nep-pol New Economics Papers
on Positive Political Economics
Issue of 2008‒02‒02
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Is Protection Really for Sale? A Survey and Directions for Future Research By Susumu Imai; Hajime Katayama; Kala Krishna
  2. Rationalizable Voting By Tasos Kalandrakis
  3. A Second Chance at Success: A Political Economy Perspective? By Ryo Arawatari; Tetsuo Ono
  4. Political Economy Origins of Financial Markets in Europe and Asia By Svetlana Andrianova; Panicos Demetriades; Chenggang Xu
  5. Just Rewards?Local Politics and Public ResourceAllocation in South India By Timothy Besley; Rohini Pande; Vijayendra Rao
  6. Who Needs Strong Leaders? By Alberto Chong; Mark Gradstein
  7. The dynamics of resource spending in a competition between political parties: general notes on the Red Queen effect By Alex Coram
  8. Information, Social Mobility and the Demand for Redistribution By Francesco Feri
  9. War and endogenous democracy. By Ticchi, Davide; Vindigni, Andrea
  10. Outside Income and Moral Hazard: The Elusive Quest for Good Politicians By Gagliarducci, Stefano; Nannicini, Tommaso; Naticchioni, Paolo
  11. More Income Equality or Not? An Empirical Analysis of Individuals’ Preferences for Redistribution By María A. García-Valiñas; Roberto Fernández Llera; Benno Torgler
  12. Existence and uniqueness of Nash equilibrium in electoral competition games: The hybrid case By Alejandro Saporiti
  13. Optimality and Equilibrium for Binary Decision Problems in a Committee By Laslier, Jean-François; Weibull, Jörgen
  14. Costly information acquisition. Part I: better to toss a coin? By Matteo Triossi
  15. Decentralization as a disincentive for transnational terror? An empirical test By Axel Dreher; Justina A.V. Fischer
  16. Promoting Peace and Democracy through Party Regulation? Ethnic Party Bans in Africa By Anika Becher; Matthias Basedau

  1. By: Susumu Imai (Queen's University); Hajime Katayama (University of Sydney); Kala Krishna (Pennsylvania State University and NBER)
    Abstract: This paper critically and selectively surveys the literature on protection for sale and discusses directions for future research in this area. It suggests that the standard approach need to be augmented to provide more compelling tests of this model.
    Keywords: Common agency, Political economy, Protection for sale, Quotas, Non tariff barriers
    JEL: F13 D72 F17
    Date: 2007–12
  2. By: Tasos Kalandrakis (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158)
    Abstract: We derive necessary and sufficient conditions in order for a finite number of binary voting choices to be consistent with the hypothesis that voters have preferences that admit concave utility representations. When the location of the voting alternatives is known, we apply these conditions in order to derive simple, nontrivial testable restrictions on the location of voters’ ideal points, and in order to predict individual voting behavior. If, on the other hand, the location of voting alternatives is unrestricted then voting decisions impose no testable restrictions on the joint location of voter ideal points, even if the space of alternatives is one dimensional. Furthermore, two dimensions are always sufficient to represent or fold the voting records of any number of voters while endowing all these voters with strictly concave preferences and arbitrary ideal points. The analysis readily generalizes to choice situations over any finite sets of alternatives.
    Date: 2008–01
  3. By: Ryo Arawatari (Department of Economics, Otaru University of Commerce); Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This paper characterizes a stationary Markov perfect political equilibrium where agents vote over income taxation that distorts their educational investment. Agents become rich or poor through educational investment, and the poor have a second chance at success. The results show the following concerning the costs of a second chance. First, when the cost is low, the economy is characterized by high levels of upward mobility and inequality, and a low tax burden supported by the poor with prospects for upward mobility. Second, when the cost is high, there are multiple equilibria: one is characterized by high levels of upward mobility and inequality and a low tax burden supported by the rich, the other is characterized by low levels of upward mobility and inequality and a high tax burden supported by the poor. Numerical examples show that the low-cost economy is inferior to the high-cost economy in terms of social welfare.
    Keywords: Second chance; Political economy; Inequality; Upward mobility; Intragenerational mobility.
    JEL: D30 D72 H55
    Date: 2008–01
  4. By: Svetlana Andrianova; Panicos Demetriades; Chenggang Xu
    Abstract: This paper contributes to the finance-growth literature by examining the political economy origins of some of the most successful financial markets in Europe and Asia. It provides historical evidence from London, Amsterdam and Hong Kong that highlights the essential role played by the government sector in kick-starting financial development. We show that the emergence of financial systems did not occur through laissez-faire approaches and that secure property rights alone were not sufficient for financial development. In the cases of London and Amsterdam, governments created large trade monopolies which were responsible for all the major financial innovations of the time. In the case of Hong Kong, where the financial developmentmodel was bank-based, large banking monopolies with close links to the state were created. We argue that the three examples are not special cases and the role of government in the early stages of financial development has been widespread world-wide.
