Inputs and institutions as conservative elements

Ludwig von Mises argued that capital goods were “conservative elements” that constrain future production decisions. Similarly, social capital and institutions also constrain future production decisions. These insights are applied to the institutional transformation of the post-Reconstruction American South. It is argued that the structure of social capital that developed in the South was inappropriate to the formal institutions that emerged as a result of the Civil War and Reconstruction. The tensions between institutions and social capital are examined in the context of racist lynching.

Transaction tax and stock market behavior: evidence from an emerging market

This study examines the impact of a stamp tax rate increase on market behavior, using data from two stock exchanges in China. We find that when the tax rate increases from 0.3 to 0.5% (which implies that the transaction cost increases by about 1/3) trading volume decreases by 1/3. This implies an elasticity of turnover with respect to a stamp tax of −50% and an elasticity of turnover with respect to transaction cost of −100%. The markets’ volatility significantly increases after the increase in the tax rate. Furthermore, the change in the volatility structure indicates that the markets become less efficient in the sense that shocks are less quickly assimilated in the markets.

---

The Austrian roots of the economics of institutions

This paper presents an analysis of the way the Austrian theory of institutions evolved from Menger’s main works. It also tries to advance the idea that the economics of institutions, when it deals with the emergence and evolution of rules and norms from interacting individuals, is inspired by Menger’s work and more generally by the Austrian analysis of the emergence and evolution of institutions. Recent works in the economics of institutions build on this earlier Austrian work to make it more formalized and testable.

Rawls’ Paradox

Rawls’ theory of justice is paradoxical, for it requires a society to aim directly to maximize the basic goods received by the least advantaged even if directly aiming is self-defeating. Rawls’ reasons for rejecting capitalist systems commit him to holding that a society must not merely maximize the goods received by the least advantaged, but must do so via specific institutions. By Rawls’ own premises, in the long run directly aiming to satisfy the difference principle is contrary to the interests of the poor, though it is meant to aid them.

The New Keynesian business cycle achievements and challenges

The New-Keynesian (NK) business cycle model has presented itself as a potential “workhorse” model for business cycle analysis. This paper seeks to assess afresh the performance of the baseline NK model and its various extensions. The main theme of the paper is that although the dynamic NK literature has secured a robust defence to criticism arising, inter alia, on account of lack of microfoundations, it still has a long way to go in terms of providing a fully satisfactory model of the business cycle. In this regard, it is conjectured that explicitly accounting for the role of heterogeneity in business-cycle dynamics could lead towards a viable solution.

A sectoral taxonomy of educational intensity

This paper classifies 49 manufacturing and service industries according to their educational workforce composition. Statistical cluster techniques are applied to data for the USA, Germany, France, the UK and Austria. Industries are first classified separately for each country, providing an appropriate tool for the analysis of national micro-data. Later, the paper proposes a common consensus classification, enabling comparative international studies. Validation of the cluster solution reveals considerable robustness to variations over time and between countries. Finally, regression analyses and ANOVA decompositions on various measures of sector performance confirm a significant tendency towards “education-biased structural change” between industries.

Optimal simple rules and the lower bound on the nominal interest rate in the Christiano–Eichenbaum–Evans model of the US business cycle

Schmitt-Grohé and Uribe (NBER wp 10724, 2004b) analyzes the optimal, simple and implementable monetary policy rules in a medium-scale macromodel, as the one proposed by Christiano et al. (J Polit Econ 113:1–45, 2005). In doing so, they use a sensible, but somewhat arbitrary constraint to account for the lower bound condition on the nominal interest rate. In this work, we check the robustness of their main results to such a criteria. We find that the optimal policies are actually absolutely robust to the easing of this criterion for all the different cases considered.

Institutional change from an evolutionary perspective: the Mexican experience

The fall of the Institutional Revolutionary Party (PRI) in July 2000 marked a milestone in Mexico’s political history. Throughout its 71 years of incumbency, the PRI had incarnated the set of social, political and economic institutions of the country to the extent of becoming synonymous with governance and stability. Using a simple model in which institutional change is the result of the strategic interaction between citizens, an incumbent ruler and a potential new ruler or entrant, we provide a systematic interpretation of this experience emphasizing the role of evolutionary factors such as history, uncertainty, learning and experimentation.

America’s neglected debt to the Dutch,an institutional perspective

America’s early constitutional development owes a good deal to the experience and policies of the Dutch republic. Many of the parallels are direct: In the late 16th century, the Dutch fought a successful war to secede from a major empire. They wrote a declaration of independence and adopted a federal model of Republican governance almost exactly two hundred years before the Americans. Somewhat later, the Dutch republic and its political institutions subsequently inspired and protected enlightenment scholars. Its leading political family and army played a crucial role in curtailing English absolutism in England and in England’s American colonies, and its federal template provided a model for early American institutions.

The State,Public Policy and Heterodox Economics: An Introduction

While most heterodox economists endorse some amount of policy activism, there is no unified conception of the state and public policy in heterodox economics. To help clarify the similarities and differences within heterodoxy – and between heterodox and mainstream economics – a panel addressing this subject was convened in 2007 at the Annual Meeting of the Association for Institutional Thought. This article introduces the essays prepared for that symposium. They include an examination of the position of Marx and Engels, a clarification of the institutionalist views of Veblen and Commons, an outline of the perspective of Post Keynesian Institutionalism, and an account of some essential contributions of Classical Pragmatism (a major school of thought within the philosophy of science). The collection advances what Robert Heilbroner called “the worldly philosophy” by seeking to understand the role of the state in a world where institutions, defined broadly as social habits, adjust to other institutions.

