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Comments on a paper about the relevant lessons from the U.S. Federal Convention of 1787 in the context of the role of institutions in political economy and the performance of economies. Reasons for studying institutions; Path of historical change in terms of the way in which institutions evolved through time; Similarity of the sequential pattern of institutional evolution with the way in which the evolution of common law is perceived.

This special issue brings together the papers presented and discussed at the James M. Buchanan Centennial Birthday Academic Conference hosted at Middle Tennessee State University. The papers appraise and extend Buchanan's contributions to the fields of public choice and constitutional political economy. This special issue demonstrates that Buchanan's scholarship continues to be relevant and fruitful for scholars working on modern scholarship in these fields. [ABSTRACT FROM AUTHOR]

The article comments on the proposed method to evaluate the motives behind government behavior concerning public goods in the U.S. The method is to derive results from a set of simple and largely unobjectionable propositions about public goods. The author points out that it is difficult to argue that efficiency requires uniform public provisions.

It is possible that a budget breaking incentive scheme may not solve the problem of moral hazard in team production, due to an incentive for a principal to cheat on such an agreement. This is a problem common to incentive schemes which result in an unbalanced budget, which include among them processes designed to reveal demand for public goods. This paper shows the conditions under which cheating is possible, and designs a payment scheme for the principal which is free of any cheating incentive. [ABSTRACT FROM AUTHOR]

In this paper, we provide an overview of the influence of Tullock's work on rent-seeking in the area of economics education. After summarizing the basic rent-seeking model in both a domestic and international context, we conduct an analysis of undergraduate and graduate textbooks in public economics. We find a majority of undergraduate texts cover rent-seeking in depth, but two texts provide zero coverage. No graduate textbook surveyed mentions rent-seeking. We conclude by summarizing the economic education literature on rent-seeking, which can be divided into either classroom experiments or popular culture examples. [ABSTRACT FROM AUTHOR]

This introductory essay summarizes the contents of the papers presented at a conference in honor of Gebhard Kirchgässner entitled “(Macro-)Economic Policy and Public Choice” which are published in this special issue. In addition to this brief overview on the contributions, this essay relates them to the scientific works of Gebhard Kirchgässner after locating the latter within the realm of Public Choice analysis. [ABSTRACT FROM AUTHOR]

Past research largely has ignored the effects of political parties on states’ default risks. This paper addresses that question by analyzing the response of credit spreads to weekly polling data from 17 gubernatorial elections between 2009 and 2012, during the 6 months prior to Election Day. The findings are that political affiliation has a significant effect on states’ default risks. The estimated effect of electing a Republican governor is a 6% reduction in the credit spread of the state. The effect prevails regardless of the party in control of the state legislature, and it is larger when gubernatorial elections are contested closely. Set in the context of case law, the paper links higher tax levels to greater credit risk. Moreover, an analysis of the candidates’ campaign promises suggests that stronger positions against tax increases are associated with less default risks. The results of the paper are therefore consistent with the empirical evidence suggesting that Republicans prefer lower taxes. [ABSTRACT FROM AUTHOR]

In this paper it is argued that political parties may have incentives to adopt a partisan view on the working of the economic system. Our approach is based on a dynamical spatial voting model in which political parties are policy oriented. This model revolves around two interrelated issues X and y. The policy maker sets x directly. There exist two views on the relationship between X and y. Model uncertainty confronts policy makers with the problem of the selection of a model to base their actions on. We show that if voters have imperfect information about the working of the economic system that model selection contains a strategic element. Policy makers are inclined to adopt a view on the working of the economic system which fits in with their preferences. [ABSTRACT FROM AUTHOR]

This paper explores James Buchanan’s contributions to monetary economics and argues these contributions form the foundation of a robust monetary economics paradigm. While often not recognized for his contributions to monetary economics, Buchanan’s scholarship offers important insights for current debates, especially the renewed interest in narrow banking in the wake of the financial crisis. We argue that the post-2007 crisis milieu creates a unique opportunity to recognize, as Buchanan did, the vital role that money plays in the market as the ‘grammar of commerce.’ That recognition makes the need for more fundamental reform of our monetary regimes at the constitutional level more apparent, making Buchanan’s work on monetary constitutions more relevant than ever before. We then discuss how adopting Buchanan’s monetary framework can improve both monetary scholarship and institutions. [ABSTRACT FROM AUTHOR]

