New Economics Papers
on Collective Decision-Making
Issue of 2013‒08‒31
fifteen papers chosen by
Stan C. Weeber, McNeese State University

  1. Endogenous Voting Weights for Elected Representatives and Redistricting By Justin Svec; James Hamilton
  2. Voting against the separation of powers between legislature and administration By David Stadelmann; Reiner Eichenberger; Marco Portmann
  3. The Impact of Political Uncertainty: A Robust Control Approach By Robert Baumann; Justin Svec
  4. Testing the Median Voter Model and Moving Beyond its Limits: Do Characteristics of Politicians Matter? By Marco Portmann; David Stadelmann
  5. Downward Accountability in Response to Collective Actions: The Political Economy of Public Goods Provision in China By Li, Yuan
  6. Changing local elite selection in Thailand : emergence of new local government presidents after direct elections and their capabilities By Funatsu, Tsuruyo
  7. Aggregation of coherent experts opinion: a tractable extreme-outcomes consistent rule By Marcello Basili; Alain Chateauneuf
  8. What can experiments tell us about how to improve governance? By Gisselquist, Rachel; Niño-Zarazúa, Miguel
  9. State Incentives for Innovation, Star Scientists and Jobs: Evidence from Biotech By Enrico Moretti; Daniel J. Wilson
  10. Incentive to Reduce Cost under Incomplete Information By Aditi Sengupta
  11. The evolution of the Dutch dairy industry and the rise of cooperatives.A research note By Koen Frenken
  12. Aggregation of not necessarily independent opinions By Marcello Basili; Luca Pratelli
  13. The State Advances, the Private Sector Retreats: Firm Effects of China’s Great Stimulus Program By Johansson, Anders C.; Feng, Xunan
  14. Intermediating Adverse Selection By Vincent Glode; Christian Opp
  15. Booms and Busts with dispersed information By Kenza Benhima

  1. By: Justin Svec (Department of Economics, College of the Holy Cross); James Hamilton (Department of Economics, College of the Holy Cross)
    Abstract: This paper analyzes the merits of a novel method of eliminating the power of a gerrymanderer that involves an endogenous weighting system for elected representatives. This endogenous weighting system ties the voting weight of elected representatives in the legislature to the share of the voters who voted for that representative's party and to the share of representatives elected from that party. If the weights are set correctly, it can be shown in simple voting models like Gilligan and Matsusaka (1999) that redistricting has no influence on the policy passed by the legislature. This benefit, though, is out-weighed by the fact that, in more realistic voting models, the gerrymanderer can manipulate the redistricting process to achieve greater policy bias than under the status quo.
    Keywords: Redistricting, representative weights, gerrymander
    JEL: D72 H11
    Date: 2013–08
  2. By: David Stadelmann; Reiner Eichenberger; Marco Portmann
    Abstract: We compare the votes of parliamentary representatives and their constituents on a popular initiative that directly aimed at weakening the separation of powers in 1922 in Switzerland. We analyze whether the strength of individual ties to the public service affect the probability of voting for the initiative , holding constituents' preferences constant. Our results indicate that while politicians tend to represent their constituents' preferences, representatives with ties to the public service have a higher probability of supporting the eligibility of public servants for the legislature. Thus, they favor reducing the separation of powers between legislature and administration.
    Keywords: separation of powers; administration; public servants; legislative voting; constituents' preferences
    JEL: D72 D73 H83
    Date: 2013–06
  3. By: Robert Baumann (Department of Economics, College of the Holy Cross); Justin Svec (Department of Economics, College of the Holy Cross)
    Abstract: In this paper, we examine how candidate uncertainty affects the policy platforms chosen in a uni-dimensional, two candidate Downsian spatial model. The candidates, we assume, do not know the true distribution of voters. Following the robust control literature, candidates respond to this uncertainty by applying a max-min operator to their optimization problem. This approach, consistent with findings within the behavioral economics literature, protects the candidate by ensuring that her expected utility never falls too far, regardless of the true voter distribution. We show that this framework produces policy convergence between the two candidates but there is a multiplicity of possible policy platforms upon which the candidates could settle, some of which could be quite distant from the median voter. These results are robust to the timing of the game and the level of uncertainty faced by the candidates. We argue that our model explains drift, which is our term for changing political beliefs over time. While drift may be caused by shifting attitudes or demographics, we show that drift could also be the result of candidate uncertainty.
