Research Library

Since the early 1970s, my colleagues and I have been actively engaged in track–two efforts designed to contribute to the resolution of the Israeli–Palestinian conflict. Our work has primarily involved the intensive application to this conflict of the concepts and methods of interactive problem solving (Kelman, 1998b, 2002), which is my particular variant of interactive conflict resolution. Interactive problem solving is an unofficial, third–party approach to the resolution of international and intercommunal conflicts, derived from work of John Burton (1969, 1979, 1984, 1987) and anchored in social–psychological principles (Kelman, 1997a).

Three propositions have become conventional wisdom in Washington and elsewhere. Americans save too little. As a consequence, the US current account deficit is unsustainably large. A necessary step to bring the global economy into sustainable balance is a significant appreciation of the Chinese currency, which in practice has been fixed to the dollar for over a decade. All these separate but related propositions are highly questionable. This policy brief addresses each in turn. It suggests that Americans save quite enough for future generations, that the startlingly large US current account deficit is not only sustainable but a natural feature of today's highly globalized economy, and that a revaluation of the Chinese currency, far from alleviating global imbalances, would run the risk of precipitating a financial crisis. These claims are not meant to suggest there are no problems with the current state of affairs. Rather, this brief suggests that events need to be interpreted in light of the evolution of the US and world economies in recent years and that this interpretation will put the global imbalances in a different perspective.

There are different arguments in favor and against nominal and indexed debt which broadly include the incentive to default through inflation versus hedging against unforeseen shocks. We model and calibrate these arguments to assess their quantitative importance. We use a dynamic equilibrium model with tax distortion, government outlays uncertainty, and contingent–debt service, which we take to mean nominal debt. In the model, the benefits of defaulting through inflation are tempered by higher future interest rates. We obtain that calibrated costs from inflation more than offset the benefits from hedging. We further discuss sustainability of nominal debt in developing (volatile) countries.

Peacekeeping – the deployment of international troops and monitors to war–torn areas – is an institution intended to help recent belligerents maintain peace. The literature on peacekeeping has exploded in the last fifteen years, but analyses of it as an institution promoting cooperation have been hampered by several methodological handicaps. One is a matter of case selection – the majority of studies examine only cases where peacekeepers are involved, with no comparison to cases of non–peacekeeping. The second is an endogeneity issue – peacekeepers are not deployed to conflicts at random, so analysis of their effects must begin with an analysis of where peacekeepers go. Recent studies of peacekeeping have begun to address the first problem, but much less has been done to remedy the second. We know very little about why peacekeepers are sent to maintain peace after some conflicts but not others. Peacekeeping missions operate with the consent of the belligerents; in a civil war, the consent of the government is particularly important. But there has been no systematic analysis of the conditions under which warring parties request or consent to peacekeeping by the international community. This paper begins to answer the question of why belligerents sometimes agree to be "peacekept" and sometimes do not by focusing on peacekeeping as a mechanism that enables warring sides to signal their intentions to one another.

Bob Keohane revolutionized the study of institutions in international relations by insisting that we think about the demand for international institutions. We follow in his footsteps here by concentrating on the institution of peacekeeping, and modeling the demand for it. We also build on Keohane?s work in general terms by thinking about how the willingness to bear the costs of acting within an institutionalized setting can serve as a signal. We conceive of peacekeeping as a costly signal of intent to abide by a peace agreement, and ask about what patterns of behavior we would expect to follow if this is an accurate conceptualization.

Before 1914 it was widely believed that a major European war would have drastic consequences for financial markets. To the editors of The Economist magazine, this seemed ?obvious?:

