New Economics Papers
on Collective Decision-Making
Issue of 2013‒02‒08
twenty papers chosen by
Stan C. Weeber, McNeese State University

  1. Why Do Voters Dismantle Checks and Balances? By Daron Acemoglu; James A. Robinson; Ragnar Torvik
  2. Risk-sharing and contagion in networks By Antonio Cabrales; Piero Gottardi; Fernando Vega-Redondo
  3. Collective Action Clauses before they had Airplanes: Bondholder Committees and the London Stock Exchange in the 19th Century (1827-1868) By Marc Flandreau
  4. Free Trade Aggreements and the Consolidation of Democracy By Xuepeng Liu; Emanuel Ornelas
  5. Sovereign Contagion in Europe: Evidence from the CDS Market By Paolo Manasse; Luca Zavalloni
  6. Collective action clauses: how do they weigh on sovereigns? By Alfredo Bardozzetti; Davide Dottori
  8. Elections and the structure of taxation in developing countries. By Ehrhart, H.
  9. Peer Effects in Endogenous Networks By Timo Hiller
  10. Political Centralization in Pre-Colonial Africa By Philip Osafo-Kwaako; James A. Robinson
  11. Understanding Public Support for Externality-Correcting Taxes and Subsidies: A Lab Experiment By David Heres; Steffen Kallbekken; Ibon Galarraga
  12. Overbidding and Heterogeneous Behavior in Contest Experiments By Sheremeta, Roman
  13. Friends and Enemies: A Model of Signed Network Formation By Timo Hiller
  14. Experimental Study of Bilateral Cooperation Under a Political Conflict: The Case of Israelis and Palestinians By Sebastian J. Goerg; Jan Meise; Gari Walkowitz; Eyal Winter
  15. It’s Who You Know: Social Networks, Interpersonal Connections, and Participation in Collective Violence By Omar McDoom
  16. You never give me your money? Sovereign debt crises, collective action problems, and IMF lending By Marco Committeri; Francesco Spadafora
  17. Expectations Traps and Coordination Failures with Discretionary Policymaking By Richard Dennis; Tatiana Kirsanova
  18. Uncertainty as Commitment By Jaromir Nosal; Guillermo Ordoñez
  19. The upward spirals in team processes: Examining dynamic positivity in problem solving teams By Nale Lehmann-Willenbrock; Ming Ming Chiu; Zhike Lei; Simone Kauffeld
  20. Managing grasslands biodiversity at a landscape level to foster ecosystem services in intensive cereal systems: from ecological knowledge to collective action By Vincent Bretagnolle; Elsa Berthet

  1. By: Daron Acemoglu; James A. Robinson; Ragnar Torvik
    Abstract: Voters often dismantle constitutional checks and balances on the executive. If such checks and balances limit presidential abuses of power and rents, why do voters support their removal? We argue that by reducing politician rents, checks and balances also make it cheaper to bribe or in?uence politicians through non-electoral means. In weakly-institutionalized polities where such non-electoral in?uences, particularly by the better organized elite, are a major concern, voters may prefer a political system without checks and balances as a way of insulating politicians from these in?uences. When they do so, they are e?ectively accepting a certain amount of politician (presidential) rents in return for redistribution. We show that checks and balances are less likely to emerge when the elite is better organized and is more likely to be able to in?uence or bribe politicians, and when inequality and potential taxes are high (which makes redistribution more valuable to the majority). We also provide case study evidence from Bolivia, Ecuador and Venezuela and econometric evidence on voter attitudes from a Latin American survey consistent with the model.
    Keywords: corruption, checks and balances, political economy, redistribution, separation of powers, taxes
    JEL: H1 O17 P48
    Date: 2013–01
  2. By: Antonio Cabrales; Piero Gottardi; Fernando Vega-Redondo
    Abstract: The aim of this paper is to investigate how the capacity of an economic system to absorb shocks depends on the specific pattern of interconnections established among financial firms. The key trade-off at work is between the risk-sharing gains enjoyed by firms when they become more interconnected and the large-scale costs resulting from an increased risk exposure. We focus on two dimensions of the network structure: the size of the (disjoint) components into which the network is divided, and the “relative density" of connections within each component. We find that when the distribution of the shocks displays "fat" tails extreme segmentation is optimal, while minimal segmentation and high density are optimal when the distribution exhibits "thin" tails. For other, less regular distributions intermediate degrees of segmentation and sparser connections are also optimal. We also find that there is typically a conflict between efficiency and pairwise stability, due to a “size externality" that is not internalized by firms who belong to components that have reached an individually optimal size. Finally, optimality requires perfect assortativity for firms in a component.
