New Economics Papers
on Collective Decision-Making
Issue of 2006‒10‒07
twelve papers chosen by

  1. Time Consistency and Bureaucratic Budget Competition By Sebastian Kessing; Kai A. Konrad
  2. The Samaritan’s Dilemma and public health insurance By Facundo Sepulveda
  3. Political Polarization and the Electoral Effects of Media Bias By Dan Bernhardt; Stefan Krasa; Mattias Polborn
  4. Stability and Manipulation in Representative Democracies By Sebastian Bervoets; Vincent Merlin
  5. Is There a Free-Market Economist in the House? The Policy Views of American Economic Association Members By Stern, Charlotta; Klein, Daniel B.
  6. The Impact of Referendums on the Centralisation of Public Goods Provision: A Political Economy Approach By Jan Schnellenbach; Lars P. Feld; Christoph A. Schaltegger
  7. Institution Formation in Public Goods Games By Michael Kosfeld; Akira Okada; Arno Riedl
  8. Strategy-Proof Coalition Formation By Carmelo Rodríguez Álvarez
  9. When and Why? A Critical Survey on Coordination Failure in the Laboratory By Giovanna Devetag; Andreas Ortmann
  10. Does democracy cure a resource curse? By Korhonen, Iikka
  11. Existence, Uniqueness and Some Comparative Statics for Ratio- and Lindahl Equilibria: New Wine in Old Bottles By Wolfgang Buchholz; Richard Cornes; Wolfgang Peters
  12. Eliciting Socially Optimal Rankings from Unfair Jurors By Pablo Amorós

  1. By: Sebastian Kessing; Kai A. Konrad
    Abstract: High employment protection in the public sector results in strategic over-employment if government divisions compete for budgets in a dynamic setting. Bureaucrats who are interested in maximising their divisions’ output employ excess labor, since this induces the sponsor to provide complementary inputs in the future. Restrictions on hiring decisions in the public sector can be regarded as provisions to reduce strategic hiring. We also provide evidence from a survey of decision makers in a public sector bureaucracy with very high employment protection. The results confirm that decision makers are aware of the strategic effects of their hiring decisions on budget allocation.
    Keywords: bureaucratic competition, time consistency, labor intensity, public sector
    JEL: H11 H61 H83
    Date: 2006
  2. By: Facundo Sepulveda
    Abstract: When the government cannot commit to withdraw from providing charity health care, as is the case when it faces the Samaritan's Dilemma, a pub- lic health insurance scheme can be Pareto improving. However, the large heterogeneity in the design of such schemes observed around the world begs the question of what characterizes the optimal public health insurance plan. In this paper, we examine the distortions created by three plans, nested in terms of the constraints they place on the individual's decision problem. We ¯nd that linking public health insurance bene¯ts to the use of a certain type of health care, such as treatment in public hospitals, creates incentives against the e±cient use of higher quality health care. When such constraint is lifted, but the public insurance scheme still determines a minimum level of coverage for each illness, ¯rst best e±ciency is achieved. It turns out that placing constraints in the form of minimum levels of coverage for each illness is necessary for e±ciency. Removing such constraint decreases the relative price of high quality care for a subset of illnesses, and leads to too much high quality care used in equilibrium. This analysis suggests that the widespread practice of determining illness by illness coverage in public health insurance systems has an e±ciency rationale, despite the administrative and informational di±culties that it entails.
    Keywords: Samaritan's Dilemma, Health insurance.
    JEL: H21 I18
    Date: 2006–09
  3. By: Dan Bernhardt; Stefan Krasa; Mattias Polborn
    Abstract: Many political commentators diagnose an increasing polarization of the U.S. electorate into two opposing camps. However, in standard spatial voting models, changes in the political preference distribution are irrelevant as long as the position of the median voter does not change. We show that media bias provides a mechanism through which political polarization can affect electoral outcomes. In our model, media firms’ profits depend on their audience rating. Maximizing profits may involve catering to a partisan audience by slanting the news. While voters are rational, understand the nature of the news suppression bias and update appropriately, important information is lost through bias, potentially resulting in inefficient electoral outcomes. We show that polarization increases the profitability of slanting news, thereby raising the likelihood of electoral mistakes. We also show that, if media are biased, then there are some news realizations such that the electorate appears more polarized to an outside observer, even if citizens’ policy preferences do not change.
