nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒10‒14
fifteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Electoral Rules and Government Spending in Parliamentary Democracies By Torsten Persson; Gerard Roland; Guido Tabellini
  2. Human Capital and Political Business Cycles By Akhmed Akhmedov
  3. Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade By Richard Baldwin
  4. Beliefs and Voting Decisions: A Test of the Pivotal Voter Model By John Duffy; Margit Tavits
  5. The political economy of labor subsidies By Marina Azzimonti-Renzo; Eva de Francisco; Per Krusell
  6. Testing Baumol: Institutional Quality and the Productivity of Entrepreneurship. By Russell S. Sobel
  7. The Control of Politicians in Divided Societies: The Politics of Fear By Gerard Padro i Miquel
  8. Weighted Approval Voting By Massó Jordi; Vorsatz Marc
  9. A Politico-Economic Analysis of Minimum Wages and Wage Subsidies By Antonis Adam; Thomas Moutos
  10. On Measuring Influence in Non-Binary Voting Games By Vincent C H Chua; C H Ueng
  11. Arrovian juntas By Eisermann, Michael
  12. Ideology and Existence of 50%-Majority Equilibria in Multidimensional Spatial Voting Models By M.Utku Unver; Herve Cres; M. Utku Unver
  13. Does Membership on the UN Security Council Influence IMF Decisions? Evidence from Panel Data By Axel Dreher; Jan-Egbert Sturm; James Raymond Vreeland
  14. Transitional Dynamics in a Growth Model with Distributive Politics By Chetan Ghate
  15. Information Aggregation and Preference Heterogeneity in Committees By Elisabeth Schulte

  1. By: Torsten Persson; Gerard Roland; Guido Tabellini
    Date: 2006–07–31
  2. By: Akhmed Akhmedov (CEFIR)
    Abstract: Classical theory considers political business cycle as a result of either opportunistic behavior of government (opportunistic cycle) or aiming policy on certain constituency (partisan cycle). In this paper, we propose an alternative explanation of the phenomenon of political business cycle — experience of government. We propose an illustration that shows that elections infer cycles without any opportunism or ideology of incumbents. We also build a model with endogenous ego-rent. The model explains a channel to increase incentives, when none has commitment — governors need to develop skills to increase their value for public and increase probability to get re-elected. Using fiscal monthly data of Russian regions from 1996 to 2004, we got evidence both of positive effect of experience on performance and opportunistic component of the cycle. We also got evidence of diminishing return on experience.
    Keywords: Elections, opportunistic business cycle, experience, sunk cost, Russian regions.
    JEL: D72 E32 H72 P16
    Date: 2006–10
  3. By: Richard Baldwin
    Abstract: This paper addresses the final steps to global free trade -- the political economy forces that might drive them, and the role the WTO might play in guiding them. Two facts form the departure point: 1) Regionalism is here to stay; 2) the motley assortment of regional trade agreements is not the best way to organise world trade. Moving to global duty-free trade will require a multilateralisation of regionalism. The paper presents the political economy logic of trade liberalisation and uses it to structure a narrative of world trade liberalisation since 1947. The logic is then used to project the world tariff map in 2010, arguing that the pattern will be marked by fractals – fuzzy, leaky trade blocs made up of fuzzy, leaky sub-blocs (fuzzy since the proliferation of FTAs makes it impossible to draw sharp lines around the 3 big blocs, and leaky since some FTAs create free trade ’canals’ linking the blocs). The paper then presents a novel political economy mechanism – spaghetti bowls as building blocs – whereby offshoring creates a force that encourages the multilateralisation of regionalism. Finally, the paper suggests three things the WTO could do to help multilateralise regionalism.
    JEL: F1 F15
    Date: 2006–10
  4. By: John Duffy; Margit Tavits
    Abstract: We report results from a laboratory experiment that provides the first direct test of the pivotal voter model. This model predicts that voters will rationally choose to vote only if their expected benefit from voting outweighs the cost. The expected benefit calculation involves the use of the voter’s subjective probability that s/he will be pivotal to the election outcome; this probability is typically unobservable. In one of our experimental treatments we elicit these subjective probabilities using a proper scoring rule that induces truthful revelation of beliefs. The cost of voting and the payoff to the election winner are known constants, so the subjective probabilities allow us to directly test the pivotal voter model. We find some support for the model: While a higher subjective probability of being pivotal does increase the likelihood that an individual chooses to vote, the decisiveness probability thresholds used by subjects are not as crisp as the theory would predict. We find some evidence that individuals learn over time to adjust their probabilities of being pivotal so that they are more consistent with the historical frequency of decisiveness, although such learning appears slow; many subjects\' assessments of their pivotalness remain substantially higher than is warranted by the electoral history.
