New Economics Papers
on Collective Decision-Making
Issue of 2007‒09‒02
nine papers chosen by

  1. To Segregate or to Integrate: Education Politics and Democracy By David de la Croix; Matthias Doepke
  2. How does Club's Organizational Design Affect Competition Among Clubs? By Prufer, J.; Walz, U.
  3. Information Acquisition in Committees By Dino Gerardi; Leeat Yariv
  4. Democratic Nature of Urban Development in Groningen in the 1980s - PTT, Brink, Casino and Museum By Shinji Tsubohara
  5. Determinants of Interest Group Formation By Bonnie Wilson; Dennis Coates; Jac Heckelman
  6. Political Stasis or Protectionist Rut? Policy Mechanisms for Trade Reform in a Democracy By Blanchard, Emily; Willmann, Gerald
  7. Are All Democracies Equally Good? The Role of Interactions between Political Environment and Inequality for Rule of Law By Uwe Sunde; Matteo Cervellati; Piergiuseppe Fortunato
  8. Individual-Level Loss Aversion in Riskless and Risky Choices By Simon Gächter; Eric J. Johnson; Andreas Herrmann
  9. Delegation with multiple instruments in a rent-seeking contest By Schoonbeek, Lambert

  1. By: David de la Croix (CORE, Catholic University of Louvain); Matthias Doepke (University of California, Los Angeles, CEPR, NBER and IZA)
    Abstract: The governments of nearly all countries are major providers of primary and secondary education to their citizens. In some countries, however, public schools coexist with private schools, while in others the government is the sole provider of education. In this study, we ask why different societies make different choices regarding the mix of private and public schooling. We develop a theory which integrates private education and fertility decisions with voting on public schooling expenditures. In a given political environment, high income inequality leads to more private education, as rich people opt out of the public system. More private education, in turn, results in an improved quality of public education, because public spending can be concentrated on fewer students. Comparing across political systems, we find that concentration of political power can lead to multiple equilibria in the determination of public education spending. The main predictions of the theory are consistent with state-level and micro data from the United States as well as cross-country evidence from the PISA study.
    Keywords: public education, private education, voting, democracy
    JEL: D72 I21 H42 O10
    Date: 2007–08
  2. By: Prufer, J.; Walz, U. (Tilburg University, Center for Economic Research)
    Abstract: We analyze competition among clubs in which the status of club members is the crucial added value accruing to fellow club members through social interaction within the club (e.g. in country clubs, academic faculties, or internet communities). In the course of competition for new members, clubs trade off the effect of entry on average status of the club and candidates? monetary payment via an entrance fee. We show that the best candidates join the best clubs but they pay higher entrance fees than some lowerranking candidates. We distinguish among various decision rules and organizational set-ups, including majority voting, unanimity, and meritocracy. We find that, from a second-best welfare perspective, the unanimity rule leads to inefficient exclusion of some candidates, while meritocracy leads to inefficient inclusion. Our main policy implication is that consensus-based clubs, such as many academic faculties in Europe, could improve the well-being of their members if they liberalized their internal decision making processes.
    Keywords: club theory;status organizations;design of decision making;collective action
    JEL: D71 L22 L31
    Date: 2007
  3. By: Dino Gerardi (Cowles Foundation, Yale University); Leeat Yariv (CalTec)
    Abstract: The goal of this paper is to illustrate the significance of information acquisition in mechanism design. We provide a stark example of a mechanism design problem in a collective choice environment with information acquisition. We concentrate on committees that are comprised of agents sharing a common goal and having a joint task. Members of the committee decide whether to acquire costly information or not at the outset and are then asked to report their private information. The designer can choose the size of the committee, as well as the procedure by which it selects the collective choice, i.e., the correspondence between agents’ reports and distributions over collective choices. We show that the ex-ante optimal device may be ex-post inefficient, i.e., lead to suboptimal aggregation of information from a statistical point of view. For particular classes of parameters, we describe the full structure of the optimal mechanisms.
    Keywords: Collective choice, Mechanism design, Information acquisition
    JEL: D71 D72 D78
    Date: 2007–05
  4. By: Shinji Tsubohara (Groningen University)
