New Economics Papers
on Collective Decision-Making
Issue of 2013‒10‒02
eighteen papers chosen by
Stan C. Weeber, McNeese State University

  1. The closed primaries versus the top-two primary By P. Amorós; Ricardo Martínez; M. Socorro Puy
  2. On the Extent of Strategic Voting By Spenkuch, Jörg
  3. The Impact of Incumbency on Turnout: Evidence from Italian Municipalities By De Benedetto, Marco Alberto; De Paola, Maria
  4. The political economy of pricing and capacity decisions for congestible local public goods in a federal state By De Borger, Bruno; Proost, Stef
  5. How individual preferences get aggregated in groups - An experimental study By Attila Ambrus; Ben Greiner; Parag Pathak
  6. Those Outsiders: How Downstream Externalities Affect Public Good Provision By Sarah Jacobson; Jason Delaney
  7. Party alignment and political budget cycles: the Argentine provinces By Daniel Lema; Jorge M. Streb
  8. Accuracy in Contests: Players' Perspective By YILDIRIM, Mustafa
  9. Public Education and Social Security: A Political Economy Approach By Tetsuo Ono
  10. How does geographical mobility of inventors influence network formation? By Ernest Miguelez
  11. Endogenous Price Leadership - A Theoretical and Experimental Analysis By Werner Güth; Kerstin Pull; Manfred Stadler; Alexandra Zaby
  12. Husbands and Wives. The powers and perils of participation in a microfinance cooperative for female entrepreneurs By Felix Meier zu Selhausen; Erik Stam
  13. Principle of Proportionality in Investor-State Arbitration: An emerging standard of justifiable regulatory measures (Japanese) By ITO Kazuyori
  14. Why policies fail? An institutional model explaining success and failure factors of rural development policies in Europe By Mantino, Francesco
  15. The Politics of Financial Development and Capital Accumulation By Matsuoka, Tarishi; Naito, Katsuyuki; Nishida, Keigo
  16. Words Substitute Fists – Justifying Punishment in a Public Good Experiment By Christoph Engel; Lilia Zhurakhovska
  17. Foundations for Cooperation in the Prisoners’ Dilemma By Brendan Daley; Philipp Sadowski
  18. Incentives and Information as Driving Forces of Default Effects By Altmann, Steffen; Falk, Armin; Grunewald, Andreas

  1. By: P. Amorós; Ricardo Martínez; M. Socorro Puy
    Abstract: The top-two primary recently approved in states like Washington, California, and Alaska eliminates the closed party primaries and creates instead a single ballot in which the first and second place winners pass to the general election. We compare the electoral consequences of the top-two primary with those of the closed primaries. We present a model where each primary procedure induce a sequential game with three stages: candidate-entry stage, primary election, and general election. We analyze the equilibria of these games and show that the top-two primary contributes to political moderation and may increase the number of swing states.
    Keywords: Voting system, Closed primaries, Open primaries, Top-two primary, Political moderation, Sequential voting
    JEL: C72 D72
    Date: 2013–09
  2. By: Spenkuch, Jörg
    Abstract: Social scientists have long speculated about individuals' tendencies to misrepresent their preferences in order to affect the outcome of social choice mechanisms. The fact that preference orderings are generally unobserved, however, has made it very difficult to document strategic behavior empirically. Exploiting the incentive structure of Germany's voting system to solve the fundamental identification problem, this paper estimates the extent of strategic voting in large, real-world elections. The evidence indicates that approximately 35% of voters abandon their most preferred candidate if she is not in contention for victory. As predicted by theory, tactical behavior has a non-trivial impact on individual races. Yet, as one aggregates across districts, these distortions partially offset each other, resulting in considerably more modest effects on the overall distribution of seats.
    Keywords: voting, strategic voting, strategyproofness in social choice, elections, Germany
    JEL: D7 D71 D72
    Date: 2013–09
  3. By: De Benedetto, Marco Alberto (Birkbeck, University of London); De Paola, Maria (University of Calabria)
    Abstract: We analyze how having an incumbent among candidates affects electoral turnout. We use a rich data set providing information on the electoral results of Italian municipal elections over the period 1993-2011. Endogeneity issues are handled through an instrumental variable approach using the mayor term-limit as an instrument for the presence of the incumbent mayor among candidates. Controlling for electoral competition, we find that the impact of incumbency is heterogeneous across geographical areas: incumbency increases turnout in the South of Italy, whereas we do not find any statistically significant effect in the North. As the positive effect holds true only for southern municipalities endowed with low levels of social capital we speculate that this is the result of incumbent politicians using their resources to establish clienteles.
