New Economics Papers
on Collective Decision-Making
Issue of 2013‒03‒23
nineteen papers chosen by
Stan C. Weeber, McNeese State University

  1. Don't Make War, Make Elections. Franchise Extension and Violence in XIXth-Century Colombia By Leopoldo Fergusson; Juan F. Vargas
  2. To Be or Not to Be: When Should a Threshold Firm in an Emerging Market Move to Professional Management? By Shirokova Galina; Knatko Dmitri; Vega Gina
  3. Discrimination via Exclusion: An Experiment on Group Identity and Club Goods By Surajeet Chakravarty; Miguel A. Fonseca
  4. Banks and New Firm Formation By Backman, Mikaela
  5. In the Shadow of the DSU: Addressing Specific Trade Concerns in the WTO SPS and TBT Committees By Horn, Henrik; Mavroides, Petros C.; Wijkström, Erik N.
  6. On the Relationship between Innovation and Export: The Case of Australian SMEs By Alfons Palangkaraya
  7. Social Learning and Health Insurance Enrollment: Evidence from China's New Cooperative Medical Scheme By Liu, Hong; Sun, Qi; Zhao, Zhong
  8. Asymmetric welfare implication between a small number of leaders and a small number of followers in Stackelberg models By Hiroaki Ino; Toshihiro Matsumura
  9. Does the method adopted for distribution of services by amalgamating municipalities affect expenditure after amalgamation? Evidence from Japan By Katsuyoshi Nakazawa; Tomohisa Miyashita
  10. Motives of pro-social behavior in individual versus collective decisions – a comparative experimental study By Ivo Bischoff; Thomas Krauskopf
  11. Voting for Legislators By Francesco De Sinopoli; Giovanna Iannantuoni; Elena Manzoni
  12. Learning about CEO Ability and Stock Return Volatility By Yihui Pan; Tracy Yue Wang; Michael S. Weisbach
  13. The Political Economics of the Arab Spring By Roland Hodler
  14. Political Accountability and Policy Experimentation: Why to Elect Left-Handed Politicians? By Tim Willems
  15. Disentangling the relationship between nonprofit and social capital: the role of social cooperatives and social welfare associations in the development of networks of strong and weak ties By Giacomo, Degli Antoni; Fabio, Sabatini
  16. The Glue of Democracy: Economics, Warfare and Values in Classical Greece By Kyriazis, Nicholas; Paparrigopoulos, Xenophon; Economou, Emmanouel/Marios/Lazaros
  17. Love me, love my dog: an experimental study on social connections and indirect reciprocity By Liang, Pinghan; Meng, Juanjuan
  18. Optimal delegation via a strategic intermediary By Liang, Pinghan
  19. The provision point mechanism with reward money By Robertas Zubrickas

  1. By: Leopoldo Fergusson; Juan F. Vargas
    Abstract: This paper studies the effect of strengthening democracy, as captured by an increase in voting rights, on the incidence of violent civil conflict in nineteenth-century Colombia. Empirically studying the relationship between democracy and conflict is challenging, not only because of conceptual problems in defining and measuring democracy, but also because political institutions and violence are jointly determined. We take advantage of an experiment of history to examine the impact of one simple, measurable dimension of democracy (the size of the franchise) on conflict, while at the same time attempting to overcome the identification problem. In 1853, Colombia established universal male suffrage. Using a simple difference-indifferences specification at the municipal level, we find that municipalities where more voters were enfranchised relative to their population experienced fewer violent political battles while the reform was in effect. The results are robust to including a number of additional controls. Moreover, we investigate the potential mechanisms driving the results. In particular, we look at which components of the proportion of new voters in 1853 explain the results, and we examine if results are stronger in places with more political competition and state capacity. We interpret our findings as suggesting that violence in nineteenth-century Colombia was a technology for political elites to compete for the rents from power, and that democracy constituted an alternative way to compete which substituted violence.
