nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒02‒20
eight papers chosen by
Eugene Beaulieu
University of Calgary

  1. Does Sovereign Risk Differ for Domestic and Foreign Investors? Evidence from Scandinavian Bond Markets, 1938–1948 By Waldenström, Daniel
  2. Group Formation and Voter Participation By Helios Herrera; César Martinelli
  3. Media Capture in a Democracy: The Role of Wealth Concentration By Giacomo Corneo
  4. Why are More Redistributive Social Security Systems Smaller? A Median Voter Approach By Marko Köthenbürger; Panu Poutvaara; Paola Profeta
  5. Changing with the Times: Success, Failure and Inertia in Canadian Federal Arrangements, 1945-2002 By Richard M. Bird; Francois Vaillancourt
  6. Protecting minorities through the average voting rules By Régis Renault; Alain Trannoy
  7. The Effect of Monetary Unification on Public Debt and its Real Return By Roel Beetsma; Koen Vermeylen
  8. Analysing low intensity conflict in Africa using press reports By Philippe Bocquier; Hervé Maupeu

  1. By: Waldenström, Daniel (Dept. of Economics, Stockholm School of Economics)
    Abstract: This paper shows that geographical investor heterogeneity strongly influences sovereign risk. While standard sovereign debt models mainly attribute the absence of sovereign defaults to foreign creditor retaliation, a new theoretical literature argues that domestic creditors also affect borrowing governments’ default decisions through channels of domestic politics. This paper examines this controversy using a newly assembled dataset on cross-listed Scandinavian sovereign yields traded at markets that abruptly went from integration to segmentation by capital controls and World War II. The results strongly suggest that domestic and foreign bond investors assessed different sovereign risks whereas more standard explanations based on macroeconomic factors, portfolio choice or risk aversion added little explanatory value. The study also documents large effects on recorded asset prices from institutional trading constraints (e.g., price limits), an issue largely neglected by previous research in historical long-run asset returns.
    Keywords: Sovereign risk; Investor heterogeneity; Market segmentation; Domestic debt; Political economy; Historical finance; Cliometrics
    JEL: F34 G15 G18 N20 N24 N44
    Date: 2005–02–09
  2. By: Helios Herrera; César Martinelli
    Date: 2005–02–10
  3. By: Giacomo Corneo
    Abstract: Since objective news coverage is vital to democracy, captured media can seriously distort collective decisions. The current paper develops a voting model where citizens are uncertain about the welfare effects induced by alternative policy options and derive information about those effects from the mass media. The media might however secretly collude with interest groups in order to influence the public opinion. In the case of voting over the level of a productivity-enhancing public bad, it is shown that an increase in the concentration of firm ownership makes the occurrence of media bias more likely. Although media bias is not always welfare worsening, conditions for it to raise welfare are restrictive.
    Keywords: mass media, public bads, voting, wealth inequality
    JEL: D72 H41
    Date: 2005
  4. By: Marko Köthenbürger; Panu Poutvaara; Paola Profeta
    Abstract: We suggest a political economy explanation for the stylized fact that intragenerationally more redistributive social security systems are smaller. Our key insight is that linking benefits to past earnings (less redistributiveness) reduces the efficiency cost of social security (due to endogenous labor supply). This encourages voters who benefit from social security to support higher contribution rates in political equilibrium. We test our theory with a numerical analysis of eight European countries. Our simple, but suggestive median voter model performs relatively well in explaining the stylized fact and cross-country differences in social security contribution rates.
    Keywords: earnings-related and flat-rate benefits, social security, public pensions, median voter model
    JEL: D72 H55
    Date: 2005
  5. By: Richard M. Bird; Francois Vaillancourt (Rotman School of Management, University of Toronto)
    Abstract: In this paper, following an introductory section setting out some salient characteristics of the country and its key institutions, we examine three aspects of Canada?s federal arrangements over the last half century. We have chosen these three examples to illustrate, first, an instance in which successful changes were gradually made over time to accommodate changing economic and political circumstances, second, an instance in which the outcome of even greater efforts at changing institutions in the face of political demands was a resounding failure, and, finally, an instance in which, despite the apparent economic desirability of a change, none has even been attempted. The success story is the marked change that has taken place in the sharing of the personal income tax between the federal and the provincial governments. The failure is the unsuccessful attempt to amend the Constitution Act of 1982 to satisfy the demands of Qu?bec, the majority francophone province in Canada. Finally, the story that has not happened is the creation of a national securities commission to replace the existing provincial commissions.
