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Summary: Anecdotal evidence suggests that people migrate to avoid air pollution. In this paper, we empirically examine the extent to which air pollution is a push factor for international migration. We allow air pollution to affect migrants differently according to their educational attainment as well as their gender. We also instrument for the level of pollution. Results generally show that air pollution is positively associated with emigration for higher educated individuals but less so for those with less educational attainment. Gender differences are less pronounced. [ABSTRACT FROM AUTHOR]

Summary: The paper examines the role of testosterone‐driven aggressive behavior in the politics of non‐democratic regimes and, in particular, its influence on the extent of repressiveness of these regimes. To measure testosterone exposure, we apply the facial width‐to‐height metric (fWHR) – a standard proxy widely used in the psychological literature – and look at a sample of Russian regional governors. We find a positive relationship between the fWHR of the governor and the level of repression in his region. Testosterone‐related behavior is, however, more widespread among younger governors and among governors with shorter tenure in office. Thus, the paper contributes to the recent trend of integrating insights of behavioral economics in political economics research. [ABSTRACT FROM AUTHOR]

The scientific community is just that - a community - and the success/influence of any one individual likely reflects, at least in certain measure, the contributions made previously by others. This suggests that rather than merely ranking economists on the basis of raw citation counts, one might gain real insights about the giants laboring in relative obscurity by identifying who the authors of exceptionally influential papers drew their inspiration from. We identify the most-highly-cited (409) papers published in economics from 2001-2005, then examine who the authors of these high-impact papers drew from in terms of developing the ideas/arguments/applications presented in these papers. We find that a very small group of individuals had a comparatively large impact on the economics profession, in terms of influencing the subsequent work of authors of extraordinarily highly-cited papers. Further, there is relatively little consistency between our list of 'giants' and Nobel Prize winners in Economics. [ABSTRACT FROM AUTHOR]

This paper investigates a claim repeatedly made, but never tested, that aid donors herd. To do so it originally uses methodologies developed in finance to measure herding on financial markets, and adapts them to aid allocation. The motivation for studying herding is to improve our understanding of aid allocation beyond observable determinants. If herding is indeed present, then it is likely to shape aid patterns in a significant way by creating aid darlings, orphans, but also by exacerbating aid volatility. Our approach starts by carefully defining aid to avoid including herding-prone aid, such as humanitarian aid and debt relief, and the sets of donors and recipients. Once this is done, herding is measured by directly applying the indexes used in finance to yearly aid data. Results show herding is indeed present, but that it is small. A second step is to introduce modifications to better match the characteristics of aid allocation. The most important in the paper is to change the time horizon. Unlike traders, aid donors commit to an aid partnership over several years, and yearly variations may contain a large part of randomness. Instead of year-to-year changes, we instead use 3 and 5-year allocations to measure herding. With this modification herding is still found to be present, but also of a larger size. It is now similar to what is traditionally found on financial markets. The next, important step is to acknowledge that aid donors' allocation decisions almost surely follow similar determinants and changes in these determinants generate a lot of co-movements. Herding measures by definition interpret these simultaneous decisions as herding, when they merely reflect common views among donors (think about a natural disaster occurring in a country that dramatically increase aid needs). Herding determinants are carefully estimated and their contributions to herding measures are then removed to obtain an estimate free of the effects of observable variables that affect aid allocation. This procedure shows that, even after taking observable factors into account, herding is still present. It suggests other considerations drive herding behavior. [ABSTRACT FROM AUTHOR]

The paper argues that the problem of obesity can usefully be seen as illustrating a new kind of market failure. At the heart of such failures is the emergence of a sub-optimal choice environment which, though derived from a large number of small individual optimising decisions, is not the choice environment that people would choose if they were able to choose the environment itself. This idea is claimed to be consistent with modern economic theories of freedom of choice and applicable particularly to choice environments that emerge in highly competitive market situations. The retail supply of food and consumer credit is discussed by way of example. Concluding, the paper develops the concept of a ‘deliberative economy’ as an alternative to liberal paternalism and explores conditions under which such an approach to social choice might deliver desirable outcomes. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between trust and economic growth. Taking panel data and using a fixed-effects estimation for a 41-country sample over the time period from 1980 to 2004 and with a total of 129 observations, the paper points out that economic growth is negatively related to an increase in trust. This negative finding is in contrast to most empirical findings using a cross-sectional design. The common knowledge which has governed the nature of discussions in social science and economics for the last ten years, that trust is generally positively related to economic performance, must be seriously questioned. From a policy point of view an increase in trust is crucial for countries with low levels of trust, but can likely be neglected by countries with sufficient levels of trust and may even hamper economic performance in countries with high levels of trust. The relationship is tested in the context of EU countries, OECD countries and developing countries. Interpersonal trust and systemic trust is differentiated. [ABSTRACT FROM AUTHOR]

