Capital Taxation and Electoral Accountability

In a representative democracy, voters can use elections to protect their property by holding politicians accountable for the tax policies they implement while in office. This paper demonstrates that performance voting can - partly or wholly - solve the capital levy problem. We characterise the �best� non-expropriating tax policies that can be sustained in a stationary Markov Perfect Equilibrium; show when this coincides with the second best tax policy; and discuss, in detail, the robustness of the result

The Dictator and the Parties A Study on Policy Co-operation in Mineral Economies

This paper develops a game to study the possibility of co-operative behaviour in a situation where the political system is dominated by two strong, opportunistic parties competing in an economy highly dependent on the export of a commodity. Since a binding agreement as an external solution is unlikely to succeed due to the close association between the incumbent party and the government (the guardian), the paper explores the extent to which co-operation between political parties that alternate in office can rely on self-enforcing strategies to provide an internal solution. For appropriate values of the probability of re-election and the discount factor, it is possible to rely on reciprocity to sustain an early-stopping equilibrium. However, cooperation is undermined by low values of re-election probability out of current revenues and party myopia. In those circumstances, the self-policing solution might not be viable and an institutional response would be necessary. The game also sheds some light on the apparent paradox of situations in some mineral- rich democracies (such as the recent Venezuelan experience) where the enjoyment of considerable external revenues is followed by a period of economic stagnation, a deterioration of political stability, and the surge of a dictatorship threat.Political Economy, Non-cooperative games, Democracy, Mineral Economies, Venezuela

The Reputational Budget and its Uses

I introduce the concept of the reputational budget, to consider its possible uses within a Reputation-based Governance (Rebag) framework. The concept is illustrated using an application to the management of public works, where firms help public administrations in building public infrastructure. The reputational budget has several interesting applications. In particular, it provides objective criteria to use reputational information in public procurement, and it may alleviate the moral hazard problem that arises in the life-cycle of bureaucrats

The Customary International Law Supergame: Order and Law

Customary international law is an enigma. It is produced by the decentralized actions of states, and it generally lacks centralized enforcement mechanisms. Political science realists and some rationalist legal scholars argue that customary international law cannot affect state behavior: that it is “epiphenomenal.” This article develops a model of an n-player prisoner’s dilemma in the customary international law context that shows that it is plausible that states would comply with customary international law under certain circumstances. These circumstances relate to: (i) the relative value of cooperation versus defection, (ii) the number of states effectively involved, (iii) the extent to which increasing the number of states involved increases the value of cooperation or the detriments of defection, including whether the particular issue has characteristics of a commons problem, a public good, or a network, (iv) the information available to the states involved regarding compliance and defection, (v) the relative patience of states in valuing the benefits of long-term cooperation compared to short-term defection, (vi) the expected duration of interaction, (vii) the frequency of interaction, and (viii) whether there are also bilateral relationships or other multilateral relationships between the involved states. One implication of this model is to lend credence to customary international law. From a research standpoint, this model identifies a number of parameters for which data may be developed in order to test the model. From a policy standpoint, this model shows what types of contexts, including malleable institutional features, may affect the ability of states to reach stable and efficient equilibria in their customary international law relations.

