New Economics Papers
on Collective Decision-Making
Issue of 2007‒10‒27
six papers chosen by

  1. Political Short-termism: A Possible Explanation By Iconio Garrì
  2. Do Political Parties Matter? Evidence from U.S. Cities By Fernando Ferreira; Joseph Gyourko
  3. Oligarchic Versus Democratic Societies By Daron Acemoglu
  4. Corporate Control and the Stock Market By Stefano Demichelis; Klaus Ritzberger
  5. Group Size and Incentive to Contribute: A Natural Experiment at Chinese Wikipedia By Xiaoquan (Michael) Zhang; Feng Zhu;
  6. The Scope of Cooperation: Values and incentives By Tabellini, Guido

  1. By: Iconio Garrì (DEP, Università Cattolica)
    Abstract: Political short-termism obtains when a politician provides a public good that gives an immediate payoff while it would be optimal for the society that he provided a public good that gives a payoff only in the future. We consider a simple two-period political agency model and study whether reelection concern may give rise to political short-termism when voters are rational. We show that this can indeed be the case when politicians differ in their motivation and are better informed than the citizens: good politicians may (suboptimally) provide a public good that gives an immediate payoff because if they provided a public good that gives a payoff only in the second term, the citizens would consider it sufficiently likely that they are bad politicians and would therefore choose not to reelect them. Reelection concern may therefore reduce social welfare because of the undisciplining effect on the good politicians. Quite surprisingly, short-termism may however also be optimal for the society, because it gives rise to two additional effects on social welfare: (i) it increases the probability that in the future the office will be held by better politicians (selection effect) and (ii) bad politicians may choose to act more in line with the society's interest in order to be reelected (disciplining effect).
    Keywords: Political short-termism, electoral accountability, reputation, public goods
    JEL: D72 D82
    Date: 2007–10
  2. By: Fernando Ferreira; Joseph Gyourko
    Abstract: We examine whether partisan political differences have important effects on policy outcomes at the local level using a new panel data set of mayoral elections in the United States. Applying a regression discontinuity design to deal with the endogeneity of the mayor's party, we find that party labels do not affect the size of government, the allocation of spending or crime rates, even though there is a large political advantage to incumbency in terms of the probability of winning the next election. The absence of a strong partisan impact on policy in American cities, which is in stark contrast to results at the state and federal levels of government, appears due to certain features of the urban environment associated with Tiebout sorting. In particular, there is a relatively high degree of household homogeneity at the local level that appears to provide the proper incentives for local politicians to be able to credibly commit to moderation and discourages strategic extremism.
    JEL: H7 R38
    Date: 2007–10
  3. By: Daron Acemoglu
    Abstract: This paper develops a model to analyze economic performance under different political regimes. An oligarchic society, where political power is in the hands of major producers, protects their property rights, but also tends to erect significant entry barriers against new entrepreneurs. Democracy, where political power is more widely di used, imposes redistributive taxes on producers, but tends to avoid entry barriers. When taxes in democracy are high and the distortions caused by entry barriers are low, an oligarchic society achieves greater efficiency. Nevertheless, because comparative advantage in entrepreneurship shifts away from the incumbents, the inefficiency created by entry barriers in oligarchy deteriorates over time. The typical pattern is therefore one of rise and decline of oligarchic societies: of two otherwise identical societies, the one with an oligarchic organization will first become richer, but later fall behind the democratic society. I also discuss how democratic societies may be better able to take advantage of new technologies, how an oligarchic society might transition to democracy because of within-elite conflict, and how the unequal distribution of income in oligarchy supports the oligarchic institutions and may keep them in place even when they become significantly costly to society.
    Keywords: democracy, economic growth, entry barriers, oligarchy, political economy, redistribution, sclerosis.
    JEL: P16 O10
    Date: 2007
  4. By: Stefano Demichelis; Klaus Ritzberger
    Abstract: This paper studies a general equilibrium model with an investor controlled firm. Shareholders can vote on the firm’s production plan in an assembly. Prior to that they may trade shares on the stock market. Since stock market trades determine the distribution of votes, trading is strategic. There is always an equilibrium, where share trades lead to owners deciding for competitive behavior, but there may also be equilibria, where monoplistic behavior prevails.
    Keywords: Corporate governance, general equilibrium, objective function of the firm, shareholder voting, stock markets.
    JEL: D21 D43 D51 G32 G34
    Date: 2007
  5. By: Xiaoquan (Michael) Zhang (Hong Kong University of Science and Technology); Feng Zhu (Havard Business School);
    Abstract: The literature of private provision of public goods suggests that incentive to contribute is inversely related to group size. This paper empirically tests this relationship using field data from Chinese Wikipedia, an online encyclopedia. We exploit an exogenous reduction in group size as a result of the blocking of Wikipedia in mainland China and examine whether individual contributions increase after the block as predicted in the literature. Our result indicates the opposite: individual contribution of unaffected contributors decreases by 42% on average as a result of the block. We attribute the cause to social effects: contributors care about the number of beneficiaries of their contributions. We build a simple model to illustrate how social effects and group size affect individual incentive to contribute. Consistent with our model prediction, we find that the more a contributor values social recognition, the greater the reduction in her contributions after the block. A series of robustness checks appear to support our explanation.
    Keywords: incentive to contribute; group size; public goods; social effects
    JEL: D85 H44 L14 L31 L86
    Date: 2007–09
  6. By: Tabellini, Guido
    Abstract: What explains the range of situations in which individuals cooperate? This paper studies a theoretical model where individuals respond to incentives but are also influenced by norms of good conduct inherited from earlier generations. Parents rationally choose what values to transmit to their offspring, and this choice is influenced by the quality of external enforcement and the pattern of likely future transactions. The equilibrium displays strategic complementarities between values and current behaviour, which reinforce the effects of changes in the external environment. Values evolve gradually over time, and if the quality of external enforcement is chosen under majority rule, there is hysteresis: adverse initial conditions may lead to a unique equilibrium path where external enforcement remains weak and individual values discourage cooperation.
    Keywords: cooperation; cultural transmission; culture; institutions
    JEL: A10 A14
    Date: 2007–10

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