This paper provides an empirical analysis of joint-liability micro-lending contracts. Using our data set, we examine the efficacy of various incentives set by this contract such as joint-liability between groups of borrowers or group access to future and to larger loans. As proposed by theory, we find that joint liability induces a group formation of low risk borrowers. After the loan disbursement, the incentive system leads to peer monitoring, peer support and peer pressure between the borrowers, thus helping the lending institution to address the moral hazard and enforcement problem. This paper also demonstrates that the mechanism realizes repayment rates of nearly 100% if the loan officers fulfill their complementary duties in the screening and enforcement process. Finally, we make clear that dynamic incentives, in contrast to theory, have to be restricted if the two long-term problems of the joint-liability approach, i.e. its mismatching problem and the domino effect, are to be tackled notably. [ABSTRACT FROM AUTHOR]

Many transition policies, based on the existing neoclassical economic theories, failed in Eastern Europe, the former Soviet Union, and China. This paper argues that the failure is due to the implicit viability assumption of neoclassical economics. The existing neoclassical economics implicitly assumes that a firm is expected to earn a socially acceptable profit in an open, competitive market as long as the firm has normal management. However, many firms in socialist as well as transitional economies are not viable, that is, they will not be able to earn a socially acceptable profit in an open, competitive market even if they are under normal management because they are in sectors that are inconsistent with their economies' comparative advantages. Under the viability assumption, neoclassical-based reform policies focus on issues related to property rights, corporate governance, government interventions and other issues that may obstruct a firm's normal management. However, many of these issues are in fact endogenous to the firms' viability problem. Therefore, without resolving the firms' viability problem, such reforms fail to achieve their intended goals. Not only in socialist and transition economies but also in many developing economies there exist many nonviable firms. This paper suggests that the viability assumption in neoclassical economics should be relaxed when analyzing socialist, transition and developing economies. [ABSTRACT FROM AUTHOR]

A paradox is a proposition in (alleged) contrast with common sense. All science is replete with paradoxes. Economics is not an exception. This paper is focused on two widely discussed paradoxes: the Mandeville paradox (and the associated idea of an ‘invisible hand’) and the Prisoners' Dilemma (with the allied literature on market failures). The main tenet of this paper is that they cannot be simultaneously paradoxical, because they state one the opposite of the other. If common sense contrasts with Mandeville, then it must agree with the Prisoners' Dilemma and vice versa. This is what I term the ‘paradox of paradoxes’ in economics, which is a simple consequence of the rarely noticed principle that two opposing propositions cannot be paradoxical at the same time. A tentative way out from this impasse is presented. I claim that economists would gain a better understanding of their profession if they devoted more time to the study of the intuitive or folk economics. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to examine connections between rationality and rule following, and to propose that a distinction between consequential and procedural interests can help us in explaining choice behaviour in general. The limitations of Rational Choice theory have become increasingly established in economics. An alternative behavioural theory, Rule-Individualism, is assessed in the paper, with the conclusion that it fails in its attempt to provide a genuinely different perspective compared to Rational Choice theory. Hayek's theory of mind works as a bridge, connecting rule following, as a behavioural pattern, with contextual discretion. The central message in Hayek's book in the field of psychology, The Sensory Order, is that all types of action are fundamentally based on our ability to discern recurrent patterns. That is, all action is essentially rule-based. A question then arises about a potential explanation to the distinction between rule following and discretion at the observable level of individual action. Rational Choice theory is silent about this, and Rule-Individualism, it will be explained, is inherently inconsistent when dealing with the logic of rule following. This paper aims at offering a potential explanation which is not inconsistent or tautological. [ABSTRACT FROM AUTHOR]

