nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒10‒29
33 papers chosen by
Peren Arin
Massey University

  1. Advances in Dynamic Optimal Taxation By Narayana R Kocherlakota
  2. What are the Effects of Fiscal Policy Shocks? By Andrew Mountford; Harald Uhlig
  3. The Different Extent of Privatisation Proceeds in EU Countries: A Preliminary Explanation Using a Public Choice Approach By Ansgar Belke; Frank Baumgärtner; Friedrich Schneider; Ralph Setzer
  4. Is the American Model Miss World? Choosing between the Anglo-Saxon model and a European-style alternative By Henri L.F. de Groot; Paul J.G. Tang; Richard Nahuis
  5. Coordinating Development: Can Income-based Incentive Schemes Eliminate Pareto Inferior Equilibria? By Philip Bond; Rohini Pande
  6. Fixed-Prize Tournaments versus First-Price Auctions in Innovation Contests By Anja Schöttner
  7. Who Cares about Mortgage Interest Deductibility? By Martin Gervais; Manish Pandey
  8. Growing Old and Staying Young: Population Policy in an Ageing Closed Economy By Bas van Groezen; Lex Meijdam
  9. Can Coasean Bargaining Justify Pigouvian Taxation? By Stephanie Rosenkranz; Patrick W. Schmitz
  10. Conspicuous Public Goods and Leadership Selection By Colin Jennings; Hein Roelfsema
  11. Production and Abatement Distortions under Noisy Green Taxes By Feng, Hongli; Hennessy, David A.
  12. Legislative Bargaining and Lobbying in the European Union By Hein Roelfsema
  13. Redistributive Taxation and Personal Bankruptcy in US States By Charles Grant; Winfried Koeniger
  14. An Economic Analysis of Mixing Wastes By Rob F.T. Aalbers; Herman R.J. Vollebergh
  15. Taxation and Redistribution in Australia and the UK - Evidence from Microsimulation Analyses By Justin van de Ven
  16. A topological proof of Eliaz's unified theorem of social choice theory (forthcoming in "Applied Mathematics and Computation") By Yasuhito Tanaka
  17. Efficiency and Efficacy of Kenya's Constituency Development Fund: Theory and Evidence By Mwangi S. Kimenyi
  18. Does Public Service Broadcasting Serve The Public? The Future Of Television In The Changing Media Landscape By Machiel van Dijk; Richard Nahuis; Daniel Waagmeester
  19. On Asymmetric Business Cycles and the Effectiveness of Counter-Cyclical Fiscal Policies By Nicolas Magud
  20. The Optimal Design of Funded Pension Plans: Unbundling Financing and Investment By Luciano Greco
  21. Equilibrium Implications of Fiscal Policy with Tax Evasion By Francesco Busato; Bruno Chiarini; Vincenzo di Maro
  22. The Determinants of Political Discussion: How Important Are Audit Courts and Local Autonomy? By Benno Torgler; Christoph A. Schaltegger
  23. Determinants of Recent Immigrants’ Location Choices: Quasi-Experimental Evidence By Anna Piil Damm
  24. A MODEL OF CORRUPTION IN AN INVESTMENT PROJECT By Soumyen Sikdar; Sarbajit Chaudhuri
  25. Political Cycles: the Opposition Advantage By Pascal Gautier; Raphael Soubeyran
  26. The Location of Industry R&D and the Location of University R&D - How are They related? By Karlsson, Charlie; Andersson, Martin
  27. Estimating the Impact of Experience Rating on the Inflow into Disability Insurance in the Netherlands By Pierre Koning
  28. Strategic Delegation of Environmental Policy Making By Hein Roelfsema
  29. Strategic Policy Competition with Public Infrastructure By Richard Nahuis; Paul J.G. Tang
  30. Simultaneous inter- and intra-group conflicts By Johannes Münster
  31. Estimating Equivalence Scales for Tax and Benefits Systems By Justin van de Ven
  32. The Cycle of Violence? An Empirical Analysis of Fatalities in the Palestinian-Israeli Conflict By David A. Jaeger; M. Daniele Paserman
  33. How Should Europe's ICT Ambitions look like? An Interpretative Review of the Facts By Richard Nahuis; Henry van der Wiel

  1. By: Narayana R Kocherlakota
    Date: 2005–10–26
  2. By: Andrew Mountford; Harald Uhlig
    Abstract: We propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions. Unlike most of the previous literature this approach does not require that the contemporaneous reaction of some variables to fiscal policy shocks be set to zero or need additional information, such as the timing of wars, in order to identify fiscal policy shocks. The paper's method is a purely vector autoregressive approach which can be universally applied. The approach also has the advantages that it is able to model the effects of announcements of future changes in fiscal policy and that it is able to distinguish between the changes in fiscal variables caused by fiscal policy shocks and those caused by business cycle and monetary policy shocks. We apply the method to US quarterly data from 1955-2000 and obtain interesting results. Our key finding is that the best fiscal policy to stimulate the economy is a deficit-financed tax cut and that the long term costs of fiscal expansion through government spending are probably greater than the short term gains.
