Democracy, Autocracy and the Likelihood of International Conflict

This is a game-theoretic analysis of the link between regime type and international conflict. The democratic electorate can credibly punish the leader for bad conflict outcomes, whereas the autocratic selectorate cannot. For the fear of being thrown out of office, democratic leaders are (i) more selective about the wars they initiate and (ii) on average win more of the wars they start. Foreign policy behaviour is found to display strategic complementarities. The likelihood of interstate war, therefore, is lowest in the democratic dyad (pair), highest in the autocratic dyad with the mixed dyad in between. The results are consistent with empirical findings.Democracy; Autocracy; War; Maximal Equilibrium

Optimal Transmission Regulation in an Integrated Energy Market

The capacity of the transmission network determines the extent of integration of a multinational energy market. Cross-border externalities render coordination of network maintenance and investments across countries valuable. Is it then optimal to collect powers in the hands of a single regulator? Should a common system operator manage the entire network? I show that optimal network structure depends on (i ) how the common regulator would balance the interests of the different member states; (ii ) how the gains from market integration vary across countries; (iii ) network characteristics (substitutability versus complementarity); and (iv ) the social cost of operator rent.Multi-national Energy Market; Transmission; Supranational Regulation; System Operation; Multi-contracting

Human Capital, Rent Seeking, and a Transition from Stagnation to Growth

We present a growth model where agents divide time between rent seeking in the form of resource competition; and working in a human capital sector, interpreted as trade or manufacturing. Rent seeking exerts negative externalities on the productivity of human capital, generating multiple steady states. Adding shocks to the model -- in the form of violence in the rent seeking process, and changes in the size of the contested resource base -- the model can replicate a long phase with stagnant incomes and high levels of rent seeking, interrupted by small failed growth spurts; this is eventually followed by a permanent transition to a sustained growth path where rent seeking vanishes in the limit. We illustrate the workings of the model with simulations and argue that the results, and what drives them, fit with some broad historical facts about growth, rent seeking, and the so-called natural resource curse.Conflict; Long-Run Growth; Rent Seeking

Market Power in the Nordic Wholesale Electricity Market: A Survey of the Empirical Evidence

We review the recent empirical research concerning market power on the Nordic wholesale market for electricity, Nord Pool. There is no evidence of blatant and systematic exploitation of system level market power on Nord Pool. However, generation companies seem from time to time able to take advantage of capacity constraints in transmission to wield regional market power. Market power can manifest itself in a number of ways which have so far escaped empirical scrutiny. We discuss investment incentives, vertical integration and buyer power, as well as withholding of base-load (nuclear) capacity.Electricity Markets; Deregulation; Market Power; Hydro Power; Transmission Constraints

Voter Turnout in Direct Democracy: Theory and Evidence

We analyse voter turnout as a function of referendum types. An advisory referendum produces advice that a legislature may or may not take into account when choosing between two alternatives, whereas a binding referendum generates a decisive decision. In theory, voter turnout should be higher under binding than advisory referendums, higher in small than large electorates and higher in close than less close referendums. These predictions are corroborated by evidence from 230 local referendums in Norway. For example, a shift from an advisory to a semi-binding referendum leads to an average increase in voter turnout by 11.5 percentage points.Voting Behaviour; Referendum Types; Rational Choice

Ethnic Diversity and Civil War

We construct a model in which a number of equally powerful ethnic groups compete for power by engaging in civil war. In non-redistributive equilibrium, ethnically homogeneous and ethnically diverse countries face a lower probability of civil war than countries with a moderate degree of ethnic diversity. The likelihood of conflict is maximized when there are two ethnic groups. When rent-extraction possibilities are not too big and society sufficiently ethnically homogeneous, there also exists a pacific equilibrium path sustained by redistribution from the ruling group to the out-of-power groups.Civil War; Ethnic Diversity; Redistribution; Dynamic Game

Economics and politics of international investment agreements

We analyze the optimal design and implications of international investment agreements. These are ubiquitous, potent and heavily criticized state-to-state treaties that compensate foreign investors against host country policies. Optimal agreements cause national but not global underregulation (""regulatory chill""). The incentives to form agreements and their distributional consequences depend on countries’ unilateral commitment possibilities and the direction of investment flows. Foreign investors benefit from agreements between developed countries at the expense of the rest of society, but not in the case of agreements between developed and developing countries

Competition vs. Regulation in Mobile Telecommunications

This paper questions whether competition can replace sector-specific regulation of mobile telecommunications. We show that the monopolistic outcome prevails independently of market concentration when access prices are determined in bilateral negotiations. A light-handed regulatory policy can induce effective competition. Call prices are close to the marginal cost if the networks are sufficiently close substitutes. Neither demand nor cost information is required. A unique and symmetric call price equilibrium exists under symmetric access prices, provided that call demand is sufficiently inelastic. Existence encompasses the case of many networks and high network substitutability.Network Competition; Two-way Access; Access Price Competition; Entry; Regulation; Network Substitutability

Unilingual versus Bilingual Education: a Political Economy Analysis

We consider an economy with two language groups, where only agents who share a language can produce together. Schooling enhances the productivity of students. Individuals attending a unilingual school end up speaking the language of instruction only, while bilingual schools render individuals bilingual at the same cost. The politically dominant group(not necessarily the majority) chooses the type(s) of schools accessible to each language group, and then individuals decide whether to attend school. We show that the dominant either choose laissez-faire or restrict access to schools in the language of the dominated. Instead, the dominated favour the use of their own language. Thus, while agents do not derive utility from speaking their mother tongue, language conflicts of the expected type endogenously arise. Democracy (majority rule) always leads to the implementation of a socially optimal education system, while restrictions to the use of the language of the dominated are implemented too often under minority rule. The model is consistent with evidence from Belgium, France, and Finland