Are certain forms of government associated with superior economic outcomes? This paper attempts to answer that question by examining how government systems influence macroeconomic performance. We find that presidential regimes consistently are associated with less favorable outcomes than parliamentary regimes: slower output growth, higher and more volatile inflation and greater income inequality. Moreover, the magnitude of the effect is sizable. For example, annual output growth is between 0.6 and 1.2 percentage points lower and inflation is estimated to be at least four percentage points higher under presidential regimes relative to those under parliamentary ones. The difference in distributional outcomes is even starker; income inequality is 12 to 24% worse under presidential systems. [ABSTRACT FROM AUTHOR]

This paper investigates how order may emerge in anarchy using a novel empirical approach. It analyzes the predatory and productive interactions of 400,000 users of a virtual world. Virtual worlds are computer-created environments that visually mimic physical spaces, where people interact with each other and with virtual objects in manifold ways. Notably, the paper examines the behavior of users acting as virtual pirates. The paper finds that even in a largely anonymous and anarchic virtual world private rules of order mitigate the most destructive forms of conflict. This is true even though the virtual pirates are found to be conflict-loving rather than conflict-averse. Although the costs of conflict are dramatically reduced in virtual worlds, private rules that limit violence spontaneously emerge. An important part of the paper's contribution is methodological. The analysis of the problem of order in anarchy serves to exemplify the power and usefulness of the new approach. [ABSTRACT FROM AUTHOR]

This paper addresses Janos Kornai's early work on the socialist economy as summarized in his first book, Overcentralization in Economic Administration. In this context, I discuss the parallel research of the 1950s by American scholars, such as Joseph Berliner, David Granick, Gregory Grossman and Eugene Zaleski, who used similar methods and arrived at similar conclusions. Kornai found little evidence of comprehensive planning. Instead, he determined that the planning system consisted of quarterly gross output orders that could readily be manipulated by managers and had to be fulfilled at any price. Kornai's Overcentralization already contained the seeds of Kornai's later key findings of the dysfunctionalities of socialist planning; namely, soft budget constraints and the shortage economy. Kornai's most important finding was largely overlooked throughout the socialist world—that the planned economy could not be reformed by partial measures. [ABSTRACT FROM AUTHOR]

This paper uses an augmented Solow model, with cross section data, to measure the effect on per-capita income of a) the entrenchment of various rights in a country's Constitution and b) the level of economic freedom in a country, broadly construed. The results suggest that entrenchment, per Se, of any single right seldom has a significant general economic effect, while the effect of economic freedom is significant and substantial. The paper then considers whether such evidence could support the proposition that "constitutions do not matter." While it concludes otherwise, it does caution against incurring excessive negotiation costs to obtain entrenchment of a comprehensive "wish list" of rights. [ABSTRACT FROM AUTHOR]

The article discusses future prospects for the full acceptance of the field of public choice within political science and economics, its parent disciplines. The author cites several promising directions in the struggle to make public choice more useful and relevant to the general political science and economics communities. The discipline of public choice represents an intersection between political science and economics, since it was largely founded by economists and political scientists who borrowed from each other's disciplines to create a new type of research.

This paper analyzes the link between large youth cohorts and violent conflicts when labor-market restrictions are present. Such restrictions are expected to limit the youth cohort’s access to income opportunities in the formal economy, and thus lower the youth-specific opportunity cost of insurrection activities. We develop a theoretical model of insurrection markets and integrate the youth cohort’s relative size. In equilibrium, a binding labor-market constraint interacts with the youth bulge in determining the level of insurrection activities within the society. We test the implications of our model on a sample of 135 non-OECD countries in the post-Cold War period and find the effect of the youth cohort’s relative size on conflict onsets to be moderated by changes in the labor-market conditions as measured by unemployment rates. Generally, the results provide evidence that the underlying institutional setting shapes the conflict potential inherent in a given demographic structure. [ABSTRACT FROM AUTHOR]

