Explaining constitution-makers’ preferences: the cases of Estonia and the United States

This article is concerned with the effects of the kinds of framers involved in constitution-making on the content of constitutional provisions proposed during the drafting process. It tests the hypotheses that predict framers’ constitutional preferences on the basis of their institutional position, partisan background and constitutional expertise with two specific cases: the Constitutional Assembly of Estonia (1991–1992) and the Federal Convention (1787) of the United States. The case studies show that most of the hypotheses find only partial confirmation in both instances of constitution-making. The institutional position of a framer (being a member of existing legislature or executive) and constitutional expertise does not necessarily influence his or her constitutional preferences in the predicted way. The only theoretical proposition that is corroborated in both cases concerns the importance of group interest in a constitutional choice of electoral system and modes of representation: in the Estonian case, the design of the constitutional electoral rules was strongly influenced by partisan interest; in the US case, the interests of territorial subunits played a major role.     

An experimental analysis of team production in networks

Experimental and empirical evidence highlights the role of networks on social outcomes. This paper tests the properties of exogenously fixed networks in team production. Subjects make the same decisions in a team work environment under four different organizational networks: the line, the circle, the star, and the complete network. In all the networks, links make information available to neighbors. This design allows us to analyze decisions across networks and a variety of subject types in a standard linear team production game. Contribution levels differ significantly across networks and the star is the most efficient incomplete network. Moreover, our results suggest that subjects act as conditional cooperators with respect to the information received from the network.     

Weitzman Revisited: Emission Standards Versus Taxes with Uncertain Abatement Costs and Market Power of Polluting Firms

Studies dealing with the optimal choice of pollution control instruments under uncertainty have invariably taken it for granted that regulated firms face perfectly competitive markets. By introducing the product market into the stochastic framework of Weitzman (Rev Econ Stud 41:477–491, 1974), this paper shows for the case of a polluting symmetric Cournot oligopoly that Weitzman’s policy rule for choosing emission standards versus taxes with uncertain abatement costs is biased in the presence of market power. Since the oligopolists take into account their influence on the market price, their total abatement effort, including the restriction of output, is less vulnerable to miscalculations of the tax rate compared to price-taking firms. Consequently, the comparative advantage of instruments is shifted in favour of taxes. In a further step, the provided policy recommendations are generalised by abolishing the assumption that firms are symmetric.     

Improving the econometric precision of regulatory models

Regulatory regimes often attempt to introduce quasi-competitive pressures by undertaking comparative efficiency assessments between the regulated companies and setting company-specific cost reduction targets based on those comparisons. The UK water industry is one example of such a regime—indeed, it has emphasized the importance of maintaining the number of independent companies in order to preserve the robustness of the modeling. For example, in 2007, the Competition Commission considered whether the merger between Mid Kent Water and South East Water might prejudice the ability of the regulator (Ofwat) to make comparisons across water companies for the purposes of assessing performance and setting price controls. In this paper, we examine this issue and provide specific recommendations to regulators. Our cross-sectional results show that the impact of this merger is not significant. We demonstrate that joint estimation of all the sub-models using the ‘seemingly unrelated regression’ (SUR) procedure in a cross-section and/or panel data framework can dramatically improve the accuracy of the modeling. Moreover, the merger does not affect the confidence intervals significantly under such approaches, which still remain far superior to those under Ofwat’s cross-sectional approach. Based on these results, we recommend that Ofwat and other regulators adopt SUR and/or panel data analysis and thereby reduce their reliance on having sufficient numbers of independent companies.     

Not just guidelines: Pirate codes and the emergence of property rights in <Emphasis Type="Italic">The Invisible Hook</Emphasis>

Peter Leeson’s The Invisible Hook provides a readable and entertaining narrative of the hidden economics of the Golden Age of Piracy. This essay comments on one particular aspect of Leeson’s work: what we can learn from pirates about the emergence and evolution of property rights? I conclude that pirate codes had their origins in part in legally enforceable agreements and that pirates’ blend of individual and communal property rights bore some resemblance to the property rights of wandering tribal peoples.     

Choice Certainty and Consistency in Repeated Choice Experiments

The main objective of this study is to examine how repeated choice affects preference learning in stated preference experiments. We test different hypotheses related to preference learning by analyzing response patterns and asking respondents in a choice experiment to report their experienced certainty when going through the choice tasks. In a split-sample test, we show that follow-up choice certainty questions are procedural invariant. The self-reported certainty results indicate that learning occurs, but econometric testing procedures do not identify any significant impact of learning effects on parameter estimates or variance across choice tasks. Additional tests of choice consistency suggest that preferences in the choice experiment are stable and coherent.     

The Economic Impact of SFAS NO. 157

Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” (SFAS 157) defines fair value, establishes a three tiered framework for measuring fair value and expands the required disclosures about fair value measurements. The objective of this study is to examine and evaluate the benefits of the information disclosed by SFAS 157. The results of our study indicated that a large majority of the inputs are observable in that 93.5% of the sample financial assets and 93.1% of the sample financial liabilities were measured by level 1 or 2 criteria. However, we found a mismatch between assets and liabilities subject to the three tiers of fair value measurements. The companies in our sample disclosed $18.8 trillion in total assets, with 51%, or $18.8 trillion in total assets, with 51%, or 9.5 trillion reported at fair value. Whereas, sample company liabilities totaled 16.1 trillion with only16.1 trillion with only 3.7 trillion or 23% reported at fair value.     

Endogenous I-S and External L-M Diagram in Equilibrium towards Policy-Making

This paper reforms the conventional I-S and L-M diagram endogenously, clarifying how to finalize the relationship between the real and financial assets, replacing the I-S by the rate of return function of the ratio of investment to output/income and the L-M by the ratio of M2 to endogenous capital K, after verifying the neutrality of the markets to the real assets, and using endogenous parameters and variables in the 58 country data-sets, 1990–2007 (KEWT 3.09), with three average areas, where equilibrium holds by year, country, and sector, over years. This diagram and its interpretation are able to present urgent policies for perceiving a bud of bubbles and suggesting urgent steps not to reoccur bubbles.     

Endogenous market structures and antitrust policy

I revisit the post-Chicago approach to antitrust issues examining markets whose structure is endogenous. The usual analysis of oligopolies with strategic interactions and an exogenous number of firms is extended to the case of endogenous entry, which determines the degree of market power. The role of predation is evaluated within a generalization of the contestability theory to strategic interactions. Endogenous entry requires a revision of our understanding of the role of incumbents in pricing, producing in the presence of network externalities, bundling products, price discriminating, and delegating to retailers through vertical restraints: when entry is endogenous, leaders adopt aggressive strategies typically without exclusionary purposes and without reducing welfare. Endogenous entry has also implications for the analysis of mergers, that take place only if they create enough cost efficiencies and do not harm consumers, beneficial concentration, technology transfers, and cartels. The spirit of the policy recommendations of the Chicago school is broadly supported by our analysis.