New Economics Papers
on Collective Decision-Making
Issue of 2009‒03‒14
ten papers chosen by

  1. A Probabilistic Voting Model of Progressive Taxation with Incentive Effects By Jenny De Freitas
  2. A Theory of Voting Patterns and Performance in Private and Public Committees By Daniel J. Seidmann
  3. Control Rights, Pyramids, and the Measurement of Ownership Concentration By Edwards, Jeremy S S; Weichenrieder, Alfons J
  4. The Case for Mandatory Ownership Disclosure By Schouten, Michael C.
  5. Groupthink: Collective Delusions in Organizations and Markets By Bénabou, Roland
  6. Group Selection: The quest for social preferences By Salomonsson, Marcus
  7. Simulating a Sequential Coalition Formation Process for the Climate Change Problem: First Come, but Second Served? By Finus, Michael; Rundshagen, Bianca; Eyckmans, Johan
  8. Does Participating in a Collective Decision Affect the Levels of Contributions Provided? An Experimental Investigation By Francesca Bortolami; Luigi Mittone
  9. Optimal Combinatorial Mechanism Design By Levent Ulku
  10. Coalition formation in the Airport Problem By Mahmoud Farrokhi

  1. By: Jenny De Freitas (Universitat de les Illes Balears)
    Abstract: This paper shows conditions under which a marginally progressive income tax emerges as the outcome of political competition between two parties, when labor is elastically supplied and candidates are uncertain about voters' choice at election day. Assuming the elasticity of labor is decreasing on marginal wage; following Coughlin and Nitzan (1981) only marginal progressive taxes are played by both candidates in equilibrium. If; instead, we adopt Lindbeck and Weibull (1989) probabilistic voting model, the equilibrium tax schedule will be progressive as long as the political power of the rich voter is sufficiently small. The degree of progressivity decreases with population polarization.
    Keywords: Political economy, progressive taxation, elastic labor supply.
    JEL: D3 D63 D72 H24
    Date: 2009
  2. By: Daniel J. Seidmann (School of Economics, University of Nottingham)
    Abstract: We analyze voting in private and public committees whose members care about the selected decision and the rewards which outsiders pay for representing their interests. If the agenda is binary or outsiders are symmetric then a private committee reaches decisions which better serve organizational goals than either a public committee or a randomly chosen committee member; whereas symmetric outsiders are best served by a public committee. The voting patterns of both private and public committees may fail Duverger’s Law, but they both satisfy a weaker condition: Dissidents in private [resp. public] committees all vote decisions which better [resp. worse] serve organizational goals than the plurality decision; so single-peakedness implies that all dissents lie on one side of the plurality decision.
    Date: 2009–03
  3. By: Edwards, Jeremy S S; Weichenrieder, Alfons J
    Abstract: The recent corporate governance literature has emphasised the distinction between control and cash-flow rights but has disregarded measurement issues. Control rights may be measured by immediate shareholder votes, the voting rights as traced through ownership chains, or voting power indices that may or may not trace ownership through chains. We compare the ability of various measures to identify the effects of ownership concentration on share valuation using a German panel data set. The widely-used weakest link principle does not perform well in this comparison. Furthermore, measures that trace control through ownership chains do not outperform those that rely on immediate ownership, thus questioning the role of pyramids in the separation of control and cash-flow rights. The paper emphasises that there is a distinction between these two aspects of ownership even without pyramids or preferred stock, identification of which requires measures that, like the Shapley-Shubik index, do not simply equate control rights with voting rights.
    Keywords: Control rights; Cash-flow rights; Pyramids; Ownership structure
    JEL: G34 G32
    Date: 2009–01–14
  4. By: Schouten, Michael C.
    Abstract: The use of equity derivatives to conceal economic ownership of shares (“hidden ownership”) is increasingly drawing attention from the financial community, as is the exercise of voting power without corresponding economic interest (“empty voting”). Market participants and commentators have called for expansion of ownership disclosure rules, and policymakers on both sides of the Atlantic are now contemplating how to respond. Yet, in order to design appropriate responses it is key to understand why we have ownership disclosure rules in the first place. This understanding currently appears to be lacking, which may explain why we observe divergent approaches between countries. The case for mandatory ownership disclosure has also received remarkably little attention in the literature, which has focused almost exclusively on mandatory issuer disclosure. Perhaps this is because most people assume that ownership disclosure is a good thing. But why is such information important, and to whom? This paper aims to answer these fundamental questions, using the European disclosure regime as an example. First, the paper identifies two main objectives of ownership disclosure: improving market efficiency and corporate governance. Next, the paper explores the various mechanisms through which ownership disclosure performs these tasks. This sets the stage for an analysis of hidden ownership and empty voting that demonstrates why these phenomena are so problematic.
