nep-pol New Economics Papers
on Positive Political Economics
Issue of 2011‒01‒30
eighteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Mediocracy, Third Version By Andrea Mattozzi; Antonio Merlo
  2. Direct Democracy, Political Delegation, and Responsibility Substitution By Carlo Prato; Bruno Strulovici
  3. Local politics and economic geography By Berliant, Marcus; Tabuchi, Takatoshi
  4. Privately informed parties and policy divergence By Kikuchi, Kazuya
  5. A Political Theory of Populism By Daron Acemoglu; Georgy Egorov; Konstantin Sonin
  6. Economic integration and political fragmentation By Grégoire Rota-Graziosi
  7. Inequality in Developing Economies: The Role of Institutional Development By AMENDOLA, Adalgiso; EASAW, Joshy; SAVOIA, Antonio
  8. Sincere Lobby Formation By Zudenkova, Galina
  9. Immigration, integration and terrorism: is there a clash of cultures? By Justina AV Fischer
  10. Which Democracies Pay Higher Wages?* By James Rockey; Miltiadis Makris
  11. How do African populations perceive corruption: microeconomic evidence from Afrobarometer data in twelve countries By Gbewopo Attila
  12. Subnational resource curse: do economic or political institutions matter? By Libman, Alexander
  13. Neoliberal restructuring in Turkey: From state to oligarchic capitalism By Karadag, Roy
  14. Environmental Compliance, Corruption and Governance: Theory and Evidence on Forest Stock in Developing Countries By Sébastien MARCHAND; Gaoussou DIARRA
  15. Redistributive Politics and Government Debt in a Borrowing-constrained Economy By Ryo Arawatari; Tetsuo Ono
  16. What Determines The World Heritage List? An Econometric Analysis By Bruno S. Frey; Paolo Pamini; Lasse Steiner
  17. Taking capitalism seriously: Toward an institutionalist approach to contemporary political economy By Streeck, Wolfgang
  18. On the potential of foreign aid to protect democracy against instability from trade By Thierry Kangoye

  1. By: Andrea Mattozzi (Divison of Humanities and Social Sciences, California Institute of Technology); Antonio Merlo (Department of Economics, University of Pennsylvania)
    Abstract: We study the recruitment of individuals in the political sector. We propose an equilibrium model of political recruitment by two political parties competing in an election. We show that political parties may deliberately choose to recruit only mediocre politicians, in spite of the fact that they could select better individuals. Furthermore, we show that this phenomenon is more likely to occur in proportional than in majoritarian electoral systems.
    Keywords: Politicians, parties, political recruitment, electoral systems, all-pay auctions.
    JEL: D72 D44 J45
    Date: 2010–04–01
  2. By: Carlo Prato; Bruno Strulovici
    Abstract: Can direct democracy provisions improve welfare over pure representative democracy? This paper studies how such provisions affect politicians’ incentives and selection. While direct democracy allows citizens to correct politicians’ mistakes, it also reduces the incentives of elected representatives to search for good policies. This responsibility substitution reduces citizens’ ability to screen competent politicians, when elections are the only means to address political agency problems. A lower cost of direct democracy induces a negative spiral on politicians incentives, which we characterize by a disincentive multiplier. As a consequence, introducing initiatives or lowering their cost can reduce voters’ expected utility. Moreover, when elections perform well in selecting politicians and provide incentives, this indirect welfare reducing effect is stronger.
    Keywords: Direct Democracy, Initiative, Referendum, Political Agency, Delegation JEL Classification Numbers: D72, D78, P16
    Date: 2010–12–09
  3. By: Berliant, Marcus; Tabuchi, Takatoshi
    Abstract: We consider information aggregation in national and local elections when voters are mobile and might sort themselves into local districts. Using a standard model of private information for voters in elections in combination with a New Economic Geography model, agglomeration occurs for economic reasons whereas voter stratification occurs due to political preferences. We compare a national election, where full information equivalence is attained, with local elections in a three district model. A stable equilibrium accounting for both the economic and political sectors is shown to exist. Restricting to an example, we show that full information equivalence holds in only one of the three districts when transport cost is low. The important comparative static is that full information equivalence is a casualty of free trade. When trade is more costly, people tend to agglomerate for economic reasons, resulting in full information equivalence in the political sector. Under free trade, people sort themselves into districts, most of which are polarized, resulting in no full information equivalence in these districts. We examine the implications of the model using data on corruption in the legislature of the state of Alabama and in the Japanese Diet.
