New Economics Papers
on Collective Decision-Making
Issue of 2013‒09‒24
eighteen papers chosen by
Stan C. Weeber, McNeese State University

  1. The Political Economy of Financial Systems: Evidence from Suffrage Reforms in the Last Two Centuries By Degryse, Hans; Lambert, Thomas; Schwienbacher, Armin
  2. From Green Users to Green Voters By Comin, Diego; Rode, Johannes
  3. Optimal Primaries By Patrick Hummel; Richard Holden
  4. What Happens When a Woman Wins an Election? Evidence from Close Races in Brazil By Brollo, Fernanda; Troiano, Ugo
  5. The political economy of pricing and capacity decisions for congestible local public goods in a federal state By Bruno DE BORGER; Stefan PROOST
  6. A Political Economy of the Separation of Electoral Origin By Buisseret, Peter
  7. Autocracy, Democracy and Trade Policy By Sebastian Galiani; Gustavo Torrens
  8. On the Convergence to the Nash bargaining solution for action-dependent bargaining protocols By BRITZ, Volker; HERINGS, Jean-Jacques; PREDTETCHINSKI, Arkadi
  9. Coordination in Teams: A Real Effort-task Experiment with Informal Punishment By Vranceanu, Radu; El Ouardighi, Fouad; Dubart , Delphine
  10. Cooperation in WTO's Tariff Waters By Nicita, Alessandro; Olarreaga, Marcelo; Silva, Peri
  11. The Incentive Effect of IT: Randomized Evidence from Credit Committees By Daniel Paravisini; Antoinette Schoar
  12. Behavioral Biases and Corporate Decision Making on Investing Abroad By Kotov, Denis
  13. Constructing Social Division to Support Cooperation: Theory and Evidence from Nepal By Choy, James
  14. Play it Again: Partner Choice, Reputation Building and Learning in Restarting, Finitely-Repeated Dilemma Games By Kenju Kamei; Louis Putterman
  15. How Monetary Policy is Made: Two Canadian Tales By Matthias Neuenkirch; Pierre Siklos
  16. Parliamentary Questions and the Probability of Re-election in the UK House of Commons By Tucker, Luc
  17. The Role of Language in Corporate Governance: The Case of Board Internationalization By Piekkari, Rebecca; Oxelheim, Lars; Randøy, Trond
  18. Price of Anarchy in Sequencing Situations and the Impossibility to Coordinate By Herbert Hamers; Flip Klijn; Marco Slikker

  1. By: Degryse, Hans; Lambert, Thomas; Schwienbacher, Armin
    Abstract: Initially, voting rights were limited to wealthy elites providing political support for stock markets. The franchise expansion induces the median voter to provide political support for banking development as this new electorate has lower financial holdings and benefits less from the uncertainty and financial returns from stock markets. Our panel data evidence covering 1830-1999 shows that tighter restrictions on the voting franchise induce a greater stock market development, whereas a broader voting franchise is more conducive towards the banking sector, consistent with Perotti and von Thadden (2006). Our results are robust to controlling for other political determinants and endogeneity.
    Keywords: banking sector; financial development; financial structure; political economy; stock markets; voting franchise
    JEL: D72 G10 O16 P16
    Date: 2013–09
  2. By: Comin, Diego; Rode, Johannes
    Abstract: We estimate the effect of the diffusion of photovoltaic (PV) systems on the fraction of votes obtained by the German Green Party. The logistic diffusion of PV systems offers a new identification strategy. We take first differences and instrument adoption rates (i.e. the first difference in the diffusion level) by lagged diffusion levels. The existing rationales for non-linearities in diffusion, and ubiquity of logistic curves ensure that our instrument is orthogonal to variables that directly affect voting patterns. We find that the diffusion of domestic PV systems caused 25 percent of the increment in green votes between 1998 and 2009.
    Keywords: feed-in tariff; PV systems; technology diffusion; voting
    JEL: E13 O14 O33 O41
    Date: 2013–07
  3. By: Patrick Hummel; Richard Holden
    Abstract: We analyze a model of US presidential primary elections for a given party. There are two candidates, one of whom is a higher quality candidate. Voters reside in m different states and receive noisy private information about the identity of the superior candidate. States vote in some order, and this order is chosen by a social planner. We provide conditions under which the ordering of the states that maximizes the probability that the higher quality candidate is elected is for states to vote in order from smallest to largest populations and most accurate private information to least accurate private information.
