nep-pol New Economics Papers
on Positive Political Economics
Issue of 2013‒09‒13
fourteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Political Economy of Financial Systems: Evidence from Suffrage Reforms in the Last Two Centuries By Degryse, H.A.; Lambert, T.; Schwienbacher, A.
  2. Energy market liberalisation and renewable energy policies in oecd countries By Francesco Vona; Francesco Nicolli
  3. Electing the Pope By László Á. Kóczy; Balázs Sziklai
  4. Elected vs appointed public law enforcers By Eric Langlais; Marie Obidzinski
  5. Political economy synthesis: The food policy crisis By Watson II, Derrill D.
  6. The Trade Agreement Embarrassment, Second Version By Wilfred J. Ethier
  7. Estimating the Preferences of Central Bankers: An Analysis of Four Voting Records By Eijffinger, S.C.W.; Mahieu, R.J.; Raes, L.B.D.
  8. The Geo-Politics of Foreign Aid and Transnational Terrorism By Azam, Jean-Paul; Thelen, Véronique
  9. The Power of Money: Wealth Effects in Contests. By Schroyen, Fred; Treich, Nicolas
  10. A Cultural Clash View of the EU Crisis By Luigi Guiso; Helios Herrera; Massimo Morelli
  11. The (ir)resistible rise of agency rents By Biais, Bruno; Landier, Augustin
  12. Spending Biased Legislators - Discipline Through Disagreement By Facundo Piguillem; Alessandro Riboni
  13. Donor coordination for effective government policies? Implementation of the new aid effectiveness agenda in health and education in Zambia By Leiderer, Stefan
  14. Voluntary Pooled Public Knowledge Goods and Coalition Formation By Tom DEDEURWAERDERE; Paolo MELINDI GHIDI

  1. By: Degryse, H.A.; Lambert, T.; Schwienbacher, A. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: Initially, voting rights were limited to wealthy elites providing political support for stock markets. The franchise expansion induces the median voter to provide political support for banking development as this new electorate has lower financial holdings and benefits less from the uncertainty and financial returns from stock markets. Our panel data evidence covering 1830-1999 shows that tighter restrictions on the voting franchise induce a greater stock market development, whereas a broader voting franchise is more conducive towards the banking sector, consistent with Perotti and von Thadden (2006). Our results are robust to controlling for other political determinants and endogeneity.
    Keywords: banking sector;financial development;financial structure;political economy;stock markets;voting franchise.
    JEL: D72 G10 O16 P16
    Date: 2013
  2. By: Francesco Vona (Ofce sciences-po, Skema Business School); Francesco Nicolli (Ceris/Cnr, University of Ferrara)
    Abstract: We analyse the impact of market liberalisation on renewable energy policies in OECD countries. To this end, we first develop an aggregated indicator of renewable energy policies using principal components analysis and then examine its determinants through panel data techniques. Our results are consistent with the predictions of political-economy models of environmental policies, as brown lobbying, proxied by entry barriers in the energy sector, and citizens preferences have the expected effects on policy. Brown lobbying has a negative effect on the policy indicator, even when accounting for endogeneity in its effects in a dynamic panel specification and using different policy indicators.Reducing income inequality,the ratification of the Kyoto protocol and stronger green parties all positively affect the approval of more ambitious policies but with less robust results.
    Keywords: Renewable energy policy,Energy market liberalisation,Political economy.
    JEL: Q42 Q48 D72 O38
    Date: 2013–07
  3. By: László Á. Kóczy (Óbuda University); Balázs Sziklai (Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: Few elections attract so much attention as the Papal Conclave that elects the religious leader of over a billion Catholics worldwide. The Conclave is an interesting case of qualied majority voting with many participants and no formal voting blocks. Each cardinal is a well-known public figure with publicly available personal data and well-known positions on public matters. This provides excellent grounds for a study of spatial voting: In this brief note we study voting in the Papal Conclave after the resignation of Benedict XVI. We describe the method of the election and based on a simple estimation of certain factors that seem to influence the electors' preferences we calculate the power of each cardinal in the conclave as the Shapley-Shubik index of the corresponding voting game over a convex geometry.