    Keywords: Firm networks, Contagion, Risk Sharing
    JEL: D85 C72 G21
    Date: 2013–01
  3. By: Marc Flandreau (Graduate Institute of International Studies)
    Abstract: This paper unpacks the operation of foreign debt bondholder committees before the creation of the British Corporation of Foreign Bondholders (CFB) in 1868. I argue that many ideas about this period need to be revisited. In particular, my evidence (which uses archival work to describe market microstructures) shows the importance of the London Stock Exchange as a Court of Arbitration. I show how the LSE General Purpose Committee set up a system of Collective Action Clauses, requiring majority agreement among bondholders to sanction a restructuring deal and permit market access. I argue that (unlike what research has argued thus far) this created powerful incentives for bondholders to get organized as they did. Previous models and formal analyses need to be recast. The CFB appears to have been an experiment in statutory restructurings rather than one in coordination.
    Date: 2013–01–30
  4. By: Xuepeng Liu; Emanuel Ornelas
    Abstract: We study the relationship between participation in free trade agreements (FTAs) and the sustainability of democracy. Our model shows that FTAs can critically reduce the incentive of authoritarian groups to seek power by destroying protectionist rents, thus making democracies last longer. This gives governments in unstable democracies an extra motive to form FTAs. Hence, greater democratic instability induces governments to boost their FTA commitments. In a dataset with 116 countries over 1960-2007, we find robust support for these predictions. They help to rationalize the rapid simultaneous growth of regionalism and of worldwide democratization since the late 1980s.
    Keywords: Regionalism, rent destruction, political regimes, trade liberalization
    JEL: F13 D72 F53 F15
    Date: 2013–01
  5. By: Paolo Manasse; Luca Zavalloni
    Abstract: This paper addresses the following questions. Is there evidence of contagion in the Eurozone? To what extent do sovereign risk and the vulnerability to contagion depend on fundamentals as opposed to a country's "credibility"? We look at the empirical evidence on EU sovereigns CDS spreads and estimate an econometric model where the crucial role is played by time varying parameters. We model CDS spread changes at country level as reecting three different factors: a Global sovereign risk factor, a European sovereign risk factor and a Financial intermediaries risk factor. Our main ndings are as follows. First, while the US subprime crisis affects all European sovereign risks, the Greek crisis is largely a matter concerning the Euro Zone. Second, differences in vulnerability to contagion in the Eurozone are remarkable: after the Greek crisis the core Eurozone members become less vulnerable to EUZ contagion, possibly due to a safe-heaven effect, while peripheric countries become more vulnerable. Third, market fundamentals go a long way in explaining these differences: they jointly explain between 54 and 80% of the cross-country variation in idiosyncratic risks and in the vulnerability to contagion, largely supporting the "wake-up calls" hypothesis suggesting that market participats bocome more wary of market fundamentals during finacial crises.
    Date: 2013
  6. By: Alfredo Bardozzetti (Bank of Italy); Davide Dottori (Bank of Italy)
    Abstract: We study the effects of the adoption of collective action clauses (CACs) on government bond yields by exploiting secondary market data on sovereigns quoted in international markets from March 2007 to April 2011. CACs are assessed security by security. Using a panel data approach, we find a U-shaped effect of CACs on yields according to credit rating of the issuer. While the impact is negligible for the highest ratings, there emerges a significant yield discount for mid-ratings, which is smaller for bad ratings and possibly insignificant for the worst ratings. The relationship appears fairly robust across a number of robustness checks. This evidence may reflect the fact that CACs are valuable as they help orderly restructuring unless the perceived probability of default is too small. Nevertheless, at low ratings this relevance can be weakened by an increasing moral hazard risk.
    Keywords: Collective Action Clauses (CACs), sovereign yields, debt restructuring, default, panel data
    JEL: F34 G15 H63
    Date: 2013–01
  7. By: Monica Martinez-Bravo (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: New democracies experience greater electoral fraud and more clientelistic spending than established democracies. This paper shows that the body of appointed local officials that a new democracy inherits from the previous regime is a key determinant of the extent of these practices. With a unique dataset from the first post-Soeharto election in Indonesia, I show that the alignment of electoral results between village and district levels is considerably stronger for villages with appointed village heads than for those with elected village heads. I present a model that provides an intuitive interpretation of these results: Appointed officials have stronger incentives to influence voters because of their political career concerns.