Politics, transaction costs, and the design of regulatory institutions

Providing a more complete framework for assessing the efficiency of government intervention requires moving away from the idealistic perspective typically found in the normative approach to traditional public economics, contend the authors. Such a move requires viewing the government not as a monolithic entity but as many different government bodies, each with its own constituency and regulatory tools. Not only is the"multitiered"government limited in its ability to commit, but interest groups influence the regulatory process and impose significant transaction costs on government interventions and on their outcome. The authors discuss the nature of those transaction costs and argue that the overall design of the government is the result of their minimization. Among the points they make in their conclusions: 1) Safeguards built into regulatory contracts sometimes reflect and sometimes imply transactions costs which influence, or should influence, the optimal tradeoff between rent and efficient in ways practitioners sometimes ignore. 2) Most of the literature on transaction costs arising from government failures would agree that to be sustainable, regulatory institutions should be independent, autonomous, and accountable. How these criteria are met is determined by the way transaction costs are minimized, which in turn drives the design of the regulatory framework. In practice, for example, if there at commitment problems, short-term institutional contracts between players are more likely to ensure autonomy and independence. This affects the duration of the nomination of the regulators. Short-term contracts may be best, but contracts for regulators typically last four to eight years and are often renewable. The empirical debate about the design of regulators'jobs is a possible source of tension. Practitioners typically recommend choosing regulators based on professional rather than political criteria, but that may not be the best way to minimize regulatory capture. Professional experts are likely to come from the sector they are supposed to regulate and are likely to return to it sooner or later (as typically happens in developing countries). On the other hand, electedregulators are unlikely to be much more independent than professional regulators; they will simply represent different interests. Practitioners and theorists alike emphasize different sources of capture and agree that one way to deal with its risk is to make sure the selection process involves both executive and legislative branches.Environmental Economics&Policies,Economic Theory&Research,Labor Policies,Decentralization,Banks&Banking Reform,Economic Theory&Research,Environmental Economics&Policies,National Governance,Administrative&Regulatory Law,Banks&Banking Reform

The Customary International Law Game

Structural realists in political science and some rationalist legal scholars argue that customary international law cannot affect state behavior: that it is “epiphenomenal.” This article develops a game theoretic model of a multilateral prisoner’s dilemma in the customary international law context that shows that it is plausible that states would comply with customary international law under certain circumstances. Our model shows that these circumstances relate to: (i) the relative value of cooperation versus defection, (ii) the number of states effectively involved, (iii) the extent to which increasing the number of states involved increases the value of cooperation or the detriments of defection, including whether the particular issue has characteristics of a commons problem, a public good, or a network good, (iv) the information available to the states involved regarding compliance and defection, (v) the relative patience of states in valuing the benefits of long-term cooperation compared to short-term defection, (vi) the expected duration of interaction, (vii) the frequency of interaction, and (viii) whether there are also bilateral relationships or other multilateral relationships between the involved states. This model shows that customary international law is plausible in the sense that it may well affect state behavior where certain conditions are met. It shows what types of contexts, including malleable institutional features, may affect the ability of states to produce and comply with customary international law. This article identifies a number of empirical strategies that may be used to test the model

Examining punishment at different explanatory levels

Experimental studies on punishment have sometimes been over-interpreted not only for the reasons Guala lists, but also because of a frequent conflation of proximate and ultimate explanatory levels that Guala's review perpetuates. Moreover, for future analyses we may need a clearer classification of different kinds of punishmen

The social structure of cooperation and punishment

The standard theories of cooperation in humans, which depend on repeated interaction and reputation effects among self-regarding agents, are inadequate. Strong reciprocity, a predisposition to participate in costly cooperation and the punishment, fosters cooperation where self-regarding behaviors fail. The effectiveness of socially coordinated punishment depends on individual motivations to participate, which are based on strong reciprocity motives. The relative infrequency of high-cost punishment is a result of the ubiquity of strong reciprocity, not its absenc

History, Expectations, and Leadership in the Evolution of Social Norms

This revision August 31, 2013. Original version May 12, 2011We study the evolution of a social norm of “cooperation” in a dynamic environment. Each agent lives for two periods and interacts with agents from the previous and next generations via a coordination game. Social norms emerge as patterns of behavior that are stable in part due to agents' interpretations of private information about the past, influenced by occasional commonly-observed past behaviors. For sufficiently backward-looking societies, history completely drives equilibrium play, leading to a social norm of high or low cooperation. In more forward-looking societies, there is a pattern of “reversion” whereby play starting with high (low) cooperation reverts toward lower (higher) cooperation. The impact of history can be countered by occasional “prominent” agents, whose actions are visible by all future agents and who can leverage their greater visibility to influence expectations of future agents and overturn social norms of low cooperation