    Keywords: media bias, polarization, information aggregation, democracy
    JEL: D72 D80
    Date: 2006
  4. By: Sebastian Bervoets; Vincent Merlin
    Abstract: This paper is devoted to the analysis of all constitutions equipped with electoral systems involving two step procedures. First, one candidate is elected in every jurisdiction by the electors in that jurisdiction, according to some aggregation procedure. Second, another aggregation procedure collects the names of the jurisdictional winners in order to designate the final winner. It appears that whenever individuals are allowed to change jurisdiction when casting their ballot, they are able to manipulate the result of the election except in very few cases. When imposing a paretian condition on every jurisdiction?s voting rule, it is shown that, in the case of any finite number of candidates, any two steps voting rule that is not manipulable by movement of the electors necessarily gives to every voter the power of overruling the unanimity on its own. A characterization of the set of these rules is next provided in the case of two candidates.
    Keywords: Gerrymandering, manipulation, two-tiers voting systems
    JEL: D71 D72
    Date: 2006–09–24
  5. By: Stern, Charlotta (Swedish Institute for Social Research, Stockholm University); Klein, Daniel B. (George Mason University, USA, (and Ratio Institute, Stockholm).)
    Abstract: People often suppose or imply that free-market economists constitute a significant portion of all economists. We surveyed American Economic Association members and asked their views on 18 specific forms of government activism. We find that about 8 percent of AEA members can be considered supporters of free-market principles, and that less than 3 percent may be called strong supporters. The data is broken down by voting behavior (Democratic or Republican). Even the average Republican AEA member is “middle-of-the-road,” not free-market. We offer several possible explanations of the apparent difference between actual and attributed views.
    Keywords: -
    Date: 2006–04–02
  6. By: Jan Schnellenbach; Lars P. Feld; Christoph A. Schaltegger
    Abstract: The paper compares decision-making on the centralisation of public goods provision in the presence of regional externalities under representative and direct democratic institutions. A model with two regions, two public goods and regional spillovers is developed in which uncertainty over the true preferences of candidates makes strategic delegation impossible. Instead, it is shown that the existence of rent extraction by delegates alone suffices to make cooperative centralisation more likely through representative democracy. In the non-cooperative case, the more extensive possibilities for institutional design under representative democracy increase the likelihood of centralisation. Direct democracy may thus be interpreted as a federalism-preserving institution.
    Keywords: centralisation, direct democracy, representative democracy, public good provision
    JEL: D78 H73 H77
    Date: 2006
  7. By: Michael Kosfeld; Akira Okada; Arno Riedl
    Abstract: Centralized sanctioning institutions are of utmost importance for overcoming free-riding tendencies and enforcing outcomes that maximize group welfare in social dilemma situations. However, little is known about how such institutions come into existence. In this paper we investigate, both theoretically and experimentally, the endogenous formation of institutions in a public goods game. Our theoretical analysis shows that players may form sanctioning institutions in equilibrium, including those where institutions govern only a subset of players. The experiment confirms that institutions are formed frequently as well as that institution formation has a positive impact on cooperation rates and group welfare. However, the data clearly reveal that players are unwilling to implement institutions in which some players have the opportunity to free ride. In sum, our results show that individuals are willing and able to create sanctioning institutions, but that the institution formation process is guided by behavioral principles not taken into account by standard theory.
