New Economics Papers
on Collective Decision-Making
Issue of 2013‒12‒29
twenty papers chosen by
Stan C. Weeber, McNeese State University

  1. Electoral thresholds and political outcomes: Quasi-experimental evidence from a reform in Germany By Baskaran, Thushyanthan; da Fonseca, Mariana Lopes
  2. Expert Information and Majority Decisions By Kohei, Kawamura; Vasileios, Vlaseros
  3. A Possibility Theorem on Information Aggregation in Elections By Sourav Bhattacharya; Paulo Barelli
  4. Condorcet Jury Theorem in a Spatial Model of Elections By Sourav Bhattacharya
  5. What Happens When a Woman Wins an Election? Evidence from Close Races in Brazil By Brollo, Fernanda; Troiano, Ugo
  6. Mafia in the ballot box By De Feo, Giuseppe; De Luca, Giacomo
  7. Campaign donation and government contracts in Brazilian states By Arvate, Paulo; Barbosa, Klenio de Souza; Fuzitani, Eric
  8. Expectations Traps and Coordination Failures with Discretionary Policymaking By Dennis, Richard; Kirsanova, Tatiana
  9. The dynamics of bank loans short-term interest rates in the Euro area: what lessons can we draw from the current crisis? By Avouyi-Dovi, S. Patrick Sevestre.; Horny, G.; Sevestre, P.
  10. Discriminatory Taxes are Unpopular - Even when they are Efficient and Distributionally Fair By Rupert Sausgruber; Jean-Robert Tyran
  11. Mixing Business with Politics: Political Participation by Entrepreneurs in China By Feng, Xunan; Johansson, Anders C.; Zhang, Tianyu
  12. Evidential equilibria: Heuristics and biases in static games By Sanjit Dhami; Ali al-Nowaihi
  13. Characterizing Behavioral Decisions with Choice Datas By Dalton, Patricio S.; Ghosal, Sayantan
  14. Does Secular Education Impact Religiosity, Electoral Participation and the Propensity to Vote for Islamic Parties? Evidence from an Education Reform in a Muslim Country By Resul Cesur; Naci H. Mocan
  15. Topping up and the Political Support for Social Insurance By Bergh, Andreas
  16. Political Ideology and Economic Growth: Evidence from the French Democracy By François Facchini; Mickaël Melki
  17. Herd behavior in consumer inflation expectations - Evidence from the French household survey. By Andreas Karpf
  18. Top Contributors as Punishers By Daniela Grieco; Marco Faillo; Luca Zarri
  19. On the Optimality of Diverse Expert Panels in Persuasion Games By Sourav Bhattacharya; Maria Goltsman; Arijit Mukherjee
  20. Financing public goods and attitudes toward immigration By Gabriel Romero; Iñigo Iturbe-Ormaetxe Kortajarene

  1. By: Baskaran, Thushyanthan; da Fonseca, Mariana Lopes
    Abstract: In 2001, the state parliament of the German federal state of Hesse abolished a 5 percent legal electoral threshold for local elections. This reform had a stronger effect on municipalities with larger councils because implicit electoral thresholds decrease with council size. Exploiting discontinuities in a state law that exogenously maps population to council size, we implement a difference in discontinuity design to study the political consequences of abolishing an electoral threshold. The dataset covers all 426 Hessian municipalities over the period 1989-2011. Our results suggest that the seat and vote shares of small parties increased in municipalities that were affected more strongly by the abolishment. In addition, municipalit ies exposed to stronger treatments reduced their council size, presumably to limit political competition. --
    Keywords: electoral rules,electoral thresholds,voting
    JEL: D70 D72 D78
    Date: 2013
  2. By: Kohei, Kawamura; Vasileios, Vlaseros
    Abstract: This paper studies dichotomous majority voting in common interest committees where each member receives not only a private signal but also a public signal observed by all of them. The public signal represents, e.g. expert information presented to an entire committee and its quality is higher than that of each individual private signal. We identify two informative symmetric strategy equilibria, namely i) the mixed strategy equilibrium where each member randomizes between following the private and public signals should they disagree; and ii) the pure strategy equilibrium where they follow the public signal for certain. The former outperforms the latter. The presence of the public signal precludes the equilibrium where every member follows their own signal, which is an equilibrium in the absence of the public signal. The mixed strategy equilibrium in the presence of the public signal outperforms the sincere voting equilibrium without the public signal, but the latter may be more efficient than the pure strategy equilibrium in the presence of the public signal. We suggest that whether expert information improves committee decision making depends on equilibrium selection.
