Intra-Group Competition and Inter-Group Conflict: An Application to Northern Ireland

This paper reviews four economic theories of leadership selection in conflictual settings. The first of these by Cukierman and Tomassi (1998) labeled the ‘information rationale’, argues that hawks may actually be necessary to initiate peace agreements. The second labeled the ‘bargaining rationale’ borrowing from Hamlin and Jennings (2007) agrees with the conventional wisdom that doves are more likely to secure peace, but post-conflict there are good reasons for hawks to be rationally selected. The third found in Jennings and Roelfsema (2008) is labeled the social psychological rationale. This captures the idea of a competition over which group can form the strongest identity, so can apply to group choices which do not impinge upon bargaining power. As in the bargaining rationale, dove selection can be predicted during conflict, but hawk selection post-conflict. Finally, the expressive rationale is discussed which predicts that regardless of the underlying structure of the game (informational, bargaining, psychological) the large group nature of decision-making by making individual decision makers non-decisive in determining the outcome of elections may cause them to make choices based primarily on emotions which may be invariant with the mode of group interaction, be it conflictual or peaceful. Finally, the paper analyses the extent to which the theories can throw light on Northern Ireland electoral history over the last 25 years.

Bargaining and Conflict with Incomplete Information

This paper studies bargaining and conflict under incomplete information, provides an overview and a critical account of the literature on the topic and contributes with original research. We first revise models of mechanism design and sequential bargaining that take confrontation as final. Conflict and inefficiencies are to be expected in these models whenever parties have optimistic prospects on the outcome of the all-out conflict. After examining the causes and reasons for this optimism, we move to the analysis of the recent literature that considers the existence of limited confrontations that allow bargaining to resume. In the presence of private information, these limited conflicts convey information and thus become a bargaining instrument. The paper closes with a discussion on the related empirical literature, the challenges that it faces and some potential avenues for further research.

Memory of Recessions

This paper reviews the evidence on the effects of recessions on potential output. In contrast to the assumption in mainstream macroeconomic models that economic fluctuations do not change potential output paths, the evidence is that they do in the case of recessions. A model is proposed to explain this phenomenon, based on an analogy with water flows in porous media. Because of the discrete adjustments made by heterogeneous economic agents in such a world, potential output displays hysteresis with regard to aggregate demand shocks, and thus retains a memory of the shocks associated with recessions.

Corruption and the Military in Politics: Theory and Evidence from around the World

Recent theoretical developments and case study evidence suggests a relationship between the military in politics and corruption. This study contributes to this literature by analyzing theoretically and empirically the role of the military in politics and corruption for the first time. By drawing on a cross sectional and panel data set covering a large number of countries, over the period 1984-2007, and using a variety of econometric methods substantial empirical support is found for a positive relationship between the military in politics and corruption. In sum, our results reveal that a one standard deviation increase in the military in politics leads to a 0.22 unit increase in corruption index. This relationship is shown to be robust to a variety of specification changes, different econometric techniques, different sample sizes, alternative corruption indices and the exclusion of outliers. This study suggests that the explanatory power of the military in politics is at least as important as the conventionally accepted causes of corruption, such as economic development.

A Behavioural Model of Choice in the Presence of Decision Conflict

This paper proposes a model of choice that does not assume completeness of the decision maker’s preferences. The model explains in a natural way, and within a unified framework of choice when preference-incomparable options are present, four behavioural phenomena: the attraction effect, choice deferral, the strengthening of the attraction effect when deferral is per-missible, and status quo bias. The key element in the proposed decision rule is that an individual chooses an alternative from a menu if it is worse than no other alternative in that menu and is also better than at least one. Utility-maximising behaviour is included as a special case when preferences are complete. The relevance of the partial dominance idea underlying the proposed choice procedure is illustrated with an intuitive generalisation of weakly dominated strategies and their iterated deletion in games with vector payoffs.

US Monetary and Fiscal Policies - Conflict or Cooperation?

Most of the literature estimating DSGE models for monetary policy analysis ignores fiscal policy and assumes that monetary policy follows a simple rule. In this paper we allow both fiscal and monetary policy to be described by rules and/or optimal policy which are subject to switches over time. We find that US monetary and fiscal policy have often been in conflict, and that it is relatively rare that we observe the benign policy combination of an conservative monetary policy paired with a debt stabilizing fiscal policy. In a series of counterfactuals, a conservative central bank following a time-consistent fiscal policy leader would come close to mimicking the cooperative Ramsey policy. However, if policy makers cannot credibly commit to such a regime, monetary accommodation of the prevailing fiscal regime may actually be welfare improving.

A test of long memory hypothesis based on self-similarity

This paper develops a new test of true versus spurious long memory, based on log-periodogram estimation of the long memory parameter using skip-sampled data. A correction factor is derived to overcome the bias in this estimator due to aliasing. The procedure is designed to be used in the context of a conventional test of significance of the long memory parameter, and composite test procedure described that has the properties of known asymptotic size and consistency. The test is implemented using the bootstrap, with the distribution under the null hypothesis being approximated using a dependent-sample bootstrap technique to approximate short-run dependence following fractional differencing. The properties of the test are investigated in a set of Monte Carlo experiments. The procedure is illustrated by applications to exchange rate volatility and dividend growth series.