New Economics Papers
on Business, Economic and Financial History
Issue of 2007‒07‒07
thirteen papers chosen by

  1. After Johnny Came Marching Home: The Political Economy of Veterans' Benefits in the Nineteenth Century By Sung Won Kang; Hugh Rockoff
  2. Economic and Political Inequality in Development: The Case of Cundinamarca, Colombia By Daron Acemoglu; María Angélica Bautista; Pablo Querubín; James A. Robinson
  3. The development of the Norwegian Petroleum Innovation System: A historical overview By Ole Andreas Engen
  4. Wisdom and Creativity in Old Age: Lessons from the Impressionists By David W. Galenson
  5. Decomposing violence: terrorist murder and attacks in New York State from 1933 to 2005 By Gómez-Sorzano, Gustavo
  6. La monnaie comme projet politique : restauration monétaire et currency board en Lituanie, 1988-1994 By Jérôme Blanc
  7. Legal Origins and the Evolution of Institutions: Evidence from American State Courts By Daniel Berkowitz; Karen Clay
  8. Structural Breaks in Military Expenditures: Evidence for Egypt, Israel, Jordan and Syria By Aamer Abu-Qarn; Suleiman Abu-Bader
  9. An Examination of Actual Fraud Cases With a Focus on the Auditor’s Responsibility By Holm, Claus; Langsted, Lars Bo; Seehausen, Jesper
  10. How and when do markets tip? Lessons from the Battle of the Bund By Estelle Cantillon; Pai-Ling Yin
  11. Innovation and production in the Norwegian aluminium industry By Svein Erik Moen
  12. Governance, Issuance Restrictions, And Competition In Payment Card Networks By Robert S. Pindyck
  13. Grass root democracy and empowerment of people:evaluation of Panchayati Raj in India By Menon, Sudha Venu

  1. By: Sung Won Kang; Hugh Rockoff
    Abstract: This paper explores new estimates of the number of veterans and the value of veterans' benefits -- both cash benefits and land grants -- from the Revolution to 1900. Benefits, it turns out, varied substantially from war to war. The veterans of the War of 1812, in particular, received a smaller amount of benefits than did the veterans of the other nineteenth century wars. A number of factors appear to account for the differences across wars. Some are familiar from studies of other government programs: the previous history of veterans' benefits, the wealth of the United States, the number of veterans relative to the population, and the lobbying efforts of lawyers and other agents employed by veterans. Some are less familiar. There were several occasions, for example, when public attitudes toward the war appeared to influence the amount of benefits. Perhaps the most important factor, however, was the state of the federal treasury. When the federal government ran a surplus, veterans were likely to receive additional benefits; when it ran a deficit, veterans' hopes for additional benefits went unfilled. Veterans' benefits were, to use the terms a bit freely, more like a luxury than a necessity.
    JEL: N11 N4
    Date: 2007–07
  2. By: Daron Acemoglu; María Angélica Bautista; Pablo Querubín; James A. Robinson
    Abstract: Is inequality harmful for economic growth? Is the underdevelopment of Latin America related to its unequal distribution of wealth? A recently emerging consensus claims not only that economic inequality has detrimental effects on economic growth in general, but also that differences in economic inequality across the American continent during the 19th century are responsible for the radically different economic performances of the north and south of the continent. In this paper we investigate this hypothesis using unique 19th century micro data on land ownership and political office holding in the state of Cundinamarca, Colombia. Our results shed considerable doubt on this consensus. Even though Cundinamarca is indeed more unequal than the Northern United States at the time, within Cundinamarca municipalities that were more unequal in the 19th century (as measured by the land gini) are more developed today. Instead, we argue that political rather than economic inequality might be more important in understanding long-run development paths and document that municipalities with greater political inequality, as measured by political concentration, are less developed today. We also show that during this critical period the politically powerful were able to amass greater wealth, which is consistent with one of the channels through which political inequality might affect economic allocations. Overall our findings shed doubt on the conventional wisdom and suggest that research on long-run comparative development should investigate the implications of political inequality as well as those of economic inequality.
