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
Fertility and Social Divisions
Population growth may increase a social group’s redistributive power even as it decreases production per capita due to diminishing returns. I show this point in a simple production and conflict model and find a large and robust effect of ethnic divisions on fertility in cross-country data. The effect is much weaker in societies with strong institutions, however, consistent with smaller redistributive gains to fertility where the return to conflict is low. Empirical growth regressions suggest that the growth effect via increased fertility when moving from very low to very high ethnic diversity may be 1-1.5 percentage points.
Outsourcing
Democracy, September 2009
This paper asks if democracy can
be promoted by rewarding a political challenger for deposing the incumbent
elite unless it democratizes. I show that this policy raises the payoff to the
foreign party and is more credible compared to either paying the elite for
reforming or a passive policy. I explore the policy and its limitations in a
formal model and discuss if the policy could have been used in
International
Gross Capital Flows: A New Measure and Application to a Global Panel (with Daniel Riera-Crichton,
Santa Cruz Center for International Economics
Working Paper 09-08)
This paper presents a new measure of international gross
capital flows and applies it to a global panel from 1970 to 2004. We explain
why paying attention to the gross flows underlying net capital flows may be
important and how our gross flow measure differs from the standard measure in
the literature. For example, while by the standard measure a capital inflow
decline more than fully explains
Natural
Resource Extraction and Civil Conflict , May 2009
This paper relates resource
stocks and prices to resource extraction and fighting expenditure in
environments of civil conflict over the future control of the resource and
possibly an additional prize. This aims to capture some of the small scale
resource wars in weak state environments such as West and
Should Minorities be in Power?, June 2009
This paper presents a
framework to analyze minority control in institutionally weak and socially
polarized environments. I show that, theoretically, minority control compared
to majority control can either raise or lower inequality, economic inefficiency
and political instability. Despite the lack of democratic principles the ruling
group at any point in time is constrained by the risk of overthrow by the
excluded group and subsequent taxation. An extension suggests that resource
rents to the party in power are more likely to enhance efficiency and stability
if the revenue is destroyed in case of conflict than if it is not. Finally, a group may surrender its government
control because the transfers it would have to pay the other group to stay in
power exceed what it will be forced to pay out of power.
When can Lending Sanctions Improve Welfare?, January 2009
Lending sanctions may be an important foreign policy tool to prevent
rent extraction by abusive governments or wasteful competition for the spoils
of office. Furthermore, unlike trade sanctions, lending sanctions may be
self-enforcing (Jayachandran, S. and M Kremer, 2006. Odious Debt American
Economic Review 96, 1, March, 82-92). This paper, however, shows conditions
under which lending sanctions are unproductive, counter-productive, or not a
probable self-enforcing equilibrium in the sovereign credit market. As
Jayachandran and Kremer also point out, whether lending sanctions are desirable
should be evaluated on a case-by-case basis.
A Note on Strategic Extraction from
Intrinsically Valuable Resource Stocks
Stähler (1996) and Bulte and van Kooten (2002) show that a party who
controls a natural resource stock that benefits the rest of the world may
decrease the stock in order to raise the market price of conservation.
Therefore, Payments for Environmental Services can be counter-productive. This
note extends the literature by analyzing the effects of free-riding on the
demand side, exogenous inter-temporal price changes on the markets for the flow
and the stock, market power in the flow market, and conservation decisions made
via bargaining. I also show a Hotelling rule that incorporates the intrinsic
value of the stock.
Financial Integration, Technology and the Output-Volatility Trade-Off, revised November 2008
Much evidence and
models of recent financial crises suggests a negative output-volatility
correlation across countries. However, long run evidence and risk-adjusted
return maximization suggests a positive correlation. This paper suggests
that the evidence can be reconciled if technology regimes (broadly defined)
vary over time and countries: newer technologies have higher but also more
volatile payoffs and are adopted if the risk-return tradeoff is sufficiently
favorable (the profitability constraint) and the country can finance the fixed
adoption cost (the credit constraint). Financial integration or domestic
financial development loosens both constraints but, by promoting adoption, can
also make costly crises more frequent.
A Rational Choice Approach to Illiberal Democracy, revised July 2008
Many recent democracies have de-facto weak constraints on the
executive, fitting Zakaria’s (1997) definition of “illiberal democracy”. This
paper suggests, however, that the designers of a democracy may prefer to make
future leaders unaccountable and unconstrained (to an extent) once in office.
First, a strong leader can sustain economic reforms despite opposition after
the reforms are implemented or guarantee reversal if the reforms turn out to
hurt key ex-ante constituents. Second, delegation of power to a single,
self-interested party may be preferable to a Hobbesean anarchy among social
groups. Third, interactions with other countries can favor delegation to an
autonomous leader who can “stand up to foreigners”. Lastly, discretionary power
allows leaders to cause more extreme positive and negative systemic outcomes,
and if voters have an option to “exit the system” after a bad outcome they may
prefer more uncertainty. I suggest some anecdotal and, in one case, systematic
evidence.
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Inefficient Sovereign Defaults, Revised, November 2008
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.
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
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.
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.
Publications
Sticks and Carrots: Two Incentive Mechanisms Supporting Intra-Group Cooperation (with Jamus Jerome Lim), forthcoming, Economics Letters
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.
Trust and Culture, forthcoming, International Game Theory Review
Preprint of an article submitted for consideration in International Game Theory Review © 2008 copyright World Scientific Publishing Company http://www.worldscinet.com/igtr/igtr.shtml
Large populations can gain from economies of scale but lose internal trust due to diluted information. This creates an optimal group size. However, trusting strangers who claim to be members invites outsiders to disguise as insiders and abuse extended trust. Thus, if cultural diversity can raise the imitation cost it can promote cooperation. Even so, however, scale economies are lost when the population subdivides and the cultural boundaries may have to be enforced to prevent assimilation. The model is consistent with norms against inter-cultural marriage and episodic boundary-reinforcing conflict where formal institutions for contract enforcement are weak.
Interventions and Conflict Incentives, forthcoming, 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, forthcoming, 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.
Aid and the Soft Budget Constraint, 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”.
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