nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒01‒24
35 papers chosen by
Eugene Beaulieu
University of Calgary

  1. Lobbying and agricultural trade policy in the United States By Hoekman, Bernard; Gawande, Kishore
  2. The Positive Political Economy of Instrument Choice in Environmental Policy By Stavins, Robert; Keohane, Nathaniel; Revesz, Richard
  3. The Political Economy of %u201CTruth-in-Advertising%u201D Regulation During the Progressive Era By Zeynep Hansen; Marc T. Law
  4. Re-election Incentives and the Sustainability of International Cooperation By Conconi, Paola; Sahuguet, Nicolas
  5. Political Parties and Network Formation By Topi Miettinen; Panu Poutvaara
  6. How Elections Matter: Theory and Evidence from Environmental Policy By John A., List; Daniel, Sturm
  7. Political Competition and Economic Performance: Theory and Evidence from the United States By Besley, Timothy; Persson, Torsten; Sturm, Daniel
  8. Welfare Restructuring without Partisan Cooperation: The Role of Party Collusion in Blame Avoidance By Martin Hering
  9. Let Them Burn Money: Making Elections More Informative By Colin Campbell
  10. Sticking with Your Vote: Cognitive Dissonance and Voting By Sendhil Mullainathan; Ebonya Washington
  11. The Political Economy of Housing Supply By François Ortalo-Magné; Andrea Prat
  12. Pluralism and Regulatory Failure: When Should Takings Trigger Compensation? By Brennan, Timothy; Boyd, James
  13. Enlargement and the Balance of Power: an Experimental Study By Maria Montero; Martin Sefton; Ping Zhang
  14. Political bias and war By Jackson, Matthew O.; Morelli, Massimo
  15. The Political Economy of Corporate Control By Enrico Perotti; Ernst-Ludwig von Thadden
  16. Voting over informal risk-sharing rules By Ambec, S.
  17. The Political Economy of Environmental Policy By Portney, Paul; Oates, Wallace
  18. Candidate location and endogenous valence By Zakharov Alexei
  19. How Trade Politics Affect Invasive Species Control By Margolis, Michael; Shogren, Jason
  20. The Political Economy of Financial Fragility By Erik Feijen; Enrico Perotti
  21. How Black Candidates Affect Voter Turnout By Ebonya Washington
  22. Modeling Inefficient Institutions By Daron Acemoglu
  23. Determinants of Revolt: Evidence from Survey and Laboratory Data By KLAUS ABBINK; SILVIA PEZZINI
  24. Determinants of regional integration agreements in a discrete choice framework: Re-Examining the evidence By Celestino Suárez-Burgnet; Inmaculada Martínez-Zarzoso; Laura Márquez-Ramos
  25. Party Governance and the Selection of Parliamentarians By Klaas J. Beniers
  26. Mapping the Irish Policy Space:Voter and Party Spaces in Preferential By Ken Benoit; Michael Laver
  27. Social mobility and endogenous cycles in redistribution By Francesco Zollino
  28. Inter-Regional Redistribution in Sweden: A Survey of the Literature and a Call for Further Enquiry By Almenberg, Johan
  29. Policy Volatility, Institutions and Economic Growth By Fatás, Antonio; Mihov, Ilian
  30. Female Socialization: How Daughters Affect Their Legislator Fathers' Voting on Women's Issues By Ebonya Washington
  31. Electoral Rules and Government Spending in Parliamentary Democracies By Torsten Persson; Gerard Roland; Guido Tabellini