    JEL: H27 N01 N1 N16 O1 O11 O16 O54
    Date: 2007–06
  3. By: Ole Andreas Engen (University of Stavanger)
    Abstract: This paper addresses the development of the Norwegian Petroleum Innovation System. The characteristics of the Norwegian Petroleum Innovation System were on the one hand the increasing ability to solve bottlenecks connected to production and operation on the Norwegian shelf, and on the other a gradual learning process which enabled a large portion of Norwegian participation in the petroleum business. While the initial phase of the petroleum development of Norway in the sixties was characterised by an absorptive capacity of receiving new technology, the building of Norwegian competence in the seventies and eighties was in certain respects directly shaped by public policy in order to participate. With the Condeep design it became possible to speak of an independent Norwegian petroleum industry. The development of Norwegian producer and supplier companies signified that petroleum activity in Norway was entering a new phase. In the R/D System of Norway petroleum education and research were introduced at several levels. Due to new cost efficient technologies introduced in the nineties, we may say that the adjustment was concluded by the beginning of 21st century. The Norwegian oil and gas actors perceived themselves ready to fully participate in the international system of energy producers.
    Date: 2007–07
  4. By: David W. Galenson
    Abstract: Psychologists have not considered wisdom and creativity to be closely associated. This reflects their failure to recognize that creativity is not exclusively the result of bold discoveries by young conceptual innovators. Important advances can equally be made by older, experimental innovators. Yet we have had no examination of why some experimental artists have remained creative much later in their lives than others. Considering the major artists who worked together during the first decade of Impressionism, this paper compares the attitudes and practices of two important experimental innovators who made significant contributions after the age of 50 with two of their colleagues whose creativity failed to persist past 50. Unlike Pissarro and Renoir, who reacted to adversity in mid-career by attempting to emulate the methods of conceptual artists, Cézanne and Monet adopted elements of other artists' approaches while maintaining their own experimental methods and goals. For both Cézanne and Monet, recognizing how they themselves learned was a key to turning experience into wisdom. Their greatness in old age appears to have been a product of their understanding that although the improvement in their art might be painstaking and slow, over long periods its cumulative effect could be very great.
    JEL: J01
    Date: 2007–06
  5. By: Gómez-Sorzano, Gustavo
    Abstract: I apply the Beveridge-Nelson business cycle decomposition method to the time series of murder in the state of New York. (1933-2005). Separating out “permanent” from “cyclical” murder, I hypothesize that the cyclical part coincides with documented waves of organized crime, internal tensions, breakdowns in social order, crime legislation, social, and political unrest, and recently with the periodic terrorist attacks in the state. The estimated cyclical terrorist murder component warns that terrorist attacks in the state of New York from 1962 to 2005, historically occur in the estimated turning point dates, of whether a declining, or ascending cycle, and so, it must be used in future research to construct a model for explaining the causal reasons for its movement across time, and for forecasting terrorist murder and attacks for New York.
    Keywords: A model of cyclical terrorist murder in Colombia; 1950-2004. Forecasts 2005-2019; the econometrics of violence; terrorism; and scenarios for peace in Colombia from 1950 to 2019; scenarios for sustainable peace in Colombia by year 2019; decomposing violence: terrorist murder in the twentieth in the United States; using the Beveridge and Nelson decomposition of economic time series for pointing out the occurrence of terrorist attacks.
    JEL: H56 N42 H75 K14 H76 D74 C80 K42 C22
    Date: 2006–12–31
  6. By: Jérôme Blanc (LEFI - Laboratoire d'économie de la firme et des institutions - [Université Lumière - Lyon II])
    Abstract: Le point de départ de ce chapitre est une interrogation sur le paradoxe de la mise en œuvre d'un régime de currency board, éliminant en principe toute possibilité de politique monétaire, dans un pays nouvellement indépendant et ayant cherché en particulier à restaurer sa souveraineté monétaire. Il met en lumière les conditions socio-politiques de ces développements monétaires. Il distingue deux temps forts qui se chevauchent : celui de la restauration monétaire (1988- juin 1993) puis celui du projet de currency board (1990- avril 1994). Ces deux projets a priori antinomiques apparaissent en réalité articulés car ils ne procèdent pas des mêmes logiques et de mettent pas en jeu les mêmes formes de la confiance. <br />- La restauration monétaire apparaît comme projet politique dans la mesure où la monnaie à venir est porteuse de valeurs fortes qu'elle est censée valider collectivement. Elle recueille la confiance éthique qui émane de cette aspiration unanime à la restauration d'une monnaie historique. <br />- Le projet de currency board, quant à lui, ne contrevient pas à la restauration monétaire réalisée en juin 1993. Il n'engage pas la dimension éthique de la confiance mais sa dimension hiérarchique. La discipline monétaire et financière qu'il implique ne remet pas en cause la reconnexion opérée par la Lituanie avec son passé ; par certains traits, au contraire, elle l'approfondit. <br />Dans ces deux sens distincts, la monnaie apparaît, en Lituanie, comme projet fondamentalement politique.