    Date: 2006–09
  5. By: Marina Azzimonti-Renzo; Eva de Francisco; Per Krusell
    Abstract: We explore a political economy model of labor subsidies, extending Meltzer and Richard's median voter model to a dynamic setting. We explore only one source of heterogeneity: initial wealth. As a consequence, given an operative wealth effect, poorer agents work harder, and if the agent with median wealth is poorer than average, a politico-economic equilibrium will feature a subsidy to labor. The dynamic model does not have capital, but it has perfect markets for borrowing and lending. Because tax rates influence interest rates, another channel for redistribution appears, since a decrease in current interest rates favors agents with a negative (below-average) asset position. ; By the same token - and as is typically the case in dynamic politico-economic models with rational agents - the setting features time-inconsistency: the median voter would like to commit to not manipulating interest rates in the future. Under commitment, and under the assumption that preferences admit aggregation, we show that labor subsidies subsist only for one period; after that, subsidies are zero. That is, under commitment, the median voter takes advantage of the voting power once and for all. His wealth moves closer to that of the mean (which is zero), but afterwards he refrains voluntarily from further subsidization. Under lack of commitment, which we analyze formally by looking at the Markov-perfect (time-consistent) equilibrium in a game between successive median voters in the same environment. Instead, subsidies persist - they are constant over time - and are more distortionary than under commitment. Moreover, in the situation without commitment, the median voter does not manage to reduce asset inequality, unlike in the commitment case.
    Date: 2006
  6. By: Russell S. Sobel (Department of Economics, West Virginia University)
    Abstract: Baumol’s (1990) theory of productive and unproductive entrepreneurship is a significant recent contribution to the economics of entrepreneurship literature. He hypothesizes that entrepreneurial individuals channel their effort in different directions depending on the quality of prevailing economic, political, and legal institutions. This institutional structure determines the relative reward to investing entrepreneurial energies into productive market activities versus unproductive political and legal activities (e.g., lobbying and lawsuits). Good institutions channel effort into productive entrepreneurship, sustaining higher rates of economic growth. I test and confirm Baumol’s theory, and discuss its significance to the literature and policy reform.
    Date: 2006
  7. By: Gerard Padro i Miquel
    Abstract: Autocrats in many developing countries have extracted enormous personal rents from power. In addition, they have imposed inefficient policies including pervasive patronage spending. I present a model in which the presence of ethnic identities and the absence of institutionalized succession processes allow the ruler to elicit support from a sizeable share of the population despite large reductions in welfare. The fear of falling under an equally inefficient and venal ruler that favors another group is enough to discipline supporters. The model predicts extensive use of patronage, ethnic bias in taxation and spending patterns and unveils a new mechanism through which economic frictions translate into increased rent extraction by the leader. These predictions are consistent with the experiences of bad governance, ethnic bias, wasteful policies and kleptocracy in post-colonial Africa.
    JEL: D72 H2 O17 O55
    Date: 2006–10
  8. By: Massó Jordi; Vorsatz Marc (METEOR)
    Abstract: To allow society to treat unequal alternatives distinctly we propose a natural extension of Approval Voting [7] 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: microeconomics ;
    Date: 2006
  9. By: Antonis Adam; Thomas Moutos
    Abstract: In this paper we construct a political economy model in which minimum wages are determined according to the wishes of the median voter. Using the minimum wage scheme as the status quo, we show that the replacement of minimum wages by wage subsidies guaranteeing the same (pre-tax) level of income (achieved by the government supplementing the wage income of workers by a subsidy equal to the difference between the competitive wage rate and the minimum wage rate), is not likely to receive political support unless it is supplemented by increased taxation of profits (after-tax profits are also likely to increase). Moreover, we show that the likelihood of implementation of wage subsidies is undermined by the existence of a heterogeneous labour force.
