nep-pol New Economics Papers
on Positive Political Economics
Issue of 2013‒12‒15
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Optimal Ballot Structure for Double-Member Districts By Martin Gregor
  2. Petro Rents, Political Institutions, and Hidden Wealth: Evidence from Bank Deposits in Tax Havens By Jørgen Juel Andersen; Niels Johannesen; David Dreyer Lassen; Elena Paltseva
  3. The Strategic Sincerity of Approval Voting By Matias Nunez
  4. Estimating Habit Formation in Voting By Thomas Fujiwara; Kyle C. Meng; Tom Vogl
  5. The impact of political uncertainty on institutional ownership By Francis, Bill B.; Hasan, Iftekhar; Zhu, Yun
  6. Electoral cycles in international reserves: Evidence from Latin America and the OECD By Jorge M. Streb; Daniel Lema; Pablo Garofalo
  7. The chicken or the egg: An experimental study of democracy survival, income, and inequality By Dmitry Ryvkin; Anastasia Semykina
  8. Distance rationalizability of scoring rules By Can B.
  9. The Political Legacies of Combat: Attitudes towards war and peace amongst Israeli ex-combatants By Guy Grossman; Devorah Manekin; Dan Miodownik
  10. Ethnic Concentration and Extreme Right-Wing Voting Behavior in West Germany By Verena Dill
  11. Washington Meets Wall Street: A Closer Examination of the Presidential Cylce Puzzle By Roman Kraussl; Andre Lucas; David R. Rijsbergen; Pieter Jelle van der Sluis; Evert B. Vrugt
  12. Political Connections, Bank Deposits, and Formal Deposit Insurance: Evidence from an Emerging Economy By Emmanuelle Nys; Amine Tarazi; Irwan Trinugroho
  13. Dominance Solvable Approval Voting Games By Sebastien Courtin; Matias Nunez
  14. Who Owns the Media? By Simeon Djankov; Caralee McLiesh; Tatiana Nenova; Andrei Shleifer
  15. Crackdown on Corruption: A Natural Experiment in Safe and Swing Districts By Bledi Celiku
  16. Lobbying, Corruption, and Regulatory Constraints: An Analysis of Eastern European Business Associations By Kiselev, Eugene

  1. By: Martin Gregor
    Abstract: The Anglo-American double-member districts employing plurality-at-large are frequently criticized for giving a large majority premium to a winning party. In this paper, we demonstrate that the premium stems from a limited degree of voters' discrimination associated with only two positive votes on the ballot. To enhance voters' ability to discriminate, we consider rules that give voters more positive and negative votes. We identify voting equilibria of alternative scoring rules in a situation where candidates differ in binary ideology and binary quality; strategic voters are of two ideology types; and a candidate's ideology is more salient than quality. The most generous rules such as approval voting and combined approvaldisapproval voting only replicate the outcomes of plurality-at-large. The highest minority representation and the highest quality is achieved by a rule that assigns two positive votes and one negative vote to each voter.
    Keywords: electoral rules; strategic voting; negative votes; plurality-at-large;
    JEL: D72
    Date: 2013–10
  2. By: Jørgen Juel Andersen; Niels Johannesen; David Dreyer Lassen; Elena Paltseva
    Abstract: Do political institutions limit rent-seeking by politicians? To address this question, we study the transformation of petroleum rents into hidden wealth using unique data on bank deposits in tax havens. We find that petroleum rents are associated with increases in hidden wealth, but only when political institutions are very weak. We also discern an interesting interaction with political risk: events such as elections and domestic conflict are preceded by increases in hidden wealth when political institutions are weak, which is consistent with a view of autocratic rulers as forward-looking rent-seekers whose behavior is constrained by political checks and balances.
    Date: 2013–08
  3. By: Matias Nunez (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)
    Abstract: We show that Approval voting need not trigger sincere behavior in equilibrium of Poisson voting games and hence might lead a strategic voter to skip a candidate preferred to his worst preferred approved candidate. We identify two main rationales for these violations of sincerity. First, if a candidate has no votes, a voter might skip him. Notwithstanding, we provide sufficient conditions on the voters' preference intensities to remove this sort of insincerity. On the contrary, if the candidate gets a positive share of the votes, a voter might skip him solely on the basis of his ordinal preferences. This second type of insincerity is a consequence of the correlation of the candidates' scores. The incentives for sincerity of rank scoring rules are also discussed.
