nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒12‒09
twenty-one papers chosen by
Eugene Beaulieu
University of Calgary

  1. Efficiency, Equity and Timing in Voting Mechanisms By Battaglini, Marco; Morton, Rebecca; Palfrey, Thomas R
  2. Political Cycles : The Opposition Advantage By Pascal Gautier; Raphael Soubeyran
  3. Contest with Attack and Defence: Does Negative Campaigning Increase or Decrease Voters’ Turnout? By Raphaël Soubeyran
  4. A Political-Economy Theory of Trade Agreements By Maggi, Giovanni; Rodriguez-Clare, Andres
  5. A Political Economy Theory of the Soft Budget Constraint By Robinson, James A; Torvik, Ragnar
  6. Why is Fiscal Policy often Procyclical? By Alberto Alesina; Guido Tabellini
  7. Does Information Increase Political Support for Pension Reform? By Tito Boeri; Guido Tabellini
  8. On the Incentives to Experiment in Federations By Christos Kotsogiannis; Robert Schwager
  9. Electoral Uncertainty, Fiscal Policy and Macroeconomic Fluctuations By Jim Malley; Apostolis Philippopoulos; Ulrich Woitek
  10. Minorities and Storable Votes By Alessandra Casella; Thomas Palfrey; Raymond Riezman
  11. How to Construct Alternatives. A computational voting model By Luigi Marengo; Corrado Pasquali
  12. “One Man, One Dollar”? Examining the equalization argument in support of campaign contribution limits By Christoph Vanberg
  13. Having Everyone in the Boat May Sink it - Interest Group Involvement and Policy Reforms By Boerner, Kira
  14. Income and Democracy By Acemoglu, Daron; Johnson, Simon; Robinson, James A; Yared, Pierre
  15. The Determinants of Individuals’ Attitudes Towards Preventing Environmental Damage By Benno Torgler; Maria A. Garcia-Valiñas
  16. The Political Economy of Financial Fragility By Feijen, Erik; Perotti, Enrico C
  17. Young Liberals and Old Conservatives - Inequality, Mobility and Redistribution By Astri Muren; Sten Nyberg
  18. The Effects of Campaign Finance Laws on Turnout, 1950-2000 By Jeffrey Milyo; David M. Primo
  19. Distribution of Natural Resources, Entrepreneurship, and Economic Development: Growth Dynamics with two Elites By Josef Falkinger; Volker Grossmann
  20. Developing Rotten Institutions By Kelly, Morgan
  21. Bargaining Coalitions in the Agricultural Negotiations of the Doha Round: Similarity of Interests or Strategic Choices? An Empirical Assessment By Fabrizio De Filippis; Valeria Costantini; Riccardo Crescenzi; Luca Salvatici

  1. By: Battaglini, Marco; Morton, Rebecca; Palfrey, Thomas R
    Abstract: We compare the behaviour of voters, depending on whether they operate under sequential and simultaneous voting rules, when voting is costly and information is incomplete. In many real political institutions, ranging from small committees to mass elections, voting is sequential, which allows some voters to know the choices of earlier voters. For a stylized model, we characterize the equilibria for this rule, and compare it to simultaneous voting, and show how these equilibria vary for different voting costs. This generates a variety of predictions about the relative efficiency and equity of these two systems, which we test using controlled laboratory experiments. Most of the qualitative predictions are supported by the data, but there are significant departures from the predicted equilibrium strategies, in both the sequential and simultaneous voting games. We find a tradeoff between information aggregation, efficiency, and equity in sequential voting: a sequential voting rule aggregates information better, and produces more efficient outcomes on average, compared to simultaneous voting, but sequential voting leads to significant inequities, with later voters benefiting at the expense of early voters.