    JEL: D71 D72 K19
    Date: 2013–08
  4. By: Brollo, Fernanda (University of Warwick); Troiano, Ugo (University of Michigan)
    Abstract: This paper analyzes the eect of the gender of local policymakers on policy outcomes. Analyzing a rich dataset from Brazilian municipalities and using a regression discon- tinuity design, we nd that municipalities ruled by female mayors have better health outcomes, receive more federal discretionary transfers, and have lower corruption. Addi- tionally, male mayors hire more temporary public employees than their female counter- parts when they are allowed to run for re-election, and when municipal elections are approaching. These ndings suggest that male mayors may promote more political pa- tronage than female mayors and that men and women may respond dierently to local election incentives.
    Keywords: election incentives, Brazil
    Date: 2013
  5. By: Bruno DE BORGER; Stefan PROOST
    Abstract: This paper studies the political economy of pricing and investment for excludable and congestible public goods in a federal state. Currently, we observe a wide variety of practices, ranging from federal gasoline taxes and road investment to the local supply of -- and sometimes free access to -- libraries, parking spaces and public swimming pools. The two-region model we develop allows for spill-overs between regions, it takes into account congestion, and it captures both heterogeneity between and within regions. Regional decisions are taken by majority voting; decisions at the federal level are taken either according to the principle of a minimum winning coalition or through cooperative bargaining. We have the following results. First, when users form the majority in at least one region, decentralized decision making performs certainly better than centralized decision making if spill-overs are not too large. Centralized decisions may yield higher welfare than decentralization only if users have a large majority and the infrastructure in a given region is intensively used by both local and outside users. Second, if non-users form a majority in both regions, centralized and decentralized decision making yield the same socially undesirable outcome, with prices that are much too high. Third, both bargaining and imposing uniform price restrictions across regions improve the performance of centralized decisions. Fourth, the performance of decentralized supply is strongly enhanced by local self-financing rules; it prevents potential exploitation of users within regions. Self-financing rules at the central level are not necessarily welfare-improving. Finally, the results of this paper contribute to a better understanding of actual policy-making.
    Date: 2013–09
  6. By: Buisseret, Peter (Department of Economics, University of Warwick)
    Abstract: Political constitutions frequently separate the roles of proposer and veto player in policy-making processes. A fundamental distinction lies in whether both offices are subject to direct and separate election, or whether the voter instead may directly elect the holder of only one office. In the latter case, the voter constitutionally forfeits a degree of ex-post electoral control. Why should she benefit from such a relatively coarse electoral instrument? When politicians' abilities are private information, actions taken by one agent provide information to the voter about both agents' types. A system in which the electoral fate of these agents is institutionally fused reduces the incentives of the veto player to build reputation through the specious rejection of the proposer's policy initiatives. This can improve the voter's inference about the types of politicians and her welfare, relative to a system in which the survival of the veto player is institutionally separated from that of the proposer. JEL classification: JEL codes:
    Date: 2013
  7. By: Sebastian Galiani; Gustavo Torrens
    Abstract: This paper develops a politico-economic model for use in studying the role of intra-elite conflict in the simultaneous determination of a country’s political regime, trade policy and income-tax-based redistribution scheme. Three socioeconomic groups are involved: two elite groups and workers, whose preferences regarding trade policy and income taxation are derived from a simple open-economy model. The critical point is that income taxation induces a rich-poor/elite-workers political cleavage, while trade policy opens the door to intra-elite conflict. In this model, when there is no intra-elite conflict, changes in trade policy are associated with political transitions. Coups (democratizations) open up the economy if and only if both elite factions are pro-free-trade (protectionist). However, in the presence of intra-elite conflict, autocracies respond to popular revolts by changing trade their policy and reallocating political power within the elite (to the elite group with the same trade policy preference as the workers) rather than offering to democratize the country. The change in trade policy is credible because the elite group with the same trade policy preference as the workers controls the autocracy. Moreover, in the presence of intra-elite conflict, coups tend to result in the maintenance of the existing trade policy unless popular demands are extremely radical and/or the elite group with the same trade policy preference as the workers is exceptionally weak.
    JEL: D72 D78
    Date: 2013–08
  8. By: BRITZ, Volker (ETH Zürich, Switzerland); HERINGS, Jean-Jacques (Maastricht University, The Netherlands; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium.); PREDTETCHINSKI, Arkadi (Maastricht University, The Netherlands)
    Abstract: We consider a non–cooperative multilateral bargaining game and study an action–dependent bargaining protocol, that is, the probability with which a player becomes the proposer in a round of bargaining depends on the identity of the player who previously rejected. An important example is the frequently studied rejector–becomes–proposer protocol. We focus on subgame perfect equilibria in stationary strategies which are shown to exist and to be efficient. Equilibrium proposals do not depend on the probability to propose conditional on the rejection by another player, though equilibrium acceptance sets do depend on these probabilities. Next we consider the limit, as the bargaining friction vanishes. In case no player has a positive probability to propose conditional on his rejection, each player receives his utopia payoff conditional on being recognized and equilibrium payoffs are in general Pareto inefficient. Otherwise, equilibrium proposals of all players converge to a weighted Nash Bargaining Solution, where the weights are determined by the probability to propose conditional on a rejection.
