nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒02‒10
fourteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Political Economy of Warfare By Edward L. Glaeser
  2. The Preferences of Voters Over Road Tolls and Road Capacity By Amihai Glazer; Stef Proost
  3. Should Political Scientists Use the Self-Confirming Equilibrium Concept? Explaining the Choices of Cognitively Limited Actors By Lupia, Arthur; Zharinova, Natasha; Levine, Adam Seth
  4. The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 19th Century By Efraim Benmelech; Tobias J. Moskowitz
  5. The Farm, the City, and the Emergence of Social Security By Elizabeth M. Caucutt; Thomas F. Cooley; Nezih Guner
  6. How italian electors react to gender quotas? A random utility model of voting behaviour By Bonomi Genny; Brosio Giorgio; Di Tommaso Maria Laura
  7. On the Value of Participation: Endogenous Emergence of Social Norms in a Three-Player Ultimatum Game By Grimalda, Gianluca; Kar, Anirban; Proto, Eugenio
  8. With or Against the People? The Impact of a Bottom-Up Approach on Tax Morale and the Shadow Economy By Benno Torgler; Friedrich Schneider; Christoph A. Schaltegger
  9. The Desire for Income Equality Amongst the UK Adult Population By Cowling, Marc
  10. Law and State Power: The Institutional Roots of the Strong State in Islamic History By Metin Cosgel; Rasha Ahmed; Thomas Miceli
  11. Political Decisions, Defence and Growth By Erdogdu, Oya Safinaz
  12. Growth, public investment and corruption with failing institutions By David, DE LA CROIX; Clara, DELAVALLADE
  13. Social Capital and Relative Income Concerns: Evidence from 26 Countries By Justina A.V. Fischer; Benno Torgler
  14. Power By Samuel Bowles; Herbert Gintis

  1. By: Edward L. Glaeser
    Date: 2007–01–26
  2. By: Amihai Glazer (Department of Economics, University of California-Irvine); Stef Proost (Faculty of Economics and Applied Economics, Catholic University of Leuven)
    Abstract: We consider a congestible road, where the cost of travel increases with the number of users on the road and decreases with capacity. Those persons who do not use the road favor a toll which would maximize revenue, and they oppose spending on road capacity. Users of the road prefer a low toll and a large capacity financed by general revenues. We describe conditions that make majority voting lead to a toll and capacity level that equals the socially optimal toll and capacity, that is smaller, or that is larger. This model can also explain the decrease over time of user fees for road use.
    Keywords: Positive qnalysis of policy-paking and implementation; Externalities; Government policy on transportation
    JEL: D78 H23 L98
    Date: 2007–01
  3. By: Lupia, Arthur; Zharinova, Natasha; Levine, Adam Seth
    Abstract: Many claims about political behavior are based on implicit assumptions about human reasoning. One such assumption, that political actors think in complex and similar ways when assessing strategies, is nested within widely used game theoretic equilibrium concepts. Empirical research casts doubt on the validity of these assumptions in important cases. For example, the finding that some citizens expend limited cognitive energy to social concerns runs counter to the assumption that citizens (e.g., jurors) base all decisions on complex thoughts. Similarly, evidence that some political actors (e.g., Democrats and Republicans) think about political cause-and-effect quite differently runs against the assumption that all players reason about politics in similar ways. The self-confirming equilibrium (SCE) concept provides a means for evaluating the robustness of theoretical conclusions to the introduction of a broad range of psychological assumptions. Through arguments and examples, we explain opportunities and challenges inherent in using the SCE concept. We find that the concept provides an improved foundation for more serious and constructive interactions between formal theoretic and psychology-oriented literatures.
    Keywords: political science; equilibrium concepts; cognition; jury decision making; self-confirming equilibrium; Nash equilibrium; need for cognition; conjecture; belief
    JEL: C72 H00 D83
    Date: 2007–01–28
  4. By: Efraim Benmelech; Tobias J. Moskowitz
    Abstract: We investigate the causes and consequences of financial regulation by studying the political economy of U.S. state usury laws in the 19th century. We find evidence that usury laws were binding and enforced and that lending activity was affected by rate ceilings. Exploiting the heterogeneity across states and time in regulation, enforcement, and market conditions, we find that regulation tightens when it is less costly and when it coexists with other economic and political restrictions that exclude certain groups. Furthermore, the same determinants of financial regulation that favor one group (and restrict others) are associated with higher (lower) future economic growth rates. The evidence suggests regulation is the outcome of private interests using the coercive power of the state to extract rents from other groups, highlighting the endogeneity of financial development and growth.
