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

  1. Reforming IMF and World Bank governance : in search of simplicity, transparency and democratic legitimacy in the voting rules By Leech, Dennis; Leech, Robert
  2. Institutional Inertia By Laura Valderrama
  3. The Successful Ghana Election of 2008 – a Convenient Myth? Ethnicity in Ghana’s Elections Revisited By Heinz Jockers; Dirk Kohnert; Paul Nugent
  4. The logic of party coalitions with political activism and public financing By Giuranno, Michele
  5. Do Better Paid Politicians Perform Better? Disentangling Incentives from Selection By Gagliarducci, Stefano; Nannicini, Tommaso
  6. Political Risk Aversion By Laura Valderrama
  7. Risk Aversion, Over-Confidence and Private Information as Determinants of Majority Thresholds. By Giuseppe Attanasi, Luca Corazzini, Nikolaos Georgantzis, Francesco Passarelli.
  8. Tobacco Politics and Electoral Accountability in the United States By Fredriksson, Per; Mamun, Khawaja
  9. The Political Economy of Conscription By Poutvaara, Panu; Wagener, Andreas
  10. Power Fluctuations and Political Economy By Daron Acemoglu; Mikhail Golosov; Aleh Tsyvinski
  11. Minimum Participation Rules with Heterogeneous Countries By Hans-Peter Weikard; Leo Wangler; Andreas Freytag