  32. The Role of Equality and Efficiency in Social Preferences By Fehr, Ernst; Naef, Michael; Schmidt, Klaus M.
  33. Getting on the Map: The Political Economy of State-Level Electricity Restructuring By Palmer, Karen; Ando, Amy
  34. Public Support for Pollution Fee Policies for Motor Vehicles: Survey Results By Krupnick, Alan; Harrington, Winston; Alberini, Anna
  35. Household Inequality, Welfare, and the Setting of Trade Policy By Joseph Francois; Hugo Rojas-Romagosa

  1. By: Hoekman, Bernard; Gawande, Kishore
    Abstract: The authors study whether political campaign contributions influence agricultural protection in the United States in the manner suggested by the political economy model of Grossman and Helpman (1994). This is the first attempt to test this model using agricultural data. The authors test the model using a detailed cross-sectional data set of agricultural protection, subsidies, and political action committee (PAC) contributions in the late 1990s. The model is qualitatively affirmed by the data. They make a novel attempt to solve a puzzle about the model ' s quantitative implications, also found in recent studies. This solution makes the simple model consistent with the complicated decisionmaking process in real world government. The results imply the underpinnings of a political economy equilibrium that will be hard to dislodge.
    Keywords: Economic Theory & Research,Free Trade,Consumption,Markets and Market Access,Technology Industry
    Date: 2006–01–01
  2. By: Stavins, Robert; Keohane, Nathaniel; Revesz, Richard
    Abstract: In the realm of environmental policy instrument choice, there is great divergence between the recommendations of normative economic theory and positive political reality. Four gaps stand out. First, despite the advantages of market-based policy instruments, they have been used to a minor degree, compared with conventional, command-and-control instruments. Second, pollution-control standards have typically been much more stringent for new than for existing sources, despite the inefficiency of this approach. Third, in the few instances in which market-based instruments have been adopted, they have nearly always taken the form of grandfathered tradeable permits, rather than auctioned permits or pollution taxes, despite the advantages in some situations of these other instruments. Fourth, the political attention given to market-based environmental policy instruments has increased dramatically in recent years. We search for explanations for these four apparent anomalies by drawing upon intellectual traditions from economics, political science, and law. We find that all fit quite well within an equilibrium framework, based upon the metaphor of a political market. In general, explanations from economics tend to refer to the demand for environmental policy instruments, while explanations from political science refer to the supply side. Overall, we find that there are compelling theoretical explanations for the four apparent anomalies, although these theories have yet to be empirically verified.
  3. By: Zeynep Hansen; Marc T. Law
    Abstract: This paper explores the origins and impact of "truth-in-advertising" regulation during the Progressive era. Was advertising regulation adopted in response to rent-seeking on the part of firms who sought to limit the availability of advertising as a competitive device? Or was advertising regulation desired because it furnished a mechanism through which firms could improve the credibility of advertising? We find the available qualitative and quantitative evidence to be more consistent with the latter hypothesis.
    JEL: M37 K20 N41 N42
    Date: 2006–01
  4. By: Conconi, Paola; Sahuguet, Nicolas
    Abstract: This paper examines the impact of policy-makers' horizons on the sustainability of international cooperation. We describe a prisoners' dilemma game between two infinitely-lived organizations (countries) run by agents (policy-makers) with a shorter tenure. The agents' mandates are finite but potentially renewable and staggered across different organizations. We show that the efficient cooperative equilibrium is only sustainable when policy-makers are re-electable. Moreover, re-election incentives can act as a discipline device, making it easier to sustain cooperation between policy-makers with renewable mandates than between policy-makers who are automatically re-elected. However, if the chances of re-election depend significantly on recent performance, policy-makers will collude to get re-elected. In this case, term limits may help to sustain international cooperation.
    Keywords: overlapping generations; re-election incentives; self-enforcing cooperation
    JEL: C72 D72 F0
    Date: 2005–12
  5. By: Topi Miettinen (University College London and University of Helsinki); Panu Poutvaara (University of Helsinki and IZA Bonn)
    Abstract: We argue that anti-corruption laws may provide an efficiency rationale for why political parties should meddle in the distribution of political nominations and government contracts. Anticorruption laws forbid trade in spoils that politicians distribute. However, citizens may pay for gaining access to politicians and, thereby, to become potential candidates for nominations. Such rent-seeking results in excessive network formation. Political parties may reduce wasteful network formation, thanks to their ability to enter into exclusive membership contracts. This holds even though anti-corruption laws also bind political parties.
