Existence of a Condorcet Winner When Voters Have Other‐Regarding Preferences

In standard political economy models, voters are “self‐interested” that is, care only about “own” utility. However, the emerging evidence indicates that voters often have “other‐regarding preferences” (ORP), that is, in deciding among alternative policies voters care about their payoffs relative to others. We extend a widely used general equilibrium framework in political economy to allow for voters with ORP, as in Fehr and Schmidt (1999) . In line with the evidence, these preferences allow voters to exhibit “envy” and “altruism,” in addition to the standard concern for “own utility.” We give sufficient conditions for the existence of a Condorcet winner when voters have ORP. This could open the way for an incorporation of ORP in a variety of political economy models. Furthermore, as a corollary, we give more general conditions for the existence of a Condorcet winner when voters have purely selfish preferences.     

CRIME AND POVERTY: A SEARCH‐THEORETIC APPROACH*

Numerous studies document that criminal activity is positively related to unemployment and negatively related to educational attainment levels within given communities. We study this phenomenon in the context of a search‐equilibrium model, in which agents choose between formal employment and pursuing crime‐related activities (theft). Prior to their “occupational choices,” agents undertake costly schooling, raising their productivity. Crime acts, in essence, as a tax on human capital by affecting the probability that a worker's earnings (possessions) are subsequently appropriated. There are multiple equilibria. High crime, low levels of educational attainment, long spells of unemployment, and poverty are correlated across them.     

CREDIT CYCLES REDUX*

Theoretical studies have shown that under unorthodox assumptions on preferences and production technologies, collateral constraints can act as a powerful amplification and propagation mechanism of exogenous shocks. We investigate whether or not this result holds under more standard assumptions. We find that collateral constraints typically generate small output amplification. Large amplification is obtained as a “knife‐edge” type of result.     

THE REVENUE‐SHARING RULE FOR INTERCONNECTION CHARGES*

In this paper we explore the economic principle behind the revenue‐sharing rule for interconnection charges. Our main finding is that symmetric firms can collude by splitting the revenues equally. We further characterize the optimal revenue‐sharing ratio and discuss the relationship between optimal ratio and the optimal access price. We also show that the revenue‐sharing rule can have the perverse effect of inducing a firm to raise its own costs in order to gain a higher share of revenues.     

Exchange‐rate volatility and US–Hong Kong industry trade: is there evidence of a ‘third country’ effect?

In an effort to better understand the determinants of trade flows worldwide, researchers have recently incorporated external volatility (in addition to that of the partners’ bilateral exchange rate) into their models. The so‐called ‘third country’ effect is present if adding this term changes the bilateral volatility estimates that are found when external volatility is omitted. This study examines US exports to Hong Kong for 143 industries, and imports from Hong Kong for 110 industries, and finds two key results. First, expected inflation due to Hong Kong's dollar peg leads to increased US exports in a large number of industries. Second, comparing our results with those of a previous study shows strong evidence of a ‘third country’ effect, especially for US imports. Nonparametric tests suggest that these effects differ by sector: for both exports and imports. Manufacturing industries that enjoy a large trade share are less likely to experience this effect once external volatility is incorporated into the analysis.     

Institutionalism and Econometrics: Toward a Meaningful Synthesis

For the last twenty years, the world economy has evolved at a great speed. Every good, capital asset, and knowledge is mobile and induces more competition. Innovation in commodities is a complex process that requires more cooperation. To innovate in the knowledge economy, firms nowadays must establish “win-win situations” for individuals in creating networks. These networks are useful for firms in order to come up with innovative strategies. The building of networks enables the interactions between agents, the environment, and institutions. The interdependence of agents and institutions is not new to evolutionary theory (Commons 1931 Commons, John R. “Institutional Economics.” American Economic Review 21, 4 (1931): 648–657. [Google Scholar]; Veblen 1898 Veblen, Thorstein. “Why Is Economics Not an Evolutionary Sciences?” Quarterly Journal of Economics 12, 2 (1898): 373–397.[Crossref] , [Google Scholar]). However, I argue that institutions must be more flexible than ever before in order to help agents adapt to the modern knowledge economy. On the basis of the role of meso-networks, I propose new long-run specialization and short-run competitiveness that will promote greater efficiency and equality around the world in relation to firms and countries exporting industrial goods into world markets. Within the innovative networks, I analyze the role of two different actors: (i) the “economic leader” who has a long-run strategy and (ii) the “go-between leader” who knows how to diffuse “useful information” to actors to help them innovate in new products, services, or processes.     

Comments on the Institutionalist View of Reaganomics

Gender inequality is caused by numerous factors, among which one may find traditional division of labor, family, religion and many other institutions. The state also influences a position of women in society and economy. Nowadays most western states seem to engage in the promotion of equal status of men and women. The European Union (EU) is known for its policy of gender mainstreaming that has been implemented in member states. The EU, however, promotes a neoliberal approach in the economy that seems to be in contradiction to the promotion of gender equality.

In Poland, tendencies to liberate, privatize and deregulate are warmly welcomed as cures for economic underdevelopment. Gender equality, on the other hand, has been challenged as a relic of the former political system. In this paper, the author attempts to answer the question whether macroeconomic policy promoted by the EU influences the status of women in Poland.     

Tax Auditing as a Public Good Game: An Experimental Study on Punishment and Compliance

Prior experimental studies on tax evasion generally assume that the budget and the probability of audit are exogenously given, and ignore taxpayers' incentives to detect evasion and their compliance behaviour under such incentives. The experimental evidence of the present paper shows that, on average, subjects are willing to spend 20 to 30% of their tax revenue on auditing. Compliance is also greatly improved if subjects can determine the budget and, hence, the probability of audit. These findings suggest that taking taxpayers' incentives to detect evasion into consideration is important for the design of compliance‐improvement audit schemes.     

Nesting Horizontal and Vertical Differentiation with Location Choices

This study solves a location‐then‐price game in which horizontal and vertical differentiation are combined using an asymmetric distribution of consumers’ taste. Boundary locations are robust when the taste disparity of the population is not large and out‐of‐market locations are not allowed. Firms may have incentives to move either inside or outside the market in other situations, so the equilibrium prices are never differentiated. The restrictions of vertical differentiation under this framework are further examined. A model with the entrance of a vertically differentiated product is also discussed.     

On indeterminacy and growth under progressive taxation and productive government spending

We examine the theoretical interrelations between equilibrium (in)determinacy and economic growth in a one‐sector representative‐agent model of endogenous growth with progressive taxation of income and productive flow of public spending. We analytically show that, if the demand‐side effect of government purchases is weaker, the economy exhibits an indeterminate balanced‐growth equilibrium and belief‐driven growth fluctuations when the tax schedule is sufficiently progressive or regressive. If the supply‐side effect of public expenditures is weaker, indeterminacy and sunspots arise under progressive income taxation. In sharp contrast to traditional Keynesian‐type stabilization policies, our analysis finds that raising the tax progressivity may destabilize an endogenously growing economy with fluctuations driven by agents’ self‐fulfilling expectations.