    JEL: G2 G38 N2 O16
    Date: 2007–01
  5. By: Elizabeth M. Caucutt; Thomas F. Cooley; Nezih Guner
    Abstract: During the period from 1880 to 1950, publicly managed retirement security programs became an important part of the social fabric in most advanced economies. In this paper we study the social, demographic and economic origins of social security. We describe a model economy in which demographics, technology, and social security are linked together. We study an economy with two locations (sectors), the farm (agricultural) and the city (industrial). The decision to migrate from rural to urban locations is endogenous and linked to productivity differences between the two locations and survival probabilities. Furthermore, the level of social security is determined by majority voting. We show that a calibrated version of this economy is consistent with the historical transformation in the United States. Initially a majority of voters live on the farm and do not want to implement social security. Once a majority of the voters move to the city, the median voter prefers a positive social security tax, and social security emerges.
    JEL: E61 H2 H55
    Date: 2007–01
  6. By: Bonomi Genny; Brosio Giorgio (University of Turin); Di Tommaso Maria Laura (University of Turin)
    Abstract: The share of elected positions held by women in democratic countries is still very small. To increase this share many countries bave introduced gender quotas in their electoral rules. In Italy gender quotas, requiring a minimum number of women in electoral lists, bave been introduced for elections at different levels of goverrnnent. This type of quotas does noi ensure in ara open list electoral system that women will get more votes. This effect will depend ora tbc extent to which there is an anti-female bias among voters. To test the presence of an anti-female bias in voting behaviour we set up a random utility model for voting behaviour. The model is then tested ora tbc elections for regional councils in 1995 and 2000. The results show that a higher share of women in party lists leads to a significant increase in the probability that voters will choose a female candidate. This implies that voters are willing to vote more for women (there is noi a perfect gender bias against women). Other important factors influencing voters' behaviour are the length of the party list (the longer the party list, and thus the greater the site of electoral districts, the lower the probability of voting for ara inctimbent candidate) and the position of the party in terms of liberal values. The more tbc party is liberal in terms of these values, tbc higher tbc probability that a woman will be voted.
    Date: 2006–09
  7. By: Grimalda, Gianluca; Kar, Anirban; Proto, Eugenio
    Abstract: We report results from two different settings of a 3-player ultimatum game. Under the monocratic rule, a player is randomly selected to make an offer to two receivers. Under the democratic rule, all three players make a proposal, and one proposal is then extracted. A majority vote is required to implement the proposal. Although the two rules are strategically equivalent, different patterns of behaviour seem to emerge as the number of interactions increase. Under the monocratic rule proposers seem to be entitled to claim a larger share of the pie, and receivers more likely to accept, in comparison with the democratic rule. We speculate that ‘institutions’ allowing more participation in the process of collective choice lead to more ‘socially responsible’ behaviour in the players.
    Keywords: Majority ultimatum; participation; institutions; social norms
    JEL: D72 C92 C78
    Date: 2006–12–27
  8. By: Benno Torgler; Friedrich Schneider; Christoph A. Schaltegger
    Abstract: Policymakers often propose strict enforcement strategies to fight the shadow economy and to increase tax morale. However, there is also a bottom-up approach: decentralizing the political power to those who are close to the problems and give them a direct political say. This paper analyses the impact of direct democracy and local autonomy on tax morale and the size of the shadow economy. We use two different data sets on tax morale at the individual level (World Values Survey and International Social Survey Programme), and macro data of the size of the shadow economy to systematically analyse the effects of institutions in Switzerland, a country where participation rights and the degree of federalism vary across different cantons. The findings suggest that direct democratic rights and local autonomy, have a significantly positive effect on tax morale and the size of the shadow economy.
    Keywords: Tax Morale; Shadow Economy; Tax Compliance; Tax Evasion; Direct Democracy; Local Autonomy
    JEL: H26 H73 D70
    Date: 2007–01
  9. By: Cowling, Marc
    Abstract: Whilst there is a volume of literature mapping out the evolution, causes and implications of income inequality across countries, there is little in-depth evidence concerning the desire of populations for income equality. This paper tackles this gap by presenting UK evidence from a large-scale adult population survey for 2003. The headline result is that 75% of the UK adult population prefer a fairer income distribution. Our econometric findings suggest that women are more likely to favour income equality than men and that better educated people are more tolerant of income inequality. Only the very rich favour income inequality. Geography is important, with the Welsh, Scots and Northern Irish all more likely to prefer a more equitable income distribution.
