nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒03‒20
four papers chosen by
Eugene Beaulieu
University of Calgary

  1. Votes and Vetoes: The Political Determinants of Commercial Openness By Witold J. Henisz; Edward D. Mansfield
  3. Cross-skill Redistribution and the Tradeoff between Unemployment Benefits and Employment Protection By Tito Boeri; J. Ignacio Conde-Ruiz; Vincenzo Galasso
  4. The Evolution of Retirement By J. Ignacio Conde-Ruiz; Vincenzo Galasso; Paola Profeta

  1. By: Witold J. Henisz; Edward D. Mansfield
    Abstract: Societal theories of trade policy stress the importance of domestic interest groups, whereas statist theories focus on the effects of domestic institutions. Debates over the relative merits of these approaches have been fierce, but little systematic empirical research has been brought to bear on the relative merits of these theories. In this paper, we argue that, while societal and statist factors are generally regarded as having independent and competing effects, it is more fruitful to view the influence of each type of factor as conditional on the other. As societal explanations contend, deteriorating macroeconomic conditions are a potent source of protectionist pressures. The extent to which such conditions reduce commercial openness, however, depends centrally on the domestic institutions through which societal pressures must filter to influence policy. Two institutional features stand out. First, in states marked by greater fragmentation and more “veto points,” it is harder to change existing policies because any number of actors can block such change. Consequently, we expect the effects of macroeconomic conditions on trade policy to be weaker in fragmented states than in those characterized by a highly centralized national government. Second, we expect both fragmentation and the societal pressures stemming from the economy to have a more potent impact on trade policy in democracies than in other regimes, since the electoral constraints facing democratic leaders force them to respond to demands made by key segments of society. The results of our statistical tests covering more than one hundred countries during the period from 1980 to 2000 strongly support these arguments.
    Keywords: Protectionism, openness, veto players, veto points, positive political theory, unemployment, trade
    JEL: F13 P16 P26
    Date: 2004–07–01
  2. By: Witold J. Henisz; Bennet A. Zelner;
    Abstract: In this paper we examine the effects of interest group pressure and the structure of political institutions on infrastructure deployment by state-owned electric utilities in a panel of 78 countries during the period 1970 – 1994. We consider two factors that jointly influence the rate of infrastructure deployment: (1) the extent to which the consumer base consists of industrial consumers, which are capable of exerting discipline on political actors whose competing incentives are to construct economically inefficient “white elephants” to satisfy the demands of concentrated geographic interests, labor unions and construction firms; and (2) veto points in formal policymaking structures that constrain political actors, thereby reducing these actors’ sensitivity to interest group demands. A higher fraction of industrial customers provides political actors with stronger incentives for discipline, reducing the deployment of white elephants and thus the infrastructure growth rate, ceteris paribus. Veto points reduce political actors’ sensitivity to interest group demands in general and thus moderate the relationship between industrial interest group pressure and the rate of infrastructure deployment.
    Keywords: Electricity, Institutional Environment, Investment, Regulation, interest group, state owned enterprise
    JEL: L94 L32 F21
    Date: 2004–07–01
  3. By: Tito Boeri; J. Ignacio Conde-Ruiz; Vincenzo Galasso
    Abstract: We document the presence of a trade-o. between unemployment benefits (UB) and employment protection legislation (EPL) in the provision of insurance against labor market risk. Di.erent countries’ locations along this trade-o. represent stable, hard to modify, politico-economic equilibria. We develop a model in which voters are required to cast a ballot over the strictness of EPL, the generosity of UBs and the amount of redistribution involved by the financing of unemployment Insurance. Agents are heterogeneous along two dimensions: employment status — insiders and outsiders — and skills — low and high. Unlike previous work on EPL, we model employment protection as an institution redistributing among insiders, notably in favour of the low-skill workers. A key implication of the model is that configurations with strict EPL and low UB should emerge in presence of compressed wage structures. Micro data on wage premia on educational attainments and on the strictness of EPL are in line with our results. We also find empirical support to the substantive assumptions of the model on the e.ects of EPL.
  4. By: J. Ignacio Conde-Ruiz; Vincenzo Galasso; Paola Profeta
    Abstract: We provide a long term perspective on the individual retirement behavior and on the future of early retirement. In a cross-country sample, we find that total pension spending depends positively on the degree of early retirement and on the share of elderly in the population, which increase the proportion of retirees, but has hardly any effect on the per-capita pension benefits. We show that in a Markovian political economic theoretical framework, in which incentives to retire early are embedded, a political equilibrium is characterized by an increasing sequence of social security contribution rates converging to a steady state and early retirement. Comparative statics suggest that aging and productivity slow-downs lead to higher taxes and more early retirement. However, when income effects are factored in, the model suggests that periods of stagnation - characterized by decreasing labor income - may lead middle aged individuals to postpone retirement

This nep-pol issue is ©2005 by Eugene Beaulieu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.