nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒02‒01
twelve papers chosen by
Eugene Beaulieu
University of Calgary

  2. How did the 2003 Prescription Drug Re-importation Bill Pass the House? By Tower, Edward; Grabowski, Henry; Gokcekus, Omer; Adams, Mike
  3. Markov Equilibrium in Models of Dynamic Endogenous Political Institutions By Roger Lagunoff (Georgetown University)
  4. Property Rights and the Political Organization of Agriculture By Jonathan Conning; James A. Robinson
  5. Learning to Act on World Trade Preference Formation of Large Firms in the United States and the European Union By Cornelia Woll
  6. Politics, Relief, and Reform: The Transformation of America's Social Welfare System during the New Deal By John Joseph Wallis; Price Fishback; Shawn Kantor
  7. Electoral Manipulation via Expenditure Composition: Theory and Evidence By Allan Drazen; Marcela Eslava
  8. Strategic approval voting in a large electorate By Jean-François Laslier
  9. The Global History of Corporate Governance: An Introduction By Randall K. Morck; Lloyd Steier
  10. The Determinants of Environmental Awareness and Behavior By Quentin M. Duroy
  11. Economic Policies and Elections, A principal-agent point of view By António Caleiro
  12. Assessing the extent of strategic manipulation for the average voting rule By Régis Renault; Alain Trannoy

  1. By: Xenia Matschke (University of California Santa Cruz)
    Abstract: Labor market rigidities are commonly believed to be a major reason for imposing trade impediments. In this paper, I introduce labor market rigidities (such as influential trade unions and high unemployment benefits), that are prevalent in continental European countries, into the well-known Grossman and Helpman (1994) protection for sale model, which has emerged as the leading model in the political economy of trade protection literature. I show that contrary to commonly held views, these labor market rigidities do not necessarily increase equilibrium trade protection. A testable equilibrium trade protection equation is also derived. The findings in this paper are hence particularly relevant for empirical tests of trade policy determinants in economies with more regulated labor markets.
    Keywords: Tariffs, trade protection, protection for sale, labor market.,
    Date: 2004–01–31
  2. By: Tower, Edward; Grabowski, Henry; Gokcekus, Omer; Adams, Mike
    Abstract: This paper examines the major interest groups in the debate over allowing the wholesale re-importation of prescription drugs through the Pharmaceutical Market Access Act. By making use of the logit model, we see the effects that each of these groups has had on the voting behavior of the 108 th Congress on the bill. We find evidence suggesting that Representatives are maximizing their electoral prospects: Contributions from pharmaceutical manufacturers and HMOs significantly influence the probability of voting for the Bill. Similarly, Representatives are sensitive to their constituency’s interest: employment in pharmaceutical manufacturing and the presence of senior citizens are also taken into account. However, the decision was by and large a partisan one: Party affiliation was the most important factor in passing the Bill.
    Keywords: Voting behavior, Health, Trade Policy
    JEL: D72 I18 F13
    Date: 2005
  3. By: Roger Lagunoff (Georgetown University) (Department of Economics, Georgetown University)
    Abstract: This paper examines existence of Markov equilibria in the class of dynamic political games (DPGs). DPGs are dynamic games in which political institutions are endogenously determined each period. The process of change is both recursive and instrumental: the rules for political aggregation at date t+1 are decided by the rules at date t, and the resulting institutional choices do not affect payoffs or technology directly. Equilibrium existence in dynamic political games requires a resolution to a political fixed point problemin which a current political rule (e.g., majority voting) admits a solution only if all feasible political rules in the future admit solutions in all states. If the class of political rules is dynamically consistent, then DPGs are shown to admit political fixed points. This result is used to prove two equilibrium existence theorems, one of which implies that equilibrium strategies, public and private, are smooth functions of the economic state. We discuss practical applications that require existence of smooth equilibria. Classification-JEL Codes: C73, D72, D74
    Keywords: Recursive, dynamic political games, political fixed points, dynamically consistent rules
  4. By: Jonathan Conning (Hunter College, Department of Economics); James A. Robinson (Harvard University, Department of Government)
    Abstract: The modern theory of agrarian organization has studied how the economic environment determines organizational form under the assumption of stable property rights to land. The political economy literature has modelled the endogenous determination of property rights. In this paper we propose a model in which the economic organization of agriculture and the political equilibrium determining the distribution of property rights are jointly determined. In particular, because the form of organization may affect the probability and distribution of benefits from agrarian reform, it may be determined in anticipation of this impact. The model offers a reason for why tenancy, despite its economic advantages, has been so little used in countries where agrarian reform is a salient political issue. We test the implications of the model using a five-decade panel of data from Indian states and discuss how it may help explain cross-national variations in the incidence of tenancy.
