nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒12‒09
twenty papers chosen by
Eugene Beaulieu
University of Calgary

  1. Who Misvotes? The Effect of Differential Cognition Costs on Election Outcomes By Kelly Shue; Erzo F.P. Luttmer
  2. On the Manipulability of Proportional Representation By SLINKO, Arkadii; WHITE, Shaun
  3. Politician Preferences and Caps on Political Lobbying By Pastine, Ivan; Pastine, Tuvana
  4. Electoral Competition and Incentives to Local Public Good Provision By M. Magnani
  5. Intergenerational Conflict, Partisan Politics, and Public Higher Education Spending: Evidence from the German States By Ulrich Oberndorfer; Viktor Steiner
  6. Is inequality harmful for the environment in a growing economy ? By Hubert Kempf; Stéphane Rossignol
  7. Political Economy of Public Deficit: Perspectives for Constitutional Reform By Adam Geršl
  8. Centralization Trade-off with Non-Uniform Taxes By Peter Tuchyňa; Martin Gregor
  9. On Complexity of Lobbying in Multiple Referenda By CHRISTSTIAN, Robin; FELLOWS, Mike; ROSAMOND, Frances
  10. Political Pressure on Central Banks: The Case of the Czech National Bank By Adam Geršl
  11. Garbled Elections By Schmitz, Patrick W.; Tröger, Thomas
  12. Voting Over Type and Generosity of a Pension System When Some Individuals are Myopic By Cremer, Helmuth; De Donder, Philippe; Maldonado, Darío; Pestieau, Pierre
  13. Self-Selective Social Choice Functions By SLINKO, Arkadii; KORAY, Semih
  14. Market Prices as Indicators of Political Events Evidence from the Experimental Market on the Czech Republic Parliamentary Election in 2002 By Tomáš Cahlík; Adam Geršl; Michal Hlaváček; Michael Berlemann
  15. Democracy and Foreign Education By Spilimbergo, Antonio
  16. Family and Politics: Does Parental Unemployment Cause Right-Wing Extremism? By Thomas Siedler
  17. The Origins of Governments: From Amorphy to Anarchy and Hierarchy By Matthew Baker; Erwin Bulte; Jacob Weisdorf
  18. New Measure of Voting Power By František Turnovec
  19. Nation Formation and Genetic Diversity By Desmet, Klaus; Le Breton, Michel; Ortuño-Ortín, Ignacio; Weber, Shlomo
  20. Trust and Trustworthiness in an Economy with Heterogeneous Individuals By Peter Katuscak; Joel Slemrod

  1. By: Kelly Shue (Harvard University); Erzo F.P. Luttmer (Harvard University, NBER and IZA Bonn)
    Abstract: If voters are fully rational and have negligible cognition costs, ballot layout should not affect election outcomes. In this paper, we explore deviations from rational voting using quasirandom variation in candidate name placement on ballots from the 2003 California Recall Election. We find that the voteshares of minor candidates almost double when their names are adjacent to the names of major candidates on a ballot. Voteshare gains are largest in precincts with high percentages of Democratic, Hispanic, low-income, non-English speaking, poorly educated, or young voters. A major candidate that attracts a disproportionate share of voters from these types of precincts faces a systematic electoral disadvantage. If the Republican frontrunner Arnold Schwarzenegger and Democratic frontrunner Cruz Bustamante had been in a tie, adjacency misvoting would have given Schwarzenegger an edge of 0.06% of the voteshare. This gain in voteshare exceeds the margins of victory in the 2000 U.S. Presidential Election and the 2004 Washington Gubernatorial Election. We explore which voting technology platforms and brands mitigate misvoting.
    Keywords: bounded rationality, voting mistakes, ballot design, voting technology, voter intent, electoral systems, electoral reform
    JEL: D01 D72 D83 J10
    Date: 2006–11
  2. By: SLINKO, Arkadii; WHITE, Shaun
    Abstract: This paper presents a new model of voter behaviour under methods of proportional representation (PR). We abstract away from rounding, and assume that a party securing k percent of the vote wins exactly k percent of the available seats. Under this assumption PR is not manipulable by any voter aiming at maximisation of the number of seats in the parliament of her most preferred party. However in this paper we assume that voters are concerned, first and foremost, with the distribution of power in the post-election parliament. We show that, irrespective of which positional scoring rule is adopted, there will always exist circumstances where a voter would have an incentive to vote insincerely. We demonstrate that a voter’s attitude toward uncertainty can influence her incentives to make an insincere vote. Finally, we show that the introduction of a threshold - a rule that a party must secure at least a certain percentage of the vote in order to reach parliament - creates new opportunities for strategic voting. We use the model to explain voter behaviour at the most recent New Zealand general election.
    Keywords: rliament choosing rule, ortional reesentation, wer index, strategic voting, manilability.
