nep-pol New Economics Papers
on Positive Political Economics
Issue of 2015‒01‒03
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Student politics: A Game-theoretic exploration By Soumyanetra Munshi
  2. Revealing Malfeasance: How Local Media Facilitates Electoral Sanctioning of Mayors in Mexico By Horacio A. Larreguy; John Marshall; James M. Snyder, Jr.
  3. How Democracy could foster Economic Growth: The Last 200 Years By Carol S. Leonard; Daniel Shestakov; Konstantin Yanovskiy
  4. Does Regression Discontinuity Design Work? Evidence from Random Election Outcomes By Janne Tukiainen; Tuukka Saarimaa; Ari Hyytinen; Jaakko Meriläinen; Otto Toivanen
  5. The Power of the Street: Evidence from Egypt's Arab Spring By Acemoglu, Daron; Hassan, Tarek; Tahoun, Ahmed
  6. Storable Votes and Judicial Nominations in the U.S. Senate By Casella, Alessandra; Turban, Sébastien; Wawro, Gregory
  7. Rethinking the politics of development in Africa? How the 'political settlement' shapes resource allocation in Ghana By Abdul-Gafaru Abdulai; Sam Hickey
  8. Aid, political business cycles and growth in Africa By Chiripanhura, Blessing M.; Nino-Zarazua, Miguel
  9. Weapons of Choice By Dreher, Axel; Kreibaum, Merle
  10. Prediction Markets, Twitter and Bigotgate By Leighton Vaughan Williams; James Reade
  11. Voting on Infrastructure Investment: The Role of Product Market Competition By Arghya Ghosh; Kieron Meagher
  12. The Euro Area Crisis: Politics over Economics By Orphanides, Athanasios
  13. Complementarity in Institutional Quality in Bilateral FDI Flows By Chang Pao-Li
  14. Does Oil Promote or Prevent Coups? By Frode Martin Nordvik
  15. The political economy of inclusive healthcare in Cambodia Guarantee Scheme in India By Tim Kelsall; Heng Seiha
  16. State dissolution, sovereign debt and default:Lessons from the UK and Ireland, 1920-1938 By Nathan Foley-Fisher; Eoin McLaughlin

  1. By: Soumyanetra Munshi (Indira Gandhi Institute of Development Research)
    Abstract: Students in institutes of higher education often engage in campus-politics. Typically there are student-parties who electorally compete with each other to gain control of the union which is usually the apex student body dealing directly with the higher authorities on student-related and other academic issues. Often however, campus politics act as fertile breeding grounds for future politicians of the country. As a result there is often direct intervention by larger political parties into student affairs. In fact, the student parties on campus are essentially student wings of larger national parties, which command huge amounts of resources that are used during elections, often instigating conflict and violence on-campus. This paper game-theoretically models the interplay of such `extra-electoral' investments and electoral outcomes in an otherwise standard probabilistic voting model. We find that the political party who is likely to be more popular is also more likely to expend greater resources towards `extra-electoral' elements, in turn spawning greater violence on-campus, even when such investments are disliked by student-voters. We also look at some plausible extensions of the benchmark model where this basic conclusion still holds true. The essential flavor and predictions of the model are borne out by several historical and contemporary instances of student politics in some countries like India, Burma, and Latin America.
    Keywords: Student politics, Partisanships and conflict, Electoral competition in colleges, National parties and student politics
    JEL: D72 D74 I23 J52
    Date: 2014–11
  2. By: Horacio A. Larreguy; John Marshall; James M. Snyder, Jr.
    Abstract: We estimate the effect of local media outlets on political accountability in Mexico, focusing on malfeasance by municipal mayors. We study federal grants earmarked for infrastructure projects targeting the poor, and leverage two sources of plausibly exogenous variation. First, we exploit variation in the timing of the release of municipal audit reports. Second, and moving beyond existing studies, we exploit variation in media exposure at the electoral precinct level. In particular, we compare neighboring precincts on the boundaries of media stations’ coverage areas to isolate the effects of an additional media station. We find that voters punish the party of malfeasant mayors, but only in electoral precincts covered by local media stations (which emit from within the precinct’s municipality). An additional local radio or television station reduces the vote share of an incumbent political party revealed to be corrupt by 1 percentage point, and reduces the vote share of an incumbent political party revealed to have diverted funds to projects not benefiting the poor by around 2 percentage points. We also show that these electoral sanctions persist: at the next election, the vote share of the current incumbent’s party continues to be reduced by a similar magnitude. The electoral costs of diverting resources away from the poor are especially large for the populist Institutional Revolutionary Party (PRI) party. However, we find no effect of media stations based in other municipalities.