    Keywords: Sincerity Approval voting Poisson games
    Date: 2013–09
  4. By: Thomas Fujiwara; Kyle C. Meng; Tom Vogl
    Abstract: We estimate habit formation in voting—the effect of past on current turnout—by exploiting transitory voting cost shocks. Using county-level data on U.S. presidential elections from 1952-2012, we find that precipitation on current and past election days reduces voter turnout. Our estimates imply that a 1-point decrease in past turnout lowers current turnout by 0.7-0.9 points. Consistent with a dynamic extension of the Downsian framework, current precipitation has stronger effects following previous rainy elections. Further analyses suggest that this habit formation operates by reinforcing the intrinsic satisfaction associated with voting.
    JEL: D72 P16
    Date: 2013–12
  5. By: Francis, Bill B. (Lally School of Management, Rensselaer Polytechnic Institute); Hasan, Iftekhar (Fordham University and Bank of Finland); Zhu, Yun (Lally School of Management, Rensselaer Polytechnic Institute)
    Abstract: This paper provides original evidence from institutional investors that political uncertainty during presidential elections greatly affects investment. Using U.S. institutional ownership data from 1981 to 2010, we find that institutions significantly reduce their holdings of common stock by 0.76 to 2.1 percentage points during election years. More specifically, institutions tend to sell large proportions of their positions when Republicans win presidential elections and then keep their positions at below-average levels through the first year of the new administration. Conversely, when Democrats win presidential elections, institutions tend to keep their positions at above-average levels for the first year of the new administration. The difference in ownership rises to 2.4% by the end of the first year of new administration. Changes in institutional ownership in election years are sensitive to the uncertainty of the outcome. Our results also show that institutions benefit from these holding strategies during the pre-election periods.
    Keywords: political uncertainty; presidential election; institutional investor; investment
    JEL: G23 G28 P16
    Date: 2013–11–21
  6. By: Jorge M. Streb; Daniel Lema; Pablo Garofalo
    Abstract: In Latin America there is ample evidence of exchange rate depreciations after elections. Hence, we turn to the behavior of international reserves over the 1980–2005 period to investigate if exchange rates are temporarily stabilized before elections. Using annual, quarterly, and monthly data to define the election year, we find that international reserves fall significantly before elections, which indeed suggests a policy of stabilizing exchange rates. The patterns observed in the region are not replicated in OECD countries. However, once we control for legislative checks and balances on executive discretion in countries with strong compliance with the law, the behavior of both regions becomes remarkably similar. We find that lower effective checks and balances can explain why reserves fall before elections in Latin America. The electoral cycles in reserves and exchange rates in Latin America can be interpreted in terms of the fiscal dominance of monetary policy.
    Keywords: monetary policy, checks and balances, fiscal dominance, political budget cycles, temporal aggregation
    JEL: D72 D78 H60
    Date: 2013–10
  7. By: Dmitry Ryvkin (Department of Economics, Florida State University); Anastasia Semykina (Department of Economics, Florida State University)
    Abstract: Many empirical studies have found a positive association between economic development and democracy survival across countries; however, establishing a causal link between the two with naturally occurring data is problematic. We address this question in a laboratory experiment with democracy defined in a narrow sense as the ability of citizens to invest freely in profitable projects and vote on redistributive income taxation. The level of economic development is measured as the efficiency of investment. In the alternative regime -- autocracy -- the dictator decides on the investment levels and taxation for the whole group. Citizens can voluntarily switch from democracy to autocracy by a majority vote. Using a 2x2 between-subject design, we explore how the likelihood of such switches, referred to as democracy breakdown, varies with economic efficiency and inequality in initial endowments. We find, consistent with theoretical predictions, that democracy breakdown is more likely the lower the efficiency, and increases with the degree of inequality.
