The Disadvantaged Incumbents: Estimating Incumbency Effects in Indian State Legislatures

This paper estimates the effect of a candidate’s incumbency status on his or her chances of winning using a large dataset on state legislative elections in India during 1975-2003. I use an innovative research design, called Regression Discontinuity Design (RDD), that provides unbiased estimate of the effect due to incumbency by comparing the candidates in closely fought elections, and find that incumbency has a significant negative effect on the fortunes of incumbent candidates in India and the incumbency effect has decreased further in the last decade. Also, the variation in the incumbency effects across Indian states depends on the differences in levels of public good provision such as the health facilities, rates of employment and poverty, and state per capita income.Anti-incumbency; Indian elections; regression discontinuity design (RDD)

Smoking and ethnic group, not epidural use, determine breast feeding outcome

No abstract available

Risk Aversion and Optimal Portfolio Policies in Partial and General Equilibrium Economies

In this article, we show how to analyze analytically the equilibrium policies and prices in an economy with a stochastic investment opportunity set and incomplete financial markets, when agents have power utility over both intermediate consumption and terminal wealth, and face portfolio constraints. The exact local comparative statics and approximate but analytical expression for the portfolio policy and asset prices are obtained by developing a method based on perturbation analysis to expand around the solution for an investor with log utility. We then use this method to study a general equilibrium exchange economy with multiple agents who differ in their degree of risk aversion and face borrowing constraints. We characterize explicitly the consumption and portfolio policies and also the properties of asset returns. We find that the volatility of stock returns increases with the cross-sectional dispersion of risk aversion, with the cross-sectional dispersion in portfolio holdings, and with the relaxation of the constraint on borrowing. Moreover, tightening the borrowing constraint lowers the risk-free interest rate and raises the equity premium in equilibrium.

Exchange rate volatility and trade: a general equilibrium analysis.

In this paper, we use insights from the literature on financial options to analyze the effect of exchange rate volatility on the volume of trade between countries. In contrast to existing work, this analysis is carried out in a model where the exchange rate is determined endogenously, and the volatility of the exchange rate depends on the volatility of the amounts available for consumption of the traded and non-traded goods. Our main result is to show that, in a one-good world, and contrary to the popular conjecture, an increase in exchange rate volatility is associated with an increase in the volume of trade. If a non-traded good is added, the above remains true when the source of exchange rate volatiliy is the uncertainty in the traded goods sector. However, when the source of exchange rate volatility is the non-traded goods sector then the volume of trade may decline. Thus, our model offers at least a partial explanation for the results of empirical studies that find only a weak relation between exchange rate volatility and trade. A policy implication of the model is that the volatility of the real exchange rate can be reduced, and welfare increased, in two ways: by reducing the volatility of fundamentals and by reducing the barriers to trade. However, while a reduction in trade barriers is associated with an increase in trade, a reduction in the volatility of fundamentals leads to a reduction in trade. Thus, more trade does not always mean a higher welfare.Equilibrium; Trade; Volatility;

Estimation of the Incumbency Effects in the US State Legislatures: A Quasi-Experimental Approach

This paper estimates the incumbency effects in the legislative elections of 45 states in the US during the period 1968-89. I improve upon the existing measures of incumbency by using a quasi-experimental research design that isolates the effect due to incumbency from other contemporaneous factors such as candidate quality. I find that incumbency bestows a significant advantage on incumbents compared with their challengers. The incumbent candidates are about 30 percentage points more likely to win the next election and win 5.3 percentage point more votes than the challengers. However, the advantage is not as large as estimated from the previous methods.Incumbency; Elections; Regression Discontinuity

Does legislative turnover adversely affect state expenditure policy? Evidence from Indian state elections

I examine the effect of legislative turnover on the size and composition of government expenditures in Indian state elections during 1980-2000. The paper finds that excessive turnover in Indian state elections results in an inefficient government expenditure policy. First, the higher the turnover, the larger is the size of government. Second, excessive turnover affects the allocative efficiency of the government expenditure by skewing the composition of government spending towards pure consumption expenditure and away from more productive investment expenditure. The findings imply that a lack of a proper commitment mechanism in political markets could be a source of inefficiency in government policy.Legislative turnover; Indian elections; government spending

The equilibrium approach to exchange rates: theory and tests.

We characterize the equilibrium exchange rate in a general equilibrium economy without imposing strong restrictions on the output processes, preferences, or commodity market imperfections. The nomial exchange rate is determined by differences in initial wealths - the currencies of richer countries tend to be overvalued, by PPP standards - and by differences of marginal indirect utilities of total nominal spending. Changes in the exchange rate mirror differences in growth rates of real spending weighted by relative risk-aversion (which can be time-varying and can differ across countries), and, in the case of non-homothetic utility functions, differences in inflation rates computed from marginal spending weights. Thus, standard regression or cointegration tests of PPP suffer from missing-variables biases and ignore variations in risk aversions across countries and over time. We also present cointegration test of the homothecy/ CRRA version of the model. When nominal spending is given an independent role (next to prices) in the short-term dynamics, both PPP and the CRRA model become acceptable.Equilibrium; Theory; Trade;