    JEL: D72 D78 H41 H76 O17
    Date: 2014–11
  3. By: Carol S. Leonard; Daniel Shestakov (RANEPA); Konstantin Yanovskiy (Gaidar Institute for Economic Policy)
    Abstract: In this paper we explore current understandings of the influence of political rights, among historical legacies, on economic development. We construct variables for selected political regimes for 1811-2010. We find significant association between individual rights and economic growth. We argue that current understanding of political regimes supportive of growth (Acemoglu, etc), should parse the concept of property rights to include the protection of the individual in their focus on private property rights protection, alone, respected in various forms of government, are insufficient; what matters is the security of individuals from arbitrary arrest, regardless of “type of regime”. Discretionary rights of rulers or democratic governments to arrest citizens undermines the protection of private property rights and other attributes classically given to democratic foundations of economic growth, for example, free press, freedom of the exercise of religious belief. We suggest, as a research agenda, that the power of the politically competitive system therefore comes from weakening discretionary authority over law enforcement
    Keywords: Rule of Law, Rule of Force, Personal Rights, Private Property Protection, Economic Growth
    JEL: P16 P50 N40 O40
    Date: 2014
  4. By: Janne Tukiainen; Tuukka Saarimaa; Ari Hyytinen; Jaakko Meriläinen; Otto Toivanen
    Abstract: We use data for 198121 candidates and 1351 random election outcomes to estimate the effect of incumbency status on future electoral success. We find no evidence of incumbency advantage using data on randomized elections. In contrast, regression discontinuity design, using optimal bandwidths, produces a positive and significant incumbency effect. Using even narrower bandwidths aligns the results with those obtained using the randomized elections. So does the bias-correction of Calonico et al. (forthcoming). Standard validity tests are not useful in detecting the problems with the optimal bandwidths. The appropriate bandwidth seems narrower in larger elections and is thus context specific.
    Keywords: Elections, experiment, incumbency advantage, regression discontinuity design
    JEL: D72 C52 C21
    Date: 2014–11–20
  5. By: Acemoglu, Daron; Hassan, Tarek; Tahoun, Ahmed
    Abstract: During Egypt's Arab Spring, unprecedented popular mobilization and protests brought down Hosni Mubarak's government and ushered in an era of competition between three groups: elites associated with Mubarak's National Democratic Party (NDP), the military, and the Islamist Muslim Brotherhood. Street protests continued to play an important role during this power struggle. We show that these protests are associated with differential stock market returns for firms connected to the three groups. Using daily variation in the number of protesters, we document that more intense protests in Tahrir Square are associated with lower stock market valuations for firms connected to the group currently in power relative to non-connected firms, but have no impact on the relative valuations of firms connected to other powerful groups. We further show that activity on social media may have played an important role in mobilizing protesters, but had no direct effect on relative valuations. According to our preferred interpretation, these events provide evidence that, under weak institutions, popular mobilization and protests have a role in restricting the ability of connected firms to capture excess rents.
    Keywords: corruption; de facto political power; institutions; mobilization; protests; rents; value of connections
    JEL: E02 G12 G3 O11 O43 O53
    Date: 2014–11
  6. By: Casella, Alessandra; Turban, Sébastien; Wawro, Gregory
    Abstract: We model a procedural reform aimed at restoring a proper role for the minority in the confirmation process of judicial nominations in the U.S. Senate. We propose that nominations to the same level court be collected in periodic lists and voted upon individually with Storable Votes, allowing each senator to allocate freely a fixed number of total votes. Although each nomination is decided by simple majority, storable votes make it possible for the minority to win occasionally, but only when the relative importance its members assign to a nomination is higher than the relative importance assigned by the majority. Numerical simulations, motivated by a game theoretic model, show that under plausible assumptions a minority of 45 senators would be able to block between 20 and 35 percent of nominees. For most parameter values, the possibility of minority victories increases aggregate welfare.
