nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒01‒06
six papers chosen by
Eugene Beaulieu
University of Calgary

  1. Goal-Independent Central Banks: Why Politicians Decide to Delegate By Christopher W. Crowe
  2. Rethinking the Governance of the International Monetary Fund By Abbas Mirakhor; Iqbal Mehdi Zaidi
  3. Elements of Optimal Monetary Policy Design By Jerome Vandenbussche
  4. Political Price Cycles in Regulated Industries: Theory and Evidence By Rodrigo Moita; Claudio Paiva
  5. Ethnic Persistence, Assimilation and Risk Proclivity By Holger Bonin; Amelie Constant; Konstantinos Tatsiramos; Klaus F. Zimmermann
  6. The Compensating Income Variation of Social Capital By Wim Groot; Henriette Maassen van den Brink; Bernard van Praag

  1. By: Christopher W. Crowe
    Abstract: A motivation for central bank independence (CBI) is that policy delegation helps politicians manage diverse coalitions. This paper develops a model of coalition formation that predicts when delegation will occur. An analysis of policy preferences survey data and CBI indicators supports the predictions. Case studies, drawn from several countries' recent past and the nineteenth-century United States, provide further support. Finally, the model explains why the expected negative relationship between CBI and inflation is not empirically robust: endogenous selection biases the estimated effect towards zero. The data confirm this.
    Keywords: Central bank independence , inflation , coalition formation , treatment effects , Central banks , Inflation , Political economy ,
    Date: 2006–11–17
  2. By: Abbas Mirakhor; Iqbal Mehdi Zaidi
    Abstract: This paper attempts to set out the principal issues that need to be resolved in formulating a proposal for quotas and voice reform in the IMF that could command broad support. Following John Rawls, we argue that "justice is the first virtue of social institutions," and we use his theory of justice to provide a method for understanding what should be the case, in the context of voice and voting shares, before international institutions, such as the IMF, are to be justifiable to their members. The implementation of this process suggests, among other things, that a major revision of the quota formulas is long overdue, and leaving this unaddressed raises serious questions regarding the IMF's governance which could develop into a core mission risk and jeopardize the relevance of the institution.
    Keywords: Governance , International Monetary Arrangements and Institutions , International Monetary Fund , Quota increases , Quota distribution , Voting power , Quota calculations , Governance , Transparency ,
    Date: 2006–12–12
  3. By: Jerome Vandenbussche
    Abstract: The move from individual decision making to committee decision making is widely seen as a major evolution in contemporary central banking. This paper reviews the relevant economics and social psychology literatures with a view to providing some insights into the question of optimal monetary policy committee design. While the preference aggregation literature points to the effect of committee structure on the extent of the time inconsistency problem and its associated costs, the belief aggregation literature analyzes how different committee structures affect the efficiency of information pooling, the process of social influence, and collective accuracy. In conclusion, we highlight the main tradeoffs that the analysis has brought to light and point to directions for future research.
    Keywords: Monetary policy , collective decision making , committees ,
    Date: 2006–12–18
  4. By: Rodrigo Moita; Claudio Paiva
    Abstract: This paper develops a model of political regulation in which politicians set the regulated price in order to maximize electoral support by signaling to voters a pro-consumer behavior. Political incentives and welfare constraints interact in the model, yielding an equilibrium in which the real price in a regulated industry may fall in periods immediately preceding an election. The paper also provides empirical support for the theoretical model. Using quarterly data from 32 industrial and developing countries over 1978-2004, we find strong statistical and econometric evidence pointing toward the existence of electoral price cycles in gasoline markets.
    Keywords: Political cycle , regulated prices , gasoline prices , Political economy , Price controls , Gasoline prices ,
    Date: 2006–11–27
  5. By: Holger Bonin (IZA and DIW Berlin); Amelie Constant (IZA, Georgetown University and DIW DC); Konstantinos Tatsiramos (IZA); Klaus F. Zimmermann (IZA, Bonn University and DIW Berlin)
    Abstract: The paper investigates the role of social norms as a determinant of individual attitudes by analyzing risk proclivity reported by immigrants and natives in a unique representative German survey. We employ factor analysis to construct measures of immigrants’ ethnic persistence and assimilation. The estimated effect of these measures on risk proclivity suggests that adaptation to the attitudes of the majority population closes the immigrantnative gap in risk proclivity, while stronger commitment to the home country preserves it. As risk attitudes are behaviorally relevant, and vary by ethnic origin, our results could also help explain differences in economic assimilation of immigrants.
    Keywords: risk attitudes, ethnic persistence, assimilation, second generation effects, gender
    JEL: D1 D81 F22 J15 J16 J31 J62 J82
    Date: 2006–12
  6. By: Wim Groot (University of Maastricht and SCHOLAR, University of Amsterdam); Henriette Maassen van den Brink (SCHOLAR, University of Amsterdam); Bernard van Praag (SCHOLAR, University of Amsterdam, DIW Berlin, CESifo and IZA Bonn)
    Abstract: There is a small but growing literature on the determinants of social capital. Most of these studies use a measure of trust to define social capital empirically. In this paper we use three different measures of social capital: the size of the individual´s social network, the extent of their social safety net and membership of unions or associations. A second contribution to the literature is that we analyze what social capital contributes to our well-being. Based on this, we calculate the compensating income variation of social capital. We find differences in social capital when we differentiate according to individual characteristics such as education, age, place of residence, household composition and health. Household income generally has a statistically significant effect. We find a significant effect of social capital on life satisfaction. Consequently, the compensating income variation of social capital is substantial.
    Keywords: life satisfaction, social capital
    JEL: D1 D6
    Date: 2006–12

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