New Economics Papers
on Collective Decision-Making
Issue of 2009‒02‒22
eight papers chosen by

  1. Democracy and the curse of natural resources By Antonio Cabrales; Esther Hauk
  2. Rules vs. political discretion: evidence from constitutionally guaranteed transfers to local governments in Brazil By Stephan Litschig
  3. Downsian Model with Asymmetric Information: Possibility of Policy Divergence By Kazuya Kikuchi
  4. Individuals' Voting Choice and Cooperation in Repeated Social Dilemma Games By Annamaria Nese; Patrizia Sbriglia
  5. Preferences psychologiques et nouvelle économie politique By Antoine Billot; Chantal Marlats
  6. Risk and Inequality Aversion in Social Dilemmas By Brice Magdalou; Dimitri Dubois; Phu Nguyen-Van
  7. Negotiating constitution for political unions By Vikas Kumar
  8. Demented Prisoners By Klaus Kultti; Hannu Salonen

  1. By: Antonio Cabrales; Esther Hauk
    Abstract: We propose a theoretical model to explain empirical regularities related to the curse of natural resources. This is an explicitly political model which emphasizes the behavior and incentives of politicians. We extend the standard voting model to give voters political control beyond the elections. This gives rise to a new restriction into our political economy model: policies should not give rise to a revolution. Our model clarifies when resource discoveries might lead to revolutions, namely, in countries with weak institutions. Natural resources may be bad for democracy by harming political turnover. Our model also suggests a non-linear dependence of human capital on natural resources. For low levels of democracy human capital depends negatively on natural resources, while for high levels of democracy the dependence is reversed. This theoretical finding is corroborated in cross section regressions.
    Date: 2009–02
  2. By: Stephan Litschig
    Abstract: Can rules be used to shield public resources from political interference? The Brazilian constitution and national tax code stipulate that revenue sharing transfers to municipal governments be determined by the size of counties in terms of estimated population. In this paper I document that the population estimates which went into the transfer allocation formula for the year 1991 were manipulated, resulting in significant transfer differentials over the entire 1990’s. I test whether conditional on county characteristics that might account for the manipulation, center-local party alignment, party popularity and the extent of interparty fragmentation at the county level are correlated with estimated populations in 1991. Results suggest that revenue sharing transfers were targeted at right-wing national deputies in electorally fragmented counties as well as aligned local executives.
    Keywords: Bureaucracy, institutions, redistributive politics, electoral competition
    JEL: H77 D72 D73
    Date: 2008–08
  3. By: Kazuya Kikuchi
    Abstract: This paper presents a model of Downsian political competition in which voters are imperfectly informed about economic fundamentals. In this setting, partiesfchoices of platforms influence votersf behavior not only through votersf preferences over policies, but also through formation of their expectation on the unknown fundamentals. We show that there exist pure-strategy equilibria in this political game with asymmetric information at which the two partiesf policies diverge with positive probability. This result is in contrast with the well-known median voter theorem in the classical model of Downsian competition. We also study refinement of equilibria, and identify the perfect equilibria (Selten, 1975) and the strictly perfect equilibria (Okada, 1981). The Nash equilibria with the strongest asymmetry in the partiesf strategies are proved to be strictly perfect.
    Date: 2009–02
  4. By: Annamaria Nese; Patrizia Sbriglia
    Abstract: In this paper we explore the relationship between the individual’s preference for cooperation and the establishment of cooperative norms. Our aim is to provide an experimental test of the evolutionary hypothesis (see Carpenter, 2004, Fehr and Gachter 2002; Gintis 2000; Boyd, Bowles, Gintis and Richerson 2003; Bowles and Gintis 2004), according to which individuals are prepared to punish defectors in experimental social dilemma games because they want to enforce a social (“altruistic”) norm which may conduce to increasing their future payoffs, as in the case of sanctions against free riding behaviour. According to this line of research , the high levels of cooperation we observe in our societies can, therefore, be strictly related to the establishment of social norms which are able to enforce and maintain cooperation in the long run. We study the results of two experiments in which the individuals decided both whether to participate in a common project and the institutional rule according to which the profits of the project had to be shared among each of the participants in the group. They could choose between 1) a regime where gains were shared equally, regardless of individuals’ contributions and without sanctions and rewards (System A); 2) a regime where individuals were paid according to their marginal contribution, but the profits of the investments were lower than in the other contexts (System B); finally 3) a regime in which gains were shared equally (as in System A), but individuals were allowed to punish (and\or reward) free riding (cooperative) behaviours as in Sefton, Shupp and Walker (2007). Before the experiments took place, our subjects were required to fill a questionnaire composed of four sections, where their attitude to cooperate and their opinions on civic values and free riding behaviours were thoroughly explored. We then monitored the behaviour of potential free riders and cooperators in the game and their institutional choices. Our results partly contradict the evolutionary hypothesis in as much as System A and B received the largest shares of votes in almost all rounds and they were voted by free riders and cooperators alike. Thus, most individuals do not like sanctions (incentives) against defectors and free riders (cooperators), and their institutional preferences do not seem to be related to their willingness to cooperate. The inspection of individual data, however, reveals some interesting points. In fact, we can assert that System C was mostly chosen by cooperative individuals in response to observed free riding behaviour. Furthermore, when a cooperative individual chose C, she would tend to punish free riders and reward cooperators. Our conclusion is that, as far as the institutional choices are concerned, beside the profit motivations underlined in the evolutionary hypothesis, the ethical and cultural unobserved individual preferences play an important role. There is a number of individuals (limited in our experiments, ranging between 15 and 30 per cent of the entire population) who see cooperation as the “right” thing to do, and therefore are prepared to implement institutional rules that may favour this collective outcome. Most people in our experiments did not share these same values.
