New Economics Papers
on Collective Decision-Making
Issue of 2008‒06‒07
eight papers chosen by

  1. A Swing-State Theory of Trade Protection in the Electoral College By Mirabelle Muûls; Dimitra Petropoulou
  2. Coalition Governments and Policy Reform with Asymmetric Information By Carsten Helm; Michael Neugart
  3. Protecting Minorities in Binary Elections: A Test of Storable Votes Using Field Data By Alessandra Casella; Shuky Ehrenberg; Andrew Gelman; jie shen
  4. Shareholders' agreements and voting power. Evidence from Italian listed firms By Angelo Baglioni
  5. Delayed Doves: MPC Voting Behaviour of Externals By Stephen Hansen; Michael F. McMahon
  6. Coalition formation: the role of procedure and policy flexibility By Annelies de Ridder; Agnieszka Rusinowska; Elena Saiz; Eligius K.M. Hendrix
  7. The Political Economy of Corruption & the Role of Financial Institutions By Kira Boerner; Christa Hainz
  8. Publicly provided private goods: education and selective vouchers By Piolatto, Amedeo

  1. By: Mirabelle Muûls; Dimitra Petropoulou
    Abstract: This paper develops an infinite-horizon, political agency model with a continuum of politicaldistricts, in which incumbent politicians can improve their re-election probability byattracting swing voters in key states through strategic trade protection. A unique equilibriumis shown to exist where incumbents build a reputation of protectionism through their policydecisions. We show that strategic trade protection is more likely when protectionist swingvoters have a lead over free-trade supporters in states with relatively strong electoralcompetition that represent a larger proportion of Electoral College votes. US data is used totest the hypothesis that industrial concentration in swing and decisive states is an importantdeterminant of trade protection of that industry. The empirical findings provide support forthe theory and highlight an important, and previously overlooked, determinant of tradeprotection in the US Electoral College.
    Keywords: Political Economy, Elections, Electoral College, Swing States, Trade Policy
    JEL: D72 D78 F13 R12
    Date: 2008–02
  2. By: Carsten Helm (Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology)); Michael Neugart (Free University of Bozen/Bolzano, School of Management and Economics)
    Abstract: With ideological parties being better informed about the state of the world than voters, the true motivation of policy proposals is hard to judge for the electorate. However, if reform proposals have to be agreed upon by coalition parties, it may become possible for the government to signal to the voters its private information about the necessity of reforms. Therefore, in coalition governments reforms will be more in line with policy requirements than in single-party governments. This is usually beneficial for the coalition parties as well as for the voter.
    Keywords: Asymmetric information, coalition governments, policy reform
    JEL: D72 D78 D82
    Date: 2008–05
  3. By: Alessandra Casella (Columbia University - Department of Economics); Shuky Ehrenberg (Columbia University - Department of Economics); Andrew Gelman (Columbia University - Department of Statistics and Department of Political Science); jie shen
    Abstract: Democratic systems are built, with good reason, on majoritarian principles, but their legitimacy requires the protection of strongly held minority preferences. The challenge is to do so while treating every voter equally and preserving aggregate welfare. One possible solution is storable votes: granting each voter a budget of votes to cast as desired over multiple decisions. During the 2006 student elections at Columbia University, we tested a simple version of this idea: voters were asked to rank the importance of the different contests and to choose where to cast a single extra bonus vote, had one been available. We used these responses to construct distributions of intensities and electoral outcomes, both without and with the bonus vote. Bootstrapping techniques provided estimates of the probable impact of the bonus vote. The bonus vote performs well: when minority preferences are particularly intense, the minority wins at least one of the contests with 15-30 percent probability; and, when the minority wins, aggregate welfare increases with 85-95 percent probability. When majority and minority preferences are equally intense, the effect of the bonus vote is smaller and more variable but on balance still positive.
    Date: 2008
  4. By: Angelo Baglioni (DISCE, Università Cattolica)