    Keywords: committees; costly voting; information aggregation; sequential voting
    JEL: D71 D72
    Date: 2005–10
  2. By: Pascal Gautier (GREQAM, Université d’Aix-Marseille II); Raphael Soubeyran (GREQAM, Université d’Aix-Marseille II)
    Abstract: We propose a two dimensional infinite horizon model of public consumption in which investments are decided by a winner-take-all election. Investments in the two public goods create a linkage across periods and parties have different specialities. We show that the incumbent party vote share decreases the longer it stays in power. Parties chances of winning do not converge and, when the median voter is moderate enough, no party can maintain itself in power for ever. Finally, the more parties are specialized and the more public policies have long-term effects, the more political cycles are likely to occur.
    Keywords: Cycles, Alternation, Public goods, Advantage, Opposition
    JEL: D72 H41 C72
    Date: 2005–10
  3. By: Raphaël Soubeyran (GREQAM Université de la Mediterrannée)
    Abstract: We present a general model of two players contest with two types of efforts. Contrary to the classical models of contest, where each player chooses a unique effort, and where the outcome depends on the efforts of all the players, contestants are allowed to reduce the effort of the opponent. Defence increases one’s chance of winning while attack annihilates the defence of the opponent. This model has many applications like political campaigning, wars, competition among lobbies, job promotion competitions, or sport contests. We study the general model of contest with attacks and defence and propose an application to negative political campaigns, where two candidates arbitrate between disparaging their opponent or enhancing their own image. We propose sufficient conditions for the existence and uniqueness of a symmetric Nash equilibrium of the contest game. In the application, we contribute to the empirically debated question dealing with the effect of attack on voters turnout, and show that the conclusion depends on the distribution of voters sensitivity to defence and attack. Furthermore, contrary to the literature, we show that an underdog candidate may be less aggressive than his opponent.
    Keywords: Contest, Rent-seeking, Sabotage, Negative campaigning, Turnout
    JEL: D74 D72 C72
    Date: 2005–10
  4. By: Maggi, Giovanni; Rodriguez-Clare, Andres
    Abstract: We develop a model where trade agreements - in addition to correcting terms-of-trade externalities - help governments to commit vis-a-vis domestic industrial lobbies. We explore how trade liberalization is affected by the characteristics of the political environment, such as the degree to which governments are politically motivated and the influence of lobbies during the negotiation of the agreement. We find that governments may prefer to commit to tariff ceilings, rather than exact tariff levels. We also find that trade liberalization is deeper when capital is more mobile across sectors. In a dynamic extension of the model, the optimal agreement entails an immediate slashing of tariffs followed by a phase of gradual trade liberalization. In the gradual phase, the speed of liberalization is higher when capital is more mobile.
    Keywords: domestic commitment; lobbying; trade agreements
    JEL: D72 F13
    Date: 2005–10
  5. By: Robinson, James A; Torvik, Ragnar
    Abstract: Why do soft budget constraints exist and persist? In this paper we argue that the prevalence of soft budget constraints can be best explained by the political desirability of softness. We develop a political economy model where politicians cannot commit to policies that are not ex post optimal. We show that because of the dynamic commitment problem inherent in the soft budget constraint, politicians can in essence commit to make transfers to entrepreneurs that otherwise they would not be able to do. This encourages such entrepreneurs to vote for them. Though the soft budget constraint may induce economic inefficiency, it may be politically rational because it influences the outcomes of elections. In consequence, even when information is complete, politicians may fund bad projects that they anticipate they will have to bail out in the future.
    Keywords: development; investment; political economy
    JEL: H20 H50 O20
    Date: 2005–10
  6. By: Alberto Alesina; Guido Tabellini
    Abstract: Many countries, especially developing ones, follow procyclical fiscal policies, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less-than-benevolent government to appropriate rents. Voters have incentives similar to the "starving the Leviathan" classic argument, and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well. We test this argument against more traditional explanations based purely on borrowing constraints, with a reasonable amount of success.
