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This paper reconsiders the nexus between the abundance of resources and the origins of Sicilian mafia by exploiting a new set of historical data on the Sicilian sulphur industry in the late 19th century, obtained from official reports of the Royal Corps of Mining Engineers at the municipal level. We find that the impact of local production on mafia was smaller -or nil- in the areas richest in sulphur. We also find that mechanization in the extraction process was associated with lower incidence of mafia. Taken together, our findings suggest that larger lodes encouraged better and more orderly working conditions for the miners, possibly reducing physical and psychic strain and, consequently, inclination to violence.

This paper analyses the case of a local secession, i.e. the birth of a new local jurisdiction by separation from an existing one. We present a stylized model in which society is composed of heterogeneous groups and individuals have an homophily bias. The model predicts that: i) separations, such as the split of a territory into distinct administrative units, occur when the costs of mixed communities are sufficiently large; ii) the smaller community drives the decision to secede; iii) welfare gains from the split are associated with positive population growth; iv) higher payoffs under separations, however, might be related to taste for sameness only, with no (or even negative) effect on economic growth. Then, we bring the model to the data by exploiting the secession of the Italian region of Molise from Abruzzo, a unique event in Italian history, which took place in 1963. Historical records document that the split was the result of pressures from Molise, the smaller community. Our evidence suggests that the split was associated with population inflows in both areas. Finally, the main empirical findings, derived by using a synthetic control approach, show that the split caused significant benefits, in both regions, in terms of per-capita GDP growth.

This paper considers the “share-altering” technical change hypothesis in a spatial general equilibrium model where individuals have different levels of skills. Building on a simple Cobb-Douglas production function, our model shows that the implementation of skill-biased technologies requires a sufficient proportion of highly educated individuals. Moreover, areas that experiment this kind of technical change will initially exhibit a rise in local skill premia, but such a trend tends to be reverted over time due to labour mobility. Also, when technical progress is such to disproportionately replace middle-skill jobs, the local distribution of skill will exhibit “fat-tails”, where the proportion of both highly skilled and low-skilled workers increases. These predictions are consistent with recent existing evidence.

OBJECTIVES AND MOTIVATION: This paper considers the impact of interactions between fiscal policy and monetary institutions in the presence of unionized labour markets on economic outcomes and welfare in the long run. Two main classes of questions are investigated. First, what is the impact of exogenously given labour taxes and unemployment benefits on the choice of monetary policy by the central bank, on the choice of nominal wages by unions, on the choice of prices by monopolistically competitive firms and through them on unemployment, inflation and welfare? Second, how are labour taxes and redistribution chosen by a (Stackelberg leader) fiscal authority whose objectives are a weighted average of social welfare and of catering to the interests of political supporters, and how does the general equilibrium induced by this choice affect welfare? The framework of the paper is motivated by the European scene in which the fraction of the labour force covered by collective agreements dominates wage setting in the labour market. "PLAYERS" AND PAYOFFS: The model economy features labour unions that maximize the expected real income of union members over states of employment and of unemployment, a central bank that strives to minimize the combined costs of inflation and of unemployment, and a continuum of monopolistically competitive firms, each of which maximizes its profits. The last part of the paper also features a fiscal authority that sets taxes and redistribution so as to maximize a combination of social welfare and of benefits to particular constituencies. Utility from consumption is characterized by means of a CES, Dixit-Stiglitz, utility function and (as in Sidrauski type models) money appears in the utility function. METHODOLOGY AND "PLAYERS" STRATEGIES: The first question is investigated within a three stage game in which labour unions move first and commit to nominal wages and the central bank moves second and chooses the money supply. In the third and last stage each of a large number of monopolistically competitive firms picks its price. To deal with the second class of questions the game is expanded to feature a preliminary stage in which government chooses labour taxes and redistribution anticipating the subsequent responses of the other players. General equilibrium is characterized and used to find the impact of various economic and institutional parameters.

