nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒04‒28
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. An Economic Theory of Political Institutions: Foreign Intervention and Overseas Investments By Toke A. Aidt and Facundo Albornoz
  2. Ideology Without Ideologists By Lydia Mechtenberg
  3. Emergence and Persistence of Inefficient States By Daron Agemoglu; Davide Ticchi; Andrea Vindigni
  4. Competitive Proposals to Special Interests By Ashish Chaturvedi; Amihai Glazer
  5. Rent Seeking, Market Structure and Growth By Daniel Brou; Michele Ruta
  6. Should We Really Expect More from Our Friends? By Laussel, Didier; van Ypersele, Tanguy
  7. Size Approval Voting By Alcalde-Unzu Jorge; Vorsatz Marc
  8. Election Studies in India By Kondo, Norio
  9. The Future of Social Security By Gonzalez-Eiras, Martin; Niepelt, Dirk
  10. On Gender Inequality and Life Satisfaction: Does Discrimination Matter? By Justina A.V. Fischer; Christian Bjornskov; Axel Dreher
  11. Influence Indices By Agnieszka Rusinowska; Michel Grabisch
  12. Why are people more pro-trade than pro-migration? By Anna Maria Mayda
  13. Politics and the Labor Market: The Role of Frictions By Luigi Bonaventura; Andrea Consoli; Matteo Richiardi; Salvo Spagano
  14. Are antidumping duties for sale? case-level evidence on the Grossman-Helpman Protection for Sale Model By Carolyn L. Evans; Shane M. Sherlund
  15. Understanding Attitudes to Immigration: The Migration and Minority module of the first European Social Survey By David Card; Christian Dustmann; Ian Preston
  16. The not-preference-based Hoede-Bakker index By Agnieszka Rusinowska
  17. Local elections and consumption insurance : evidence from Chinese villages By Yang Yao; Lixin Colin Xu; Li Gan

  1. By: Toke A. Aidt and Facundo Albornoz
    Abstract: The recent literature on endogenous political institutions highlights domestic economic factors, such as recessions, economic growth and inequality, as key determinants of political transitions. We argue that international capital flows and the possibility that foreign governments, in order to protect specific economic interests, might seek influence on the regime choice in other countries are important, yet overlooked, additional determinants of political institutions. Building on Acemoglu and Robinson (2001), we develop a theory of political transitions in economies with access to international capital markets and show that the possibility of foreign intervention significantly affects regime dynamics and the set of sustainable political regimes
    Keywords: Political transitions, democracy, autocracy, foreign investments; foreign government intervention
    JEL: D72 D74 H71 O15 P16
    Date: 2007–03
  2. By: Lydia Mechtenberg
    Abstract: Generally, Democrats do not increase military spending, and Republicans do not raise welfare payments. Mostly, ruling politicians stick to the manifesto of their party. The current paper provides a theoretical explanation for this phenomenon that does not assume politicians or voters to be ideologists. I explore an environment where both voters and politicians always prefer the policy that is adequate to the world state but contradicts the party manifesto over the policy that is in line with the manifesto but not adequate. I find that nevertheless, the inefficient manifesto-driven policy will often result from their interaction. Besides, I show that a high degree of agreement between the politician in office, his party basis and the voter makes efficient, informed policy rare or even impossible. But if homogeneity of convictions within parties is high, swing voter behavior can solve the problem.
    Keywords: Information transmission, signalling, ideology, intra-party politics, political opinion.
    JEL: D72 D78 D82
    Date: 2007–04
  3. By: Daron Agemoglu; Davide Ticchi; Andrea Vindigni
    Abstract: Inefficiencies in the bureaucratic organization of the state are often viewed as important factors in retarding economic development. Why certain societies choose or end up with such inefficient organizations has received very little attention, however. In this paper, we present a simple theory of the emergence and persistence of inefficient states. The society consists of rich and poor individuals. The rich are initially in power, but expect to transition to democracy, which will choose redistributive policies. Taxation requires the employment of bureaucrats. We show that, under certain circumstances, by choosing an inefficient state structure, the rich may be able to use patronage and capture democratic politics. This enables them to reduce the amount of redistribution and public good provision in democracy. Moreover, the inefficient state creates its own constituency and tends to persist over time. Intuitively, an inefficient state structure creates more rents for bureaucrats than would an efficient state structure. When the poor come to power in democracy, they will reform the structure of the state to make it more efficient so that higher taxes can be collected at lower cost and with lower rents for bureaucrats. Anticipating this, when the society starts out with an inefficient organization of the state, bureaucrats support the rich, who set lower taxes but also provide rents to bureaucrats. We show that in order to generate enough political support, the coalition of the rich and the bureaucrats may not only choose an inefficient organization of the state, but they may further expand the size of bureaucracy so as to gain additional votes. The model shows that an equilibrium with an inefficient state is more likely to arise when there is greater inequality between the rich and the poor, when bureaucratic rents take intermediate values and when individuals are sufficiently forward-looking.
