Knowledge that Transforms

This paper reports the results of an experiment designed to assess the ability of an incumbent seller to profitably foreclose a market with exclusive contracts. We use the strategic environment described by Rasmusen, Ramseyer, and Wiley (1991) and Segal and Whinston (2000) where entry is unprofitable when sufficiently many downstream buyers sign exclusive contracts with the incumbent. When discrimination is impossible, the game resembles a stag-hunt (coordination) game in which the buyers' payoffs are endogenously chosen by the incumbent seller. Exclusion occurs when the buyers fail to coordinate on their preferred equilibrium. Two-way non-binding pre-play communication among the buyers lowers the power of exclusive contracts and induces more generous contract terms from the seller. When discrimination and communication are possible, the exclusion rate rises. Divide-and-conquer strategies are observed more frequently when buyers can communicate with each other. Exclusion rates are significantly higher when the buyers' payoffs are endogenously chosen rather than exogenously given. Finally, secret offers are shown to decrease the incumbent's power to profitably exclude.

I examine excise taxes levied on multiproduct retailers. Excise taxes reduce equilibrium output and decrease equilibrium product variety in the short run, but taxes can raise output per product in the long run and induce entry. Excise taxes are overshifted into prices in a wide range of cases, including under linear and concave demand conditions, and excise taxes shift less than one-for-one into prices only when demand is highly convex. Multiproduct transactions substantively alter the efficiency of ad valorem and specific forms of excise taxes and affect the comparison of relative tax performance over short-run and long-run time horizons.

In this paper we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic, uninsurable income shocks, where households also differ permanently with respect to their ability to generate income. The welfare criterion we employ is ex-ante (before ability is realized) expected (with respect to uninsurable productivity shocks) utility of a newborn in a stationary equilibrium. Embedded in this welfare criterion is a concern of the policy maker for insurance against idiosyncratic shocks and redistribution among agents of different abilities. Such insurance and redistribution can be achieved by progressive labor income taxes or taxation of capital income, or both. The policy maker has then to trade off these concerns against the standard distortions these taxes generate for the labor supply and capital accumulation decision. We find that in our model the optimal capital income tax rate is significantly positive. The optimal (marginal and average) tax rate on capital is 36%, in conjunction with a progressive labor income tax code that is, to a first approximation, a flat tax of 23% with a deduction that corresponds to about $6,000 (relative to an average income of households in the model of $35,000). We argue that the high optimal capital income tax is mainly driven by the life cycle structure of the model whereas the optimal progressivity of the labor income tax is due to the insurance and redistribution role of the income tax system.

Despite the large amount of private and public resources spent on foreign education, there is no systematic evidence that foreign-educated individuals foster democracy in their home countries. Using a unique panel dataset on foreign students starting in the 1950s, I show that foreign-educated individuals promote democracy in their home country, but only if the foreign education is acquired in democratic countries. The results are robust to several estimation techniques, to different definitions of democracy, and to the inclusion of a variety of control variables, including democracy in trading partners, neighboring countries, level of income, and level and stock of education.

Can Development Aid Contribute to Social Cohesion after Civil War? Evidence from a Field Experiment in Post-conflict Liberia by James D. Fearon, Macartan Humphreys and Jeremy M. Weinstein. Published in volume 99, issue 2, pages 287-91 of American Economic Review, May 2009

The Integrated Financial and Real System of National Accounts for the United States: Does It Presage the Financial Crisis? by Michael G. Palumbo and Jonathan A. Parker. Published in volume 99, issue 2, pages 80-86 of American Economic Review, May 2009

Adi Brender Allan DrazenDecember 2008When democracy is new it is often fragile or unconsolidated, meaning that importantpolitical groups lack full commitment to the democratic process, so that its survival is notassured. What economic policies can a government use to try to prevent a reversion toautocracy?One answer to this question begins with the argument that the threat to democracycomes from anti-democratic elites Œthe army, groups such as the wealthy who bene–ttedmost under the old regime, the fioligarchsflŒwho are seen as basically anti-democratic andwho have the power to overthrow the new democratic regime. The fimassesflare seen asunambiguously pro-democratic. Under this view, policy to consolidate democracy shouldfocus on placating the anti-democratic elites, or, colloquially but not inaccurately, to fibuythem o⁄.flThis approach has received a superb treatment in Daron Acemoglu and JamesA. Robinson (2005).Targeted economic policy to consolidate democracy can be viewed more generally. Sur-vival of democracy (and policy to enhance that) can be thought of in terms of two fun-damental questions. The –rst is: How does the support of di⁄erent actors a⁄ect theprobability that democracy survives? The second is then: How do these important actorschoose whether or not to support the continuation of democracy or its overthrow? Thedesign of policy to address democratic fragility depends on the answers to these two basicquestions. The policy prescription in the previous paragraph, for example, follows from theanswers: it is the elites alone who are determinate; and, their support depends on givingthem enough that they are content not to overthrow democracy.Our research on the fragility of new democracies focusses on di⁄erent, but complemen-tary issues. While we agree that anti-democratic elites pose a serious threat to fragile1

Every year, millions of pounds of toxic chemicals thought to be linked to developmental problems in fetuses and young children are released into the air. In this paper we estimate the effect of these releases on the health of newborns. Using data from the Toxic Release Inventory Program and Vital Statistics Natality and Mortality files, we find significant negative effects of prenatal exposure to toxicants on gestation and birth weight. We also find that several developmental chemicals increase the probability of infant death. The effect is quite sizeable: the reported reductions in cadmium, toluene, and epichlorohydrin releases during the 90s could account for about 3.9 percent of the overall decrease in infant mortality. Our results are robust to several specification checks, such as comparing developmental to non-developmental chemicals, and fugitive air releases to stack air releases.

In this paper, we analyze a class of models in which there are interjurisdictional spillovers among heterogeneous jurisdictions, as illustrated for instance by CO2 emissions that affect the global environment. Each jurisdiction's emissions depend upon the local stock of private capital. Capital is interjurisdictionally - mobile and may be taxed to help finance local public expenditures. We show that decentralized policymaking leads to efficient resource allocations in important cases, even in the complete absence of corrective interventions by higher - level governments or coordination of policy through Coasian bargaining. In particular, even when the preferences and production technologies differ among the agents, the decentralized system can still result in globally efficient allocation.

The Effects of Population Aging on the Relationship among Aggregate Consumption, Saving, and Income by Karen E. Dynan, Wendy Edelberg and Michael G. Palumbo. Published in volume 99, issue 2, pages 380-86 of American Economic Review, May 2009