nep-pol New Economics Papers
on Positive Political Economics
Issue of 2013‒06‒04
ten papers chosen by
Eugene Beaulieu
University of Calgary

  1. Knowledge is power - A theory of information, income, and welfare spending By Jo Thori Lind; Dominic Rohner
  2. Fertilizer Subsidies and Voting Patterns: Political Economy Dimensions of Input Subsidy Programs By Mason, Nicole M.; Jayne, T.S.; Walle, Nicolas van de
  3. Democracy and Regulation: The Effects of Electoral Competition on Infrastructure Investments By Arthur Schram; Aljaz Ule
  4. Simple Centrifugal Incentives in Downsian Dynamics By Laussel, Didier; Le Breton, Michel; Xefteris, Dimitrios
  5. Large elections with multiple alternatives: a Condorcet Jury Theorem and inefficient equilibria By GOERTZ, Johanna; MANIQUET, François
  6. Behavioral biases and long term care insurance: A political economy approach By DE DONDER, Philippe; LEROUX, Marie-Louise
  7. Social Crisis Prevention: A Political Alert Index for the Israel-Palestine Conflict By André De Palma; Federico Perali; Nathalie Picard; Roberto Ricciuti; Alexandrina Ioana Scorbureanu
  8. Do Lawyer-Legislators Protect Their Business? Evidence from Voting Behavior on Tort Reforms By Ulrich Matter; Alois Stutzer
  9. Uncertainty and the Politics of Employment Protection By Andrea Vindigni; Simone Scotti; Cristina Tealdi
  10. Do political or economic factors drive healthcare financing privatisations? Empirical evidence from OECD countries By Wiese, Rasmus

