nep-pol New Economics Papers
on Positive Political Economics
Issue of 2009‒10‒24
seven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Ideology and Existence of 50%-Majority Equilibria in Multidimensional Spatial Voting Models By Hervé Crès; M. Utku Ünver
  2. The Redistributive Threat: State Power and the Effect of Inequality on Democracy By Hillel David Soifer
  3. Political institutions and central bank independence revisited By Davide Ferrari; Barbara Pistoresi; Francesco Salsano
  4. The Politics of Growth: Can Lobbying Raise Growth and Welfare? By Julio, Paulo
  5. Why are Rich Countries more Politically Cohesive? By Carl-Johan Dalgaard; Ola Olsson
  6. Endogenous Indoctrination: Occupational Choice, the Evolution of Beliefs, and the Political Economy of Reform By Saint-Paul, Gilles
  7. Political Economy of Anglo-French Trade, 1689-1899: Agricultural Trade Policies, Alcohol Taxes, and War By Nye, John V.C.

  1. By: Hervé Crès (Institut d’Études Politiques de Paris); M. Utku Ünver (Boston College)
    Abstract: When aggregating individual preferences through the majority rule in an n-dimensional spatial voting model, the ‘worst-case’ scenario is a social choice configuration where no political equilibrium exists unless a super majority rate as high as 1 − 1/n is adopted. In this paper we assume that a lower d-dimensional (d < n) linear map spans the possible candidates’ platforms. These d ‘ideological’ dimensions imply some linkages between the n political issues. We randomize over these linkages and show that there almost surely exists a 50%-majority equilibria in the above worst-case scenario, when n grows to infinity. Moreover the equilibrium is the mean voter. The speed of convergence (toward 50%) of the super majority rate guaranteeing existence of equilibrium is computed for d = 1 and 2.
    Keywords: Spatial voting, super majority, ideology, mean voter theorem, random point set.
    JEL: D71 D72
    Date: 2008–09–17
  2. By: Hillel David Soifer
    Abstract: Several prominent recent works in comparative politics explore the relationship between democracy and economic inequality, centring on the expectation by economic elites that democratisation will lead to the redistribution of elite wealth. But, in practice, state extractive capacity is necessary for redistribution. Where extractive capacity is lacking, rational economic elites should not fear that the loss of political power would lead to effective redistribution. Thus, the effect of inequality on regime outcomes is conditional on state capacity. This prediction is confirmed through replication and extension of the analysis in Boix (2003), with the addition of the presence of a regularly implemented national census as a proxy for state extractive capacity. In strong states, the negative effect of inequality on regime change is confirmed. But, where the state is weak, inequality is shown to have no effect on regime change. This finding has empirical and methodological implications for the cross-national analysis of political change.
    Date: 2009
  3. By: Davide Ferrari; Barbara Pistoresi; Francesco Salsano
    Abstract: We build on earlier studies regarding Central Bank independence (CBI) by relating it to political, institutional and economic variables. The data suggest that CBI is positively related to the presence of federalism, the features of the electoral system and parties, the correlation between the shocks to the level of economic activity in the countries included in the sample and, for a sub-sample of economies, the convergence criteria to join the European Monetary Union (EMU).
