Political Economy of Mechanisms

We study the provision of dynamic incentives to self‐interested politicians who control the allocation of resources in the context of the standard neoclassical growth model. Citizens discipline politicians using elections. We show that the need to provide incentives to the politician in power creates political economy distortions in the structure of production, which resemble aggregate tax distortions. We provide conditions under which the political economy distortions persist or disappear in the long run. If the politicians are as patient as the citizens, the best subgame perfect equilibrium leads to an asymptotic allocation where the aggregate distortions arising from political economy disappear. In contrast, when politicians are less patient than the citizens, political economy distortions remain asymptotically and lead to positive aggregate labor and capital taxes.     

Optimal Taxes on Fossil Fuel in General Equilibrium

We analyze a dynamic stochastic general‐equilibrium (DSGE) model with an externality—through climate change—from using fossil energy. Our central result is a simple formula for the marginal externality damage of emissions (or, equivalently, for the optimal carbon tax). This formula, which holds under quite plausible assumptions, reveals that the damage is proportional to current GDP, with the proportion depending only on three factors: (i) discounting, (ii) the expected damage elasticity (how many percent of the output flow is lost from an extra unit of carbon in the atmosphere), and (iii) the structure of carbon depreciation in the atmosphere. Thus, the stochastic values of future output, consumption, and the atmospheric CO₂ concentration, as well as the paths of technology (whether endogenous or exogenous) and population, and so on, all disappear from the formula. We find that the optimal tax should be a bit higher than the median, or most well‐known, estimates in the literature. We also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change. We find coal—rather than oil—to be the main threat to economic welfare, largely due to its abundance. We also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress.     

Routes into activism in post-Soviet Russia: habitus,homology, hysteresis

This paper develops Bourdieusian notions of habitus, capital and field, along with the allied concepts of hysteresis and homology, to examine routes into public activism in post-Soviet Russia. Focusing on a neighbourhood campaign against construction projects in the Moscow district of Izmailovo, we argue that mobilization was driven by activists whose formative years took place during the Soviet period, and this resultant Soviet habitus enabled them to sustain their mobilization, despite the unpropitious circumstances. Our data shows that activists’ engagement was first triggered by perceived discrepancies between Soviet ideals and post-Soviet realities (hysteresis), and then supported by the mutual recognition of actors whose grievances echoed similarities in their structural positions (homologies). However, although mobilization gained momentum, it was unable to achieve definitive success in the face of negative social capital, or what Russians call administrativniy resurs: the arbitrary use of public office power that characterizes a number of social fields in post-Soviet Russia. We argue that understanding post-Soviet mobilization requires an understanding of the continued significance of Soviet ideals, as well of the role of the intergenerational transfer of civic ideals amid Bourdieusian ‘class struggle’.     

Decentralized Trading With Private Information

The paper studies how asset prices are determined in a decentralized market with asymmetric information about asset values. We consider an economy in which a large number of agents trade two assets in bilateral meetings. A fraction of the agents has private information about the asset values. We show that, over time, uninformed agents can elicit information from their trading partners by making small offers. This form of experimentation allows the uninformed agents to acquire information as long as there are potential gains from trade in the economy. As a consequence, the economy converges to a Pareto efficient allocation.