International Economic Review, 40, 209-230This paper provides a theory of strikes as part of a constrained efficient enforcement mechanism for an implicit contractual agreement. A firm possessing contemporaneously private information about demand engages in an enduring relationship with its work force. If the information becomes perfectly observable subsequently, then, modulo discounting, the first–best is implementable, but strikes are always off the equilibrium path. If the observations of the workforce are imperfect strikes occur in equilibrium. The dynamic contracting problem is modeled as a repeated game with imperfect monitoring. The equilibrium exhibits production inefficiency and incomplete insurance to mitigate the efficiencies caused by strikes.
I argue that the impact of development on the distribution of political power in society may create an incentive for a state to become 'predatory' and fail to promote economic development. I develop a model of endogenous policy choice where public investment, while socially productive, simultaneously increases the ability of agents outside the ruling group to contest political power. The model shows that ineffcient underinvestment (predatory behavior) tends to arise in societies where, (1) there are large benefits to holding political power, and which are, (2) well endowed which natural resources, (3) badly endowed with factors which are complementary to public investment, such as human capital, and (4) intrinsically unstable. I document the importance of the mechanism I propose in accounting for the behavior of actual predatory regimes.
This paper investigates private–interest, public–interest, and political–institutional theories of regulatory change to analyze state–level deregulation of bank branching restrictions. Using a hazard model, we find that interest group factors related to the relative strength of potential winners (large banks and small, bank–dependent firms) and losers (small banks and the rival insurance firms) can explain the timing of branching deregulation across states during the last quarter century. The same factors also explain congressional voting on interstate branch–ing deregulation. While we find some support for each theory, the private interest approach provides the most compelling overall explanation of our results.
From the Quarterly Journal of Economics 114 (November 1999): 1437-67Download PDF
In this paper we estimate a bargaining model of government formation in parliamentary democracies. We use the estimated structural model to conduct policy experiments aimed at evaluating the impact of institutional features of the bargaining environment on the type of coalitions that form (e.g., minority or majority) and on their relative stability.
Did the Cold War matter for US–Latin American relations? In many respects, the answer is no. The United States had faced military, political and economic competition for influence in the Americas from extracontinental powers before the Cold War, just as it did during the Cold War. The United States had pursued ideological objectives in its policy towards Latin America before, during, and after the Cold War. And the pattern of US defence of its economic interests in Latin America was not appreciably different during the Cold War than at previous times. From these singular perspectives, it is difficult to assert that the Cold War was a signficantly distinctive period of US–Latin American relations; it looked like 'more of the same'.Nonetheless, the Cold War emerges as significantly distinctive in U.S. relations with Latin America because ideological considerations acquired a primacy over U.S. policy in the region that they had lacked at earlier moments. From the late 1940s until about 1960, ideology was just one of the important factors in the design of U.S. policy toward Latin America. The victory and consolidation of the Cuban revolutionary government changed that. In its subsequent conduct of the key aspects of its policy toward Latin America, the U.S. government often behaved as if it were under the spell of ideological demons.
New light has recently been shed on the influence of fundamentalist Protestant orientations on educational attainment; such reexamination has revived debates over the material consequences of culture. In this paper, Darren Sherkat and Alfred Darnell consider the effect of parents' fundamentalist orientation on their childrens' educational attainment. Using data from the Youth Parent Socialization Panel Study, Sherket and Darnell divide the sample to show how the influence of parents' fundamentalism varies by gener of the child and by the youth's fundamentalism. They find that fundamentalist parents hinder the educational attainment of their nonfundamentalist children, and also that such parents are more supportive of male fundamentalist children's education that are non–fundamentalist parents.
This paper evaluates the effects of fiscal policy on investment using a panel of OECD countries. We find a sizeable negative effect of public spending – and in particular of its wage component – on profits and on business investment. This result is consistent with models in which government employment creates wage pressure for the private sector. Various types of taxes also have negative effects on profits, but, interestingly, the effects of government spending on investment are larger than those of taxes. Our results can explain the so called "non–Keynesian" (i.e. expansionary) effects of fiscal adjustments.
This study argues that the states of Southeastern Europe must devote special emphasis to the promotion of an arms control regime in the region which will aim at achieving three particular goals, i) conflict prevention, ii) crisis stability and iii) arms race stability. To this end a hypothetical, yet necessary, political framework for organizing arms control efforts in the peninsula will be described. The study is divided into three parts. Firstly, an account of the trends and characteristics of the post–Cold War Southeast European security environment is given. In addition, the current status of the arms control enterpise with respect to both intra–state (i.e., the arrangements entailed in the Dayton Peace Accord) and inter–state conflict (i.e., the agreeements concluded and implemented by Southeast European states on bilateral and multilateral level) is presented. Particular reference is made to the Greek–Turkish arms race and its consequences for the region?s stability.