This paper reports new time-series for the numbers and sizes of churches in Denmark over a 715-year period. Per capita, the new series are termed church densities. A pattern emerges in the series that corresponds to the main development in the economy: until 1750, the economy was in the traditional steady state, where church densities were high and did not decline substantially. Modern development set in after 1750. Since then, church densities have declined more than five times. Moreover, capacity utilization of church rooms has declined, which means that the reduction in the demand for churches must have been even larger. We argue that this large decline is caused by a fall in religiosity that is caused by economic development as measured by the rise in incomes. In parallel with similar transitions in other sectors, e.g., the Agricultural Transition, it is termed the Religious Transition. [ABSTRACT FROM AUTHOR]

This paper analyzes the relationship between fiscal decentralization, the duration of fiscal consolidation episodes, and their success for 17 OECD countries between 1978 and 2009. The consolidation of the general government budget appears to be of longer duration when expenditure decisions are more decentralized. We also find that transfers from higher levels of government are cut during consolidation episodes, suggesting that central governments shift the burden of consolidation towards lower tiers of government. This is especially true when the latter have little legal autonomy to raise tax revenues and have little influence over executive decisions taken at the central level. We document that this increases local governments' public debt/GDP ratios. In terms of the success of consolidation episodes, countries with greater degrees of decentralization appear to make smaller improvements in their primary balance when consolidating. [ABSTRACT FROM AUTHOR]

In this paper, we study the dynamics of legal rules in a model with two nation-states playing a non cooperative game. For each country, changing the legal system is a costly process. At the same time, the existence of different legal systems is also costly for all nation-states. We show that despite the non cooperative behavior of countries, a process of legal convergence is achieved in the long run through small step by step changes. This result depends neither on the number of players in the game, nor on the time horizon of policy makers. Complete legal convergence can be obtained in a finite time. Coordinated efforts to achieve legal convergence are then unnecessary. We show that they might even be counterproductive, in the sense that the welfare of nation-states is higher under legal competition, compared to cooperative legal unification. [ABSTRACT FROM AUTHOR]

Among twentieth century inheritors of the classical liberal mantle, the notion that democracy could be understood as "government by discussion" is found most prominently in the work of Frank H. Knight and James M. Buchanan. The purpose of the present paper is to compare Knight and Buchanan's use of the expression "democracy is government by discussion". Knight adopted the expression in reference to the means by which (a) individuals coordinate decisions and actions to facilitate constitutional decisions about social action and (b) we coordinate society's norms and values. For Buchanan, democracy as discussion occurs only at the level of constitutional decisions. Thus, while their use of the expression unites them, it also provides a way of examining the divide between them. [ABSTRACT FROM AUTHOR]

A substantial amount of James Buchanan's academic work was devoted to his constitutional project: the development of procedures for designing constitutional rules that would create a government sufficient to protect people's rights but that would constrain government from violating people's rights. Buchanan divides government functions into a protective state that preserves people's rights and a productive state that produces collective goods that individuals could not produce on their own or through market mechanisms. Buchanan uses the benchmark of hypothetical agreement with the constitutional rules to evaluate whether they further the interests of those who are subject to them. This paper presents Buchanan's constitutional project as a framework for analyzing constitutional rules and suggests how Buchanan's framework can extend his constitutional project. [ABSTRACT FROM AUTHOR]

Lifestyle can often affect the likelihood an individual will have a future illness. Subsidies often mitigate the consequences of poor lifestyle choices. In this paper we explore tax-subsidy policies that lower the consequences of incurring ill health. We find that a funding mechanism consistent with current US policy lowers the investment in healthy lifestyles by both the wealthy, who pay taxes, and the poor, who receive subsidies. We also explore alternative policy interventions such as investing in research to lessen the impact or probability of the disease. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between public employment and income redistribution in Brazilian municipalities. First, we use the requirements set forth by the Fiscal Responsibility Act as an instrument for public employment variation across municipalities. Second, our results suggest that local public employment increases income concentration instead of fostering redistribution. This result puts into perspective the model provided in Alesina et al. (J. Urban Econ. 48:219-241, ) where public employment can be used as device for redistributing income in the United States. This seems to be an outcome of the current public employment structure and not an explicit public policy. [ABSTRACT FROM AUTHOR]

