New Economics Papers
on Collective Decision-Making
Issue of 2013‒09‒26
nineteen papers chosen by
Stan C. Weeber, McNeese State University

  1. Focused power: Experiments, the Shapley-Shubik power index, and focal points By Geller, Chris R.; Mustard, Jamie; Shahwan, Ranya
  2. Picking a loser? A social choice perspective on the Danish government formation of 1975 By Kurrild-Klitgaard, Peter
  3. Allure or Alternative? Direct Democracy and Party Identification By Matthias Fatke
  4. Private, social and self-insurance for long-term care in the presence of family help: A political economy analysis By De Donder, Philippe; Pestieau, Pierre
  5. State Incentives for Innovation, Star Scientists and Jobs: Evidence from Biotech By Enrico Moretti; Daniel J. Wilson
  6. Mechanism Design and Non-Cooperative Renegotiation By Robert Evans; Sonje Reiche
  7. First Impressions Matter: Signalling as a Source of Policy Dynamics By Hansen, Stephen; McMahon, Michael
  8. Relative concerns and delays in bargaining with private information By MAULEON, Ana; VANNETELBOSCH, Vincent
  9. The Value of Democracy: Evidence from Road Building in Kenya By Burgess, Robin; Jedwab, Remi; Miguel, Edward; Morjaria, Ameet; Padró i Miquel, Gerard
  10. Favor Trading in Public Good Provision By Petrie, Ragan; Jacobson, Sarah
  11. The Causal Impact of Common Native Language on International Trade: Evidence from a Spatial Regression Discontinuity Design By Egger, Peter; Lassmann, Andrea
  12. Overcoming Low Political Equilibrium in Africa: Institutional Changes for Inclusive Development By Léonce Ndikumana
  13. Policy design with private sector skepticism in the textbook New Keynesian model By Yang Lu; Ernesto Pasten; Robert King
  14. Decision theory for agents with incomplete preferences By Bales, Adam; Cohen, Daniel; Handfield, Toby
  15. Does the risk attitude influence the farmers' willingness to participate in agri-environmental measures? – A normative approach to evaluate ecosystem services By Dörschner, Till; Musshoff, Oliver
  16. Coordination Incentives, Performance Measurement and Resource Allocation in Public Sector Organizations By Dietrichson, Jens
  17. Bribery and Threat By Estrada , Fernando
  18. Choice via Grouping Procedures By Matsuki, Jun; Tadenuma, Koichi
  19. Limited farsightedness in network formation By KIRCHSTEIGER, Georg; MANTOVANI, Marco; MAULEON, Ana; VANNETELBOSCH, Vincent

  1. By: Geller, Chris R.; Mustard, Jamie; Shahwan, Ranya
    Abstract: Experiments evaluate the fit of human behaviour to the Shapley-Shubik power index (SSPI), a formula of voter power. Groups of six subjects with differing votes divide a fixed purse by majority rule in online chat rooms. Earnings proxy for measured power. Chat rooms and processes for selecting subjects reduce or eliminate extraneous forces. Logrolling remains as the primary political force. Subjects' initial proposals for division of the purse allow measurement of effects from focal points and transaction costs. Divisions of purses, net of those effects, closely fit the SSPI, averaging 1.033 of their SSPI values. The SSPI can serve as a control for power imbedded in voting blocs, permitting fuller analysis of other factors that affect political outcomes. --
    Keywords: social choice,public choice,elections,bargaining,coalitions,politico economic,voting power,conflict,election,collective action,majority rule
    JEL: D71 D72 D74
    Date: 2013
  2. By: Kurrild-Klitgaard, Peter
    Abstract: All democratic systems are theoretically open to so-called election inversions, i.e., instances wherein a majority of the decision makers prefer one alternative but where the actual outcome is another. The paper examines the complex 1975 Danish government formation process, which involved five rounds of negotiations and at least five competing alternatives. We demonstrate that in terms of party preferences the final outcome was not the Condorcet winner but rather one that could have been beaten by at least three other government alternatives in head-to-head comparisons. The Danish procedural system of “negative” parliamentarism combined with simple plurality rule to produce the electoral inversion.