    JEL: D72
    Date: 2006
  3. By: Pastine, Ivan; Pastine, Tuvana
    Abstract: This paper extends Che and Gale (1998) by allowing the incumbent politician to have a preference for the policy position of one of the lobbyists. The effect of a contribution cap is analyzed where two lobbyists contest for a political prize. The cap always helps the lobbyist whose policy position is preferred by the politician no matter whether it is the high-valuation or the low-valuation contestant. In contrast to Che and Gale, once the cap is binding a more restrictive cap always reduces expected aggregate contributions. However, the politician might support the legislation of a barely binding cap. When politician policy preferences perfectly reflect the will of the people, a more restrictive cap is always welfare increasing. When lobbyist's valuations completely internalize all social costs and benefits, a cap is welfare improving if and only if the politician favors the high-value policy. Even a barely binding cap can have significant welfare consequences.
    Keywords: all-pay auction; campaign finance reform; explicit ceiling
    JEL: C72 D72
    Date: 2006–11
  4. By: M. Magnani
    Abstract: Local public good provision from different government levels is subject to many bias coming from the political process; incentives indeed, vary with the size of the beneficiaries’ set and costs may affect the results of political competition by reducing total resources available for redistribution. Present work represents a first attempt to look at these issues together; indeed, it considers the situation where politicians have a finite budget to use both for redistributive policies and for the provision of a public good that affects the utility of a fraction of the electorate. In this setting it is not enough that benefits balance costs, in order for the public good to be implemented; the required level of efficiency moreover, is influenced by benefits concentration. If those interested in the public good are less than half of the electorate, concentration increases the efficiency threshold; on the contrary if they amount for more, benefits concentration decreases the required level of efficiency. Classification-JEL: D72, H41
    Keywords: social security, turnover on the labor market, political equilibria, employment protection, retirement age
    Date: 2006
  5. By: Ulrich Oberndorfer (ZEW Mannheim); Viktor Steiner (Free University Berlin, DIW Berlin and IZA Bonn)
    Abstract: We analyze potential effects of demographic change and political constellations on higher education spending. In our panel analysis of west German states (Laender) for the period 1985 to 2002 we find empirical evidence for the hypothesis of a negative relationship between demographic aging and spending on public higher education. In contrast to the hypothesis of the classical partisan theory that implies higher public expenditures under leftist parties, we find that governments under conservative parties or a coalition between social democrats and conservatives spend more on public higher education than governments run by the social-democratic party alone.
    Keywords: demographic change, public higher education spending, partisan politics
    JEL: H52 H72 I22
    Date: 2006–11
  6. By: Hubert Kempf (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Stéphane Rossignol (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I], Université de Versailles - [Université de Versailles-Saint Quentin en Yvelines])
    Abstract: In this paper we investigate the relationship between inequality and the environment in a growing economy from a political economy perspective. We consider an endogenous growth economy, where growth generates pollution and a deterioration of the environment. Public expenditures may either be devoted to supporting growth or abating pollution. The decision over the public programs is done in a direct democracy, with simple majority rule. We prove that the median voter is decisive and show that inequality is harmful for the environment : the poorer the median voter relative to the average individual, the less she will tax and devote resources to the environment, preferring to support growth.
    Keywords: Inequality, growth, environmental policy, political economy.
    Date: 2006–11–29
  7. By: Adam Geršl (Czech National Bank, Monetary and Statistics Department, Prague, Czech republic; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank, Prague)
    Abstract: The paper uses a dynamic inconsistency model known from monetary policy to assess three alternative proposals how to reform fiscal constitution in order to limit government’s incentive to use fiscal policy for maximizing political support. The return to ever-balanced-budget rule, state-contingent rules, and the establishment of an independent Fiscal Policy Committee with power to set public deficit with the aim of stabilizing the economy are discussed from the constitutional perspective, analyzing different incentives that these proposals create for government and alternative means to enhance credibility of the arrangement.
    Keywords: fiscal policy; dynamic inconsistency; political economy; public deficit
    JEL: E61 E63 P16
    Date: 2005
  8. By: Peter Tuchyňa (Center for Economic Research and Graduate Education-Economics Institute, Prague, Czech Republic); Martin Gregor (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: When local public goods are provided by a centralized authority, spillovers may be coordinated, but heterogeneity in preferences may be suppressed. Besley and Coate (2003) have already solved this classic trade-off for a uniform tax regime. Here, we extend their approach by allowing for a non-uniform tax regime. We find that centralization with our tax system necessarily increases welfare in comparison to uniform-tax centralization. Importantly, with non-cooperative legislators coming from homogenous districts, our centralization dominates decentralization for any degree of spillovers. In other cases, it at least improves odds of centralization, if measured by utilitarian yardstick.
