Previous empirical studies have uncovered little evidence that police reduce crime, possibly due to simultaneity problems. This paper uses the timing of mayoral and gubernatorial elections as an instrumental variable to identify a causal effect of police on crime. Increases in the size of police forces are shown to be disproportionately concentrated in mayoral and gubernatorial election years. Increases in police are shown to substantially reduce violent crime, but have a smaller impact on property crime. The null hypothesis that the marginal social benefit of reduced crime equals the costs of hiring additional police cannot be rejected.

This paper measures the effect on the federal funds rate of an open-market operation. The paper deals with simultaneous-equations bias by developing a proxy for the errors the Federal Reserve makes in forecasting the extent to which Treasury operations will add or drain reserves available to private banks. These errors induce fluctuations in bank reserves which have measurable consequences for the federal funds rate. The paper estimates that a reduction in nonborrowed reserves of $30 million, if sustained for an entire 14-day reserve maintenance period, will cause the federal funds rate to rise by 10 basis points.

Endogenous growth models have reignited interest in institutional and path dependencies in the economic growth process. One reason for the interest in endogenous growth models is that they may explain why countries consistently grow at different rates. In this vein, it has been recently proposed that greater economic inequality reduces future economic growth. An important paper in this literature is by Torsten Persson and Guido Tabellini (1994), who will be referred to as PT. PT's model shows why it is reasonable to expect a negative relationship between inequality and future economic growth. Moreover, their empirical evidence is consistent with their contention. If PT's findings are robust to other data sets, there would be important policy implications. For example, they imply that policy makers should not only be concerned with the distributional implications of government policies for political and social reasons, but also because income distribution has long-run effects on economic growth. This indicates that greater U.S. income inequality since the early 1970's may have resulted in lower subsequent economic growth. However, PT's results are somewhat fragile to various specifications, suggesting that they should be replicated with different data sets and over different time periods (PT p. 617). With these implications in mind, this study employs data from a panel of U.S. states to further explore the relationship between economic growth and income inequality. In what follows, Section I summarizes PT's study and discusses how this comment extends their findings. The empirical implementation and results in Section II directly examine the link between overall income inequality and growth. Section III expands the analysis to alternative measures of income distribution and government policy. One emphasis in Section III is the distinction between how the overall income distribution (especially at the tails) influences economic growth from how the relative well-being of the median voter affects economic growth. Section IV provides some concluding discussion.

Economic agents rarely write optimally complete contracts in the Arrow-Debreu sense. Few regard this as puzzling, since contractual completeness of this kind is often technically infeasible. Our concern here is with the question of why contracts so often leave the contracting parties' obligations incompletely specified; that is, of why they contain "gaps".