nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒07‒21
nineteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Policy experimentation, political competition, and heterogeneous beliefs By Antony Millner; Hélène Ollivier; Leo Simon
  2. Incumbency Advantage at Municipal Elections in Italy: A Quasi-Experimental Approach By Marco Alberto De Benedetto
  3. The 2014 EP Elections: A Victory for European Democracy? A Report on the LEQS Annual Event 2014 By Eri Bertsou
  4. Incumbency Effects in a Comparative Perspective: Evidence from Brazilian Mayoral Elections By Leandro De Magalhães
  6. A dynamic mapping of the political settlement in Ghana By Franklin Oduro; Mohammed Awal; Maxwell Agyei Ashon
  7. From Rebellion to Electoral Violence. Evidence from Burundi By Andrea Colombo; Olivia D'Aoust; Olivier Sterck
  8. Experimentation in Democratic Mechanisms By Volker Britz; Hans Gersbach
  9. Solving the Inverse Power Problem in Two-Tier Voting Settings By Matthias Weber
  10. Rethinking spatial inequalities in development: the primacy of politics and power relations By Abdul-Gafaru Abdulai
  11. Democracy: a Conflict Extinguisher or a Fuel for Terror? By Konstantin Yanovsky; Sergey Zhavoronkov; Ilia Zaycovetsky
  12. Multi-Stage Voting and Sequential Elimination with Productive Players By Matis Nunez; Gabriel Desranges; Mathieu Martin
  13. Central bank independence and political pressure in the Greenspan era By Veurink, Jan Hessel; Kuper, Gerard H.
  14. Highway to Hitler By Nico Voigtländer; Hans-Joachim Voth
  15. The Democratic Window of Opportunity: Evidence from Riots in sub-Saharan Africa By Toke S. Aidt; Gabriel Leon
  16. Political and Economic Determinants of Free Trade Agreements in the Presence of Foreign Lobbying By Gu, ZhenHua
  17. Building state capacity for inclusive development. The politics of public sector reform. By Badru Bukenya; Pablo Yanguas
  18. Turnout and fractionalization. By Ignacio Lago; Sandra Bermúdez; Marc Guinjoan; Pablo Simón
  19. Boycott or Buycott?: Internal Politics and Consumer Choices By Xavier Cuadras-Morató; Josep Maria Raya

  1. By: Antony Millner (London School of Economics and Political Science - LSE); Hélène Ollivier (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Leo Simon (University of California - Berkeley - Department of Agricultural and Resource Economics)
    Abstract: We consider a two period model in which an incumbent political party chooses the level of a current policy variable unilaterally, but faces competition from a political opponent in the future. Both parties care about voters' payoffs, but they have different beliefs about how policy choices will map into future economic outcomes. We show that when the incumbent party can endogenously influence whether learning occurs through its policy choices (policy experimentation), future political competition gives it a new incentive to distort its policies - it manipulates them so as to reduce uncertainty and disagreement in the future, thus avoiding the costs of competitive elections with an opponent very different from itself. The model thus demonstrates that all incumbents can find it optimal to 'over experiment', relative to a counterfactual in which they are sure to be in power in both periods. We thus identify an incentive for strategic policy manipulation that does not depend on self-serving behavior by political parties, but rather stems from their differing beliefs about the consequences of their actions.
    Keywords: Beliefs; Learning; Political Economy
    Date: 2014–05
  2. By: Marco Alberto De Benedetto (Department of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: We analyze the incumbency effect on a candidate’s electoral prospects using a large data set on Italian municipal elections held from 1993 to 2011. We apply a non-parametric Sharp Regression Discontinuity Design that compares candidates who barely win an election to those who barely lose, exploiting the fact that incumbency status changes discontinuously at the threshold of margin of victory of zero. We find that incumbents are more likely to win the competition compared to their challengers at the Italian municipal elections. The results are robust to different specifications and estimation strategies with excellent balance in observable characteristics. Also, the effect of interest seems to be larger in magnitude for municipalities located in the North of Italy compared to southern municipalities.
    Keywords: Incumbency Status; Political Participation; Sharp RDD.
