Distortionary lobbying

We study the role of partisan committee members in an information aggregation setup à la Feddersen and Pesendorfer. Based on their analysis we show that interest groups may impose a huge welfare loss on society because their activities distort political outcomes more than would be needed in order to achieve their own objectives. In an information acquisition framework à la Mukhopadhaya/Persico we argue that uninformed interest groups may instead improve the quality of some committee decisions. We thank participants of the WZB conference on “Interest groups and economic performance”, an anonymous referee, and in particular Ashish Chaturvedi, Kai Konrad, and Ami Glazer for useful comments.     

Bankruptcy, Takeovers, and Wage Contracts

Takeovers give raiders the opportunity of breaking implicit contracts inside the firm. If implicit contracts are adopted by workers and management to reach more efficient outcomes, then the possibility of takeovers may cause a welfare loss. We show that, under some conditions, this argument can go through even if the firm and the workers can write explicit and complete contracts. The crucial assumption is that the profitability of the firm is linked to its financial situation, in the sense that a firm which has a high probability of bankruptcy will face fewer opportunities than a financially solid firm. In this framework, the possibility of takeovers imposes constraints on the set of feasible employment contracts, leading to inefficient outcomes.     

Evolution of repeated prisoner's dilemma play under logit dynamics

In an evolutionary set-up, we append an ecology of iterated prisoner's dilemma (IPD) game strategies, consisting of unconditional cooperators (AllC), unconditional defectors (AllD) and reactive players (TFT) with two repeated strategies that have received less attention in the evolutionary IPD game literature: the error-proof, “generous” tit-for-tat (GTFT) which, with a certain probability, re-establishes cooperation after a (possibly by mistake) defection of the opponent and the penitent, “stimulus–response” (WSLS) strategy that resets cooperation after the opponent punished for defection. An abundance of rock–paper–scissors like patterns is discovered in the 3×3 ecologies comprising Pavlovian and “generous” players. Interestingly, the evolutionary success of Pavlov seems to depend on the absence of unconditional cooperators in the ecologies investigated.     

Envy-minimizing unemployment benefits

This paper offers an analysis of the optimality of unemployment benefits based on the concept of no-envy. Using a general equilibrium framework with uncertainty, we derive the conditions for a trade-off between the intensity of envy and the expected percentage of envious persons. If the government's sensitivity to the intensity of envy is not too strong (alongside conditions on households' utilities), the optimal benefit is positive and below the full-insurance level. We also show that, for a low enough sensitivity to the intensity of envy, the optimal replacement ratio decreases with unfavorable changes in the distribution of the technological shock.     

Matching rules

Institutions often utilize matching rules to achieve cooperative outcomes. However, the equilibrium induced by a matching rule may not be socially optimal. After presenting the case in which matching rules yield privately and socially optimal levels of cooperation, this article identifies the conditions which generate inefficient cooperation. Matching rules undershoot (i.e. parties cooperate less than is socially optimal) in one group of cases. In a second, more puzzling case, matching rules overshoot (i.e. parties that interact under a matching constraint are induced to cooperate more than is socially optimal). This paper identifies the conditions for such occurrences. Copyright © 2008 John Wiley & Sons, Ltd.     

Environmental taxes in a differentiated mixed duopoly

Beladi and Chao (2006) and Bárcena-Ruiz and Garzón (2006) considered the role of environmental policy on the decision whether to privatize a public firm in different market structures. This paper re-examines whether privatization improves (or deteriorates) the environment in a mixed duopolistic framework with differentiated product and pollution abatement. It is shown that, due to privatization, less attention is paid to pollution abatement by all the firms coupled with less environment taxes levied by the government in a differentiated duopoly, and the environment is more (less) damaged when the product is less (more) substitutable. When the product is highly substitutable, industry profits increase because this softens the intensity of the product market, but social welfare deteriorates accompanied with the path of privatization because the loss of consumer surplus and tax revenue exceeds the increases in profits, even if the environment is less damaged.     

Targeting and political support for welfare spending

This paper investigates the political support for social assistance policies in a model in which incomes are stochastic (so that welfare policies have an insurance benefit) and unequal ex ante (so that welfare policies have a redistributive effect). With self-interested voting, narrow targeting may so reduce the probability of receiving benefits for the majority that the majority prefers to eliminate benefits altogether, even though the cost of narrowly targeted benefits is close to zero. In contrast, a majority of self-interested voters always supports positive welfare benefits when the policy is targeted sufficiently broadly. If voters are somewhat altruistic, the impact of targeting on political support for welfare spending diminishes but does not disappear. Received: July 1999 / Accepted: May 30, 2000     

How important is fiscal policy cooperation in a currency union?