Summary Between 1974 and 1996, there was a substantial increase in the emphasis on academic research in universities located in the United States and elsewhere throughout the world. This increased emphasis was, and continues to be, reflected in a variety of increased incentives for faculty to produce research, including higher salaries, reduced teaching loads, increased money for travel, on so on. Yet, as we report in this paper, during this time period the rate of uncitedness of economics papers remained constant (at 26 percent). Clearly, universities and taxpayers/supporters of universities are obtaining no enhancement of research output (in terms of citations) from the increased subsidy to faculty research. We discuss the implications of this result for the publication and organization of economic research. In particular, we discuss the fact that resources devoted to up-front screening of papers by authors and journals have risen substantially over this period, but to no avail with respect to reducing the incidence of dry holes. [ABSTRACT FROM AUTHOR]

This paper analyzes the editorial screening process in economics, employing data from the American Economic Review, Journal of Political Economy, and Quarterly Journal of Economics. We examine three issues: the decline of critical commentary in economics, the increased referencing behavior of authors, and the decline in the citation of economic research. We find that there is empirical evidence in favor of the idea that these trends are mostly due to more ex ante investment by authors in their papers and less need for ex post quality control. [ABSTRACT FROM AUTHOR]

Summary: The aim of this paper is twofold. First, it tests whether an effect of over‐indebtedness on self‐assessed health exists. Fixed‐effects panel regression models based on panel data for 25 European countries show that being in arrears increases the likelihood of reporting bad/very bad health. However, effects are weak in terms of economic significance. The second research question focuses on the effect heterogeneity of overindebtedness among different European countries. It asks whether country‐level factors moderate the effect of problematic debt on health. These macro‐variables are the accessibility of health services, debt management and debt discharge regulations, dispute resolution with banks/insurance companies, and the social stigma of being over‐indebted/in debt. Descriptive analyses showed that some aspects of the legal debt‐collection process (e.g., higher costs of debt collection) are associated with a stronger effect of over‐indebtedness on subjectively assessed poor health. There is also some evidence that easier dispute resolution with banks and insurance companies is correlated with smaller effects of over‐indebtedness on health. [ABSTRACT FROM AUTHOR]

This paper deals with the effect that the process of 'activization' of money lasting for the last twenty years has on the traditional devices of money management in the Centrally Planned Economies (hereafter: CPEs). In the first part of the paper we will summarize the discussion on the nature of money in the economic literature and its methodological implications for the study of the CPEs. In the second part our analytical framework is introduced while in the third part it is applied to the study of the traditional setting of monetary circulation in the CPEs. The fourth part focuses on the consequences that economic reforms are having on the monetary circulation, and analyzes the nature of the emerging monetary problem the CPEs will have to face. In the concluding remarks we look into the future in order to identify the instruments that would allow the CPEs to handle the monetary problem in its new shape. [ABSTRACT FROM AUTHOR]

The paper analyzes the reasons for different governmental levels of regulation. Taking a different approach from the usual historical, constitutional, or efficiency explanations, the paper finds that the relative strength of interest groups at different levels of government is the primary factor. An empirical investigation of the building codes in 1100 U.S. cities and towns confirms that the choice of regulation by the national rather than local code is strongly affected by the relative power of interest groups instead of factors of efficiency of scale, ideology, or history. It is found that groups switch their preference, depending on whether they predominate locally or not. [ABSTRACT FROM AUTHOR]

The aims of this paper are to identify the product market, develop a model of the decision to join international organizations, discuss the theoretical role of information and cooperation as part of the technology of these bodies and finally to develop the salient features of international cooperation.
The paper develops a theory of international economic organizations by drawing from the literature of public economics and, in particular, from the theory of collective action. Information theory provides further insights concerning the market of cooperative activities and the payoffs a country derives in joining an international organization. The theory is best applied to an understanding of ongoing processes of international economic integration, rather than major one-time events such as formation of a customs union. The theory's implications accord with many international events in the postwar world. In particular, it predicts the diminished incentive on the part of the United States to lead in the area of international cooperation. [ABSTRACT FROM AUTHOR]

The paper is the 1980 BOHM-BAWERK - lecture given at the University of Innsbruck. Scarring from BOHM-BAWERK'S book Rights and Relations from the Point of View of the Economic Theory of Goods the paper tries to evaluate rights and phenomena like goodwill from the perspective of innovation. A framework of three levels of economic activity is developed. The three levels are consumption (the lowest level), production and innovation (the highest level). Rights are interpreted as instruments of protection of higher level activity from lower level activity. Focus of attention are industries with very high rates of technical progress and innovation. There the most important positive externality of innovation is the increased potential for even more innovations. It is argued that competition policy, as a rule of thumb, must foster competition by innovation and must discourage competition by imitation. [ABSTRACT FROM AUTHOR]

