Publications by Type: Miscellaneous

In this paper, we focus on the institutions required to support large capital markets and survey the empirical evidence on the link between legal institutions and financial markets. Specifically, we are interested in providing an answer to why we observe such large differences in the size, breadth and valuation of capital markets? Why, for example, are equity markets so much larger in South Africa than in Mexico or Peru? Why did many companies go public in India and Hong Kong in 1995, while no company went public in Brazil or Uruguay or Venezuela in the same year? Why do countries like New Zealand have large credit markets while Argentina and Colombia do not have them?

We present data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify the ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely held, in contrast to the Berle and Means image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions or other widely held corporations is far less common. The controlling shareholders typically have power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in management.

We examine the effects of the interaction between lobbying and legislative bargaining on policy formation. Two systems are considered: a US–style congressional system and a European–style parliamentary system. First, we show that the policies generated are not intermediate between policies that would result from pure lobbying or from pure legislative bargaining. Second, we show that in congressional systems the resulting policies are strongly skewed in favor of the agenda–setter. In parliamentary systems they are skewed in favor of the coalition, but within the coalition there are many possible outcomes (there are multiple equilibria) with the agenda–setter having no particular advantage. Third, we show that equilibrium contributions are very small, despite the fact that lobbying has a marked effect on policies.

After the passage of two decades, the situation in Southeast Asia is quite different from what is written here. For one thing, ASEAN membership has increased from five in 1978 to nine, including Vietnam, the country the original members dreaded for so long. Many countries in the region have achieved remarkable economic development, well beyond their expectations in the 1970s, although they are presently beset by currency crises. Notwithstanding, I have decided to reprint the paper in a bound edition for limited distribution with a hope that it may serve as a reference, despite its outdatedness, to students of Southeast Asia, an analysis that an Asian journalist made of the region?s complex circumstances in the late 1970s. As I see it, many of the problems discussed in the paper, especially those involving the sociopolitical setting and leadership performance by power elites in a number of countries, still persist in various forms to hinder the further progress of each nation and the region as a whole. The paper?s text, including facts and figures, is same as the original, except for minor copyreading corrections.

A familiar question raised by the Federal Reserve System's evolving use of money growth targets over the past twenty years is whether monetary policymakers had sound economics reasons for changing their procedures as they did — either in adopting money growth targets in the first place, or in subsequently abandoning them, or in both instances. This paper addresses that question by comparing two kinds of evidence base on U.S. time–series data. The main conclusion from this comparison is that whatever economic conditions might have warranted reliance on money growth targets in the 1970s and early 1980s had long disappeared by the 1990s, so that abandoning these targets was an appropriate response to changing circumstances. Whether adopting money growth targets earlier on was likewise appropriate is less clear.

Over this quarter century the American economy experienced higher rates of participation in the labour force, especially by women, and a decline in the share of children in the population; a relative growth of non–wage income, especially but not exclusively pension income; and lower savings rates. Allowing for these factors implies an increase in the average real wage rate of nine percent, still way above the official figure.

North and Weingast (1989) argued that the English Glorious Revolution of 1688 redistributed political power in such a way as to enhance the enforcement of property rights. They supported their hypothesis by presenting evidence that interest rates fell and interpreted this as a fall in the risk premium demanded by lenders. I argue that one cannot test their theory in this way since it implicitly rests on the assumption that the risk of debt repudiation was exogenous. This was clearly not so. If lenders anticipated that the incentives of the Stuart monarchs to default depended on the interest rate, then instead of changing a risk premium, they ration credit. There is a fact much evidence that this was the case. In these circumstances a reduction in the desire, or the ability, of the monarch to default leads not to a fall in interest rates, but a relaxation of rationing. Thus the theory of North and Weingast is immune to the critique of Clark (1996) and is entirely consistent with the available evidence.

Broadly speaking, two schools of thought have emerged to interpret China's rapid growth since 1978: the experimentalist school and the convergence school. Perhaps the best test of these two approaches is whether China's policy choices are in fact leading to institutions harmonized with normal market economies or to more distinctive innovations. In this regard, the recent policy trend has been towards institutional harmonization rather than institutional innovation, suggesting that the government accepts that the ingredients for a dynamic market economy are already well–known.

