THE FAILURE OF GOVERNMENT-SPONSORED CARTELS AND DEVELOPMENT OF FEDERAL FARM POLICY

While economists recognize that private cartels are difficult to sustain, they are too sanguine about the prospects for government-assisted cartels. Although the state's coercive power would seem to make it an effective enforcer of cartel agreements, the political costs of enforcement can be high of segments of the industry resist. The government's solution lies in alternative strategies for raising prices. Examining government efforts to organize an orange cartel in the 1930s, we find that farmers' opposition to output cuts and quota assignments because of their distributional effects forced a policy she to purchases of "excess stocks."     

THE IMPACT OF RETURN ON COLLATERAL IN A CHANNEL SYSTEM

We empirically investigate the relationship between the return on collateral and monetary policy implementation in the channel system. Recent developments in monetary theory suggest that the return on government assets which measures the opportunity cost of holding collateral should have negative impacts on the interest-rate spread and the interbank market rate. The central bank should set a higher spread when the return on collateral is below a cutoff but implements a lower spread when the return on collateral is higher than the cutoff. The interbank market rate tends to lie above the policy target rate when the return on collateral is low and vice versa. We use data from Eurozone area and six industrialized countries to test these theoretical implications. We propose two econometric models: one is more structural and closely related to the monetary model to test the negative relationships, and the other is based on the threshold autoregression model to detect the potential cutoffs. Our findings provide conditional support for the negative impact of return on collateral. (JEL E40, E52, E58)     

CAN GOVERNMENT ENFORCEMENT PERMANENTLY ALTER FERTILITY? THE CASE OF CHINA

We quantitatively assess the main sources of fertility fluctuations in China and find that only preference ships, involving education, health care and the employment and social status of women, can generate a statistically significant long-run decline in fertility growth. However, the government's enforcement power can explain some short-run movements infertility. To examine the effect of key variables, we modify a growth model with endogenous fertility to represent the average rural household's fertility decisions under government imposed constraints. The model provides the structure necessary to econometrically identify shocks to government enforcement ability, agricultural output and preferences toward fertility.     

ORGANIZED CRIME OR INDIVIDUAL CRIME? ENDOGENOUS SIZE OF A CRIMINAL ORGANIZATION AND THE OPTIMAL LAW ENFORCEMENT

This article develops a simple but general criminal decision framework in which individual crime and organized crime are coexisting alternatives to a potential offender. It enables us to endogenize the size of a criminal organization and explore interactive relationships among sizes of criminal organization, the crime rate, and the government's law enforcement strategies. We show that the method adopted to allocate the criminal organization's payoffs and the extra benefit provided by the criminal organization play crucial roles in an individual's decision to commit a crime and the way in which he or she commits that crime. The two factors also jointly determine the market structure for crime and the optimal law enforcement strategy to be adopted by a government. (JEL K4 )     

DIVIDEND POLICY IN REGULATED NETWORK INDUSTRIES: EVIDENCE FROM THE EU

We study the dividend policy of firms in regulated network industries, focusing on the impact of different regulatory regimes and government control. We link payout and smoothing decisions to different regulatory mechanisms (cost‐based vs. incentive regulation) and state versus private ownership. We test our predictions on a panel of listed European electric utilities, accounting for potential endogeneity of the choice of regulatory and ownership patterns. We find that incentive‐regulated firms smooth their dividends less than cost‐based regulated firms and that they report higher target payout ratios. Consistent with the interest group theory of regulation, we find that incentive regulation schemes are less likely when the state is still an important shareholder in the sector. Additionally, our results show that government control undermines the efficiency‐enhancing effects of incentive regulation on dividend policy, for example, lower smoothing is only due to private firms. (JEL G35, L51, L32, L9)     

The politics of health: the case of smoking control

The policy of the United Kingdom government towards the control of smoking has been characterized by a non-interventionist approach such as persuasion and industrial self-regulation, as opposed to more direct intervention through fiscal policy or control over tobacco production and sales. The effectiveness of the policies adopted by the UK government is difficult to assess, although there has been a reduction over the last ten years in the proportion of smokers in the population. However, evidence from other countries shows that a more comprehensive programme including direct legislation controlling tobacco advertising has a much stronger impact on tobacco consumption. The determinants of the UK government's policy position are analysed and the evidence suggests that this policy position is determined in part by the power of the vested interests in the maintenance of tobacco production, as well as the confusion of interests within the government itself.     

