nep-cdm New Economics Papers
on Collective Decision-Making
Issue of 2018‒08‒13
twenty papers chosen by
Stan C. Weeber, McNeese State University

  1. Engineering Crises: Favoritism and Strategic Fiscal Indiscipline By Gilles Saint-Paul; Davide Ticchi; Andrea Vindigni
  2. Voting rules in multilateral bargaining: using an experiment to relax procedural assumptions By Tremewan, James; Vanberg, Christoph
  3. The Emergence of Weak, Despotic and Inclusive States By Robinson, James A
  4. The stability of group formation By Gabrielle Demange
  5. Fiscal Rules as Bargaining Chips By Facundo Piguillem; Alessandro Riboni
  6. Explaining divergent bargaining outcomes for agency workers: the role of labour divides and labour market reforms By Benassi, Chiara; Dorigatti, Lisa; Pannini, Elisa
  7. Contesting an international trade agreement By Matthew T. Cole; James Lake; Ben Zissimos
  8. Did Austerity Cause Brexit? By Fetzer, Thiemo
  9. Spillovers from regulating corporate campaign contributions By Fremeth, Adam; Richter, Brian; Schaufele, Brandon
  10. Bounds on Malapportionment By Laszlo A. Koczy; Balazs Sziklai
  11. Public Statements of Good Conduct Promote Pro-Social Behavior By Koessler, Ann-Kathrin; Page, Lionel; Dulleck, Uwe
  12. Attitudes towards Euro Area Reforms: Evidence from a Randomized Survey Experiment By Mathias Dolls; Nils Wehrhöfer
  13. The banking systems of Germany, the UK and Spain form a spatial perspective: The German case By Flögel, Franz; Gärtner, Stefan
  14. A Note on Efficiency in a Unifying Model of Strategic Network Formation By Olaizola Ortega, María Norma; Valenciano Llovera, Federico
  15. Trade Exposure and Electoral Protectionism: Evidence from Japanese politician-level data By ITO Banri
  16. Fertile soil: The production of Prefigurative Territories by the Indignados movement in Barcelona By Asara, Viviana; Kallis, Giorgos
  17. Social Preferences and Social Curiosity By Weiwei Tasch; Daniel Houser
  18. Bringing Tax Avoiders to Light: Moral Framing and Shaming in a Public Goods Experiment By Tsikas, Stefanos A.; Wagener, Andreas
  19. Political Participation and the Welfare State By Rainald Borck
  20. How does democracy affect public debt? Evidence from the Arab world By Bougharriou, Nouha; Benayed, Walid; Gabsi, Foued Badr

  1. By: Gilles Saint-Paul (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, New York University Abu Dhabi); Davide Ticchi (Marche Polytechnic University); Andrea Vindigni (University of Genova)
    Abstract: If people understand that some macroeconomic policies are unsustainable, why would they vote for them in the .first place? We develop a political economy theory of the endogenous emergence of fiscal crises, based on the idea that the adjustment mechanism to a crisis favors some social groups, that may be induced ex-ante to vote in favor of policies that are more likely to lead to a crisis. People are entitled to a certain level of a publicly provided good, which may be rationed in times of crises. After voting on that level, society votes on the extend to which it will be financed by debt. Under bad enough macro shocks, a crisis arises: taxes are set at their maximum but despite that some agents do not get their entitlement. Some social groups do better in this rationing process than others. We show that public debt .which makes crises more likely .is higher, as is the probability of a crisis, the greater the level of favoritism. If the favored group is important enough to be pivotal when society votes on the entitlement level, favoritism also leads to greater public expenditure. We show that the favored group may strategically favor a weaker state in order to make crises more frequent. Finally, the decisive voter when choosing expenditure may be different from the one when voting on debt. In such a case, constitutional limits on debt may raise the utility of all the poor, relative to the equilibrium outcome absent such limits.