    Date: 2013–02–28
  2. By: Shirokova Galina; Knatko Dmitri; Vega Gina
    Abstract: Recent research emphasizes the importance of the separation of ownership and control for growing threshold firms. Demand for specialized management knowledge by growing owner-run SMEs is usually resolved through the separation of ownership and control, using top management labor market and agency contracts. Under certain environmental institutional conditions, owners of SMEs from emerging markets face difficulties separating ownership and control. For example, the majority of Russian companies are run by their primary owners. In rare situations when separation of ownership and control formally occurs, high risk of economic fraud and owner’s fear often revert management succession to a default owner-control scenario. These conditions pose a threat for a growing threshold firm needing professional management knowledge assets. Using a dataset of 500 entrepreneurial companies from fast growing industries in St. Petersburg and Moscow, this study defines and studies threshold firms and also analyzes how various perceived characteristics of the institutional environment are influencing the probability of separation of ownership and control in threshold firms. According to the estimation results institutional factors such as poor security of ownership rights and misfit of company with formal regulatory norms have a negative impact on the probability of separation of ownership and control in threshold firms. As a result, threshold firms limit their growth possibilities since their access to specialized knowledge is limited to the knowledge base of the owner.
    Date: 2013–04–02
  3. By: Surajeet Chakravarty (Department of Economics, University of Exeter); Miguel A. Fonseca (Department of Economics, University of Exeter)
    Abstract: We study using laboratory experiments the impact on cooperation of allowing individuals to invest in group-specific, excludable public goods. We find that allowing different social groups to voluntarily contribute to such goods increases total contributions. However, a significant proportion of that contribution goes towards the group-specific club good, rather than the public good, even when the latter has higher financial returns to cooperation. We find significant evidence of in-group biases, which are manifested by positive in-group reciprocity. That is, club goods allow subjects to display their preferences for interaction with their in-group members, as well as in positive in-group reciprocity.
    Keywords: club goods, social identity, experiment
    JEL: C92 D02 D03 H41
    Date: 2013
  4. By: Backman, Mikaela (Jönköping International Business School)
    Abstract: It is natural to assume that the characteristics of the bank sector are important factors for new firm formation when external capital is needed for establishing new firms. The local bank sector acts as the main provider of financial funds in Sweden since other sources of external capital are limited. In addition, the banking services needed in the start-up process tend to be sensitive to distance and are mainly supplied locally. Thus, the structure of the local bank sector is an important factor that determines the conditions for start-ups. The finding in this paper supports the hypothesis that new firm formation is positively influenced by (1) the average size of the bank branches, (2) number of independent banks and bank branches per capita, and (3) the intensity of competition level. Access to independent banks and bank branches has a stronger influence on start-ups in more rural locations.
    Keywords: New firm formation; local bank sector; competition; Sweden
    JEL: G21 L26 R11
    Date: 2013–03–15
  5. By: Horn, Henrik (Research Institute of Industrial Economics (IFN)); Mavroides, Petros C. (EUI); Wijkström, Erik N. (World Trade Organization)
    Abstract: The paper argues that focusing only on disputes formally raised in the WTO Dispute Settlement system underestimates the extent of trade conflict resolution within the WTO. Both the SPS and TBT Committees address a significant number of ‘specific trade concerns’ (STCs) that in the overwhelming majority of cases do not become formal disputes. The STCs address differences between Members concerning the conformity of national measures in the SPS and TBT areas with these agreements. It appears as if Committee work on STCs significantly helps defuse potential trade frictions concerning national policies in the covered areas.
    Keywords: WTO; Specific trade concerns; SPS and TBT Committees; Dispute settlement
    JEL: F13 K32 K33
    Date: 2013–03–12
  6. By: Alfons Palangkaraya (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; Intellectual Property Research Institute of Australia, The University of Melbourne)
    Abstract: This paper investigates the link between innovation and export market participation using Australian small and medium enterprises (SMEs) data. The results show that export and innovation are positively linked. Depending on the industry and the type of innovation (process or product), innovation may lead to export and, to a lesser extent, export may lead to innovation. Firms in the primary sector (agriculture and mining) show the strongest evidence that innovation leads to export. From firms in the services sector, there is indication that only process innovation leads to export. Also, only in this sector, there is evidence that export may lead to (process) innovation.
