Political incentives for rent creation

Rent-seeking is often depicted as a contest in which rent-seekers compete for a prize—the rent. In the process of rent-seeking, much or perhaps all of the rent is dissipated through the costs the contestants incur to compete. Rent dissipation is inconsistent with the incentives of both the rent-seekers and those who create the rents. Policymakers have an incentive to create rents only if they gain from the process, and their gain comes from sharing any surplus that goes to those who obtain the rents. A surplus can be created through a barrier to entry into rent-seeking. When institutions that generate barriers to entry into rent-seeking break down, rent-seeking competitions can occur in which all rents are dissipated, but this should be a special case rather than the general rule in rent-seeking.     

Political economy, sectoral shocks, and border enforcement

In this paper, we examine the correlation between sectoral shocks and border enforcement in the United States, the U.S. government's main policy instrument for combating illegal immigration. We see whether border enforcement falls following positive shocks to sectors that are intensive in the use of undocumented labour, as would be consistent with political economy models of illegal immigration. We find that border enforcement is negatively correlated with lagged relative price changes in the apparel, fruits and vegetables, and livestock industries and with housing starts in western United States, suggesting that authorities relax border enforcement when demand forundocumented labour is high.
Economie politique, chocs sectoriels et vigilance aux frontières. Dans ce mémoire, les auteurs examinent la corrélation entre les chocs sectoriels et la vigilance aux frontières aux Etats-Unis. La vigilance aux frontières est le principal instrument de politique publique utilisé par le gouvernement américain pour combattre l'immigration illégale. On se demande si la vigilance aux frontières se relâche à la suite de chocs positifs dans des secteurs qui utilisent relativement plus de travailleurs illégaux, ainsi que le suggèrent les modèles d'économie politique de l'immigration illégale. Les principaux résultats indiquent que la vigilance aux frontières est co-reliée négativement (avec un délai) avec les changements de prix relatifs dans les secteurs du vêtement, des fruits et légumes, et du bétail, ainsi qu'avec le nombre de mises en chantier dans la construction domiciliaire dans l'ouest des Etats-Unis. Voilà qui suggère que les autorités relâchent la vigilance aux frontières quand la demande de travailleurs illégaux augmente.     

Political economy of taxation,debt ceilings,and growth

This study presents voting on policies, including labor and capital income taxes and public debt, in an overlapping-generations model with physical and human capital accumulation, and analyzes the effects of a debt ceiling on a government's policy formation and its impact on growth and welfare. The results show that the debt ceiling induces the government to shift the tax burdens from the older to younger generations, but stimulates physical capital accumulation and may increase public education expenditure, resulting in a higher growth rate. Alternatively, the debt ceiling is measured from the viewpoint of a benevolent planner and lowering the debt ceiling (i.e., tightening fiscal discipline) makes it possible for the government to approach the planner's allocation in an aging society.     

Political economy of taxation in an overlapping-generations economy

This paper analyzes the effects of intergenerational conflict on capital and labor income tax rates, transfers, and government spending in a model of multidimensional policy choice. The different nature of tax liabilities for the young and the old can explain why the old receive large gross lump-sum transfers through social security, while the young receive little or none. A natural link also emerges between the size of the government as a provider of public goods and the magnitude of transfers that the same government will implement.     

Political economy of climate change, ecological destruction and uneven development

The purpose of this paper is to analyze climate change and ecological destruction through the prism of the core general principles of political economy. The paper starts with the principle of historical specificity, and the various waves of climate change through successive cooler and warmer periods on planet Earth, including the most recent climate change escalation through the open circuit associated with the treadmill of production. Then we scrutinize the principle of contradiction associated with the disembedded economy, social costs, entropy and destructive creation. The principle of uneven development is then explored through core-periphery dynamics, ecologically unequal exchange, metabolic rift and asymmetric global (in)justice. The principles of circular and cumulative causation (CCC) and uncertainty are then related to climate change dynamics through non-linear transformations, complex interaction of dominant variables, and threshold effects. Climate change and ecological destruction are impacting on most areas, especially the periphery, earlier and more intensely than previously thought likely. A political economy approach to climate change is able to enrich the analysis of ecological economics and put many critical themes in a broad context.     