    Abstract: This work provides an empirical investigation of shareholders’ agreements signed in Italy over the last decade. The focus is on the impact of agreements on the voting power (Shapley value) of participants. The evidence shows that agreements produce a remarkable reshuffling of voting power. Two views are confronted. First: agreements allow the largest shareholder to increase his power beyond his own voting rights, exploiting a leverage effect. Second: agreements are a way to share control among a coalition of large shareholders, thus limiting the ability of the first one to extract private benefits of control. The leverage effect seems to prevail at lower levels of ownership concentration, while the shared control view works better at higher levels of ownership concentration. Supermajority rules – a tool to reach a more balanced distribution of power – are more likely to be adopted when the first owner has a larger equity stake.
    Keywords: Corporate governance; shareholders’ agreements; large shareholder; voting power; one-share-one-vote.
    JEL: G3
    Date: 2008–05
  5. By: Stephen Hansen; Michael F. McMahon
    Abstract: The use of independent committees for the setting of interest rates, such as the MonetaryPolicy Committee (MPC) at the Bank of England, is quickly becoming the norm in developedeconomies. In this paper we examine the issue of appointing external members (memberswho are outside the staff of the central bank) to these committees. We construct a model ofMPC voting behaviour, and show that members who begin voting for similar interest ratesshould not systematically diverge from each other at any future point. However, econometricresults in fact show that external members initially vote in line with internal members, butafter a year, begin voting for substantially lower interest rates. The robustness of this effect toincluding member fixed effects provides strong evidence that externals behave differentlyfrom internals because of institutional differences between the groups, and not someunobserved heterogeneity. We then examine whether career concerns can explain thesefindings, and conclude that they cannot.
    Keywords: Monetary Policy Committee (MPC), Bank of England, Committee Voting,Signalling
    JEL: E58 D71
    Date: 2008–04
  6. By: Annelies de Ridder (Radboud University Nijmegen); Agnieszka Rusinowska (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France); Elena Saiz (Radboud University Nijmegen); Eligius K.M. Hendrix (University of Wageningen,)
    Abstract: In this paper, we analyze a spatial model of coalition formation with data from Dutch elections and with theoretical results. First, we study different procedures of coalition formation. The model shows that procedure plays an important role in reaching a coalition agreement and that political parties do not necessarily benefit from being a firstmover. Moreover, it is shown that a decrease in a party’s flexibility can be beneficial in coalition negotiations. Furthermore, we find that certain power sharing tactics do not always lead to an agreement that is in a party’s advantage. The main message put forward is that the process of coalition formation plays a more important role than is usually acknowledged in literature and practice.
    Keywords: coalition formation, elections, simultaneous procedure, step-by-step procedure
    JEL: C7 D72
    Date: 2008
  7. By: Kira Boerner; Christa Hainz
    Abstract: In many developing and transition countries, we observe rather high levels of corruption. This is surprising from a political economy perspective, as the majority of people in a corrupt country suffer from high corruption levels. Our model is based on the fact that corrupt offcials have to pay entry fees to get lucrative positions. In a probabilistic voting model, we show that a lack of financial institutions can lead to more corruption as more voters are part of the corrupt system and, more importantly, as the rents from corruption are distributed differently. Thus, the economic system has an effect on political outcomes. Well-functioning financial institutions, in turn, increase the political support for anti-corruption measures.
    Keywords: Corruption, Financial Markets, Institutions, Development, Voting
    JEL: D72 D73 H11 O17
    Date: 2007–10–01
  8. By: Piolatto, Amedeo
    Abstract: The literature on vouchers often concludes that a vouchers-based system cannot be the outcome of a majority vote. This paper shows that, when the value of vouchers and who is entitled to receive them are fixed exogenously, the majority of voters are in favour of selective vouchers. On top of that, as long as the introduction of vouchers does not undermine the existence of the public school system, introducing selective vouchers induces a Pareto improvement. Middle class agents are the only one using vouchers in equilibrium, while the poorest agents in the economy profit from the reduction in public school congestion.
    Keywords: public economics; education; vouchers; voting
    JEL: H42 I2 D70
    Date: 2008

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