    Keywords: Public Debt,In- equality,Political Economy,Fiscal Crises,Favoritism,Entitlements,State Capacity
    Date: 2017–09
  2. By: Tremewan, James; Vanberg, Christoph
    Abstract: Experiments can be used to relax technical assumptions that are made by necessity in theoretical analysis, and further test the robustness of theoretical predictions. To illustrate this point we conduct a three-person bargaining experiment examining the effect of different decision rules (unanimity and majority rule). Our experiment implements the substantive assumptions of the Baron-Ferejohn model but imposes no structure on the timing of proposals and votes. We compare our results to those obtained from an earlier experiment which implemented the specific procedural assumptions of the model. Our results are in many ways very similar to those from the more structured experiment: we find that most games end with the formation of a minimum winning coalition, and unanimity rule is associated with greater delay. However, the earlier finding of "proposer power" is reversed. While some important patterns are robust to the less stringent implementation of procedural assumptions, our less structured experiment provides new insights into how multilateral bargaining may play out in real world environments with no strict procedural rules on timing of offers and agreements.
    Date: 2018–07–18
  3. By: Robinson, James A
    Abstract: Societies under similar geographic and economic conditions and subject to similar external influences nonetheless develop very different types of states. At one extreme are weak states with little capacity and ability to regulate economic or social relations. At the other are despotic states which dominate civil society. Yet there are others which are locked into an ongoing competition with civil society and it is these, not the despotic ones, that develop the greatest capacity. We develop a model of political competition between state (controlled by a ruler or a group of elites) and civil society (representing non-elite citizens), where both players can invest to increase their power. The model leads to different types of steady states depending on initial conditions. One type of steady state, corresponding to a weak state, emerges when civil society is strong relative to the state (e.g., having developed social norms limiting political hierarchy). Another type of steady state, corresponding to a despotic state, originates from initial conditions where the state is powerful and civil society is weak. A third type of steady state, which we refer to as an inclusive state, emerges when state and civil society are more evenly matched. In this last case, each party has greater incentives to invest to keep up with the other, which undergirds the rise of high-capacity states and societies. Our framework highlights that comparative statics with respect to structural factors such as geography, economic conditions or external threats, are conditional - in the sense that depending on initial conditions they can shift a society into or out of the basin of attraction of the inclusive state.
    Date: 2018–07
  4. By: Gabrielle Demange (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In a large range of political and economic situations, the formation of coordinated groups is driven by two opposite forces: increasing returns to size on the one hand, the heterogeneity of preferences, which hampers coordination , on the other. An important question is whether competitive pressures, such as described by free mobility and free entry, lead to an efficient and stable organization of the society into possibly several self-sufficient groups. This paper discusses theoretical approaches to this question as well as recent empirical studies.
    Keywords: free entry, free mobility, stability,coalition structures
    Date: 2017–05
  5. By: Facundo Piguillem (Einaudi Institute for Economics and Finance (EIEF)); Alessandro Riboni (CREST)
    Abstract: Most fiscal rules can be overridden by consensus. We show that this does not make them ine ectual. Since fiscal rules determine the outside option in case of disagreement, the opposition uses them as "bargaining chips" to obtain spending concessions. This political bargain reduces the debt accumulation problem. We analyze various rules and show that when political polarization is high, a government shutdown maximizes the opposition's bargaining power and leads to a sizeable debt reduction. When polarization is low, a balanced budget is preferable. Mandatory spending eliminates debt accumulation by removing political risk. However, it generates persistent static ineffciencies.
    Keywords: fiscal rules, government debt, legislative bargaining, political polarization, government shutdown, mandatory spending
    JEL: H2 H6 D72
    Date: 2018–03–08
  6. By: Benassi, Chiara; Dorigatti, Lisa; Pannini, Elisa
    Abstract: Under what conditions can unions successfully regulate precarious employment? We compare the divergent trajectories of collective bargaining on agency work in the Italian and German metal sectors from the late 1990s. We explain the differences by the interaction between trade unions’ institutional and associational power resources, mediated by employers’ divide-and-rule strategies and by union strategies to (re)build a unitary front. In both countries, the liberalization of agency work allowed employers to exploit labour divides, undermining unions’ associational power and preventing labour from negotiating effectively. However, while Italian unions remained ‘trapped’ in the vicious circle between weak legislation and fragmented labour, German unions were able to overcome their internal divides. The different degree of success depended on the nature of the divides within the labour movements.
