Interstate competition and political stability

Previous theories of globalization have examined factor mobility’s effect on the political conflict between social classes. But factor mobility also increases competition between state rulers in provid- ing services for citizens. I ask how this interstate competition affects the process of political change. In a simple model, interstate competition substitutes for democracy, by forcing rulers to invest in pub- lic goods so as to avoid capital and labor leaving the country. As a result, citizens are less willing to struggle for democracy, and rulers are less willing to oppose it, when interstate competition is strong. Therefore, there is less conflict over the level of democracy. The theory is tested on a post-war panel of countries, using neighboring countries’ financial openness as a proxy for factor mobility. As the theory predicts, states experience fewer changes in their level of democracy when their neighbors are financially open

How to waste a crisis : budget cuts and public service reform

In the aftermath of the financial crisis, governments have proposed sav-ing money by reforming public services. This paper argues that tight budget constraints make reform harder. Governments are uncertain which depart- ments are effective. Normally, effective departments can be identified by increasing their budget, since they can use the increase to produce more than ineffective departments. When budgets must be cut, however, ineffective departments can mimic effective ones by reducing their output. Budget cuts thus harm both short-run productive efficiency, and long-run allocative efficiency. These predictions are confirmed in a panel of US libraries. Low marginal productivity libraries reduce output by more than expected in response to a budget cut, and budget setters respond less to observed short-run output elasticity after cutback years

Reputation and Cooperation in Defence

Surprisingly high levels of within-group cooperation are observed in conflict situations. Ex- periments confirm that external threats lead to higher cooperation. The psychological literature suggests proximate explanations in the form of group processes, but does not explain how these processes can evolve and persist. We provide an ultimate explanation, in which cooperation is a rational response to an external threat. We introduce a model in which groups vary in their willing- ness to help each other against external attackers. Attackers infer cooperativeness of groups from members’ behaviour under attack, and may be deterred by a group that bands together against an initial attack. Then, even self-interested individuals may defend each other when threatened in order to deter future attacks. We argue that a group’s reputation is a public good with a natural weakest-link structure. We extend the model to cooperative and altruistic behaviour in general.cooperation, conflict, defence, signalling

How to Waste a Crisis: Budget Cuts and Public Service Reform

In the aftermath of the financial crisis, governments have proposed saving money by reforming public services. This paper argues that tight budget constraints make reform harder. Governments are uncertain which departmets are effective. Normally, effective departments can be identified by increasing their budget, since they can use the increase to produce more than ineffective departments. When budgets must be cut, however, ineffective departments can mimic effective ones by reducing their output. Budget cuts thus harm both short-run productive efficiency, and long-run allocative efficiency. These predictions are confirmed in a panel of US libraries. Low marginal productivity libraries reduce output by more than expected in response to a budget cut, and budget setters respond less to observed short-run output elasticity after cutback years.bureaucracy, reform, signaling

Interstate Competition and Political Stability

Previous theories of globalization have examined factor mobility’s effect on the political conflict between social classes. But factor mobility also increases competition between state rulers in providing services for citizens. I ask how this interstate competition affects the process of political change. In a simple model, interstate competition substitutes for democracy, by forcing rulers to invest in public goods so as to avoid capital and labor leaving the country. As a result, citizens are less willing to struggle for democracy, and rulers are less willing to oppose it, when interstate competition is strong. Therefore, there is less conflict over the level of democracy. The theory is tested on a post-war panel of countries, using neighboring countries’ financial openness as a proxy for factor mobility. As the theory predicts, states experience fewer changes in their level of democracy when their neighbors are financially open.

Losing Face

When person A makes an offer to person B and B rejects it, then A may "lose face". This loss of face is assumed to occur only if B knows for sure of A's offer. While under some circumstances loss of face can be rationalized by the consequences for future reputation, it may also enter directly into the utility function. Loss of face concerns can lead to fewer offers and inefficiency in markets that involve matching, discrete transactions, and offers/proposals in both directions, such as the marriage market, certain types of labor markets, admissions to colleges and universities, and joint ventures and collaborations. We offer a simple model of this, and show that under some circumstances welfare can be improved by a mechanism that only reveals offers when both parties say "yes".Matching, marriage markets, anonymity, reputation, adverse selection, Bayesian games, emotions.

Losing Face

When person A takes an action that can be interpreted as �making an offer� to person B and B �rejects the offer,� then A may �lose face.� This loss of face (LoF) and consequent disutility will occur only if these actions are common knowledge to A and B. While under some circumstances this LoF can be rationalized by the consequences for future reputation, we claim it also enters directly into the utility function. LoF concerns can lead to fewer offers and inefficiency in markets that involve matching, discrete transactions, and offers/proposals in both directions. This pertains to the marriage market, certain types of labor markets, admissions to colleges and universities, and certain types of joint ventures and collaborations. We offer a simple model of this, and show that under some circumstances welfare can be improved by a mechanism that only reveals offers when both parties say �yes.�

Anonymous Rituals

Religion and ritual have been characterized as costly ways for conditional cooperators to signal their type, and thus identify and interact with one another. But an effective signal may be prohibitively expensive: if the cost of participation is too small, freeriders may send the signal and behave selfishly later. However, if the ritual reveals only the average level of signaling in a group, free-riders can behave selfishly without being detected, and even a low cost signal can separate types. While individuals cannot be screened out, members can learn the group�s profile of types. Under specified conditions, this information gain leads to greater cooperation and hence increases expected welfare. Furthermore, if crowding is unimportant relative to the conditional cooperation term, anonymous rituals will be preferred to ones which reveal individuals� behavior. Examples of anonymous institutions include church collections, voting, music, dance, and military customs.

Reputation and cooperation in defence

Surprisingly high levels of within-group cooperation are observed in conflict situations. Ex- periments confirm that external threats lead to higher cooperation. The psychological literature suggests proximate explanations in the form of group processes, but does not explain how these processes can evolve and persist. We provide an ultimate explanation, in which cooperation is rational response to an external threat. We introduce a model in which groups vary in their willing- ness to help each other against external attackers. Attackers infer cooperativeness of groups from members’ behaviour under attack, and may be deterred by a group that bands together against an initial attack. Then, even self-interested individuals may defend each other when threatened in order to deter future attacks. We argue that a group’s reputation is a public good with a natural weakest-link structure. We extend the model to cooperative and altruistic behaviour in general

Reciprocity towards groups : a laboratory experiment on the causes

Field studies of conflict report cycles of mutual revenge between groups, often linked to perceptions of intergroup injustice. We test the hypothesis that people are predisposed to reciprocate against groups. In a computerized laboratory experiment, subjects who were harmed by a partner’s uncooperative action reacted by harming other members of the partner’s group. This group reciprocity was only observed when one group was seen to be unfairly advantaged. Our results support a behavioral mechanism leading from perceived injustice to intergroup conflict. We discuss the relevance of group reciprocity to economic and political phenomena including conflict, discrimination and team competition