    Keywords: political parties, two-sided platforms, rent-seeking, network formation
    JEL: D72 D85 L14
    Date: 2006–01
  6. By: John A., List; Daniel, Sturm
    Abstract: This paper explores to what extent secondary policy issues are infuenced by electoral incentives. We develop a two dimensional political agency model in which a politician decides on both a frontline policy issue and a secondary policy issue. The model predicts when the incumbent should manipulate the secondary policy to attract voters. We test our model by using panel data on environmental policy choices in the U.S. states. In contrast to the popular view that secondary policies are largely determined by lobbying, we find strong effects of electoral incentives.
    JEL: Q58 H72 D72
    Date: 2005–11
  7. By: Besley, Timothy; Persson, Torsten; Sturm, Daniel
    Abstract: We formulate a model to explain why the lack of political competition may stifle economic performance and use the United States as a testing ground for the model?s predictions, exploiting the 1965 Voting Rights Act which helped break the near monpoly on political power of the Democrats in southern states. We find statistically robust evidence that changes in political competition have quantitatively important effects on state income growth, state policies, and quality of Governors. By our bottom-line estimate, the increase in political competition triggered by the Voting Rights Act raised long-run per capita income in the average affected state by about 20 percent.
    JEL: N12 H70 H11 D72
    Date: 2005–11
  8. By: Martin Hering
    Abstract: This article argues that welfare state restructuring, which is highly unpopular among voters, is politically feasible if government and opposition parties collude informally with each other. Contrary to key arguments made in the literature, restructuring does not require the formation of a formal grand coalition which diffuses blame from voters. Party collusion is a distinctive blame-avoiding strategy that differs not only from other party-oriented strategies such as building a grand coalition, but also from voter-oriented ones. By analyzing the politics of pension reform in Germany from 1995 to 2004, this article shows that party collusion, which emerges through repeated signaling and informal agreements, enables political parties to restructure the welfare state without running the risk of electoral failure. Finally, it suggests that collusion likely explains recent successes of Austrian, French and Italian governments in legislating unpopular welfare cutbacks.
    Keywords: political parties, blame avoidance, collusion, welfare state, pension policy
    JEL: D72 D78 H53 H55 J26
    Date: 2005–11
  9. By: Colin Campbell (Rutgers University)
    Abstract: A standard election in which each voter chooses a single alternative permits voters little scope to express the intensity of their preferences. Allowing more complex statements of preferences may not alleviate the problem if voters behave strategically, as only certain statements are credible. I consider the implications of allowing voters to burn money as part of the voting procedure. In an environment with two alternatives and voters with interdependent values, I find necessary and sufficient conditions for all choice functions that are minimally responsive to voter preferences to be implementable with money burning. Furthermore, I show that any choice rule that treats ex-ante identical voters symmetrically can be implemented with an arbitrarily small amount of money burnt per voter as the set of voters is replicated. Thus, for a large electorate, the informational gains of money burning can be reaped at virtually no social cost.