    Keywords: Fiscal Policy, Vector Autoregression, Bayesian Econometrics, Agnostic identification
    JEL: C32 E60 E62 H20 H50 H60
    Date: 2005–07
  3. By: Ansgar Belke; Frank Baumgärtner; Friedrich Schneider; Ralph Setzer
    Date: 2005
  4. By: Henri L.F. de Groot; Paul J.G. Tang; Richard Nahuis
    Abstract: In Lisbon, the European Union has set itself the goal to become the most competitive economy in the world in 2010 without harming social cohesion and the environment. The motivation for introducing this target is the substantially higher GDP per capita of US citizens. The difference in income is mainly a difference in the number of hours worked per employee. In terms of productivity per hour and employment per inhabitant, several European countries score equally well or even better than the United States, while at the same time they outperform the United States with a more equal distribution of income. The European social models are at least as interesting as the US model that is often considered a role model. In an empirical analysis for OECD countries, we aim to unravel `the secret of success'. Our regression results show that income redistribution (through a social security system) does not necessarily lead to lower participation and higher unemployment, provided that countries supplement it with active labour market policies. Especially, spending on employment services like job-search assistance and vocational guidance, seems effective. Furthermore, the results suggest that generous unemployment benefits of short duration contribute to employment without widening the income distribution.
    Keywords: welfare states, income inequality, unemployment, productivity, participation, labour market policies
    JEL: E24 H5 J21
    Date: 2004–10
  5. By: Philip Bond (Wharton School, University of Pennsylvania); Rohini Pande (Economic Growth Center, Yale University)
    Abstract: Individuals’ inability to coordinate investment may significantly constrain economic development. In this paper we study a simple investment game characterized by multiple equilibria and ask whether an income-based incentive scheme can uniquely implement the high investment outcome. A general property of this game is the presence of a crossover investment point at which an individual’s incomes from investment and non-investment are equal. We show that arbitrarily small errors in the government’s knowledge of this crossover point can prevent unique implementation of the high investment outcome. We conclude that informational requirements are likely to severely limit a government’s ability to use income-based incentive schemes as a coordination device.
    Keywords: Coordination, Public Policy, Income Taxation, Implementation
    JEL: O21 H23
    Date: 2005–10
  6. By: Anja Schöttner
    Abstract: This paper analyzes a procurement setting with two identical firms and stochastic innovations. In contrast to the previous literature, I show that a procurer who cannot charge entry fees may prefer a fixed-prize tournament to a first-price auction since holding an auction may leave higher rents to firms when the innovation technology is subject to large random factors.
    Keywords: innovation contest, auction, tournament, quality
    JEL: D44 H57 L15
    Date: 2005–08
  7. By: Martin Gervais (University of Western Ontario); Manish Pandey (The University of Winnipeg)
    Abstract: We use the Survey of Consumer Finances to measure the change in federal tax liability that would result should mortgage interest no longer be deductible from taxable income. We argue that the elimination of this housing tax provision would lead households to reshuffle their balance sheet, thereby lowering the amount of interest income taxes collected. We find that the cost of this tax provision is between 35 and 65 percent of the estimates produced by the Office of Management and Budget, depending on the types of assets one assumes would be used to lower mortgage debt following the removal of the provision. Furthermore, since mostly rich households would be in a position to reshuffle their balance sheet following such a change in tax policy, the distributional effect of this program are much smaller than conventionally believed.
    Keywords: mortgage interest deductibility; housing; taxation; redistribution
    JEL: E62 G11 H24 H31
    Date: 2005
  8. By: Bas van Groezen; Lex Meijdam
    Abstract: This paper analyses the relation between public pensions, fertility and child care in a closed economy OLG-model with endogenous fertility. It it shown that it is optimal to introduce child allowances if the government redistributes income from the young to the old, and rises when longevity increases.