After a short literature review, the paper quantifies the turnover of organized crime with the help of a MIMIC estimation procedure for the years 1995 to 2006 for 20 highly developed OECD countries. The volume of turnover from organized crime was US-$ 270 billion in the year 1995 for these 20 OECD countries, rising to $ 614 billion in 2006. The worldwide turnover in organized crime had a value of $ 595 billion in 2001 and rose to $ 790 billion in 2006. These figures are very preliminary but clearly indicate the importance of the turnover of organized crime or the extent of money laundering. [ABSTRACT FROM AUTHOR]

The apparent ineffectiveness of incumbent campaign spending in congressional elections is one of the enduring puzzles in the political economy literature. Previous work in this area has assumed that advertising prices are uniform across congressional districts, and therefore that campaign spending alone is a good proxy for campaign advertising. However, candidates in different districts face widely different advertising prices and this paper shows that differences in advertising costs are one source of the apparent ineffectiveness of campaign spending. Accounting for the price of advertising, this paper shows that campaign spending is productive for both incumbents and challengers. [ABSTRACT FROM AUTHOR]

The most striking feature of liberal democracies is the coexistence of large inequalities of wealth with a roughly egalitarian distribution of voting power. So far most attempts to explain this have asked ‘why don’t the poor form a coalition to expropriate the rich?’ This paper argues that this is not necessarily the best way to interpret the problem and attempts to provide an alternative unified political-economic model that is more consistent with standard assumptions about voting. This is done by studying what would happen if every possible coalition could form in a wealth distribution game. Among the main findings is that, if the marginal contribution of every individual to production is increasing sufficiently, there is a stable distribution of the product. This may include the egalitarian distribution. If individuals are not so valuable there is no stable distribution. [ABSTRACT FROM AUTHOR]

This paper estimates the influence of macroeconomic conditions on individual legislator voting over time. Previous work shows legislator voting to be stable over careers. In this paper, voting on an ideological issue space (ADA scores) and a fiscal issue space (NTU scores), from 1976 to 2002, exhibits significant short-term cyclicality with economic conditions. Individual legislators polarize by party in response to rising unemployment, and converge in response to rising inflation. As legislators accumulate tenure, they become more ideologically conservative but more fiscally liberal. Results are also reported on presidential party, divided government, and region. All results are weaker in the Senate than in the House. [ABSTRACT FROM AUTHOR]

This paper investigates the behavior of rent-seeking politicians in an environment of increasing economic integration. The focus of the paper is on the implications of globalization-induced political yardstick competition for constitutional design with a view to the current discussion in the European Union. In contrast to the established literature, we carefully portray the double-tiered government structure in federal systems. The number of lower-tier governments and the allocation of policy responsibilities to the two levels of government are subject to constitutional choice. [ABSTRACT FROM AUTHOR]

The present paper provides an analysis of unfunded social security as the outcome of a public decision making process in an endogenous growth economy. It employs a model in which there is a non-monotonic relationship beween productivity growth and the scale of public intergenerational redistribution. The paper shows that although unfunded social security need not harm growth in general, it is likely to harm growth in a democracy. This effect is reinforced by population aging. [ABSTRACT FROM AUTHOR]

The School of Salamanca often is identified as the first economic tradition in the history of the "dismal science". Its members anticipated principles later developed by the likes of Adam Smith and Carl Menger. This paper provides an economic theory of the production of economic analysis by the Doctors of Salamanca, beginning from the observation that producers of economic analysis respond to incentives the same way producers of meat, beer, or bread do. Historically, the demand for economic analysis arises from two sources: governments and interest groups. I argue that the changes in international trade associated with the emergence of new transatlantic markets in the sixteenth century led to an increase in the demand for economic analysis by Spanish merchants and that the contribution of the School of Salamanca was grounded in the predictable supply response to those fresh incentives. [ABSTRACT FROM AUTHOR]