    JEL: H30 H60
    Date: 2005
  7. By: Tito Boeri; Guido Tabellini
    Date: 2005–10–26
  8. By: Christos Kotsogiannis; Robert Schwager
    Abstract: Conventional wisdom has it that policy innovation is better promoted in a federal rather than in a unitary system. Recent research, however, has provided theoretical evidence to the contrary: a multi-jurisdictional system is characterized - due to the existence of a horizontal information externality - by under-provision of policy innovation. This paper presents a simple model that introduces political competition for federal office. Under such competition political actors use the innovative policies in order to signal ability to the electorate. In the equilibrium analyzed policy innovation may occur more frequently than in a unitary system. It is thus shown that, once electoral motives are accounted for, the conventional wisdom is likely to be a valid proposition.
    Keywords: fiscal federalism, policy innovation, policy experimentation
    JEL: H77 R59
    Date: 2005
  9. By: Jim Malley; Apostolis Philippopoulos; Ulrich Woitek
    Abstract: In this paper we study the link between elections, fiscal policy and aggregate fluctuations. The set-up is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re-election shocks. The later are incorporated via a two-party model with elections. The main theoretical prediction is that forward-looking incumbents, with uncertain prospects of re-election, find it optimal to follow relatively shortsighted fiscal policies, and that this hurts capital accumulation. Our econometric estimation, using U.S. data, finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes.
    Keywords: political uncertainty, business cycles & growth, optimal policy, hybrid maximum likelihood estimation
    JEL: D90 E60 H10 H50
    Date: 2005
  10. By: Alessandra Casella; Thomas Palfrey; Raymond Riezman
    Abstract: The paper studies a simple voting system that has the potential to increase the power of minorities without sacrificing aggregate efficiency. Storable votes grant each voter a stock of votes to spend as desired over a series of binary decisions. By accumulating votes on issues that it deems most important, the minority can win occasionally. But because the majority typically can outvote it, the minority wins only if its strength of preference is high and the majority’s strength of preference is low. The result is that with storable votes, aggregate efficiency either falls little or in fact rises. The theoretical predictions of our model are confirmed by a series of experiments: the frequency of minority victories, the relative payoff of the minority versus the majority, and the aggregate payoffs all match the theory.
    JEL: D70
    Date: 2005
  11. By: Luigi Marengo; Corrado Pasquali
    Abstract: Social choice models usually assume that choice is among pre-defined, uni-dimensional and "simple" objects. Very often, on the contrary, choice is among multi-featured and "complex" objects: a candidate in an election stands for an electoral programme which is a complex bundle of many interdependent political positions on a wide variety of issues. Also in committees and organizations of various sorts collective choices are most often made among policy "bundles" and authorities can act upon the pre-choice stage of construction of such bundles. This pre-choice power of alternatives construction may grant authorities a highly effective device to influence the outcome of social choice even when the latter is totally free and democratic. In this paper we propose a model which investigates within a simple majority vote framework the role of the object construction power, an analogous to the agenda power. Even when object construction is simply defined as the possibility of assembling and dis-assembling a fixed set of choice components into bundles, we show that, under rather general conditions, it can radically change the outcome of the majority voting process. In particular we show that any set of bundles (that we call "choice modules") is associated to a set of possible social outcomes which can be attained depending upon the initial conditions. Moreover we shows that also Condorcet-Arrow cycles can appear or disappear depending upon which set of modules is chosen.
    Date: 2005–11–24
  12. By: Christoph Vanberg (Max Planck Institute of Economics)
    Abstract: Arguably the most important campaign finance regulations in U.S. federal elections are limits imposed on the amount that an individual or organization may donate to a federal campaign. Such contribution limits are advocated on two separate grounds. The first is that they prevent corruption, the second is that they democratize the financing of campaigns by equalizing the relative influence of donors. According to the latter argument, an equalization of donor influence is desirable because it causes campaign resources to more accurately reflect public support for candidates and their political ideas. I construct a formal model to illustrate this equalization argument in support of contribution limits. The analysis calls attention to a number of implicit assumptions underlying the corresponding money primary analogy for campaign fund-raising. The central assumption is that a candidate’s reliance on large contributions is an indicator of negative characteristics not revealed through her campaign communication. The model also suggests a method for testing this assumption, as it implies a negative relationship between a candidate’s reliance on large contributions and her electoral success. Using data on elections to the House of Representatives between 1990 and 2002, I find no evidence that such a negative relationship exists. This empirical result casts doubt on the equalization argument in support of campaign contribution limits.
