Error minimization and deterrence in agency control

In the presented oversight model, in which a regulatory agency may collude with regulatees, a watchdog organization may scrutinize the agency’s decision-making and find evidence speaking for collusive behavior. Found evidence is of a specific, stochastic quality. Courts will overturn the administrative decision when the evidence presented in court exceeds a minimum quality standard set by the political principal. Lowering the quality standard increases the odds of finding evidence of sufficient quality and, hence, leads to increasing collusion deterrence and to a lower probability of acquitting collusive administrators (type I error), but also to a higher probability of convicting an innocent administrator (type II error). It is shown that, when welfare-maximization gives rise to an interior solution, the welfare-maximizing standard of evidence is lower than the one that merely minimizes the costs of legal errors without taking deterrence costs into account, but will imply incomplete deterrence. However, conditions can and will be identified under which both error cost minimization and complete deterrence coincide with welfare-maximization.     

The trajectory of the Cuban revolution

René Dumont, Cuba est‐il Socialiste?, Paris, Seuil, 1970. 246 pp., Sw. Fr. 6.50. Richard R. Fagen, The Transformation of Political Culture in Cuba, Stanford U.P., 1969. ix+271 pp., $8.50 (£4). Michel Gutelman, L'Agriculture Socialisée à Cuba, Paris, Maspéro, 1967, 229 pp., Fr. 18.80. K. S. Karol, Les Guerrilléros au Pouvoir: l'itinéraire politique de la révolution cubaine, Paris, Robert Laffont, 1970. 606 pp., Sw. Fr. 31.30 (to be published in English by Hill and Wang, New York, as Guerillas in Power: the Course of the Cuban Revolution). James O'Connor, The Origins of Socialism in Cuba, Ithaca and London, Cornell U.P., 1970. viii+338 pp., $10 (£4.75).     

Productivity,employment and labor demand in Polish industry in the 1980s: Some preliminary results from enterprise-level data

The paper uses annual data from a panel of 334 Polish industrial enterprises over the period 1983–1988 to test empirically a simple neoclassical approach to the socialist labor market. First, an enterprise production function is estimated. The paper finds that for most enterprises, the resulting estimated marginal product of labor exceeds the wage paid by the enterprise by a considerable margin, suggesting general excess demand for labor. The paper then looks at how the difference between the MPL and the wage is related to the rate of change of employment, and finds that firms where the MPL is higher than the wage — firms which in a neoclassical model would have a large excess demand for labor — do not shed labor any more slowly than other firms.     

Freedom and innovation: a country and state level analysis

Research underlines the importance of socio-cultural factors when establishing a supportive environment for innovation and entrepreneurship growth. Scholars discuss different aspects, ranging from cultural attitudes and religious norms, to aspects of tolerance and social freedom. Following on research tradition, this paper analyzes the freedom-innovation relationship using a hand collected data set of 57 countries and the 50 U.S. states over a 3 year period. We argue and test whether the slope of the freedom-innovation link is shaped by and trades-off the costs and benefits of either weak or strong social ties within a country. Our empirical findings support a positive relationship between the freedom-innovativeness-slope, but not a negative or inverted U-shaped relationship.     

An opportunity lost: Escobar's deconstruction of development

Encountering Development: The Making and Unmaking of the Third World. By Arturo Escobar. Princeton, NJ: Princeton University Press, 1995. Pp.ix+290. £40/$49.50 and £13.95/$15.95. ISBN 0 691 03409 5 and 00102 2