GROWTH, WELFARE, AND THE SIZE OF GOVERNMENT

Using an endogenous growth model in which government purchases directly affect aggregate productivity and utility, fiscal policy experiments conducted here indicate that the macroeconomic effects of changes in fiscal policy are at least as sensitive to the mix of spending cuts as they are to the mix of tax cuts. In fact, reducing the size of the government actually reduces growth and welfare freductions in government expenditures are heavily weighted towards reductions in public capital or if the proceeds are not used to reduce capital taxation. In addition, across-the-board spending cuts are not likely to significantly improve growth and welfare. ( JEL E62, 041)     

THE POLITICAL ECONOMY OF BITCOIN

The recent proliferation of bitcoin has been a boon for users but might pose problems for governments. Indeed, some governments have already taken steps to ban or discourage the use of bitcoin. In a model with endogenous matching and random consumption preferences, we find multiple monetary equilibria including one in which bitcoin coexists with official currency. We then identify the conditions under which government transactions policy might deter the use of bitcoin. We show that such a policy becomes more difficult if some users strictly prefer bitcoin because they can avoid other users holding the official currency in the matching process. (JEL C78, E41, E42, E50)     

THE CONTROL OF EXTERNALITIES IN A GROWING URBAN ECONOMY

The received theory of externality control, which implicitly assumes that both the social marginal damage and marginal treatment cost schedules will remain fixed during the time any policy is operative, concludes that an effluent tax and an auction of rights to emit pollutants in the amount of a given emissions standard will be equally efficient in meeting that standard. We show that urban growth causes shifts in both schedules. These shifts in turn substantially increase the welfare loss from a fixed effluent tax relative to that from an auction market with a fixed number of licenses.     

HAS FEDERAL BUDGET DEFICIT POLICY CHANGED IN RECENT YEARS?

This paper applies new tests for parameter instability in cointegrated regression models to the U.S. Federal government's intertemporal budget constraint in order to detect whether there has been a regime change in spending and taxing policies. Some researchers have argued that fiscal policy under Presidents Reagan and Bush moved the U.S. deficit onto an unsustainable path. My results suggest that government deficit policy in the 1980s was not significantly different from policies during the three earlier decades. However, a diverging debt-GNP ratio suggests that the government will run into problems marketing its debt if current policy continues.     

IS THE BUDGET DEFICIT “TOO LARGE?”

Yes. Specifically, we find that recent spending and taxing policies of the government–if continued–violate the government's intertemporal budget constraint. As a result, government spending must be reduced and/or tax revenues must be increased. These conclusions are based on tests of whether government spending and revenue are cointegrated. In addition to examining real spending and revenue, we also normalize these variables by real GNP and population. For a growing economy, these normalized measures are perhaps more pertinent. We also test and find support for the hypothesis that deficits have become a problem only in recent years.     

CATASTROPHE AND RATIONAL POLICY: CASE OF NATIONAL SECURITY

Predicting catastrophes involves heavy‐tailed distributions with no mean, eluding proactive policy as expected cost‐benefit analysis fails. We study US government counterterrorism policy, given heightened risk of terrorism. But terrorism also involves human behavior. We synthesize the behavioral and statistical aspects in an adversary‐defender game. Calibration to extensive data shows that where a Weibull distribution is the best predictor, US counterterrorism policy is rational (and optimal). Here, we estimate the adversary's unobserved variables, e.g., difficulty of an attack. We also find cases where the best predictor is a Generalized‐Pareto with no finite mean and rational policy fails. Here, we offer “work‐arounds”. (JEL H56, D81, C46)     

Municipal subsidies to French associations

A significant aspect of public policies in France is the decentralisation of the public sector and the increased importance of local voluntary associations to implement programmes and influence local political arenas. Subsidies to local associations are an important vehicle for the central government in managing its decentralisation policy. Based on a locality sample, data on subsidies to associations were collected in nearly 400 municipalities. Results show that the allocation of subsidies is highly uneven, and part of a complex network in which private non-profit services are linked to the services that were previously part of the public sector. Implications for the French non-profit sector and for the government's decentralisation policy are discussed.     

THE EFFECTS OF AUTOMOBILE RECALLS ON THE SEVERITY OF ACCIDENTS

The number of automobile recalls in the United States has substantially increased over the last two decades, and after a record of over 30 million cars recalled in 2004, in the last few years it has consistently reached between 15 and 17 million, and in 2010 alone 20 million cars were recalled. Toyota's recall crisis in 2010 illustrates how recalls can affect a large number of American drivers and the defects connected to them can result in loss of life and serious accidents. However, in spite of the increase in public concern over recalls and the loss of property and life attached to them, there is no empirical evidence of the effect of vehicle recalls on safety. This paper investigates whether vehicle recalls reduce accidental harm measured by the severity of injuries in vehicle accidents. The results of our analysis show that if a recall for a new‐year model is issued, then the severity of injuries of accidents continuously diminishes during the first year after the recall, something we do not find among cars not subject to recalls. This is because defects are repaired over time but also because drivers react by driving more carefully until the defects are fixed. To minimize the losses attached to having dangerously defective cars on our roads, both quick and timely recall issuance are needed and more detailed information on defects should be delivered to owners of defective vehicles. The latter can be made possible through simple but important policy changes by the U.S. government regarding recall information sharing with drivers and insurance companies. (JEL L51, L62)     