By constructing a dynamic stochastic general equilibrium model, which assumes a currency union consisting of two countries with nontradables, we study the importance of fiscal policy cooperation. As shown in the previous studies, we find that the role of fiscal policy is important in maximizing social welfare. However, we have a contrary result for fiscal policy cooperation. While the previous studies highlight that fiscal policy cooperation has a nontrivial effect in maximizing social welfare, we show that fiscal policy cooperation has no benefits, regardless of the share of nontradables. Self-oriented fiscal policy can replicate social welfare under the cooperative setting.     

国际环境合作的经济学分析

本文利用现代经济学理论与方法，构筑了一个分析国际环境合作问题的经济学框架。分析的中心是建立一个静态模型来寻求作为一个联盟形态的国际环境合作的内部和外部稳定性条件，主要结论是稳定的国际环境合作是由模型给定的参数内生地决定的。与当前大多数研究的一个重要不同是，我们的模型没有采用通常的减少污染排放这一分析参数，而是选用了更为直接的污染排放量这一指标。在运用联盟理论对两类情形即不合作和完全合作进行模型化处理的基础上，本文导出了联盟成员国与非成员国福利水平和污染排放量的若干命题，并建立起国际环境合作稳定性的条件。     

Socio-economic impacts of migrant clustering on Dutch neighbourhoods: In search of optimal migrant diversity

The recent empirical literature on the impact of migrant clustering on socio-economic welfare indicators shows inconclusive and often even contradictory results. In this paper we argue that there is not an unambiguous empirical outcome of migrant or ethnic diversity, but that it depends on the level of migrant or ethnic composition itself. A low degree of socio-economic and cultural diversity may be beneficial for neighbourhoods, whereas an excessive degree of diversity may be harmful. We test this hypothesis by (i) constructing a migrant clustering index for all neighbourhoods in the Netherlands based on a gamma index; and, subsequently, (ii) incorporating it in a regression framework to assess three relevant socio-economic outcomes: neighbourhood income, number of students, and average housing value. We show that there is apparently an optimal level of migrant clustering, and that it is remarkably robust. For the Netherlands as a whole and for the ten largest Dutch cities as well, it is striking that largely similar effects were found. Our results suggest that population composition in neighbourhoods may vary up to about 40 per cent from the national average before migrant clustering generates negative effects.     

Evolutionary stability of altruism and envy in Tullock contests

This paper considers Tullock contests with altruistic and envious individuals as players. Altruism (envy) is beheld as another motivation for low (high) dissipation rates in contests. A pure population of altruists has higher payoffs than a purely envious population, but the altruist has a lower payoff if he is confronted with an envious individual. In an evolutionary approach in which the population share of the type with the higher material payoff rises, it can be shown that there is a possibility of either envy or altruism becoming extinct. Furthermore, we find an advantage of envy in such a manner that very altruistic individuals always die out, but very envious ones only do so under certain conditions. I am grateful to Alexander Haupt, two anonymous referees, and the editor for constructive comments on this paper.     

Welfare impacts of a non-profit firm in mixed commercial markets

Utilizing a model that allows for the welfare of the commercial NPO’s stakeholders directly in terms of their consumer surplus, and indirectly in terms of NPO profits, we explore the impact of changes in the NPO’s “social concern” for consumers on market efficiency. Three separate Cournot mixed market scenarios are analyzed: competition between the NPO and a private for-profit firm, competition between the NPO and a public firm, and a market scenario that includes all three firms. We find that the technical efficiency of the NPO vis-à-vis the profit maximizer is crucial in determining whether social welfare rises or falls as the NPO places more weight on their stakeholders’ surplus. In particular, if the NPO is less technically efficient than the profit maximizer or public firm, somewhat paradoxically social welfare may fall as the NPO shows a greater social concern for consumers. In other words, a movement away from pure profit maximizing behavior by a NPO may well be detrimental in these mixed commercial markets. We also show the additional sources of revenue available to a NPO may decrease the overall welfare in these mixed market situations.     

The intensity of incentives in firms and markets: Moral hazard with envious agents

While most market transactions are subject to strong incentives, transactions within firms are often not explicitly incentivized. This paper offers an explanation for this observation based on the assumption that agents are envious and suffer utility losses if others receive higher wages. We analyze the impact of envy on optimal incentive contracts in a general moral hazard model and isolate the countervailing effects of envy on the costs of providing incentives. We show that envy creates a tendency towards flat-wage contracts if agents are risk-averse and there is no limited liability. Empirical evidence suggests that social comparisons are more pronounced among employees within firms than among individuals that interact in markets. Flat-wage contracts are then more likely to be optimal in firms.     

