference) and from comments to a previous paper, Dávila [10], specially from Jim Peck at the 1997 Workshop on General Equilibrium held at the University of Venice, that eventually lead to this one.     

Reviews

Book reviewed in this article:
Contemporary Issues in Australian Economics, edited by Michael R. Johnson, Peter Kriesler and Anthony D. Owens
The Economic Dynamics of Australian Industry, edited by Clive Hamilton
Risk Management in Financial Institutions, edited by Kevin Davis and Ian Harper
Australian Macroeconomic Policy in a Changing World Environment, by Victor Argy
Macroeconomics in the Global Economy, by Jeffrey Sachs and Felipe Larrain
Rational Expectations Macroeconomics: An Introductory Handbook, by Patrick Minford
The Theory of Choice: A Critical Guide by Shaun Hargreaves Heap, Martin Hollis, Bruce Lyons, Robert Sugden and Albert Weale
Industrial Efficiency in Six Nations, by R. Caves and Associates
International Public Finance by Ruben P. Mendez
The Economic Theory of Agrarian Institutions, edited by P. Bardhan (ed.)
Modelling Seasonality, edited by Svend Hylleberg     

Why is there money? Endogenous derivation of `money' as the most liquid asset: a class of examples

Summary. The monetary character of trade, use of a common medium of exchange, is shown to be an outcome of an economic general equilibrium. Monetary structure can be derived from price theory in a modified Arrow-Debreu model. Two constructs are added: transaction costs and market segmentation in trading posts (with a separate budget constraint at each transaction). Commodity money arises endogenously as the most liquid (lowest transaction cost) asset. Government-issued fiat money has a positive equilibrium value from its acceptability for tax payments. Scale economies in transaction cost account for uniqueness of the (fiat or commodity) money in equilibrium. Received: February 15, 2002; revised version: August 12, 2002 RID="*" ID="*" This paper has benefited from seminars and colleagues' helpful remarks at the University of California - Santa Barbara, University of California - San Diego, NSF-NBER Conference on General Equilibrium Theory at Purdue University, Society for the Advancement of Behavioral Economics at San Diego State University, Econometric Society at the University of Wisconsin - Madison, SITE at Stanford University-2001, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Minneapolis, Midwest Economic Theory Conference at the University of Illinois - Urbana Champaign, University of Iowa, Southern California Economic Theory Conference at UC - Santa Barbara, Midwest Macroeconomics Conference at University of Iowa, University of California - Berkeley, European Workshop on General Equilibrium Theory at University of Paris I, Society for Economic Dynamics at San Jose Costa Rica, World Congress of the Econometric Society at University of Washington, Cowles Foundation at Yale University. It is a pleasure to acknowledge comments of Henning Bohn, Harold Cole, James Hamilton, Mukul Majumdar, Harry Markowitz, Chris Phelan, Meenakshi Rajeev, Wendy Shaffer, Bruce Smith, and Max Stinchcombe.     

Thomas Jefferson on the repudiation of public debt

Thomas Jefferson's theory of public debt repudiation illustrates both the normative and positive aspects of public debt repudiation. Using Jefferson's model, this paper attempts to reveal several characteristics of public debt repudiation. First, that the positive characteristics of repudiation can not be analyzed apart from the normative and institutional issues. Second, how a debt repudiation rule might be incorporated into a country's constitution and, finally, how such a rule may lead to an improvement of the country's credit terms over those that would exist otherwise. In other words, a country may be better off announcing its standards for repudiation then if it denied any intention to repudiate under any conditions. A related issue, which is beyond the scope of this paper, is the sufficient conditions for repudiation. Jefferson's model develops only the necessary conditions. I would like to thank J. Richard Aronson, Wayne Brough, Dean Crawshare, James Dearden, Kenneth Greene, Vince Munley, the anonymous referees, and seminar participants at the 1990 Public Choice Society meetings and at Lehigh University for helpful comments and suggestions. Of course, the author is responsible for any errors. The author is grateful to The Martindale Center for the Study of Private Enterprise which supplied research support.     

Comments on : ‘The decline and rise of political economy’, by Bruce Yandle

The first part of the argument is a reformulation of Yandle's problem and a sketch of the current apologetics of Public Choice Theory and its pitfalls. In the second part it is argued that Yandle's thesis on the connection between the social value of political economy and the size of the state displays identical flaws. An improved specification is needed to save this challenging thesis.     