    Keywords: Agency workers; Germany; Italy; metal sector; power resources; precarious employment; unions
    JEL: J50
    Date: 2018–06–22
  7. By: Matthew T. Cole (California Polytechnic State University); James Lake (Southern Methodist University); Ben Zissimos (University of Exeter Business School)
    Abstract: We develop a new theoretical political economy framework, called a "parallel contest", that emphasizes the political fight over trade agreement (TA) ratification within countries. TA ratification is inherently uncertain in each country, where anti- and pro-trade interest groups contest each other to influence their own governments' ratification decision. Unlike prior literature, the protection embodied in negotiated TA tariffs reflects a balance between the liberalizing force of lobbying and inherently protectionist government preferences. Moreover, new international political externalities emerge that are not internalized by governments that just internalize terms of trade externalities.
    Keywords: Trade Agreement, ratification, tariff, contest, lobbying, contribution, externalities
    JEL: C72 F02 F13
    Date: 2018–07
  8. By: Fetzer, Thiemo (Department of Economics, University of Warwick)
    Abstract: Did austerity cause Brexit? This paper shows that the rise of popular support for the UK Independence Party (UKIP), as the single most important correlate of the subsequent Leave vote in the 2016 European Union (EU) referendum, along with broader measures of political dissatisfaction, are strongly and causally associated with an individual’s or an area’s exposure to austerity since 2010. In addition to exploiting data from the population of all electoral contests in the UK since 2000, I leverage detailed individual level panel data allowing me to exploit within-individual variation in exposure to specific welfare reforms as well as broader measures of political preferences. The results suggest that the EU referendum could have resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms. Further, auxiliary results suggest that the welfare reforms activated existing underlying economic grievances that have broader origins than what the current literature on Brexit sug gests. Up until 2010, the UK’s welfare state evened out growing income differences across the skill divide through transfer payments. This pattern markedly stops from 2010 onwards as austerity started to bite.
    Keywords: Political Economy ; Austerity ; Globalization ; Voting ; EU
    JEL: H2 H3 H5 P16 D72
    Date: 2018
  9. By: Fremeth, Adam; Richter, Brian; Schaufele, Brandon
    Abstract: Populist clamor and recent Supreme Court decisions have renewed calls for increased regulation of corporate money in politics. Few empirical estimates exist, however, on the implications of existing rules on firms' political spending. Exploiting within firm-cycle cross-candidate variation and across firm-cycle variation, we demonstrate that the regulation of PAC campaign contributions generates large spillovers into other corporate political expenditures such as lobbying. Using both high dimensional fixed effects and regression discontinuity designs, we demonstrate that firms constrained by campaign contribution limits spend between $549,000 and $1.6M more on lobbying per election cycle, an amount that is more than 100 times the campaign contribution limit. This empirical results demonstrate that, similar to regulations in other domains of the economy, constraining specific corporate political activities often yields unintended effects.
    Keywords: Campaign finance regulation; corporate political activity; election law
    JEL: D72 D73 K39
    Date: 2018–06
  10. By: Laszlo A. Koczy (Game Theory Research Group Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Keleti Faculty of Business and Management, Óbuda University, Budapest); Balazs Sziklai (Game Theory Research Group Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Corvinus University of Budapest Department of Operations Research and Actuarial Sciences)
    Abstract: Uniformly sized constituencies give voters similar influence on election outcomes. When constituencies are set up, seats are allocated to the administrative units, such as states or counties, using apportionment methods. According to the impossibility result of Balinski and Young, none of the methods satisfying basic monotonicity properties assign a rounded proportional number of seats (the Hare-quota). We study the malapportionment of constituencies and provide a simple bound as a function of the house size for an important class of divisor methods, a popular, monotonic family of techniques.
    Keywords: apportionment problem, divisor methods, malapportionment, Hare-quota
    JEL: D72 D78
    Date: 2018–01
  11. By: Koessler, Ann-Kathrin; Page, Lionel; Dulleck, Uwe
    Abstract: Voluntary and compulsory public statements of good conduct are frequently observed in the real world, such as the codes of good conduct for professionals or the requirements of academic journals to affirm that research was carried out ethically. In this study, we investigate what effect public statements of good conduct have on contribution behavior in a public goods experiment. Using a 'between-within subjects design' we identify three channels by which non-enforceable statements of intent are associated with higher levels of contributions to the public good. First, in a selection effect, socially-oriented participants are more likely in the experiment to make a public statement. Second, in a commitment effect, participants who make a public statement are contributing more to the public good. Third, in a coordination effect, aggregate contributions are higher when 'Statement-Makers' observe that also other group members make the statement. The latter explains why compulsory statements of good conduct are in our experiment more effective over time.
