A Model of a Predatory State

We provide a model of a primitive state whose rulers extort taxes for their own ends. This ‘predatory’ state can result in lower levels of both output and popular welfare than either organized banditry or anarchy. The predatory state may provide public goods, such as protection or irrigation, and hence may superficially resemble a contractual state. But, the ability to provide such goods can actually reduce popular welfare after allowing for tax changes. We compare the revenues raised by taxation with those from banditry to get an idea when primitive states are likely to emerge. We then consider interactions between bandits and the state. ‘Corrupt’ side-deals are bad for output and popular welfare, but good for revenue. Even in the absence of such collusion, the existence of a ‘mafia’ and of the state can be good for each other. Competition between organized crime and the state, however, typically reduces popular welfare and pushes the volume of banditry close to its anarchy level. Finally, we extend the basic model to allow the populace to form expectations of tax set by a long-lived king. Our relatively pessimistic conclusions about predatory states extend to this dynamic setting

A Model of a Predatory State

We provide a model of a primitive state whose rulers extort taxes for their own ends. This 'predatory' state can result in lower levels of both output and popular welfare than either organized banditry or anarchy. The predatory state may provide public goods, such as protection or irrigation, and hence may superficially resemble a contractual state. But, the ability to provide such goods can actually reduce popular welfare after allowing for tax changes. We compare the revenues raised by taxation with those from banditry to get an idea when primitive states are likely to emerge. We then consider interactions between bandits and the state. 'Corrupt' side-deals are bad for output and popular welfare, but good for revenue. Even in the absence of such collusion, the existence of a 'mafia' and of the state can be good for each other. Competition between organized crime and the state, however, typically reduces popular welfare and pushes the volume of banditry close to its anarchy level. Finally, we extend the basic model to allow the populace to form expectations of tax set by a long-lived king. Our relatively pessimistic conclusions about predatory states extend to this dynamic setting.

Network Industries, Third Party Access and Competition Law in the European Union

This article addresses a set of issues that arise in the context of market liberalization for a special and important class of industries, the so-called network industries, which include electricity, natural gas, rail transportation and telecommunications. Each of these industries combines activities that are potentially competitive, such as generation of electricity, with ones that are naturally monopolistic, such as transmission of electricity. This combination produces a unique set of challenges to competition law and policy in designing a market structure and regulatory framework which maximize the benefits of liberalization while effectively controlling any tendencies to monopolistic abuse. We analyze Chicago School theories that would support negotiated access as an efficient option. After exploring the apparent contradictions between Chicago School predictions and British Gas\u27s behavior, we analyze the theoretical weaknesses in the Chicago School approach and identify several reasons why voluntary negotiations should not form the basis of government policy. We review the limited experience with negotiated access to electricity transmission in Germany, which confirms our conclusion that negotiated access would deter the development of competition in the European gas and electricity industries. We propose an alternative frame for regulation based on vertical separation of the network and regulated third party access with cost-based pricing. Incumbents may merit compensation for past investments or for continuing obligations such as universal service. However, any such compensation should be provided by transparent and competitively neutral funding mechanisms

The ecology of risk taking

We analyze the risk level chosen by agents who have private information regarding their quality. We show that even risk-neutral agents will choose risk strategically to enhance their reputation in the market, and that such choices will be influenced by the mix of other agents’ types. Assuming that the market has no strong prior about whether the agents are good or bad, good agents will choose low levels of risk, and bad agents high levels. Empirical evidence is gathered on 2462 firms over 24 years. The results support the model: agents of higher quality have less variable performance

Coalition and Party Formation in a Legislative Voting Game

We examine a legislative voting game where decisions are to be made over both ideological and distributive dimensions. In equilibrium legislators prefer to make proposals for the two dimensions together, despite having preferences that are separable over the two dimensions. The equilibria exhibit interaction between the ideological and distributive dimensions, and the set of legislators who approve winning proposals does not always consist of ideologically adjacent legislators. There is more than one ideological decision that has a positive probability of being proposed and approved. We show that legislators can gain from forming political parties, and consider examples where predictions can be made about the composition of parties

Coalition and Party Formation in a Legislative Voting Game

We examine a legislative voting game where decisions are being made over both ideological and distributive dimensions. In equilibrium legislators prefer to make proposals for the two dimensions together, despite having preferences that are separable over the two dimensions. The equilibria exhibit interaction between the ideological and distributive dimensions, and consequently in any equilibrium there is a positive probability that a proposal is made and approved which excludes the median legislator (as defined over the ideological dimension), in contrast with a game where no distributive decision is being made. Thus, the set of legislators who approve any winning proposal (i.e., those who weakly prefer the proposal to the expected continuation of the legislative game), do not always consist of ideologically similar legislators. Moreover, in any stationary equilibrium there is more than one ideological decision that has a positive probability of being proposed and approved. We show tha..

Conspicuous Conservatism In Risk Choice

We analyze the risk levels chosen by agents who have private information regarding their quality, and whose performance will be judged and rewarded by outsiders. Assume that risk choice is observable. Even risk-neutral agents will choose risk strategically to enhance their expected reputation. We show that conspicuous conservatism is to be expected: agents of different qualities choose levels below those that would be chosen if quality were observable. This happens because bad agents must cloak their identity by choosing the same risk level as good agents, and good agents are more likely to distinguish themselves if they reduce the risk level. Our results contrast starkly with those for the case when risk choice cannot be observed.risk choice, signaling, conservatism