    Keywords: Innovation, export, small and medium enterprises, propensity score matching
    JEL: F14 O12 O14 O31
    Date: 2013–02
  7. By: Liu, Hong (Central University of Finance and Economics); Sun, Qi (Shanghai University of Finance and Economics); Zhao, Zhong (Renmin University of China)
    Abstract: This paper examines the role of social learning in household enrollment decisions for the New Cooperative Medical Scheme in rural China by estimating a static game with incomplete information. Using a rich dataset from the China Health and Nutrition Survey, we find that the social network effects in the enrollment decision are large and significant. Furthermore, we use temporal and spatial proximity among household heads and obtain the result that the primary mechanism for the social network effects is social learning. Our findings indicate that a 10-percentage-point increase in the enrollment rate in a village increases one's take-up probability by 5 percentage points. We also find that the importance of social learning decreases significantly with the development of alternative information channels. Finally, the evidence suggests that healthier, wealthier, relatively well-educated older male household heads with Han nationality tend to be opinion leaders.
    Keywords: rural China, health insurance, social learning, social effect
    JEL: I1 G22
    Date: 2013–02
  8. By: Hiroaki Ino (School of Economics, Kwansei Gakuin University); Toshihiro Matsumura (Institute of Social Science, the University of Tokyo)
    Abstract: We investigate a Stackelberg oligopoly model in which m leaders and N-m followers compete. We find an asymmetric welfare implication of the Stackelberg model. Introducing a small number of leaders into the Cournot model can reduce welfare. However, introducing a small number of followers into the Cournot model always improves welfare. The key result behind this asymmetry is contrasting limit results in the cases where m → 0 and m → N. We also discuss the optimal number of leaders and the integer constraint for the number of the firms.
    Keywords: multiple leaders, Stackelberg, Cournot, limit result, integer constraint, convex cost
    JEL: L13 L40
    Date: 2013–01
  9. By: Katsuyoshi Nakazawa (University of Toyo); Tomohisa Miyashita (PHP research institute)
    Abstract: Municipal boundary reform (municipal amalgamation) has been done in many countries in recent years as the result of a push to enlarge the size and coverage of local government units, which in turn is driven mainly by the prospect of economies of scale. However, in a notable body of previous literature, the enlargement of local government has not led to reduction of public expenditures. Decision-making before amalgamation might affect to public expenditure after amalgamation. This study uses Japanese municipal-level data and argues for a relation between the choice of public administration distribution method and expenditure after amalgamation. The results show that a plan for distributed or decentralized facility method is more likely to be adopted in a larger administrative jurisdiction and in one with large differences in finances or political structures between amalgamated sub-regions. In turn, a plan for distributed facilities has the effect of pushing up administrative expenditure.Length: 12 pages
    Keywords: local government amalgamation, consensus-building, multinomial logistic regression, local government expenditure
    JEL: D78 H72 H73 H77 R51
    Date: 2013
  10. By: Ivo Bischoff (University of Kassel); Thomas Krauskopf (University of Kassel)
    Abstract: We investigate the motives of pro-social behavior in collective decisions in an economic experiment. It compares individual behavior in private and collective decisions in a unified experimental setup. Subjects are given an individual endowment and have to decide how much of it to donate to charity. The experiment is combined with two long questionnaires that provide us with background information on subjects and enables us to learn more about the motives driving their behavior. Contrary to theoretical predictions, the distribution of amounts donated individually is remarkably similar to the distribution of amounts proposed for collective donation. In regressions, we find individual donations to be driven by consequentialist motives, social norms and moral convictions. In collective decisions, neither the motiverelated variables nor any of the control variables are found significant. Comparing subjects’ affective state before and after the experiment, we find that individual donations create a feeling of warm glow while collective donations do not. On the other hand, the change in affective state in the collective decision is higher the higher the amount proposed for the collective donation. This pattern is consistent with expressive motives.
