New Economics Papers
on Collective Decision-Making
Issue of 2013‒10‒05
sixteen papers chosen by
Stan C. Weeber, McNeese State University

  1. Voting for income-immiserizing redistribution in the Meltzer-Richard model By Barnett, Richard C.; Bhattacharya, Joydeep; Bunzel, Helle
  2. Tacit Coordination in Games with Third-Party Externalities By James Bland; Nikos Nikiforakis
  3. Trust in Cohesive Communities By Felipe Balmaceda; Juan Escobar
  4. Voice Effects on Attitudes towards an Impartial Decision Maker: Experimental Evidence By Marco Kleine; Pascal Langenbach; Lilia Zhurakhovska
  5. Proactive Management, Reactive Management, and Perceived Political Support By Young-Joo Lee; Sangyub Ryu
  6. Less Is More? Implications of Regulatory Capture for Natural Resource Depletion By Sheetal Sekhri; Sriniketh Nagavarapu
  7. Theocracy By Metin M. Cosgel; Thomas J. Miceli
  8. Corporations and Regulators: The Game of Influence in Regulatory Capture By Dominic K. Albino; Anzi Hu; Yaneer Bar-Yam
  9. Strategic Determination of Renegotiation Costs By Akitoshi Muramoto
  10. Managerial Investment in Mutual Funds By Abigail S. Hornstein; James Hounsell
  11. Targeted information release in social networks By Junjie Zhou; Ying-Ju Chen;
  12. Political Inequality and the Origins of Distrust: Evidence for Colombia By Alvarez Villa, Daphne
  13. I Did it Your Way. An Experimental Investigation of Peer Effects in Investment Choices By Alexia Delfino; Luigi Marengo; Matteo Ploner
  14. Segregation and Social Conict: An Empirical Analysis By Miguel Vargas; Alejandro Corvarlan
  15. UNDERSTANDING PAY-FOR-PERFORMANCE INSTATE GOVERNMENTS: A Diffusion Theory Approach By Sangyub Ryu; John Ronquillo; Cora Terry
  16. Wage Posting or Wage Bargaining? Evidence from the Employers' Side By Brenzel, Hanna; Gartner, Hermann; Schnabel, Claus

  1. By: Barnett, Richard C.; Bhattacharya, Joydeep; Bunzel, Helle
    Abstract: This paper argues that income received via redistributive transfers, unlike labor income, requires no direct sacrifice of leisure; this makes it attractive to many voters even if it leaves them poorer. This point is made within the classic Meltzer and Richard (1981) model wherein heterogeneous voters evaluate an income-redistribution program that finances a lump-sum transfer to all via a distorting income tax. The political-equilibrium policy under majority rule is the tax most preferred, utility-wise, by the median voter. She, and many poorer voters, may support income redistribution that, ironically, leaves them poorer in income terms but with higher utility.
    Keywords: income redistribution; voting; Meltzer-Richard
    JEL: D72 E6 H2
    Date: 2013–09–30
  2. By: James Bland (Department of Economics, Purdue University); Nikos Nikiforakis (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: When agents face coordination problems their choices often impose externalities on third parties. We investigate whether such externalities can affect equilibrium selection in a series of one-shot coordination games varying the size and the sign of the externality. We fi?nd that third-party externalities have a limited effect on decisions. A large majority of participants in the experiment are willing to take an action that increases their income slightly, even if doing so causes substantial inequalities and reductions in overall efficiency. Individuals revealed to be other-regarding in a non-strategic allocation task often behave as-if sel?fish when trying to coordinate.
    Keywords: social preferences, efficiency, externalities, tacit coordination, equilibrium selection, efficiency.
    JEL: D63 D01 D62 C90 D03
    Date: 2013–10
  3. By: Felipe Balmaceda (Facultad de Economía y Empresa, Universidad Diego Portales); Juan Escobar (Departamento de Ingenieria Industrial, Universidad de Chile)
    Abstract: This paper investigates the social structures that maximize trust and cooperation when agreements are implicitly enforced. We study a repeated trust game in which the social network determines the information transmission technology. We show that cohesive communities, modeled as social networks of complete components, emerge as the optimal community design. Cohesive communities generate some degree of common knowledge of transpired play that allows players to coordinate their punishments and, as a result, yield relatively high equilibrium payos. Our results provide an economic rationale for the commonly argued optimality of cohesive social networks.