    Keywords: bureaucracy, corruption, democracy, patronage politics, political economy, public goods, redistributive politics.
    JEL: P16 H11 H26 H41
    Date: 2006
  4. By: Ashish Chaturvedi (Wissenschaftszentrum Berlin für Sozialforschung); Amihai Glazer (Department of Economics, University of California-Irvine)
    Abstract: We consider electoral competition between two political candidates. Each can target private benefits to some groups. A candidate has an incentive to offer high benefits in the initial period, to deter the other candidate from offering yet higher benefits to the same group in a later period. We describe the equilibrium strategies of the candidates, showing that candidates will intend to target different groups, that groups targeted in the initial period gain larger benefits than groups targeted later, and that the benefits to special interests vary with their number and size.
    Keywords: Special interests; Elections
    JEL: D72
    Date: 2007–04
  5. By: Daniel Brou; Michele Ruta
    Abstract: We construct a model where firms compete in both political and economic markets. In political markets, firms compete for influence over government transfer policy (rents). This activity can be beneficial for the firm, but is purely wasteful from the point of view of society because resources are utilized to achieve a redistribution of income. In the economic market, firms compete for market share through cost reducing technological innovation. Market structure plays an important role in this economy because competition drives firms to invest more in innovation resulting in higher growth. Rent-seeking affects economic growth in two important ways. It diverts resources away from innovation and it affects the number of firms that are supported in equilibrium. The former has a negative effect on growth while the latter effect is ambiguous, depending on whether rent seeking induces entry or exit. This market structure effect depends on a combination of political and economic factors that the theory highlights.
    Keywords: Rent Seeking, Market Structure, R&D Investment, Growth, Welfare
    JEL: D72 L13 O31
    Date: 2007
  6. By: Laussel, Didier; van Ypersele, Tanguy
    Abstract: In the present paper, we analyze an original channel of interaction between politicians and lobbies i.e. the nuisance power of a lobby. Some lobbies are influencing public policies just because they are able to impact negatively the image of a politician. More particularly, we develop a setting in which unions may transmit some information to the voters about the quality of the government via a costly signal i.e. a strike. In our setting unions represent sectors of the economy. An incumbent government seeking reelection allocates a fixed budget among several unionized sectors. Strikes are costly and transmit information to voters about the quality of the government. The politician may have interest to distort the budget allocation away from the efficient one in order to maximize his/her probability of reelection. In most cases a hostile receive receives more than a neutral/friendly one.
    Keywords: Lobby; Political Economy; Strike
    JEL: D7
    Date: 2007–04
  7. By: Alcalde-Unzu Jorge; Vorsatz Marc (METEOR)
    Abstract: We propose a new class of voting rules, called Size Approval Voting. According to this rule, the effective weight of a vote from a given individual depends on how many other alternatives the very same individual votes for. In particular, weights are assumed to be non-negative and weakly decreasing in the number of approved alternatives. Then, for a given profile of individual votes, all those alternatives with the maximal sum of weighted votes are elected. We show in our axiomatic analysis that the family of all Size Approval Voting is characterized by a set of natural properties.
    Keywords: Economics (Jel: A)
    Date: 2007
  8. By: Kondo, Norio
    Abstract: The election system is the pillar of Indian democracy. The system consists of various levels of elections to the Lok Sabha (the House of Representatives of the Union), State Legislative Assemblies, and Panchayati Raj Institutions (local self-governing bodies under State Governments). This article includes a review of studies related to the elections of Lok Sabha and State Legislative Assemblies conducted up to the present time. Studies are divided into those based on aggregate data and those based on survey data of the individual electorate. This division has the advantage of providing data that may be used in different analytical areas. Voter turnout and votes polled by party are the two main variables to be explained. This review article thus shows what has been explained in voting behaviour in India up to the present time.
