Capital Destruction, Optimal Defense and Economic Growth

The effects of capital destruction are endogenized in a neoclassical growth model where the economy can optimally allocate part of its labor force to defend capital from being destroyed. The purpose is to explain the optimal allocation of the labor force between productive and deterrence activities along the optimal growth path in response to exogenous terrorist attacks against the material wealth of the economy. The article makes special case to the recent Colombian case and sheds some light on the dramatic increase in the defense activities in Colombia as a result of the increase of terrorist attacks by rebeld groups.Capital accumulation, deterrence, capital destruction and economic growth.

The War on Illegal Drug Production and Trafficking: An Economic Evaluation of Plan Colombia.

This paper provides a thorough economic evaluation of the anti-drug policies implemented in Colombia between 2000 and 2006 under the so-called Plan Colombia. The paper develops a game theory model of the war against illegal drugs in producer countries. We explicitly model illegal drug markets, which allows us to account for the feedback effects between policies and market outcomes that are potentially important when evaluating large scale policy interventions such as Plan Colombia. We use available data for the war on cocaine production and trafficking as well as outcomes from the cocaine markets to calibrate the parameters of the model. Using the results from the calibration we estimate important measures of the costs, effectiveness, and efficiency of the war on drugs in Colombia. Finally we carry out simulations in order to assess the impact of increases in the U.S. budget allocated to Plan Colombia, and find that a three-fold increase in the U.S. budget allocated to the war on drugs in Colombia would decrease the amount of cocaine that succesfully reaches consumer countries by about 17%.Hard drugs, conflict, war on drugs, Plan Colombia

Crime and Conspicuous Consumption

This paper develops an incomplete information model wherein individuals face a trade-off between status and security when deciding the optimal amount of conspicuous consumption. On the one hand, we assume that individuals derive utility from status,which is obtained by signaling wealth through the consumption of an observable good. On the other hand, the increased consumption of observable goods also signals wealth to a criminal audience, thus increasing the chance of becoming target for criminal activities. The paper proposes an information channel through which crime distorts consumption decisions; this channel is different in nature from the channel whereby crime acts as a direct tax on observable and stealable consumption goods. More precisely, we argue that, in the presence of crime, individuals reduce their consumption ofobservable goods, not only because criminals may steal these goods, but also because it reveals information that could be used by criminals to target individuals´ wealth. We test our model´s predictions using U.S. data, and find that crime has a negativeand significant impact on conspicuous consumption; also that this effect cannot be explained by the fact that some of these goods tend to be stolen by criminals. Finally, we show that this result is robust to different specifications and alternative measuresof conspicuous consumption and crime.Crime, Conspicuous Consumption, Concerns for Status

Many Different Uniformity Numbers of Yorioka Ideals

Using a countable support product of creature forcing posets, we show that consistently, for uncountably many different functions the associated Yorioka ideals' uniformity numbers can be pairwise different. In addition we show that, in the same forcing extension, for two other types of simple cardinal characteristics parametrised by reals (localisation and anti-localisation cardinals), for uncountably many parameters the corresponding cardinals are pairwise different.Comment: 29 pages, 4 figure

Unequal Opportunities and Human Capital Formation

This paper develops a tractable, heterogeneous agents general equilibrium model where individuals have different endowments of the factors that complement the schooling process. The paper explores the relationship between inequality of opportunities, inequality of outcomes, and aggregate efficiency in human capital formation. Using numerical solutions we study how the endogenous variables of the model respond to two different interventions in the distribution of opportunities: a meanpreserving spread and a change in the support. The results suggest that a higher degree of inequality of opportunities is associated with lower average level of human capital, a lower fraction of individuals investing in human capital, higher inequality in the distribution of human capital, and higher wage inequality. In particular, the model does not predict a trade-off between aggregate efficiency in human capital formation (as measured by the average level of human capital in the economy) and equality of opportunity.Human Capital, Inequality, Equity-Efficiency Trade-off. Classification JEL: J24; J31; O15; D33.

Populist Policies in the Transition to Democracy

This paper develops a political economy model that provides an explanation as for why ruling elites in oligarquic societies may rely on income redistribution to the poor (the masses) in order to prevent them from attempting a revolution. We refer to this kind of redistribution as populist redistribution because, first it does not increase the poor’s productive capacity (human capital), and second it seeks to “buy” political support (peace) to perpetuate the elite’s control of political power. We examine the conditions under which ruling elites choose to deter the poor (by means of military repression and/or populist redistribution), to engage in a dispute with the poor for the control of political power, or, alternatively, to extend democracy. According to the results of the model populist redistribution (or military repression), if any, increases with initial wealth inequality and with the amount of redistribution that the poor can undertake under democracy, and decreases with the relative importance of a human capital externality in production. The model explains why in some cases the use of an apparently ine cient policy of populist redistribution turns out to be optimal for both groups (the ruling elite and the poor class) when the alternative is to use of military repression or default to conflict.Populism, oligarchy, democracy, conflict, inequality.

Human capital formation, inequality, and competition for jobs

This paper develops a model where heterogeneous agents compete for the best available jobs. Firms, operating with different technologies, rank job candidates in the human capital dimension and hire the best available candidate due to complementarities between the worker´s human capital and technologies used in the production process. As a result, individuals care about their relative ranking in the distribution of human capital because this determines the firm they will be matched with and therefore the wage they will receive in equilibrium. The paper rationalizes a different channel through which peer effects and human capital externalities might work: competition between individuals for the best available jobs (or prizes associated with the relative position of individuals). We show that more inequality in the distribution of endowments negatively affects aggregate efficiency in human capital formation as it weakens competition for jobs between individuals. However, we find that the opposite is true for wage inequality, namely, more wage inequality encourages competition and, as a result, agents exert more effort and accumulate more human capital in equilibrium.Human Capital, Inequality, Competition, Relative Ranking

Is Violence Against Union Members in Colombia Systematic and Targeted?

Violence against union members in Colombia has been at the center of a debate for several years now. Union leaders and NGOs in Colombia and abroad continuously argue that free trade agreements with Colombia should be blocked based on the failure of the current Colombian government to protect union members from targeted killings. We first look at the evolution over time of the indicators for violence against union members and union leaders. In particular we show (using different indicators and data sources) that violence against unionists in Colombia has steadily declined over the last seven years. Then, we use available panel data to study the determinants of violence against union members and union leaders. We make special emphasis on testing the claim that a greater intensity in the characteristic activities of unions leads to more violence against union members and union leaders. Using different data sets, data sources and estimation methods, we find no statistical evidence supporting this claim. These results suggest that, on average, violence against unionists in Colombia is neither systematic nor targeted.Violence, Targeted Killings, Unions, Union Activity

Cocaine Production and Trafficking: What do we know?

The main purpose of this chapter is to summarize the information currently available on cocaine production and trafficking. The chapter starts by describing the available data on cocaine production and trade, the collection methodologies, (if available) used by different sources, the main biases in the data, and the accuracy of different data sources. Next, the chapter states some of the key empirical questions and hypotheses regarding cocaine production and trade and takes a first look at how well the data matches these hypotheses. Also, the chapter states some of the main puzzles in the cocaine market and studies some of the possible explanations. These puzzles and empirical questions should guide future research into our understanding of the key determinants of illicit drug production and trafficking. Finally, the chapter studies the different policies that producer countries have adopted to fight against cocaine production and the role consumer countries play in the implementation of anti-drug policies.Cocaine; Narcotraffic; War on Drugs. Classification JEL: K42; C81; H56.