Supply‐ versus Demand‐Side Policies in the Presence of Carbon Leakage and the Green Paradox

We consider a climate coalition that seeks to reduce global emissions in the presence of carbon leakage and resource exhaustibility. We show that a credible announcement of future unilateral supply‐side policies delays foreign emissions, and we derive the optimal combination of consumer taxes and producer taxes when we consider leakages from free riders, both within periods and across periods. The tax shares generally differ over time. A decline in the present value of the social cost of carbon over time supports a time path where the consumers’ tax share of the total carbon tax also declines over time. We illustrate our findings with a numerical model.     

Distinction or dichotomy: Rethinking the line between thymology and praxeology

The aim of this paper is to critically reexamine Ludwig Mises’ attempt to separate the psychological aspects of understanding (thymology) from the “science of action” (praxeology). There are, we contend, legitimate distinctions between theory, on the one hand, and, on the other, psychology or history. But, there is no need to dichotomize them from one another in the way Mises sometimes did.     

Fighting against the odds

The fight for power is not only over immediate rents, but also over advantageous positions in future power struggles. When incumbency yields an extra fighting edge, current struggles involve high stakes as a victory today may guarantee the victory also tomorrow. Such an incumbency edge may stem from the control of the army, the police and other instruments reserved for the government. The conclusions drawn from static conflict models are turned on their head when the fight is also over the incumbency edge. A sharper incumbency edge increases the implicit prizes of winning. The fighting intensity may therefore rise when the strength of each side becomes more unequal. Unbalanced fights can last long and become particularly severe. This is in contrast to the standard result that equal strengths give the most intense fighting. Received: June 2004, Accepted: December 2004, We want to thank the editor and a referee.     

Complexity, Governance and Constitutional Craftsmanship

Economic policy is commonly treated as a vehicle for selecting among possible allocative outcomes within an economy. An economy, however, is a complex network of relationships whose patterns can be understood but whose details can be neither predicted nor controlled. Because of this complexity, allocative outcomes are not direct objects of choice. They are simply emergent consequences of human interaction that takes place within some framework of governing rules and conventions. All economic policy can do is modify some of the rules that govern this interaction. Economic policy is thus constitutive and not allocative in character, being centrally involved in shaping the character of the regime that governs our relationships with each other.     

Predator or prey?: Parasitic enterprises in economic development

In many developing and transition economies Mafia-like activities are rampant. Extortion and other forms of predation lower profitability in private businesses and distort investment incentives. Incorporated in a model of industrialization, bimodal club convergence may result. Economies may get stuck in a Predators’ Club characterized by a vicious cycle of poverty and predation. Societies with a low flow of new entrepreneurs are especially vulnerable to predation and never get out of this club. Poor societies with a high flow of new entrepreneurs, however, may grow out of the trap and join the rich Producers’ Club.     

Should I Stay or Should I Go? On Relative Deprivation and Migration Dynamics

An overlapping-generations model for rural to urban labor migration is developed. In the migration decision the potential migrants consider both the absolute income gain and the relative deprivation associated with moving to town. It is shown that the relative deprivation mechanism introduces a positive externality between generations of migrants that can generate dual equilibria.     

Cursed by Resources or Institutions?

Natural resource‐abundant countries constitute both growth losers and growth winners, and the main difference between the success cases and the cases of failure lies in the quality of institutions. With grabber‐friendly institutions more natural resources push aggregate income down, while with producer‐friendly institutions more natural resources increase income. Such a theory finds strong support in data. A key question we also discuss is if resources in addition alter the quality of institutions. When that is the case, countries with bad institutions suffer a double resource curse – as the deterioration of institutions strengthens the negative effect of more natural resources.     

Poverty and crime in 19th century Germany

We estimate the impact of poverty on crime in 19th century Bavaria, Germany. Rainfall is used as an instrumental variable for grain (rye) prices to address econometric identification problems in the existing literature. The rye price was a major determinant of living standards during this period. The rye price has a positive effect on property crime: a one standard deviation increased property crime by 8%. OLS estimates are twice as large as instrumental variable estimates, highlighting the value of our empirical approach. Higher rye prices lead to significantly less violent crime, though, and we argue that higher beer prices, caused by the higher rye prices, are a likely explanation.