New Economics Papers
on Collective Decision-Making
Issue of 2007‒11‒17
eight papers chosen by

  1. Emergence and Persistence of Inefficient States* By Daron Acemoglu; Davide Ticchi; Andrea Vindigni
  2. Proximity and linkages among coalition participants: a new voting power measure applied to the International Monetary Fund. By Julien Reynaud; Christian Thimann; Lukasz Gatarek
  3. Fiscal Policy, Rent Seeking and Growth under Electoral Uncertainty Theory and Evidence from the OECD By Konstantinos Angelopoulos; George Economides
  4. An analysis of the Swiss vote on the use of genetically modified crops By Felix Schlaepfer
  5. Segregation and Black Political Efficacy By Elizabeth Oltmans Ananat; Ebonya L. Washington
  6. Markets for Influence By Flavio Menezes; John Quiggin
  7. Bargaining Foundations of the Median Voter Theorem By John Duggan; Tasos Kalandrakis
  8. Endogenous Political Instability By Ryo Arawatari; Kazuo Mino

  1. By: Daron Acemoglu; Davide Ticchi; Andrea Vindigni
    Abstract: Inefficiencies in the bureaucratic organization of the state are often viewed as important factors in retarding economic development. Why certain societies choose or end up with such inefficient organizations has received very little attention, however. In this paper, we present a simple theory of the emergence and persistence of inefficient states based on patronage politics. The society consists of rich and poor individuals. The rich are initially in power, but expect to transition to democracy, which will choose redistributive policies. Taxation requires the employment of bureaucrats. We show that, under certain circumstances, by choosing an inefficient state structure, the rich may be able to use patronage and capture democratic politics. This enables them to reduce the amount of redistribution and public good provision in democracy. Moreover, the inefficient state creates its own constituency and tends to persist over time. Intuitively, an inefficient state structure creates more rents for bureaucrats than would an efficient state structure. When the poor come to power in democracy, they will reform the structure of the state to make it more efficient so that higher taxes can be collected at lower cost and with lower rents for bureaucrats. Anticipating this, when the society starts out with an inefficient organization of the state, bureaucrats support the rich, who set lower taxes but also provide rents to bureaucrats. We show that in order to generate enough political support, the coalition of the rich and the bureaucrats may not only choose an inefficient organization of the state, but they may expand the size of bureaucracy “excessively” so as to gain additional votes. The model shows that an equilibrium with an inefficient state is more likely to arise when there is greater inequality between the rich and the poor, when bureaucratic rents take intermediate values and when individuals are sufficiently forward-looking.
    Keywords: bureaucracy, corruption, democracy, patronage politics, political economy, public goods, redistributive politics.
    JEL: P16 H11 H26 H41
    Date: 2007
  2. By: Julien Reynaud (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.); Christian Thimann (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.); Lukasz Gatarek (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.)
    Abstract: Voting power methodology offers insights to understand coalition building in collective decision making. Using cooperative game theory, Banzhaf (1965) developed an index to capture the numerical importance of voters in coalition building. This voting power index is still widely used today in applications to international politics. Yet, it assumes that voters are symmetric and focuses on particular voters only. This paper proposes a new measure of voting power which account for the numerical proximity between voters by capturing how often they appear in winning coalitions together. The index is also developed to account for the relative importance of coalitions and the relative linkages among coalition participants. We present an application to the governance structure of the International Monetary Fund, with linkages being represented by bilateral trade between voters. The results are able to explain several important features of the functioning of this particular voting body, and may be useful for other applications of international politics. JEL Classification: C71, F33.
    Keywords: Voting power, coalition building, International Monetary Fund.
    Date: 2007–10
  3. By: Konstantinos Angelopoulos; George Economides
    Abstract: We construct a general equilibrium model of economic growth and optimally chosen fiscal policy, in which individuals compete with each other for a share of government spending and two political parties can alternate in power according to an exogenous reelection probability. The main prediction is that uncertainty about remaining in power results in increased fiscal spending, which in turn distorts incentives by pushing individuals away from productive work to rent-seeking activities; then distorted incentives hurt growth. This receives empirical support in a dataset of 25 OECD countries over the period 1982-1996. In particular, electoral uncertainty leads to larger government consumption shares in GDP, which in turn exert an adverse effect on the ICRG index measuring incentives and this is bad for growth. Actually, estimation by IV methods and confidence intervals that are robust to (potentially) weak instruments, reveal that OLS under-estimates the effects of government spending on rent extraction activities and of such activities on economic growth.
    Keywords: Fiscal policy; rent seeking; economic growth; elections.
    JEL: O43 E62 D72
    Date: 2007–09
  4. By: Felix Schlaepfer (Socioeconomic Institute, University of Zurich)
