Are We Better Off If Our Politicians Have More Information?

This paper studies a model of public policy with heterogenous citizens/voters and two public goods: one (roads) is chosen directly by an elected policymaker, and the other (pollution) depends stochastically on the amount of roads. Both a one-country and a two-country version of the model are analyzed, the latter displaying externalities across the countries which creates incentives for free riding and strategic delegation. The welfare effects of providing the policymaker with information about the relationship between roads and pollution are investigated, and it is shown that more information hurts some – sometimes even all – citizens. In particular, the absence of an institution for information gathering can serve as a commitment device for a country, helping it avoid the free-riding problem. Implications for the welfare effects of “informational lobbying” are discussed.Public information acquisition, value of information, welfare, interest groups, informational lobbying, strategic delegation

Insisting on a Non-Negative Price: Oligopoly, Uncertainty, Welfare, and Multiple Equilibria

I study Cournot competition under incomplete information about demand while assuming that market price must be non-negative for all demand realizations. Although this assumption is very natural, it has only rarely been made in the earlier literature. Yet it has important economic consequences: (1) multiple (symmetric, pure strategy) equilibria can exist, despite the fact that demand and cost are linear; and (2) expected total surplus can be larger when the firms do not know demand than when they do, a result which has important implications for the social desirability of information sharing. The arguments of the paper are relevant also for price competition and for uncertainty about, e.g., cost or the number of firms, and these issues are discussed.

Insisting on a Non-Negative Price: Oligopoly, Uncertainty, Welfare, and Multiple Equilibria

I study Cournot competition under incomplete information about demand while assuming that market price must be non-negative for all demand realizations. Although this assumption is very natural, it has only rarely been made in the earlier literature. Yet it has important economic consequences: (1) multiple (symmetric, pure strategy) equilibria can exist, despite the fact that demand and cost are linear; and (2) expected total surplus can be larger when the firms do not know demand than when they do, a result which has important implications for the social desirability of information sharing. The arguments of the paper are relevant also for price competition and for uncertainty about, e.g., cost or the number of firms, and these issues are discussed.Non-negativity constraint, Multiple equilibria, Value of information, Information sharing, Trade associations, Antitrust policy

Sex, Equality, and Growth (in that order)

We set up a unified growth model capturing the transition of a primitive and egalitarian hunter-gatherer society, into an advanced and despotic early civilization, and finally into a more egalitarian industrial society. Agents are either landowners or landless; both earn income from human capital, but only landowners earn income from land. The central assumption is that the accumulation of human capital increases with the number of people engaged in intellectual activities, "thinking." For an agent to be a thinker he must be sufficiently rich. At early stages of development, when human capital is scarce, only landowners can afford to think. Human capital thus grows with the size of the landowning class. With polygynous mating, rich landowners attract more women than landless, and thus have more offspring. This leads to a slow expansion in the size of the landowning class and thus a gradual increase in the levels of human capital. At some stage human capital may reach a critical level beyond which also landless agents become thinkers. The set a thinkers then suddenly expands, raising human capital productivity and pushing the economy to sustained growth: an industrial revolution. Allowing also for a quantity-quality trade-off in children a demographic transition sets in. But the economy may also follow a path leading to the downfall of the civilization, and a slow transition back into an egalitarian hunter-gatherer state. Which path the economy follows depends on the level of land productivity. An agricultural revolution is thus a necessary precondition for a later industrial revolution.Polygyny, growth, population

The Roads To and From Serfdom

The institution of slavery displays a puzzling historical pattern: it is found mostly at intermediate stages of agricultural development, in horticultural societies, and less frequently among hunter-gatherers and societies at more advanced agrarian stages. We explain this rise-and- fall pattern of slavery in a growth model with land and labor as inputs in production. The "organization" of society is determined endogenously, and depends on agricultural technology and population density, both of which also evolve endogenously over time, and depend on how society is organized. The model replicates the full transition of the economy from an egalitarian society with no property rights; to a slave society where a despotic ruler owns both land and people; and finally into a society with a free labor market, where the ruler owns all land but all agents own their labor. In this process, the role of population growth switches from being a force driving the transition into slavery, to a force behind the transition from slavery to free labor. Our model also explains several other historical facts, e.g. why Europeans replaced free labor with slavery following the discovery of the Americas, and why those states in the 19th century US which had sparser population had a larger percentage slaves in the population.Slavery, growth, intsitutions, population

