Eric S. Maskin

Does fiscal decentralization lead to more efficient governance, better public goods, and higher economic growth? This paper tests Riker's [Riker, W. (1964) “Federalism: Origins, Operation, Significance,” Little, Brown and Co, Boston, MA.] theory that the results of fiscal decentralization depend on the level of countries' political centralization. We analyze cross-section and panel data from up to 75 developing and transition countries for 25 years. Two of Riker's predictions about the role of political institutions in disciplining fiscally-autonomous local politicians are confirmed by the data. 1) Strength of national political parties significantly improves outcomes of fiscal decentralization such as economic growth, quality of government, and public goods provision. 2) In contrast, administrative subordination (i.e., appointing local politicians rather than electing them) does not improve the results of fiscal decentralization.

Jean-Jacques Laffont, economist extraordinaire and visionary founder of the Institut d'Économie Industrielle ( IDEI ) in Toulouse, died at his home in Colomiers on May 1 after a valiant battle against cancer. He was fifty-seven years old.

How does regulatory capture affect growth? We construct measures of the political power of firms and regional regulatory capture using microlevel data on the preferential treatment of firms through regional laws and regulations in Russia during the period 1992-2000. Using these measures, we find that: (1) politically powerful firms perform better on average; (2) a high level of regulatory capture hurts the performance of firms that have no political connections and boosts the performance of politically connected firms; (3) capture adversely affects small-business growth and the tax capacity of the state; and (4) there is no evidence that capture affects aggregate growth.

I examine the theoretical foundations underlying the incomplete contracts literature. A common justification for the assumption that contracts are not fully contingent on the state of nature is to point out that some aspects of the state may be unforeseen or indescribable to the contracting partners at the time the contract is written. I argue, however, that as long as risk-averse parties can foresee the probabilities of their possible payoffs, then the fact that they cannot describe the possible physical states does not matter; even with renegotiation, the parties can attain the same welfare as when full description is possible.

We show that simple majority rule satisfies four standard< and attractive properties—the Pareto property, anonymity, neutrality, and (generic) transitivity—on a bigger class of preference domains than (essentially) any other voting rule. Hence, in this sense, it is the most robust voting rule. If we replace neutrality in the above list of properties with the weaker property, independence of irrelevant alternatives, then the corresponding robustness conclusion holds for unanimity rule (rule by consensus).