    Keywords: information aggregation in elections; informative voting; new economic geography; local politics
    JEL: D82 D72 R12
    Date: 2011–01–13
  4. By: Kikuchi, Kazuya
    Abstract: This paper presents a Downsian model of political competition in which parties have incomplete but richer information than voters on policy effects. Each party can observe a private signal of the policy effects, while voters cannot. In this setting, voters infer the policy effects from the party platforms. In this political game with private information, we show that there exist weak perfect Bayesian equilibria (WPBEs) at which the parties play different strategies, and thus, announce different platforms even when their signals coincide. This result is in contrast with the conclusion of the Median Voter Theorem in the classical Downsian model. Our equilibrium analysis suggests similarity between the set of WPBEs in this model and the set of uniformly perfect equilibria of Harsanyi and Selten (1988) in the model with completely informed parties which we studied in a previous paper (Kikuchi, 2010).
    Date: 2011–01
  5. By: Daron Acemoglu; Georgy Egorov; Konstantin Sonin
    Date: 2011–01–17
  6. By: Grégoire Rota-Graziosi (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: The purpose of this article is to provide an economic analysis of the relationship between economic integration and political fragmentation. This follows previous contributions from Alesina et al (2000), Casella (2001, Casella and Feinstein (2002), or Leite-Monteiro and Sato (2003). We go a step further than these authors by assuming that economic integration and political fragmentation are both decided by a majority vote. As them, we observe that economic integration involves political fragmentation. But, we establish also that economic integration might be sometimes deterred by the majority to prevent political fragmentation from happening.
    Keywords: economic integration;public good;secession;vote
    Date: 2011–01–18
  7. By: AMENDOLA, Adalgiso (CELPE (Centre of Labour Economics and Economic Policy), University of Salerno, Italy); EASAW, Joshy (Department of Economics, University of Bath); SAVOIA, Antonio (University of Exeter Business School)
    Abstract: This paper studies the distributive impact of institutional change in developing countries. In such economies, economic institutions, such as property rights systems, may act to preserve the interests of an influential minority, but this depends crucially on the level of political equality. For example, dominant classes can control key-markets, access to assets and investment opportunities, especially if they enjoy disproportionate political power. We test this hypothesis using cross-section and panel data methods on a sample of low- and middle-income economies from Africa, Asia and Latin America. Results suggest that: (a) increasing the protection of property rights increases income inequality; (b) such an effect is larger in low-democracy environments; (c) a minority of countries have developed a set political institutions capable of counterbalancing this effect.
    Keywords: inequality; developing economies; institutions; property rights; democracy
    JEL: D70 O15 O17
    Date: 2011–01–18
  8. By: Zudenkova, Galina
    Abstract: This paper analyzes endogenous lobbying over a unidimensional policy issue. Individuals differ in policy preferences and decide either to join one of two opposite interest lobbies or not to take part in lobbying activities. Once formed, lobbies make contributions to the incumbent government in exchange for a policy favor as in a common-agency model. A "sincere-lobby-formation" condition for equilibrium is introduced: an individual joins a lobby if their gain from the policy change that this lobby might achieve exceeds a contribution fee. Thus, an equilibrium occurs only if no lobby member would prefer their lobby to cease to exist. I show the existence of an equilibrium with two organized lobbies. Individuals with more extreme preferences are more likely to join lobbying activities. I find that lobbying somewhat moderates the government's preferences, i.e., it shifts the final policy in favor of individuals who are initially disadvantaged by the government's pro- or anti-policy preferred position. Under a utilitarian government, however, lobbying does not affect the final policy, and political competition results in a socially optimal outcome.
    Keywords: Sincere lobby formation; common agency; endogenous lobbying.
    JEL: D72
    Date: 2010–05–01
  9. By: Justina AV Fischer (:Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: We test whether immigrants are more prone to support terror than natives because of lower opportunity costs, using the international World Values Survey data. We show that, in general, economically, politically and socially non-integrated persons are more likely to accept using violence for achieving political goals, consistent with the economic model of crime. We also find evidence for the destructive effects of a ‘clash of cultures’: Immigrants in OECD countries who originate from more culturally distanced countries in Africa and Asia appear more likely to view using violence for political goals as justified. Most importantly, we find no evidence that the clashof-cultures effect is driven by Islam religion, which appears irrelevant to terror support. As robustness test we relate individual attitude to real-life behavior: using country panels of transnational terrorist attacks in OECD countries, we show that the population attitudes towards violence and terror determine the occurrence of terror incidents, as does the share of immigrants in the population. A further analysis shows a positive association of immigrants from Africa and Asia with transnational terror, while the majority religion Islam of the sending country does not appear to play a role. Again, we find that culture defined by geographic proximity dominates culture defined by religion.
