Stratification by regulation: Are bootleggers and Baptists biased?

This paper investigates whether and to what extent regulation may be associated with wage inequality. Using regulation measures created by Al-Ubaydli and McLaughlin (Regul Govern 11:109–123, 2017), I find that regulation is associated with larger within-occupation wage inequality. Specifically, I show that a worker at the 90th wage percentile realizes a raise of $1.19 per hour relative to the 10th percentile earner for each standard deviation increase in regulation. That represents a 3.5% raise for a worker at the 90th percentile. Overall, increases in the regulatory burden are associated with 42–45% of the change in the 90th–10th percentile wage ratio from 2002 through 2014.

     

The optimal size of government

In the economic analysis of the theory of government, two views of government are evident. The Pigovian view sees government as a benevolent actor striving to correct for the inadequacies and excesses of an unrestrained marketplace. The ‘Public Choice’ view of government portrays government as the tool of special interest groups as likely to generate distortions as to correct them. In this paper, a model of government that incorporates both views will be developed and then empirically tested. The model developed assumes that all expenditures by the government are inputs into the private sector production. Treating government expenditures as inputs into the production of private sector output, there is some optimal size of government that maximizes private sector output. The model incorporates a general production function for private sector output. Output is a function of private labor, private capital, and government expenditures. The Pigovian and Public Choice views of government are reflected in the assumed impact of G on the marginal productivities of L and K. The model is tested using United States data and a Cobb-Douglas production function. Estimates indicate that the 1983 level of government expenditures exceeds by 87 percent the level that would maximize private sector output. Reducing government from $ 491 billion to $ 263 billion and shifting the freed labor to the private sector would increase output from $ 1187 billion to $ 1451 billion.     

The committee assignment process as an optimal contracting problem

This paper adapts a simple model from the optimal contracting literature to explain the relationship between political parties and non-incumbent candidates. The model predicts that legislators with a higher opportunity cost of government service will receive better committee assignments. Using data that spans 12 Congresses (97th to 108th), I find that when the opportunity cost of Senate service is measured by previous occupation, freshmen senators with a high opportunity cost for serving (those who were lawyers) were given good committee assignments, while freshmen senators with a low opportunity cost for serving (professors, and those with relatives already in politics) were given worse committee assignments.     

On the optimal retaliation against terrorists: The paid-rider option

We examine whether nations, faced with the threat of terrorism, will be motivated to engage in the efficient amount of retaliation against terrorists. We demonstrate that the problem confronting the efforts of nations to achieve an optimal retaliation against terrorists is understated by the traditional free-rider analysis. In particular, nations have the option of actually selling or reducing the public good of retaliation, provided through the efforts of others, by offering safe havens to terrorists in return for the terrorists' pledge to attack elsewhere. This paid-rider behavior is also shown to apply to other public good scenarios.The authors gratefully acknowledge the helpful comments of Gordon Tullock on an earlier draft. Sole responsibility for the paper's content rests with the authors. Todd Sandler's research was supported by a Science and Humanities Research Institute Summer Grant at Iowa State University.     

The elements of candidate reputation: The effect of record and credibility on optimal spatial location

We build a model of two-candidate elections in which voters judge candidates on the basis of how well their announced campaign positions correspond with their records. Given different records, the candidates will adopt different campaign positions. Two types of reputational advantage are analyzed: proximity of the candidate's record to the median voter's ideal point, and the range of campaign positions that a candidate may adopt and still retain some credibility with the voters.An earlier version of this paper was delivered at the annual meetings of the Public Choice Society, Tucson, Arizona, 17 March 1990. The authors thank William Dougan and Brian Roberts for some helpful comments in the formative stages of this paper, and express our gratitude to Jay Dow for providing admirable research assistance. We also wish to thank Henry Chappell and William Keech for their discussant comments at the Public Choice meetings.     

The Walsh contract for central bankers proves optimal after all!

A recent paper argues that the Walsh linear inflation contract does not prove optimal when the government concerns itself about the cost of the central bank contract (Candel-Sánchez & Campoy-Miñarro, 2004). This result relies on assuming that the participation constraint does not represent an effective constraint on the central banker’s decision. We show that the Walsh linear inflation contract does produce the optimal outcome, even when the government cares about the cost of the contract, assuming that the participation constraint holds.     

On the optimal number of representatives

We propose a normative theory of the number of representatives based on a model of a representative democracy. We derive a formula giving the number of representatives as proportional to the square root of total population. Simple tests of the formula on a sample of a 100 countries yield good results. We then discuss the appropriateness of the number of representatives in some countries. It seems that the United States has too few representatives, while France and Italy have too many. The excess number of representatives matters: it is positively correlated with indicators of red tape and barriers to entrepreneurship.     

