Sub-national political regimes and asymmetric fiscal decentralization

This paper develops a model to explain how sub-national political regimes affect the variation in retention rates in a country in which a region and a central government bilaterally bargain over the distribution of tax revenue given a particular tax rate (and thus fiscal decentralization is asymmetric). This study examines cases in which both sub-national and national governments have the same political regime (democracies and non-democracies) and situations in which the central and regional political regimes differ. This article shows that in the latter case, regions receive a smaller share of tax revenue for a broad set of parameters of the model (as opposed to the case of a pure non-democracy); in the case of identical political regimes, the comparative fiscal decentralization is determined by the productivity-enhancing effect of regional public goods.     

Minimum investment requirement,financial market imperfection and self-fulfilling belief

We develop a model in which a strategic complementarity in saving decisions arises due to a minimum investment requirement and financial market imperfection. We explore the role of self-fulling beliefs in determining the long run dynamics. The model exhibits a wide range of dynamic phenomena such as a poverty trap, a big push and a sunspot equilibrium, depending on the level of financial market imperfection. They account for excessive volatility and a sudden change in the saving rate and its macroeconomic consequences without any shocks to fundamentals.     

Technological change and industry structure: A case study of the petroleum industry

This paper is a case study of the impact of an exogenous improvement of a process technology on the structure of the petroleum industry. The paper examines the role of three-dimensional seismology in bringing about the 1990s oil industry consolidation. This proposition is examined in the context of evolutionary economics and in a non-cooperative game theory, concluding with a reference to Steindl's theory of industry dynamics. The significance of this contribution lies chiefly in highlighting the fact that exogenous technological change can, under appropriate conditions, play a significant role in industry dynamics. This reference to the exogenous change in technology is a departure from the traditional consideration of endogenity of industry structure in relation to technological development and, therefore, a novelty. Secondly, the documentation of 3D seismology as a significant process technology of the petroleum industry is significant.     

Exchange rate pass-through and inflation targeting in Peru

It has been widely documented that the exchange rate pass-through to domestic inflation has decreased significantly in most of the industrialized world. As microeconomic factors cannot completely explain such a widespread phenomenon, a macroeconomic explanation linked to the inflationary environment—that a low and more stable inflation rate leads to a decrease in the pass-through—has gained popularity. Using a structural VAR framework, this paper presents evidence of a similar decline in the pass-through in Peru, a small open economy that gradually reduced inflation to international levels in order to adopt a fully fledged inflation targeting scheme in 2002. It is argued that the establishment of a credible regime of low inflation has been instrumental in driving the exchange rate pass-through down.     

Nonlinear stochastic effects of substitution — an evolutionary approach

Technological innovations have been investigated by means of substitution and diffusion as well as evolution models, each of them dealing with different aspects of the innovation problem. In this paper we follow the well known research traditions on self-organisation models of complex systems. For the first time in the literature we show the existence of a specific niche effect, which may occur in the first stage of establishment of a new technology. Using a stochastic Master equation approach, we obtain analytical expressions for the survival probabilities of a new technology in smaller or larger ensembles. As a main result we demonstrate how a hyperselection situation might be removed in a stochastic picture and thresholds against the prevailing of a new technology in a step-by-step process can be overcome.     

Critical mass of users versus critical mass of services in a multiproduct information service system

In this paper we study the economic behaviour of the suppliers of a set of advanced telecommunications services with a joint adoption cost (common access facilities, learning process, etc.). In fixing the two-part tariffs for their services the suppliers have to share the burden of leaving to the users a surplus sufficient to cover the adoption cost. The lack of coordination in supplying a critical mass of services or in the pricing decisions has high changes to result in suboptimal or unviable diffusion of the new technology as a whole. We present a static optimization model of user behaviour, and derive access and usage demand with a two-part tariff and a joint adoption cost. We compare noncooperative and cooperative market equilibria in a duopoly with perfect information; finally we discuss the extension of our analysis to the case of imperfect information in a dynamic setting.     

SEQUENTIAL VOTING WHEN LONG ELECTIONS ARE COSTLY

This paper analyzes sequential voting in binary elections when voters are motivated by a desire both to elect their preferred candidate and to avoid a long and costly election. I find a unique equilibrium in which a voter's action depends both on the intensity of the voter's preferences as well as how well the candidates have done in earlier voting rounds. This equilibrium results in momentum in which voters are more likely to vote for the candidate currently in the lead. Furthermore, the probability a voter votes for a candidate is increasing in the size of the candidate's lead. As a consequence, a candidate is more likely to win the election if the candidate's stronger supporters vote earlier in the election.     

