A political economy model of road pricing

In this paper, we use a simple majority voting model to study the introduction of urban congestion tolls. The model allows for different types of uncertainty and considers different uses of the toll revenues. The following results are obtained. First, we show that individual uncertainty with respect to modal substitution costs may imply that a majority votes against road pricing ex ante, although a majority would have been in favor after its introduction ex post. Moreover, if a majority is against road pricing ex ante, there will also be no majority for organizing an experiment that would take away the individual uncertainty. Second, political uncertainty with respect to the use of the revenues corroborates the finding that ex ante more voters will be against the introduction of tolls. Third, both types of uncertainty suggest that fewer voters are against road pricing when toll revenues are used to subsidize public transport than when they are redistributed to all voters. Importantly, the results of this paper are consistent with a number of recent empirical observations on efforts to introduce road pricing, including the systematic rejection of road pricing in referenda, the more favorable attitudes towards road pricing after than before its introduction, and tying the toll revenues to support public transport.     

Optimal selling mechanisms with countervailing positive externalities and an application to tradable retaliation in the WTO

We study revenue-maximizing mechanisms for a seller who sells an indivisible good to several buyers with positive, type-dependent and countervailing allocative externalities. To cope with the difficulty of types obtaining reservation utilities being endogenously determined, we first solve a minimax version of the seller’s problem by generalizing Myerson’s characterization techniques for the non-regular case. The solution is then shown to solve the seller’s original maximin problem as well in our setting. We find that the seller’s optimal mechanism normally features bunching even in the regular case and the type with the lowest expected payoff is typically not an extreme type. As an important illustration of our characterization procedures, we apply our results to the problem of selling retaliation rights in the WTO.     

Public good provision and the Smith Process

An existing public good provision mechanism known as the Smith Process (SP) is extended to allow for non-zero fixed cost, non-constant marginal cost and imperfectly divisible output. Two versions of SP are considered: unrestricted (USP) and restricted with a unanimity rule (RSPU). USP implements efficient choice provided the gap between marginal and average cost is sufficiently low. RSPU relaxes the conditions for efficient implementation but increases the set of equilibria involving inefficient choice. Furthermore, if weakly dominated strategies are eliminated, then non-provision is no longer an equilibrium under RSPU but continues to be one under USP.     

All in the family: why non-democratic leaders have more children

Economists have come to learn that politics matters. But survival matters the most to those involved in politics. We provide a theory whereby non-benevolent, non-democratic leaders increase their expected family size to raise the likelihood that a child will be a match at continuing the regime’s survival. As a consequence, having a larger family size raises the non-democratic leader’s expected rents that they can exploit from the citizenry. In contrast, democratic leaders have a lower desire to appropriate rents from the citizenry, and therefore have a diminished desire to have additional children for these purposes. We construct a data set of the number of children of country leaders as of August 31, 2005. We find that in a sample of 221 country leaders, fully non-democratic leaders have approximately 1.5–2.5 more actual children as compared to if they are fully democratic. This empirical relationship is established controlling for a full array of country specific as well as individual specific variables. Our finding also continues to hold when using alternative measures of family size. This paper has been prepared for a conference honoring Herschel I. Grossman at Brown University in April of 2006. We thank our discussant, Murat Iyigun, an anonymous referee, Michelle Garfinkel and conference participants for excellent suggestions.     

The origin of spatial interaction

This paper uses spatial empirical methods to detect and analyze trade patterns in a historical data set on Chinese rice prices. Our results suggest that spatial features were important for the expansion of interregional trade. Geography dictates, first, over what distances trade was possible in different regions, because the costs of ship transport were considerably below those for land transport. Spatial features also influence the direction in which a trading network is expanding. Moreover, our analysis captures the impact of new trade routes both within and outside the trading areas.     

VOTING, INEQUALITY AND REDISTRIBUTION

Abstract.  This paper surveys models of voting on redistribution. Under reasonable assumptions, the baseline model produces an equilibrium with the extent of redistributive taxation chosen by the median income earner. If the median is poorer than average, redistribution is from rich to poor, and increasing inequality increases redistribution. However, under different assumptions about the economic environment, redistribution may not be simply rich to poor, and inequality need not increase redistribution. Several lines of argument are presented, in particular, political participation, public provision of private goods, public pensions, and tax avoidance or evasion.     

