New Economics Papers
on Collective Decision-Making
Issue of 2008‒05‒10
fourteen papers chosen by

  1. The Alliance Formation Puzzle and Capacity Constraints By Kai A. Konrad; Dan Kovenock
  2. Is the 50-State Strategy Optimal? By Dan Kovenock; Brian Roberson
  3. How Can Voters Classify an Incumbent under Output Persistence By Caleiro, António
  4. Comparing Small-Group and Individual Behavior in Lottery-Choice Experiments By Ronald J. Baker II; Susan K. Laury; Arlington W. Williams
  5. The Disadvantaged Incumbents: Estimating Incumbency Effects in Indian State Legislatures By Uppal, Yogesh
  6. Estimation of the Incumbency Effects in the US State Legislatures: A Quasi-Experimental Approach By Uppal, Yogesh
  7. When Should Political Scientists Use the Self-Confirming Equilibrium Concept? Benefits, Costs, and an Application to Jury Theorems By Lupia, Arthur; Levine, Adam Seth; Zharinova, Natasha
  8. Democracy, Income, and Environmental Quality By Kevin Gallagher; Strom Thacker
  9. Politics and Volatility By Maria Boutchkova; Hitesh Doshi; Art Durnev; Alexander Molchanov
  10. The Helping Hand, the Lazy Hand, or the Grabbing Hand? Central vs. Local Government Shareholders in Publicly Listed Firms in China By Yan-Leung Cheung; P. Raghavendra Rau; Aris Stouraitis
  11. Regionalism or Multilateralism? A Political Economy Choice By Giorgia Albertin
  12. Conditional Preference for Flexibility: Eliciting Beliefs from Behavior By Sadowski, Philipp
  13. Between Agora and Shopping Mall By Josef Falkinger
  14. Corruption and regulatory burden By Dzhumashev, Ratbek

  1. By: Kai A. Konrad; Dan Kovenock
    Abstract: The formation of an alliance in conflict situations is known to suffer from a collective action problem and from the potential of internal conflict. We show that budget constraints of an intermediate size can overcome this strong disadvantage and explain the formation of alliances.
    Keywords: alliance formation puzzle, military conflict, budget constraints
    JEL: D72 D74
    Date: 2008–04
  2. By: Dan Kovenock; Brian Roberson
    Abstract: In 2005, the Democratic National Committee adopted the 50-state strategy in lieu of the strategy of focusing solely on battleground states. The rationale given for this move is that campaign expenditures are durable outlays that impact both current and future campaigns. This paper investigates the optimality of the 50-state strategy in a simple dynamic game of campaign resource allocation in which expenditures act as a form of investment. Neither the 50-state nor the battleground-states strategy is likely to arise in equilibrium. Instead, parties employ a modified battleground-states strategy in which they stochastically target non-battleground states.
    Keywords: Political Campaigns, Dynamic Contests, Elections, All-Pay Auction,War of Attrition
    JEL: D72 C7
    Date: 2008–04
  3. By: Caleiro, António
    Abstract: The literature on electoral cycles has developed in two distinct phases. The first one considered the existence of non-rational (naive) voters whereas the second one considered fully rational voters. In our perspective, an intermediate approach is more interesting, i.e. one that considers learning voters, which are boundedly rational. In this sense, neural networks may be considered as learning mechanisms used by voters to perform a classification of the incumbent in order to distinguish opportunistic (electorally motivated) from benevolent (non-electorally motivated) behaviour. The paper shows in which circumstances a neural network, namely a perceptron, can resolve that problem of classification. This is done by considering a model allowing for output persistence, which is a feature of aggregate supply that, indeed, may make it impossible to correctly classify the incumbent.
    Keywords: Classification, elections, incumbent, neural networks, output, persistence, perceptrons
    JEL: C45 D72 E32
    Date: 2008
  4. By: Ronald J. Baker II (Millersville University of Pennsylvania); Susan K. Laury (Georgia State University); Arlington W. Williams (Indiana University Bloomington)
    Abstract: Lottery-choice experiments are conducted to compare risk preferences revealed by three-person groups versus isolated individuals. A lottery-choice experiment consists of a menu of paired lottery choices structured so that the crossover point from a low-risk to a high-risk lottery can be used to infer the degree of risk aversion. A between-subjects experiment of group versus individual lottery-choice decisions reveal that there is not a significant difference in the average crossover point, but lottery choices are affected by a significant interaction between subject composition (individual or group) and lottery winning percentage. Also, a three-phased individual-group-individual sequenced experiment reveals that the count of safe lotteries chosen by groups is, on average, significantly greater than the mean of the individual members. Finally, making a phase-two group decision has a significant impact on subsequent phase-three individual decisions relative to the initial phase-one (individual) decisions.