    Keywords: ownership disclosure; market efficiency; corporate governance; monitoring; hidden ownership; empty voting; hedge fund activism
    JEL: K20 G38 K22 G34 G10 G30
    Date: 2009–03–08
  5. By: Bénabou, Roland
    Abstract: I develop a model of (individually rational) collective reality denial in groups, organizations and markets. Whether participants' tendencies toward wishful thinking reinforce or dampen each other is shown to hinge on a simple and novel mechanism. When an agent can expect to benefit from other's delusions, this makes him more of a realist; when he is more likely to suffer losses from them this pushes him toward denial, which becomes contagious. This general "Mutually Assured Delusion" principle can give rise to multiple social cognitions of reality, irrespective of any strategic payoff interactions or private signals. It also implies that in hierachical organizations realism or denial will trickle down, causing subordinates to take their mindsets and beliefs from the leaders. Contagious "exuberance" can also seize asset markets, leading to evidence-resistant investment frenzies and subsequent deep crashes. In addition to collective illusions of control, the model accounts for the mirror case of fatalism and collective resignation. The welfare analysis differentiates valuable group morale from harmful groupthink and identifies a fundamental tension in organizations' attitudes toward free speech and dissent.
    Keywords: market crashes; psychology; anticipatory feelings; cognitive dissonance; groupthink; manias; market exuberance; morale; organizational culture; overconfidence; speculative bubbles; wishful thinking
    JEL: D23 D53 D83 D84 E32 Z1
    Date: 2009–03
  6. By: Salomonsson, Marcus (Dept. of Economics, Stockholm School of Economics)
    Abstract: This paper surveys the literature on group selection. I describe the early contributions and the group selection controversy. I also describe the main approaches to group selection in the recent literature; fixation, assortative group formation, and reproductive externalities.
    Keywords: Altruism; spite; externalities; conformity; fixation; signalling
    JEL: C70 D62 D64
    Date: 2009–03–06
  7. By: Finus, Michael; Rundshagen, Bianca; Eyckmans, Johan
    Abstract: We analyze stability of self-enforcing climate agreements based on a data set generated by the CLIMNEG world simulation model (CWSM), version 1.2. We consider two new aspects which appear important in actual treaty-making. First, we consider a sequential coalition formation process where players can make proposals which are either accepted or countered by other proposals. Second, we analyze whether a moderator, like an international organization, even without enforcement power, can improve upon globally suboptimal outcomes through coordinating actions by making recommendations that must be Pareto-improving to all parties. We discuss the conceptual difficulties of implementing our algorithm.
    Keywords: International Climate Agreements; Sequential Coalition Formation; Coordination through Moderator; Integrated Assessment Model; Algorithm for Computa tions
    Date: 2009–03
  8. By: Francesca Bortolami; Luigi Mittone
    Abstract: From a purely theoretical perspective, there is no reason to expect that different levels of contributions in public goods games are associated with the same sanctioning/rewarding rule. The efficiency of a norm should be independent of its enactment procedure. On the contrary, multidisciplinary and empirical considerations suggest that individuals may behave differently, according to the level of their direct involvement. The question whether participation in norm enactment results in more contributory gap than when the same norm is received, has not been addressed in public good literature so far. Our three experiments show a behavioural regularity: participating in a normative enactment generates different contributory effects, with respect to the case when the sanctioning norm is merely received.
    Keywords: participation, public good games, free riding
    Date: 2009
  9. By: Levent Ulku (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    Abstract: We consider an optimal mechanism design problem with several heterogeneous objects and interdependent values. We characterize ex post incentives using an appropriate monotonicity condition and reformulate the problem in such a way that the choice of an allocation rule can be separated from the choice of the payment rule. Central to our analysis is the formulation of a regularity condition, which gives a recipe for the optimal mechanism. If the problem is regular, then an optimal mechanism can be obtained by solving a combinatorial allocation problem in which objects are allocated in a way to maximize the sum of "virtual" valuations. We identify conditions that imply regularity for two nonnested environments using the techniques of supermodular optimization.
    Date: 2009–02
  10. By: Mahmoud Farrokhi (Institute of Mathematical Economics, Bielefeld University)
    Abstract: We have studied the incentives of forming coalitions in the Airport Problem. It has shown that in this class of games, if coalitions form freely, the Shapley value does not lead to the formation of grand or coalitions with many players. Just a coalition with a few number of players forms to act as the producer and other players would be the consumers of the product. We have found the two member coalition which forms and we have checked its stability.
    Date: 2009–03

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