    Keywords: Elections, Campaign Contributions, Speech, Signaling, Campaign Advertising, Corruption, Inequality, Equality, First Amendment, Buckley
    JEL: D6 D7 H
    Date: 2005–12–01
  13. By: Boerner, Kira
    Abstract: In many countries, governments involve interest groups at early stages of political decisionmaking. The idea of this is to enhance the legitimacy of the policy decision and to curb later opposition to the implementation of the policy. We show that the way and timing of interest groups involvement can be crucial for the scope and success of policy reforms. When interest groups influence both the policy choice, or legislation, and the subsequent decision on the implementation of the policy, their early involvement may lead them to oppose the reform more than if they had been excluded from the legislation stage.
    JEL: H51 D78 D72
  14. By: Acemoglu, Daron; Johnson, Simon; Robinson, James A; Yared, Pierre
    Abstract: We revisit one of the central empirical findings of the political economy literature that higher income per capita causes democracy. Existing studies establish a strong cross-country correlation between income and democracy, but do not typically control for factors that simultaneously affect both variables. We show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and various measures of democracy. We also present instrumental-variables estimates using two different strategies. These estimates also show no causal effect of income on democracy. Furthermore, we reconcile the positive cross-country correlation between income and democracy with the absence of a causal effect of income on democracy by showing that the long-run evolution of income and democracy is related to historical factors. Consistent with this, the positive correlation between income and democracy disappears, even without fixed effects, when we control for the historical determinants of economic and political development in a sample of former European colonies.
    Keywords: democracy; economic growth; institutions; political development
    JEL: O10 P16
    Date: 2005–10
  15. By: Benno Torgler (Leitner Program in International & Comparative Political Economy); Maria A. Garcia-Valiñas (University of Oviedo)
    Abstract: This paper investigates empirically the determinants of individuals’ attitudes towards preventing environmental damage in Spain using data from the World Values Survey and European Values Survey for the periods 1990, 1995 and 1999/2000. Compared to many previous studies, we present a richer set of independent variables and found that strongly neglected variables such as political interest and social capital have a strong impact on individuals’ preferences to prevent environmental damage. An interesting aspect in our study is the ability to investigate environmental preferences over time. The results show strong differences over time. Finally, using disaggregated data for Spanish regions, we also find significant regional differences.
    Keywords: Environment, Regional and time preferences, Political interest, Social capital
    JEL: Q26 R22 Z13 I21
    Date: 2005–09
  16. By: Feijen, Erik; Perotti, Enrico C
    Abstract: While financial liberalization has in general favourable effects, reforms in countries with poor regulation is often followed by financial crises. We explain this variation as the outcome of lobbying interests capturing the reform process. Even after liberalization, market investors must rely on enforcement of investor protection, which may be structured so as to block funding for new entrants, or limit their access to refinance after a shock. This forces inefficient default and exit by more leveraged entrepreneurs, protecting more established producers. As a result, lobbying may deliberately worsen financial fragility. After large external shocks, borrowers from the political elite in very corrupt countries may successfully lobby for weak enforcement, and retain control of collateral. We provide evidence that industry exit rates and profit margins after banking crises are higher in the most corrupt countries.
    Keywords: entry; exit; financial crises; inequality; political economy; refinancing; strategic default
    Date: 2005–10
  17. By: Astri Muren; Sten Nyberg
    Abstract: The paper examines the impact of income inequality and mobility on income redistribution in a modified median voter model where redistributive conflict takes place both between educational groups and age-groups. The effects of inequality and mobility are not unambiguous but depend on factors such as how mobility changes in different groups and causes of inequality. We also examine the effect of the length of electoral periods on redistribution and welfare for different groups and allow for majority voting on the length of electoral periods. Finally, we extend the model to encompass retirement and baby booms.