    Keywords: public good games, experiments, voting choices
    JEL: C90 C91
    Date: 2009–02
  5. By: Antoine Billot; Chantal Marlats
    Abstract: Nous présentons ici, dans un premier temps, la Théorie des Préferences Psychologiques à travers, d'une part, l'axiomatique proposée par Sandbu (2008) pour les décisions individuelles pures et, d'autre part, celle de Segal et Sobel (2007) pour les décisions stratégiques. Dans une seconde partie, nous caractérisons l'apport potentiel de cette littérature à la définition d'une nouvelle "économie politique" et nous cherchons à délimiter le champ pertinent d'investigation d'une telle approche qui combinerait à la fois les exigences "micro" que véhiculent les préférences psychologiques avec l'objet plus "macro" de l'économie politique (comprise comme la branche de la science économique qui étudie les conséquences de l'intervention d'un décideur public et les conditions optimales de l'action collective). Enfin, nous défendons la thèse selon laquelle l'étude de l'action collective au niveau particulier des "communautés" ou des systèmes dits "polycentriques" peut a priori profiter des résultats abondants produits par la Théorie des Préferences Psychologiques - tout autre niveau d'investigation semblant a contrario inadapté en l'état actuel des développements de cette théorie.###[english abstract: First, we present what is called the Theory of Psychological Preferences (altruism, rational reciprocity...) through, on one side, the list of axioms proposed by Sandbu (2008) for pure individual decisions and, on the other side, that of Segal and Sobel (2007) for strategical ones. Second, we characterize the potential relevance of such a theory to define a new "politicial economy" approach and we search to define the precise scope of this field of investigation in combining the micro'demands of the psychological preference theory with the standard macro'ones. Finally, we show that polycentered models seem to be the only framework within which individual psychological preference is an appropriate tool to study the collective impact of altruism, social loyalty, intrinsic reciprocity and so forth.]###
    Date: 2009
  6. By: Brice Magdalou; Dimitri Dubois; Phu Nguyen-Van
    Abstract: We experimentally investigate cooperative behavior in a social dilemma situation, where the socially efficient outcome may be encouraged by risk aversion and/or inequality aversion. The first part of our experiment is devoted to the elicitation of subjects' aversion profile, taking care to not confuse the two dimensions. Subjects are then grouped by three according to their aversion profiles, and interact in a repeated social dilemma game. In this game, agents are characterised by a social status so that higher the agent's status, higher will be her earnings. Cooperation is costly for a majority of agents at each period, but statuses can be reversed in future periods. We show that cooperation is strongly in°uenced by the group's aversion profile. Groups averse in both dimensions cooperate more than groups averse in only one dimension. Moreover cooperation seems to be more affected by risk aversion, whereas one might interpret cooperative behavior as an inequality averse or altruistic attitude.
    Date: 2009–02
  7. By: Vikas Kumar (Indira Gandhi Institute of Development Research)
    Abstract: This paper provides a cradle-to-grave model for political union between two unequally endowed states. We introduce negotiated, contested, and time-consistent contested constitutions to address various classes of merger problems. Merger agreement is shown to be path dependent and, in some cases, time inconsistent. The possibility of contest constrains the set of mutually agreeable tax rates and provides stability to a constitution. Demographic heterogeneity constrains the set of mutually agreeable mergers. Rent extracted by technologically advanced province for transferring technology to the backward province in a union is shown to be increasing in complexity of technology but bounded from above. The model can also support the possibility of historical cycles of political geography. The main contribution of this paper is to highlight the role of technology gap and unequal distribution of resources in all the above cases.
    Keywords: Bargaining, Constitution, Contest, Political Union
    JEL: C72 C78 D02 D72 D74 F51 K39
    Date: 2008–11
  8. By: Klaus Kultti (Department of Economics, University of Helsinki); Hannu Salonen (Department of Economics, University of Turku)
    Abstract: We study infinitely repeated Prisoners' Dilemma, where one of the players may be demented. If a player gets demented in period t after his choice of action, he is stuck to this choice for the rest of the game. So if his last choice was ``cooperate'' just before dementia struck him, then heÕs bound to cooperate always in the future. Even though a demented player cannot make choices any more he enjoys the same payoffs from strategy profiles as he did when healthy. A player may prove he is still healthy by showing a (costly) health certificate. This is possible only as long as the player really is healthy: a demented player cannot get a clean bill of health. We study an asymmetric information game where it is known that player 1 cannot get demented but player 2 may be either a ``healthy'' type who will never be demented or a ``dementible'' type who eventually will get demented. We study when cooperation can be maintained in a perfect Bayesian equilibrium with at most health check.
    Keywords: prisoners' dilemma, dementia, co-operation
    JEL: C72
    Date: 2009–02

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