    JEL: D72 D78 J45
    Date: 2014–07
  3. By: Eri Bertsou
    Abstract: In the run up to the 2014 European Parliament elections, the new Spitzenkandidaten process and European-wide party campaigns fuelled expectations of strengthening democratic processes in Europe. At the same time, the anticipated surge of support for anti-establishment and Eurosceptic parties caused concerns among political scientists. This paper summarises and critically reviews the contributions presented at the LEQS Annual Event “The 2014 EP Elections: A Victory for European Democracy?” held on the 2nd of June 2014, a week after the final European elections results were announced. The panel discussed the implications of election results for democracy in the European Union and its Member States. The panelists were Dr Sara Hagemann, Dr Mareike Kleine and Professor Iain Begg from the LSE’s European Institute and the event was chaired by Professor Maurice Fraser.
    Keywords: European Parliament Elections, Turnout and Participation, Democratic Deficit, European Extreme Right, President of the Commission
    Date: 2014–07
  4. By: Leandro De Magalhães
    Abstract: High rerunning rates among incumbents and among the two major parties, allow studies of US incumbency advantage to bypass the selection problem of who chooses to rerun. In countries where rerunning is not widespread among individuals or parties, estimation using methods developed for the US may result in a sample selection bias. In countries with party switching, there may be a disconnect between party and individual estimates. This paper proposes a definition of incumbency advantage that is valid for countries that present any of these characteristics and that is valid for cross-country comparison: the effect of incumbency for an individual politician on the unconditional probability of winning. I illustrate the issues raised in this paper with evidence from Brazilian Mayoral elections.
    Keywords: Incumbency Advantage, Political Careers, Regression Discontinuity Design, Mayors, Brazil.
    JEL: D70 D72 J00
    Date: 2014–06
  5. By: Monica Martinez-Bravo (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: The extension of mass education not only affects the level of education of the labor force, but also raises the average education of local politicians. This paper investigates the impact of a large program of school construction in Indonesia on local governance and public good provision. By using a panel dataset of 10,000 villages and exploiting the staggered timing of local elections, I isolate the effects driven by changes in local governance. The results suggest that the school construction program led to important increases in the provision of public goods. Furthermore, the results are heterogeneous across villages: public goods experienced stronger increases in villages where there was a particular demand for that type of public good. I provide evidence that the results are driven by the increase in the level of education of the village head, which suggests that the level of human capital of local politicians is a key ingredient of public good provision in developing countries.
    Keywords: Political leaders, education, local elections.
    JEL: D72 H75 O12 P16
    Date: 2014–07
  6. By: Franklin Oduro; Mohammed Awal; Maxwell Agyei Ashon
    Abstract: Ghana displays a number of features of democratic institutionalization and is considered a success story of democratic transformation in Africa. This paper examines the quality of Ghana's political transformation and the nature of its institutions. It seeks to identify the driving power relations and 'ideas' which are shaping Ghana's political and economic development. Following Levy (2012), this involves first framing Ghana as a particular type of competitive clientelist political settlement. The paper also brings agency to the fore by identifying the key actors and members of the ruling coalition that reproduce the political settlement. The final section presents some hypotheses concerning the direct influence of the political settlement on development in Ghana now and in the future. It concludes that in the short- to medium-term Ghana's democratic politics and development will continue to be informed and shaped by a competitive clientelist electoral politics. In the medium- to long-term, however, with the increasingly competitive nature of elections and the continuous expansion of the public space, the character of the political settlement in Ghana will create the incentive structure for the ruling coalition to adopt sustainable policies and strategies towards inclusive development.
    Date: 2014
  7. By: Andrea Colombo; Olivia D'Aoust; Olivier Sterck
    Abstract: We aim at understanding the triggers of electoral violence, which spoiled 80% ofelections in Africa during the last decades. We focus on Burundi, a country wherepolls were organized in 2010, only few months after the end of a long-lasting civilwar. We find that an acute polarization between ex-rebels’ groups is highly conduciveto electoral violence. In particular, we predict a five-fold increase in electoralviolence between the lowest- and highest-polarized municipality. However, neitherethnic nor political cleavages significantly determine such electoral malpractices.These results are robust to numerous specifications. We therefore argue that policiessupporting the transition of ex-rebel groups from warfare to the political arenashould be reinforced.
