AUTOCRATIC, DEMOCRATIC, AND OPTIMAL GOVERNMENT

All types of government face two major fiscal decisions: the level of government services and the average tax rate. This paper develops models of autocratic, democratic, and optimal government. The effects of alternative government structures are estimated using a common set of parameters based on US. data. Output and government services are higher in u democracy than in an autocracy, but the tax rate is lower. Output is even higher with an optimal government and both government services and the tax rate are lower. The relative outcomes in any government depend strongly on the fiscal horizon of those who govern. (JEL H11)     

PROBLEMS OF THE POST-WAR PUBLIC: POST-WAR EDUCATION IN ENEMY COUNTRIES

"IT would be better," says Dr. Carr, "to let the children ofGermany and Japan grow up untutored than to have their mindstwisted and their virtue destroyed by the kind of teaching thathas been imposed on them in the past ten years." Few readerswill dispute the point. But what beyond that bare statementcan be proposed? In the last issue of the QUARTERLY, GregorZiemer suggested one program. In the pages which follow, WilliamG. Carr spells out a minimum plan for the international supervisionof education in enemy countries after the war. Dr. Carr is secretary of the Educational Policies Commissionand a veteran in the field of education for democracy. He representsa point of view which is gaining increasing support in thiscountry and in Britain.     

Reference Wealth Effects in Sequential Choice

It is argued that in order to accommodate experimentally-observed choice patterns, it is not enough to model the utility function as being dependent on changes from a reference wealth point. Instead, individuals should be modeled as treating decisions as part of an identifiable sequence of decisions, and utility should be a function of reference wealth, income so far from the sequence, and payoffs from the current decision. The three-argument utility function allows for risk aversion over gains and risk seeking over losses for the first choice in the sequence, and for the house money and break-even effects in later decisions.     

SEIGNIORAGE,LEGAL TENDER,AND THE DEMAND NOTES OF 1861

In the summer of 1861, the United States embarked on its first widespread use of paper money: the Demand Notes of 1861. Although their convertibility into gold ended at the end of that year, they remained acceptable for tariff payment at a par with gold coin while they were gradually replaced with paper money that did not share this provision, the Greenbacks. We present daily observations of exchange rates between the Notes, Greenbacks, and gold for the extended period during which they simultaneously circulated. These exchange rates substantiate our revisionist notion that the Notes were replaced because the tariff provision prevented them from generating sufficient seigniorage for wartime needs. (JEL E42, N12, N22)     

PIECE‐RATE CONTRACTS FOR OTHER‐REGARDING WORKERS

When workers are paid with piece rates, inequality arises naturally. We consider workers who care about income comparisons and are either status seeking or inequality averse. We identify circumstances under which inequality attitudes lead workers to exert more effort than they would otherwise, and also circumstances under which workers’ inequality attitudes lead firms to set lower piece rates than they would otherwise. The key behavioral assumption for both of these results to hold when workers are identical is behindness aversion, the property that changes in inequality matter more to the worker when he is behind than when he is ahead. (JEL D01, J33, M52)     

DYNASTIC POLITICAL PRIVILEGE AND ELECTORAL ACCOUNTABILITY: THE CASE OF U.S. GOVERNORS, 1950–2005

This paper examines the impact of dynastic political privilege on the behavior of incumbents. Incumbents have opportunities to serve themselves at the expense of voters, but society can design political institutions to mitigate these principal‐agent problems. Dynastic political privilege may be one such mechanism. We argue that the possibility that opportunistic behavior in office may damage family members' political prospects disciplines incumbents. We test this hypothesis using data for 1950–2005 on U.S. governors, including a new data set on the family relationships of politicians, and find that dynastic political privilege increases incumbent accountability. (JEL H71, H10)     

BELIEFS ABOUT OTHER-REGARDING PREFERENCES IN A SEQUENTIAL PUBLIC GOODS GAME

Experimental evidence is used to deduce players' beliefs about their opponents' concern for others. The experiment is a sequential public good provision game with a provision point and two different refund rules. A theory is constructed to show how early contributions should change with the refund rule depending on the first mover's beliefs about subsequent players' other-regarding preferences. The evidence rejects the hypothesis that early players believe that their opponents are inequality averse and also rejects the hypothesis that early players are concerned with security. The evidence is consistent with beliefs in spite, reciprocity, or a concern for security. (JEL H41 , C90 , D63 , D64 )     

A Non-Treatment Paradigm for Probation Practice

Summary Empirical and theoretical critiques of treatment can no longerbe ignored in probation practice, but the probation service'straditional core values of respect for persons and hope forthe future can be realized in a non-treatment context. Fourtraditional aims of the probation service are identified, namely(i) the provision of appropriate help for offenders; (ii) thestatutory supervision of offenders; (iii) diverting appropriateoffenders from custodial sentences; (iv) the reduction of crime.It is argued that each of these aims remains worth pursuing,but that they need radical reconceptualization in the lightof the collapse of treatment A paradigm for practice in respectof each aim is offered for criticism and comment     

STOCK PRICE EFFECTS OF PERMANENT AND TRANSITORY SHOCKS

This paper exploits the long-run equilibrium relationship between stock prices and dividends, implied by the present value model, to structurally identify a dynamic model that governs the behavior of stock prices. The innovations to the data are dichotomized into those that leave a permanent imprint on both series and those that have only transitory effects. Unlike previous studies, however, we do not impose arbitrary identifying restrictions to decompose the joint process, restrictions that may not be consistent the data. ( JEL C12, C32, E24)