    Abstract: In November 2005, 55.7 percent of 2 million Swiss voters approved a 5-year moratorium (ban) on the commercial cultivation of genetically modified (GM) plants within Switzerland. The present study examines how individual voting decisions were determined by (i) socioeconomic characteristics, (ii) political preference/ideology and (iii) agreement with a series of arguments in favour and against the use of GM plants in Swiss agriculture. The analysis is based on the data of the regular voter survey undertaken after national-level voting decisions in Switzerland. Among the socioeconomic characteristics, only the age group was clearly significant with individuals above 65 years less opposed to crop biotechnology. Several political preference/ideology variables were significant determinants of the vote, most notably the preferences about the role of the state in the economy. Perceived consequences of the use of GM plants for health, natural diversity of plants and animals were also strongly and significantly associated with approving and disapproving voter groups. The disapproving votes were not motivated by perceived benefits of GM-food production but mainly by perceived interests of Swiss science and industry. Our findings suggest that current concerns about the use of genetically engineered plants in agriculture may not automatically decrease with higher levels of education/knowledge and generational change. Furthermore, the analysis of the voter motives suggests that the public support for GM-free agricultural production would be even larger in other countries, where industrial interests in crop biotechnology are less pronounced.
    Keywords: Externalities, genetically modified organisms (GMO), public goods, voting
    JEL: D62 D72 Q26
    Date: 2007–11
  5. By: Elizabeth Oltmans Ananat; Ebonya L. Washington
    Abstract: The impact of segregation on Black political efficacy is theoretically ambiguous. On one hand, increased contact among Blacks in more segregated areas may mean that Blacks are better able to coordinate political behavior. On the other hand, lesser contact with non-Blacks may mean that Blacks have less political influence over voters of other races. We find that exogenous increases in segregation lead to decreases in Black civic efficacy, as measured by an ability to elect Representatives who vote liberally and more specifically in favor of legislation that is favored by Blacks. This tendency for Representatives from more segregated MSAs to vote more conservatively arises in spite of the fact that Blacks in more segregated areas hold more liberal political views than do Blacks in less segregated locales. We find evidence that this decrease in efficacy is driven by greater divergence between Black and non-Black political views in the most segregated areas. Because Blacks are a minority in every MSA, increased divergence by race implies that the mean Black voter viewpoint is farther away from the mean voter viewpoint. Thus, reduced Black political efficacy may be one reason that Blacks in exogenously more segregated areas experience worse economic outcomes.
    JEL: D72 J15
    Date: 2007–11
  6. By: Flavio Menezes (Australian National University); John Quiggin (Risk & Sustainable Management Group, School of Economics, University of Queensland)
    Abstract: We specify an oligopoly game, where firms choose quantity in order to maximise profits, that is strategically equivalent to a standard Tullock rent-seeking game. We then show that the Tullock game may be interpreted as an oligopsonistic market for influence.Alternative specifications of the strategic variable give rise to a range of Nash equilibria with varying levels of rent dissipation.
    Keywords: Tullock contests, oligopoly
    JEL: C7 D72
    Date: 2007–08
  7. By: John Duggan; Tasos Kalandrakis (Dept. of Political Science, Yale University)
    Abstract: We provide game-theoretic foundations for the median voter theorem in a one-dimensional bargaining model based on Baron and Ferejohn’s (1989) model of distributive politics. We prove that, as the agents become arbitrarily patient, the set of proposals that can be passed in any subgame perfect equilibrium collapses to the median voter’s ideal point. While we leave the possibility of some delay, we prove that the agents’ equilibrium continuation payoffs converge to the utility from the median, so that delay, if it occurs, is inconsequential. We do not impose stationarity or any other refinements. Our result counters intuition based on the folk theorem for repeated games, and it contrasts with the known result for the distributive bargaining model that, as agents become patient, any division of the dollar can be supported as a subgame perfect equilibrium outcome.
    Date: 2007–11
  8. By: Ryo Arawatari (Graduate School of Economics, Osaka University); Kazuo Mino (Graduate School of Economics, Osaka University)
    Abstract: In this paper, we construct a simple dynamic two-party electoral competition model in which the degree of political instability is endogenously determined. We consider the campaign contributions as stock variable which is gradually accumulated by both partyfs direct investment and induced the Markov-perfect Nash equilibrium. We then examine the stability of the symmetric steady state and find that it may be either totally stable or unstable depending on the parameter values involved in the model. We also found that under certain conditions, at least near the symmetric steady state, there exists indeterminacy of equilibrium path: there exist both stable and unstable paths, that is, under given levels of political assets, both high instability political system and low instability political system can emerge depending on expectations of political parties.
    Keywords: Political assets; Dynamic political economy; Differential game; Markovperfect Nash equilibrium; Two-party model
    JEL: C73 D72 D78
    Date: 2007–08

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