    Date: 2008–01
  5. By: Timothy Besley; Rohini Pande; Vijayendra Rao
    Abstract: This paper uses data on elected village councils in South India to examine thepolitical economy of public resource allocation. We find that the pattern ofpolicy-making reflects politicians' self-interest. Elected councillors benefit fromimproved personal access to public resources. In addition, the headcouncillor's group identity and residence influences public resource allocation.While electoral incentives do not eliminate politician opportunism, votersappear able to use their electoral clout to gain greater access to publicresources.
    Keywords: decentralization, India, Panchayat.
    JEL: H76 H11 O12
    Date: 2007–10
  6. By: Alberto Chong (Inter-American Development Bank); Mark Gradstein (Ben Gurion University)
    Abstract: This paper’s model suggests that a strong leader, sometimes with little legislative oversight, may nevertheless benefit from public support. The argument is that this support is induced as an attempt by the poor to counter the subversion of public protection of property rights by the rich, and to achieve this goal they are often willing to pay the price of the leader’s diversion of tax revenues for private use. The paper then examines survey data on individual attitudes toward strong leadership and finds their pattern to be consistent with the model’s predictions; specifically, support for strong leadership is inversely related to individual income and to countrywide income inequality.
    Date: 2008–01
  7. By: Alex Coram (Robert Gordon University, Scotland, and The University of Western Australia)
    Abstract: Competition between political parties is a process that unfolds over time whereas formal theories of party competition have tended to take an essentially static, or one-shot, approach. This leaves some gaps in our understanding of the dynamics of campaigning. The aim of this paper is to make up some of this gap. This is done using a differential game theory model to analyse a situation in which support for a party depends on the amount spent on marketing relative to the expenditure of the other party. One of the main results is that, even when voters are not myopic, the logic of the competition forces parties to accelerate expenditure on campaigning during the period between elections. JEL Categories: C61, C72, C73, D72.
    Keywords: party competition, dynamics, differential games.
    Date: 2008–01
  8. By: Francesco Feri
    Abstract: This paper studies how heterogeneity in income dynamics affects the POUM hypothesis (the idea that poor people do not support high level of redistribution because they hope to be rich in the future). We consider a setting where individuals evaluate their expected future income using both their current income and observable characteristics such as education, race or gender. We find that the POUM effect could increase or decrease the support for redistribution depending on the parameters of the model. Moreover we find that the POUM effect is independent of a particular shape (the concavity) of the resulting aggregate income transition function. Finally, using data from Italy, we test the model and perform a first empirical estimation of the POUM effect in Italy.
    Keywords: Social Mobility, Income Distribution, Political Economy, Inequality, Taxation
    JEL: D31 D72 P16 H20
    Date: 2008–01
  9. By: Ticchi, Davide; Vindigni, Andrea
    Abstract: Many episodes of extension of franchise in the 19th and especially in the 20th century occurred during or in the aftermath of major wars. Motivated by this fact, we offer a theory of political transitions which focuses on the impact of international conflicts on domestic political institutions. We argue that mass-armies, which appeared in Europe after the French Revolution, are an effective military organization only if the conscripted citizens are willing to put effort in fighting wars, which in turn depends on the economic incentives that are provided to them. The need to provide such incentives, implies that an oligarchy adopting a mass-army may voluntarily decide to promise some amount of income redistribution to its citizens, conditionally on satisfactory performance as soldiers. When the elite cannot credibly commit to provide an incentive-compatible redistribution, they may cope with the moral hazard problem of the citizens-soldiers only by relinquishing political power to them through the extension of franchise. This is because democracy always implements a highly redistributive fiscal policy, which makes fighting hard incentive-compatible for the citizens-soldiers. We show that a transition to democracy is more likely to occur when the external threat faced by an incumbent oligarchy is in some sense intermediate. A very high external threat allows the elite to make credible commitments of future income redistribution in favor of the citizens, while a limited external threat makes optimal for the elite not making any (economic or political) concession to the masses. Some historical evidence consistent with our theory is also provided.
    Keywords: Autocracy, Democracy, Wars, Redistribution
    JEL: D72 D74 H56 N40 P16
    Date: 2007–12
  10. By: Gagliarducci, Stefano (CEMFI, Madrid); Nannicini, Tommaso (Universidad Carlos III, Madrid); Naticchioni, Paolo (Catholic University of Louvain)
    Abstract: In most modern democracies elected officials can work in the private sector while appointed in parliament. We show that when the political and market sectors are not mutually exclusive, a trade-off arises between the quality of elected officials and the effort they exert in political life. If high-ability citizens can keep earning money outside of parliament, they will be more likely to run for election; for the same reason, they will also be more likely to shirk once elected. These predictions are confronted with a unique dataset about members of the Italian Parliament from 1996 to 2006. The empirical evidence shows that bad but dedicated politicians come along with good but not fully committed politicians. There is in fact a non-negligible fraction of citizens with remarkably high pre-election income who are appointed in parliament. These citizens are those who gain relatively more from being elected in terms of outside income. Conversely, they are less committed to the parliamentary activity in many respects, like voting attendance and bills sponsorship.