Fiscal decentralization and centralization under a majority rule: A normative analysis

In his seminal work on fiscal federalism, Oates [Oates, W., 1972. Fiscal Federalism. Harcourt Brace Jovanovich, New York, NY] addressed the so-called Decentralization Theorem, which states that, if such factors as scale economies and spillovers are left out of consideration, a decentralized system is always more efficient than a centralized system for supplying local public goods. Based on his analytical framework, we show that a decentralized system may at times be inferior in efficiency to a centralized system under a democratic decision rule (Proposition 2). An intuition for this result is that, under majority rule, a majority may choose an extreme policy in a local district that best matches its own preference but ignores the interests of minorities. In some cases, such disregard of minority taste may result in a considerable loss of efficiency. If instead some moderate policies are chosen through voting in an integrated constituency, then the interests of minorities could be better served to some extent. As a result, centralization would improve social welfare.     

Toward greater understanding of the pernicious effects of workplace envy

Despite the fact that envy is widely viewed as one of the most pernicious and dysfunctional workplace emotions, research has ignored its longer term consequences. This oversight can largely be attributed to over reliance on the relatively static affective events framework that does not account for how envy-eliciting events can threaten an individual's perceptions of social standing or trigger emotional schema from previous events. Hence, we propose an extension of this framework in order to address these shortcomings and in order to account more fully for the cumulative effects of prior envy-eliciting events. In particular, by integrating insights from social comparison and emotional schema theories into the current framework, we offer a deeper, more fine-grained explanation of the cumulative effects of emotionally congruent envious episodes. We believe that these additional insights will offer a perspective, for researchers and practitioners alike, into how envy-eliciting events can result in more malicious and chronic behavior. Future research and managerial implications are discussed.     

Private law enforcement with competing groups

This paper introduces groups that are in conflict against each other in law enforcement policy. These groups can have an effect on the process of law enforcement by making upfront investments, such as bribes. We also investigate consequences when a policy maker acts to maximize a bribe instead of social welfare. Thus, this paper presents an inclusive framework for incorporating private law enforcement, corruption and avoidance activities. This article shows that this competition can lead to moderate and more efficient law enforcement activities. This indicates that inefficient law enforcement by authority with harm reduction motivation can be avoided. Additionally, this paper shows that depending on the policy maker’s objection between rent-seeking motivation or social welfare maximizer, deterrence effects vary. This paper provides a clear mechanism that the rent-seeking motivated policy maker tends to set less severe enforcement policies than the social welfare level.     

Note on ‘Loss of monetary discretion in a simple dynamic policy game’

Jensen (1994a) finds that loss of monetary discretion leads to lower welfare. However, by extending his model we show that if real base money holdings are relatively low, as is likely to be the case for modern economics, a zero-inflation rule may well be preferable to monetary discretion. If the emphasis on achieving the output and public spending targets falls, a zero-inflation rule is more likely to be preferred. The increased support for binding policy rules thus conforms with a less tolerant attitude towards inflation.     

WHATEVER HAPPENED TO THE PHILOSOPHER-KING? THE LEADER'S ADDICTION TO POWER

This articles postulates the existence of a number of conscious and unconscious forces which make leaders reluctant to relinquish power. It is suggested that a major reason for the unwillingness to let go is the transferential effects of leadership. Both mirroring and idealizing transference reactions are discussed. In addition, there is the ageing factor which may contribute to the addictiveness of power, since ageing can evoke a strong need for compensatory strivings. the talionic principle - meaning in this case the conscious or unconscious fear that the loss of power will be followed by some form of retaliation for previous acts - may be another factor contributing to power's addictiveness. In this context the role of envy is emphasized. Finally, the existence of a ‘fear of nothingness’ is postulated, that is, a form of anxiety which leads to a need to defeat death by leaving some kind of legacy. It is suggested that holding onto power is linked to the fear that this legacy may be destroyed.     

The conservative equal costs rule, the serial cost sharing rule and the pivotal mechanism: asymptotic welfare loss comparisons for the case of an excludable public project

We examine the asymptotic behavior of two strategyproof mechanisms discussed by Moulin for public goods – the conservative equal costs rule (CER) and the serial cost sharing rule (SCSR) – and compare their performance to that of the pivotal mechanism (PM) from the Clarke–Groves family. Allowing the individuals’ valuations for an excludable public project to be random variables, we show under very general assumptions that expected welfare loss generated by the CER, as the size of the population increases, becomes arbitrarily large. However, all moments of the SCSR’s random welfare loss asymptotically converge to zero. The PM does better than the SCSR, with its welfare loss converging even more rapidly to zero.     

The effects of vehicle ownership on employment

Vehicle ownership may promote work if employment opportunities and job searches are enhanced by reliable transportation. For example, vehicles may serve to reduce potential physical isolation from employment opportunities. I examine the effects of vehicle ownership and vehicle quality on employment for single mothers with no more than a high school education using National Longitudinal Survey of Youth data. I control for potential bias by jointly estimating employment and vehicle ownership in a maximum likelihood framework using state welfare eligibility asset rules as instruments. Results show that vehicle ownership increases employment. Positive effects of vehicles do not differ for urban and rural residents, but they do change with economic conditions. Further, welfare recipients are significantly more likely to exit the program and become employed if they own a vehicle.