    Keywords: information aggregation, strategic voting, expert information,
    Date: 2013
  3. By: Sourav Bhattacharya; Paulo Barelli
    Abstract: We provide a simple condition that is both necessary and sufficient for aggregation of private information in large elections where all voters have the same preference. In some states of the world, all voters prefer A; and in other states, all voters prefer B. Each voter draws a private signal independently from a distribution conditional on the state. According to our condition, there should be a hyperplane in the simplex over signals that separates the conditional distributions in states where A is preferred from those in states where B is preferred. If this condition is satisfied, information is aggregated in an equilibrium sequence: even under incomplete information, the preferred outcome obtains almost surely in each state. If the hyperplane condition is violated, there exists no feasible strategy profile that aggregates information. Therefore, information aggregation holds only for special environments.
    Date: 2013–12
  4. By: Sourav Bhattacharya
    Abstract: In this paper, we study conditions under which the Condorcet Jury Theorem extends to the spatial model of elections. In the model, individuals with ideal points distributed over a unidimensional policy space vote over two alternatives, the location of one of which is uncertain. By employing the techniques used in Bhattacharya (2013), we identify the entire set of symmetric equilibria for almost every voting rule. If there is uncertainty about whether the outcome induced by the policy alternative is to the right or to the left of the status quo, then an election produces three outcomes, exactly one of which is full information equivalent. In the other two equilibria, the status quo always wins. This Â…finding provides a novel explanation for status quo bias in referenda and the growing incumbent advantage in US elections.
    Date: 2013–11
  5. By: Brollo, Fernanda; Troiano, Ugo
    Abstract: This paper analyzes the effect the gender of local policymakers on policy outcomes. Analyzing a rich dataset from Brazilian municipalities and using a regression discontinuity design, we find that municipalities ruled by female mayors have better health outcomes, receive more federal discretionary transfers, and have lower corruption. Additionally, 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 findings suggest that male mayors may promote more political patronage than female mayors and that men and women may respond differently to local election incentives.
    Keywords: gender, politics, health, corruption, patronage
    JEL: D72 I18 J00 J16 P16
    Date: 2013–11–07
  6. By: De Feo, Giuseppe; De Luca, Giacomo
    Abstract: We study the impact of organized crime on electoral competition. Assuming that the mafia is able to bring votes to the supported party in exchange of money, we show that (i) the strongest party is willing to pay the highest price to secure mafia services; (ii) the volume of electoral trade with the mafia increases with political competition and with the efficiency of the mafia. Studying in detail parliamentary elections in Sicily for the period 1946- 1992, we document the significant support given by the Sicilian Mafia to the Christian Democratic party, starting at least from the 1970s. This is consistent with our theoretical predictions, as political competition became much tighter during the 1970s and the Sicilian mafia experienced an extensive centralization process towards the end of the 1960s, which increased substantially its control of the territory. We also provide evidence that in exchange for its electoral support the mafia got economic advantages for its activities in the construction industry.
    Keywords: electoral competition, mafia, Cosa Nostra, electoral fraud,
    Date: 2013
  7. By: Arvate, Paulo; Barbosa, Klenio de Souza; Fuzitani, Eric
    Abstract: A corporate firm may influence policies in its favor by transferring money to political candidates. However, empirical studies which document evidence about the return on campaign donations are rare (Großer, Reuben and Tymula, 2013). In this paper we estimate the net expected return of a campaign donation in eight Brazilian states using a Regression Discontinuity Design (RDD) to separate the return of winning and losing state deputy candidates in the electoral coalition in 2006. Our results show that that the net return is quite high (i.e., the investment of donor firms is almost 2% of the net expected return), and is larger among traditional electoral parties than any other parties, on average. Looking at the heterogeneity of local executive and legislative levels, we find that net returns are higher when donor firms finance deputies within a governor’s electoral coalition than deputies outside this coalition.