... To begin with, [war] must necessitate Government borrowings on a large scale, and these heavy demands upon the supplies of floating capital must tend to raise the rate of discount. Nor is it only our own requirements that will have to be provided for. ... From other quarters demands are likely to be pressed upon us. There is a very general conviction that if war is entered upon ? Other Powers ? will almost inevitably be, in some way or other, drawn into the contest. The desire, therefore, in all European financial centres, will be to gather strength, so as to be prepared for contingencies. Thus the continental national banks will all be anxious to fortify their position, and as they can always draw gold from hence by unloading here the English bills they habitually hold, the probability is that gold will be taken. And the desire on the part of the continental banks to be strong will, of course, be greatly intensified by the precarious condition of the Berlin and Paris bourses. At both of these centres it would take little to produce a stock exchange crisis of the severest type; and ... it is to the Bank of England, as the one place whence gold can promptly be drawn, that recourse must be had. The outbreak of war, therefore, would in all probability send a sharp spasm of stringency through our money market ... [that] would pretty certainly leave rates at a higher level than that at which it found them. ... There is, of course, one [other] way, apart from the depressing influence of dearer money in which war, should it break out will prejudicially affect all classes of securities. It will ... necessitate Government borrowing on a great scale, and the issue of masses of new stock will lessen the pressure of money upon existing channels of investment. ... And as it is to the volume of British ? securities that the additions would be made, these would naturally be specially affected. ... With European Government stocks ... a more or less heavy depreciation, according as war circumscribed or extended its sphere, would have to be looked for. ? For Russia ... war can mean little else than bankruptcy, possibly accompanied by revolution, and those who ... have become her creditors, have a sufficiently black outlook.

The most striking thing about this prescient analysis is that it was published in 1885, nearly thirty years before just such a war – and just such a crisis – broke out. In the intervening years, only a minority of commentators dissented from the view that a war between the European powers would lead to steep falls in bond prices. In 1899 the Warsaw financier Ivan Bloch estimated that ?the immediate consequence of war would be to send securities all round down from 25 to 50 per cent?. If a battleship belonging to a foreign power were to sail up the Thames, the journalist Norman Angell asserted in his best–seller The Great Illusion, it would be the foreign economy that would suffer, not the British, as investors dumped the aggressor?s bonds. Diplomats used similar arguments during the July Crisis itself. On 22 July 1914, to give just one example, the Russian charg? d?affaires in Berlin warned a German diplomat that German investors would ?pay the price with their own securities with the methods of the Austrian politicians?.

During the period of China's reforms since 1978, the income and consumption levels of the majority of Chinese families have improved considerably. However, it is clear that inequalities in the distribution of incomes in China have increased sharply as well, and that the “rules of the game” that determine how people are paid in their jobs, what benefits they are entitled to, and whether or how they can get ahead (or experience downward mobility) have changed in dramatic fashion as well. On the latter point and oversimplifying things, socialist distribution principles and bureaucratic allocation of income and benefits have been replaced by market distribution and heightened competition and risk. How do ordinary Chinese citizens react to these changes in the pattern of income distribution and social mobility in China? In evaluating the altered terrain of income inequality, how do the laobaixing weigh the “good news” of generally rising incomes against the “bad news” of increased inequality and the at least “problematic news” of having their lives governed by dramatically altered rules about what individuals and families have to do in order to get ahead or simply survive? How common is it for Chinese citizens to feel very angry about heightened inequalities and the altered pattern of who is rich and who is poor, despite awareness of the general increase in living standards in the past generation? How much nostalgia exists for the distribution principles and inequality patterns of the centrally planned socialist era? Is popular anger at inequality in China one of the most important problems that Chinese society and its leaders currently face, as some recent opinion polls suggest? Or on the opposite side of the question, how common is it for Chinese citizens to feel satisfaction or even gratitude for all of these changes, even though they may recognize the problems or even unfairness of the more unequal society in which they now live? How much popular acceptance is there of the current leadership's claims that inequalities are necessary or even desirable as a way to stimulate further economic growth?

Are smaller members of the World Trade Organization able to use the WTO?s dispute settlement mechanism on an equal footing with the more powerful members of the organization? This paper examines the relationship between the wealth and power of states and their ability to participate fully within this system of dispute resolution. Two alternative hypotheses are considered. The "power hypothesis" predicts that politically weak countries will refrain from filing complaints against politically powerful states for fear of costly retaliation. The "capacity hypothesis" predicts the opposite – low income states will tend to complain about behavior by high income states because the latter offer a higher expected return.
Using the set of all WTO disputes we test these two hypotheses and find considerable support for the capacity hypothesis and no support for the power hypothesis. We conclude that poor states behave differently than their rich counterparts because they lack the financial, human, and institutional capital to participate fully in the dispute resolution system.

In this essay we introduce this special volume on the role of religion in world conflict. We develop a common definition of religion which focuses on five ways religion can influence society an politics: (1) as a basis for identity; (2) as a belief system that influences behavior; (3) through formal religious doctrines; (4) as a source of legitimacy; and (5) through its religious institutions. We discuss why the issue of religion has in the past received little attention from social scientists. Finally, we develop a set of common questions which the other authors in the volume address. These questions are designed to create a better understanding of the role religion plays in world conflict as well as how international relations theory can help us understand this role.

