New Economics Papers
on Collective Decision-Making
Issue of 2014‒05‒24
seventeen papers chosen by
Stan C. Weeber, McNeese State University

  1. Electoral cycles in savings bank lending By Englmaier, Florian; Stowasser, Till
  2. Can Institutions Cure Clientelism?: Assessing the Impact of the Australian Ballot in Brazil By Daniel Gingerich
  3. Farsighted Fuzzy Coalitions in an Economy with Multilateral Negative Externalities By Zahur, Nahim Bin
  4. Politics Under the Weather: Droughts, Parties and Electoral Outcomes By Sebastián J. Miller; Paulo Bastos
  5. A geometric examination of majorities based on difference in support By Richard Baron; Mostapha Diss; Eric Rémila; Philippe Solal
  6. The Impact of Political Majorities on Firm Value: Do Electoral Promises or Friendship Connections Matter? By Renaud Coulomb; Marc Sangnier
  7. An Empirical Analysis of Trade-Related Redistribution and the Political Viability of Free Trade By James Lake; Daniel L. Millimet
  8. Decentralization, Fiscal Effort and Social Progress in Colombia at the Municipal Level, 1994-2009: Why Does National Politics Matter? By Fabio Sánchez Torres; Mónica Pachón
  9. The Effect of Elections on Economic Growth: Results from a Natural Experiment in Indonesia By Moricz, Sara; Sjöholm, Fredrik
  10. Contingent Valuation: A Comparison of Referendum and Voluntary Contribution Mechanisms By Johnston, Marie
  11. Organizational coordination and costly communication with boundedly rational agents By Dietrichson, Jens; Jochem, Torsten
  12. Superstars in politics: the role of the media in the koizumi regime By Yamamura, Eiji; Sbatini, Fabio
  13. Dynamic farsighted networks with endogenous opportunities of link formation By James Lake
  14. A Hybrid Game with Conditional and Unconditional Veto Power By Güth, Werner; Levati, Vittoria; Montinari, Natalia; Nardi, Chiara
  15. Beware of Popular Kids Bearing Gifts: A Framed Field Experiment By Chen, Jingnan; Houser, Daniel; Montinari, Natalia; Piovesan, Marco
  16. Are We All Playing the Same Game?: The Economic Effects of Constitutions Depend on the Degree of Institutionalization By Mariano Tommasi; Carlos Scartascini; Germán Caruso
  17. Elite capture of democratic politics: The role of social identity By David Juarez-Luna; Christian Ghiglino

  1. By: Englmaier, Florian; Stowasser, Till
    Abstract: We provide causal evidence that German savings banks – where local politicians are by law involved in their management – systematically adjust lending policies in response to local electoral cycles. The different timing of county elections across states and the existence of a control group of cooperative banks – that are very similar to savings banks but lack their political connectedness – allow for clean identification of causal effects of county elections on savings banks’ lending. These effects are economically meaningful and robust to various specifications. Moreover, politically induced lending increases in incumbent party entrenchment and in the contestedness of upcoming elections.
    Keywords: Bank lending cycles; political business cycles; political connectedness; public banks; government ownership of firms
    JEL: G21 D72 D73
    Date: 2014–05–14
  2. By: Daniel Gingerich
    Abstract: This paper examines how the adoption of the Australian ballot (AB), and ipso facto, the transition from the nominal to effective secret vote, shaped the nature of party politics in Brazil. Engaging the literature on political clientelism, the impact of the AB on three outcomes is studied: 1) the ideological leanings of voters at the ballot box; 2) the degree of electoral control enjoyed by local vote brokers; and 3) the capacity of citizens to effectively participate in the electoral process. In order to get leverage on these issues, the paper utilizes an original dataset -painstakingly assembled from regional electoral archives- which contains municipal-level vote returns for federal deputy and senate contests during the period before and after the AB's introduction in Brazil (1958-1962). The dataset exploits the fact that the AB was introduced at different times in different states and for different offices in the country, thereby creating an unprecedented opportunity to assess the impact of this institution. Using a triple difference-in-difference procedure, the study finds that the AB: 1) shifted the ideological balance of power from Right to Left; 2) did not greatly weaken the hand of vote brokers; and 3) greatly increased the proportion of wasted votes cast in elections.
