nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒09‒30
six papers chosen by
Eugene Beaulieu
University of Calgary

  1. Limited access orders in the developing world :a new approach to the problems of development By Weingast, Barry R.; Webb, Steven B.; Wallis, John Joseph; North, Douglass C.
  2. The Political Economy of Services Trade Liberalization: A Case for International Regulatory Cooperation? By Hoekman, Bernard; Mattoo, Aaditya; Sapir, André
  3. Campaign Advertising and Election Outcomes: Quasi-Natural Experiment Evidence from Gubernatorial Elections in Brazil By Bernardo S. da Silveira; João Manoel Pinho de Mello
  4. The Paradox of New Members: Strategic Foundations and Experimental Evidence By Michalis Drouvelis; Maria Montero; Martin Sefton
  5. Winners and losers: A Micro-level Analysis of International Outsourcing and Wages By Geishecker, Ingo; Görg, Holger
  6. A Theory of Minority and Majority Governments By Tasos Kalandrakis

  1. By: Weingast, Barry R.; Webb, Steven B.; Wallis, John Joseph; North, Douglass C.
    Abstract: The upper-income, advanced industrial countries of the world today all have market economies with open competition, competitive multi-party democratic political systems, and a secure government monopoly over violence. Such open access orders, however, are not the only norm and equilibrium type of society. The middle and low-income developing countries today, like all countries before about 1800, can be understood as limited access orders that maintain their equilibrium in a fundamentally different way. In limited access orders, the state does not have a secure monopoly on violence, and society organizes itself to control violence among the elite factions. A common feature of limited access orders is that political elites divide up control of the economy, each getting some share of the rents. Since outbreaks of violence reduce the rents, the elite factions have incentives to be peaceable most of the time. Adequate stability of the rents and thus of the social order requires limiting access and competition-hence a social order with a fundamentally different logic than the open access order. This paper lays out such a framework and explores some of its implications for the problems of development today.
    Keywords: Corporate Law,Labor Policies,Public Sector Corruption & Anticorruption Measures,E-Business,Disability
    Date: 2007–09–01
  2. By: Hoekman, Bernard; Mattoo, Aaditya; Sapir, André
    Abstract: Little progress has been made since the creation of the WTO in expanding and deepening the coverage of services liberalization commitments. This paper identifies and discusses five hypotheses that may explain the absence of dynamism: (i) technological changes allow ever more services to be traded cross-border unaffected by policy; (ii) strong incentives to pursue liberalization on an autonomous basis (unilaterally); (iii) perceptions that bilateral or regional cooperation are a good substitute for the WTO; (iv) standard political economy factors such as adjustment costs and resistance by incumbents to erosion of rents; and (v) concerns that the WTO will affect the ability of regulators to enforce national norms. We argue that all of these explanations play a role, and that some of these factors significantly impede the scope for reciprocal exchanges of ‘concessions’—the engine of WTO negotiations.
    Keywords: Doha Round; GATS; political economy; trade in services; trade negotiations; WTO
    JEL: F13
    Date: 2007–09
  3. By: Bernardo S. da Silveira (Department of Economic, New York University); João Manoel Pinho de Mello (Department of Economics, PUC-Rio)
    Abstract: Despite the “minimal effects” conventional wisdom, the question of whether campaign advertising influence elections outcome remains open. This is paradoxical because in the absence of a causal link from advertising to candidate performance, it is difficult to rationalize the amounts spent on campaigns in general, and on TV advertising in particular. Most studies using US data, however, suffer from omitted variable bias and reverse causality problems caused by the decentralized market-based method of allocating campaign spending and TV advertising. In contrast with received literature, we explore a quasi-natural experiment produced by the Brazilian electoral legislation, and show that TV and radio advertising has a much larger impact on election outcomes than previously found by the literature. In Brazil, by law, campaign advertising is free of charge and allocated among candidates in a centralized manner. Gubernatorial elections work in a runoff system. While in the first round, candidates’ TV and radio time shares are determined by their coalitions’ share of seats in the national parliament, the two most voted candidates split equally TV time if a second round is necessary. Thus, differences in TV and radio advertising time between the first and second rounds are explored as a source of exogenous variation to evaluate the impact of TV advertising on election outcomes. Estimates suggest that a one percentage point increase in TV time causes a 0.241 percentage point increase in votes. Since TV advertising is the most important item in campaign expenditures, this result sheds light on the more general question of the effect of campaign spending on elections outcome.
    Keywords: Campaign Expenditures, Election Outcomes, Endogeneity, Quasi-Natural Experiments
    JEL: G12 C22 C53 E44
    Date: 2007–08
  4. By: Michalis Drouvelis (School of Economics, University of Nottingham); Maria Montero (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: Power indices suggest that adding new members to a voting body may affect the balance of power between the original members even if their number of votes and the decision rule remain constant. Some of the original members may actually gain, a phenomenon known as the paradox of new members. We show that the paradox can occur as an equilibrium of a noncooperative bargaining game based on the Baron-Ferejohn (1989) model of legislative bargaining. We implement this game in the laboratory and find empirical support for the paradox.
    Keywords: voting, non-cooperative bargaining, power indices, experiments, paradox of new members
    JEL: C70 C92
    Date: 2007–09
  5. By: Geishecker, Ingo; Görg, Holger
    Abstract: Our paper investigates the link between international outsourcing and wages utilizing a large household panel and combining it with industry level information on industries' outsourcing activities from input-output tables. This approach avoids problems such as aggregation bias, potential endogeneity bias and poor skill definitions that commonly hamper industry-level studies. We find that outsourcing has had a marked impact on wages. Applying two alternative skill classifications we find evidence that a one percentage point increase in outsourcing reduced the wage for workers in the lowest skill categories by up to 1.5% while it increased wages for high-skilled workers by up to 2.6%. This result is robust to a number of different specifications.
    Keywords: international outsourcing; offshoring; skills; wages
    JEL: F16 J31
    Date: 2007–09
  6. By: Tasos Kalandrakis (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158)
    Abstract: We develop a theory of the emergence of minority and majority governments in multiparty parliamentary systems using a canonical non-cooperative bargaining model and assuming a policy space of arbitrary finite dimension, any number of political parties, and a general class of preferences over the government agreement space. Only majority governments form in the absence of significant political disagreement. Generically, minority governments form with positive probability when parties represented in parliament are ideologically polarized (or when utility from holding cabinet office is small relative to partisan political disagreement). Rather than being paradoxical, minority governments are a regular equilibrium phenomenon.
    Date: 2007–09

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