Cheap talk games have been widely used to analyze situations in which a policy maker needs expert advice. In previous work, agent uncertainty has almost always been modeled using a single-dimensional state variable. In this paper we prove that the dimensionality of the uncertain variable has an important qualitative impact on results and yields interesting insights into the \mechanics" of information transmission. Contrary to the unidimensional case, with more than one dimension full transmission of information in all states of nature is typically possible, provided a very simple and intuitive condition is satis¯ed. What really matters in transmission of information is the local behavior senders' indi®erence curves at the ideal point of the policy maker (receiver), not the proximity of players' ideal point. This may explain the apparent con°ict between informational theories of committees and the empirical evidence on the poor alignment of preferences between the Floor and committees in legislative organizations.

To study how a firm can capitalize on a long-term customer relationship, we characterize the optimal contract between a monopolist and a consumer whose preferences follow a Markov process. The optimal contract is nonstationary and has infinite memory, but is described by a simple state variable. Under general conditions, supply converges to the efficient level for any degree of persistence of the types and along any history, though convergence is history-dependent. In contrast, as with constant types, the optimal contract can be renegotiation-proof, even with highly persistent types. These properties provide insights into the optimal ownership structure of the production technology.

This paper presents a dynamic political economy theory of public spending, taxation and debt. Policy choices are made by a legislature consisting of representatives elected by geographically-defined districts. The legislature can raise revenues via a distortionary income tax and by borrowing. These revenues can be used to finance a national public good and district-specific transfers (interpreted as pork-barrel spending). The value of the public good is stochastic, reflecting shocks such as wars or natural disasters. In equilibrium, policy-making cycles between two distinct regimes: "business-as-usual" in which legislators bargain over the allocation of pork, and "responsible-policy-making" in which policies maximize the collective good. Transitions between the two regimes are brought about by shocks in the value of the public good. In the long run, equilibrium tax rates are too high and too volatile, public good provision is too low and debt levels are too high. In some environments, a balanced budget requirement can improve citizen welfare.

This paper presents a dynamic political economy theory of public spending, taxation and debt. Policy choices are made by a legislature consisting of representatives elected by geographically-defined districts. The legislature can raise revenues via a distortionary income tax and by borrowing. These revenues can be used to finance a national public good and district-specific transfers (interpreted as pork-barrel spending). The value of the public good is stochastic, reflecting shocks such as wars or natural disasters. In equilibrium, policy-making cycles between two distinct regimes: "business-as-usual" in which legislators bargain over the allocation of pork, and "responsible-policy-making" in which policies maximize the collective good. Transitions between the two regimes are brought about by shocks in the value of the public good. In the long run, equilibrium tax rates are too high and too volatile, public good provision is too low and debt levels are too high. In some environments, a balanced budget requirement can improve citizen welfare.

This paper reports the first laboratory study of the swing voter's curse and provides insights on the larger theoretical and empirical literature on "pivotal voter" models. Our experiment controls for different information levels of voters, as well as the size of the electorate, the distribution of preferences and other theoretically relevant parameters. The design varies the share of partisan voters and the prior belief about a payoff relevant state of the world. Our results support the equilibrium predictions of the Feddersen-Pesendorfer model. The voters act as if they are aware of the swing voter's curse and adjust their behaviour to compensate. While the compensation is not complete and there is some heterogeneity in individual behaviour, we find that aggregate outcomes, such as efficiency, turnout and margin of victory, closely track the theoretical predictions. Copyright © 2009 The Review of Economic Studies Limited.