The main point of this paper is that foreign aid fails because the structure of its incentives resembles that of central planning. Aid is not only ineffective, it is arguably counterproductive. Contrary to business firms that are paid by those they are supposed to serve (customers), aid agencies are paid by tax payers of developed countries and not by those they serve. This inverse structure of incentives breaks the stream of pressure that exists on the commercial market. It also creates larger loopholes in the principle-agent relationship on each point along the chain of aid delivery. Both factors enhance corruption, moral hazard and negative selection. Instead of promoting development, aid extends the life of bad institutions and those in power. Proposals to reform foreign aid – like aid privatization and aid conditionality – do not change the existing structure of the incentives in aid delivery, and their implementation may just slightly improve aid efficacy. Larger improvement is not possible. For that reason, foreign aid will continue to be a waste of resources, probably serving some objectives different to those that are usually mentioned, like recipient’s development, poverty reduction and pain relief.

This paper introduces a number of indicators on various aspects of competition laws and competition agencies in order to make competition policies comparable. It contains an indicator concerned with the objectives and the instruments of competition laws, a second indicator evaluating to what degree an economic – as opposed to a legal – approach to competition policy has been chosen. Based on the assumption that it is not the content of the law alone but also the structures erected in order to implement the law, it further presents an indicator reflecting the formal independence of competition agencies and a fourth one reflecting their factual independence. These four indicators are used to estimate the effects of competition policies on economic growth. It turns out that all four variables contribute to explaining differences in total factor productivity. Yet, their impact is not particularly robust to the inclusion of indicators for the general quality of institutions.

The problem of optimal management of a water reservoir by a hydropower producer is necessarily a dynamic one since water can be transferred between periods. A hydropower producer being a monopolist cannot reduce output in the classical way without spilling water. He will follow a strategy of setting marginal revenues equal between time periods and thus shift water from relatively inelastic periods to relatively elastic ones. If the monopolist has thermal capacity the strategy is the same, but the utilization of thermal capacity is reduced. If the monopolist has control over external trade import is reduced and export increased compared with the social solution. Technical constraints of limited reservoir and interconnector capacity and a competitive fringe may reduce markedly the consequences of exercising market power.

Institutional competition stirs the interest of economists following a certain cyclical pattern. In this context, it is very interesting to look back at the experience of Lenin and the Bolsheviks of adopting monetary competition to stabilize their political and economic power after the crash of the war communism (and the attempts to annihilate money). The currency competition lasts less than two years and ends up with establishing the chervonetz as the only monetary unit. As a whole, this can be considered a successful economic experience. Nevertheless, the main conditions for effective institutional competition were not met – the two currencies were unequally positioned and, what is more, the institutional complementarity principle was not present. Other basic market institutions were lacking or much diminished in functions – mostly the property rights, the principle of free price setting as well as competition in the political and ideological sphere. In general, the NEP model is utterly controversial and its market structure is to a great extent false. This is what actually doomed monetary stability afterwards and left no room for money competition to spread its wings. Despite all these shortcomings, even in its reduced form, the monetary competition, gives a number of positive, though only temporary, results. This reveals the presence of purely technological characteristics of currency competition related to the behavior of money users. In part one we remind briefly of the chronology of events in the first years of the Bolshevik’s regime; part two shows the dynamics of currency competition between the sovznak and the chervonetz, and in the last part we attempt to draw some theoretical observations related to the necessary conditions for a successful institutional competition.

Globalization extends the space of the things that are simultaneous for the human. This applies particularly to the decision-making in financial markets. The global market for capital is one of the main causes for globalization. How is this process of globalization to be judged from the point of view of business ethics?
The paper investigates the ethical foundations of capital markets and of financial consulting. It analyzes the foundational theories of corporate governance in the Anglo-American and in the German context. Their difference can be described as external control by competition versus internal control by consensus. The paper gives merit to the different models of governance and to their origin in different conceptions of government. It argues for a twofold strategy: to strengthen the external control of firms by competing teams of management that are able to make an effective take-over threat and to implement elements of workers’ participation in corporate governance as long as increases the efficiency of management - provided that these elements maintain the control rights of the firm’s owners.

