Migration in search of good government

Residents both enjoy the policies adopted in their cities, and choose those policies. If some people can better evaluate policies than can others, then the most perceptive people will be the most willing to move to the city with better policies, thereby making that city more likely to adopt good policies in the future. Such migration can cause agglomeration, with some cities prospering and others failing.     

How an ineffective agent can increase his budget

A principal aware that an agent exerts little effort will nevertheless fund the agent, because the principal values the output the agent produces. The agent in turn decides how hard to work by anticipating how his behavior affects the budget the principal will give him. Under some conditions, the principal gives the agent large budgets anticipating that the agent will not work hard. The corrupt environment aggravates the problem. An agent who can set the budget ameliorates the problem, though incompletely.     

Inducing political action by workers

A firm aiming to influence a governmental policy may benefit from political action by its stakeholders, such as workers. This article studies the behavior of such a firm, showing that workers will have a greater incentive to engage in costly political activity against the governmental policy the greater their number and the higher the wage. The firm may, therefore, profit from paying above‐market wages and from hiring what might appear to be an inefficiently large number of workers. And because unions may overcome free‐rider problems of uncoordinated political effort, a firm may favor unionization, or be less opposed to unionization than it would otherwise be. The results of this article can also explain why firms may little reduce wages in a recession, and why the higher wages paid by unionized firms do not reduce survival rates of these firms.     

Preference heterogeneity, wage inequality, and trade

We consider individuals who value product variety, and who can be skilled or unskilled as workers. Skilled people prefer to consume skill-intensive goods. We show that under plausible conditions an increase in the relative size of the skilled population increases the relative wage of skilled workers, thereby increasing wage inequality. In our two-country model of trade, an increase in the relative supply of skilled labor in either country increases the relative wage of skilled workers, and hence increases inequality in both countries.     

Subsidizing Enjoyable Education

College education is not only an investment; for many people it also generates consumption benefits. If these benefits are normal goods, then the rich attend college at higher rates than the poor. Furthermore, the marginal poor student is smarter than the marginal rich student. Colleges aiming to attract smart students may therefore charge lower tuition to poorer students, even when the colleges lack market power. Moreover, when the social return to education exceeds the private return, allocative efficiency requires government grants to students to be means-tested.     

Commitment problems justify subsidies for medical insurance

Consumers who believe that government will provide them with some public medical care, even if they did not purchase medical insurance, may choose to purchase no such insurance. The amount of medical care consumed will then be less than the first-best optimum. Under specified conditions government can then increase the welfare of consumers by subsidizing insurance, or by providing public health care at a more generous level than the minimum it would otherwise give.     

Strategic Investment by a Regulated Firm

A government's choice of regulatory stringency can depend on investments that a firm made in earlier periods. The regulated firm may therefore invest strategically, to effect the government's choice of regulation. To reduce its payment of emissions taxes, the firm may therefore reduce emissions below their socially optimal level. In contrast, a firm subject to regulation by quantity wants to reduce the stringency of regulations. A firm which invests little thereby reduces the marginal social cost of reducing emissions, and so can induce government to weaken its regulations.     

Informational Benefits of International Treaties

International treaties allow a minister in one country to learn about the beliefs held by a minister in another country, so allowing each to make better decisions. When the net benefits of environmental policy are uncertain, a country which participates in negotiating an environmental treaty, or which supports strong environmental action, thereby provides information to another country that such action can be worthwhile. This dimension of international environmental agreements helps explain why countries negotiate treaties, why these treaties often implement the Nash non-cooperative equilibrium, why agreement to a treaty by a country deemed not particularly favorable to it can strengthen environmental action, and why treaties may invoke a minimum participation clause. The informational mechanism we discuss holds even if physical spillovers are absent, and even if monitoring and enforcement are infeasible. Our approach can explain additional phenomena: how requirements for approval by several bodies within a country can increase support for a policy, and why simultaneous action can lead to better outcomes than sequential action.