    Keywords: Elections; Voting Mechanisms; Interdependent Values; Information Aggregation;
    JEL: D80
    Date: 2005–11–15
  10. By: Sendhil Mullainathan; Ebonya Washington
    Abstract: In traditional models, votes are an expression of preferences and beliefs. Psychological theories of cognitive dissonance suggest, however, that behavior may shape preferences. In this view, the very act of voting may influence political attitudes. A vote for a candidate may lead to more favorable interpretations of his actions in the future. We test the empirical relevance of cognitive dissonance in US Presidential elections. The key problem in such a test is the endogeneity of voter choice which leads to a mechanical relationship between voting and preferences. We use the voting age restrictions to help surmount this difficulty. We examine the Presidential opinion ratings of nineteen and twenty year olds two years after the President's election. Consistent with cognitive dissonance, we find that twenty year olds (who were eligible to vote in the election) show greater polarization of opinions than comparable nineteen year olds (who were ineligible to vote). We rule out that aging drives these results in two ways. First, we find no polarization differences in years in which twenty and nineteen year olds would not have differed in their eligibility to vote in the prior Presidential election. Second, we show a similar effect when we compare polarization (for all age groups) in opinions of Senators elected during high turnout Presidential campaign years with Senators elected during low turnout non-Presidential campaign years. Thus we find empirical support for the relevance of cognitive dissonance to voting behavior. This finding has at least three implications for the dynamics of voting behavior. First, it offers a new rationale for the incumbency advantage. Second, it suggests that there is an efficiency argument for term limits. And finally, our results demonstrate that efficiency may not be increasing in turnout level.
    JEL: D0 H0
    Date: 2006–01
  11. By: François Ortalo-Magné; Andrea Prat
    Date: 2005–12–31
  12. By: Brennan, Timothy (Resources For the Future); Boyd, James (Resources For the Future)
    Abstract: The paper evaluates the desirability of compensation for regulatory takings. To do so, we describe a public choice model in which regulators' decisions are influenced by competing political interests. We consider how the political incentives of landowners, environmentalists, and taxpayers are affected by alternative compensation rules and in turn describe the regulatory decisions made in such a pluralistic political environment. Modeling the regulator's incentives in this way leads to the conclusion that compensation should not be paid unless environmentalists and property owners have unequal influence politically. Moreover, the model has several counter-intuitive implications when political influence is not balanced. For instance, if environmentalists are disenfranchised they should support compensation, since it reduces property owner opposition to regulation. In contrast, if environmentalists wield disproportionate influence, penalizing rather than compensating landowners can induce more efficient regulation by stimulating landowner opposition. The analysis emphasizes the deadweight social costs of compensation and the desirability of compensation rules conditioned on both diminished land value and irreversible landowner investments.
  13. By: Maria Montero (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham); Ping Zhang (School of Economics, University of Nottingham)
    Abstract: Many important decisions are taken according to weighted majority rule. Power indices predict that enlargement of the voting body may affect the balance of power between the original members even if their number of votes and the decision rule remain constant. Some of the existing voters may actually gain, a phenomenon known as the paradox of new members. We test for this effect using laboratory experiments. Participants propose and vote on how to divide a budget according to weighted majority voting rules, and we measure the voting power of a player by his average payoff in the experiment. By comparing voting power across voting bodies of varying size, we find empirical support for the paradox of new members. Our results also allow an assessment of the predictive performance of standard power indices.
    Keywords: voting, power indices, experiments, paradox of new members
    JEL: C70 C92
    Date: 2005–07
  14. By: Jackson, Matthew O.; Morelli, Massimo
  15. By: Enrico Perotti (Universiteit van Amsterdam); Ernst-Ludwig von Thadden (Mannheim Universität)
    Abstract: In a democracy, a political majority can influence both the corporate governance structure and the return to human and financial capital. We argue that when financial wealth is sufficiently diffused, there is political support for a strong governance role for dispersed equity market investors, and low labor rents. When financial wealth is concentrated, a political majority prefers high labor rents and a stronger governance role for banks or large investors, even at the cost of profits. The intuition is that labor claims are exposed to undiversifiable risk, so voters with low financial stakes prefer investors who choose lower risk strategies. The model may explain the 'great reversal' phenomenon in the first half of the 20th century (Rajan and Zingales, 2003). We argue that in several financially developed countries a financially weakened middle class became concerned about labor income risk associated with free markets and supported a more corporatist financial system. We offer suggestive evidence using post WW1 inflationary shocks as the source of identifying exogenous variation.