    Keywords: lab experiments, risk preferences, group decisions
    JEL: C91 C92 D80
    Date: 2008–05
  5. By: Uppal, Yogesh
    Abstract: This paper estimates the effect of a candidate’s incumbency status on his or her chances of winning using a large dataset on state legislative elections in India during 1975-2003. I use an innovative research design, called Regression Discontinuity Design (RDD), that provides unbiased estimate of the effect due to incumbency by comparing the candidates in closely fought elections, and find that incumbency has a significant negative effect on the fortunes of incumbent candidates in India and the incumbency effect has decreased further in the last decade. Also, the variation in the incumbency effects across Indian states depends on the differences in levels of public good provision such as the health facilities, rates of employment and poverty, and state per capita income.
    Keywords: Anti-incumbency; Indian elections; regression discontinuity design (RDD)
    JEL: H41 D72
    Date: 2007–12–15
  6. By: Uppal, Yogesh
    Abstract: This paper estimates the incumbency effects in the legislative elections of 45 states in the US during the period 1968-89. I improve upon the existing measures of incumbency by using a quasi-experimental research design that isolates the effect due to incumbency from other contemporaneous factors such as candidate quality. I find that incumbency bestows a significant advantage on incumbents compared with their challengers. The incumbent candidates are about 30 percentage points more likely to win the next election and win 5.3 percentage point more votes than the challengers. However, the advantage is not as large as estimated from the previous methods.
    Keywords: Incumbency; Elections; Regression Discontinuity
    JEL: C23 H7 C2
    Date: 2008–02
  7. By: Lupia, Arthur; Levine, Adam Seth; Zharinova, Natasha
    Abstract: Many claims about political behavior are based on implicit assumptions about how people think. One such assumption, that political actors use identical conjectures when assessing others’ strategies, is nested within applications of widely-used game theoretic equilibrium concepts. When empirical research calls this assumption into question, the self-confirming equilibrium (SCE) concept is an alternate criterion for deriving theoretical claims. Using a series of examples, we examine opportunities and challenges inherent in applying the SCE concept. Our main example focuses on Feddersen and Pesendorfer’s (1998) claim that unanimity rules can lead juries to convict innocent defendants. Using SCE, we show that the claim depends on the assumption that jurors have identical beliefs about one another’s strategies. When juror beliefs vary in ways that follow from empirical jury research, we show that fewer false convictions can occur in equilibrium. Generally, the SCE confers advantages when actors have different conjectures about one another’s strategies.
    Keywords: jury decision making; self-confirming equilibrium; jury theorem; game theory; political science
    JEL: K0 D83 D72
    Date: 2008–05–07
  8. By: Kevin Gallagher; Strom Thacker
    Abstract: This Working Paper considers the role of democracy in environmental quality and the Environmental Kuznets Curve (EKC). Some studies in the EKC literature have examined the extent to which democratic nations are more or less apt to have improving environmental conditions, but they have drawn from static measures of a nation’s current regime. In this paper the authors examine panel data from 1960 to 2001 and analyze the extent to which both the current level and the stock of a country’s democracy have significant and independent effects on a nation’s sulfur and carbon dioxide emissions.While they find no evidence for the short-run effect of the current level of democracy, they do find strong evidence that long-term democracy stock helps lower sulfur and carbon dioxide emissions.
    Keywords: Environmental Kuznets Curve; political economy of environment; sulfur emissions; carbon dioxide emissions; democracy; democracy stock; democracy and environment
    Date: 2008
  9. By: Maria Boutchkova; Hitesh Doshi; Art Durnev; Alexander Molchanov
    Abstract: We investigate how politics (party orientation, national elections, and strength of democratic institutions) affect stock market volatility. We hypothesize that labor-intensive industries, industries with larger exposure to foreign trade, industries whose operations require efficient contracts, and industries susceptible to government expropriation are more sensitive to changes in political environment. Using a large panel of industry-country-year observations, we show that politically-sensitive industries exhibit higher volatilities during national elections. Volatility is also higher for labor-intensive industries under leftist governments. Moreover, governance-sensitive industries and industries under a higher risk of expropriation are more volatile when democratic institutions are weak. The rise in volatility is driven largely by systematic risk rather than firm-specific risk. The results are consistent with the ‘peso problem’ hypothesis that uncertainty about future government policies can increase stock market volatility.