    Keywords: inequality, mobility, income redistribution, median voter, age-earnings profiles
    JEL: D31 D72 H20 J31 P16
    Date: 2005
  18. By: Jeffrey Milyo (Department of Economics, University of Missouri-Columbia); David M. Primo
    Abstract: Scholars have proposed many routes by which campaign finance laws may impact turnout. For instance, laws restricting campaign spending may decrease mobilization, resulting in lower turnout. Alternatively, such laws might increase the competitiveness of elections, resulting in higher turnout. Existing studies tend to focus on only one causal pathway, ignoring the net effects of campaign finance reforms on voter turnout. We exploit the variation in state campaign finance laws from 1950 to 2000 in order to estimate the reduced-form relationships between reform and turnout. Using both aggregate and individual-level data, we find that campaign finance laws on net have little impact on turnout in gubernatorial elections. There are two exceptions to this finding: Limits on organizational contributions are shown in an individual level analysis to increase turnout prior to a sea change in campaign finance ushered in by the Buckley v. Valeo decision in 1976, while public financing laws are shown to have an equally large negative impact on turnout in the post-Buckley era. These results strengthens the existing literature, which finds similarly perverse effects of public financing on the “quality of democracy,” and demonstrates the advantages of reduced-form analysis for understanding the influence of laws on behavior.
    Keywords: voting, campaign finance
    JEL: D72 H79 K39
    Date: 2005–11–28
  19. By: Josef Falkinger; Volker Grossmann
    Abstract: This paper develops a model in which the interaction of entrepreneurial investments and power of the owners of land or other natural resources determines structural change and economic development. A more equal distribution of natural resources promotes structural change and growth through two channels: First, by weakening oligopsony power of owners and thereby easing entrepreneurial investments for credit-constrained individuals whose investment possibilities depend on their income earned in the primary goods sector. Second, by shifting the distribution of political power from resource owners towards the entrepreneurial elite, resulting in economic policy and institutions which are more conducive to entrepreneurship and productivity progress. We argue that these hypotheses are consistent with a large body of historical evidence from the Americas and with evidence on transition economies.
    Keywords: credit constraints, distribution, economic development, entrepreneurship, institutions, oligopsony power, political elites
    JEL: H50 O10
    Date: 2005
  20. By: Kelly, Morgan
    Abstract: This paper models corruption as optimal parasitism in organizations where teams of agents are weakly restrained by principals. Each agent takes on part of the role of principal, choosing how much to invest in policing to repress corruption in others and how rapaciously to act when unpoliced opportunities arise. This simple model can incorporate many factors stressed in empirical analyses of corruption, and gives rise to a wide variety of equilibria. Allowing income to co-evolve with corruption, we show how adding corruption to a textbook exogenous growth model leads to a Lucas paradox. When income and corruption affect each other sufficiently strongly, economies converge to two corner equilibria despite diminishing returns to capital: a rich, clean corner and a poor, corrupt one; a pattern that appears to characterize international data.
    Keywords: corruption; growth
    JEL: O17 O40
    Date: 2005–10
  21. By: Fabrizio De Filippis (University “Roma Tre”); Valeria Costantini (University “Roma Tre”); Riccardo Crescenzi (University “Roma Tre”); Luca Salvatici (University of Molise)
    Abstract: The paper aims at understanding the structural features of the bargaining coalitions in the Doha Round of the WTO. We provide an empirical assessment of the preferences of each negotiating actor looking at general economics indicators, development levels, structure of the agricultural sectors, and trade policies for agricultural products. Bargaining coalitions are analyzed by grouping countries through a cluster analysis procedure. The clusters are compared with existing coalitions, in order to assess their degree of internal homogeneity as well as their common interests. Such a comparison allows the detection of possible “defectors”, i.e. countries that according to their economic conditions and policies seem to be relatively less committed to the positions of the coalition they join.
    Keywords: Agricultural trade negotiations, Bargaining coalitions, WTO, Cluster analysis
    JEL: F13 Q17
    Date: 2005–07

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