nep-pol New Economics Papers
on Positive Political Economics
Issue of 2011‒04‒16
eight papers chosen by
Eugene Beaulieu
University of Calgary

  1. Whose Opinion Counts? Political Processes and the Implementation Problem By Saran Rene; Tumennasan Norovsambuu
  2. Redistribution and Reelection under Proportional Representation: The Postwar Italian Chamber of Deputies By Golden, Miriam; Picci, Lucio
  3. Corruption and Fertility: Evidence from OECD countries By Eiji Yamamura
  4. Two-Party Competition with Persistent Policies By Jean Guillaume Forand
  5. Do Political Institutions protect the poor? Intra Countries Health Inequalities and Air Pollution in Developing Countries By Alassane DRABO
  6. The geography of conflicts and free trade agreements By Martin, Philippe; Mayer, Thierry; Thoenig, Mathias
  7. Financial stability in small open economy under political uncertainty By Onour, Ibrahim
  8. Group Identity and Coalition Formation: Experiments in a three?player divide the dollar Game By Tremewan, James

  1. By: Saran Rene; Tumennasan Norovsambuu (METEOR)
    Abstract: The mechanism used in Nash implementation is a form of direct democracy, taking everyone''s opinion into account. We augment this mechanism with a political process that selects the opinions of a subset of the individuals. We study three such processes -- oligarchy, oligarchic democracy and random sampling -- and compare the social choice rules (SCRs) that can be implemented using each of these processes with those that can be Nash implemented. In oligarchy, only the opinions of a fixed subset of the individuals -- the oligarchs -- determine the implemented alternative. We obtain a negative result for oligarchies: there exist Nash implementable SCRs that cannot be implemented by any oligarchy. Oligarchic democracy is a perturbation of oligarchy, in which the opinions of the oligarchs “almost always” determine the implemented alternative but sometimes, everyone''s opinions are considered. In a sharp contrast to the negative result for oligarchies, we show that in economic environments, every Nash implementable SCR can be implemented by an oligarchic democracy in which any three individuals act as oligarchs. In random sampling, opinions of a fixed number of individuals are selected randomly, which then determine the implemented alternative. We show that in economic environments, every Nash implementable SCR can be implemented by randomly sampling opinions of four individuals.
    Keywords: microeconomics ;
    Date: 2011
  2. By: Golden, Miriam; Picci, Lucio
    Abstract: We study incumbency advantage and the electoral returns to pork and patronage over ten legislative periods from 1948 to 1992 for two political parties — the Christian Democrats (DC) and the Italian Socialist Party (PSI) — in Italy’s lower house of representatives, the Chamber of Deputies. Adapting a regression discontinuity design to Italy’s open-list system of proportional representation, we show that parliament comprised two groups: a small elite, whose members enjoyed an incumbency advantage, and the average deputy, who benefitted from no such incumbency advantage. Elite legislators affiliated with Italy’s two main parties of government received significantly more preference votes when pork and patronage were steered to their districts, although the effect is small. We interpret this to indicate that their incumbency advantage was linked to their ability to claim credit for these allocations. We also show that the two parties won more list votes when districts received more resources and that when districts received more resources, the abilities of these parties to persuade their electors to use preference votes improved. This form of electoral mobilization, in turn, enlarged the number of ministerial positions secured by the district. Our analysis depicts a political environment severely segmented between a small, powerful elite group of deputies and backbenchers.
    Keywords: incumbency effect; distributive politics; patronage; proportional representation; Italy; regression discontinuity
    JEL: C14 H11 H41 H83 H76
    Date: 2011–03–25
  3. By: Eiji Yamamura
    Abstract: This paper uses panel data of OECD countries during the period 1995–2003 to examine how corruption affects fertility. The Corruption Perceptions Index is used to measure the degree of corruption. Fixed effects IV estimation and the Arellano-Bond dynamic panel estimation are employed to control for endogenous bias and unobservable country-specific effects. Results suggest that the fertility rate is higher in less corrupted countries. From this, the argument can be made that lack of political corruption underlies desirable conditions for child rearing in developed countries.
    Keywords: Corruption, fertility, political institutions.
    JEL: D73 J13
    Date: 2011–03–03
  4. By: Jean Guillaume Forand (Department of Economics, University of Waterloo)
    Abstract: This paper studies the Markov perfect equilibrium outcomes of a dynamic game of electoral competition between two policy-motivated parties. I model incumbent policy persistence: parties commit to implement a policy for their full tenure in office, and hence in any election only the opposition party renews its platform. In equilibrium, parties alternate in power and policies converge to symmetric alternations about the median voter's ideal policy. Parties' disutility from opponents' policies leads to alterna- tions that display bounded extremism; alternations far from the median are never limits of equilibrium dynamics. Under a natural restriction on strategies, I find that robust long-run outcomes display bounded moderation; alternations close to the median are reached in equilibrium only if policy dynamics start there. I show that these results are robust to voters being forward-looking, the introduction of term limits, costly policy adjustments for incumbents, and office benefits.