    Keywords: ICentral Bank independence; institutional systems; variable selection
    JEL: E5
    Date: 2009–07
  4. By: Julio, Paulo
    Abstract: This paper aims at analyzing the eects of lobbying over economic growth and primarily welfare. We model explicitly the interaction be- tween policy-makers and rms in a setup where the latter undertakes political contributions to the former in exchange for more restrictive market regulations which induce exit and enhance the protability of the market. In a sectorial equilibrium, despite stimulating growth, lobbying restricts the market structure and reduces welfare when com- pared to the free-entry outcome. However, once general equilibrium considerations are taken into account, we nd that lobbying may im- prove welfare over a welfare maximizing free-entry equilibrium, by means of an expansion in aggregate demand. This introduces a new paradigm in the literature about the eects of lobbying over economic performance. JEL codes: D72, L13, O31
    Date: 2009
  5. By: Carl-Johan Dalgaard (Department of Economics, University of Copenhagen); Ola Olsson (University of Gothenburg)
    Abstract: We document empirically that rich countries are more politically cohesive than poorer countries. In order to explain this regularity, we provide a model where political cohesion is linked to the emergence of a fully functioning market economy. Without market exchange, the welfare of inherently selfish individuals will be mutually independent. As a result, political negotiations, echoing the preferences of the citizens of society, will be dog-eat-dog in nature. Whoever has greater bargaining power will be willing to make decisions that enhance the productivity of his supporters at the expense of other groups in society. If the gains from specialization become sufficiently large, however, a market economy will emerge. From being essentially non-cohesive under self-sufficiency, the political decision making process becomes cohesive in the market economy, as the welfare of individuals will be mutually interdependent due to the exchange of goods. We refer to this latter state as “capitalist cohesion”.
    Keywords: political cohesion; economic growth
    JEL: P16 O41
    Date: 2009–10
  6. By: Saint-Paul, Gilles (University of Toulouse I)
    Abstract: Much of the political economy analysis of reform focuses on the conflict of interest between groups that stand to gain or lose from the competing policy proposals. In reality, there is also a lot of disagreement about the working of the policy: in addition to conflicting interests, conflicting views play an important role. Those views are shaped in part by an educational bureaucracy. It is documented that the beliefs of that bureaucracy differ substantially from those of the broader constituency. I analyse a model where this effect originates in the self-selection of workers in the educational occupation, and is partly reinforced by the insulation of the educational profession from the real economy (an effect which had been discussed by Hayek). The bias makes it harder for the population to learn the true parameters of the economy if these are favourable to the market economy. Two parameters that govern this capacity to learn are social entropy and heritability. Social entropy defines how predictable one's occupation is as a function of one's beliefs. Heritability is the weight of the family's beliefs in the determination of the priors of a new generation. Both heritability and social entropy reduce the bias and makes it easier to learn that the market economy is "good", under the assumption that it is. Finally I argue that the capacity to learn from experience is itself affected by economic institutions. A society which does not trust markets is more likely to favour labour market rigidities that in turn reduces the exposure of individuals to the market economy, and thus their ability to learn from experience. This in turn reinforces the weight of the educational system in the formation of beliefs, thus validating the initial presumption against the market economy. This sustains an equilibrium where beliefs and institutions reinforce each other in slowing or preventing people from learning the correct underlying parameters.
    Keywords: ideology, beliefs, political economy, labor market reform, occupational choice, education, employment protection, civil service, market economy, unemployment
    JEL: E24 I21 I28 J22 J23 J24 J45
    Date: 2009–10
  7. By: Nye, John V.C.
    Abstract: Britain â contrary to received wisdom â was not a free trader for most of the 1800s and, despite repeal of the Corn Laws, continued to have higher tariffs than the French until the last quarter of the century. War with Louis XIV from 1689 led to the end of all trade between Britain and France for a quarter of a century. The creation of powerful protected interests both at home and abroad (notably in the form of British merchants, and investors in Portuguese wine) led to the imposition of prohibitively high tariffs on French imports -- notably on wine and spirits -- when trade with France resumed in 1714. Protection of domestic interests from import competition allowed the state to raise domestic excises which provided increased government revenues despite almost no increases in the taxes on land and income in Britain. The state ensured compliance not simply through the threat of lower tariffs on foreign substitutes but also through the encouragement of a trend towards monopoly production in brewing and restricted retail sales of beer (which began around 1700 and continued throughout the eighteenth century). This history is analyzed in terms of its effects on British fiscal and commercial policy from the early 1700s to the end of the nineteenth century. The result is a fuller, albeit revisionist account of the rise of the modern state that calls into question a variety of theses in economics and political science that draw on the naive view of a liberal Britain unilaterally moving to free trade in the nineteenth century.
    Keywords: International Development, International Relations/Trade, Political Economy, F13, H20, N40, N43, N53, O13, Q17,
    Date: 2009–07

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