nep-pol New Economics Papers
on Positive Political Economics
Issue of 2008‒09‒20
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Auctioning Public Office By Costas Roumanias
  2. Growth, Centrism and Semi-Presidentialism: Forecasting the Portuguese General Elections By Luís Aguiar-Conraria; Pedro C. Magalhães
  3. Electoral Competition amongst Citizen-candidates and Downsian Politicians By Jaideep Roy; Marcin Dziubinski
  4. How Does Democracy fare with Economic Welfare for a Trading Nation? By Mamoon, Dawood
  5. Democracy, Collective Action and Intra-Elite Conflict By Sayantan Ghosal; Eugenio Proto
  6. The Efficacy of Parochial Politics: Caste, Commitment, and Competence in Indian Local Governments By Kaivan Munshi; Mark Rosenzweig
  7. Do Criminals Politicians Reduce Corruption? Evidence from India By Matthieu Chemin
  8. Endowments, Coercion, and the Historical Containment of Education By Gustavo J Bobonis
  9. Political Risk, Economic Integration, and the Foreign Direct Investment Decision By Yu-Fu Chen; Michael Funke
  10. Aggregate Uncertainty in the Citizen-Candidate Model Yields Extremist Parties By Sandro Brusco; Jaideep Roy
  11. On the Theory of Ethnic Conflict By Francesco Caselli; Wilbur John Coleman II
  12. Why does the amount of income redistribution differ between United States and Europe? The Janus face of Switzerland By Sule Akkoyunlu; Ilja Neustadt; Peter Zweifel
  13. Hierarchical Bayes prediction for the 2008 US Presidential election By Sinha, Pankaj; Bansal, Ashok
  14. Participation and Decision Making: A Three-person Power-to-take Experiment By Max Albert; Vanessa Mertins
  15. Exclusion and alienation instead of inclusion: Africa's new Nationalism in times of globalization By Kohnert, Dirk
  16. Financial Liberalisation and Political Variables: a response to Abiad and Mody By Brian Burgoon; Panicos Demetriades; Geoffrey Underhill
  17. The economic value of ideology By Gustavo Federico Torrens

  1. By: Costas Roumanias (Department of Economics, University of Macedonia)
    Abstract: Campaign promises and campaign spending are modelled as integral parts of a signaling mechanism that transmits information about can- didates' abilities and proposed policies to the voters. We suggest that viewing promises and spending as inseparable parts of the same mechanism is essential in moving towards providing a microfoundation framework of political campaigns. Political competition in spending and promising is modeled as an auction which enables us to derive results about the laws governing political campaigns. The degree of commitment is crucial to the mixture of signaling used by candidates.
    Keywords: Auctions, Elections, Political Competition, Political Campaigns, Campaign Promises, Campaign Spending.
    JEL: D02 D44 D72 D86
    Date: 2008–09
  2. By: Luís Aguiar-Conraria (Universidade do Minho - NIPE); Pedro C. Magalhães (University of Lisbon, Social Sciences Institute,)
    Abstract: Electoral behaviour in recently established democracies has been more frequently treated from the point of view of its unpredictability, volatility and personalistic elements than that of its "fundamentals". In this paper, we wish to contribute to redress this imbalance by advancing a forecasting model for general elections in a young democracy, Portugal. Building on the very familiar notion that the vote for the incumbent can be predicted on the basis of "economics" and "politics", we capture "economics" through a nonlinear specification of economic growth. Furthermore, we include two structural features of Portuguese politics, which have entailed a systematic electoral punishment for the centre-left Socialist Party as the incumbent and for all incumbents involved in political conflicts with the elected president in Portugal's semi-presidentialism.
    Keywords: Forecasting; Portuguese general elections; Economics and elections; Semi-Presidentialism
    Date: 2008
  3. By: Jaideep Roy; Marcin Dziubinski
    Abstract: In this paper we study a model of political competition where citizens vote sincerely and candidates may be either citizens or Downsian politicians. The model extends the citizen-candidate model proposed by Osborne and Slivinski [1996] by including Downsian politicians similar to those studied by Osborne [1993]. We give necessary and sufficient conditions for existence, together with complete characterisation, of one party and two party Nash equilibria in our model. An important feature, in view of the Duverger's Law, of the two-party equilibrium is that these equilibria cannot have any Downsian contestant. Moreover, we compare our model with that studied by Osborne and Slivinski [1996], showing that in both cases there exist political configurations that can appear in one of the models only. We show also that in our settings it is possible to have Nash equilibria with Downsian candidates, without requiring to have very restrictive constraints on the distribution function. We also argue that as the number of parties in euqilibrium increases, the 'likelihood' of an ideology driven citizen-candidate winning the elections and running the government falls. Finally we argue that in any equilibrium extremist parties proposing their policies uniquely are typically ideology-driven as well.