    Keywords: Corporate governance; political economy; bank control; investor protection
    JEL: G2 G3 P16
    Date: 2005–11–14
  16. By: Ambec, S.
    Abstract: People vote over risk-sharing rules to cope with random revenues. Risk-sharing rules are enforced through peer pressure : those who comply exert a negative externality on those who do not. People are differently affected by this externality. The author determines the elected risk-sharing rules and the level of compliance. It turns out that full risk-sharing is achieved only if everybody complies. Partial risk-sharing is more often achieved with, sometime, some level of non-compliance. In many cases, a majority of people votes over and complies with the risk-sharing rule that maximizes their own expected payoff.
    JEL: H21 O15 O17
    Date: 2005
  17. By: Portney, Paul; Oates, Wallace (Resources For the Future)
    Abstract: This paper provides a review and assessment of the extensive literature on the political determination of environmental regulation. A promising theoretical literature has emerged relatively recently that provides models of the political interaction of government with various interest groups in the setting of environmental standards and the choice of regulatory instruments. A large empirical literature supports such models, finding evidence of the influence of interest groups but also evidence that net social benefits are often an important determinant of environmental policy choices. We then take up the issue of environmental federalism and the large and growing theoretical literature that addresses the competitive “race to the bottom.” The paper concludes with a brief look at the evolution of environmental policy and finds that economics has come to play a growing role both in the setting of standards for environmental quality and in the design of regulatory measures.
    Keywords: environmental regulation, environmental management, environmental policy
    JEL: Q2 H1
  18. By: Zakharov Alexei
    Abstract: This paper analyzes the effect that the ability of candidates to increase their valence has on candidate location in the Downsian model of elections. I show that if the candidates can increase valence at a cost after they have selected policy, then the candidates will select different policy platforms in order to avoid spending too much on valence. I then consider the factors that determine the degree of divergence, the amount spent on valence, and the location of the indifferent voter.
    Keywords: Russia, valence, policy divergence, candidate equilibrium, median voter
    JEL: D72
    Date: 2005–12–29
  19. By: Margolis, Michael; Shogren, Jason
    Abstract: Trade has become the main mode of transport for many invasive species including diseases and agricultural pests. Most species are brought to their new homes unintentionally, which constitute a market failure rooted in international trade. Unless it is practical to drive invasion risk to zero, the external costs may justify a tariff. In this paper we analyze the political process likely to govern the formation of tariffs so justified, using a straightforward incorporation of an invasive species externality into Grossman and Helpman’s well-known political economy model. We show our measure of disguised protectionism—the gap between the optimal tariff and that set in the equilibrium of the political economy game—is equal to the tariff that would be set if there were no invasive species and no international disciplines on trade policy. The informational needs required to distinguish disguised protectionism from legitimate public-goods protection are formidable.
    Keywords: invasive species, protectionism, tariff, political economy
    JEL: Q17 Q56 Q57
  20. By: Erik Feijen (University of Amsterdam); Enrico Perotti (University of Amsterdam, World Bank, and CEPR)
    Abstract: While financial liberalization has in general favorable 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: Politics; Lobbying; Financial Development; Investor protection
    JEL: G21 G28 G32
    Date: 2005–12–15
  21. By: Ebonya Washington
    Abstract: Both Black and White voter turnout increases 2-3 percentage points with each Black Democrat on the ballot. Given the groups' representations in the population, the White response is numerically greater. Whites of both parties are less likely to vote for their parties' candidate when s/he is Black. The turnout findings are not explained away by voter, election, or politician characteristics. However the fact that there is no turnout response to Black Republicans suggests that a perception of Blacks' ideology may be a factor.