    Keywords: Decentralization; Local Public Goods; Distributive Politics; Political Economy
    JEL: H40 H70 H72 P51
    Date: 2005
  9. By: CHRISTSTIAN, Robin; FELLOWS, Mike; ROSAMOND, Frances
    Abstract: In this paper we show that lobbying in conditions of “direct democracy” is virtually impossible, even in conditions of complete information about voters preferences, since it would require solving a very computationally hard problem. We use the apparatus of parametrized complexity for this purpose.
    Keywords: lobbying, referendum, rametrized comexity
    JEL: D72
    Date: 2006
  10. By: Adam Geršl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank, Prague, Czech Republic)
    Abstract: As the independence of national central banks in the European Union is one of the main institutional features of the monetary constitution of the EU, the paper tries to find out whether central banks are factually independent in their decisions about interest rates if they face political pressure. The Havrilesky (1993) methodology of the political pressure on central banks is applied to the Czech National Bank, a central bank of one of the new EU Member States, in order to test whether the conducted monetary policy has been influenced by political pressure from various interest groups.
    Keywords: political economy; monetary policy; pressure groups
    JEL: E52 D78
    Date: 2006–04
  11. By: Schmitz, Patrick W.; Tröger, Thomas
    Abstract: Majority rules are frequently used to decide whether or not a public good should be provided, but will typically fail to achieve an efficient provision. We provide a worst-case analysis of the majority rule with an optimally chosen majority threshold, assuming that voters have independent private valuations and are ex-ante symmetric (provision cost shares are included in the valuations). We show that if the population is large it can happen that the optimal majority rule is essentially no better than a random provision of the public good. But the optimal majority rule is worst-case asymptotically efficient in the large-population limit if (i) the voters' expected valuation is bounded away from 0, and (ii) an absolute bound for valuations is known.
    Keywords: majority rule; public goods
    JEL: D72 D82
    Date: 2006–11
  12. By: Cremer, Helmuth; De Donder, Philippe; Maldonado, Darío; Pestieau, Pierre
    Abstract: This paper studies the determination through majority voting of a pension scheme when society consists of far-sighted and myopic individuals. All individuals have the same basic preferences but myopics tend to adopt a short term view (instant gratification) when dealing with retirement saving. Consequently, they will find themselves with low consumption after retirement and regret their insufficient savings decisions. Henceforth, when voting they tend to commit themselves into forced saving. We consider a pension scheme that is characterized by two parameters: the payroll tax rate (that determines the size or generosity of the system) and the 'Bismarckian factor' that determines its redistributiveness. Individuals vote sequentially. We examine how the introduction of myopic agents affects the generosity and the redistributiveness of the pension system. Our main result is that a flat pension system is always chosen when all individuals are of one kind (all far-sighted or all myopic), while a less redistributive system may be chosen if society is composed of both myopic and far-sighted agents. Furthermore, while myopic individuals tend to prefer larger payroll taxes than their far-sighted counterparts, the generosity of the system does not always increase with the proportion of myopics.
    Keywords: dual-self model; myopia; social security
    JEL: D91 H55
    Date: 2006–11
  13. By: SLINKO, Arkadii; KORAY, Semih
    Abstract: It is not uncommon that a society facing a choice problem has also to choose the choice rule itself. In such situation voters’ preferences on alternatives induce preferences over the voting rules. Such a setting immediately gives rise to a natural question concerning consistency between these two levels of choice. If a choice rule employed to resolve the society’s original choice problem does not choose itself when it is also used in choosing the choice rule, then this phenomenon can be regarded as inconsistency of this choice rule as it rejects itself according to its own rationale. Koray (2000) proved that the only neutral, unanimous universally self-selective social choice functions are the dictatorial ones. Here we in troduce to our society a constitution, which rules out inefficient social choice rules. When inefficient social choice rules become unavailable for comparison, the property of self-selectivity becomes weaker and we show that some non-trivial self-selective social choice functions do exist. Under certain assumptions on the constitution we describe all of them.
    Keywords: social choice function, social choice corresndence, self-selectivity, resistance to cloning
    JEL: D7
    Date: 2006
  14. By: Tomáš Cahlík (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Adam Geršl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank, Prague, Czech Republic); Michal Hlaváček (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank, Prague, Czech Republic); Michael Berlemann (Faculty of Business Management and Economics, Dresden University of Technology, Dresden, Germany)
    Abstract: According to efficient markets theory, the stock price on a competitive market is the best estimate of the stock’s present value. This is the basic assumption for predictions using experimental markets. The first part of the paper describes the features of such an experimental market, discusses shortly its advantages in providing predictions as compared to traditional opinion polls and identifies some assumptions that can influence its efficiency and predictive accuracy. The second part of the paper is then devoted to the results of the first experimental market organized in the Czech Republic, the political stock market on the Czech parliamentary elections into the Chamber of Deputies in June 2002.
