New Economics Papers
on Collective Decision-Making
Issue of 2010‒11‒20
twelve papers chosen by

  1. Deciding Whether a Law is Constitutional, Interpretable, or Unconstitutional By Pablo Amorós; Ricardo Martínez; Bernardo Moreno; M. Socorro Puy
  2. Identity, reputation and social interaction with an application to sequential voting By Emilio Barucci; Marco Tolotti
  3. Contesting EU Legitimacy: The Prominence, Content and Justification of Euroscepticism During 2009 EP Election Campaigns By Pieter de Wilde, Hans-Jörg Trenz; Asimina Michailidou
  4. Controlling Shareholders and the Acquisition Premiums Paid in European Takeover Bids By M.F. Thraya; J. Hagendorff
  5. Group strategy-proof social choice functions with binary ranges and arbitrary domains: characterization results By Salvador Barberà; Dolors Berga; Bernardo Moreno
  6. Democracy under uncertainty: The ‘wisdom of crowds’ and the free-rider problem in group decision making By Kameda, Tatsuya; Tsukasaki, Takafumi; Hastie, Reid; Berg, Nathan
  7. Inattentive Voters and Welfare-State Persistence By Christian Bredemeier
  8. Subgame Perfect Cooperation in an Extensive Game By Parkash Chander; Myrna Wooders
  9. Conditionality and Endogenous Policy Formationina Political Setting By S Mansoob Murshed
  10. The Effect of Entitlements and Equality on Cooperative Bargaining with Private, Unverifiable Information By Christopher Bruce; Jeremy Clark
  11. Imperfect Information and the Meltzer-Richard Hypothesis By Christian Bredemeier
  12. On the number of blocks required to access the core By Béal, Sylvain; Rémila, Eric; Solal, Philippe

  1. By: Pablo Amorós (Department of Economic Theory, Universidad de Málaga); Ricardo Martínez (Department of Economic Theory, Universidad de Málaga); Bernardo Moreno (Department of Economic Theory, Universidad de Málaga); M. Socorro Puy (Department of Economic Theory, Universidad de Málaga)
    Abstract: A high court has to decide whether a law is constitutional, un- constitutional, or interpretable. The voting system is runoff. Runoff voting systems can be interpreted both, as social choice functions or as mechanisms. It is known that, for universal domains of preferences, runoff voting systems have several drawbacks as social choice functions. Although in our setting the preferences are restricted to be single-peaked over three alternatives, these problems persist. Runoff mechanisms are not well-behaved either: they do not implement any Condorcet consistent social choice function in undominated subgame perfect Nash equilibria. We show, however, that some Condorcet consistent social choice functions can be implemented in dominant strategies via other simple and natural mechanisms.
    Keywords: Runoff voting system; Condorcet consistency; strategy-proofness; implementation theory
    JEL: C72 D71 D78
    Date: 2010–11
  2. By: Emilio Barucci (Department of Applied Mathematics, Politecnico di Milano); Marco Tolotti (Department of Applied Mathematics, University Ca'Foscari of Venice)
    Abstract: We analyze binary choices in a random utility model assuming that the agent's preferences are affected by conformism (with respect to the behavior of the society) and coherence (with respect to his identity). We apply the analysis to sequential voting when voters like to win.
    Keywords: identity; reputation; social interaction; random utility models; voting system.
    JEL: D71 D81 C62
    Date: 2010–11
  3. By: Pieter de Wilde, Hans-Jörg Trenz; Asimina Michailidou
    Abstract: This paper analyses the prominence, content and justifications of Euroscepticism as a form of EU legitimacy contestation. Support of and opposition to European integration have so far been mainly measured through the positions of political parties or citizens’ attitudes through public opinion polls. Against this reliance on static indicators, we focus on dynamic contestation, mediation and formation of public opinion in the public sphere. Our survey delivers original data on EU legitimacy contestation as unfolding on frequently visited political websites and blogs in 12 EU Member States and transnational websites during the European Parliament election campaign of 2009. The results are, first, that intensity of contestation varies across Member States unrelated to the amount of coverage of the elections. Secondly, the majority of contestation focuses on the current institutional set-up of the EU, rather than the principle or future project of European integration. A majority of evaluations made, particularly those by citizens, are negative in all countries included in our study. However, as these Eurosceptical contributions remain relatively underspecified, it is unclear what would alleviate citizens’ discontent. Thirdly, we find that a primary concern in EU legitimacy contestation is democracy, especially for those evaluating EU legitimacy negatively.