    JEL: H0 J15
    Date: 2006–01
  22. By: Daron Acemoglu
    Abstract: Why do inefficient  non-growth enhancing  institutions emerge and persist? This paper develops a simple framework to provide some answers to this question. Political institutions determine the allocation of political power, and economic institutions determine the framework for policy-making and place constraints on various policies. Groups with political power, the elite, choose policies to increase their income and to directly or indirectly transfer resources from the rest of society to themselves. The baseline model encompasses various distinct sources of inefficient policies, including revenue extraction, factor price manipulation and political consolidation. Namely, the elite may pursue inefficient policies to extract revenue from other groups, to reduce their demand for factors, thus indirectly benefiting from changes in factor prices, and to impoverish other groups competing for political power. The elite’s preference over inefficient policies translates into inefficient economic institutions. Institutions that can restrict inefficient policies will in general not emerge, and the elite may manipulate economic institutions in order to further increase their income or facilitate rent extraction. The exception is when there are commitment (holdup) problems, so that equilibrium taxes and regulations are worse than the elite would like them to be from an ex ante point of view. In this case, economic institutions that provide additional security of property rights to other groups can be useful. The paper concludes by providing a framework for the analysis of institutional change and institutional persistence.
    JEL: H2 N10 N40 O1 O10 P16
    Date: 2006–01
  23. By: KLAUS ABBINK (University of Nottingham); SILVIA PEZZINI (London School of Economics, University of Namur)
    Abstract: This paper examines determinants of revolutionary behaviour. We study the role of freedom of communication, repression of opposition and the government’s selfishness. Combining econometric analysis of survey data with a laboratory experiment, we analyse how these factors affect preferences for revolt and revolutionary action. We introduce an experimental game capturing essential features of a dictatorship. The results show that the feeling that the government operates selfishly increases both revolutionary preferences and actions. Political repression and lack of communication freedom increase revolutionary attitudes but decrease actual opposition, consistent with the collective action problem faced by opposition to a dictatorship.
    Keywords: Conflict, revolutions, experimental economics, surveys
    JEL: C23 C92 D74 H11
    Date: 2005–02
  24. By: Celestino Suárez-Burgnet; Inmaculada Martínez-Zarzoso; Laura Márquez-Ramos
    Abstract: This paper provides new empirical evidence on the determinants of regional integration agreements (RIAs) in a discrete choice modelling framework. The research has two main aims: first, to empirically analyse the determinants of different levels of integration, re-examining the evidence presented by Baier and Bergstrand (2004) in the JIE 64 (1); and second, to analyse the importance of additional factors, in particular socio-political factors. The results show that geographical factors alone are the most important explanatory factors for the probability of regional integration agreement formation or enhancement, thus supporting the theories on "natural" trading partners. The socio-political factors considered, democracy dummy, the level of economic freedom and the common language dummy are all statistically significant, although their relative importance in explaining RIA formation is low.
  25. By: Klaas J. Beniers (Faculty of Economics, Erasmus Universiteit Rotterdam)
    Abstract: This paper examines the incentives for a party leader in office and for a parties' rank-and-file to replace a sitting member of parliament. As to the leader's decision, we show that the leader prefers to replace a critical member of parliament who votes against the leader's policy. A competent leader designing efficient policies replaces a critical member since the member is unable to evaluate policies. A critical member may also have discovered a policy failure if the leader designs inefficient policies. In that case, the leader infers that the critical member has the ability to learn the quality of policies. An incompetent leader who cares about his reputation rather prefers that the member of parliament is incompetent. To reduce the risk that a future policy failure is discovered, an incompetent leader therefore replaces a critical member and keeps a member who supports the inefficient policy.<p>
    Keywords: members of parliament; party governance; political parties; candidate selection; legislative turnover
    JEL: D72 D78
    Date: 2005–08–10
  26. By: Ken Benoit; Michael Laver
    Abstract: In this note we map the Irish policy space, locating both voters and parties on the most salient policy dimensions in Ireland. Estimates of the voter locations are based on the Irish National Election Survey (INES), conducted in 2002. Estimates of the party positions are based on an expert survey of party positions conducted by the authors in late 2002. We show that respondent self-placements on a priori policy scales are highly biased and difficult to interpret, and we rely instead on building scale positions for respondents from their answers to relevant attitude questions in the INES. The results provide a methodological template for locating voters and parties in a common space – a significant problem for any analyst who wants to create an empirical elaboration of a spatial model of party competition.