    Abstract: Abstract It is essential for democracy that political parties should act within their promulgated policy frameworks, which are formally represented in election programmes. If political parties deviate from this principle, the election would lose its meaning, jeopardising democracy. In this respect, planning in Groningen in the 1970s, which realised progressive plans like the traffic circulation plan, was democratic, although it was criticised for lacking public participation. However, planning in the 1980s casts serious doubt on its democratic nature. Various large-scale projects were promoted, and they caused harsh criticism even within the government party, Labour Party. This paper focuses on four projects, that is, the PTT (office development), Brink (residential towers), Casino and Museum, all of which were planned in or next to the inner city of Groningen in the 1980s. This paper will examine these projects in terms of the policy frameworks of the Labour Party, which were created in the 1970s. These projects brought about drastic change of historical landscape, and were clearly contrary to the party frameworks or those measures that were introduced to guarantee the frameworks, such as the local land use plan. As a result, they gave rise to not only strong opposition among citizens, but also criticism of party members who still cherished those party frameworks.
    Date: 2006
  5. By: Bonnie Wilson (Department of Economics, Saint Louis University); Dennis Coates (Department of Economics, University of Maryland Baltimore County); Jac Heckelman (Department of Economics, Wake Forest University)
    Abstract: It is widely recognized that interest groups affect both microeconomic and macroeconomic outcomes. However, few researchers have attempted to discern empirically the factors that contribute to interest group activity. This paper provides a test of several theories of group formation in a panel setting. A nation’s stability, socioeconomic development, political system, size, and diversity all appear to contribute to interest group formation, as predicted by theory.
    Keywords: special interest groups, institutional sclerosis, stock returns, volatility
    JEL: D7 G1 G2 L5 O16
    Date: 2007–06
  6. By: Blanchard, Emily; Willmann, Gerald
    Abstract: This paper analyzes the dynamics of trade policy reform under democracy. In an overlapping generations model, heterogeneous agents may acquire skills when young, thereby determining the skill composition of their cohort. Current and anticipated trade policies influence education decisions, and thus the identity of the median voter. We show that there may exist two political steady states: one protectionist and one liberal. Transition from the former to the latter can be achieved by government announcements, temporary educational subsidies, or (exogenous) tariff liberalization by trading partners, but not, in general, by transfer payments to adversely affected workers. We find additionally that reform is politically feasible only if the proposed liberalization is sufficiently large, suggesting that radical reform may be necessary for escaping a “protectionist rut.”
    Keywords: Political Economy, Trade Policy, Skill Acquisition, Politically Stable Policy Paths, Referenda
    JEL: D72 E60 F13 F16
    Date: 2007
  7. By: Uwe Sunde (IZA, University of Bonn and CEPR); Matteo Cervellati (University of Bologna, IAE Barcelona and IZA); Piergiuseppe Fortunato (University of Bologna and United Nations)
    Abstract: Using cross-country data, we find evidence for a significant negative interaction effect between democracy and inequality in determining the quality of growth-promoting institutions like rule of law. Democracy is associated with institutions of higher quality when inequality is lower.
    Keywords: inequality, democracy, institutions, rule of law, interactions
    JEL: O43 P48 P14
    Date: 2007–08
  8. By: Simon Gächter (University of Nottingham, CESifo and IZA); Eric J. Johnson (Columbia University); Andreas Herrmann (University of St. Gallen)
    Abstract: Loss aversion can occur in riskless and risky choices. Yet, there is no evidence whether people who are loss averse in riskless choices are also loss averse in risky choices. We measure individual-level loss aversion in riskless choices in an endowment effect experiment by eliciting both WTA and WTP from each of our 360 subjects (randomly selected customers of a car manufacturer). All subjects also participate in a simple lottery choice task which arguably measures loss aversion in risky choices. We find substantial heterogeneity in both measures of loss aversion. Loss aversion in the riskless choice task and loss aversion in the risky choice task are highly significantly and strongly positively correlated. We find that in both choice tasks loss aversion increases in age, income, and wealth, and decreases in education.
    Keywords: loss aversion, endowment effect, field experiments
    JEL: C91 C93 D81
    Date: 2007–07
  9. By: Schoonbeek, Lambert (Groningen University)
    Abstract: Abstract : We consider delegation in a rent-seeking contest with two players, where delegates have more instruments at their disposal than the main players. We endogenize both the decision to hire a delegate and the contingent fee offered to the delegates. We characterize the situations when either no, one or two players hire a delegate in equilibrium. We show that the decision to hire a delegate depends in a non-monotone way on the size of the contested prize.
    Date: 2006

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