    Keywords: incumbency, political participation, electoral turnout, social capital
    JEL: D72 D78 J71 J16
    Date: 2013–09
  4. By: De Borger, Bruno; Proost, Stef
    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
  5. By: Attila Ambrus (Department of Economics, Duke University); Ben Greiner (School of Economics, Australian School of Business, the University of New South Wales); Parag Pathak (Department of Economics, Massachusetts Institute of Technology)
    Abstract: This paper experimentally investigates how individual preferences, through unrestricted deliberation, get aggregated into a group decision in two contexts: reciprocating gifts, and choosing between lotteries. In both contexts we find that median group members have a significant impact on the group decision, but particular other members also have some influence. Non-median members closer to the median tend to have more influence than other members. By investigating the same individual’s influence in different groups, we find evidence for relative position in the group having a direct effect on influence. We do not find evidence that group choice exhibits a shift in a particular direction that is independent of member preferences and caused by the group decision context itself. We also find that group deliberation not only involves bargaining and compromise, but it also involves persuasion: preferences tend to shift towards the choice of the individual’s previous group, especially for those with extreme individual preferences.
    Keywords: group decision-making, role of deliberation, social influence
    JEL: C72 C92 H41
    Date: 2013–09
  6. By: Sarah Jacobson (Williams College); Jason Delaney (School of Business Administration, Georgia Gwinnett College)
    Abstract: Some policy problems pit the interests of one group against those of another group. One group may, for example, determine the provision of a project (such as a power plant or a dam) that benefits group members but has downstream externalities that hurt people outside the group. We introduce a model of projects with such asymmetries. In-group members may contribute to a common fund that benefits them as a public good. In the model, benefits from the project may or may not vary within the group. Project provision has negative downstream externalities: common fund contributions hurt agents outside the in-group (“Outsiders”) rendering common fund contributions anti-social overall. Many models of social preferences predict that such externalities should reduce or eliminate project provision, although conditional cooperation or a preference for in-group members may counteract this effect. We test this model with a lab experiment. With homogeneous in-group benefits, the presence of negative downstream externalities reduces contribution levels by nearly half. We introduce a rotating high-return position that allows subjects to trade favors. Contributions diminish only slightly with the introduction of the negative externality and reciprocal giving occurs whether or not Outsiders are present.
    Keywords: public bad, public good, social preferences, reciprocity, externalities, in-group-out-group, parochial altruism
    JEL: C91 D01 D62 D71 H41 Q50
    Date: 2013–09
  7. By: Daniel Lema; Jorge M. Streb
    Abstract: The links between subnational political budget cycles (PBCs) and the national government in federal countries have seldom been studied. We study the behavior of the budget balance, public expenditures, and revenues in Argentine provinces during the 1985–2001 period. We find that in election years public expenditures increase, but revenues also do — a result exactly contrary to the predictions of rational opportunistic models of aggregate PBCs — and the budget deficit does not increase significantly. Since the increase in provincial revenues is due to larger federal transfers, we incorporate the influence of party alignment between governors and president. Public expenditures in election years increase in aligned provinces because of larger federal transfers, without affecting the budget deficit; in contrast, the budget deficit tends to increase in unaligned provinces. The federal government thus plays a key role in subnational PBCs, with an electoral cycle in the allocation of federal transfers.
    Keywords: political budget cycles, federal countries, discretional transfers, tactical allocation, party alignment, distributive politics
    JEL: D72 E62
    Date: 2013–09
  8. By: YILDIRIM, Mustafa (Dept. of Economic Statistics, Stockholm School of Economics)
    Abstract: We propose a political theory for the slow adoption of technology in sports and other contests. We investigate players’preferences for new technology that improves contest accuracy. Modeling accuracy as the elasticity of "production" in a standard Tullock contest, we show that players may be against higher accuracy if heterogeneity among them is:(1) sufficiently low; (2) moderate but the initial accuracy is low; or (3) high but the initial accuracy is high. We apply our results to the recent adoption of goal-line technology by major European soccer leagues.