“Probability of risk aversion” and other applications of derivatives of the certainty equivalent

“Probability of risk” aversion is principally concerned with reactions to scaling up of probabilities of non-zero values of a non-positive random variable by a common factor. Decreasing probability-of-risk aversion is defined and shown to be equivalent to ordinary risk aversion. Implications of this for insurance are pointed out. The sort of scaling involved is the same as that involved in “self-protection,” and it is shown that, for any expenditure on self-protection, say x, a concave utility function will prefer a coinsurance policy, costing x, which leaves probabilities unchanged, but scales down loss amounts by the same proportion as probabilities are scaled under self-protection. Properties of several comparative concepts of decreasing risk aversion are established. Derivatives of the certainty equivalent (CE) are used to elucidate well-known comparative static results in models of expected utility maximization. Finally, the study proves that concavity of the CE implies convexity of the coefficient of absolute risk aversion and examines the role of curvature of the CE in exploring relationships between properties of risk vulnerability, properness, and standardness.

On good government

Besley’s treatment of principled agents is a major contribution to public choice and political economy. By focusing on politics as an agency problem, he has shown the way to a new generation of research on the interface of politics and economics.

The foundations of constitutionalism: an analysis of debaathification

This article analyzes the administration of lustration—what Arthur Stinchcombe termed the “social basis of constitutionalism”—and its unintended consequences in comparative and international law and politics. It is concerned with the social function of animating ideas in the evolution of institutions. The article demonstrates that in the case of Iraq, the commitment of institutional engineers and transitional administrators to the idea of purifying the state, and their concomitant willingness to watch the institution of lustration naturally evolve in respect of that central idea, has had disastrous consequences for the foundations of constitutionalism. These consequences flowed from the institutional design of the U.S. occupation more generally. By reconstructing, for the very first time, the evolution of debaathification in contemporary Iraq, this article deepens our understanding of the foundations of constitutionalism. Aside from its contribution to the theory of institutional design, the article also speaks to the ongoing debate over the creation of governments, regimes, and states in the international system. In the context of this debate, which has important implications for the practice of institutional design, the administration of lustration—from within or from without—is an insufficiently understood phenomenon, making it a worthy subject for institutional analysis.

The economic analysis of social norms: A reappraisal of Hayek’s legacy

This paper is organized as follows: first, we show that the reference to the notion of group selection is coherent with the other parts of Hayek’s thought. Second, we develop the idea that recent works in terms of the emergence and evolution of social norms corroborate in part Hayek’s theses in this domain. Finally, we put to the fore some drawbacks in Hayek’s approach and propose means to solve them.

Trade and productivity: an industry perspective

We use a sample of 14 OECD countries and 15 manufacturing industries to test for the effect of trade on productivity. Endogeneity concerns are accounted for using the geographical component of trade as instrument as suggested by Frankel and Romer (Am Econ Rev 89(3):279–399, 1999). We find that trade, measured in terms of the export ratio, increases productivity, even if country-fixed effects such as the quality of institutions are controlled for, though results are less robust for imports. Estimates at the aggregate manufacturing level turn out much larger, emphasizing the role of inter-industry spillovers.

Buchanan on monetary constitutions

Buchanan’s reflections on monetary issues have been mostly neglected, despite their great interest both per se and for a deeper understanding of his general constitutional endeavour. We will thus propose a comprehensive assessment of Buchanan’s writings on this topic, focusing in particular on the different political models that have been developed to argue in favour of constitutional constraints on the governmental power to create money and on the implications that one can draw from our author’s monetary papers for the structure and the objectives of his constitutional discourse more generally.

Deliberation,learning, and institutional change: the evolution of institutions in judicial settings

Institutional change entails institutional design, assessment, and modification, which necessarily take place within the constraints and opportunities afforded by existing institutional arrangements. Viktor Vanberg has made major contributions to our understanding of how institutions evolve. We wish to contribute to this symposium in honor of Vanberg by analyzing how institutions for the management of water institutions in Southern California evolved primarily through the use of the courts as settings for deliberation, learning and institutional change.

Economics of externalities and public policy

In this paper we study a particular case of “multiple” externalities associated to the production of a good/activity, whose external effects can change from positive to negative depending on the level of output (intersecting externalities). To analyze their impact on the public policy we propose a very simple two-agent partial equilibrium model in the technological context of externalities. In a static framework, the centralized solution always implies an optimal policy, which may consist of taxation or subsidization depending on the individual optimum and on the technology parameters. In a dynamic model with local knowledge of the efficiency function and instantaneous output adjustments, such an optimal policy can be structurally stable or unstable. In the latter case, under small changes of the parameters the policy may switch from low taxation/subsidization to high taxation/subsidization or vice versa, or even jump discontinuously from taxation to subsidization or vice versa. Furthermore, the decentralized solution based upon “tradable rights” can be economically equivalent to the centralized solution in the form of taxation policy but the two solutions may be not politically equivalent.

Reflections on the Origins of the Polis

From a beginning of small isolated settlements around 1000 B.C., the city-state (polis) emerged in Greece in the course of four centuries as a political, geographical and judicial unit, with an assembly, council, magistrates and written laws. Using a rational-actor perspective, it is shown how this process was driven by competition among the members of the elite. A crucial ingredient was the gradual consolidation of boundaries, which contributed to population growth, inter-state conflicts, colonisation and competition for power. Variations over time in the conditions for competition explain both the introduction of formal political institutions and their overthrow by tyrants.

A note on parental and child risk valuation

The paper develops a model that allows the estimation of parent’s valuation of own and child health, in an endogenous risk framework, where parents can employ multiple activities to protect themselves and their children from a health risk. These risk-reducing activities may differ in their effectiveness and their intensity of use. We suggest how to estimate the parent’s ex ante marginal willingness-to-pay for a reduction in the ambient level of health risk, unencumbered by expected utility terms.