    Date: 2013–06
  4. By: Marco Kleine (Max Planck Institute for Research on Collective Goods, Bonn); Pascal Langenbach (Max Planck Institute for Research on Collective Goods, Bonn); Lilia Zhurakhovska (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The opportunity to voice one’s opinion about a decision is a fundamental aspect of procedural fairness and applies to a large variety of economic interactions. Voice may influence decision makers, but at the same time it shapes behavior of those who can voice their opinion. We study the latter effect in a laboratory experiment. More precisely, we analyze the impact of voicing one’s opinion in a decision making process on people’s attitude towards an impartial decision maker whose judgment is not biased by any personal stake. The attitude is measured by generosity towards the decision maker in a dictator game that follows the decision making process. We show that voice procedures substantially improve the attitude towards the decision maker: average transfers are 90% higher in voice treatments than in baseline. And importantly, these positive voice effects in terms of higher transfers occur irrespectively of the decision made by the decision maker. Hence, subjects seem to derive utility merely from stating their opinion rather than from influencing the decision in their favor. In that regard, our results are in contrast to previous findings from settings with self-interested decision makers (e.g., principal-agent relationships), in which voice fosters positive reciprocal behavior for favorable outcomes, as well as negative reciprocal behavior for unfavorable outcomes.
    Keywords: fairness, Communication, voice, procedure, impartial decision maker, participative decision making, laboratory experiment
    JEL: D63 K23 D23 K40 C91 D03
    Date: 2013–07
  5. By: Young-Joo Lee (The University of Texas at Dallas); Sangyub Ryu (International University of University)
    Abstract: Starting from the assumption that political support is essential for public managers to manage their organizations, this study investigates factors that enhance political leaders' support toward top executives in public organizations. Based on the literature of proactive behaviors, this study tests hypothesis that proactive managers are more likely to acquire political support. Analyses on more than 500 cases in Texas school districts find that superintendents perceive more support from their school board members as they proactively interact with their board members, proactively express their opinions to the board, protect their organizations from external events, and exercise strong discretion in decision making within their organization. However, too much proactiveness threatening discretion of school board members does not help obtaining political support. This study suggests that top managers need to take strategic approach to enhance political support. Lastly, this study preliminarily finds that political support is significantly and positively associated with organizational performance.
    Keywords: Inequality, proactive management, reactive management, political support, performance
    Date: 2013–09
  6. By: Sheetal Sekhri; Sriniketh Nagavarapu
    Abstract: Well-designed regulation can check politically driven ineciencies, but it can also ex- acerbate distortions if politicians capture the regulators. We examine the consequences of strengthening India's electricity transmission regulatory structure for groundwater ex- traction, where electricity is the key input, and we nd evidence of regulatory capture by politicians. Guided by our model, in which politicians of national and regional parties compete for parliamentary seats, we show that empowering regulators amplied distortions in groundwater extraction in favor of national candidates, who have greater incentives and abilities to co-opt the regulators. Using nationally representative groundwater data from India for 1996-2006, we estimate that regulatory capture led to a 2.75 meter additional de- cline in water tables in closely-contested constituencies won by national parties' candidates. The short-term cost in closely-contested regional constituencies is around an 18 percent re- duction in agricultural production.
    Keywords: Regulatory Capture; Groundwater Depletion; Political Capture
    JEL: O10 O13 Q54
    Date: 2013–10
  7. By: Metin M. Cosgel (University of Connecticut); Thomas J. Miceli (University of Connecticut)
    Abstract: Throughout history, religious and political authorities have had a mysterious attraction to each other. Rulers have established state religions and adopted laws with religious origins, sometimes even claiming to have divine powers. We propose a political economy approach to theocracy, centered on the legitimizing relationship between religious and political authorities. Making standard assumptions about the motivations of these authorities, we identify the factors favoring the emergence of theocracy, such as the organization of the religion market, monotheism vs. polytheism, and strength of the ruler. We use two sets of data to test the implications of the model. We first use a unique data set that includes information on over three hundred polities that have been observed throughout history. The results provide strong empirical support for our arguments about why in some states religious and political authorities have maintained independence, while in others they have integrated into a single entity. To examine these issues in current societies, we use recently available cross-country data on the relationship between religious and political authorities.