    Keywords: democracy breakdown, economic efficiency, inequality, voting, experiment
    JEL: D72 P48 C92
    Date: 2013–12
  8. By: Can B. (GSBE)
    Abstract: Collective decision making problems can be seen as finding an outcome that is closest to a concept of consensus. 1 introduced Closeness to Unanimity Procedure as a first example to this approach and showed that the Borda rule is the closest to unanimity under swap distance a.k.a the 2 distance. 3 shows that the Dodgson rule is the closest to Condorcet under swap distance. 4, 5 generalized this concept as distance-rationalizability, where being close is measured via various distance functions and with many concepts of consensus, e.g., unanimity, Condorcet etc. In this paper, we show that all non-degenerate scoring rules can be distance-rationalized as Closeness to Unanimity procedures under a class of weighted distance functions introduced in 6. Therefore, the results herein generalizes 1 and builds a connection between scoring rules and a generalization of the Kemeny distance, i.e. weighted distances.
    Keywords: Computational Techniques; Simulation Modeling; Social Choice; Clubs; Committees; Associations; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior; Conflict; Conflict Resolution; Alliances;
    JEL: C63 D71 D72 D74
    Date: 2013
  9. By: Guy Grossman (University of Pennsylvania); Devorah Manekin (Hebrew University of Jerusalem); Dan Miodownik (Hebrew University of Jerusalem)
    Abstract: Does combat experience foster hardliner approaches to conflict, diminishing the likelihood of reconciliation? We exploit the assignment of health rankings determining combat eligibility in the Israel Defense Forces (IDF) to examine the effect of combat exposure on support for peaceful resolution of conflict. Given the centrality of the Israeli-Palestinian conflict to global affairs, and with no resolution to the conflict currently in sight, the question of the political consequences of combat becomes all the more pressing. We find that exposure to combat hardens attitudes towards the rival and reduces support for negotiation and compromise. Importantly, these attitudes translate directly into voting behavior, such that combatants are more likely to vote for hardliner parties. These findings cast doubt on research highlighting the benign effects of combat and underscore the importance of combatant reintegration for the transition from conflict to peace.
    Date: 2013–12
  10. By: Verena Dill
    Abstract: Using data from the German Socio-Economic Panel (SOEP) and administrative data from 1996 to 2009, I investigate the question whether or not right-wing extremism of German residents is affected by the ethnic concentration of foreigners living in the same residential area. My results show a positive but insignificant relationship between ethnic concentration at county level and the probability of extreme right-wing voting behavior for West Germany. However, due to potential endogeneity issues, I additionally instrument the share of foreigners in a county with the share of foreigners in each federal state (following an approach of Dustmann/Preston 2001). I find evidence for the interethnic contact theory, predicting a negative relationship between foreigners’ share and right-wing voting. Moreover, I analyze the moderating role of education and the influence of cultural traits on this relationship.
    Keywords: Ethnic concentration, extreme right-wing voting, group threat, interethnic contact
    JEL: D72 R23 J15
    Date: 2013
  11. By: Roman Kraussl; Andre Lucas; David R. Rijsbergen; Pieter Jelle van der Sluis; Evert B. Vrugt (LSF)
    Abstract: We show that the annual excess return of the S&P 500 is almost 10 percent higher during the last two years of the presidential cycle than during the first two years. This pattern cannot be explained by business-cycle variables capturing timevarying risk premia, differences in risk levels, or by consumer and investor sentiment. We formally test the presidential election cycle (PEC) hypothesis as the alternative explanation found in the literature for explaining the presidential cycle anomaly. The PEC states that incumbent parties and presidents have an incentive to manipulate the economy (via budget expansions and taxes) to remain in power. We formulate eight empirically-testable propositions relating to the fiscal, monetary, tax, unexpected inflation and political implications of the PEC hypothesis. We do not find statistically significant evidence confirming the PEC hypothesis as a plausible explanation for the presidential cycle effect. The presidential cycle effect in U.S. financial markets thus remains a puzzle that cannot be easily explained by politicians employing their economic influence to remain in power, as is often believed.