    Keywords: politicians, moral hazard, adverse selection, absenteeism, outside income
    JEL: D72 J45 P16
    Date: 2008–01
  11. By: María A. García-Valiñas; Roberto Fernández Llera; Benno Torgler
    Abstract: Do people prefer a society with an extensive social welfare system with high taxes, or low taxes but lax redistributive policies? Although economists have for a long time investigated the trade-off mechanism between equity and efficiency, surprisingly little information is available about citizens’ preferences over the distribution of income in a society. The aim of this paper is reduce this shortcoming, investigating in an empirical study working with World Values Survey, what shapes individuals’ preferences for income equality in Spain. We present evidence that not only traditional economic variables are relevant to be considered, but also factors such as ideology, political interest, fairness perception about others or trust in institutions, are key determinants to understand preferences towards redistribution and equality. Furthermore, we also find that regional conditions affect the citizens’ preferences for income equality. Higher income inequality leads to stronger preferences for equality. On the other hand, there is the tendency that higher social expenditures reduce the preferences for income equality.
    Keywords: redistribution, inequality, welfare state, social capital, regional conditions
    JEL: H23 H53 I31
    Date: 2008–01–23
  12. By: Alejandro Saporiti (Economics, University of Manchester)
    Abstract: This paper analyzes the traditional unidimensional, two-party electoral competition game when parties have mixed motivations, in the sense that they are interested in winning the election, but also in the policy implemented after the contest. In spite of having discontinuous payoffs, this game, refer to as the hybrid election game, is shown to be payoff secure and reciprocally upper semi-continuous. Conditional payoffs, however, are not quasi-concave. Hence, the existence of a pure strategy Nash equilibrium (PSNE) is ensured only if parties have homogenous interests in power. In that case, an equilibrium not only exists, but it is also unique. Instead, if parties have heterogeneous motivations, depending upon the relationship between the electoral uncertainty, the aggregate opportunism and its distribution across parties, a psne may or may not exist. The mixed extension, however, is always better reply secure. Therefore, a mixed strategy Nash equilibrium do indeed exist. These results generalize previous existence results in unidimensional electoral competition.
    Keywords: Electoral competition; mixed motivations; discontinuous games; Nash equilibrium.
    JEL: C72 D72 D78
    Date: 2007–12
  13. By: Laslier, Jean-François (École Polytechnique); Weibull, Jörgen (Dept. of Economics, Stockholm School of Economics)
    Abstract: We consider a committee facing a binary decision under uncertainty. Each member holds some private information. Members may have different preferences and initial beliefs, but they all agree which decision should be taken in each of the two states of the world. We characterize the optimal anonymous and deterministic voting rule and provide a homogeneity assumption on preferences and beliefs under which sincere voting is a Nash equilibrium for this rule. We also provide a necessary and sufficient condition for sincere voting to be an equilibrium under any deterministic majoritarian voting rule. We show that a class of slightly randomized majoritarian voting rules make sincere voting a strict and unique pure-strategy equilibrium. A slight deontological preference for sincere voting, or ex post revelation of individual votes – ”transparency” – combined with a concern for esteem, has the same effect.
    Keywords: voting; condorcet; committee; jury; judgement aggregation.
    JEL: D71 D72
    Date: 2008–01–28
  14. By: Matteo Triossi
    Abstract: In a common-values election with two candidates voters receive a signal about which candidate is superior. They can acquire information that improves the precision of the signal. Electors differ in their information acquisition costs. For large electorates a non negligible fraction of voters acquires information, but the quantity of informed voters and the quality of acquired information decline so fast that information aggregation fails to obtain.
    Keywords: Costly Information Acquisition, Condorcet Jury Theorem.
    JEL: C72 D72 D82
    Date: 2008
  15. By: Axel Dreher; Justina A.V. Fischer
    Abstract: Using panel data for a maximum of 109 countries over the years 1976-2000, we empirically analyze the impact of decentralization on the occurrence of transnational terror. Taking account of the potential simultaneity between terror and decentralization, our results show that expenditure decentralization robustly reduces the number of terror events in a country, while political decentralization has no impact.
    Keywords: Terrorism, Decentralization, Democracy
    JEL: D74 H70 H40
    Date: 2008–01
  16. By: Anika Becher (GIGA Institute of African Affairs); Matthias Basedau (GIGA Institute of African Affairs)
    Abstract: Since the sweeping (re)introduction of multiparty systems in the early 1990s almost all sub-Saharan countries have introduced bans on ethnic or – in more general terms – particularistic parties. Such party bans have been neglected in research, and this paper engages in a preliminary analysis of their effects on democracy and peace. Theoretically, particularistic party bans can block particularisms from entering politics but also run the risk of forcing groups to resort to extra-legal or violent means. Neutral or context-dependent effects are also possible. Applying macro-qualitative comparison and bivariate statistics on the basis of a unique inventory of party bans and readily available indicators for the dependent variables, no simple connection can be detected. Rather, context conditions seem to be of superior explanatory power. We also find a systematic connection between party bans and variables that could be conceptualized as the causes of their implementation.
    Keywords: Sub-Saharan Africa, party bans, ethnicity, conflict, democracy
    Date: 2008–01

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