nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒05‒06
five papers chosen by
Eugene Beaulieu
University of Calgary

  1. Side Effects of Campaign Finance Reform By Matthias Dahm; Nicolás Porteiro
  2. Informational Lobbying under the Shadow of Political Pressure By Matthias Dahm; Nicolás Porteiro
  3. Optimal Electoral Timing: Exercise Wisely and You May Live Longer By Jussi Keppo; Lones Smith; Dmitry Davydov
  4. Participation in Environmental Organizations: Political Interest and State Capacity By Benno Torgler; Maria A. Garcia-Valiñas
  5. Decentralization, Corruption and Government Accountability: An Overview By Pranab Bardhan; Dilip Mookherjee

  1. By: Matthias Dahm (Universidad Carlos III de Madrid); Nicolás Porteiro (Department of Economics, Universidad Pablo de Olavide)
    Abstract: Since campaign finance reform is usually motivated by the concern that existing legislation can not effectively prevent campaign contributions to “buy favors”, this paper assumes that contributions influence political decisions. But, given that it is also widely recognized that interest groups achieve influence by providing political decision makers with policy relevant information, we also assume that lobbies engage in non-negligible informational lobbying. We focus on a single political decision to be taken and offer a simple model in which the optimal influence strategy is a mixture of both lobbying instruments. Our main result is to show that campaign finance reform may have important side-effects: It may deter informational lobbying so that less policy relevant information is available and as a result political decisions become less efficient.
    Keywords: party and candidate financing, lobbying, interest groups, experts, information transmission, contributions, influence, political decision making process.
    JEL: C72 D72
    Date: 2006–04
  2. By: Matthias Dahm (Universidad Carlos III de Madrid); Nicolás Porteiro (Department of Economics, Universidad Pablo de Olavide)
    Abstract: We examine the incentives of an interest group to provide verifiable policy-relevant information to a political decision-maker and to exert political pressure on her. We show that both lobbying instruments are interdependent. In our view information provision is a risky attempt to affect the politician’s beliefs about the desirability of the lobby’s objective. The constraints governing informational lobbying determine a specific lottery available. The circumstances under which political pressure can be applied specify the lobby’s valuation of different beliefs of the politician and, thus, her attitude toward risk. The combination of lotteries available and the “shadow of political pressure” (or induced risk preference) determines the optimal lobbying behavior. We identify several factors that induce risk proclivity (and thus information provision), which allows to explain the stylized fact that lobbies engage both in information provision and political pressure. Moreover, our approach gives a novel explanation for the fact that interest groups often try to provide information credibly. We finally study the extent to which this preference for credibility is robust and identify some instances in which lobbies may prefer to strategically withhold information.
    Keywords: Experts, Influence, Credibility, Political contributions, Issue ads.
    JEL: C72 D72
    Date: 2006–04
  3. By: Jussi Keppo (IOE Department, University of Michigan); Lones Smith (Economics Department, University of Michigan); Dmitry Davydov (Equities Division, Goldman Sachs)
    Abstract: In many democratic countries, the timing of elections is flexible. We explore this potentially valuable option using insights from option pricing in finance. The paper offers three main contributions on this problem. First, we derive a rationally-based mean-reverting political support process for the parties, assuming that politically heterogeneous voters continuously learn over time about evolving party fortunes. We solve for the long-run density for this process and derive the polling process from it by adding polling noise. Second, we explore optimal timing using the political support process. The incumbent sees its poll support, and must call an election within five years of the last election to maximize its expected total time in office. This resembles the optimal exercise rule for an American financial option. This option is recursive, and the waiting and stopping values subtly interact. We prove the existence of the optimal exercise rule in this setting, and show that the expected longevity is a convex-thenconcave function of the political support. Our model is tractable enough that we can analytically derive how the exercise rule responds to parametric shifts. We calibrate our model to the Labour-Tory rivalry in the U.K., with polling data from 1943-2005 and the 16 elections after 1945. Excluding three elections essentially forced by weak governments, our maximizing story quite well explains when the elections were called, and beats simple linear regressions. We also measure the value of election options, finding that over the long run they should more than double the expected time in power of a fixed term electoral cycle.
    Keywords: American option, European option, Brownian motion, Electoral timing
    JEL: D83 D72 G1
    Date: 2006–05
  4. By: Benno Torgler; Maria A. Garcia-Valiñas
    Abstract: The literature on volunteering has strongly increased in the last few years. However, there is still a lack of substantial empirical evidence about the determinants of environmental participation. This empirical study analyses a cross-section of individuals using micro-data of the World Values Survey wave III (1995-1997), covering 38 countries, to investigate this question. The results suggest that not only socio-demographic and socio-economic factors have an impact on individuals’ active participation in environmental organizations, but also political attitudes. Furthermore, we observe regional differences. Interestingly, there is the tendency that environmental participation is a stronger channel for action in developing countries, where weak and dysfunctional states lead people to pursue their goals through non-governmental sector activities. We also find that a higher level of perceived corruption leads to a stronger participation in environmental organizations, which shows that individuals take action when they perceive that the government is corrupt.
    Keywords: Environment; Environmental Participation; International Perspective; Political Interest; Social Capital
    JEL: Q26 R22 Z13 I21
    Date: 2006–04
  5. By: Pranab Bardhan (University of California at Berkeley); Dilip Mookherjee (Institute for Economic Development, Boston University)
    Abstract: The impact of government decentralization on economic performance and growth is a hotly contested issue. Waves of decentralization occurred in many developing countries over the past few decades, following the demise of a development paradigm in which centralized states played a leading role (see for instance, case studies of decentralization covering over half the world’s population in Bardhan and Mookherjee 2005b). The trends toward greater decentralization has been motivated by disenchantment with previous centralized modes of governance, owing partly to a perception that monolithic government bred high levels of rent-seeking, corruption and lack of accountability of government officials. An important research question, therefore, concerns the effects of decentralization on corruption. Can decentralization be a useful institutional reform to reduce corruption, or might corruption increase as political power shifts downward?

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