    Keywords: Social choice; voting paradoxes; election inversions
    JEL: D7 D71 D72
    Date: 2013
  3. By: Matthias Fatke
    Abstract: This paper presents the first investigation of whether and how party identification is influenced by direct democratic institutions. The concept of party identification is of central interest to political science. Despite declining partisan attachment and increasing dealignment among voters, little systematic evidence exists as to which factors influence individual party identification. Our paper contributes to improving on this lacuna by considering the educative effects of direct democratic institutions. Theoretically, two competing hypotheses are plausible. On the one hand, direct democracy might strengthen political parties and promote the need for cues so that voters succumb to the allure of partisan attachment. On the other hand, direct democracy might provide an alternative to the representational function of political parties thus rendering party identification less essential. Drawing on recent data from the Swiss cantons, we estimate multilevel models. Our analyses, though giving support to the alternative-hypothesis, yield some surprising findings.
    Keywords: Direct democracy, Party identification, Political parties, Dealignment, Educative effects
    Date: 2013–09–11
  4. By: De Donder, Philippe; Pestieau, Pierre
    Abstract: We study the political determination of the level of social long-term care insurance when voters also choose private insurance and saving amounts. Agents differ in income, probability of becoming dependent and of receiving family help. Social insurance redistributes across income and risk levels, while private insurance is actuarially fair. The income-to-risk ratio of agents determines whether they prefer social or private insurance. Family support crowds out the demand for both social and, especially, private insurance, as strong prospects of family help drive the demand for private insurance to zero. The availability of private insurance decreases the demand for social insurance but need not decrease its majority chosen level.
    Keywords: crowding out; familism; long-term care; social insurance; voting; weak and strong prospects of family help
    JEL: D72 I13 J14
    Date: 2013–08
  5. By: Enrico Moretti; Daniel J. Wilson
    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.
    JEL: H0 J0 R0
    Date: 2013–08
  6. By: Robert Evans; Sonje Reiche
    Abstract: We characterize decision rules which are implementable in mechanism design settings when, after the play of a mechanism, the uninformed party can propose a new mechanism to the informed party. The necessary and sufficient conditions are, essentially, that the rule be implementable with commitment, that for each type the decision is at least as high as if there were no mechanism, and that the slope of the decision function is not too high. The direct mechanism which implements such a rule with commitment will also implement it in any equilibrium without commitment, so the standard mechanism is robust to renegotiation.
    Keywords: Renegotiation, Mechanism Design
    Date: 2013–09–19
  7. By: Hansen, Stephen; McMahon, Michael
    Abstract: We provide the first direct empirical support for the relevance of signalling in monetary policy. In our dynamic model, central bankers make policy under uncertain inflationary conditions and place different weights on output fluctuations. Signalling leads all bankers to be tougher on inflation initially, but to become less tough with experience. This evolution is more pronounced for members who weight output more ("doves"), which provides an additional test of our model. We structurally estimate the model using Bank of England data and confirm both predictions. Signalling increases the probability new members vote for high interest rates by up to 35%.
    Keywords: committees; monetary policy; signalling
    JEL: D78 E52 E58
    Date: 2013–08
  8. By: MAULEON, Ana (CEREC, Saint-Louis University, Brussels, Belgium; Université catholique de Louvain, CORE, Belgium); VANNETELBOSCH, Vincent (CEREC, Saint-Louis University, Brussels, Belgium; Université catholique de Louvain, CORE, Belgium)
    Abstract: We consider Rubinstein's two-person alternating-offer bargaining model with two-sided incomplete information. We investigate the effects of one party having relative concerns on the bargaining outcome and the delay in reaching an agreement. We find that facing an opponent having stronger relative concerns only hurts the bargainer when she is stronger than her opponent. In addition, we show that an increase of one party's relative concerns will decrease the maximum delay in reaching an agreement.
