nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒12‒16
thirteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Political Economy of Warfare By Edward L. Glaeser
  2. Democracy, Rationality and Morality By Dennis C. Mueller
  3. Coalition Formation in Political Games By Daron Acemoglu; Georgy Egorov; Konstantin Sonin
  4. Resilience through Restructuring: Swedish Policy-Making Style and the Consensus on Liberalizations 1980–2000 By Bergh, Andreas; Erlingsson, Gissur
  5. Dictators, Repression and the Median Citizen: An “Eliminations Model” of Stalin’s Terror (Data from the NKVD Archives) By Paul R. Gregory; Philipp J.H. Schr oder; Konstantin Sonin
  6. Group and individual risk preferences : a lottery-choice experiment By David Masclet; Youenn Loheac; Laurent Denant-Boemont; Nathalie Colombier
  7. The Problem of Legitimacy in the European Polity. Is Democratization the Answer? By Claus Offe; Ulrich K. Preuss
  8. Family and Politics: does parental unemployment cause right-wing extremism? By Thomas Siedler
  9. The Emergence of Institutions By Santiago Sanchez-Pages; Stephane Straub
  10. Minority Rights and Charles Tilly’s Stateness By Franke Wilmer
  11. What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization By Kyle Bagwell; Robert W. Staiger
  12. How does leadership support the activity of communities of practice ? By Paul Muller
  13. Panel Data Analysis of the Time-Varying Determinants of Corruption By Guillaume R. Fréchette

  1. By: Edward L. Glaeser
    Abstract: Warfare is enormously destructive, and yet countries regularly initiate armed conflict against one another. Even more surprisingly, wars are often quite popular with citizens who stand to gain little materially and may lose much more. This paper presents a model of warfare as the result of domestic political calculations. When incumbents have an edge in fighting wars, they may start wars even if those wars run counter to their country's interests. Challengers are particularly likely to urge aggression when they are unlikely to come into power and when the gains from coming to power are large. Leaders who start wars will naturally try to create hatred by emphasizing the threat and despicable character of the rival country. Wars will be more common in dictatorships than in democracies both because dictators have stronger incentives to stay in power and because they have greater control over the media.
    JEL: A1
    Date: 2006–12
  2. By: Dennis C. Mueller
    Abstract: The fundamental, underlying assumption in economics, public choice, and increasingly in political science and other branches of the social sciences is that individuals are rational actors. Many people have questioned the realism of this assumption, however, and considerable experimental evidence seems to refute it. This paper builds on recent findings from the field of evolutionary psychology to discuss the evolution of rational behavior in humans. It then goes on to relate this evolutionary process to the evolution of political institutions and in particular of democratic institutions. Length 58 pages
    Date: 2006–11
  3. By: Daron Acemoglu (MIT); Georgy Egorov (Harvard); Konstantin Sonin (CEFIR)
    Abstract: We study the formation of a ruling coalition in political environments. Each individual is endowed with a level of political power. The ruling coalition consists of a subset of the individuals in the society and decides the distribution of resources. A ruling coalition needs to contain enough powerful members to win against any alternative coalition that may challenge it, and it needs to be self-enforcing, in the sense that none of its subcoalitions should be able to secede and become the new ruling coalition. We first present an axiomatic approach that captures these notions and determines a (generically) unique ruling coalition. We then construct a simple dynamic game that encompasses these ideas and prove that the sequentially weakly dominant equilibria (and the Markovian trembling hand perfect equilibria) of this game coincide with the set of ruling coalitions of the axiomatic approach. We also show the equivalence of these notions to the core of a related non-transferable utility cooperative game. In all cases, the nature of the ruling coalition is determined by the power constraint, which requires that the ruling coalition be powerful enough, and by the enforcement constraint, which imposes that no subcoalition of the ruling coalition that commands a majority is self-enforcing. The key insight that emerges from this characterization is that the coalition is made self-enforcing precisely by the failure of its winning subcoalitions to be self-enforcing. This is most simply illustrated by the following simple finding: with simple majority rule, while three-person (or larger) coalitions can be self-enforcing, two-person coalitions are generically not self-enforcing. Therefore, the reasoning in this paper suggests that three-person juntas or councils should be more common than two-person ones. In addition, we provide conditions under which the grand coalition will be the ruling coalition and conditions under which the most powerful individuals will not be included in the ruling coalition. We also use this framework to discuss endogenous party formation.