    Keywords: political participation, Democracy, Elections, IDB-WP-428
    Date: 2013–09
  3. By: Zahur, Nahim Bin
    Abstract: How do coalitions form in games with externalities? This is important for understanding whether full cooperation be sustained in tackling problems such as climate change. In traditional coalition formation games, each player makes a binary decision on whether or not to cooperate. But what if players within coalitions choose not to cooperate fully with each other? This study looks at the coalition formation process
    Keywords: Resource /Energy Economics and Policy,
    Date: 2014
  4. By: Sebastián J. Miller; Paulo Bastos
    Abstract: The increased occurrence of extreme weather conditions leading to drought is a key development challenge. This paper studies how these extreme events interact with the political process at the local level using rich administrative data for drought declarations and mayoral elections in Brazil. While accounting for current and historical rainfall patterns, the paper finds that that: i) municipalities led by a mayor affiliated with the President¿s party are more likely to receive formal drought declarations prior to the municipal election; and ii) receiving a drought declaration reinforces the electoral advantage of incumbent mayors running for reelection. These results are robust to the inclusion of a rich set of controls for municipal attributes.
    Keywords: Elections, Disasters, Climate Change, IDB-WP-455
    Date: 2013–10
  5. By: Richard Baron (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I); Mostapha Diss (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I); Eric Rémila (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I); Philippe Solal (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I)
    Abstract: Reciprocal preferences have been introduced in the literature of social choice theory in order to deal with preference intensities. They allow individuals to show preference intensities in the unit interval among each pair of options. In this framework, majority based on difference in support can be used as a method of aggregation of individual preferences into a collective preference: option a is preferred to option b if the sum of the intensities for a exceeds the aggregated intensity of b in a threshold given by a real number located between 0 and the total number of voters. Based on a three dimensional geometric approach, we provide a geometric analysis of the non transitivity of the collective preference relations obtained by majority rule based on difference in support. This aspect is studied by assuming that each individual reciprocal preference satisfies a g-stochastic transitivity property, which is stronger than the usual notion of transitivity
    Keywords: Geometric voting ; Reciprocal preferences ; Difference in support ; Stochastic transitivity
    Date: 2014
  6. By: Renaud Coulomb (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), Grantham Research Institute - London School of Economics (LSE)); Marc Sangnier (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))
    Abstract: This paper simultaneously estimates the impact of political majorities on the values of firms that would benefit from the platforms of the two main candidates at the 2007 French presidential election, Ségolène Royal and Nicolas Sarkozy, and of those that are ruled or owned by Sarkozy's friends. We use prediction-market data to track each candidate's victory probability, and investigate how this relates to firms' abnormal returns. Our estimates suggest that the value of firms that would likely benefit from the platforms of Royal and Sarkozy changed by 1% and 2%, respectively, with the candidates' victory probabilities, and that firms connected to Sarkozy out-performed others by 3% due to his election.
    Keywords: political majority; prediction markets; firm value; abnormal returns; political connections
    Date: 2014–05
  7. By: James Lake (Southern Methodist University); Daniel L. Millimet (Southern Methodist University)
    Abstract: Even if free trade creates net welfare gains for a country as a whole, the associated distributional implications can undermine the political viability of free trade. We show that trade-related redistribution increases the political viability of free trade in the US. We do so by assessing the causal effect of expected redistribution associated with the US Trade Adjustment Assistance program on US Congressional voting behavior on eleven Free Trade Agreements (FTAs) between 2003 and 2011. We find that a one standard deviation increase in redistribution leads to more than a 3% point increase in the probability of voting in favor of an FTA for the median representative. In addition, a one standard deviation decrease in redistribution across the entire US would have precluded passage of two of the eleven FTAs in our sample.
    Keywords: Free Trade Agreements, Trade Adjustment Assistance, Political Economy, Redistribution
    JEL: F13 H50 J65
    Date: 2014–05
  8. By: Fabio Sánchez Torres; Mónica Pachón
    Abstract: The present paper explores the relationship between political competition and effective public goods delivery systems in a decentralized context to study whether the awareness generated through such a competitive environment and the existence of more political options are a part of the causal mechanisms for effective governance. In particular, we want to observe the effect of electoral competition on the incentives to build fiscal capacity and provide public goods such as education and water, that are to a large extent the responsibility of the local municipalities. The research hypothesis is that political competition strengthens the decentralized municipalities through building their local fiscal capacity. In turn, the fiscal capacity is the fundamental variable that explains the differences in sector performance across local governments. Local fiscal capacity brings about better policy outcomes, as well as a better match between resources and the needs - what we call responsiveness - which simultaneously ensures greater efficiency in local spending. Using a rich panel municipal dataset from 1994 till 2009, we have shown that on comparing the differences across education and the water and sewerage sectors, the power of fiscal effort appears to be the driving force behind better policy outcomes than any other resource commonly made available to the municipalities, such as national transfers or royalties.