    Keywords: contest accuracy; politics; slow technology adoption; goal-line technology
    JEL: C72 D44 D72
    Date: 2013–09–23
  9. By: Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This paper develops an overlapping-generations model with altruism towards children. The paper characterizes a Markov perfect political equilibrium of voting over two policy issues, public education for the young and social security for the old. The model potentially generates two types of political equilibria, and one of them is selected by the government from the viewpoint of maximizing its objective. The paper shows that (i) longevity affects equilibrium selection and relevant policy choices; and (ii) private education as an alternative to public education as well as the concept of Markov perfect political equilibrium are the keys to generate the two types of equilibria.
    Keywords: Public education; Social security; Intergenerational conflict
    JEL: H52 H55 I22
    Date: 2013–09
  10. By: Ernest Miguelez (World Intellectual Property Organization, Economics and Statistics Division, Geneva, Switzerland)
    Abstract: The goal of this paper is to assess the influence of spatial mobility of knowledge workers on the formation of ties of scientific and industrial collaboration across European regions. Co-location has been traditionally invoked to ease formal collaboration between individuals and firms, since tie formation costs increase with physical distance between partners. In some instances, highly-skilled actors might become mobile and bridge regional networks across separate locations. This paper estimates a fixed effects logit model to ascertain precisely whether there exists a ‘previous co-location premium’ in the formation of networks across European regions.
    Keywords: inventors’ mobility, technological collaborations, co-location, European regions, panel data
    JEL: C8 J61 O31 O33 R0
    Date: 2013–04
  11. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Kerstin Pull (University of Tübingen); Manfred Stadler (University of Tübingen); Alexandra Zaby (University of Tübingen)
    Abstract: We present a model of price leadership on homogeneous product markets where the price leader is selected endogenously. The price leader sets and guarantees a sales price to which followers can adjust according to their individual supply functions. The price leader then clears the market by serving the residual demand. Firms with different marginal costs would induce different prices if they were price leaders. Somewhat counter-intuitively, lower marginal costs of the leader imply higher prices. We compare two mechanisms to determine the price leader in a between-subjects design, majority voting and competitive bidding. The experimental data of later rounds support our theoretical finding that experienced price leaders with lower marginal costs choose higher prices. In the majority voting treatment, participants with higher marginal costs more often establish the lowest cost competitor as price leader in order to induce a higher sales price.
    Keywords: Price leadership, majority voting, bidding, experimental economic
    JEL: D43 D74 L11
    Date: 2013–09–20
  12. By: Felix Meier zu Selhausen; Erik Stam
    Abstract: This study on female entrepreneurs in Western Uganda provides empirical evidence on the socio-economic effects of participation in a microfinance cooperative of both the female entrepreneur and her husband. Participation by female entrepreneurs in a microfinance cooperative is not an unconditional blessing: even though it does deliver higher household incomes, it might also deteriorate the female's household decision-making power when her husband participates in the same self-help group of the microfinance cooperative. This offers new insights for development policy and for entrepreneurship scholars to study the bright and dark sides of microfinance.
    Keywords: microfinance, cooperatives, female entrepreneurship, coffee, Uganda
    JEL: J16 J54 L26 N27 O15 O16 Q13
    Date: 2013–09
  13. By: ITO Kazuyori
    Abstract: There are some 2,800 international investment agreements (IIAs) that provide rules for protecting foreign investment from other contracting parties. When disputes occur between a foreign investor and a host state government, most IIAs allow investors to bring a case before an arbitral tribunal outside of the host state. Although this mechanism has largely reduced the business risks of foreign investment, commentators show some concern about the erosion of regulatory power on the host state, creating a menace to the pursuit of public interest. This concern, however, is not based on a trend in the latest arbitral decisions. A number of arbitral tribunals have opined that, unless the challenged regulatory measure harms investors disproportionately to the significance of policy objective, that measure cannot be a breach of investment protection rules. This way of thinking is commonly called the principle of proportionality, which has originally evolved through constitutional lawsuits where a court is required to coordinate the values between protecting the rights of individuals and promoting regulations for public interest. In this paper, the author attempts to analyze how and to what extent the arbitral tribunals under IIAs adopt this principle in making their decisions. It will help us reach the appropriate view on how far the government regulatory powers would be constrained when they conclude IIAs.