    Keywords: public goods, institutions, sanctions, cooperation
    JEL: C72 C92 D72
    Date: 2006
  8. By: Carmelo Rodríguez Álvarez (Universidad de Málaga)
    Abstract: We analyze coalition formation problems in which a group of agents is partitioned into coalitions and agents' preferences only depend on the coalition they belong to. We study rules that associate to each profile of agents' preferences a partition of the society. We focus on strategy-proof rules on restricted domains of preferences, as the domains of additively representable or separable preferences. In such domains, the only strategy-proof and individually rational rules that satisfy either Pareto efficiency or non-bossiness and flexibility are single-lapping rules. Single-lapping rules are characterized by severe restrictions on the set of feasible coalitions that are consisitent with hierarchical organizations. These restrictions are necessary and sufficient for the existence of a unique core-stable partition. This fact implies that single-lapping rules always select the associated unique core-stable partition. Thus, our results highlight the relation between the non-cooperative concept of strategy-proofness and the cooperative concept of uniqueness of core-stable partitions.
    Keywords: Coalition Formation; Strategy-Proofness; Single-Lapping Property; Core-Stability; Matching Problems.
    JEL: C71 C78 D71
    Date: 2006
  9. By: Giovanna Devetag; Andreas Ortmann
    Abstract: Coordination games with Pareto-ranked equilibria have attracted major theoretical attention over the past two decades. Two early path-breaking sets of experimental studies were widely interpreted as suggesting that coordination failure is a common phenomenon in the laboratory. We identify the major determinants that seem to affect the incidence, and/or emergence, of coordination failure in the lab and review critically the existing experimental studies on coordination games with Pareto-ranked equilibria since that early evidence emerged. We conclude that coordination failure is likely to be the exception rather than the rule, both in the lab and outside of it.
    Keywords: Coordination games, Pareto-ranked equilibria, Payoff-asymmetric equilibria, Stag-hunt games, Optimization incentives, Robustness, Coordination, Coordination failure
    JEL: C72 C92
    Date: 2006–09
  10. By: Korhonen, Iikka (BOFIT)
    Abstract: In this paper we utilise a large and reasonably detailed dataset to show that a greater level of democracy in a country's political institutions can alleviate the widely known resource curse. Raw material abundance affects per capita growth negatively, an effect that seems to work through several different channels. Resource-abundant countries have a lower degree of democracy and political rights, and also a lower level of educational attainment. These factors inhibit growth. On the other hand, countries with large extractive industries exhibit high levels of investment. The effects of resource abundance differ for different raw material types, and the largest negative effect on growth appears to come from non-fuel extractive raw materials.
    Keywords: economic growth; resource curse; cross-country regression; development; governance; institutions
    Date: 2004–11–01
  11. By: Wolfgang Buchholz; Richard Cornes; Wolfgang Peters
    Abstract: We present a rigorous, yet elementary, demonstration of the existence of a unique Lindahl equilibrium under the assumptions that characterize the standard n-player public good model. Indeed, our approach, which exploits the aggregative structure of the public good model, lends itself to a transparent geometric representation. Moreover, it can handle the more general concept of the cost-share or ratio equilibrium. Finally, we indicate how it may be ex-ploited to facilitate comparative static analysis of Lindahl and cost share equilibria.
    Keywords: public goods, Lindahl equilibrium, ratio equilibrium
    JEL: H41
    Date: 2006
  12. By: Pablo Amorós (Universidad de Málaga)
    Abstract: A jury must provide a ranking of contestants (students applying for scholarships or Ph. D. programs, gymnasts in a competition, etc.). There exists a true ranking which is common knowledge among the jurors, but it is not verifiable. The socially optimal rule is that the contestants be ranked according to the true ranking. The jurors are not impartial and, for example, may have friends (contestants that they would like to benefit) and enemies (contestants that they would like to prejudice). We study necessary and sufficient conditions on the jury under which the socially optimal rule is Nash implementable. We also propose a simple mechanism that Nash implements the socially optimal rule under these conditions.
    Keywords: Ranking of contestants; Implementation Theory; Nash Equilibrium
    JEL: C70 D78
    Date: 2006

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