    Keywords: Lituanie. Institutions monétaires. Monnaie nationale. Souveraineté. Currency board. Confiance.
    Date: 2007–05–07
  7. By: Daniel Berkowitz; Karen Clay
    Abstract: Several important studies of institutions assume that the quality of institutions is persistent following some formative historic event. The assumption of institutional persistence, however, begs the question of how these institutions persisted. To better understand this issue, this paper examines the evolution of state courts in the United States. We begin by reviewing the evidence that France, Spain, and Mexico operated civil-law legal systems in territory that would later make up thirteen states. One important philosophical difference between civil-law and common-law legal systems arises from differences in their beliefs regarding the appropriate degree of judicial independence. To show how these beliefs, if persistent, would manifest themselves, we present a model in which legislatures allocate budgets to their judges. In the model, common and civil-law legislatures have different preferences regarding the level of judicial independence. Our model predicts civil-law legislatures will give fewer discretionary resources to their judges when judicial elections are replaced by a system of appointments. We confirm this prediction using state-level data for the period 1961-1999. Finally, we argue that one important reason why civil-law preferences for a weak judiciary appear to have persisted in the American states is that the political culture within state legislatures is slow-moving.
    Date: 2007–06
  8. By: Aamer Abu-Qarn (Department of Economics, Ben-Gurion University of the Negev); Suleiman Abu-Bader (Department of Economics, Ben-Gurion University of the Negev)
    Abstract: IThis paper endogenously determines the timing of structural breaks in military expenditures and military burdens for the major parties involved in the Israeli-Arab conflict, namely Egypt, Israel, Jordan, and Syria over the period 1960-2004. Utilizing a test proposed by Vogelsang (1997), we find that all these countries experienced structural breaks, though at different periods in the late 70s and during the 80s. These structural breaks mark a sharp decline in the military burden that can be attributed to the peace talks that were initiated shortly after the 1973 war. When applying the Bai and Perron (1998, 2003) multiple structural break tests we detect two structural breaks for every country. The first break occurred during the 60s and demonstrated a significant rise in the military burden prior to the 1973 war, whereas the second break occurred in the late 70s and during the 80s and was characterized by a sharp decline in the military burden following the instigation of peace negotiations.
    Keywords: Military Expenditures, Military Burden, Middle-East, Israeli-Arab Conflict, Structural Breaks.
    JEL: H56 O53 C22
    Date: 2007
  9. By: Holm, Claus (Department of Business Studies, Aarhus School of Business); Langsted, Lars Bo (Department of Business Studies); Seehausen, Jesper (Department of Business Studies)
    Abstract: The purpose of this paper is to contribute to an understanding of the intricate relationship between <p> audit regulation and developments in audit practice in relation to the fraud issue. The extent and exact nature of the responsibilities of the auditor to detect fraud in relation to audit engagements has been widely discussed over the years. In this paper we classify actual cases, where the responsibilities of auditors have been established by the court system and/or by the auditors own professional organizations in Denmark. The dataset includes all publicized cases raised against Danish auditors within the time period 1909-2006. The information provided in the cases provides a basis for identifying the actual responsibilities pertaining to fraud during the audit. The overall finding of the historical analysis is that the responsibilities of the auditor in relation to fraud should be interpreted not as a group of its own, but in line with the development of what constitutes a good audit in general.
    Keywords: Fraud; auditor responsibility; intentional misstatements; misappropriation; fraudulent reporting; embezzlement;
    Date: 2007–05–18
  10. By: Estelle Cantillon (FNRS, ECARES and CEPR, Université Libre de Bruxelles, CP 114, 50, Avenue F.D. Roosevelt, 1050 Brussels, Belgium.); Pai-Ling Yin (Harvard Business School, Soldiers Field Boston, Massachusetts 02163, USA.)
    Abstract: In a famous episode of financial history which lasted over eight years, the market for the future on the Bund moved entirely from LIFFE, a London-based derivatives exchange, to DTB, a Frankfurt-based exchange. This paper studies the determinants of the observed dynamics, using a novel panel dataset that contains individual trading firms'membership status at each exchange together with other firms characteristics, and pricing, marketing and product portfolio strategies by each exchange. Our data allows us to distinguish between different explanations for the observed phenomenon. Our results indicate that the main driver was a "market coverage" effect: thanks to the combination its electronic market structure and EU-wide access deregulation, DTB increased the relevant size of the market for exchange members and disproportionately attracted those firms who originally did not exist or used to submit their orders through a broker. Differential liquidity and product portfolio strategies by the exchanges played a secondary role. JEL Classification: G21, G28, L13, L43.