    Keywords: democracy; European elections; European identity; European Parliament; legitimacy; media
    Date: 2010–11–15
  4. By: M.F. Thraya (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II); J. Hagendorff (The University of Edinburgh BS - Business School)
    Abstract: This paper examines the incentives of controlling shareholders in the market for corporate control. We investigate the takeover premiums paid by a sample of European acquiring firms with concentrated voting rights structures. The results show a positive relationship between takeover premiums and the bidder's concentration of both voting rights and excess voting rights over cash-flow rights. With higher levels of bidder entrenchment, the valuation of a takeover target increasingly reflects the private benefits of control which bidders seek to extract from a deal
    Keywords: Controlling shareholders ; separation between the ownership and the control ; takeover premiums ; private benefits
    Date: 2010
  5. By: Salvador Barberà; Dolors Berga; Bernardo Moreno
    Abstract: We define different concepts of group strategy-proofness for social choice functions. We discuss the connections between the defined concepts under different assumptions on their domains of definition. We characterize the social choice functions that satisfy each one of them and whose ranges consist of two alternatives, in terms of two types of basic properties.
    Keywords: Social choice functions, Binary ranges, group strategy-proofness, xy-monotonicity, xy-based rules.
    JEL: D71
    Date: 2010–04–28
  6. By: Kameda, Tatsuya; Tsukasaki, Takafumi; Hastie, Reid; Berg, Nathan
    Abstract: We introduce a game theory model of individual decisions to cooperate by contributing personal resources to group decisions versus by free-riding on the contributions of other members. In contrast to most public-goods games that assume group returns are linear in individual contributions, the present model assumes decreasing marginal group production as a function of aggregate individual contributions. This diminishing marginal returns assumption is more realistic and generates starkly different predictions compared to the linear model. One important implication is that, under most conditions, there exist equilibria where some, but not all members of a group contribute, even with completely self-interested motives. An agent-based simulation confirms the individual and group advantages of the equilibria in which behavioral asymmetry emerges from a game structure that is a priori perfectly symmetric for all agents (all agents have the same payoff function and action space, but take different actions in equilibria). And a behavioral experiment demonstrates that cooperators and free-riders coexist in a stable manner in groups performing with the non-linear production function. A collateral result demonstrates that, compared to a ―dictatorial‖ decision scheme guided by the best member in a group, the majority-plurality decision rules can pool information effectively and produce greater individual net welfare at equilibrium, even if free-riding is not sanctioned. This is an original proof that cooperation in ad hoc decision-making groups can be understood in terms of self-interested motivations and that, despite the free-rider problem, majority-plurality decision rules can function robustly as simple, efficient social decision heuristics.
    Keywords: group decision making under uncertainty; free-rider problem; majority-plurality rules; marginally-diminishing group returns; evolutionary games; behavioral experiment
    Date: 2010
  7. By: Christian Bredemeier
    Abstract: Welfare-state measures often tend to persist even when they seem to have become suboptimal due to changes in the economic environment. This paper proposes an information-based explanation for the persistence of the welfare state. I present a structural model where rationally inattentive voters decide upon implementations and removals of social insurance. In this model, welfare-state persistence arises from disincentive effects of social insurance on attentiveness. The welfare state crowds out private financial precautions and with it agents‘ attentiveness to changes in economic fundamentals. When welfare-state arrangements are pronounced, agents realize changes in economic fundamentals later and reforms have considerable delays.