    Keywords: minimum wages, wage subsidies, median voter, political economy
    JEL: D72 E24 E62
    Date: 2006
  10. By: Vincent C H Chua (School of Economics and Social Sciences, Singapore Management University); C H Ueng (Victoria Junior College)
    Abstract: In this note, we demonstrate using two simple examples that generalization of the Banzhaf measure of voter influence to non-binary voting games that requires as starting position a voter’s membership in a winning coalition is likely to incompletely reflect the influence a voter has on the outcome of a game. Generalization of the Banzhaf measure that takes into consideration all possible pivot moves of a voter including those moves originating from a losing coalition will, on the other hand, result in a measure that is proportional to the Penrose measure only in the ternary case.
    Keywords: Penrose measure, Banzhaf index, ternary games, multicandidate weighted voting games
    JEL: C6 D7
    Date: 2004–12
  11. By: Eisermann, Michael
    Abstract: This article explicitly constructs and classifies all arrovian voting systems on three or more alternatives. If we demand orderings to be complete, we have, of course, Arrow's classical dictator theorem, and a closer look reveals the classification of all such voting systems as dictatorial hierarchies. If we leave the traditional realm of complete orderings, the picture changes. Here we consider the more general setting where alternatives may be incomparable, that is, we allow orderings that are reflexive and transitive but not necessarily complete. Instead of a dictator we exhibit a junta whose internal hierarchy or coalition structure can be surprisingly rich. We give an explicit description of all such voting systems, generalizing and unifying various previous results.
    Keywords: rank aggregation problem; Arrow's impossibility theorem; classification of arrovian voting systems; partial ordering; partially ordered set; poset; dictator; oligarchy; junta
    JEL: D71
    Date: 2006–08
  12. By: M.Utku Unver; Herve Cres; M. Utku Unver
    Date: 2005–01
  13. By: Axel Dreher; Jan-Egbert Sturm; James Raymond Vreeland
    Abstract: We investigate whether temporary members of the UN Security Council receive favorable treatment from the IMF, using panel data for 191 countries over the period 1951 to 2004. Our results indicate a robust positive relationship between temporary UN Security Council membership and participation in IMF programs, even after accounting for economic and political factors, as well as regional and country effects, and duration dependence. There is also evidence that UNSC membership reduces the number of conditions included in IMF programs. The size of the loan, however, is not affected by UNSC membership.
    Keywords: IMF, UN Security Council, voting, aid
    JEL: F33
    Date: 2006
  14. By: Chetan Ghate
    Abstract: This paper constructs a dynamic analysis of the growth and distribution models of Das and Ghate (2004) and Alesina and Rodrik (1994) when leisure is valued by agents. When leisure enters the utility function, we show that the tax rate on capital income chosen in a political equilibrium is lower than the growth maximizing tax rate. This slows growth down, but for a very different reason than in Alesina and Rodrik (1994). Here, unanimity holds, and slower growth comes together with valued leisure, while in AR, slower growth comes from conflicting choices over the tax rate, with a capital poor median voter prevailing. Our results generalize the work of Alesina and Rodrik (1994) and Das and Ghate (2004) in two ways. First, we assess the impact of redistributive politics on growth by looking at the effect of income inequality on the tax rate and labor supply. Second, using the set up of Das and Ghate (2004), we provide a dynamic analysis of Alesina and Rodrik (1994) where majority voting determines the extent of distribution, and thus, a relationship between inequality and growth. The general insight gained from the analysis is that characterizing the transitional dynamics in a model of redistributive politics and growth with endogenous leisure is not intractable.
    Keywords: Distributive Conflict, Endogenous Distribution, Median Voter Theorem, Endogenous Growth, Positive Political Economy
    JEL: E62 O40 P16
    Date: 2006–09
  15. By: Elisabeth Schulte (Department of Economics, University of Mannheim)
    Abstract: This paper is concerned with the efficiency of information aggregation in a committee whose members have heterogeneous preferences over a binary decision variable. In a first stage, agents may exchange private (decision-relevant) information which is assumed to be verifiable. Then they reach a decision via majority voting. We study different information environments and identify conditions under which full information aggregation is possible. In particular, if preferences are common knowledge and each committee member is endowed with information full information aggregation is possible despite preference heterogeneity.
    Keywords: Information aggregation, committee decisions, preference heterogeneity
    JEL: D72 D78 D82
    Date: 2006–10

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.