Reviews

Book reviewed in this article:
The New Zealand Macroeconomy: A Briefing On The Reforms , edited by P. Dalziel and R. Lattimore
The Korean Economy , by Hyung-Koo Lee
The Political Economy of Public Administration: Institutional Choice in the Public Sector , by Murray J. Horn
Firms, Markets and Economic Change: A Dynamic Theory of Business Institutions , by Richard Langlois and Paul Robertson
Evaluating Policy Advice: Learning from Commonwealth Experience , edited by John Uhr and Keith Mackay
Methods of Macroeconomic Dynamics , by Stephen J. Tumovsky
Foundations of International Macroeconomics , by Maurice Obstfeld and Kenneth Rogoff
Advanced Macroeconomics , by David Romer
Handbook of Development Economics: Volumes 3A and 3B , edited by Jere Behrman and T.N. Srinivasan
Unlocking the Infrastructure, The Reform of Public Utilities in Australia , by Stephen King and Rodney Maddock
Privatization, Deregulation and the Macroeconomy , by Peter A.G. van Bergeijk and Robert C.G. Haffner     

Remarks on the first welfare theorem with nonordered preferences

A strong convexity assumption is used to establish the first fundamental theorem of welfare economics using the strong definition of Pareto optimality without assuming that the weak preference relations are complete or transitive. An example demonstrates that Debreu's (Proc. Nat. Acad. Sci., 40 (1954), 588–592) nonsatiation and convexity assumptions are insufficient to establish the result in the absence of transitivity.     

Exploiting moral wiggle room: experiments demonstrating an illusory preference for fairness

This paper explores whether generosity in experiments is truly evidence of concern for desirable social outcomes. We conduct an experiment using a binary version of the dictator game. We introduce several treatments in which subjects are able to leave the relationship between their actions and resulting outcomes uncertain, either to themselves or to another subject influenced by those actions, thus giving subjects the moral “wiggle room” to behave self-interestedly. We find significantly less generous behavior in these manipulations, relative to a baseline in which the relationship between actions and outcomes is transparent. We conclude that many subjects behave fairly in the baseline case mainly because they intrinsically dislike appearing unfair, either to themselves or others. We thank Cristina Bicchieri; Iris Bohnet; Colin Camerer; Robyn Dawes; Ernst Fehr; George Loewenstein; John Patty; Charlie Plott; Matthew Rabin; seminar participants at Carnegie Mellon, Berkeley, Cornell, Emory, and Princeton; participants at the 2003 Public Choice, 2003 ESA, 2003 SJDM, and 2004 BDRM meetings; and anonymous referees for helpful comments and suggestions. We greatly appreciate the access to resources at the Pittsburgh Experimental Economics Laboratory (PEEL) at the University of Pittsburgh. This research was funded by a Carnegie Mellon Berkman Faculty Development Grant to Weber and a Russell Sage Behavioral Economics Small Grant to Dana.     

Book Review

Book reviewed:
James M. Buchanan and Richard A. Musgrave, Public Finance and Public Choice: Two Contrasting Visions of the State     

Weak axiomatic demand theory

This paper identifies a class of complete but not necessarily transitive preferences which generate demand functions that obey the weak axiom of revealed preference and within which any function obeying the weak axiom can be rationalized.     

Preference revelation with a limited number of indifference classes

Suppose that g is a strategy-proof social choice rule on the domain of all profiles of complete and transitive binary relations that have exactly m indifference classes. If and the range of g has three or more members, then g is dictatorial. If m = 2, then for any set X of feasible alternatives, there exist non-dictatorial and strategy-proof rules that are sensitive to the preferences of every individual and which have X as range.     