    Date: 2005–12–15
  27. By: Francesco Zollino (Banca d'Italia)
    Abstract: By allowing median voter’s location and preferred policy to change over time, a variety of redistributive policies results in the long-run with no unique relationship to inequality. Single outcome depends on the interaction between the pure economic structure and policy action in determining wealth distribution over time. The standard positive correlation between redistribution and inequality is confirmed when the pattern of social mobility, potentially prevailing in a free market, proves robust to public action. Otherwise the non-linear relationship found in recent literature is confirmed. With balanced intensity of backward and upward mobility in free market, policy cycles endogenously arise, with inequality shrinking and enlarging periodically and counter-cyclically.
    Keywords: social mobility, political cycle, credit rationing, redistributive policy
    JEL: D31 E62 I38 O41 P16
    Date: 2004–07
  28. By: Almenberg, Johan (Stockholm School of Economics)
    Abstract: The Swedish system for inter-regional redistribution is examined from a political economy perspective and a growth perspective. A number of recent Swedish studies of this system are examined. Political economy concerns are found to be adequately represented in academic studies of this system, while lacking, at least explicitly, in all the major relevant government reports. Growth implications of extensive inter-regional redistribution are found to be relatively neglected in both academic studies and government reports. In particular, the short-circuiting of labour mobility (and hence the impairment of long-term structural adjustment) is examined at both micro- and macroeconomic levels. It is concluded that extensive inter-regional redistribution is likely to have considerable effects on labour mobility. The author argues that this almost entirely overlooked effect is an important consideration in evaluating the costs and benefits of inter-regional redistribution, and calls for further enquiry into the matter.
    Keywords: Inter-regional redistribution; fiscal federalism; political economy; growth; labour force mobility
    JEL: D72 D78 E60 H11 H31 H71 H77 O18 R23 R58
    Date: 2006–01–11
  29. By: Fatás, Antonio; Mihov, Ilian
    Abstract: There is a significant controversy among academics and policy-makers about whether policies matter for economic growth. Recently, Acemoglu et al. (2003) and Easterly (2004) have presented empirical evidence against the commonly held view that policies play an important role in the process of economic development. Their key conclusion is that macroeconomic policies (monetary, fiscal and trade) have an explanatory power for the cross-country variation in growth rates and income per capita only because they serve as proxies for institutions. While we confirm their results using levels of policy variables (inflation and government spending), we present evidence that policy volatility exerts a strong and direct negative impact on growth. In a cross-section of 91 countries, policy volatility emerges as a key determinant of macroeconomic performance. An increase in the volatility of fiscal policy corresponding to one standard deviation in the sample reduces long-term economic growth by about 0.75 percentage points. Political institutions have a role to play to the extent that they shape policy outcomes.
    Keywords: fiscal policy; growth; institutions; macroeconomic volatility
    JEL: E60 H11 O11 O57
    Date: 2005–12
  30. By: Ebonya Washington
    Abstract: Economists have long concerned themselves with environmental influences, such as neighborhood, peers and family on individuals' beliefs and behaviors. However, the impact of children on parents' behavior has been little studied. Parenting daughters, psychologists have shown, increases feminist sympathies. I test the hypothesis that children, much like neighbors or peers, can influence adult behavior. I demonstrate that the propensity to vote liberally on reproductive rights is significantly increasing in a congress person's proportion of daughters. The result demonstrates not only the relevance of child to parent behavioral influence, but also the importance of personal ideology in a legislator's voting decisions as it is not explained away by voter preferences.