    Keywords: Agrarian Organization, Political Economy, Property Rights Reforms.
    JEL: J42 J43 L1 Q12 Q15 F11
    Date: 2005
  5. By: Cornelia Woll
    Abstract: Abstract Lobbying by economic actors constitutes a central element of a large part of the literature on trade policy-making. However, it is mainly considered as “input” into the political system, which then aggregates the demand of different societal interests. As such inputs, the preferences of economic actors are often simply deduced from economic theory. This paper raises doubts about the usefulness of this analytical parsimony and tries to distinguish more clearly between stable interests, preferences and strategic choices. In particular, it suggests a model that clarifies how abstract interests are translated into concrete policy choices. By examining the lobbying carried out by service providers in the United States (US) and the European Union (EU) in telecommunications and air transport, it then shows that the deduction of trade policy preferences from economic theory does not account well for the general support of multilateral trade liberalization by EU service providers. In particular, changes in identity, causal beliefs and strategic environments in the US and the EU create a variety of lobbying choices that goes beyond the material incentives of trade liberalization. By studying the learning process and the constraints on lobbying imposed by political institutions, the paper suggests that even the political preferences of strong economic actors are sometimes more appropriately dealt with as endogenous to the trade policy process.
    Keywords: ideas; identity; interest representation; international trade; lobbying; policy learning; political opportunity structure; role conceptions; political economy; trade policy
    Date: 2005–01–18
  6. By: John Joseph Wallis; Price Fishback; Shawn Kantor
    Abstract: The American social welfare system was transformed during the 1930s. Prior to the New Deal public relief was administered almost exclusively by local governments. The administration of local public relief was widely thought to be corrupt. Beginning in 1933, federal, state, and local governments cooperatively built a larger social welfare system. While the majority of the funds for relief spending came from the federal government, the majority of administrative decisions were made at state and local levels. While New Dealers were often accused of playing politics with relief, social welfare system created by the New Deal (still largely in place today) is more often maligned for being bureaucratic than for being corrupt. We do not believe that New Dealers were motivated by altruistic motives when they shaped New Deal relief policies. Evidence suggests that politics was always the key issue. But we show how the interaction of political interests at the federal, state, and local levels of government created political incentives for the national relief administration to curb corruption by actors at the state and local level. This led to different patterns of relief spending when programs were controlled by national, rather than state and local officials. In the permanent social welfare system created by the Social Security Act, the national government pressed for the substitution of rules rather than discretion in the administration of relief. This, ultimately, significantly reduced the level of corruption in the administration of welfare programs.
    JEL: N3 N4 H0 H1 H4
    Date: 2005–01
  7. By: Allan Drazen; Marcela Eslava
    Abstract: We present a model of the Political Budget Cycle in which voters and politicians have preferences for different types of government spending. Incumbents try to influence voters by changing the composition of government spending, rather than overall spending or revenues. Rational voters may support an incumbent who targets them with spending before the election even though such spending may be due to opportunistic manipulation, because it can also reflect sincere preference of the incumbent for types of spending voters favor. Classifying expenditures into those which are targeted to voters and those that are not, we provide evidence supporting our model in data on local public finances for all Colombian municipalities. Our findings indicate both a pre-electoral increase in targeted expenditures, combined with a contraction of other types of expenditure, and a voter response to targeting.
    JEL: D72 E62 D78
    Date: 2005–01
  8. By: Jean-François Laslier (Laboratoire d’Économétrie, École Polytechnique)
    Abstract: The paper considers approval voting for a large population of voters. It is proven that, based on statistical information about candidate scores, rational voters vote sincerly. It is also proven that if a Condorcet-winner exists, this candidate is elected.