    Date: 2013–12–06
  8. By: Dennis, Richard; Kirsanova, Tatiana
    Abstract: Discretionary policymakers cannot manage private-sector expectations and cannot coordinate the actions of future policymakers. As a consequence, expectations traps and coordination failures can occur and multiple equilibria can arise. To utilize the explanatory power of models with multiple equilibria it is first necessary to understand how an economy arrives to a particular equilibrium. In this paper we employ notions of learnability and self-enforceability to motivate and identify equilibria of particular interest. Central among these criteria are whether the equilibrium is learnable by private agents and jointly learnable by private agents and the policymaker. We use two New Keynesian policy models to identify the strategic interactions that give rise to multiple equilibria and to illustrate our methods for identifying equilibria of interest. Importantly, unless the Pareto-preferred equilibrium is learnable by private agents, we find little reason to expect coordination on that equilibrium.
    Keywords: Discretionary policymaking, multiple equilibria, coordination, equilibrium selection,
    Date: 2013
  9. By: Avouyi-Dovi, S. Patrick Sevestre.; Horny, G.; Sevestre, P.
    Abstract: In this paper, I study how the CEO's election can be biased if some directors in the board belong to the same network. I use a static Bayesian game. Directors want to elect the best candidate but they also want to vote for the winner. In that context, results show that, when no candidate is part of the network, boards with a network perform better in electing the right candidate. On the other hand, it becomes detrimental for stockholders if one candidate is part of the network. Indeed, compared to a situation where there are no interconnections between directors, the directors who are members of a network vote more often for the candidate they think is best, rather than for the one they think might win. The ones who are not part of the network follow their lead. Thus the network has power on the result of the election and therefore limits the power of the future CEO.
    Keywords: bank interest rates; diffusion model; stochastic volatility; Bayesian econometrics.
    JEL: F14 J51
    Date: 2013
  10. By: Rupert Sausgruber (Department of Economics, Vienna University of Economics and Business); Jean-Robert Tyran (Department of Economics, Copenhagen University)
    Abstract: We explore the political acceptance of taxation in commodity markets. Participants in our experiment earn incomes by trading and must collectively choose one of two tax regimes to raise a given tax revenue. A "uniform tax" (UT) imposes the same tax rate on all markets and is fair in that it yields the same – but low – income to participants in all markets. The "discriminatory tax" (DT) imposes a higher burden on markets with inelastic demand and is therefore efficient but it is also unfair in that incomes are unequal across markets. We find that DT are unpopular, as predicted. Surprisingly, however, DT remain unpopular when they are both efficient and produce a fair (equal) distribution. We conclude that non-discrimination (equal treatment) is a salient fairness principle in taxation that shapes voting on commodity taxes above and beyond concerns for efficiency and equal distribution.
    Keywords: taxation, behavioral public economics, voting, efficiency, fairness
    JEL: C92 H21 D72
    Date: 2013–11
  11. By: Feng, Xunan (Shanghai University); Johansson, Anders C. (Stockholm China Economic Research Institute); Zhang, Tianyu (Chinese University of Hong Kong)
    Abstract: We study how Chinese private entrepreneurs benefit from participating in politics. Using original hand-collected data on listed firms controlled by private entrepreneurs, we document a significant positive relationship between political participation and change in firm performance. We also provide evidence that the change in social status cannot explain the change in performance. We then identify several ways through which firms gain preferential treatment when the controlling entrepreneur participates in politics: better access to debt financing, preferential tax treatment, more government subsidies, and superior access to regulated industries.
    Keywords: Political participation; Entrepreneurs; Corporate governance; Rent seeking; Debt financing; Tax burden; Government subsidies; Mergers and acquisitions; Regulated industries; China
    JEL: G30 G32 G34 H20 P26
    Date: 2013–12–17
  12. By: Sanjit Dhami; Ali al-Nowaihi
    Abstract: Standard equilibrium concepts in game theory find it difficult to explain the empirical evidence in a large number of static games such as prisoners’ dilemma, voting, public goods, oligopoly, etc. Under uncertainty about what others will do in one-shot games of complete and incomplete information, evidence suggests that people often use evidential reasoning (ER), i.e., they assign diagnostic significance to their own actions in forming beliefs about the actions of other like- minded players. This is best viewed as a heuristic or bias relative to the standard approach. We provide a formal theoretical framework that incorporates ER into static games by proposing evidential games and the relevant solution concept- evidential equilibrium (EE). We derive the relation between a Nash equilibrium and an EE. We also apply EE to several common games including the prisoners’ dilemma and oligopoly games.