    Keywords: Exchange competition, tipping, electronic trading, open outcry, network effect, Bund, adoption cost.
    Date: 2007–06
  11. By: Svein Erik Moen (Centre for Technology, Innovation and Culture, University of Oslo)
    Abstract: The paper analyses the path of the Norwegian primary aluminium industry. From the industry’s initiation in 1908 it has relied upon the close interaction with foreign aluminium MNEs with regard to knowledge, technological innovation and market access. After 1945 it has also been strongly supported by Norwegian institutions. The case gives important insights to the innovation system literature regarding how the drivers of innovation are influenced by the interaction between the national and the sectoral level; this also necessitates an international perspective of the industry’s innovation and production system. The character of these linkages has change through time.
    Date: 2007–07
  12. By: Robert S. Pindyck
    Abstract: I discuss the antitrust suit brought by the U.S. Department of Justice against Visa and MasterCard in 1998. Banks that issue Visa cards are free to also issue MasterCard cards, and vice versa, and many banks issue the cards of both networks. However, both Visa and MasterCard had rules prohibiting member banks from also issuing the cards of other networks, in particular American Express and Discover. In addition, most banks are members of both the Visa and MasterCard networks, so governance is to some extent shared. The DOJ claimed that restrictions on issuance and shared governance were anticompetitive and should be prohibited. Visa and MasterCard argued that these practices were procompetitive. The case raised important questions: Given that many banks issue both Visa and MasterCard, and that most merchants that accept one also accept the other, do the two networks really compete, and if so, how? And do Visa and/or MasterCard have market power, if so, in what market, and how is it exercised?
    JEL: G20 L40 L44
    Date: 2007–07
  13. By: Menon, Sudha Venu
    Abstract: As Gandhi often pointed out, India lives in villages and unless village life can be revitalized the nation as a whole can hardly come alive. When India became independent in 1947, perhaps one-third of the villages of India had traditional Panchayats and many of them were far from flourishing conditions. The congress government has made a determined effort to promote the creation of Panchayats and to make them effective units of local self- government. Article 40 of the Constitution clearly declares ‘The state shall take necessary actions to organize village Panchayats and to endow them with such powers and authority as may be necessary to enable them to function as units of self-government’. The aim was to foster democratic participation, to involve villagers in the development of the community and to reduce the burden of higher level of administration. Though various steps were taken by successive governments to revitalize the system, Gramswaraj through village Panchayats remained as a distant dream till 1992. Bureaucratic apathy, indifference of the people, lack of political will, lack of uniformity etc were the main factors behind the failure of the system. Realizing the potential of the PR system, Rajeev Gandhi government initiated a process of Constitutional amendment to give sanctity and uniformity to Panchayati Raj system so that it can be immune from political interference and bureaucratic indifference. Rajeev Gandhi introduced 64th Constitutional amendment Bill in 1989. But the Bill did not materialize because of the fall of his Ministry. Finally the P.V.Narasimha Rao government introduced Panchayati Raj system in India through the 73rd Constitutional Amendment in 1992. The article mainly focuses on the effectiveness of 73rd Constitutional amendment in securing empowerment of people. The article tries to capture the efforts of various states to implement panchayati Raj system and makes a comparative study of performance of states in terms of people’s participation, capacity building, de-bureaucratization and decentralization of powers. The salient features of 73rd Amendment Act including reservation of seats, provision for separate election commission and finance commission, gramsabha, taxes, periodic elections etc are discussed. More over it examines the initiatives of state governments towards democratic decentralization and highlights special programmes initiated by Kerala, Andhra Pradesh, Rajasthan, Karnataka, Madhya Pradesh etc to make the system effective. The article critically evaluates the effectiveness of PRIs as a system of governance for increased people’s participation empowerment and social change. Here attempt is made to incorporate the results of impact assessment studies conducted by World Bank. Concluding section highlights the need for revitalizing the system through integrating NREGP [National Rural Employment Guarantee Programme] and NRHM [National Rural Health Mission] etc
    Keywords: Democracy; decentralization; India; Panchayati Raj
    JEL: R0
    Date: 2007–06–17

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