New Economics Papers
on Collective Decision-Making
Issue of 2007‒07‒27
four papers chosen by

  1. Institutions and Behavior: Experimental Evidence on the Effects of Democracy By Pedro Dal Bo; Andrew Foster; Louis Putterman
  2. Social Welfare and Collective Goods Coercion in Public Economics By Stanley L. Winer; George Tridimas; Walter Hettich
  3. Conflicts of Interests Among Shareholders: The Case of Corporate Acquisitions By Jarrad Harford; Dirk Jenter; Kai Li
  4. Self-Insurance and Self-Protection as Public Goods By Lohse, Tim; Robledo, Julio R.; Schmidt, Ulrich

  1. By: Pedro Dal Bo; Andrew Foster; Louis Putterman
    Date: 2007
  2. By: Stanley L. Winer (Department of Economics, Carleton University); George Tridimas (School of Economics and Politics, University of Ulster); Walter Hettich
    Abstract: This paper develops and expanded framework for social planning in which coercion stemming from the provision of public goods is explicitly acknowledged. Key issues concern the precise definition of coercion, its difference from redistribtion, and its incorporation into social welfare optimization. The paper examines the implications for optimal policy, showing how the Samuelson condition, rules for optimal linear income taxation and commodity taxation, and for the marginal cost of public funds must be modified. In addition, the trade-off between social welface and coercion is mapped under specific conditions and the implications of this trade-off for normative policy choice are considered.
    JEL: D70 H10 H20 H21
    Date: 2007–01–27
  3. By: Jarrad Harford; Dirk Jenter; Kai Li
    Abstract: We identify important conflicts of interests among shareholders and examine their effects on corporate decisions. When a firm is considering an action that affects other firms in its shareholders' portfolios, shareholders with heterogeneous portfolios may disagree about whether to proceed. This effect is measurable and potentially large in the case of corporate acquisitions, where bidder shareholders with holdings in the target want management to maximize a weighted average of both firms' equity values. Empirically, we show that such cross-holdings are large for a significant group of institutional shareholders in the average acquisition and for a majority of institutional shareholders in a significant number of deals. We find evidence that managers consider cross-holdings when identifying potential targets and that they trade off cross-holdings with synergies when selecting them. Overall, we conclude that conflicts of interests among shareholders are sizeable and, at least in the case of acquisitions, affect managerial decisions.
    JEL: G30 G34
    Date: 2007–07
  4. By: Lohse, Tim; Robledo, Julio R.; Schmidt, Ulrich
    Abstract: Many public goods like lighthouses and fire departments do not provide direct utility but act as insurance devices against shipwreck and destruction. They either diminish the size and/or the probability of the loss. We extend the public good model with this insurance aspect and generalize Samuelson’s efficient allocation rule when self-insurance and self-protection expenditures are pure public goods. Some comparative static results with respect to changes in income and risk behavior are derived. We analyze the interaction of private market insurance with the public good level, both for efficient provision and for private provision equilibria. The privately provided levels of self- insurance and self-protection decrease when market insurance is available, which suggests that the state should invest more in preventing not insurable risks like wars. Additionally, the state should focus on self-protection expenditures if those are better observable than private self-protection effort.
    Keywords: Self-insurance, self-protection, efficient provision of public goods, private provision of public goods, market insurance
    JEL: G22 H41
    Date: 2007

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