    Keywords: India, Election, Review, Statistical analysis, Lok Sabha, State Legislative Assembly, Parliaments
    Date: 2007–03
  9. By: Gonzalez-Eiras, Martin; Niepelt, Dirk
    Abstract: We analyze the effect of the projected demographic transition on the political support for social security, and equilibrium outcomes. Embedding a probabilistic-voting setup of electoral competition in the Diamond (1965) OLG model, we find that intergenerational transfers arise in the absence of altruism, commitment, or trigger strategies. Closed-form solutions predict population ageing to lead to higher social security tax rates, a rising share of pensions in GDP, but eventually lower social security benefits per retiree. The response of equilibrium tax rates to demographic shocks reduces old-age consumption risk. Calibrated to match features of the U.S. economy, the model suggests that, in response to the projected demographic transition, social security tax rates will gradually increase to 16 percent; other policies that distort labour supply will become less important; and in contrast with frequently voiced fears, labour supply therefore will rise.
    Keywords: labour supply; Markov perfect equilibrium; probabilistic voting; saving; social security
    JEL: E62 H55
    Date: 2007–04
  10. By: Justina A.V. Fischer; Christian Bjornskov; Axel Dreher
    Abstract: This paper analyzes the impact of gender discrimination on individual life satisfaction using a cross-section of 66 countries. We employ measures of discrimination of women in the economy, in politics, and in society more generally. According to our results, discrimination in politics is important to individual well-being. Overall, men and women are more satisfied with their lives when societies become more equal. Disaggregated analysis suggests that our results for men are driven by the effect of equality on men with middle and high incomes, and those on the political left. To the contrary, women are more satisfied with increasing equality independent of income and political ideology. Equality in economic and family matters does overall not affect life satisfaction. However, women are more satisfied with their lives when discriminatory practices have been less prevalent in the economy 20 years ago.
    Keywords: Gender gap, happiness, well-being, discrimination, life satisfaction
    JEL: I31 J16
    Date: 2007–04
  11. By: Agnieszka Rusinowska (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines]); Michel Grabisch (CRMSEM - Centre de recherches de mathématiques, statistiques et économie mathématique - [CNRS : UMR8095] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: In the paper, we investigate the Hoede-Bakker index - the notion which computes the overall decisional ‘power' of a player in a social network. It is assumed that each player has an inclination (original decision) to say ‘yes' or ‘no' which, due to influence of other players, may be different from the final decision of the player. The main drawback of the Hoede-Bakker index is that it hides the actual role of the influence function, analyzing only the final decision in terms of success and failure. In this paper, we further investigate the Hoede-Bakker index, proposing an improvement which fully takes into account the mutual influence among players. A global index which distinguishes an influence degree from a ‘power' index is analyzed. We define weighted influence indices, in particular, a possibility influence index which takes into account any possibility of influence, and a certainty influence index which expresses certainty of influence. We consider different influence functions and study their properties.
    Keywords: Hoede-Bakker index ; influence function ; influence indices
    Date: 2007–04–19
  12. By: Anna Maria Mayda (Economics Department and School of Foreign Service, Georgetown University)
    Abstract: I analyze individual attitudes towards trade and immigration in comparative terms. I find that individuals are on average more pro-trade than pro-immigration across several countries. I identify a key source of this difference: the cleavage in trade preferences, absent in immigration attitudes, between individuals working in traded as opposed to non-traded sectors.
    Keywords: Immigration Attitudes, Trade Attitudes, Political Economy
    JEL: F22 F1 J61
    Date: 2006–07
  13. By: Luigi Bonaventura; Andrea Consoli; Matteo Richiardi; Salvo Spagano
    Abstract: We study how political intermediation in the labor market interacts with search frictions. Politicians create and control (to a certain extent) business opportunities for firms, hence the creation of new vacancies. But to compete for these vacancies workers have to give their support to politicians. This leads to a fragmentation of the labor market, where politicians act as mediators between demand and supply. We show that in presence of information asymmetries (when non-aliated workers are not able to distinguish non-aliated firms, for which they are eligible, from aliated ones, for which they are not eligible) the impact of political intermediation is U-shaped, and can more than double the resulting unemployment rate.