    Keywords: Institutions, local elections, clientelism, new democracies.
    JEL: D72 P16 O12 O17
    Date: 2013–01
  8. By: Ehrhart, H.
    Abstract: This article analyses the impact of the electoral calendar on the composition of tax revenue (direct versus indirect taxes). It thus represents an extension of traditional political budget-cycle analyses assessing the impact of elections on overall revenue. Panel data from 56 developing countries over the 1980-2006 period reveals a clear pattern of electorally-related policy interventions. Taking the potential endogeneity of election timing into account, we find robust evidence of lower indirect taxes being applied by incumbent governments in the period just prior to an election. Indirect tax revenue in election years is estimated to be 0.3 GDP percentage points lower than in other years, corresponding to a fall of about 3.4% of the average figure in the sample countries, while there is no such relationship with direct tax revenue.
    Keywords: Political budget cycles, Elections, Taxation, Developing countries.
    JEL: D72 E62 O10
    Date: 2013
  9. By: Timo Hiller
    Abstract: This paper presents a simple model of strategic network formation with local com- plementarities in effort levels and positive local externalities. Equilibrium networks display - other than the complete and the empty network - a core-periphery structure, which is commonly observed in empirical studies. Ex-ante homogenous agents may obtain very different ex-post outcomes. These findings are relevant for a wide range of social and economic phenomena, such as educational attainment, criminal activity, labor market participation and R&D expenditures of rms.
    Keywords: Network formation, peer effects, strategic complements, positive externalities
    JEL: D62 D85
    Date: 2012–11
  10. By: Philip Osafo-Kwaako; James A. Robinson
    Abstract: In this paper we investigate the empirical correlates of political centralization using data from the Standard Cross-Cultural Sample. We specifically investigate the explanatory power of the standard models of Eurasian state formation which emphasize the importance of high population density, inter-state warfare and trade as factors leading to political centralization. We find that while in the whole world sample these factors are indeed positively correlated with political centralization, this is not so in the African sub-sample. Indeed, none of the variables are statistically related to political centralization. We also provide evidence that political centralization, where it took place, was indeed associated with better public goods and development outcomes. We conclude that the evidence is quite consistent with the intellectual tradition initiated in social anthropology by Evans-Pritchard and Fortes in the 1940s which denied the utility of Eurasian models in explaining patterns of political centralization in Africa.
    JEL: N17
    Date: 2013–02
  11. By: David Heres; Steffen Kallbekken; Ibon Galarraga
    Abstract: The potential of taxation to correcting environmental externalities has been long recognized among economists. Yet, this welfare-enhancing policy commonly faces strong opposition by citizens. Conversely, externality-correcting subsidies frequently enjoy high levels of public acceptance. We conduct a lab experiment to explore public support for Pigouvian taxes and subsidies. In an experimental market with a negative externality, participants vote on the introduction of Pigouvian taxes and subsidies under full or partial information concerning how the tax revenues will be spent and the subsidy paid for. Theoretically the two instruments should produce identical outcomes. We find substantially greater support for subsidies than taxes. This can partially be explained by the expectation that the subsidy will increase payoffs more than a tax, but not because it could be more effective in changing behavior. Furthermore, we find that under partial information, the preference for subsidies is even stronger.
    Keywords: Pigouvian taxes; subsidies; lab experiment; public policy; revenues; effectiveness
    Date: 2013–01
  12. By: Sheremeta, Roman
    Abstract: We provide an overview of experimental literature on contests and point out the two main phenomena observed in most contest experiments: (i) overbidding relative to the standard Nash equilibrium prediction and (ii) heterogeneous behavior of ex-ante symmetric contestants. Based on the sample of contest experiments that we review, the median overbidding rate is 72%. We provide different explanations for the overbidding phenomenon, including bounded rationality, utility of winning, other-regarding preferences, probability distortion, and the shape of the payoff function. We also provide explanations for heterogeneous behavior of contestants based on differences in preferences towards winning, inequality, risk and losses, and demographic differences. Furthermore, we suggest mechanisms that can reduce overbidding and induce more homogeneous behavior. Finally, we discuss directions for future research.