    Keywords: income inequality; self-interest; voting
    JEL: H0
    Date: 2007–01–30
  10. By: Metin Cosgel (University of Connecticut); Rasha Ahmed (University of Connecticut); Thomas Miceli (University of Connecticut)
    Abstract: The struggle for power has been a persistent phenomenon throughout history, involving the rulers, general public, and various other interest groups. As one of these groups, the legal community has been in a unique position to regulate the relationship between the ruler and the public because of its dual responsibilities to provide services to the public and to impose constraints on the rulers. Using a political economy model of state power and focusing on the power of the rulers to tax and spend, we study the role of the legal community in regulating the coercive powers of the rulers in Islamic history. We examine the power relationship between the rulers, the legal community, and the general public, explain long term trends in the development of the rulersÇ power, and identify the institutional roots of the strong state in the Ottoman Empire and other Islamic states.
    Keywords: state power, taxation, political economy, Islamic Law, legal community
    Date: 2007–01
  11. By: Erdogdu, Oya Safinaz
    Abstract: This paper is another attempt to be a link between studies on political stability and growth and studies on military expenditures and growth. However, despite the other two studies in that concept, this paper takes military expenditures as a tool of a democratic government to achieve economic stability and growth. For that purpose, the paper takes political economics and defense literature arguments together and provides and empirical analyzes of the relations between political stability, economic growth and military expenditures. Based on the theoretical model developed by Blomberg (1996), the vector autoregression analyzes for Turkey, a democratic country open to all kinds of terrorism, indicates the positive impact of military expenditures on private sector investment decisions and so on economic growth.
    Keywords: Defense; Political Stability; Growth; VAR
    JEL: C32
    Date: 2006
  12. By: David, DE LA CROIX (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Clara, DELAVALLADE
    Abstract: Corruption is thought to prevent poor countries from catching-up. We analyze one channel through which corruption hampers growth : public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distortion, we propose an optimal growth model where households vote for the composition of public spending subject to an incentive constraint reflecting individualsÕ choice between productive activity and rent-seeking. At equilibrium, the intensity of corruption and the structure of public investment are determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption yet still the possibility of corruption distorts the allocation of public investment, thus hampering growth. We test the implications of the model on a panel of countries estimating a system of equations which instrumental variables. We find that countries with a high predatory technology invest more in housing and physical capital in comparison with health and education. For equal initial conditions, such countries grow slower and have higher corruption, in particular when political power is concentrated
    Keywords: Public investment, Optimal growth, Corruption, Political power
    JEL: H50 D73
    Date: 2006–10–26
  13. By: Justina A.V. Fischer; Benno Torgler
    Abstract: Research evidence on the impact of relative income position on individuals’ attitudes and behaviour is sorely lacking. Therefore, using the International Social Survey Programme 1998 data from 26 countries this paper investigates the impact of relative income on 14 measurements of social capital. We find support for a considerable deleterious positional concern effect of persons below the reference income. This effect is more sizeable by far than the beneficial impact of a relative income advantage. Most of the results indicate that such an effect is non-linear. Lastly, changing the reference group (regional versus national) produces no significant differences in the results.
    Keywords: Relative income; positional concerns; social capital; social norms; happiness
    JEL: Z13 I30 D31
    Date: 2007–01
  14. By: Samuel Bowles (Santa Fe Institute, University of Siena and University of Massachusetts); Herbert Gintis (Santa Fe Institute and Central European University)
    Abstract: We consider the exercise of power in competitive markets for goods, labour and credit. We offer a definition of power and show that if contracts are incomplete it may be exercised either in Pareto-improving ways or to the disadvantage of those without power. Contrasting conceptions of power including bargaining power, market power, and consumer sovereignty are considered. Because the exercise of power may alter prices and other aspects of exchanges, abstracting from power may miss essential aspects of an economy. The political aspect of private exchanges challenges conventional ideas about the appropriate roles of market and political competition in ensuring the efficiency and accountability of economic decisions. JEL Categories:
    Date: 2007–01

This nep-pol issue is ©2007 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.