The past decade has witnessed a growing controversy over the status of formal approaches in political science, and especially the growing prominence of formal rational choice theory. Rational choice models have been an accepted part of the academic study of politics since the 1950s, but their popularity has grown significantly in recent years. Elite academic departments are now expected to include game theorists and other formal modelers in order to be regarded as "up to date," graduate students increasingly view the use of formal rational choice models as a prerequisite for professional advancement, and research employing rational choice methods is becoming more widespread throughout the discipline. Is the increased prominence of formal rational choice theory necessary, inevitable, and desirable?
A conventional wisdom holds that the European and American economies represent different ways of organising the generation and distribution of wealth to produce similar outcomes in terms of economic performance. Around a common long–run growth rate of 2.5% per annum, the United States has opted for slow productivity growth, more employment and an army of working poor while Europe has opted for higher productivity growth, more unemployment and a much tighter distribution of incomes. Recently this wisdom has come under attack as growing evidence of superior US performance in growth and improved performance on productivity along with very low unemployment has constrasted with anemic European growth and a very poor employment performance. Under this new scenario, rigidities in European product and particularly labour markets are undermining recovery and leading to jobless growth of modest proportions.
The paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages. Explicit solution of the wage–setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare, expected output, and the expected terms of trade. Despite the potential interplay between imperfections due to sticky wages and monopoly, the optimal monetary policy rule has a closed–form solution. To motivate our model, we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local–currency pricing.
One of China's chief problems at this point is that, in its desire to bring about economic development while retaining political control, Party leaders are not sure how tolerant they can be, while the Chinese people, on the other hand, do not know what individual activities are accepted at a any given time. Since 1978 and throughout China=s opening to the West, Chinese leaders have encouraged the people to achieve economic prosperity and have even promoted private ownership, whereas social activities have been suppressed. The latest confrontation in China occurred in late 1998, when President Jiang Zemin denounced attempts to found an opposition party and made clear that AEconomic reforms were not a prelude to Western style multiparty democracy.@5 Also the Tiananmen Square incident in 1989 destroyed much of the internal and international trust that had been created during the previous ten years. This kind of rough handling is contrary to the people=s standpoint; many of them, especially those educated abroad, can compare both the political atmosphere and the Party's promises about "socialistic freedom" with their experiences in other countries.
Failure to cooperate for mutual benefit does not necessarily signal ignorance or irrationality or even malevolence, as philosophers since Hobbes have underscored. Social scientists have lately analyzed this fundamental predicament in a variety of guises: the tragedy of the commons; the logic of collective action; public goods; the prisoners' dilemma. In all these situations everyone would be better off if everyone could cooperate. In the absence of coordination and credible mutual commitment, however, everyone defects, ruefully but rationally, confirming one another's melancholy expectations.
It is nearly a decade since most African countries embarked on what Samuel Huntington has popularized as the "third wave of democracy". The proliferation of political institutions, the liberalization of the economic and political landscapes, the regularity of elections hitherto unheard of in certain African countries, and a decline in military coups in the 1990s, have all signaled that a momentum towards democratic consolidation on the continent is on the increase. Yet, these formalisms of procedural democracy have also concealed a much more profound pattern of declining press freedom on the continent, as African governments, under the guise of constitutional rule, have resorted to the enactment of suppressive laws against an increasingly critical media. In most of the new democracies, as this paper attempts to show, new parliamentary bills that are hostile to the media, are increasingly being promulgated, and this includes countries that have traditionally been considered democratic. This paper posits the question that, given this evolving trend, and considering that the media is the mirror of society?s freedom, can we authoritatively conclude that democracy is gaining momentum in Africa?
Transitory food insecurity in poor countries is not directly or significantly linked to changing conditions in world grain markets. Per capita grain consumption in the developing countries did not generally worsen when grain export prices increased in 1973–74, or when they increased again briefly in 1995–96, and consumption generally grew more rapidly during the decade of the 1970s (when prices were high) than during the decade of the 1980s (when prices were low). This is partly because reliance on grain imports by genuinely poor developing countries is low, and lower today than several decades ago even when food aid is taken into account. This low dependence cannot be explained as a response to the instability of world grain markets or as a justifiable response to unreliable supplier concerns; it reflects instead a more general aversion by poor countries to all freely operating food markets, domestic as well as foreign. Transitory food insecurity thus seldom results from the malfunction of food markets. Its most conspicuous cause is violent internal conflict, plus non–accountable governments and natural disasters such as drought.
Working Paper 99–06, Weatherhead Center for International Affairs, Harvard University, April 1999. Download PDF
In "Rigor or Rigor Mortis: Rational Choice and Security Studies," Stephen Walt warns of the dangers to the field of security studies that are in store "[i]f formal theory were to dominate security studies as it has other fields of political science." He backs up these warnings by evaluating published formal work in the field according to seemingly reasonable criteria, finding that the gain in rigor inherent in formal work is not sufficient to offset its empirical, creative, and policy–relevance weaknesses. While Walt ends with a plea for diversity, the overall structure of the argument puts rational choice on trial, finds it lacking but threatening to become dominant, and does little to serve the purpose of encouraging pluralism.