    Keywords: experiments; contests; overbidding; heterogeneous behavior
    JEL: C92 D74 D72 C91 C72
    Date: 2013–01–25
  13. By: Timo Hiller
    Abstract: I propose a game of signed network formation, where agents make friends to coerce payoffs from enemies with fewer friends. The model accounts for the interplay between friendship and enmity. Nash equilibrium configurations are such that, either everyone is friends with everyone, or agents can be partitioned into sets of different size, where agents within the same set are friends and agents in different sets are enemies. These results mirror findings of a large body of work on signed networks in sociology, social psychology, international relations and applied physics.
    Keywords: Network Formation, Structural Balance, Alliances, Contest Success Function
    JEL: D74 D85
    Date: 2012–10
  14. By: Sebastian J. Goerg; Jan Meise; Gari Walkowitz; Eyal Winter
    Abstract: We investigate strategic interactions of Israelis and Palestinians within a controlled laboratory experiment. In our first treatment we retrieve cooperation benchmarks prevailing within both subject pools. Then we measure cooperation levels and associated beliefs between Israelis and Palestinians. Treatment three assesses the influence of pre-play face-to-face encounter on cooperative behavior. Our findings are: The degree of expected and actual cooperation within the Palestinian subject pool is significantly higher as compared to the respective levels found in Israel. In line with previous findings, cooperation decreases if subjects are paired with subjects from the other subject pool. Previously detected subject pool differences are not offset. The drop in inter-subject pool cooperation can be outweighed by the introducing of face-to-face communication, which dramatically increases the cooperation rates. The differences in contributions between Palestinians and Israelis are associated with differences in subjects' beliefs. Face-to-face encounter increases and balances beliefs and therefore enhances cooperation.
    Keywords: Bargaining, Belief-structure, Israeli-Palestinian Conflict, International Cooperation, Prisoner's Dilemma
    JEL: A13 C72 C91 F51
    Date: 2013–01–21
  15. By: Omar McDoom (London School of Economics)
    Abstract: Although popularly perceived as a positive force, social capital may also produce socially undesirable outcomes. Drawing on Rwanda’s 1994 genocide, this article shows that participation in its violence was partly determined by the features of individuals’ social networks. Perpetrators possessed larger networks in general and more connections to other perpetrators in particular. The quality as well as quantity of connections also mattered. Strong ties generally, and kinship and neighborly ties specifically, were strong predictors of participation. In contrast, possession of countervailing ties to nonparticipants was not significant. In explaining these findings, I suggest participants’ networks fulfilled functions of information diffusion, social influence, and behavioral regulation. The findings point to the importance of social structure and suggest that relational data should complement individual attribute data in predicting participation in collective violence.
    Date: 2013–02
  16. By: Marco Committeri (Bank of Italy); Francesco Spadafora (International Monetary Fund)
    Abstract: We review the impact of the global financial crisis, and its consequences for the sovereign sector of the euro area, on the international “rules of the game” for dealing with sovereign debt crises. These rules rest on two main pillars. The most important is the IMF’s lending framework (policies, financing facilities, and financial resources), which is designed to support macroeconomic adjustment packages based on the key notion of public debt sustainability. The complementary pillar is represented by such contractual provisions as Collective Action Clauses (CACs) in sovereign bonds, which aim to facilitate coordination among private creditors in order to contain the costs of a debt default or restructuring. We analyze the most significant changes (and their consequences) prompted by the recent crises to the Fund’s lending framework, not only in terms of additional financial resources, new financing facilities (including precautionary ones), and cooperation with euro-area institutions, but also as regards the criteria governing exceptional access to the Fund’s financial resources. We highlight a crucial innovation to these criteria, namely that, for the first time, they now explicitly take account of the risk of international systemic spillovers. Finally, we underscore the need for improved collective governance of systemic fiscal risks, with greater discipline in public finances and market monitoring, expansion of existing financial safety nets, accelerated dissemination of CACs, and new tools to sever the link between sovereign and banking risks.
    Keywords: collective action clauses, sovereign debt restructuring, IMF financing, systemic spillovers
    JEL: F33 F34
    Date: 2013–01
  17. By: Richard Dennis; Tatiana Kirsanova
    Abstract: Discretionary policymakers cannot manage private-sector expectations and cannot coordinate the actions of future policymakers. As a consequence, expectations traps and coordination failures can occur and multiple equilibria can arise. To utilize the explanatory power of models with multiple equilibria it is first necessary to understand how an economy arrives to a particular equilibrium. In this paper we employ notions of learnability and self-enforceability to motivate and identify equilibria of particular interest. Central among these criteria are whether the equilibrium is learnable by private agents and jointly learnable by private agents and the policymaker. We use two New Keynesian policy models to identify the strategic interactions that give rise to multiple equilibria and to illustrate our methods for identifying equilibria of interest. Importantly, unless the Pareto-preferred equilibrium is learnable by private agents, we find little reason to expect coordination on that equilibrium.