    Keywords: Robust control, candidate uncertainty, voting, spatial model
    JEL: H00 D78 D84
    Date: 2013–08
  4. By: Marco Portmann; David Stadelmann
    Abstract: We exploit a natural measure of congruence between politicians and their constituency' bnm bnnb fgvhjuis preferences to directly quantify the extent of legislative shirking and evaluate the mechanism of the median voter model. The median voter model explains the behavior of politicians with respect to revealed preferences of their constituency about 18.8 percentage points better than a random decision benchmark. However, it fails to account for a substantial part of its theoretical prediction of convergence. Nevertheless, competition for voters under majority rule crowds out individual charact eristics and party affiliations as potential factors which explain legislative shirking.
    Keywords: Constituents' Preferences; Median Voter Model; Political Economy
    JEL: D7 H7
    Date: 2013–03
  5. By: Li, Yuan (Stockholm China Economic Research Institute)
    Abstract: Will autocratic governments implement policies to satisfy the people’s demands in order to prevent large scale social unrest? This paper explores this question through quantitatively analysis of the political economy of public goods provision in Chinese provinces. I collected data on the number of labor disputes to measure collective actions. My sample includes provincial leaders whose incentives to deliver public goods can either be explained as a result of upward accountability towards the Center or downward accountability towards the citizens. The confounding factor of upward accountability is ruled out by using two-step estimation; and the reverse causality between public goods provision and collective actions is controlled by using instrumental variables. Result suggests that provincial leaders will implement policies more in favor of the citizens in response to intensified labor disputes.
    Keywords: Accountability; Collective Actions; Public Goods
    JEL: D74 H11 H40 P26
    Date: 2013–08–27
  6. By: Funatsu, Tsuruyo
    Abstract: Before rural local government units were established in Thailand, reform debates within the country faced a crucial issue: Candidates at the rural sub-district levels might adopt electioneering methods such as vote buying and the patronage system of the local political and economic elite, the methods that had been used in the national elections. In fact, the results of the 2006 survey in this paper, which followed the introduction of direct elections in rural local government units in 2003, contrast with the result anticipated during the debates on political reform. The preliminary data of the survey shows that the decentralization process and the introduction of the direct election system in the rural areas had some effect in changing the selection process of the local elite in Thailand.
    Keywords: Thailand, Local government, Elections, Social strata, Education, Direct election, Social class
    JEL: I2 N4 N9
    Date: 2013–03
  7. By: Marcello Basili; Alain Chateauneuf
    Abstract: The paper defines a consensus distribution with respect to experts’ opinions by a multiple quantile utility model. The paper points out that the Steiner Point is the representative consensus probability. The new rule of experts’ opinions aggregation, that can be evaluated by the Shapley value in a simple way, is prudential and coherent.
    Keywords: Ambiguity, Aggregation, Steiner Point, Multiple Priors, Quantiles
    Date: 2013–06
  8. By: Gisselquist, Rachel; Niño-Zarazúa, Miguel
    Abstract: In recent years, randomized controlled trials have become increasingly popular in the social sciences. In development economics in particular, their use has attracted considerable debate in relation to the identification of ‘what works’ in development policy. This paper focuses on a core topic in development policy: governance. It aims to address two key questions: (1) what have the main contributions of randomized controlled trials been to the study of governance? and (2) what could be the contributions, and relatedly the limits of such methods? To address these questions, a systematic review of experimental and quasi-experimental methods to study government performance was conducted. It identified 139 relevant papers grouped into three major types of policy interventions that aim to: (1) improve supply-side capabilities of governments; (2) change individual behaviour through various devices, notably incentives, and (3) improve informational asymmetries. We find that randomized controlled trials can be useful in studying the effects of some policy interventions in the governance area, but they are limited in significant ways: they are ill-equipped to study broader governance issues associated with macro-structural shifts, national level variation in institutions and political culture, and leadership. Randomized controlled trials are best for studying targeted interventions, particularly in areas of public goods provision, voting behaviour, and specific measures to address corruption and improve accountability; however, they can provide little traction on whether the intervention is transferable and ‘could work’ (and why) in other contexts, and in the longer run.
    Keywords: Randomised control trials; governance; development
    JEL: C93 D72 D73 H41
    Date: 2013–08–01
  9. By: Enrico Moretti (Berkeley, USA; NBER, USA; CEPR, UK; IZA, Germany); Daniel J. Wilson (Federal Reserve Bank of San Francisco, USA; University of Michigan, USA)
    Abstract: We evaluate the effects of state-provided financial incentives for biotech companies, which are part of a growing trend of placed-based policies designed to spur innovation clusters. We estimate that the adoption of subsidies for biotech employers by a state raises the number of star biotech scientists in that state by about 15 percent over a three year period. A 10% decline in the user cost of capital induced by an increase in R&D tax incentives raises the number of stars by 22%. Most of the gains are due to the relocation of star scientist to adopting states, with limited effect on the productivity of incumbent scientists already in the state. The gains are concentrated among private sector inventors. We uncover little effect of subsidies on academic researchers, consistent with the fact that their incentives are unaffected. Our estimates indicate that the effect on overall employment in the biotech sector is of comparable magnitude to that on star scientists. Consistent with a model where workers are fairly mobile across states, we find limited effects on salaries in the industry. We uncover large effects on employment in the non-traded sector due to a sizable multiplier effect, with the largest impact on employment in construction and retail. Finally, we find mixed evidence of a displacement effect on states that are geographically close, or states that economically close as measured by migration flows.