    Keywords: ageing, child allowances, closed economy, endogenous fertility, overlapping generations, pensions, social security
    JEL: D10 H55 J13 J14 J18 J26
    Date: 2004–11
  9. By: Stephanie Rosenkranz; Patrick W. Schmitz
    Abstract: The fact that according to the celebrated Coase theorem rational parties always try to exploit all gains from trade is usually taken as an argument against the necessity of government intervention through Pigouvian taxation in order to correct externalities. However, we show that the hold-up problem, which occurs if nonverifiable investments have external effects and parties cannot be prevented from always trying to exploit all gains from trade, may in fact be solved by taxation. Thus, in our framework Coasean bargaining is not a substitute for Pigouvian taxation, instead it is the very reason for government intervention.
    Keywords: Hold-up problem, Bargaining, Contracts, Taxation, Externalities
    JEL: D62 H21 H23 L14
    Date: 2004–04
  10. By: Colin Jennings; Hein Roelfsema
    Abstract: If voters care for the relative supply of public goods compared to other jurisdictions, decentralized provision of public goods will be too high. Potentially, centralization internalizes the negative externalities from the production of these `conspicuous' public goods. However, in a model of strategic delegation of policy making, we show that in the decentralized policy making case the median voter may delegate to a politician who cares less for conspicuous public goods than she does herself. By doing so, she commits to lower public goods in the home and in the foreign country. In contrast, with centralization the median voter anticipates the reduction in public goods supply by delegating to a policy maker who cares more for public goods than she does herself. This last effect mitigates the expected benefits of centralization.
    Keywords: Conspicuous goods, strategic delegation, policy centralization
    JEL: H21 H23 H41 F36
    Date: 2004–01
  11. By: Feng, Hongli; Hennessy, David A.
    Abstract: Pigouvian taxes are typically imposed in situations where there is imperfect knowledge on the extent of damage caused by a producing firm. A regulator imposing imperfectly informed Pigouvian taxes may cause the firms that should (should not) produce to shut down (produce). In this paper we use a Bayesian information framework to identify optimal signal-conditioned taxes in the presence of such losses. The tax system involves reducing (increasing) taxes on firms identified as causing high (low) damage. Unfortunately, when an abatement decision has to be made, the tax system that minimizes production distortions also dampens the incentive to abate. In the absence of wrong-firm concerns, a regulator can solve the problem by not adjusting taxes for signal noise. When wrong-firm losses are a concern, the regulator has to trade off losses from distorted production incentives with losses from distorted abatement incentives. The most appropriate policy may involve a combination of instruments.
    Keywords: conditioning; heterogeneity; informativeness; Pigouvian tax; signaling
    Date: 2005–10–20
  12. By: Hein Roelfsema
    Abstract: This paper analyzes the effects of legislative bargaining in the EU on public goods provision and lobbying. We argue that delegation to a single policy maker at the centralized level -which we call supranational policy making- increases lobbying expenditures. When policy in the center is formulated by a committee consisting of national representatives -intergovernmental decision making- centralization causes lobbying expenditures fall, for centralization makes national policy makers more responsive to demands from domestic lobbies. In the extensions we consider the effects of enlargement on lobbying and analyze endogenous lobby formation.
    Keywords: Centralization, Fiscal Federalism, Legislative Bargaining, Lobbying, the European Union
    JEL: D72 D78 F36 H41
    Date: 2004–07
  13. By: Charles Grant (University of Reading and EUI); Winfried Koeniger (IZA Bonn, University of Bonn and EUI)
    Abstract: Both personal bankruptcy and redistributive taxes can insure households’ consumption risk and both vary considerably across US states. We derive sufficient conditions under which more redistributive taxation makes bankruptcy exemptions less attractive both for the intratemporal insurance and for inter-temporal consumption smoothing. Exploiting data variation over time for 18 US states 1980-2003, we find considerable support for our model’s predictions: (i) redistributive taxation and bankruptcy exemptions are negatively correlated; (ii) both policies are associated with more equal consumption growth whereas the effect on unsecured household debt is less clear-cut.