    Keywords: theocracy, state, politics, religion, church, legitimacy, loyalty, monotheism, polytheism, democracy, power
    JEL: H10 P5 N4 Z12
    Date: 2013–10
  8. By: Dominic K. Albino; Anzi Hu; Yaneer Bar-Yam
    Abstract: In a market system, regulations are designed to prevent or rectify market failures that inhibit fair exchange, such as monopoly or transactions with hidden costs. Because regulations reduce profits to those possessing unfair advantage, these advantaged corporations (whether individuals, companies, or other collective organizations) are motivated to influence regulators. Regulatory bodies created to protect the market are instead co-opted to advance the interests of the corporations they are charged to regulate. This wide-spread influence, known as "regulatory capture," has been recognized for over 100 years, and according to expectations of rational behavior, will exist wherever it is in the mutual self-interest of corporations and regulators. Here we model the interaction between corporations and regulators using a new game theory framework explicitly accounting for players' mutual influence, and demonstrate the incentive for collusion. Communication between corporations and regulators enables them to collude and split the resulting profits. We identify when collusion is profitable for both parties. The intuitive results show that capture occurs when the benefits to the corporation outweigh the costs to the regulator. Under these conditions, the corporation can compensate the regulator for costs incurred and, further, provide a profit to both parties. In the real world, benefits often far outweigh costs, providing large incentives to collude and making capture likely. Regulatory capture is inhibited by decreasing the influence between parties through strict separation, independent market knowledge and research by regulators, regulatory and market transparency, regulatory accountability for market failures, widely distributed regulatory control, and anti-corruption enforcement.
    Date: 2013–09
  9. By: Akitoshi Muramoto (Graduate School of Economics, Kyoto University)
    Abstract: Recently, some literature on incomplete contracts studies the cases where renegotiations take place inefficiently. We extend the incomplete contract model in Hart (2009) by assuming that one party chooses an action which affects renegotiation costs. In our model, renegotiation costs are determined endogenously. We characterize the condition that she can get higher payoff by manipulating renegotiation costs than when she cannot manipulate renegotiation costs and renegotiations take place efficiently. Whereas she chooses positive renegotiation costs, renegotiations never occur on the equilibrium paths. They work just as "credible threat". Her equilibrium share ratio of the ex ante bargaining surplus is higher than her bargaining power. As an application, we discuss an investment problem by using a variant of our basic model. We show that the agents mitigate the investment problem by setting some positive renegotiation costs and increasing a high skilled agent's share ratio of the ex ante bargaining surplus to give her larger incentive of investment.
    JEL: D23 D86 C78
    Date: 2013–09
  10. By: Abigail S. Hornstein (Department of Economics, Wesleyan University); James Hounsell (Centerview Partners, New York)
    Abstract: The SEC requires mutual fund managers to disclose annually investments in self-managed funds. We examine whether such investments align managerial and investor interests using a hand- collected panel dataset at nearly 400 no load funds. We believe we are the first to document and examine the time series variation in these investments. Managerial investment fluctuates markedly within funds, contrary to prior researchers’ assumptions that the levels would be non- decreasing, and is not systematically related to fund characteristics. Fund returns are higher for solo-managed funds with managerial investment. On the other hand, team-managed funds have lower excess returns and management fees when managers invest more in the fund. These results suggest that managerial investment does not signal interest alignment but is rather an idiosyncratic personal decision.
    Keywords: mutual funds, managerial ownership, fund governance, fund performance
    JEL: G29 G32
    Date: 2013–02
  11. By: Junjie Zhou (School of International Business Administration, Shanghai University of Finance and Economics); Ying-Ju Chen (University of California at Berkeley);
    Abstract: As a common practice, various firms initially make information and access to their products/services scarce within a social network; identifying influential players that facilitate information dissemination emerges as a pivotal step for their success. In this paper, we tackle this problem using a stylized model that features payoff externalities and local network effects, and the network designer is allowed to release information to only a subset of players (leaders); these targeted players make their contributions first and the rest followers move subsequently after observing the leaders' decisions. In the presence of incomplete information, the signaling incentive drives the optimal selection of leaders and can lead to a first-order materialistic effect on the equilibrium outcomes. We propose a novel index for the key leader selection (i.e., a single player to provide information to) that can be substantially different from the key player index in \ \cite{ballester2006s} and the key leader index with complete information proposed in \cite{zhou13benefit}. We also show that in undirected graphs, the optimal leader group identified in \cite{zhou13benefit} is exactly the optimal follower group when signaling is present. The pecking order in complete graphs suggests that the leader should be selected by the ascending order of intrinsic valuations. We also examine the out-tree hierarchical structure that describes a typical economic organization. The key leader turns out to be the one that stays in the middle, and it is not necessarily exactly the central player in the network.
