Fixed versus flexible exchange rates in an equilibrium business cycle model

This essay re-examines the question of which exchange rate regime is preferable, using a rational expectations model that explicitly incorporates wealth, and emphasizing the information-signalling role of prices. Previous authors have stressed the argument that floating rates provide agents with an additional source of information, which improves forecasting accuracy, leading to more efficient allocations. This paper adds the counterweighing argument that they also have the effect, in contrast to fixed rates, of introducing an additional source of (monetary) disturbances in the determination of real variables. Another issue addressed is the nature of exchange rate adjustments to monetary disturbances.     

The emergence of a protective agency and the constitutional dilemma

In the last decades' revival of contractarianism a constitutional contract is interpreted as a device to overcome the hypothetical state of anarchy. It is not entirely clear, however, how, in a pre-constitutional setting that lacks any institutional forms, an unanimous agreement on the rules and the agency enforcing the rules can be imagined to emerge. This paper conceptualizes the problem in game-theoretic terms. A solution is discussed together with an old dilemma that turns up in this context. The dilemma results from the fact that the protective agency has to be endowed with sufficiently powerful coercive means to prevent anyone breaking the social contract. However, this concentration of power itself may induce a violation by making the protective agency usurp its power. The logical basis of the dilemma is explored together with the conditions under which it may challenge the contractarian approach. I would like to thank Juli Irving-Lessmann, Dennis Mueller, Viktor Vanberg, Georg von Wangenheim, and in particular Hartmut Kliemt for helpful comments on an earlier draft.     

Europeanizing the labour market: Employee mobility and company recruiting methods

With the completion of the single European market steps are to be made towards eliminating remaining impediments to the free movement of labour between Community countries such as an inadequate flow of information or the non-recognition of educational or training qualifications. How do companies respond to the extension of national labour markets by a European component?     

Biases in the allocation of foreign aid: Some new evidence

The purpose of the paper is to examine the pattern of bilateral and multilateral foreign aid allocations during the 1970s. Cross-section and pooled regressions for a set of roughly 90 countries where aid allocations have been relatively free of gross political overtones confirm the well-known bias in per capita aid flows against populous countries, butdo not provide evidence of a middle income bias. Instead, regressions on 1976–1978 aid flows and per capita incomes of recipient countries seem to suggest a low income bias, i.e. low income countries received more aid per capita than middle income countries. Yet, there was asample of extremely poor countries which remained neglected in foreign aid allocations.