New Economics Papers
on Collective Decision-Making
Issue of 2006‒08‒12
five papers chosen by

  1. Consensual and Conflictual Democratization By Matteo Cervellati; Piergiuseppe Fortunato; Uwe Sunde
  2. A Reputational Theory of Two Party Competition By Tasos Kalandrakis
  3. Roll Call Data and Ideal Points By Tasos Kalandrakis
  4. Sustainable recursive social welfare functions By Asheim, Geir B.; Mitra, Tapan; Tungodden, Bertil
  5. Public Goods and Budget Deficit By Abraham Neyman; Tim Russo

  1. By: Matteo Cervellati (University of Bologna, IAE Barcelona and IZA Bonn); Piergiuseppe Fortunato (University of Bologna); Uwe Sunde (IZA Bonn and University of Bonn)
    Abstract: We study the process of endogenous democratization from inefficient oligarchic systems in an economy where heterogeneous individuals can get involved in predation activities. The features of democracies are shown to be crucially related to the conditions under which democratization initially takes place. The political regime and the extent of redistribution implemented under it depend on the allocation of de facto political power across the different social groups. The cost of public enforcement of property rights depends on the extent of predation activities in the economy. The theory highlights the importance of inequality in natural resources and availability of human capital for endogenous democratic transitions. Multiple politico-economic equilibria can be sustained conditional on expectations about property rights enforcement. This generates history dependence. Democratic transitions supported by a large consensus serve as coordination device and lead to better protection of property and more stable political systems than democratic transitions imposed in conflictual environments. We test the novel predictions using available cross-country data. The link between the type of democratic transition and the outcomes under democracy is also investigated using novel data on constitutional principles. The findings support the theoretical predictions.
    Keywords: democratization, oligarchy, conflict, consensual democracy, inequality, commitment, constitutional principles
    JEL: H10 O20 N10
    Date: 2006–07
  2. By: Tasos Kalandrakis (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158)
    Abstract: We propose a reputational theory of two-party competition. We model the interaction of parties and the electorate as a stochastic game of incomplete information. The parties’ preferred policies (moderate or extreme) are possibly revealed to the electorate only via their policy choices while in government, and partisan preferences change with positive probability following defeat in elections. Due to inertia within party organizations, party preferences display positive serial correlation. When partisans care sufficiently about office, extreme policies are pursued with positive probability by the government only when the ruling party is perceived relatively more extreme than the opposition. In equilibrium such policies occur when (a) both parties are perceived to be more extreme than a long-run benchmark level, and (b) neither party holds a significant advantage regarding its perceived extremism by the electorate. Equilibrium dynamics produce two qualitatively different adjustment paths: one exhibits polarized politics such that there is positive probability of non-moderate policies in the future for a protracted period of time; the other possible adjustment path produces moderation with probability one in all periods. Both adjustment paths are such that one of the two parties (possibly different over time) may win successive elections with high probability in equilibrium.
    Keywords: Parliamentary Dynamics, Reputation, Westminster.
    Date: 2006–08
  3. By: Tasos Kalandrakis (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158)
    Abstract: We show that, in the absence of symmetry or other parametric restrictions on legislators’ utility functions, roll call voting records cannot be used to estimate legislators’ ideal points unless we complement these data with information on the location of the alternatives being voted upon by the legislature. Without such additional information, the roll-call data cannot differentiate between distinct, arbitrary, sets of ideal points for the legislators no matter how large the roll call record or how low the number of policy dimensions. On the other hand, when the location of voting alternatives is known, we derive simple testable restrictions on the location of legislators’ ideal points from the roll call data.
    Keywords: Ideal Point Estimation, Rationalizable Choice, Roll Call Voting Record.
    JEL: D7 D11
    Date: 2006–08
  4. By: Asheim, Geir B. (Dept. of Economics, University of Oslo); Mitra, Tapan (Department of Economics, Cornell University); Tungodden, Bertil (Department of Economics, Norwegian School of Economics and Business Administration and Chr. Michelsen Institute,)
    Abstract: Koopmans’s (Econometrica 28, 287–309) axiomatization of discounted utilitarianism is based on seemingly compelling conditions, yet this criterion leads to hard-to-justify outcomes. The present analysis considers a class of sustainable recursive social welfare functions within Koopmans’s general framework. This class is axiomatized by means of a weak new equity condition (“Hammond Equity for the Future”) and general existence is established. Any member of the class satisfies the key axioms of Chichilnisky’s (Social Choice and Welfare 13, 231–257) “sustainable preferences”. The analysis singles out one of Koopmans’s original conditions as particularly questionable from an ethical perspective.
    Keywords: Intergenerational justice; sustainability; discounted utilitarianism
    JEL: D63 D71 Q01
    Date: 2006–07–10
  5. By: Abraham Neyman; Tim Russo
    Abstract: We examine incentive-compatible mechanisms for fair financing and efficient selection of a public budget (or public good). A mechanism selects the level of the public budget and imposes taxes on individuals. Individuals’ preferences are quasilinear. Fairness is expressed as weak monotonicity (called scale monotonicity) of the tax imposed on an individual as a function of his benefit from an increased level of the public budget. Efficiency is expressed as selection of a Pareto-optimal level of the public budget. The budget deficit is the difference between the public budget and the total amount of taxes collected from the individuals. We show that any efficient scale-monotonic and incentive-compatible mechanism may generate a budget deficit. Moreover, it is impossible to collect taxes that always cover a fixed small fraction of the total cost.
    Date: 2006–06

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