    Keywords: K42, H56, O15, D74, Z1
    JEL: K42 H56 O15 D74 Z1
    Date: 2011–01–20
  10. By: James Rockey; Miltiadis Makris
    Abstract: The labor share of income varies markedly across the set of democracies. A model of the political process, situated in a simple macroeconomic environment is analyzed in which the cause of this variation is linked to differences in the form of democracy - in particular the adoption of a presidential or parliamentary system. Presidential regimes are associated with lower taxation but lower wages. Robust evidence for the negative impact of a presidential system on the labor share is obtained using a Bayesian Model Averaging approach. Evidence is also provided that this is due to lower taxation.
    Keywords: Fertility; Economic growth; Health expenditures
    Date: 2010–11
  11. By: Gbewopo Attila (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: In this paper, we examine the microeconomic determinants of the perception of corruption in twelve Sub-Saharan African countries. Unlike the indicators of corruption based on the opinion of international experts, the study focuses on corrupt practices as experienced by the African people themselves. The results of our estimates, using an ordered probit indicate that the individual characteristics such as age and sex significantly affect the perception people have of corruption as do social and political factors like access to information (press, media, radio). However, neither democracy nor participation in demonstrations, seem to affect the attitude of individuals towards corruption.
    Keywords: corruption;Sub-Saharan Africa;Ordered Probit
    Date: 2011–01–17
  12. By: Libman, Alexander
    Abstract: The absence or the presence of the resource curse is often explained by the specifics of political and institutional factors. The aim of this paper is to study this effect looking separately at economic and political institutions and at their interaction. Unlike most empirical papers in the literature, this paper considers the intra-national variation of institutional environment and access to political decision-making, using a dataset of the Russian regions. It shows that subnational variation of the quality of institutions indeed matters for the effects of resources. Economic institutions follow the traditional 'resource curse' results: resources have a negative impact on growth if the quality of institutions is low. On the other hand, increasing level of democracy has negative consequences for regions with substantial resources. Finally, this paper studies the differentiation between the resource-extracting regions and regions, exporting, but not extracting resources, in terms of the conditional resource curse. --
    Keywords: subnational variation,conditional resource curse,democracy,economic institutions,transition economies
    JEL: O13 P28 Q48
    Date: 2010
  13. By: Karadag, Roy
    Abstract: How have neoliberal reform policies changed Turkey's political economy? The aim of this paper is to counter claims of convergence towards a liberal capitalist order. Given the historical dynamics of the political embeddedness of Turkey's economy, after 1980, transformations in the state and the economy institutionalized the erosion of Turkish state capitalism. Due to the consolidation of new elite cartels, political fragmentation, and continuing systemic corruption involving networks comprising political and economic elites, what emerged as a result of restructuring is an oligarchic form of capitalism. It is currently undergoing further institutional changes, the outcome of which will depend closely on the power resources and strategies of the incumbent moderate Islamist Justice and Development Party. -- Welche Folgen hatten die neoliberalen Reformen nach 1980 für die politische Ökonomie der Türkei? Der Autor argumentiert gegen weitverbreitete Annahmen einer weltweiten Konvergenz hin zu liberalen kapitalistischen Ordnungen. Zwar wurde das Ende des türkischen Modells des Staatskapitalismus von den neoliberalen Strukturanpassungsprogrammen herbeigeführt, jedoch verhinderten die spezifischen Dynamiken der politischen Einbettung der türkischen Wirtschaft einen Übergang zum liberalen Kapitalismus. Vielmehr hat sich eine oligarchische Variante herausgebildet, deren besondere Merkmale politische Fragmentierung, geringere infrastrukturelle Staatsmacht und systemische Korruptionsverflechtungen zwischen politischen und ökonomischen Eliten sind. Die Wirtschaftsreformen der regierenden moderat islamischen Partei für Gerechtigkeit und Entwicklung sind somit auch kritisch zu bewerten, denn sie wirken nicht losgelöst von Machtansprüchen und -interessen.
    Date: 2010
  14. By: Sébastien MARCHAND (Centre d'Etudes et de Recherches sur le Développement International); Gaoussou DIARRA (Centre d'Etudes et de Recherches sur le Développement International)
    Abstract: This paper analyses the relationships between environmental compliance, corruption and environmental regulations in the case of forestry. Using a Principal-Agent model, we highlight interrelationships between firm's environmental non-compliance and corruption conditioned to the efficiency of the legal and regulatory framework. Moreover, we show that environmental compliance and judicial efficiency may be complementary or substitutable depending on the level of judicial efficiency to strengthen the forest stock. After having design a new indicator of environmental compliance, we test these predictions using cross section data for 59 developing countries. The empirical results support the predictions of the model. Judicial efficiency reduces corruption and environmental non compliance which are positively correlated and conditioned to judicial efficiency. We also find empirical evidences on the substitutability and complementarity of environmental compliance and judicial efficiency to preserve the forest stock.