    Keywords: relative concerns, alternating-offer bargaining, private information, maximal delays
    JEL: C70 D60 J50
    Date: 2013–07–09
  9. By: Burgess, Robin; Jedwab, Remi; Miguel, Edward; Morjaria, Ameet; Padró i Miquel, Gerard
    Abstract: Ethnic favoritism is seen as antithetical to development. This paper provides credible quantification of the extent of ethnic favoritism using data on road building in Kenyan districts across the 1963-2011 period. Guided by a model it then examines whether the transition in and out of democracy under the same president constrains or exacerbates ethnic favoritism. Across the 1963 to 2011 period, we find strong evidence of ethnic favoritism: districts that share the ethnicity of the president receive twice as much expenditure on roads and have four times the length of paved roads built. This favoritism disappears during periods of democracy.
    JEL: D72 L92 O55 R48
    Date: 2013–09
  10. By: Petrie, Ragan (Interdisciplinary Center for Economic Science (ICES), George Mason University, 4400 University Drive, MSN 1B2); Jacobson, Sarah (Department of Economics, Williams College, 24 Hopkins Hall Dr., Williamstown, MA 01267, USA)
    Abstract: Favor trading is common. We do something nice for someone and they do something nice in return. Several motives might underlie such behavior, including altruism, strategic motives, and direct or indirect positive reciprocity. It is not yet well-understood how these fit together to affect behavior, how they interact in various institutional structures, and how they play out over time. We use a laboratory experiment to study the elements and dynamics of favor trading in a particular setting: the private provision of a public good. In our experiment, giving subjects the ability to practice targeted reciprocity by making a simple, low-cost change in information provision increases contributions to the public good by 14%. Subjects reward group members who have previously been generous to them and withhold rewards from ungenerous group members. Strategic concerns cannot explain all of this behavior, and it must be at least partly due to direct reciprocity. When someone cannot directly benefit from favor trading, he gives much less to the public good. People thus excluded from the “circle of reciprocity” provide a clean and strict test of indirect reciprocity. Contrary to previous studies in the literature, we do not observe indirect reciprocity.
    Keywords: public goods, direct and indirect reciprocity, experiment, peer-to-peer fundraising
    JEL: C92 H41 D01
    Date: 2013–09
  11. By: Egger, Peter; Lassmann, Andrea
    Abstract: This paper studies the causal effect of sharing a common native language on international trade. Switzerland is a multilingual country that hosts four official language groups of which three are major (French, German, and Italian). These groups of native language speakers are geographically separated, with the corresponding regions bordering countries which share a majority of speakers of the same native language. All of the three main languages are understood and spoken by most Swiss citizens, especially the ones residing close to internal language borders in Switzerland. This unique setting allows for an assessment of the impact of common native (rather than spoken) language as a cultural aspect of language on trade from within country-pairs. We do so by exploiting the discontinuity in various international bilateral trade outcomes based on Swiss transaction-level data at historical language borders within Switzerland. The effect on various margins of imports is positive and significant. The results suggest that, on average, common native language between regions biases the regional structure of the value of international imports towards them by 18 percentage points and that of the number of import transactions by 20 percentage points. In addition, regions import 102 additional products from a neighboring country sharing a common native language compared to a different native language exporter. This effect is considerably lower than the overall estimate (using aggregate bilateral trade and no regression discontinuity design) of common official language on Swiss international imports in the same sample. The latter subsumes both the effect of common spoken language as a communication factor and of confounding economic and institutional factors and is quantitatively well in line with the common official (spoken or native) language coefficient in many gravity model estimates of international trade.