    Keywords: Welfare state; voting; imperfect information
    JEL: D72 H55 D83
    Date: 2010–10
  8. By: Parkash Chander (National University of Singapore and CORE, Universite Catholique de Louvain); Myrna Wooders (Department of Economics, Vanderbilt University)
    Abstract: This paper brings together two of the most important solution concepts of game theory –subgame-perfect Nash equilibrium of a non-cooperative game and the core of a cooperativegame. Our approach rests on two fundamental ideas: (1) Given an extensive game, the formationof a coalition leads to a new game where all the members of the coalition become one player. (2)At the origin of any subgame, the only possible coalitions consist of players who have decision nodes in the subgame. We introduce a concept of subgame perfect cooperative equilibrium, which we label the gamma-core of an extensive game. We provide a necessary and sufficient condition for the existence of the gamma-core of an extensive game of perfect information. As a motivating example, we formulate the problem of global warming as a dynamic game with simultaneous moves and show that if the payoff functions are quadratic, then the gamma-core of the game is nonempty.
    Keywords: subgame perfect cooperation, extensive form game, subgame perfection, gamma-core
    JEL: C72
    Date: 2010–06
  9. By: S Mansoob Murshed
    Abstract: The paper examines two issues associated with aid and fiscal policy. First, how best the conditionality behind foreign aid, sometimes non-economic, is complied within a principal-agent framework. In a multiple task and multiple principal framework, principals are better off cooperating and making the agent’s efforts more complementary. Secondly, they examine endogenous policy formation in the context of domestic politics. This involves interaction between policymakers and domestic special interest groups. Outside donors need to be aware of these processes, so that they can ultimately influence it. They examine 3 endogenous policy processes: median voter, lobbying, and a combination of political contributions as well as altruism. [Discussion Paper No.2001/92]
    Keywords: aid conditionality, fiscal policy, political processes, endogenous policy, formation
    Date: 2010
  10. By: Christopher Bruce; Jeremy Clark (University of Canterbury)
    Abstract: In many bargaining situations a third party is authorized to impose a backstop position on the bargainers. Prominent examples include governments who use collaborative policymaking between stakeholders to set public policy, but also compulsory arbitration in labour negotiations. Axiomatic models of cooperative bargaining, such as the Nash bargain, presume that the status quo allocation will have no effect on the outcome parties reach if it differs from the backstop set by the third party. In contrast, experimental findings have suggested that both equality of outcomes and entitlement (where the status quo establishes a focal point) may affect the agreements bargainers reach, at least under full information. This paper extends the investigation of the effect of equality and entitlement on cooperative bargaining to the case where parties have private, unverifiable information concerning the value of outcomes. We use a two-party, two-attribute experimental design in which subjects take part in unstructured, face-to-face bargaining to jointly select from among approximately 200 potential outcomes. We find that, relative to full information, parties who bargain under private information are almost as likely to reach agreements as those under full information, and that these agreements are still approximately Pareto efficient. Further, the effect of the status quo (rather than backstop) allocation seems amplified under private information, while the effect of equality is dampened, but not eliminated.
    Keywords: cooperative bargaining; private information; Nash bargain; egalitarian; entitlement; fairness; focal points
    JEL: C92 D74 H44 Q58
    Date: 2010–11–04
  11. By: Christian Bredemeier
    Abstract: Despite a strong theoretical prediction that income skewness and redistribution should be positively linked, empirical evidence on this issue is mixed. This paper argues that it is important to distinguish between sources of changes in income skewness. Two sources of such changes are discussed: rising polarization and upward mobility, which both increase income skewness. Under imperfect information, these developments affect redistribution in different ways. While rising polarization increases redistribution, upward mobility can have the opposite effect. Reasonable degrees of informational imperfection are sufficient to generate increasing income skewness and decreasing redistribution in the presence of upward mobility.
    Keywords: Voting; redistribution; imperfect information
    JEL: D72 H24 D83
    Date: 2010–10
  12. By: Béal, Sylvain; Rémila, Eric; Solal, Philippe
    Abstract: For any transferable utility game in coalitional form with nonempty core, we show that that the number of blocks required to switch from an imputation out of the core to an imputation in the core is less than or equal to n(n-1)/2, where n is the cardinality of the player set. This number considerably improves the upper bounds found so far by Koczy (2006) and Yang (2010). Our result relies on an altered version of the procedure proposed by Sengupta and Sengupta (1996). The use of the Davis-Maschler reduced-games is also pointed out.
    Keywords: Core; excess function; dominance path; Davis-Maschler reduced-game
    JEL: C71
    Date: 2010–11–09

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