    Keywords: strategic bargaining, subgame perfect equilibrium, stationary strategies, Nash bargaining solution
    JEL: C78
    Date: 2013–09–11
  9. By: Vranceanu, Radu (ESSEC Business School); El Ouardighi, Fouad (ESSEC Business School); Dubart , Delphine (ESSEC Business School)
    Abstract: This paper reports the results from a real-effort team production experiment, where best performers can impose either tacit or explicit sanctions on their less-performing partners. The behavior of the best performer in the team differs from one condition to another. When explicit sanctions are not allowed, good performers reduce their effort in response to the advantageous difference in scores; when they can impose sanctions, their change in effort is no longer related to the difference in scores. To some extent, a mechanism of explicit sanctions allows good performers to focus on their own performance. Not sanctioning an opponent who under-performs, what we refer to as forgiveness, prompts the latter to improve his performance, but applying the sanction has a stronger effect.
    Keywords: Team work; Performance; Experimental economics; Punishment
    JEL: C92 D03 M52
    Date: 2013–08
  10. By: Nicita, Alessandro; Olarreaga, Marcelo; Silva, Peri
    Abstract: A rationale for cooperation in trade negotiations is the internalization of terms-of-trade externalities. With the help of a simple theoretical framework we show that the textbook prediction that non-cooperative tariffs are positively correlated to the importer's market power is reversed when tariffs are set cooperatively. We use this prediction to identify the extent of cooperation re ected in WTO members' tariffs. Because many members of the WTO apply tariffs well below the negotiated tariff bounds, creating what is known as tariff water, there is also room for WTO members to set non-cooperative tariffs. As expected, we found that in the absence of tariff water, WTO tariffs are set cooperatively. Interestingly, non-cooperative tariff setting is only observed in the presence of sufficiently large amounts of tariff water, suggesting that cooperation in the WTO goes well beyond negotiated tariff bounds. We also found evidence that cooperation within WTO tariff waters can be explained by the fear of retaliation from trading partners with market power and tariff water in their schedules.
    Keywords: Export supply elasticities; Tariff water; WTO cooperation
    JEL: F1
    Date: 2013–06
  11. By: Daniel Paravisini; Antoinette Schoar
    Abstract: We distinguish the impact of information technology adoption on information processing costs and agency costs by conducting a randomized control trial with a bank that adopts a new credit-scoring tool. The availability of scores significantly increases credit committees' effort and output on difficult-to-evaluate loan applications. Output increases almost as much in a treatment where the committee receives no new information, but anticipates the score becoming available after it evaluates a application, which suggests that scores reduce incentive problems inside the credit committee. We also show that scores improve efficiency by decentralizing decision-making and equalizing marginal returns across loans.
    JEL: D23 G21 L23 O33
    Date: 2013–08
  12. By: Kotov, Denis
    Abstract: In this paper we have studied the role of biases in making corporate decisions on investing abroad. We have formulated four conditions under which a corporate investment decision is least exposed to the influence of heuristics. Failing to comply with some conditions of a precise investment performance leads to a situation of a high uncertainty and complexity that demands an intuitive thinking from a decision maker and, as a result, stimulates using the rules of thumb. Further, we have discussed possible measures for the mitigation of the negative influence of heuristics. For an indicative estimation of a degree of biases an ex-ante/ex-post risk perception matrix has been proposed. The study is supported by the results of a survey made in 2008 and structured interviews taken in the spring and the summer of 2013. The survey was carried on among German firms doing business in Russia. Interviews covered not only investments to Russia, but also investments of Russian investors in Europe as well as transatlantic foreign direct investments made in the last three years.
    Keywords: biases; heuristics; investment decisions; foreign direct investments; decision-making process
    JEL: D81 F21 L2
    Date: 2013–09
  13. By: Choy, James (Department of Economics, University of Warwick)
    Abstract: Many societies are divided into multiple smaller groups. The defining feature of these groups is that certain kinds of interaction are more likely to take place within a group than across groups. I build a model in which group divisions are enforced through a reputational penalty for interacting with members of different groups. Agents who interact with members of different groups find that they can support lower levels of cooperation in the future. The model explains why agents may be punished by the other members of their group for interacting with members of different groups and why agents are punished for interacting with members of some groups but not others. I test the empirical implication that there should be less cooperation among members of groups that make up a larger percentage of their communities. I discuss the origin and possible future of social division. JEL classification: Cooperation ; Caste ; Social Institution JEL codes: C7 ; O12 ; O17
    Date: 2013
  14. By: Kenju Kamei; Louis Putterman
    Abstract: Previous research has shown that opportunities for two-sided partner choice in finitely repeated social dilemma games can promote cooperation through a combination of sorting and opportunistic signaling, with late period defections by selfish players causing an end-game decline. How such experience would affect play of subsequent finitely-repeated games remains unclear. In each of six treatments that vary the cooperation premium and the informational basis for reputation formation, we let sets of subjects play sequences of finitely-repeated voluntary contribution games to study the competing forces of (a) learning about the benefits of reputation, and (b) learning about backward unraveling. We find, inter alia, that with a high cooperation premium and good information, investment in reputation grows across sets of finitely-repeated games.