    Keywords: Papal Conclave, game over convex geometry, Shapley-Shubik index JEL Codes: C71, C72
    Date: 2013–05
  4. By: Eric Langlais (EconomiX, UMR CNRS 7235 and University of Paris Ouest-Nanterre-La Défense); Marie Obidzinski (CRESE, Université de Franche-Comté)
    Abstract: This paper revisits the issue of law enforcement and the design of monetary sanctions when the public law enforcer's incentives depart from those of a benevolent authority, which is the most frequent assumption made in the literature on crime deterrence. We first consider the case an elected enforcer. We find that when the harm generated by offenses is quite small relative to the average private benefits, equilibrium with weak enforcement/low sanction prevails. Instead, when the harm generated by offenses is high relative to the average private benefits, it is the equilibrium with strong enforcement/high sanctions that prevails. Therefore, we provide an explanation for the empirical puzzle highlighted by Lin(2007): elected enforcers punish major (minor) crimes more (less) severely than the benevolent social planer. The case of an appointed enforcer prone to rent seeking is also considered. The monetary sanction under rent seeking is closer to the utilitarian level, as compared with the one under election.
    Keywords: law enforcement, deterrence, monetary sanctions, punishment, electoral competition, democracy, rent seeking, dictature.
    JEL: D72 D73 H1 K14 K23 K4
    Date: 2013–09
  5. By: Watson II, Derrill D.
    Abstract: The food price crisis revealed contradictions in creating food policy. Much of the common policy response can be explained by a benevolent, unitary government. To understand the variance between countries, however, requires understanding fractured governm
    Keywords: political economy, food price crisis, public choice, case study
    Date: 2013
  6. By: Wilfred J. Ethier (Department of Economics, University of Pennsylvania)
    Abstract: The dominant academic literature about trade agreements maintains that they are only about national terms-of-trade manipulation and not at all about purely political concerns. Non-academic economists, commentators, and diplomats by contrast think that trade agreements are all about political concerns. There are two substantive and important distinctions between the two views. i Practitioners maintain that policymakers care virtually not at all about the terms of trade or about trade-tax revenue ii Practitioners, unlike academics, maintain that trade-agreement negotiations themselves change the underlying political economy. Observation of actual trade policy measures, though not conclusive, suggests that the practitioners are right and that the academics are wrong.
    Keywords: Multilateralism, Standard Academic Model, Practitioners’ Conventional Wisdom, terms of trade, political economy
    JEL: F10 F13
    Date: 2013–05–27
  7. By: Eijffinger, S.C.W.; Mahieu, R.J.; Raes, L.B.D. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: This paper analyzes the voting records of four central banks (Sweden, Hungary, Poland and the Czech Republic) with spatial models of voting. We infer the policy preferences of the monetary policy committee members and use these to analyze the evolution in preferences over time and the differences in preferences between member types and the position of the Governor in different monetary policy committees.
    Keywords: Ideal points;Voting records;Central Banking;NBP;CNB;MNB;Riksbank.
    JEL: E58 E59 C11
    Date: 2013
  8. By: Azam, Jean-Paul; Thelen, Véronique
    Abstract: This paper reviews some findings by Azam and Thelen (2008, 2010, 2012) that illustrate how foreign aid is used by rich countries to purchase the services of recipient governments with a view to protect or promote their economic and political interests. In particular, these findings show that foreign aid is effective at controlling the number of transnational terrorist attacks coming from the recipient countries, while it is not so regarding the number of attacks in the host countries. In contrast, they show that military intervention, as captured by the presence of US soldiers on the ground is counter-productive, as it increases the number of terrorist attacks both by source country and by host country.
    Date: 2013–08–25
  9. By: Schroyen, Fred (Dept. of Economics, Norwegian School of Economics and Business Administration); Treich, Nicolas (Toulouse School of Economics)
    Abstract: Two wealth effects typically arise in any contest: i) wealth decreases the marginal cost of effort, but also ii) decreases the marginal benefit of winning the contest. In this paper, we introduce three types of strategic contest models depending on whether the first, second, or both wealth effects play a role: namely, a privilege contest, an ability contest, and a rent-seeking contest. Our theoretical analysis reveals that the effects of wealth and wealth inequality are strongly “contestdependent” and are complex in the sense that they depend on the decisiveness of the contest and on the higher-order derivatives of the utility functions of wealth. Our analysis thus does not support general claims that the rich should lobby more or that low economic growth and wealth inequality should lead to additional conflicts.