Privatisation in Russia Has Led to Criminalisation

Abstract
Russia has recently embarked on a dramatic program of privatisation as part of the process of shock therapy which aims to convert the command economy to a market economy. This program has been undertaken in the absence of a well-developed set of institutions needed for the proper functioning of a market economy. These institutions include a legal system, a related system of property rights, a credit system, a system of commercial banks, classified advertising, an accounting system and others including a sound currency and a social safety net. In the absence of these institutions the incentives facing agents in economic transactions have been perverted. This has led to criminalisation of the economy, dramatic falls in production, loss of confidence in all aspects of commerce, and political instability. The recent Russian experience of privatisation has important lessons for other economies in transition, for developing economies and for economic theory.     

Inflation persistence,inflation expectations,and monetary policy in China

This paper constructs a quarterly series of GDP deflator inflation for China from 1979 to 2009 and tests for a structural break with an unknown change point in the dynamic inflation process. Empirical results suggest a significant structural change in inflation persistence. Employing a counterfactual simulation method, we show that the structural change is primarily attributed to better conduct of monetary policy and the resultant better anchored inflation expectations. This finding implies that the quiescence of inflation in China over the past decade could well be followed by a return to a high inflation era in the absence of a determined effort by the monetary authorities in managing inflation expectations. Therefore, the use of a preemptive monetary policy to anchor inflationary expectations and to keep inflation moderate is warranted in China.     

Global environmental problems and the strategic choice of technology

Reductions of environmentally harmful emissions are often a public good in a global context. For strategic reasons, countries may adopt a technology with high per unit cost of emission reduction, even if a technology with lower per unit cost is available at no extra cost. They thereby credibly commit themselves to not reducing emission much in the future. In a game of private voluntary provision of emission reduction, this commitment will make other countries increase their emission reductions. Also, in the case where countries cooperate in the future, such commitment gives a country a strategic advantage, because it shifts the disagreement point in a favorable direction.     

Government financing in an endogenous growth model with financial market restrictions

Summary. In this paper, we develop an endogenous growth model with market regulations on explicitly modeled financial intermediaries to examine the effects of alternative government financing schemes on growth, inflation, and welfare. In the presence of binding regulation, there is always a unique equilibrium. We perform four alternative policy experiments; a change in the seigniorage tax rate, a change in the seigniorage tax base, a change in the income tax and a change in the fiscal-monetary policy mix. We find that in the presence of binding legal reserve requirements, a marginal increase in government spending need not result in a reduction in the rate of economic growth if it is financed with an increase in the seigniorage tax rate. Raising the seigniorage tax base by means of an increase in the reserve requirement retards growth and it has an ambiguous effect on inflation. An increase in income tax financed government spending also suppresses growth and raises inflation although not to the extent that the required seigniorage tax rate alternative would. Switching from seigniorage to income taxation as a source of government finance is growth reducing but deflationary. From a welfare perspective, the least distortionary way of financing an increase in the government spending requirements is by means of a marginal increase in the seigniorage tax rate. Under the specification of logarithmic preferences, the optimal tax structure is indeterminate. Received: March 20, 2000; revised version: June 26, 2001     

Monetary policy in a financial crisis

What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under what conditions will a cut have the opposite effects? We answer these questions in a general class of open economy models, where a financial crisis is modelled as a time when collateral constraints are suddenly binding. We find that when there are frictions in adjusting the level of output in the traded good sector and in adjusting the rate at which that output can be used in other parts of the economy, then a cut in the interest rate is most likely to result in a welfare-reducing fall in output and employment. When these frictions are absent, a cut in the interest rate improves asset positions and promotes a welfare-increasing economic expansion.     

A General Equilibrium Approach to the Nonequivalence of Tariffs and Quotas under International Duopoly

We examine the nonequivalence of tariffs and quotas under international duopoly in a simple general equilibrium trading model; in particular, we study the welfare effects of a change in regime from a tariff to a quota. We first show that the results established by our predecessors in a partial-equilibrium segmented domestic market model do not straightforwardly carry over to a general equilibrium context. We next extend the segmented domestic market model to an integrated world market model and re-examine the equivalence of tariffs and quotas as well as the welfare aspects of the change in the regime.     

Domestic and international economic changes. Embarrassing correspondences

The breakdown of the socialist regimes of the east European countries has been incredibly fast. The subsequent changes in the international setting may imply much slower processes. Unified Germany is building up a vast area of influence ranging from the Baltic to the Adriatic sea. The former Moslem republics of the Soviet Union may fall instead under the influence of Turkey, supported by the USA. The presence of the USA in the Middle East and the American influence over Israel, Saudi Arabia, and possibly Iran, might help to build up a huge Moslem area controlled by the USA. This implies questioning the pre-existing national borderlines, a problem in which ethnic conflicts seem to be playing a role. The three great economic areas of the world exhibit a common tendency to become three strongly protected commercial areas. In the domestic structures of the main capitalist countries very similar changes are taking place: a general fall in the ideals of social justice, replaced by the ideology of individual effort and efficiency; a decline in the belief that any individual should be protected from the cradle to the grave, a belief replaced by the ideal of a scoiety made up of self-made men; a decline in the supply of schooling services, health care, old-age pensions and collective action in general, in favour of individual initiative and privatization. A consequence of such changes will be a sharp increase in personal and regional inequalities.     

