New Economics Papers
on Collective Decision-Making
Issue of 2009‒03‒22
eleven papers chosen by

  1. The Real Swing Voter's Curse By James A. Robinson; Ragnar Torvik
  2. Country or Leader? Political Change and UN General Assembly Voting By Axel Dreher; Nathan Jensen
  3. Power over Pensions? Who Should Decide and How? By Sixten Korkman
  4. Endogenous Group Formation and Public Goods Provision: Exclusion, Exit, Mergers, and Redemption By Gary Charness; Chun-Lei Yang
  5. The Excess Power Puzzle of the EU Budget By Heikki Kauppi; Mika Widgrén
  6. On the (Sequential) Majority Choice of Public Good Size and Location By De Donder, Philippe; Le Breton, Michel; Peluso, Eugenio
  7. The Power of Proximity: Strategic Decisions in African Party Politics By Alexander Stroh
  8. Electoral uncertainty and the deficit bias in a New Keynesian Economy By Campbell Leith; Simon Wren-Lewis
  9. An experimental investigation of why individuals conform By Basit Zafar
  10. Auction Design without Commitment By Hannu Vartiainen
  11. Does strengthening Collective Action Clauses (CACs) help? By Ghosal, Sayantan; Thampanishvong, Kannika

  1. By: James A. Robinson; Ragnar Torvik
    Abstract: A key idea in political economy is that policy is often tailored to voters who are not ideologically attached - swing voters. We show, however, that in political environments where political parties can use repression and violence to exclude voters from elections, they may optimally target the swing voters. This is because they anticipate that if they had to compete for the support of these voters, they would end up giving them a lot of policy favors. Hence in weakly institutionalized political environments swing voters are cursed rather than blessed. We illustrate the analysis with a discussion of recent political events in Zimbabwe.
    JEL: H1
    Date: 2009–03
  2. By: Axel Dreher (University of Goettingen, Germany, KOF Swiss Economic Institute, Switzerland, IZA, and CESifo Germany. E-mail:; Nathan Jensen (Department of Political Science, Washington University in St. Louis)
    Abstract: In this project we explore the relationship between leader change and relations between states. Voting in the United Nation’s General Assembly (UNGA) is often used as a measure of political proximity between countries. We use UN voting coincidence to examine how changes in leadership affect relations. Specifically, we examine how political change affects a country’s voting with the United States. In this paper we explore how leadership change affects UNGA voting. Using differences between “key” and “non-key” UN votes to the United States, we explore if political change is driven by preference change or by a changing external position. While political change has little impact on voting on non-key issues (state preferences) we find that after leadership change, countries are more likely to vote in line with the United States on key UN votes.
    Keywords: United Nations General Assembly voting, key votes
    JEL: F51 F53 D78
    Date: 2009–02
  3. By: Sixten Korkman
    Abstract: ABSTRACT : The economic profession has widely examined the effects of the pension system on economic efficiency, intergenerational fairness and the sustainability of public finances, while less attention has been paid to the political decision making process. Yet, the essence of the problem is arguably a political bias in decision making in favour of the interests of the present generations. The young and unborn generations may receive little weight by politicians eager to please voters in the next election. The focus in this paper is on decisions on pension entitlements and commitments within the framework of a very simple ´overlapping generations model´. The analysis is first applied to democratic decision making, based on majority voting. In Finland, however, the parliament has devolved much of its power over (earnings-related) pensions to the corporatist system. The democratic and corporatist decision making processes are compared and their relative pros and cons evaluated. The paper also considers the case for refining current decision making structures.