In questo lavoro viene analizzata la partecipazione dei cittadini ai referendum abrogativi con particolare riferimento a quattro possibili determinati: caratteristiche dei quesiti (distributivi o di efficienza), numero di referendum votati contemporaneamente, mese del voto e posizione dei partiti. La decisione di votare o di astenersi è molto importante in quanto la Costituzione prevede il quorum del 50% più uno degli aventi diritto al voto per la validità del referendum. I risultati mostrano che i referendum distributivi hanno una partecipazione al voto maggiore di quella dei referendum di efficienza, maggiore è la percentuale di elettori che si riconoscono nei partiti che sostengono l’astensione, minore è la percentuale di votanti. Inoltre i referendum votati in giugno presentano una minore partecipazione. Il numero di referendum votati contemporaneamente non ha effetti sulla percentuale di votanti fino ad un numero di cinque. A partire da questa analisi si discutono alcune proposte di riforma.

The objective of this paper is twofold. First, to compare the model of financial stabilization in the interwar period in France (a country in the “core”) with that in Bulgaria (a peripheral country). Second, applying modern econometric techniques (VAR models) we would like to “test “whether the theory designating a dominant role of the exchange rate on inflation (in comparison to that of money in circulation) holds and can be empirically proved by the actual movement of the monetary variables and the direction of their causality. Going back to the history of stabilization in France and Bulgaria in the interwar period and studying it through the theoretical ideas at the beginning of the XX century would provide us not only with new elements in the analysis of the present-day problems of monetary stabilizations but also add to the arguments of the crucial significance of the exchange rate and monetary rules for the efficiency and credibility of the monetary regime.

Traditional monetary and economic convergence in accordance with the Optimal Currency Areas model has a number of limitations. Above all, it fails to assess the state of formal and informal monetary institutions. Adequate for an industrial society, it does not address the change to a globalising information society, being mainly quantitative, aggregated, and generally mechanical. This removes it from reality, though keeping it close to a quantitative presentation. It fails to take into account invisible threats to convergence and East European country realities involving informal monetary institutions and differences in institutional development. Monetary regime efficiency is judged solely by Maastricht criteria fulfilment. These limitations may be overcome in two ways. The first is to take into account the institutional aspect of money, enabling discussion of institutional monetary convergence. The second way is to adopt institutional monetary competition, allowing at least some institutional competition in EEC monetary regimes in the run up to euro adoption and possibly allowing the euro to circulate in parallel with national currencies.

As an alternative to the conventional methods for measuring chronic poverty, this paper proposes to use an interpersonal comparable measure of permanent income as a basis for defining and measuring chronic poverty. This approach accounts for the fact that individuals may undertake inter-period income transfers if it is to their advantage. Moreover, it allows for individual-specific interest rates on borrowing and saving as well as for the presence of liquidity constraints. Due to its general nature the proposed method proves useful for evaluating the theoretical basis of the standard methods for measuring chronic poverty.

The purpose of this paper is to present an exercise where we identify optimal income tax rules under the constraint of fixed tax revenue. To this end, we estimate a microeconomic model with 78 parameters that capture heterogeneity in consumption-leisure preferences for singles and couples as well as in job opportunities across individuals based on detailed Norwegian household data for 1994. For any given tax rule, the estimated model can be used to simulate the choices made by single individuals and couples. Those choices are therefore generated by preferences and opportunities that vary across the decision units. Differently from what is common in the literature, we do not rely on a priori theoretical optimal taxation results, but instead we identify optimal tax rules – within a class of 6-parameter piece-wise linear rules - by iteratively running the model until a given social welfare function attains its maximum under the constraint of keeping constant the total net tax revenue. We explore a variety of social welfare functions with differing degree of inequality aversion and also two alternative social welfare principles, namely equality of outcome and equality of opportunity. All the social welfare functions turn out to imply an average tax rate lower than the current 1994 one. Moreover, all the optimal rules imply – with respect to the current rule – lower marginal rates on low and/or average income levels and higher marginal rates on relatively high income levels. These results are partially at odds with the tax reforms that took place in many countries during the last decades. While those reforms embodied the idea of lowering average tax rates, the way to implement it has typically consisted in reducing the top marginal rates. Our results instead suggest to lower average tax rates by reducing marginal rates on low and average income levels and increasing marginal rates on very high income levels.

