nep-cdm New Economics Papers
on Collective Decision-Making
Issue of 2017‒08‒06
seven papers chosen by
Stan C. Weeber, McNeese State University

  1. Voting behavior and the economy: evidence from Greece By Eleftherios Goulas; Christos Kallandranis; Athina Zervoyianni
  2. The Centre-State Political Transfer Cycles By Ganesh Manjhi; Meeta Keswani Mehra
  3. US vs. European Apportionment Practices: The Conflict between Monotonicity and Proportionality By Laszlo A. Koczy; Peter Biro; Balazs Sziklai
  4. The political economy of fiscal transparency and independent fiscal councils By Beetsma, Roel; Debrun, Xavier; Sloof, Randolph
  5. Endogenous Mergers in Markets with Vertically Diffeerentiated Products By Jaskold Gabszewicz, Jean; Marini, Marco A.; Tarola, Ornella
  6. Politically Induced Regulatory Risk and Independent Regulatory Agencies By Strausz, Roland
  7. Companies Should Maximize Shareholder Welfare Not Market Value By Hart, Oliver; Zingales, Luigi

  1. By: Eleftherios Goulas (Department of Law & Finance, Bedfordshire University, UK); Christos Kallandranis (Department of Accounting, Finance & Economics, Regent's University London, UK); Athina Zervoyianni (Department of Economics, University of Patras, Greece; The Rimini Centre for Economic Analysis)
    Abstract: This paper examines the relationship between Greek voters' behaviour and the economy, paying particular attention to the effect on two non-orthodox parties, Syriza and Golden Dawn. We use data based on actual vote-shares across 13 Greek peripheries from five general elections over the period 2000-2012. Our results are in accordance with the predictions of the punishment-sanctioning model, namely that incumbent parties are supported by voters in good times whereas voters deprecate them during bad times. In particular, we document that worsening economic conditions have led the Greek electorate to reduce support for traditional parties and move to non-traditional populist parties, like the left-wing Syriza and the ultra-nationalistic right-wing Golden Dawn. Yet we find an asymmetry between these two non-orthodox parties: while electorate support for Syriza is found to be strongly influenced by changes in GDP-growth and unemployment, this is not the case for Golden Dawn. Indeed, our estimates suggest that the increased electoral support for Golden Dawn has been mainly related to the forced fiscal-deficit cuts associated with Greece's bail-out program. This suggests that the Greek electorate does not believe that Golden Dawn can effectively address the country's major economic problems.
    Keywords: Economic Voting, Elections, Panel Data, System GMM
    JEL: D72 C23 E60
    Date: 2017–07
  2. By: Ganesh Manjhi (Jawaharlal Nehru University); Meeta Keswani Mehra (Jawaharlal Nehru University)
    Abstract: Using Arellano-Bond dynamic panel-data estimation methods (GMM) for a balanced panel data from 1980-2010 for 14 Indian states, we try to find whether the election affects the individual components of transfers from the centre to the states, namely, grants from the centre, loan from the centre, and tax devolution. We also attempt to examine, if different transfer variables and other politico-economic characteristics of the country are able to create the possibility of retaining the political power for the incumbent. We find that the generally right wing and coalition governments are relatively less likely to transfer resources to the states. However, the state level ruling party, which is either the same party at the centre or an ally, tends to get higher transfers from the centre than a non-allied one. Similar to the pre-election political budget cycles found in the existing literature (Drazen and Eslava, 2010, Aidt, Veiga and Veiga, 2011, Klomp and Hahn, 2013, Chortareas, Logothetis and Papandreou, 2016), the political transfer cycle (PTC) is visible one year before the parliamentary election, whereas cycles are visible in the year of assembly elections in case of grants from the centre and loan from the centre. The tax devolution does not show any clear pattern of cycles, either in parliamentary or in assembly elections. The paper is also extended to a binary Logit specification to test for the incumbent’s probability of winning the election. We find that grants and loans are likely to have varied impacts on an election win depending on the timing. Opportunistic grants in the year before the election are likely to help in winning whereas; a loan punishes the incumbent in parliamentary elections. Instead, opportunistic manipulations in grants and loan in the year of election help the incumbent retain political power in national elections whereas, only the opportunistic loan from the centre to the states in the year of election help to win the assembly elections. Further, it is found that a higher voters’ turnout in the state is more likely to win the election, inflation reduces the possibility of the win, and a more experienced government has a higher probability of a win. Moreover, our results also show that the right wing government is more likely to win the election. Length: 51 pages
  3. By: Laszlo A. Koczy (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Keleti Faculty of Business and Management, Obuda University); Peter Biro (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Department of Operations Research and Actuarial Sciences, Corvinus University); Balazs Sziklai (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Department of Operations Research and Actuarial Sciences, Corvinus University)
