Thorsten Janus
Assistant Professor
128 Ross Hall
Department of Economics and Finance,
Email: tjanus@uwyo.edu
Ph.: 1-307-760-3384
Fax: 1-307-766-5090
Working
Papers
“When do Lending
Sanctions Work?”, April 2008
Several reasons
suggest that lending sanctions may be a more effective foreign policy tool than
trade sanctions. This paper examines, using a basic public finance model, under
which circumstances a reduction in an abusive government’s ability to borrow will
improve the welfare of citizens and/or decrease that of the government. Though
lending sanctions will generally hurt the government, they will fail to help
citizens in the baseline model. However,
I also suggest some alternative assumptions under which the sanctions will
indeed help citizens and I show that lending sanctions will never hurt the
citizens.
“Sticks and Carrots:
Two Incentive Mechanisms Supporting Intra-Group Cooperation” (with Jamus Jerome Lim), revised February 2008
In
this note we introduce two distinct incentive mechanisms that support dynamic
intra-group cooperation in the context of prisoner's dilemma payoffs. The first
mechanism involves a reward structure---a carrot---that supports both triadic
and tripartite group relations. The second mechanism involves a punishment
structure---a stick---that supports tripartite group relations. We also discuss
how these mechanisms are relevant in real-world groups such as criminal gangs
and military platoons.
“Holding Nature
Hostage” December 2007
Countries controlling scarce resource stocks which benefit the rest of
the world, such as tropical forests or rare plants and animals, have incentives
to manipulate the willingness to pay of outside countries by depleting their
stocks. This incentive is above and beyond any direct flow benefits from the
stock and can lead to depletion even when the flow benefit is negative. This
view is consistent with lax efforts to prevent environmental degradation in
many developing countries. Dispersed rest-of-world consumers are worse (better)
off due to dispersion when the flow benefit is positive (negative).
“Inefficient Sovereign
Defaults”, November 2007
(submitted, Review of
International Economics)
Many argue that financial crisis resolution should become more efficient
and opponents mainly emphasize the detrimental effects on incentives ex-ante of
greater efficiency ex-post. However, renegotiation theory suggests that debtors
should be able to “buy their way back to efficiency” ex-post and for this
privilege creditors can potentially charge them so much that ex-ante incentives
are not distorted. Thus, making crisis resolution efficient should be “reform
without losers” (Lau et al., 2000). We show, however, that creditors may not be
able to help themselves ex-post without also helping the debtor: even if the
debtor defaults it is still a high return country so efficiency warrants that
it receives a large capital inflow. This raises its welfare. Thus contracts
which cannot be renegotiated and cause a sure efficiency loss in case of
default can be efficient ex-ante.
“International Public Goods and Sovereign Debt”,
Revised December, 2007
(submitted, Environmental and Resource
Economics)
An obligation to pay for international public goods, such as a cooler
environment, can be equivalent to a rise in national debt because the country
is required to spend more than it prefers. The obligation can therefore strain
the country’s credit ceiling. We show in this paper that if the planned
financial debt plus the obligation to pay for the public good exceeds a
critical level there can be either defaults or financial investment
distortions. Defaults will raise the costs borne by countries which care for
the public good and investment distortions lower the gains to trade in capital.
In the financial distortions case the real cost of paying for the public
good could be substantially higher than
the direct cost. Since the lending market is competitive debtors bear the loss.
“Mistrusting
Strangers as a Social Norm”,
September 2007
We explain mistrust of
newcomers to a community as a second-best response to incomplete information
not about their character but the reasons why they came. This lack of
information implies that all newcomers must be treated as if they were known to
have been dishonest in social relationships in the past. However, newcomers can
eventually earn trust.
“Monopoly and
the Joneses”, September 2007
(under review,
Economics Letters)
This paper considers
keeping-up-with-the-Joneses sentiment among consumers in a standard monopoly
model. We show that although monopoly and pressure to live up to a reference
group both drive up the price level the monopoly may set the price below the
planner’s solution. On this background not surprisingly the welfare effects of
competition are ambiguous: while competition lowers prices it exacerbates the
Joneses externality. The perfect competition outcome is inefficient since only
the second effect remains.
