nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒03‒11
five papers chosen by
Eugene Beaulieu
University of Calgary

  1. Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections By Erik Snowberg; Justin Wolfers; Eric Zitzewitz
  2. Overcoming Incentive Constraints? The (In-)effectiveness of Social Interaction By Dirk Engelmann; Veronika Grimm
  3. Welfare State Retrenchment: The Partisan Effect Revisited By Bruno Amable; Donatella Gatti; Jan Schumacher
  4. Probit Models with Binary Endogenous Regressors By Jacob Nielsen Arendt; Anders Holm
  5. Contractual Incentive Provision and Commitment in Rent-Seeking Contests By Oliver Gürtler

  1. By: Erik Snowberg (Stanford GSB); Justin Wolfers (Wharton, University of Pennsylvania, CEPR, NBER and IZA Bonn); Eric Zitzewitz (Stanford GSB)
    Abstract: Political economists interested in discerning the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections. We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during election day. Analyzing high frequency financial fluctuations on November 2 and 3 in 2004, we find that markets anticipated higher equity prices, interest rates and oil prices and a stronger dollar under a Bush presidency than under Kerry. A similar Republican-Democrat differential was also observed for the 2000 Bush-Gore contest. Prediction market based analyses of all Presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican President raises equity valuations by 2-3 percent, and that since Reagan, Republican Presidents have tended to raise bond yields.
    Keywords: elections, prediction markets, political economy, event study, partisan effects
    JEL: D72 E3 E6 G13 G14 H6
    Date: 2006–03
  2. By: Dirk Engelmann; Veronika Grimm
    Abstract: We experimentally study behavior in a simple voting game where players have private information about their preferences. With random matching, subjects overwhelmingly follow the dominant strategy to exaggerate their preferences. Applying the linking mechanism suggested by Jackson and Sonnenschein (2005) captures nearly all achievable efficiency gains. Repeated interaction leads to significant gains in truthful representation and efficiency only if players can choose their partners.
    Keywords: Experimental Economics, Mechanism Design, Implementation, Linking, Bayesian Equilibrium, Efficiency
    JEL: A13 C72 C91 C92 D64 D72 D80
    Date: 2006–02–28
  3. By: Bruno Amable (University of Paris X-Nanterre, PSE and CEPREMAP); Donatella Gatti (University of Lyon 2, PSE, CEPREMAP and IZA Bonn); Jan Schumacher (University of Mainz)
    Abstract: This paper aims to shed light on the role of the ’ideology’ of political parties in shaping the evolution of the welfare state in 18 developed democracies, by providing empirical findings on the determinants of social programs entitlements and social spending over the period 1981-1999. The paper shows that structural change is a major determinant of the extent of social protection. Our results suggest that overall spending is driven up by structural change. On the other hand, strong structural change has a negative influence on welfare entitlements measured by net replacement rates of sickness insurance or unemployment benefits. Partisan influence plays an important role in the dynamics of the welfare state. Left-wing governments strengthen the positive effect of shocks on aggregate social expenditure while right-wing governments undertake even stronger cutbacks in replacement rates as a reaction to structural change.
    Keywords: welfare state, ideology, structural change
    JEL: H5 I1 J8
    Date: 2006–03
  4. By: Jacob Nielsen Arendt (Department of Business and Economics, University of Southern Denmark); Anders Holm (Department of Sociology, University of Copenhagen)
    Abstract: Sample selection and endogeneity are frequent causes of biases in non-experimental empirical studies. In binary models a standard solution involves complex multivariate models. A simple approximation has been shown to work well in bivariate models. This paper extends the approximation to a trivariate model. Simulations show that the approximation outperforms full maximum likelihood while a least squares approximation may be severely biased. The methods are used to estimate the influence of trust in the parliament and politicians on voting- propensity. No previous studies have allowed for endogeneity of trust on voting and it is shown to severely affect the results.
    Keywords: endogeneity; multivariate probit; approximation; Monte Carlo simulation
    Date: 2006–02
  5. By: Oliver Gürtler (Department of Economics, BWL II, University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany. Tel.:+49-228-739214, Fax:+49-228-739210.
    Abstract: In this paper, we consider a symmetric rent-seeking contest, where employees lobby for a governmental contract on behalf of .rms. The only verifiable information is which firm is assigned the contract. We derive the optimal wage contracts of the employees and analyze, whether commitment by determining the wage contract prior to the competitor is profitable. This is indeed the case, i.e. firms prefer to move first in the wage-setting subgame. This complements previous work on rent-seeking contests emphasizing that commitment via rent-seeking expenditures is unprofitable in symmetric contests.
    Keywords: Contest, First-Mover Advantage, Commitment, Wage Contract
    JEL: D72 M52
    Date: 2006–03

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