    Keywords: Conflict; contest; rent-seeking; wealth; risk aversion; lobbying; power; redistribution.
    JEL: C72 D72 D74 D81
    Date: 2013–07–09
  10. By: Luigi Guiso (EIEF and CEPR); Helios Herrera (HEC Montréal); Massimo Morelli (Columbia University)
    Abstract: If voters of different countries adhere to different and deeply rooted cultural norms, when these countries interact their leaders may find it impossible to agree on efficient policies especially in hard times. Political leaders' actions are bound by a "conformity constraint" that requires them to express policies that do not violate these norms. This inhibits politicians from adopting the optimal policies as they may clash with either one or the other of the cultures of the interacting countries. We model this mechanism and argue that conformity constraints and cultural clash can help us understand the poor management of the Greek crisis and the resulting European Sovereign debt crisis. We show the conditions under which the introduction in Europe of a fiscal union can be obtained with consensus and be beneficial.Perhaps counter-intuitively, cultural diversity makes a fiscal union even more desirable.
    Date: 2013
  11. By: Biais, Bruno; Landier, Augustin
    Abstract: The rents agents can extract from principals increase with the magnitude of incentive problems, which the literature usually takes as given. We endogenize it, by allowing agents to choose technologies that are more or less opaque and correspondingly prone to agency problems. In our overlapping generations model, agents compete with their predecessors. We study whether the presence of old- timers earning low rents can keep young managersrent-seeking in check. With dynamic contracts, long horizons help principals incentivize agents. Hence, old agents are imperfect substitutes for young ones. This mutes down competition between generations, especially if compensation deferral is strong. As a result, young managers can opt for more opaque and complex technologies, and therefore larger rents, than their predecessors. Thus, in equilibrium, complexity and rents rise over time.
    Keywords: Agency rents, moral hazard, …nance sector, dynamic contracts, opacity.
    JEL: D3 D8 G2
    Date: 2013–05
  12. By: Facundo Piguillem (EIEF); Alessandro Riboni (Ecole Polytechnique)
    Abstract: This paper studies politicians who have a present-bias for spending; they want to increase current spending and procrastinate spending cuts. We argue that legislators' bias is more severe in economies with low institutional quality. We show that disagreement in legislatures leads to policy persistence and that this attenuates the temptation to overspend. Depending on the environment, legislators' decisions to be fiscally responsible may either complement or substitute other legislator's decisions. In economies with weak institutions, politicians' actions are strategic complements. Thus, institutional changes that induce fiscal responsibility are desirable, they generate a positive responsibility multiplier and reduce inefficient spending. However, in economies with better institutions, the same institutional change would induce some legislators to free ride on others' responsibility and may lead to more inefficient spending.
    Date: 2013
  13. By: Leiderer, Stefan
    Abstract: There is a growing interest in the debate on aid effectiveness for assessing the impact of aid not only on economic growth and poverty reduction, but also on intermediate outcomes such as health and education. This paper reviews evidence from recent in-de
    Keywords: aid effectiveness, health, education, coordination, political economy
    Date: 2013
    Abstract: In this paper we develop a theoretical model of the mechanisms behind the voluntary provision of public knowledge goods in coalitions in presence of social preferences. The model builds on the large empirical literature on voluntary production of pooled public knowledge goods, such as source code in communities of software developers or data voluntarily provided to open access data repositories. This literature shows that the provision of public goods is strongly dependent on the presence of social preferences such as group identity and social approval of individual pro-social attitudes. To integrate these effects in standard public good theory this paper builds a private-collective model of public good provision, where contribution to public knowledge goods generates both public and exclusive private benefits for the members of the coalition only. The analysis shows that, when the private benefit is important, the effect of the social preferences on the coalition formation is ambiguous. In particular, in the latter case, in presence of strong individual reputational effects, the public knowledge goods will be more difficult to produce. The comparison of the predictions of the theoretical model with the stylized facts of large scale surveys of Free/Libre/Open-Source (FLOSS) software developers confirms the results of the model.
    Keywords: coalition formation, private-collective model, social group identity, pro-social reputation, public knowledge goods, social dilemma
    JEL: H42 D71
    Date: 2013–09–03

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