Political incentives and state subsidy allocation: Evidence from Hungarian municipalities

Using a comprehensive database on successful and rejected applications for the European Union's Structural and Cohesion Funds between 2004 and 2012 in Hungary, we study which grant types are susceptible to political favoritism and how this is achieved. With fixed-effects and matching estimators we study whether applicants from municipalities with a mayor endorsed by the governing coalition won a higher grant value than applicants where the mayor was affiliated with the opposition. We find limited evidence for such a difference for total grant value, but in cases when the applicant is a public entity or the purpose of the project is construction and, therefore, visible to voters and thus may bring about electoral benefits, we do find effects of 16–21%. The decomposition of the effect suggests that favoritism plays a role both in the application and the decision making process as applicants from aligned townships apply in larger numbers and have higher acceptance rates. When analyzing the effect of grants on votes, we show that voters indeed reward construction and public projects but not the other grant types.     

Political economy of virtue: civil economy,happiness and public trust in the thought of Antonio Genovesi

Abstract

Amid the growing literature in English on the work of the Neapolitan political economist Antonio Genovesi (1713–1769), this paper focuses on his conception of civil economy (economia civile) as a theory of government. By contrast with existing interpretations, the argument is that for Genovesi virtue is a significant ordering device of the polity: virtue mediates between passions and reason, and the human capacity for virtue helps individuals better to realise their different talents. This, in turn, means that virtue is central to the division of labour and the right proportions between different activities, including the balance between consumption and trade.     

Political economy of income distribution dynamics

Income distribution varies considerably across countries; it tends to become more equal with development in some countries, but just the opposite occurs in other countries. This paper provides a theoretical investigation of the persistent differences in income distribution across countries over time. Motivated by the relationship between income distribution and public spending at different school levels for a broad range of countries over the past 30 years, the analysis centers on the role of public education where specific investments interact with political involvement by different socio-economic groups. Socio-economic groups may form lobbies to influence education policy making. The formation of lobbies is endogenous. Persistent inequality is caused by persistent lobbying efforts of the wealthy that lead to an allocation of public education spending more biased toward them.     

Collectives,communes, and incentives

A model of individual-worker incentives in alternative economic organizations—collective, communal, capitalist—is developed. It is demonstrated that, ceteris paribus, incentives are much higher in collectives than in communes, and are likely higher in collectives than in comparable capitalist organizations. The effect on incentives of changes in prices, rent, and organization size is examined, and it is shown that individual incentives in a collective increase with the scale of the organization. The impact of various parameters on hours worked is examined in the framework of utility maximization. The results are compared to those of Domar, Ward, and Vanek.     

Planning for the Australian information economy

This study spotlights the inadequacy of the sectoral modeling used hitherto to analyse structural change in Australia. Although the multiplier and key-sector results demonstrate that contemporary Australia is predominantly an industrial economy, in the next decade the growth of the information intensiveness of economic activity or informatization will accelerate. A sectoral model clearly identifying the information sector is proposed to study the implications of the growing information intensiveness of the Australian economy. A methodology to identify the primary information economy or information commodities traded in the market is explained. The macroeconomic scenarios—income and price implications—of programming for various targets of information sector activities are analysed. Three plausible informatization targets are hypothesised: Luddite or zero growth; laissez-faire or continuing the status quo and sunrise or accelerated performance. The significance of Leontief accounting prices based on competitive equilibria and the shadow prices connoting opportunity costs of the linear programming dual are examined. Fiscal policies to subsidise positive externalities generated by informatization, in the fase of intractability of the Pigouvian ideal taxes are briefly reviewed. Finally, the need for anticipatory policy decisions in Australia to harness the full benefits of informatization is emphasised.     

Political economy of private firms in China

The sweeping change in political economy associated with the rapid growth of the private sector in China is rarely studied empirically in the economics literature. Using four cross-sectional surveys of private firms between 1995 and 2010, we examine the dynamics of rent creation from Party membership and other political connections when the regime changed from anti-capitalistic to pro-capitalistic during the period 2002–2004. We find that entrepreneurs with political connection enjoyed significantly more rents only after the constitutional amendments. This finding sheds lights on the nature of the political economy of today’s Chinese economy. Endogeneity/causality problems are addressed.     

