Property rights in a very poor country: tenure insecurity and investment in Ethiopia

This article provides evidence from one of the poorest countries in the world that the institutions of property rights matter for efficiency, investment, and growth. With all land state‐owned, the threat of land redistribution never appears far off the agenda. Land rental and leasing have been made legal, but transfer rights remain restricted and the perception of continuing tenure insecurity remains quite strong. Using a unique panel data set, this study investigates whether transfer rights and implied tenure insecurity affect household investment decisions, focusing on trees and shrubs. The panel data estimates suggest that limited perceived transfer rights negatively affects the long‐term investment in Ethiopian agriculture, contributing to the low returns from land and perpetuating low growth and poverty.     

Do individual disclosure rules for parliamentarians improve government effectiveness?

The pros and cons of stricter disclosure rules for parliamentarians are hotly debated. Some argue that disclosure rules for parliamentarians increase transparency of the legislative branch, leading to lower levels of rent-seeking and corruption, increased citizen trust in parliament, and better quality of law-making. Others argue that disclosure rules endanger the privacy of parliamentarians, that their introduction would stop businesspeople and lawyers from running for seats, which would decrease the quality of law-making. This is the first attempt to empirically test these conjectures on the composition of parliament empirically. We find that the introduction of disclosure rules is usually not accompanied by a significant shift in the proportion of lawyers and businesspeople in parliament.     

Effects of innovation on employment: A dynamic panel analysis

This paper estimates the effect of innovation on employment at the firm level. Our uniquely long innovation panel data set of German manufacturing firms covers more than 20 years and allows us to use various innovation measures. We can distinguish between product and process innovations as well as between innovation input and innovation output measures. Using dynamic panel GMM system estimation we find positive effects of innovation on employment. This is true for innovation input as well as for innovation output variables. Innovations show their positive effect on employment with a time lag and process innovations have higher effects than product innovations.     

The effects of total factor productivity and export shocks on a small open economy with unemployment

The paper analyzes the dynamic effects of a supply side shock and a demand side shock, which hit an open economy with unemployment. The supply side shock is modeled as a reduction in total factor productivity, whereas the demand side shock is caused by a drop in exports. The model builds upon the small one-sector two-good open economy framework described in Turnovsky (2000, chapter 11.3). In contrast to this standard framework, in which Walrasian labor markets are assumed, search unemployment and wage bargaining are introduced, and unemployment results from time consuming and costly matching of vacancies with searching agents. Using a plausible calibration of the model, the dynamic adjustments of unemployment, output, and other economic key variables are analyzed. We find that a negative export shock primarily has effects on consumption and welfare, but not on unemployment and output, whereas the supply side shock leads to considerable responses of unemployment, output, consumption and welfare. If both shocks together hit the economy, the changes in consumption and welfare almost double.     

Externalities in a life cycle model with endogenous survival

We study socially vs individually optimal life cycle allocations of consumption and health, when individual health care curbs own mortality but also has a spillover effect on other persons’ survival. Such spillovers arise, for instance, when health care activity at aggregate level triggers improvements in treatment through learning-by-doing (positive externality) or a deterioration in the quality of care through congestion (negative externality). We combine an age-structured optimal control model at population level with a conventional life cycle model to derive the social and private value of life. We then examine how individual incentives deviate from social incentives and how they can be aligned by way of a transfer scheme. The age-patterns of socially and individually optimal health expenditures and the transfer rate are derived. Numerical analysis illustrates the working of our model.     

Does membership in international organizations increase governments’ credibility? Testing the effects of delegating powers

This paper analyzes whether nation-state governments can increase their credibility by becoming members of international organizations. It is hypothesized that the degree of delegation to international organizations can improve the credibility of nation-state governments. This hypothesis is tested by introducing three new indicators for international delegation. On the basis of panel data for up to 136 countries and the time period from 1984 to 2004, membership in international organizations is significantly and robustly linked with better credibility, here proxied for by country risk ratings.     

Consumption risk, technology adoption and poverty traps: Evidence from Ethiopia

Much has been written on the determinants of technology adoption in agriculture, with issues such as input availability, knowledge and education, risk preferences, profitability, and credit constraints receiving much attention. This paper focuses on a factor that has been less well documented: the differential ability of households to take on risky production technologies for fear of the welfare consequences if shocks result in poor harvests. Building on an explicit model, this is explored in panel data from Ethiopia. Historical rainfall distributions are used to identify consumption risk. Controlling for unobserved household and time-varying village characteristics, it emerges that not just ex ante credit constraints, but also the possibly low consumption outcomes when harvests fail, discourage the application of fertilizer. The lack of insurance or alternative means of keeping consumption smooth leaves some trapped in low return, lower risk agriculture, one of the mechanisms through which poverty perpetuates itself in agrarian settings.     

A dynamic perspective on minimum quality standards under Cournot competition

Imposing a minimum quality standard (MQS) is conventionally regarded as harmful if firms compete in quantities. This, however, ignores its possible dynamic effects. We show that an MQS can hinder collusion, resulting in dynamic welfare gains that reduce and may outweigh the static losses which are caused by regulation’s distortive effect on equilibrium qualities.     

Optimal fiscal and monetary policies in the face of rare disasters

This paper studies optimal fiscal and monetary policies in an economy exposed to large adverse shocks (rare disasters). We contrast optimal policies under commitment and discretion and identify several striking differences between these institutional environments. A government that can commit to its policy plans relies heavily on debt to smooth the adverse effects of large shocks over time. Lack of commitment seriously limits the government's ability to use debt as a shock absorber. Under discretion, an increase in debt leads to an increase in inflation expectations and therefore higher nominal interest rate distortions. Hence, the discretionary government keeps debt in close vicinity of its steady-state level, and the response of taxes, inflation, and interest rates to shocks is much more pronounced under discretion than under commitment. This is particularly relevant for large shocks and when the initial stock of government debt is already high at the time the shock occurs. We also argue that the adverse welfare effects of disasters are larger under discretion than under commitment, but these welfare differentials can be significantly reduced by making the discretionary government inflation averse.