    Date: 2008–07
  4. By: Mamoon, Dawood
    Abstract: The paper examines how political institutions in comparison to legal, social and economic institutions fare with different measures of inequality in a cross section framework. The empirical analysis suggests that countries which practice democracy are less prone to unequal outcomes especially when it comes to wage inequality and income inequality whereas autocracy is associated with higher level of wage inequalities but its impact on income inequalities are insignificant. Though under good economic management, even autocracies may redistribute incomes from the richest to the poorest, more generally an autocratic set up violates the median voter hypothesis. The results also show that political stability is more sensitive to inequalities than democracy and autocracy which is to say that the countries which are internally politically stable also form more equal societies.
    Keywords: Institutions; Trade Liberalisation; Redistribution; Wage Inequality
    JEL: O1 F15 P3
    Date: 2008–06
  5. By: Sayantan Ghosal; Eugenio Proto
    Abstract: This paper studies the conditions under which intra-elite conflict leads to a democ- racy. There are two risk averse elites competing for the appropriation of a unit of so- cial surplus, with an ex-ante uncertainty about their future relative bargaining power, and a large non-elite class unable to act collectively. We characterize a democracy as consistng of both franchise extension to, and lowering the cost of collective political activity for, individuals in the non-elite. In the absence of democracy, the stronger elite is always able to appropriate the entire surplus. We show that in a democ- racy, the newly enfranchised non-elite organize and always prefer to form a coalition with weaker elite against the stronger resulting in a more balanced surplus allocation between the two elites. Accordingly, the elites choose to democratize if they are sufficiently risk averse. Our formal analysis can account for stylized facts that emerge from a comparative analysis of Indian and Western European democracies.
    Date: 2008–06
  6. By: Kaivan Munshi; Mark Rosenzweig
    Abstract: Parochial politics is typically associated with poor leadership and low levels of public good provision. This paper explores the possibility that community involvement in politics need not necessarily worsen governance and, indeed, can be efficiency-enhancing when the context is appropriate. Complementing the new literature on the role of community networks in solving market problems, we test the hypothesis that strong traditional social institutions can discipline the leaders they put forward, successfully substituting for secular political institutions when they are ineffective. Using new data on Indian local governments at the ward level over multiple terms, and exploiting the randomized election reservation system, we find that the presence of a numerically dominant sub-caste (caste equilibrium) is associated with the selection of leaders with superior observed characteristics and with greater public good provision. This improvement in leadership competence occurs without apparently diminishing leaders' responsiveness to their constituency.
    JEL: D72 H1 O12
    Date: 2008–09
  7. By: Matthieu Chemin
    Abstract: This paper relates unique data on criminal records of local politicians in India to corruption, crime and poverty. Using a regression discontinuity design, whereby individuals living in districts where a criminal politician barely won are compared to individuals living in districts where a criminal politician barely lost, this paper shows that criminal politicians reduce bribe-taking behavior of law and order officials by 34 percent. One possible explanation for this result is that when interests of politicians and those of interest groups converge, criminal politicians' control over bureaucrats acts as a substitute for bribes from these interest groups. This is not to say that criminal politicians should be elected to eradicate corruption, but rather that corruption is underestimated if only measured by bribe-taking without taking into account political control: as less bribes need to be paid, criminal offences, similar to those mostly committed by criminal politicians, increase by 25 percent. Moreover, the urban headcount ratio, the welfare of those not connected with politicians, increases by 22 percent.