    Date: 2004–04
  9. By: Randall K. Morck; Lloyd Steier
    Abstract: This paper presents a synopsis of recent NBER studies of the history of corporate governance in Canada, China, France, Germany, Japan, India, Italy, the Netherlands, Sweden, the United Kingdom, and the United States. Together, the studies underscore the importance of path dependence, often as far back into preindustrial period; legal system origin, though in a more nuanced form than mere statutory shareholder rights; and wealthy families. They also clarify the roles of ideologies, business groups, trust, institutional transplants, and politics in institutional evolution and financial development. Other themes are the universality of business insiders%u2019 investments in, entrenchment, and a possible behavioral basis for this.
    JEL: G3 N2
    Date: 2005–01
  10. By: Quentin M. Duroy (Department of Economics, Higley Hall, Denison University, Granville OH 43023, USA)
    Abstract: This paper investigates the determinants of environmental values across countries. Its purpose is to put the role of economic affluence into perspective by challenging the conventional wisdom that states that the level of economic affluence influences the level of environmental concern expressed by the population. While this paper does not question the fact that large scale environmental defensive activities are likely to be influenced by the level of income in a country, it is hypothesized that environmental awareness and individual involvement in environmental protection need not be a function of the level of economic affluence. To test this hypothesis, three variables are created-Positive Environmental Attitudes, Willingness to Pay to Protect the Environment, and Human-Environment Relationship-using data from the World Values Survey (1995-1997). The variables are regressed against a set of economic, demographic, political, psychological and education variables. The results show that economic affluence has, at best, a marginal direct influence on environmental awareness and no direct impact on environmental behavior. The paper demonstrates that the degree of urbanization, the level of subjective well-being and the level of income equality have direct effects on awareness, while education, population pressure and happiness are significantly correlated with environmental behavior.
    JEL: Q56 Q57 O50
    Date: 2005–01
  11. By: António Caleiro (Department of Economics, University of Évora)
    Abstract: One of the most crucial lessons to be taken from the literature on electoral business cycles is that the shortrun electorally induced. uctuations prejudice the long-run welfare. Since the very .rst studies on the matter, some authors o.ered suggestions as to what should be done against this electorally-induced instability. The problem assumes an interesting form, given that we can presume that if electoral business cycles do exist it is because voters, being ignorant, allow them to exist or, indeed, because the government, in the case of implementing policies that are optimal in the long-run for society, may be electorally punished by voters. As the government’s optimal policies depend crucially on the behaviour of voters, the paper analyses the circumstances under which a non-representative behaviour of voters may induce the government to behave as representative of the society’s interests (without punishing it). As is well-known, governments may have the temptation to exploit the Phillips curve. This discretionary way of making economic policy generates an in.ation bias. The literature has then evolved to analyse possible punishment strategies in order to avoid that discretionary behaviour. Traditionally it is considered that the punishment takes the form of people considering announced policies as non-credible. This introduces the problem of arranging the right mechanism or moment in time to implement these punishment strategies. It turns out that elections are indeed the appropriate mechanism to punish or to reward the past behaviour of the incumbent. In fact, elections can be used to turn voters, i.e. the public into the principal who has all the incentives to motivate the government, as the agent, to use the appropriate policies. The paper analyses the circumstances under which an optimal contract can be established between the electorate and the government in order to guarantee that the government behaves in accordance with the true interests of the society.
    Keywords: Economic Policies, Elections, Optimal Contracts, Principal-Agent
    JEL: D72 E32 E61
    Date: 2004
  12. By: Régis Renault (Université de Cergy-Pontoise, THEMA); Alain Trannoy (EHESS, GREQAM-IDEP)
    Abstract: The average voting procedure reflects the weighted average of expressed opinions in [0,1]. Participants typically behave strategically. We evaluate the discrepancy between the average taste and the average vote. If the population is sufficiently large, it is possible to contruct approximations of both the average vote and the average taste which may be readily compared. We construct upper and lower bounds for the limit average vote that depend on the limit average taste. If the average taste is central enough, the range of possible values for the average voting outcome is narrower than the corresponding range for majority voting. For instance, if the average taste is at 1/2, the limit equilibrium outcome is this value plus or minus roughly .2, whereas the median maybe anywhere in the [0,1] interval. Results are robust to the introduction of incomplete information.
    Keywords: Average voting, Nash equilibrium, Strategic Bias.
    JEL: D74 H41 I22
    Date: 2004–02

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