New Economics Papers
on Collective Decision-Making
Issue of 2009‒06‒10
seven papers chosen by

  1. Noncooperative Foundations of Stable Sets in Voting Games. By Vincent Anesi
  2. Making rules credible: Divided government and political budget cycles By Jorge M. Streb; Gustavo F. Torrens
  3. How much of Federalism in the European Union By František Turnovec
  4. Two's Company, Three's a Group: The impact of group identity and group size on in-group favouritism By Donna Harris; Benedikt Herrmann; Andreas Kontoleon
  5. Bargaining, Coalitions and Externalities: a Comment on Maskin By Geoffroy de Clippel; Roberto Serrano
  6. Who is afraid of political risk? Multinational firms and their choice of capital structure By Kesternich, Iris; Schnitzer, Monika
  7. Implementation and Partial Provability By Elchanan Ben-Porath; Barton L. Lipman

  1. By: Vincent Anesi (University of Nottingham)
    Abstract: This note investigates the noncooperative foundations of von Neumann-Morgenstern (vN-M) stable sets in voting games. To do so, we study subgame perfect equilibria of a noncooperative legislative bargaining game, based on underlying simple games. The following results emerge from such an exercise: Every stable set of the underlying simple game is the limit set of undominated pure-strategy Markov perfect equilibria, and of strategically stable sets of undominated subgame perfect equilibria of the bargaining game with farsighted voters.
    Keywords: Legislative bargaining, committee, strategic stability, stable set.
    JEL: C71 C78 D71
    Date: 2009–05
  2. By: Jorge M. Streb; Gustavo F. Torrens
    Abstract: Political budget cycles (PBCs) result from the credibility problems that office-motivated incumbents face under asymmetric information, due to their temptation to manipulate fiscal policy to increase their electoral chances. We analyze the role of rules that limit debt, crucial for aggregate PBCs to take place. Since the budget process under separation of powers typically requires that the legislature authorize new debt, divided government can make these fisscal rules credible. Commitment is undermined either by unified government or by imperfect compliance with the budget law. When divided government affects efficiency, voters must trade off electoral distortions and government competence.
    Keywords: political budget cycles, discretion, uniffied government, rules, credibility, separation of powers, divided government
    Date: 2009–04
  3. By: František Turnovec (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The European Union (EU) is not de jure a federation, but after 50 years of institutional evolution it possesses attributes of a federal state. One can conclude that EU is “something between” federation and intergovernmental organization. If we measure “something between” by interval [0, 1], where 0 means fully intergovernmental organization and 1 means de facto federation, the questions are: What is the location of recent EU on this interval? What tendency of development of this location can be observed in time? In this paper we propose such a measure based on game-theoretical model of European Union decision making system.
    Keywords: Co-decision procedure, committee system, consultation procedure, European Union decision making, federation, intergovernmental organization, qualified majority, power indices, simple voting committee
    JEL: C71 D72 H77
    Date: 2009–06
  4. By: Donna Harris (Environmental Economy and Policy Research Group, Department of Land Economy, University of Cambridge, 19 Silver Street, Cambridge, UK, CB3 9EP.); Benedikt Herrmann (CeDEx, School of Economics, University of Nottingham, UK, NG7 2RD.); Andreas Kontoleon (Department of Land Economy, University of Cambridge)
    Abstract: In this study, we use an allocation game to study the effects of group identity and group size on in-group favouritism when the person's own payoff is not affected by her decision. We first show that in a triadic setting when the subjects are asked to allocate a fixed amount of resource between two other anonymous individuals, the majority of the subjects choose to allocate equal amounts to both the in-group and the out-group members. Contrary to previous studies, when group identity is induced artificially by simply telling the subjects that they belong to the same `group', it does not appear to significantly increase the amount allocated to the in-group member relative to the out-group member in a triadic setting. However, once the number of the in-group recipients is increased from one to three, the same artificial group identity triggers a sharp increase in in-group favouritism. Our results suggest that in order for favouritism to be clearly observed, not only that group identity has to be present, but also the group needs to consist of more than two members.
    Keywords: Favouritism, Group Identity, Group Behaviour, Group Size, Design of Laboratory Experiment
    Date: 2009
  5. By: Geoffroy de Clippel; Roberto Serrano
    Abstract: We first observe that two of Maskin’s results do not extend beyond three players: we construct a four-player partition function with nonpositive externalities whose unique solution is inefficient, as well as a four-player characteristic function that has a unique efficient solution for each ordering of the players, but for which the payoff vector obtained by averaging these solutions over the different orderings does not coincide with the Shapley value. On the other hand, we reinforce Maskin’s insight that externalities may play a crucial role in generating inefficiency. Many existing solutions on how to share profits assume or derive the property of efficiency. Yet we argue that players may have an interest to choose with whom to bargain. We illustrate how this may trigger inefficiency, especially in the presence of externalities, even if bargaining among any group of agents results in an efficient distribution of the surplus they can produce. We also provide some sufficient conditions for efficiency.
    Keywords: externalities; coalition formation; Shapley value
    Date: 2008
  6. By: Kesternich, Iris; Schnitzer, Monika
    Abstract: This paper investigates how multinational firms choose the capital structure of their foreign affiliates in response to political risk. We focus on two choice variables, the leverage and the ownership structure of the foreign affiliate, and we distinguish different types of political risk, such as expropriation, unreliable intellectual property rights and confiscatory taxation. In our theoretical analysis we find that, as political risk increases, the ownership share tends to decrease, whereas leverage can both increase or decrease, depending on the type of political risk. Using the Microdatabase Direct Investment of the Deutsche Bundesbank, we find supportive evidence for these different effects.
    Keywords: Multinational firms, political risk, capital structure, leverage, ownership structure, foreign affiliates
    JEL: F21 F23 G32
    Date: 2009
  7. By: Elchanan Ben-Porath (Department of Economics and Center for Rationality, Hebrew University); Barton L. Lipman (Department of Economics, Boston University)
    Abstract: We extend implementation theory by allowing the social choice function to depend on more than just the prole of preferences of the agents and by allowing agents to support their statements with hard evidence. We show that a simple condition on the evidence structure which is necessary for the implementation of a social choice function f when the preferences of the agents are state independent is also sufficient for implementation for any preferences (including state dependent) if the social planner can perform small monetary transfers and there are at least three players. If transfers can be large, f can be implemented in a game with perfect information when there are at least two players under an additional boundedness assumption. In both cases, transfers only occur off the equilibrium path. Finally, in the special but important case of allocation problems, under weak conditions, f can be implemented in a perfect information game with at least two players and no transfers. In all cases, the use of evidence enables implementation which is robust in the sense that the social planner needs very little information about the preferences, beliefs, and evidence of the agents and the agents need little information about each others' preferences.
    Date: 2009–04

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