Relaxing benevolence: public choice, socialist calculation, and planner self-interest

The Austrian calculation argument suggests that inability to engage in economic calculation worsened outcomes in socialist states. We suggest that this is hardly the case. When Austrian assumptions of benevolence are relaxed, inability to engage in economic calculation prevents the non-benevolent planner from fully extracting all available surplus from the citizenry. Consequently, when planners are non-benevolent, calculation ceases to be a relevant argument against the desirability of central planning; its normative force reverses absent benevolent planners. JEL Code P0, P16, P50     

The Marglin-McFadden-Mishan debate on public investment criteria: Some Clarifications

This paper reviews the post 1963 debate on public investment criteria stemming largely from Marglin's work. At issue here, are the two main propositions of Marglin, namely, that the social marginal rate of time preference is the appropriate social rate of discount (SRD) for public projects, and that the social opportunity cost (SOC) of capital raised to facilitate public investment is, in general, in excess of the money cost of such investment. Both supported and challenged by different writers, this debate does not provide any clear consensus as to the current status of these propositions. The central purpose of this paper is to put the series of apparent claims and counterclaims found in the literature to an analytical test, and draw the appropriate conclusions. This we do by explicitly considering the technology, fiscal policy and savings reinvestment behavior in a simple model of maximizing the present discounted value of the marginal net consumption stream generated by the public project. We argue that given Marglin's assumptions, the criterion that the marginal social rate of time preference be the SRD is valid as has already been demonstrated by Diamond (1968) and McFadden (1972). His other conclusion that the SOC should generally exceed unit v is seen to be correct only in special cases.     

Civil wars beyond their borders: The human capital and health consequences of hosting refugees

In early 1994, Kagera - a region in northwestern Tanzania - was flooded by more than 500,000 refugees fleeing from the genocides of Burundi and Rwanda. I use this population shock and a series of topographic barriers that resulted in variation in refugee intensity to investigate the short- and long-run causal effects of hosting refugees on outcomes of local children. This strategy provides evidence of adverse impacts over one year after the shock: a worsening of children's anthropometrics (0.3 standard deviations), an increase in the incidence of infectious diseases (15-20 percentage points) and an increase in mortality for children under five (7 percentage points). I also find that intra- and inter-cohort variation in childhood exposure to the refugee crisis reduced height in early adulthood by 1.8 cm (1.2%), schooling by 0.2 years (7.1%) and literacy by 7 percentage points (8.6%). Designs using the distance to the border with Rwanda as an alternative identification strategy for refugee intensity support the findings. The estimates are robust across different samples, specifications and estimation methods and provide evidence of a previously undocumented indirect effect of civil wars on the well-being of children and subsequent economic growth in refugee-hosting communities.     

Reopening the convergence debate: A new look at cross-country growth empirics

There are two sources of inconsistency in existing cross-country empirical work on growth: correlated individual effects and endogenous explanatory variables. We estimate a variety of cross-country growth regressions using a generalized method of moments estimator that eliminates both problems. In one application, we find that per capita incomes converge to their steady-state levels at a rate of approximately 10 percent per year. This result stands in sharp contrast to the current consensus, which places the convergence rate at 2 percent. We discuss the theoretical implications of this finding. In another application, we perform a test of the Solow model. Again, contrary to prior reults, we reject both the standard and the augmented version of the model.     

The modern welfare state: Problems and suggested reforms

This article examines some of the major market failures and government failures at work in the modern welfare state and investigates the political reasons for ignoring these failures in formulating welfare state policy. Next, the article examines some recent economic developments that endanger the welfare state: the expansion of international trade, skill-biased technological change, and the restructuring of firms. Finally, it suggests some policy approaches that may help make the welfare state more efficient and equitable.     

The effect of the war risk: a comparison of the consequences of the two Iraq wars

This paper measures the effect of the two Iraq wars on some Italian and US financial variables using the heteroskedasticity-based estimation technique (Rigobon and Sack, NBER WP No. 9640, 2003). Our results show that it is not possible to trace a general pattern in the behaviour of the international markets following a period of political and economic instability such as a war. The risk of war caused significant effects on financial markets in 2003; no effect appeared in 1990. The results underline a similar response between the different countries we analyse. Both Italian and American markets reacted in a similar way to both wars.     

Investment allocation and urbanization in socialist economic development: The case of Czechoslovakia of

This paper tests two hypotheses about economic ;fficiency of development strategies of socialist countries. The first is that they overinvest in industry and that increased investment in agriculture would increase the output growth rate. The second is that efforts to limit urbanization have enabled these countries to grow more rapidly by minimizing the need for urban-infrastructure investments. The hypotheses are tested by means of counterfactual simulations performed with an econometric model of Czechoslovakia. We find that growth would have been faster only in the long run, had more investment been directed to agriculture. Urbanization policies appeared only to control inflationary pressures.