We examine the politics of the %u201CSalary Grab%u201D of 1873, legislation that increased congressional salaries retroactively by 50 percent. A group of New England and Midwestern elites opposed the Salary Grab, along with congressional franking and patronage-based civil service appointments,...

The Brazilian Constitution of 1988 gave relatively strong powers to the President. We model and test Executive-Legislative relations in Brazil and demonstrate that Presidents have used pork as a political currency to exchange for votes on policy reforms. In particular Presidents Cardoso and Lula...

We construct a fully specified extensive form game that captures competitive markets with adverse selection. In particular, it allows firms to offer any finite set of contracts, so that cross-subsidization is not ruled out. Moreover, firms can withdraw from the market after initial contract...

This paper studies optimal dynamic tax policy under the threat of political reform. A policy will be reformed ex post if a large enough political coalition supports reform; thus, credible policies are those that will continue to attract enough political support in the future. If the only...

In recent years there has been a growing interest in macro models with heterogeneity in information and complementarity in actions. These models deliver promising positive properties, such as heightened inertia and volatility. But they also raise important normative questions, such as whether...

This paper studies policy in a class of economies in which information about commonly-relevant fundamentals -- such as aggregate productivity and demand conditions -- is dispersed and can not be centralized by the government. In these economies, the decentralized use of information can fail to...

This paper shows how rational investors can have different degrees of optimism regarding the prospects of the economy, even if they share exactly the same information regarding all economic fundamentals. The key is that heterogeneity in expectations regarding endogenous outcomes can emerge as a...

This paper examines equilibrium and welfare in a tractable class of economies with externalities, strategic complementarity or substitutability, and incomplete information. In equilibrium, complementarity amplifies aggregate volatility by increasing the sensitivity of actions to public...

This paper examines the ability of a policy maker to control equilibrium outcomes in an environment where market participants play a coordination game with information heterogeneity. We consider defense policies against speculative currency attacks in a model where speculators observe the...

In many countries, taxes on businesses are less progressive than labor income taxes. This paper provides a justification for this pattern based on adverse selection that entrepreneurs face in credit markets. Individuals choose between becoming entrepreneurs or workers and differ in their skill...