Should the individual voting records of central bankers be published?

We examine whether the publication of the individual voting records of central-bank council members is socially beneficial when the public is unsure about the efficiency of central bankers and central bankers are angling for re-appointment. We show that publication is initially harmful since it creates a conflict between socially desirable and individually optimal behavior for somewhat less efficient central bankers. However, after re-appointment, losses will be lower when voting records are published since the government can distinguish highly efficient from less efficient central bankers more easily and can make central bankers individually accountable. In our model, the negative effects of voting transparency dominate, and expected overall losses are always larger when voting records are published.     

Competition of politicians for wages and office

We examine a model in which two politicians compete for office and for wages. Their remunerations are either set by the public or are offered competitively by the candidates during campaigns. Our main finding shows that competitive wage offers by candidates lead to lower social welfare than remunerations predetermined by the public, since wage competition may lead to higher wage costs or to the election of less competent candidates. I would like to thank Alexandrina Braack, Peter Bernholz, Robert Dur, Amihai Glazer, Volker Hahn, Stephan Imhof, Verena Liessem, Christian Schultz, Otto H. Swank, conference participants at the annual meeting of the Public Choice Society 2000, the annual conference of the Royal Economic Society in Durham 2001, the annual congress of the European Economic Association 2001 in Lausanne, seminar participants in Heidelberg and at the University of California, Irvine, and two referees for their valuable suggestions and comments. A previous version of this article can be found under doi:.     

Competition of politicians for wages and office

We examine a model in which two politicians compete for office and for wages. Their remunerations are either set by the public or are offered competitively by the candidates during campaigns. Our main finding shows that competitive wage offers by candidates lead to lower social welfare than remunerations predetermined by the public, since wage competition may lead to higher wage costs or to the election of less competent candidates. I would like to thank Alexandrina Braack, Peter Bernholz, Robert Dur, Amihai Glazer, Volker Hahn, Stephan Imhof, Verena Liessem, Christian Schultz, Otto H. Swank, conference participants at the annual meeting of the Public Choice Society 2000, the annual conference of the Royal Economic Society in Durham 2001, the annual congress of the European Economic Association 2001 in Lausanne, seminar participants in Heidelberg and at the University of California, Irvine, and two referees for their valuable suggestions and comments.     

Size and distributional uncertainty, public information and the information paradox

In this paper we examine the strategic implications of collective acquisition of information in a committee or in a legislature. We show that the prospect of acquiring information can harm a majority even if information is only available by the support of a majority. Moreover, the model provides two results about incentives to acquire information. First, for policies with high distributional uncertainties, we expect that less information is acquired collectively by a committee than for other policies. Second, for policies that show only size uncertainty, our model predicts intense efforts to acquire information collectively. Received: 20 January 1997/Accepted: 15 February 1999     

RISK AND THE VALUE OF INFORMATION IN IRREVERSIBLE DECISIONS

The analysis of the nexus between the value of information and risk is examined for sequential decisions with different degrees of future commitment, as e.g. environmental decisions. We find that in the linear case a riskier environment in general will increase the value of information. This result will be extended in the separable case to decreasing and increasing stochastic returns to scale. An example shows the ambiguity in the general case.     

Bargaining cum voice

We propose a formal concept of the power of voice in the context of a simple model where individuals form groups and trade in competitive markets. Individuals use outside options in two different ways. Actual outside options reflect the possibility to exit or to join other existing groups. Hypothetical outside options refer to hypothetical groups that are ultimately not formed. Articulation of hypothetical outside options in the bargaining process determines the relative bargaining power of the members of a group, which constitutes an instance of the power of voice. The adopted equilibrium concept, competitive equilibrium with free group formation and bargaining cum voice, endogenizes the outside options as well as the power of voice. We establish existence of such equilibria and we explore their properties.     

HIERARCHICAL TRADE

Commodity trading is typically organized hierarchically: Large‐scale trade takes place at the global price system while individuals trade at local price systems within their countries. Agencies or trading houses establish the link between these different market places. In this paper, we devise a framework to study this type of hierarchical trade. We identify the free trade and the autarky equilibrium as polar cases. We show that no other two‐stage market equilibria exist if the commodity space is two‐dimensional. An example demonstrates that other, so‐called intermediate equilibria exist for three‐dimensional commodity spaces. We then provide an explicit construction of special classes of intermediate equilibria. Moreover, we study the consequences when some countries control the agency that organizes trade at the global level and we analyze the role of international goods arbitrage. Finally, we show that profit‐maximizing agencies may not promote free trade outcomes. (JEL D43, D50, F10)     

On the limits of democracy

In this article, we extend the analysis of Gersbach (2009) and explore the limits of democratic constitutions to achieve first-best outcomes. We establish the most general possibility result and we illustrate the efficiency gains of flexible majority rules by examples. We show that no first-best constitution exists if there is uncertainty regarding the size of losses and benefits from public projects.     

Reelection threshold contracts in politics

We propose to supplement the democratic election mechanism by threshold contracts. A threshold contract stipulates a performance level that a politician must reach in order to obtain the right to stand for reelection. “Read my lips” turns into “read my contract”. Politicians can offer threshold contracts during their campaigns. Equilibrium threshold contracts are welfare improving and do not violate the liberal principle of free and anonymous elections in democracies. We would like to thank Johannes Becker, Peter Bernholz, Robert Dur, Joao E. Gata, Volker Hahn, Susanne Lohmann, Christian Schultz, Otto H. Swank, Heinrich Ursprung, conference participants at the annual meeting of the Public Choice Society 2000, the European meeting of the Econometric Society 2001 and the annual congress of the European Economic Association 2001 in Lausanne, seminar participants in Heidelberg and Mannheim and the referee for valuable suggestions and comments. Financial support from the Deutsche Forschungsgemeinschaft (DFG) is gratefully acknowledged.     

Tax rules

Tax schemes are more restricted by constitutional rules than subsidies. We introduce a model of public good provision with incentive problems in agenda-setting and identify several advantages of restrictions on tax schemes. In particular, tax rules may prevent the proposal and adoption of inefficient projects that benefit only a small minority. We also propose “redistribution efficiency” as a socially desirable property of proposals and find that tax rules guarantee this kind of efficiency. Moreover, a constitution that requires certain restrictions on both taxes and subsidies satisfies a criterion we label “robustness against counter-proposals.” We provide an axiomatic characterization of this constitution. Finally, we perform utilitarian welfare comparisons.