Firm Characteristics and Influence on Government Rule-Making: theory and evidence

An adversarial game is used to model the amount of influence a firm has over a government regulator, and its equilibrium level of regulation, as a function of firm fundamentals. The effective influence of a firm is identified as comprising both intrinsic and exerted components; where the latter involves distorting regulation via a transfer to the regulator. Understanding the source of a firm's high influence is found to be important for -among other things - predicting whether it faces higher or lower regulatory constraint than other firms. Data from the World Business Environment Survey provides strong evidence in support of model hypotheses across a wide range of government agents, countries, and regulatory areas. Of particular relevance to public debate, large firms are found to be more likely to be influential, but also more likely to experience regulatory constraint than smaller firms.Political Economy; Regulation; Influence

Consumers and the Brain Drain: Product Design and the Gains from Emigration

We consider the welfare effects of skilled worker emigration in a context where skilled labor plays a role in product design. We show such emigration can benefit the residents left behind, even when consumers’ tastes exhibit a form of home bias. This is because emigration improves the design of goods designed by skilled emigrants but consumed in the sending country. In contrast to existing models of beneficial brain drain, our results do not require agglomeration economies, education-related externalities, remittances, return migration, or an emigration “lottery”. Instead, they are driven purely by differences in market size that induce skilled emigrants to design better products abroad than at home.brain drain, international labor migration, product quality

The International Migration of Knowledge Workers: When is Brain Drain Beneficial?

We consider the welfare effects of the emigration of workers who produce a public good (knowledge). We distinguish between the knowledge diversion and knowledge creation effects of such emigration, and show that the remaining residents of a country can gain from emigration, even when tastes for knowledge goods exhibit a kind of 'home bias'. In contrast to existing models of beneficial brain drain (BBD), our results do not require agglomeration economies, education-related externalities, remittances, return migration, or an emigration 'lottery'. Instead, they are driven purely by the public nature of knowledge goods, combined with differences in market size that induce greater knowledge creation by emigrants abroad than at home. BBD is even more likely in the presence of weak sending-country intellectual property rights (IPRs), or when source country IPR policy is endogenized.

Cross-Hauling of Polluting Factors: Extended Abstract

A two stage game is analyzed in which citizens who own mobile factors of production also vote for domestic environmental policies. It is shown that individuals have an incentive to cross-haul polluting factors across jurisdictions when direct controls are used to regulate emissions, that this cross-hauling can induce a ratcheting up of environmental policy in both jurisdictions, and can occur even when jurisdictions are identical and offer the same direct rates of return on installed capacity. The importance of the order in which capacity export decisions and voting occur are also analyzed, and it is found that factor mobility may induce ratcheting up of environmental policy even in a jurisdiction that acts as a host to all polluting activity

Compensation for Indirect Expropriation in International Investment Agreements: Implications of National Treatment and Rights to Invest

International investment agreements allow investors to bring compensation claims when their investments are hurt by new regulations. This requirement that host governments compensate for indirect expropriation helps solve post-investment moral hazard problems such as hold-ups, thereby helping to prevent inefficient over-regulation and encouraging foreign investment. However, when the social or environmental harm of a project is uncertain pre-investment, compensation requirements can interact with National Treatment clauses in a manner that reduces host government welfare and makes them less likely to admit investment. A police powers carveout from the definition of compensable expropriation can be Pareto-improving and increase foreign investment.Institute on Global Conflict and Cooperation for financial support

Bidding for Brains: Intellectual Property Rights and the International Migration of Knowledge Workers

We introduce international mobility of knowledge workers into a model of Nash equilibrium IPR policy choice among countries. We show that governments have incentives to use IPRs in a bidding war for global talent, resulting in Nash equilibrium IPRs that can be too high, rather than too low, from a global welfare perspective. These incentives become stronger as developing countries grow in size and wealth, thus allowing them to prevent the 'poaching' of their 'brains' by larger, wealthier markets.

Harmonizing Emissions Policy in Symmetric Countries: Improve the Environment, Improve Welfare?

We show that harmonizing emissions policy may be bad for the environment and/or global welfare, even when pollution is transboundary and countries are identical in every way. Harmonization effectively internalizes the transboundary aspects of pollution. But it also hampers producers’ ability to avoid local tailpipe regulation via exports of dirty goods and thereby redistributes incidence between producers and consumers. We develop a generic treatment of the political economy of environmental regulation to examine these competing effects. We find that whether harmonization makes politically motivated governments prefer stricter or weaker policy depends on their constituents’ vested interests and the degree of transboundary pollution transmission