    Keywords: Coalition Formation, Collective Choice, Cooperative Game Theory, Political Economy,Self-Enforcing Coalitions, Stability
    JEL: D71 D74 C71
    Date: 2006–11
  4. By: Bergh, Andreas (Ratio); Erlingsson, Gissur (Ratio)
    Abstract: In 1980, Sweden was a highly regulated economy with several state monopolies and low levels of economic freedom. Less than 20 years later, liberal reforms have turned Sweden into one of the worlds most open economies with a remarkable increase in economic freedom. While taxes and expenditure shares of GDP remain high, there has been a profound restructuring of Sweden’s economy in the 1980s and 1990s. Furthermore, the degree of political consensus is striking, both regarding the policies that characterized Sweden up to 1980, as well as the subsequent liberalizations. Since established theories have difficulties explaining institutional change in heavily institutionalized settings, we seek to understand how the Swedish style of policy-making produced this surprising political consensus on liberal reforms. Building on previous research, we underscore the importance of three complementary factors: (i) Policy-making in Sweden has always been influenced by, and intimately connected to, social science. (ii) Government commissions have functioned as ‘early warning systems’, pointing out future challenges and creating a common way to perceive problems. (iii) As a consequence from social science influence and the role of public investigations, political consensus has evolved as a specific feature of Swedish style of policy-making. The approach to policy-making has been rationalistic, technocratic and pragmatic. Thus, the political consensus in Sweden on substantial liberalizations is no more surprising than the political consensus on the development of the welfare state.
    Keywords: Sweden; Welfare state; institutional change; globalization; policy-making; policy-style
    JEL: H10 H11 H83
    Date: 2006–12–08
  5. By: Paul R. Gregory (University of Houston and Hoover Institution, Stanford University); Philipp J.H. Schr oder (Aarhus School of Business, Denmark); Konstantin Sonin (CEFIR/NES)
    Abstract: This paper sheds light on dictatorial behavior as exemplified by the mass terror campaigns of Stalin. Dictatorships – unlike democracies where politicians choose platforms in view of voter preferences – may attempt to trim their constituency and thus ensure regime survival via the large scale elimination of citizens. We formalize this idea in a simple model and use it to examine Stalin’s three large scale terror campaigns with data from the NKVD state archives that are accessible after more than 60 years of secrecy. Our model traces the stylized facts of Stalin’s terror and identifies parameters such as the ability to correctly identify regime enemies, the actual or perceived number of enemies in the population, and how secure the dictators power base is, as crucial for the patterns and scale of repression.
    Keywords: Dictatorial systems, Stalinism, Soviet State and Party archives, NKVD, OPGU,Repression
    JEL: P00 N44 P26
    Date: 2006–11
  6. By: David Masclet (CREM - Centre de Recherche en Economie et Management - [CNRS : UMR6211] - [Université Rennes I][Université de Caen], CIRANO - [Centre Interuniversitaire de Recherche en ANalyse des Organisations]); Youenn Loheac (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Laurent Denant-Boemont (CREM - Centre de Recherche en Economie et Management - [CNRS : UMR6211] - [Université Rennes I][Université de Caen]); Nathalie Colombier (CREM - Centre de Recherche en Economie et Management - [CNRS : UMR6211] - [Université Rennes I][Université de Caen])
    Abstract: This paper focuses on decision making under risk, comparing group and individual risk preferences in a lottery-choice experiment inspired by Holt and Laury (2002). The experiment presents subjects with a menu of unordered lottery choices which allows us to measure risk aversion. In the individual treatment, subjects make lottery choices individually ; in the group treatment, each subject was placed in an anonymous group of three, where unanimous lottery choice decisions were made via voting. Finally, in a third treatment, called the choice treatment, subjects could choose whether to be on their own or in a group. Our main findings are that groups are more likely than individuals to choose safe lotteries for decisions with low winning percentages. Moreover, groups converge toward less risky decisions because subjects who were relatively less risk averse were more likely to change their vote in order to conform to the group average decision ; more risk-averse individuals were less likely to change their preferences. Finally our results reveal a positive relationship between preference for risk and willingness to decide alone.
    Keywords: Experiment, decision rule, individual decision, group decision.
    Date: 2006–12–07
  7. By: Claus Offe; Ulrich K. Preuss
    Abstract: The authors discuss potential sources of legitimacy of the EU, i. e. of the normative bindingness of its decisions. After rejecting the views that such legitimacy is either not needed, not feasible, or provided for already, they focus upon the corrosive impact of the EU upon democratic legitimacy within member states. Brussels-based 'governance' is essentially uncontested and can hardly provide for the legitimacy that results from the interplay between government and opposition within nation states. The problem boils down to achieving legitimacy in the absence of the political community of a 'demos'. The paper outlines a solution to this problem that relies on the apparently oxymoronic model of a 'republican empire' - a political community, that is, which is held together not by the bonds of some presumed sameness, but, to the contrary, by the shared contractual recognition of the dissimilarity of its constituent parts from which legitimacy can flow.
    Keywords: democracy; legitimacy; diversity/homogeneity; governance; democratization
    Date: 2006–12–05
  8. By: Thomas Siedler (Institute for Social and Economic Research)
    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.