    Keywords: Mother's labour supply, preschool and primary school children, childcare policy, treatment effects, natural experiment
    JEL: H42 J21 J22
    Date: 2008
  8. By: Gustavo J Bobonis
    Abstract: Distinguishing the role of coercive labor and political institutions from the effects of economic inequality levels and populations’ ethno-linguistic compositions in explaining the diverging patterns of development across the Americas has remained a challenging task. This paper examines whether the incentives for elite groups to enforce coercive labor and political institutions, holding other factors constant, inhibited economic development by restricting the provision of public schooling. Using 19th-century micro data from municipalities in Puerto Rico, and exploiting variation in the suitability of coffee cultivation across regions and the timing of the nineteenth century coffee boom, we find that coffee-region local governments allocated more public resources to enforce coercive labor measures and repress revolutionary movements, as documented by greater expenditures targeted towards the enforcement of coercive contracts and the size of military and government-backed paramilitary forces. These local governments also allocated fewer resources towards the provision of primary schooling - a decline of 40 percent in the provision of public primary schools and a decline in literacy rates of 25 percent. These findings are consistent with models of factor price manipulation and political repression under elite-controlled non-democratic regimes, in which the returns to labor are depressed as a result of the extraction of rents from peasants’ wages and literacy-based voting rights are restricted through limited access to schooling.
    Keywords: labor coercion; political institutions; geography; schooling
    JEL: O11 N46
    Date: 2008–09–12
  9. By: Yu-Fu Chen; Michael Funke
    Abstract: In this paper we analyse the impact of policy uncertainty on foreign direct investment strategies. We also consider the impact of economic integration upon FDI decisions. The paper follows the real options approach, which allows investigating the value to a firm of waiting to invest and/or disinvest, when payoffs are stochastic due to political uncertainty and investments are partially reversible. Across the board we find that political uncertainty can be very detrimental to FDI decisions while economic integration leads to an increasing benefit of investing abroad.
    Keywords: Political Risk; Real Options; Investment; Foreign Direct Investment
    JEL: D81 D92 E22 F21
    Date: 2007–12
  10. By: Sandro Brusco; Jaideep Roy
    Abstract: We extend the 'citizen candidate' model of party formation to allow for aggregate uncertainty over the distribution of preferenecs in order to address free entry in some earlier research on electoral competition with aggregate uncertainty with a fixed number of parties. We discuss and characterize the equilibrium set in this framework and show that two-party equilibria have 'extremist' parties, i.e., the party winning under a left-wing (right-wing) distribution is to the left (right) of the median of that distribution.
    Date: 2008–06
  11. By: Francesco Caselli; Wilbur John Coleman II
    Abstract: We present a theory of ethnic conflict in which coalitions formed along ethnic lines compete for the economy’s resources. The role of ethnicity is to enforce coalition membership: in ethnically homogeneous societies members of the losing coalition can defect to the winners at low cost, and this rules out conflict as an equilibrium outcome. We derive a number of implications of the model relating social, political, and economic indicators such as the incidence of conflict, the distance among ethnic groups, group sizes, income inequality, and expropriable resources.
    Date: 2008–06
  12. By: Sule Akkoyunlu (Socioeconomic Institute, University of Zurich); Ilja Neustadt (Socioeconomic Institute, University of Zurich); Peter Zweifel (Socioeconomic Institute, University of Zurich)
    Abstract: In this paper, the amount of income redistribution in the United States and the European Union is compared and related to economic, political, and behavioral determinants. Lying in between the two poles, Switzerland provides evidence about the relative merits of competing hypotheses. It tips the balance against economic explanation, which predicts more rather than less income redistribution in the United States compared to the EU. It only weakly supports the political model, which links proportional representation and multiparty structure (which also characterize Switzerland) to redistribution; yet the Swiss share of transfers in the GDP is low. Behavioral explanations receive good deal of support from the case of Switzerland, a country that shares with the United States the belief that hard work rather than luck, birth, connections, and corruption determine wealth. In this way, the Janus face of Switzerland may help to explain the difference in the amount of U.S. and EU income redistribution.
    Keywords: Redistribution, Income Mobility, Political Economy, Beliefs, Reciprocity, Ethnicity
    JEL: D31 D63 D64 H53 I31
    Date: 2008–09
  13. By: Sinha, Pankaj; Bansal, Ashok
    Abstract: In this paper a procedure is developed to derive the predictive density function of a future observation for prediction in a multiple regression model under hierarchical priors for the vector parameter. The derived predictive density function is applied for prediction in a multiple regression model given in Fair (2002) to study the effect of fluctuations in economic variables on voting behavior in U.S. presidential election. Numerical illustrations suggest that the predictive performance of Fair’s model is good under hierarchical Bayes setup, except for the 1992 election. Fair’s model under hierarchical Bayes setup indicates that the forthcoming 2008 US presidential election is likely to be a very close election slightly tilted towards Republicans. It is likely that republicans will get 50.90% vote with probability for win 0.550 in the 2008 US Presidential Election.
