This paper uses a contract theory framework to analyze the mechanisms of eurozone financial governance, with a focus on centralization vs. decentralization and incentive problems. By constructing a Stackelberg game model with n Ministries of Finance as the first movers and the European Central Bank as the second mover, we show that each government can create growth in its own country (self-benefit) by increasing government spending, but that this will increase inflation, resulting in a decrease in the value of the euro. As these effects are shared equally by eurozone countries (cost sharing), an incentive to free-ride at the expense of other countries is present. We then analyze a penalty-based solution to the free-rider problem and derive a second-best solution where a commitment not to renegotiate penalties ex-post is impossible. The optimal solution shows that ¡°limited sovereignty, ¡± that is, substantially constrained fiscal sovereignty, should be imposed as a high marginal cost for the issuance of public debt. Finally, we close the paper by discussing the possibility of Fiscal Integration (Fiscal Union).
The practical and theoretical meaning of the rise and fall of new local and virtual currencies suggest that two basic theories of money both have their validity and reasons for coexistence. The drive for increasing efficiency in the payment mechanisms is in full swing and still presents many opportunities for improvement.
The aim of this thesis is to provide a holistic analysis and an economic understanding of Bitcoin, answering two key questions: (i) Why do bitcoins have value? (ii) Why and how will governments seek to regulate the use of bitcoin? To answer these questions, the thesis begins with a discussion of money itself, developing a framework of different types of monies in terms of their uses and properties that will form the basis of the analysis. Based on the technical properties of Bitcoin the framework developed above is then applied to identify bitcoin as a digital commodity money. Following this identification, potential uses of bitcoin supporting its value will be discussed, drawing particular attention to Bitcoin s resilience to regulation. In addition, real world examples of other commodity monies will be used to support the claim that bitcoin may circulate without use value and state backing. Governments tend to seek economic control through controlling money, and it will be argued that there are good reasons to expect governments to be hostile towards widespread use of bitcoin. This is to be expected, as use of bitcoin undermines governments capacity to control money.
Abstract. This paper examines the process of mass democracy as the fundamental cause of transfer seeking and the centralization of governance, using Austrian-school theory and methodology such as decentralized knowledge, disaggregated phenomena, and the structure of capital goods. The alternative of decentralized, small-group gov-ernance reduces the demand for campaign financing and makes more effective use of decentralized knowledge. In addition, when public revenues originate in the local districts and are passed on to higher levels of governance, it provides incentives for revenue sources which do not have an excess burden on production. The governance struc-ture of cellular, bottom-up, multi-level voting, with public revenue flowing up from the lower to the upper levels, provides a contrast for a comparative systems analysis that can yield insight into the transfer seeking endemic in mass democracy.
The Italian National Health Service was established in 1978 as three-tier system, involving State, Regions, USLs (Unità sanitarie locali, Local Health Care Units). The division between the responsibility of determining the general features of health care policy and financing it, on one side (the State), and that of managing services, on the order side (Regions and USLs), was bound to lead to increasing levels of expenditure and large financial deficits. An important reform has been carried out over the last five years, aiming toward a more decentralized system, which, although still public, were based on competition among suppliers and free choice for consumers. We argue that although the reform seems to have been successful in containing public expenditure, it has left some important issues still unresolved: the relationship between patients' freedom of choice and competition among providers, and the definition of a model of rationing the bundle of health services financed by the public sector.