    Keywords: civil war; electoral violence; polarization; demobilization; burundi
    JEL: D74 O11 O17 O55
    Date: 2014–07
  8. By: Volker Britz (ETH Zurich, Switzerland); Hans Gersbach (ETH Zurich, Switzerland)
    Abstract: We examine whether and how democratic procedures can achieve socially desirable public good provision in the presence of deep uncertainty about the benefits of the public good, i.e., when citizens are able to identify the distribution of benefits only if they aggregate their private information. Some members of the society, however, are harmed by socially desirable policies and try to manipulate information aggregation by misrepresenting their private information. We show that information can be aggregated and the socially desirable policy implemented under a new class of democratic mechanisms involving an experimentation group. Those mechanisms reflect the principles of liberal democracy, are prior{free, and involve a differential tax treatment of experimentation group members which motivates them to reveal their private information truthfully. Conversely, we show that standard democratic mechanisms with an arbitrary number of voting rounds but no experimentation do not generally lead to the socially desirable policy. Finally, we demonstrate how experimentation can be designed in such a way that differential tax treatments occur only off the equilibrium path.
    Keywords: Democratic Mechanisms; Experimentation; Public Goods; Voting; Information Aggregation
    JEL: D62 D72 H40
    Date: 2014–07
  9. By: Matthias Weber (CREED, University of Amsterdam)
    Abstract: There are many situations in which different groups make collective decisions by committee voting, where each group is represented by a single person. Theoretical concepts suggest how the voting systems in such committees should be designed, but these abstract rules can usually not be implemented perfectly. To find voting systems that approximate these rules the so called inverse power problem needs to be solved. I introduce a new method to address this problem in two-tier voting settings using the coefficient of variation. This method can easily be applied to a wide variety of settings and rules. After deriving the new method, I illustrate why it is to be preferred over more traditional methods.
    Keywords: inverse power problem, indirect voting power, two-tier voting, Penrose’s Square Root Rule
    JEL: D71 D72
    Date: 2014–02–10
  10. By: Abdul-Gafaru Abdulai
    Abstract: This paper offers a political explanation to the problem of spatial inequality in developing countries, paying particular attention to the implications of patronage politics and inter-elite power relations for the spatial distribution of public goods. After showing that existing explanations of spatial inequality are at best partial, the paper argues that prospects for overcoming spatial inequalities in the clientelist-driven political environments of developing countries depend substantially on the ways in which elites from lagging regions are incorporated into ruling coalitions, and how such forms of incorporation shape their influence over resource allocation decisions and policy agenda more broadly. The paper also departs from much of the existing literature on spatial inequality by emphasising the need to understand 'powerlessness' on the part of lagging regions as stemming not necessarily from their political exclusion from political decision making structures, but also from their incorporation into such structures on terms that potentially underpin their poverty. Based on this argument, the paper proposes a new framework for exploring the deeper and more structural underpinnings of spatial inequality in developing countries.
    Date: 2014
  11. By: Konstantin Yanovsky (Gaidar Institute for Economic Policy); Sergey Zhavoronkov (Gaidar Institute for Economic Policy); Ilia Zaycovetsky (Samuel Neaman Institute for Advanced Studies in Science and Technology)
    Abstract: Today’s exaggerated, deferent focus on democracy (the ability of voters by means of elections to change the government, to cause power rotation) has led to some overvaluations of the institutions associated with this type of government and their ability to cure society of all ills. Thus, some people recommend resolving acute violent conflicts (civil wars) by holding free elections. The present article studies two instances when attempts were made to entrench free elections in the absence of institutions formed in advance to protect persons and property. We have shown that in situations of violent conflict free elections may improve the position of the violence perpetrators – the roving bandits – at the cost of worsening the predicament of the population whom the bandits control. The instances considered lead to the question of the possibility in principle of constructing an effective democratic mechanism in the absence of minimal guarantees provided in advance to protect the lives and property of the voters.
