DIMENSIONS,TRANSACTIONS COSTS AND COALITIONS IN LEGISLATIVE VOTING*

Dimensional studies of Congressional voting have found a single dominant “ideological” dimension, while regression estimates find that constituency variables and party are dominant. Koford (1989b) recalibrated the dimensional studies, and found that several dimensions are important. This study reviews those findings, and then considers additional reasons why dimensional studies might understate the number of dimensions. It then examines the regression estimates for biases that overstate the number of dimensions. Overall, fewer dimensions are found than seem consistent with the wide variety of constituents' preferences on issues. A model is developed in which the transactions costs of building coalitions reduces the number of dimensions visible on roll-call votes below the underlying dimensionality of preferences in the issue space. When legislative parties build internal coalitions to pass and defeat bills, voting on randomly drawn bills has a single party-oriented dimension. Natural ideological dimensions are reinforced when parties write bills and logroll along natural lines of cohesion. Numerical examples suggest that these effects could be important, and suggest lines for empirical investigation of the underlying issue space.     

THE POLITICS OF PRECOMMITMENT WITH ELECTORAL UNCERTAINTY AND TRANSACTION COSTS

Despite the lack of legal channels through which binding commitments can be made by the government, economic and political factors enable it to affect future outcomes. In practice, large transaction costs are associated with any significant change of policy, and therefore the current government can adopt policies so that certain outcomes are more likely to be realized by its successor. In this paper it is argued that transaction costs combined with electoral uncertainty are likely to drive the current government to adopt a policy which is extreme relative to the preferences of the existing political parties. This policy is adopted in order to ensure that due to transaction costs, the future government will not depart radically from the most preferred policy of the current government. If the current policy is likely to affect the election outcome, then, in addition to the above considerations, the electorate attitudes would have to be taken into account by the government. Hence, the current government confronts two factors in choosing its policies: the behavior of the future government and the behavior of the electorate. The interplay between the two factors determines the choice of the current policy.     

NON-WAGE LABOUR COSTS, POLICY UNCERTAINTY AND LABOUR DEMAND – A THEORETICAL ASSESSMENT

Labour costs in various European countries have reached a record high in recent years. The topic of non‐wage labour costs is therefore increasingly being discussed among and between the political parties because non‐wage labour costs are likely to have major negative effects on employment. We follow the real options approach, which allows us to investigate the value to a firm of waiting to adjust labour when the firm's wage and non‐wage costs are stochastic and adjustment costs are sunk. Simulation exercises show that the interaction between hiring and firing costs, non‐wage labour costs and uncertainty can have important ramifications for employment dynamics.     

EQUILIBRIUM GROWTH IN A MONETARY ECONOMY WITH TRANSACTIONS COSTS*

The paper describes a dynamic general equilibrium monetary economy with technological primitives that are consistent with the possibility of asymptotic equilibrium growth. The paper focuses on the relationship between equilibrium financing constraints on investment goods, transaction costs and economic growth. A generalized growth condition is derived that involves both monetary growth rates and transaction costs. The condition is used to show that (i) although inflation taxes can potentially exert a negative influence on long-run economic growth, these growth effects cannot in general be arbitrarily large; and (ii) for some monetary growth rates, money is superneutral in contrast to the models of Stockman and Abel. Numerical work indicates that although the welfare and growth effects of decreasing nominal interest rates from a benchmark are large, the costs associated with raising nominal interest rates from benchmark are not.     

RISK,UNCERTAINTY AND CHINA'S EXPORTS*

Both theoretical and empirical models were developed in this paper to examine how exporters’ response to real exchange rate volatility (RERV) and real exchange rate misalignment (RERM) varies across industries in China. The theoretical model indicates that the impact of RERV depends on exporters’ attitude to risk while the effect of RERM is ambiguous. Using disaggregated industry data, Chinese exporters were found to be averse to RERV and RERM. This suggests that the negative impact on China's exports resulting from a revaluation of the RMB will be mitigated by a positive impact due to the reduction of RERM.     

ANARCHY, UNCERTAINTY, AND THE EMERGENCE OF PROPERTY RIGHTS

This paper investigates whether Lockean first claimer property rights should be expected to emerge in anarchy. Individuals behind a veil of uncertainty about their future wealth decide independently whether to commit to using fcrce. Neither the contractarian hypothesis that a thicker veil of uncertainty supports more co-operation nor Demsetz's hypothesis that well-defined property rights emerge as the value of the externality from not having private property increases is unambiguously implied by the model.     

ZERO INFLATION: TRANSITION COSTS AND SHOE LEATHER BENEFITS

The idea that the monetary authority cannot achieve price stability except at the cost of a recession is the most common and convincing argument against price stability. This paper presents calculations showing that the resource costs of a recession that might result from eliminating a 4 percent inflation are approximately equal to the "shoe leather" costs incurred when inflation is stable at 4 percent.     

TALL TREES, PEOPLE, AND POLITICS: THE OPPORTUNITY COSTS OF THE REDWOOD NATIONAL PARK

Because individuals in the marketplace directly face opportunity costs, they must balance marginal costs against marginal benefits. In contrast, in politics, the opportunity costs facing decision makers are diluted. Estimates of the social costs of various public programs are generally understated, while the estimates of social benefits are exaggerated
This paper places the establishment and expansion of the Redwood National Park within this framework and analyzes it as a public investment decision. It is shown that in the initial creation of the Redwood National Park in 1968, the costs of land acquisition and employment loss were underestimated, while the projections for gains in tourism were excessive. Despite the opposition of local landowners and residents, the Park was further expanded 10 years later in 1978. There was again a misstatement of costs and benefits and also the creation of an expensive new entitlement program to defuse the opposition of labor
The experience with the redwood National Park illustrates the results of the political process, which allows decision makers to internalize benefits and externalize costs. Emotion and rhetoric tend to displace a careful weighing of marginal costs and benefits     

SOCIAL COSTS OF ELECTRICITY GENERATION: WIND AND PHOTOVOLTAIC VERSUS FOSSIL AND NUCLEAR

This paper presents the results of research on the total costs to society of different technologies for electric power production in the Federal Republic of Germany. The analysis views electricity costs from a macroeconomic perspective and includes the internal or private costs as well as the social costs. The focus is on fossil and nuclear fuels as conventional energy sources on the one side and on wind and photovoltaic electricity as examples of renewable energy sources on the other.