    Keywords: Democracy, Decentralization, fiscal policy, local policy, water, sanitation
    Date: 2013–07
  9. By: Moricz, Sara (Department of Economics, Lund University); Sjöholm, Fredrik (Department of Economics, Lund University)
    Abstract: Does democracy increase economic growth? Previous literature tends to find a positive effect but does also suffer from possible endogeneity problems: democratization is typically not random and might be affected by factors that also have an impact on economic growth. This paper narrows down the question to empirically estimating the causal effect of local elections on local economic growth in Indonesia by using a quasi-experimental research method. The first direct elections of district leaders in Indonesia were performed in a staggered manner, and decided such that the year of election is exogenous. Thus, growth in districts that have had their first elections of district heads can be compared with growth in districts that have not had a direct election, which more specifically is performed by using a difference-in-difference approach. Our estimations show no general effect of local elections on economic growth. The result is robust to various robustness tests and is supported by data that show small effects of elections on governance.
    Keywords: democracy; elections; growth; Indonesia; natural experiment
    JEL: H11 O10 O43
    Date: 2014–05–07
  10. By: Johnston, Marie
    Abstract: Contingent valuation methods (CVM) are integral in valuating non-market environmental issues. Numerous mechanisms have been proposed and analysed, as well as numerous studies on willingness to pay (WTP) and willingness to accept (WTA) discrepancies. Despite the concentrated and persistent focus on achieving efficient mechanisms, controversies and limitations remain. This paper applies an open-ended approach to the referendum (majority voting) method for contingent valuation as advised by Green et al. (1998). This is undertaken via economic experiments with induced values, and by comparison of two novel majority voting mechanisms and one widely accredited voluntary contribution mechanism. The preliminary findings show the majority voting mechanism induce more incentive compatible values and reduce WTP WTA discrepancy compared to the voluntary contribution method. Thus, given promising results, this paper recommends further investigation into the novel open-ended referendum method, termed the undisclosed cost voting mechanism (UCVM).
    Keywords: Willingness-To-Pay, Willingness-To-Accept, Provision Point Mechanism, Undisclosed Cost Voting Mechanism, Random Price Voting Mechanism, Environmental Economics and Policy, Research and Development/Tech Change/Emerging Technologies,
    Date: 2014
  11. By: Dietrichson, Jens (Department of Economics, Lund School of Economics and Management, Lund University); Jochem, Torsten (Faculty of Economics and Business, University of Amsterdam)
    Abstract: How does costly communication affect organizational coordination? This paper develops a model of costly communication based on the weakest-link game and boundedly rational agents. Solving for the stochastically stable states, we find that communication increases the possibilities for efficient coordination compared to a setting where agents cannot communicate. But as agents face a trade-off between lowering the strategic uncertainty for the group and the costs of communication, the least efficient state is still the unique stochastically stable one for many parameter values. Simulations show that this is not just a long run phenomena, the stochastically stable state is the most frequent outcome also in the short run. Making communication mandatory induces efficient coordination, whereas letting a team leader handle communication increases efficiency when the leader expects others to follow and has enough credibility. The results are broadly consistent with recent experimental evidence of communication in weakest-link games.
    Keywords: Organizational coordination; Commmunication; Stochastic stability; Bounded rationality; Simulation
    JEL: C73 D23 L22 L23
    Date: 2014–04–09
  12. By: Yamamura, Eiji; Sbatini, Fabio
    Abstract: This paper explores the role of mass media on people’s perceptions of charismatic leaders, focusing on Japan’s Koizumi regime. We conduct an empirical assessment, looking at the influence of television and newspapers on the support for Koizumi and his principal policy. This study uses individual-level data collected immediately after Koizumi’s 2005 landslide win. The major findings are: (1) frequency of exposure to mass media is positively related to support for Koizumi but not to support for his principal policy and (2) the effect of watching television is only observed for women and that of reading the newspaper only for men. Thus, a charismatic male leader on television has a greater influence than his policy on female voters. The psychological effect of an “attractive” male leader on female voters is amplified through television. Despite no support from special interest groups, Koizumi won the election because of a televised superstar effect.
