This paper analyzes an overlapping generation model of redistribution and public good provision under repeated voting. Expenditures are financed through age-dependent taxation that distorts human capital investment. Taxes redistribute income both across skill groups and across generations. We focus on politico-economic Markov equilibria and contrast these with the Ramsey allocation under commitment. The model features indeterminate equilibria, with a key role of forward-looking strategic voting. Due to the lack of commitment to future policies, the tax burden may be on the wrong side of the dynamic Laffer curve. Moreover, restrictions on government policies can in some cases be welfare improving.
We used single-pulse transcranial magnetic stimulation of the left primary hand motor cortex and motor evoked potentials of the contralateral right abductor pollicis brevis to probe motor cortex excitability during a standard mental rotation task. Based on previous findings we tested the following hypotheses. (i) Is the hand motor cortex activated more strongly during mental rotation than during reading aloud or reading silently? The latter tasks have been shown to increase motor cortex excitability substantially in recent studies. (ii) Is the recruitment of the motor cortex for mental rotation specific for the judgement of rotated but not for nonrotated Shepard & Metzler figures? Surprisingly, motor cortex activation was higher during mental rotation than during verbal tasks. Moreover, we found strong motor cortex excitability during the mental rotation task but significantly weaker excitability during judgements of nonrotated figures. Hence, this study shows that the primary hand motor area is generally involved in mental rotation processes. These findings are discussed in the context of current theories of mental rotation, and a likely mechanism for the global excitability increase in the primary motor cortex during mental rotation is proposed.
An agent can choose to forego bene ts from side opportunities and to instead provide bene ts to the principal. In return, the principal o¤ers rewards. If this exchange is not contractible, typically repeated interaction will be required to sustain it. This model allows the agents productivity in contractible and possibly also non-contractible actions inside the relationship to be correlated with productivity in side activities. This arguably realistic assumption yields several novel implications for the feasibility of relational contracts and for agent selection by principals. The analysis reveals, for example, that optimal agent productivity is often non-monotonic in the importance, to the principal, of ensuring agent reliability.
The depth of the recent financial crisis is often attributed to excessively high leverage of corporations and banks. This column analyses corporate leverage in the long-run, and in particular the shift from bilateral to multilateral firm-bank relationships in the UK. This shift is related to the firms’ use of debt finance, and subsequently to their increased leverage
Banks play a special role as providers of informative signals about the quality and value of their borrowers. Such signals, however, may have a quality of their own as the banks’ selection and monitoring abilities may differ. Using an event study methodology, we study the importance of the geographical origin and organization of the banks for the investors’ assessments of firms’ credit quality and economic worth following loan announcements. Our sample comprises 986 announcements of bank loans to US firms over the period of 1980–2003. We find that investors react positively to such announcements if the loans are made by foreign or local banks, but not if the loans are made by banks that are located outside the firm’s headquarters state. Investor reaction is, in fact, the largest when the bank is foreign. Our evidence suggest that investors value relationships with more competitive and skilled banks rather than banks that have easier access to private information about the firms. These results are applicable also to the European markets where regulatory and economic borders do not coincide and bank identities and reputation seem to matter a great deal.