    Keywords: corruption, Environmental compliance, Forest Stock, political economy, governance
    JEL: Q23 D73
    Date: 2011
  15. By: Ryo Arawatari (Faculty of Economics, Shinshu University); Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: We develop a two-period, three-class of income model where low-income agents are borrowing constrained because of capital market imperfections, and where redistributive expenditure is financed by tax and government debt. When the degree of capital market imperfection is high, there is an ends-against-the-middle equilibrium where the constrained low-income and the unconstrained high-income agents favor low levels of government debt and redistributive expenditure; these agents form a coalition against the middle. In this equilibrium, the levels of government debt and expenditure are below the efficient levels, and the spread of income distribution results in a lower debt-to-GDP ratio.
    Keywords: Government debt; Borrowing constraints; Voting; Structure-induced equilibrium; Income inequality.
    JEL: D72 H52 H60
    Date: 2011–01
  16. By: Bruno S. Frey; Paolo Pamini; Lasse Steiner
    Abstract: The official intention of the UNESCO World Heritage List is to protect the global heritage. However, the existing List is highly imbalanced according to countries and continents. Historical reasons, such as historical GDP, population, and number of years of high civilization, have a significant impact on being included on the List. In addition, economic and political factors unrelated to the value of heritage, such as rent seeking by bureaucrats and politicians, the size of the tourist sector, the importance of media, the degree of federalism, and membership in the UN Security Council, influence the composition of the List.
    Keywords: global public goods; world heritage; international organizations; international political economy; culture
    JEL: Z11 F5 H87
    Date: 2011–01
  17. By: Streeck, Wolfgang
    Abstract: This paper outlines an institutionalist political economy approach to capitalism as a specific type of social order. Social science institutionalism considers social systems to be structured by sanctioned rules of obligatory behavior. Its perspective is one of collective ordering, or governance, through regularization and normalization of social action, either by public authority or by private contract. Political economy looks at the interrelations between collective action in general and collective rule-making in particular, and the economy; it extends from economic and social policy-making to the way in which economic interests and constraints influence policy, politics and social life as a whole. The approach proposed in this article looks at society and economy as densely intertwined and closely interdependent, which is what traditional concepts of capitalism stood for. Proceeding from an institutionalist perspective, it elaborates a concept of capitalism not as a self-driven mechanism of surplus extraction and accumulation governed by objective laws, but as a set of interrelated social institutions, and as a historically specific system of structured as well as structuring social interaction within and in relation to an institutionalized social order. -- Das Papier entwickelt den Ansatz einer institutionalistischen politischen Ökonomie des Kapitalismus als einer spezifischen Form sozialer Ordnung. Sozialwissenschaftlicher Institutionalismus betrachtet soziale Systeme als durch sanktionierte Regeln obligatorischen Handelns strukturiert. Seine Perspektive ist die der Produktion kollektiver Ordnung ('governance') durch Regulierung und Normalisierung sozialen Handelns, vermittels öffentlicher Autorität oder durch private Verträge. Politische Ökonomie betrachtet das Wechselspiel zwischen kollektivem Handeln im Allgemeinen und kollektiver Regelsetzung im Besonderen auf der einen Seite und der Wirtschaft auf der anderen; ihr Gebiet schließt wirtschafts- und sozialpolitische Entscheidungen ebenso ein wie die Beeinflussung des politischen und sozialen Leben durch wirtschaftliche Interessen und Zwänge. Der vorgeschlagene Ansatz behandelt Gesellschaft und Wirtschaft, in Einklang mit traditionellen Theorien des Kapitalismus, als eng ineinander verschränkt und hoch interdependent. Ausgehend von einer institutionalistischen Perspektive wird ein Konzept des Kapitalismus als System aufeinander bezogener Institutionen entwickelt - als historisch spezifisches System strukturierter und strukturierender sozialer Interaktion innerhalb und gegenüber einer institutionalisierten sozialen Ordnung.
    Date: 2010
  18. By: Thierry Kangoye (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: In this paper, we examine the effects of a major source of instability, namely terms of trade instability on the quality of democracy, and we investigate whether foreign aid can dampen them. We take advantage of previous empirical findings explaining the role of aid in mitigating the adverse effects of external shocks, and argue that in the long term, aggregate aid flows can potentially dampen the effects of terms of trade instability on democracy. An empirical investigation with data from 71 developing countries over the period 1980-2003 provides supportive results. Moreover, the data suggest that terms of trade instability affects democracy through income instability.
    Keywords: democracy;foreign aid;terms of trade instability
    Date: 2011–01–17

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