    JEL: C73 D72 D78
    Date: 2010–11
  5. By: Alassane DRABO
    Abstract: This paper examines the link between health inequalities, air pollution and political institutions. In health economics literature, many studies have assessed the association between environmental degradation and health outcomes. This paper extends this literature by investigating how air pollution could explain health inequalities both between and within developing countries, and the role of political institutions in this relationship. Theoretically, we argue that differential in exposition to air pollution among income classes, prevention ability against health effect of environment degradation, capacity to respond to disease caused by pollutants and susceptibility of some groups to air pollution effect are sufficient to expect a positive link between air pollution and income related health inequality. Furthermore, in democratic countries, this heterogeneity in the health effect of pollution may be mitigated since good institutions favour universal health policy issues, information and advices about hygiene and health practices, and health infrastructures building. Our econometric results show that sulphur dioxide emission (SO2) and particulate matter (PM10) are in part responsible for the large disparities in infant and child mortalities between and within developing countries. In addition, we found that democratic institutions play the role of social protection by mitigating this effect for the poorest income classes and reducing the health inequality it provokes.
    Keywords: health inequality, air pollution, political institutions, social protection
    JEL: Q53 I1 D63 C13
    Date: 2011
  6. By: Martin, Philippe; Mayer, Thierry; Thoenig, Mathias
    Abstract: We analyze the interaction of economic and political determinants of free trade agreements (FTA). In addition to standard trade gains, FTAs can promote peaceful relations by offering a political forum and by increasing the opportunity cost of conflicts that disrupt trade. If policy makers believe in such pacifying effects of FTAs, country pairs with large trade gains from FTAs and a high probability of conflict are more likely to sign a FTA. Using data on the 1950-2000 period, we show that this complementarity between economic and political gains is at work in the geography of FTAs. Country pairs characterized by a high frequency of old wars - which we use as a proxy of the latent probability of conflict - are shown to be more likely to sign FTAs, the more so the higher the trade gains from a FTA. These trade gains are estimated by a theory-driven empirical strategy to disentangle them from the political factors. We also show that, contrary to old wars, recent wars make it more difficult to negotiate a FTA. This suggests the existence of windows of opportunity to lock in FTAs and peace. Finally, multilateral trade openness, because it reduces the opportunity cost of bilateral conflict, increases the political incentive to sign FTAs.
    Keywords: Free Trading Arrangements; Trade; War
    JEL: F12 F15
    Date: 2010–06
  7. By: Onour, Ibrahim
    Abstract: In this paper we model financial stability in small open economy enduring political uncertainty and operating under dual exchange markets, a free exchange rate applicable to wide range of private capital transactions and controlled exchange rate applicable to some official transactions. The finding in the paper indicate, given that capital outflow is kept at minimal level there exist steady state equilibrium exchange rates. The level of initial official reserves determine the length of time needed for the process to adjust towards a new steady state equilibrium. The lower initial official reserve level is, the longer time is needed to recover from a shock and adjust towards a new equilibrium steady state. When fiscal deficit and declining official reserves force the government to abandon the dual exchange system in favor of floating single exchange rate system, our model predict depreciation of foreign exchange rates is identical to domestic money growth.
    Keywords: parallel rate; official rate; Stability; Steady-state.
    JEL: O11 C02 E44
    Date: 2011–03–02
  8. By: Tremewan, James
    Abstract: This paper is an experimental study on the effect of group identity on the formation of coalitions and the resulting distribution of resources. After inducing group identity based on preferences over paintings, subjects play symmetric three-player _divide the dollar_ games with a majority rule decision process. The main finding is that where two players are from one group and one from the other, those in the minority earn significantly less than majority players. This is largely a result of a two-way split between majority players occurring more frequently, either because of the increased salience of this outcome, or a shift in social preferences.
    Date: 2010–06

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