nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒02‒05
seven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Trade, inequality, and the political economy of institutions By Levchenko, Andrei A.; Do, Quy-Toan
  2. Heterogenous Groups and Rent-Seeking for Public Goods By Cheikbossian, Guillaume
  4. Governance, Democracy and Poverty Reduction: Lessons drawn from household surveys in sub-Saharan Africa and Latin America By Javier Herrera; Mireille Razafindrakoto; Francois Roubaud
  5. The Median Voter and the Median Consumer: Local Private Goods and Residential Sorting By Joel Waldfogel
  6. Bureaucratic Rents and Life Satisfaction By Simon Luechinger; Stephan Meier; Alois Stutzer
  7. Lobbying, Spillovers and the Benefits of Decentralization By Cheikbossian, Guillaume

  1. By: Levchenko, Andrei A.; Do, Quy-Toan
    Abstract: The authors analyze the relationship between international trade and the quality of economic institutions such as contract enforcement, rule of law, or property rights. The literature on institutions has argued, both empirically and theoretically, that larger firms care less about good institutions and that higher inequality leads to worse institutions. Recent literature on international trade enables the authors to analyze economies with heterogeneous firms, and argue that trade opening leads to a reallocation of production in which large firms grow larger, while small firms become smaller or disappear. Combining these two strands of literature, the authors build a model that has two key features. First, preferences over institutional quality differ across firms and depend on firm size. Second, institutional quality is endogenously determined in a political economy framework. They show that trade opening can worsen institutions when it increases the political power of a small elite of large exporters that prefer to maintain bad institutions. The detrimental effect of trade on institutions is most likely to occur when a small country captures a sufficiently large share of world expor ts in sectors characterized by economic profits.
    Keywords: Economic Theory & Research,Free Trade,Trade Law,Trade Policy,Trade and Services
    Date: 2006–02–01
  2. By: Cheikbossian, Guillaume
    Abstract: We present a model of endogenous public good provision and group rent-seeking influence e.g. lobbying. Specifically, two groups with different preferences over public good consumption and different sizes engage in rent-seeking activities to influence policymaking in their preferred direction. When there is within-group cooperation in lobbying, both groups neutralize each other in the political process. Without within-group cooperation, the free-rider problem in lobbying makes the smaller group politically influent. In both cases, rent-seeking by each group is increasing in the degree of preference heterogeneity and in membership size of both groups.
    Keywords: Public Goods; Rent-seeking; Free-rider problem
    JEL: D72 H41 H73
    Date: 2005
  3. By: Federico Valenciano (Universidad del País Vasco); Annick Laruelle (Universidad de Alicante)
    Abstract: Committees are often made up of representatives of different-sized groups of individuals, and make decisions by means of a voting rule which specifies what vote configurations can pass a decision. This raises the question of the choice of the optimal voting rule, given the different sizes of the groups that members represent. In this paper we take a new departure to address this problem, assuming that the committee is a bargaining scenario in which negotiations take place 'in the shadow of the voting rule' in search of unanimous consensus. That is, a general agreement is looked for, but any winning coalition can enforce an agreement.
    Keywords: Voting rule, Bargaining, Nash solution.
    Date: 2005–09
  4. By: Javier Herrera (DIAL, Paris); Mireille Razafindrakoto (DIAL, Paris); Francois Roubaud (DIAL, Paris)
    Abstract: Public statistics face quite a challenge when it comes to measuring new dimensions of development (institutions, governance, and social and political participation). To take up this challenge, modules on Governance, Democracy and Multiple Dimensions of Poverty have been appended to household surveys by National Statistics Institutes in twelve African and Latin-American developing countries. This paper presents the issues addressed and the methodological lessons learnt along with a selection of findings to illustrate this innovative approach and demonstrate its analytic potential. We investigate, for instance, the population’s support for democratic principles, the respect for civil and political rights and the trust in the political class; the “need for the State”, particularly of the poorest; the extent of petty corruption; the reliability of expert surveys on governance; the perception of decentralisation policies at local level; the level and vitality of social and political participation, etc. The conclusive appraisal made opens up prospects for the national statistical information systems in the developing countries. The measurement and tracking of this new set of objective and subjective public policy monitoring indicators would benefit from being made systematic.
    Keywords: Africa, Latin America, Democracy, Monitoring Mechanism, Household Surveys,
    JEL: I31 I32 I38 H11 D73 O54 O55
    Date: 2006–01–06
  5. By: Joel Waldfogel
    Abstract: When a product's product provision entails fixed costs, it will be made available only if a sufficient number of people want it. Some products are produced and consumed locally, so that provision requires not only a large group favoring the product but a large number nearby. Just as one has an incentive to sort into community whose median voter shares his preferences for local public goods, product markets may provide an analogous incentive to sort into a community whose consumers tend to share his preferences in private goods. Using zip code level data on chain restaurants and restaurants overall, this paper documents how the mix of locally available restaurants responds to the local mix of consumers, with three findings. First, based on survey data on chain restaurant patronage, restaurant preferences differ substantially by race and education. Second, there is a strong relationship between restaurants and population at the zip code level, suggesting that restaurants’ geographic markets are small. Finally, the mix of locally available chain restaurants is sensitive to the zipcode demographic mix by race and by education. Hence, differentiated product markets provide a benefit -- proximity to preferred restaurants -- to persons in geographic markets whose customers tend to share their preferences.
    JEL: L1 L8 R3
    Date: 2006–01
  6. By: Simon Luechinger; Stephan Meier; Alois Stutzer
    Abstract: The monopoly position of the public bureaucracy in providing public services allows government employees to acquire rents. Those rents can involve higher wages, monetary and non-monetary fringe benefits (e.g. pensions and staffing), and/or bribes. We propose a direct measure to capture the total of these rents: the difference in reported subjective well-being between bureaucrats and people working in the private sector. In a sample of 38 countries, we find large variations in the extent of rents in the public bureaucracy. The extent of rents is determined by differences in institutional constraints and correlates with perceptions of corruption. We find judicial independence to be of major relevance for a tamed bureaucracy.
    Keywords: public sector, rents, life satisfaction, corruption, judicial independence
    JEL: D72 D73 I31 J30 J45 K42 H11 H83
    Date: 2006–01
  7. By: Cheikbossian, Guillaume
    Abstract: In the presence of spillovers, decentralized provision of local public goods may lead to a higher surplus than centralized provision even if localities have identical preferences. Indeed, free-riding costs associated to decentralization may be larger than the costs of lobbying activities under centralization.
    Keywords: (De)centralization, Local Public Goods, lobbying, Spillovers
    JEL: H11 H41
    Date: 2005

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.