Tolerable Intolerance: An Evolutionary Model

A cornerstone of liberal-democratic regimes is the right of free speech, granted even to nonliberals who manifestly oppose it. Communism and political Islamism are two primary examples of ideologies which are tolerated in spite of calls for the limits on the right of expression. Not surprisingly, it is often argued that a tolerant society needs laws preventing non-tolerant beliefs from attacking tolerance. Yet, does intolerance necessarily prosper in a tolerant society, or is deemed to decay? To address the question, I build an evolutionary model of competing (political and/or religious) beliefs. In the model, individuals are assumed to gain from having beliefs. The gain may increase with intolerance of the belief (premium). High intolerance, however, makes strong believers fragile in a society of tolerant people. Having examined evolutionarily stable states in two specifications, I demonstrate that (for any positive premium) heterogeneity cannot prevent intolerant beliefs from spreading out. A sufficiently small increase in intolerance, when premium exceeds losses from fragility, allows intolerance to spread. Intolerance is vulnerable only as long as the premium is non-positive. This finding can also be interpreted as follows: unless fundamentalist confessions are proved to be vital for individual human existence (positive premium), a tolerant society needs no intervention to preserve tolerance.Evolutionary stability; Religion; Political ideology

The Strategic Euro Laggards

A government applying for a club membership may strategically delay entry to cope with the hold-up problem introduced by anticipatory investments of the private sector. In equilibrium of a two-period incomplete information game, we find that a pro-entry government may strategically delay to imitate an anti-entry government and thereby affect expectations of the private sector. The delay is more likely if the government has a good electoral prospect, is internationally weak, and is not considered to be too keen on entry. The model is related to the case of the Czech Republic where the government recently softened commitment in the euro adoption strategy.EMU, club enlargement, international unions, bargaining

Governing Fiscal Commons in the Enlarged EU

This study explores the achievements of the acceding countries in the sphere of procedural fiscal rules (labeled as fiscal governance). The primary goal is to answer two questions: what is the current state of fiscal governance in the “novice” EU comparing to the “old” EU-15? Can we prescribe the acceding states any country-specific fiscal procedures? Three major sections of the study aim at three different issues. Section 2 reviews the rationale for fiscal governance, and the main focus draws upon the common-pool problem. The next section reviews methods to find the fiscal governance suitable for countries with differing political environments. Next, observed fiscal governance is reported by means of indices from survey data gathered in May-June 2004. Group by group, the author compares the observations with what has been measured for EU-15 countries. The findings reveal the existence of groups of countries with similar characteristics and similar institutional potential.fiscal governance; fiscal rules; political fragmentation

On the strategic non-complementarity of complements

This paper examines the equilibrium provision of a public good if the private monetary contributions of identical agents are (im)pure complements. To reconcile complementarity in contributions with the apparent substitutability of monetary payments, we assume a setup with multiple inputs into a complementary production function. This paper proves the uniqueness and symmetry of the equilibrium for any impure complementarity if each agent is permitted to contribute to any input in the equilibrium, contributions are strategic substitutes. Only pure complementarity exhibits multiple equilibria, where contributions are either strategic substitutes or strategic complements.

Committed to Deficit: The Reverse Side of Fiscal Governance

Common wisdom dictates that fiscal governance (i.e. procedural fiscal rules) improves fiscal discipline. We rather find that selected fiscal constraints protect the coalitional status quo from logrolling. In effect, fiscal governance may deteriorate fiscal position. In political economy with heterogeneous agents, we examine four procedural fiscal rules: limits on amendments in legislative committees, timing of a vote on the budget size, deficit targets, and spending level targets. We find that fiscal governance protects the budgetary contract of governing coalition from attractive compromises with the opposition. When parties are evenly distributed across single policy dimension, and minimum winning connected coalitions are equiprobable, this protection is shown to magnify volatility in taxes and spending. Moreover, the volatility may increase in more fragmented party systems. We conclude fiscal governance not always and not necessarily reduces fiscal costs of fragmentation.Fiscal Governance; Party Fragmentation

On the optimality of the Arf invariant formula for graph polynomials

We prove optimality of the Arf invariant formula for the generating function of even subgraphs, or, equivalently, the Ising partition function, of a graph.Comment: Advances in Mathematics, 201

The Optimal State Aid Control: No Control

We extend a model of wasteful state aid in Dewatripont and Seabright (2006, Journal of the European Economic Association 4, 513–522) by a supranational controlling authority. The model combines moral hazard and adverse selection to show that politicians fund wasteful projects to signal their effort. Voters, unable to observe project benefits or effort, reward funding with a reelection premium that separates a high-effort politician from a low-effort politician. We examine state aid control by a benevolent authority which receives extra signals about the state of the world. We find that signals on the politician type are worthless. For signals on the project type, we derive a sufficient condition for aid control to unambiguously decrease welfare. We also prove that politicians do not respond to marginal changes in incentives. In this setup, the optimal state aid control is fairly often no control.State aid, signaling, career concerns, aid control

The Decentralization Tradeoff for Complementary Spillovers

We examine a symmetric two-district setting with spillovers of local public spending where a spill-in from the foreign spending is not a substitute, but a complement to domestic spending. Specifically, we assume production of two district-specific public goods out of two complementary district-specific inputs. We compare equilibria in non-cooperative decentralization and cooperative centralization for different spillovers, complementarities and cost-division rules, and control for the effects of strategic delegation and the feasibility of voluntary contributions to the input in the foreign district. We find that centralization welfare-dominates decentralization in most institutional settings and for a wide range of parameters, yet we can also identify necessary and sufficient conditions for decentralization to welfare-dominate centralization. The setup features three novelties: In the absence of transfers, welfare in decentralization increases in spillovers, strategic delegation in decentralization improves welfare, and centralized provision may be non-monotonic in spillovers.Spillover, Spill-in, Strategic complementarity, Decentralization theorem