    Keywords: social network, signaling, information management, targeted advertising, game theory
    JEL: D21 D29 D82
    Date: 2013–09
  12. By: Alvarez Villa, Daphne
    Abstract: This paper aims to identify the effect of political exclusion on social capital in Colombia, suggesting social capital as an important channel through which political inequality has been central for Colombian economic development. I use the Colombian National Front agreement during 1958-1974 to test my hypothesis, as it institutionalized the political exclusion of non-traditional parties in that country. Whereas it affected all regions at the same time, it implied differential effects according to the municipalities’ initial political diversity. The empirical strategy deals with the potential endogeneity in the variation of the treatment by using region fixed effects and relevant control variables in a cross-section model, as well as performing robustness checks. I further use panel fixed effects models with electoral turnout as a measure of social capital. I find that political exclusion imposed by the National Front may have led to less trusting individuals today, to a higher perception of free riding behaviors and to lower levels of electoral turnout. I also find that a possible channel through which political exclusion in the past may be able to explain social capital in the present is distrust towards the state.
    Keywords: Political Institutions; Social Capital; Democracy; Colombia
    JEL: N46 O12 O17 Z13
    Date: 2013–08
  13. By: Alexia Delfino; Luigi Marengo; Matteo Ploner
    Abstract: We experimentally investigate imitation in investment choices and focus on cognitive aspects of decision making. At this aim, we manipulate three main dimensions of choice: time pressure, normative content of social information, and uncertainty of the investment. We document the existence of imitation, with stronger social effects among those who discover to be less cautious than their peers. In line with our hypotheses, a piece of information which is more representative of average group behavior induces stronger imitation. Furthermore, higher time pressure fosters imitation. In contrast to our hypotheses, imitation is weaker for uncertain investments than for risky investments.
    Keywords: Peer effects, Investment Decisions, Bounded Rationality, Experiments
    Date: 2013
  14. By: Miguel Vargas (Facultad de Economía y Empresa, Universidad Diego Portales); Alejandro Corvarlan (Facultad de Economía y Empresa, Universidad Diego Portales)
    Abstract: In this paper, we empirically investigate the relationship between ethnic segregation and social conflict. We argue that segregation can increase the collective articulation within groups and the difference between preferences, which can increase conflict intensity. Our focus is on ethnic segregation because we follow the idea that although conflicts can be economically motivated, they need other aspects to find their expression, such as religion, language or ethnicity. Using a panel data model, we find robust evidence on the relationship between segregation and social conflict even after controlling for polarization and fractionalization.
    Date: 2013–08
  15. By: Sangyub Ryu (International University of University); John Ronquillo (DePaul University); Cora Terry (The University of Georgia)
    Abstract: Since the New Public Management is emphasized, the practices of the business sector have been introduced to the public sector without careful assessment. One of the examples is the adoption of pay-for-performance across state governments. Although theories of pay-for-performance may be compelling, scholars have found failures of payfor-performance in the public sector. This study applies a diffusion theory to understand why state governments have adopted pay-for-performance although its effectiveness was not confirmed. Findings show that state governments tend to adopt pay-for-performance as their neighboring states have previously adopted it, but the marginal probability of adoption decreases as more neighbors have adopted pay-for-performance.
    Keywords: pay-for-performance, policy diffusion
    Date: 2013–09
  16. By: Brenzel, Hanna (Institute for Employment Research (IAB), Nuremberg); Gartner, Hermann (Institute for Employment Research (IAB), Nuremberg); Schnabel, Claus (University of Erlangen-Nuremberg)
    Abstract: Using a representative establishment dataset, this paper is the first to analyze the incidence of wage posting and wage bargaining in the matching process from the employer's side. We show that both modes of wage determination coexist in the German labor market, with about two-thirds of hirings being characterized by wage posting. Wage posting dominates in the public sector, in larger firms, in firms covered by collective agreements, and in part-time and fixed-term contracts. Job-seekers who are unemployed, out of the labor force or just finished their apprenticeship are also less likely to get a chance of negotiating. Wage bargaining is more likely for more-educated applicants and in jobs with special requirements as well as in tight regional labor markets.
    Keywords: wage posting, wage bargaining, hiring, matching, Germany
    JEL: E24 J30 J63 M51
    Date: 2013–09

This issue is ©2013 by Stan C. Weeber. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.