This landmark theoretical book is about the mechanisms by which special
interest groups affect policy in modern democracies. Defining a special
interest group as any organization that takes action on behalf of an
identifiable group of voters, Gene Grossman and Elhanan Helpman ask:
How do special interest groups derive their power and influence? What
determines the extent to which they are able to affect policy outcomes?
What happens when groups with differing objectives compete for
influence?The authors develop important theoretical tools for studying
the interactions among voters, interest groups, and politicians. They
assume that individuals, groups, and parties act in their own
self-interest and that political outcomes can be identified with the
game-theoretic concept of an equilibrium. Throughout, they progress
from the simple to the more complex. When analyzing campaign giving,
for example, they begin with a model of a single interest group and a
single, incumbent policy maker. They proceed to add additional interest
groups, a legislature with several independent politicians, and
electoral competition between rival political parties. The book is
organized in three parts. Part I focuses on voting and elections. Part
II examines the use of information as a tool for political influence.
Part III deals with campaign contributions, which interest groups may
use either to influence policy makers’ positions and actions or to help
preferred candidates to win election.
Paper presented at the PIEP conference in November 2000. Download PDF
A 500–pound tuna is caught off the coast of New England or Spain, flown thousands of miles to Tokyo, sold for tens of thousands of dollars to Japanese buyers…and shipped to chefs in New York and Hong Kong? That's the manic logic of global sushi.
This paper compares retrospective and prospective analyses of the effect of flip charts on test scores in rural Kenyan schools. Retrospective estimates that focus on subjects for which flip charts are used suggest that flip charts raise test scores by up to 20 percent of a standard deviation. Controlling for other educational inputs does not reduce this estimate. In contrast, prospective estimators based on a study of 178 schools, half of which were randomly selected to receive charts, provide no evidence that flip charts increase test scores. One interpretation is that the retrospective results were subject to omitted variable bias despite the inclusion of control variables. If the direction of omitted variable bias were similar in other retrospective analyses of educational inputs in developing countries, the effects of inputs may be even more modest than retrospective studies suggest. Bias appears to be reduced by a differences–in–differences estimator that examines the impact of flip charts on the relative performance of students in flip chart and other subjects across schools with and without flip charts, but it is not clear that this approach is applicable more generally.
European Economic Review, 44, 683-693Regimes controlled by a rich elite often collapse and make way for democracy amidst widespread social unrest. Such regime changes are often followed by redistribution to the poor at the expense of the former elite. We argue that the reason why the elite may have to resort to full–scale democratization, despite its apparent costs to themselves, may be that lesser concessions would be viewed as a sign of weakness and spur further unrest and more radical demands. The elite may therefore be forced to choose between repression and the most generous concession, a transition to full democracy.
More than fifty–five years ago,in February 1948, the British historian Lewis Namier (1888 –1960) delivered a lecture commemorating the centennial of the European revolution of 1848. His lecture has been published many times since then as "1848: Seed–plot of History," in, among other places,a volume titled Vanished Supremacies. Namier's choice of 1848 as a point of departure was well founded. There is a tired cliché that 1848 was a turning point in history when history failed to turn, but that is wrong. The year 1848 saw the first European revolutions: France was at the center, and there were also revolutions in Palermo, Naples, Vienna, Berlin, Buda, and Poznañ, to name a few. It was also the year of nationalist revolutions in Central Europe and the year of publication of The Communist Manifesto, which predicted that an international proletarian revolution would abolish capitalism, the state, nations, and nationalism. In 1848,as Kathleen Burk writes in her study of A.J.P.Taylor, the Austrian, or Habsburg, Empire "was a German as well as a Balkan Power,the keystone of the Concert of Europe;there was the German nation, but no Germany; there were Italian states, some of which belonged to the Austrian Empire, and two Italian kingdoms, but no Italy; France was still perceived by all the others as the most powerful,or at least the most threatening, of the continental Powers; and Russia was predominantly a European,not an Asiatic, Power ...."
Nixon was not the only one who went to China; Ronald McDonald is there now, too. McDonald's triumphed — in a cultural zone where many adults think fried beef patties taste bizarre — by catering to China's pampered only children, the so–called little emperors and empresses. The "Golden Arches" have become part of the landscape of Beijing and Hong Kong. But is McDonald's trampling local culture in the name of a bland, homogeneous world order? Not really. Global capitalism pushes one way, and local consumers push right back. Herewith, a parable of globalization.Published in Foreign Affairs 79, no. 3 (May/June 2000).
Why do some democracies choose economic policies that promote economic growth, while others seem incapable of prospering? Why are some polities able toprovide the public goods that are necessary for economic growth, while others turn the machinery of government toward providing private goods? Why are some countries able to make long term credible policy commitments, while others cannot? In what follows, we present a theory that argues that the diversity of economic policies is rooted in the diversity of democratic institutions in each country. Each polity, according to the divisions and necessities of its society chooses a set of democratic institutions to resolve its basic political problems. These institutions define a sequence of principal–agent relationships (Madison, Dahl 1967), commonly numbering at least three. First, the sovereign people delegate decision–making power (usually via a written constitution) to a national legislature and executive. The primary tools that the people retain in order to ensure appropriate behavior on the part of their representatives are two: the power to replace them at election time; and the power to set the constitutional rules of the political game. A second delegation of power occurs when the details of the internal organization of the legislature and executive are settled. This process entails the creation of ministerial positions, of committees, and of agenda control mechanisms. Here too constitutional regulations of the relationship between the legislature and the executive (is the legislature dissoluble? can cabinet ministers sit in the legislature?) come into play. Third, the legislature and the executive delegate to various bureaus and agencies to execute the laws. In this delegation, administrative procedures and law set the terms of the delegation.