    Keywords: Democracy, violent conflict, bandit competition, basic individual rights
    JEL: D74 D78
    Date: 2014
  12. By: Matis Nunez; Gabriel Desranges; Mathieu Martin (CNRS- Université de Cergy-Pontoise, THEMA; Université de Cergy-Pontoise, THEMA; Université de Cergy-Pontoise, THEMA)
    Abstract: This paper analyzes a sequential voting mechanism that eliminates at each round one candidate, until only one of them is left (the winner). The candidates are the voters and they only differ across their skill level. The payoff allocated to the winner depends on the sequence of elimination of the players’ skills, the rest of the players receiving a payoff of zero. We fully characterize the equilibria of the game with two skills. The winnermust be a high-skilled player if there is an initial majority of strong types. On the contrary, a high-skilled player might win with an initial majority of weak players independently of the size of the majority. For an arbitrary number of types, if some type of candidates form a strict majority at the first stage, the winner belongs either to the majoritarian type or to a more skilled one.
    Keywords: strategic voting, backward induction, dynamic voting.
    JEL: C7 D7
    Date: 2014
  13. By: Veurink, Jan Hessel; Kuper, Gerard H. (Groningen University)
    Abstract: This paper investigates whether political pressure from incumbent presidents influences the Fed?s monetary policy during the period that Alan Greenspan was the chairman of the United States Federal Reserve Board. A modified Taylor rule with time-varying coefficients will be used to test wellknown political-economic theories of Nordhaus (1975) and Hibbs (1987). The findings suggest that the Fed under Greenspan did not create election driven monetary cycles, but was less inflation avers with a Democratic president.
    Date: 2014
  14. By: Nico Voigtländer; Hans-Joachim Voth
    Abstract: Can infrastructure investment win "hearts and minds"? We analyze a famous case in the early stages of dictatorship – the building of the motorway network in Nazi Germany. The Autobahn was one of the most important projects of the Hitler government. It was intended to reduce unemployment, and was widely used for propaganda purposes. We examine its role in increasing support for the NS regime by analyzing new data on motorway construction and the 1934 plebiscite, which gave Hitler greater powers as head of state. Our results suggest that road building was highly effective, reducing opposition to the nascent Nazi regime.
    Keywords: political economy, infrastructure spending, establishment of dictatorships, pork-barrel politics, Nazi regime
    JEL: H54 P16 N44 N94
    Date: 2014–05
  15. By: Toke S. Aidt; Gabriel Leon
    Abstract: We show that drought-induced changes in the intensity of riots lead to moves towards democracy in sub-Saharan Africa, and that these changes are often a result of concessions made as a result of the riots. This provides evidence that low-intensity conflict can have a substantial short-run impact on democratic change, and supports the window of opportunity hypothesis: droughts lead to an increase in the threat of conflict, and incumbents often respond by making democratic concessions.
    Keywords: Riots, drought, transitions, democracy, autocracy.
    JEL: D7 P16
    Date: 2014–06–26
  16. By: Gu, ZhenHua
    Abstract: Will a free trade agreements (FTAs) between nations be politically viable?Under political lobby what incentives determine whether FTAs will be signed or not? Will FTAs include steadily more countries until we reach worldwide free trade? The paper addresses these questions using a theoretical analysis model of free trade agreement under imperfect competition, with Grossman and Helpman’s “protection for sale” model as the foundation. The validity of theoretical results is tested by econometric analysis with a panel probit model. The data spans 25 key trade nations and covers the period of 2007, 2010 and 2013. It is shown that: the FTA will be endorsed if and only if the aggregate welfare under FTA, combing lobby contributions with social welfare of both pair nations, is higher than the counterpart without FTA. Otherwise, the agreement is rejected. The possibility of concluding a FTA by a pair of nations has significant positive correlation with both of their market sizes and the number of countries with which they have both previously concluded FTAs; the possibility has significant negative correlation with the distance between pair nations; If both of the pair nations’ market sizes are enough large, the possibility has positive correlation with government’s sensitivity to social welfare; Otherwise, the correlation is negative. Although FTAs are characterized by the regionalism, they will contribute to multilateral free trade in the long run.
