Regulation and rent‐seeking: The role of the distribution of political and economic power

It is shown that the joint distribution of economic and political power plays a key role in determining regulatory and tax policies of national and subnational governments. If both economic and political power are evenly distributed across individuals, then regulatory and tax policies are efficient, but if they are unevenly distributed and positively correlated, then regulatory policy is used by subnational governments to redistribute income in favor of individuals with higher economic and political power at the expense of productivity and output. Consequently, the national government has to raise the tax rate to finance public expenditure. Moreover, if there exists a positive correlation between economic and political power, then the higher the fiscal gap, the larger the gap between equilibrium and efficient policies because subnational governments underestimate more the fall of public revenues caused by inefficient policies.     

Conflict technology in cooperation: The group size paradox revisited

This paper studies the implications of punishment‐induced conflict in a public goods game. It shows, under plausible assumptions, how larger group size sometimes enhances punishing behavior in social dilemmas and hence supports higher levels of cooperation. Unlike existing approaches that focus on uncoordinated punishment, I consider punishment as a coordinated activity that may be resisted by those being punished and study the implications of punishment‐induced conflict situations. Developing a conflict model of punishment and combining it with a standard public good game, I show that coordinated punishment can yield the concentration effect of punishment, leading to a larger group advantage; that is, the larger the group, the easier it becomes to organize cooperation. The key idea is that when punishers coordinate their punishment, punishers as a coalition successfully divide defectors and punish each defector one by one. Surprisingly, even when coordination among punishers decays as group size increases, as long as the rate of decaying remains relatively slow the larger group advantage still obtains.     

Discounting and welfare evaluation of policies

We start with the premise that if policy discounting is to have any welfare relevance, one has to accept it being a derivative of a social welfare function (SWF). We show that if that derivative is to have a net present value (NPV) form, then the baseline allocation must be stationary. In addition, we show that at a stationary baseline in an overlapping generations growth economy, the intergenerationally fair discount rate equals the growth rate of per‐capita consumption, which is, roughly, 2% for the United States. This differs from the interest rate, even in the golden rule equilibrium, unless population growth is null. The last result is based on the main theorem in Mertens and Rubinchik (2012) and is demonstrated for a policy space that might naturally arise in applications.     

Is Private Saving in Latin America and the Caribbean Different?

Private saving and economic growth are intimately linked, and low saving rates in Latin America and the Caribbean (LAC) have often been held responsible for disappointing growth in the region. Thus, identifying factors that spur saving is critical. This paper surveys previous empirical studies on LAC, highlighting contradictions, omissions and in some cases inconclusiveness of findings. Relying on a large dataset and a nested econometric framework, it analyzes private saving patterns and explores the role of its determinants in LAC, across LAC sub‐regions and compared with other regions. While the results highlight great heterogeneity in private saving rates within LAC and compared with the rest of the world, saving determinants are broadly the same notwithstanding some differences in sensitivity and contributions' sizes, and include its lag, income, demographics and public saving.     

Dissecting Exchange Rates and Fundamentals in the Modern Floating Era: The Role of Permanent and Transitory Shocks

In this paper, we apply a permanent–transitory decomposition method to analyze the link between nominal exchange rates and fundamentals in the modern floating era. The results suggest that transitory shocks dominate nominal exchange rate fluctuations, while permanent shocks dominate the variations in fundamentals. Therefore, the findings suggest that the nominal exchange rate should not be approximated by a pure random walk. Moreover, we find that unobserved fundamentals in the Taylor rule model can explain the transitory components in exchange rates.     

Do networks or performance impact the promotion of Chinese officials? Evidence from prefecture‐level cities

This study examines the effects of connections and economic performance on the promotion of Chinese city mayors. Our study differs from the published literature in four respects. First, this study covers a comprehensive data set, including 1,422 mayors from 284 prefecture‐level cities. The use of a large data set helps resolve mixed results of past studies. Second, we use a broader range of top leaders. Third, we apply a more comprehensive definition of connections than earlier studies. Finally, we examine the effects of the policy shift of the 11th 5‐year plan on promotion of mayors. Our results reveal that the performance of a city mayor assisted his/her promotion to party secretary before 2006 but not afterwards. However, a mayor's connection with five types of top leaders is helpful. Among the four types of connection, colleagueship is the most effective in expediting the promotion of mayors. Graduating from the same university and department is also helpful but to a lesser extent. Township connection is not useful.     

The interaction effect of gender and ethnicity in loan approval: A Bayesian estimation with data from a laboratory field experiment

Microfinance targets women and uses loan provision as a tool for empowerment, which translates into better household nutrition, improved education, and a scale down of domestic violence. However, ethnic discrimination in microfinance may exist in countries with a segregated indigenous population. We assessed this possibility with a field experiment in Bolivia. The controlled laboratory experiment evaluated whether credit officers rejected microloan applications based on the interaction effect of ethnicity and gender of potential borrowers. Point estimates of a Bayesian mixed‐effects logistic regression, estimated with the experimental data, indicate that nonindigenous women have double the chance of loan approval, but indigenous women have only 1.5 times the chance of loan approval when compared with men. While the findings about gender are limited, the evidence for the interaction of gender and ethnicity is more robust and suggests the existence of positive taste‐based discrimination favorable for nonethnic women in Bolivia. We conclude that the affirmative actions towards women promoted by development agencies and microfinance institutions must not overlook ethnicity as an important factor for financial policies of sustainable development. In practice, these policies should be aimed at identifying and reducing both social desirability bias and the structural barriers to financial inclusion that indigenous women may face when trying to obtain access to a loan.     

Nursing home choice,family bargaining,and optimal policy in a Hotelling economy

We develop a model of family bargaining to study the impact of the distribution of bargaining power within the family on the choice of nursing homes by families, and on the locations and prices chosen by nursing homes in a Hotelling economy. In the baseline (static) model, where the dependent parent cares only about the location of the nursing home, the markup of nursing homes is increasing in the bargaining power of the dependent parent, and nursing homes are located at the extreme periphery. We compare the laissez‐faire with the social optimum (which involves more central locations of nursing homes), and examine its decentralization in first‐best and second‐best settings. We explore the robustness of our results to introducing a bequest motive in a dynamic overlapping generations model, which allows us to study the joint dynamics of wealth accumulation and nursing home prices. If the bequest motive is strong, the markup is decreasing in the bargaining power of the dependent. However, wealth accumulation, by reducing interest rates, raises markup rates and nursing homes prices.     

Bergstrom,Blume, and Varian: Voluntary contributions and neutrality

Bergstrom, Blume, and Varian provided a neutrality result for the private provision of public goods that has inspired a considerable literature. The result has significant implications for income redistribution and broader policy interventions. This paper reviews the basic result and its applications, and discusses extensions to general private provision economies.     

THE IMPACT OF ANTI‐TERRORISM EXPENDITURE ON ECONOMIC GROWTH AND WELFARE

This paper examines the effects of increasing anti‐terrorism expenditure on economic growth rate and social welfare. It is shown that: (i) spending the least amount possible on anti‐terrorism expenditure will lead to a maximum economic growth rate; and (ii) to achieve maximum social welfare, the government should allocate its budget to anti‐terrorism expenditure. The results shed light on why the US government has chosen to uphold and pursue its anti‐terrorism policies in recent years to present day.