By modifying the incentive structure, taxes affect human behavior. I investigate how the German income tax code influences the timing of civil marriages. The German income tax code contains provisions from which married couples stand to benefit relative to unmarried couples. If their individual incomes differ, legally married couples may benefit from filing their income taxes jointly due to a progressive income tax. The gain from joint taxation for married couples accrues in every year. Couples also enjoy it in the year in which they marry, independent of the month of the marriage. I use data from the German Socio-Economic Panel to the hypothesis that couples with larger gains from joint taxation are more likely to marry late in the current year instead of early in the subsequent year. The results provide strong support for the hypothesis that pecuniary gains from joint taxation incentivize couples to prepone their marriages to the current year.

An incomplete contracts approach is applied to analyse the lottery industry. It is argued that lottery services are more efficiently provided by private enterprises than by public enterprises, even if the addictive potential of lotteries is taken into account and government is assumed to be benevolent. However, in most countries, state-owned enterprises provide lottery services. In Germany, the 16 states each own a monopoly lottery-providing enterprise. This apparent puzzle is resolved by dropping the assumption that members of government are perfectly benevolent. The narrow self-interest of members of the state governments and other influential stakeholders in Germany helps to explain the persistence of the current structure of the lottery industry.

We investigate the value of international political connections by exploiting the 2016 surprise election of Donald Trump as U.S. president. To identify political connections, we compile a dataset of campaign contributions of U.S. subsidiaries of multinational companies headquartered outside of the U.S. We match these firms with comparable foreign firms that did not make any U.S. campaign contributions. We find that following the 2016 elections the abnormal equity returns for foreign firms that contributed considerably more to Republicans than to Democrats were about 2 percentage points higher than for their non-contributing peers. The results suggest that cross-border political connections can be valuable firm assets.

What motivates donations to political parties? Two views prevail. Donors are perceived either as ideologically motivated consumers or as privilege-seeking investors. To investigate differences in donor motivation between corporations and individuals, we analyze data from Germany. For the period from 1994 to 2014, we find that corporations act more like investors than individuals do. First, we test whether corporations or individuals are more inclined to give more to incumbent parties than to parties outside the governing coalition. Giving to incumbent parties whose representatives hold public offices may be more attractive for investing donors. Second, we test for differences between corporations and individuals in the relative increase in donations from non-election years to election years. Investor donations may be more volatile than consumer donations. We find that only corporations donate more to incumbent parties and that corporations increase their party donations from non-election years to election years more than individuals do. These differences in the behavior of corporate and individual donors provide some evidence for potentially undesirable exchanges between corporations as investors and parties. Further, the differences between individual and corporate donors tend to be more consistent for parties to the right on the political spectrum.

•We investigate the change in U.S. home prices after the Fukushima nuclear accident.•We use a diff-in-diff approach to analyze monthly zip code level home prices.•We find that home prices close to nuclear reactors did not fall relative to prices at other locations.•Our results suggest that individuals did not consider locations close to nuclear sites to be more risky after Fukushima.

The contributors to Governance Without a State? take the existence of areas of limited statehood as a starting point and analyze forms of governance observable under these circumstances. I provide an overview of Governance Without a State? by relating its contributions to analyses of aspects of anarchy in the economics literature.

In the developing world, kidnapping is relatively common, and a market for kidnap insurance has arisen in response. We provide a model that allows us to analyze how kidnap insurance affects the interaction between the kidnapper and the victim’s family when both are self-interested and have complete knowledge. We find that a market for kidnap insurance can be supported because it benefits a risk-averse family, as long as the introduction of insurance does not increase the risk of kidnapping too much. Families should fully insure if purchasing insurance does not increase the probability of kidnapping, and partially insure otherwise. Kidnapping insurance allows families to redeem hostages from kidnappers with a greater willingness to kill, which may reduce the number of kidnapping fatalities as long as the insurance does not increase the risk of kidnapping too much.

Selgin and White (Economic Inquiry 25:439–457, 1987) argue that during its evolution a free banking system can be expected to reach certain stages of development. This paper uses their conceptual framework to investigate the free banking era in 19th century Switzerland and makes three contributions to the literature on free banking. First, I find that the development of the Swiss banking system closely matches the stylized evolutionary path depicted by Selgin and White. Second, I argue that after the introduction of the federal banknote law in 1882, the Swiss banking system can no longer be characterized as one of free banking. Third, I maintain that the evolutionary approach offered by Selgin and White opens the door to a better explanation of inter-bank note exchange complications during the 30 years preceding the introduction of a Swiss central bank in 1907 than alternative approaches.

Did the nuclear catastrophe at Fukushima in March 2011 cause individuals to reappraise the risks they attach to nuclear power plants? We investigate the change in housing prices in the U.S. after the Fukushima event to test the hypothesis that house prices in the proximity of power plants fell due to an updated nuclear risk perception. Using a difference-in-differences approach we do not find evidence in support of the hypothesis that individuals reappraise the risks associated with nuclear power plants. House prices close to nuclear reactor sites did not fall relative to house prices at other locations in the U.S.

Where general purpose governments provide a bundle of services within their boundaries, special district governments provide specific services inside the boundaries of general purpose governments. The alternative to forming a special purpose government is providing the service within a general purpose government. Formation of a special district represents the establishment of a new political enterprise, in contrast to the addition of a new product line to an existing government. We explore the formation of special districts as a particular form of the universal entrepreneurial search for gain or profit from exchange. Political entrepreneurship, like market entrepreneurship, operates inside some framework of rules, and the formation of special districts reflects the search for political gain within that framework of rules. We use an entrepreneurial framework to formulate several hypotheses concerning the formation and organization of special districts.