    Keywords: cooperation, reputation, voluntary contribution, public goods, sorting, endogenous grouping, group formation, experiment
    Date: 2013
  15. By: Matthias Neuenkirch (University of Aachen); Pierre Siklos (Wilfrid Laurier University)
    Abstract: This paper examines the policy rate recommendations of the Bank of Canada's Governing Council (GC) and the C.D. Howe Institute's Monetary Policy Council (MPC)since 2003. We find, first, that differences in the median recommendations between the MPC and the GC are persistent but small (i.e., 25 bps). The median MPC recommendation is based on a higher steady state real interest rate. However, the response of the MPC and the GC to output and inflation shocks are, for the most part, comparable. Second, we are also able to examine the individual recommendations for the MPC. Estimates of the determinants of consensus inside the MPC or disagreement with the GC yield some useful insights. For example, disagreements are more likely when rates are proposed to rise than at other times. Equally interesting is the finding that the Bank of Canada conditional commitment on the overnightrate in 2009-10 has a relatively larger restricting impact on the MPC's median recommendation than the GC'starget rate.
    Keywords: Bank of Canada, central bank communication, committee behaviour, monetary policy committees,shadow councils, Taylorrules.
    JEL: E43 E52 E58 E61 E69
    Date: 2013
  16. By: Tucker, Luc (Department of Economics, University of Warwick)
    Abstract: Members of worldwide parliaments partake in debates, where they have the opportunity to hold governments to account by asking pre-submitted questions. The UK House of Commons uses a ballot system to determine which members are selected to ask a question from those who expressed an interest in doing so. This paper is the first in the literature to exploit this randomization to show that the asking of such questions increases a member’s chances of being re-elected by their constituents. It is shown that while the ordering of parliamentary questions is determined at random, the practicalities of conducting debates introduce a potentially endogenous element to the determination of which questions receive oral answers (particularly the speed at which questions are answered). This paper uses a matched sampling approach to cope with such non-random cases, but also includes alternative results, to show that the findings are not reliant on the use of this technique. JEL classification: JEL codes:
    Date: 2013
  17. By: Piekkari, Rebecca (Aalto University); Oxelheim, Lars (Research Institute of Industrial Economics (IFN)); Randøy, Trond (University of Agder)
    Abstract: Multinational corporations internationalize their corporate boardrooms in order to capitalize on their commercial and financial internationalization. Board internationalization provides access to specialized knowledge and skills, broadens social networks and ensures greater transparency of strategic decision-making. The entry of a foreign board member is often coupled with a change in the working language of the board. The purpose of the present study is to explore and explain how increased language diversity influences decision-making and work processes of corporate boards. We draw on previous research on board internationalization, diversity and language in multinational corporations. Based on a multiple case study of nine multinational corporations from four Nordic countries, we find evidence of impoverished and silenced discussions in board meetings in those case companies that were unprepared to switch to English as the new working language of the board. Some board members found it difficult to contribute to board meetings, articulate disagreement and felt socially excluded from the board. Such effects on decision-making and work processes were not found in the well-prepared companies. The study adds to the understanding of different modes to internationalize the board as a response to different forms of internationalization of the firm.
    Keywords: Language diversity; Board internationalization; Commercial internationalization; Financial internationalization; Degree of internationalization; Social exclusion; Silencing effect
    JEL: A10
    Date: 2013–09–10
  18. By: Herbert Hamers; Flip Klijn; Marco Slikker
    Abstract: Scheduling jobs of decentralized decision makers that are in competition will usually lead to cost inefficiencies. This cost inefficiency is studied using the Price of Anarchy (PoA), i.e., the ratio between the worst Nash equilibrium cost and the cost attained at the centralized optimum. First, we provide a tight upperbound for the PoA that depends on the number of machines involved. Second, we show that it is impossible to design a scheduled-based coordinating mechanism in which a Nash equilibrium enforces the centralized or first best optimum. Finally, by simulations we illustrate that on average the PoA is relatively small with respect to the established tight upperbound.
    Keywords: sequencing situations, outsourcing, first best solution, game theory, price of anarchy, coordinating mechanism
    JEL: C72 D82
    Date: 2013–08

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