    Keywords: Experimental economics; political stock markets; predictions
    JEL: C90 D80 G14
    Date: 2005
  15. By: Spilimbergo, Antonio
    Abstract: Do foreign educated individuals play a role in promoting democracy in their home country? Despite the large amount of private and public resources spent on foreign education, there is no systematic evidence that foreign educated individuals foster democracy in their home countries. Using a unique panel dataset on foreign students starting from 1950, I show that indeed foreign-educated individuals promote democracy in their home country, but only if the foreign education is acquired in democratic countries. The results are robust to reverse causality, country-specific omitted variables, and inclusion of a variety of control variables. The results are stronger for small countries.
    Keywords: democracy; development; education; institutions; international students
    JEL: D72 D74 H11
    Date: 2006–11
  16. By: Thomas Siedler (University of Essex, DIW Berlin and IZA Bonn)
    Abstract: Recent years have witnessed a rise in right-wing extremism among German youth and young adults. This paper investigates the extent to which the experience of parental unemployment during childhood affects young people’s far right-wing attitudes and xenophobia. Estimates from three different German data sets show a positive relationship between growing up with unemployed parents and right-wing extremism, with xenophobia in particular. This paper uses differences in unemployment levels between East and West Germany, both before and after reunification, to investigate a causal relationship. Instrumental variables estimates suggest strong and significant effects of parental unemployment on right-wing extremism. This is consistent with classical theories of economic interest and voting behaviour which predict that persons who develop feelings of economic insecurity are more susceptible to right-wing extremism and anti-foreign sentiments.
    Keywords: right-wing extremism, unemployment, instrumental variable, intergenerational links, panel estimators, matching
    JEL: C23 D72 J6 P16
    Date: 2006–10
  17. By: Matthew Baker (Department of Economics, Hunter College - City University of New York); Erwin Bulte (Development Economics Group, Wageningen University); Jacob Weisdorf (Department of Economics, University of Copenhagen)
    Abstract: We analyze development trajectories of early civilizations where population size and technology are endogenous, and derive conditions under which such societies optimally “switch” from anarchy to hierarchy – when it is optimal to elect and support a ruler. The ruler provides an efficient level of law and order, but creams off part of society’s surplus for his own consumption. Switching to hierarchy occurs if the state of technology exceeds a threshold value, but societies may also be “trapped” at lower levels of technology – perpetuating conditions of anarchy. We present empirical evidence based on the Standard Cross Cultural Sample that support the model’s main predictions.
    Keywords: origins of institutions; common defense; raiding; hunter-gatherers; SCCS
    JEL: D74 O10 N4
    Date: 2006–12
  18. By: František Turnovec (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: During last two decades we observe a boom of power indices literature related to constitutional analysis of European Union institutions and distribution of intrainstitutional and inter-institutional influence in the European Union decision making. Growing interest to power indices methodology leads also to reconsideration of the methodology itself. In this paper a new general a priori voting power measure is proposed distinguishing between absolute and relative power. This power measure covers traditional Shapley-Shubik and Penrose-Banzhaf power indices as its special cases.
    Keywords: Absolute power; cooperative games; decisive situation; I-power; pivot; power indices; P-power; relative power; swing
    JEL: D71 D74
    Date: 2005
  19. By: Desmet, Klaus; Le Breton, Michel; Ortuño-Ortín, Ignacio; Weber, Shlomo
    Abstract: This paper presents a model of nation formation in which culturally heterogeneous agents vote on the optimal level of public spending. Larger nations benefit from increasing returns in the provision of public goods, but bear the costs of greater cultural heterogeneity. This tradeoff induces agents' preferences over different geographical configurations, thus determining the likelihood of secession and unification. We provide empirical support for choosing genetic distances as a proxy of cultural heterogeneity. By using data on genetic distances, we examine the stability of the current map of Europe and identify the regions prone to secession and the countries that are more likely to merge. Our framework is further applied to estimate the welfare gains from European Union membership.
    Keywords: cultural heterogeneity; European Union; genetic diversity; nation formation; secession; unification
    JEL: D70 F02 H40 H77
    Date: 2006–11
  20. By: Peter Katuscak; Joel Slemrod
    Abstract: We analyze the determinants of trust and trustworthiness in a matching equilibrium when agents have heterogeneous predispositions towards trusting and trustworthy behavior, there is transmission of information via both individual and collective reputations, and successful matches may persist. In new matches, more social trustworthiness breeds more individual trust. However, whether more social trust breeds more or less individual trustworthiness depends on the observability of individual histories of play. If it is low, more trust generally breeds less trustworthiness, while if it is high, more trust breeds more trustworthiness. We combine the links between social trust and trustworthiness to construct a general trust/trustworthiness equilibrium and discuss its properties.
    Keywords: Trust, trustworthiness, reputation.
    JEL: C7
    Date: 2006–09

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