On March 23, 1983, President Ronald Reagan shocked the national security establishment by calling upon the nation's scientific community, "who gave us nuclear weapons, to turn their great talents to the cause of mankind and world peace: to give us the means of rendering these weapons impotent and obsolete." Seventeen years have passed since that speech, and the United States has spent more than $60 billion trying to develop a defense against ballistic missiles. The Strategic Defense Initiative (SDI, or "Star Wars") and its successors have cost more than twice as much as the Manhattan Project (in constant dollars), but these programs have yet to produce a single workable weapon. This "achievement" is probably a record in the annals of defense procurement: never has so much been spent for so long with so little to show for it. Explaining how this happened—and why—is the main aim of Frances Fitzgerald's Way Out There in the Blue: Reagan, Star Wars, and the End of the Cold War. The "Star Wars" saga, according to Fitzgerald, is the story of how the United States came to chase a chimera. For Fitzgerald, "Star Wars" illustrates "the extent to which our national discourse about foreign and defense policy is not about reality—or the best intelligence estimates about it—but instead a matter of domestic politics, history, and mythology."
With the demise of the Soviet Union, the newly emerging countries of the Transcaucasus and Caspian regions were the objects of growing interest from the major Western powers and the international business community, neither of which had had access to the region since the early nineteenth century. The world?s greatest power, the United States, has never had a presence in this region, but it is now rapidly emerging as a major player in what is becoming a new classical balance of power game.
Once a dream, soon a reality? Euro–defense has been a myth or a daydream – especially for the French – since the inception of a unified Europe. Again, it has become highly topical, since St Malo, Cologne and even more since Helsinki? Might it, in the end, shadow the paramount issue of NATO enlargement? This topic has had different titles over the past few years. Should we still speak of ESDI (European Security and Defense Identity)? This was the somewhat "psychological" term forged to express the European yearning for a visibility of their own inside the Alliance, but this introverted phase of awakening is now passé. The European goals have been set in broad strokes, the design has been written in ink into formal documents, the institutions and means of the new policy are being built up. Therefore, my choice of the alphabet–soup name for the topic is ESDP (European Security and Defense Policy). Let it be known, however, that the issue is no other than the future of European defense in both the European Union and the transatlantic contexts.
American foreign policy toward the Democratic People?s Republic of Korea (DPRK or North Korea) faces the problem of how to engage peacefully with a country that wants economic "tribute" but prefers self–protective isolation to the ideological risks of wider involvement in the world community. While the DPRK has accepted U.N. World Food Program (WFP) famine aid and has agreed to the construction of the two nuclear power plants, it rejects reliance on foreign trade and investment as too intrusive. In the 1994 Agreed Framework with the U.S., the DPRK traded its graphite nuclear plant for construction of the two light water reactor (LWR) power plants in a remote and thinly populated coastal area. (The graphite nuclear plant as a by–product converts uranium into weapons grade plutonium, while the LWR nuclear plants convert uranium into a less–fissile form of plutonium.)
Este documento se aboca a las necesidades de apoyo que tiene el Presidente de la República en tanto legislador, un aspecto de sus funciones determinado por las relaciones que tiene con el Congreso, y lo que implica en cuanto a la organización de su oficina.
For a general program to combat communicable diseases of the poor to stimulate research, it must include an explicit commitment to help finance the purchase of new vaccines if and when they are developed. Without an explicit commitment along the lines proposed by Wolfensohn, it is unlikely that the large scale investments needed to develop vaccines will be undertaken.
Malaria, tuberculosis, and the strains of HIV common in Africa kill approximately 5 million people each year. Yet research on vaccines for these diseases remains minimal—largely because potential vaccine developers fear that they would not be able to sell enough vaccine at a sufficient price to recoup their research expenditures. Enhancing markets for new vaccines could create incentives for vaccine research and increase accessibility of any vaccines developed. For example, the World Bank has proposed establishing a fund to help developing countries finance purchases of specified vaccines if they are invented. The U.S. administration’s budget proposal includes a tax credit for new vaccines that would match each dollar of vaccine sales with a dollar of tax credits. This paper examines the rationale for such proposals. Private firms currently conduct little research on vaccines against malaria, tuberculosis, and the strains of HIV common in Africa. This is not only because these diseases primarily affect poor countries, but also because vaccines are subject to severe market failures. Once vaccine developers have invested in developing vaccines, government are tempted to use their powers as regulators, major purchasers, and arbiters of intellectual property rights to force prices to levels that do not cover research costs. Research on vaccines is an international public good, and none of the many small countries that would benefit from a malaria, tuberculosis, or HIV vaccine has an incentive to encourage research by unilaterally offering to pay higher prices. In fact, most vaccines sold in developing countries are priced at pennies per dose, a tiny fraction of their social value. More expensive, on–patent vaccines are typically not purchased by the poorest countries. Hence, private developers lack incentives to pursue socially valuable research opportunities. Large public purchases could potentially enlarge the market for vaccines, benefiting both vaccine producers and the public at large.
