Corruption and Power in Democracies

According to Acton: “Power corrupts and absolute power corrupts absolutely”. We study the implications of Acton’s dictum in models where citizens vote (for three parties) and governments then form in a series of elections. In each election, parties have fixed tastes for graft, which affect negotiations to form a government if parliament hangs; but incumbency changes tastes across elections. We argue that combinations of Acton’s dictum with various assumptions about citizen sophistication and inter-party commitments generate tight and testable predictions which cover plausible dynamics of government formation in an otherwise stationary environment.Corruption, government dynamics

Bargaining in standing committees with an endogenous default

Committee voting has mostly been investigated from the perspective of the standard Baron–Ferejohn model of bargaining over the division of a pie, in which bargaining ends as soon as the committee reaches an agreement. In standing committees, however, existing agreements can be amended. This article studies an extension of the Baron–Ferejohn framework to a model with an evolving default that reflects this important feature of policymaking in standing committees: In each of an infinite number of periods, the ongoing default can be amended to a new policy (which is, in turn, the default for the next period). The model provides a number of quite different predictions. (i) From a positive perspective, the key distinction turns on whether the quota is less than unanimity. In that case, patient enough players waste substantial shares of the pie each period and the size principle fails in some pure strategy Markov perfect equilibria. In contrast, the unique Markov perfect equilibrium payoffs in a unanimity committee coincide with those in the corresponding Baron–Ferejohn framework. (ii) If players have heterogeneous discount factors then a large class of subgame perfect equilibria (including all Markov perfect equilibria) are inefficient

Protecting buyers from fine print

Buyers typically do not read the …ne print in contracts, providing an incentive for a monopolist to draft terms which are unfavorable to buyers. We model this problem, proving that trade must then be inefficient. We show that regulation which mandates efficient terms raises welfare. More interestingly, regulations which prohibit the least efficient terms may reduce welfare by inducing the monopolist not to other favorable terms. We extend these results to markets in which some buyers are naive, showing that prohibiting the least efficient terms may also harm the naive buyers

The Impact of Interest Rates on Price and Supply.

The author considers the effect of an increase in the current and future interest rate on the stationary price and su pply policy of a stock-holding firm, and provides necessary and suffi cient conditions for either price or supply to be raised in response.

Transactions/List Pricing

Suppose that a representative downstream firm must buy relationship-specific capital before an upstream monopolist is privately informed of its unit costs. We show that the upstream firm will write a contract before the downstream firm invests, specifying a maximum (list) price which may be discounted when costs are low. This model therefore rationalizes transactions/list pricing: a prevalent mode of inter-firm trading. We use our results to explain Stigler and Kindahl's findings on medium-term price dynamics