The New Accountability? Devolution and Expenditure Politics in Scotland

Devolution is seen to be a means for enhancing democratic control and accountability in the British political system (Scottish Office, 1997). Proponents of such change have presented it as offering the prospect of a more consensual, transparent and inclusive form of governance, in effect a 'new politics', with less executive dominance than at Westminster. This would be delivered in part by proportional representation, by strengthening the role of the legislature, and by adopting a more consultative approach to decision-making (Scottish Constitutional Convention, 1995). This article focuses on expenditure politics in the budget and audit processes of the Scottish Parliament.     

Variable Specific Factors and the “X-Efficiency Cost” of Protection *

This paper analyzes the effects of protection on X-efficiency using a general equilibrium Ricardo-Viner model with variable sector-specific effort. As in earlier models, it is found that protection only reduces effort if the income effect is sufficiently strong. It is also shown that, provided the correct compensated import demand curve is used, all welfare effects attributable to changes in effort are captured in the standard “triangle” measure of deadweight loss. Moreover, any protection-induced fall in effort will reduce the overall cost of protection, suggesting that policy-induced “X-inefficiency” may be beneficial.     

The dark side of financial innovation: A case study of the pricing of a retail financial product

The offering prices of 64 issues of a popular retail structured equity product were, on average, almost 8% greater than estimates of the products' fair market values obtained using option pricing methods. Under reasonable assumptions about the underlying stocks' expected returns, the mean expected return estimate on the structured products is slightly below zero. The products do not provide tax, liquidity, or other benefits, and it is difficult to rationalize their purchase by informed rational investors. Our findings are, however, consistent with the recent hypothesis that issuing firms might shroud some aspects of innovative securities or introduce complexity to exploit uninformed investors.     

Audit Reports in Australia during the Global Financial Crisis

The Global Financial Crisis reduced economic growth, impacted equity and credit markets, and increased business risk. To the extent that this increased risk translates into greater uncertainty of companies’ ability to continue as going concerns, this should be reflected in audit reports. This paper investigates how the crisis impacted auditor reporting in Australia by examining the period 2005–2009. It finds that the main reason for audit report modification is going concern and that modification rates increased from 12% in 2005–2007 to 18% in 2008 and 22% in 2009. Serious audit report qualification rates remain around 3%.     

Whither Monetary Economics?

I argue that monetary economics should be pursued by applying implementation theory to models which contain explicit frictions that make money essential. The argument has two parts. First, I argue that models in which real balances are assumed to be productive—models with money in utility or production functions or with cash-in-advance constraints—contain hidden inconsistencies. Second, I argue that the approach advocated is capable of providing new insights about some of the main issues in monetary economics: the effects of monetary shocks, the welfare cost of inflation, and the roles of inside and outside money.     

High-Involvement Management and Pay in Britain

High‐involvement management practices have well‐established benefits for employers, but what do they do for employees? Using a nationally‐representative survey of British private‐sector workplaces, high‐involvement management is shown to be associated with higher pay. The wage premium is little affected by the choice of employee involvement practices (e.g., teams versus quality circles), but it appears only where employee involvement practices are supported by job security guarantees. Powerful trade unions increase the premium.     

The Effects of Trade Liberalization On Cost-Reducing Horizontal Mergers*

This paper analyzes the effects of tariff reductions on horizontal mergers in a Cournot oligopoly in a two-country world. It is shown that for mergers between two domestic firms and for cross-border mergers which supply both markets from a foreign plant, unilateral tariff reduction encourages mergers which concentrate market power at the expense of mergers which reduce cost, while bilateral tariff reductions have the opposite effect, encouraging mergers which significantly reduce cost. Cross-border mergers which continue to supply each market from a local plant are discouraged by both unilateral and bilateral tariff reduction.     

EUROPE AND CHINA: THE FATAL CONCEIT1

China's recent economic growth has been driven by an apparent acceptance by the Chinese government of many of the key insights of Hayek's economic and social thought. Current Chinese economic policies stand in stark contrast to those being pursued by the EU and many European countries, where interventionist policies of the kind Hayek predicted would lead to relative impoverishment and declining freedom are being pursued. The long‐term consequence of these two trends is likely to be the economic dominance of China over Europe in the present century.     

Deposit Insurance,Banking Reform,and Financial Sector Development in Several Nations of Southeastern Europe

Deposit insurance has spread to many sections of the world. In the newly formed nations of the former Yugoslavia, this has occurred under conditions of post‐conflict reconstruction, hyperinflation, and several different governmental structures. Three cases are examined; Bosnia and Herzegovina, Croatia, and Serbia and Montenegro. They all have developed deposit insurance programs. The implementation process was compared to “best practice” recommendations. It is found that the situation in Bosnia and Herzegovina was difficult due to the fractured nature of the Dayton Accord government structure on the one hand but easier to the strong international presence supporting required actions. In the case of Croatia, a unified state emerged from the war, but it was somewhat isolated. Its bank restructuring was costly, and a fragmented deposit insurance program was introduced in the middle of a banking crisis. In the case of Serbia and Montenegro, the bank restructuring process is still underway, and implementation of a functioning deposit insurance program properly awaits its completion.