Supply restricting drug policy is inefficient from an economic point of view, but is nevertheless widely used. This paper explains this phenomenon as individually rational behavior for local government. Because supply restriction gives addicts an incentive to migrate it has an external effect. This effect makes a policy of supply restrictions individually rational but leads to socially wasteful competition between local governments in a federal system. [ABSTRACT FROM AUTHOR]

The results presented here suggest that Public Choice is broadly cited by economists and political scientists. The journal currently ranks, approximateIy, in the middle of the pack with respect to various citation measures. Also, since the late seventies, the journal's ranking has improved significantly relative to both social science journals and to comparable economics journals. Some of the papers published in Public Choice are well cited and several made a significant impact on the thinking of scholars in both economics and political science. Either through his work as editor or through his articles, the thought of Gordon Tullock is well represented in the elite group of articles published in Public Choice. The analysis of citations in Section 4 shows that Tullock's ideas and writing have had considerable impact on the thinking of economists. His contributions are substantial, often multi-disciplinary, and certain to be enduring. [ABSTRACT FROM AUTHOR]

Presents a reply by the authors to a commentary on their article "X-Efficiency, Rent-Seeking, and Social Costs," which appeared in the 1988 issue of the journal "Public Choice." Argument regarding the form of X-inefficiency; Discussion on rent-seeking and rational behavior; Measurement of social costs; Comments on the failure of the authors of the commentary to disprove the fundamental difference in the social costs of rent-seeking and X-inefficiency identified in the paper.

The purpose of this paper is to formally examine the effect of placing constraints, such as the line-item veto or a balanced budget amendment, on legislative behavior. There are two basic findings that emerge from the analysis. First, constraints on one type of instrument, such as spending, will in general result in more widespread use of other kinds of instruments, such as regulation. Second, it is naive to conclude that constraints on legislative behavior will promote economic efficiency and/or reduce the growth of government. The primary contribution of the paper is to suggest how changes in the political environment can affect instrument choice, economic welfare, and the size of government. [ABSTRACT FROM AUTHOR]

In this paper a model has been presented on the relationships between authority, scope and force. The model predicts the 1974 level of force in five Central American countries accurately. What needs to be done next is to inquire into the determinants of authority, scope and force. These are among the questions that need to be answered: What are the sources of authority? How is authority gained and how is it lost? What forces lead to the expansion of scope and what forces lead to its contraction? What determines the ability of the rulers to use force? Once we know the answers to these questions it would be relatively easy to monitor the 'political health' of a country and predict with some anticipation the likely direction of force. This could be of great aid to public policy, both domestic and foreign. [ABSTRACT FROM AUTHOR]

This paper analyzes the causes of legal political rent extraction by using a direct measure of it, namely, local top politicians' wages. In particular, we investigate whether local politicians' incentives to extract rents by setting their own wages are influenced by the degree of political competition and voter information. We use a sample of the largest Spanish municipalities over the years 2008-2010. The results indicate that weaker political competition and lesser voter information are related to more rent extraction. In an additional analysis, we show that higher wages do not ensure better financial management. These findings confirm that when politicians can set their own salaries, higher wages do not mean better management, but they are just political rents. [ABSTRACT FROM AUTHOR]

Major economic crises may promote structural reforms, by increasing the cost of the status quo, or hinder them, by inducing more demand for protection. The ideology and political partisanship of the ruling government may be crucial in determining the prevailing course of action. In good times, conservative parties are typically pro-reform. However, do these parties try to exploit periods of crisis to carry out their reforms? Do social-democratic parties support even greater social protection? To answer these questions, this paper uses indicators of structural reforms in the labor, product, and financial markets for 25 OECD countries over the 1975-2008 period. The empirical analysis confirms the ambiguous effect of crises: product markets are liberalized, but financial markets become more regulated. Partisan politics also matters, as right parties are associated with more pro-market reforms. Yet, crises modify partisan politics: right-wing parties refrain from promoting privatizations, and oppose the introduction of greater financial market regulations. By contrast, center parties liberalize and trim unemployment benefits generosity, while left parties privatize. Furthermore, weak, fractionalized governments, which are associated with more regulated product markets, are also more likely to liberalize during a crisis. [ABSTRACT FROM AUTHOR]

