nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒04‒08
twelve papers chosen by
Eugene Beaulieu
University of Calgary

  1. Persistence of Power, Elites and Institutions By Acemoglu, Daron; Robinson, James A
  2. Democracy and Development: The Devil in the Details By Torsten Persson; Guido Tabellini
  3. Political Parties and Network Formation By Topi Miettinen; Panu Poutvaara
  4. On the Size of the Winning Set in the Presence of Interest Groups By Vjollca Sadiraj; Jan Tuinstra; Frans van Winden
  5. Do Voters Vote Sincerely? By Arianna Degan; Antonio Merlo
  6. Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections By Snowberg, Erik; Wolfers, Justin; Zitzewitz, Eric
  7. The Causes of Fiscal Transparency: Evidence from the American States By James E. Alt; David Dreyer Lassen; Shanna Rose
  8. Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets By Leigh, Andrew; Wolfers, Justin
  9. Endogenous Redistributive Cycles An Overlapping Generations Approach to Social Conflict and Cyclical Growth By Christiane Clemens; Maik Heinemann
  10. Incentives for separation and incentives for public good provision By Klaas Staal
  11. Political Conflict and Power-Sharing in the Origins of Modern Colombia By Mazzuca, Sebastián L; Robinson, James A
  12. Scared by Foreigners and their Products? Survey Evidence from France By Cadot, Olivier; Geoffard, Pierre-Yves; Suwa Eisenmann, Akiko; Verdier, Thierry