This paper argues that two different worldviews may be identified in economics and hypothesizes about the origins of this differentiation. I argue that the differences in economic worldviews go beyond technical academic, methodological or ideological distinctions; instead, they may be related to both old conceptions of the two types of mind and some newer findings in cognitive neuroscience. In particular, I analyze the recent developments in economics from the brain lateralization point of view and argue that some salient trends in economic thought are largely compatible with the hypothesis of the increased left brain hemisphere dominance. [ABSTRACT FROM AUTHOR]

Summary Sustainable natural resource management is at the core of the policy agenda, given the wide array of goods and services environmental resources generate, that significantly contribute to social welfare and productive capacity of modern economies. Likewise, there is a large policy interest in the monetization of the economic effects of environmental damages, to enable the design of response and mitigation strategies. This paper focuses on the valuation of the welfare losses from forest fires in the fire prone Mediterranean region applying the life-satisfaction approach. Detrimental effects on utility relate to morbidity, losses of marketed goods and impacts on forest goods and services. For our empirical investigation, we employ self-reported life satisfaction, income and other socio-economic information from the Eurobarometer Survey Series matched with data on the number and extent of forest fires at the regional level. To account for endogeneity, we instrument forest fire characteristics with the mean daily precipitation in the region during the fire season ( April to September). Our sample covers Portugal, Spain, Italy and the Mediterranean provinces of France, and spans from 1986-1993 and 2001-2003. We find that both forest fire incidence and forest fire extent have a significant negative effect on individual welfare. We estimate the monetary loss from an additional fire incident to be €0.20 and the loss from burning an additional 100ha of forest at €2.03 per household respectively. Nevertheless, the negative effect of forest fires on life satisfaction is significant only for the rural population. Results therefore provide useful insights on the detrimental effects of forest fires at the regional level for different segments of the population that should be accounted for in policy formulation. [ABSTRACT FROM AUTHOR]

Throughout his life the English philosopher, economist and jurist Jeremy Bentham exhibited a marked interest in the design and the transfer of institutions. What is more, he was determined that his proposals illuminate the course of institutional design all over the world during his era. His work along these lines thus represents an obvious example of the work of a hands-on expert on codification. In this paper we review the theoretical and practical activities undertaken by Bentham on the issue of codification and discuss them in the context of a rational choice model of the economics of expertise. While experts may claim to be concerned with the advancement of the public interest, it seems safer to consider them as economic agents just like the rest of us. The different activities undertaken by Jeremy Bentham in terms of offering proposals for codification throughout the world in the early 19th century represent a fascinating case-study on the economics of expertise. Our examination of his activities in this sense will also allow us to discuss the contemporary relevance of Bentham's enterprise. [ABSTRACT FROM AUTHOR]

While economic theory has been applied to fields such diverse as religion, arts, law and crime in past years, journalism has until recently remained a blind spot of economic analysis. Media economists may have described media markets, but few economists so far have studied self-interested journalists as actors in information-attention markets. Frequently, it is still assumed that journalists serve the public, strive for objectivity in their news products, and seek to act as a ‘fourth estate’ in democracy. We consider this a ‘nirvana approach’ to journalism, and we seek to demonstrate instead that media content is severely influenced by rational journalists' and other communication professionals' self interests. In this paper we outline an Economic Theory of Journalism, referring to the few scholars of economics and of mass communication who have, explicitly or implicitly, used economic theory as an analytical tool to analyze journalism. We argue that economic concepts like principal-agent theory, free-riding, external effects, the tragedy of the commons, and the tyranny of small decisions can fruitfully be applied in order to provide more in-depth explanations of often-criticized developments in journalism such as the rising influence of PR and spin doctors on journalism, ‘pack reporting’, and ‘horse-race journalism’. We conclude that an Economic Theory of Journalism will enable both economists and scholars of journalism to identify and predict more systematically the failures of journalism, the excesses and the blind spots of media coverage, and we claim that economics and mass communications need to observe and to inspire each other more closely in the future. [ABSTRACT FROM AUTHOR]