    Keywords: personal bankruptcy, consumer credit, redistributive taxes and transfers
    JEL: E21 E61 G18
    Date: 2005–10
  14. By: Rob F.T. Aalbers (SEO Economic Research, Amsterdam); Herman R.J. Vollebergh (Faculty of Economics, Erasmus Universiteit)
    Abstract: Using a general equilibrium model with heterogeneous waste, this paper studies optimal waste policy when households have to exert separation effort to produce near-homogeneous waste streams suitable for recycling. Our model explicitly allows for changes in the composition (quality) of waste streams depending on how much effort households are willing to spend on separating different types of waste. Accordingly, we are able to generalize some earlier contributions to the waste management literature and demonstrate that with both mixing and effort included, a first-best optimum is feasible under reasonable conditions. In particular, we find that a (modified) deposit-refund system still provides the optimal incentives to guide recycling as well as legal disposal (landfilling) and illegal dumping. Both the number and level of taxes and subsidies needed to reach the first-best depend crucially on the socially optimal level of dumping as well as the socially optimal composition of the mix.
    Keywords: Economics of Waste; Recycling; Environmental Taxes and Subsidies; General Equilibrium Theory
    JEL: H21 H23 Q53
    Date: 2005–10–14
  15. By: Justin van de Ven
    Abstract: The last 60 years have seen Australia and the United Kingdom diverge, both socially and economically. This paper considers how the widening social gap between the two countries is reflected by their respective redistributive systems. The analysis is based upon two microsimulation procedures - one static and the other dynamic - both of which are used to consider the probable distributional effects that would arise if elements of the Australian and UK tax and benefits systems were exchanged. The static microsimulation analysis presented suggests that comparisons based purely upon cross-sectional survey data are affected by population heterogeneity, which tend to overstate the redistributive effect of the Australian transfer system in 1997/98 relative to the UK.The dynamic microsimulations are based on a cohort model, and extend the static analysis to consider distributional effects from a working-lifetime perspective. The analysis undertaken suggests that, on balance, the Australian transfer system is more redistributive than the UK system, and reflects a greater concern for social equity. The UK system, in contrast, reflects a greater concern for social insurance.
    Date: 2005–01
  16. By: Yasuhito Tanaka (Doshisha University)
    Abstract: Recently Eliaz(2004) has presented a unified framework to study (Arrovian) social welfare functions and non-binary social choice functions based on the concept of 'preference reversal'. He showed that social choice rules which satisfy the property of preference reversal and a variant of the Pareto principle are dictatorial. This result includes the Arrow impossibility theorem and the Gibbard-Satterthwaite theorem as its special cases. We present a concise proof of his theorem using elementary concepts of algebraic topology such as homomorphisms of homology groups of simplicial complexes induced by simplicial mappings.
    JEL: D6 D7 H
    Date: 2005–10–26
  17. By: Mwangi S. Kimenyi (University of Connecticut)
    Abstract: Kenya's Constituency Development Fund (CDF) is one of the ingenious innovations of the National Rainbow Coalition (NARC) Government of Kenya. Unlike other development funds that filter from the central government through larger and more layers of administrative organs and bureaucracies, funds under this program go directly to local levels and thus provide people at the grassroots the opportunity to make expenditure decisions that maximize their welfare consistent with the theoretical predictions of decentralization theory. Increasingly, however, concerns about the utilization of funds under this program are emerging. Most of the concerns revolve around issues of allocative efficiency. In this note, I highlight some of the constituency characteristics that impact on the efficiency and efficacy of CDF and also some political economy aspects associated with this program. In particular it is observed that CDF could have negative outcomes because of fiscal illusion and reduced local fiscal effort. The paper recommends an in-depth analysis of constituency characteristics that impact on the utilization of funds to ensure that the program achieves its full potential.
    JEL: D21 D70 H60
    Date: 2005–04
  18. By: Machiel van Dijk; Richard Nahuis; Daniel Waagmeester
    Abstract: The media landscape is subject to substantial technological change. In this Discussion Paper we analyse how technological trends affect the economic rationale for PSB. After identifying the aims and nature of PSB, we derive eight possible market failures from the specific economic characteristics of information. The changing relevance of these market failures is subsequently discussed in the light of the technological changes. Based on this analysis, we argue that public service broadcasting (PSB) for the digital age should be light in the sense that it has a much smaller mandate. The main reason for this conclusion is that, due to technological developments, many market failures in the broadcasting industry are no longer relevant. The broadcasting market thus functions more and more like a normal market. This implies that the allocation tends to the efficient outcome, as long as consumer valuation is properly accounted for. This is not the case when there are externalities and possibly not when it comes to valuing quality. In the presence of these market failures, an efficient allocation is not warranted in the broadcasting industry. It is these remaining market failures that give a future PSB a right to exist. JEL classification: D60, H41, L82
    JEL: D60 H41 L82
    Date: 2005–04
  19. By: Nicolas Magud (University of Oregon Economics Department)
    Abstract: In the presence of informational frictions and uncertainty, an investment model is developed to capture the asymmetric dynamics of business cycles. When affected by a negative shock, the economy responds differently than when hit by a positive shock, both in terms of size and recovery length. In this set up, the role for fiscal policy in smoothing the effects of business cycles fluctuations depends on the initial conditions of the economy at the time of the shock: based on the degree of fiscal fragility of the government, expansionary fiscal policy might be expansionary or contractionary in terms of output.
