New Economics Papers
on Collective Decision-Making
Issue of 2006‒07‒15
ten papers chosen by

  1. Migration and the Welfare State: The Economic Power of the Non-Voter? By Kira Börner; Silke Uebelmesser
  2. The Political Economy of Corruption and the Role of Financial Institutions By Kira Boerner; Christa Hainz
  3. Corruption and Bureaucratic Structure in a Developing Economy By JOhn Bennett; Saul Estrin;
  4. Competition as a Socially Desirable Dilemma By Christoph Engel
  5. Local public goods in a democracy: Theory and evidence from rural India. By S. Gupta; Raghbendra Jha
  6. Businessman Candidates: Special-Interest Politics in Weakly Institutionalized Environments By Scott Gehlbach; Konstantin Sonin
  7. Can information campaigns spark local participation and improve outcomes ? A study of primary education in Uttar Pradesh, India By Khemani, Stuti; Glennerster, Rachel; Duflo, Esther; Banerji, Rukmini; Banerjee, Abhijit
  8. Veto-Based Delegation By Tymofiy Mylovanov
  9. Political Economy of Fiscal Institutions By Jürgen von Hagen
  10. Budget Processes: Theory and Experimental Evidence By Karl-Martin Ehrhart; Roy Gardner; Jürgen von Hagen; Claudia Keser

