nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒08‒18
nine papers chosen by
Eugene Beaulieu
University of Calgary

  1. Projection Effects and Strategic Ambiguity in Electoral Competition By Thomas Jensen
  2. The pronouncements of paranoid politicians By Guido, Cataife
  3. Elections, Private Information, and State-Dependent Candidate Quality By Thomas Jensen
  4. The Political Opinions of Swedish Social Scientists By Jordahl, Henrik; Berggren, Niclas; Stern, Charlotta
  5. Predicaments in the futures of aging democracies By Lindh, Thomas; Lundberg, Urban
  6. Big Business Owners and Politics: Investigating the Economic Incentives of Holding Top Office By Pramuan Bunkanwanicha; Yupana Wiwattanakantang
  7. State Visits and International Trade By Volker Nitschr
  8. Social Capital And Relative Income Concerns: Evidence From 26 Countries By Justina Fischer; Benno Thorgler
  9. "The Fed's Real Reaction Function Monetary Policy, Inflation, Unemployment, Inequality-and Presidential Politics" By James K. Galbraith; Olivier Giovannoni; Ann J. Russo

  1. By: Thomas Jensen (Department of Economics, University of Copenhagen)
    Abstract: Theories from psychology suggest that voters' perceptions of political positions depend on their non-policy related attitudes towards the candidates. A voter who likes (dislikes) a candidate will perceive the candidate's position as closer to (further from) his own than it really is. This is called projection. If voters' perceptions are not counterfactual and voting is based on perceived policy positions then projection gives a generally liked candidate an incentive to be ambiguous. In this paper we construct and analyze a formal model to investigate under which conditions this incentive survives in the strategic setting of electoral competition, even if voters dislike ambiguity per se.
    Keywords: electoral competition; ambiguity; voter perception; cognitive consistency; projection
    JEL: D72 D83
    Date: 2007–07
  2. By: Guido, Cataife
    Abstract: This paper models the strategic encounter of two office-motivated candidates who may or may not announce policy. In the case of no announcement, the voters rank the candidates according to prior beliefs. In the case of announcement, the candidates cannot avoid a degree of noise in the voters' interpretation of their announcements. We show that this simple deviation from the standard Downsian setting suffices to overcome previous impossibility results which suggest that not announcing policy can never occur in equilibrium. Also, we extend the model to study the equilibrium when candidates are ambiguity averse. An ambiguity averse candidate is interpreted as being concerned about an ongoing negative campaign against him. This negative campaign would consist in inducing the voters to adopt some interpretation of the candidate's announcement unfavorable to his electoral performance. We show that under ambiguity aversion the candidates opt not to announce position under less stringent conditions than expected utility. Finally, we use data on U.S. Senate elections to test an empirical implication of the model. We find that the relevant coefficient has the sign predicted by the theory and is statistically significant.
    Keywords: Voting; Salience; Electoral Ambiguity; Ambiguity Aversion; Media Politics
    JEL: D72 C13 C72
    Date: 2007–08–10
  3. By: Thomas Jensen (Department of Economics, University of Copenhagen)
    Abstract: In this paper we contribute to the study of how democracy works when politicians are better informed than the electorate about conditions relevant for policy choice. We do so by setting up and analyzing a game theoretic model of electoral competition. An important feature of the model is that candidate quality is state-dependent. Our main insight is that if the electorate is sufficiently well informed then there exists an equilibrium where the candidates' policy positions reveal their information and the policy outcome is the same as it would be if voters were fully informed (the median policy in the true state of the world).
    Keywords: electoral competition; uncertainty; private information; candidate quality; revealing equilibria
    JEL: D72 D82
    Date: 2007–07
  4. By: Jordahl, Henrik (Research Institute of Industrial Economics (IFN)); Berggren, Niclas (Ratio); Stern, Charlotta (Swedish Institute of Social Research (SOFI))
    Abstract: We study the political opinions of Swedish social scientists in seven disciplines. A survey was sent to 4,301 academics at 25 colleges and universities, which makes the coverage of the disciplines included more or less comprehensive. When it comes to party sympathies there are 1.3 academics on the right for each academic on the left – a sharp contrast to the situation in the United States, where Democrats greatly dominate the social sciences. The corresponding ratio for Swedish citizens in general is 1.1. The most left-leaning disciplines are sociology and gender studies, the most right-leaning ones are business administration, economics, and law, with political science and economic history somewhere in between. The differences between the disciplines are smaller in Sweden than in the more polarized U.S. We also asked 14 policy questions. The replies largely confirm the pattern of a left-right divide – but overall the desire to change the status quo is tepid.