This paper uses regression analysis to investigate the relationship between military expenditure and stock market performance for the United States and the United Kingdom. Specifically, the study applies the Bierens-Guo unit root procedures to ascertain the time series properties of the variables in the study. The standard OLS technique is employed to determine the influence of military expenditure on stock markets for the period 1914 through 2001. The results from the unit root tests indicate that the military expenditure, military personnel, stock market, and energy consumption series are level stationary. The results from the OLS equations suggest that military expenditure has significantly positive effect on stock market performance for the United States and the United Kingdom. The implication of this finding is that high-income class and people in power are less likely to oppose increases in military spending even though such expenditures are not in the best interest of the society. [ABSTRACT FROM AUTHOR]

One of the European Union's explicitly formulated goals is reducing the lags in development and narrowing the gaps in income between its member states and regions. In order to attain these goals, the Union's regional policy employs a system of vertical conditional grants known as the Structural Funds. Various attempts have been made to evaluate the effectiveness of this policy in promoting convergence. This paper adds to the existing literature in focusing the investigation on the role of the member states' federal structure. A short discussion drawing mainly on the theory of fiscal federalism provides the basis for an empirical model. Using a sample of 13 European countries in the period from 1975–1995 we estimate the effect varying decentralization among the member states has on the conditional effectiveness of Structural Funds expenditure. The results suggest that Structural Funds are more effective in promoting growth when the states exhibit a higher degree of decentralization. [ABSTRACT FROM AUTHOR]

The paper applies an alternative approach to assess whether foreign aid promotes economic growth in developing countries, based on the concept of temporary growth accelerations suggested by Hausmann, Pritchett and Rodrik. In addition to aggregate aid, we differentiate between major aid categories, including grants, loans and so-called short-impact aid. It turns out that aid flows have a small but significantly positive effect on the conditional probability of growth accelerations. This result holds across different estimation methods. However, the significance of results crucially depends on the criteria applied to identify growth accelerations. [ABSTRACT FROM AUTHOR]

The paper reviews and evaluates some recent contributions on modeling entrepreneurship within a neoclassical framework, analyzing how, and to what extent, the fundamental ingredients suggested in the social science literature were captured. It is shown how these approaches are important in stressing the main elements of a complex picture, without being able to fully describe it. Each modeling attempt focuses only on one specific feature of entrepreneurship, and the entrepreneurial function, broadly perceived, eludes analytical tractability. As a consequence, the models can be useful in analyzing the effect of entrepreneurial behavior at an aggregate level, but not at explaining individual choices. From these observations, it is highlighted how a simplistic interpretation of the existing mainstream approaches incorporating entrepreneurship runs the risk of leading to distortionary policy interventions. [ABSTRACT FROM AUTHOR]

This paper discusses the recent literature on the role of the state in economic development. It concludes that government incentives to enact sound policies are key to economic success. It also discusses the evidence on what happens after episodes of economic and political liberalizations, asking whether political liberalizations strengthen government incentives to enact sound economic policies. The answer is mixed. Most episodes of economic liberalizations are indeed preceded by political liberalizations. But the countries that have done better are those that have managed to open up the economy first, and only later have liberalized their political system. [ABSTRACT FROM AUTHOR]

Both the economic theory of federalism and international environmental economics are interested in finding conditions under which countries or groups of countries would like to start cooperation with other countries. In the framework of the standard public-good model this paper presents a criterion for individually rational and thus voluntary international cooperation aiming at the provision of an international public good. This basic criterion can be traced back to Wicksell and Rawls and reflects the idea of reciprocity. In a further step, it is used to specify determinants that affect the decision of a group of countries to enter a coalition. It turns out that in this context the adjustment behavior of the original coalition members as well as that of the remaining outsiders is of particular importance. Finally the theoretical considerations are confronted with actual behavior of countries and groups of countries (as the EU, US and the developing countries) in the Kyoto process leading to a discussion of further prospects for global climate-change policy. [ABSTRACT FROM AUTHOR]

‘Policymakers’ efforts to boost trend output growth may be hampered by the presence of a trade-off between productivity gains and job creation. This paper presents empirical evidence that the negative relationship between productivity growth and employment growth that prevailed in the 1960s and 1970s has disappeared since then. This finding is robust to using alternative measures and including other explanatory variables. The improved trade-off may be good news for policymakers who aim at raising the‘speed limit’ of the economy. [ABSTRACT FROM AUTHOR]