    Keywords: Evidential reasoning; causal reasoning; evidential games; social projec- tion functions; ingroups and outgroups; evidential equilibria and consistent eviden- tial equilibria; Nash equilibria; the prisoners.dilemma and oligopoly games; common knowledge and epistemic foundations.
    Date: 2013–11
  13. By: Dalton, Patricio S.; Ghosal, Sayantan
    Abstract: A number of different models with behavioral economics have a reduced form representation where potentially boundedly rational decision-makers do not necessarily internalize all the consequences of their actions on payoff relevant features (which we label as psychological states) of the choice environment. This paper studies the restrictions that such behavioral models impose on choice data and the implications they have for welfare analysis. First, we propose a welfare benchmark that is justified using standard axioms of rational choice and can be applied to a number of existing seminal behavioral economics models. Second, we show that Sen's axioms and fully characterize choice data consistent with behavioral decision-makers. Third, we show how choice data to infer information about the normative signi.cance of psychological states and establish the possibility of identifying welfare dominated choices.
    Keywords: Behavioral Choices, Revealed and Normative Preferences, Individual Welfare, Axiomatic Characterization,
    Date: 2013
  14. By: Resul Cesur; Naci H. Mocan
    Abstract: Turkey, which is a predominantly Muslim country, enacted an education law in 1997 which increased the compulsory secular education from five to eight years. We employ a unique nation-wide survey of adults in 2012 to investigate the impact of education on religiosity, lifestyles and political preferences by using exposure to the law as an instrument for schooling. The data set includes information about the extent of religiosity, lifestyle choices (e.g. modern, conservative, religious), ethnic background (e.g. Kurd, Turk, Arab) and the religious sect of the respondents (Sunni, Alevite Shii’te, etc.) The results show that the reform had a significant impact on middle school completion for both men and women, with stronger effects on women. An increase in education, generated by exposure to the law, decreases women’s propensity to identify themselves as religious. Education also lowers women’s tendency to wear a religious head cover (head scarf, religious turban or burka) and it increases their propensity to have a modern lifestyle. Education reduces women’s propensity to cast a vote for Islamic parties, but it has no impact on the propensity to vote. Education has no statistically significant impact on men’s religiosity or their tendency to vote for Islamic parties. The results are robust to controlling for indicators of individuals’ economic well-being as well as variations in empirical specification of the treatment by the law. Using a smaller version of the survey, conducted in 2008, we perform a variety of tests, which demonstrate that the results are not due to a cohort effect. Finally, we show that the effect of education on religiosity and voting preference is not working through migration, residential location or labor force participation.
    JEL: I21 I28 K4 Z1 Z12 Z18
    Date: 2013–12
  15. By: Bergh, Andreas (Research Institute of Industrial Economics (IFN))
    Abstract: This paper analyzes how the possibility to complement social income insurance schemes with private insurance affects the political support for social insurance. It is shown that political support for social insurance is weakly decreasing in the replacement rate. Policy makers seeking to maintain support for social insurance schemes can do so by lowering the replacement rate and allowing topping up contracts. The strategy is likely to be a partial explanation for the continued political support for welfare states with universal social insurance schemes such as those in Scandinavia.
    Keywords: Social insurance; Topping up; Redistribution
    JEL: D72 H53
    Date: 2013–12–12
  16. By: François Facchini (Université Paris-Sud - Faculté Jean Monnet, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Mickaël Melki (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: We provide a test of the impact of voters' political ideology on economic growth and of the role of preferences for government size as a transmission channel. We focus on France from the beginning of its stable democratic experience in 1871. A move of voters' ideology to the right increases economic growth over total observation period. However, the growth effect of ideology is mediated by voters' preferences for government size only during the post-World War II period. For reverse causality concerns, we use the political ideology of other historical democracies as an instrument variable for France's ideology.