    Date: 2009–03–10
  4. By: Gary Charness (University of California, Santa Barbara); Chun-Lei Yang
    Abstract: We test a mechanism whereby groups are formed endogenously, through the use of voting. Once formed, groups play a public-goods game, where there are economies of scale: in two treatments the social value of an incremental contribution to the group account increases with the size of the group, but in the second treatment, the social value is capped once a certain group size is reached. Societies of nine people are initially formed randomly into three groups of three people who play the game for three periods. Individuals then learn about the average contribution of each individual (by ID number) in one's current own group, as well as the average contribution in other groups, and can decide whether to exit the group. Remaining group members choose whether to exclude any current members from the group; the new groups and 'free agents' then choose whether to merge with other existing groups and/or other free agents. We find a great degree of success for this mechanism. The average contribution rate is quite high in both treatments, but is modestly (albeit significantly) higher in the first treatment, when there is no cap on the social value of a contribution. In the first treatment, we see large and stable groups forming, but we see considerably more instability and smaller group sizes in the second treatment. The driving force appears to be the economies of scale combined with the awareness that bad behavior will result in ostracism, but in the Athenian sense of possible redemption. This redemption is a unique feature of our environment, with about one-third of the population becoming good citizens after initially being low contributors.
    Keywords: Endogenous group formation, Exclusion, Experiment, Merger, Ostracism, Public goods, Social efficiency, Voting,
    Date: 2008–09–29
  5. By: Heikki Kauppi (Department of Economics, University of Turku); Mika Widgrén (Department of Economics, Turku School of Economics)
    Abstract: It is a constant topic of debate how the European Union (EU) spends the money it collects from its member states. This paper supports the idea that the EU budget battle involves one-shot games that have persistent impacts on the budget allocations. In one way or the other, the member states are able to establish rules or contracts that restrict the budget allocation in advance. In the current status quo, France and Spain are the clearest winners of these restrictions, while Austria, Finland and Sweden, not to mention the new member states, suffer largest losses.
    Keywords: EU budget, voting power
    JEL: C71 D70 D72
    Date: 2009–03
  6. By: De Donder, Philippe; Le Breton, Michel; Peluso, Eugenio
    Abstract: In this paper, we lay the first building blocks of a positive theory of nation formation where national choices consist of the size and location of a public good. Individuals differ both in income and in their preferences for the public good location. Public expenditures are financed either by a lump sum tax or by a proportional income tax. We study both the simultaneous and the sequential determinations of the public good size and location. We show that, while the choice of the type of public good follows the traditional median logic, the majoritarian determination of the taxation rate need not coincide with the choice of a median income citizen. With lump sum financing, income heterogeneity plays no role and the sequential equilibrium consists of the median location together with the public good level most-preferred by the individual located at the median distance from the median. This policy bundle also constitutes an equilibrium with simultaneous voting in the special case of a uniform bivariate distribution of individuals' income and location. With proportional taxation, there is no policy equilibrium with simultaneous voting. We offer a complete characterization of the equations describing the sequential equilibrium in the general case and we show why and how our results depart from those obtained with the lump sum case. The public good level is lower than the one emerging under lump sum taxation when the income distribution is concave and when the correlation between individuals' income and location is positive but not perfect.
    Keywords: bidimensional policy and trait spaces; proportional income taxation
    JEL: D72 H41
    Date: 2009–03
  7. By: Alexander Stroh (GIGA Institute of African Affairs)
    Abstract: Recent publications suggest that exclusively ethnoregional parties are as rare in sub- Saharan Africa as elsewhere. At the same time, the idea that ethnicity is a very special feature of African party politics persists. The paper acknowledges the general relevance of ethnicity in party competition but emphasizes the level on which it becomes important. It develops a microbehavioral approach which pays particular attention to the strategic choices of party elites in order to supplement the dominant structuralist thinking in party research on Africa. An in-depth evaluation of detailed election data from Burkina Faso shows that strategies which rely on personal proximity between the voter and the candidates influence the parties’ success to a great extent. Parties maximize their chances of winning seats if they concentrate their limited resources on the home localities of leading party members. Hence, African party politics are less dependent on ethnic demography than is often implied but more open to change through elite behavior.