Why did peacetime government shares of total spending double in a number of Western economies between 1910 and 1938? The widely separated dates for the introduction of universal manhood suffrage and the evidence of a rise in protection during the inter-war period indicate that neither democracy nor globalization can explain this development. This paper reexamines two other explanations, namely, (1) a shift in the demand for public goods and (2) a war-induced willingness to share with one's fellow citizens. By introducing into Schelling's (1978) Multi-Person Dilemma a learning game whose payoffs change endogenously, we provide theoretical explanations for this transformation. We then test the resulting propositions with data on public spending as a share of GNP for the U.S., Canada, the U.K., Germany and Denmark, from the 1870s to the 1930s. In each case, we find no unit root but a break in trend, a result shown to favor explanation (2) over (1). [ABSTRACT FROM AUTHOR]

The empirical literature on border effects suggests that national borders substantially reduce the level of economic transactions. This paper adds another piece of evidence to the significance of border effects by applying a new data set which is completely independent of the data sets of previous studies. Our data refer to domestic and international passenger departures from German airports. The econometric results indicate that the German border reduces passenger air traffic by a factor of four to five. This magnitude is in line with the results of previous studies for trade and investment flows. [ABSTRACT FROM AUTHOR]

This paper provides systematic evidence for both the cross-country and sector-independent validation of political-economic theories used to explain changes in national property rights arrangements. A political-economic model for privatization will be developed and then tested on progress in large-scale and small-scale privatizations in 14 Central and Eastern European transition economies between 1994 and 2000. It will be proven that divergent levels of progress in large-scale privatization can be explained to a large extent by the structural and financial constraints on political decision-makers and varying national interest group constellations. Small-scale privatization is not significantly determined by political constraints and interest group pressure. This finding supports the assumption that the relative merits of different theories to explain changes in property rights arrangements depend crucially on the specific conditions of initial property arrangements. [ABSTRACT FROM AUTHOR]

Comments on David Laband and Robert Tollison's (2003) analysis of the productivity of economic research. Suggestion that the increased investment made in economic research since the mid-1970s has gone to reward rent-seeking and is therefore wasted; Failure of the evidence to support the hypothesis; Investment in research and the proportion of dry holes; Determination of how often a paper is cited during the five years immediately following its publication.

A common finding of recent theoretical and empirical literature is that corruption has a negative effect on economic growth. In the paper, through growth regression analysis, we estimate the direct and indirect effects of corruption on economic growth. The indirect transmission channels, specifically investments, trade policy, schooling, and political stability, analysed in our study prove to be significant in explaining the deleterious effect of corruption on growth rates. We find that one standard deviation increase in the corruption index is associated with a decrease in investments of 2.46 per centage points, which in turn decreases economic growth by 0.34 per cent per year. The second, by importance, transmission channel is openness: a standard deviation increase in the corruption index is associated with a decrease of the openness index by 0.19, resulting in a decrease in economic growth by 0.30 percent per year. Jointly, the transmission channels explain 81 per cent of the effect of corruption on growth. While combating corruption is a long-term task, an understanding of the transmission channels, through which corruption affects the economy, may suggest ways to limit corruption's negative, but indirect, effects on growth. [ABSTRACT FROM AUTHOR]

The expansion of economics to ‘non-market topics’ has received increased attention in recent years. The economics of sports (football) is such a sub-field. This paper reports empirical evidence of team and referee performances in the FIFA World Cup 2002. The results reveal that being a hosting nation has a significant impact on the probability of winning a game. Furthermore, the strength of a team measured with the FIFA World Ranking does not play the important role presumed, which indicates that the element of uncertainty is working. The findings also indicate that the influence of a referee on the game result should not be neglected. Finally, the previous World Cup experiences seem to have the strongest impact on referees' performances during the game. [ABSTRACT FROM AUTHOR]

The paper presents a model of ‘rational irrationality’ to explain why political and religious beliefs are marked not only by low information (as the notion of rational ignorance highlights), but also by systematic bias and high certainty. Being irrational – i.e., deviating from rational expectations – is modeled as normal good. The reason that irrationality in politics and religion is so pronounced is that the private repercussions of error are virtually nonexistant. The consumption of irrationality can be efficient, but it will usually not be when the private and the social cost of irrationality differ – for example, in elections. [ABSTRACT FROM AUTHOR]

In this paper we tackle the issue of the dismal evolution of domestic investments in some highly indebted LDCs by devising a simple model to compare the effects of debt servicing obligations and domestic policies on the propensity to invest. Our empirical results show that both debt overhang and domestic policies influence the propensity to invest: however, appropriate domestic policies have a stronger effect in fostering investments, and growth, in highly indebted LDCs allan reducing debt servicing obligations. [ABSTRACT FROM AUTHOR]

In this paper, we examine whether trial-and-error learning leads to the behavior predicted by economic models which assume well-informed rational agents. We present two results. First, psychological models of imperfect learning are consistent with expected utility maximization Second, using a simple model of job choice, we demonstrate that market interactions do not eliminate the learning flaws Our conclusion is that trial-and-error learning is not, in general, a reliable behavioral foundation for the assumption of well-informed rational...