Some limitations of the groves-ledyard optimal mechanism

Public Choice - The tax rule suggested by Groves and Ledyard is certainly an ingenious one, although there is no indication as to how one might fall upon that specific scheme. If offers Pareto...     

On the design of optimal mechanisms for the Arrow-Hahn-McKenzie economy

This essay presents necessary and sufficient first-order conditions for the general design of allocation mechanisms that decentralize Pareto optimal decisions in Arrow-Hahn-McKenzie (AHM) economies. An AHM economy is distinguished from the usual Arrow-Debreu private ownership economy since the consumption or production of any commodity may induce externalities, including initially endowed commodities. Because competitive markets will not generally internalize all externalities efficiently, the mechanism design must be generalized to include a rule that computes prices for commodities appearing as initial endowments so as to define consumers' individual budget sets. A natural design criterion for the generalized allocation mechanism is to have agents communicate both price and allocation messages to the center, enlarging the message space relative to that necessary for implementing mechanisms in Arrow-Debreu economies. The larger message spaces give agents increased flexibility, which has two significant consequences: (1) the dominant-strategy property of the Demand-Revealing Mechanism in economies with only public goods, a single pure private good, and quasilinear preferences, is lost unless the center adopts an enforcement structure that suitably restricts the allocation messages that agents may transmit; (2) if an endowed commodity is not a pure private good, then the Demand-Revealing Mechanism loses the dominant-strategy property, regardless of the enforcement structure adopted or of the nature of consumers' preferences, so that the problem is exacerbated in general AHM economies.     

Transactions costs and the optimal instrument and intensity of air pollution control

Conclusions To what extent do the transactions costs of implementing alternative instruments for pollution control affect the choice of the optimal instrument and the efficient intensity of control under that instrument? In a comparison of Least-Cost Regulatory Standards and Revenue-Neutral Pigouvian Taxes, it is the higher transactions costs of implementing the taxes that make Pigouvian Taxes the more costly of the two instruments. However, a more practical comparison of instruments is between Politically Feasible Standards, Marketable Discharge Permits, and Revenue-Raising Pigouvian Taxes. Here, the relationship between the transactions costs of implementation and total pollution costs are in an almost linear inverse relationship. The lower the pollution costs associated with a particular instrument, and therefore the more desirable the instrument, the higher the transactions costs of implementation. Other factors such as political distortion and welfare gains prove to be more important than the transactions costs of implementation.Assuming that variable transactions costs decrease with the optimal level of pollution for regulatory standards but increase with the optimal level for market oriented instruments, an accounting of transactions costs results in less stringent control in the case of regulatory standards and more stringent control in the case of market oriented instruments. However, the percentage effect is very small. Moreover, it is smaller in both cases if marginal pollution damage rises with the level of pollution, as it is usually presumed to do, rather than remain constant as assumed in this paper for purposes of aggregation. A major conclusion of this paper is that Pigouvian Taxes are the superior instrument for pollution control when the raising of public revenues is a desired objective. However, the various conclusions of this paper should be viewed as tentative because the data on which they are based are no longer current. Moreover, the critical estimates of transactions costs are somewhat dubious. It is hoped that new data will be collected for answering the questions raised in this paper. When this is done, a more powerful approach, one that obviates the need for the artificial, one-dollar-damaging, aggregate pollutant, would be an expanded linear programming model in which the transactions costs are treated as separate coefficients of the individual pollution control methods. Separate sets of such coefficients, each corresponding to a different policy instrument such as Least-Cost Regulatory Standards, Revenue-Neutral Pigouvian Taxes, etc., would enable the investigator to directly derive solutions that specify the optimal policy instrument as well as the optimal set of pollution control method activity levels.I am grateful to William Ascher, Murray Weidenbaum, and two anonymous referees for helpful guidance on the paper.     

Cycles in senatorial voting behavior: implications for the optimal frequency of elections

The effect that the length of electoral periods has on the behavior of elected officials is examined. The hypothesis is that the longer the period between elections the less responsible or the more independent representatives will behave relative to the desires of their polity. The hypothesis is tested by examining the behavior of U.S. Senators. It is found that their independence follows a cyclical behavior which conforms to the electoral period. As a result it is by no means clear that decreasing the frequency of elections reduces the cost of elections. The effect of this independence cost on the optimal frequency of elections is discussed.