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on Positive Political Economics |
| By: | Eduardo Engel; Ronald Fischer; Alexander Galetovic |
| 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 an 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. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:221&r=pol |
| By: | Cesar Martinelli (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM)) |
| Abstract: | In a very influential paper, Shachar and Nalebuff (1999) develop and estimate structurally a pivotal-leader model of political participation, focusing on the first-order condition of the problem solved by the leaders of two political parties. This note (1) shows that the problem of the party leaders is not necessarily concave, (2) provides conditions for concavity, and (3) attempts to verify whether these conditions hold for the parameter values estimated by Shachar and Nalebuff. |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:cie:wpaper:0506&r=pol |
| By: | Cesar Martinelli (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM)) |
| Abstract: | We model a two-alternative election in which voters may acquire information about which is the best alternative for all voters. Voters differ in their cost of acquiring information. We show that as the number of voters increases, the fraction of voters who acquire information declines to zero. However, if the support of the cost distribution is not bounded away from zero, there is an equilibrium with some information acquisition for arbitrarily large electorates. This equilibrium dominates in terms of welfare any equilibrium without information acquisition--even though generally there is too little information acquisition with respect to an optimal strategy profile. |
| JEL: | D72 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:cie:wpaper:0505&r=pol |
| By: | Nuno Venes |
| Abstract: | In this paper, we analyse the role of political and institutional variables on the cyclical patterns of central government expenditure and revenue. Working with a sample of 38 OECD and Latin-American countries in 1960-2003, we find that higher levels of income inequality are associated with stronger expenditure procyclicality, and that better institutions do not seem to mitigate this effect. IMF interventions are, in general, statistically insignificant in explaining the cyclical behaviour of expenditure, as well as the degree of development of financial systems. On the revenue side, income inequality leads to less procyclical policies. In general, political and institutional variables explain the cyclicality of government expenditure better than that of revenue. |
| Keywords: | Fiscal policy; cyclicality; political and institutional determinants; OECD; Latin America |
| JEL: | E62 H61 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp192006&r=pol |
| By: | Jordi Masso³; Marc Vorsatz |
| Abstract: | To allow society to treat unequal alternatives distinctly we propose a natural extension of Approval Voting by relaxing the assumption of neutrality. According to this extension, every alternative receives ex-ante a non-negative and finite weight. These weights may differ across alternatives. Given the voting decisions of every individual (individuals are allowed to vote for, or approve of, as many alternatives as they wish to), society elects all alternatives for which the product of total number of votes times exogenous weight is maximal. Our main result is an axiomatic characterization of this voting procedure. |
| Keywords: | Approval Voting, Neutrality |
| JEL: | D71 |
| Date: | 2006–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:668.06&r=pol |
| By: | Axel Dreher (Department of Management, Technology, and Economics, ETH Zurich); Noel Gaston (Faculty of Business, Bond University, Queensland) |
| Abstract: | There has been no shortage of theories which purport to explain why globalisation may have, adverse, insignificant or even beneficial effects on income and earnings inequality. Surprisingly, the empirical realities remain an almost complete mystery. In this paper we use data on industrial wage inequality, household income inequality as well as measures of the economic, social and political dimensions of globalisation to examine this controversial issue. We find that the economic dimension of globalisation, and – less robustly – political integration, have exacerbated wage inequality in developed countries. In contrast, the impact of globalisation on both income and earnings inequality in less-developed countries has been negligible. |
| Keywords: | Income and earnings inequality; globalisation; democracy; panel regressions. |
| JEL: | F02 D30 O57 C82 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:06-140&r=pol |
| By: | James Habyarimana (Georgetown University and IZA Bonn); Macartan Humphreys (Columbia University); Daniel N. Posner (University of California, Los Angeles); Jeremy Weinstein (Stanford University) |
| Abstract: | A large and growing literature links high levels of ethnic diversity to low levels of public goods provision. Yet while the empirical connection between ethnic heterogeneity and the underprovision of public goods is widely accepted, there is little consensus on the specific mechanisms through which this relationship operates. To gain analytic leverage on the question of why ethnicity matters, we identify three families of mechanisms – what we term preference, technology, and strategy mechanisms. Our empirical strategy is to identify and run a series of experimental games that permit us to examine these mechanisms in isolation and then to compare the importance of ethnicity in each. Results from experimental games conducted with a random sample of 300 subjects in Kampala’s slums reveal that successful collective action among homogenous ethnic communities in urban Uganda is attributable to the existence of norms and institutions that facilitate the sanctioning of non-contributors. We find no evidence for a commonality of tastes within ethnic groups, for greater degrees of altruism toward co-ethnics, or for an impact of shared ethnicity on the productivity of teams. |
| Keywords: | ethnic diversity, collective action, public goods, field experiments |
| JEL: | D71 H41 J15 O10 Z13 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2272&r=pol |
| By: | Reimund Schwarze; Gert G. Wagner |
| Abstract: | This paper studies the politico-economic reasons for the refusal of a proposed compulsory flood insurance scheme in Germany. It provides the rationale for such scheme and outlines the basic features of a market-orientated design. The main reasons for the political down-turn of this proposal were the misperceived costs of a state guarantee, legal objections against a compulsory insurance, distributional conflicts between the federal government and the Ger-man states (Länder) on the implied administrative costs, and the well-known charity hazard of ad-hoc disaster relief. The focus on pure market solutions proved to be an ineffective strategy for policy advice in this field. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp620&r=pol |
| By: | Philip Shaw (University of Connecticut); Marina-Selini Katsaiti (University of Connecticut); Marius Jurgilas (University of Connecticut) |
| Abstract: | The goal of this paper is to revisit the influential work of Mauro [1995] focusing on the strength of his results under weak identification. He finds a negative impact of corruption on investment and economic growth that appears to be robust to endogeneity when using two-stage least squares (2SLS). Since the inception of Mauro [1995], much literature has focused on 2SLS methods revealing the dangers of estimation and thus inference under weak identification. We reproduce the original results of Mauro [1995] with a high level of confidence and show that the instrument used in the original work is in fact 'weak' as defined by Staiger and Stock [1997]. Thus we update the analysis using a test statistic robust to weak instruments. Our results suggest that under Mauro's original model there is a high probability that the parameters of interest are locally almost unidentified in multivariate specifications. To address this problem, we also investigate other instruments commonly used in the corruption literature and obtain similar results. |
| Keywords: | Corruption, Growth, Weak Identification, LAU |
| JEL: | C31 D73 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2006-17&r=pol |
| By: | Andrew E. Clark; Paul Frijters; Michael A. Shields |
| Abstract: | There is now a great deal of micro-econometric evidence, both cross-section and panel, showing that income is positively correlated with well-being. Yet the famous Easterlin paradox shows essentially no change in average happiness at the country level, despite spectacular rises in per capita GDP. We argue that survey well-being questions are indeed good proxy measures of utility, and resolve the Easterlin paradox by appealing to income comparisons: these can be to others (social comparisons) or to oneself in the past (habituation). We review a substantial amount of econometric, experimental and neurological literature consistent with comparisons, and then spell out the implications for a wide range of economic issues. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:pse:psecon:2006-24&r=pol |