Martin Paldam is one of the most prominent figures of Danish economics and European public choice. In this introduction to the special issue, we identify five of the areas, where he has made significant contributions: (1) vote and popularity functions and political business cycles; (2) democracy and institutions; (3) the economics of corruption; (4) development aid; and (5) social capital. [ABSTRACT FROM AUTHOR]

The paper asks whether members of central bank decision-making committees should communicate with the public in a collegial manner, by conveying the consensus or majority view of the committee, or in an individualistic way, by providing the diversity of views among the committee members. It finds that more active as well as more consistent communication by committee members improves the predictability of monetary policy decisions significantly. This effect is sizeable as communication dispersion across committee members accounts on average for one third to one half of the market's prediction errors of FOMC policy decisions. Moreover, more active and more consistent communication are found to also reduce the degree of uncertainty about the future path of interest rates. These findings suggest that a collegial communication which stresses the consensus view on policy inclinations can enhance the effectiveness of central bank communication. [ABSTRACT FROM AUTHOR]

This paper addresses two empirical questions. Is fiscal policy affected by upcoming elections? If so, do election-motivated fiscal policies enhance the probability of re-election of the incumbent? Employing data for 65 democratic countries over 1975-2005 in a semi-pooled panel model, we find that in most countries fiscal policy is hardly affected by elections. The countries for which we find a significant political budget cycle are very diverse. They include 'young' democracies but also 'established' democracies. In countries with a political budget cycle, election-motivated fiscal policies have a significant positive (but fairly small) effect on the electoral support for the political parties in government. [ABSTRACT FROM AUTHOR]

Brilliant but little known, in part because his style was dense and crucial papers unpublished, Earl Thompson reformulated standard theory to achieve policy relevance, focusing on significant rent-seeking inefficiencies stemming from private information and transaction costs. Drawing on history, he showed a vast array of institutions to be efficient which economists had previously found to be inefficient, modeled governments and their nature, defined government's functions, and showed why dominant states rise and fall. [ABSTRACT FROM AUTHOR]

Why fight secession? This paper is a case study on this question, asking why the North chose to fight the South in the American Civil War. It tests a theoretical prediction that economic motivations were important, using county-level presidential election data. If economic interests like manufacturing wished to keep the Union together, they should have generated votes to do so. That prediction is borne out by the data, and explanations other than Northern economic concerns about Southern secession appear unable to explain the results, suggesting that economic motivations were important to support for fighting the South. [ABSTRACT FROM AUTHOR]

Political economy literature generally predicts a positive relationship between income inequality and redistribution. However, there is no clear empirical evidence supporting such a relationship. By incorporating an informal sector that evades income taxes, we account for the tax-base effect that, along with the political channel, determines the equilibrium redistribution and tax mix. We find a non-monotonic relationship between inequality and redistribution and explore under which conditions an unequal society relies more heavily on indirect taxes to finance redistribution. Ultimately, this paper shows the limitations of the income tax to finance redistribution in developing countries even when taxes are democratically chosen. [ABSTRACT FROM AUTHOR]

This paper tests whether the political connections of banks were important in explaining participation in the Federal Reserve's emergency lending programs during the recent financial crisis. Our multivariate tests show that banks that were politically connected-either through lobbying efforts or employment of politically connected individuals-were substantially more likely to participate in the Federal Reserve's emergency loan programs. In economic terms, participation in these programs was 28-36% more likely for banks that were politically connected than for banks that were not politically connected. In our final set of tests, we attempt to identify a proper explanation for this peculiar relationship. While a broad literature speaks of the moral hazard associated with receiving bailouts, we test whether another type of moral hazard exists in the period preceding the bailout. In particular, we argue that, to the extent that political connections act as synthetic insurance, banks may have engaged in more risky behavior that lead them to the Fed's emergency lending facilities. Tests seem to confirm this explanation. [ABSTRACT FROM AUTHOR]