  1. By: Jo Thori Lind; Dominic Rohner
    Abstract: No voters cast their votes based on perfect information, but richer voters are on average best informed. We develop a model where the voting mistakes resulting from low political knowledge reduce the weight of poor voters, and cause parties to choose political platforms that are better aligned with the preferences of rich voters. In US election survey data, income is more important in affecting voting behavior for more informed voters than for less informed voters. Further, when there is a strong correlation between income and political information, Congress representatives vote more conservatively, which is also in line with our theory.
    Keywords: Redistribution; Welfare Spending; Information; Income; Voting; Political Economics
    JEL: D31 D72 D82 H53
    Date: 2013–04
  2. By: Mason, Nicole M.; Jayne, T.S.; Walle, Nicolas van de
    Abstract: Agricultural input subsidies often have implicit or explicit political economy objectives. Using panel data from Zambia, this article empirically tests whether election outcomes affect targeting of subsidized fertilizer and whether fertilizer subsidies win votes. Results suggest that the Zambian government allocated substantially more subsidized fertilizer to households in constituencies won by the ruling party in the last election, and more so the larger its margin of victory. However, past subsidized fertilizer allocations had no statistically significant effect on the share of votes won by the incumbent president. Rather, voters rewarded the incumbent for reductions in unemployment, poverty, and income inequality.
    Keywords: fertilizer subsidies, political economy, voting patterns, election outcomes, fractional response, Zambia, sub-Saharan Africa, Agricultural and Food Policy, International Development, Political Economy, P16, D7, H2, H4, Q18,
    Date: 2013–05
  3. By: Arthur Schram (University of Amsterdam); Aljaz Ule (University of Amsterdam)
    Abstract: This paper investigates infrastructure investment in markets where regulation is subject to varying degrees of manipulation by elected politicians. Based on a model of price regulation in a market with increasing demand and long-term returns on investment we construct a multi-period game between a service provider, consumers with voting rights and elected decision makers. In each period the consumers elect a decision maker who may then regulate the price for service provision. Before an election the service provider chooses whether to increase its capacity. Investment is irreversible and profitable only with a sufficiently high price. We derive the subgame perfect equilibrium for this game and investigate the price and investment dynamics through an experiment with human subjects. The experimental results show that service providers invest when decision-makers' interests align with their own, though prices may rise inefficiently high when the regulatory framework is made independent of future political manipulation. Independency of regulation thus decreases efficiency and consumer surplus. In contrast, when decision-makers' interests do not align with service providers' we find efficiency only when regulation can be made independent from electoral dynamics.
    Keywords: Infrastructural investment, regulation, electoral competition, laboratory experiment
    JEL: L5 L43 D92 C9
    Date: 2013–03–18
  4. By: Laussel, Didier; Le Breton, Michel; Xefteris, Dimitrios
    Abstract: The main purpose of this short paper is to examine how traditional Downsian dynamics (convergence of the parties to the median of the distribution) are altered by the introduction of centrifugal incentives arising from the fact that any motion towards the center induces a lost of votes at the extremes of the electorate. Our analysis provides a new rationale for platform differentiation. It also yields new insights in the case when centripetal incentives are dominant on one side of the political spectrum while centrifugal incentives take over on the other side. This may apply for instance to the 2012 French elections.
    Keywords: Electoral Competition; Mixed equilibria; Centrifugal incentives
    JEL: D71 D72
    Date: 2013–05
  5. By: GOERTZ, Johanna (University of Guelph, Canada & Université catholique de Louvain, CORE, Belgium); MANIQUET, François (Université catholique de Louvain, CORE, Belgium)
    Abstract: We investigate whether the plurality rule aggregates information efficiently in large elections with multiple alternatives, in which voters have common interests. Voters’ preferences depend on an unknown state of nature, and they receive imprecise private signals about the state of nature prior to the election. Similar to two-alternative elections (e.g., Myer- son (1998)), there always exists an informationally efficient equilibrium in which the correct alternative is elected. However, we identify new types of coordination failures in elections with more than two alternatives that lead to new types of inefficient equilibria. These can have interesting new properties: Voters may vote informatively, but the correct alternative is not elected.
    Keywords: efficient information aggregation, simple plurality rule, Poisson games, Condorcet Jury Theorem
    JEL: C72 D71 D72 D82
    Date: 2013–05–22
  6. By: DE DONDER, Philippe (Toulouse School of Economics (GREMAQ-CNRS and IDEI), France); LEROUX, Marie-Louise (UQAM, Canada; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)
    Abstract: We develop a model where individuals all have the same probability of becoming dependent and vote over the social long term care insurance contribution rate before buying additional private insurance and saving. We study three types of behavioral biases, all having in common that agents under-weight their dependency probability when taking private decisions. Sophisticated procrastinators anticipate their mistake when voting, while optimistic and myopic agents have preferences that are consistent across choices. Optimists under-estimate their own probability of becoming dependent but know the average probability while myopics underestimate both. Sophisticated procrastinators attain the first-best allocation while myopics and optimists insure too little and save too much. Myopics and optimists more (resp., less) biased than the median are worse off (resp., better off), at the majority voting equilibrium, when private insurance is available than when it is not.
    Keywords: majority voting, myopia, optimism, sophisticated procrastinators, complementary private insurance, dependency linked annuity
    JEL: H55 D91
    Date: 2013–05–17
  7. By: André De Palma (Département d'Économie et de Gestion, École Normale Supérieure Cachan); Federico Perali (Department of Economics (University of Verona)); Nathalie Picard (Théorie Économique, Modélisation, Application (THEMA), Université de Cergy-Pontoise); Roberto Ricciuti (Department of Economics (University of Verona)); Alexandrina Ioana Scorbureanu (Department of Economics (University of Verona))
    Abstract: This study presents a novel approach to crisis prevention based on data on premonitory political and religious events and the international media coverage of publicly sensitive circumstances. We implement our method to the Israel-Palestine conflict. First we identify two main political scenarios associated with “good” and “bad” political times of low or high levels of political unrest using a hierarchical clustering technique. Then we construct a political alert index to predict the probability of occurrence of good and bad times. Bad times are positively and significantly associated with the number of Israeli victims at the checkpoints, the number of homeless or injured Palestinians and with the number of demolitions. The number of Palestinian prisoners and injured Israelis negatively affect the probability of occurrence of a bad time. Media coverage is positively and significantly associated with the transition to bad times. Our results show that our statistical tool can be a reliable method for early warning of social crisis and can be effectively replicated to other social crisis situations.
    Keywords: Crisis prevention, alert index, news, Israel, Palestine
    JEL: D74 F51 P48
    Date: 2013–05
  8. By: Ulrich Matter; Alois Stutzer (University of Basel)
    Abstract: <p style="margin-bottom:12.0pt; text-autospace:none"><span style="font-family:"Arial","sans-serif"">Attorneys elected to the US House of Representatives and to US state legislatures are systematically less likely to vote in favor of tort reforms that restrict tort litigation, but more likely to support bills that extend tort law. This finding is based on the analysis of 54 votes at the federal and state level between 1995 and 2012. It holds when controlling for legislators’ ideology and is particularly strong for term-limited lawyer-legislators. The empirical regularity is consistent with the hypothesis that lawyer-legislators, at least in part, pursue their business interests when voting on tort issues. Our results highlight the relevance of legislators’ identities and individual professional interests for economic policy making.</span>
    Keywords: Lawyers, legislatures, rent-seeking, tort law, tort reform, voting behavior
    JEL: D72 K13
    Date: 2013
  9. By: Andrea Vindigni; Simone Scotti; Cristina Tealdi
    Abstract: This paper investigates the social preferences over labor market exibility, in a general equilibrium model of dynamic labor demand. We demonstrate that how the economy responds to productivity shocks depends on the power of labor to extract rents and on the status quo level of the firing cost. In particular, we show that when the ring cost is initially relatively low, a transition to a rigid labor market is favored by all the employed workers with idiosyncratic productivity below some threshold value. Conversely, when the status quo level of the firing cost is relatively high, the preservation of a rigid labor market is favored by the employed with intermediate productivity, whereas all other workers favor more exibility. A more volatile environment, and a lower rate of productivity growth, i.e., "bad times," increase the political support for more labor market rigidity only where labor appropriates of relatively large rents. The coming of better economic conditions not necessarily favors the demise of high firing costs in rigid high-rents economies, because "good times" cut down the support for exibility among the least productive employed workers. The model described provides some new insights on the comparative dynamics of labor market institutions in the U.S. and in Europe over the last few decades, shedding some new light both on the reasons for the original build-up of "Eurosclerosis," and for its relative persistence until the present day.
    Keywords: employment protection, job creation and destruction, firing cost, idiosyncratic productivity, volatility, growth, political economy, voting, rents, status quo, path dependency, institutional divergence.
    JEL: D71 D72 E24 J41 J63 J65
    Date: 2013
  10. By: Wiese, Rasmus (Groningen University)
    Abstract: This paper adds new empirical evidence to the political economy literature of economic reform. One of the main contributions of this paper is the development of a novel methodology to identify privatisations. The methodology is a combination of the Bai & Perron structural break filter, and validation of the breaks identified by this filter using de jure evidence of reforms. 21 de facto healthcare financing privatisations are identified in a sample of 23 OECD countries. It is analysed which factors trigger or hinder these privatisations. Robust evidence is found in favour of the ?crises induce reform hypothesis?. That is, severe economic recessions, high levels of unemployment and high interest rates on government debt trigger privatisations. Contrary to theory and conventional wisdom, robust evidence is found that political factors do not have an impact. Ideology, government or political fractionalisation, or major cabinet changes are not found to significantly affect the likelihood of healthcare financing privatisations.
    Date: 2013

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