    Date: 2013–09
  14. By: Mantino, Francesco
    Abstract: This paper intends to analyse which are the main mechanisms and factors which bring either to failure or to success rural development policies. This analysis has been done in four Italian regions and in five rural areas, in order to catch macro and “meso” dimensions of success and failure. This analysis take under consideration governance and rules as the main arena where the different stakeholders try to impose their influence and interests at stake. Factors of success and failure operate along the institutional chain starting from the EU to the local level. By their collective action they try to shape rules and governance structures in relation to the impact they perceive on the resource allocation and the transaction costs needed to access to policies
    Keywords: Rural development policies; Institutional analysis; Governance
    JEL: Q18 R58
    Date: 2013–07
  15. By: Matsuoka, Tarishi; Naito, Katsuyuki; Nishida, Keigo
    Abstract: This paper proposes a simple analytical model to examine conditions in which a government policy to improve imperfect credit markets is practiced through a democratic political process, and analyzes interactions between the politically implemented policy and economic development. Individuals who support the policy are those who can start new investments only after the implementation of it. High income inequality and the low level of capital make the policy hard to implement, which is likely to cause the economy to fall into a poverty trap.
    Keywords: financial development, economic development, income inequality, majority voting
    JEL: D72 G18 O11 O15 O16
    Date: 2013–09–25
  16. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Lilia Zhurakhovska (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Punishees regularly ask for justification. But is justification also effective? To answer this question under controlled conditions, we have conducted a public goods experiment with central punishment. The authority is neutral – she does not benefit from contributions to the public good. Punishment is costly. Along with the punishment decisions the authority writes justifications for her decisions. In the Baseline, authorities are requested to justify punishment decisions, but the reasons are kept confidential. In the Private treatment, the addressee is only informed about the justification of the authority’s decision affecting herself, not affecting others. In the Public treatment, all reasons are made public. Whenever reasons are communicated, there is less monetary punishment. Authorities partly substitute words for action. Contributions decay in later periods if the justification is only communicated to the addressee. In the remaining two treatments, contributions stabilize at a high level.
    Keywords: experiment, Public Good, justification, authority, central intervention
    JEL: H41 D63 C91 D62 D03 K14
    Date: 2013–08
  17. By: Brendan Daley; Philipp Sadowski
    Abstract: We provide axiomatic foundations for a simple model of play in the prisoners’ dilemma. The model accommodates cooperation and suggests that players behave as if their expectations about their opponents’ behavior vary with their own choice. We refer to this nonstandard updating as magical thinking. The degree to which players exhibit magical thinking may be heterogeneous in the population and is captured by a uniquely identified parameter for each player. Further, it is as if all players perceive these parameters to be i.i.d. draws from a common distribution. The model’s identification allows for tractable comparative statics.
    Keywords: Prisoners’ dilemma, magical thinking, cooperation
    JEL: C7 D8
    Date: 2013
  18. By: Altmann, Steffen (IZA); Falk, Armin (University of Bonn); Grunewald, Andreas (University of Bonn)
    Abstract: The behavioral relevance of non-binding default options is well established. While most research has focused on decision makers' responses to a given default, we argue that this individual decision making perspective is incomplete. Instead, a comprehensive understanding of the foundation of default effects requires taking account of the strategic interaction between default setters and decision makers. We provide a theoretical framework to analyze which default options arise in such interactions, and which defaults are more likely to affect behavior. The key drivers are the relative level of information of default setters and decision makers, and their alignment of interests. We show that default effects are more pronounced if interests of the default setter and decision makers are more closely aligned. Moreover, decision makers are more likely to follow default options the less they are privately informed about the relevant decision environment. In the second part of the paper we experimentally test the main predictions of the model. We report evidence that both the alignment of interests as well as the relative level of information are key determinants of default effects. An important policy relevant conclusion is that potential distortions arising from default options are unlikely if decision makers are either well-informed or reflect on the interests of default setters.
    Keywords: default options, libertarian paternalism, behavioral economics, incentives, laboratory experiment
    JEL: D03 D18 D83 C92
    Date: 2013–09

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