Reviews

Book reviewed in this article: Government and Capitalism: Public and Private Choice in Twentieth Century Australia, by N. G. Butlin, A. Barnard and J. J. Pincus Essays in Trespassing: Economics to Politics and Beyond, by Albert O. Hirschman Non- Traded and Intermediate Good a and the Pure Theory of International Trade, by Bharat R. Hazari, Pasquale M. Sgro and Dong C. Suh Why has Japan “succeeded”? Western Technology and the Japanese Ethos, by Michio Morishima Quarry Australia? Social and Environmental Perspectives on Managing the Nation's Resources, edited by R. Birrcll, D. Hill and J. Stanley The Economist as Preacher, by G. J. Stigler The Economics of Feasible Smialirm, by A. Nove     

Fuzzy measurement of income inequality: Some possibility results on the fuzzification of the lorenz ordering

Summary This paper starts from the premise that the concept of income inequality is ill-defined, and hence, it studies the measurement of income inequality from a fuzzy set theoretical point of view. It is argued that the standard (fuzzy) transitivity concepts are not compatible with fuzzy inequality orderings which respect Lorenz ordering. For instance, we show that there does not exist a max-min transitive fuzzy relation on a given income distribution space which ranks distributions unambiguously according to the Lorenz criterion whenever they can actually be ranked by it. Weakening the imposed transitivity concept, it is possible to escape from the noted impossibility theorems. We introduce some alternative transitivity concepts for fuzzy relations, and subsequently, construct a class of fuzzy orderings which preserve Lorenz ordering and satisfy these alternative transitivities. It is also shown that fuzzy measurement can be used to construct confidence intervals for the crisp conclusions of inequality indices.I wish to thank Ashish Banerjee, Kaushik Basu, Larry Blume, Gary Fields, Semih Koray, Tapan Mitra, Antony Shorrocks, Sinan Unur and two anonymous referees of this journal for insighthul comments and suggestions. I am also grateful to the participants of the 1993 Midwest Mathematical Economics Conference held in University of Wisconsin at Madison and the 2nd International Meeting of the Society for Social Choice and Welfare held in University of Rochester.     

Repeated moral hazard with persistence

Summary. This paper considers the optimal contract when the current (hidden) action of an agent has a persistent effect on the future outcome. The optimal contract in a two-effort choice, two-period setting is characterized analytically and numerically. In particular, we show that persistence tends to make compensation less responsive to the first-period outcome. At the extreme, there are cases where the agent is perfectly insured against the first-period outcome: the agent obtains the same utility regardless of the first-period outcome. The model is extended to three periods. We also present a computational method to characterize an N-period model with two-period persistence.Received: 9 December 2003, Revised: 13 February 2004, JEL Classification Numbers: D82, J31, J65. Correspondence to: Ayegül ahinWe are grateful to an anonymous referee, Jack Barron, Mark Bils, Hugo Hopenhayn, Per Krusell, Lance Lochner, Steve Williamson, and seminar participants at Concordia University, Purdue University, the applied theory meetings at University of Rochester, the Conference of the Society for the Advancement of Economic Theory 2003, the Rochester Wegmans Conference 2002, and the Society for Economic Dynamics Meetings 2003 for their comments and suggestions. We also wish to thank Vera Brencic, Nancy Marmon, and Roxanne Stanoprud for excellent research assistance.     

Reviews

Book reviewed in this article:
Government Management: Brief to the Incoming Government 1987, Volume II, Education Issues , New Zealand Treasury
Adaptation and Survival in Australian Agriculture , by PJ. Higgs
Land Degradation: Problems and Policies , edited by A. Chisholm and R. Dumsday
Selected Essays On Economic Planning , by M Kalecki, edited, translated and introduced by Jan Toporowski
Classical Economics , by Samuel Hollander
Production Distribution and Value: A Marxian Approach , by R. Dixon
Interest and Profit in the Theories of Value and Distribution , by Carlo Panico
No Paradise for Workers: Capitalism and the Common People in Australia 1788–1914 , by K. Buckley and T. Wheelwright
Economic Growth for Australia; Agenda for Action by PJ. Drake and J.P. Nicuwenhuysen
Domestic and International Banking , by M.K. Lewis and K.T. Davis
The Political Economy of International Monetary Interdependence , by K. Hamada
Rent Control , by R. Albon and D.C. Stafford
The Theory of Public Utility Pricing , by S.J. Brown and D.S. Sibley
Public Choice, Public Finance and the Public Policy , by D. Greenaway and G.K. Shaw
Refereed and Nonrefereed Economic Journals: A Guide to Publishing Opportunities , compiled by A. Carolyn Miller, and Victoria J. Punsalan with Kenneth G. Rohm