The productivity of transport infrastructure investment: A meta-analysis of empirical evidence

Investments in transport infrastructure have been widely used by decision makers to encourage economic growth, particularly during periods of economic downturn. There has been extensive research on the linkage between transport infrastructure and economic performance since the late 1980s, characterised by widely varying evidence. We conduct a meta-analysis of the empirical evidence on the output elasticity of transport infrastructure, based on a sample of 563 estimates obtained from 33 studies. Previous meta-analyses have focused on total public capital and hence cannot appropriately explain the wide variation in the productivity effect of transport infrastructure nor provide guidance to policymakers on the returns to investment in different types of transport infrastructure. Our results indicate that the existing estimates of the productivity effect of transport infrastructure can vary across main industry groups, tend to be higher for the US economy than for European countries, and are higher for roads compared to other modes of transport. The variation in the estimates of the output elasticity of transport is also explained by differences in the methods and data used in previous studies. Failing to control for unobserved heterogeneity and spurious associations tends to result in higher values, while failing to control for urbanisation and congestion levels leads to omitted variable bias. These findings can be used to inform future research on the choice of model specification and estimation and transport-related policy making.     

Fiscal centralization versus decentralization: Growth and welfare effects of spillovers, Leviathan taxation, and capital mobility

This paper develops an endogenous growth model with spillovers of public goods, Leviathan taxation, and mobile capital to examine the relative merits of centralized and decentralized fiscal systems for economic growth and social welfare. We show that a decentralized system dominates a centralized system in terms of economic growth; however, the difference in social welfare between a decentralized and a centralized system is non-monotonic and displays a hump-shaped relationship with respect to capital mobility. Since higher capital mobility induces stronger tax competition, this finding implies that there is an optimal degree of tax competition; some tax competition is desirable, but fierce tax competition may be harmful. We also show that there is a critical level of spillovers of public goods above which centralization dominates decentralization in terms of social welfare, as in previous studies; however, if spillovers are below this critical level, capital mobility also matters in the welfare comparison between centralized and decentralized systems.     

Natural and double implementation of public ownership solutions in differentiable production economies

This paper examines the implementation of two public ownership solutions in convex production economies with differentiable production functions. The two public ownership solutions we focus on are the proportional and equal benefit solutions. Two “natural” mechanisms which doubly implement the proportional and equal benefit solutions respectively in Nash and strong Nash equilibria are proposed without assuming free disposal. Received: 7 May 1996 / Accepted: 1 December 1998     

The Nature of Corruption Deterrence in a Competitive Media Sector

This paper compares the deterrence provided by a competitive media sector towards government induced corruption with that of a media monopoly in a setting where the media might raise both true as well as false allegations of corruption. It finds that competition’s impact on corruption deterrence is not necessarily better than a monopoly but rather hinges on a delicate balance between government’s kickback from corruption and the media’s potential benefit from exposure. While the paper does identify conditions in which a competitive media sector would improve upon the deterrence provided by a monopoly, it also find conditions under which it would do no better than a monopoly and in some situations its strategic response could be even worse especially when it intensifies effort towards justifying false allegations.     

A characterization of the existenceof optimal dominant strategy mechanisms

This paper provides two theorems which characterize the domains of valuation functions for which there exist Pareto efficient and truth dominant strategy mechanisms (balanced Groves mechanisms). Theorem 1 characterizes the existence of balanced Groves mechanisms for a general class of valuation functions. Theorem 2 provides new balance-permitting domains of valuation functions by reducing the problem of solving partial differential equations to the problem of solving a polynomial function. It shows that a balanced Groves mechanism exists if and only if each valuation function in the family under consideration can be obtained by solving a polynomial function with order less than , where n is the number of individuals. Received: 5 January 1997 / Accepted: 25 May 1999     

Common agency with risk-averse agent

In a common agency model with a risk-averse agent and private information distortion in the equilibrium policy from the first-best is greater compared to the case of a risk-neutral agent. The principals are unable to screen completely the agent’s preferences if he is sufficiently risk-averse: there is bunching in the contract. The contribution schedules keep track of informational externality. However, when the coefficient of risk-aversion goes to zero the contributions become truthful as in the complete information case.     

Recognizing one-dimensional Euclidean preference profiles

A preference profile has a one-dimensional Euclidean representation if it can be derived from an arrangement of individuals and alternatives on a line, with each individual preferring the nearer of each pair of alternatives. We provide a polynomial-time algorithm that determines whether a given preference profile has a one-dimensional Euclidean representation and, if so, constructs one. This result has electoral and mechanism design applications.     

Hoarding international reserves versus a Pigovian tax-cum-subsidy scheme: Reflections on the deleveraging crisis of 2008-2009, and a cost benefit analysis

We outline the case for supporting self-insurance by imposing a tax on external borrowing in a model of an emerging market. Entrepreneurs finance tangible investments via bank intermediation of foreign borrowing, exposing the economy to negative fire-sale externalities at times of deleveraging; a risk that increases with the ratio of aggregate external borrowing to international reserves. Price taking economic agents ignore their marginal impact on the expected cost of a deleveraging crisis. The optimal borrowing tax reduces the distorted activity, external borrowing, and induces borrowers to co-finance the precautionary hoarding of international reserves.