    Date: 2007–11
  10. By: Yan-Leung Cheung; P. Raghavendra Rau; Aris Stouraitis
    Abstract: We analyze related party transactions between Chinese publicly listed firms and their stateowned enterprise (SOEs) shareholders to examine whether companies benefit from the presence of government shareholders and politically connected directors appointed by the government. We find that related party transactions between firms and their government shareholders seem to result in expropriation of the minority shareholders in firms controlled by local government SOEs or with a large proportion of local government affiliated directors on their board, and in provinces where local government bureaucrats are less likely to be prosecuted for misappropriation of state funds. On the other hand, firms controlled by the central government (or with a large proportion of central government affiliated directors) are benefited in their related party transactions with their central government SOEs.
    Keywords: Law and economics; Government ownership; China; State-Owned Enterprises (SOE); Related party transactions; Political connections
    JEL: G15 G34 K33
    Date: 2008–02
  11. By: Giorgia Albertin
    Abstract: This paper provides a political economy analysis of the incentives underpinning a country's decision to enter a regional trade agreement when a multilateral free trade agreement is available, and of how entering a regional trade agreement affects the incentives to pursue multilateral trade liberalization. Taking into account the influence exerted by organized interest groups in the formation of trade agreements, we derive a formal condition under which a regional trade agreement is preferred to a multilateral one. Furthermore, we show that a country's decision to enter a regional trade agreement unambiguously undermines the incentives towards multilateral trade liberalization.
    Keywords: International trade agreements , Multilateral trade negotiations , Trade liberalization ,
    Date: 2008–03–20
  12. By: Sadowski, Philipp
    Abstract: Following Kreps (1979), we consider a decision maker with uncertain beliefs about her own future taste. This uncertainty leaves the decision maker with preference for flexibility: When choosing among menus containing alternatives for future choice, she weakly prefers larger menus. Existing representations accommodating this choice pattern cannot distinguish tastes (indexed by a subjective state space) and beliefs (a probability measure over the subjective states) as different concepts, making it impossible to relate parameters of the representation to choice behavior. We allow choice among menus to depend on exogenous states, interpreted as information. Our axioms yield a representation that uniquely identifies beliefs, provided the impact of information on choice is rich. The result is suggested as a choice theoretic foundation for the assumption, commonly made in the incomplete contracting literature, that contracting parties, who know each other's ranking of contracts, also share beliefs about each others future tastes in the face of unforeseen contingencies.
    Keywords: Preference for Flexibility; Uniqueness; Contracts; Subjective Uncertainty
    JEL: D86 D84 D81 D82 D83 D80 D01
    Date: 2008–04
  13. By: Josef Falkinger (Socioeconomic Institute, University of Zurich)
    Abstract: Advertisements provide consumers with knowledge about private products, whereas political information is required to provide voters with knowledge of public issues. Modern information technologies and globalisation are increasing the exposure of individuals to information. Goods advertising is competing with political information for people's attention. This paper presents a politico-economic equilibrium model in which the tension between private and public agendas can be analysed. It is shown that in an information-rich society, international goods market integration tends to reduce the quality of public policy. Complementing economic integration with political integration can increase the gains from globalisation, though not in all cases.
    Keywords: Globalisation, agenda-setting, information-rich societies, scarcity of attention, advertising
    JEL: D83 L86 H11
    Date: 2008–05
  14. By: Dzhumashev, Ratbek
    Abstract: It is known that government has discretionary power in providing public goods and regulating the economy. Corrupt bureaucracy with discretionary power creates and extracts rents by manipulating with the public good supply and regulations: i) by attaching excessive red tape to the public good they are providing; ii) or by making the regulations di±cult for the private agents to comply with. The former type of corruption results in less public input being provided at higher cost to the private agents. The latter increases non-compliance, which then breeds bribery. Consequently, the overall public sector burden is higher in the environment with corrupt bureaucracy. We show this outcome using a simple theoretical model, and then confront it with empirical evidence.
    Keywords: corruption; regulatory burden
    JEL: D73 L51 H41 D02 H23
    Date: 2008–05–05

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