Joann P. Cobb PASCAL'S WAGER AND TWO MODERN LOSERS Blaise Pascal addressed his argument of the wager to the seventeenth -century sceptic confronting the failure of reason to answer the question, "Does God exist?" Pascal in his zeal for conversion of the free-thinker intended the wager on the affirmative answer as only a last-ditch appeal to self-interest and as a predisposition for the infusion of faith, and modern opinion has been influenced by Voltaire's disparaging comment that it is indecent to introduce the concept of a game involving gain and loss to the grave subject of the existence of God. But three centuries later, the wager has a relevance to the society shaped by logical positivism and existential "angst" that has not been entirely overlooked. Two modern short stories present wagerers who lose: Granny Weatherall in Katherine Anne Porter's "The Jilting of Granny Weatherall" and The Misfit in Flannery O'Connor's "A Good Man Is Hard to Find." These contemporary gamblers illustrate an implication of the argument unexploited by Pascal, but the frequent inclusion of these stories in anthologies and textbooks testifies to the compelling pertinence of the "game." The most appropriate position in the Pense'es for the fragment containing the argument of the wager is still the subject of some debate, but most editors place it after Pascal has delineated the miseries of the human condition and the paradoxical status of mankind. A mixture of misery and greatness, man is endlessly frustrated: "We desire truth, and find within us naught but uncertainty. We seek happiness, and find only misery and death. We are incapable of not desiring truth and happiness, and are incapable of certainty or happiness" (p. 87). Man's greatness, for Pascal, consists in knowledge of his own misery as he confronts the human situation: "No great elevation of soul is needed to understand that here below is no true and solid satisfaction; that all our pleasures are but vanity, that our woes are infinite, and that lastly death, which threatens us every moment, must infallibly 187 188Philosophy and Literature in a few years land us in the dreadful necessity of being forever either annihilated or miserable" (p. 105). Such understanding leads to thought of the Infinite, but "if there is a God, He is infinitely incomprehensible" and we are incapable of knowing by the light of nature "what He is, or whether He is" (p. 117). Yet, Pascal says, "a game is on, at the other end of . . . infinite distance, and heads or tails will turn up." Pascal argues that man must wager for he is "embarked," and he cites the odds of the game's outcome as it will affect man's happiness: "Let us weigh gain and loss in calling heads that God is. Reckon these two chances: if you win, you win all; if you lose, you lose naught" (p. 119). Pascal secures the assent of the postulated listener with repeated assertions that the chances of success are even, while the possible gain is infinitely disproportionate to the stake. Pascal's "unbeliever" gives up without much fight, agreeing that he will wager though he cannot believe. In a much criticized passage, Pascal then prescribes the sceptic's course: seek a decrease of human passions, rather than an increase of divine proofs, make believe you believe by using the ritual of the Catholic religion, and this will bring you to believe. And Pascal repeats the question: "What have you to lose?" (p. 121). Pascal's answer, of course, is "nothing" (rien), and he describes the attributes of the sceptic who follows the path of the believer: "You will be faithful, honest, humble, grateful, beneficent, a good friend, true. ... I tell you that you will gain in this life, and that at every step you take on this road you will see such certainty of gain, such nothingness in what you risk, that you will at last realize that you have wagered on something certain and infinite, for which you have risked naught" (pp. 121, 123). But a modern reader is not so quick to agree that "naught" is at stake: "Unmoved by the apologist's disparagement...
The literature on the deomposition of mathematical programs as models for organizational design and resource allocation in decentralized organizations is extensive. Although models differ in detail, all conceptualize the allocation problem as a multi-level managerial coordination procedure, involving local (divisional) and global (organization-wide) resources, in which informational automony is to be maintained. That is, coordination of resource usage by relatively autonomous divisions is to be effected in these models without any one agent in the organization accumulating complete knowledge of the technical resource transformations, payoff or cost coefficients and detailed plans that divisions utilize in converting resources to useful ends. Unfortunately there has been little empirical investigation into the implementational problems of applying these models in decentralized organizations. This study reports on an experiment with human subjects as decision makers in a simulated decentralized organization. The formulation of the overall resource-allocation problem as a linear program permitted two forms of coordination: price-directive in which transfer pricing is used to allocate resources, and resource-directive in which a rationing or budgeting approach is used. Both schemes can be shown to solve the overall organizational problem but impose different information, communication, and decision-making structures upon the subject managers. The experiment was designed to examine comparative managerial performance by the subjects, as central coordinating agents, under the alternative transfer pricing and budgeting schemes. Within each of these schemes two levels of decision time pressure were also introduced to examine its impact upon subject performance. The purpose of the investigation was to study the influence of organizational design (allocation scheme) and situational factors (time pressure) upon human decision-making under carefully controlled experimental conditions. The experimental setting was that of a decentralized university incorporating three subordinate college divisions and one coordinating agent, the president's office. The colleges were modeled as linear programs and the coordination function was assigned to the experimental subjects. In the price-directive scheme a subject assigned a transfer price to each of two global resources in each planning iteration. In the resource-directive scheme a subject directly allocated amounts of the two global resources to each of the colleges in each planning iteration. Consistent with decomposition theory, feedback to the subject in the form of aggregate resource demands (price-direction) or individual bids for higher resource allocations (resource-direction) was given to initiate a new planning iteration. The budgetary goal utilized by subjects was to maximize net dollar contribution from colleges to the university under prespecified quality-of-education constraints. After several planning iterations each subject finalized the resource allocations, terminating the experiment. The hypotheses were that resource-directive subjects would outperform price-directive subjects, that high decision time pressure would exacerbate decision making and that subjects would outperform decomposition algorithms in early iterations. Data from the experiment did not support the first two hypotheses; the third was confirmed. Aside from concluding that strategic factors (organizational design) and tactical factors (time pressure) strongly influence decision making behavior, several specific implications can be tentatively drawn. In similar settings transfer pricing schemes may be preferable to traditional budgeting schemes for planning resource allocations. Furthermore, the potential exists for profitable use of man-machine procedures for resource allocation involving decision support technology in the form of decomposition models to augment human decision heuristics. Finally, experimental methods offer a vehicle for addressing human factors and implementational considerations missing from current analytic models.