North–South asymmetry,unilateral environmental policy and carbon tariffs

This paper focuses on the potential impact of a carbon tariff on carbon emissions, North–South trade and welfare. We use a North–South trade model, where North implements a unilateral environmental policy on domestic carbon-intensive industries followed by a carbon tariff on imports from South. Unlike the existing studies, we allow asymmetry in clean production technologies and marginal environmental damage. We show that a carbon tariff can reduce the global carbon emission via the use of a more advanced clean production technology in North, which increases the firm profit and welfare. However, improvement in welfare of North is associated with a decrease in global trade flows and welfare of South. We find that, in the presence of asymmetry in clean production technologies between North and South, a carbon tariff introduced by the North can eliminate carbon leakage, but the exports of South decrease below the pre-unilateral environmental policy level and hence North can potentially use a carbon tariff for trade protectionism in the name of reducing carbon leakage in South.     

Employment and Length of the Working Week in a Unionized Economy in which Hours of Work Influence Productivity*

Conditions are derived for signing the employment effects in a unionized economy of a legislated cut in hours when productivity depends on the number of hours worked each week. Aggregate data suggest that employment will generally increase after a small cut in hours for the UK but the employment effect is ambiguous for Australia. Disaggregated data for Australia suggest that the employment effect of a cut in hours is often positive However, any cut in hours imposed on a monopoly union, without a cut in pay, will unambiguously lead to a drop in employment     

The stability of decision making in committees: The one-core

We study the stability of decision making in committees. A policy proposal introduced by a committee member is either adopted or abandoned in favor of a new proposal after deliberations. If a proposal is abandoned, it is in spite of the committee member who introduced it, who does not cooperate in any effort to defeat it. Shenoy (1980) proposes the one-core as a solution concept for this game, and shows that this solution may be empty. We provide a necessary and sufficient condition for the existence of a stable policy under the majority rule. This result highlights a trade-off between the size of a committee, the number of competing policy options, and the existence of a stable outcome. Our findings imply a tension between political stability and the existence of a large number of competing interests in democracies.     

Mindshift: The mental revolution we are in

It is by now a commonplace to say that today the world is in the midst of a revolution as profound as any we have ever experienced. It is, however, much less of a commonplace to specify precisely of what this revolution consists. The contention of this article is that the revolution is more than a mere shift in our industrial or technological base. Fundamentally, it is a change in underlying mental attitudes—how we conceive of the world. It is thus a shift in our values but at the same time much more basic than this alone.This article describes the nature of the change that is occuring in mental attitudes. However, it does not do so in a traditional way. Primarily, it does it by means of a fable. The reason is that the shift we are experiencing is also in part a shift in our aesthetic vision, that is, in the styles of discourse that we use to describe reality. In short, different conceptions of the world require different stylistic forms. The full nuances of a new era can not be captured by the forms of the past.     

Balancing centripetal and centrifugal forces in the entrepreneurial university: a study of 10 research centres in a technical university

In the recent interest for the so-called entrepreneurial university, there is a strong emphasis on academic (i.e. theoretical) knowledge to be used more effectively as a source of innovation and renewal in industry. Drawing on a theoretical framework developed by the literature theorist Mikhail Bakhtin and a study of 10 research centres in a major technical university, this paper suggests that rather than representing something radically new, the entrepreneurial university is a domain wherein traditional academic research interests and industry objectives are continuously negotiated and mutually adjusted. Seen in this view, the entrepreneurial university is what is always in a process of becoming, in flux and change, continuously under the influence of opposing and complementary goals and objectives. Therefore, the entrepreneurial university is not a solid state or an entrenched position but the effect of an attitude towards the role and purpose of the university in the so-called knowledge society.     

The role of mediation in peacemaking and peacekeeping negotiations

We develop a model of bargaining that provides a rationale for the difference in the method of negotiation, depending on the nature of the conflict. We distinguish those negotiations that take place previous to a potential conflict (peacekeeping), and negotiations inside the conflict (peacemaking). In these contexts, we study the role of a mediator who tries to achieve a certain balance between the efficiency of the agreement and the equality of the final sharing. We show that the credibility of the mediator comes from her willingness to impose delays in the negotiation, even if that implies costs. We also find how the player with a “weak” bargaining position in a conflict can strategically profit from the mediator's quest for equality. Finally, we show how the capacity of the mediator to induce a higher equality in the sharing is always higher in a peacemaking situation than in a peacekeeping one.