    Keywords: Asymmetric Information, Business Cycles, Fiscal Fragility, Fiscal Policy
    JEL: H32 E00 E22
    Date: 2002–12–01
  20. By: Luciano Greco (University of Padua)
    Abstract: The design of fully funded pension plans is affected by governance and incentive problems, as underlined by the experience of several countries. The analytic perspective of contract theory allows to detect the nature of such problems: pension-fund managers have strong incentives to manipulate market expectations about their capacity through wasteful activities (e.g. marketing). The design of funded pension plans has, thus, to trade-off efficiency losses and gains linked to high-powered incentives associated to the competition among fund managers. By means of a simple theoretical setting, this trade-off is shown to be driven by the integration of financing (contribution collection) and investment (asset allocation and management) activities. A separation of financing and investment allows to centralize the former and allocate collected money to a sector of competitive fund managers, via an auction mechanism. Under contract incompleteness, the quasi-competitive setting of funded pillar is proven to be Pareto-superior to the market of competitive pension funds (integrating financing and investment).
    Keywords: Funded pensions, Governance, Auctions
    JEL: D23 D44 D7 D8 H11 H42 H55
    Date: 2005–09
  21. By: Francesco Busato; Bruno Chiarini; Vincenzo di Maro (Department of Economics, University of Aarhus, Denmark)
    Abstract: This paper generates high frequency data for the underground labor and the underground production using a theoretical general equilibrium model, over the sample 1970:01-1992:04 (32 years; 128 observations). We compare selected time series properties of the generated series with those of the corresponding series estimated with classical methodologies. The generated series for underground labor and underground production present a wider range and are more volatile than all other series estimated with classical methodologies. The analysis, next, suggests that the underground labor is pro-cyclical with respect to the GDP, that is lagging it by approximately one quarter, and that underground labor series generated from the theoretical model are highly persistent. Finally, the estimated correlation between the cyclical component of our generated-from-theory underground labor productivity and the actual series of aggregate GDP is negative (-0.34), while official yearly estimates present a positive (but very low) correlation with the cyclical component of GDP (0.12). This suggests that the underground sector has a positive impact over the productivity at the business cycle frequency, while it dampens productivity fluctuations at a lower frequency.
    Keywords: Real Business Cycle Models, Underground Economy
    JEL: E32
    Date: 2005–10–27
  22. By: Benno Torgler; Christoph A. Schaltegger
    Abstract: The intention of this paper is to analyse how audit courts and local autonomy affect political discussion, controlling in a multivariate analysis for a broad variety of potential factors focusing on Switzerland, due to its variety of audit court competences and its strong decentralised structure. With data from the World Values Survey 1995-1997 (Swiss data 1996) evidence has been found that a higher audit court competence and a lower level of centralization is correlated with a higher level of political discussion. Thus, the results in Switzerland suggest that such institutions help improve citizens’ willingness to acquire information costs and discuss political matters.
    Keywords: Political Discussion; Institutions; Audit Courts; Local Autonomy; Decentralisation; Switzerland
    JEL: D72 H41
    Date: 2005–10
  23. By: Anna Piil Damm (Department of Economics, University of Copenhagen)
    Abstract: This paper exploits a Danish spatial dispersal policy on refugees which can be regarded a natural experiment to investigate the influence of regional factors on recent immigrants’ location choices. The main push factors are lack of co-ethnics and presence of immigrants. Additional push factors are lack of access to jobs, education and housing which explain why recent immigrants are attracted to large cities. Finally, placed refugees are sensitive to regional unemployment and some evidence of welfare seeking is presented as well.