    Keywords: voting motives, voluntary contributions, redistribution, charity, economic experiment, warm-glow, Immanuel Kant, affect
    JEL: C90 D72
    Date: 2013
  11. By: Francesco De Sinopoli; Giovanna Iannantuoni; Elena Manzoni
    Abstract: In this paper we propose a model with uncertainty in which strategic voters vote, under poportional rule, for a Parliament and parties bargain to form a government. We prove that only consensus government form and only extreme parties take votes.
    Keywords: Proportional Election, Strategic Voting, Legislative Bargaining
    JEL: C72 D72
    Date: 2013–03
  12. By: Yihui Pan; Tracy Yue Wang; Michael S. Weisbach
    Abstract: When there is uncertainty about a CEO’s quality, news about the firm causes rational investors to update their expectation of the firm’s profitability for two reasons: Updates occur because of the direct effect of the news, and also because the news can cause an updated assessment of the CEO’s quality, affecting expectations of his ability to generate future cash flows. As a CEO’s quality becomes known more precisely over time, the latter effect becomes smaller, lowering the stock price reaction to news, and hence lowering the stock return volatility. Thus, in addition to uncertainty about fundamentals, uncertainty about CEO quality is also a source of stock return volatility, which decreases over a CEO’s tenure as the market learns the CEO’s quality more accurately. We formally model this idea, and evaluate its implications using a large sample of CEO turnovers in U.S. public firms. Our estimates indicate that there is statistically significant and economically important market learning about CEO ability, even for CEOs whose appointments appear to be unrelated to their predecessors’ performance. Also consistent with the learning model is the fact that the learning curve appears to be convex in time, and learning is faster when there is higher ex ante uncertainty about the CEO’s ability and more transparency about the firm’s prospects. Overall, uncertainty about management quality appears to be an important source of stock return volatility.
    JEL: G32 G34 M12 M51
    Date: 2013–03
  13. By: Roland Hodler
    Abstract: The Arab Spring has led to very different outcomes across the Arab world. I present a highly stylized model of the Arab Spring to better understand these differences. In this model, dictators from the ethnic or religious majority group concede power if their country is oil-poor, but can stay in power by bribing the people if their country is oil-rich. Dictators from the minority group often rely on other members of their group to repress protests and to fight the majority group if necessary. These predictions are consistent with observed outcomes in Egypt, Libya, Saudi Arabia, Syria, Tunisia, and elsewhere.
    Keywords: Arab Spring, political transitions, repression, civil conflict, oil, divided societies
    JEL: D72 D74
    Date: 2013
  14. By: Tim Willems
    Abstract: In an environment where voters face an inference problem on the competence level of policy makers, this paper shows how subjecting these policy makers to reelection can reduce the degree of policy experimentation to the benefit of the status quo.  This may be a reason why some notable policy experiments were implemented by non-accountable regimes (cf. Chile and China).  Whether experimentation in representative democracies is suboptimally low, depends on society's degree of risk aversion relative to that of the decision maker.  If the level of experimentation is suboptimal, taking decisions by direct democracy, or electing risk-loving politicians could improve welfare.  Interestingly, risk-lovers also seem to be overrepresented among Presidents of various countries.
    Keywords: Policy experimentation, learning, political economy, reform, status quo bias, career concerns
    JEL: D72 D83
    Date: 2013–03–07
  15. By: Giacomo, Degli Antoni; Fabio, Sabatini
    Abstract: We use a unique dataset to study how participation in two specific types of nonprofit organizations, i.e. social welfare associations and social cooperatives, affects individual social capital. A descriptive analysis shows that both the types of organization have a positive impact. The econometric analysis reveals that social welfare associations play a significantly greater role in the development of volunteers’ networks of cooperative relationships, favouring the creation of weak ties which are used to exchange information and advice, and offering the opportunity to establish stronger ties entailing concrete mutual support. Within social cooperatives, workers develop their individual social capital to a greater extent than volunteers.