The New Zealand Resource Management Act imposes a system for micro-managing the environment. The Act is typical of current state approaches to environmental protection that places heavy reliance on command and control systems in preference to market based systems. Such laws impact heavily on property rights and due process and generally undermine the rule of law by creating centres of arbitrary authority. They also prevent the harnessing of widely dispersed knowledge that is vital to the determination of the costs and benefits of conservation and the development of realistic policy. These measures have been justified on the basis of the ‘precautionary principle’ and the concept of sustainable development and they are supported by claims of scientific consensus about major environmental issues such as climate change. The essay questions this consensus and argues that the precautionary principle and sustainable development are vacuous but dangerous doctrines. The apocalyptic and utopian visions of conservation are challenged and an evolutionary conceptualisation of the environment is proposed. The essay discusses the importance of property rights and compensation for takings as means of advancing legitimate environmental goals and argues that the New Zealand Resource Management Act is a deeply flawed model that imposes serious economic and constitutional costs that ultimately will weaken society’s capacity to achieve those goals.

Das Leitbild der Wirtschafts-und Sozialordnung der Bundesrepublik Deutschland, die Soziale Markwirtschaft, wird durch die Idee des sozialen Ausgleichs von Einkommensunterschieden durch die progressive Besteuerung, durch die umlagefinanzierte Altersvorsorge, durch die Mitbestimmung der Arbeitnehmer, vor allem mit Hilfe der Gewerkschaften, in der Leitung der Großunternehmen und durch das Konsensmodell der Unternehmensfinanzierung, eine enge Zusammenarbeit von Banken und Management, bestimmt. Diese Prinzipien, die gemeinsam das Ordnungsgeflecht der Sozialen Marktwirtschaft bilden, geraten durch die wirtschaftliche Entwiclung so unter Druck, daß sie nicht mehre greifen und das Ende der durch sie bestimmten Wirtschaftsordnung herbeiführen. Dies wird an drei Entwicklungen gezeigt: erstens an den Finanzierungsproblemen der Rentenversicherung aufgrund der demografischen Entwicklung, zweitens an der Abwanderung von Rentnern in den internationalen Kapitalmarkt, die durch die Schwäche des deutschen Kapitalmarkts bedingt ist und durch Pensionsfonds zu beleben ist, und an der Notwendigkeit, den Markt für Unternehmenskontrolle zu etablieren, um durch die Übernahmedrohung zu einer Leistungssteigerung des Managements der deutschen Großunternehmen zu gelangen. 

In the paper a new approach to the modelling of common components in long memory processes is introduced. The approach is based on a two-step procedure relying on Fourier transform methods (firrst step) and principal components analysis (second step), which, differently from previous contributions to the literature, allows the modelling of large data sets, both in terms of temporal and cross-sectional dimensions. Monte Carlo evidence, supporting the two-step estimation procedure, is also provided, as well as an empirical application to
real data.

In this paper international comovements among a set of key real and nominal macroeconomic variables for the G-7 countries have been investigated for the 1980-2005 period, using a Factor Vector Autoregressive approach. We present evidence that comovements in macroeconomic variables do not concern only real activity, but are an important feature also of stock market returns, inflation rates, interest rates and, to a smaller extent, monetary aggregates. Both common sources of shocks and similar transmission mechanisms explain international comovements, with the only exception of Japan, where the idiosyncratic features seem to dominate. Finally, concerning the origin of global shocks, evidence of both global supply-side and demand-side disturbances is found.