    Keywords: location choices; push factors; immigrants
    JEL: J15 R15 H0
    Date: 2005–10
  24. By: Soumyen Sikdar (Dept. of Economics, Calcutta University, India); Sarbajit Chaudhuri (Dept. of Economics, Calcutta University, India)
    Abstract: The present paper analyzes the phenomenon of corruption in the context of a Public Works Department (PWD) in a developing country city and examines its tenacity in the face of anticorruption measures. Different behaviour patterns of the supervisor (official) of the PWD have been considered. The interesting result to emerge is that corruption may show a high degree of robustness against marginal attacks and such measures may actually be counterproductive in the different cases considered in this paper.
    Keywords: Corruption, investment project, supervisor, contractor, bribe, anticorruption measures
    JEL: C71 D72 H54
    Date: 2005–10–23
  25. By: Pascal Gautier (GREQAM); Raphael Soubeyran (GREQAM)
    Abstract: We propose a two dimensional infinite horizon model of public consumption in which investments are decided by a winner-take-all election. Investments in the two public goods create a linkage across periods and parties have different specialities. We show that the incumbent party vote share decreases the longer it stays in power. Parties chances of winning do not converge and, when the median voter is moderate enough, no party can maintain itself in power for ever. Finally, the more parties are specialized and the more public policies have long-term effects, the more political cycles are likely to occur.
    Keywords: Cycles, Alternation, Public goods, Advantage, Opposition
    JEL: D72 H41 C72
    Date: 2005–10–21
  26. By: Karlsson, Charlie (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: During the years, a large number of formal studies have presented evidences of a positive impact of university R&D on firm performance in general and on the location of industrial R&D, in particular. The question is does it also work the other way around? Does industrial R&D function as an attractor for university R&D? What are the behavioural relationships between industrial R&D and university R&D and vice versa? The fact that knowledge flows seem to be spatially bounded implies that proximity matters for the relationships between industrial and university R&D. We argue that spatial proximity should be measured using accessibility measures. Furthermore, accessibility measures can be used to model interaction opportunities at different spatial scales: local, intra-regional and inter-regional. Against this background, the purpose of this paper is to analyse the locational relationship between industry R&D and university R&D in Sweden using a simultaneous equation approach. Our results indicate that the location of industrial R&D is quite sensitive to the location of university R&D, and that the location of university R&D is sensitive to the location of industrial R&D. However, the latter result is achieved only when we take away one outlier in the data.
    Keywords: R&D; Industry; University; Accessibility; Location
    JEL: C30 H50 L10 O30 R10
    Date: 2005–10–18
  27. By: Pierre Koning
    Abstract: This paper examines the effects of experience rating on the inflow into disability insurance (DI) in the Netherlands, using unique longitudinal administrative data from the social benefit administration. We follow a difference-in-differences approach to identify the impact of changes in DI premiums. Due to unawareness of the experience rating system, employers seem to have been triggered to increase preventative activities, once they have experienced increases in DI premium. We find this impact to be substantial, amounting to a 15% reduction of the DI inflow.
    Keywords: experience rating, disability insurance, panel data
    JEL: H22 I12 C23
    Date: 2005–02
  28. By: Hein Roelfsema
    Abstract: A common claim is that nations should cooperate in environmental policy making. However, there is little empirical support that noncooperative decision making results in too low environmental standards and taxes. We develop a theoretical model and show that if the median voter cares sufficiently for the environment, she has an incentive to delegate policy making to a politician that cares more for the environment than she does herself. By doing so, she mitigates the`race to the bottom' in environmental taxes. In contrast, if environmental policies are determined cooperatively with other countries, the median voter has an incentive to delegate policy making to a politician that cares less for the environment than she does herself, so as to free ride on international environmental agreements.
    Keywords: environmental policy, international policy coordination, strategic delegation.
    JEL: F12 F18 H77 Q2
    Date: 2004–01
  29. By: Richard Nahuis; Paul J.G. Tang
    Abstract: Governments try to attract firms and jobs by investing in international infrastructure. We analyse this type of strategic policy competition in a three-country model of monopolistic competition. What governments compete for, is to obtain a so called `hub' position. A hub is a relatively well connected location in a transport network. A hub might thus be an attractive location for firms. However, for a small or backward country the hub position, due to infrastructure investment, is overwhelmed by the disadvantage of a small home-market. As investment to become a hub triggers an investment response from other countries, a backward country is unlikely to keep its relatively attractive position. An attractive location is only sustainable if investment applies to point infrastructure and builds upon a natural advantage (e.g. an harbour). The game of action and reaction delivers socially undesirably high levels of infrastructure investment if transport costs are already low and firm mobility is high.