    Date: 2013–07
  10. By: Aditi Sengupta
    Abstract: I examine how ex ante symmetric firms that compete in prices strategically decide to invest in research and development of cost-reducing technology when the rival firm and the consumers are not aware of the actual outcome of the investment. I also compare the strategic incentive to invest and market outcomes under incomplete information with that of the full information. I find that equilibrium investment under incomplete information with unobservable investment is same as that of (symmetric) full information equilibrium and is also socially optimal.
    Keywords: Cost-reducing technology; Duopoly; Incomplete information; Price competition; Strategic investment
    JEL: D43 D82 L13
    Date: 2013–08
  11. By: Koen Frenken
    Abstract: Economic historians tend to explain the rise of the cooperative form in agriculture from the advantage of cooperative over private factories in reducing transaction costs with suppliers. This study provides a first test of this thesis using data on 1130 dairy factories in The Netherlands. Indeed, we find that cooperative factories performed significantly better than private factories. The persistence of private factories in certain regions can be explained by first-mover advantages.
    Keywords: cooperatives, first mover advantage, transaction costs, survival analysis, industry lifecycle, dairy industry
    Date: 2013–08
  12. By: Marcello Basili; Luca Pratelli
    Abstract: We consider an aggregation scheme of opinions expressed through different probability distributions or multiple priors decision model. The decision-maker adopts entropy maximization as a measure of risk diversification and a rational form of prudence for valuing uncertain outcomes. We show a new aggregation rule formalization based on the idea that the decision-maker has a more reliable set of outcomes called ordinary and two fat tails that include more ambiguous and extreme events.
    Keywords: Ambiguity, Aggregation, Entropy, Multiple Priors, Quantiles
    JEL: D81
    Date: 2013–06
  13. By: Johansson, Anders C. (Stockholm China Economic Research Institute); Feng, Xunan (Shanghai University)
    Abstract: It has been argued that the Chinese state sector is advancing at the cost of the private sector. Focusing on publicly listed firms which are divided into state- and private-controlled firms, we investigate preferential access to debt and effects on firm performance. Focusing on the large stimulus program launched in the fall of 2008, we show that state-owned enterprises (SOEs) were better able to maintain their leverage levels and had better access to debt of both short and long maturities compared to privately controlled firms. Furthermore, we show that political connections obtained through political participation help mitigate the discrimination private firms faces in a transition economy where the state controls capital allocation. We also find that preferential access to debt financing does not help SOEs improve firm performance relative to that of private firms. Political participation does however help improve private firms’ performance. These results lend support to the argument that the state is indeed advancing at the cost of the private sector and that SOEs still face a broader set of goals than just profit maximization and/or are less efficient than private firms.
    Keywords: State-owned enterprises; private enterprises; fiscal and monetary stimulus; firm performance; capital structure; debt financing; political participation; political connections; China
    JEL: G30 G32 L33 P20 P26
    Date: 2013–08–22
  14. By: Vincent Glode (Wharton School); Christian Opp (University of Pennsylvania)
    Abstract: We propose a parsimonious model of over-the-counter trading under asymmetric information to study the presence of intermediary chains that stand between well informed parties and uninformed market participants. Multiple moderately informed intermediaries can fulfill an important economic role of "smoothing" adverse selection. Informed market participants may prefer to trade through these intermediary chains as they improve trade efficiency but also reduce the surplus accruing to uninformed traders. Our model makes novel predictions about optimal network formation when adverse selection problems impede the efficiency of trade.
    Date: 2013
  15. By: Kenza Benhima
    Abstract: This paper lays down a model where dispersed information generates booms and busts in economic activity. Boom-and-bust dynamics start when firms are initially over-optimistic about demand due to an aggregate noise shock in their signals. Consequently, they over-produce, which generates a boom. This however also depresses their mark-ups, which, to firms, signals low demand and overturns their expectations, generating a bust. This emphasizes a novel role for imperfect common knowledge: dispersed information makes firms ignorant about their competitors' actions, which makes them confuse high noise-driven supply with low fundamental demand. Boom-and-bust episodes are more dramatic when the aggregate noise shocks are more unlikely and when congestion effects are stronger.
    Keywords: Imperfect Common Knowledge; Expectations; Recessions
    JEL: E32 D83 D52
    Date: 2013–08

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