  1. By: Acemoglu, Daron; Robinson, James A
    Abstract: We construct a model of simultaneous change and persistence in institutions. The model consists of landowning elites and workers, and the key economic decision concerns the form of economic institutions regulating the transaction of labour (e.g., competitive markets versus labour repression). The main idea is that equilibrium economic institutions are a result of the exercise of de jure and de facto political power. A change in political institutions, for example a move from non-democracy to democracy, alters the distribution of de jure political power, but the elite can intensify their investments in de facto political power, such as lobbying or the use of paramilitary forces, to partially or fully offset their loss of de jure power. In the baseline model, equilibrium changes in political institutions have no effect on the (stochastic) equilibrium distribution of economic institutions, leading to a particular form of persistence in equilibrium institutions, which we refer to as invariance. When the model is enriched to allow for limits on the exercise of de facto power by the elite in democracy or for costs of changing economic institutions, the equilibrium takes the form of a Markov regime-switching process with state dependence. Finally, when we allow for the possibility that changing political institutions is more difficult than altering economic institutions, the model leads to a pattern of captured democracy, whereby a democratic regime may survive, but choose economic institutions favouring the elite. The main ideas featuring in the model are illustrated using historical examples from the US South, Latin America and Liberia.
    Keywords: de facto power; de jure power; democracy; dictatorship; elites; institutions; labour repression; persistence; political economy
    JEL: H2 N10 N40 P16
    Date: 2006–03
  2. By: Torsten Persson; Guido Tabellini
    Abstract: Does democracy promote economic development? This paper reviews recent attempts to address this question that exploited within-country variation. It shows that the answer is largely positive, but also depends on the details of democratic reforms. First, the sequence of economic vs political reforms matters: countries liberalizing their economy before extending political rights do better. Second, different forms of democratic government lead to different economic policies, and this might explain why presidential democracy leads to faster growth than parliamentary democracy. Third, it is important to distinguish between expected and actual political reforms. Taking expectations of regime change into account helps identify a stronger growth effect of democracy.
    Keywords: democracy, reform, growth, institutions, difference in difference
    JEL: E00 O10 P00
    Date: 2006
  3. By: Topi Miettinen; Panu Poutvaara
    Abstract: We argue that anticorruption 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 anticorruption laws also bind political parties.
    Keywords: political parties, two-sided platforms, rent-seeking, network formation
    JEL: D72 D85 L14
    Date: 2006
  4. By: Vjollca Sadiraj; Jan Tuinstra; Frans van Winden
    Abstract: Interest groups are introduced in a spatial model of electoral competition between two political parties. We show that the presence of these interest groups increases the winning set, which is the set of policy platforms for the challenger that will defeat the incumbent. Therefore interest groups enhance the probability of the challenger winning the election.
    Keywords: spatial voting models, electoral competition, winning set, interest groups
    JEL: D71 D72
    Date: 2006
  5. By: Arianna Degan (Department of Economics, University of Quebec at Montreal); Antonio Merlo (Department of Economics, University of Pennsylvania)
    Abstract: In this paper we address the following questions: (i) To what extent is the hypothesis that voters vote sincerely testable or falsifiable? And (ii) in environments where the hypothesis is falsifiable, to what extent is the observed behavior of voters consistent with sincere voting? We show that using data only on how individuals vote in a single election, the hypothesis that voters vote sincerely is irrefutable, regardless of the number of candidates competing in the election. On the other hand, using data on how the same individuals vote in multiple elections, the hypothesis that voters vote sincerely is potentially falsifiable, and we provide general conditions under which the hypothesis can be tested. We then assess whether the behavior of voters is consistent with sincere voting in U.S. national elections in the post-war period. We find that by and large sincere voting can explain virtually all of the individual-level observations on voting behavior in presidential and congressional U.S. elections in the data.
    Keywords: voting, spatial models, falsifiability, testing
    JEL: D72 C12 C63
    Date: 2006–03–01
  6. By: Snowberg, Erik; Wolfers, Justin; Zitzewitz, Eric
    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; event study; partisan effects; political economy
    JEL: D72 E3 E6 G13 G14 H6
    Date: 2006–04
  7. By: James E. Alt (Department of Government, Harvard University); David Dreyer Lassen (Department of Economics, University of Copenhagen); Shanna Rose (Department of Political Science, State University of New York (SUNY) - Stony Brook)
    Abstract: We use unique panel data on the evolution of transparent budget procedures in the American states over the past three decades to explore the political and economic determinants of fiscal transparency. Our case studies and quantitative analysis suggest that both politics and fiscal policy outcomes influence the level of transparency. More equal political competition and power sharing are associated with both greater levels of fiscal transparency and increases in fiscal transparency during the sample period. Political polarization and past fiscal conditions, in particular state government debt and budget imbalance, also appear to affect the level of transparency.
    JEL: D72 D78 H70
  8. By: Leigh, Andrew; Wolfers, Justin
    Abstract: We review the efficacy of three approaches to forecasting elections: econometric models that project outcomes on the basis of the state of the economy; public opinion polls; and election betting (prediction markets). We assess the efficacy of each in light of the 2004 Australian election. This election is particularly interesting both because of innovations in each forecasting technology, and also because the increased majority achieved by the Coalition surprised most pundits. While the evidence for economic voting has historically been weak for Australia, the 2004 election suggests an increasingly important role for these models. The performance of polls was quite uneven, and predictions both across pollsters, and through time, vary too much to be particularly useful. Betting markets provide an interesting contrast, and a slew of data from various betting agencies suggests a more reasonable degree of volatility, and useful forecasting performance both throughout the election cycle and across individual electorates.
    Keywords: elections; macroeconomic voting; opinion polling; prediction markets; voting
    JEL: D72 D84
    Date: 2006–03
  9. By: Christiane Clemens (Economics Department, University of Hannover); Maik Heinemann (Institute of Economics, University of Lüneburg)
    Abstract: This paper discusses the emergence of endogenous redistributive cycles in a stochastic growth model with incomplete asset markets and heterogeneous agents, where agents vote on the degree of progressivity in the tax-transfer-scheme. The model draws from Bénabou (1996) and ties the bias in the distribution of political power to the degree of inequality in the society, thereby triggering redistributive cycles which then give rise to a nonlinear, cyclical pattern of savings rates, growth and inequality over time.
    Keywords: Inequality, growth, political cycles, redistribution, Hopf bifurcation
    JEL: D31 E62 O41 P16
    Date: 2005–03–17
  10. By: Klaas Staal (Zentrum für Europäische Integrationsforschung ZEI(b), Walter-Flex-Straße 3, 53113 Bonn, Germany and Econometric Institute, Erasmus University Rotterdam, the Netherlands.
    Abstract: In this paper I examine the incentives of regions to unite, to separate and to provide public goods. Separation allows for greater influence over the nature of political decision making while unification allows regions to exploit economies of scale in the provision of public goods. When public good provision is relatively inexpensive, separation occurs since individuals want to assert greater influence, while for intermediate costs of public good provision, separation can be explained by the desires for greater influence as well as for more public goods. Compared with the social optimum, there are excessive incentives for public good provision as well as excessive incentives for separation.
    Keywords: unification, separation, public good provision, voting
    JEL: D7 H2 H7
    Date: 2006–03
  11. By: Mazzuca, Sebastián L; Robinson, James A
    Abstract: In this paper we present historical evidence and a theoretical analysis of the origins of political stability and instability in Colombia for the period 1850-1950, and their relationship to political, particularly electoral, institutions. We show that the driving force behind institutional change over this period, specifically the move to proportional representation (PR), was the desire of the Conservative and Liberal parties to come up with a way of credibly dividing power to avoid civil war and conflict, a force intensified by the brutal conflict of the War of a Thousand days between 1899 and 1902. The problem with majoritarian electoral institutions was that they did not allocate power in a way which matched the support of the parties in the population, thus encouraging conflict. The strategic advantage of PR was that it avoided such under-representation. The parties however could not initially move to PR because it was not `fraud proof' so instead, in 1905, adopted the `incomplete vote' which simply allocated 2/3 of the legislative seats to the winning party and 1/3 to the loser. This formula brought peace. The switch to PR arose when the Liberals became confident that they could solve problems of fraud. But it only happened because they were able to exploit a division within the Conservatives. The switch also possibly reflected a concern with the rising support for socialism and the desire to divide power more broadly. Our findings shed new light on the origins of electoral systems and the nature of political conflict and its resolution.
    Keywords: conflict; electoral institutions; political institutions; power
    JEL: D7
    Date: 2006–04
  12. By: Cadot, Olivier; Geoffard, Pierre-Yves; Suwa Eisenmann, Akiko; Verdier, Thierry
    Abstract: The paper studies attitudes toward immigration and trade using an opinion survey of two thousand French individuals. We find that, beyond usual Stolper-Samuelson effects (skilled individuals are more pro-free trade than others, as in other countries) attitudes toward trade and immigration are correlated and both are ideologically loaded. Right-wing affiliation is robustly associated with protectionism. Moreover, right-wing protectionism concerns not just agriculture but appears to be a broader attitude. It may help explain the predominantly anti-trade rhetoric of France's right-wing governments, although outsiders would expect them to pursue more pro-market and pro-free trade policies than left-wing ones.
    Keywords: France; migration; political economy; protectionism; trade
    JEL: F1 F22
    Date: 2006–03

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