    Keywords: Infrastructure, Industrial Location, Policy Competition, Monopolistic Competition, International Trade
    JEL: F12 H4 R12
    Date: 2004–08
  30. By: Johannes Münster (Social Science Research Center Berlin (WZB), Reichpietschufer 50, 10785 Berlin and Free University Berlin)
    Abstract: This paper models the trade-off between production and appropriation in the presence of simultaneous inter- and intra-group conflicts. The model exhibits a 'group cohesion effect': if the contest between the groups becomes more decisive, or contractual incompleteness between groups becomes more serious, the players devote fewer resources to the intra-group conflict. Moreover, there is also a 'reversed group cohesion effect': if the intra-group contests become less decisive, or contractual incompleteness within groups becomes less serious, the players devote more resources to the inter-group contest. The model also sheds new light on normative questions. I derive exact conditions for when dividing individuals in more groups leads to more productive and less appropriative activities. Further, I show that there is an optimal size of the organization which is determined by a trade-off between increasing returns to scale in production and increasing costs of appropriative activities.
    Keywords: Conflict, rent-seeking, federalism, hierarchy
    JEL: D72 D74 H11 H74
    Date: 2004–05
  31. By: Justin van de Ven
    Abstract: When comparing, say, the welfare derived from income by a family that is comprised of two adults and three children to that of a single adult, it is necessary to take into consideration the relative needs of the respective households. The most common means by which applied studies in economics currently relate the needs of heterogeneous income units is through the use of equivalence scales. Despite a considerable research effort, however, almost every aspect of equivalence scale specification remains controversial.What characteristics should equivalence scales take into account? Should the scales apply an additive or multiplicative adjustment to income? Is the assumption of base independence valid?1 How should a reference unit be selected? Is it reasonable to assume that there is no inequality within an income unit? What criteria are most sensible for selecting a functional form? And, arguably most important, do the cardinal relations implied by equivalence scales permit income units to be compared in terms of underlying welfare? All of these questions remain largely unresolved.
    Date: 2004–05
  32. By: David A. Jaeger (College of William and Mary and IZA Bonn); M. Daniele Paserman (Hebrew University, CEPR and IZA Bonn)
    Abstract: This paper studies the dynamics of violence in the Palestinian-Israeli conflict since the outbreak of the Second (or "Al-Aqsa") Intifada in September 2000, during which more than 3,300 Palestinians and more than 1,000 Israelis have been killed. The conflict has followed an uneven pattern, with periods of high levels of violence and periods of relative calm. Using data on the number of deaths occurring each day between September 2000 and January 2005, we estimate reaction functions for both Israelis and Palestinians and find evidence of unidirectional Granger causality from Palestinian violence to Israeli violence, but not vice versa. This finding is consistent whether we look only at the incidence of fatalities or whether we look at the level of fatalities, and is robust to the specification of the lag structure and the level of time aggregation. We find little evidence that violence on either side has a direct deterrent or incapacitation effect. We do find, however, that successful assassination attempts do reduce the number of subsequent Israeli fatalities. We conclude that, despite the popular perception that Palestinians and Israelis are engaged in "tit-for-tat" violence, there is no evidence to support that notion.
    Keywords: Intifada, terrorism, Granger causality
    JEL: C32 D71 D74 H56
    Date: 2005–10
  33. By: Richard Nahuis; Henry van der Wiel
    Abstract: In this Discussion Paper we analyse how Europe's ICT ambition can be translated into a policy agenda. To achieve this, we provide a quantitative overview of the importance of ICT and the relative position of Europe versus the US. Next we provide a discussion of potential explanations for the differences in ICT use and production. We find that Europe's position with respect to ICT use and production is not only worse compared to that of the US. In some areas Europe is ahead of the US, whereas in others Europe lags on an aggregate level. Our main conclusion is that Europe should not aim at creating an ICT-production cluster but it should aim at removing barriers to ICT use. The reasons are as follows. It is not a sensible strategy to specialise in industries where one has a comparative disadvantage. Moreover, the largest benefit from ICT is in its use not in its production. JEL classification: H89, D2, E61
    JEL: H89 D2 E61
    Date: 2005–04

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