nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒11‒19
eight papers chosen by
Eugene Beaulieu
University of Calgary

  1. Why are More Redistributive Social Security Systems Smaller? A Median Voter Approach By Marko Köthenbürger; Panu Poutvaara; Paola Profeta
  2. An Analysis on Simulation Models of Competing Parties By Jie-Shin Lin
  3. Demand commitment in legislative bargaining By Maria Montero; Juan Vidal-Puga
  4. The bigger the better? Evidence of the effect of government size on life satisfaction around the world By Christian Bjørnskov; Axel Dreher; Justina A. V. Fischer
  5. The Creation of the Rule of Law and the Legitimacy of Property: The Political and Economic Consequences of a Corrupt Privatization By Joseph E. Stiglitz; Karla Hoff
  6. Yardstick Competition and Policy Innovation By Johannes Rincke
  7. Income Inequality and the Size of the Public Sector By Michele Giuseppe Giuranno
  8. Group Decision-Making and Voting in Ultimatum Bargaining: An Experimental Study By Alexander Elbittar; Andrei Gomberg; Laura Sour

  1. By: Marko Köthenbürger (CES, University of Munich and CESifo); Panu Poutvaara (University of Helsinki, CEBR, CESifo, HECER and IZA Bonn); Paola Profeta (Bocconi University)
    Abstract: We suggest a political economy explanation for the stylized fact that intragenerationally more redistributive social security systems are smaller. We relate the stylized fact to an "efficiencyredistribution" trade-off to be resolved by political process. The inefficiency of social security financing is due to endogenous labor supply. Using data on eight European countries, we find that the stylized fact and a considerable degree of cross-country variation in contribution rates can be explained by the median voter model.
    Keywords: earnings-related and flat-rate benefits, applied political economy, public pensions, labor supply
    JEL: H55 D72
    Date: 2005–11
  2. By: Jie-Shin Lin (Public Policy and Management I-Shou University)
    Abstract: Down’s spatial theory of elections (1957) has occupied a prominent theoretical status within political science. Studies use a notion of ideological distance to develop explanations for observable electoral trends. In elections, voters by observing party ideologies and using the information to make decisions for their votes because voters do not always have enough information to appraise the difference of which they are aware. The Downsian idea suggests that parties’ effort to attract votes leads them to adopt a median position. However, many studies have questioned the result and have many different conclusions. In recent years there has been an increasing interest in learning and adaptive behaviour including simulation models. In this study, we model the dynamics of competing parties who make decisions in an evolving environment and construct simulation models of party competition. We illustrate and compare their consequences by analyzing two variants of computational models.
    Keywords: Spatial Voting Model, Party Competition, Evolutionary Modelling, Learning
    JEL: Z
    Date: 2005–11–11
  3. By: Maria Montero (University of Nottingham); Juan Vidal-Puga (University of Vigo)
    Abstract: Morelli (American Political Science Review, 1999) provides a majoritarian bargaining model in which the parties make payoff demands and the order of moves is chosen by the leading party. Morelli's main proposition states that the ex post distribution of payoffs inside the coalition that forms is proportional to the homogeneous representation of the game. We provide a counterexample and prove a weaker result: proportional payoffs hold if the rules are modified so that the parties must move in decreasing order of weight.
    Keywords: demand commitment majority games politics
    JEL: C7 D8
    Date: 2005–11–14
  4. By: Christian Bjørnskov (Aarhus School of Business, Department of Economics); Axel Dreher (Konjunkturforschungsstelle, Eidgenössische Technische Hochschule Zürich (ETH)); Justina A. V. Fischer (Swiss Institute for International Economics and Applied Economic Research, University of St. Gallen)
    Abstract: This paper empirically analyzes the question whether government involvement in the economy is conducive or detrimental to life satisfaction in a cross-section of 74 countries. This provides a test of a longstanding dispute between standard neoclassical economic theory, which predicts that government plays an unambiguously positive role for individuals’ quality of life, and public choice theory, that was developed to understand why governments often choose excessive involvement and regulation, thereby harming voters’ quality of life. Our results show that life satisfaction decreases with higher government spending. This negative impact of the government is stronger in countries with a leftwing median voter. It is alleviated by government effectiveness – but only in countries where the state sector is already small.
    Keywords: Life satisfaction, Government
    Date: 2005–10
  5. By: Joseph E. Stiglitz; Karla Hoff
    Abstract: How does the lack of legitimacy of property rights affect the dynamics of the creation of the rule of law? We investigate the demand for the rule of law in post-Communist economies after privatization under the assumption that theft is possible, that those who have "stolen" assets cannot be fully protected under a change in the legal regime towards rule of law, and that the number of agents with control rights over assets is large. We show that a demand for broadly beneficial legal reform may not emerge because the expectation of weak legal institutions increases the expected relative return to stripping assets, and strippers may gain from a weak and corrupt state. The outcome can be inefficient even from the narrow perspective of the asset-strippers.
    JEL: K0
    Date: 2005–11
  6. By: Johannes Rincke (Zentrum für Europäische Wirtschaftsforschung)
    Abstract: A simple model of yardstick competition between jurisdictions is presented. Governments of jurisdictions face the alternative to choose between an old and a new policy with stochastic payoffs. The new policy is superior to the old policy in one state of the world, and inferior in the other. Governments are either benevolent, serving the interest of the voter, or rent-seeking. An equilibrium with yardstick competition is shown to exist where bad governments having a good government in their neighborhood choose the new policy more often compared to an equilibrium without relative performance evaluation. Overall, the probability of policy innovations is increased by yardstick competition. The model has a testable empirical implication saying that policy innovations should show spatial correlation.
    JEL: D6 D7 H
    Date: 2005–11–16
  7. By: Michele Giuseppe Giuranno
    Abstract: This paper focuses on the question of how income inequality between two jurisdictions impacts upon government decision-making affecting the size of the public sector. We model policy choices as the outcome of regional representatives' negotiations in the legislature. We show that the more unequal income distribution is, the greater the degree of inefficiency in terms of under-provision of public goods. Particularly, a divergent income trend between rich and poor makes interregional redistributive conflicts more dramatic. Consequently, the larger the income disparity, the smaller the public sector. A wealthier economy as a result may lead to a relatively smaller public sector when income disparity increases.Number: 602
    Date: 2005–11–07
  8. By: Alexander Elbittar (; Andrei Gomberg (; Laura Sour (
    Abstract: Many rent-sharing decisions in a society result from a bargaining process between groups of individuals (such as between the executive and the legislative branches of government, between legislative factions, between corporate management and shareholders, etc.). We conduct a laboratory study of the effect of different voting procedures on group decision-making in the context of ultimatum bargaining. Earlier studies have suggested that when the bargaining game is played by unstructured groups of agents, rather than by individuals, the division of the payoff is substantially affected in favor of the ultimatum-proposers. Our theoretical arguments suggest that one explanation for this could be implicit voting rules within groups. We explicitly structure the group decision-making as voting and study the impact of different voting rules on the bargaining outcome. The observed responder behavior is consistent with preferences depending solely on payoff distribution. Furthermore, we observe that proposers react in an expected manner to changes in voting rule in the responder group.
    Keywords: Bargaining games, group decision making and experimental design.
    JEL: C92 D44 D82
    Date: 2005–11–14

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