Several programs have been proposed to improve incentives for research on vaccines for malaria, tuberculosis, and HIV, and to help increase accessibility of vaccines once they are developed. The U.S. administration's budget proposes a tax credit that would match each dollar of vaccine sales with a dollar of tax credit. The World Bank has proposed a $1 billion fund to provide concessional loans to countries to purchase vaccines if and when they are developed. European political leaders have spoken favorably about the concept of a vaccine purchase fund. This paper explores the design of such programs, focusing on commitments to purchase new vaccines. For vaccine purchase commitments to spur research, potential vaccine developers must believe that the sponsor will not renege on the commitment once vaccines have been developed and research costs sunk. Courts have ruled that similar commitments are legally binding contracts. Given appropriate legal language, the key determinant of credibility will therefore be eligibility and pricing rules, rather than whether funds are physically set aside in separate accounts. The credibility of purchase commitments can be enhanced by specifying rules governing eligibility and pricing of vaccines in advance and insulating those interpreting these rules from political pressure through long terms. Requiring candidate vaccines to meet basic technical requirements, normally including approval by some regulatory agency, such as the U.S. FDA, would help ensure that funds were spent only on effective vaccines. Requiring developing to contribute co–payments would help ensure that they felt that the vaccines were useful given the conditions in their countries. The U.S. Orphan Drug Act's success in stimulating research and development is widely attributed to a provision awarding market exclusivity to the developer of the first drug for a condition unless subsequent drugs are clinically superior. Purchases under a vaccine purchase program could be governed by a similar market exclusivity provision. A purchase commitment program could start by offering a fairly modest price. If this proved inadequate to spur sufficient research, the promised price could be increased. This procedure mimics auctions, which are often efficient procurement methods when costs are unknown. As long as prices do not rise at a rate substantially greater than the interest rate, vaccine developers would not have incentives to withhold vaccines from the market. The World Bank has termed health interventions costing less than $100 per year of life saved as highly cost effective for poor countries. If donors pledge approximately $250 million per year for each vaccine for ten years, vaccine purchases would cost approximately $10 per year of life saved. It is unlikely that vaccines for all three diseases would be developed simultaneously, but if donors wanted to limit their exposure, they could cap their total promised vaccine spending under the program, for example at $520 million annually. No funds would be spent or pledges called unless a vaccine were developed.
The Vaccines for the New Millennium Act (HR 3812; SR 2132) includes both enhanced R&D tax credits and a tax credit for sales of vaccines to non–profits and international organizations. The combination is likely to be effective. The enhanced R & D tax credit will provide an immediate benefit for firms doing research in the area. The tax credits for sales will provide incentives for firms to follow through by designing appropriate vaccines for the regions where the diseases are most deadly and will help increase accessability of any vaccines developed. There are several reasons why tax credits for sales of vaccines are an essential element of any package to promote vaccine R&D.
Countries that are classified as having floating exchange rate systems (or very wide bands) show strikingly different patterns of behavior. They hold very different levels of international reserves and allow very different volatilities in the movements of the exchange rate relative to the volatility that they tolerate either on the level of reserves or in interest rates. We document these differences and present a model that explains them as the optimal response of a Central Bank that attempts to minimize a standard loss function, in an environment in which firms are credit–constrained and incomplete markets limit their ability to avoid currency mismatches. This model suggests that the difference in the way countries float could be related to their differing levels of exchange rate pass–through and differences in their ability to avoid currency mismatches. We test these implications and find a very strong and robust relationship between the pattern of floating and the ability of a country to borrow internationally in its own currency. We find weaker and less robust evidence on the importance of pass–through to account for differences across countries with respect to their exchange rate/monetary management.
What difference does it make, and for whom, whether the nonperforming debts of emerging market borrowers are restructured? This paper begins by positing a set of counterfactual conditions under which restructuring would not matter, and then shows how several ways in which the actual world of international lending departs from these conditions give both lenders and borrowers ample reason to care whether nonperforming debts are restructured. One implication of the way in which debt restructuring matters is that restructuring should not be too' easy. Further, with a greater frequency of defaults, some credit flows to emerging market countries would not be extended in the first place. An important element driving this line of argument is moral hazard, but (unlike in much of the recent literature of emerging market debt problems) what is central here is not the availability of credit from the IMF or other official lenders but the more fundamental moral hazard inherent in all uncollateralized borrower–lender relationships.
The most convincing theory of comparative economic development asserts that it is institutions – the way societies are organized – that are the fundamental cause of countries? development of underdevelopment. To attain prosperity, a country needs to accumulate physical and human capital and create and adopt technology. Whether or not it does so is determined by the incentives that stem from the institutional environment.