New Economics Papers
on Collective Decision-Making
Issue of 2006‒11‒12
eight papers chosen by

  1. Nash implementable domains for the Borda count By Puppe, Clemens; Tasnádi, Attila
  2. Political orientation of government and stock market returns By Bialkowski, Jedrzej; Gottschalk, Katrin; Wisniewski, Tomasz
  3. Approximate implementation of Relative Utilitarianism via Groves-Clarke pivotal voting with virtual money By Pivato, Marcus
  4. Externalities, Social Pressures, and Political Parties By Amihai Glazer
  5. Stock market volatiltity around national elections By Bialkowski, Jedrzej; Gottschalk, Katrin; Wisniewski, Tomasz
  6. Up methods in the allocation of indivisibilities when preferences are single-peaked. By Carmen Herrero; Ricardo Martinez
  7. Belief merging and revision under social influence: An explanation for the volatility clustering puzzle By Siddiqi, Hammad
  8. Regional welfare weights By Erhun KULA

  1. By: Puppe, Clemens; Tasnádi, Attila
    Abstract: We characterize the preference domains on which the Borda count satisfies Maskin monotonicity. The basic concept is the notion of a "cyclic permutation domain" which arises by fixing one particular ordering of alternatives and including all its cyclic permutations. The cyclic permutation domains are exactly the maximal domains on which the Borda count is strategy-proof (when combined with every tie breaking rule). It turns out that the Borda count is monotonic on a larger class of domains. We show that the maximal domains on which the Borda count satisfies Maskin monotonicity are the "cyclically nested permutation domains." These are the preference domains which can be obtained from the cyclic permutation domains in an appropriate recursive way.
    Keywords: Maskin monotonicity; Borda count; restricted preference domains
    JEL: D71
    Date: 2006–11–07
  2. By: Bialkowski, Jedrzej; Gottschalk, Katrin; Wisniewski, Tomasz
    Abstract: Prior research documented that U.S. stock prices tend to grow faster during Democratic administrations than during Republican administrations. This letter examines whether stock returns in other countries also depend on the political orientation of the incumbents. An analysis of 24 stock markets and 173 different governments reveals that there are no statistically significant differences in returns between left-wing and right-wing executives. Consequently, international investment strategies based on the political orientation of countries' leadership are likely to be futile.
    Keywords: Stock market returns; Politics; Presidential puzzle
    JEL: G14 G11 G15
    Date: 2006–07
  3. By: Pivato, Marcus
    Abstract: `Relative Utilitarianism' (RU) is a version of classical utilitarianism, where each person's utility function is rescaled to range from zero to one. As a voting system, RU is vulnerable to preference exaggeration by strategic voters. The Groves-Clarke Pivotal Mechanism elicits truthful revelation of preferences by requiring each voter to `bid' a sum of real money to cast a pivotal vote. However, this neglects wealth effects and gives disproportionate power to rich voters. We propose a variant of the Pivotal Mechanism using fixed allotments of notional `voting money'; this `Voting Money Pivotal Mechanism' (VMPM) is politically egalitarian and immune to wealth effects. In the large-population limit, the only admissible (i.e. weakly undominated) voting strategies in the VMPM are approximately truthful revelations of preferences; thus the VMPM yields an arbitrarily close approximation of RU.
    Keywords: Relative Utilitarianism; Groves-Clarke; pivotal mechanism; demand-revealing mechanism; voting dollars; point voting
    JEL: D71 D63
    Date: 2006–10–30
  4. By: Amihai Glazer (Department of Economics, University of California-Irvine)
    Abstract: Members of political parties talk to each other often, and may thereby influence each other. For example, a liberal in a party of moderates may moderate his views. At the same time, the moderates in the party may become more sympathetic to liberal views. Voters in a district may favor such effects if they care about the ideology of officeholders in other districts. They may therefore prefer a candidate who affiliates with a party over an independent with the same position.
    Date: 2006–10
  5. By: Bialkowski, Jedrzej; Gottschalk, Katrin; Wisniewski, Tomasz
    Abstract: This paper investigates a sample of 27 OECD countries to test whether national elections induce higher stock market volatility. It is found that the country-specific component of index return variance can easily double during the week around an Election Day, which shows that investors are surprised by the election outcome. Several factors, such as a narrow margin of victory, lack of compulsory voting laws, change in the political orientation of the government, or the failure to form a coalition with a majority of seats in parliament significantly contribute to the magnitude of the election shock. Our findings have important implications for the optimal strategies of risk-averse stock market investors and participants of the option markets.
    Keywords: Political risk; National elections; Stock market volatility
    JEL: G12 G14 G11
    Date: 2006–01
  6. By: Carmen Herrero (Department of Economics, Universidad de Alicante); Ricardo Martinez (Department of Economics, Universidad de Alicante & Department of Economics, Universidad Pablo de Olavide)
    Abstract: We consider allocation problems with indivisible goods when agents' preferences are single-peaked. We propose natural rules (called up methods) to solve such a class of problems. We analyzed the properties those methods satisfy and we provide a characterization of them. We also prove that these methods can be interpreted as extensions to the indivisible case of the so-called equal-distance rule.
    Keywords: Allocation problem, indivisibilities, single-peaked preferences, standard of comparison, up method.
    JEL: D61 D63 D74
    Date: 2006–11
  7. By: Siddiqi, Hammad
    Abstract: A share price in a stock market can be thought of as arising out of an aggregation procedure. The price of a stock aggregates many individual beliefs into a collective one, the collective will of the market, so to speak. How does this aggregation come about? And is this aggregation fair in the sense that it correctly reflects the value? Furthermore,in the context of a stock market, it becomes immediately clear that belief merging cannot be separated from belief revision since investors in the market have a direct stake in what others think and clearly find it optimal to revise their beliefs in the light of the information about what others believe. We show that if investors are revising their beliefs not only after receiving new exogenous information but also after their social interactions with other investors and these revised beliefs are getting merged to generate the stock price under the accepted principles of finance (no arbitrage) then the resulting price dynamics explain a long standing puzzle in finance, the volatility clustering puzzle.
    Keywords: Volatility clustering; Social influence; Agent based simulation; Anomaly
    JEL: G1
    Date: 2006–08
  8. By: Erhun KULA
    Abstract: Pareto welfare criterion based on people’s willingness to pay for a project’s output is regarded by many as a narrow interpretation of improvement in social well-being. A broader opinion is that even though poorer individuals may be less able to pay for a particular benefit, they may obtain greater utility from it. In line with the broader opinion, this paper looks at country based welfare weights in the European Union with a special emphasis on relatively poor countries who became members recently. Welfare weights now have a high policy profile in the European Union in relation to distribution of funds between member and member to be countries. They can also be used in cost-benefit analysis to give priority to infrastructure projects in underprivileged areas
    Keywords: Cost-Benefit Analysis, Regional welfare weights, Income Distribution, EU Structural Funds
    JEL: D61 D70 R10 R50
    Date: 2006–10

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