    Keywords: Academics; Social Scientists; Policy Views; Political Opinions; Party Sympathies
    JEL: A11 A13 A14
    Date: 2007–08–08
  5. By: Lindh, Thomas (Institute for Futures Studies); Lundberg, Urban (Institute for Futures Studies)
    Abstract: Ageing societies need to supply support to an ever growing segment of elderly dependent population without compromising the future sustainability for the currently young or unborn population. Current tendencies to focus on policy solutions like automatic stabilisers and norm based pre-commitment strategies with decisions delegated to experts carry a high risk of political breakdown when future populations re-evaluates this with new information. Using the Swedish pension reform as a concrete example we show how the futurity problem associated with the current non-existence of the future population makes the political process prone to avoid bringing issues with very long horizons into the public debate. Alternative demographic scenarios for Sweden are used to illustrate how even very small variations in the assumptions of demographic projections lead to radically different future population structures. Hence, the majority preferences in a distant future cannot be foreseen. Adding to this the complex interactions with a changing environment of technology and nature time-consistent decision making at the far future horizon must be virtually impossible. Thus the sustainability of long-term social security systems require constitutional balances that provide for orderly and continual adaptation rather than once-for-all fixes that are likely to be rejected by future electorates.
    Keywords: ageing; democracy; pensions
    JEL: J10
    Date: 2007–03
  6. By: Pramuan Bunkanwanicha; Yupana Wiwattanakantang
    Abstract: This paper investigates the mechanisms that ?firms use to get state favors. We focus on a less well studied but common mechanism: business owners seeking election to top office. Using Thailand as a research setting, we fi?nd that business owners who rely on government concessions or are wealthier are more likely to run for top office. Once in power the market valuation of their ?firms increases dramatically. Surprisingly, the owners' political power does not change their fi?rms' fi?nancing strategies. Instead, we show that business owners in top office use their policy decision powers to implement regulations and public policies favorable to their fi?rms. Such policies hinder not only domestic competitors but also foreign investors. As a result, connected fi?rms are able to seize more market share.
    Keywords: Trade credit, Bank-firm relationship, Unlisted firms
    JEL: G15 G34 G38 K23
    Date: 2006–10
  7. By: Volker Nitschr (Free University Berlin)
    Abstract: Politicians travel extensively abroad, for various reasons. One purpose of external visits is to improve bilateral economic relations. In this paper, I examine the effect of state visits on international trade. I use a large data set covering the travel activities of the heads of state of France, Germany and the United States between 1948 and 2003. My results indicate that state and official visits are indeed positively correlated with exports. A typical visit is associated with higher bilateral exports by about 8 to 10 percent, holding other things constant.
    Keywords: head; president, government, politics, gravity
    JEL: F13
    Date: 2007–02
  8. By: Justina Fischer; Benno Thorgler
    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
  9. By: James K. Galbraith; Olivier Giovannoni; Ann J. Russo
    Abstract: Using a VAR model of the American economy from 1984 to 2003, we find that, contrary to official claims, the Federal Reserve does not target inflation or react to "inflation signals." Rather, the Fed reacts to the very "real" signal sent by unemployment, in a way that suggests that a baseless fear of full employment is a principal force behind monetary policy. Tests of variations in the workings of a Taylor Rule, using dummy variable regressions, on data going back to 1969 suggest that after 1983 the Federal Reserve largely ceased reacting to inflation or high unemployment, but continued to react when unemployment fell "too low." Further, we find that monetary policy (measured by the yield curve) has significant causal impact on pay inequality-a domain where the Fed refuses responsibility. Finally, we test whether Federal Reserve policy has exhibited a pattern of partisan bias in presidential election years, with results that suggest the presence of such bias, after controlling for the effects of inflation and unemployment.
    Date: 2007–08

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.