    Date: 2006–11
  9. By: Santiago Sanchez-Pages; Stephane Straub
    Abstract: This paper analyzes how institutions aimed at coordinating economic interactions may appear. We build a model in which agents play a prisoners’ dilemma game in a hypothetical state of nature. Agents can delegate the task of enforcing cooperation in interactions to one of them in exchange for a proper compensation. Two basic commitment problems stand in the way of institution formation. The first one is the individual commitment problem that arises because an agent chosen to run the institution may prefer to renege ex post. The second one is a “collective commitment” problem linked to the lack of binding agreements on the fee that will be charged by the centre once it is designated. This implies first that a potentially socially efficient institution may fail to arise because of the lack of individual incentives, and second that even if it arises, excessive rent extraction by the institution may imply a sub-optimal efficiency level, explaining the heterogeneity of observed institutional arrangements. An institution is less likely to arise in small groups with limited endowments, but also when the underlying commitment problem is not too severe. Finally, we show that the threat of secession by a subset of agents may endogenously solve part of the second commitment problem.
    Keywords: Institution, Coordination, State of nature, Secession.
    JEL: C72 D02 O17 Z13
  10. By: Franke Wilmer
    Abstract: The connection between nation and state is far from settled, and though naturalized in ordinary political discourse, it is often regarded with circumspection by many social scientists. Can Charles Tilly’s application of Nettl’s idea of stateness to European state formation illuminate the nation/state relationship and if so, what does this reveal about the tension between national majorities and national minorities that produces civil strife, conflict, and even violence within states? This article explores the implications of the interplay between the international normative framework produced by European state formation that inevitably creates minorities in states on the one hand, and Tilly’s notion of stateness, on the other. How does the existence of minorities and the de facto privileging of national majorities within the state affect its ability to develop and sustain politically stable authoritative institutions?
    Keywords: minorities; nationality; Nation-state; pluralism; state building
    Date: 2006–05–20
  11. By: Kyle Bagwell; Robert W. Staiger
    Abstract: What do trade negotiators negotiate about? There are two distinct theoretical approaches in the economics literature that offer an answer to this question: the terms-of-trade theory and the commitment theory. The terms-of-trade theory holds that trade agreements are useful to governments as a means of helping them escape from a terms-of-trade-driven Prisoners' Dilemma. The commitment theory holds that trade agreements are useful to governments as a means of helping them make commitments to the private sector. These theories are not mutually exclusive, but there is little direct evidence on the empirical relevance of either. We attempt to investigate empirically the purpose served by market access commitments negotiated in the World Trade Organization. We find broad support for the terms-of-trade theory in the data. We claim more tentatively to find support in the data for the commitment theory as well.
    JEL: F02 F1 F11 F13 F15 F5 F51 F53 F59
    Date: 2006–12
  12. By: Paul Muller
    Abstract: the purpose of this paper is to present leadership as an important mechanism underlying the coordination and the cohesion of communities of practice. More precisely, it will be shown that an important factor conditioning the coordination and the cohesion of a community rests on the leaders’ capacity to influence individual behaviors. This capacity of influence is grounded on the high degrees of reputation and trust they enjoy within the community. However, coordination of individual behaviors is not ensured by the mere existence of leadership. A simulation model points out the conditions under which leadership forms an efficient coordinating device.
    Keywords: communities of practice, leadership, reputation, exit, loyalty, coordination, social simulation.
    JEL: L23 D23
    Date: 2006
  13. By: Guillaume R. Fréchette
    Abstract: There is a long history of models attempting to identify the causes of corruption, yet empirical analysis is complicated. Not only is data difficult to obtain and often available only for few countries and a limited number of years, but such estimation involves inherent complexities. This paper focuses on the use of panel data techniques to better identify factors that affect bureaucratic corruption. Furthermore, this paper identifies an endogeneity problem which arises in the analysis of the causes of corruption, and a new instrumental variable is proposed to solve it. To help in this endeavor, a data set is employed which provides information for as many as 135 countries over a span of sixteen years. Results show that neglecting the endogeneity problem leads to severely biased results. Using panel data techniques reveals that the availability of rents is a crucial determinant of corruption and that previous research may have underestimated the economic significance of rents on corruption. Furthermore, corruption is shown to be procyclical. <P>Depuis longtemps, des modèles sont utilisés dans le but de déterminer les causes de la corruption. Toutefois, l’analyse empirique demeure complexe. Qui plus est, les données sont difficiles à recueillir et couvrent souvent un nombre restreint de pays et une période limitée. Ce genre d’évaluation présente aussi des complexités inhérentes. Le présent document met l’accent sur le recours à des techniques de données de panels dans le but de mieux connaître les facteurs qui influent sur la corruption bureaucratique. En outre, cette analyse souligne le problème d’endogénéité qui ressort de l’analyse des causes de la corruption et propose une nouvelle variable instrumentale permettant de contrer celui-ci. Pour faciliter la démarche, ce document utilise un ensemble de données fournissant des renseignements sur au moins 135 pays et pour une période de seize ans. Les résultats indiquent que si le problème d’endogénéité n’est pas pris en compte, les résultats sont sérieusement biaisés. De plus, la corruption est décrite comme étant procyclique.
    Keywords: corruption, endogeneity, income, rents, corruption, endogénéité
    JEL: H8 K4 C33
    Date: 2006–12–01

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