nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒09‒11
seven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Group Formation and Voter Participation By Helios Herrera; Cesar Martinelli
  2. Local inequality and project choice : theory and evidence from Ecuador By Araujo, M. Caridad; Ferreira, Francisco H.G.; Lanjouw, Peter; Ozler, Berk
  3. Real-time forecasting and political stock market anomalies: evidence for the U.S. By Bohl, Martin; Döpke, Jörg; Pierdzioch, Christian
  4. Seeking Rents in the Shadow of Coase By Guiseppe Dari-Mattiacci; Sander Onderstal; Francesco Parisi
  5. REGULATION AND OPPORTUNISM: HOW MUCH ACTIVISM DO WE NEED? By Aleix Calveras; Juan-José Ganuza; Gerard Llobet
  6. Bridging the Great Divide in South Africa: Inequality and Punishment in the Provision of Public Goods By Visser, Martine; Burns, Justine
  7. Soft Budget Constraints as a Risk Sharing Arrangement in an Economic Federation By Lindahl, Erica; Westermark, Andreas

  1. By: Helios Herrera (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM)); Cesar Martinelli (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    Abstract: We present a mobilization model of large elections with endogenous formation of voter groups. Citizens decide whether to be followers or become leaders (activists) and try to bring other citizens to vote for their preferred party. In the (unique) pure strategy equilibrium, the number of leaders favoring each party is a function of the cost of activism and the mportance of the election. Expected turnout and winning margin in the election are, in turn, a function of the number of leaders and the strength of social interactions. The model predicts a non monotonic relationship between expected turnout and winning margin in large elections.
    Keywords: Vote´x Paradox, Endogenous Leaders, Turnout, Winning Margin
    JEL: D72
    Date: 2005–05
  2. By: Araujo, M. Caridad; Ferreira, Francisco H.G.; Lanjouw, Peter; Ozler, Berk
    Abstract: This paper provides evidence consistent with elite capture of Social Fund investment projects in Ecuador. Exploiting a unique combination of data-sets on village-level income distributions, Social Fund project administration, and province level electoral results, the authors test a simple model of project choice when local political power is unequally distributed. In accordance with the predictions of the model, poorer villages are more likely to receive projects that provide excludable (private) goods to the poor, such as latrines. Controlling for poverty, more unequal communities are less likely to receive such projects. Consistent with the hypothesis of elite capture, these results are sensitive to the specific measure of inequality used in the empirical analysis, and are strongest for expenditure shares at the top of the distribution.
    Keywords: Rural Poverty Reduction,Economic Theory & Research,Population Policies,Services & Transfers to Poor,Poverty Monitoring & Analysis
    Date: 2006–08–01
  3. By: Bohl, Martin; Döpke, Jörg; Pierdzioch, Christian
    Abstract: Using monthly data for the period 1953–2003, we apply a real-time modeling approach to investigate the implications of U.S. political stock market anomalies for forecasting excess stock returns. Our empirical findings show that political variables, selected on the basis of widely used model selection criteria, are often included in real-time forecasting models. However, they do not contribute to systematically improving the performance of simple trading rules. For this reason, political stock market anomalies are not necessarily an indication of market inefficiency.
    Keywords: Political stock market anomalies, predictability of stock returns, efficient markets hypothesis, real-time forecasting
    JEL: G11 G14
    Date: 2006
  4. By: Guiseppe Dari-Mattiacci (Universiteit van Amsterdam); Sander Onderstal (Universiteit van Amsterdam); Francesco Parisi (University of Minnesota)
    Abstract: Trade opportunities are generally seen as valuable instruments to improve the allocation of resources in society. However, when the traded rights are secured through unproductive rent-seeking contests, the tradeability of the rents may provide stronger incentives to invest in rent-seeking activities, exacerbating rent-dissipation losses. In some cases the increase in rent dissipation may exceed the benefits of trade, rendering the opportunity to transfer rents socially undesirable. We consider a two-stage game in which the contestants have different valuations of the sought-after rent. In the first stage, parties invest to secure rights by participating in a rent-seeking contest. In the second stage, parties decide whether to reallocate the rights by entering in a Coasean exchange. We show that an opportunity for an ex post reallocation of the rights may have perverse ex ante effects. We consider the effect that such trading opportunities have on the parties’ payoffs and evaluate the final outcome in terms of dissipation and misallocation costs, comparing our scenario with tradeable rents to the conventional case of non-tradeable rents.
    Keywords: Rent-seeking; asymmetric rent valuations; misallocation costs; rent dissipation
    JEL: D72
    Date: 2006–08–09
  5. By: Aleix Calveras; Juan-José Ganuza; Gerard Llobet (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: This paperanalyzes the current trend towards firms' self-regulation as opposed to the formal regulation of a negative externality. Firms respond to increasing activism in the market (conscious consumers that take into account the external effects of their purchase) by providing more socially responsible goods. However, because regualtion is the outcome of a political process, an increase in activism might imply and inefficiently higher externality level. This may happen when a majority of non-activist consumers collectively free-ride on conscious consumers. By determining a softer than optimal regulation, they benefit from the behavior of firms, yet they have access to cheaper (although less efficient) goods.
    Keywords: Activism, corporate social responsability, voting and regulation.
    JEL: D72 H42 L51 M14 Q52
    Date: 2005–10
  6. By: Visser, Martine (Department of Economics, School of Business, Economics and Law, Göteborg University); Burns, Justine (University of Cape Town, Private Bag,)
    Abstract: We explore the effect of income inequality and peer punishment on voluntary provision of public goods in an experimental context. Our sample draws from nine fishing communities in South-Africa where high levels of inequality prevail. We find that aggregate cooperation is higher in both the voluntary contribution mechanism (VCM) and punishment treatments for unequal groups. Once peer sanctioning is introduced over-contribution by low relative to high endowment players observed in the VCM treatment is significantly enhanced. Demand for punishment by low and high endowment players are similar, irrespective of differences in relative costs, and in unequal groups free-riding is punished more, specifically by low endowment players. We observe inequality aversion both in endowments and with respect to the interaction of endowments and contributions: high endowment players receive more punishment, but also receive more punishment for negative deviation from the group mean share. <p>
    Keywords: Inequality; cooperation; punishment; public goods experiments
    JEL: C90 D63 H41 Q20
    Date: 2006–08–31
  7. By: Lindahl, Erica (Department of Economics); Westermark, Andreas (Department of Economics)
    Abstract: We analyze a model where the federal government provides risk sharing arrangements to municipalities investing in a local public good. The risk sharing arrangements are an income equalization system and a system allowing for a soft budget constraint, i.e., a bailout. Our main result is that a bailout system in combination with income equalization can be a more efficient risk sharing arrangement than an income equalization system only. Thus, the introduction of a bailout system is welfare improving.
    Keywords: Bailout; Fiscal federalism
    JEL: H72 H77
    Date: 2006–01–26

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