THE MAJOR INTEREST in the recent literature on economies has lain in the results about but finite economies that have been derived from the results proved for economies. It is thus important to find simple yet general proofs for economies. In this article we wish to provide a simple yet general proof of the existence of a competitive equilibrium in an infinite, nonstandard economy with production. The simplicity of our proof comes from the fact that nonstandard analysis can deal with large and small quantities very much as ordinary analysis deals with finite quantities.2 As a result, it is possible to follow very closely the proof of existence for an economy with a finite number of traders, such as that in G. Debreu's classic Theory of Value [6]. In fact, if one is willing to believe that nonstandard analysis permits us to manipulate quantities as claimed above, then no further knowledge of nonstandard analysis is required in order to follow the proof. As examples of the simplicity of nonstandard analysis, it may be pointed out that no analogue of the Fatou-Schmeidler lemma [7, p. 69], a fairly difficult mathematical theorem, is required; nor is it necessary to prove separately that preserves upper-semicontinuity, a proof that Aumann [1] has recently simplified, because integration in the nonstandard model consists of an infinite summation, hence an appeal to 1.9.4 of Debreu [6] suffices to establish this point. As our main objective is to obtain results about but finite economies, it is a welcome bonus to find out that no further effort is needed to obtain these desired theorems. This arises because of the following property of nonstandard analysis. Consider a sequence of real numbers {an} which tends to zero. If we could extend this sequence to the integers, it would surely be a necessary property of the values of {an} at the integers that they are all infinitely close to zero. What makes nonstandard analysis powerful is that the above line of reasoning can be reversed, so to speak. Suppose we have a sequence which
The formulation of the argument for distributional equality by William Breit and William Culbertson is an improvement on that of The Economics of Control and is more effective in class. Their generalization of the to the case of increasing marginal utility (of income) offset by a greater degree of diminishing marginal utility elsewhere, is also an improvement. Their point that Paul Samuelson did not escape the ''equal ignorance assumption is well taken. Ambiguity, being a case of lack of clarity is a charge that can never successfully be refuted. However, I would like to deny a switching of conclusions. Perhaps the ambiguity would have been avoided if I had added the following words in Roman type to the italicized sentence quoted: . . if it is desired to maximize the total satisfaction in a society, the rational procedure, in the absence of the knowledge that would enable us to equalize the marginal utilities, is to maximize the probable total satisfaction-i.e., to divide income on an equlitarian basis. The theorem on page 32 is not than the and mild one of page 29. It is the same proposition. The ingenous device of the 100 million coconut islands in one way does more than is claimed for it and in another way, does less. If it were possible to divide the total population into pairs which had the same utility functions, the equalization of income within each pair would never involve a wrong movement to be offset by a right oine. That is why there is certainty of improvement from equalization on every island. Furthermore, there would be an absolute maximization, with certainty, of the total satisfaction of the pair on each island from their joint income. On the other hand, the parable assumes that the combined incomes of the pairs have somehow already been equalized; that for every individual in the half of the total population with incomes less than the mean, his partner in the other half of the population (with an identical utility function) has an income greater than the mean by the exact amount that his is less than the mean. (This implies incidentally that no individual has an income as as twice the mean unless his partner has a zero income.) If this is not the case, some islands will be richer than others. We will then have to equalize the incomes of the islands before we could conduct Breit and Culbertson's experiment. The parable, therefore, while not necessary for the meek that income equalization maximizes the probable total satisfaction, is not sufficient for the bold proposition (to which I have never subscribed) that income equalization increases total satisfaction with absolute certainty. Breit and Culbertson's development of their parable reflects the same discomfort they have seen in others. The pair on the island are not satisfied with the proof that the equalization of the incomes has maximized their probable satisfaction. Sharing a widespread human craving for certainty, they want to be quite sure that they have at least increased their actual total satisfactions. This assurance is unfortunately not available as long as the utility functions are unknown. Breit and Culbertson also are seeking for a certainty of gain in a much bolder and more interesting regarding realized satisfactions instead of the maximization of a mere probability, and are accurately represented by the island pair they have invented. They have imagined a certainty of gain only by imagining the discovery of identicalutility twins. But the whole point of the * University of California, Berkeley.
This study attempts to link the formal structure of bureaucratic organizations to decision-making processes, and in particular to centralization or decentralization of authority. Interview data were obtained from 254 city, county, and state departments of finance. These data show that, controlling for an organization's size, decision-making authority is more highly centralized as the number of subunits in an organization increases; but as the number of levels of supervision grows, there is greater decentralization and at the same time proliferation of rules that specify criteria to guide decisions. Marshall W. Meyer is lecturer on sociology in the department of social relations at Harvard University.