    Keywords: social dilemma,public good,pro-social behavior,commitment,compliance,pledges,policy making
    JEL: A13 C72 C91 H41
    Date: 2018
  12. By: Mathias Dolls; Nils Wehrhöfer
    Abstract: We present the first evidence on public attitudes towards two prominent euro area reform proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure) and assess potential impediments to their implementation by means of a randomized survey experiment in Germany. We find that there is a low willingness among German voters to accept fiscal risk-sharing through common unemployment insurance, while a sovereign insolvency procedure aimed at strengthening market discipline is supported by a majority of the electorate. Our randomized treatments confronting survey participants with potential adverse effects of the reforms lead to significant downward shifts in approval rates. Altruism, cosmopolitanism, political preferences and income are important predictors of support for the reform proposals. We also show that there is a striking contrast between the low level of support for transfers to other euro area member states and a broad acceptance of inner German transfers.
    Keywords: public attitudes, euro area reforms, European unemployment insurance, sovereign insolvency procedure
    JEL: H55 H24 J26 D14
    Date: 2018
  13. By: Flögel, Franz; Gärtner, Stefan
    Abstract: A comparison of the German banking system with that of the United Kingdom (UK) and Spain shows Germany to be decentralised not only regarding the distribution of banks, but also its financial and political system more generally. Decentralised banks, which are predominantly regional savings banks and cooperative banks in Germany, nearly account for most lending to business and have extended lending at the expense of centralised banks (such as the four big banks, for example). Federalism and strong redistribution mechanisms between the regions support decentralised banking in Germany. Furthermore, close cooperation in their banking groups is shown to allow decentralised banks to realise economies of scale and develop superior techniques for retail banking, like bank-ICT and rating systems. The detailed comparison of a savings bank with a big bank suggests that shorter (functional) distances allow regional banks to consider soft information easily and reliably when lending to SMEs. Short-distance lending not only reduces the financial constraints of (financially distressed) SMEs, but can also be profitable for banks as they are able to realise higher interest earnings in business with informationally opaque enterprises. However, decentralised banking is also under threat in Germany due to tightening (more complex) banking regulations and the continuing low interest rate environment. Therefore, decentralised banks need to cut costs, which is why they have merged to larger units and closed branches in recent years. Furthermore, they have tried to increase fee earnings at the risk of disintermediation. This paper identifies two dilemmas of these cost-cutting strategies. First, disintermediation challenges regional savings-investment cycles and thus regional independency. Second, mergers, branch closures and the standardisation of processes endanger local decision-making authority and hence short-distance lending. As the detailed comparison make clear, the ability of regional banks to decide on credit at a short distance enables profitable lending to informationally opaque SMEs, meaning SMEs that appear to be very risky on the basis of hard information, by utilising soft information. Accordingly, short distance tends to be a key competitive advantage of regional banks, especially in a low interest rate environment. Cost-cutting measures must be conducted with full awareness of this advantage. With respect to lending to SMEs, branch closures may be less critical than mergers and standardisation because most branches are not involved in lending to SMEs anyway.
    Keywords: comparing banking systems,SME finance in Germany,savings and cooperative banks,decentralised vs. centralised banking
    JEL: D43 E21 G01 G21 G38 R12
    Date: 2018
  14. By: Olaizola Ortega, María Norma; Valenciano Llovera, Federico
    Abstract: The main point of this note is to provide a simpler and shorter proof of the result on efficiency in Olaizola and Valenciano (2017a) based on a result on efficiency of weighted networks in Olaizola and Valenciano (2017b). Additionally, this shorter proof allows to refine the result by establishing new conclusions for the zero-measure boundaries separating the different regions of values of the parameters where different structures were proved to be the only efficient ones.