    Keywords: filibuster; judiciary; senate; storable votes; voting
    JEL: D72 H11 K4
    Date: 2014–09
  7. By: Abdul-Gafaru Abdulai; Sam Hickey
    Abstract: Debates over whether democratic or neopatrimonial forms of politics are driving the politics of development in Africa have increasingly given way to more nuanced readings which seek to capture the dynamic interplay of these forms of politics. However, most current analyses fail to identify the specific causal mechanisms through which this politics shapes the actual distribution of resources. A political settlements approach which emphasises the distribution of 'holding power' within ruling coalitions and how this shapes institutional functioning can bring greater clarity to these debates. Our analysis shows that patterns of resource allocation within Ghana's education sector during 1993-2008 were closely shaped by the incentives and norms generated by Ghana's competitive 'clientelistic political settlement', which overrode rhetorical concerns with national unity and inclusive development. This had particularly negative implications for the poorest Northern regions, which have lacked holding power within successive ruling coalitions.
    Date: 2014
  8. By: Chiripanhura, Blessing M.; Nino-Zarazua, Miguel
    Abstract: This paper develops a model of opportunistic behaviour in which an incumbent government resort to expansionary fiscal and/or monetary stimuli to foster economic growth and thus, maximize the probability of re-election. Using a panel dataset of 51 African
    Keywords: aid, growth, institutional quality, political business cycles, Africa
    Date: 2014
  9. By: Dreher, Axel; Kreibaum, Merle
    Abstract: We investigate the effect of natural resources on whether ethno-political groups choose to pursue their goals with peaceful as compared to violent means, distinguishing terrorism from insurgencies. We hypothesize that organizations are more likely to resort to terrorism rather than rebellion in richer countries where population mobilization is more difficult. We use data from the Minorities at Risk Organizational Behavior (MAROB) project, covering 118 organizations in 13 countries of the Middle East and North Africa over the 1980-2004 period. Our multinomial logit models combine group- and country-specific information and show that ethno-political groups are more likely to resort to rebellion rather than using peaceful means or becoming terrorists when representing regions rich in oil. Groups that participate in exerting power over their region are less likely to turn to large-scale violence.
    Keywords: oil; rebellion; resource curse; terrorism
    JEL: F51 Q34
    Date: 2014–07
  10. By: Leighton Vaughan Williams (Nottingham Trent University); James Reade (Department of Economics, University of Reading)
    Abstract: We consider the impact of breaking news on market prices by looking at activity on the micro-blogging platform Twitter surrounding the #bigotgate scandal during the 2010 UK General Election, and subsequent movements of betting prices on a prominent betting exchange, Betfair. We find that the response of market prices appears sluggish, as over a thousand tweets are sent before any price movement is registered (despite trading taking place). However, this slow movement appears to be explained by the need for corroborating evidence via more traditional forms of media; once important Tweeters begin to Tweet, once hyperlinks are added to Tweets, and once television and radio news bulletins begin, prices begin to move.
    Keywords: information and market ffciency, gambling, political elections
    JEL: G14 L83 D72
    Date: 2014–11–25
  11. By: Arghya Ghosh; Kieron Meagher
    Abstract: In spatial competition, public infrastructure plays a crucial role in determining product market outcomes. In our model, consideration of infrastructure’s impact on the product market drives the voting behavior of consumers in their dual role as voter/taxpayers. The spatial heterogeneity of consumers produces conflicting political interests and in many cases inefficient outcomes. However across both exogenous and endogenous market environments product market competition consistently leads to higher levels of publicly funded infrastructure than monopoly/collusion. Furthermore, competition’s boost to the popular support for infrastructure investment is often excessive while monopoly leads to underinvestment.