The potential for rare economic disasters explains a lot of asset-pricing puzzles. I calibrate disaster probabilities from the twentieth century global history, especially the sharp contractions associated with World War I, the Great Depression, and World War II. The puzzles that can be explained include the high equity premium, low risk-free rate, and volatile stock returns. Another mystery that may be resolved is why expected real interest rates were low in the United States during major wars, such as World War II. The model, an extension of Rietz [1988], maintains the tractable framework of a representative agent, time-additive and iso-elastic preferences, and complete markets. The results hold with i.i.d. shocks to productivity growth in a Lucas-tree type economy and also with the inclusion of capital formation.

The Fairbank Center for East Asian Research has been in business nearly as long as the People's Republic of China, and the Center has played a key role in research on all aspects of the world's most populous society. During that period China has experienced extraordinary changes, and our understanding of that society has also been notably altered and deepened. I was not present at the creation, either of the PRC or of the Fairbank Center, but I was privileged to begin my own academic study of China here at Harvard forty years ago, in 1965, just as the Cultural Revolution was about to explode. So I was the beneficiary of the accumulated wisdom of scholars such as John Fairbank and Benjamin Schwartz, and I am pleased that two of my teachers then are still my colleagues today, Ezra Vogel and Dwight Perkins.

One of the topics I have struggled to understand over the course of my career of studying China is the changing contours of equality and inequality in the PRC, and particularly the contrasts between the Mao and reform eras. In my talk today I want to offer some of my current thinking on this subject. I will be arguing that there is a conventional wisdom regarding trends in equality and inequality in post–1949 China, and that that conventional wisdom is oversimplified and misleading at best, and in some respects dead wrong. Our understanding of the nature of Chinese society after the revolution and even today will be hampered unless we can recognize the flaws in, and overcome the influence of, this conventional wisdom. In advancing my alternative view I will be relying not only on my own research but on the work of many other scholars, and I will attempt to synthesize a variety of kinds of evidence and arguments into an alternative way of thinking about inequality trends in the PRC.

Territorial disputes between governments generate a significant amount of uncertainty for economic actors. Settled boundary agreements produce benefits to economic agents on both sides of the border. These qualities of borders are missed both by realists, who view territorial conflicts in overly zero–sum terms, and globalists, who claim borders are increasingly irrelevant. I argue that settled borders help to secure property rights, signal much greater jurisdictional and policy certainty, and thereby reduce the transactions costs associated with international economic transactions. The plausibility of this claim is examined by showing that territorial disputes involve significant economic opportunity costs in the form of foregone bilateral trade. Theories of territorial politics should take into account the possibility of such joint gains in their models of state dispute behavior.

At the end of the Cold War, semipresidentialism became the modal constitution of the postcommunist world. In Russia and other post–Soviet states, however, this system of government has impeded consolidation. Semipresidentialism combines a popularly elected head of state with a prime minister responsible to the legislature; though this framework seemed to promise the best of all constitutional worlds, when put into practice in many countries during their transitions, the framework began to pose serious design dilemmas and facilitate democratic backsliding rather than consolidation.

This paper addresses the evolution of economic relations between Europe, especially the European Union, and China over the past two decades, since the emergence of China as a significant player in the world economy. Data on the dramatic increases in trade and financial flows are presented, and comparisons made with the United States. Official dialogue between the EU and China is also addressed. In the economic realm, the parallel between Chinese–EU developments and Chinese–American developments is remarkable, both in trade and in foreign direct investment. Both bargained hard to gain market access from China on the latter?s accession to the WTO and share similar concerns with the trade and economic policies of contemporary China. While official contact between the EU and China is extensive, China remains relatively low in EU priorities, which are heavily focused on the evolution of the EU itself and on its immediate neighborhood. Europe lacks the security commitment to East Asia of the United States, and that lends a remoteness to China, which growing economic relations may eventually overcome.

