Working Papers
http://hdl.handle.net/1803/6
2024-03-29T14:22:51ZSocial Conflict and the Stolper-Samuelson Theorem
http://hdl.handle.net/1803/15923
Social Conflict and the Stolper-Samuelson Theorem
Zissimos, Ben
This paper presents a new theory of trade policy-making based on the possibility of social conflict, and determines the conditions under which it will apply. In a setting where property rights are poorly enforced, the paper shows that the Stolper-Samuelson theorem embodies a set of sufficient conditions for a revolution to occur. By pinpointing a conflict of interest between the ruling elite and workers over trade policy, the theorem implies that workers may have an incentive to mount a revolution. However, this also implies that the elite can use trade policy to make concessions to the workers and hence avert a revolution. In an extended framework, a set of sufficient conditions for revolution to occur are provided even when the Stolper-Samuelson theorem fails to hold. Among other uses, the new theory presents a resolution to the long-standing puzzle over why Britain repealed the Corn Laws.
2011-01-01T00:00:00ZIntergenerational Intermediation and Altruistic Preferences
http://hdl.handle.net/1803/15922
Intergenerational Intermediation and Altruistic Preferences
Eden, Benjamin
The paper analyzes the intermediation role of government under the assumption that it has an advantage over the private sector in collecting uncollateralized loan payments. It isshown that a government loan program may improve the welfare of all generations (including the current old generation) if agents care about future generations in the time inconsistent manner originally proposed by Phelps and Pollak (1968). Numerical examples suggest that the welfare gains from intervention may be quite large and depends on the degree of altruism as defined by Phelps and Pollak. The welfare gains are large when agents are relatively “egoistic†because in this case the time inconsistency problem is more severe and there is more room for intervention.
2011-01-01T00:00:00ZSearch, Bargaining, and Agency in the Market for Legal Services
http://hdl.handle.net/1803/15920
Search, Bargaining, and Agency in the Market for Legal Services
Daughety, Andrew F.; Reinganum, Jennifer F.
We show that, in the context of the market for a professional service, adverse selection problems can sufficiently exacerbate moral hazard considerations so that even though all agents are risk neutral, welfare can be reduced by allowing the agent to “buy the firm” from the principal. In particular, we model the game between an informed seller of a service (a lawyer) and an uninformed buyer of that service (a potential client) over the choice of compensation for the lawyer to take a case to trial, when there is post-contracting investment by the lawyer (effort at trial) that involves moral hazard. Clients incur a one-time search cost to contact a lawyer, which parametrically influences the market power of the lawyer when he makes a demand of the client for compensation for his service. The client uses the demand to decide whether to contract with the lawyer or to visit a second lawyer so as to seek a second option, which incurs a second search cost. Seeking a second option shifts the bargaining power to the client because she can induce the lawyers to bid for the right to represent her. We allow for endogenously-determined contingent fees alone (that is, the lawyer covers all costs and obtains a percentage of any amount won at trial) or endogenously-determined contingent fees and transfers; in this latter analysis, lawyers could buy the client’s case.; Under asymmetric information with only a contingent fee (the “no-transfer” case), in equilibrium the first lawyer visited demands a higher contingent fee for lower-valued cases, signaling the case’s value to the client. If a transfer is also allowed, then in equilibrium the higher contingent fee (and transfer from the lawyer to the client) is obtained by the more valuable case, with only the highest-value case resulting in the lawyer buying the entire case (100% contingent fee with a transfer); again, in equilibrium, the value of the case is signaled. In both settings the client uses an equilibrium strategy that involves seeking a second option a fraction of the time, which induces separation. In equilibrium the presence of asymmetric information does not affect the client’s expected payoff, but it does reduce the lawyer’s expected payoff and it does increase moral-hazard-induced inefficiency on the part of the lawyer in the post-contracting investment. We also show that welfare under the no-transfer compensation scheme may increase with an increase in search costs, and shifting from a no-transfer to an unrestricted-transfer scheme can result in a reduction in expected social efficiency, as the adverse selection effect exacerbates, rather than ameliorates, the moral hazard problem.
2011-01-01T00:00:00ZPampered Bureaucracy, Political Stability, and Trade Integration
http://hdl.handle.net/1803/15919
Pampered Bureaucracy, Political Stability, and Trade Integration
Stroup, Caleb; Zissimos, Benjamin
This paper shows how, under threat of revolution, a nation's elite are able to maintain political stability and hence ownership of their wealth by creating or expanding a `pampered bureaucracy.' The elite thus divert part of an otherwise entrepreneurial middle class from more productive manufacturing activities, reducing economic efficiency. If the country has a comparative advantage in primary products, trade integration is potentially destabilizing since it raises the payoff to the lower classes of mounting a revolution and challenging the elite for their wealth. In that case trade integration mandates expansion of the pampered bureaucracy. Therefore, trade integration may actually reduce economic efficiency. The econometric results provide supportive evidence for our model.
2011-01-01T00:00:00Z