    Keywords: new political economics, free trade agreements, international trade pattern
    JEL: D72 F02 F13
    Date: 2014–07–13
  17. By: Badru Bukenya; Pablo Yanguas
    Abstract: A capable state is essential for inclusive development, and throughout the developing world governments and international development agencies are seeking to build it through a multifaceted agenda of Public Sector Reform (PSR). This paper presents an analytical review of the PSR agenda, emphasizing the political contestation inherent to the development of state capacity, and argues for a more nuanced and politically-informed research agenda. We begin by examining the various definitions of state capacity that are commonly employed by researchers, and settle on bureaucratic capacity as the transversal precondition for policy implementation. State capacity so understood has two components, effectiveness and accountability, and two domains, internal and external. Their intersection generates four broad dimensions of reform: organizational rationality, administrative restraint, social embeddedness and political autonomy; and each dimension in turn is likely to exhibit a different pattern of political contestation due to the parallel incentives for patrimonialism, corruption, oligarchy, and capture. We use this analytical framework to categorise and examine the major components of the PSR agenda, assessing their rates of success or failure according to the available evidence: we find that the relative failure of the PSR agenda so far is due to its reliance on flawed assumptions about the administrative politics of state capacity. We then evaluate whether new models that try to bypass central bureaucracies are likely to encounter greater success; specifically, we review the Africa Governance Initiative, the Open Government Partnership, and the 'hybrid models' approach of the Africa Power and Politics Programme, and argue that all of them will be forced to confront the same politics of state capacity in the end. We close the paper by outlining a set of tentative guidelines for future research at ESID and elsewhere, suggesting a greater focus on the role of elites, informal institutions, the legislature as a non-state component of state capacity, the distinction between transversal and sectoral approaches, and finally the modalities and objectives of external assistance.
    Date: 2013
  18. By: Ignacio Lago; Sandra Bermúdez; Marc Guinjoan; Pablo Simón
    Abstract: The literature has largely shown that social fragmentation is negatively correlated with the quality of government. Surprisingly, fragmentation has been omitted in most influential cross-sectional studies of turnout, and when it has been included evidence is, at best, mixed. Using aggregated data from 22 countries and individual data from Canada and Spain, this article examines the impact of social heterogeneity on turnout. The results show that turnout is inversely related to ethnolinguistic fractionalization, even after controlling for institutional, political and socioeconomic determinants. However, social fragmentation only affects the behavior of those individuals who lack a strong internal motivation to vote.
    Keywords: Fractionalization, Turnout, Heterogeneity, Civic Duty, Social Capital.
    JEL: Y80 Z18
    Date: 2014–07
  19. By: Xavier Cuadras-Morató; Josep Maria Raya
    Abstract: Do political tensions affect economic relations? In particular, does politics significantly affect consumer choices? Firms are often threatened by consumer boycotts that pretend to modify their business strategies and behavior. Sometimes these are caused by general political conflicts. The main objective of the paper is to study the consequences of political conflicts between Spain and Catalonia (a region of Spain) and the subsequent boycott calls on sales of Catalan sparkling wine (cava) in the aggregated Spanish market and also in different regions of the country. We use data from sales of sparkling wine in supermarkets and similar outlets. To determine with precision the boycott period we use data on the number of news about the issue that appeared in the main national Spanish daily newspapers. Although we present some preliminary evidence that the boycott calls affected the market share of Catalan cava in Spain, the results of our main econometric exercise indicate that, once we control for the time trends of the different varieties of sparkling wine, the boycott effects cease to be significant in the aggregate Spanish market. This does not necessarily mean that the boycott calls did not have any significant impact, because we actually find that the effects are very different in each regional market. As a matter of fact, our results indicate that the insignificant impact of the boycott calls at the Spanish aggregate level is a consequence of the combination of a negative impact of the boycott on sales of Catalan cava in some regions and the opposite effect in the Catalan market.
    Keywords: consumer boycott, wine sales, political economy
    JEL: E40 D74 F14 J64
    Date: 2014–07

This nep-pol issue is ©2014 by Eugene Beaulieu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.