National account statistics typically omit some non-marketed economic activity. Over time, if non-market activity declines relative to total economic activity, national accounts estimates of output and income and their changes will be overstated. This overstatement affects comparisons of growth for a single country through time as well as affecting comparisons among countries
Using labor force participation rates as a proxy for the move from non-market production to market production this paper finds and provides empirical measurements...

This paper has reviewed the theoretical and empirical work of economists on the deterrent effects of punishment for criminal activity. Although the general theory does not yield unambiguous predictions many empirical workers have, surprisingly, hung the 'testing' of economic models on the presence or absence of deterrent effects of certainty and severity of punishment. Unfortunately much of the literature seems impaired by bias due to measurement error[4]. This seems confirmed by the recurring combination of a negative arrest rate effect on crime with a zero or negative effect of crime on the police. Despite the unsatisfactory nature of much of the research there is still scope for future developments. These could profitably be in greater exploration of victimisation surveys and samples of post-release prisoners, more studies where police recording bias. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to show that, even leaving aside such criticisms, there are certain fundamental obstacles to the establishment of falsificationism and fallibilism as epistemic foundations of economics. More specifically, it will be argued that the former fails to account for the widely recognized difficulties of testing economic theories, mainly because it completely disregards the peculiar epistemological status of most economic theory; while the latter unavoidably clashes with the sharp contrast between 'practical' and 'scientific' rationality, which is so typical of POPPERian epistemology. Furthermore, the origins of both these fallacies will be traced back to the misleading account of falsificationism given by FRIEDMAN [1953]: by conflating the degree of corroboration with that of verisimilitude of a theory, he confused falsificationism with induction by elimination. In doing so, he prepared the way for another twist, more subtle -- although with equally serious consequences -- than that christened by SAMUELSON [1963], in the methodology of neoclassical economics. [ABSTRACT FROM AUTHOR]

This paper develops a theoretical apparatus to model the preference for subjective novelty, and suggests a program of systematic empirical study of such a preference. The human sensitivity to subjective novelty will be shown to have far-ranging implications for all areas of economics.
The necessary tools will come from psychology and information theory. 'Informational' utility is shown to respond to a measure of how a distribution of characteristics or events varies in relation to prior experience, independent of any utility generated by the individual 'physical' characteristics. For example, a policy environment wildly at odds with experience is likely to induce disutility, independent of calculations of added 'risk' of individual assets, investments, or incomes; in this respect the theory has potential explanatory power regarding levels of business and consumer confidence. Similarly, the demand for a 'differentiated' product plausibly depends on how 'differentiated' the product is, relative to prevailing norms. Thus, the model addresses the issue of context, 'historical' and necessarily subjective, an issue not generally treated in the context-free formulation of expected utility models with stable preferences. Because it is based upon a contextual or figure-ground relationship, this new class of models will be called Gestalt Utility Theory (GUT) models. [ABSTRACT FROM AUTHOR]

This paper investigates the effect of confidence on income velocity in wartime South Vietnam. The topic of how a noneconomic variable, such as confidence, affects the demand for fiat money has been largely ignored since WESLEY C. MITCHELL'S famous book The History of Greenbacks [1903]. MITCHELL argued persuasively that the outcome of American Civil War battles had a powerful effect on the gold value of U.S. greenbacks. ALRED MARSHALL [1956] thought that 'inflation and contractions of credit and prices will always be caused by wars and rumors of wars', regardless of the metallic standard used. Despite these early signals by eminent Quantity Theorists very little empirical work has been done relating noneconomic factors to important economic variables such as velocity[1]. [ABSTRACT FROM AUTHOR]

