Opportunities and Choices..

Growth depends upon the interaction of opportunities and choices. A country, or an entire region, may fail to grow either because there are no opportunities, or because choices are made that preclude opportunities being taken. The stark phenomenon we are trying to understand is that for forty years Africa stagnated while other developing regions grew. This chapter attempts to explain this alarming phenomenon in terms of the distinctive opportunities open to the region and the distinctive choices which were made.

On the Human Rights Question

There is a marked disjuncture today between the generalized critique and rejection of human rights by many progressive and critical commentators, and the embrace of the language of human rights by a variety of movements around the world engaged in struggles for social change. This divide between critical theory and critical practice raises important questions about whether and how movements for fundamental social change should engage with human rights. In contrast to a number of well-established critical dismissals of rights, this article argues, from within the Marxist tradition, that human rights can, and in some cases should, be deployed by social movements in their campaigns. However, reaching this conclusion requires developing an understanding of human rights that gives primacy to social struggle and to a nuanced understanding of the contradictory nature of human rights

Law, Marxism and Method

Law is crucial to the maintenance and reproduction of capitalism. While Marx never produced a comprehensive theory of law, state and rights, there is much in his work, and in the broader Marxist tradition, that can help us understand the nature and role of law in contemporary capitalism. This paper sketches out some of the key resources from within the Marxist tradition that can assist us in developing Marxist understandings of law, state and rights today. Specifically, the focus is on the question of method, drawing out three key strands from Marx's own work: (i) the importance of dialectical materialist analysis; (ii) the historically specific and transitory nature of capitalism and (iii) the centrality of class antagonism and class struggle. The argument advanced here, in sum, is that Marxist explanations of law, state and rights should foreground these analytical reference points, in order to make the role of law intelligible, and to begin to sketch how movements for fundamental social change might understand and engage with the law

On the Pricing of Intermediated Risks: Theory and Application to Catastrophe Reinsurance

We model the equilibrium price and quantity of risk transfer between firms and financial intermediaries. Value-maximizing firms have downward sloping demands to cede risk, while intermediaries, who assume risk, provide less-than-fully-elastic supply. We show that equilibrium required returns will be "high" in the presence of financing imperfections that make intermediary capital costly. Moreover, financing imperfections can give rise to intermediary market power, so that small changes in financial imperfections can give rise to large changes in price. We develop tests of this alternative against the null that the supply of intermediary capital is perfectly elastic. We take the US catastrophe reinsurance market as an example, using detailed data from Guy Carpenter & Co., covering a large fraction of the catastrophe risks exchanged during 1970-94. Our results suggest that the price of reinsurance generally exceeds "fair" values, particularly in the aftermath of large events, that market power of reinsurers is not a complete explanation for such pricing, and that reinsurers' high costs of capital appear to play an important role.

The Risk Tolerance of International Investors

Investor confidence and risk tolerance are important concepts that investors are constantly trying to gauge. Yet these concepts are notoriously hard to measure in practice. Most attempts rely on price or return data, but these run into trouble when trying to disentangle whether an observed price change is attributable to a shift in investor confidence or a change in fundamental value. In this paper, we take an alternative approach by looking at the world-wide holdings and trading of risky assets. We model global capital markets as the interaction between large global institutional investors and smaller domestic investors from each country. This permits separation of global price changes into two components, one that reflects changes in demand and fundamentals perceived by all investors, and a second that reflects changes in the relative risk tolerance of institutional investors over and above that of domestics. The latter component, changes in relative risk tolerance of global institutions, is driven by the willingness of these investors to acquire additional assets in each country in proportion to their current holdings. Using our model, we show how data on asset holdings and flows across countries can be used to identify changes in risk tolerance. We then apply this identification scheme to recent data on the global portfolio holdings of institutional investors. The resulting measure of risk tolerance impressionistically accords well with periods of market turbulence and quiescence. It also accounts for a considerable portion of the variation in portfolio holdings and is informative about future returns.

"The Bigger They Are, The Harder They Fall": How Price Differences Across U.S. Cities Are Arbitraged

Recent empirical work has made headway in exploring the non-linear dynamics of deviations from the law of one price and" purchasing power parity that are apt to arise from transaction costs. However, there are two important facets of this work that need improvement. First, the choice of empirical specification is arbitrary. Second, the data used are typically composite price indices which are subject to potentially serious aggregation biases. This paper examines the evidence for transport-cost-induced nonlinear price behavior within the U.S. We address both of the above shortcomings. First, we use a simple continuous-time model to inform the choice of empirical specification. The model indicates that the behavior of deviations from price parity depends on the relative importance of fixed and variable transport costs. Second, we employ data on disaggregated commodity prices, yielding a pure' measure of the deviations from price parity. We find strong evidence of nonlinear reversion in these deviations. The nature of this reversion suggests that fixed costs of transportation are integral to an understanding of law-of-one-price deviations.

Aid dependence reconsidered

If foreign aid undermines institutional development, aid recipients can exhibit the symptoms of “dependence”-a short-run benefit from aid, but increasing need for aid that is damaging in the long run. We show that this high-aid/weakinstitutions state can be an equilibrium outcome even when donors and recipients fully anticipate the effect of aid on institutional development. However, a lowaid/ strong-institutions outcome is also possible, so that the model encompasses the diverse foreign-aid experiences of countries like the Republic of Korea and Tanzania. When the development community ignores the effect of aid on institutions, the outcome depends strongly on initial conditions. Where institutions are already weak, institutional capacity collapses and foreign aid eventually finances the entire public budget. Where they are initially stronger, the result can be close to the institutionssensitive equilibrium. The results suggest that foreign aid strategies, even for countries with similar per capita incomes, should be differentiated according to their institutional capacity; and that a short-run reduction in aid may increase a country’s chances of graduating from aid.

Aid dependence reconsidered

When foreign aid undermines institutional development aid recipients can exhibit the symptoms of aid"dependence"- benefiting from aid in the short term but damaged by it in the long term. The authors find that one equilibrium outcome can be high aid and weak institutions, even when donors and recipients fully anticipate aid's effects on institutional development, but don't take the drastic steps needed to put the country on the path to independence. Another equilibrium outcome can be low aid and strong institutions. Their model encompasses such diverse experiences as those of Tanzania and the Republic of Korea. When the development community ignores aid's effect on institutions, the outcome depends greatly on initial conditions. Where institutions are initially weak (as in many Sub-Saharan African countries at independence), institutional capacity collapses and foreign aid eventually finances the whole public budget. Where they are initially stronger, the result can be close to the institutions-sensitive equilibrium. The results suggest that, even for countries with similar per capita income, the foreign aid strategy should be designed to suit the country's institutional capacity. In some cases a short-term reduction in aid may increase a country's chances of graduating from aid.Development Economics&Aid Effectiveness,School Health,Gender and Development,Economic Theory&Research,Public Sector Economics&Finance,Poverty Assessment,Development Economics&Aid Effectiveness,Economic Theory&Research,School Health,National Governance