    Keywords: volunteering, nonprofit organizations, cooperative enterprises, social cooperatives, social capital, social networks
    JEL: L31 L33 P13 Z1
    Date: 2013–03–08
  16. By: Kyriazis, Nicholas; Paparrigopoulos, Xenophon; Economou, Emmanouel/Marios/Lazaros
    Abstract: In the present essay we analyse the links between the emergence of new arms and forms of war-emergence, the phalanx and its hoplites, and the trieres at sea, its economic base, and the emergence of democracy in classical Greece. We propose that the unique till then in the world phalanx formation, led to the development of particular values and ethics, which again were the necessary conditions for the emergence of democracy, then again, a unique phenomenon. We then turn to seapower, which according to our analysis was a sufficient condition for the establishment and endurance of democracy, because seapower led to a community of economic interests, on which direct democracies like Ancient Athens, were based.
    Keywords: Democracy, seapower, values, warfare, economic development.
    JEL: B11 N30 N43 O10
    Date: 2013–03–15
  17. By: Liang, Pinghan; Meng, Juanjuan
    Abstract: This paper conducts a laboratory experiment to investigate the role of social connections in behavioral indirect reciprocity. We provide the evidence of spillovers effects of social ties, e.g., the recipient’s indirect reciprocal act varies with the relations between the donor and a third party. Naturally occurring friendship is employed to study social connections. Thus, a beneficiary might either be a “friend” or a “stranger” of the donor. We demonstrate that knowing social connections significantly increases the recipient’s repayment only if the donor is kind enough in the first place. Overall, recipients’ indirect reciprocity almost doubles when introducing social networks among donors and beneficiaries. It is also shown that this spillovers effect is unlikely the result of recipients’ perception of donors’ expectations. Major theories of social preferences, e.g., fairness, intention-based, guilt-aversion, cannot offer satisfactory explanations of our findings. We propose an explanation based on in-group and out-group differences but with endogenous group status, in which social connections play a crucial role.
    Keywords: indirect reciprocity, social connections, spillovers, social preferences
    JEL: C91 D03 D85
    Date: 2013
  18. By: Liang, Pinghan
    Abstract: This paper studies the optimal design of delegation rule in a three-tier principal-intermediary-agent hierarchy. In this hierarchy, monetary transfer is not feasible, delegation is made sequentially, and all players are strategic. We characterize the optimal delegation mechanism. It is shown that the single-interval delegation a la Holmstrom is optimal only when the intermediary is moderately biased. Otherwise, as responses to the distortion caused by a biased intermediary, the optimal delegation set may involve a hole. Thus, multi-interval delegation set would arise when subordinates have opposing biases. This result sheds some light on policy threshold effects: "slight" changes in the underlying state cause a jump in the policy responses.
    Keywords: Delegation, Intermediary, Hierarchies
    JEL: D73 D78 D86
    Date: 2013
  19. By: Robertas Zubrickas
    Abstract: We introduce reward money into the provision point mechanism with refunds. Reward money is distributed among the contributors in proportion to their con- tributions only when the provision point is not reached. In environments without aggregate uncertainty, the provision point is always reached in equilibrium as competition for reward money and preference for the public good induce sufficient contributions. Importantly, the mechanism not only ensures allocative efficiency but also distributional. At a specific level of reward money, we obtain a unique equilibrium, where all consumers contribute the same proportion of their private valuations. The advantages of the mechanism are also demonstrated for collective action problems.
    Keywords: Public goods, private provision, provision point mechanism, distributional efficiency, collective action problem
    JEL: D82 H41
    Date: 2013–02

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