nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒07‒02
nine papers chosen by
Eugene Beaulieu
University of Calgary

  1. Modeling Politics with Economics Tools: A Critical Survey of the Literature By Jan-Peter Olters
  2. Statistical Comparison of Aggregation Rules for Votes By Michel Truchon; Stephen Gordon
  3. Borda and the Maximum Likelihood Approach to Vote Aggregation By Michel Truchon
  4. Trade, Peace and Democracy: An Analysis of Dyadic Dispute By Solomon W. Polachek; Carlos Seiglie
  5. Trust in International Organizations: An Empirical Investigation Focusing on the United Nations By Benno Torgler
  6. Renegotiation without Holdup: Anticipating Spending and Infrastructure Concessions By Eduardo Engel; Ronald Fischer; Alexander Galetovic
  7. Original Sin, Good Works, and Property Rights in Russia: Evidence From a Survey Experiment By Timothy Frye; ;
  8. When Can the Rabble Redistribute? Democratization and Income Distribution in Low- and Middle-income Countries By Philip Nel
  9. Russia: An Abnormal Country By Steven Rosefielde

  1. By: Jan-Peter Olters
    Abstract: Whereas the economics discipline possesses a highly refined theoretical apparatus to analyze the effects of government behaviour on the economy, it has not (yet) managed to fully develop a positively formulated "economic theory of politics" that would permit the integration of the decision-making processes of voters, parties and governments with those of consumers and firms. Considerable recent advances notwithstanding, the large and heterogeneous body of literature has (so far) remained outside the economic mainstrain. The paper surveys the main approaches used to endogenize democratic elements and assesses the underlying reasons for researchers' renewed interest in this field.
    Keywords: Economic policy , Public sector , Business cycles , Economic models ,
  2. By: Michel Truchon; Stephen Gordon
    Abstract: If individual voters observe the true ranking on a set of alternatives with error, then the social choice problem, that is, the problem of aggregating their observations, is one of statistical inference. This study develops a statistical methodology that can be used to evaluate the properties of a given or aggregation rule. These techniques are then applied to some well-known rules.
    Keywords: Vote aggregation, ranking rules, figure skating, maximum likelihood, optimal inference, Monte Carlo, Kemeny, Borda
    JEL: D71 C15
    Date: 2006
  3. By: Michel Truchon
    Abstract: Drissi-Bakhkhat and Truchon ["Maximum Likelihood Approach to Vote Aggregation with Variable Probabilities," Social Choice and Welfare, 23, (2004), 161-185.] extend the Condorcet-Kemeny-Young maximum likelihood approach to vote aggregation by relaxing the assumption that the probability of correctly ordering two alternatives is the same for all pairs of alternatives. They let this probability increase with the distance between the two alternatives in the true order, to reflect the intuition that a judge or voter is more prone to errors when confronted to two comparable alternatives than when confronted to a good alternative and a bad one. In this note, it is shown than, for a suitably chosen probability function, the maximum likelihood rule coincides with the Borda rule, thus, partially reconciling the Borda and the Condorcet methods.
    Keywords: Vote aggregation, ranking rules, maximum likelihood, Borda
    JEL: D71
    Date: 2006
  4. By: Solomon W. Polachek (State University of New York at Binghamton and IZA Bonn); Carlos Seiglie (Rutgers University)
    Abstract: At least since 1750 when Baron de Montesquieu declared "peace is the natural effect of trade," a number of economists and political scientists espoused the notion that trade among nations leads to peace. Employing resources wisely to produce one commodity rather than employing them inefficiently to produce another is the foundation for comparative advantage. Specialization based on comparative advantage leads to gains from trade. If political conflict leads to a diminution of trade, then at least a portion of the costs of conflict can be measured by a nation's lost gains from trade. The greater two nations' gain from trade the more costly is bilateral (dyadic) conflict. This notion forms the basis of Baron de Montesquieu's assertion regarding dyadic dispute. This paper develops an analytical framework showing that higher gains from trade between two trading partners (dyads) lowers the level of conflict between them. It describes data necessary to test this hypothesis, and it outlines current developments and extensions taking place in the resulting trade-conflict literature. Crosssectional evidence using various data on political interactions confirms that trading nations cooperate more and fight less. A doubling of trade leads to a 20% diminution of belligerence. This result is robust under various specifications, and it is upheld when adjusting for causality using cross-section and time-series techniques. Further, the impact of trade is strengthened when bilateral import demand elasticities are incorporated to better measure gains from trade. Because democratic dyads trade more than non-democratic dyads, democracies cooperate with each other relatively more, thereby explaining the "democratic peace" that democracies rarely fight each other. The paper then goes on to examine further extensions of the trade-conflict model regarding specific commodity trade, foreign direct investment, tariffs, foreign aid, country contiguity, and multilateral interactions.