Consociational theory suggests that power–sharing institutions have many important consequences, not least that they are most likely to facilitate accommodation and cooperation among leadership elites, making them most suitable for states struggling to achieve stable democracy and good governance in divided societies. This study compares a broad cross–section of countries worldwide, including many multiethnic states, to investigate the impact of formal power–sharing institutions (PR electoral systems and federalism) on several indicators of democratic stability and good governance. The research demonstrates three main findings: (i) worldwide, power–sharing constitutions combining PR and federalism remain relatively rare (only 13 out of 191 states); (ii) federalism was found to be unrelated to any of the indicators of good governance under comparison; and (iii) PR electoral systems, however, were positively related to some indicators of good governance, both worldwide and in multiethnic states. This provides strictly limited support for the larger claims made by consociational theory. Nevertheless, the implications for policymakers suggest that investing in basic human development is a consistently more reliable route to achieve stable democracy and good governance than constitutional design alone.

Government exchange rate regime choice is constrained by both political and economic factors. One political factor is the role of special interests: the larger the tradable sectors exposed to international competition, the less likely is the maintenance of a fixed exchange rate regime. Another political factor is electoral: as an election approaches, the probability of the maintenance of a fixed exchange rate increases. We test these arguments with hazard models to analyze the duration dependence of Latin American exchange rate arrangements from 1960 to 1999. We find substantial empirical evidence for these propositions. Results are robust to the inclusion of a variety of other economic and political variables, to different time and country samples, and to different definitions of regime arrangement. Controlling for economic factors, a one percentage point increase in the size of the manufacturing sector is associated with a reduction of six months in the longevity of a country?s currency peg. An impending election increases the conditional likelihood of staying on a peg by about 8 percent, while the aftershock of an election conversely increases the conditional probability of going off a peg by 4 percent.

A majority of surveyed consumers say they would be willing to pay extra for products made under good working conditions rather than in sweatshops. But as yet there is no clear evidence that enough consumers would actually behave in this fashion, and pay a high enough premium, to make social product labeling profitable for firms. We provide new evidence on consumer behavior from experiments conducted in a major retail store in New York City in 2005. Sales rose for items labeled as being made under good labor standards, and demand for the labeled products actually rose with price increases of 10-20% above pre-test (unlabeled) levels. If the results hold more generally, there is a strong latent consumer demand for labor standards that many more retailers and producers could satisfy profitably by switching to certified and labeled goods.

In this paper we review the hypothesis that adherence to the gold standard facilitated the access of peripheral countries to European capital markets in the first era of financial globalization. To test whether the gold standard worked as a credible commitment mechanism – a "good housekeeping seal of approval" – we have assembled the largest possible dataset covering almost the entire foreign borrowing in the London market. Our results suggest that the gold effect identified in previous studies was a statistical illusion generated principally by limited country samples. The market looked behind "the thin film of gold" not only at economic fundamentals but at political determinants of creditworthiness.

The economic and social organization of capitalist societies is one of the most classical of sociological subjects, as the editors of this volume point out. Pioneers of economic sociology such as Weber were fundamentally comparative, but the comparative analysis of the institutions governing capitalism in different cultural contexts has unfortunately received relatively short shrift within the new economic sociology of the late twentieth and early twenty-first century (Swedberg, this volume). Instead, much of this terrain has been implicitly ceded to political economists working in the newly-developed "varieties of capitalism" framework (see discussions in Brinton 2005, and Swedberg this volume). The varieties of capitalism agenda is ambitious. But it leaves many areas of interest to economic sociologists wide open.

When the United States reaches international agreements on military matters, the president has a choice of the form that the agreement will take. This paper explores the strategic choice of agreement form, concentrating on the circumstances that lead the president to use formal treaties rather than executive agreements. The evidence supports the view that the form of the agreement serves as a signal of U.S. preferences and reliability to other states. It does not support the view that the president uses executive agreements to evade congressional opposition, nor a purely legal normative perspective. The paper also contrasts multilateral and bilateral agreements, finding that Democratic presidents reached more multilateral agreements than Republican presidents in the 1980s and 1990s.

This article makes a conceptual and theoretical contribution to the study of diffusion. The authors suggest that the concept of diffusion be reserved for processes (not outcomes)characterized by a certain uncoordinated interdependence. Theoretically, the authors identify the principal sources of clustered policy reforms. They then clarify the characteristics specific to diffusion mechanisms and introduce a categorization of such processes. In particular, they make a distinction between two types of diffusion: adaptation and learning. They argue that this categorization adds conceptual clarity and distinguishes mechanisms with distinct substantive consequences.
Keywords: diffusion; clustering; convergence; policy reform; adaptation; learning; cluster decision making.