    JEL: C11 C01
    Date: 2008–08–13
  14. By: Max Albert (Justus Liebig University Giessen, Dept of Economics); Vanessa Mertins (Saarland University, Dept of Economics)
    Abstract: It is often conjectured that participatory decision making may increase acceptance even of unfavorable decisions. The present paper tests this conjecture in a three-person power-to-take game. Two takers decide which fraction of the responder's endowment to transfer to themselves; the responder decides which part of the endowment to destroy. Thus, the responder can punish greedy takers, but only at a cost to herself. We modify the game by letting the responder participate in takers' transfer decision and consider the eect of participation on the destruction rate. We nd that participation matters. Responders destroy more if they (1) had no opportunity to participate in the decision making process and (2) are confronted with highly unfavorable outcomes. This participation eect is highly signicant for those responders (the majority) who show negative reciprocity (i.e., destroy more when takers are greedier).
    Keywords: fairness, participatory decision making, power-to-take game, procedural fairness, reciprocity
    JEL: C72 C91 D72
    Date: 2008
  15. By: Kohnert, Dirk
    Abstract: The New Nationalism in Africa and elsewhere shows remarkable differences both in its roots and its impact, compared with that of national independence movements of the early 1960s. Contrary to the first nationalism, the second is less prone to include than to exclude populations; alienation, xenophobia and its political instrumentalization are its curse. The New Nationalism has been shaped decisively by the consequences of globalization and by the increasing cleavages between the poor and the rich. Nowadays, structures of nationalism and nation-states differ more than in the past. Frequently, the new nationalism is rooted in populist grass-root movements which do not necessarily share the same interest as the ruling class or the state. This makes for its extraordinary political and social ambiguity and brisance.
    Keywords: nationalism;migration;xenophobia;ethnicity;alienation;poverty; Africa
    JEL: N47 Z1 F5 O15 I38 P16
    Date: 2008–09–17
  16. By: Brian Burgoon; Panicos Demetriades; Geoffrey Underhill
    Abstract: We challenge recent findings by Abiad and Mody (2005) which suggest that financial liberalization has little to do with political variables. This analysis is at odds with some of the established literature, and only with difficulty comes to terms with the considerable cross-national variation in the pace, phasing, and extent of financial reforms over time. Using Abiad and Mody's own index of financial liberalization, but slightly unbundling and refining their measures of 'ideological affinity' and 'regime type', we examine what Abiad and Mody call the 'triggers' of liberalisation and the dynamics of the subsequent 'cumulative transformation'. We demonstrate the role of political variables in relation to initial liberalisation episodes, and as variables affecting the cumulative dynamics and sustainability of ongoing financial reform processes, including those which affect the acceptability and costs of liberalization. These factors include (i) shifts to - as opposed to levels in - Left government; (ii) the incidence of Left governments combined with low levels of democracy; (iii) international voter support for free markets; (iv) the extent of social safety nets; (v) the presence of multilateral and bilateral aid programs. Our empirical investigation confirms these factors as statistically significant determinants of financial liberalization, and reveal what Abiad and Mody identify as 'learning' to be a highly political process.
    Date: 2008–09
  17. By: Gustavo Federico Torrens
    Abstract: Specialization and trade rest on institutions that protect property rights and enforce agreements. Frequently, in economic analysis institutions are just assumed to exist, or it is implicitly supposed that the political game can establish them. Once this assumption is done, the invisible hand does its work properly. It doesn’t matter if humans beings are benevolent or selfish for the gains from specialization and trade be realized. However, it is not easy to build institutions, neither are they a free lunch. The paper shows that ideology, understood as a self-imposed code of conduct, contributes to reduce the cost of instituting an industrious society, inducing people to assign their time and effort to productive activities rather than to theft.
    Keywords: ideology, self-imposed codes of conduct, crime, enforcement of property rights.
    JEL: K42 Z13
    Date: 2008–08

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