    Keywords: trade, conflict, cooperation, interdependence, gains from trade, dyadic dispute, democratic peace, democracy
    JEL: F01 F51 F59 D74
    Date: 2006–06
  5. By: Benno Torgler
    Abstract: The literature on social capital has strongly increased in the last two decades, but, there still is a lack of substantial empirical evidence about the determinants of trust. Most studies have focused on social or generalized trust, while those investigating international trust or trust in international organizations are rare. 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 trust in international organizations, specifically trust in the United Nations. The results suggest that not only socio-demographic and socio-economic factors have an impact on citizens’ trust in the UN, but also political factors. We also observe externalities. Political trust at the state level leads to a higher trust at the international level. On the other hand, if a state is perceived as dysfunctional, the level of trust declines.
    Keywords: International Organizations; United Nations; Trust Social Capital; International Perspective; Political Interest.
    JEL: Z13 D73 O19
    Date: 2006–06
  6. By: Eduardo Engel (Cowles Foundation, Yale University); Ronald Fischer (University of Chile - Center of Applied Economics (CEA)); Alexander Galetovic (Universidad de los Andes)
    Abstract: Infrastructure concessions are frequently renegotiated after investments are sunk, resulting in better contractual terms for the franchise holders. This paper offers a political economy explanation for renegotiations that occur with no apparent holdup. We argue that they are used by political incumbents to anticipate infrastructure spending and thereby increase the probability of winning the upcoming election. Contract renegotiations allow administrations to replicate the effects of issuing debt. Yet debt issues are incorporated in the budget, must be approved by Congress and are therefore subject to the opposition's review. By contrast, under current accounting standards the obligations created by renegotiations circumvent the budgetary process in most countries. Hence, renegotiations allow incumbents to spend more without being subject to Congressional oversight.
    Keywords: Build-operate-and-transfer (BOT), Concessions, Renegotiation, Public-private partnerships
    JEL: H21 L51 L91
    Date: 2006–06
  7. By: Timothy Frye; ;
    Abstract: Are property rights obtained through legally dubious means forever tainted with original sin or can rightholders make their ill-gotten gains legitimate by doing good works?2 This is a critical question for developing countries (and Russia in particular) where privatization is often opaque and businesspeople may receive property, but remain unwilling to use it productively due to concerns about the vulnerability of their rights to political challenge. Using a survey of 660 businesspeople conducted in Russia in February 2005, I find that the original sin of an illegal privatization is difficult to expunge. Businesspeople, however, can improve the perceived legitimacy of property rights by doing good works, such as investing in the firm and by providing public goods for the region. Finally, managers that provide public goods for their region are more likely to invest in their firms than those who did not. The finding that public goods providers invest at higher rates is at odds with standard economic logic, but fits well with the more political view of property rights developed here. These findings have implications for political economy and contemporary Russia.
    Keywords: Property Rights, Transition, Rule of Law, Privatization
    JEL: K11 P14 P16
    Date: 2005–09–01
  8. By: Philip Nel (Department of Political Studies, University of Otago)
    Abstract: In contrast to the experience in high-income OECD countries, the introduction of democracy in most low- and middle-income countries (LMICs) has been followed, as a rule, by a concentration of income. Using the median voter hypothesis as analytical tool, this paper explores the conditions under which positive regime change can lead to the mitigation of income inequality in LMICs. Analysis of panel data over the period 1960 to 1999 supports the contention that the degree to which popular sovereignty had been institutionalised through regime change is an important condition. Contrary to mainstream theory, economic openness in general tends to increase and not mitigate income inequality in countries where skilled labour is in short supply. Only in those countries with the requisite state capacity to disseminate skills amongst their populace on a broad scale, the electorate can use the vote effectively to reduce the effects of this tendency.
    Keywords: Income distribution; redistribution; democratisation; median voter hypothesis
    JEL: C33 D31 F59 H53
    Date: 2006
  9. By: Steven Rosefielde
    Abstract: Andrei Shleifer and Daniel Treisman recently rendered a summary verdict on the post Soviet Russian transition experience finding that the Federation had become a normal country with the west's assistance, and predicting that it would liberalize and develop further like other successful nations of its type. This essay demonstrates that they are mistaken on the first count, and are likely to be wrong on the second too. It shows factually, and on the norms elaborated by Pareto, Arrow and Bergson that Russia is an abnormal political economy unlikely to democratize, westernize or embrace free enterprise any time soon
    JEL: P40 P51 P52 P30
    Date: 2005–06–01

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.