  1. By: Kira Börner (Department of Economics, University of Munich, Akademiestr. 1/III, 80799 Munich,; Silke Uebelmesser (Center for Economic Studies, Schackstr. 4, 80539 Munich,
    Abstract: This paper investigates the impact of emigration on the political choice regarding the size of the welfare state. Mobility has two countervailing effects: the political participation effect and the tax base effect. With emigration, the composition of the constituency changes. This increases the political influence of the less mobile part of the population. The new political majority has to take into account that emigration reduces tax revenues and thereby affects the feasible set of redistribution policies. The interaction of the two effects has so far not been analyzed in isolation. We find that the direction of the total effect of migration depends on the initial income distribution in the economy. Our results also contribute to the empirical debate on the validity of the median-voter approach for explaining the relation between income inequality and redistribution levels.
    Keywords: migration, redistribution, voting
    JEL: F22 H50 D31 D72
    Date: 2005–07
  2. By: Kira Boerner (Department of Economics, University of Munich, Gebelestr. 13, 81679 Munich, Tel: +49 89 980970, Fax: +49 89 2180 2767,; Christa Hainz (Department of Economics, University of Munich, Akademiestr. 1/III, 80799 Munich, Tel.: +49 89 2180 3232, Fax.: +49 89 2180 2767,
    Abstract: In many developing countries, we observe rather high levels of corruption. This is surprising from a political economy perspective, as the majority of people generally suffers from high corruption levels. We explain why citizens do not exert enough political pressure to reduce corruption if financial institutions are missing. Our model is based on the fact that corrupt officials have to pay entry fees to get lucrative positions. The mode of financing this entry fee determines the distribution of the rents from corruption. In a probabilistic voting model, we show that a lack of financial institutions can lead to more corruption as more voters are part of the corrupt system. Thus, the economic system has an effect on political outcomes. Well-functioning financial institutions, in turn, can increase the political support for anti-corruption measures.
    Keywords: Corruption, Financial Markets, Institutions, Development, Voting
    JEL: D73 D72 O17
    Date: 2006
  3. By: JOhn Bennett; Saul Estrin;
    Abstract: We address the impact of corruption in a developing economy in the context of an empirically relevant hold-up problem - when a foreign firm sinks an investment to provide infrastructure services. We focus on the structure of the economy’s bureaucracy, which can be centralized or decentralized, and characterize the ‘corruptibility’ of bureaucrats in each case. Results are explained in terms of the noninternalization, under decentralization, of the ‘bribe externality’ and the ‘price externality.’ In welfare terms, decentralization is favoured, relatively speaking, if the tax system is less inefficient, funding is less tight, bureaucrats are less venal, or compensation for expropriation is ungenerous.
    Keywords: Corruption, Bureaucratic Structure, Developing Economy
    JEL: D73 H11 H77
    Date: 2006–02–01
  4. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: A cartel is socially not desirable. But is it a normative problem? And has merger control reason to be concerned about tacit collusion? Neither is evident once one has seen that the members of a cartel face a problem of strategic interaction. It is routinely analysed in terms of game theory. Much less frequently, however, an obvious parallel is drawn. For cartel members, the formation of the cartel and cartel discipline are a public good. Making the parallel explicit is elucidating both at the theoretical and at the experimental levels. The paper contrasts oligopoly theory with public goods theory, and oligopoly experiments with public goods experiments.
    Keywords: Oligopoly, Public Good, Experiment
    JEL: C D D H K L L
    Date: 2006–05
  5. By: S. Gupta; Raghbendra Jha
    Abstract: This paper examines allocation of local public goods over jurisdictions (villages) with individuals with identical tastes and different incomes, in a model with democratic institutions and majority rule. The median voter (in income) in each jurisdiction determines the probability of re-election for the incumbent government. The jurisdiction with the median of these median voters is most favoured. With identical median voters in jurisdictions, and with re-election requiring less than 50mandate, jurisdictions with higher income inequality get favoured. Results from a survey data (from NCAER) on infrastructure provision in 1669 Indian villages confirm this hypothesis. Ethnic fragmentation does not affect public good provision but political fragmentation does. Finally, villages with the median population are the most favoured for public goods allocation. Sparsely populated and too densely populated villages are relatively neglected.
    Keywords: median voter, local public good, reservation utility
    JEL: H41 H72
    Date: 2006
  6. By: Scott Gehlbach; Konstantin Sonin
    Abstract: We initiate examination of the political boundaries of the firm by exploring the phenomenon of “businessman candidates”: business owners and managers who bypass conventional means of political influence to run for public office themselves. We argue that in-house production of political influence will be more likely in institutional environments where candidates find it difficult to make binding campaign promises. When campaign promises are binding, then a businessman may always pay a professional politician to run on the platform that political competition would otherwise compel the businessman to adopt. In contrast, when commitment to a campaign platform is impossible, then candidate identity matters for the policies that will be adopted ex post, implying that a businessman may choose to run for office if the stakes are sufficiently large. We illustrate our arguments through discussion of gubernatorial elections in postcommunist Russia, where businessmen frequently run for public office, institutions to encourage elected officials to keep their campaign promises are weak, and competition for rents is intense.
    Keywords: Businessman candidates, elections, citizen candidates, institutions, political economy
    JEL: D72 P16 P26 N40
    Date: 2004–12–01
  7. By: Khemani, Stuti; Glennerster, Rachel; Duflo, Esther; Banerji, Rukmini; Banerjee, Abhijit
    Abstract: There is a growing belief in development policy circles that participation by local communities in basic service delivery can promote development outcomes. A central plank of public policy for improving primary education services in India is the participation of village education committees (VECs), consisting of village government leaders, parents, and teachers. The authors report findings from a survey in the state of Uttar Pradesh, of public schools, households, and VEC members, on the status of education services and the extent of community participation in the public delivery of education services. They find that parents do not know that a VEC exists, sometimes even when they are supposed to be members of it; VEC members are unaware of even key roles they are empowered to play in education services; and public participation in improving education is negligible, and correspondingly, people ' s ranking of education on a list of village priorities is low. Large numbers of children in the villages have not acquired basi c competency in reading, writing, and arithmetic. Yet parents, teachers, and VEC members seem not to be fully aware of the scale of the problem, and seem not to have given much thought to the role of public agencies in improving outcomes. Learning failures coexist with public apathy to improving it through public action. Can local participation be sparked through grassroots campaigns that inform communities about the VEC and its role in local service delivery? Can such local participation actually affect learning outcomes, and can any impact be sustained? The authors describe information and advocacy campaigns that have been experimentally implemented to address some of the problems with local participation, and future research plans to evaluate their impact.
    Keywords: Primary Education,Education For All,Teaching and Learning,Tertiary Education,Access & Equity in Basic Education
    Date: 2006–07–01
  8. By: Tymofiy Mylovanov (Department of Economics, University of Bonn, Adenauerallee 24-42, 53113 Bonn.
    Abstract: In a principal-agent model with hidden information and no monetary transfers, I establish the Veto-Power Principle: any incentive-compatible outcome can be implemented through veto-based delegation with an endogenously chosen default decision. This result demonstrates the exact nature of commitment powers required by the principal: (1) to design the default outcome and (2) to ensure that she has almost no formal control over the agent's decisions.
    Keywords: veto power, asymmetric information, principal-agent relationship, no monetary transfers.
    JEL: D78 D82 L22 M54
    Date: 2004–10
  9. By: Jürgen von Hagen (ZEI, University of Bonn, Indiana University, and CEPR)
    Abstract: We discuss two essential problems of the political economy of public finances: The principal agent problem between voters and elected politicians and the common pool problem arising from the fact that money drawn from a general tax fund is used to pay for policies targeting more or less narrow groups in society. Three institutional mechanisms exist to deal with these problems, ex-ante rules controlling the behavior of elected policy makers, electoral rules creating accountability of and competition among policy makers, and budgeting processes internalizing the common pool externality. We review recent theoretical and empirical research and discuss its implications for research and institutional design.
    Keywords: electoral systems, fiscal rules, budgeting processes
    JEL: H11 H61 H62
    Date: 2005–11
  10. By: Karl-Martin Ehrhart (University of Karlsruhe); Roy Gardner (Indiana University and ZEI, University of Bonn); Jürgen von Hagen (University of Bonn, Indiana University, and CEPR); Claudia Keser (IBM T.J. Watson Research Center and CIRANO, Montreal)
    Abstract: This paper studies budget processes, both theoretically and experimentally. We compare the outcomes of bottom-up and top-down budget processes. It is often presumed that a top-down budget process leads to a smaller overall budget than a bottom-up budget process. Ferejohn and Krehbiel (1987) showed theoretically that this need not be the case. We test experimentally the theoretical predictions of their work. The evidence from these experiments lends strong support to their theory, both at the aggregate and the individual subject level.
    Keywords: Budget processes, voting equilibrium, experimental economics
    JEL: H61 C91 C92
    Date: 2006–04

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