VOTING, PUNISHMENT, AND PUBLIC GOODS

Researchers have found that voting can help increase voluntary contributions to a public good—provided enforcement through a third party. Not all collective agreements, however, guarantee third-party enforcement. We design an experiment to explore whether a voting rule with and without endogenous punishment increases contributions to a public good. Our results suggest that voting by itself does not increase cooperation, but if voters can punish violators, contributions increase significantly. While costly punishment increases contributions at the price of lower efficiency, overall efficiency for a voting-with-punishment rule still exceeds the level observed for a voting-without-punishment rule. ( JEL C92, D72, H41)     

A THEORY OF INTERGENERATIONAL CLUBS

Intertemporal Pareto-efficient conditions for provision and maintenance of the shared good, tolls, membership size, and financing are presented for intergenerational clubs. An optimal membership span is also determined for nonlifetime members. These Pareto-efficient conditions account for atemporal crowding, intertemporal depreciation due to utilization, and the sequence of members. Adequate incentives exist for privately owned clubs to act with foresight, but do not necessarily exist for government-owned clubs. Nevertheless, privately owned clubs must be operated by a firm rather than the members if free-rider problems regarding maintenance are to be avoided.     

THE PERILS OF EXCELLENCE: BARRIERS TO EFFECTIVE PROCESS IMPROVEMENT IN PRODUCT-DRIVEN FIRMS

Several authors have suggested that a focus on manufacturing capability and on continued process improvement may be a powerful source of competitive advantage, yet many firms appear to have encountered great difficulties in taking advantage of this insight. This paper reports on the results of five these conducted under the auspices of the MIT Leaders for Manufacturing program at the Microwave Technology Division of the Hewlett-Packard Company. We found considerable evidence that the marginal returns to process development within the division were probably considerably higher than the division's cost of capital, suggesting that process improvement probably was underfunded despite the fact that improving manufacturing capability had been identified as a key strategic priority. We found no evidence that this “underfunding” reflected either a failure to recognize the problem or an overly hierarchical or rigid organization. Rather it appeared to flow from the historical strengths of the division. A devotion to leading-edge technical solutions and to immediate customer service at almost any price had created barriers to the effective funding of process improvement that were deeply rooted in the organizational structures, information systems, and formal and informal incentive structures that had evolved to support the division's historical emphasis on excellence on product design. Our results highlight the problems that very successful product-driven companies may encounter in attempting to make continual process improvement central to their strategic mission.     

A LABORATORY STUDY OF AUCTIONS WITH A BUY PRICE

We present a series of laboratory experiments that examine auctions with buy prices, which are prices that allow a bidder to stop the auction and buy the item immediately. Two types of buy prices are considered, one that is available throughout the auction and one that disappears with an initial bid. Both are evaluated with and without proxy bidding. We find that the use of a buy price increases revenue, early bidding, and auction efficiency. Differences between outcomes in auctions with permanent and temporary buy prices are consistent with the observed choices in auction design made by online auction sites. (JEL C90, D44, C70, L81)     

BURDEN SHARING, STRATEGY, AND THE DESIGN OF NATO

This study shows that recent technological advancements in weapons, the policy of detente, and the strategic reorientation of NATO are increasing the relative importance of damage-limiting weapons. The resulting increases in excludable benefits and common-interest awareness permit NATO allies to share defense burdens more efficiently via markets according to benefits received than was the case in the 1960s. The statistical results support our hypothesis that the distribution and nature of benefits, not industrial size, determine the relative burdens of the allies. Statistical tests discriminate between the joint product and deterrence models.
War is a matter not so much of arms as of expenditure, through which arms may be made of service. (Thucydides, History I)     

UNEMPLOYMENT AND OTHER MEASURES OF LABOR MARKET INEFFICIENCY: A COMPARISON OF U.K. AND U.S. LABOR MARKETS 1931–96

Although unemployment is often used as a measure of labor market inefficiency, economic theory indicates that market inefficiency is determined by both the gap between and the elasticities of supply and demand. Using time series data for the United States and United Kingdom, this article investigates how good the unemployment rate is as a measure of labor market inefficiency by calculating the deadweight loss associated with unemployment rates over time. Results show that the loss arising from unemployment is low across time and countries and that the unemployment rate is often a weak proxy for comparing labor market inefficiency. (JEL J6 )     

DELIBERATION AND LEARNING IN MONETARY POLICY COMMITTEES

We use records from Federal Open Market Committee (FOMC) meetings to investigate the importance of deliberation and learning in monetary policy decision making in the period from 1970 to 1978 when Arthur Burns served as Chairman. We first propose a model of Bayesian learning in which FOMC members learn from each other as they sequentially reveal their policy preferences in a committee meeting. Then, as an alternative, we investigate a model in which members defer to an emerging consensus. Neither model is supported by the data, suggesting that within‐meeting deliberation might have had little effect on the quality of monetary policy decisions in the Burns era. (JEL E520, E580)     

COMMON DRIVERS OF TRANSNATIONAL TERRORISM: PRINCIPAL COMPONENT ANALYSIS

This article applies principal component analysis to decompose transnational terrorism during 1970–2007 into common (worldwide) and idiosyncratic (country‐specific) factors. Regardless of alternative thresholds and filtering procedures, a single common factor is related to individual countries' transnational terrorist events. Based on a conventional criterion, Lebanon's transnational terrorism is the key common driver of global transnational terrorist incidents. With a more conservative criterion, four additional countries—United States, Germany, Iraq, and the United Kingdom—are core countries in explaining cross‐sectional correlation across 106 countries' transnational terrorism. The analysis shows that there is a marked cross‐sectional dependence among transnational terrorist incidents worldwide. (JEL C38, H56)