The essay is built upon an analogy examining the similarities between medical science and economics. A short economic pathology is outlined. Seven main diseases are discussed: inflation, unemployment, shortage, excessive increase of foreign debts, growth disturbances, harmful inequality, and bureaucratization. We cannot find a single country that would be completely free from each of the above seven diseases. Medical science studies the relationship between desired and adverse effects of a therapy. Similarly, economic therapies have also adverse side-effects. Whenever radical therapy of a main disease was started, at least one other main disease developed. The paper analyses the differences between congenital and contracted, acute and chronic economic diseases. Finally some philosophical conclusions are drawn. Normative theories in economics often reflect naive optimism. Only few economists admit that there exist insoluble dilemmas. We must admit the limits of our knowledge, and exhibit more caution and modesty when advising policy-makers. [ABSTRACT FROM AUTHOR]

This paper deals with the role of the economists as advisers of the politicians. It investigates to what extent inefficient resource allocation can be reduced by economic advice. The problem is thus the 'effectiveness' of advice, conceptually measured by the percent of inefficiency reduction due to the economist's policy suggestions. 'Advisers' are defined to be not only those economists who are officially appointed as counselors, but also those scholars who make explicit or implicit normative proposals concerning the policy measures that ought to be taken. [ABSTRACT FROM AUTHOR]

This paper links laboratory and field experiments in economics with the idea of history as a kind of laboratory for political economy. This link is justified by the occasional appearance in economic history of situations that show, by isolating the effect of a variable, quasi-experimental characteristics. Whereas controlling 'test conditions' in economic history as much more difficult than in experimental economics, historical information has the advantage of being culled from real life. The discussion of methods is illustrated throughout by samples of empirical research on public goods and the free rider problem, for instance. [ABSTRACT FROM AUTHOR]

CEBULA'S estimates and analysis of the crowding out issue are interesting, relevant, and very well done. Nevertheless, there are certain data and structural problems with CEDULA's models. The present paper has pointed out these problems and then offered empirical estimates within alternative models, models which yield more dependable and accurate results. It is found that, within these 'improved' models, partial crowding out does occur and, moreover, it has a long term inflationary impact. [ABSTRACT FROM AUTHOR]

Sociology, social psychology and economics are particularly concerned with the emergence and effects of social norms. So far each of these sciences ignores the results of the others and, thus, each forgoes the possibility of learning from one another. This paper aims at confronting some sociological and economic hypotheses on norms. At first some sociological hypotheses which are frequently stated in the literature are clarified and criticized. After describing the procedure and some hypotheses of the 'economic approach', the sociological hypotheses are discussed and modified from the perspective of economics. It is also suggested how economic hypotheses have to be modified from the viewpoint of sociology. [ABSTRACT FROM AUTHOR]

The total set of decisions being taken in an economy may be said to consist of three types: (1) decisions taken in a decentralized manner by individual actors, (2) decisions taken by a central authority or by a group according to certain rules, and (3) decisions taken through various forms of negotiations or bargaining without specific rules or time limits and without arrangements which secure that a decision will be taken even if there is no agreement between the parties involved. By and large economic theory treats decisions of the two first types, but has traditionally had less to say about the third type of decision mechanisms. The author holds the view that in the total set of decisions being taken in the economy there is an increasing share of decisions through negotiations and bargaining of the third type at the cost of the two 'classical' types of decisions. In order that economic theory should not lose in relevance, it is therefore important to take up the problems raised by bargaining. He considers game theory to be the best starting-point for this. Existing bargaining theory is to a large extent not very relevant because it assumes a priori too much of 'collective rationality'. In the view of the author there are many inherent tendencies and problems in a bargaining process which lead to the conclusion that one must often expect bargaining to lead to non-optimal decisions. The paper is meant as an attempt at presenting a diagnosis and understanding certain tendencies of development, and is admittedly rather speculative. The author avoids value judgements about the tendencies under discussion. [ABSTRACT FROM AUTHOR]

The paper distinguishes two concepts of 'government': government as the group of people holding political office (the government), and government as a set of institutions in the nature of a firm (Government). It is argued that in a society with less than total aversion to corruption and weak institutions imposing competitive and legal constraints on corruption, there exists a significant realizable corruption revenue which political teams will seek to capture by gaining control of Government. To capture this revenue the team forming the government will use some of its resources to directly divert Government funds, to impose 'corruption taxes' on different economic activities, to influence the costs of acquiring and supplying information to voters, competitors and the legal system, and to influence the openness of competition for control of Government and the independence of the judiciary to inflict legal costs for corrupt acts. The consequence is excessive resource flow into political activity, a government-civil service-business coalition to obtain the maximum realizable corruption revenue, and alteration of the relative profitability of different economic activities. [ABSTRACT FROM AUTHOR]