    Keywords: political parties, Burkina Faso, elections, local mobilization, resource efficiency, son of the soil
    Date: 2009–02
  8. By: Campbell Leith; Simon Wren-Lewis
    Abstract: Recent attempts to incorporate optimal fiscal policy into New Keynesian models subject to nominal inertia, have tended to assume that policy makers are benevolent and have access to a commitment technology. A separate literature, on the New Political Economy, has focused on real economies where there is strategic use of policy instruments in a world of political conflict. In this paper we combine these literatures and assume that policy is set in a New Keynesian economy by one of two policy makers facing electoral uncertainty (in terms of infrequent elections and an endogenous voting mechanism). The policy makers generally share the social welfare function, but differ in their preferences over fiscal expenditure (in its size and/or composition). Given the environment, policy shall be realistically constrained to be time-consistent. In a sticky-price economy, such heterogeneity gives rise to the possibility of one policy maker utilising (nominal) debt strategically to tie the hands of the other party, and influence the outcome of any future elections. This can give rise to a deficit bias, implying a sub-optimally high level of steady-state debt, and can also imply a sub-optimal response to shocks. The steady-state distortions and inflation bias this generates, combined with the volatility induced by the electoral cycle in a sticky-price environment, can significantly raise the costs of having a less thankfully benevolent policy maker.
    Keywords: New Keynesian Model; Government Debt; Monetary Policy; Fiscal Policy, Electoral Uncertainty, Time Consistency.
    JEL: E62 E63
    Date: 2008–05
  9. By: Basit Zafar
    Abstract: Social interdependence is believed to play an important role in how people make individual choices. This paper presents a simple model constructed on the premise that people are motivated by their own payoff as well as by how their actions compare with those of other people in their reference group. I show that conformity of actions may arise either from learning about the norm (social learning), or from adhering to the norm because of image-related concerns (social influence). To disentangle the two empirically, I use the fact that image-related concerns can be present only if actions are publicly observable. The model predictions are tested in a "charitable contribution" experiment in which the actions and identities of the subjects are unmasked in a controlled and systematic way. Both social learning and social influence seem to play an important role in the subjects' choices. In addition, individuals gain utility simply by making the same choice as the reference group (social comparison) and change their contributions in the direction of the social norm even when their identities are hidden. Once the identities and contribution distributions of group members are revealed, individuals conform to the modal choice of the group. Moreover, I find that social ties (defined as subjects knowing one another from outside the experimental environment) affect the role of social influence. In particular, a low-contribution norm evolves that causes individuals to contribute less in the presence of people they know.
    Keywords: Human behavior ; Social choice
    Date: 2009
  10. By: Hannu Vartiainen (Department of Economics, Turku School of Economics)
    Abstract: We study auction design when parties cannot commit to the mechanism. The seller may change the rules of the game any number of times and the buyers may choose their outside option at any stage of the game. A dynamic consistency condition and an optimality condition property are defined to characterize the seller's mechanism selection behavior. The unique stationary mechanism selection rule that meets the conditions is the English auction.
    Keywords: auctions, commitment, consistency, one-deviation property, stationarity
    JEL: C72 D44 D78
    Date: 2009–03
  11. By: Ghosal, Sayantan (Department of Economics, University of Warwick); Thampanishvong, Kannika (School of Economics and Finance, University of St Andrews,)
    Abstract: In a model with both issues of sovereign debtor moral hazard and creditor coordination under incomplete information, we show that the resulting conflict between ex ante and interim efficiency limits the welfare impact of strengthening CACs. Conditional on default, we show that an interim efficient CAC threshold exists and improving creditor coordination results in welfare gains. However, when ex ante efficiency requires the sovereign debtor to choose actions that reduce the probability of default, improved creditor coordination reduces ex ante efficiency and the interim efficient CAC threshold is higher than the ex ante efficient CAC threshold.
    Keywords: Sovereign Debt ; Coordination ; Moral Hazard ; Collective Action Clauses ; Ex Ante ; Ex Post ; Efficiency
    JEL: C72 C78 D82 F34
    Date: 2009

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