This paper investigates the organizational structure of the Hells Angels Motorcycle Club, one of the largest and best known North American motorcycle gangs. Within the first few decades since their establishment, the Angels developed a hierarchical organizational form, which allowed them to overcome internal conflict and exploit the gains from their involvement in criminal activities. This organizational form, I argue, played a central role in the rapid success of the Angels in the North American (and international) criminal landscape. [ABSTRACT FROM AUTHOR]

This paper explores the idea that institutional details matter and that attempts to estimate the economic effects of federalism by employing a simple dummy variable neglect potentially important institutional details. Based on a principal component analysis, seven aspects of both federalism and decentralization are used as variables for explaining differences in (1) fiscal policy, (2) government effectiveness, (3) economic productivity, and (4) happiness. The results show that institutional details do, indeed, matter. Different aspects of federalism impact on the outcome variables to different degrees. This study adds to our knowledge on the transmission mechanisms of federalism and decentralization. [ABSTRACT FROM AUTHOR]

Traditional economic theory suggests that competition among officials providing government goods tends to reduce corruption. However, empirical evidence does not yet support this view. In this paper, I show that a corrupt and powerful central authority can use competition among officials to amass resources for itself. While competition reduces corruption at the lower level of government, corruption at the higher level of government is increased. To avoid widespread theft from the central authority, competing officials are monitored more intensively than a monopolist. Hence, even though competition among officials generates more consumer surplus, it may reduce welfare. [ABSTRACT FROM AUTHOR]

Using electronic-markets data, this paper investigates partial determinants of change in Graham's price-earnings ratios (P/E) during US presidential election cycles. We document evidence over six elections, that as the probable winner of the election becomes clearer, markets surprisingly respond with decreases in P/E ratios. We consider that our results are consistent with rational markets reacting to presidential campaigns focused on influencing biased, sociotropic voters. These results should be of great interest to researchers concerned with market reaction to election cycles, public policy, and the overall role of election uncertainty in financial markets. [ABSTRACT FROM AUTHOR]

The bailouts of 2008-10 are the most recent in a long series of insurance-like policies designed to limit the losses of those harmed by a crisis of some kind-but enacted after a crisis is under way. This paper analyzes the economics and politics of 'crisis insurance' programs. The analysis helps explain why ex-post insurance is popular, why it tends to be undersupplied by private markets, and why governments may be better able to provide it. The analysis also points out that there are limits to what losses can be covered. The routine adoption of new programs to limit losses from crises tends to require greater expenditures through time because of moral hazard problems and the nature of crises. Eventually, this trend may produce 'uninsurable' crises. The analysis of this paper suggests that such problems can be moderated, although not eliminated, through appropriate standing polices for ex-post funding of crisis insurance. [ABSTRACT FROM AUTHOR]

This paper examines the effects of the most recent U.S. housing bubble on the fiscal policy of California cities. We use an instrumental variables approach that helps isolate the fiscal consequences of house price appreciation by taking advantage of the influence of local topological constraints on the elasticity of house prices with respect to interest rates. Our analysis generates three main findings. First, despite Prop 13 fiscal constraints, rapid house price appreciation has a strong effect on property tax revenue. Second, the resulting increase in property tax revenue was largely offset by a reduction in other local tax revenue. This offsetting response leaves total city expenditure unrelated to local house prices. In that sense the housing bubble did not produce local fiscal bubbles. Third, we find that fiscal adjustments to house price appreciation depend on local political institutions. [ABSTRACT FROM AUTHOR]

This paper examines the impact of public sector decentralization on per capita income. Controlling for differences in institutional arrangements among countries, panel data regressions on a sample of observations from 20 high-income OECD nations spanning the years 1972 to 2005 indicate that decentralization is positively related to income. The empirical analysis shows that institutions consistent with economic freedom enhance the positive income effects of decentralization. Thus, the impact of public sector decentralization is dependent upon a nation's institutional environment. [ABSTRACT FROM AUTHOR]