The Roads To and From Serfdom

The institution of slavery displays a puzzling historical pattern: it is found mostly at intermediate stages of agricultural development, in horticultural societies, and less frequently among hunter-gatherers and societies at more advanced agrarian stages. We explain this rise-and- fall pattern of slavery in a growth model with land and labor as inputs in production. The ``organization'' of society is determined endogenously, and depends on agricultural technology and population density, both of which also evolve endogenously over time, and depend on how society is organized. The model replicates the full transition of the economy from an egalitarian society with no property rights; to a slave society where a despotic ruler owns both land and people; and finally into a society with a free labor market, where the ruler owns all land but all agents own their labor. In this process, the role of population growth switches from being a force driving the transition into slavery, to a force behind the transition from slavery to free labor. Our model also explains several other historical facts, e.g. why Europeans replaced free labor with slavery following the discovery of the Americas, and why those states in the 19th century US which had sparser population had a larger percentage slaves in the population.Growth, slavery, intitutions, population

Sex, Equality, and Growth (in that order)

We set up a unified growth model capturing the transition of a primitive and egalitarian hunter-gatherer society, into an advanced and despotic early civilization, and finally into a more egalitarian industrial society. Agents are either landowners or landless; both earn income from human capital, but only landowners earn income from land. The central assumption is that the accumulation of human capital increases with the number of people engaged in intellectual activities, ``thinking.'' For an agent to be a thinker he must be sufficiently rich. At early stages of development, when human capital is scarce, only landowners can afford to think. Human capital thus grows with the size of the landowning class. With polygynous mating, rich landowners attract more women than landless, and thus have more offspring. This leads to a slow expansion in the size of the landowning class and thus a gradual increase in the levels of human capital. At some stage human capital may reach a critical level beyond which also landless agents become thinkers. The set a thinkers then suddenly expands, raising human capital productivity and pushing the economy to sustained growth: an industrial revolution. Allowing also for a quantity-quality trade-off in children a demographic transition sets in. But the economy may also follow a path leading to the downfall of the civilization, and a slow transition back into an egalitarian hunter-gatherer state. Which path the economy follows depends on the level of land productivity. An agricultural revolution is thus a necessary precondition for a later industrial revolution.Polygyny, equality, growth, population

Lobbying, Information Transmission, and Unequal Representation

We study the effects of unequal representation in the interest-group system on the degree of information transmission between a lobbyist and a policymaker. Employing a dynamic cheap-talk model in which the lobbyist cares instrumentally about his reputation for truthtelling, we show that the larger is the inequality, the less information can credibly be transmitted to the policymaker. We also investigate the effects of inequality on welfare and discuss the welfare effects of institutions that increase transparency but which as well, as an unintended side-effect, lower the lobbyist's incentives for truthtelling.lobbying, interest groups, reputation, information transmission, representation, inequality, bias

Lobbying, Information Transmission, and Unequal Representation

We study the effects of unequal representation in the interest-group system on the degree of information transmission between a lobbyist and a policymaker. Employing a dynamic cheap-talk model in which the lobbyist cares instrumentally about his reputation for truthtelling, we show that the larger is the inequality, the less information can credibly be transmitted to the policymaker. We also investigate the effects of inequality on welfare and discuss the welfare effects of institutions that increase transparency but which as well, as an unintended side-effect, lower the lobbyist's incentives for truthtelling.lobbying, interest groups, reputation, information transmission, representation, inequality, bias

Eliciting Demand Information through Cheap Talk: An Argument in Favor of Price Regulations

A firm must decide whether to launch a new product. A launch implies considerable fixed costs, so the firm would like to assess downstream demand before it decides. We study under which conditions a potential buyer would be willing to reveal his willingness to pay under different pricing regimes. We show that the firm's welfare -- as well as consumers' -- may be higher with a commitment to linear pricing than when pricing is unrestricted. That is, if informational asymmetries are significant, price regulations such as the Robinson-Patman Act may be endorsed by all parties.Price regulations, price discrimination, incomplete information, cheap talk, Robinson-Patman Act