    Keywords: network, formation, efficiency
    JEL: A14 C72 D85
    Date: 2018–05–15
  15. By: ITO Banri
    Abstract: This study empirically examines the effect of economic shocks of trade on trade policy preferences of candidates who run for national elections, using politician-level data of Japan during the period 2009-2014. The focus of this research is the examination of how the influence of trade shocks measured by import competition with China on politicians' trade policy preferences is related to election pressure. The results reveal that an increase in import exposure of goods for production use deters candidates from supporting trade liberalization even after considering offset by export exposure. Among other points, this protectionist effect is more pronounced for challengers than for incumbents, for candidates who run for the Lower House election and are exposed to stronger pressures of elections than those who run for the Upper House election, and for candidates with weak voter support than for those who are supported by a substantial majority. Taking these findings into account, politicians who face trade shocks tend to appeal to protectionist trade policies as the pressures of elections become stronger.
    Date: 2018–05
  16. By: Asara, Viviana; Kallis, Giorgos
    Abstract: Social movements do not only protest and demand political change - they produce new spaces too. Why and how? If we understand this, we can appreciate better the specificity and potential of the last cycle of mobilizations involving the encampment of cities' squares. This paper shows how the Indignados movement in Barcelona evolved from symbolizing an alternative future in the square to constructing alternatives in the city after. We find that people in alternative projects re-appropriate and transform urban space because they want to live differently and produce a radically different city, now. We conceptualize these new spaces as "prefigurative territories", integrating the seemingly divergent anarchist theory of prefiguration with Lefebvre's Marxist theory of space production. Prefigurative projects have strategic horizons and struggle with conflicts when opening up. Against those charging the Indignados with a fetishization of the occupied square and a failure to achieve political goals, we argue for the continuing relevance of the movement as it moved from the production of differential, to the production of counter-spaces. Further research should investigate how these counter-spaces feed into processes of political change.
    Keywords: Social movement, movement of the squares, Indignados, prefigurative politics, space production, territory, community garden, Henri Lefebvre, 15-M, social centre
    Date: 2018
  17. By: Weiwei Tasch; Daniel Houser
    Abstract: Over the last two decades social preferences have been implicated in a wide variety of key economic behaviors. Here we investigate connections between social preferences and the demand for information about others’ economic decisions and outcomes, which we denote “social curiosity.” Our analysis is within the context of the inequality aversion model of Fehr and Schmidt (1999). Using data from laboratory experiments with sequential public goods games, we estimate social preferences at the individual level, and then correlate social preferences with one’s willingness to pay to make visible others’ contribution decisions. Our investigation enables us to shed light on how costs to knowing others’ economic decisions and outcomes impact decisions among people with different social preferences, and in particular the extent to which such costs impact the willingness for groups to cooperate.
    Keywords: laboratory experiment, curiosity, inequality aversion, sequential public goods game
    JEL: C91 H41
    Date: 2018
  18. By: Tsikas, Stefanos A.; Wagener, Andreas
    Abstract: With a series of public goods games in a 2x2-design, we analyze two channels that might moderate social dilemmas and increase cooperation without using pecuniary incentives: moral framing and shaming. Cooperation increases when non-contributing to a public good is framed as morally debatable and socially harmful tax avoidance. However, cooperation is only durable when free-riders are "shamed" by disclosing their misdemeanor. We find shaming effects to be strong enough to make appeals to morality redundant for participants' decisions.
    Keywords: shaming; framing; tax avoidance; public goods experiment
    JEL: E62 H26 H30
    Date: 2018–07
  19. By: Rainald Borck
    Abstract: A large literature has claimed that higher political participation increases welfare spending. In this paper, I review this literature. I study the theoretical link between participation and redistributive spending. Then, I survey the empirical literature on the link between education, income and political participation, as well as that between political participation and redistribution.
    Keywords: political participation, turnout, welfare spending
    JEL: D72 H53
    Date: 2018
  20. By: Bougharriou, Nouha; Benayed, Walid; Gabsi, Foued Badr
    Abstract: This paper investigates the impact of democracy on public debt in the Arab world over the period 2002-2013. The results confirm the existence of an inverted-U relationship between democracy and public debt. This supports the hypothesis that some level of democracy is required to control public debt.
    Keywords: democracy,public debt,non-linear dynamic panel,arab world
    JEL: H60 D72
    Date: 2018

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