    JEL: H0 J16 D72
    Date: 2006–01
  31. By: Torsten Persson; Gerard Roland; Guido Tabellini
    Date: 2005–04–23
  32. By: Fehr, Ernst; Naef, Michael; Schmidt, Klaus M.
    Abstract: Engelmann and Strobel (AER 2004) question the relevance of inequity aversion in simple dictator game experiments claiming that a combination of a preference for efficiency and a Rawlsian motive for helping the least well-off is more important than inequity aversion. We show that these results are partly based on a strong subject pool effect. The participants of the E&S experiments were undergraduate students of economics and business administration who self-selected into their field of study (economics) and learned in the first semester that efficiency is desirable. We show that for non-economists the preference for efficiency is much less pronounced. We also find a non-negligible gender effect indicating that women are more egalitarian than men. However, perhaps surprisingly, the dominance of equality over efficiency is unrelated to political attitudes.
    Keywords: inequity aversion; preferences for efficiency; social preferences
    JEL: C7 C91 C92 D63 D64
    Date: 2005–12
  33. By: Palmer, Karen (Resources For the Future); Ando, Amy
    Abstract: Retail competition in electricity markets is expected to lead to more efficient electricity supply, lower electricity prices, more innovation by suppliers and a greater variety of electric power service packages. However, only a handful of states have currently gone so far as to pass legislation and/or make regulatory decisions to establish retail wheeling. This paper analyzes a variety of factors that may influence the rate at which legislators and regulators move towards establishing retail competition. In general, we find that where one interest group dominates others in the struggle for influence over the decision makers, the net effect seems to push a state forward more quickly when retail wheeling is expected to yield large efficiency gains.
  34. By: Krupnick, Alan (Resources For the Future); Harrington, Winston (Resources For the Future); Alberini, Anna
    Abstract: In this paper we report on the results of a telephone survey conducted in Southern California during August and September 1996. The purpose of the survey was to inform respondents about a set of rather complex pricing policies designed to reduce motor vehicle emissions and to estimate respondent support for those policies. After receiving extensive information about these policies, respondents were polled on whether they would support, i.e., vote for, any or all of these options. The pollution fee survey elicited support for a plan that levied a fee on vehicles in the region, depending on the vehicle's emissions per mile and on the miles driven. The sample was then split in two, with half the respondents being told that a portion of the revenues would be returned to the public in the form of reductions in motor vehicle fees or sales tax reductions, and half told that these returns would be made in the form of coupons. Nearly 40 percent of respondents agreed to support the base plan (42 percent of those expressing an opinion). More than 50 percent supported the fees with rebates, including support of 54 percent when all the available revenues are returned to the public (57 percent of the sample expressing an opinion). Support for the coupon policy was intermediate between the base and rebate policies, attracting 42 percent of the sample (45 percent of those expressing an opinion). Statistical analyses were performed on the data to explain the voting patterns observed. Generally, the levels of support were significantly affected by the design features of the plans, such as the size of the fee paid and the rebate, as well as by a host of socio-demographic and perceptual variables, such as ethnicity, age, political affiliation, expected efficacy of the policy, and the degree to which air pollution affects the respondent or his or her family. Examination of these statistical results may be useful in the development of pollution fee programs to present to the public, as well as in the design of public information campaigns and the allocation of marketing resources to win support for these programs.
  35. By: Joseph Francois; Hugo Rojas-Romagosa
    Abstract: We analyze general equilibrium relationships between trade policy and the household distribution of income, decomposing social welfare into real income level and variance components through Gini and Atkinson indexes. We embed these inequality-adjusted social welfare functions in a general equilibrium structure mapping from tariff protection to household inequality. This yields predictions regarding the linkages between trade protection, country characteristics and inequality in Heckscher-Ohlin and Ricardo-Viner frameworks. In addition, we can separate the efficiency and equity effects of tariffs on welfare. We then examine endogenous tariff formation when policy makers care about both equity and special interests.
    Keywords: trade policy, household distribution of income, Atkinson index, Gini index, political econom
    JEL: F13 O15 D31 D72
    Date: 2005–12–15

This nep-pol issue is ©2006 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.