OBJECTIVES AND MOTIVATION: This paper considers the impact of interactions between competitiveness, fiscal policy and monetary institutions in the presence of unionized labor markets on economic outcomes and welfare in the long run. Two main classes of questions are investigated. First, what is the impact of exogenously given labor taxes and unemployment benefits on the choice of monetary policy by the central bank, on the choice of nominal wages by unions, on the choice of prices by monopolistically competitive firms and through them on unemployment, inflation and welfare? A related question is, how does the level of competitiveness on goods? market affect the economy and welfare? Second, how are labor taxes and redistribution chosen by a (Stackelberg leader) fiscal authority whose objectives are a weighted average of social welfare and of catering to the interests of political supporters, and how does the general equilibrium induced by this choice affect welfare? The framework of the paper is motivated by the European scene in which the fraction of the labor force covered by collective agreements dominates wage setting in the labor market. 'PLAYERS' AND PAYOFFS: The model economy features labor unions that maximize the expected real income of union members over states of employment and of unemployment, a central bank that strives to minimize the combined costs of inflation and of unemployment, and a continuum of monopolistically competitive firms, each of which maximizes its profits. The last part of the paper also features a fiscal authority that sets taxes and redistribution so as to maximize a combination of social welfare and of benefits to particular constituencies. Utility from consumption is characterized by means of a CES, Dixit-Stiglitz, utility function and (as in Sidrauski type models) money appears in the utility function. METHODOLOGY AND 'PLAYERS' STRATEGIES: The first question is investigated within a three stage game in which labor unions move first and commit to nominal wages and the central bank moves second and chooses the money supply. In the third and last stage each of a large number of monopolistically competitive firms picks its price. To deal with the second class of questions the game is expanded to feature a preliminary stage in which government chooses labor taxes and redistribution anticipating the subsequent responses of the other players. General equilibrium is characterized and used to find the impact of various economic and institutional parameters.

This paper develops a framework for studying the interactions between labour unions, fiscal policy, monetary policy and monopolistically competitive firms. The framework is used to investigate the effects of labour taxes, the replacement ratio, labour market institutions and monetary policy-making institutions on economic performance in the presence of strategic interactions between labour unions and the central bank. Given fiscal variables, higher levels of either centralization of wage bargaining, or of central bank conservativeness are associated with lower unemployment and inflation. However the forward shifting of changes in either labour taxes or in unemployment benefits to labours costs is larger the higher are those institutional variables. The paper also considers the effects of those institutions on the choice of labour taxes and of unemployment benefits by governments concerned with the costs of inflation and unemployment, as well as with redistribution to particular constituencies. A main result is that higher levels of centralization and conservativeness induce government to set higher labour taxes if the replacement ratio and the tax wedge are sufficiently small.

Recent literature has aimed at evaluating human capital externalities by estimating the effect of human capital on wages at urban level. We argue that this methodology might not identify properly human capital spillovers. We consider a general equilibrium model based on Roback (1982) where both wages and rents are simultaneously determined at the local level. We show that human capital externalities cannot be identified unless the joint effect of local human capital on both wages and rents is considered. Empirically, we study the effects of local human capital on household-level rents and individual-level wages for a sample of Italian local labor markets. Our results show a positive and robust effect of local human capital on rents. This unambiguously demonstrates that the concentration of human capital at the local level generates positive externalities. As for the relative importance of consumption and production externalities, our results suggest that the two effects have a similar impact on wages.

This Paper develops a framework for the analysis of the effects of institutions on economic performance in a monetary union in the presence of stabilization policy, unionized labour markets and monopolistically competitive price setting firms. Nominal wages are fixed contractually. In spite of full price flexibility transmission of monetary policy operates via both aggregate demand and aggregate supply channels. The Paper relates average, as well as country-specific, economic performance within the monetary union, broken down to country size, number of unions, the degree of product differentiation in product markets, and central bank conservativeness. Economic performance is characterized by unemployment, inflation, real wages and competitiveness. Both average, as well as country-specific, economic performance in the presence of (possibly) heterogeneous shocks and a unified stabilization policy are evaluated.

Existing literature on the strategic interaction between the central bank (CB) and unions assumes that firms face perfect competition on product markets and that inflation is chosen directly by the monetary authority. Although these simplifications have the virtue of making complex strategic interactions more tractable, they abstract from the fact that, in reality, prices are set by firms and that the monetary authority affects the price level and inflation by determining the money supply. This paper makes a step in the direction of realism by recognizing that prices are set by monopolistically competitive firms and that the monetary authority affects the price level and inflation indirectly through its choice of money supply. This is done in a three stage game, in the first stage of which unions contractually set nominal wages, in the second stage the CB chooses the money supply, and in the third stage each firm chooses its individually optimal price. A sample of the paper's results follows: 1. In spite of full price flexibility, changes in the degree of conservativeness of the CB affect employment and output even when inflation is fully anticipated by labour unions and even when unions are indifferent to inflation. 2. When the CB is sufficiently conservative it reduces the money supply in response to wage increases. Both casual and econometric evidence suggests that such a mechanism has been operating in Germany where the Bundesbank often tightened monetary policy in response to 'excessive' wage settlements. 3. Recent results concerning the optimality of a populist or 'ultra-liberal' CB are shown to be the exception rather than the rule. In particular, in many circumstances, an ultra conservative CB reduces both inflation and unemployment sufficiently to make the appointment of such a bank socially optimal. Intuitively, when the CB is more conservative each union correctly anticipates a stronger contractionary reaction to an increase in its wage and, therefore, a stronger increase in unemployment among its members. As a consequence, the deterring effect of unions' fear from unemployment on their wage demands is stronger and employment higher when the CB is more conservative.