The carry trade is the investment strategy of going long in high-yield target currencies and short in low-yield funding currencies. Recently, this naive trade has seen very high returns for long periods, followed by large crash losses after large depreciations of the target currencies. Based on...

We examine the legislative game with open rules proposed by Baron and Ferejohn (1989). We first show that the three-group equilibrium suggested by Baron and Ferejohn does not always obtain. Second, we characterize the set of stationary equilibria for simple and super majority rules. Such...

In this paper we introduce vote-share contracts. Such contracts contain a vote-share threshold that incumbents must reach in order to be reelected. In a simple model, we illustrate the working of vote-share contracts. Such vote-share contracts curb socially detrimental incumbency advantages by...

We investigate the behavior of consumer confidence around national elections in the EU-15 countries during 1985:1-2007:3. Consumer confidence increases before the date of elections and falls subsequently by almost the same amount. It is able to predict the strength of the performance of the...

We propose a normative theory of the number of representatives based on a stylized model of a representative democracy. We derive a simple formula, a "square-root theory" which gives the number of representatives in parliament as proportional to the square root of total population. Simple...

In the present paper, we analyze an original channel of interaction between politicians and lobbies i.e. the nuisance power of a lobby. Some lobbies are influencing public policies just because they are able to impact negatively the image of a politician. More particularly, we develop a setting...

Interest in prediction markets has increased in the last decade, driven in part by the hope that these markets will prove to be valuable tools in forecasting, decision-making and risk management - in both the public and private sectors. This paper outlines five open questions in the literature,...

Why do governments employ inefficient policies to redistribute income towards special interest groups (SIGs) when more efficient ones are available? To address this puzzle we derive and test predictions for a set of policies where detailed data is available and an efficiency ranking is feasible:...

We study bargaining at the end of high-stakes poker tournaments, in which participants often negotiate a division of the prize money rather than bear the risk of playing the game until the end. This setting is ideal for studying bargaining: the stakes are substantial, there are no restrictions...

How and why does distant political and economic history shape the functioning of current institutions? This paper argues that individual values and convictions about the scope of application of norms of good conduct provide the "missing link". Evidence from a variety of sources points to two...