    Abstract: To ensure equal representation, the voting districts of a country must be more or less of the same size. Designing such voting districts, however, is not an easy task due to the fact that voting districts are encompassed in administrative regions. Since the respective share of an administrative region, i.e.\ the number of seats its entitled to based on its population, is not necessarily an integer number, it is hard to distribute the seats in a fair way. The arising fair distribution problem is called the apportionment problem. Proportionality of the allocation is the most important, but not the only factor of a fair solution. Monotonicity related difficulties, administrative and demographic issues make the problem more complex. We provide an overview of the classical apportionment methods as well as the Leximin Method – a new apportionment technique designed to comply with the recommendation made by the Venice Commission. We discuss the properties of apportionments and test the most prominent methods on real data.
    Keywords: Apportionment problem, Largest remainder methods, Divisor methods, Venice Commission, Leximin method
    JEL: D72 D78
    Date: 2017–06
  4. By: Beetsma, Roel; Debrun, Xavier; Sloof, Randolph
    Abstract: The global surge in independent fiscal councils (IFCs) raises three related questions: How can IFCs improve the conduct of fiscal policy? Are they simultaneously desirable for voters and elected policymakers? And are they resilient to changes in political conditions? We build a model in which voters cannot observe the true competence of elected policymakers. IFC's role is to mitigate this imperfection. Equilibrium public debt is excessive because policymakers are "partisan" and "opportunistic". If voters only care about policymakers' competence, both the incumbent and the voters would be better off with an IFC as the debt bias would fall. However, when other considerations eclipse competence and give the incumbent a strong electoral advantage or disadvantage, setting up an IFC may be counterproductive as the debt bias would increase. If the incumbent holds a moderate electoral advantage or disadvantage, voters would prefer an IFC, but an incumbent with a large advantage may prefer not to have an IFC. The main policy implications are that (i) establishing an IFC can only lower the debt bias if voters care sufficiently about policymakers' competence; (ii) not all political environments are conducive to the emergence of IFCs; and (iii) IFCs are vulnerable to shifts in political conditions.
    Keywords: competence; congruence; fiscal transparency; Independent fiscal councils; opportunistic bias; partisan bias; public debt
    JEL: E62 H6
    Date: 2017–07
  5. By: Jaskold Gabszewicz, Jean; Marini, Marco A.; Tarola, Ornella
    Abstract: This paper studies the incentives of firms selling vertically differentiated products to merge. To this aim, we introduce a three-stage game in which, at the first stage, three independent firms can decide to merge with their competitors via a sequential game of coalition formation and, at the second and third stage, they can optimally revise their qualities and prices, respectively. We study whether such binding agreements (i.e. full or partial mergers) can be sustained as subgame perfect equilibria of the coalition formation game, and analyze their effects on equilibrium qualities, prices and profits. We find that, although profitable, the merger-to-monopoly of all firms is not an outcome of the finite-horizon negotiation, where only partial mergers arise. Moroever, we show that all stable mergers always include the firm initially producing the bottom quality good and reduce the number of variants on sale.
    Keywords: Mergers, Price Collusion, Vertically Differentiated Products, Sequential Game of Coalition Formation.
    JEL: C7 D21 L1 L11 L13 L16 L4 L41 L43
    Date: 2017–07–20
  6. By: Strausz, Roland (Humboldt Universität Berlin)
    Abstract: Uncertainty in election outcomes generates politically induced regulatory risk. For monopoly regulation, political parties\' risk attitudes towards such risk depend on a fluctuation effect that hurts both parties and an output--expansion effect that benefits at least one party. Irrespective of the parties\' risk attitudes, political parties have incentives to negotiate away regulatory risk by pre-electoral bargaining. Pareto-efficient bargaining outcomes fully eliminate regulatory risk and are attainable through institutionalizing independent regulatory agencies with a specific objective. Key aspects of the regulatory overhaul of the US Postal system in 1970 are argued to be consistent with these results.
    Keywords: regulation; independent regulatory agency; regulatory risk; electoral uncertainty;
    JEL: D82
    Date: 2017–07–31
  7. By: Hart, Oliver; Zingales, Luigi
    Abstract: What is the appropriate objective function for a firm? We analyze this question for the case where shareholders are prosocial and externalities are not perfectly separable from production decisions. We argue that maximization of shareholder welfare is not the same as maximization of market value. We propose that company and asset managers should pursue policies consistent with the preferences of their investors. Voting by shareholders on corporate policy is one way to achieve this.
    Keywords: firm objective; Friedman; prosocial; shareholder value
    JEL: G30 K22 L21
    Date: 2017–07

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