    Keywords: Discretionary policymaking, multiple equilibria, coordination, equilibrium selection.
    JEL: E52 E61 C62 C73
    Date: 2013–01
  18. By: Jaromir Nosal; Guillermo Ordoñez
    Abstract: Time-inconsistency of no-bailout policies can create incentives for banks to take excessive risks and generate endogenous crises when the government cannot commit. However, at the outbreak of financial problems, usually the government is uncertain about their nature, and hence it may delay intervention to learn more about them. We show that intervention delay leads to strategic restraint banks endogenously restrict the riskiness of their portfolio relative to their peers in order to avoid being the worst performers and bearing the cost of such delay. These novel forces help to avoid endogenous crises even when the government cannot commit. We analyze the effect of government policies from the perspective of this new result.
    JEL: D53 D8 D81 D83 E44 E58 G21 G33 G34
    Date: 2013–02
  19. By: Nale Lehmann-Willenbrock (VU University Amsterdam); Ming Ming Chiu (University at Buffalo – SUNY); Zhike Lei (ESMT European School of Management and Technology); Simone Kauffeld (Technische Universität Braunschweig)
    Abstract: Positivity in the workplace has been heralded to produce individual, social and organizational benefits. Although we know more about how positivity “broadens” and “builds” within individuals, little research has explicitly studied how positivity naturally occurs and dynamically unfolds in the flow of team interactions. This study aims to address this research gap by integrating existing knowledge on team processes with the notions of emotional cycles and “energy-in-conversation.” We observed meeting interactions of 43 frontline problem solving teams and analyzed a sample of 43,139 coded individual utterances from these teams. Using statistical discourse analysis (SDA) to model multi-level dynamics over time, we found that early positive and solution-focused interactions could send teams down a path of eliciting more “upward spirals”, thus more positivity. We also found that speaker switches added more positivity to team interactions both directly and by strengthening the positive effects of early positive and solution-focused interactions on subsequent positivity occurring in team interactions. Additionally and importantly, we found that overall positivity has positive implications for team performance. We discuss both theoretical and managerial implications of our findings.
    Keywords: dynamic positivity, team processes, team interactions, problem-solving, dynamic multi-level modeling, statistical discourse analysis
    Date: 2013–02–04
  20. By: Vincent Bretagnolle (CEBC - Centre d'études biologiques de Chizé - CNRS : UPR1934); Elsa Berthet (SADAPT - Sciences pour l'Action et le Développement : Activités, Produits, Territoires - Institut national de la recherche agronomique (INRA) : UMR1048 - AgroParisTech, CGS - Centre de Gestion Scientifique - École Nationale Supérieure des Mines - Paris (ParisTech))
    Abstract: Effective solutions for integrating agricultural development and conservation of biodiversity at the landscape scale remain to be identified. We present a case study in an intensively farmed French cereal plain, where the reintroduction of grasslands has been proposed first for conservation purposes in order to protect the Little Bustard, a highly threatened bird species. In these highly fragmented and disturbed habitats, the presence, abundance and distribution of grasslands therefore have a critical role in ecological and environmental regulatory processes. To restore these processes, it is critical to rationalize the inclusion of grasslands in the cropping system (in time, space and according to management practices). However, currently, grasslands are severely depleted by farmers who privilege cereal crops for economic reasons . We therefore raise the issue of whether crop allocation at the landscape scale can be changed without public funding, in order to increase the proportion of grasslands. A solution explored here is to identify the interdependencies between farmers related to the ecosystem services grasslands provide at the landscape scale. The recognition of grassland emergent functions when considered at the landscape scale gives them a status of common good: a good that should be collectively managed to maximize ecosystem services. This consideration leads to involve new stakeholders such as citizens, scientists, government bodies or NGOs in the collective management of grasslands and opens an innovative way to reconcile agriculture and conservation at the landscape scale.
    Keywords: Agro-ecosystem; ecosystem services; grasslands; cereal crops; biodiversity; design; collective action; commons
    Date: 2012–10–08

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