THE AGENCY OF POLITICS AND SCIENCE

We study a principal‐agent relationship between a politician and a researcher that captures stylized facts regarding the involvement of politics into scientific research. The politician has some ideal policy that he would like to implement, but needs to contract with a researcher to choose a policy that is supported by scientific advice. We study the implemented contracts under symmetric and under asymmetric information about the researcher's ability and concern for reputation, and discuss with which types of researchers the politician will contract. We identify several conflicts between the interests of voters and those of the politician. (JEL D72, D82, D83)     

Babies, Budgets, and Birthrates: Work/Family Policy in Australia 1996-2006

Work/family reconciliation policies can be harnessed to diversepolitical agendas, ranging from feminist-inspired equality strategiesto coercive, neo-liberal programs. In Australia, such policieshave served a range of ends under different governments. Thisarticle focuses on developments since 1996 when the conservativecoalition parties led by John Howard were elected to government.It explores three policy domains that are central to Australia'swork/family agenda: family payments, maternity/parental leave,and child care. Changes in these areas are situated in the contextof the government's broader strategies concerning labor marketflexibility, tax reform, and declining fertility. The articleargues that there has been a substantial retreat from the "femocrat"strategies adopted under Labor in the 1980s and early 1990s.The general thrust of the Howard government has been to discouragelabor force participation of mothers of young children, withthe important exception of sole parents. In a number of areaspolicies are inconsistent, reflecting the government's ambivalenceabout whether to support women as home-based carers, wage earners,or both.     

A PARADOX IN THE THEORY OF SECOND BEST

This paper first develops a political model rationalizing conventional second-best constraints on the controllability of certain sectors despite the perfect governmental information assumptions underlying conventional second-best policy intervention. It then shows that such intervention implies a logical paradox (i. e. an inconsistency with the underlying political model) that can be removed only by making sufficient additional sectors uncontrollable that classical optimality conditions apply to the remaining, controllable sectors. Classical, piecemeal policy criteria therefore hold even under the extreme informational perfections underlying conventional second-best theory. A brief application of the general model helps us understand and evaluate recent U. S. energy policy.     

SUSTAINABILITY OF THE FRIEDMAN RULE IN AN INTERNATIONAL MONETARY POLICY GAME

This article develops a two-country monetary economy model in order to analyze the international monetary policy game between governments and the domestic monetary policy game between each government and its private sector. We prove that if governments can commit to their own private sectors, the cooperative equilibrium of the game between governments is for them to follow the Friedman rule. When governments lack such ability to commit, we find that the Friedman rule is more likely to be sustained in our open-economy model than in the closed-economy model of Ireland. ( JEL E31, E52, E61)     

A Model of Choice for Public Policy

Punctuated equilibrium is supposed to be a viable alternativeto incrementalism, and, indeed, the authors of the model havesometimes made such claims. But punctuated equilibrium was developedto explain change in policy subsystems and does not serve asa complete model of policy choice in the same way that incrementalismhas served. This article develops a full-blown and viable modelof choice for public policy based on disproportionate informationprocessing. Its dynamics are based in the allocation of politicalattention to policy topics and the manner in which politicalsystems process information. The model leads directly to outcomesthat are consistent with punctuated equilibrium and are notgenerally consistent with incrementalism. Incrementalism, however,may be deduced from the model as a special case. The model isbest tested using stochastic process approaches. Incrementalismlogically must yield a normal distribution of outcomes, butdisproportionate information processing yields leptokurtic outcomes.Adding institutional constraints only makes the stochastic processimplications more severe. To support our arguments, we presentboth static and dynamic simulations of these processes. We alsoshow that these simulations are consistent with observationsof U.S. government budgets.     

QUASI‐EXPERIMENTAL ANALYSIS ON THE EFFECTS OF ADOPTION OF A VALUE ADDED TAX

Value added taxes (VATs) have become an important source of government funding in past decades, but little empirical work has been carried out on their macroeconomic impacts. As the decision to implement a VAT is endogenous, regression methods analyzing the impact of the policy choice will yield biased estimates. To solve this problem, I first model the VAT adoption decision for 192 countries using survival analysis. I then match adopters to non‐adopters using propensity score matching. I find that VAT adoption is associated with an increase in growth and investment as well as lower inflation and government spending as a share of GDP. (JEL H20, H21)