    JEL: D43 L13 H40 H54
    Date: 2014–08
  12. By: Orphanides, Athanasios
    Abstract: This paper explores the dominant role of politics in decisions made by euro area governments during the crisis. Decisions that appear to have been driven by local political considerations to the detriment of the euro area as a whole are discussed. The domination of politics over economics has led to crisis mismanagement. The underlying cause of tension is identified as a misalignment of political incentives. Member state governments tend to defend their own interests in a noncooperative manner. This has magnified the costs of the crisis and has resulted in an unbalanced and divisive incidence of the costs across the euro area. The example of Cyprus is discussed, where political decisions resulted in a transfer of about half of 2013 GDP from the island to cover losses elsewhere. In the absence of a federal government, no institution can adequately defend the interests of the euro area as a whole. European institutions appear weak and incapable of defending European principles and the proper functioning of the euro. Political reform is needed to sustain the euro but this is unlikely to pass the political feasibility test with the current governments of Europe.
    Keywords: currency union; Cyprus; Deauville; euro; European integration; sovereign debt
    JEL: D72 E32 E65 F34 G01 H12 H63
    Date: 2014–06
  13. By: Chang Pao-Li (Singapore Management University)
    Abstract: This paper develops a theory on the complementarity in institutional qualities between the home and host countries in bilateral FDI. Firms `born' in countries with poorer institutions tend to invest more in informal institutions to mitigate political risk. The marginal advantage of higher informal institution endowment is bigger when the political risk at the FDI destination is higher. Thus, all else being equal, the ranking of the MNE's home institutions predicts the ranking of the institutional qualities of their FDI destinations. I find robust empirical evidence for this theoretical prediction using bilateral FDI for 219 economies during year 2001-2010.
    Keywords: Foreign Direct Investment; Informal Institution; Political Risk; Gravity Equation; Tobit
    JEL: C21 C23 C24 F21 F23
    Date: 2014–10
  14. By: Frode Martin Nordvik
    Abstract: A large literature investigates the relation between oil and conflict, yet no empirical study has found any link between oil and coups d’´etat. Using a new data set on oil production separated into onshore and offshore production, and covering 172 countries from 1900 to 2012, onshore oil is seen to promote coup while o?- shore oil prevents them. A likely mechanism is that onshore oil motivates military build-ups, while o?shore oil does not. From a political leader’s point of view, a large military is a double-edged sword, because it may turn against him and stage a coup.
    Keywords: political economy, natural resoruces, coups d'état, military spending
    JEL: Q34 Q41 D74 H56 O17
    Date: 2014–10
  15. By: Tim Kelsall; Heng Seiha
    Abstract: Over the past 15 years, Cambodia has made significant strides in expanding effective access to free healthcare for poor people, thanks largely to 'Health Equity Funds' (HEFs), a multi-stakeholder health-financing mechanism. HEF operators have helped expand access, incentivise health staff, and lobby on behalf of poor patients. However, despite their successes, they have been unable convincingly to address some of the deeper-seated problems of the Cambodian health system, such as under-resourced facilities, underpaid, poorly qualified staff, and a burgeoning private sector. This paper explains this state of affairs as a product of Cambodia's 'political settlement', in which relatively successful multi-stakeholder initiatives exist as 'islands of effectiveness' in a sea of rent-seeking and patronage. While such islands may currently be the best solution available for poor people, the deeper problems are unlikely to be solved without a shift in the political settlement itself.
    Date: 2014
  16. By: Nathan Foley-Fisher (Federal Reserve Board); Eoin McLaughlin (University of Edinburgh)
    Abstract: We study IrelandÕs inheritance of debt following its secession from the United Kingdom at the beginning of the twentieth century. Exploiting structural differences in bonds guaranteed by the UK and Irish governments, we can identify perceived uncertainty about fiscal responsibility in the aftermath of the sovereign breakup. We document that IrelandÕs default on intergovernmental payments was an important event. Although payments from the Irish government ceased, the UK government instructed its Treasury to continue making interest and principal repayments. As a result, the risk premium on the bonds the UK government had guaranteed fell to about zero. Our findings are consistent with persistent ambiguity about fiscal responsibility far-beyond sovereign breakup. We discuss the political and economic forces behind the Irish and UK governmentsÕ decisions, and suggest lessons for modern-day states that are eyeing dissolution.
    Keywords: State dissolution, sovereign default, Irish land bonds, Dublin Stock Exchange
    JEL: N23 N24 G15
    Date: 2014–08

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