    Keywords: Common language; Culture; International trade; Quasi-randomized experiments; Regression discontinuity design
    JEL: C14 C21 F14 R12 Z10
    Date: 2013–04
  12. By: Léonce Ndikumana
    Abstract: This paper examines the role that institutions have played in the performance of African economies over the past decades. It discusses the institutional changes needed to enable African countries to reach inclusive development in the near future. The paper starts from the premise that growth and development are the outcomes of policy choices, which in turn are the outcome of a complex process of political negotiation among various stakeholders – both domestic and foreign – who have interests that may be divergent. In other words, policy choices and the resulting development outcomes constitute a political equilibrium. It is therefore important to understand how such political equilibria arise, how they persist, and how they can be shaped or altered to achieve national goals.� Understanding the forces that govern policy making and the factors that drive growth and its distributional impact can shed light on how African countries can definitively overcome secular low growth and pervasive inequities; in other words how they can overcome low-development political equilibrium and achieve inclusive development. �
    Keywords: political equilibrium; Africa; institutions; growth
    JEL: O1 O55 O11 O43
    Date: 2013
  13. By: Yang Lu (Hong Kong University of Science and Technology); Ernesto Pasten (Banco Central de Chile and Toulouse School of Economics); Robert King (Boston University)
    Abstract: How should policy be optimally designed when a monetary authority faces a private sector that is somewhat skeptical about policy announcements and which interprets economic data as providing evidence about the monetary authority's preferences or its ability to carry through on policy plans? To provide an answer to this question, we extend the standard New Keynesian macroeconomic model to include imperfect inflation control (implementation error relative to an inflation action) and Bayesian learning by private agents about whether the monetary authority is the committed type (capable of following through on announced plans) or an alternative type (producing higher and more volatile inflation). In a benchmark case, we find that optimal policy involves dramatic anti-inflation actions which include an interval of deflation during the early stages of a plan, motivated by investing in a reputation for strength. Such policies resemble recommendations during the 1980s for a "cold turkey" approach to disinflation. However, we also find that such policy is not robustly optimal. A more "gradualist" policy arises if the initial level of credibility is very low. We also investigate a setting where the alternative monetary authority follows a simple behavioral rule that mimics variations in the committed authority's policy action but with a bias toward higher and more volatile inflation. In this case, which we call a "tag along" alternative policymaker, a form of gradualism is always optimal.
    Date: 2013
  14. By: Bales, Adam; Cohen, Daniel; Handfield, Toby
    Abstract: Orthodox decision theory gives no advice to agents who hold two goods to be incommensurate in value because such agents will have incomplete preferences. According to standard treatments, rationality requires complete preferences, so such agents are irrational. Experience shows, however, that incomplete preferences are ubiquitous in ordinary life. In this paper, we aim to do two things: (1) show that there is a good case for revising decision theory so as to allow it to apply non-vacuously to agents with incomplete preferences, and (2) to identify one substantive criterion that any such non-standard decision theory must obey. Our criterion, Competitiveness, is a weaker version of a dominance principle. Despite its modesty, Competitiveness is incompatible with prospectism, a recently developed decision theory for agents with incomplete preferences. We spend the final part of the paper showing why Competitiveness should be retained, and prospectism rejected.
    Keywords: Decision theory, incommensurate value, practical reason, incomplete preferences, dominance
    JEL: D01 D03 D81 D89
    Date: 2013–09–09
  15. By: Dörschner, Till; Musshoff, Oliver
    Abstract: Agri-environmental measures are often not as accepted among farmers as expected. The present study investigates whether changes in income risks and the individual risk attitudes of farmers may constitute an explanatory approach for the low acceptance of the measures. For this purpose, a normative model is developed that calculates the premia claimed by the farmers for adopting environmental measures under the consideration of income risks and different risk attitudes. We apply this model to environmental measures aiming at an increase of the faunistic diversity of species and show that changes in income risks and the decision makers’ risk attitudes can significantly influence farmers’ minimum compensation claims for the participation in agri-environmental measures.