During the Middle Ages European cities were to various degrees independent from their territorial rulers. This paper investigates the overlord's decision making with regard to the independence of cities. I argue that in return for tax payments territorial rulers delegated the supervision of cities to groups – mostly merchants – that were better equipped to foster productive activities within the city limits. Merchants had superior knowledge to implement attractive rules for the settlement of conflicts and faced institutions that reduced the potential for public predation. I further argue that rulers of smaller territories, who faced relatively mobile subjects, tended to delegate more powers to cities. I provide evidence in support of my contentions from Western Europe during the high and late Middle Ages.

Profit-maximizing organizers of sports contests have an incentive to implement rules that increase the attractiveness of sports contest for spectators. But prohibitively high enforcement costs can prevent organizers from implementing certain rules. We argue that in these instances unofficial norms can potentially complement the official rules and add to the attractiveness of a contest. If contest participants who have an encompassing interest in the contest face low enough monitoring and sanctioning costs, they can enforce unofficial norms among themselves. Thus, organizers of sports contests may find it beneficial to avoid instituting rules that inhibit the emergence of unofficial norms. We provide evidence in support of our contention from the Tour de France.

Bandits steal from their fellow men. Yet they are regularly subjects of folksongs, novels, and movies. In these outlets they are presented as folk heroes despite their crimes. Sociological explanations for this phenomenon based upon Eric Hobsbawm's concept of the social bandit and psychological explanations based upon myth building have been brought forth to explain the seeming contradiction. We propose an alternative explanation for the bandit hero phenomenon. We argue that bandits, acting solely in their own self-interest, unintentionally provide valuable services to societies under the rule of a predatory government. We identify three separate mechanisms by which bandits benefit society that do not necessarily hinge upon class struggles or historical dialectics. The social benefits that bandits generate form the foundation for their positive reception.

Most of the literature investigating the effects of campaign spending on electoral outcomes focuses on individual candidates in majoritarian systems. This paper contributes to the literature on the effectiveness of party campaign spending on party vote shares under systems of proportional representation. German data are used to test several hypotheses derived from a simple election contest model. The results are mixed and only partially support the hypothesis of a positive effect of campaign spending on a party's vote share.

I explore the medieval phenomenon of the Hanseatic League. I use the concept of functional overlapping competing jurisdictions (FOCJ) discussed by Frey and Eichenberger ( 1996 , 1999 , 2000 ) as framework for my analysis of the medieval association of northern European traders and cities. I show that the Hanseatic League came close to representing an example of a FOCJ. But I find that in contrast to the FOCJ outlined by Frey and Eichenberger the polycentric Hanseatic League as an inter-regional structure lacked the characteristic of a jurisdiction. It was not a political authority with the power to tax and regulate its members. The arrangements between the members of the Hanseatic League therefore had to be self-enforcing. Building on my investigation of the Hanseatic League, I further provide a general discussion of the costs and benefits of a central political authority in a system of functional overlapping competing units.

Abstract: Ha-Joon Chang, in his article ‘Institutions and Economic Development: Theory, Policy and History’, raises doubts about the effects of institutions on economic development and questions the positive effects of entirely free markets based on secure private property rights. We respond by stressing that institutions structure the incentives underlying individual action, secure private property rights are indispensable for prosperity, institutions have a first-order effect whereas policies only have a second-order effect, successful institutional change comes from within a society, and, given the status quo of developing countries, first-world institutions are likely not to be available to them.

The quest to constrain the power of the state has been ongoing since ancient Athens. And the fundamental paradox of governance has been the same ever since, how can we empower government with the ability to govern over men, but also constrain government so it does not abuse the powers entrusted with it. This is the essence of the argument for limited government, and the Constitutional project. “If all men were angels,” they would not have to be governed, and if we could select omniscient angels for government, the question of “who guards the guardians” would be ­obsolete. Realizing that men are neither perfectly noble nor all-knowing leaves us with the task of constraining those that do the governing. The social contract that defines the rules of the game of governing allows government to limit private ­predation and limit pubic predation by the government only if it is robust against the flaws of the available agent types.

States have soft budget constraints when they can expect a bailout by the federal government in the event of a financial crisis. This gives rise to incentives for unsound state fiscal policy. We test whether states with softer budget constraints have higher debts and deficits, receive more bailout funds, spend funds less efficiently, and are more likely to allocate funds to programs benefiting special interests. Exogenous variation in soft budget constraints across states and over time allows the identification of the effect of budget constraint softness on state fiscal policy. We take advantage of the fact that in Germany the states' political influence per state citizen is exogenous and varies because voting weights differ in the upper chamber of the German parliament. The stronger the political influence per state citizen, the softer the budget constraint. We show that states with softer budget constraint have higher deficits and debts, and receive more bailout funds. Further, overrepresented states are less efficient in spending public funds and are more prone to respond to rent seeking by interest groups.

Social contractarians commonly take social contracts to be solely hypothetical and refrain from elaborating on the factors that influence the feasibility of the formation of social contracts. In contrast, this paper aims at providing a discussion of the conditions affecting the feasibility of social contracts. I argue that the more aligned the preferences of group members for public goods are, the more the individuals share similar social norms, and the smaller the group is the more feasible a genuine social contract becomes. I provide evidence in support of my contention from the medieval Hanseatic League. At the Hanseatic Kontor in Novgorod, one of the four major trading posts of the Hanseatic League in cities outside of Germany, German merchants agreed to live under the rule of a constitution that gave rise to a political authority for the Kontor society.

We assess the impact of two groups of economists: mainline economists, who regard economics primarily as the science of exchange and mainstream economists, who perceive economics primarily as the science of choice. To control for scholarly quality we investigate the citation impact of N obel P rize winning economists, who we break up into the two groups, mainline and mainstream. We find that over the period from 1970 to 2007 mainline economists had more of an impact than mainstream economists.