    Keywords: Canada, fiscal federalism, constitutional reform, securities regulation
    JEL: H11 H77 G28 N42
    Date: 2005
  6. By: Régis Renault; Alain Trannoy (Ehess, Greqam-Idep)
    Abstract: Properties of an average voting rule - the outcome being some weighted average of votes - are investigated, with particular attention to its ability to protect minorities. The unique average voting outcome is characterized with a median formula which depends on the voters’ preferred allocations and some parameters constructed from the voters’ weights. We provide necessary and sufficient conditions for the average outcome to be above the majority outcome. A minority is said to be protected by a switch in voting rule if the voting outcome becomes closer to the median bliss point of the minority. A sufficient condition for minority protection is that, either the minority’s weight is sufficiently large or the majority outcome is too unfavorable to the minority. Applications to the composition of public goods and to public expenditures level are considered. We end by exploring the combined use of average and majority voting in a two-stage procedure for determining both the level and the composition of public expenditures.
    Keywords: minority, majority voting, public goods, Nash equilibrium.
    JEL: D74 H41 I22
    Date: 2003–04
  7. By: Roel Beetsma; Koen Vermeylen
    Abstract: We explore the implications of monetary unification for real interest rates and (relative) public debt levels. The adoption of a common monetary policy renders the risk-return characteristics of the participating countries more similar, so that the substitutability of their public debt increases after unification. This implies that the average expected real return on the debt increases. Also, the share of the unionwide debt issued by relatively myopic governments or of countries that initially have a relatively dependent central bank increases after unification. This may put the political sustainability of the union under pressure. A transfer scheme that penalizes debt increases beyond the union average is able to undo the interest rate effect of unification, but magnifies the spread in relative debt levels.
    Keywords: monetary union, (relative) public debt, interest rates, externalities, substitutability, central bank independence
    JEL: E42 E62 E63 F33
    Date: 2005
  8. By: Philippe Bocquier (DIAL, IRD, Paris); Hervé Maupeu (IFRA Kenya)
    Abstract: (english) Unreliability and biases prevent us from analysing homicides using direct sources in most African countries. Victimisation surveys in Africa proved to be considerably biased regarding the recording of homicides. In the absence of more reliable and exhaustive sources, press reports can reflect at least some specific causes of death, on condition that a political analysis of the relation between the press and the political power is conducted. In this paper, using data collected from a leading Kenyan newspaper, we were able to depict the deaths since 1990 due to three main causes of collective violence : State violence (essentially the police), community clashes and banditry. We used a historical as well as geographical approach to determine the level and trend of the number of deaths as a consequence of organised crime and political conflicts. In addition, this analysis has helped us to point out the discrepancies between the press discourses on insecurity and political violence, and the reality of deaths reported by the very same press. _________________________________ (français) Les sources directes sur les homicides ne sont généralement pas, en Afrique, suffisamment fiables et souffrent de biais. Les enquêtes de victimation en Afrique se révèlent également très biaisées en ce qui concerne l’estimation des homicides. En l’absence de sources plus fiables et exhaustives, les articles de presse peuvent au moins refléter quelques causes de mortalité spécifiques, à condition qu’une analyse politique des relations entre la presse et le pouvoir politique soit parallèlement conduite. Dans ce document, nous utilisons des données recueillies dans un quotidien majeur du Kenya pour décrire depuis 1990 les décès dus à trois sources de violence collective : la violence d’état (essentiellement la police), les violences communautaires et le banditisme. Nous utilisons une approche à la fois géographique et historique pour déterminer le niveau et la tendance du nombre de décès résultant du crime organisé et des conflits politiques. Notre analyse permet de plus d’identifier les divergences entre les discours parus dans la presse sur l’insécurité et la violence politique, et la réalité des décès rapportés dans cette même presse.
    Date: 2003–12

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