“Intervention
under generalized moral hazard”, August 2007
(Revise and Resubmit, Ethnopolitics)
Recent literature suggests that well-intentioned third
party intervention in military conflict can lead to moral hazard by acting as a
subsidy to rebellion. In this paper we suggest (i) qualification and
generalization of this moral hazard argument, and (ii) a classification scheme
of potential conflicts in the world which can be used to derive the optimal
policy for intervention on a case-by-case basis. The optimal policy may be to
intervene at random since certainty in some cases will necessarily encourage
either the party who benefits from intervention or the opponent to attack. The
model also suggests that post-conflict aid and a siding-with-the-winner
approach may promote the incidence of conflicts even if it lowers the loss from
unavoidable conflicts
“Democracy,
Capital Flows, and Odious Debt”, August 2007
(under review, Journal of International Trade and Economic
Development)
This paper presents a model relating democracy, public and private
international capital flows, and odious debt. Democracy commits the ruler to
pass borrowed funds on to the private sector which builds the country’s
international collateral, and the consequent rise in the credit ceiling is a
Pareto-improvement up to a point because the ruler can appropriate a smaller
share of rising loan. However, the ruler may still impose odious debt in the
sense that, given democracy, the private sector prefers the country to borrow
less. Under conditions a fall in the world interest rate or a rise in
productivity growth increases the optimal level of democracy, borrowing,
investment, and welfare. The model fits the global trends toward democracy,
falling interest rates, and larger absolute and relative borrowing by the
private sector in non-developed countries since the debt crises of the early
1980s. We offer evidence from a global panel.
“Why do Majorities
Support Extremists?”, July 2007
We identify
four cases of collectively rational support by “moderate” agents for
“extremist” politicians. First, the posterior assessment of the unobservable
ability of a moderate after a low output realization may be worse than for an
extremist. Second, if economic conditions bring consumption close to a critical
lower bound, and the ability distribution for extremists has a relatively high
variance, then agents can gain from “gambling for resurrection”. Third,
interactions across societies or social groups may favor delegation to an
extremist leader. Fourth, some extremists may be less likely to reverse ax-ante
efficient reforms if they hurt a majority ex-post, or more likely to reverse
reforms if key ex-ante constituents are hurt and politically weakened ex-post.
By the last result, extremists can help to overcome ex-ante political
constraints to reform.
“Aid
and the Soft Budget Constraint”, June 2007
(Forthcoming, Review of Development Economics)
This paper applies the theory of the soft budget constraint to explain
some stylized facts regarding the outcomes and practice of international aid,
including ineffectiveness, white elephants, and volatility. The soft budget
constraint can also make aid counterproductive. Nonetheless, actual aid
institutions may be constrained optimal responses to the SBC problem and
commonly suggested reforms such as improved donor coordination, focus on fewer
countries and projects, and less volatility may lower the effectiveness of aid.
The SBC also predicts conservative project selection and is consistent with the
recent focus on “ownership”.
“Trust and Culture”,
April 2007/corrected proof September 2007
(under
review, International Game Theory Review)
This paper shows that
cultural diversity can promote trust by limiting the size of a population of
interacting agents. In a large homogenous population the quality of information
regarding the past behavior of other parties is low and consequently there is
no trust. However, in a diverse population individuals can choose only to
interact with and trust people from their own cultural group. The absence of
trust across cultural boundaries discourages cross-cultural encounters, raises
the quality of information on partners and justifies trust within the group.
However, while diversity enables trust the population scale of each group is
inefficiently small. Also, cultural boundaries must be enforced so that agents
can stay recognizably different. Such cultural boundary enforcement is
consistent with norms against inter-cultural marriage and inter-group
hostilities.
“Public
Investment with Insecure Public Property Rights”, December 2006
A group of agents in government receives
endowment income and can supply productive capital to another group every
period over the infinite horizon. The other group can employ its labor to
either produce or expropriate and can also transfer any produced output to the
ruling group. The paper characterizes the set of self-enforcing efficient
dynamic contracts when the endowment and output streams are stochastic. The
findings include (i) even narrowly controlled, self-interested governments who
cannot impose taxes on the rest of society may want to invest in expanding its
productive capacity, (ii) investment may be inefficiently small at first but
rises toward the efficient level if the contract is sustained, (iii) natural
resource or foreign aid income when the current period marginal cost of rent
seeking is low will not necessarily lead to equilibrium rent-seeking, (iv) the
ruling group may be forced to accept low or negative returns on public
investments, and (v) weak self-interested governments may lead to higher
growth than strong self-interested governments.
Courses Taught
Econ 4720: International Trade
Econ 5720: Advanced
International Trade
Econ 1010: Principles of Macroeconomics
MBAM/MBAX 5330: Advanced Managerial Economics/Global
Business Environment
Econ 4700: Economic Development
Econ 5300: Game Theory