    Keywords: Political ideology; economic growth; public spending
    Date: 2013–11
  17. By: Andreas Karpf (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: This article investigates whether the formation of individual inflation expectations is biased towards a consensus and is thus subject to some kind of herding behavior. Basing on the traditional Carlson-Parkin approach to quantify qualitative survey expectations and its extension by Kaiser and Spitz (2002) in an ordered probit context, a method to gain individual level inflation expectations is proposed using a Markov chain Monte Carlo Hierarchical Bayesian estimation method. This method is applied to micro survey data about inflation expectations of households from the monthly French household survey “Enquête mensuelle de conjoncture auprès des ménages - ECAMME ” (January 2004 to December 2012). Finally a modified version of the non-parametric test for herding behavior by Bernardt et al. (2006) is conducted on the cohort-level expectation estimates, showing that the expectation formation is not subject to a bias towards the consensus expectation. In contrast, it exhibits a strong anti-herding tendency which is consistent with the findings of other studies (Rülke and Tillmann, 2011).
    Keywords: Herd behavior, inflation, rational expectations.
    JEL: E31 E37 D12 D82 D84
    Date: 2013–07
  18. By: Daniela Grieco (Department of Economics (University of Verona)); Marco Faillo (Department of Economics, University of Trento); Luca Zarri (Department of Economics (University of Verona))
    Abstract: We experimentally investigate cooperation within a finitely repeated public goods game framework where peer punishment is possible but, unlike previous work, in each round access to sanctioning power is exclusively awarded to the group’s top contributor. We compare this mechanism with a treatment where the right to punish is assigned to one randomly selected subject (O’Gorman et al., 2009), as well as with classic discretionary punishment (Fehr and Gächter, 2000) and with ‘legitimate punishment’ (Faillo et al., 2013). We show that the “Top Contributors as Punishers” mechanism is extremely effective in both raising cooperation and welfare, compared to the randomly selected punisher treatment and to discretionary punishment. This interestingly occurs despite the fact that the (first and second-order) free riding problem may lead subjects to perceive the new institution as an excessively demanding one: in fact, the lure of the top contributor role induces many subjects to significantly contribute and many top contributors to incur relevant costs to sanction others.
    Keywords: Public Goods Games; Cooperation; Legitimacy; Solitary Punishment; Behavioral Mechanism Design.
    JEL: C73 C91 D02 D63
    Date: 2013–12
  19. By: Sourav Bhattacharya; Maria Goltsman; Arijit Mukherjee
    Abstract: We consider a persuasion game between a decision-maker and a panel of biased experts. The decision-maker prefers to take an action in [0, 1] that matches the underlying state but relies on the experts to learn the state. Each expert has his `ideal` action or `agenda` and may conceal unfavorable information. If the decision- maker can select the panel members based on their agendas, what panel would she choose? While common intuition favors diverse panel (as experts would restrict each other`s ability to alter information), Bhattacharya and Mukherjee (2013) presents an example where a `homogeneous` panel (either all have agenda 0, or all have agenda 1) is more conducive to information revelation than a `diverse` panel (where one expert`s agenda is 0 the other`s is 1). We analyze the optimal diversity in expert panels and show that under mild conditions, a homogeneous panel is optimal when the experts observe the state independently of each other. But if the observability of the state is correlated across experts, diverse panel may be optimal. Hence, the diversity of agendas must be considered in conjunction with the diversity of information sources, and it is never optimal to seek diversity in both dimensions.
    Date: 2013–01
  20. By: Gabriel Romero (Departamento de Economía); Iñigo Iturbe-Ormaetxe Kortajarene (Universidad de Alicante)
    Abstract: We present a model in which individuals choose both the level of provision of a public good and the quota of low-skilled immigrants that are allowed into the country. Individuals can supplement the public good in the private market. Immigrants affect natives through three channels: (i) the labor market; (ii) tax collection; (iii) the quality of the public good. We find that the higher the political weight of the rich (highly skilled) is, the less tolerant the poor and the middle-class are toward immigration and the more demanding they are toward increasing public spending. The rich are the most favorable to immigration. As they have more weight, the political outcome is closer to their preferences and further from the preferences of the other groups. We use data from the European Social Survey to test the implications of our model.
    Keywords: Probabilistic voting model, public goods, immigration
    JEL: H41 J61 D72
    Date: 2013–12

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.