    Date: 2006
  14. By: Carolyn L. Evans; Shane M. Sherlund
    Abstract: As successive rounds of global trade liberalization have lowered broad industry-level tariffs, antidumping duties have emerged as a WTO-consistent means of protecting certain industries. Using the Grossman-Helpman (GH) "Protection for Sale" model, we examine the extent to which political contributions affect the outcomes of decisions in antidumping cases. We find that antidumping duty rates tend to be higher for politically-active petitioners. The relationship between the import penetration ratio and duties imposed depends on whether or not petitioners in a case are politically active. Consistent with the predictions of the GH model, antidumping duties are positively correlated with the import penetration ratio for politically inactive petitioners, but negatively correlated for politically active petitioners. Thus, our paper supports the predictions of the Grossman-Helpman model using a fresh set of data that allows us to avoid some of the compromises made in previous empirical work.
    Date: 2006
  15. By: David Card (Department of Economics, University of California, Berkeley and Centre for Research and Analysis of Migration (CReAM)); Christian Dustmann (Department of Economics and Centre for Research and Analysis of Migration (CReAM), University College London); Ian Preston (Department of Economics and Centre for Research and Analysis of Migration (CReAM), University College London)
    Abstract: Immigration control is an issue that figures prominently in public policy discussions and election campaigns throughout Europe. Although immigration may have positive effects on economic efficiency and growth in the receiving economy, it is often the negative aspects -or perceived negative aspects - of immigration that attract the most attention. In this paper, we use the immigration module of the European Social Survey (ESS), which we developed in collaboration with the ESS survey team, to investigate public opinions about immigration, and the various dimensions of economic, public and private life that individuals feel are affected by immigration. We show that that there is substantial variation in the strength of anti-immigrant opinion across European countries, and that attitudes toward immigration also vary systematically with characteristics such as age, education, and urban/rural location. We propose possible interpretations of some of these regularities.
    Keywords: Migration, Survey, Attitudes
    Date: 2005–06
  16. By: Agnieszka Rusinowska (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: The paper concerns a certain modification of the generalized Hoede-Bakker index - a notion defined for a social network of players. In the original Hoede-Bakker set up, preferences of players are involved. It is assumed that a player has an inclination either to accept or to reject a proposal, but due to the influence of others, his final decision may be different from his original inclination. In this paper, we propose the not-preference-based (NPB) generalized Hoede-Bakker index, where feasible strategies instead of players' inclinations are considered. We show that if all feasible strategy profiles are equally probable, then the NPB generalized Hoede-Bakker index is a ‘net' Success, i.e., ‘Success - Failure', where Success and Failure of a player is defined as the probability that the player is successful and fails, respectively. Moreover, under the assumption of equal probabilities of all feasible strategy profiles, we show that the probability that a player is lucky (Luck) equals the probability that he fails (Failure). Since Success - Luck = Decisiveness, it follows that, under the same assumption, the NPB generalized Hoede-Bakker index is equal to the probability that a player is decisive.
    Keywords: decisiveness ; failure ; feasible strategy ; Hoede-Bakker index ; success
    Date: 2007–04–19
  17. By: Yang Yao; Lixin Colin Xu; Li Gan
    Abstract: While the literature on consumption insurance is growing fast, little research has been conducted on how rural consumption insurance is affected by democracy. In this paper the authors examine how consumption insurance of Chinese rural residents is affected if the local leader is democratically elected. Exploring a unique panel data set of 1,400 households from 1987 to 2002, they find that consumption insurance is more complete when the households are in villages with elected village leaders. Furthermore, democracy improves consumption insurance only for the poor and middle-income farmers, but not for the rich. These findings underline the imp ortance of democratic governance for ensuring better rural consumption insurance and poverty reduction.
    Keywords: Rural Poverty Reduction,Consumption,Inequality,Services & Transfers to Poor,Economic Theory & Research
    Date: 2007–04–01

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