    Keywords: political economy, market efficiency, anomalies, calendar effects
    JEL: E32 G14 P16
    Date: 2013
  12. By: Emmanuelle Nys (LAPE - Laboratoire d'Analyse et de Prospective Economique - Université de Limoges : EA1088 - Institut Sciences de l'Homme et de la Société); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - Université de Limoges : EA1088 - Institut Sciences de l'Homme et de la Société); Irwan Trinugroho (LAPE - Laboratoire d'Analyse et de Prospective Economique - Université de Limoges : EA1088 - Institut Sciences de l'Homme et de la Société)
    Abstract: This paper investigates the impact of banks' political connections on their ability to collect deposits under two different deposit insurance regimes (blanket guarantee and limited guarantee). We estimate a simultaneous equations model of supply and demand for funds using quarterly data for Indonesian banks from 2002 to 2008. We find that, regardless of their type (state-owned or private entities), politically connected banks are able to attract deposits more easily than their non-connected counterparts. We also show that this effect is more pronounced after the implementation of formal deposit insurance with limited coverage. Our findings have various policy implications. Formal deposit insurance might have improved market discipline, as highlighted by earlier studies, but it has also exacerbated the issue of political connections in the banking sector.
    Date: 2013
  13. By: Sebastien Courtin (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise); Matias Nunez (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)
    Abstract: This work provides necessary and sufficient conditions for the dominance solvability of approval voting games. Our conditions are very simple since they are based on the approval relation, a binary relation between the alternatives. We distinguish between two sorts of dominance solvability and prove that the most stringent one leads to the election of the set of Condorcet Winners whereas this need not be the case for the weak version.
    Date: 2013–12–06
  14. By: Simeon Djankov; Caralee McLiesh; Tatiana Nenova; Andrei Shleifer
    Abstract: We examine the patterns of media ownership in 97 countries around the world. We find that almost universally the largest media firms are owned by the government or by private families. Government ownership is more pervasive in broadcasting than in the printed media. We then examine two theories of government ownership of the media: the public interest (Pigouvian) theory, according to which government ownership cures market failures, and the public choice theory, according to which government ownership undermines political and economic freedom. The data support the second theory.
  15. By: Bledi Celiku
    Abstract: I investigate the theoretical and empirical effects of increased law enforcement on the equilibrium level of bribes for the case of Albania during the period of 2005-2010. My paper centers on "harassment" bribes, which consist of payments for public services that by law should be free. I model bribery behavior as a negotiation process between public oofficials and consumers. As enforcement increases, corruption prevalence can, in theory, increase or decrease. Recent policy changes in Albania oer a good natural experiment to test this empirically. Two events took place in 2007: local elections and an increase in fines against corruption. I examine how the 2007 fine increase for corrupt behavior impacts bribery. Data show that corruption is a bigger problem for poor people and since the left's political platform is more pro-poor, looking at the left-right governed district variation seems appropriate. Using a difference in difference methodology that compares safe left and right-governed districts, I find that a 10 percent increase in enforcement leads to a 4.38 percent drop in bribery frequency. As enforcement increases, quality of services does not improve and enforcement measures are less effective on the medical and education sectors.
    JEL: D73 K42 O12 P20
    Date: 2013–12–05
  16. By: Kiselev, Eugene
    Abstract: This paper examines lobbying and corruption as alternative ways of dealing with regulatory obstacles. I propose a model where firms facing a costly regulation can bribe a rule-enforcing bureaucrat to get around it, lobby the government to reduce its impact, or do both. I then use a firm-level dataset of Eastern European enterprises to examine whether firms use membership in a lobby group as a substitute for the bribe payments they make to rule-enforcing bureaucrats. The results indicate that firms who join lobby groups do not stop paying bribes to bureaucrats, and firms more impacted by corruption are no more likely to join a lobby group than their counterparts. On the other hand joining a lobby group increases the likelihood of a firm bribing legislators and other rule makers, suggesting that lobbying introduces the possibility of state capture by allowing firms access to policy makers that they wouldn't otherwise have.
    Keywords: Lobbying, Corruption, Regulations
    JEL: D72 D73 L51
    Date: 2013–07

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