Political freedom and the response to economic incentives: labor migration in Africa, 1972-1987

This study examines the thesis that political institutions and the freedoms and civil rights generated by these institutions affect migration decisions. The hypothesis is based on one stated by Adam Smith in 1776, that economic conditions that reflect greater political freedoms and civil liberties harbor higher levels of resource mobility in response to economic incentives. Pooled cross-sectional and time-series analysis is based on data from the World Bank for 32 African countries during 1972-87. Findings support the hypothesis that migration rate is more affected by the expected returns ratio to labor in countries where civil liberties are greater than in nations with fewer civil liberties. The implication, from the inclusion of institutional factors in the model, is that civil liberties have an indirect impact on the rate of labor migration out of agriculture in Africa. The impact is a mix of economic incentives and civil liberties. In the political rights model, the most free countries had the largest migration elasticity. The findings on political rights impacts support findings by Friedman and McMillan that civil liberties are a more important determinant of economic growth than political rights. Further testing for measurement error confirmed that the data were flawed, but not so greatly that the basic findings were overturned. The migration out of African agriculture was found to be sensitive to the effect of price signals, which were conditioned by the degree of political rights and civil liberties. Policy makers are urged to consider both changes in pricing and institutions.     

Money and storage in a differential information economy

Summary Is the use of fiat money essential in any efficient organization of exchange? We investigate this question in economies that are generalizations of the Townsend (1980) turnpike model that include limited commitment and differential information. We show that in the Townsend turnpike model fiat money is not essential unless there is limited commitment. Furthermore, fiat money has no role whenever there is storage with positive returns. In the presence of differential information fiat money is essential in overcoming incentive problems. This is the case even if there is storage with positive returns.We wish to thank Bart Taub, Anne Villamil and seminar participants at the University of Chicago, the Federal Reserve Bank of Minneapolis, Ohio State, the 1994 North American Summer Meeting of the Econometric Society, SEDC 1994, and Oberwolfach 1994.     

Perfect competition in asymmetric information economies: compatibility of efficiency and incentives

The idea of perfect competition for an economy with asymmetric information is formalized via an idiosyncratic signal process in which the private signals of almost every individual agent can influence only a negligible group of agents, and the individual agents’ relevant signals are essentially pairwise independent conditioned on the true states of nature. Thus, there is no incentive for an individual agent to manipulate her private information. The existence of incentive compatible, ex post Walrasian allocations is shown for such a perfectly competitive asymmetric information economy with or without “common values”. Consequently, the conflict between incentive compatibility and Pareto efficiency is resolved exactly, and its asymptotic version is derived for a sequence of large, but finite private information economies.     

Individual incentives by adjusting work hours: Bellamy's egalitarian economy

Edward Bellamy proposed an ideal egalitarian economy in which production is carried out as a nonprofit government service, income is shared equally by all individuals independently of work exertion, and relative work hours are used as incentives to allocate labor to different jobs. This economy is shown to possess an equilibrium consistent with full freedom of individual choice of occupation and consumption, to be achieved through a fully decentralized titonnement process. However, individuals have an obligation to work which deprives them of their freedom to choose between income and leisure, so that the scale of output is indeterminate and may be nonoptimal unless a social-welfare function is introduced.     

Gifts,bequests and family incentives

In this note, we use the theory of incentive contracting to characterize the pattern of financial transfers within the family. Using an altruistic model based on bounded rationality with one parent and two children, we show that the parent may provide a lower gift to the less well-off child, while bequests are always compensatory.     

Non-grant microfinance,incentives and efficiency

I show that charging interest on funds provided by donors or investors to microfinance institutions (MFIs) can increase efficiency, the total number of loans and borrower welfare, compared to grant or concessionary funding. In a setting in which MFIs supply costly non-contractible effort, putting a price or raising the price of loanable funds strengthens the MFIs’ incentives to put effort in credit administration or monitoring, to extend more loans, and/or reduce overhead costs. This theoretical result is robust to several variations of the benchmark model allowing for an endogenous lending rate, motivated MFIs and endogenous overhead costs.