Redistribution and fairness: a note

The introduction of (inequity adverse) fair agents in a simple redistributive voting game reduces the political relevance of the middle class and increases the equilibrium level of redistribution. Interestingly, some of the predictions in Meltzer and Richard [J. Polit. Econ. 89 (1981) 914–927] are affected: a rise in the income inequality between poor and middle class may not decrease redistribution, because of the additional support for redistribution provided by the fair agents.     

Beware of ‘Good’ Outliers and Overoptimistic Conclusions*

The main goal of this paper is to warn practitioners of the danger of neglecting outliers in regression analysis, in particular, good leverage points (i.e. points lying close to the regression hyperplane but outlying in the x‐dimension). While the types of outliers which do influence regression estimates (vertical outliers and bad leverage points) have been extensively investigated, good leverage points have been largely ignored, probably because they do not affect the estimated regression parameters. However, their effect on inference is far from negligible. We propose a step‐by‐step procedure to identify and treat all types of outliers. The paper of Persson and Tabellini [American Economic Review (2004) Vol. 94, pp. 25–46] linking the degree of proportionality of an electoral system to the size of government is discussed to illustrate how the choice of a measure and the existence of atypical observations may substantially influence results.     

Capital mobility and international sharing of cyclical risk

This paper investigates whether the international globalization of financial markets allows for significant cross-country risk-sharing at the business cycle frequency. We find that cross-country risk-sharing is still limited and this is unlikely to be the result of financial frictions that limit state-contingent contracts. Part of the limited international risk sharing could be the consequence of frictions that de-facto reduce the short-term mobility of financial capital. But even with these frictions we find significant divergence between model predictions and the data.     

Constitutional “Rules” and Intergenerational Fiscal Policy

This paper analyzes the impact of alternative political institutions on sustainable fiscal policies. We study the choice of intergenerational transfers as outcomes of an infinite social security game among successive selfish median voters. Majoritarian systems accord the current median voter maximum fiscal discretion but no direct influence over future policy. This political arrangement sustains, among others, dynamically inefficient transfers and volatile, non-stationary sequences. Constitutional rules award to the minorities veto power over fiscal policy changes proposed by the majority. This unanimity provision is equivalent to partial precommitment. Under constitutional rules, sustainable fiscal policies feature Pareto efficient, non decreasing transfer sequences.     

Monetary policy and the financial decisions of firms

Summary. In this paper we develop a general equilibrium model with heterogeneous, long-lived firms where financial factors play an important role in their production and investment decisions. When the economy is hit by monetary shocks, the response of small and large firms differs substantially, with small firms responding more than big firms. As a result of the financial decisions of firms, monetary shocks have a persistent impact on output. Another finding of the paper is that monetary shocks lead to considerable volatility in stock market returns.Received: 20 November 2003, Revised: 26 August 2004 JEL Classification Numbers: E5, G3.T.F. Cooley, V. Quadrini: We have received helpful comments on earlier versions of this paper from Jeff Campbell, David Chapman, Thomas Cosimano, Joao Gomes, Boyan Jovanovic, José-Víctor Ríos-Rull, and Harald Uhlig. Correspondence to: V. Quadrini     

Entrepreneurship in macroeconomics

This paper reviews the main studies on entrepreneurship conducted during the past two decades that are relevant for the understanding of various macroeconomic issues. I organize the discussion by distinguishing three groups of contributions. The first group includes studies whose main purpose is to understand the factors that affect the decision to become an entrepreneur. The second group includes studies that look at the aggregate and distributional implications of entrepreneurship for savings and investment. The third group deals with issues of economic development and growth.     

Independence of irrelevant alternatives and consistency of choice

Summary. We show that Arrow's condition of independence of irrelevant alternatives is logically related to conditions of consistency of choice (in particular, to Arrow's choice axiom). The relation, however, is indirect. The link is provided by an independence condition due to Hansson (Synthese, 1969) which applies to fixed agenda social choice rules.