  1. By: Leech, Dennis (University of Warwick); Leech, Robert (Imperial College London)
    Abstract: We discuss the reform of the voting rules at the heart of the governance of the IMF and World Bank (the BWIs) in terms of three principles that we suggest ought to be fundamental: simplicity, transparency and democratic legitimacy. By simplicity we mean that the rules should make sense in terms of the purposes of the BWI and be easy to understand. By transparency we mean that the rules mean what they appear to mean in the sense of leading to the same distribution of voting power as the institution's designers intended. We show using voting power analysis that the inequality in the distribution of voting power among countries is greater than that of their voting weight. By democratic legitimacy, we consider whether we can reconcile weighted voting with democracy. Our conclusion is that the voting rules as they currently exist are far from satisfying any of these criteria and that recent reform proposals do not lead us to change this conclusion.
    Date: 2009
  2. By: Laura Valderrama
    Abstract: We study the relative efficiency of outside-owned versus employee-owned firms and analyze implications for institutional change in a context of technological innovation. When decisions are made through majority voting, the vote on technology choice is used to influence the later vote on the sharing rule. We show how this dynamic voting generates a systematic technological bias that is contingent on firm ownership. We provide conditions under which the pivotal voter's political leverage leads the firm to an institutional trap whereby majority voting and inefficient technology choice reinforce each other, leading to institutional inertia.
    Keywords: Corporate governance , Corporate sector , Economic models , Political economy , Productivity , Technology transfer , Voting power ,
    Date: 2009–09–14
  3. By: Heinz Jockers; Dirk Kohnert (GIGA Institute of African Affairs); Paul Nugent (Centre of African Studies at the University of Edingburgh)
    Abstract: Ghana’s 2008 elections have been hailed by national and international observers as a model for Africa. This perception has prevailed despite persistent concerns about “ethnic block voting” and electoral fraud. Electoral malpractice and vote rigging along ethnic lines in Ghana’s virtual two-party system could regain decisive importance as a “third force” that could tip the balance in future, possibly coming to represent an even more important factor than the smaller opposition parties. Unfortunate diplomatic and technocratic biases in election monitoring, combined with a reluctance on the part of the responsible authorities to investigate irregularities in what appears to be a long history of fraudulent “ethnic block voting”, amounts to a dangerous time bomb of unresolved conflict which could explode in future elections.
    Keywords: elections, ethnicity, election observation, informal institutions, impunity, Ghana
    Date: 2009–09
  4. By: Giuranno, Michele
    Abstract: This paper presents a model of party coalition formation between policy- motivated activists and office-seeking opportunists. In this framework, I con- sider how changes in party valence and public financing of political parties shape the equilibrium inside coalitions. Results show that, in equilibrium, op- portunists and activists have the same marginal rate of substitution between policy position and activists'contribution. An asymmetric worsening of one party's valence leads to divergence of its policy platform and a higher degree of activism. Furthermore, public financing of political parties drives activism or idealism out of politics. As a consequence, public financing is an important policy instrument to regulate the trade-o¤ between the degree of activism in politics and the independence of political parties from lobbying.
    Keywords: activists, idealism, lobbyists, coalition formation, Nash bargaining, party valence, polarization.
    JEL: D70 D72 D78
    Date: 2009–09
  5. By: Gagliarducci, Stefano (University of Rome Tor Vergata); Nannicini, Tommaso (Bocconi University)
    Abstract: The wage paid to politicians affects both the choice of citizens to run for an elective office and the performance of those who are appointed. First, if skilled individuals shy away from politics because of higher opportunities in the private sector, an increase in politicians' pay may change their mind. Second, if the reelection prospects of incumbents depend on their in-office deeds, a higher wage may foster performance. We use data on all Italian municipal governments from 1993 to 2001 and test these hypotheses in a quasi-experimental framework. In Italy, the wage of the mayor depends on population size and sharply rises at different thresholds. We apply a regression discontinuity design to the only threshold that uniquely identifies a wage increase – 5,000 inhabitants – to control for unobservable town characteristics. Exploiting the existence of a two-term limit, we further disentangle the composition from the incentive component of the effect of the wage on performance. Our results show that a higher wage attracts more educated candidates, and that better paid politicians size down the government machinery by improving internal efficiency. Importantly, most of this performance effect is driven by the selection of competent politicians, rather than by the incentive to be reelected.
    Keywords: political selection, efficiency wage, term limit, local finance, regression discontinuity design
    JEL: M52 D72 J45 H70
    Date: 2009–09
  6. By: Laura Valderrama
    Abstract: This paper studies the effect of individual uncertainty on collective decision-making to implement innovation. We show how individual uncertainty creates a bias for the status quo even under irreversible voting decisions, in contrast with Fernandez and Rodrik (1991). Blocking innovation is rooted in the aversion to the potential loss of political clout in future voting decisions. Thus, risk neutral individuals exhibit what we call political risk aversion. Yet individual uncertainty is not all bad news as it may open the door to institutional reform. We endogenize institutional reform and show a non-monotonic relationship between institutional efficiency and the size of innovation.
    Keywords: Corporate governance , Corporate sector , Economic models , Labor mobility , Political economy , Productivity , Technology transfer , Voting power ,
    Date: 2009–09–14
  7. By: Giuseppe Attanasi, Luca Corazzini, Nikolaos Georgantzis, Francesco Passarelli.
    Abstract: We study, both theoretically and experimentally, the relation between preferred majority thresholds and behavioral traits such as the degree of risk aversion and the subjective confidence on others' preferences over the alternatives to vote. The main theoretical findings are supported by experimental data. The majority threshold chosen by a subject is positively and significantly correlated with her degree of risk aversion while it is negatively and significantly associated to her confidence on others' votes. Moreover, in a treatment in which each subject can privately observe the distribution of preferences over a sub-group of participants, we find that the quality of information crowds-out subject's confidence.
    Keywords: majority threshold, risk aversion, (over-)confidence, laboratory experiment.
    JEL: C91 D72 H11 D81
    Date: 2009–10
  8. By: Fredriksson, Per (University of Louisville); Mamun, Khawaja (John F. Welch College of Business, Sacred Heart University)
    Abstract: This paper investigates whether reputation-building strategies guide U.S. governors’ state cigarette tax choices, and whether the federal cigarette tax influences such behavior. Using 1975-2000 data, we find evidence that governors in states with relatively important agricultural tobacco production and tobacco manufacturing, and which are densely populated by smokers, appear prone to reputation-building. Moreover, lame ducks are more prone to raise the state cigarette tax the lower the federal tax.
    Keywords: Agricultural tobacco, cigarette taxation, lobbying, reputation-building; electoral accountability; term limits; federalism
    JEL: H71 H77 D72 D78
    Date: 2009–10
  9. By: Poutvaara, Panu (University of Helsinki); Wagener, Andreas (University of Hannover)
    Abstract: Though in decline recently, military conscription is still a widely used mode of staffing armies. Since not many valid economic, social or military arguments in favor of the draft can be put forward, the question emerges why societies choose to rely on it. In this survey we explain the political allure of military conscription by its specific intra- and intergenerational incidence as a tax. From a public choice perspective, there is always a vast majority of people in favor of the introduction and maintenance of military draft, as compared to a professional army. Empirical evidence for this conclusion appears to be mixed, however. Political preferences with respect to conscription involve concerns about its unfairness and questionable record on social accounts. Special interests may also matter.
    Keywords: fairness, dynamic costs, military draft, public choice, taxation
    JEL: H56 D72
    Date: 2009–09
  10. By: Daron Acemoglu; Mikhail Golosov; Aleh Tsyvinski
    Abstract: We study the constrained Pareto efficient allocations in a dynamic production economy in which the group that holds political power decides the allocation of resources. We show that Pareto efficient allocations take a quasi-Markovian structure and can be represented recursively as a function of the identity of the group in power and updated Pareto weights. For high discount factors, the economy converges to a first-best allocation in which labor supply decisions are not distorted and the levels of labor supply and consumption are constant over time (though there may be transfers from one group to another). For low discount factors, the economy converges to an invariant stochastic distribution in which distortions do not disappear and labor supply and consumption levels fluctuate over time. The labor supply of groups that are not in power are taxed in order to reduce the deviation payoff of the party in power and thus relax the political economy/sustainability constraints. We also show that the set of sustainable first-best allocations is larger when there is less persistence in the identity of the party in power. This result contradicts a common conjecture that there will be fewer distortions when the political system creates a “stable ruling groupâ€. In contrast, political economy distortions are less important when there are frequent changes in power (because this encourages compromise between social groups). Despite this result, it remains true that distortions decrease along sample paths where a particular group remains in power for a longer span of time.
    JEL: E61 H11 P16
    Date: 2009–10
  11. By: Hans-Peter Weikard (Department of Social Sciences, Wageningen University, The Netherlands); Leo Wangler (Department of Economics, Friedrich Schiller University Jena, Germany); Andreas Freytag (Department of Economics, Friedrich Schiller University Jena, Germany)
    Abstract: Almost all international environmental agreements include a minimum participation rule. Under such a rule an agreement becomes legally binding if and only if a certain threshold in terms of membership or contribution is reached. We analyze a cartel game with open membership and heterogeneous countries to study the endogenous choice of a minimum participation rule and its role for the success of international environmental agreeme
    Keywords: Minimum participation rules, international environmental agreements, coalition formation, transboundary pollution, environmental policy coordination
    JEL: D62 H41 D02 C72
    Date: 2009–09–25

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