    Keywords: agri-environmental measures, income risks, minimum compensation claim, premium for ecosystem services, risk attitudes, Environmental Economics and Policy, Risk and Uncertainty,
    Date: 2013
  16. By: Dietrichson, Jens (Department of Economics, Lund University)
    Abstract: Why are coordination problems common when public sector organizations share responsibilities, and what can be done to mitigate such problems? This paper uses a multi-task principal-agent model to examine two related reasons: the incentives to coordinate resource allocation and the difficulties of measuring performance. The analysis shows that when targets are set individually for each organization, the resulting incentives normally induce inefficient resource allocations. If the principal impose shared targets, this may improve the incentives to coordinate but the success of this instrument depends in general on the imprecision and distortion of performance measures, as well as agent motivation. Besides decreasing available resources, imprecise performance measures also affect agents' possibility to learn the function that determines value. Simulations with a least squares learning rule show that the one-shot model is a good approximation when the imprecision of performance measures is low to moderate and one parameter is initially unknown. However, substantial and lengthy deviations from equilibrium values are frequent when three parameters have to be learned.
    Keywords: Public sector organizations; Coordination incentives; Performance measurement; Shared targets; Learning
    JEL: D23 D73 D83 H11 H83
    Date: 2013–08–16
  17. By: Estrada , Fernando
    Abstract: In their recent work Thomas S. Schelling (2007, 2010), reiterating original arguments about game theory and its applications to social sciences. In particular, game theory helps to explore situations in which agents make decisions interdependent (strategic communication). Schelling's originality is to extend economic theory to social sciences. When a player can anticipate the options and influence the decisions of others. The strategy, indirect communication plays a crucial role. To illustrate, we investigate how to perform the payoff matrix in cases of bribery and threat
    Keywords: Social Science, Schelling, game theory, strategic communications, bribes, threats.
    JEL: C7 C72 C78 C9 D7 D8 D82 D84
    Date: 2013
  18. By: Matsuki, Jun; Tadenuma, Koichi
    Abstract: In this paper, we consider a natural procedure of decision-making, called a “Grouping Choice Method”, which leads to a kind of bounded rational choices. In this procedure a decision-maker (DM) first divides the set of available alternatives into some groups and in each group she chooses the best element (winner) for her preference relation. Then, among the winners in the first round, she selects the best one as her final choice. We characterize Grouping Choice Methods in three different ways. First, we show that a choice function is a Grouping Choice Method if and only if it is a Rational Shortlist Method (Manzini and Mariotti, 2007) in which the first rationale is transitive. Second, Grouping Choice Methods are axiomatically characterized by means of a new axiom called Elimination, in addition to two well-known axioms, Expansion and Weak WARP (Manzini and Mariotti, 2007). Third, Grouping Choice Methods are also characterized by a weak version of Path Independence.
    Keywords: grouping of alternatives, preference, bounded rationality
    JEL: D01
    Date: 2013–09
  19. By: KIRCHSTEIGER, Georg (Université Libre de Bruxelles, ECARES, B-1050 Brussels, Belgium); MANTOVANI, Marco (Università degli studi di Milano, I-20122 Milano, Italy); MAULEON, Ana (CEREC, Saint-Louis University, Brussels, Belgium; Université catholique de Louvain, CORE, Belgium); VANNETELBOSCH, Vincent (CEREC, Saint-Louis University, Brussels, Belgium; Université catholique de Louvain, CORE, Belgium)
    Abstract: Pairwise stability Jackson and Wolinsky [1996] is the standard stability concept in network formation. It assumes myopic behavior of the agents in the sense that they do not forecast how others might react to their actions. Assuming that agents are perfectly farsighted, related stability concepts have been proposed. We design a simple network formation experiment to test these extreme theories, but find evidence against both of them: the subjects are consistent with an intermediate rule of behavior, which we interpret as a form of limited farsightedness. On aggregate, the selection among multiple pairwise stable networks (and the performance of farsighted stability) crucially depends on the level of farsightedness needed to sustain them, and not on efficiency or cooperative considerations. Individual behavior analysis corroborates this interpretation, and suggests, in general, a low level of farsightedness (around two steps) on the part of the agents.
    Keywords: network formation, experiment, myopic and farsighted stability
    JEL: D85 C91 C92
    Date: 2013–07–09

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