    Keywords: Mass media, television, newspaper, election, Koizumi regime, superstar effect
    JEL: D72 L82 L88
    Date: 2014–05–06
  13. By: James Lake (Southern Methodist University)
    Abstract: I present a three player dynamic network theoretic model where players are farsighted and asymmetric. Unlike the previous literature that imposes an exogenous protocol governing the order of negotiations, I allow the identity of the players who form a link in a given period to depend endogenously on player characteristics. Importantly, I show how this can give different predictions regarding attainment of the complete network relative to models with an exogenous protocol. Regardless of whether the complete network is efficient, a key dynamic trade off drives whether the complete network is attained in my model. A pair of players (insiders) may form a link with each other but, even though link formation is always myopically beneficial, each insider then refuses subsequent link formation with the third player (outsider) because the eventual attainment of the complete network makes each insider worse off relative to the insider-outsider network.
    Keywords: networks, dynamic, farsighted, efficiency
    JEL: C70 C71 C73
    Date: 2014–05
  14. By: Güth, Werner (Max Planck Institute of Economics); Levati, Vittoria (University of Verona); Montinari, Natalia (Department of Economics, Lund University); Nardi, Chiara (University of Verona)
    Abstract: In the hybrid game, one proposer confronts two responders with veto power: one responder can condition his decisions on his own offer but the other cannot. We vary what the informed responder knows about the offers as well as the uninformed responder's conflict payoff. Neither variation affects behavior: proposers always favor informed responders, who frequently accept minimal offers.
    Keywords: Ultimatum; Yes/No game
    JEL: C72 C92
    Date: 2014–05–19
  15. By: Chen, Jingnan (ICES, Department of Economics, George Mason University); Houser, Daniel (ICES, Department of Economics, George Mason University); Montinari, Natalia (Department of Economics, Lund University); Piovesan, Marco (Department of Economics, University of Copenhagen)
    Abstract: The literature on pro-social behavior shows that older children are more generous than younger children; however, the level of individual generosity is heterogeneous even between children of the same age. This paper investigates whether a child’s popularity affects a child’s generosity. Our participants – 231 children, six to twelve years old – decide how many of their four colored wristbands they want to share with another anonymous child. We manipulate the visibility of this decision: in treatment Public, the decisions are revealed to the entire class at the end of the game, whereas in treatment Private children’s decisions remain secret. In addition, we elicited each child’s network of friends using an innovative “seating map” mechanism. Our results reveal that more popular children are more generous in Public than Private decision environments, while less popular children behave similarly in both cases. Moreover, older children in Public display greater generosity than (i) older children in Private and (ii) younger children in either Public or Private. Finally, in Public, older and more popular children share more than less popular older children, and more than younger children regardless of popularity; whereas, in Private there is no effect of popularity on children of any age.
    Keywords: popularity; children; field experiment; public decision making; pro-social behavior
    JEL: C93 J13
    Date: 2014–05–21
  16. By: Mariano Tommasi; Carlos Scartascini; Germán Caruso
    Abstract: The understanding of the economic effect of formal institutional rules has progressed substantially in recent decades. These formal analyses have tended to take for granted that institutional arenas such as Congress are the places where decision-making takes place. That is a good approximation in some cases (such as many developed countries today) but not in others. If countries differ in how institutionalized their policymaking is, it is possible that the impact of formal political rules on policy outcomes might depend on that. This paper explores that hypothesis and finds that some important claims regarding the impact of constitutions on policy outcomes do not hold for countries in which institutionalization is low. The findings suggest the need to develop a broader class of policymaking models in which the degree to which decision-making follows "the rules" is also endogenized.
    Keywords: Democracy, Investment, IDB-WP-237
    Date: 2013–07
  17. By: David Juarez-Luna; Christian Ghiglino
    Abstract: In the present paper we uncover a novel mechanism through which a minority can gain a disproportionate power in a perfectly functioning democracy, decides on a unique redistributive instrument, the tax rate. We show that a minority characterised by a high degree of social identification may, in the presence of ideological motives, influence the policy outcome. In particular, a rise in social identification among the rich minority may be able to reduce the tax rate. Importantly, this may happen even if the minority is more ideological than the majority. Finally, we attempt an explanation of the divide in the tax rate between the US and Europe.
    Date: 2014–04–27

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