The twentieth century has seen a major innovation in the context of international politics: the institutionalization of interactions between sovereign states. While this process has seen its ebbs and flows, successes and failures, over the last hundred years, the trend toward institutionalization now seems entrenched and shows no signs of abating. If anything, experiences since the end of the Cold War suggest that states value the institutionalization of their relations ever more highly. New studies show that while many international organizations die every year, new ones are being created at an even faster rate (Shanks et al., 1996). The trend toward institutionalization is not accidental, or something that is being imposed on reluctant governments; it is the result of government choice. This paper examines the state strategy of institutionalization, asking about the causes and consequences of increasing reliance on international institutions throughout the globe.

It is often argued that low tax rates on owner–occupied housing divert investment from equipment. This paper demonstrates that if people are heterogeneous in their propensity to save, and if there are constraints on borrowning, favorable tax treatment of owner–occupied housing up to a certain value increases equipment investment. This is because low housing taxes encourage renters to become owner–occupiers, and this leads existing owner–occupiers to shift their portfolio of other assets from rental housing to equipment.

This paper argues that worker cooperatives are prone to redistribution among members, and that the redistribution distorts incentives. I assume that employment contracts are incomplete. In the model cooperative members pay in a capital contribution to purchase equipment. They then receive shocks to ability. Each worker's outputs depend on ability and on effort, neithr of which can be observed seperately. Whereas workers in firms owned by outside shareholders would quit if the firm redistributed away from them, cooperative members will be reluctant to leave, since this entails forfeiting the dividends on their capital contribution. The model can explain why cooperatives typically have egalitarian wage policies.

This paper examines a mechanism under which governments would use an auctuion to extimate the private value of patents and then offer to buy out patents at this private value, times a fixed markup. Patent buy–outs may be particularly appropriate for pharmaceuticals.

Countries differ greatly in R&D spending, and these differences are particularly striking when comparing developed with developing countries. The paper examines the extent to which the benefits of R&D are concentrated in the investing countries. It is argued that significant benefits spill over to other countries in the world. The argument is supported by quantitative estimates of such cross–country effects.

Thanks to the collapse of European communism, it is possible to envisage a new community embracing most of the states of the Northern Hemisphere. Voters in most of the former Soviet bloc countries have affirmed their commitment to democracy in repeated elections. Because of these elections, especially those in Russia, it is possible to think realistically of creating a "Commonwealth of Democracies" from Vancouver to Vladivostok to Tokyo. (ordering information)

This study argues that an important part of the explanation for international economic outcomes during the interwar years arose from the internal politics and institutions prevalent within many countries after the Great War. In the face of balance of payments deficits, governments could choose to adjust internally by reducing prices and demand, or adjust externally with "beggar–thy–neighbor" policies that pushed the problem of adjustment onto a country's trade partners. Is there a political explanation for the choice of adjustment strategy? To answer this question I draw on theoretical work that has developed the logic of strategic behavior – the temptation to dump currencies that are likely to be devalued, the logic of competitive devaluation, the individual rationality of tariff retaliation – but go beyond these by testing for the political conditions associated with the decision to defect from the gold standard and liberal trade...

This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common law countries generally have the strongest, and French civil law countries the weakest, legal protections of investors, with German and Scandinavian civil law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negatively related to investor protections, consistent with the hypothesis that small, diversified shareholders are unlikely to be important in countries that fail to protect their rights.

This paper is about new information technology (IT): the integration of information processing and global communications – "a marriage between microprocessors and the telephone" (as the Swedish IT–Commission puts it) – and how it can be used by a foreign service.

Imagine a scene in which United States military engineers—the wartime builders of command bunkers, field hospitals, and runways for jet fighters—brought their skills to the poorest reaches of the Third World to construct schools, clinics, and access roads at no cost to the local populace. This scenario, part of the Defense Department?s Humanitarian and Civic Assistance (HCA) program, exists under United States law in the form of military exercises sponsored by the Chairman of the Joint Chiefs of Staff and, in Latin America, by the United States Southern Command (SouthCom). If it falls short of the biblical peace ideal of beating swords into plowshares, it comes close, hitching the Army mule to plow nonetheless. More difficult to imagine might be the fact that Army engineers did such a thing in the Republic of Colombia, in cooperation with the Colombian government, and that their help was overwhelmingly rejected, in disbelief and scandal, by the people of Colombia.